Table of contents
Overview and strategy
Chairman’s statement
At a glance
Chief Executive’s statement
Our business model
Our long-term, responsible approach
Our thematic approach
Strategic objectives and
Key performance indicators
Business review
Private Equity
Infrastructure
Scandlines
Sustainability
A responsible approach
1. Invest responsibly
2. Recruit and develop a diverse
pool of talent
3. Act as a good corporate citizen
Our TCFD disclosures
Performance and risk
Financial review
Reconciliation of Investment
basis and IFRS
Alternative Performance Measures
Risk management
Principal risks and mitigations
Directors’ duties under Section 172
2
4
6
12
14
16
18
21
36
41
43
44
52
57
60
68
74
77
78
84
92
Governance
Chairman’s introduction
Board of Directors
Executive Committee
The role of the Board
Corporate governance statement
What the Board did in FY2023
How the Board operates
Engaging with stakeholders
Engaging with shareholders
Skills and experience
Nominations Committee report
Audit and Compliance
Committee report
Audit and Assurance policy
Resilience statement
Valuations Committee report
Directors’ remuneration report
Directors' remuneration policy
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
163
Company statement of financial position 164
Company statement of changes in equity 165
Company cash flow statement
166
95
96
98
100
101
102
103
104
106
108
109
114
119
123
126
131
145
153
160
161
162
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
167
171
208
227
229
230
232
For definitions of our financial terms used throughout this report, please see our Glossary on pages 232 to 234.
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 1 to 93 , the Directors’ report on pages 94 to 130 and 153 to 158, and the Directors’ remuneration report on pages 131 to 152
have been drawn up and presented in accordance with and in reliance upon UK 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” or “the Group”). 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.
We generate attractive returns
for our shareholders and co-investors
by investing in private equity and
infrastructure assets.
As proprietary capital investors
we have a long-term, responsible
approach.
We aim to compound value through
thoughtful origination, disciplined
investment and active management
of our assets, driving sustainable
growth in our investee companies.
AND REGULAR UPDATES
» FOR MORE INFORMATION
www.3i.com
3i Group plc | Annual report and accounts 2023
1
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Chairman’s statement
Driving sustainable growth
in our portfolio companies
We delivered a very strong
return in FY2023, as we continue
to benefit from our clear strategy,
consistent execution and
investment discipline.
While we are not immune
from the impacts of the current
macroeconomic uncertainty,
the Group’s financial strength
and quality portfolio put us in
a good position to continue to
deliver attractive returns through
the economic cycle.
Performance highlights
1,745p
NAV per share
(31 March 2022: 1,321p)
36%
Total return on equity
(2022: 44%)
53.0p
Dividend per share
(2022: 46.5p)
David Hutchison
Chairman
3i Group plc | Annual report and accounts 2023
2
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Chairman’s statement continued
3i delivered a very strong result in FY2023,
despite significant macroeconomic headwinds,
as we continue to benefit from our clear strategy,
consistent execution and investment discipline.
Performance
I am pleased to report that 3i delivered a very strong set of results
in the financial year to 31 March 2023 (“FY2023”), with a total return
of £4,585 million (2022: £4,014 million). Net asset value (“NAV”)
increased to 1,745 pence per share (31 March 2022: 1,321 pence) and
our total return on opening shareholders’ funds was 36% (2022: 44%).
This result was driven predominantly by the strong performance of
Action, our largest investment, as well as by good contributions from
the majority of our remaining portfolio.
Market environment
FY2023 was dominated by the geopolitical and macroeconomic
consequences of Russia’s invasion of Ukraine and the gradual global
recovery from the pandemic. Governments and central banks have
had to deal with the consequences of high inflation and increasing
energy prices, which resulted in significant increases in interest rates
globally. The defensive characteristics of many of our portfolio
companies have enabled them to continue to mitigate many of
these macroeconomic headwinds, and in some cases make value
accretive acquisitions. A small pocket of our portfolio exposed to
discretionary consumer spending did, however, see significant
underperformance in the year.
Investment activity across the buyout market slowed in 2022 and we
continued to deploy capital selectively in businesses that operate in
sectors that we know well and are supported by long-term growth
trends. The Group invested £397 million in the year in new
acquisitions and further investments in our existing businesses.
Dividend
Our dividend policy is to maintain or grow the dividend year-on-
year, subject to the strength of our balance sheet and the outlook
for investment and realisations. In FY2023, we generated significant
cash inflow of over £1.3 billion from our portfolio companies, whilst
remaining cautious and disciplined in our investment activity and
supporting portfolio companies, where necessary. Following the
repayment of the £200 million fixed-rate 2023 bond in March 2023,
we reduced our fixed debt to £775 million, which contributed to a
reduction in gearing to 2% at 31 March 2023 (31 March 2022: 6%).
In line with the Group’s policy and in recognition of the Group’s
financial performance, the Board recommends a second FY2023
dividend of 29.75 pence (2022: 27.25 pence), subject to shareholder
approval, which will take the total dividend to 53.0 pence (2022:
46.5 pence).
Board and people
As announced in November 2021, Julia Wilson, formerly Group
Finance Director, retired from the Board on 30 June 2022 after the
2022 AGM. James Hatchley joined the Board as Group Finance
Director Designate on 12 May 2022 and became Group Finance
Director upon Julia’s retirement. Jasi Halai joined the Board as
Chief Operating Officer on 12 May 2022. Both James and Jasi have
settled very well into their respective roles.
After nine years’ service as a non-executive Director, Caroline
Banszky will not be standing for re-election at the 2023 AGM and
accordingly will retire from the Board at the end of that Meeting.
I would like to thank her for her outstanding contribution to the
Board’s deliberations.
Environmental, Social, and Governance (“ESG”)
I am pleased with the progress we have made across all areas of our
ESG agenda and I am encouraged by the level of engagement
across our portfolio of investments. Led by the Chief Executive’s ESG
Committee, the focus has been principally on improving our ability
to identify and manage climate risk across the portfolio and take
advantage of any transition opportunities that may arise. We have
embedded dedicated resource in our investment teams, to engage
with the portfolio and explore opportunities to improve the
sustainability of our investments. We also continue to prepare the
Group to comply with ESG regulatory reporting requirements.
Outlook
We start FY2024 with a portfolio of assets that we have carefully
constructed around sectors and themes supported by long-term
growth trends, with a clear strategy of delivering sustainable returns
through underlying organic growth and effective implementation
of value accretive buy-and-build acquisitions. Whilst the Group
and portfolio are not immune to a further sustained period of
macroeconomic and geopolitical uncertainty, we are confident that
our financial strength and quality portfolio will provide the Group
with the flexibility to navigate these and continue to deliver attractive
returns through all stages of the economic cycle.
David Hutchison
Chairman
10 May 2023
Alternative Performance Measure (“APM”)
3i prepares its statutory financial statements in accordance with UK-adopted international accounting standards. However, we also report a non-GAAP “Investment basis” which
we believe aids users of our report to assess the Group’s underlying operating performance.
The Investment basis is an APM and is described on page 73. Total return, which is defined as Total comprehensive income for the year and net assets are the same under the
Investment basis and IFRS and we provide a reconciliation of our Investment basis financial statements to the IFRS statements from page 74.
We assess our performance using a variety of measures that are not specifically defined under IFRS and are therefore termed APMs. These include: Gross investment return (“GIR”)
as a percentage of opening value, cash realisations, cash investment, operating cash profit, net (debt)/cash and gearing. These APMs are referred to throughout the report and their
purpose, calculation and reconciliation to IFRS can be found on page 77.
3i Group plc | Annual report and accounts 2023
3
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
At a glance
3i is an investment company specialising
in Private Equity and Infrastructure. We invest
in mid-market companies headquartered in
northern Europe and North America.
3i Group
investment
portfolio value
as at 31 March 2023
£18,388m
(2022: £14,305m)
Private Equity
Infrastructure
Scandlines
£16.4bn
£1.4bn
£0.6bn
Total
assets under
management
£29.9bn
(2022: £22.9bn)
Private Equity
Infrastructure
Scandlines
£22.9bn
£6.4bn
£0.6bn
3i Group
Investment
portfolio value
as at 31 March 2023
83% of the portfolio is exposed to the value-for-money, infrastructure and healthcare sectors.
Value-for-money
and Private Label
66%
Infrastructure,
incl Scandlines
11%
Industrial
Technology
7%
Healthcare
6%
Online Retail
& Discretionary
Consumer
4%
Business & Technology
Services
4%
Travel
2%
3i Group plc | Annual report and accounts 2023
4
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
At a glance continued
Private Equity
Infrastructure
What we do
Our Private Equity business is funded principally
from our proprietary capital, with some funding from
co-investors for selected assets. Its principal focus is
to generate attractive capital returns.
89%
With 89% of our investment portfolio invested
in Private Equity, this business is the principal
driver of our returns.
Sectors
Our Private Equity business invests in companies with
an enterprise value of typically €100 million to €500 million
at acquisition in our core investment markets of northern
Europe and North America. Our teams invest in the
following sectors:
Business & Technology Services
Consumer
Healthcare
Industrial Technology
What we do
Our Infrastructure business manages assets on behalf
of third-party investors and 3i’s proprietary capital,
with the objective of generating attractive capital returns
and earning fund management fees and portfolio
income for the Group.
£107m
of the Group’s cash income was generated
by our Infrastructure business in FY2023.
Sectors
Our Infrastructure business invests across a broad range
of economic infrastructure businesses and operational
projects in Europe and North America, in sectors
adjacent to:
Communications
Healthcare
Natural resources/Energy
Social infrastructure
Transport/Logistics
Utilities
Our thematic
approach
Our Private Equity and
Infrastructure teams invest in
businesses supported by long-term
structural growth trends
+ PAGE 16
Read more about our thematic approach
+ PAGES 25-29
Read more about Private Equity
in our case studies
+ PAGE 37 AND 38
Read more about Infrastructure
in our case studies
3i Group plc | Annual report and accounts 2023
5
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Chief Executive’s statement
3i continues to deliver
very strong performance
Our portfolio has been carefully
assembled and its resilience and
consistent financial performance
in recent years reflect the benefits
of thematic investing, disciplined
pricing and active asset
management. We have started
FY2024 with good momentum and
are confident that we have the right
people, portfolio and processes to
continue to compound value from
our portfolio and deliver consistent
returns through the cycle.
Simon Borrows
Chief Executive
3i Group plc | Annual report and accounts 2023
Despite adverse global economic conditions,
3i delivered a very strong result in FY2023,
underpinned by another year of excellent growth
from Action and resilient performance across the
majority of the rest of our portfolio. In challenging
markets, we maintained our investment and pricing
discipline, deploying capital across new investments
and value accretive bolt-on acquisitions. We also
continued to generate significant cash proceeds
via realisations at healthy premiums to opening
value and strong portfolio income.
In FY2023, we continued to execute our well-established strategy,
making good progress against our key performance indicators
(“KPIs”), and generated a total return on shareholders’ funds of
£4,585 million, or 36% (2022: £4,014 million, or 44% ), ending the year
with a NAV per share of 1,745 pence (31 March 2022: 1,321 pence).
The majority of our portfolio companies have been navigating
effectively through the high inflation, elevated interest rates, supply
chain disruption, rising commodity prices and overall weaker
consumer sentiment that have characterised FY2023. Whilst Action’s
performance was the most significant contribution to the Group’s
FY2023 return, we also saw particularly good or resilient trading from
other portfolio companies operating in the value-for-money and
private label, healthcare, industrial technology, business technology
and services and infrastructure sectors. We are not, however, immune
to the prevailing macroeconomic headwinds, and we saw softer
trading in a small number of our portfolio companies. We therefore
recognised a meaningful unrealised value loss in two of our
companies with discretionary consumer end markets, to reflect
weaker trading and the derating of valuation peers.
Private Equity transaction activity across the market slowed
considerably in 2022 compared to 2021, as debt markets became
less supportive and pricing expectations remained difficult to align.
We were nevertheless able to complete four new investments
in Private Equity and two in Infrastructure, in sectors and markets
supported by long-term growth trends.
Bolt-on acquisitions across both of our portfolios remain an integral
part of our long-term value creation strategy, enabling growth in the
portfolio without taking on costly leverage. Accordingly, in FY2023,
we completed a total of 11 bolt-on acquisitions for our Private Equity
portfolio companies and three for our North American Infrastructure
portfolio.
6
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Chief Executive’s statement continued
We also generated significant realised proceeds in FY2023,
capitalising on demand for assets with a proven track record of
through-the-cycle growth and the ability to execute and integrate
bolt-on acquisitions. In total, across the Group, we generated over
£1.3 billion of cash in the year from realisations and portfolio
income.
Including the impact from foreign exchange hedging, 71% of the
Group’s net assets are denominated in euros or US dollars and we
generated a £623 million gain (2022: £9 million gain) on foreign
exchange translation as a result of sterling weakness. This includes
a £122 million gain from our new medium-term foreign exchange
hedging programme that we implemented for the Group in
October and November 2022, and the existing hedging programme
for Scandlines. For further details see page 71.
Private Equity performance
In the year to 31 March 2023, our Private Equity portfolio,
including Action, generated a Gross Investment Return (“GIR”)
of £4,966 million or 40% on opening value (2022: £4,172 million,
or 47%). Action generated a GIR of £4,344 million, or 61%, on
its opening value. The softer performance across some of our
discretionary consumer portfolio companies detracted from the
resilient performance of the remainder of the ex-Action portfolio,
with 90% of our portfolio companies by value growing earnings
in the last 12 months (“LTM”) to the end of 31 December 2022.
In addition, our Private Equity portfolio is prudently funded,
with a long-dated maturity profile and the interest rate risk
substantially hedged.
Action
Action, the fastest growing non-food discounter in Europe and our
largest portfolio company, delivered another year of very impressive
performance. For its financial year ending 1 January 2023, Action
generated net sales of €8,859 million, 30% ahead of 2021, and
like-for-like (“LFL”) sales growth of 18.1% driven by higher footfall
and a higher number of transactions. The removal of the remaining
limited Covid-19 restrictions in the first quarter of 2022 also
contributed to this performance. Sales grew across all of Action’s
14 product categories, with particularly good sales of daily essential
products.
In the 12 months to 1 January 2023, Action delivered operating
EBITDA of €1,205 million, 46% ahead of 2021 and an all-time high
EBITDA margin of 13.6%. Action’s buying power, flexibility in its
category assortment and ability to absorb some of the inflationary
pressure enabled it to manage both cost and pricing effectively,
whilst maintaining and, in many instances, increasing its pricing
advantage compared to its competitors.
Action’s simple, efficient and scalable operating model allows the
business to expand seamlessly across existing and new geographies.
The business added 280 new stores in 2022, setting another store
opening record. Stores across all countries are performing well
with some of the more recent markets, such as Poland and the
Czech Republic, showing particularly strong growth. Action has also
moved out of the pilot phase in Italy and Spain given these markets
exceeded initial expectations and Action is now fully committed
to a full scale expansion in these two sizable new countries.
On 2 March 2023, Action opened its first store in Slovakia,
its 11th country. At the end of Action’s P3 2023 (which ended on
2 April 2023), Action had 2,297 stores across 11 countries, with
considerable white space to roll out in both existing and
new geographies.
3i Group plc | Annual report and accounts 2023
Action largely mitigated external supply chain challenges in 2022.
It did so by leveraging its heavy investment in network capacity
and through improved planning capabilities and collaboration with
logistics partners. This resulted in increased product availability in
stores to meet high customer demand. In addition, Action continues
to develop its mix of suppliers, with an increasing share of directly
sourced products and further geographical diversification.
In 2022, the business also continued to enhance its supply chain
infrastructure, opening a new hub in Le Havre and ramped up
capacity in the distribution centres (“DCs”) in Verrières, Bieruń and
Bratislava. Action plans to open two new DCs in 2023, which will
increase its existing DC network capacity of c.2,700 stores by another
c.400 stores.
Action’s Sustainability Programme is a fundamental pillar of its
strategy and growth trajectory, and the business has made significant
progress in its delivery. In 2022, Action completed a circularity
assessment of all 14 product categories looking at design and use,
which has enabled the business to define circular improvements in
the buying process going forward. The business also increased its use
of sustainably sourced cotton to 90% and sustainably sourced timber
to 92% and reduced its Scope 1 and 2 CO2 emissions by 40% from
a 2021 baseline, which is an important step towards achieving its
pledge to reduce the emissions from its own operations by 60%
by 2030, from a baseline year of 2021.
Action continues to generate very strong cash flow, with cash
conversion of 78% in 2022, as a result of its one-year cash payback
for new stores and low capital intensity. The business paid an interim
dividend to shareholders in December 2022, of which 3i received
£159 million, and a second dividend in March 2023 of which 3i
received £166 million. After paying the dividends, Action had a cash
balance of €365 million as at 2 April 2023 and a net debt to run-rate
earnings ratio of 1.8x.
In March 2023, we completed a transaction to provide liquidity
for existing external investors in Action, who are invested via our
3i 2020 Co-investment Programme (“Programme”). As part of
this transaction, we purchased a small additional stake in Action,
investing £30 million through the Programme based on the
December 2022 net asset value, increasing our equity stake from
52.7% to 52.9%. At the same time, we crystallised a portion of the
carried interest liability relating to Action, which is expected to result
in a payment by 3i of c.£200 million in carried interest to the
participants in the relevant carry plans in May 2023.
The valuation of our 52.9% stake in Action at 31 March 2023 of
£11,188 million (2022: £7,165 million) reflects the robust growth in
Action’s LTM run-rate EBITDA to €1,439 million (P3 2023), its low
leverage and its current LTM run-rate EBITDA valuation multiple
of 18.5x net of the liquidity discount. We take a long-term, through-
the-cycle view on the multiple we use to value Action and take
comfort from the fact that its continued excellent growth meant that
its valuation at 31 March 2022 translated to only 13.0x the run-rate
EBITDA achieved one year later. In addition, its most important
operating KPIs compare very favourably with those of its peer group,
which consists of North American and European value-for-money
retailers.
7
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Chief Executive’s statement continued
2022 was a record year in terms
of store openings for Action,
as the business added 280 stores
+ PAGES 22-24
Read more about Action
In the first three periods to 2 April 2023, Action performed strongly,
with LFL sales growth of 24.3% and 34 new stores added. Since
31 March 2023, we successfully allocated and signed an amendment
and extension of Action’s senior debt facilities on attractive terms. This
included upsizing and extending the final maturities of a substantial
portion of Action’s senior term debt and revolving credit facility (“RCF”).
Action’s total senior debt facilities after the closing of the transaction will
be €3,625 million including a €500 million undrawn multi-currency RCF.
Healthcare portfolio companies
Our healthcare portfolio continues to demonstrate its resilient and
secular growth characteristics, driving good performance in FY2023.
SaniSure followed up a very strong 2021 with further outperformance
in 2022, as a result of operational efficiencies and elevated demand
for its products. Whilst industry demand has moderated since the start
2023, we remain very confident of SaniSure’s fundamental growth
prospects. The business and its growth potential will continue to be
enhanced by its active buy-and-build strategy, including the recent
acquisition of Q Holding’s Twinsburg site, which has added to its
capability and diversified its client portfolio.
Cirtec Medical delivered another year of top-line growth, offsetting
short-term supply chain headwinds which have now largely been
resolved. The business continued to add high value, differentiated
capabilities and end-market diversification, with its strategic
acquisition of Precision Components from Q Holding.
We continued to support the development of ten23 health, our
pharmaceutical products contract development and manufacturing
organisation (“CDMO”), with a further investment of £36 million
in the year.
Consumer portfolio companies (excluding Action)
Our value-for-money and private label businesses continued to
perform well in FY2023, but a number of our discretionary consumer
businesses have been disproportionately impacted by weaker
consumer sentiment.
Despite significant raw material and energy price inflation in 2022,
Royal Sanders sustained its strong growth through increased
volumes with key customers and outperformance of the four bolt-
on acquisitions completed since our initial investment in 2018.
In April 2023, Royal Sanders completed the acquisition of Lenhart,
its fifth since we first invested, further strengthening its position
in the DACH region, and reinforcing its role as a key consolidator
in a highly fragmented market. A combination of effective
operational performance and positive contributions from recent
bolt-on acquisitions has supported Dutch Bakery’s good result
in 2022.
nexeye delivered good top-line growth and margin performance
in its financial year ending January 2023, driven by a comparatively
attractive price point for its customers. It added 23 stores in the year
and accelerated online appointments across its German business.
Trading at the start of 2023 has recovered, following softer trading
in Q3 2022 as consumer uncertainty impacted overall market
demand.
Over the last 12 months, we have seen a significant recovery
in bookings for Audley Travel and arrivia, two of our travel assets.
Audley Travel’s key destinations gradually reopened in 2022, leading
to a strong recovery in bookings, driven by pent-up demand and
supported by Audley’s differentiated brand proposition. arrivia
has seen good performance in its membership business, as well
as a strong pick up in cruise and travel bookings.
Following a solid first quarter of 2022, both Luqom and YDEON
experienced a significant drop in order intake across their online
platforms for the remainder of the calendar year, as a result of weaker
consumer confidence and inflationary concerns. Across this same
period, e-commerce peers of both portfolio companies de-rated
materially, reflecting the challenging external trading conditions.
These were key considerations in support of the combined
£357 million unrealised value decrease we recognised across these
two portfolio companies in FY2023. We believe the longer-term
growth fundamentals of each business remain and, through initiatives
such as Luqom’s further international expansion and YDEON’s
addition of lower cost products to its range, both businesses are
positioning themselves for recovery.
BoConcept has to an extent mitigated lower footfall and order intake
through its international diversification, franchise model and effective
margin management.
3i Group plc | Annual report and accounts 2023
8
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Chief Executive’s statement continued
Business and Technology Services portfolio companies
WilsonHCG delivered strong organic growth in 2022, and in January
2023 it completed the bolt-on acquisition of Personify, enabling it
to accelerate its growth in the life sciences and healthcare end
markets. The business is well positioned to navigate any prolonged
slowdown in the North American hiring market, whilst new customer
wins continue to diversify its customer base. MAIT traded resiliently
in the year, as the IT services market continues to demonstrate
a strong growth outlook. Following the bolt-on acquisition in
June 2022 of Nittmann & Pekoll, an Austrian ERP specialist,
the business has now completed five bolt-on acquisitions since
we first invested in 2021, all of which are integrating well.
Evernex continued its buy-and-build activity, with the strategic
acquisitions of XS International and Integra, enabling the business
to expand its footprint in the US, Nordic, and Benelux markets.
Short-term trading has been impacted by a post-pandemic
increase in new IT equipment investment, affecting the renewal
of maintenance contracts, although this was largely offset by
a number of new contract wins in the year.
Industrial Technology portfolio companies
AES performed very well financially, strategically and operationally
throughout 2022 and into the first quarter of 2023, driven by strong
demand in its global pump and rotating equipment end market.
The business has continued to invest and scale up, driving further
reliability in its offering and helping to generate new customer wins.
Having traded strongly in the first half of 2022, Tato saw trading
soften through the second half of 2022 with weaker end market
demand and supply challenges for key input chemicals resulting
in price inflation and margin pressure. Tato successfully leveraged
its scale and global footprint to maintain good customer supply,
and margin performance has improved since the turn of the year.
Following three years of significant operational and market
disruption, Formel D has made encouraging steps in its earnings
recovery. Whilst trading was soft through the first half of 2022 driven
by prolonged Covid-19 shutdowns in China and intermittent supply
chain issues as a result of Russia’s invasion of Ukraine, the second half
of 2022 and start of 2023 have been more encouraging with an
easing of supply chain issues and margin improvement from
contract renegotiations.
Private Equity investment
Unfavourable debt markets and economic uncertainty suppressed
buyout market activity in 2022 compared to a more buoyant market
in 2021. Our approach to new investment has remained consistent
and we maintain our selective and disciplined approach, leveraging
our offices and international network to identify attractive and
sensibly priced new investments and value accretive bolt-on
acquisitions for our portfolio companies.
In FY2023 we completed four new Private Equity investments
totalling £221 million. Our digitalisation, automation and big data
investment theme underpins three of these new investments:
the £94 million investment in xSuite, an accounts payable invoice
automation software provider; the £37 million investment in
dé VakantieDiscounter (“VakantieDiscounter”), a technology-
enabled online travel agency in the Benelux focused on affordable
holidays; and the £30 million investment in Digital Barriers,
a provider of unique video compression technology.
Our extensive consumer sector expertise will enable us to support
the global expansion thesis for our £60 million investment in Konges
Sløjd, which offers apparel and other products for babies and
children.
Across the Private Equity portfolio, we completed 11 bolt-on
acquisitions in the year. We supported Luqom’s acquisition of
Brumberg, a B2B lighting brand, arrivia’s acquisition of RedWeek,
an online timeshare rental marketplace, and WilsonHCG’s acquisition
of Personify, a provider of RPO to specialised end markets, with total
further investment of £63 million. Our portfolio companies also
completed eight self-funded bolt-on investments in the year,
including the acquisitions by SaniSure and Cirtec Medical of two
components of Q Holding’s medical business, as well as bolt-on
acquisitions by Dutch Bakery, MAIT, Evernex and AES.
+ PAGES 25-29
Read more about our Private Equity investment activity
Private Equity realisations
Despite challenging market conditions, we generated total capital
realisation proceeds of £857 million in the year, demonstrating the
appeal of our portfolio companies, many of which have shown
resilience at all stages of the economic cycle.
Our sale of Havea in October 2022 endorsed our long-standing
buy-and-build approach. During our five-year holding period,
the business delivered double-digit organic growth and completed
and integrated five acquisitions which, combined with a significant
strategic transformation, transitioned Havea from a family-owned
business to a European leader in consumer healthcare and wellbeing.
This disposal generated proceeds for 3i of £471 million, representing
a 50% uplift on the value of the investment at 31 March 2022,
a sterling money multiple of 3.1x and an IRR of 24%.
During the year, we received total proceeds of £332 million from
three partial disposals by Q Holding. In Q1 FY2023 we completed
the disposal of Q Holding’s QSR division receiving total proceeds
of £199 million and in Q4 FY2023 we received £133 million relating
primarily to the disposal of Q Holding’s Twinsburg site and Precision
Components business. The valuation of Q Holding at 31 March 2023
of £117 million (31 March 2022: £398 million) includes our remaining
value of Q Holding’s device assembly business Catheter
Technologies. This means that over the last two years, through
a combination of realised proceeds and residual value, we have
recognised an uplift for Q Holding of over 100% on the opening
value at 31 March 2021, which takes our money multiple, including
proceeds received to date and remaining residual value, to 2.8x.
In January 2023 we completed the sale of Christ, our last investment
in Eurofund V (“EFV”), for gross proceeds to 3i of £47 million,
representing a 45% uplift on the 31 March 2022 opening value.
When added to the proceeds generated by the sale of Amor
(another German player in the jewellery space which we considered
as part of the same investment thesis and sold in 2016 crystallising
a money multiple of 2.3x), the multiple generated by this sale is 1.0x.
Following the disposal of Christ, EFV reached a final gross money
multiple of 3.0x, a top quartile performance.
+ PAGE 30
Read more about our Private Equity realisation activity
3i Group plc | Annual report and accounts 2023
9
Overview
and strategy
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Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Chief Executive’s statement continued
Infrastructure performance
In the year to 31 March 2023, our Infrastructure portfolio generated a
GIR of £86 million or 6% on opening value (2022: £241 million, or 21%).
3i Infrastructure plc’s (“3iN”) carefully selected portfolio continues
to benefit from its exposure to identified long-term growth trends.
As a result, 3iN generated a total return on opening NAV of 14.7%,
which was materially ahead of its 8-10% return objective, and
delivered its dividend target of 11.15 pence, a 6.7% increase on last
year. In February 2023, 3iN completed a £100 million placing of new
shares at a price of 330 pence per share. The funds were used to part
pay drawings on 3iN’s RCF and partly used to fund its acquisition
of Future Biogas. 3i did not participate in this placing and its holding
in 3iN was therefore diluted from 30% to 29%. At 31 March 2023,
our 29% stake (31 March 2022: 30%) in 3iN was valued at £841 million
(31 March 2022: £934 million), as a result of a 10% year-on-year
decline in its share price to 313 pence. However, this was partially
offset by dividend income from 3iN of £29 million in the year.
We see considerable unrealised value in 3iN’s existing portfolio,
with the platform investments generating substantial bolt-on
investment opportunities, which can be funded from cash generated
by those companies, together with portfolio company debt facilities.
The additional equity raised by 3iN during the year gives further
headroom to take advantage of this growth potential.
Demand for Infrastructure assets is strong and the team has
continued to deploy capital while retaining its pricing discipline.
As 3iN’s investment manager, we oversaw 3iN’s completion of its
new investments in Global Cloud Xchange (“GCX”) and Future
Biogas in the year, as well as the purchase of an additional stake
in TCR, a portion of which was subsequently syndicated to external
investors. The team also completed the sale by 3iN of its European
projects portfolio to the 3i European Operational Projects Fund
(“3i EOPF”) for £106 million.
Following robust US domestic travel demand and continued
volume recovery from international travellers, our proprietary capital
investment in Smarte Carte delivered strong performance across
all lines of its business. Over the last 12 months, the business has
continued to differentiate its offering with further ancillary services
and also completed a refinancing at attractive terms.
Our North American Infrastructure platform delivered solid
performance in FY2023. Regional Rail closed two bolt-on
acquisitions, including three short-line railroads in the Midwest
region of the US and several short-line railroads in Canada, whilst
the existing freight rail platform delivered good volumes. EC Waste
continued to benefit from strong landfill revenues.
As a result of our fund management activities and dividends
from the portfolio we generated strong cash income of £107 million
(2022: £91 million) from our Infrastructure business in the year.
Scandlines performance
Scandlines performed well in the year, generating a GIR of 10%
(2022: 26%). The business delivered a second consecutive year
of record growth in freight volumes in 2022, whilst leisure volumes
saw good recovery driven by a strong summer peak season,
offsetting the impact of Covid-19 at the start of 2022.
Following continued good cash generation, we received total
dividends of £38 million from Scandlines in FY2023.
Progress on our sustainability agenda
We made significant progress on our sustainability agenda in FY2023.
We embedded dedicated ESG resource in our Private Equity and
Infrastructure investment teams, as well as in our central Group
function. This has accelerated the implementation of a range of
sustainability initiatives at the Group level and across the portfolio,
enhanced the quality of our engagement with portfolio companies
on ESG themes, and improved our assessment of sustainability
factors in our investment and value creation processes.
Our work on sustainability is driven by our ESG Committee, whose
principal activities in FY2023 focused on portfolio data collection
and management, climate training, and climate scenario analysis.
Importantly, on 5 April 2023 we wrote to the Science Based Targets
initiative (“SBTi”) to indicate our commitment to set near-term
science-based targets for 3i. We are now working to formulate our
targets, with the intention to submit them to SBTi for validation in
FY2024. Our science-based targets will cover our direct Scope 1 and
2 emissions, as well as our Scope 3 emissions associated with our
portfolio and will be formulated in line with the guidance published
by SBTi for the private equity sector.
Please refer to our Task Force on Climate-related Financial
Disclosures (“TCFD”) detail on pages 60 to 66 for more information
on how we assess and manage climate-related risks
and opportunities.
During the year, we continued to support our nine charity partners
which work across a variety of areas, including helping homeless
people, enabling disabled students to go to university, helping
elderly people regain some independence and battle loneliness,
and providing veterans with mental health support and helping them
back into work. We donated £1 million across these initiatives.
In addition, we donated £500,000 to the Turkey Mozaik Foundation
in support of victims of the earthquake in Turkey and Syria.
Conservative balance sheet and management
of foreign exchange movements
Our conservative balance sheet strategy is fundamental to our
proprietary capital model enabling us to invest with speed and
flexibility without the need to accelerate any realisations. We also
continue to place great weight on cost discipline and once again
covered our cash operating costs with cash income. Our activity
during the year is set out in the Financial review including the details
of the medium-term partial foreign exchange hedging programme
we put in place at a time when we had the advantage of sterling
weakness in October and November of 2022.
Active asset management
As investors in private equity and infrastructure companies, we
pursue a highly involved form of asset management. This approach
is only practical given the concentrated nature of the 3i portfolio.
We start at the outset of our purchase with an investment case which
we author in conjunction with company management with the simple
goal of growing the business to at least double its profits over a five
to six-year time-scale. As part of this plan, we define key milestones
and KPIs which we track on a monthly basis in order to ensure the
execution of the plan remains on track.
3i Group plc | Annual report and accounts 2023
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and risk
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Audited financial
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Portfolio and
other information
Chief Executive’s statement continued
Management are closely aligned to the plan outcome and to 3i
through their participation in equity and equity-linked plans as
co-owners of the business. These long-term equity plans (five years or
more) are much more meaningful than shorter-term annual variable
pay, and in successful investments will deliver significant capital sums
to the management teams. The nature of this incentive ensures real
alignment with 3i’s long-term approach to compounding capital.
Action has been welcomed in all 11 countries it now operates in
and the company has recently been voted “favourite retail brand”
in France by a large panel of consumers. France is now Action’s
largest market with some 730 stores, having opened its first store
in that market in 2012. There are very few retailers that are close
comparators to Action and very few of them can move seamlessly
into new geographic markets as Action does.
Action has considerable growth potential across mainland Europe
and elsewhere. It has opened over 2,000 stores across Europe under
3i’s ownership and has the potential to open multiples of this number
in the future. This organic expansion puts Action on track to join a
very rare group of retailers where growth extends over decades,
rather than years. Action is already a very large, well-spread and
resilient business and will become even broader and larger as it
grows its presence in new geographic markets. Action’s business
model produces high returns on equity and significant cash flows
based on high store sales densities and one-year average historical
paybacks on new store capital expenditure. So Action’s store
expansion is self-funding, allowing the group to increase its operating
leverage through size and scale and deliver significant dividends to 3i
and other shareholders as it grows.
3i invests permanent rather than time-limited fund capital. This allows
us to capture the significant compounding benefits from Action’s
growth and consistent financial performance. We are now focused
on developing a select number of other portfolio companies to fulfil
their potential to also become long-term compounders for the
Group. These other portfolio companies are likely to grow in
prominence in our results over the coming years.
Outlook
Whilst we expect macroeconomic conditions to remain challenging
in the near term, we have started FY2024 with good momentum and
are confident that we have the right people, portfolio and processes
to continue to deliver consistent returns for our shareholders through
the cycle.
I would like to close by thanking the team at 3i and the teams in our
portfolio companies for another very good performance in far from
straightforward circumstances.
Simon Borrows
Chief Executive
10 May 2023
The management team is supported in the execution of the
investment case by a board primarily made up of experienced 3i
executives or others hired by 3i who bring particular sector or
specialist skills to the situation. The board and 3i investment team
have regular monthly involvement with the company and are assisted
by other members of the local investment team, being regularly
involved at different levels throughout the organisation of the
investee company. Active and involved governance is one of
the key ingredients of our success.
3i also provides specialist legal, corporate finance, banking, ESG
and digital resource to assist investee management teams in sharing
best practice, particularly in relation to specific projects in funding
and M&A as well as their overall ESG and digital agendas.
We believe this form of active management is key to the high returns
we have achieved across both Private Equity and Infrastructure over
the last 10 years. Management are allowed to drive a long-term
rather than annual or quarterly agenda, and are encouraged to make
the necessary investments to meet or exceed ambitious long-term
growth plans. Action is a very good example of this approach.
The 3i Investment Committee and the senior partners in the Private
Equity team review in detail progress against the investment case
every March and September. It is in these reviews that the Investment
Committee challenges the investment teams on the progress against
the investment case and may agree to changes which could either
prolong 3i’s ownership by marking the asset as having potential
for our “long-term portfolio"or even shorten the life of the plan
to capitalise on current opportunities in the M&A market.
This highly-intensive approach to asset management was adopted
at 3i in 2012, and has been refined over the last decade. It has been
key to our strong investment performance since that time and
together with our long-term, permanent capital approach gives
us real competitive advantage against other forms of stewardship,
be they more hands off-private or shorter-term focused public
ownership models.
The benefits of compounding
3i’s portfolio has been carefully assembled and its resilience over
recent years is a reflection of the benefits of thematic investing,
disciplined pricing and active asset management. Sustained returns
over a number of years demonstrate the value of compounding,
and no portfolio company better illustrates this than Action, which
has become one of the fastest-growing retailers in the world, and 3i’s
largest and most resilient portfolio investment. Action has achieved
12 years of consistent, significant growth under 3i’s ownership.
The bedrock of this performance has been Action’s very low prices
and customer-centric approach. The company has performed well
through all phases of the economic cycle and its low price leadership
through this current period of very high shop price inflation has been
particularly strong with high LFL sales across all 14 product categories
and all countries.
3i Group plc | Annual report and accounts 2023
11
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Our business model
We aim to compound value by investing
in mid-market companies to create a diverse
portfolio with strong growth potential.
Sectors
Private Equity
Business & Technology Services
Consumer
Healthcare
Industrial Technology
Infrastructure
Communications
Healthcare
Natural resources/Energy
Social Infrastructure
Transport/Logistics
Utilities
Our thematic
approach
Our Private Equity
and Infrastructure teams invest
in businesses supported
by long-term structural
growth trends
Key enablers of value
Permanent
capital
We aim to compound our proprietary capital
value through conviction in our best investments
and by deploying our capital in new mid-market
companies. Our proprietary capital affords us
a long-term investment horizon.
A long-standing
office network
We have had teams on the ground across the
UK, continental Europe and the US for many
decades, which have built strong networks within
their local business communities.
An expert
and diverse
team
Our international teams are formed of local
people with great knowledge and experience
of their geography and sector. We view diversity
as a strength and a plurality of perspectives
enhances our origination, value creation and
decision making.
Careful
portfolio
construction
We approach portfolio construction with great
care, originating opportunities thematically and
investing selectively in businesses that benefit
from long-term structural growth trends.
Active asset
management
We engage with portfolio companies’
management teams to manage risks and
invest in initiatives that support long-term
sustainable growth.
Strong values
and institutional
culture
We promote a strong culture of integrity
among our employees and embed that
culture in our policies and processes.
A strong
brand and
reputation
As an investment company with a history
of over 75 years, our brand strength and
long-term approach underpin our
reputation as a responsible investor and
business.
+ PAGES 16-17
Our thematic approach
+ PAGES 14-15
Our long-term, responsible approach
3i Group plc | Annual report and accounts 2023
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Performance
and risk
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Audited financial
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Portfolio and
other information
Our business model continued
We cover our operating costs with income from our
portfolio and from fund management fees generated
by our Infrastructure business, thereby minimising
the dilution of our capital returns.
Value creation
We manage our balance sheet conservatively. We maintain
a tight grip on operating costs and cover these with fund
management fees and portfolio income.
Invest
We typically make 4 to 7
new Private Equity
investments each year, and
support the development
of our Infrastructure
business
Realise
We work with
our portfolio
companies to grow
them organically and by
acquisition to generate at
least a >2x return on
disposal
Grow
We create value
from the portfolio
through organic and
acquisition growth,
and through strong
cash generation
Who benefits
Shareholders
Our model is capable of delivering
mid-teen returns to shareholders
through the investment cycle
36%
Total return on opening
shareholders’ funds
53.0p
Dividend per share
0.5%
Operating costs as a percentage
of our FY2023 AUM
Portfolio companies
We work in close partnership with
our portfolio companies to provide
expertise and support, enabling them
to grow sustainably and to contribute
to the communities in which they
operate
Our people
Our people are our most important
resource. We foster the professional
development and wellbeing of our
employees
+ PAGES 14-15
Our long-term, responsible approach
+ PAGES 106-107
Engaging with shareholders
3i Group plc | Annual report and accounts 2023
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Sustainability
Performance
and risk
Governance
Audited financial
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Portfolio and
other information
Our long-term, responsible approach
As proprietary capital investors, we have a long-term, responsible approach.
We aim to compound value through thoughtful origination, disciplined investment
and active asset management of our portfolio, driving sustainable growth in our
investee companies. Our success is founded on the expertise and diverse perspectives
of our employees. We promote a culture of integrity across the organisation.
Responsibility and sustainability
are material levers for value creation
Our responsible approach to investment and portfolio management
is an integral part of our business model. It is based on four pillars:
1. Long-term stewardship
3. Careful portfolio construction
Thanks to our permanent capital we have a medium
to long-term investment horizon. We have majority or
significant minority stakes in our core portfolio companies
and are represented on their boards. We therefore have
the influence to drive long-term, sustainable growth in
our portfolio.
We approach investment origination and portfolio
construction with great care, with a focus on resilience
across the cycle. We make a limited number of new
investments each year, sourced from sectors and
geographies where we have built a strong track record,
in-house expertise and comprehensive networks.
2. Thematic origination
4. Assessment and management
We invest in businesses that benefit from structural
growth trends. Our approach is flexible and can be
adapted to take into account market developments
and regulatory, policy, societal or environmental changes.
For example, over the last few years we have backed
businesses that have invested in the energy transition,
the achievement of a more sustainable consumption
model through a circular economy, improved health
and wellbeing and the digital transition, all of which
can contribute to delivering positive change over the
long term.
We screen investment opportunities against our
Responsible Investment policy and embed an
assessment of ESG risks and opportunities across our
investment, portfolio management and value creation
processes. We have been signatories to the UN Principles
for Responsible Investment since 2011.
We invest in businesses that we believe will
benefit from structural trends likely to support
long-term, sustainable growth.
Our thematic approach
+ PAGES 16-17
+ PAGES 42-66
Sustainability
3i Group plc | Annual report and accounts 2023
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Performance
and risk
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Audited financial
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Portfolio and
other information
We employ a team of 249 people from 26 countries and
value highly the diversity of perspectives that this brings. We
cultivate an inclusive environment for existing and prospective
employees which respects, involves and leverages diverse
talent for greater organisational good. We support
a number of initiatives aimed at improving gender, ethnic
and social diversity at 3i and on an industry-wide basis.
+ PAGES 42-66
Sustainability
249 26
employees
As at 31 March 2023
nationalities
Our shared values
Our long-term, responsible approach continued
Our people
are our priority
Our success is based on the recruitment,
development and retention of a capable
and diverse team.
We provide training and opportunities for career advancement
and reward our employees fairly. We recognise the importance
of the satisfaction and wellbeing of our employees and
support them by creating a healthy workplace and with tools
to improve their mental and physical health. We benefit from
a non-hierarchical organisational structure, which underpins
a culture of open communication.
Strong values and
institutional culture
3i was founded in 1945 with the objective
of providing growth capital to post-war Britain.
The responsibility which came with that purpose
still guides our behaviour today.
We promote a strong culture of integrity among our employees
and embed that culture in our policies and processes. We expect
all employees to act with integrity, accountability and a careful
ownership mindset and to approach their roles with ambition,
rigour and energy.
Our corporate values are approved by the Board and the Executive
Committee sets the tone and leads by example. We evaluate all
employees annually against our corporate values.
+ PAGES 94-158
+ PAGES 42-66
Sustainability
Governance
Ambition
Rigour and energy
• Focus on generating value
for all our stakeholders
• Clarity of vision supported
by practical execution
• Strive for excellence and
continuous improvement
Accountability
• Personal and collective
responsibility for protecting
and enhancing 3i’s assets
and reputation
• An ownership mentality in
managing costs, resources
and investments
• Thorough analysis leading
to clear decision-making
and effective implementation
• High levels of energy,
a strong work ethic and
effective team working
Integrity
• Doing “the right thing”
even when difficult
• Relationships built on trust,
• An aversion to building
candour and respect
hierarchy
3i Group plc | Annual report and accounts 2023
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Performance
and risk
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Audited financial
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Portfolio and
other information
Our thematic approach
We adopt a thematic approach to origination and portfolio
construction, backing businesses that benefit from structural
trends which can support long-term sustainable growth.
Royal Sanders, a private label and contract manufacturer
of personal care products, is growing strongly thanks to its
differentiated product offering to a range of customers, including
value retailers. Dutch Bakery, a group specialising in home bake-
off bread and snack products, benefits from similar dynamics.
It differentiates itself through the breadth of its product offering,
which enables retailers to develop a structurally attractive home
bake-off category. Both Royal Sanders and Dutch Bakery are
emerging as consolidators in fragmented markets.
VakantieDiscounter is an online travel agency which has
performed resiliently in a difficult consumer environment
through its focus on affordable holidays.
+ PAGES 22-24
Action
A number of our Private Equity portfolio companies are making
significant investments in the circular economy theme either by
adapting their business models or by offering products or services
which directly support a circular model. For example, WP is investing
in the development of packaging that is easily recyclable and made
with greater use of recycled materials. A core pillar of Evernex’s
customer proposition is to repair, reuse and recycle IT equipment,
reducing waste and emissions. Mepal makes innovative products
for storing and serving take-away food and drink, which can help
to reduce food waste and the usage of single-use packaging.
+ PAGE 49
Evernex
Value-for-money
and discount
The last few years have been characterised
by significant shocks, including the Covid-19
pandemic and Russia’s invasion of Ukraine.
These have had profound consequences on
the global economy and have resulted in higher
inflation, higher interest rates, pressure on
corporate margins, challenges to supply chains
and energy security and lower growth.
Our portfolio plays to this theme through our focus on value-for-
money and discount, as we expect consumers’ focus on value to
increase as a result of growing economic uncertainty.
Value-for-money has long been one of the winning themes in our
Private Equity portfolio. Action has grown from its Dutch home
market to a pan-European business with operations in
11 countries by providing a good quality and surprising
assortment of products at very low prices. nexeye, an optical
retailer, is winning market share by offering private label and
branded products at average price points below its major
competitors.
Energy transition,
energy security and
resource scarcity
The response to the climate and environmental
emergencies is a defining theme of our time.
The transition to a more sustainable consumption model and the
development of solutions to tackle global warming and climate
change, as well as the more recent challenges to energy security,
will provide investment opportunities for many decades.
We have exposure to the renewable energy and waste
management and recycling sectors through our Infrastructure
business, with investments in companies such as Infinis and Valorem,
which generate renewable energy, and Attero and HERAmbiente,
which sort and recycle waste and generate power from waste that
cannot be recycled. Our Infrastructure business is also invested
in ESVAGT, which provides service operation vessels to the
offshore wind industry.
3i Group plc | Annual report and accounts 2023
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Performance
and risk
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Audited financial
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Portfolio and
other information
Our thematic approach continued
Digitalisation,
automation and big data
Business is increasingly mobile and data
driven, facilitated by increasing connectivity
and automation and focused on simplifying
processes and the customer experience.
Technology is developing rapidly and changing business
operating models across sectors. Digitalisation is part of daily
life, permeating all spheres of human activity and interactions.
It is also intertwined with climate change and a precondition
to many of the available decarbonisation pathways.
We have been careful to select investments that benefit from
this megatrend, while avoiding areas likely to be impacted by
disruption. In our Private Equity portfolio, MAIT provides SMEs
with IT solutions that focus on process optimisation and
digitalisation. xSuite provides accounts payable process
automation applications. Evernex maintains IT equipment that
is critical for customers’ business continuity. Luqom, YDEON,
VakantieDiscounter and Konges Sløjd operate in growing online
consumer niches and can benefit from the ongoing shift to the
online channel.
We have a growing exposure to this trend in our Infrastructure
portfolio through DNS:NET, which is rolling out a fibre-to-the-
home network in the Berlin area; through Tampnet, an offshore
communications network operator in the North Sea and Gulf
of Mexico; and through Global Cloud Xchange, a global data
communications services provider and owner of one of the
world’s largest private subsea fibre optic networks.
+ PAGES 29 and 37
xSuite and GCX
Demographic
and social change
Ageing populations are projected
to cause great social disruption in our
investment markets.
Increasing life expectancy and reduced birth rates in most of
our core markets are resulting in an ageing and often declining
population. These structural, long-term trends are causing
profound changes in consumer behaviour and preferences,
and in the development of policy responses to meet the
challenges of greater longevity and the prevalence of age-
related chronic illness.
The healthcare investments in our Private Equity portfolio, including
Cirtec Medical, an outsourced medical device manufacturer, as well
as SaniSure and ten23 health, which provide products and services to
the life sciences industry, have developed their businesses to provide
solutions to the disruption caused by demographic shifts and by
scientific breakthroughs making more advanced treatments possible.
We also have exposure to this trend in our Infrastructure portfolio
through Ionisos, which provides cold sterilisation services to
the medical and pharmaceutical industries, amongst others.
+ PAGE 32
Cirtec
3i Group plc | Annual report and accounts 2023
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Overview
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Performance
and risk
Governance
Audited financial
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Portfolio and
other information
Our strategic objectives
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
Key performance indicators
Gross investment return (“GIR”)
as % of opening portfolio value1,2
The performance of the proprietary investment portfolio
expressed as a percentage of the opening portfolio value.
Link to strategic objectives
NAV per share2
The measure of the fair value per share of our investments
and other assets after the net cost of operating the business
and dividends paid in the year.
Link to strategic objectives
Cash realisations1,2
Support our returns to shareholders, as well as our ability
to invest in new opportunities.
Link to strategic objectives
Cash investment1,2,5
Identifying and investing in new and further investments
is a key driver of the Group’s ability to deliver
attractive returns.
Link to strategic objectives
Operating cash profit1,2,3
By covering the cash operating cost of running our
business with cash income, we reduce the potential
dilution of capital returns.
Link to strategic objectives
Total shareholder return2
The return to our shareholders through the movement
in the share price and dividends paid during the year.
Link to strategic objectives
3i Group plc | Annual report and accounts 2023
21%
4%
26%
43%
36%
815p
804p
947p
1,321p
1,745p
£1,261m £801m
£319m
£758m £885m
£859m £1,248m £510m
£543m £397m
£46m
£40m
£23m
£340m £364m
19%
(17)%
51%
24%
27%
ll Cash realisations
l Scandlines
reinvestment (2019)
l Action reinvestment
(2020)
ll Cash realisations
l Scandlines
reinvestment (2019)
l Action reinvestment
(2020)
l Action dividend
ll Other
l Dividends
ll Share price
18
2019202020212022202320192020202120222023£732m£399m£529m£402m20192020202120222023£330m£657m£529m£591m20192020202120222023£56m£39m£284m£325m2019202020212022202315%(20)%46%20%21%4%3%5%4%6%20192020202120222023
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Key performance indicators continued
FY2023 progress and FY2024 outlook
Key risks4
• Strong Group GIR of 36%, driven by £3,769 million of unrealised value
growth, £514 million of portfolio income and a foreign exchange gain,
including hedging, of £652 million
• Impact of Russia’s invasion of Ukraine on global supply chains and
commodity prices resulting in market volatility and inflationary pressures
which could impact portfolio valuations and portfolio earnings
• Private Equity GIR of £4,966 million, or 40%, with a £4,344 million
contribution from Action
• Investment rates or quality of new investments are lower than expected
• Operational underperformance in portfolio companies affects earnings
• Infrastructure GIR of £86 million, or 6%, reflecting good performance
growth and exit plans
of our US infrastructure portfolio offsetting the derating of our quoted
3iN holding
• Scandlines GIR of £52 million, or 10%, reflecting strong freight volumes,
recovery in leisure volumes and cash distributions received
• ESG regulations or changes to consumer preferences in relation to ESG
factors affect earnings or valuations
• Sterling materially strengthens against the euro and US dollar. At 31 March
2023, 87% of the portfolio was denominated in euros or US dollars
• 32% increase in NAV per share to 1,745 pence (31 March 2022: 1,321
pence), after dividend payments of 50.50 pence per share in the year
• Ongoing geopolitical uncertainty further dampens investor sentiment
• Wider political and economic uncertainty impacts 3i’s portfolio companies
• Our portfolios have started FY2024 with good momentum
and valuations
• Cash proceeds of £885 million including £471 million from the disposal
• Market volatility or prolonged invasion of Russia in Ukraine delay exits
of Havea and £332 million from the partial disposals of Q Holding
or affect pricing
• Realisations and refinancings in FY2024 are subject to supportive market
conditions and to portfolio company performance remaining resilient
• Subdued M&A activity and macroeconomic uncertainty in our core sectors
reduces investor appetite for our assets
• Debt markets become less supportive of leveraged buyouts or refinancings
• Invested £397 million, including four new investments
• Completed 11 bolt-on acquisitions for the Private Equity portfolio, three
• Debt markets become less supportive of leveraged buyouts or refinancings
• Failure to attract, invest in and retain talented investment executives
of which we supported with further investment of £63 million
• Interesting pipeline of new investment opportunities and bolt-on
impacts our ability to originate and manage assets
• Limited ability to source bolt-on opportunities or new investments outside
acquisitions
of competitive auction processes
• Invested £30 million to purchase a small additional stake in Action and at
the same time crystallised some of the outstanding carried interest in the
Buyouts 2010-12 scheme relating to Action, which is expected to result in
a c.£200 million carried interest payment to participants in that scheme
in May 2023
• Generated cash income of £351 million from Private Equity
• Portfolio underperformance results in liquidity or other constraints limiting
(2022: £346 million), including £325 million of dividends from Action
(2022: £284 million); £107 million (2022: £91 million) from Infrastructure;
and £39 million from Scandlines (2022: £13 million)
our ability to generate portfolio income
• Assets under management do not generate sufficient fee income
• Unplanned increase in 3i’s cost base; for example, from legal, compliance
• Modest increase in cash operating expenses to £133 million
or regulatory issues
(2022: £110 million) reflecting full-year impact of new hires and inflationary
impacts on costs
• Good cash income expected to continue from Infrastructure and Scandlines
• TSR of 27% driven by a share price increase of 21% and by dividend
• Lower NAV due to investment underperformance or market volatility,
payments of 50.50 pence in the year
political and economic uncertainty
• Well-positioned, low-geared balance sheet supports a total FY2023
• Investor appetite for 3i shares could reduce in a volatile macroeconomic
dividend of 53.0 pence per share
environment or in the context of a wider market correction
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 77.
2 Further information on how these KPIs are factored into decisions concerning the Executive Directors’ remuneration is included in the Directors’ remuneration report on page 131.
3 Cash operating expenses includes lease payments.
4 This is not an exhaustive list of risks, but a selection of examples of key risks which could potentially impact the respective KPIs. A summary of the Group’s current principal risks is set out on pages 88 to 92.
5 Cash investment of £397 million is different to cash investment per the cash flow of £330 million due to a £57 million syndication in Infrastructure which was received in FY2023 and a £10 million investment in Private Equity
to be paid in FY2024.
3i Group plc | Annual report and accounts 2023
19
What’s in this section
Private Equity
Infrastructure
Scandlines
21
36
41
3i Group plc | Annual report and accounts 2023
20
Overview
and strategy
Business
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Sustainability
Performance
and risk
Governance
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Private Equity
We invest in mid-market businesses headquartered
in northern Europe and North America with
potential for international growth. Once invested,
we work closely with our portfolio companies
to deliver ambitious growth plans, realising our
investments to generate strong cash-to-cash
returns for 3i shareholders and other investors.
In the year to 31 March 2023, our Private Equity portfolio delivered
a GIR of £4,966 million, or 40%, on the opening portfolio value
(2022: £4,172 million or 47%) and the portfolio value increased to
£16,425 million (31 March 2022: £12,420 million). This result was driven
predominantly by Action’s very strong performance in FY2023,
as well as by a good contribution from a number of our other assets
operating in the value-for-money and private label, healthcare,
industrial technology, and business and technology services sectors
that have responded well to, and so far largely mitigated, high
inflation, increased energy prices and interest rates and weaker
consumer sentiment. We recognised a material unrealised value
decline in two of our discretionary consumer portfolio companies,
as a result of weaker trading and of the derating of external peers.
In FY2023, we made four new investments and continued to
implement our buy-and-build strategy, completing 11 bolt-on
acquisitions, three of which required additional funding from 3i.
We ended the year as net divestors, with significant proceeds
achieved from realisations and portfolio income. Average leverage
across the portfolio remains low at 2.5x, or 4.0x excluding Action
and our Private Equity portfolio is funded with all senior debt
structures, with long-dated maturity profiles. The recent banking
disruption has had no impact on our portfolio to date.
The contribution of Action to the Private Equity performance
is detailed in Note 1 of the financial statements.
Table 1: Gross investment 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
Dividends
Interest income from investment portfolio
Fees receivable
Foreign exchange on investments
Movement in fair value of derivatives
Gross investment return
Gross investment return as a % of opening
portfolio value
3i Group plc | Annual report and accounts 2023
2023
£m
2022
£m
169
228
3,746
345
77
7
493
129
4,966
3,545
331
73
6
(11)
–
4,172
40%
47%
At a glance
Gross investment return
£4,966m
or 40%
(2022: £4,172m or 47%)
Cash investment
£381m
(2022: £457m)
Realised proceeds
£857m
(2022: £684m)
Portfolio dividend income
£345m
(2022: £331m)
Portfolio growing earnings
90%¹
(2022: 93%)
Portfolio value
£16,425m
(2022: £12,420m)
1 LTM adjusted earnings to 31 December 2022.
Includes 31 portfolio companies.
21
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Private Equity continued
Action
Action, our largest portfolio company, was founded 30 years ago
with one store in the Netherlands and is now the fastest growing
non-food discount retailer in Europe. Action’s unique customer value
proposition of quality products, surprise assortment and low prices
attracted 15 million customers per week into its stores in 2022.
Net sales1
€m
Operating EBITDA1
€m
Source: Company information
1 Including impact of 53rd week
3i Group plc | Annual report and accounts 2023
22
2312843414265156077188731,1551,5062,0342,6753,4184,2165,1145,6376,8348,85920052006200720082009201020112012201320142015201620172018201920202021202220273239497186991281662323103874505416168281,205200520062007200820092010201120122013201420152016201720182019202020212022
Overview
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Private Equity continued
Action has a simple, efficient and scalable
operating model. It offers 6,000 products
across 14 different categories with a focus
on quality and low prices. Action’s surprising
assortment consists of daily essentials,
seasonal products, home and garden, and
hobbies. Two-thirds of Action’s assortment
changes frequently, as Action introduces
150 new articles every week. Selling at the
lowest price is central to Action’s business
model with an average price of €2.20 and
over 1,700 products below €1.
International store roll-out
2022 was another record year for store
openings as Action added 280 new stores.
In Action’s largest market, France, 73 new
stores were added, with a further 81 stores
in Poland, 46 stores in Germany, 23 stores
in the Czech Republic, 15 stores in Austria,
nine in Belgium and Luxembourg and seven
in the Netherlands. In Italy and Spain, its
newly entered markets, Action opened 21
and five stores respectively. Action entered
its 11th market in March 2023, opening its first
stores in Slovakia, and is planning its first
store opening in Portugal in 2024.
Number of stores
at 31 December
280
stores
added
(2021: 267)
Supply chain infrastructure
Action continued to enhance its supply
chain infrastructure, opening a new hub
in Le Havre, France in June 2022, enabling
the business to further improve deliveries
to its French DCs. Action plans to open
a further two DCs in 2023 and one in 2024.
Scale economies shared
Action’s commitment to offer the best value
proposition for its customers is fundamental
to its business model and strategy. It is able
to share scale economies with its customers
because of its large-scale sourcing and
procurement, its optimal storage and
distribution and expansive store network.
» FOR MORE INFORMATION
www.action.com
3i Group plc | Annual report and accounts 2023
23
1,3251,5521,7161,9832,26320182019202020212022
Overview
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Performance
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Governance
Audited financial
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Private Equity continued
People
Action employs c.60,000 people directly
and c.20,000 indirectly, representing
136 different nationalities. Action’s people
are a key pillar to its overall strategy and the
business continues to invest in the ongoing
development of its employees, driving
over 2,600 internal promotions in 2022.
Digital
Action’s digital presence continues to grow
and it now connects with its customers via
its website, newsletters, social media, as well
as the Action app. Its website receives
6.5 million visitors per week. Its app was
visited weekly 650,000 times in 2022 and is
available in the Netherlands, Spain, France
and Belgium with plans to roll out across
the remaining Action geographies.
Action’s webshop pilot is operating well.
The webshop, currently available only in
the Netherlands, sells a reduced assortment
of over 150 higher priced items. The results
have been encouraging and Action plans
to roll out the initiative in Belgium in the
current calendar year.
Geographical spread of stores, DCs and hubs
at 31 December 2022
Netherlands
408
stores and 2 DCs
Belgium/Luxembourg
220
stores
Germany
481
stores and 2 DCs
France
726
stores, 4 DCs and 2 hubs
Spain
5
stores
1 Action opened three stores in Slovakia in March 2023 and therefore has stores in 11 countries
3i Group plc | Annual report and accounts 2023
Partnership
In the last 12 months, Action donated
€1 million to UNICEF and the Dutch Red
Cross to support people affected by the
earthquake in Turkey and Syria and held
a charity event at its biggest distribution
centre in Zwaagdijk, the Netherlands,
where over €200,000 was raised for the
Princess Máxima Center.
Sustainability
Action has an ambitious Sustainability
Programme, with targets across a number
of environmental and social indicators.
It achieved significant progress against a
number of its targets in 2022. Notably, it
achieved 100% supply chain transparency
and 100% recyclable packaging in its private
label products. It also achieved a 40%
reduction in Scope 1 and 2 emissions in 2022
from its 2021 baseline and 85% of its stores
are now disconnected from the gas grid.
We have set out further information on
Action’s ambitious sustainability agenda
on pages 46 and 47 in the Sustainability
section of this report.
» Further information is available on Action’s website:
www.action.com
Poland
256
stores, 2 DCs and 1 hub
Czech Republic
44
stores
Slovakia
1
DC1
Austria
95
stores
Italy
28
stores
24
Overview
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Performance
and risk
Governance
Audited financial
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Portfolio and
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Private Equity continued
Investment activity
Across the US and European markets, private equity investment
activity trended downwards in 2022, having reached near record
levels in 2021. The significant deceleration from the second half
of the year was driven by persistent macroeconomic headwinds
and less supportive debt markets with pricing expectations that
were difficult to align. Against this backdrop, we remained selective
and disciplined in deploying our capital, investing £221 million
in four new portfolio companies. All four of these investments
were completed in the first half of FY2023.
We invested £94 million in xSuite, an accounts payable invoice
automation software provider, and £30 million in Digital Barriers,
a provider of unique video compression technology.
These investments offer 3i exposure to their unique technology
and high-growth end markets and both are transitioning to
a subscription-based model. We also completed the £37 million
investment in VakantieDiscounter, a highly scalable, technology-
driven travel business with a value-for-money offering that is
benefiting from the recovery of the travel market, as well as the
£60 million investment in Konges Sløjd, a premium baby and
child apparel and accessories business with an established
international footprint that has significant scalability potential
in a highly fragmented market.
Our buy-and-build strategy remains an integral part of our approach
to value creation and, in FY2023, our portfolio companies completed
11 bolt-on acquisitions. We invested £63 million to support three
bolt-on acquisitions for Luqom, arrivia and WilsonHCG, whilst the
remaining eight bolt-on acquisitions completed in the year were
funded by the portfolio companies’ own balance sheets.
Two of the bolt-on acquisitions involved carving out elements of
Q Holding, an existing portfolio company, with SaniSure acquiring
Q Holding’s Twinsburg site and Cirtec Medical acquiring Q Holding’s
Precision Components. Further details of selected portfolio bolt-on
acquisitions are set out on pages 32 and 33.
In addition, we continued to develop ten23 health with a
further investment of £36 million and used our capital to support
two portfolio companies through challenging trading conditions,
with a further investment of £14 million in YDEON and of
£11 million in Formel D.
In March 2023, we completed a transaction to provide liquidity for
existing external investors in Action who are invested via our 3i 2020
Co-investment Programme. As part of this transaction, we invested
£30 million to purchase an additional small stake in Action from this
Programme at the December 2022 net asset value, increasing our
equity stake from 52.7% to 52.9%. At the same time, we crystallised
a portion of the outstanding carried interest liability in relation
to Action. For further information, see page 70.
In total, in the year to 31 March 2023, our Private Equity team
invested £381 million across new, bolt-on and further investments.
Digital Barriers
Digital Barriers, headquartered in the UK with offices
across the US and Europe, is a leading provider
of Internet of Video Things (“IoVT”) and video
compression technology.
Its unique video compression technology
allows live streaming over low-bandwidth
environments, including cellular body
worn cameras, and an ever-growing set of
commercial applications. Its cloud-based,
video management platform is the only
such platform that works as effectively
on cellular networks as on fixed networks.
It provides an end-to-end solution
incorporating a wide range of AI-based
operational, safety and business
intelligence analytics.
The company has been a trusted partner
to leading law enforcement, intelligence
and defence agencies around the world
for many years and continues to serve
this market.
£30m
3i new investment
in FY2023
www.digitalbarriers.com
» FOR MORE INFORMATION
+ PAGE 16
Our thematic approach
3i Group plc | Annual report and accounts 2023
25
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Private Equity continued
New investment
Portfolio company
Digital Barriers
Konges Sløjd
Business description
Provider of unique video compression
technology
Premium brand offering apparel and
accessories for babies and children
August and
December 2022
August 2022
VakantieDiscounter
Online travel agency in the Benelux focused on
affordable holidays
August 2022
xSuite
Total new investment
Accounts payable process automation
specialist focused on the SAP ecosystem
August 2022
Proprietary
capital investment
£m
Date
30
60
37
94
221
Further investment
to finance portfolio
bolt-on acquisitions
Portfolio company Name of acquisition
Business description of bolt-on investment
Luqom
Brumberg
B2B manufacturer and distributor
of luminaries and lighting products
arrivia
RedWeek
Online timeshare marketplace
WilsonHCG
Personify
Provider of recruitment processing
outsourcing services
Total further investment to finance portfolio bolt-on acquisitions
Portfolio company
Business description
Date
June 2022
September 2022
January 2023
Proprietary
capital investment
£m
34
23
6
63
Proprietary
capital investment
£m
Date
Further investment
to support portfolio
companies
YDEON
Formel D
Online retailer of garden buildings, sheds,
saunas and related products
December 2022
Quality assurance provider for the automotive
industry
November 2022
Total further investment to support portfolio companies
Other investment
ten23 health
Further
Pharmaceutical product CDMO
Portfolio company Type
Business description
Action
Luqom
Further
Further
General merchandise discount retailer
Online specialist lighting retailer
Other
Further
Various
Total other investment
Total FY2023 Private Equity gross investment
Date
Various
March 2023
Various
Various
Private Equity
portfolio bolt-on
acquisitions funded
by the portfolio
company balance
sheets
Portfolio company Name of acquisition
Business description of bolt-on investment
MAIT
Nittmann & Pekoll Austrian abas ERP partner
Evernex
XS International
Specialist in a suite of IT lifecycle services
and IT hardware lifecycle support
Evernex
Integra
Provider of IT maintenance and cloud services
AES
Vibtech Analysis
Reliability service provider
SaniSure
Twinsburg
Silicone extrusion business
Cirtec
Medical
AES
Precision
Components
Elastomeric solutions provider in the medical
device outsourcing market
DATUM RMS
Reliability and vibration monitoring service provider
Dutch Bakery Trade Factory
Supplier of bapao buns
3i Group plc | Annual report and accounts 2023
14
11
25
Proprietary
capital investment
£m
36
30
5
1
72
381
Date
June 2022
September 2022
September 2022
October 2022
December 2022
January 2023
January 2023
February 2023
26
Overview
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Private Equity continued
Konges Sløjd
Konges Sløjd is a premium international lifestyle
brand offering child products through both
direct-to-consumer e-commerce and third-party
distribution. Headquartered in Copenhagen,
Denmark, it sells its products through its own
webshop and in over 1,000 retailers globally.
Founded in 2015, Konges Sløjd
designs, sources, and markets high-
quality, branded children’s clothing,
accessories, home products and toys
in more than 50 countries.
All products are created in-house,
with handmade graphical elements
and timeless designs.
Its products are recognised for being
made with quality materials and
designed to be durable, to be passed
from one child to another, and it is
Global Organic Textile Standard,
OEKO-TEX and Forest Stewardship
Council certified.
The company is growing well
and has a highly-engaged
consumer community with over
400,000 followers on Instagram.
It is well placed at the convergence
of the fast-growing premium and
affordable luxury segments and will
accelerate its development
internationally in Europe, Asia
and the US.
£60m
3i new investment
in FY2023
www.kongessloejd.com
» FOR MORE INFORMATION
+ PAGE 16
Our thematic approach
3i Group plc | Annual report and accounts 2023
27
Overview
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Business
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Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Private Equity continued
VakantieDiscounter
VakantieDiscounter is a leading, technology-enabled
online travel agency in the Benelux focused on
affordable holidays.
Through its own pre-packaged
holidays and third-party providers,
VakantieDiscounter offers more than
1.3 billion holiday package combinations
in over 50 countries with more than
17,000 accommodation options.
Its broad package offering and value-for-
money focus has created a winning
proposition which has grown market
share quickly and attracted a large,
diverse customer base since its
foundation in 2000.
VakantieDiscounter is a scalable,
technology-driven business with
a strong position in the market.
3i’s investment will help ensure
the company has the necessary
resources to continue its long-term
track record of growth.
£37m
3i new investment
in FY2023
www.vakantiediscounter.nl
» FOR MORE INFORMATION
+ PAGE 16
Our thematic approach
3i Group plc | Annual report and accounts 2023
28
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Private Equity continued
xSuite
xSuite, headquartered
in Ahrensburg, Germany
and founded in 1994,
is a leading accounts
payable process
automation specialist
focused on the SAP
ecosystem.
£94m
3i new investment
in FY2023
It specialises in software
applications for Accounts Payable
Invoice Automation (“APIA”),
enabling customers to digitalise,
streamline and automate invoice
processing.
It has over 230 employees in
Germany, Denmark, the Netherlands,
Singapore, Slovakia, Spain and the
US, and over 1,200 clients in more
than 60 countries with 220,000 users
processing over 60 million invoices
per year.
xSuite will focus on building its
emerging presence in the US market,
where it has several blue-chip clients,
and will accelerate its transition to more
subscription software revenues.
The APIA market is growing with
forecasts expecting a CAGR of over
10%, driven by the digitisation of
workflows and a focus on reducing
labour costs. There is significant
white space in Western Europe,
North America and APAC due to
substantial penetration of companies
without APIA.
» FOR MORE INFORMATION
www.xsuite.com
3i Group plc | Annual report and accounts 2023
29
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Sustainability
Performance
and risk
Governance
Audited financial
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Portfolio and
other information
Private Equity continued
Realisation activity
During the year we received total proceeds of £332 million from
three partial disposals completed by Q Holding. These included
the disposal of Q Holding’s QSR business, completed in May 2022,
and the disposals of its Twinsburg site and Precision Components
business, which completed in December 2022 and January 2023
respectively. Q Holding’s remaining business was valued at
£117 million at 31 March 2023. Over the last two years, through
a combination of realised proceeds and residual value, we have
recognised an uplift of over 100% on the value of our investment
in Q Holding at 31 March 2021, taking our money multiple, including
realised proceeds to date and remaining value at 31 March 2023,
to 2.8x.
In October 2022 we completed the sale of Havea after a five-year
holding period, during which we partnered with the business to
deliver a significant strategic transformation, completed five bolt-on
acquisitions and generated double-digit organic growth.
We received proceeds of £471 million from this divestment,
representing a 50% uplift on the value of the investment at 31 March
2022, a sterling money multiple of 3.1x and an IRR of 24%.
In January 2023, we completed the disposal of Christ, our last
investment in EFV, for realised proceeds of £47 million, at a 45%
uplift on our 31 March 2022 opening value. When added to
the proceeds generated by the sale of Amor (another German
player in the jewellery space which we considered as part of the
same investment thesis and sold in 2016 crystallising a money
multiple of 2.3x), the multiple generated by this sale is 1.0x.
Following the disposal of Christ our final gross fund multiple
for EFV is 3.0x, a top quartile performance.
In total, we generated total Private Equity proceeds of £857 million
(2022: £684 million) and realised profits of £169 million (2022:
£228 million).
Action performance and valuation
As detailed in the Chief Executive’s statement, Action continues
to deliver excellent growth driven by higher footfall, a higher number
of transactions and further international store openings. In the
12 months to the end of Action’s P3 2023 (which ended on 2 April
2023), Action generated run-rate EBITDA growth of 42% and strong
cash inflow.
At 31 March 2023, Action was valued using its LTM run-rate EBITDA
to the end of P3 2023 of €1,439 million. These included our normal
adjustment to reflect stores opened in the year. Action has
consistently outperformed the peers that we currently reference
across its most important KPIs, supporting our valuation multiple,
which remained unchanged at 18.5x net of the liquidity discount
(31 March 2022: 18.5x).
Action ended P3 2023 with cash of €365 million and a net debt
to run-rate earnings ratio of 1.8x after paying two dividend
distributions in FY2023, of which 3i received £325 million.
At 31 March 2023, the valuation of our 52.9% stake in Action
was £11,188 million (31 March 2022: 52.7%, £7,165 million) and
we recognised unrealised profits from Action of £3,708 million
(March 2022: £2,655 million) as shown in Table 3.
Table 2: Private Equity realisations in the year to 31 March 2023
Investment
Full realisations
Havea
Christ
Total realisations
Partial realisations1,3
Q Holding
Other
Deferred consideration
Other
Total Private Equity realisations
Country
France
Germany
US
n/a
n/a
Calendar
year
invested
31 Mar 2022
value1
£m
3i realised
proceeds
£m
Profit
in the
year
£m
Uplift on
opening
value2
%
Residual
value
£m
Money
multiple3
2017
2014
2014
n/a
n/a
304
31
335
332
9
–
676
471
47
518
332
2
5
857
158
14
172
–
(8)
5
169
50 %
45 %
n/a
–
–
n/a
3.1 x
0.4 x
n/a
IRR
24 %
– %
n/a
–
n/a
117
n/a
2.8 x
n/a
15 %
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1 For partial realisations, 31 March 2022 value represents value of stake sold.
2 Profit in the year over opening value.
3 Cash proceeds over cash invested. For partial realisations, valuations of any remaining investment are included in the multiple. Money multiples are quoted on a GBP basis.
3i Group plc | Annual report and accounts 2023
30
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Private Equity continued
Performance (excluding Action)
Excluding Action, the private equity portfolio generated £520 million
(March 2022: £584 million) of value growth from performance increases
driven by good contributions from a number of assets operating in the
value-for-money and private label, healthcare, industrial technology
and business and technology services sectors, as well as good recovery
from our travel assets. This good performance has more than offset
performance decreases of £310 million (March 2022: £101 million),
predominantly driven by some of our discretionary consumer
businesses, principally Luqom and YDEON, which have been
disproportionately impacted by weaker consumer sentiment.
Over the last two years SaniSure has delivered significant
outperformance due to strong demand and customers stockpiling in
mitigation of external supply chain concerns. Whilst recent demand
has normalised as customers work down inventory levels, SaniSure
remains well positioned to capitalise on expected continued annual
double-digit growth across the bioprocessing market. Cirtec Medical
maintained top-line growth from its key customers in 2022, largely
offsetting short-term operational headwinds that impacted margin
performance. The integration of Precision Components, its recent
acquisition, is already progressing well and the business has a good
2023 outlook, with significant new contracts coming online.
Royal Sanders generated strong growth in 2022 despite increases
across all key input costs. The business increased volumes with its key
customers, including its value-for-money retailers that have seen robust
growth. It also continues to consolidate a highly fragmented market,
completing its fifth bolt-on since our initial acquisition, with
an investment in Lenhart in April 2023, strengthening its position in the
DACH region. Dutch Bakery generated a good result in 2022 as recent
bolt-on acquisitions are integrating well, with the potential to deliver
new customer wins. The underlying business has effectively managed
its own operations during a period of rising input and energy costs.
nexeye maintained good top-line growth in 2022 despite softer trading
in Q3 2022, which was caused by lower store footfall due to consumer
uncertainty. Throughout the year, the business has sustained healthy
margin performance whilst retaining a very attractive value-for-money
price point for its customers compared to its competitors. The business
added 23 new stores in the year and further accelerated its
digitalisation agenda with its online appointment system in Germany.
Trading at the start of 2023 has recovered from softer performance
in Q3 2022.
Audley Travel and arrivia are recovering well from the pandemic.
Pent-up demand for travel has driven a significant increase in
bookings and departure revenue in 2022 for Audley Travel,
supporting a return to the good cash generation characteristics
that the business demonstrated pre-pandemic. At 31 March 2023,
Audley Travel was valued on an earnings basis, having been valued
on a DCF basis since June 2020 (31 March 2022: DCF basis),
reflecting this recovery in performance. arrivia recorded a good
recovery in membership bookings throughout 2022, and saw a strong
improvement in the performance of its cruise product category.
Both Audley Travel and arrivia have started 2023 with good
bookings momentum.
Luqom and YDEON, which have a discretionary product offering,
experienced a significant decline in order intake in 2022 as a result
of declining consumer confidence across their markets. Luqom
somewhat offset weaker performance in its core markets with growth
in more recently launched regions in southern and eastern Europe.
The business is also undertaking a significant programme of
operational and cost efficiencies. YDEON has responded to weaker
trading with a number of sales, cost and cash initiatives including
the introduction of products at a much lower price point for which
volumes are easily scalable. Across both assets we recognised
a combined unrealised value loss of £357 million, part of which
is attributable to the soft trading performance and part is based
on a multiple reductions (see page 34 for further details). BoConcept
also saw pressure on store footfall due to the discretionary nature
of its offering, but has to an extent mitigated lower footfall and order
intake through its international diversification, franchise model and
effective margin management.
WilsonHCG secured a significant number of new recruitment
customers in 2022 and with new clients coming online in 2023
and the opportunity to accelerate its growth in the life sciences
and healthcare end markets following its acquisition of Personify,
the business is well positioned to navigate the recent slowdown
in the North American hiring market.
Table 3: Unrealised profits on the revaluation of Private Equity investments1 in the year to 31 March
Earnings based valuations
Action performance
Performance increases (excluding Action)
Performance decreases (excluding Action)
Multiple movements
Other bases
Sum of the parts
Discounted cash flow
Other movements on unquoted investments
Quoted portfolio
Total
1 Further information on our valuation methodology, including definitions and rationale, is included in the Portfolio valuation – an explanation section.
3i Group plc | Annual report and accounts 2023
2023
£m
3,708
520
(310)
(167)
–
4
4
(13)
3,746
2022
£m
2,655
584
(101)
241
132
7
2
25
3,545
31
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Private Equity continued
Bolt-on acquisitions
Building on existing platforms
through targeted bolt-ons
WilsonHCG’s acquisition of Personify
Personify was founded in 1978 as an executive search
business and is headquartered in North Carolina,
United States. The company is a provider of
recruitment process outsourcing (“RPO”) services
to end markets such as life sciences, pharmaceuticals,
biotechnology, and healthcare.
The company offers a turnkey talent solution that
spans the entire talent acquisition life cycle, including
services such as labour market analysis, candidate
marketing, sourcing, interviewing, assessments,
overall candidate management, and onboarding. It
focuses on higher-end, more specialised roles, often
for hard-to-fill or high-demand positions in its core
end markets.
The acquisition provides WilsonHCG with further
exposure to the attractive life sciences and healthcare
markets, which represent key growth markets for
both companies. Personify has consistently grown
at rates that are above the broader RPO industry,
capitalising on many of the same favourable tailwinds
that have benefitted WilsonHCG, including
increasing adoption of outsourced talent acquisition
solutions.
Cirtec Medical’s acquisition
of Precision Components
Precision Components is a leading elastomeric
solutions provider serving the medical device market
with decades of experience in providing silicone,
polyisoprene and other elastomers-based seals,
valves, stoppers, and other solutions created
to customer specifications. The business consists
of centres of excellence in Sturtevant, Wisconsin
and Rock Hill, South Carolina.
The acquisition is a natural fit for Cirtec Medical
and will enable it to provide additional high-value
capabilities, such as silicone moulding, silicone
extrusion and polyisoprene moulding, and gain
exposure to complementary high-growth end markets
including robotic surgery.
It will also enhance Cirtec Medical’s ability to
deliver vertically integrated capabilities, including
engineering, tooling, and the manufacturing of critical
components, sub-assemblies and fully-assembled
complex devices.
3i Group plc | Annual report and accounts 2023
32
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Private Equity continued
arrivia’s acquisition of RedWeek
RedWeek is the largest and most well-known online
timeshare marketplace, that connects vacationers to
specialty lodging options offered by timeshare owners.
The company has a community of more than 2.9 million
travellers and over 2,500 five-star reviews on Trustpilot.
arrivia's acquisition of RedWeek increases its exposure to
the resilient timeshare rentals end market where it has strong
customer relationships. RedWeek’s members will be able
to join the arrivia travel membership platform where they
can enjoy extensive benefits, including access to arrivia’s
portfolio of travel discounts spanning air, cruise, hotel,
car rental, experiences and resorts. The partnership comes
at a time of sustained growth and interest in the timeshare
and speciality lodging markets.
Luqom’s acquisition of Brumberg
Brumberg is a well-known B2B manufacturer and distributor
of luminaries and lighting products with a brand heritage
of c.150 years. It is headquartered in Sundern, Germany,
where it operates a logistics centre with a capacity of
2,000 pallet spaces.
Brumberg sells a wide range of high-quality technical
lighting applications with more than 4,500 products and
58 product types, providing a complementary offering
to Luqom’s decorative interior and exterior lighting.
3i Group plc | Annual report and accounts 2023
33
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Private Equity continued
Since our initial investment in MAIT in September 2021, we have
completed five bolt-on acquisitions, including one in June 2022.
These acquisitions have been value accretive and have driven good
growth in addition to that achieved by the underlying business.
Evernex also completed two further bolt-on acquisitions in the US
and Europe in the year but saw softer trading in the short-term as a
result of lower renewals of third-party maintenance contracts, driven
by a pick-up in investment in new IT equipment post the pandemic.
AES saw a significant increase in demand across its key global end
markets in 2022 and continued to maintain intelligent cost control,
resulting in strong earnings growth. The business continues to benefit
from long-term investment improving the reliability and range of its
product offering and also continued to pursue bolt-on acquisitions,
completing the acquisitions of DATUM RMS and Vibtech Analysis in the
year. Having traded strongly in the first half of 2022 with sustained
demand for its core biocides products, Tato saw trading soften through
the second half of 2022 with weaker end demand for paints and
coatings from the DIY and construction markets and supply challenges
for key input chemicals resulting in price inflation and margin pressure.
Tato successfully leveraged its scale and global footprint to maintain
good customer supply and margin performance has improved since
the turn of the year. Both Tato and AES were cash generative in the year
and distributed dividends to 3i of £17 million in total.
Overall, 90% of the portfolio by value grew LTM adjusted earnings
in the year (2022: 93%). Chart 1 shows the earnings growth of our top
20 Private Equity investments.
Leverage
Our Private Equity portfolio is funded with all senior debt structures,
with long-dated maturity profiles and c.40% repayable from 2026
and beyond. Across our Private Equity portfolio, term debt is well
protected against interest rate rises, with over 70% of total term debt
hedged at a weighted average tenor of more than three years with
the interest rate element capped at a weighted average hedge rate
below 2%. The average margin across the portfolio is under 4%,
so the all-in debt cost across over 70% of the portfolio is capped
below 6%. Average leverage across the portfolio was 2.5x (31 March
2022: 3.3x). Excluding Action, leverage across the portfolio was 4.0x
(31 March 2022: 4.6x).
Following the successful amendment and extension of Action’s
senior debt facilities post 31 March 2023, as detailed in the Chief
Executive’s statement, the above long dated debt maturity profile
for the Private Equity portfolio extends to 80% repayable from 2026
and beyond. The amend and extend transaction does not impact
the interest rate hedging position at 31 March 2023.
Chart 2 shows the ratio of net debt to adjusted earnings by portfolio
value.
Multiple movements
We have continued our established approach of taking a long-term,
through-the-cycle view on the multiples used to value our portfolio
companies, consistent with how we drive value creation in our portfolio.
When selecting multiples to value our portfolio companies we consider
a number of factors including recent performance and outlook,
comparable recent transactions and exit plans, and the performance
of quoted comparable companies. FY2023 was characterised by
significant volatility in the capital markets driven by Russia’s invasion
of Ukraine, global fiscal and monetary interventions to mitigate inflation
and the more recent disruption in the banking sector. The consistency
of our approach to valuation multiples has enabled us largely
to mitigate the impact of such market volatility and, since the turn
of the year, we have seen a gradual increase in the average multiples
of our comparable sets, increasing the difference to our valuation
multiples, which in the vast majority of cases are lower than the peer
group average.
However, we did adjust eight multiples downwards where we
experienced significant declines in selected peers groups and in
some cases weaker trading performance. This included the reduction
of multiples for Luqom and YDEON, accounting for £107 million
of the total net £167 million (March 2022: increase of £241 million)
multiple decrease in the year. Towards the end of our financial year,
we saw stronger equity markets and we increased multiples for three
of our portfolio companies which have consistently outperformed
over many periods.
Chart 1: Portfolio earnings growth of
the top 20 Private Equity1 investments
Chart 2: Ratio of net debt to adjusted earnings1
l 3i value at 31 March 2023 (£m)
l 3i value at 31 March 2023 (£m)
5
<0%
4
3
3
5
0-9%
10-19%
20-29%
≥30%
1
<1x
4
1-2x
6
2-3x
3
3-4x
4
4-5x
2
5-6x
3
>6x
Number of companies
Number of companies
1 Includes top 20 Private Equity companies by value excluding ten23 health. This represents 96%
of the Private Equity portfolio by value (31 March 2022: 96%). Last 12 months’ adjusted earnings
to 31 December 2022 and Action based on LTM run-rate earnings to the end of P3 2023.
1 This represents 92% of the Private Equity portfolio by value (31 March 2022: 92%). Quoted holdings,
deferred consideration and companies with net cash are excluded from the calculation. Net debt
and adjusted earnings at 31 December 2022 and Action based on LTM run-rate earnings to the
end of P3 2023.
3i Group plc | Annual report and accounts 2023
34
1,4951,34135059612,0554011,583992942452857290
Overview
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Private Equity continued
Our approach to valuing Action, our largest investment, is no different
to the remainder of our portfolio in that we take a long-term, through-
the-cycle view on the LTM run-rate EBITDA post-discount multiple
of 18.5x used to value Action at 31 March 2023. We take comfort from
the fact that Action’s continued excellent growth meant that its
valuation at 31 March 2022 translated to only 13.0x the run-rate EBITDA
achieved one year later. In addition, its most important operating KPIs
compare very favourably to those of its peer group, consisting of
North American and European value-for-money retailers. Based on
the valuation at 31 March 2023, a 1.0x movement in Action’s post
discount multiple would increase or decrease the valuation of 3i’s
investment by £669 million.
Quoted portfolio
Basic-Fit is the only quoted investment in our Private Equity portfolio.
The business performed well in 2022, recovering strongly following
the temporary Covid-19 related closures in 2021. Memberships
increased by 51% in the year and the business expanded its club
base by 185 clubs.
At 31 March 2023, our residual 5.7% shareholding in Basic-Fit was
valued at £121 million reflecting a 10% year-on-year decrease in its
share price to €36.32 (31 March 2022: 5.7% shareholding valued at
£129 million based on a share price of €40.42).
Assets under management
The value of the Private Equity portfolio, including third-party capital,
increased to £22.9 billion (31 March 2022: £16.7 billion), primarily due
to unrealised value movements in the year.
Table 4: Private Equity assets by geography as at 31 March 2023
3i office location
Netherlands
France
Germany
UK
US
Other
Total
Table 5: Private Equity assets by sector as at 31 March 2023
Sector
Action (Consumer)
Consumer
Industrial Technology
Business & Technology Services
Healthcare
Total
Table 6: Private Equity 3i proprietary capital as at 31 March
Vintages
Buyouts 2010–20121
Growth 2010–20121
2013–20161
2016–20191
2019–20221
2022-20251
Others2
Total
1 Assets included in these vintages are disclosed in the Glossary.
2 Includes value of £8,220 million (31 March 2022: £ 4,703 million) held in Action through the 2020 Co-investment vehicles and 3i.
3 3i proprietary capital is the unrealised value for the remaining investments in each vintage.
4 Vintage money multiple (GBP) includes realised value and unrealised value as at the reporting date.
3i Group plc | Annual report and accounts 2023
Number of
companies
10
1
7
9
9
3
39
Number of
companies
1
13
7
13
5
39
3i proprietary
capital value3
2023
£m
2,968
23
814
1,872
1,524
228
8,996
16,425
Vintage
money
multiple4
2023
15.1x
2.1x
2.5x
1.8x
1.5x
1.0x
n/a
3i proprietary
capital value3
2022
£m
2,462
18
1,022
2,210
1,319
–
5,389
12,420
3i carrying
value
2023
£m
12,520
305
777
1,144
1,652
27
16,425
3i carrying
value
2023
£m
11,188
1,983
1,168
917
1,169
16,425
Vintage
money
multiple4
2022
12.3 x
2.1 x
2.3 x
1.8 x
1.3 x
n/a
n/a
35
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Infrastructure
We manage a range of funds investing
principally in mid-market economic infrastructure
and operational projects in Europe and North
America. Infrastructure is a defensive asset class
that provides a good source of income and fund
management fees for the Group, enhancing returns
on our proprietary capital. The team has been
active in its deployment of capital across
the portfolio and in new investments.
Our Infrastructure portfolio generated a GIR of £86 million or 6%
on the opening portfolio value (2022: £241 million, 21%) primarily
driven by portfolio income and good value growth contribution
across our US assets, offset by a decrease in the share price of our
quoted stake in 3iN, despite its strong NAV return in the year.
We completed two new investments and three further investments
in 3iN and three bolt-on acquisitions for our North American
Infrastructure platform. We also completed the disposal of 3iN’s
operational projects portfolio to the 3i European Operational
Projects Fund (“3i EOPF”).
At a glance
Gross investment return
£86m
or 6%
(2022: £241m or 21%)
AUM
£6.4bn
(2022: £5.7bn)
Cash income
£107m
(2022: £91m)
Table 7: Gross investment 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
Dividends
Interest income from investment portfolio
Fees payable
Foreign exchange on investments
Movement in fair value of derivatives
Gross investment return
Gross investment return
as a % of opening portfolio value
3i Group plc | Annual report and accounts 2023
2023
£m
2022
£m
–
23
33
14
–
16
–
86
10
178
31
12
(3)
13
–
241
6%
21%
36
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Infrastructure continued
Global Cloud Xchange (“GCX”)
GCX is a leading global data communications
service provider that owns one of the world’s
largest private subsea fibre optic networks.
GCX offers network services which
power digital transformation for
enterprises, new media providers
and telecoms carriers. Its 66,000 km
of cables span over 46 countries
from North America to Asia, with
a particularly strong position on
the Europe-Asia and Intra-Asia routes.
Global data traffic is growing rapidly,
with data usage forecast to grow
in excess of 25% per annum.
Technological advances, the
digitalisation of the economy and
regulatory developments are causing
a proliferation of data generation
and usage across all industries.
This data is increasingly being stored
and shared via the cloud and relies
on data carrier infrastructure, including
GCX’s extensive network, to flow
between hubs across the world.
In September 2022, 3iN completed
its $377 million investment to acquire
a 100% stake in GCX. Additional
acquisition debt raised in March 2022
reduced the previously announced
equity commitment of $512 million.
£318m
Investment funded
by 3iN
» FOR MORE INFORMATION
+ PAGE 16
www.globalcloudxchange.com
Our thematic approach
3i Group plc | Annual report and accounts 2023
37
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Infrastructure continued
Future Biogas
Future Biogas is one of the largest Anaerobic
Digestion (“AD”) plant developers and producers
of biomethane in the UK. Established in 2010,
it operates 11 AD plants on behalf of institutional
investors under long term contracts, converting
a wide range of feedstocks into biogas.
Biogas can be used to generate
green electricity, or upgraded into
biomethane and injected into the
UK’s national gas network. There is
growing demand for domestically-
produced biomethane which, as
a direct substitute for fossil natural
gas, has an essential role to play
in decarbonising some of the UK’s
gas dependent sectors such as heat,
transport and manufacturing.
It also allows the existing gas
infrastructure to help meet the UK
Government’s net zero and energy
security targets without any change
to the existing system.
Future Biogas will develop a new
generation of AD plants and sell the
resulting biomethane under long-term
offtake agreements to corporate
buyers. In the longer term, it intends
to enter the nascent but high-potential
voluntary carbon offset market through
carbon capture and storage.
Future Biogas has a highly experienced
management team with a strong track
record in the sector and links with
a number of key trade associations
in the industry.
£28m
Investment funded
by 3iN
www.futurebiogas.com
» FOR MORE INFORMATION
+ PAGE 16
Our thematic approach
3i Group plc | Annual report and accounts 2023
38
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We continue to utilise our relationship with external co-investors
to manage our underlying risk exposure across certain assets,
demonstrated in the year with two syndications. We syndicated 28%
of 3iN’s stake in TCR for proceeds of £190 million and a 17% stake
in ESVAGT for proceeds of £87 million.
In June 2022, 3iN completed the sale of its European projects
portfolio to the 3i EOPF for £106 million.
North American Infrastructure platform
The investments in our North American Infrastructure platform
generated good organic and acquisitive growth in FY2023. Regional
Rail expanded its footprint through two bolt-on acquisitions and
one new rail services contract, including three short-line railroads
in the Midwest region of the US and several short-line railroads
in Canada. Its existing freight lines delivered good volumes offsetting
the impact of cost inflation. EC Waste completed the self-funded
bolt-on acquisition of A&A Waste Management, a business that
provides non-hazardous solid waste collections in Puerto Rico.
This acquisition, combined with an increase in landfill volumes,
contributed to the top-line growth of the business in the year.
Infrastructure continued
Fund management
3iN
3iN’s total return on opening NAV of 14.7% for the year to 31 March
2023 was materially ahead of its total return target of 8% to 10%
per annum. 3iN also delivered its dividend target of 11.15 pence
per share, a 6.7% increase on last year.
Underpinning this strong return was the excellent performance
of 3iN’s investment portfolio, which was driven by exposure to long-
term growth trends. We have seen particularly strong trading from
assets operating in the utilities sector exposed to energy transition
(such as Infinis and Attero), the communication sector (such as
Tampnet) and the transport and logistics sector (such as TCR).
As investment manager to 3iN, in FY2023 we received a management
and support services fee of £49 million (2022: £44 million) and a NAV-
based performance fee of £35 million (2022: £26 million). This
performance fee comprised a third of the potential performance
fee for each of FY2023, FY2022 and FY2021 after the performance
hurdle was met in each year.
The market for infrastructure investments remains competitive,
with strong demand for quality infrastructure assets. Against this
backdrop, 3iN was active in the year whilst remaining disciplined
on price, completing a £318 million new investment in Global Cloud
Xchange, a global data communications service provider and
a £28 million new investment in Future Biogas, a producer
of biomethane in the UK. 3iN also completed a £338 million further
investment in TCR, acquiring an additional 48% stake from a
co-investor, a £15 million further investment in DNS:NET to support
its continued fibre roll-out programme and a £30 million further
investment in Infinis to fund the development of its solar roll-out
programme.
Table 8: Assets under management as at 31 March 2023
Fund/strategy
3iN1
3i Managed Infrastructure Acquisitions LP
3i managed accounts
BIIF
3i North American Infrastructure platform
3i European Operational Projects Fund
US Infrastructure
3i India Infrastructure Fund
Total
Fund
size
n/a
£698m
n/a
£680m
US$495m
Close
date
Mar-07
Jun-17
various
May-08
Mar-222
Apr-18
Nov-17
n/a
Mar-08 US$1,195m
€456m
1 AUM based on the share price at 31 March 2023.
2 First close completed in March 2022.
3 % invested is the capital deployed into investments against the total Fund commitment.
3i Group plc | Annual report and accounts 2023
3i
commitment/
share
£841m
£35m
n/a
n/a
US$300m
€40m
n/a
US$250m
Remaining
3i commitment
n/a
£5m
n/a
n/a
US$108m
€5m
n/a
n/a
%
invested3
at 31 March
2023
n/a
87%
n/a
91%
64%
86%
n/a
73%
AUM
£m
2,882
1,280
744
457
389
359
300
–
6,411
Fee
income
earned in
2023
£m
49
4
5
4
2
2
–
–
66
39
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Infrastructure continued
Other funds
3i EOPF and 3i Managed Infrastructure Acquisitions Fund
(“3i MIA”) performed well in the year. 3i EOPF purchased the
European projects portfolio from 3iN for £106 million. Following
this acquisition, 3i EOPF has now deployed 86% of its total
commitments.
3i’s proprietary capital infrastructure portfolio
The Group’s proprietary capital infrastructure portfolio consists
of its 29% quoted stake in 3iN, its investment in Smarte Carte
and direct stakes in other managed funds.
Quoted stake in 3iN
In February 2023, 3iN successfully completed a share placing of
£100 million. The funds were used to part pay drawings on their RCF
and partly used to fund the acquisition of Future Biogas. 3i did not
participate in this placing and its holding in 3iN was therefore diluted
from 30% to 29%. At 31 March 2023, our 29% stake in 3iN (31 March
2022: 30%) was valued at £841 million (31 March 2022: £934 million)
as a result of a 10% year-on-year decline in its share price to
313 pence (31 March 2022: 347 pence), which was caused by broader
market volatility. As a result we recognised an unrealised loss of
£93 million (2022: unrealised gain of £137 million), partially offset
by £29 million of dividend income (2022: £27 million).
North America Infrastructure proprietary capital
Smarte Carte traded strongly in 2022 driven by robust US travel
and retail demand across each of its lines of business, coupled
with a steady recovery in international volumes. The business
continues to leverage its existing footprint to expand into financially
attractive ancillary services such as porter services and bag storage
at its airports and other locations and recently completed a
refinancing at attractive terms. At 31 March 2023, Smarte Carte
was valued at £300 million on a DCF basis (31 March 2022:
£207 million).
Assets under management
Infrastructure AUM increased to £6.4 billion (2022: £5.7 billion),
principally due to an increase in 3i managed accounts and good
performance across 3i MIA and our US infrastructure portfolio,
offset by a decline in the share price of 3iN.
Table 9: Unrealised profits/(losses) on the revaluation of Infrastructure investments in the year to 31 March
Quoted
Discounted cash flow (“DCF”)
Fund/other
Total
Further information on our valuation methodology, including definitions and rationale, is included in the portfolio valuation – an explanation section.
Table 10: Infrastructure portfolio movement for the year to 31 March 2023
2023
£m
(93)
103
13
23
2022
£m
137
36
5
178
Investment
3iN
Smarte Carte
Regional Rail
EC Waste
3i MIA
3i EOPF
Other
Total
1 Other movements include foreign exchange.
3i Group plc | Annual report and accounts 2023
Valuation
Quoted
DCF
DCF
DCF
Fund
Fund
Other
Opening
value at
1 April 2022
£m
934
207
48
86
53
24
–
1,352
Investment
£m
–
–
7
–
–
6
3
16
Disposals
at opening
book value
£m
–
–
–
–
–
–
–
–
Unrealised
profit/(loss)
£m
(93)
83
13
7
12
1
–
23
Other
movements1
£m
–
10
2
5
–
1
–
18
Closing
value at
31 March 2023
£m
841
300
70
98
65
32
3
1,409
40
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At a glance
Gross investment return
£52m
or 10%
(2022: £112m or 26%)
Scandlines
Scandlines is held for its ability to deliver
long-term capital returns whilst generating
cash dividends.
Performance
Scandlines performed well in the year, generating a GIR of
£52 million, or 10% of opening portfolio value (2022: £112 million,
26%). The business delivered a second consecutive year of record
growth in freight volumes in 2022, reaffirming Scandlines’ position
as a critical part of the Scandinavian trade infrastructure. Covid-19
impacted leisure volumes at the start of 2022, but a strong summer
peak season resulted in overall 2022 leisure volumes marginally
ahead of pre-pandemic levels. The business continues to benefit
from the operational efficiencies implemented throughout the
pandemic. As a result of good cash flow generation, the business
returned total dividends to 3i of £38 million in FY2023 (2022:
£13 million).
Scandlines continues to progress its zero-emission fleet ambition
with the construction of its new electric freight ferry, which is
expected to be operational in 2024. Further details can be found
on page 51.
We continue to value Scandlines on a DCF basis and at 31 March
2023 its value of £554 million (31 March 2022: £533 million) reflects
the dividends received in the year and a degree of caution on
the outlook.
Foreign exchange
We hedge the balance sheet value of our investment in Scandlines.
In September 2022, we increased the size of this hedging
programme from €500 million to €600 million to cover the higher
underlying valuation of our investment.
We recognised a £21 million gain on foreign exchange translation
(March 2022: loss of £4 million) offset by a £7 million fair value
loss (March 2022: gain of £2 million) from derivatives in our
hedging programme.
Table 11: Gross investment return for the year
to 31 March
Investment basis
Unrealised profit on the revaluation of
investments
Dividends
Foreign exchange on investments
Movement in fair value of derivatives
Gross investment return
Gross investment return as a % of opening
portfolio value
2023
£m
2022
£m
–
38
21
(7)
52
101
13
(4)
2
112
10%
26%
3i Group plc | Annual report and accounts 2023
41
What’s in this section
A responsible approach
1. Invest responsibly
2. Recruit and develop a diverse pool of talent
3. Act as a good corporate citizen
Our TCFD disclosures
43
44
52
57
60
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A responsible
approach
We invest with the objective of generating
attractive returns through the cycle for our
shareholders and co-investors. We aim to achieve
this objective sustainably by behaving responsibly
as an investor, an employer and a corporate citizen.
A responsible approach to managing our business and our portfolio
has been key to how we have operated since 3i was founded in 1945.
Our purpose at that time was to contribute to rebuilding post-war
Britain by providing growth capital to small businesses.
The responsibility that came with that original purpose still guides
our behaviour today.
We are a small organisation of approximately 250 employees.
With assets under management of £29.9 billion, the impact of our
actions on the environment and society is determined largely
by our portfolio. We invest in and manage our portfolio responsibly,
with regard to the consequences of our actions on stakeholders.
This practice is built on our values, strong governance and robust
processes, both at 3i itself and at its portfolio companies.
This approach has allowed us to earn the trust of our shareholders,
co-investors and investee companies, and to recruit and develop
employees who share our values and ambitions.
This section aims to summarise our approach to sustainability.
For the full picture, please read it in conjunction with the rest
of the Annual report, including our TCFD disclosures on pages
60 to 66, our Sustainability report, which also includes our Global
Reporting Initiative ("GRI”) content index and Sustainability
Accounting Standards Board ("SASB”) disclosures, as well
as our sustainability policies, which are available on our website.
Our sustainability strategy is defined
by three key priorities:
Invest
responsibly
+ PAGE 44
Recruit and
develop a diverse
pool of talent
+ PAGE 52
Act as a
good corporate
citizen
+ PAGE 57
www.3i.com/sustainability/sustainability-reports-library
» SUSTAINABILITY REPORT
» SUSTAINABILITY POLICIES
www.3i.com/sustainability/sustainability-policies
3i Group plc | Annual report and accounts 2023
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Invest
responsibly
We believe that a responsible approach
to investment adds value to our portfolio.
As a proprietary capital investor, we invest
selectively in a few businesses every year, giving
due consideration to the sustainability of investee
companies’ activities before deploying capital
and throughout the holding period. We buy
majority or significant minority holdings in our
core portfolio companies and are represented
on their boards, which enables us to ensure that
they assess their environmental or social impacts,
devise strategies to mitigate them, and invest
in the development of sustainable goods
and services.
Our approach is based on the four pillars:
Long-term stewardship
Thematic origination
Careful portfolio construction
Assessment and management
+ PAGE 14
+ PAGES 16-17
+ PAGE 14
+ PAGES 45-46
We refine our approach continuously. We have a formal ESG
Committee, composed of professionals drawn from across the
organisation with a broad range of functional expertise, which is
responsible for further embedding and advancing our responsible
investment practices within the organisation and advising the Chief
Executive, directly and through our Investment and Group Risk
Committees, on ESG-related matters.
This Committee’s responsibilities include reviewing best practice
in the assessment and management of ESG-related risks and
opportunities throughout our investment and portfolio management
processes and developing and recommending changes to our
processes and to our Responsible Investment policy to reflect
emerging best practice, evolving stakeholder expectations and
recent and upcoming sustainability regulations across our markets.
In FY2023, we embedded dedicated sustainability resource in
our Private Equity and Infrastructure investment teams. This has
accelerated the implementation of a range of sustainability initiatives
across the portfolio, enhanced the quality of our engagement with
portfolio companies on ESG themes and improved our assessment
of sustainability factors in our investment and value creation
processes.
Our Responsible Investment policy
Our Responsible Investment (“RI”) policy sets out the types of
businesses in which 3i will not invest, as well as minimum standards
in relation to ESG matters which we expect new portfolio companies
to either meet or commit to meeting over a reasonable time period.
We screen all investments against the RI policy, irrespective of their
country or sector.
3i’s objectives as set out
in the RI policy are to invest
only in businesses which
are committed to:
» SUMMARY OF OUR RESPONSIBLE INVESTMENT POLICY
www.3i.com/sustainability/sustainability-policies
The environment
A cautious and responsible approach to the
environmental management of their business
operations (and those of their supply chain) by
making efficient use of natural resources and
mitigating environmental risks and damage.
Business integrity
Upholding high standards of business integrity,
avoiding corruption in all its forms, and
complying with applicable anti-bribery,
anti-fraud, anti-money laundering and data
protection laws and regulations.
Fair and safe working conditions
Respecting the human rights of their workers
and of the people working in their supply chain;
maintaining safe and healthy working
conditions for their employees, contractors
and the people working in their supply chain;
treating their employees fairly; upholding the
right to freedom of association and collective
bargaining; treating their customers fairly and
respecting the health, safety and wellbeing
of those affected by their business activities.
Good governance
Implementing a strong corporate governance
and risk management culture and complying
in form and substance with established best
practice in corporate governance which is
appropriate to the relative size and complexity
of the relevant business and the markets
in which it operates.
3i Group plc | Annual report and accounts 2023
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Invest responsibly continued
Assessment and management of ESG factors in our investment and portfolio management processes
The active management of ESG risks and opportunities is key to our value creation process and to maintaining our reputation as
a responsible investor. We embed an assessment of the long-term sustainability of existing and new investments in our processes.
Once invested, we support companies as they develop strategies and respond to stakeholder expectations, and we gather data
to measure progress against ESG objectives. This enables us to prepare companies ahead of any exit opportunity.
Pre-investment
During investment period
Exit
Preparation
and communication
• Consider the data and
governance structures which
may be required in advance
of a sale process
• Work with advisers to
communicate relevant
sustainability information
to potential buyers
Assessment and
action planning
Use of influence
and engagement
Data collection
and monitoring
• Screen each opportunity against
the requirements of the RI policy
at the first stage in our process
• Identify and assess the most
material ESG risks inherent
in each investment opportunity
• Commission specialist due
diligence on ESG matters where
required
• Include ESG considerations
(both risks and value creation
considerations linked to
the investment case) in
the Investment Committee
materials
• Integrate relevant action points
into the 180-day post-investment
plan
• Implement robust governance
and procedures at the portfolio
company to ensure that ESG risks
and opportunities are assessed
regularly and managed carefully
• Collect ESG data from portfolio
companies on an annual basis
to understand the baseline
and measure progress
• Prepare detailed quantitative
• Use active participation and
influence on portfolio company
boards to ensure they are
addressing the ESG factors
impacting their businesses
• Leverage the 3i portfolio and
network to provide introductions
to other companies, useful
contacts and advisers and share
best practice, sometimes through
dedicated forums such as the
plastics, carbon and CIO
roundtables we held for portfolio
companies in recent years
• Provide a sounding board and
support to portfolio companies
as they devise their sustainability
strategies and implement and
deliver sustainability projects
and qualitative ESG assessment
as part of the March semi-annual
portfolio company review
process
• Discuss ESG assessment during
semi-annual portfolio company
review meetings, involving
investment teams as well as
Investment Committee members
and selected 3i Board members
• Set and monitor progress with
portfolio-wide objectives
(eg for portfolio companies
to produce a carbon emissions
baseline and implement
a sustainability strategy)
Objectives
The Investment Committee may
decline investment opportunities
where red flags are raised in the pre-
investment ESG risk assessment that
it does not believe can be remedied
post investment or commission further
specialist due diligence to assess
whether a situation can be remedied.
We use our influence to assess
and mitigate risks and ensure value
creation opportunities are captured.
Data is used to develop our
understanding and management of
ESG matters, to enhance our decision
making, to facilitate better financing
opportunities and to identify key
themes, trends and opportunities
across the portfolio.
Good ESG performance can protect
and potentially enhance the value
achieved in an exit.
ESG risks in our portfolio
We make a limited number of new investments every year.
We make majority or significant minority investments in our core
portfolio companies and exercise influence through membership
of their boards, where we ensure that they are aware of longer-term
ESG themes (such as climate change and resource scarcity) that
could impact their businesses and that these themes are taken into
account in their longer-term planning. We screen out investment
opportunities which are overly exposed to ESG or other risks and
have the flexibility to sell investments that become or have the
potential to become overly exposed to ESG risks.
We carried out our initial, top-down climate scenario analysis
to model the impact of climate change on our Private Equity
and economic infrastructure portfolio companies, in line with
TCFD recommendations, and are currently refining and improving
our approach to scenario analysis to better understand climate
physical and transition risks in our portfolio.
Our annual stress test scenario planning, which underpins
our Viability statement, also models environmental impact on
our portfolio using the results of the portfolio companies’ ESG
assessments. Our approach to managing these risks is set out
in the Sustainability report.
The key ESG risks that our portfolio companies were exposed
to during the year were environmental and social regulation, climate
change, cyber security, fraud, sanctions, occupational health and safety
and the residual impact of Covid-19. Our approach to the management
of these risks is set out in the Sustainability report. Our approach
to climate risk management and information on our use of scenario
analysis are set out in our TCFD disclosures on pages 60 to 66.
+ PAGES 78-91
+ PAGES 60-66
» SUSTAINABILITY REPORT
www.3i.com/sustainability/sustainability-reports-library
Risk management
TCFD disclosures
3i Group plc | Annual report and accounts 2023
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Invest responsibly continued
Proactive engagement with our portfolio
Once invested, we use our influence with portfolio companies
with a view to ensuring, over the life of the investment, that they
have a proportionate sustainability strategy in place. This involves:
• board or management-level responsibility and appropriate
governance, reporting structures and resourcing to manage ESG
risks and opportunities that may impact their business over the
holding period;
• considering the material ESG and sustainability factors that have
the potential to impact their business on a regular basis;
• measuring their carbon footprint (Scopes 1 and 2 at a minimum)
and considering appropriate reduction targets;
• ensuring they are well prepared to meet regulatory requirements;
and
• considering stakeholders in their management of ESG and
sustainability issues and communicating transparently.
We leverage our knowledge and expertise across our portfolio
and facilitate the sharing of best practice, either through relevant
introductions, or through thematic forums, such as the plastics,
carbon and CIO roundtables we held for our portfolio companies
in 2019, 2021 and 2023. In addition, ESG is frequently on the agenda
of portfolio events, such as our biennial CEO and chairman forums,
where it is addressed through expert presentations or panel
discussions involving portfolio company management teams.
For example, ESG was a key agenda item at our portfolio company
CEO and chairman forum in October 2022, where five portfolio
company CEOs from across the Private Equity and Infrastructure
portfolios shared their experiences and the benefits of embedding
sustainability into their operations.
88%
of portfolio companies with
board or management team
specific responsibility for ESG
management and compliance1
45%
of portfolio companies publish
sustainability reports1
1 Excluding PPP project investments and some legacy minority and other minority investments
where we have limited influence.
In the case studies that follow, we show examples of how
we have engaged with portfolio companies and supported
their actions across a number of material ESG themes.
» SUSTAINABILITY REPORT
www.3i.com/sustainability/sustainability-reports-library
Action
Sustainability is an integral aspect of Action’s strategy. Action
is committed to making sustainability accessible for everyone
by continually investing to improve the quality and sustainability
of its products and stores.
Action’s Sustainability Programme is structured around the
four pillars of people, planet, product and partnerships, each
with clear and measurable KPIs and targets. We highlight
below the progress Action has made on some of its priorities.
Progress on material topic: GHG emissions reduction
Key commitments
• 60% reduction in Scope 1 and 2 emissions by 2030
(2021 baseline)
Progress to 2022
• 40% reduction in Scope 1 and 2 emissions in 2022 compared
to 2021
• 85% of stores disconnected from gas grid
• 90% of electricity used or consumed from renewable sources
• 95% of stores fitted with LED lights
Action is committed to reducing the absolute emissions from
its own operations and to decreasing the impact the company
has on the environment. In support of this, it has set an ambitious
reduction target with several initiatives underway, including
disconnecting its store base from the gas grid, installing solar
panels on some DCs and stores, procuring electricity from
renewable sources, as well as various other energy efficiency
measures, such as the installation of LED lights in stores.
Action is also working to reduce the emissions associated with
its logistics and delivered a 13% reduction in transportation
emissions from its own trucks in 2022, driven primarily by piloting
the use of biofuels. The business will take this further in 2023
by piloting the use of electric trucks.
The company has entered into a collaboration with key logistics
partner Maersk to lower the emissions of its sea freight
operations through Maersk’s ECO Delivery programme, which
involves the replacement of fossil fuels with ISCC certified green
fuels. This will result in the reduction of Action’s Scope 3
emissions by an estimated 29,000 tonnes of CO2 in the current
calendar year.
Importantly, Action is in the process of calculating its Scope 3
emissions to determine future targets and reduction strategies
throughout the value chain.
3i Group plc | Annual report and accounts 2023
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Progress on material topic: responsible sourcing
Key commitments
• 100% sustainably sourced cotton by 2023
• 100% sustainably sourced cocoa (private label products) by 2023
• 100% sustainably sourced timber by 2024
• 100% private label and white label Tier 1 supply chain
transparency by 2025
Progress to 2022
• 90% of cotton sustainably sourced (BCI/organic/recycled)
• 100% of own brand chocolate sourced with Fairtrade cocoa
• 92% of timber products sustainably sourced (FSC/PEFC)
• Launched partnership with ImpactBuying to improve supply
chain transparency across product categories
• Engaged the consultancy firm Enact to assess and improve
supplier due diligence practices
• 100% private label product transparency (Tier 1 suppliers)
achieved in 2022
• 98% of direct import factories in high-risk countries assessed
on social impacts through social audits and spot checks
• Piloted the amfori BEPI assessment
Action has a global supply chain and is committed to sourcing
its products responsibly with consideration for the environment,
human and labour rights. The company uses a number of tools
to achieve this ambition, including:
• an ethical sourcing policy, accepted by suppliers and which
is built upon recognised international frameworks;
• responsible sourcing policies for timber products, cotton, cocoa,
chemicals, plastics and packaging, implemented through third-
party certification with partners such as FSC, Better Cotton and
Fairtrade; and
• robust due diligence procedures on suppliers and factories,
including a programme of social audits and spot checks applied
to direct import suppliers, which can result in remediation
actions or in the termination of supplier relationships.
Progress on material topic: product circularity
and sustainable packaging
Key commitments
• 100% recyclable packaging by 2025 (excluding A-brands)
• 25% weight reduction target for the primary packaging
of its fixed assortment (private and white label products)
by 2025 (from 2019 baseline)
Progress to 2022
• Currently assessing a product circularity goal
• Completed circularity baseline assessments for all
14 product categories
• Improved 10 category scores from original baselines
• 100% of private label packaging recyclable (no PVC
or black plastics)
• Launched sustainable packaging policy to aid buyers
in purchasing decisions
Action strives to improve product circularity, which is managed
per product category. It has completed circular baseline
assessments for each of its 14 product categories and set targets
to improve the circularity scoring of each of these. Its Buying
and Quality teams have been supported by Circle Economy,
a circularity specialist, to improve their awareness and
implementation of circularity through product sourcing. Action
has also implemented policies for unsold and damaged goods
which are separated into resaleable products or waste, which
is separated and reused where possible.
The company also aims to mitigate the negative impact caused
by pollution from packaging by increasing the use of renewable
materials, reducing the weight and improving the recyclability
of packaging.
» ACTION UPDATE 2022
www.update2022.action.com/update2022/home
3i Group plc | Annual report and accounts 2023
47
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Invest responsibly continued
TCR
TCR is an independent lessor of airport ground support
equipment (“GSE”) and operates at over 180 airports across
the world. It aims to ensure that the equipment rented to its
customers at airports is available and in good working condition
to fulfil its mission: securing swift, on-time, safe and efficient
ground handling operations whilst reducing costs for its
customers and its environmental impact.
TCR identified GHG emissions and health and safety as the two
most relevant ESG issues in a materiality assessment carried out
in 2019. The outcome of this survey shaped TCR's sustainability
strategy which was developed in 2021 and is now fully embedded
within the organisation.
Progress on material topic: GHG emissions reduction
TCR determined that nearly two thirds of its carbon footprint
in 2021 was linked to the utilisation of GSE by its customers,
or the fuel combustion of GSE it rents out.
TCR focused its efforts on supporting its customers in reducing
GHG emissions from the utilisation of its fleet by:
• optimising the use of GSE, eg reduction of idle running
and use of telematics;
• optimising the fleet size, eg "pooling” projects to share
equipment between customers; and
• encouraging the procurement of green GSE and converting
existing diesel GSE to alternative energy sources.
To encourage its customers to adopt green GSE, TCR proposes
and procures alternative low-carbon equipment wherever
possible, particularly on GSE categories identified as high
emitting (such as buses, ground power units and pushback
tractors). It is helping customers in implementing electric GSE
replacement plans where airport charging infrastructure allows,
and working on a diesel-to-electric GSE conversion strategy
where replacement is not feasible. TCR’s objective is for 60% of
new GSE capex investments to be green by 2030 (vs 22% today).
Progress on material topic: health and safety
TCR monitors health and safety performance on a monthly basis
and has seen a decreasing incident trend since 3iN’s initial
investment in 2016. In the early years of 3iN’s ownership, 3i
ensured TCR’s management made safety a priority for the
business, requesting increased resources, improved reporting
and safety to be discussed first at each board meeting. Safety
gradually became part of the company’s culture and embedded
into the organisation. The health and safety management at TCR
became more proactive, with the introduction of additional
training, inspections and monitoring of leading indicators at
regional and country level.
Safety remains an important topic of attention. In 2021 the
business launched quarterly group safety newsletters, participated
in international safety campaigns, ran a group-wide campaign
with regards to tyre handling, organised internal awareness
initiatives and implemented a new occupational health and safety
management platform with additional functionality to further
reduce incidents in the workplace. This was supplemented in 2022
with the launch of the “TCR academy”, an online tool which
includes resources on safety standards, as well as with a campaign
to promote increased safety awareness among employees.
TCR has also established a set of standards and processes
to ensure the safety of its customers’ employees, from GSE
procurement, where the highest specification standards are
chosen, through to operations, where training programmes are
provided to end users, and maintenance, where assets are being
maintained properly, in time and to the highest standards.
TCR is also ensuring its customers have the tools to report
any defect or safety issue in the most efficient way possible.
» TCR GROUP’S 3×3 STRATEGY FOR SUSTAINABILITY
www.tcr-group.com/about-us/esg
3i Group plc | Annual report and accounts 2023
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Invest responsibly continued
Evernex
Evernex is the European leader in third-party IT infrastructure
maintenance, providing services to over 10,000 customers
globally by supporting critical IT systems used in data centres
such as servers, storage and network hardware. The service
model offers a circular IT solution incorporating the principles
of repair, reuse and recycling by extending equipment life by
up to 15 years, refurbishing spare parts for reuse and offering
a Waste from Electrical and Electronic Equipment compliant
recycling service to prevent end-of-life equipment from
becoming landfill waste.
Eighty percent of the lifetime emissions of IT equipment come
from the manufacturing process. Evernex supports its customers
to reduce waste and their carbon footprint, while reducing opex
and capex, by managing the lifecycle of their existing equipment.
In 2021, the company provided service to nearly 360,000 assets
worldwide and prevented the emission of c.114,000 tCO2e
by delaying or avoiding equipment upgrades.
Progress on material topic: circular spare parts and recycling
Evernex buys and refurbishes second-hand parts and reuses
components where possible, enabling the company to act as
a worldwide broker of refurbished spares, including parts that are
no longer available from the original manufacturer. Currently, 30%
of the components received by Evernex as "IT waste” are reused,
representing more than 142,000 spare parts and more than 6,000
servers put back in service every year. The remaining 70% contains
valuable minerals such as steel and ores which are separated into
secondary raw materials which re-enter the production cycle.
Overall, 95% of computer equipment waste received by Evernex
is recycled (500 tonnes). The company has over 330 stocking
locations and 850,000 IT parts in stock globally, ensuring that
customers have access to the spare parts they need locally,
with minimal carbon impact from delivery. Shipments from the
warehouse to stocking locations are grouped as much as possible
to enable both efficiency and reduced environmental impact.
To support future growth in its recycling activities, in October
2022 Evernex opened a new 6,000m2 facility in Mitry-Compans,
France. The opening of this facility, the largest reconditioning
and recycling site for second-hand parts in EMEA, represents
a key pillar of the company’s strategy by significantly increasing
capacity for future recycling. Spare part processing capacity
has potential to increase by 30%, while storage capacity will
also increase by 40%.
Progress on material topic: GHG emissions reduction
Evernex was selected by ADEME, the French Agency for
Ecological Transition, to join a three-year programme to establish
a climate strategy, transition plan and decarbonisation roadmap.
In 2022 the company completed the first year of the “ACT” –
Assessing Low Carbon Transition programme which involved
establishing a full baseline and conducting an initial maturity
assessment. This assessment demonstrated that most of
Evernex’s emissions are derived from Scope 3 and over 90%
result from the supply chain, sourcing and delivering materials,
and shipping parts to customers. Analysis also demonstrated
the benefits of Evernex’s reliance on second-hand spare parts,
leading to 6,570 tCO2e of avoided emissions compared to buying
new ones.
Currently in the second year of the ACT programme, Evernex
is training its executive committee, building a reduction trajectory
and action plan to achieve it, and establishing ongoing carbon
performance KPIs in line with external frameworks which include
TCFD, CDP and the SBTi.
Evernex’s customers are provided with Carbon Footprint
Reduction certificates to raise awareness of the decarbonisation
benefits provided through the Sustainable IT maintenance
programme.
» EVERNEX CORPORATE SUSTAINABILITY REPORT
www.evernex.com/sustainability-and-csr
3i Group plc | Annual report and accounts 2023
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Invest responsibly continued
Audley Travel
Founded in 1996, Audley is the UK market leader in tailor-
made travel. Since 3i invested it has made significant progress
in developing its approach to sustainability.
Progress on material topic: GHG emissions reduction
Audley has taken steps to assess and reduce its corporate
carbon footprint over many years, for example by moving
all offices to renewable energy tariffs, reducing energy
consumption, and installing electric car charging points
and solar panels at its headquarters. As a result the company
was able to deliver a c.50% reduction in Scope 1 and c.83%
reduction in Scope 2 emissions between 2019 and 2022.
In 2022 Audley measured its Scope 3 emissions associated
with client trips, including an assessment of the total distance
travelled and hotel stays in each location.
Audley has used this data to identify ways to reduce its Scope 3
intensity, and has set a goal to reduce the carbon footprint of
its trips on a per person per day basis. It intends to achieve this
by working with local partners to identify changes including
the use of more electric vehicles for transfers, and supporting
accommodation and cruise providers to explore ways to reduce
their emissions. Audley also continues to engage with its airline
partners on their emissions reduction plans.
Audley submitted a commitment letter to the SBTi at the end
of 2022. It has been awarded the silver World Responsible
Tourism award for “Decarbonising Travel and Tourism”
in acknowledgement of its efforts to date.
Progress on material topic: responsible travel
Audley appointed a dedicated Responsible Travel and
Sustainability Manager in 2019. When creating experiences,
the company prefers to work with local partners where possible
and offer small boutique hotels and unique local tours, leaving
much-needed income within destination countries. In addition
to focusing on local experiences, Audley has taken further
steps to identify experiences and accommodation that put a
purposeful focus on supporting local businesses, educating
staff, challenging local norms or promoting conservation and
biodiversity efforts. Any experience identified must be leading
the way in the community, not just meeting a local minimum
standard. By clearly identifying these accommodations and tour
options, Audley can offer clients sustainable choices and allow
them to make a positive contribution to the local environment
or local community as part of their trip. In 2022 over
100 experiences were highlighted and Audley plans to identify
at least 100 more in 2023.
» AUDLEY TRAVEL RESPONSIBLE TRAVEL AND SUSTAINABILITY REPORT 2023
www.audleytravel.com/about-us/responsible-travel
3i Group plc | Annual report and accounts 2023
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other information
Invest responsibly continued
Scandlines
Scandlines operates ferry services between Germany and
Denmark, along two routes: Puttgarden-Rødby and Rostock-
Gedser. Its ferry fleet includes six hybrid ferries and a freight
ferry which also acts as a replacement ferry when required.
In 2021, Scandlines set an ambitious target of achieving zero
Scope 1 and 2 emissions on its Puttgarden-Rødby route
by 2030, and on the Rostock-Gedser route and other parts
of the business by 2040. It has identified environmental
protection, health and safety, people and a healthy supply
chain among its sustainability priorities.
Progress on material topic: GHG emissions reduction
and environmental protection
Scandlines has invested significantly toward its zero direct
emission vision and expects green investments to total
approximately €400 million in the period from 2013 to 2024.
The four passenger ferries it operates on its Puttgarden-Rødby
route were converted to hybrid ferries in 2013/14. They have now
all been equipped with new thrusters, reducing CO2 emissions
further and bringing down noise levels, thereby improving
conditions for marine life.
The two ferries it operates on its Rostock-Gedser route were built
as hybrid ferries in 2016. These newer ferries were tailor-made
for the route to optimise for shallow waters and to reduce fuel
consumption. A rotor sail was installed on both ferries in 2020
and 2022 respectively, introducing wind power technology
and further reducing emissions. With these ferries, fuel
consumption can be reduced by two thirds per trip, per car,
compared to previous ferries.
As a key step towards its net zero vision, in 2021 Scandlines
ordered a new zero direct-emission freight ferry which is
expected to be commissioned on the Puttgarden-Rødby
route in 2024.
Additionally, Scandlines switched all land-based electricity
contracts to renewable sources in 2021, reducing the CO2 footprint
of the business by more than 1,800 tonnes, and installed
34 additional charging stations for electric and hybrid cars
at all its ports in 2022.
During 2022, Scandlines increased its efforts to improve emission
calculations. Scandlines established its Scope 3 emission inventory
confirming that purchased goods and services as well as fuel and
energy-related emissions comprise most of the indirect emissions.
Further, Scandlines has partnered with Reflow, a Danish climate
tech start-up, to use its cutting-edge technology to produce
a lifecycle assessment of the new ferry. This will allow Scandlines
to run simulations of green technology so that it can develop
and improve the design in the future.
Scandlines estimates that various initiatives it has implemented since
2019 have allowed it to reduce CO2 emissions by 12% per trip.
» FOR MORE INFORMATION
www.scandlines.com/about-us/our-green-agenda
3i Group plc | Annual report and accounts 2023
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Recruit and
develop a diverse
pool of talent
Our people are our main asset. Recruiting, retaining
and developing our talent is therefore a priority.
We have an open and non-hierarchical culture,
provide an inclusive and supportive working
environment with opportunities for training and
career development and foster the physical and
mental wellbeing of our employees. We value
diversity and believe that a variety of perspectives
enhances our decision making. Our employees
are recruited, promoted and rewarded on merit.
We are an equal opportunities employer and
prohibit all forms of discrimination.
Human rights
Our policies are consistent with internationally-recognised human
rights principles such as the UN Global Compact. 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. We also encourage our
business partners and suppliers to adopt the same standards
with respect to human rights.
+ PAGE 58
» OUR MODERN SLAVERY STATEMENTS
www.3i.com/sustainability/modern-slavery
Modern slavery
Equal opportunity, diversity and inclusion
3i is an equal opportunities employer and prohibits unfair
discrimination.
We have made reasonable progress in achieving greater diversity
within our organisation, including across a number of senior
investment and non-investment roles. We nonetheless strive
to continue improving our performance on an ongoing basis.
We consider diversity in all recruitment processes and explore
initiatives to address the perceived barriers to entry into our sector.
However, we are a small organisation with relatively low turnover
and recruitment volumes, which means that achieving greater
diversity will be a gradual process. To reinforce our commitment
to equal opportunities, our line managers have received training
on unconscious bias, focused on raising awareness of the attitude
and behaviours associated with a range of important line manager
activities, such as performance management, team leadership
and, where relevant, recruitment activity.
In FY2022, we engaged a specialist Diversity, Equity and Inclusion
(“DE&I”) consultancy, which supported us in building upon our DE&I
practices. As a result of this work, in FY2023 we launched a number
of practical initiatives to improve our practices further, including:
• the Leading with Impact Programme, which encourages leaders
to reflect on personal and group biases and the possible impact
of these on their everyday behaviours and decision making.
This programme was rolled out initially to partners and directors
in our Private Equity and Infrastructure investment teams, and will
be rolled out to functional heads and directors in the course
of FY2024; and
• an internal mentoring programme open to all employees across
all geographies and levels of seniority, which contributes to our
DE&I efforts by ensuring that mentees are nurtured based on their
diverse needs and individual career aspirations. All mentors are
trained in bias awareness and inclusion, building their DE&I
knowledge, skills and confidence, which contributes to our wider
goals of creating a diverse pipeline of talent based on the
principles of fairness and equity.
As part of our DE&I Strategy we are considering how we work
as individuals and in our teams to determine ways in which we can
improve our effectiveness and inclusivity. In FY2023 we invited our
Private Equity and Infrastructure business line employees to complete
the Myers Briggs Type Indicator ("MBTI"), one of the most widely
used tools for understanding normal personality differences among
people and a great instrument when considering the professional
development of individuals and teams. Following the completion
of the MBTI online questionnaire, we explored our preferences
in externally facilitated sessions. We will carry out the same exercise
for our professional services employees in FY2024.
Since the end of FY2023 we have set up a DE&I steering group
chaired by our Chief Human Resources Officer and with members
drawn from diverse functions across the organisation. This steering
group will drive the DE&I agenda by monitoring progress against our
objectives, ensuring alignment and collaboration across the Group,
and by enabling each business area to have a voice and bring
forward ideas for review and approval and to be put forward to our
Executive Committee.
We continue to take part in a number of initiatives to improve DE&I
at 3i and within our industry more broadly. These initiatives, which
focus on gender, ethnic and social diversity, are described on pages
53 and 54. Our programme of diversity and inclusion talks continued
in FY2023, with talks from the current chair of Level20, a co-founder
of the #10000BlackInterns Initiative and representatives of The
Children’s Society.
No incidents of discrimination were reported in FY2023.
249
26
Nationalities
Employees
as at 31 March 2023
» OUR EQUAL OPPORTUNITIES AND DIVERSITY POLICY
www.3i.com/sustainability/sustainability-policies
3i Group plc | Annual report and accounts 2023
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Recruit and develop a diverse pool of talent continued
Ethnic diversity
We continue to make good progress towards the fair representation
of ethnic minorities within our organisation.
The McGregor-Smith review on “Race in the Workplace”, published
on 28 February 2017, highlighted the under-employment and under-
promotion of people of ethnic minority backgrounds in UK
businesses and made the case for more inclusive organisations.
The review noted that, while one in eight of the UK working age
population in 2015 was from an ethnic minority background,
individuals from ethnic minorities made up only 10% of the workforce
and held only 6% of top management positions. As at 31 March 2023,
at least one in eight of 3i’s total UK employees were people with
an ethnic minority (excluding white minority) background, based
on the responses to a DE&I survey we carried out for our UK office
earlier in the year. In addition, the proportion of our UK-based
employees from an ethnic minority (excluding white minority)
background in mid to higher salary brackets significantly
exceeded the one in eight proportion.
In FY2023, we appointed the first Director from an ethnic minority
background to our Board. Jasi Halai was promoted from Group
Financial Controller to Chief Operating Officer and became
a member of the Board as an Executive Director in May 2022.
Jasi joined 3i in 2005 and has held a number of positions in
the organisation. Her promotion to the Executive Committee
and Board demonstrates 3i’s commitment to growing its own
talent and fostering diversity within its ranks.
We are also committed to advocating for better representation
of ethnic minorities in our industry. We have been participating
in the #10000BlackInterns (formerly #100BlackInterns) initiative
since 2021.
Social diversity
In 2018, we began a partnership with Career Ready, a UK social
mobility charity that connects employers with schools and colleges
to prepare disadvantaged young people for the world of work.
Since 2021 we have also been collaborating with Speakers Trust,
which has over 15 years of experience in providing high quality,
professionally-delivered workshops, events and educational
resources on public speaking and communication skills.
These are enablers of social mobility and help build a stronger
society in which the voices of young people are heard, irrespective
of their background.
Gender diversity
Achieving better gender diversity is important to 3i and we believe
we are making reasonable progress in that respect, within the
constraints of a small organisation with modest staff turnover.
Of the 41 new hires we made during the year, 15 were female
and 26 were male. Note that we refer to “female” and “male”
when discussing biological sex and to “women” and “men”
when discussing gender.
As at 31 March 2023, 3i’s total of 249 employees was broken down
as follows, based on biological sex1:
3i employees
Senior managers2
Female
100
10
Male
149
31
Total
249
41
1 The information of biological sex is gathered through employees’ legal documents shared with us.
2 Senior managers exclude Simon Borrows, James Hatchley and Jasi Halai, our Chief Executive, Group Finance
Director and Chief Operating Officer, who are included as Board members. This disclosure is based on the
requirements of Section 414C of the Companies Act 2006.
Gender diversity is an issue that the investment industry has long
struggled with. According to the BVCA and Level 20 Diversity &
Inclusion Report 2021, women made up 38% of the private equity
and venture capital workforce in 2020 and only 20% of investment
team professionals. Slow progress towards gender parity has been
largely attributed to: (i) a narrow candidate pool, as typical feeder
industries (such as investment banking, accounting and consulting)
remain male-dominated, particularly at more senior levels;
(ii) a perception of poor work/life balance, both in the investment
industry and feeder industries; and (iii) a lack of relevant role models.
A sustainable step change in gender diversity in our industry will take
many years and must start with grass-roots education and advocacy
work in schools and universities, for example, as well as through
positive action taken by us and other investment firms on
recruitment, flexible working and parental policies. In addition to
focusing on diversity in our recruitment processes and introducing
the mentoring programme, we also offer flexibility at work and a
range of family-friendly policies. These are described in our
Sustainability report.
We contribute to industry-wide work and advocacy on gender
parity through a number of industry associations, by being an official
sponsor of Level 20 and through our participation in the GAIN
Empower Investment Internship Programme.
3i Group plc | Annual report and accounts 2023
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Recruit and develop a diverse pool of talent continued
3i participates in the #10000BlackInterns
initiative
Following the successful launch of #100BlackInterns
in which 3i participated in 2021, the #10000BlackInterns
initiative was set up in 2022 to help further transform
the horizons and prospects of young black people
in the United Kingdom. The programme seeks to offer
2,000 internships each year for five consecutive years.
To deliver this initiative #10000BlackInterns has partnered
up with firms from 24 different sectors, delivering internships
across a range of business functions.
Since its launch, the programme has garnered extraordinary
support with over 700 companies offering internships to black
students in the UK as a way of attracting a more diverse range
of talent to their sectors.
We welcomed two students for paid internships in our
investment teams in each of the summers of 2021 and 2022
and will welcome one student in the summer of 2023.
» FOR MORE INFORMATION
www.10000blackinterns.com
3i is an official sponsor of Level 20
Level 20 is a not-for-profit organisation dedicated to
improving gender diversity in the European private equity
industry. It is sponsored by over 80 private equity firms.
Its ambition is for women to hold 20% of senior positions
in this dynamic industry. It works to empower women
who already work within the industry, encourage new talent
to join and provide leadership teams with insight and best-
practice solutions to help them address current gender
imbalances within the industry and their firms. It has four
key pillars of activity which contribute to its goals:
• Mentoring and development
• Networking and events
• Outreach and advocacy
• Research
3i participates in the GAIN Empower
Investment Internship Programme
(in partnership with Level 20)
GAIN (Girls Are INvestors) is a community of investors,
with charitable status, set to change the lack of gender
diversity in investment management.
GAIN aims to inform young women with online resources,
bringing helpful information on careers in investment to their
fingertips and to inspire them with a strong network of
relevant role models, who speak in high schools and
universities around the UK and feature on its online channels,
delivering compelling and high-impact messages on the
many benefits of investing as a career.
Among the initiatives managed by GAIN is a summer
internship programme, open to women and non-binary
students across the UK. 3i was one of 78 firms participating
in the 2022 summer internship programme, taking on two
interns for paid internships. We will renew our participation
in the scheme with three further interns joining 3i’s
investment teams for paid internships in the summer of 2023.
In addition to the internship programme, a number of our
employees are taking part in the GAIN 1-2-1 mentoring
programme, both as mentors and mentees.
» FOR MORE INFORMATION
www.gainuk.org
3i takes part in Career Ready’s
mentoring programme
Since 2002, Career Ready has connected employers with
schools and colleges to provide disadvantaged young people
aged 14-18 with mentors, internships, masterclasses,
and employer-led activities that prepare them for the world
of work.
3i takes part in the mentoring programme which supports
young people aged 16 to 18 who lack the opportunities,
professional networks and confidence to find their
undiscovered talents. Three of our employees are
volunteering as mentors in the current academic year,
meeting their mentees for an hour per month for
up to 12 months.
» FOR MORE INFORMATION
www.level20.org
» FOR MORE INFORMATION
www.careerready.org.uk
3i Group plc | Annual report and accounts 2023
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Recruit and develop a diverse pool of talent continued
Employee engagement
We encourage a culture of open communication between our
employees and senior management. We benefit from being a small
organisation, operating in a relatively flat structure with few
hierarchies and the members of our Executive Committee have an
open-door policy. We encourage feedback from employees to senior
management through informal conversations and more formal
forums, including regular team meetings and off-sites to discuss our
strategy, as well as through the annual appraisal process. Managers
throughout 3i have a continuing responsibility to keep their teams
informed of developments and to communicate financial results
and other matters of interest.
The Board of Directors typically holds at least one of its meetings
every year in one of our international offices. This provides an
opportunity for non-executive Directors to meet the local teams,
often in a more informal setting. The non-executive Directors also
have other opportunities to engage with employees, for example
by attending our semi-annual portfolio company reviews.
These important meetings provide the non-executive Directors
with an insight into how our investment business operates
and into our culture. Employees also enjoy this opportunity
to interact with the Board.
The Chairman aims to visit all our major international offices on
a rolling cycle and engages with as many employees as possible
during these visits.
We promote and facilitate the ownership of 3i shares among
employees through variable compensation and share investment
plans. The engagement and the sense of ownership we have
fostered over the years are reflected in low employee turnover rates.
87% 9.5%
Participation
in UK SIP1
Voluntary employee
turnover rate
1 Proportion of UK-based employees who subscribe to a Share Incentive Plan available to UK employees only.
Learning and development
Advancing our strategic objectives depends on our ability to attract,
retain and motivate smart people. We therefore provide
our employees with the opportunities, experience and training
to contribute to the success of the organisation, achieve their
potential and grow their knowledge and capabilities.
We encourage employees to take responsibility for their own
development, working with their line managers to devise personal
development plans to support the achievement of their individual
aspirations, consistent with 3i’s objectives. Given the specialised
nature of many of the roles in 3i, an emphasis is placed on work-
based learning, with the provision of development opportunities
supported by appropriate training and mentoring. This is
supplemented by formal courses conducted both internally
and externally and usually with a multinational group drawn
from across the countries in which 3i operates.
In FY2023, we provided formal specialist training on areas and skills
including leadership, financial modelling, presentation and
communication skills, interview skills, spotting and scoping and
sustainability. We also offered executive coaching for some
employees. Our investment executives regularly receive education
on issues of wider topical interest and impact. Last year, our
Infrastructure investment team received training focused on GHG
emissions target setting, sanctions and greenwashing litigation risk.
In addition, we launched an internal 3i mentoring programme
in the year, open to all employees.
Importantly, in FY2023 we arranged training sessions targeted at all
staff focused on climate change. These were held by a leading expert
and business adviser and attended by nearly two thirds of staff and
a significant proportion of our investment professionals.
Key to personal development for all employees is a formal annual
appraisal process, where performance is measured against agreed
objectives and against 3i’s values to inform decisions on
remuneration, career development and future progression.
Employees are encouraged to make use of an online facility to obtain
360-degree feedback as part of this process. All employees receive
formal performance assessment and objective-setting reviews with
their managers annually and may receive informal reviews
throughout the course of the year.
3i Group plc | Annual report and accounts 2023
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We place great importance on employees’ mental wellbeing.
We have trained 18 “mental health champions” across the business,
to act as first points of contact for employees experiencing issues.
Over the past four years, most employees have participated in
workshops organised in partnership with a specialist mental health
consultancy providing a basic understanding of mental health, how
to develop and strengthen it, and how to spot the early warning signs
that indicate an individual may be struggling. In FY2023, we offered
refresher mental health and wellbeing sessions covering the
fundamentals around protecting and strengthening mental health
for employees who had already attended, as well as standalone
sessions for new joiners. We also ran refresher workshops for
employees with line management responsibilities, specifically
to address “positive prevention”, a manager’s “duty of care”
and how to provide support in a way that optimises long-term
business performance. In addition, during the year we partnered
with Headspace for Work, the leading mindfulness-based mental
health app offering meditations and exercises for stress, focus,
sleep, and movement.
All UK-based employees have access to an Employee Assistance
Programme that offers free, confidential telephone counselling
on a range of personal and work-related issues and problems,
as well as face-to-face counselling services. The service also provides
legal and financial advice and other information and services and
is run by Health Assured, an independent external service provider.
Employees who are members of the UK private medical insurance,
for which 3i covers premiums, have access to up to 10 sessions of
psychological support without a requirement for General
Practitioner referral.
Grievance procedures and reporting a concern
3i has clear grievance and disciplinary procedures and an
independent, external “whistle blowing” hotline service which
allows employees to report concerns anonymously.
Recruit and develop a diverse pool of talent continued
Employee wellbeing
We recognise the importance of supporting the wellbeing
and satisfaction of our employees by providing a healthy working
environment and work/life balance. All employees enjoy a broad
range of formal benefits aligned with local custom and practice
and often enhanced relative to the statutory minimum.
Employees are provided with the tools to work remotely and can
apply to work flexibly to manage personal or family commitments.
Flexible working options include remote working, flexible hours
and job sharing. After nearly two years of remote work as a
consequence of the Covid-19 pandemic, our employees are mostly
back in the office for the majority of the week, with the ability to work
remotely for part of the time. Employees appreciate the flexibility
to work from home for part of the working week and the benefits
this brings in terms of work/life balance and the management of
personal commitments.
We promote the physical wellbeing of our employees. For example,
in the UK we provide our employees with annual medical insurance.
All UK employees also qualify for annual health checks and have
access to a Bupa Digital General Practitioner.
During the year, we also started a programme to raise awareness
of the menopause and its impact on female colleagues, family
members and friends. We partnered with Fertifa, a provider
of reproductive health benefits, to organise a fireside chat,
livestreamed to all offices, to discuss the menopause, its symptoms
and treatment. This session was followed by a menopause
workshop for line managers and our mental health first-aiders,
with the objective of providing them with the tools to help female
colleagues to manage their work commitments through this
difficult phase in life.
Our UK-based employees have access to a range of menopause
services, including access to Bupa’s Women’s Health Hub,
to menopause-trained nurses on a 24/7 basis through the Bupa
Anytime Healthline and, for a period of one year, to a dedicated
Bupa Health Clinics Menopause Plan.
For a number of years we have provided the services of a personal
fitness and nutrition adviser, bookable free of charge for one-on-one
fitness, nutrition and broader wellness advice sessions. He also hosts
twice-weekly fitness and pilates classes that are free to employees.
These sessions are offered in person to our London-based
employees and streamed to employees based in our other offices.
This year, he added female wellbeing sessions to his offering,
focusing on specific exercise and nutritional strategies to support
our female employees on their perimenopause, menopause
and post-menopause journeys.
3i Group plc | Annual report and accounts 2023
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» SUSTAINABILITY REPORT
www.3i.com/sustainability/sustainability-reports-library
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Act as a
good corporate
citizen
We embed responsible business practices
throughout our organisation by promoting
the right values and culture among our people
and through the implementation of robust policies
and processes. We expect our employees to act
with integrity, to be accountable for their behaviour,
and to approach their roles with ambition, rigour
and energy. We evaluate our employees against
our values as part of our formal appraisal
process every year.
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 Governance section of this report.
Compliance and policies
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. 3i is not aware of any breaches of its
Anti-bribery policy by its employees.
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.
» OUR ANTI-BRIBERY POLICY
www.3i.com/sustainability/sustainability-policies
Hospitality, gifts and inducements
Our employees may not receive, pay or provide any inducement
which would impair their or our duty to act honestly, fairly and
in accordance with the best interest of our customers. In particular,
employees must never offer or receive hospitality or gifts if this may
improperly influence a business decision, impair independence or
judgement or create a sense of obligation, create a conflict of interest
or if there is a risk it is prohibited. Any hospitality or gifts must have
a clear and legitimate business purpose and, where they arise
in connection with our investment activities, be designed to
enhance the quality of service to our clients.
Charitable donations in 3i’s name must be approved by the Chief
Executive and follow the principles set out in 3i’s Anti-bribery policy.
Political donations
3i’s policy is not to make political contributions, whether to political
parties, political organisations or election candidates. In line with this
policy, in the year to 31 March 2023 no donations were made to
political parties or organisations, or independent election candidates,
and no political expenditure was incurred.
Public policy
Although 3i will not participate directly in party political activity,
it may engage in policy debate on subjects of legitimate concern
to 3i, its staff and the communities in which it operates. This is done
principally through industry representative bodies such as the British
Private Equity and Venture Capital Association (“BVCA”) and Invest
Europe, where we might contribute to the formulation of policy
positions, although from time to time we may engage directly with
government and regulatory bodies on matters of particular and direct
importance to 3i and its businesses. Lobbying must only be
undertaken with the prior approval of a member of the Executive
Committee and in a manner that is lawful and adheres to 3i’s values.
Whistle blowing
Our whistle blowing policy forms an integral part of our culture of
openness, transparency and fairness. Where any employee discovers
information which they believe shows malpractice or wrongdoing
within 3i, under most circumstances they will raise concerns with their
line manager, who will pass this information to the appropriate
Executive Committee member. Should this route not be suitable,
then the employee may approach the Directors of Compliance or
Internal Audit, or the General Counsel and Company Secretary, who
have been designated to provide impartial advice on the appropriate
course of action to follow.
Alternatively, all employees across our seven office locations may
express and report their concerns on a completely confidential and
anonymous basis to an independent “hotline” service provided by
EthicsPoint, an independent, external party. Our policies are clear
that there should be no fear of reprisal or victimisation or harassment
for whistle blowing.
There were no incidents of whistle blowing in the year.
3i Group plc | Annual report and accounts 2023
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Act as a good corporate citizen continued
Data protection
3i’s Data Protection policy reflects the requirements of UK and
general European data protection legislation, supplemented or
adapted as necessary for local regulatory requirements. 3i is
committed to protecting the personal data of its staff, customers
and contacts and using it in an appropriate manner. We recognise
the rights afforded to individuals by data protection legislation and
that we must notify data subjects of the fact that we process their
personal data and the specific purposes for which we do so.
Our policy requires our employees to: comply with the key data
protection principles; treat personal data in accordance with 3i’s
policies and procedures for safeguarding confidential information;
and use personal data only for the purpose for which it has been
provided and in the proper course of their duties as a 3i employee.
During the year to 31 March 2023 we did not receive any complaints
from third parties or complaints by regulatory bodies regarding
the use and disclosure of personal data.
» OUR APPROACH TO DATA PROTECTION
www.3i.com/site-tools/privacy-policy
Cyber resilience
3i’s cyber resilience is overseen by the Group Risk Committee and
managed on a day-to-day basis by the Group IT team. Non-executive
governance is provided by the Audit and Compliance Committee
and operational governance is provided by 3i’s Chief Information
Security Officer, Group IT team and Internal Audit. The Internal Audit
team carries out an annual audit of the Group IT team which covers
cyber security and system access rights, service continuity and data
recovery processes, as well as end-user support and outsourced
services.
We test our cyber security incident management plan at least twice
every year. The 3i Cyber Security Review Board meets monthly to
discuss cyber security issues, including new and emerging threats,
and to review the cyber risk register and dashboard of relevant cyber
key performance indicators. We continue to engage the services
of a leading cyber security services company which provides ready
access to intelligence and expert advice on new and emerging
cyber security threats.
3i runs a cyber resilience e-learning course for all 3i staff and an
ongoing “phishing” email programme to test and monitor 3i staff’s
“click-rate” and to promote increased practical awareness of the risks
associated with phishing emails. In FY2023, we also held cyber
security awareness workshops for all employees.
3i has had no known information security breaches over the past
five years.
In relation to our portfolio companies, we continue actively
to promote cyber resilience as a key component of the corporate
governance programme through our representatives on their boards.
We use an external firm of cyber security specialists to conduct
reviews of the cyber resilience of our key portfolio companies’
systems. Cyber resilience is one of the governance topics reviewed
at the six-monthly business reviews of 3i’s portfolio companies which
are conducted as part of 3i’s regular asset management and portfolio
monitoring programme. We also ensure that developments and best
practice are shared across the portfolio with relevant members of
portfolio company management teams, including through formal
forums such as our portfolio company CIO roundtable held in
March 2023.
Modern slavery
We published our statement on modern slavery for the financial
year ended 31 March 2022 on our website in September 2022,
and will update this statement in September 2023. 3i is committed
to ensuring that:
• there is no slavery or human trafficking in any part of its business
or supply chains; and
• the companies in which it invests are also committed to ensuring
that there is no slavery or human trafficking in any part of their
businesses or supply chains.
» OUR MODERN SLAVERY STATEMENTS
www.3i.com/sustainability/modern-slavery
Environmental impact
With approximately 250 employees globally, 3i has a relatively small
direct impact in terms of the environment and other sustainability
issues. However, with assets under management of £29.9 billion,
our impact on the environment is determined largely by our portfolio.
We therefore integrate the evaluation of the environmental impact
of our portfolio companies and associated mitigating measures
in our investment assessment and portfolio management processes.
Our direct GHG emissions are reported in our TCFD disclosures.
+ PAGES 60-66
TCFD disclosures
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Act as a good corporate citizen continued
Community
We focus our charitable activities principally on the disadvantaged,
on the elderly, on young people and on education.
Ordinary charitable giving
The charities we partner with are supported on the basis of their
effectiveness and impact. Our ordinary charitable giving for the year
to 31 March 2023 totalled £1 million. This included supporting our
nine charity partners, matching staff fundraising, making a number
of one-off donations and promoting the give-as-you-earn scheme
in the UK, which is administered by the Charities Aid Foundation,
and through which 3i matched c.£55,000 of employee donations.
In addition, during the year our London-based staff raised funds
for Community Links’ Christmas Toy Collection and held a Big Tea
for Independent Age. Our Infrastructure team participated in the
Macquarie Capital Cup which raised funds for Street League.
Our London team also raised almost £16,000 for three charities
(RBLI, The Passage and Community Links) at our Summer Charity
Event. Finally, a number of our employees also volunteered with
Sal’s Shoes, The Trussell Trust, The Passage and Greenhouse
Sports during the year.
» OUR ORDINARY CHARITABLE GIVING
www.3i.com/sustainability/corporate-citizenship/charitable-giving
Turkey and Syria earthquakes
Following the devastating earthquakes in Turkey and Syria
in February 2023 we donated £500,000 to the Turkey Mozaik
Foundation. This foundation provides support for charities working
in Turkey and its grantees participated in search and rescue
operations providing food, clean water, tents and heaters,
and offering counselling and other services to the survivors
in the areas affected.
» TURKEY MOZAIK FOUNDATION
» SUSTAINABILITY REPORT
www.3i.com/sustainability/sustainability-reports-library
www.turkeymozaik.org.uk
External benchmarking
We believe that it is important to evidence our commitment to
operating sustainably. We therefore provide a wealth of relevant
information to shareholders and other interested stakeholders.
UN Principles for Responsible Investment
We have been signatories to the UN Principles for Responsible
Investment ("UN PRI”) since 2011. 3i’s scores for the 2021 UN PRI
assessment report were 4* for Investment and Stewardship policy
(scoring of 70% vs median of 60%), 4* for Private Equity (scoring
of 85% vs median of 66%) and 5* for Infrastructure (scoring of 93%
vs median of 77%). The UN PRI did not perform an assessment
in 2022 and this scoring is therefore based on 2020 data.
Sustainability indices
3i is a member of FTSE4Good Index Series and of the Solactive
Europe Corporate Social Responsibility Index.
Sustainability ratings
We engage with multiple rating providers that assess our ESG
performance based on their own methodologies. The summary
of our ratings as at 8 May 2023 (except where indicated) is as follows:
Rating body
Latest rating and scoring scale
CDP
Climate change score: B
Supplier engagement score: A-
Scale: A to D-
S&P Global CSA
48 (92nd percentile)
Scale: 0-100 (higher scores are better)
FTSE Russell
3.8 (81st percentile)
Scale: 0 to 5 (higher scores are better)
ISS ESG
ISS ESG Corporate Rating: B-
Morningstar
Sustainalytics1
Scale: D- to A+
11.1 Low Risk
Scale: from Negligible (0-10) to Severe (40+)
1 As at September 2022. Copyright © 2023 Morningstar Sustainalytics. All rights reserved. This section contains
information developed by Sustainalytics (www.sustainalytics.com). Such information and data are proprietary
of Sustainalytics and/or its third party suppliers (Third Party Data) and are provided for informational purposes
only. They do not constitute an endorsement of any product or project, nor an investment advice and are not
warranted to be complete, timely, accurate or suitable for a particular purpose. Their use is subject to
conditions available at https://www.sustainalytics.com/legal-disclaimers
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Our TCFD disclosures
These disclosures reflect 3i’s response to the recommendations
of the TCFD. They set out how we incorporate climate-related risks
and opportunities for our business and portfolio into our governance,
strategy and risk management. They also include disclosures on our
direct GHG emissions metrics. These disclosures are partial as we
build and evolve our capabilities to monitor and manage climate
issues in line with the TCFD recommendations and industry practice.
We are, however, taking steps to prepare for fully aligned disclosures
by the June 2024 deadline set by the FCA for asset managers such
as 3i.
What follows should be read in conjunction with the rest of
the Annual report and with our Sustainability report, and specific
references are provided where applicable.
Non-executive oversight
The Board as a whole is responsible for the approval of the Group’s
approach in relation to ESG matters (including climate-related
matters) and has oversight of the Group’s sustainability approach and
policies, including our Responsible Investment policy. It is assisted by
the Audit and Compliance Committee in the review and
consideration of any disclosures related to ESG matters, including
climate-related disclosures.
The Board receives frequent updates on ESG matters and climate-
related issues from the Chief Executive and members of the ESG
Committee as they become relevant and material. In FY2023, the
Board and the Audit and Compliance Committee received the
following updates on climate-related issues:
Governance
The Board as a whole is responsible for the approval and
oversight of 3i’s approach in relation to ESG and climate
matters.
Day-to-day accountability for all ESG and climate matters is
delegated to the Chief Executive, who is assisted by the ESG,
Investment and Group Risk Committees in discharging this
responsibility.
Progress in FY2023
Our ESG Committee, established formally in March 2022, met
frequently to develop our strategy and monitor the progress of
a number of important initiatives described in this TCFD report.
The ESG Committee delivered formal updates to the Board
throughout the year, including at the Board Strategy Day held
in December 2022.
The Group embedded dedicated sustainability resource in its
Private Equity and Infrastructure investment teams, as well as
in central functions.
The management of climate-related risks and opportunities is
embedded throughout our processes and operations, including our
investment and portfolio management activities, with clear oversight
by the Board and delegated authority to the Chief Executive. In
determining 3i’s strategy and approach to climate change both the
Board and the Chief Executive, assisted by a number of committees,
take into account the laws and regulations of the countries in which 3i
and its portfolio companies operate, as well as the perspectives of
the different stakeholders involved, identified on pages 104 and 105.
The governance structure is set out in the graphic below.
Board of Directors
May and
November
2022
June 2022
December
2022
March 2023
Updates to the Audit and Compliance Committee
from the Chief Executive on the ESG risk profile of the
portfolio, following presentations made to Group Risk
Committee by our portfolio investment teams on the
results of the annual ESG assessment of portfolio
companies in March and the semi-annual portfolio
company review process held in March and
September 2022. These updates included a
discussion of climate impacts on the portfolio.
Presentation to the Board by representatives of our
Private Equity and Infrastructure investment teams on
the results of the annual portfolio ESG assessment.
Presentation to the Board at its annual Strategy Day
from members of the ESG Committee on the legal,
regulatory and commercial context shaping 3i’s
approach to climate change, and the work undertaken
by the ESG Committee to progress the climate
agenda at 3i, including a discussion on potential
target setting and related standards, including a
preliminary discussion of science-based targets.
The Board discussed the TCFD disclosure
requirements that apply to 3i and received a brief
update from the Chair and a member of the ESG
Committee in the context of the Board training
session on TCFD requirements detailed below.
Board skills and training
We engaged EY’s sustainability practice to provide a programme
of training sessions on relevant climate-related topics for the Board
that was carried out over the course of FY2023. The objective of this
programme was to improve the Board’s understanding of the climate
risks and opportunities that 3i faces, the regulations with which it
must comply and how these will impact 3i’s investment strategy
across business lines and investment vehicles. The sessions were
articulated as follows:
Chief Executive
ESG Committee
Group Risk Committee
Investment Committee
l Oversight
l Implementation
Board’s Audit and
Compliance Committee
June 2022
• Climate risks
• Climate scenario analysis
September 2022
• Net zero commitments and transition plans
• Emerging ESG themes
January 2023
• Regulatory horizon on climate risk
March 2023
management and reporting
• Market insights
• TCFD and ESG reporting
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The training sessions provided some of the tools necessary to
improve the Board’s oversight of the Group’s approach to climate
change and its impact on the portfolio and investment strategy
and inform the Board’s decision making.
A number of our Directors also have experience of assessing climate-
related factors and have received training on this topic through other
executive and non-executive roles.
Executive responsibility
Day-to-day accountability for sustainability, including climate issues,
rests with executive management and, in particular, the Chief
Executive, who also acts as the Group’s Chief Investment Officer.
The Chief Executive has established a number of committees that
support him in overseeing and monitoring policies and procedures
and addressing issues that arise. These include the ESG Committee,
Investment Committee and the Group Risk Committee.
ESG Committee
The ESG Committee membership is drawn from a range of investment
and non-investment functions across the Group. The organigram of the
committee is set out opposite. The ESG Committee also benefits from
input from many relevant functional areas as required.
The ESG Committee focuses on three main areas:
• reporting to the Chief Executive (directly and through the Group Risk
Committee and Investment Committee) on relevant ESG matters,
including climate-related risks and opportunities, and developing
and reviewing policies, processes and strategies to manage ESG
risks and opportunities for the Group and its investment activities;
• developing and recommending to the Chief Executive the Group’s
ESG approach (including, in due course, a climate strategy) for
review by the Board; and
• coordinating and facilitating ESG-related activities and initiatives
across the Group.
The Committee takes into account any relevant legal and regulatory
requirements and industry standards, as well as best market practice,
and monitors progress against its agenda.
Since its creation the ESG Committee has focused principally on
developing strategy, policy and governance for assessing and
managing climate-related risks and opportunities across the Group
and its portfolio. This is a topic of increasing urgency for government,
regulators and other stakeholders and it will be key to protecting and
creating value in our portfolio. It has been working on a number of
initiatives to improve our management of climate-related risks and
opportunities, and in particular on:
• improving the collection, management and analysis of ESG data
from the portfolio, including data necessary to manage climate-
related risks and opportunities;
• upskilling the Board and employees on the climate change topic
through dedicated training;
• performing climate scenario analysis on the portfolio and
evaluating how to embed elements of that type of analysis in the
ongoing assessment of climate-related risks and opportunities
in the investment and portfolio management processes; and
• developing the most appropriate strategy to align 3i and its
portfolio to the UK’s net zero ambitions and setting relevant
targets, which resulted in 3i’s commitment in April 2023 to set
science-based targets.
These initiatives, which are described later in this TCFD report, will
help us towards the alignment with the TCFD recommendations
by the 2024 deadline set by the FCA for asset managers such as 3i.
The ESG Committee meets formally four times a year, but held five
additional informal meetings in FY2023 to implement its busy
agenda.
ESG Committee
General Counsel and Company Secretary (Chair)
Central functions
Investment teams
Group Finance Director
Chief Operating Officer
Group Investor
Relations Director
Sustainability Director,
Private Equity
Sustainability Director,
Infrastructure
Investment Committee
The Investment Committee is responsible for implementing the
Responsible Investment policy and for making decisions concerning
the acquisition, management, ongoing monitoring and disposal of
investments, as well as for making decisions concerning major
investments made by our portfolio companies. It also has principal
responsibility for monitoring the portfolio’s material risks. In
performing its activities, the Investment Committee ensures that
material ESG matters, including relevant climate-related risks and
opportunities, are properly identified, assessed and managed in the
course of our investment, divestment and portfolio management
activities. The Investment Committee is chaired by our Chief
Executive and comprises individuals drawn from our central functions
(including the Group Finance Director and Chief Operating Officer),
as well as from our Private Equity and Infrastructure investment teams
(including the two heads of Private Equity, the two heads of
Infrastructure and other senior investment and professional services
team members). It meets frequently on an ad-hoc basis to discuss
potential new investments and significant portfolio activity.
See pages 80, 82 and 83 for more information on how the
Investment Committee operates.
Group Risk Committee
The Group Risk Committee oversees the Group’s risk management
framework. It maintains the Group’s risk review, which identifies the
principal risks and new and emerging risks, including climate-related
risks, facing 3i, as well as the associated mitigating actions and key
risk indicators. The risk review is updated quarterly. This committee
also maintains oversight of the Responsible Investment policy and
considers and approves amendments to this policy as required,
taking into account legal, regulatory and market developments
regarding climate change. The Group Risk Committee is chaired by
the Chief Executive, and also comprises the Group Finance Director,
Chief Operating Officer, the General Counsel and the Chief Human
Resources Officer, as well as the heads of our Private Equity and
Infrastructure businesses and a number of functional heads drawn
from across the organisation, including the Group Compliance,
Internal Audit and Investor Relations Directors. It meets four times
per year.
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Dedicated sustainability resource
In FY2023, we embedded dedicated sustainability resource across
the organisation, including:
• a Sustainability Director in our Private Equity investment team;
• a Sustainability Director and Sustainability Senior Associate
in our Infrastructure investment team; and
• a Sustainability Manager in the Group Investor Relations function.
This additional resource has been key in implementing the ESG
Committee’s many activities.
Participation in industry working groups
In July 2022, we joined the Initiative Climat International (“iCI”),
a global, practitioner-led community of over 200 private markets
firms and investors representing over US$3.2 trillion in AUM that
seek to improve the understanding and management of the risks
associated with climate change. Since joining the group, we have
contributed our feedback towards the guide published by iCI
and the BVCA for the private equity industry on the implementation
of TCFD and to the working group in relation to developing the
guidance for the calculation of the Scope 3 emissions of portfolio
companies and on the development of decarbonisation strategies.
3i is also a member of the PFI Net Zero Working Group, working
with the Infrastructure and Projects Authority in the UK to develop
an industry-wide approach to emissions disclosure and to net
zero for the PFI/PPP investment industry.
Executive remuneration
The Executive Directors receive, in addition to their salary, an
annual bonus and long-term share incentive awards based on the
achievement of a number of performance conditions. For FY2023,
annual bonuses for executive management were awarded based
on a balanced scorecard of both financial and strategic measures
agreed by the Remuneration Committee of the Board, alongside
a consideration of the wider context of personal performance
(including values and behaviours), risk, market and other factors.
Among the strategic, qualitative measures included in the balanced
scorecard to determine the FY2023 annual bonus award, up to 10%
of the maximum annual bonus opportunity was tied to progress
against a number of ESG targets. The Remuneration report on pages
131 to 144 sets out the Remuneration Committee’s assessment of
the performance of the Executive Directors against the scorecard’s
ESG objectives. The measures taken by the Group to achieve
progress against these objectives are described in this TCFD report.
+ PAGES 94-158
+ PAGES 131-144
» SUSTAINABILITY REPORT 2023 PAGES 12, 13 AND 16
www.3i.com/sustainability/sustainability-reports-library
Remuneration report
Governance
Strategy
The assessment of ESG factors, including climate factors,
is integral to our investment assessment and portfolio
management processes. We have been UN PRI signatories
since 2011.
We buy majority or significant minority holdings in our core
portfolio companies and are represented on their boards.
We manage small and relatively concentrated portfolios and use
our influence with our portfolio companies to ensure that they
assess their climate impacts, devise strategies to address them,
and challenge them on their transition strategies.
We ask our portfolio companies to measure and report to us
their GHG emissions to aid our engagement on emissions
reduction strategies and targets.
Progress in FY2023
We carried out our initial, top-down climate scenario analysis
to advance our understanding of the impact of climate change
on our portfolio companies and inform our strategy to mitigate
risks and capture opportunities.
We submitted a commitment letter to the SBTi in April 2023,
with the intention of submitting a target for validation in FY2024.
Our investment strategy is to make a small number of new
investments each year in our Private Equity and Infrastructure
businesses, selected within our target sectors and geographies
on the basis of their compatibility with our return objectives.
We screen investments against our Responsible Investment policy,
which has been in place for many years and is reviewed and updated
on a regular basis. We believe that the careful assessment and
management of ESG factors, including climate-related risks and
opportunities, is a material lever for value creation in our portfolio
and integrate this assessment into our investment screening and
portfolio management processes. These processes are described
on page 45 of this Annual report, and on pages 12, 13 and 16
of the Sustainability report.
Our business model is simple: we invest our proprietary capital
and manage a small number of third-party funds (principally in our
Infrastructure business). We do not manage products with specific
sustainability mandates. Our investment and portfolio construction
approach is flexible and not constrained by overly prescriptive
investment mandates or by limited duration funds, given the
permanent nature of our proprietary capital. The third-party funds
we manage in our Infrastructure business are either permanent
or of very long duration.
This flexibility in mandates and holding periods is a considerable
strength which provides great resilience to many risks, including
climate-related risks, and which has supported our ability to pivot our
investment towards sectors and niches that benefit from sustainable
growth trends, including the transition to a low-carbon economy
(see pages 16 and 17). Combined with the influence we exert
on portfolio companies this has allowed us, for example, to increase
our exposure to renewable energy generation in our Infrastructure
portfolio over the last few years, and to approve investments within
our portfolio companies that support a reduction in their GHG
emissions or the development of products and services with lower
associated emissions.
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Our TCFD disclosures continued
Having established a roadmap to TCFD alignment, during FY2023
the ESG Committee focused on initiatives to provide 3i with the tools
to improve the ongoing assessment of climate-related risks and
opportunities related to its investment and portfolio management
activities and on developing a climate strategy for the Group.
The additional sustainability resource we embedded across our
investment teams and central functions in the year (see
“Governance” above) was key to the implementation of these
initiatives. This work will allow us to make better informed investment
and portfolio management decisions, as well as to determine future
climate commitments for the Group as a whole.
Portfolio data collection and management
During FY2023 we improved the quality of the annual sustainability
data (including GHG emissions) we collect from the portfolio
by refining our ESG questionnaires to ensure that they reflect
stakeholder needs. In addition, our Infrastructure business
commissioned a specialist sustainability consultancy to assess
the governance and processes for the collection of GHG emissions
data in parts of our Infrastructure portfolio and to provide
guidance on improving data collection.
Consistent and comparable emissions data will be an important
element in our future disclosures of portfolio emissions. The ESG
Committee therefore selected a new dedicated software tool to help
us gather, organise and analyse ESG data from the portfolio. This
tool will be rolled out during FY2024. See “Metrics and targets”
below for more information on portfolio emissions data.
Climate training
With the objective of improving the sophistication of our assessment
and monitoring of climate factors for each potential and existing
investment and the overall climate stewardship of our portfolios,
we arranged training sessions targeted at all staff focused on climate
change. These were held by a leading expert and business adviser
and attended by nearly two thirds of staff, including a significant
proportion of our investment professionals. Our Infrastructure
business also commissioned a specialist consultancy to provide
training on the SBTi to employees and to several of our infrastructure
portfolio company management teams. We continue to offer
specialist climate training to selected employees.
During the year we also delivered a programme of climate change
training sessions for our Board of Directors (detailed in “Governance”
above).
We will continue to roll out both generic and more focused training
sessions on this fast-evolving topic to our Board of Directors and
employees, with specialist training offered to employees in specific
functional areas as appropriate.
Climate scenario analysis
Early in FY2023 we carried out our initial, top-down climate
scenario analysis on our Private Equity and economic infrastructure
investments with the help of an external consultant. This analysis
assessed climate physical and transition risks for each of these
portfolio companies under three broad scenarios over short
(< one year), medium (to 2030) and long-term (to 2050) time horizons:
1 orderly net zero by 2050: this scenario assumed an average
temperature increase of 1.5°C, in line with the Paris Agreement
and a smooth transition to net zero, with markets pricing in any
impacts over the first four years;
2 disorderly net zero by 2050: this scenario assumed an average
temperature increase of 1.5°C, but within the context of
a disorderly transition, sudden divestments in 2025 to align
portfolios to the Paris Agreement goals causing disruption
in financial markets, and sudden repricing followed by stranded
assets and a sentiment shock; and
3 failed transition: this scenario assumed the world fails to meet
the Paris Agreement goals and global warming reaches 4.3°C
above pre-industrial levels by 2100. This causes severe physical
and extreme weather impacts and long-term disruption in
financial markets.
The transition risk scenario work used indicators drawn from
internationally recognised data sets and was based on the portfolio’s
sector and country exposures. The physical risk assessment was
based on the location of each portfolio company’s headquarters
and revenue by country.
This top-down analysis did not provide detailed insights into
our portfolio, which is very concentrated (with investments
in approximately 60 companies across Private Equity, Infrastructure
and Scandlines, excluding the PPP project investments which were
not covered in this analysis ) and exposed to a relatively small number
of sectors and geographies. The analysis nevertheless confirmed our
view, which was built on our periodic qualitative assessments, that our
portfolio as a whole has limited exposure to material climate-related
risks. While the results were skewed, to some extent, by our
investment in Action, the analysis also suggested that there
is a relatively even dispersion of risks between assets in different
sectors and geographies, and highlighted that some of our assets,
most notably some of our Infrastructure assets exposed to the energy
transition, could stand to benefit in both an orderly or disorderly net
zero scenario.
While this first iteration of climate scenario analysis had limits in its
methodology and results, we found the exercise useful to refine our
future approach and to identify areas of the portfolio which merit
deeper assessment. We have now engaged a specialist consultancy
to help us with our second phase of climate scenario analysis, which
we expect to complete in the current financial year. Our objective
in this second phase will be to perform a deeper dive, bottom-up
analysis of a number of our portfolio companies to inform our
engagement with our portfolio on climate-related factors.
We intend to refine our approach to climate scenario analysis on
a regular basis, to provide better insight into the underlying climate
risk exposure of our portfolio and identify areas of opportunity.
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Viability statement
In addition, we have been assessing the potential financial impact
of climate change on our portfolio as a whole for some time through
the work we do to conduct our annual viability assessment (see pages
124 and 125). When preparing our Viability statement, we carry out
a number of tests which consider the impact on the Group of
multiple severe, yet plausible individual and combined stress
scenarios, including the impact that climate change might have
on the value of a number of our potentially more vulnerable assets
through changes in regulation, in consumer preferences, an increase
in physical risks and other business risks. Because of the diverse
exposures of our current portfolio companies and the flexibility
we have in portfolio construction, our analysis showed that a climate
change-related stress scenario is unlikely to impact the viability
of the Group over the medium term. We expect that the
sophistication of this financial impact assessment will improve
as we build on the climate scenario analysis work we are carrying out.
Transition to a low-carbon economy
The ESG Committee devoted much time in the year to develop
the most appropriate approach to align 3i and its portfolio to the
UK’s net zero ambitions and set relevant targets. We performed
a detailed analysis of the portfolio (excluding the PPP projects)
to establish how challenging it is for each portfolio company is
to set a science-based target, in light of (i) available sector guidance
and decarbonisation pathways; and (ii) the carbon maturity of
the portfolio company itself.
This analysis supported our decision to write to the SBTi on 5 April
2023 to indicate our commitment to set up science-based targets
for 3i. We are now working to formulate our targets, with the
intention to submit them to SBTi for validation during the course
of FY2024. Our science-based targets will cover our direct Scope 1
and 2 emissions and our Scope 3 emissions associated with our
portfolio and will be formulated in line with the guidance published
by SBTi for the private equity sector. Our work on science-based
targets may support the work we will do on a transition plan
in due course.
+ PAGES 2-19
» SUSTAINABILITY REPORT 2023 PAGES 12, 13 AND 16
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Overview and business strategy
Risk management
As an investor, 3i is in the business of taking risks to seek to
achieve its return objectives. The assessment of climate risks
is integral to our overall risk management framework.
The governance of our risk management process is robust,
with Board and Audit and Compliance Committee oversight,
and responsibility exercised by the Chief Executive, assisted
by the Group Risk Committee.
Progress in FY2023
We carried out our initial, top-down climate scenario analysis
across the whole portfolio.
We improved the quality of the GHG emissions data and other
relevant climate-related data we collect from the portfolio
to improve our assessment and management of climate risks.
We recognise the increasing importance of climate-related risks
and monitor these as we do other risks through our comprehensive
risk governance framework, both on a portfolio company level and
for the Group as a whole. The framework is described in detail on
pages 78 to 91, and our portfolio ESG assessment process (which
covers an assessment of material climate risks for each portfolio
company) is described on page 45 of this report, as well as on
pages 12, 13 and 16 of our Sustainability report.
3i’s own operations are not in themselves exposed to material
climate risks. We employ approximately 250 people across seven
offices. Nevertheless, the business is increasingly affected directly
by climate-related legal and regulatory risks, as well as by the
related reputational risks.
The majority of 3i’s climate risk exposure is through its portfolio.
As explained in “Strategy” above, we manage concentrated
portfolios with exposures to limited sectors and geographies
and our investment approach provides us with great flexibility
to manage climate change risks in our portfolio. We do not invest
directly in extractive industries (coal, oil and gas), or in very
carbon-intensive sectors, albeit some of our investments do
have exposure to some of these sectors.
3i Group plc | Annual report and accounts 2023
64
Overview
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Business
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Sustainability
Performance
and risk
Governance
Audited financial
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Portfolio and
other information
Our TCFD disclosures continued
The climate risks potentially affecting 3i and its portfolio can be
summarised in the following categories:
Metrics and targets
We make disclosures on the Group’s direct Scope 1 and 2
emissions. The Group’s Scope 3 disclosures do not include
emissions associated with the portfolio.
We are enhancing our portfolio data collection capabilities
to prepare for the disclosure of portfolio GHG emissions data
from next year, in line with TCFD recommendations.
We participate in the CDP. Our score for 2022 was B for climate
change.
Progress in FY2023
We have made considerable progress in the collection of
portfolio GHG emissions data. We currently collect Scope 1
and 2 data from over 79% of our Private Equity portfolio
companies and over 95% of our economic infrastructure
investments.
We sent a commitment letter to the SBTi in April 2023, with
the intention of submitting science-based targets for validation
during FY2024.
Our objective is to measure the carbon footprint of our entire
portfolio by the end of FY2024 (except for a small number of legacy
minority assets with negligible value and for new investments made
in FY2024). As part of the work we are carrying out to align our
climate disclosures with the TCFD recommendations, we are now
completing the process of collecting GHG emissions data from
our portfolio companies and improving our processes and tools
to ensure that this data can be collected and managed with better
consistency. As at 31 March 2023, we collected Scope 1 and 2 GHG
emissions data from over 79% of our Private Equity portfolio
companies1 (2022: 70%) and over 95% of our economic infrastructure
investments (2022: over 80%) by number. In the majority of cases,
we expect portfolio companies to measure and report to us their
Scope 1 and 2 emissions within the first year of investment.
We are also making good progress on collecting portfolio
companies’ Scope 3 emissions.
This will allow us to meet the TCFD recommendations by our 2024
deadline and to engage with our portfolio companies to devise
specific emission reduction strategies. Some of our portfolio
companies, including Scandlines, Herambiente (as part of Hera
Group), Weener Plastic, ESVAGT, Ionisos, Royal Sanders, BoConcept,
Audley Travel and Action, have already set specific GHG emission
reduction targets.
1 Excludes some legacy minority and other minority investments where we have limited influence.
• investment and valuation risks, stemming from the potential
impact of any type of physical and transition risk on: (i) the
performance of our investment portfolio and its consequence
on the earnings and valuations of portfolio companies; (ii) the
performance of benchmarks we use for valuation purposes;
and (iii) our ability to make or sell investments, which is driven
by market conditions and the availability of debt funding;
• increasing legal, regulatory and tax risks for the portfolio and
for 3i itself, including the impact of carbon pricing mechanisms;
• operational risks for 3i and the portfolio, which could result from
the disruption in operations or those of key service providers; and
• reputational risks, stemming from real or perceived insufficient
action taken by the Group or its portfolio companies to address
the impact of climate change. Reputational risks can also have
operational implications affecting, for instance, staff turnover.
We consider these risks on the Group and the portfolio through our
risk management framework, which is coordinated by the Group Risk
Committee and implemented across the organisation as described
in the Risk review. Specifically, in relation to the management and
mitigation of climate-related risks in the portfolio, we rely on:
• the assessment of material climate-related risks in the pre-
investment phase. This is performed internally and supplemented
as appropriate by external specialists and can result in Investment
Committee requiring further due diligence to be performed
or in investments being declined;
• our ongoing portfolio monitoring process, which involves,
in addition to the monthly monitoring of bespoke financial
and operational KPIs and in-depth semi-annual portfolio
company reviews, a detailed annual ESG assessment which
includes a number of climate factors;
• the responsibility of the Investment Committee for portfolio risk
management;
• the influence we have on portfolio companies. We make majority
or significant minority investments in our core portfolio companies
and exercise influence through membership of their boards;
• the measurement of portfolio company GHG emissions (see
“Metrics and targets” below) and engagement with portfolio
companies on abatement and mitigation strategies; and
• climate scenario analysis, as described under “Strategy” above.
We further mitigate climate risks by improving our understanding
of climate change and refining our processes over time. These
processes involve an increasing number of employees. We have
been encouraged by the level of staff engagement on this topic
and intend to continue to provide forums for employees to provide
their input and views on how to improve our performance.
+ PAGES 78-91
» SUSTAINABILITY REPORT 2023 PAGES 24-26
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Risk management
3i Group plc | Annual report and accounts 2023
65
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Our TCFD disclosures continued
Science-based targets
As set out in “Strategy” above, we wrote to the SBTi on 5 April 2023
to indicate our commitment to set up science-based targets for 3i.
3i Group’s emissions performance
This section has been prepared in accordance with our regulatory
obligation to report GHG emissions pursuant to the Companies
(Directors’ Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2019 which implement the government’s
policy on Streamlined Energy and Carbon Reporting. During the year
to 31 March 2023, our measured Scope 1 and 2 emissions (market-
based) totalled 181.6 tCO2e. This comprised:
FY2023 (tCO2e)
Rest of
the
world
FY2022 (tCO2e)1
Rest of
the
world
UK
UK
Total
GHG emissions
(Scope)2
Total
1
105.6 34.4 140.0 102.6 27.2 129.8
2 – location-based 86.6 72.4 159.0 93.8 67.0 160.8
2 – market-based
48.3
Total 1 & 2
(location-based)
Total 1 & 2
(market-based)
3
105.6 76.0 181.6 102.6 75.5 178.1
n/a 2,950.3
192.2 106.8 299.0 196.4 94.2 290.6
n/a 6,802.3
– 41.6
– 48.3
41.6
n/a
n/a
1 FY2022 GHG emissions data re-stated due to inaccuracies identified in the data collection process.
2 Based on IEA data (2022) Emissions factors, www.iea.org/statistics. All rights reserved; as modified
by 3i Group plc.
This is equivalent to 0.8 tCO2e per full time equivalent employee,
based on an average of 241 employees (2022: 0.8 tCO2e; 234
employees). Overall, our Scope 1 and 2 (market-based) emissions
increased by 2.0% year-on-year as office attendance increased
as restrictions to contain the spread of Covid-19 were removed.
Our measured Scope 3 emissions totalled 6,802.3 tCO2e. In FY2023
we improved the methodology for the calculation of our Scope 3
emissions from purchased goods and services through the use of
better proxy data as market practice and tools evolve. The 130.6%
increase in our Scope 3 emissions in FY2023 compared to the
previous year is attributable to the change in methodology and use
of more accurate proxy data, rather than to any substantial change
to our supply chain. The data, however, reflects a near three-fold
increase in the emissions associated with business travel,
as pandemic-related travel restrictions were eased.
Our total fuel and electricity consumption was 1,420.3 MWh
(1,420,300 KWh) in FY2023, 72% of which was consumed in the UK.
The split between fuel and electricity consumption is shown in
the table below.
FY2023
FY20222
Energy
consumption
(KWh in 000s )
Electricity
Fuels1
Rest of
the world
Rest of
the world
UK
Total
447.6 225.8 673.4 441.7 218.9 660.6
578.6 168.3 746.9 560.1 138.9 699.0
Total
UK
Methodology
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 Scope 2 Guidance. Scope 3 emissions
are calculated in line with the World Resources Institute’s
Greenhouse Gas Protocol: Corporate Value Chain (Scope 3)
Accounting and Reporting Standard as well as the World Resources
Institute’s GHG Protocol Technical Guidance for Calculating Scope 3
emissions. 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 2023 are:
• Scope 1: natural gas combustion within boilers and fuel
combustion within leased vehicles;
• Scope 2: purchased electricity and heat consumption for our
own use;
• Scope 3: purchased goods and services, capital goods, fuel-
and energy-related activities, waste generated in operations,
business travel and employee commuting and emissions
associated with working from home.
In some cases, where data is missing, for example due to the timing
of invoices from our utilities providers, values have been estimated
using either extrapolation of available data or by using data from
the previous year as a proxy.
The 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 relatively low footprint on the environment,
we are committed to reducing it further. In our London, New York,
Amsterdam, Paris, and Luxembourg offices, which account for over
90% of our overall electricity consumption, we purchase our electricity
from 100% renewable sources. Although the options for energy
efficiency improvements for our offices are limited, we are assessing
whether it is possible to switch to renewable tariffs in our remaining
offices where we do not currently purchase all of our electricity
from 100% renewable sources.
Third-party verification
The emissions disclosed above have been verified to a limited level
of assurance by an external third party according to the ISO 14064-3
standard.
» SUSTAINABILITY REPORT 2023 PAGES 44-47
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1 Natural gas and transportation fuels (petrol and diesel).
2 FY2022 energy consumption data re-stated due to inaccuracies identified in the data collection process.
3i Group plc | Annual report and accounts 2023
66
What’s in this section
Financial review
Reconciliation of Investment basis and IFRS
Alternative Performance Measures
Risk management
Principal risks and mitigations
Directors’ duties under Section 172
68
74
77
78
84
92
3i Group plc | Annual report and accounts 2023
67
Overview
and strategy
Business
review
Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Financial review
Very strong financial performance
Highlights – Investment basis
Gross investment return
Operating profit before carried interest
Total return
£5,104m
(2022: £4,525m)
£4,956m
(2022: £4,417m)
Total return on opening shareholders’ funds
Diluted NAV per share at 31 March 2023
36%
(2022: 44%)
1,745p
(31 March 2022: 1,321p)
£4,585m
(2022: £4,014m)
Total dividend
53.0p
(31 March 2022: 46.5p)
Table 12: 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
Movement in the fair value of derivatives
Gross investment return
Fees receivable from external funds
Operating expenses
Interest receivable
Interest payable
Exchange movements
Other (expense)/income
Operating profit before carried interest
Carried interest
Carried interest and performance fees receivable
Carried interest and performance fees payable
Operating profit before tax
Tax charge
Profit for the year
Re-measurements of defined benefit plans
Total comprehensive income for the year (“Total return”)
Total return on opening shareholders’ funds
2023
£m
169
3,769
416
91
7
530
122
5,104
70
(138)
4
(54)
(29)
(1)
4,956
41
(418)
4,579
(2)
4,577
8
4,585
36 %
2022
£m
238
3,824
375
85
3
(2)
2
4,525
62
(128)
–
(53)
9
2
4,417
54
(454)
4,017
(5)
4,012
2
4,014
44 %
Investment basis and alternative performance measures (“APMs”)
In our Strategic report we report our financial performance using our Investment basis. We do not consolidate our portfolio companies; as
private equity and infrastructure investments they are not operating subsidiaries. IFRS 10 sets out an exception to consolidation and requires us
to fair value other companies in the Group (primarily intermediate holding companies and partnerships), which results in a loss of transparency.
As explained in the Investment basis, Reconciliation of investment basis and IFRS sections below, the total comprehensive income and net
assets are the same under our audited IFRS financial statements and our Investment basis. The Investment basis is simply a “look through”
of IFRS 10 to present the underlying performance and we believe it is more transparent to readers of our Annual report and accounts.
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. Our Investment basis is itself an APM, and we 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 at the end of the Financial review and should be read alongside the 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.
3i Group plc | Annual report and accounts 2023
68
Overview
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Financial review continued
Realised profits
We generated total realised proceeds of £857 million (2022:
£788 million) and realised profits of £169 million in the year (2022:
£238 million), all of which were generated from Private Equity.
Unrealised value movements
We recognised an unrealised profit of £3,769 million (2022:
£3,824 million). Action’s continued strong performance contributed
£3,708 million (2022: £2,655 million). We also saw good contributions
from a number of our other Private Equity investments including
SaniSure, AES, WilsonHCG, Royal Sanders, Audley Travel, nexeye
and Dutch Bakery offsetting negative contributions from Luqom,
YDEON, BoConcept, Formel D and Mepal. Our US infrastructure
portfolio also delivered good value growth in the year offsetting a
10% year-on-year share price reduction in our quoted holding in 3iN.
Further information on the Private Equity, Infrastructure and
Scandlines valuations is included in the business reviews.
3i also received fee income of £4 million (2022: £6 million) from 3i MIA
through management fees and continued to generate fee income
from 3i managed accounts and other funds. In Private Equity,
we recognised a £4 million (2022: £4 million) administration fee
for our management of the 3i 2020 Co-investment Programme
related to Action.
Operating expenses
Operating expenses increased to £138 million (2022: £128 million)
reflecting the full-year impact of new hires in both Private Equity
and Infrastructure, increased business activity and inflationary impacts
on travel, marketing and professional fee costs.
Interest payable
The Group recognised interest payable of £54 million (2022:
£53 million). Interest payable predominantly includes interest on the
Group’s loans and borrowings and amortisation of capitalised fees.
Portfolio income
Portfolio income increased to £514 million during the year (2022:
£463 million), primarily due to strong dividend income of £416 million
(2022: £375 million), particularly from Action. Interest income from
portfolio companies, the majority of which is non-cash, increased to
£91 million (2022: £85 million), whilst fee income increased in the year
to £7 million (2022: £3 million), reflecting the monitoring and
negotiation fees receivable relating to new investments within
our Private Equity portfolio.
Operating cash profit
We generated an operating cash profit of £364 million in the year
(2022: £340 million). Cash income increased to £497 million (2022:
£450 million), principally due to an increase in dividend income.
We received £325 million of cash dividends from Action (2022:
£284 million). We also received cash dividends from Scandlines, 3iN,
Tato and AES, as well as a good level of cash fees from our external
funds in Infrastructure. Excluding the dividends received from Action,
the operating cash profit was £39 million.
Fees receivable from external funds
Fees received from external funds increased to £70 million (2022:
£62 million). 3i receives a fund management fee from 3iN, which
amounted to £49 million in FY2023 (2022: £44 million).
Cash operating expenses increased to £133 million (2022:
£110 million), driven principally by higher fixed and variable
compensation costs, as well as by inflationary impacts on travel
and marketing costs, as well as professional fees.
Table 13: Unrealised value movements on the revaluation of investments for the year to 31 March
Investment basis
Private Equity
Infrastructure
Scandlines
Total
Table 14: Operating cash profit for the year to 31 March
Investment basis
Cash fees from external funds
Cash portfolio fees
Cash portfolio dividends and interest
Cash income
Cash operating expenses1
Operating cash profit
1 Cash operating expenses include operating expenses paid and lease payments.
3i Group plc | Annual report and accounts 2023
2023
£m
3,746
23
–
3,769
2023
£m
67
5
425
497
(133)
364
2022
£m
3,545
178
101
3,824
2022
£m
68
9
373
450
(110)
340
69
Overview
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Carried interest and performance fees
We receive carried interest and performance fees from third-party
funds and 3iN. We also pay carried interest and performance fees
to participants in plans relating to returns from investments.
These are received and/or paid subject to meeting certain
performance conditions. In Private Equity (excluding Action),
we typically accrue net carried interest payable of c.12% of GIR,
based on the assumption that all investments are realised at their
balance sheet value. Carried interest is paid to participants when
cash proceeds have actually been received following a realisation,
refinancing event or other cash distribution and performance hurdles
are passed in cash terms. Due to the length of time between
investment and realisation, the schemes are usually active for a
number of years and their participants include both current and
previous employees of 3i.
The continued excellent performance of Action in the Buyouts
2010-12 vintage and good performance in our other vintages led
to a £392 million increase in carried interest payable in FY2023.
During the year, £24 million (2022: £13 million) was paid to
participants in Private Equity, of which £23 million was paid
to participants in the Private Equity Buyouts 2010-12 carry plan.
In March 2023, we completed a transaction to provide liquidity for
existing external investors in Action who are invested via our 3i 2020
Co-investment Programme and at the same time a portion of the
outstanding carried interest liability in the Buyouts 2010-12 scheme
relating to Action was crystallised, which is expected to result in a
c. £200 million carried interest payment to participants in the Buyouts
2010-12 scheme in May 2023. This payment continues a series of
carried interest payments to participants in the Buyouts 2010-12
scheme, the first of which occurred in May 2020, following the sale
of EFV’s interest in Action in FY2020. The economic result of this
transaction is to increase 3i’s investment in Action, net of carry,
from 47.7% to 48.9%. 3i’s gross investment in Action also increased
to 52.9% (31 March 2022: 52.7%) following the purchase of a further
small (£30 million) equity stake in Action.
3iN pays a performance fee based on its NAV on an annual basis,
subject to a hurdle rate of return. The continued strong performance
of the assets held by 3iN resulted in the recognition of £35 million
(2022: £26 million) of performance fees receivable. £25 million (2022:
£22 million) was recognised as an expense with the remaining fees
payable deferred for an expense in future years. During the year,
£27 million was paid to the Infrastructure team including payments
for the 3i MIA performance plan. The cumulative total potential
payable for performance fees including fees generated and deferred
from prior periods amounts to £55 million.
Overall, the effect of the income statement charge, cash payments
of £51 million (2022: £23 million), as well as currency translation meant
that the balance sheet carried interest and performance fees payable
was £1,351 million (31 March 2022: £963 million).
Table 15: Carried interest and performance fees for the year to 31 March
Investment basis 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
Table 16: Carried interest and performance fees at 31 March
Investment basis Statement of financial position
Carried interest and performance fees receivable
Private Equity
Infrastructure
Total
Carried interest and performance fees payable
Private Equity
Infrastructure
Total
3i Group plc | Annual report and accounts 2023
2023
£m
4
37
41
(392)
(26)
(418)
(377)
2023
£m
6
37
43
(1,325)
(26)
(1,351)
2022
£m
3
51
54
(416)
(38)
(454)
(400)
2022
£m
8
51
59
(926)
(37)
(963)
70
Overview
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Financial review continued
Table 17: Carried interest and performance fees paid in the year to 31 March
Investment basis cash flow statement
Carried interest and performance fees cash paid
Private Equity
Infrastructure
Total
2023
£m
24
27
51
2022
£m
13
10
23
Net foreign exchange movements
The Group recorded a total foreign exchange translation gain
of £623 million including the impact of foreign exchange hedging
in the year (March 2022: £9 million), as a result of sterling weakening
by 4% against the euro and by 6% against the US dollar.
In October and November 2022, we took advantage of the weakness
of sterling against the euro and US dollar by implementing a medium-
term foreign exchange hedging programme to partially reduce the
sensitivity of the Group’s net asset value and impact of mismatched
currency cash flows to changes in euro and US dollar exchange
movements. The exposure of the Group’s underlying investment
portfolio to euro and US dollar has increased significantly in recent
years through the organic growth of our existing European and US
portfolio companies and due to the majority of our new investments
being denominated in euro and US dollar.
We locked in favourable euro and US dollar rates compared to
historical market averages, with forward foreign exchange contracts
of a notional amount of €2 billion and $1.2 billion. In addition, during
the year we also increased the size of our hedging programme
for Scandlines, increasing the notional amount from €500 million
to €600 million. Including the impact from foreign exchange hedging,
71% of the Group’s net assets are denominated in euros or US
dollars. Based on the Group’s net assets, including the impact from
foreign exchange hedging, a 1% movement in euro and US dollar
foreign exchange rates would impact total return by £106 million
and £12 million, as shown in Table 18 below.
Pension
The Group’s UK defined benefit plan (“the Plan”) is fully insured
following previous buy-in policies with Legal & General in May 2020
and February 2019 and Pension Insurance Corporation in March 2017.
These polices provide long-term security for the Plan members and 3i
is no longer exposed to any material longevity, interest or inflation
risk in the Plan or any ongoing requirement to fund the Plan. During
the year the Group gave notice to terminate the Plan. The Trustees
have taken steps to commence a buy-out and wind up of the Plan,
the completion of which could take up to 18 months.
During the year the Group recognised an £8 million re-measurement
gain (2022: £3 million) on the German defined benefit plan.
The liability of this plan decreased in the year following an increase
in the discount rate.
Tax
The Group’s parent company continues to operate in the UK as
an approved investment trust company. 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.
The Group’s tax charge for the year was £2 million (2022: £5 million).
The Group’s overall UK tax position for the financial year is
dependent on the finalisation of tax returns of the various corporate
and partnership entities in the UK group.
Table 18: Net assets1 and sensitivity by currency at 31 March
Sterling
Euro2
US dollar2
Danish krone
Other
1 The net assets position includes the impact from foreign exchange hedging.
2 The sensitivity impact calculated on the net assets position includes the impact from foreign exchange hedging.
3i Group plc | Annual report and accounts 2023
FX rate
n/a
1.1377
1.2361
8.4752
n/a
£m
4,797
10,641
1,154
222
30
1%
sensitivity
£m
n/a
106
12
2
n/a
%
28
64
7
1
–
71
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Balance sheet and liquidity
At 31 March 2023, the Group had net debt of £363 million
(31 March 2022: £746 million) and gearing of 2% after the receipt
of strong cash income of £497 million and net cash proceeds
of £555 million, offsetting dividend payments of £485 million and
repayment of our £200 million fixed-rate 2023 bond in the year.
The Group had liquidity of £1,312 million as at 31 March 2023
(31 March 2022: £729 million) comprising cash and deposits of
£412 million (31 March 2022: £229 million) and an undrawn RCF
of £900 million. During the year, we increased our available liquidity
by introducing a two-year £400 million tranche to the existing base
£500 million RCF. Since 31 March 2023, we extended the maturity
of the £400 million additional tranche to July 2025.
The investment portfolio value increased to £18,388 million
at 31 March 2023 (31 March 2022: £14,305 million) mainly driven
by unrealised profits of £3,769 million in the year.
Further information on investments and realisations is included
in the Private Equity, Infrastructure and Scandlines business reviews.
Going concern
The Annual report and accounts 2023 are prepared on a going
concern basis. The Directors made an assessment of going concern,
taking into account the Group’s current performance and the
outlook, and performed additional analysis to support the going
concern assessment. Further details on going concern can be found
on page 123 in the Resilience statement.
Dividend
The Board has recommended a second FY2023 dividend of
29.75 pence per share (2022: 27.25 pence), taking the total dividend
for the year to 53.0 pence per share (2022: 46.5 pence). Subject
to shareholder approval, the dividend will be paid to shareholders
in July 2023.
Table 19: Simplified consolidated balance sheet at 31 March
Investment basis Statement of financial position
Investment portfolio
Gross debt
Cash and deposits
Net debt
Carried interest and performance fees receivable
Carried interest and performance fees payable
Other net assets
Net assets
Gearing1
1 Gearing is net debt as a percentage of net assets.
2023
£m
18,388
(775)
412
(363)
43
(1,351)
127
16,844
2 %
2022
£m
14,305
(975)
229
(746)
59
(963)
99
12,754
6 %
Key accounting judgments and estimates
A key judgement is the assessment 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 74 to 76.
In preparing these accounts, the key accounting estimates are the carrying value of our investment assets, which is stated at fair value,
and the calculation of carried interest payable.
Given the importance of the valuation of investments, 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 2023, 95% by value of the investment assets
were unquoted (31 March 2022: 93%).
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 2023 and the underlying investment management agreements.
3i Group plc | Annual report and accounts 2023
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Financial review 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 the following pages.
Investment basis of consolidation
IFRS 10 basis of consolidation
3i Group plc
The Group
3i Group plc
The Group
Inter-company
balance
eliminated on
consolidation
Trading
subsidiaries
(regulated
investment
advisers,
employment
entities, etc.)
Investment
entity
subsidiaries
Portfolio
companies
(held directly by
3i Group plc)
Portfolio
companies
l Consolidated
l Fair valued
Trading
subsidiaries
(regulated
investment
advisers,
employment
entities, etc.)
Investment
entity
subsidiaries
Inter-company
balance
Portfolio
companies
(held directly by
3i Group plc)
Portfolio
companies
l Consolidated
l Fair valued
l Portfolio company included in fair value
of Investment entity subsidiaries
3i Group plc | Annual report and accounts 2023
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Reconciliation of Investment basis and IFRS
Reconciliation of consolidated statement of comprehensive income
for the year to 31 March
Investment
basis
2023
£m
IFRS
adjustments
2023
£m
IFRS basis
2023
£m
Investment
basis
2022
£m
IFRS
adjustments
2022
£m
IFRS basis
2022
£m
Notes
Realised 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
Movement in the fair value of derivatives
Gross investment return
Fees receivable from external funds
Operating expenses
Interest receivable
Interest payable
Exchange movements
Income from investment entity subsidiaries
Other (expense)/income
Operating profit before carried interest
Carried interest
Carried interest and performance fees receivable
Carried interest and performance fees payable
Operating profit before tax
Tax charge
Profit for the year
Other comprehensive income/(expense)
Exchange differences on translation
of foreign operations
Re-measurements of defined benefit plans
Other comprehensive income for the year
Total comprehensive income
for the year (“Total return”)
1,2
1,2
1
1,2
1,2
1,2
1,3
4
1
1,3
1
1,4
1,4
1,4
1,3
169
(105)
64
238
(149)
3,769
(1,872)
1,897
3,824
(2,043)
–
2,112
2,112
–
1,974
416
91
7
530
122
5,104
70
(138)
4
(54)
(29)
–
(1)
4,956
41
(418)
4,579
(2)
4,577
–
8
8
4,585
(187)
(62)
3
(327)
–
(438)
–
1
–
–
23
30
–
(384)
–
380
(4)
–
(4)
4
–
4
–
229
29
10
203
122
4,666
70
(137)
4
(54)
(6)
30
(1)
4,572
41
(38)
4,575
(2)
4,573
4
8
12
4,585
375
85
3
(2)
2
4,525
62
(128)
–
(53)
9
–
2
4,417
54
(454)
4,017
(5)
4,012
–
2
2
4,014
(169)
(55)
3
(7)
–
(446)
–
1
–
–
7
32
–
(406)
(1)
408
1
–
1
(1)
–
(1)
–
89
1,781
1,974
206
30
6
(9)
2
4,079
62
(127)
–
(53)
16
32
2
4,011
53
(46)
4,018
(5)
4,013
(1)
2
1
4,014
The IFRS basis is audited and the Investment basis is unaudited.
Notes to the Reconciliation of consolidated statement of comprehensive income above:
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.
Notes to Reconciliation of consolidated statement of financial position on page 75:
1 Applying IFRS 10 to the Consolidated statement of financial position aggregates the line items into the single line item “Investments in investment entity subsidiaries”. 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 entity subsidiaries” line. We have disaggregated this fair value and disclosed the underlying portfolio holding in the relevant line item, ie, quoted investments or unquoted
investments. Other items which may be aggregated include carried interest, other assets and other payables, and the Investment basis presentation again disaggregates these items.
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.
Investment basis financial statements are prepared for performance measurement and therefore reserves are not analysed separately under this basis.
2
3
3i Group plc | Annual report and accounts 2023
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Reconciliation of Investment basis and IFRS continued
Reconciliation of consolidated statement of financial position
as at 31 March
Investment
basis
2023
£m
IFRS
adjustments
2023
£m
IFRS basis
2023
£m
Investment
basis
2022
£m
IFRS
adjustments
2022
£m
IFRS basis
2022
£m
Notes
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
Right of use asset
Derivative financial instruments
Deferred income taxes
Total non-current assets
Current assets
Carried interest and performance fees
receivable
Other current assets
Current income taxes
Derivative financial instruments
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
Derivative financial instruments
Retirement benefit deficit
Lease liability
Deferred income taxes
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Carried interest and performance fees payable
Loans and borrowings
Derivative financial instruments
Lease liability
Current income taxes
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share premium
Other reserves
Own shares
Total equity
The IFRS basis is audited and the Investment basis is unaudited.
Notes: see page 74.
3i Group plc | Annual report and accounts 2023
1
1
1,2
1
1
1
1
1
1
1
1
1
3
962
17,426
–
18,388
3
33
5
53
3
9
73
–
18,567
(121)
(8,749)
7,844
(1,026)
–
(3)
–
–
–
–
–
–
(1,029)
841
8,677
7,844
17,362
3
30
5
53
3
9
73
–
17,538
1,063
13,242
–
14,305
8
50
6
53
3
13
7
1
14,446
40
–
40
51
41
1
48
412
542
19,109
(11)
(1,049)
(775)
(3)
(20)
(5)
(1)
(4)
(1,868)
(85)
(302)
–
(1)
(5)
(4)
(397)
(2,265)
16,844
719
790
15,443
(108)
16,844
(11)
–
–
(250)
(261)
(1,290)
7
1,006
–
–
–
–
–
–
1,013
9
268
–
–
–
–
277
1,290
–
–
–
–
–
–
30
1
48
162
281
17,819
(4)
(43)
(775)
(3)
(20)
(5)
(1)
(4)
(855)
(76)
(34)
–
(1)
(5)
(4)
(120)
(975)
16,844
719
790
15,443
(108)
16,844
105
1
10
229
396
14,842
(21)
(915)
(775)
–
(26)
(9)
(1)
(3)
(1,750)
(81)
(48)
(200)
–
(5)
(4)
(338)
(2,088)
12,754
719
789
11,346
(100)
12,754
(129)
(7,534)
6,791
(872)
1
(5)
–
–
–
–
–
–
(876)
–
(1)
–
–
(17)
(18)
(894)
7
873
–
–
–
–
–
–
880
1
13
–
–
–
–
14
894
–
–
–
–
–
–
934
5,708
6,791
13,433
9
45
6
53
3
13
7
1
13,570
51
104
1
10
212
378
13,948
(14)
(42)
(775)
–
(26)
(9)
(1)
(3)
(870)
(80)
(35)
(200)
–
(5)
(4)
(324)
(1,194)
12,754
719
789
11,346
(100)
12,754
75
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Business
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Performance
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Governance
Audited financial
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Portfolio and
other information
Reconciliation of Investment basis and IFRS continued
Reconciliation of consolidated cash flow statement
for the year to 31 March
Cash flow from operating activities
Purchase of investments
Proceeds from investments
Amounts paid to investment entity subsidiaries
Amounts received 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
Operating expenses paid
Co-investment loans received/(paid)
Tax received
Interest received
Net cash flow from operating activities
Cash flow from financing activities
Issue of shares
Purchase of own shares
Dividends paid
Repayment of long-term borrowing
Lease payments
Interest paid
Net cash flow from financing activities
Cash flow from investing activities
Purchase of property, plant and equipment
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 IFRS basis is audited and the Investment basis is unaudited.
Notes to Reconciliation of consolidated cash flow statement above:
Investment
basis
2023
£m
IFRS
adjustments
2023
£m
IFRS basis
2023
£m
Investment
basis
2022
£m
IFRS
adjustments
2022
£m
IFRS basis
2022
£m
Notes
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
1
2
(330)
885
–
–
23
19
406
5
67
58
(51)
(128)
3
–
4
961
1
(30)
(485)
(200)
(5)
(54)
(773)
(1)
(1)
187
229
(4)
412
284
(658)
(535)
841
–
(7)
(183)
–
–
–
22
–
2
–
–
(234)
–
–
–
–
–
–
–
–
–
(234)
(17)
1
(250)
(46)
227
(535)
841
23
12
223
5
67
58
(29)
(128)
5
–
4
727
1
(30)
(485)
(200)
(5)
(54)
(773)
(1)
(1)
(47)
212
(3)
162
(596)
758
–
–
11
4
369
9
68
10
(23)
(106)
(5)
1
–
500
1
(54)
(389)
–
(4)
(52)
(498)
–
–
2
225
2
229
272
(464)
(349)
685
–
(1)
(165)
–
–
–
9
1
2
–
–
(10)
–
–
–
–
–
–
–
–
–
(10)
(9)
2
(17)
(324)
294
(349)
685
11
3
204
9
68
10
(14)
(105)
(3)
1
–
490
1
(54)
(389)
–
(4)
(52)
(498)
–
–
(8)
216
4
212
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 subsidiaries.
Cash held within Investment entity subsidiaries will not be shown in the IFRS statements but will be seen in the Investment basis statements.
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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 page 73. The table below defines our additional APMs.
Gross investment return as a percentage of opening portfolio value
Purpose
Calculation
Reconciliation to IFRS
A measure of the performance
of our proprietary investment
portfolio.
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.
The equivalent balances under IFRS and the reconciliation
to the Investment basis are shown in the Reconciliation
of the consolidated statement of comprehensive income
and the Reconciliation of the consolidated statement
of financial position respectively.
+ PAGE 18
KPIs
Cash realisations
Purpose
Calculation
Reconciliation to IFRS
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.
The equivalent balance under IFRS and the reconciliation
to the Investment basis is shown in the Reconciliation
of the consolidated cash flow statement.
+ PAGE 18
KPIs
Cash investment1
Purpose
Identifying new opportunities in
which to invest proprietary capital
is the primary driver of the Group’s
ability to deliver attractive returns.
Operating cash profit
Calculation
Reconciliation to IFRS
The cash paid to acquire investments
in the year as shown on the Investment
basis Consolidated cash flow statement.
The equivalent balance under IFRS and the reconciliation
to the Investment basis is shown in the Reconciliation
of the consolidated cash flow statement.
+ PAGE 18
KPIs
Purpose
Calculation
Reconciliation to IFRS
By covering the cash cost of
running the business with cash
income, we reduce the potential
dilution of capital returns.
The cash income from the portfolio
(interest, dividends and fees) together
with fees received from external funds less
cash operating expenses and leases
payments as shown on the Investment
basis Consolidated cash flow statement.
The calculation is shown in Table 14
of the Financial review.
The equivalent balance under IFRS and the reconciliation
to the Investment basis is shown in the Reconciliation
of the consolidated cash flow statement.
+ PAGE 18
KPIs
Net (debt)/cash
Purpose
Calculation
Reconciliation to IFRS
A measure of the available cash
to invest in the business and
an indicator of the financial risk
in the Group’s balance sheet.
Cash and cash equivalents plus deposits
less loans and borrowings as shown
on the Investment basis Consolidated
statement of financial position.
The equivalent balance under IFRS and the reconciliation
to the Investment basis is shown in the Reconciliation
of the consolidated statement of financial position.
Gearing
Purpose
Calculation
Reconciliation to IFRS
A measure of the financial risk
in the Group’s balance sheet.
Net debt (as defined above) as a % of the
Group’s net assets under the Investment
basis. It cannot be less than zero.
The equivalent balance under IFRS and the reconciliation
to the Investment basis is shown in the Reconciliation
of the consolidated statement of financial position.
1 Cash investment of £397 million is different to cash investment per the cash flow of £330 million due to a £57 million syndication in Infrastructure which was received in FY2023 and a £10 million investment in Private Equity
to be paid in FY2024.
3i Group plc | Annual report and accounts 2023
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other information
Risk management
Effective risk management underpins
the successful delivery of our strategy
and longer-term sustainability of the
business. Our values and culture at 3i
are embedded in our approach to risk
management.
Understanding our risk appetite, culture and values
As both an investor and asset manager, 3i is in the business of taking
risks in order to seek to achieve its targeted returns for shareholders
and other investors. 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. The Group’s risk management framework is designed to
support the delivery of the Group’s strategic objectives and the
longer-term sustainability of the business and its investment portfolio.
3i’s Risk appetite statement, which is consistent with previous years,
is built on rigorous and comprehensive investment procedures
and conservative capital management. Please refer to page 79
for further details.
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 ensuring a
consistent approach across the business. This includes alignment
with 3i’s financial and strategic objectives; cultural values and
business conduct rules; and ensuring that the long-term sustainability
of portfolio companies is taken into consideration. Members of the
Executive Committee have responsibility for their own business
or functional areas and the Group expects individual behaviours
to meet its 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 required to comply with regulatory conduct rules and are
assessed on how they demonstrate 3i’s values as part of their annual
appraisal. Finally, our Remuneration Committee is responsible for
ensuring the Group’s remuneration policy is aligned with the Group’s
culture and values, weighted towards variable compensation
dependent on performance, and does not encourage inappropriate
risk taking.
The following sections outline the principal risks to our strategic
objectives, our assessment of their potential impact on our business
in the context of the current environment and how we seek to
mitigate them.
Approach to risk governance
The Board is responsible for risk assessment, the risk management
process and for the protection of the Group’s reputation, brand
integrity and longer-term sustainability. It considers the most
significant current and emerging risks facing the Group using a range
of quantitative data and analyses where possible. These include
vintage controls which consider the portfolio concentration by
geography and sector; periodic reporting of financial and non-
financial KPIs from the portfolio, including leverage levels and ESG
and sustainability indicators; and liquidity reporting.
Board oversight is exercised through the Audit and Compliance
Committee which focuses on upholding standards of integrity;
financial and non-financial reporting; risk management; going
concern and resilience; and internal control. The Audit and
Compliance Committee’s activities are discussed further in
its report on pages 114 to 118.
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 is 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 review also incorporates a watch list
of new and emerging risks for monitoring purposes. The risk review
takes place four times a year, with the last review in April 2023, and
the Chief Executive provides updates to each Audit and Compliance
Committee meeting.
The Investment Committee has principal responsibility for managing
the Group’s investment portfolio and monitoring its most material
risks. It ensures a consistent approach to investment and portfolio
management processes across the business.
The Group’s work on ESG and sustainability is overseen by the ESG
Committee. The Committee assists and advises the Chief Executive,
directly and by way of input into the work of the Investment and
Group Risk Committees. The Committee also supports the
coordination of the Group’s various ESG and sustainability activities,
including the management of ESG-related risks and opportunities
across the portfolio.
In addition to the above, a number of other Board and Executive
Committee members contribute to the Group’s overall risk
governance structure. Please refer to page 80 for further details
on the Risk governance structure.
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Risk management continued
Risk appetite
Our risk appetite is defined by our strategic
objectives. We invest capital in businesses
to deliver capital returns, and portfolio and fund
management cash income to cover our costs
and increase returns to our investors.
As proprietary capital investors we have
a long-term, responsible approach.
Investment risk
The substantial majority of the Group’s capital is invested in Private
Equity. Before the Group commits to a Private Equity investment,
we assess the opportunity using the following criteria:
• return objective: individually assessed and subject to a minimum
target of a 2x money multiple over four to six years;
• geographic focus: headquartered in our core markets of northern
Europe and North America;
• sector expertise: focus on Business & Technology Services,
Consumer, Industrial Technology and Healthcare;
• responsible investment: all investments are screened against
the criteria and exclusions set out in our Responsible Investment
policy; 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-teen returns.
All Infrastructure investments are also made subject to the criteria
set out in the Group’s Responsible Investment policy.
On occasion, the Group may conclude that it is in the interest of
shareholders, and consistent with our strategic objectives, to hold
a Private Equity investment for a longer period.
Capital management
3i adopts a conservative approach to managing its capital resources
as follows:
• the Group aims to operate within a range of £500 million net cash
to £1 billion net debt, with tolerance to operate outside of this
range on a short-term basis and up to a gearing level of 15%
dependent on investment and realisation flows. The Group may
raise debt, or use other financing from time to time, to manage
investment and realisation flows. The Group has no appetite
for structural gearing ie the achievement of its returns objectives
is not reliant on gearing;
• The Group manages liquidity conservatively; maintaining a RCF
to provide additional committed liquidity and financial flexibility,
and monitoring using a framework that assesses forecast cash
flows and a broader range of factors;
• the Group accepts a degree currency exposure risk with respect
to its investment portfolio, but aims to partially reduce the impact
of currency movements on its net asset value through a
combination of matching currency realisations with investments
and the use of its euro and US dollar foreign exchange hedging
programmes, taking into account the associated costs and liquidity
risks. These portfolio hedging programmes have a total size of
€2.0 billion and $1.2 billion respectively;
• in addition, the Group may hedge specific assets or exposures
where appropriate; for example, in relation to currency exposures
on longer-term investments, such as Scandlines (€600 million
hedging programme); and
• we have limited appetite for the dilution of capital returns
as a result of operating and interest expenses. All our business
lines generate cash income to mitigate this risk.
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Risk management continued
Risk governance structure
Board
• Approves the Group’s risk appetite and strategy
• Responsible for ensuring an effective risk management and oversight process across the Group
and for the investment strategy
• Ownership and oversight of the Group’s ESG and sustainability approach and policies
• Assisted by four Board Committees with specific responsibility for key risk management areas
• Delegates management of the Group to the Chief Executive
Nominations
Committee
Audit and Compliance
Committee
Valuations
Committee
Remuneration
Committee
• Responsible for ensuring that
the Board has the necessary
skills, experience and knowledge
to enable the Group to deliver
its strategic objectives
• Responsible for appointing a diverse
Board
• Responsible for reviewing financial
• Specific and primary responsibility
• Responsible for ensuring
and non-financial reporting risks and
internal controls, and the relationship
with the External auditor
• Reviews and challenges reports
from Group Finance, Tax, Internal
Audit and Compliance
• Receives updates from the Chief
Executive at each meeting on the
output of the latest GRC meeting
and on ESG matters
for the valuation policy and valuation
of the Group’s investment portfolio
including the impact of sustainability
related matters
• Provides oversight and challenge
of underlying assumptions on the
valuation of the investment portfolio
• Direct engagement with the External
auditor, including its specialist
valuations team
a remuneration culture which
is weighted towards variable
reward and strictly dependent on
performance whilst not encouraging
inappropriate risk taking
• Approves carried interest and asset
performance linked schemes for our
investment professionals that are in
line with market practice and enable
the Group to attract and retain the
best talent
• By excluding Executive Directors
from carried interest or performance
fee profit schemes, the Committee
ensures that their remuneration
is closely aligned with shareholder
returns
Chief Executive
• Delegated responsibility for management of the Group
• Delegated responsibility for investment decisions
• Delegated responsibility for risk management
• Delegated responsibility for assessment and management of ESG risks and opportunities across
the Group and portfolio
Executive Committee
Investment Committee
Group Risk Committee
ESG Committee
• Monitors divisional performance
• Facilitates information sharing
between divisions
• Meets monthly
Conflicts Committee
• Deals with potential conflicts
as required
Treasury Transactions
Committee
• Considers specific treasury
transactions as required
Market Abuse
Regulation Committee
• Considers potential disclosure
matters as required
• Principal committee for managing
the Group’s investment portfolio
and monitoring its most material
risks
• Meets as often as required
• Chaired by the Chief Executive
• Strict oversight of each step
of the investment lifecycle
• Approves all investment,
divestment and material portfolio
decisions
• Monitors investments against
original investment case
• Ensures investments are in line
with the Group’s investment policy
and risk appetite
• Implements the Responsible
Investment policy and assesses
the sustainability of the Group’s
portfolio companies and ESG risks
and opportunities
• Assists the Chief Executive with
the oversight of risk management
across the Group
• Implements the Group’s risk
appetite policy and monitors
performance
• Maintains the Group risk review
which details its principal risk
exposures; a watch list of new and
emerging risks; and appropriate
mitigations and controls
• Two members of the GRC form
the Risk Management function
as required under the FCA’s
Investment Funds sourcebook
• Maintains oversight of the risks
relating to ESG matters and of the
Responsible Investment policy
• Chaired by the Chief Executive
• Advises on ESG-related risks
and opportunities relevant to
the Group and its investment
portfolio
• Develops the Group’s ESG
approach, and related policies
and procedures
• Ensures the Group’s compliance
with relevant ESG-related legal
and regulatory requirements,
standards and guidelines
• Coordinates ESG-related activities
and initiatives across the Group
and investment portfolio
• Reviews and monitors the Group’s
ESG performance
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Risk management continued
Risk framework
The risk framework is augmented by a separate Risk Management
function which has specific responsibilities under the FCA’s
Investment Funds sourcebook and is functionally and hierarchically
separate from the investment teams. It 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. The function meets ahead of the GRC
meetings to consider the key risks impacting the Group, and any
changes in the relevant period where appropriate.
The Group operates a “three lines of defence” framework for
managing and identifying risk:
(1) The first line of defence against outcomes outside our risk
appetite is constituted by our business functions themselves.
(2) Line management is supported by oversight and control
functions, specifically Compliance, Group Finance, Human
Resources and Legal.
(3) 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 the
effectiveness of risk management processes and recommendations
to improve the internal control environment.
Role of Group Risk Committee in risk management
The quarterly Group risk review process includes an analysis of
external developments, emerging risks, and the monitoring of key
strategic and financial metrics (such as KPIs) considered to be
indicators of potential changes in the Group’s risk profile. The GRC
uses this information to identify its principal risks. It then evaluates
the impact and likelihood of each risk, in the context of the Group’s
strategic objectives and with reference to associated measures and
KPIs. The adequacy of the mitigation plans is then assessed and,
if necessary, additional actions are agreed and reviewed at the
subsequent meeting. A report summarising the key conclusions
of each GRC meeting together with a copy of the risk review report
is provided to the Audit and Compliance Committee, which
provides independent oversight of the work of the GRC.
A number of focus topics are also agreed in advance of each
meeting. In FY2023, the GRC covered the following:
• a review of the Group’s IT framework including cyber security,
systems developments and IT resilience;
• an update on the Group’s business continuity and resilience
planning and testing;
• a review of the Group’s stress tests to support its going concern,
Viability and Resilience statements;
• semi-annual updates from the investment business lines on ESG
and sustainability issues and themes with respect to the Group’s
portfolio companies, including progress with carbon reporting;
• semi-annual updates from 3i’s ESG Committee, including progress
with TCFD; and
• the proposed risk disclosures in the FY2023 Annual report
and accounts.
There were no significant changes to the GRC’s overall approach
to risk governance or its operation in FY2023. During the year,
we undertook a benchmarking exercise to compare 3i’s principal
risks, along with the current watch list, against the risk disclosures
of a peer group of PE investment trusts, European investment
companies, traditional asset managers and a selection of US
alternative asset managers. The overall conclusion was that 3i’s
approach remains fit for purpose.
Role of the ESG Committee
The Group’s ESG Committee provides input and advice on the
assessment and management of relevant ESG risk and opportunities;
the development of the Group’s ESG strategy; and coordination of
ESG-related activities and initiatives. The GRC receives semi-annual
updates on the work of the Committee as part of its risk review
process. Refer to the TCFD disclosures on pages 60-66 for further
details.
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Integrated approach to risk management
3i’s approach to risk management consists of a number of interrelated processes, illustrated
below, the operation of which is overseen by a combination of the Investment Committee,
Executive Committee, Group Risk Committee and ESG Committee.
l Responsibility of Investment Committee
l Responsibility of Group Risk Committee
l Responsibility of ESG Committee
Six-monthly portfolio company
reviews and monthly updates
Valuation process
and monitoring
Oversight by Group
Risk Committee
Regular Board and Audit
and Compliance
Committee updates
Board review of business
line plans and Group
strategic model
Approval of strategic
objectives
Review of organisational
capability, diversity and
succession plans
Regular monitoring
of market, economic and
geopolitical developments
Analysis of technological,
societal and demographic
changes and trends
Investment Committee
operates investment strategy,
vintage control and asset
management
Our purpose
Attractive returns
Responsible approach
Driving sustainable growth
Setting of sustainability strategy
covering responsible investment,
people and corporate citizenship
Assessment of long-term sustainability,
ESG and reputational risk profile of
portfolio companies
Oversight of ESG regulatory
reporting requirements and
associated processes, eg TCFD
Board review of risk appetite
covering investment risk and
capital management
Setting of an appropriate conduct
and culture framework and policies
Alignment with
remuneration strategy
Treasury policy and control
framework, including oversight
of Treasury Transactions
Committee, as required
Group Risk Committee
review and monitoring of risk
mitigation plans
Assessment of principal,
new and emerging risks
Development and testing
of viability and going
concern scenarios
+ PAGE 80
Further details of the risk governance structure
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Integrated approach to risk management continued
Role of Investment Committee in risk management
Our Investment Committee is fundamental to the
management of investment risk. It is involved in
and approves every material step of the investment,
portfolio management and realisation process.
The assessment and management of ESG risks
and opportunities is embedded in our investment,
portfolio management and value creation
processes. All investments are screened against
3i’s Responsible Investment policy.
The investment case presented at the outset of our investment
consideration process includes the expected benefit of operational
improvements, growth initiatives, ESG and sustainability 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.
In evaluating new and existing investments, the Investment
Committee considers potential reputational risks and broader ESG
and sustainability developments and trends. The latter includes the
risks and opportunities in relation to the environmental aspects of
each company’s products and services, the markets in which they
operate, and the supply chain. Investment cases may include
consideration of the feasibility and cost of initiatives to reduce
the company’s environmental footprint, where material.
After an investment is made, each investment case is closely
monitored:
• our monthly portfolio monitoring reviews assess current
performance against budget, prior year and a set of traffic light
indicators and bespoke, forward-looking financial and non-financial
KPIs;
• we hold semi-annual in-depth reviews of all our assets. We focus
on the longer-term performance and plan for the investment
compared to the original investment case, together with any
strategic developments, a detailed assessment of ESG and
sustainability risks and opportunities, and market outlook; and
• our monitoring processes also include consideration of instances
where individual portfolio company underperformance could have
adverse reputational consequences for the Group, even though
the value impact may not be material.
The monthly portfolio monitoring reviews and the semi-annual
reviews are attended by the Investment Committee and the senior
members of the investment teams. A number of non-executive
Directors attend the semi-annual reviews.
Finally, we recognise the need to plan and execute a successful
exit at the optimum time, taking consideration of market conditions.
This risk is closely linked to the external economic environment.
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.
We review our internal processes and investment decisions in light
of actual outcomes on an ongoing basis.
» SUMMARY OF OUR RESPONSIBLE INVESTMENT POLICY
+ PAGES 14-15
www.3i.com/sustainability/sustainability-policies
Our long-term, responsible approach
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Principal risks and mitigations –
aligning risk to our strategic objectives
External
External risks are the risks to our business which are usually outside
of our direct control such as political, economic, environmental,
social, regulatory and competitor risks.
The period has been characterised by global economic uncertainty,
weaker growth, market volatility, higher inflation and increased
interest rates. Some of the factors contributing to this are
continuations of events and themes noted last year. These include
the impact of Russia’s invasion of Ukraine and readjustment of
the global economy to the dislocations related to Covid-19.
More recently, the impact of higher interest rates has resulted in
the increased pricing of specific assets and exposed some significant
weaknesses in the banking sector. This development has been
added as a distinct principal risk for review and monitoring purposes.
As noted under the comments on capital management below,
3i continues to maintain a conservative approach to managing
its capital resources within the limits set out in its Risk appetite
statement and a clearly defined treasury policy.
The impact of higher energy costs, general price inflation and higher
interest rates has been the subject of close monitoring across the
portfolio. Measures and initiatives put in place some time ago have
enabled portfolio companies to manage their performance through
a more volatile and uncertain period. This is reflected in the
continued positive momentum in the portfolio performance across
both business lines during the year; in particular, investments in the
areas of value-for-money, private label, healthcare and infrastructure.
ESG and sustainability is increasingly important in the context
of our strategic and investment objectives. Further information
on work done in relation to ESG reporting, including TCFD
compliance, and our approach to climate-related risk and
opportunities can be found in our TCFD report on pages 60 to 66.
The Group’s resilience assessment and viability testing consider
a range of stress test scenarios which include a number of severe
yet plausible external events. The development of these scenarios
is done in conjunction with the Group’s risk review process.
Further details can be found on pages 123 to 125.
Business and risk environment in FY2023
We define our principal risks as those that have the potential
to impact the delivery of our strategic objectives materially. During
the year, the Directors considered a robust assessment of the
principal and new and emerging risks facing the Group, including
those that would threaten its business model, future performance,
solvency or liquidity. Further details can be found in the Audit and
Compliance Committee report on pages 114 to 118.
This section provides an overview of the Group’s principal risks;
new and emerging risks; and the key matters considered during
the year as part of the risk assessment process.
For the most part, FY2023 remained a year of considerable
uncertainty compounded by the impact of a number of downside
factors. These include the impact of Russia’s invasion of Ukraine;
Russian sanctions; measures taken to combat the spread of Covid-19
in China; and impact of higher inflation and interest rates and other
economic headwinds.
Notwithstanding the levels of uncertainty experienced, most of the
underlying risk factors are a continuation of the key themes which
were under active consideration at the start of FY2023. Accordingly,
the Group’s overall principal risk profile has remained stable although
the precise nature of the individual risks may have evolved.
In order to reflect more accurately the nature of the risks involved,
we relabelled the principal risk of “Risk of escalation or widening
of Russia/Ukraine conflict” as “Geopolitical risks”, and the risk
of “High pricing in 3i’s core sectors” as “Transaction execution
challenges in the current market”. The overall assessment of the
likelihood and impact of these risks to operations of the Group,
however, remains unchanged.
In light of recent developments, we have split out the risk of higher
interest rates from the more general risk of “Global economic
uncertainty”. The former is now shown as a distinct principal risk:
“Impact of higher interest rates on debt markets and pricing of
specific asset classes”.
The risk of “Exposure of portfolio companies to disruption from
Covid-19” has reduced through a combination of the easing of
restrictions and the implementation of appropriate contingency
plans. This has been removed as a principal risk and moved to
the risk watch list under the heading of “Re-emergence of a global
pandemic”. Our focus is on the longer-term economic impact of
the pandemic, whilst remaining mindful of the risk of new variants
and the potential for further disruption.
The Group’s risk mitigation plans, which are subject to regular
review, have not required any major changes during the year other
than the implementation of a medium-term foreign exchange
hedging programme in light of periods of significant volatility
in foreign exchange markets.
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Principal risks and mitigations – aligning risk to our strategic objectives continued
Attracting and retaining key people remains a significant operational
priority. Our Remuneration Committee ensures that our variable
compensation schemes are in line with market practice and
consistent with sound risk management. These schemes include
carried interest, an important long-term incentive, which rewards
cash-to-cash returns.
Although we saw significant competition in the recruitment market
during the year, the Group continued to experience modest levels
of voluntary staff turnover; 9.5% in FY2023. This reflects 3i’s strong
performance and helps to underpin the longer-term resilience
of the business. The effective on-boarding and integration of new
hires remains a priority and is an important part of maintaining
a cohesive Group culture and good control mindset.
Detailed succession plans are in place for each business area.
The Board completed its last formal annual review of the Group’s
organisational capability and succession plans in September 2022.
Fraud risk is considered on a regular basis. 3i has a robust fraud risk
assessment and anti-fraud programme in place. The latter includes
fraud prevention work by Internal Audit, awareness training and
provision of an independent reporting service or “hotline” accessible
by all staff. The Group’s cyber security programme also aims to
identify and mitigate the risks of third-party frauds, for example
ransomware and phishing attacks, through the use of IT security
tools and regular staff training.
Capital management
3i has maintained a conservative approach to managing its capital
resources and has operated within the limits set out in its Risk
appetite statement on page 79 and in accordance with the treasury
policy approved by the Board. Accordingly, there are currently
no principal risks in relation to capital management.
The Group implemented a euro and US dollar medium-term foreign
exchange hedging programme given the significant volatility in
foreign exchange markets experienced during the year. The purpose
of the programme is to partially reduce the sensitivity of the Group’s
net asset value and impact of mismatched currency cash flows
to changes in the euro and US dollar. The liquidity impact of this
programme was carefully assessed prior to implementation
and incorporated into the Group’s liquidity monitoring framework.
The Risk appetite statement has been updated to reflect this change.
Investment
Our overarching objective is to source attractive investment
opportunities at the right price and execute our investment plans
successfully. Our investment teams, who are responsible for
origination and asset management, are rewarded with performance-
based remuneration which is designed to ensure alignment with
the Group’s investment objectives and risk management appetite.
Notwithstanding the very challenging external environment
described previously, portfolio performance remains robust reflecting
a combination of the diversity and structure of the portfolio, our
disciplined approach to investment, and mitigating steps taken to
address cost pressures and weaker consumer demand where there
is a particular exposure. As a result, there have been no major
changes to the principal risks associated with investment outcomes
over the past year.
As part of our portfolio monitoring, all of our new investments
in the year are subject to rigorous review, including performance
against a 180-day plan. We continued to monitor the portfolio
actively and, where necessary, hold additional reviews for assets
where there are more significant operational challenges. As part
of this process leverage, banking covenants and counterparty risks
are closely monitored across the portfolio.
Our investment and portfolio monitoring reviews include an
enhanced ESG and sustainability assessment, which is completed
annually and enables current and emerging risks and opportunities
to be tracked on a systematic basis, with updates provided on a semi-
annual basis. Good progress has been made in further advancing
the ESG and sustainability maturity of the portfolio and improving
carbon measurement and reporting capabilities.
Operational
3i’s operational risk profile has remained stable over the year.
The Group has maintained a hybrid working model which supports
a strong collaborative working culture whilst giving staff a degree
of flexibility. The operational effectiveness of the model was reviewed
during the year and some refinements implemented based on
feedback and benchmarking.
3i has continued to operate robust and secure IT systems supported
by key third-party service providers. We also continue to review and
refresh our IT systems, device strategy, and cyber security framework.
We engage the services of a leading cyber security services company,
including a part-time Chief Information Security Officer, which
provides ready access to intelligence and expert advice on new
and emerging cyber security threats.
Incident management and business continuity plans are reviewed
at least annually. This includes consideration of a broad range
of “severe but plausible” business disruption scenarios and
incorporates an assessment of third-party supplier risks.
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Outlook
As previously noted, the longer-term economic outlook continues
to be adversely affected by a number of factors including high
inflation; the cost-of-living crisis; higher interest rates; Russia’s
invasion of Ukraine; and wider geopolitical tensions. Whilst an
improved global economic growth and a faster fall in inflation are
plausible scenarios, our outlook remains cautious in view of the levels
of uncertainty and number of potential downside factors which could
hamper economic recovery and potentially lead to wider market
volatility.
3i’s business model, its disciplined approach to investment, active
portfolio management, and diverse investment portfolio have been
resilient to the challenges of the past year and in the latest stress
tests carried out as part of our viability assessment.
3i continues to work closely with portfolio management teams to
support their respective business and contingency plans in response
to challenging economic and market conditions. Enhanced portfolio
monitoring and reporting processes remain in place to identify actions
needed to support portfolio companies through periods of
uncertainty and to take advantage of new opportunities as these arise.
We made four new Private Equity investments in the year and
have continued to grow portfolio value through our buy-and-build
strategy. For further information on the investments made during
the year, please refer to our Investment Activity section (pages 25
to 29). We have a clear and consistent strategy and a disciplined
approach to investment whilst looking to put more capital behind
those portfolio companies we already know well. We expect
competition for the best assets in our sectors to remain intense
and prices high. Accordingly, our focus remains on bilateral
or complex processes and our buy-and-build platforms where
we continue to build an attractive pipeline of new and further
investment opportunities.
New and emerging risks
In addition to the review of principal risks, the GRC maintains a watch
list of risks which are deemed of sufficient importance to require
active monitoring by the GRC but are not currently regarded as risks
to the achievement of the Group’s strategic objectives. This includes
new and emerging risks. The watch list sets out how these risks are
being mitigated and any further actions agreed by the GRC. Risks
on the watch list may be reclassified as principal risks and vice versa
based on the GRC’s assessment.
During the year we replaced the risk of “Operational and cultural
disruption to the Group from Covid-19” on the watch list with
“Re-emergence of a global pandemic” and added a new risk
“Impact of cost and other pressures on key third-party suppliers”.
Other risks on the current watch list include some portfolio-related
risks, such as concentration and specific sector exposures; tax risks in
relation to changing rules; the UK/EU trading relationship; cyber
security; and the increasing reporting requirements relating to ESG
topics.
We recognise the increasing importance of environmental and
climate-related risks, which are monitored and managed through
our risk governance framework and compliance processes and
procedures. These are also designed to ensure that 3i is compliant
with all applicable environmental legislation and reporting
requirements. We screen all investment opportunities against the
Responsible Investment policy, assess the relevant ESG factors and
screen out businesses at an early stage which have unsustainable
environmental practices, or which are exposed to excessive risks.
Once invested, we monitor environmental and climate-related risks
closely and use our influence to ensure that our portfolio companies
have robust governance processes in place to manage ESG risks;
are compliant with emerging regulations and legislation in this field;
and encourage the development of more environmentally sustainable
behaviours. We also have the flexibility to sell investments that
become or have the potential to become overly exposed to ESG
risks. Further information and details of our TCFD disclosures
can be found on pages 60 to 66.
Our thematic approach to investment origination and portfolio
construction involves consideration of new and emerging risks
and trends which can support long-term sustainable growth in our
portfolio (pages 16 to 17). The outputs of this approach also form part
of our medium-term viability stress testing and long-term business
resilience assessment (pages 123 to 125). The current key themes
include demographic and social change; digitalisation, automation
and big data; energy transition, energy security and resource scarcity;
and value-for-money and discount.
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The disclosures on the following pages are not an exhaustive list of risks and uncertainties faced
by the Group, but rather a summary of the principal risks which are regularly reviewed by the
GRC and the Board, and have the potential to affect materially the achievement of the Group’s
strategic objectives and impact its financial performance, reputation and brand integrity.
Investment
Principal risk
Lower investment and realisation rates
Movement in risk
status in FY2023
Potential impact
• May impact longer-term returns
Link to strategic
objectives
and capital management and therefore
ability to deliver strategic plan
• May impact progress with specific
strategic initiatives
• May reduce staff morale and
confidence
• Cost base may not be sustainable
• May impact Group’s reputation as an
investor of proprietary capital and as
a manager of 3iN and other funds
• Increases the importance of the role
of bolt-on acquisition opportunities
Principal risk
Underperformance of portfolio companies
Movement in risk
status in FY2023
Link to strategic
objectives
Potential impact
• Reduction in NAV and realisation
potential impacting shareholder
returns
• Impacts reputation as an investor
of proprietary capital and as a manager
of 3iN and other funds
• Greater portfolio concentration
increases the potential impact
and profile of specific cases
of underperformance
• May set back specific strategic
initiatives
• May impact long-term returns
Risk management
and mitigation
• Regular monitoring of investment
and divestment pipeline
• Early involvement of Investment
Committee as new investment ideas
are identified
• Disciplined approach to sourcing
investment opportunities and pricing
• Regular review of asset allocation
• Focus on bolt-on acquisition
opportunities, which can be more
attractively priced and offer synergy
benefits
FY2023 outcome
• Invested in four new Private Equity
companies and completed 11 bolt-on
acquisitions, with three requiring 3i
proprietary capital investment
• Investment Committee maintained
a cautious stance, declining a number
of investment proposals where price
and risk and reward failed to meet
Group requirements
FY2023 outcome
• Liquidity support provided to two
portfolio companies in the year
• Close monitoring and adaptation
of portfolio company exit plans
• 90% of our portfolio companies
valued on an earnings basis grew
their earnings over the last 12 months
to 31 December 2022
Risk management
and mitigation
• Rigorous initial assessment of new
investment opportunities to maintain
quality of our investment pipeline
• Monthly portfolio monitoring of
all investments to review operating
performance, identify weaknesses
and opportunities early and take
action as appropriate
• Additional monitoring of Action,
including 3i Chief Executive
chairmanship of the Action board
• Active management of portfolio
company Chairman, CEO and CFO
appointments
• Sharing of any incidents of portfolio
fraud and cyber breaches across
investment teams to ensure
monitoring is up to date
Risk exposure has increased
No significant change in risk exposure
Risk exposure has decreased
Grow investment
portfolio earnings
Use our strong
balance sheet
Realise investments with
good cash-to-cash returns
Increase shareholder
distributions
Maintain an
operating cash profit
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Portfolio and
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Principal risks and mitigations – aligning risk to our strategic objectives continued
Investment continued
Principal risk
Portfolio ESG and sustainability risk profile/performance
Movement in risk
status in FY2023
Link to strategic
objectives
Potential impact
• Poor or insufficient management of
ESG risks or adverse developments
impact 3i’s reputation as an investor
• Potential impact on NAV, realisation
potential and shareholder returns
and on new Infrastructure fundraising
initiatives
• Inability to meet external reporting
obligations or published targets
Risk management
and mitigation
• Investment Committee, Group Risk
Committee and ESG Committee
involvement with Board oversight
• Responsible Investment policy
• Structured approach to identify and
manage ESG and sustainability risks
and “themes” and to collect relevant
data as part of the semi-annual
portfolio company review process
• Early engagement with 3i
Communications team in the event
of any incidents
• Limited exposure to remote/more
challenging geographies and higher
risk sectors
• Close monitoring of trends and
developments in external reporting
FY2023 outcome
• Further improvements in the
monitoring of ESG risks through
a defined sustainability development
framework
• Dedicated resource embedded
and training of 3i’s investment teams
and Board delivered
• Collected Scope 1 and 2 data from
over 79% of our Private Equity portfolio
companies and over 95% of our
economic infrastructure investments1
1 Excludes some legacy minority and other minority
investments where we have limited influence.
External
Principal risk
Global economic uncertainty
Movement in risk
status in FY2023
Link to strategic
objectives
Potential impact
• Impacts general market confidence
and risk appetite
• Higher risk of market volatility, price
shocks or a significant market
correction
• Potential for extended period of higher
inflation and interest rates
• Limits earnings growth or reduces
NAV owing to contraction of earnings
in our investments and/or changes
in multiples and discount rates used
for their valuation
• Increases liquidity or covenant risks
across the portfolio or limits ability
to refinance our investments
• Leads to reduced M&A volumes in
3i’s core markets, economic instability
and lower growth, which impacts
investment portfolio exit plans
and realisation levels
• Overall shape of the portfolio
and resilience
Risk management
and mitigation
• Regular portfolio company reviews
and Investment Committee focus on
investment strategy, exit processes
and refinancing strategies
• Monthly portfolio monitoring
to identify and address portfolio issues
promptly
• Monitoring of valuations and
application of policy by the Valuations
Committee
• Regular liquidity and currency
monitoring and strategic reviews
of the Group’s balance sheet
• Regular review of resourcing and key
man exposures as part of business line
reviews and the portfolio company
review process
FY2023 outcome
• Strong performance of Action
and resilient performance from
the remainder of the portfolio
• Overall increase in portfolio
valuation particularly in value-for-money
and private label, healthcare, industrial
technology, business technology
and services and infrastructure sectors
• Group GIR of 36%
• Low Group gearing of 2% and liquidity
of £1,312 million. Undrawn RCF
of £900 million
Risk exposure has increased
No significant change in risk exposure
Risk exposure has decreased
Grow investment
portfolio earnings
Use our strong
balance sheet
Realise investments with
good cash-to-cash returns
Increase shareholder
distributions
Maintain an
operating cash profit
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Principal risks and mitigations – aligning risk to our strategic objectives continued
External continued
Principal risk
Impact of higher interest rates on debt markets and pricing of specific assets
This risk was
previously considered
as part of the risk of
“Global economic
uncertainty” but has
been separated out
as a standalone
principal risk
Link to strategic
objectives
Potential impact
• Higher risk of market volatility, price
shocks or a significant market
correction
• Limits earnings growth or reduces
NAV owing to contraction of earnings
in our investments and/or changes
in multiples and discount rates used
for their valuation
• Increases liquidity or covenant risks
across the portfolio or limits ability
to refinance our investments
• Impacts market confidence and risk
appetite more generally
Risk management
and mitigation
• Regular portfolio company reviews
as well as Investment Committee focus
on investment strategy, exit processes
and refinancing strategies
• Monthly portfolio monitoring,
including financing arrangements,
to identify and address issues promptly
• Monitoring of valuations and
application of policy by the Valuations
Committee
• Regular liquidity, currency
and counterparty risk monitoring
and strategic reviews of the Group’s
balance sheet
FY2023 outcome
• Strong performance of Action
and resilient performance from
the remainder of the portfolio
• Overall increase in portfolio
valuation particularly in value-for-
money and private label, healthcare,
industrial technology, business
technology and services and
infrastructure sectors
• Group GIR of 36%
• Low Group gearing of 2% and liquidity
of £1,312 million. Undrawn RCF
of £900 million
• Average leverage across the PE
portfolio was 2.5x (31 March 2022: 3.3x)
• Over 70% of total term debt hedged
at a weighted average tenor of more
than three years with the interest
rate element capped at a weighted
average hedge rate below 2%
Principal risk
Volatility in capital markets, foreign exchange and commodities
Movement in risk
status in FY2023
Potential impact
• May impact portfolio company
Link to strategic
objectives
valuations and realisation processes
• Increases risks with exit plans and bank
financing
• Potential for large equity market fall
to impact asset valuations
• Unhedged foreign exchange rate
movements impact total return
and NAV
Risk management
and mitigation
• Portfolio company reviews focus
on investment strategy, exit plans
and refinancing strategies
• Long-term approach to setting
valuation multiples
• Active management of exit strategies
by Investment Committee to enable
us to adapt to market conditions
• Regular liquidity and currency
monitoring, and strategic reviews
of the Group’s balance sheet
• Foreign exchange hedging
programmes and management of
investment and realisation currency
flows
FY2023 outcome
• Implementation of euro and US dollar
medium-term foreign exchange
hedging programme
• Foreign exchange exposures at the
portfolio company level monitored
and hedged where appropriate
• Strong portfolio performance,
demonstrating resilience, leading
to an increase in portfolio value
in the year
• At 31 March 2023, 87% of the
investment portfolio was denominated
in euros or US dollars. Sterling
weakened 4% against the euro
and 6% against the US dollar and
as a result, we generated a total
foreign exchange translation gain
of £623 million (2022: £9 million gain)
net of derivatives in the year
Risk exposure has increased
No significant change in risk exposure
Risk exposure has decreased
Grow investment
portfolio earnings
Use our strong
balance sheet
Realise investments with
good cash-to-cash returns
Increase shareholder
distributions
Maintain an
operating cash profit
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Principal risks and mitigations – aligning risk to our strategic objectives continued
External continued
Principal risk
Transaction execution challenges in current market
Movement in risk
status in FY2023
Potential impact
• Reduced investment rates in
Link to strategic
objectives
Private Equity and Infrastructure
as a result of higher pricing or market
uncertainties
• Risk of wider outcomes on core
investment case assumptions,
impacting returns
• Market uncertainty may result in some
attractive investment opportunities
• Reduced level of realisations and
refinancing
Risk management
and mitigation
• Strong central oversight and
disciplined approach to investment
pipeline and pricing
• Active management of investments
and exit strategies by Investment
Committee
• 3i’s local teams and networks facilitate
the origination of off-market
transactions
FY2023 outcome
• Invested in four new Private Equity
companies and completed 11 bolt-on
acquisitions to support buy-and-build
strategies
• Realisation of Havea and Christ,
and partial disposal of Q Holdings
in the year
Principal risk
Geopolitical risks
Movement in risk
status in FY2023
Potential impact
• Indirect operational impact, eg third-
Link to strategic
objectives
party suppliers or supply chain
disruption
• Impact of higher energy and
commodity prices, price shocks
and supply chain issues
• Increased transportation times
and costs
• Increased number and complexity
of sanctions
• Direct or indirect reputational risks,
eg exposures to Russia
• Impact on NAV through contraction
of Private Equity portfolio earnings
or changes in valuation multiples
• Reduced realisation potential,
impacting shareholder returns
Risk management
and mitigation
• Detailed scenario and contingency
planning at the portfolio company level
• Steps taken by portfolio companies to
manage through an extended period
of disruption
• Regular assessment of portfolio
company operations and performance
• Sanctions policy and monitoring
• Long-term approach to valuation
multiples
FY2023 outcome
• Contingency plans in place to address
key risks and subject to review as part
of the portfolio company review
process
• Supply side constraints and price
inflation continue to be closely
managed and monitored across
the portfolio
Risk exposure has increased
No significant change in risk exposure
Risk exposure has decreased
Grow investment
portfolio earnings
Use our strong
balance sheet
Realise investments with
good cash-to-cash returns
Increase shareholder
distributions
Maintain an
operating cash profit
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Principal risks and mitigations – aligning risk to our strategic objectives continued
Operational
Principal risk
Ability to recruit, develop and retain key people
Movement in risk
status in FY2023
Link to strategic
objectives
Potential impact
• Impairs ability to deliver key
performance objectives
• Potential to delay execution
of strategic plan with possible
impact on shareholder returns
Risk management
and mitigation
• Specific focus by Remuneration
Committee which approves all material
incentive arrangements to ensure they
reflect market practice
• 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
• HR policies and procedures for
recruitment and vetting, and ongoing
performance management
FY2023 outcome
• Organisational capability and
succession plan reviewed by the Board
in September 2022
• Successful talent recruitment and
continuous training and development
programmes throughout the year.
41 new hires in FY2023
• Limited staff voluntary turnover of 9.5%
• Good progress with recruitment
and integration of new hires
• A well-established hybrid working
model
Risk exposure has increased
No significant change in risk exposure
Risk exposure has decreased
Grow investment
portfolio earnings
Use our strong
balance sheet
Realise investments with
good cash-to-cash returns
Increase shareholder
distributions
Maintain an
operating cash profit
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Directors’ duties under Section 172
Section 172 statement
Directors have a duty to promote the success
of the Company for the benefit of its members.
The Company’s purpose (as set out on page 1, namely to
generate attractive returns for our shareholders and co-investors
by investing in private equity and infrastructure assets) is reflected
in the decisions that the Board makes. This is done by taking a long-
term, responsible approach to creating value through thoughtful
origination, disciplined investment and active management of our
assets, driving sustainable growth in our investee companies.
Our business model is set out on pages 12 to 13 and the Board’s
strategic objectives and key performance indicators are set out
on pages 18 and 19.
By considering the Company’s purpose together with its strategic
objectives and having clear governance processes in place for
decision making, we seek to ensure Board discussion has regard
to the potential long-term consequences of any decision and the
impact of such decisions on stakeholder groups including those
listed in section 172 of the Companies Act 2006 (“section 172”).
Board decisions often involve complex interactions of factors and
require Directors to understand and have regard to a wide range
of stakeholder interests and concerns.
Under section 172 a director of a company must act in a way he considers, in good faith, would be most likely to promote the success
of the company for the benefit of its members as a whole, and in doing so have regard to the following factors (“section 172 factors”):
The likely consequences of any decision
in the long term
Our purpose and strategy, including our long-term
responsible investment approach, aims to drive sustainable
growth in our investment portfolio.
Read more in the Strategic report.
The interests of the Company’s employees
Our employees are critical to the success of the Company
and our approach as a responsible employer is described
more fully in the Sustainability section on pages 52 to 56.
The need to foster the Company’s business
relationships with suppliers, customers
and others
We engage with all our third-party service providers,
suppliers and customers in an open and transparent way to
foster strong business relationships to ensure both the success
of the Company and its legal and regulatory compliance.
Read more on page 105.
The impact of the Company’s operations
on the community and the environment
The desirability of maintaining a reputation
for high standards of business conduct
We use our influence to promote a focus in our investee
companies to mitigate adverse environmental and social
impacts and to act responsibly in the communities in which
they operate.
Read more in the Sustainability report on page 43 to 66.
Our success relies on maintaining a strong reputation
and seeking to ensure our values and culture are aligned
to our purpose, our strategy and our ways of working.
Read more on pages 15 and 57 to 59.
The need to act fairly towards all members
of the Company
The Board actively engages with its shareholders and takes
into account their interests when implementing our strategy.
Read more on pages 93 and 106 to 107.
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Directors’ duties under Section 172 continued
How stakeholder
interests have influenced
decision making
Impact on the success of 3i: Being thoughtful about setting the
dividend is particularly important as it has a direct and indirect effect
on all the Company’s stakeholders. In particular, shareholders are
able to rely on the consistent approach taken by 3i in respect of its
dividend policy which forms an important aspect of the investment
case for 3i’s shareholders.
The Board believes that considering the
Company’s stakeholders in key business decisions
is fundamental to the way in which it operates.
The Board takes account of the interests of
stakeholders as well as the section 172 factors
in deciding on actions that would likely promote
the long-term success of the Company for the
benefit of its members as a whole. At each Board
meeting Directors are reminded of their duties
under section 172.
During the year, when the Board made decisions implementing
the Company’s strategic priorities, the different interests of our
stakeholder groups, and the impact of key decisions upon them,
were considered. The Board acknowledges that not every decision
made will necessarily result in a positive outcome for every
stakeholder group, and the Board and the Executive Committee
assess those conflicts and take them into account in their decision
making.
Examples of key decisions taken by the Board in the year together
with details of how the interests of stakeholders and the other factors
mentioned in section 172 were taken into account are given below.
Further detail on Board decision making is given on pages 102
to 103.
Key decisions in the year
FY2022 second dividend and FY2023 first dividend
Background: In May 2022 the Board decided on an increased
total dividend for FY2022 and in November 2022 a first dividend
for FY2023 (in line with the Company’s dividend policy announced
in May 2018) of one half of the total dividend for the previous year.
Stakeholder considerations: Against a tough macroeconomic
backdrop, the Board took into account shareholders’ desire
for income distributions as well as the need to maintain liquidity
for new investment and operating expenses. In addition, the Board
considered the Company’s forward-looking liquidity in light of past
and projected investment and realisations, the outlook for the
Company and the desire to maintain a strong, low-geared balance
sheet. The Board took account of the fact that the Company’s
investment portfolio had maintained good overall momentum
notwithstanding the difficult macroeconomic conditions. The
economic and geopolitical developments (including inflation, higher
interest rates, higher energy prices, supply chain issues and Russia’s
invasion of Ukraine) were among the other factors taken into account,
alongside the Company’s strong financial performance and outlook,
in decisions taken in the current year in respect of the proposed
FY2023 second dividend.
Foreign exchange hedging programme
Background: In October and November 2022 we took advantage
of the significant volatility in foreign exchange markets by approving
the implementation of a medium-term foreign exchange hedging
programme to partially reduce the sensitivity of the Group’s net asset
value and impact of mismatched currency cash flows to changes in
the euro and US dollar. The exposure of the Group’s underlying
investment portfolio to the euro and the US dollar had increased
significantly in recent years through the organic growth of our
existing European and US portfolio companies and due to the
majority of our new investments being denominated in euros and
US dollars. As at 31 March 2023, the notional amount of the forward
foreign exchange contracts held by the Group associated with this
hedging programme was €2.0 billion and $1.2 billion. In addition,
we increased the size of our hedging programme for Scandlines,
increasing the notional amount of €500 million to €600 million in
September 2022.
Stakeholder considerations: In light of significant volatility in foreign
exchange markets and increasing foreign exchange risk for 3i, the
Board took into account shareholders’ expectations for the Company
to appropriately mitigate an enhanced risk. The Board considered
the benefits of reducing NAV foreign exchange sensitivity, mitigating
the foreign exchange risk from foreign currency cash inflows that are
used to fund Sterling cash outflows, such as the dividend, and the
opportunity for 3i to lock in a portion of the year-to-date foreign
exchange gains, against any costs and risk associated with an NAV
foreign exchange hedging programme including liquidity risk.
The Board assessed the liquidity risk created by the hedging
programme in various downside scenarios and were comfortable
it could be managed given the moderate size of the hedging
programme compared to the total size of the portfolio and mitigation
from forecast foreign currency inflows. Overall the Board was
supportive of a well-timed enhancement to the Company’s risk
management framework.
Impact on the success of 3i: Entering into the hedging arrangements
reduced the NAV foreign exchange sensitivity, partially mitigated
the foreign exchange risk from foreign currency cash inflows that are
used to fund Sterling cash outflows, and provided the opportunity
for 3i to lock in a portion of the year-to-date foreign exchange gains.
The hedging programme forms part of the wider liquidity and
treasury risk management framework and aligns with 3i’s purpose
of generating attractive returns though a long-term responsible
approach and driving sustainable growth.
For the purposes of the UK Companies Act 2006, the Strategic report
of 3i Group plc comprises pages 1 to 93.
By order of the Board
Simon Borrows
Chief Executive
10 May 2023
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What’s in this section
Chairman’s introduction
Board of Directors
Executive Committee
The role of the Board
Corporate governance statement
What the Board did in FY2023
How the Board operates
Engaging with stakeholders
Engaging with shareholders
Skills and experience
Nominations Committee report
Audit and Compliance Committee report
Audit and Assurance Policy
Resilience statement
Valuations Committee report
Directors’ remuneration report
Additional statutory and corporate
governance information
95
96
98
100
101
102
103
104
106
108
109
114
119
123
126
131
153
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Chairman’s
introduction
David Hutchison
Chairman
Effective corporate governance
is fundamental to the way 3i,
and its portfolio companies,
conduct business. By encouraging
entrepreneurial and responsible
management, effective corporate
governance supports the creation
of long-term, sustainable value for
shareholders and contributes to
wider society. Our strong corporate
governance framework has continued
to underpin 3i’s purpose and the
delivery of our strategy.
The Board is more than ever aware of its responsibility to have
regard to the interests of a wide group of stakeholders as it seeks to
promote the long-term success of the Group. We remain committed
to upholding our values and culture and ensuring that we have both
the financial and human resources to manage through the current
challenging macroeconomic and geopolitical circumstances and
deliver our long-term strategy.
David Hutchison
Chairman
10 May 2023
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Board leadership and Company purpose
Board of Directors
The Board promotes a culture of
strong governance across the business.
+ PAGES 100
Role of the Board
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Board leadership and Company purpose continued
Board of Directors continued
1 David Hutchison
Chairman
5 Caroline Banszky
8 Coline McConville
Independent non-executive Director
Independent non-executive Director
Chairman since November 2021 and non-
executive Director since 2013. David has
considerable investment and banking experience
across a range of asset classes which supports
his chairmanship of the Board.
Previous experience
Chief Executive of Social Finance Limited from
2009 to March 2022. 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.
2 Simon Borrows
Chief Executive
Chief Executive since 2012, and an Executive
Director since he joined 3i in 2011. Chairman
of the Group’s Risk Committee, Executive
Committee and Investment Committee. Chairman
of the Supervisory Board of Peer Holding I B.V.,
the Dutch holding company for the Group’s
investment in Action.
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. Formerly a non-executive
director of the British Land Company PLC and
Inchcape plc.
3
James Hatchley
Group Finance Director
Group Finance Director since June 2022 and an
Executive Director since May 2022. A member of
the Executive Committee, Investment Committee,
Group Risk Committee and ESG Committee.
Joined 3i in 2017 and was Group Strategy Director
until June 2022.
Previous experience
Formerly Chief Operating Officer of KKR in Europe
and, before that, Co-CEO of Avoca Capital.
Earlier in his career, James was a corporate finance
professional for 20 years, principally with Greenhill
& Co. and Schroders. He qualified as a chartered
accountant in 1992. Formerly a non-executive
director of Great Ormond Street Hospital
for Children NHS Foundation Trust.
4
Jasi Halai
Chief Operating Officer
Chief Operating Officer and an Executive Director
since May 2022. A Member of the Executive
Committee, Investment Committee, Group Risk
Committee and ESG Committee. Joined 3i in 2005
and has held a variety of posts in the business,
most recently as Group Financial Controller
and Operating Officer. Also a non-executive
director of Barratt Developments PLC.
Previous experience
Prior to joining 3i, worked for CDC Group (now
British International Investment) and at Actis
following its demerger from CDC. Jasi is a
chartered management accountant. Formerly
a non-executive director of Porvair PLC.
3i Group plc | Annual report and accounts 2023
Non-executive Director since 2014. Also a non-
executive director of IntegraFin Holdings plc
and Gore Street Energy Storage Fund plc.
Caroline brings to the Board extensive banking,
investment and operating experience across
a range of businesses. This as well as her
accountancy background contributes to her
effective chairmanship of the Audit and
Compliance Committee.
Previous experience
Formerly the Chief Executive of the Law
Debenture Corporation p.l.c. from 2002 to 2016.
Chief Operating Officer of SVB Holdings 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.
6 Stephen Daintith
Independent non-executive Director
Non-executive Director since 2016. Chief Financial
Officer and an executive director of Ocado Group
plc. Stephen contributes directly relevant financial
and operating experience, drawn from a range
of consumer, digital, engineering and other
international businesses, to the Board’s decision
making.
Previous experience
Formerly an executive director of Rolls-Royce
Holdings plc from 2017 to March 2021 and Finance
Director of Daily Mail and General Trust plc
(“DMGT”) from 2011 to 2017. Non-executive
director of 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).
7
Lesley Knox
Independent non-executive Director
Non-executive Director since October 2021
and Senior Independent Director since November
2021. Also a non-executive director of Legal &
General Group plc and Dovecot Studios Limited,
Senior Independent Director and Chair of
Remuneration Committee of Genus Plc, and a
trustee of Grosvenor Group Limited pension fund
and National Galleries of Scotland Foundation.
Lesley brings to the Board’s discussions a wealth
of international, strategic and financial services
experience having spent over 17 years in senior
roles in financial services, including in asset
management and corporate finance.
Previous experience
Formerly held a number of senior roles in financial
services, including head of institutional asset
management at Kleinwort Benson. Also previously
served as Chair of Alliance Trust PLC, as Senior
Independent Director at Hays plc and non-
executive director of SAB Miller plc, Centrica plc
and Thomas Cook Group plc.
Non-executive Director since 2018. Also Senior
Independent Director of Fevertree Drinks plc,
a non-executive director of Travis Perkins plc,
a member of the Supervisory Board of Tui AG
and a non-executive director of King’s Cross
Central General Partnership. Coline has a diverse
commercial background, having worked in a range
of sectors and also brings to the Board significant
listed board experience including chairing several
remuneration committees and acting as Senior
Independent Director at Fevertree. This enables
her to make valuable contributions to the Board’s
discussions and to those of the Remuneration
Committee, which she now chairs.
Previous experience
Formerly a non-executive director of Tui Travel plc,
UTV Media plc, Wembley National Stadium
Limited, Shed Media plc, HBOS plc and Inchcape
plc. Prior to that was Chief Operating Officer and
Chief Executive Officer Europe of Clear Channel
International Limited and had previously worked
for McKinsey and LEK.
9 Peter McKellar
Independent non-executive Director
Non-executive Director since June 2021.
Also Deputy Chairman of AssetCo plc, a board
member of Scottish Enterprise and Vice Chairman
of Investcorp Europe Acquisition Corp 1. Peter
brings to the Board significant experience and
understanding of financial services and asset
management, with a particular expertise in private
equity and infrastructure. This enables him to bring
a valuable asset management perspective to the
Board’s discussions and to those of the Valuations
Committee, which he now chairs.
Previous experience
Formerly Global Head of Private Markets at
Standard Life Aberdeen plc and previously led
Standard Life Investments’ private equity and
infrastructure business and was their Chief
Investment Officer. Prior to that, he held a variety
of finance posts in industry and corporate finance
positions.
10 Alexandra Schaapveld
Independent non-executive Director
Non-executive Director since January 2020.
Also Senior Independent Director and Chair
of the Remuneration Committee at Bumi Armada
Berhad, and non-executive director and Chair
of the Audit Committee at Société Générale S.A.
Alexandra brings extensive financial services
expertise in a number of important markets for
3i as well as considerable board experience in
a variety of sectors. These help provide an
international perspective to the Board’s decision-
making process.
Previous experience
Formerly on the boards of Vallourec S.A., FMO
N.V., Stage Entertainment N.V., Holland Casino
N.V., VU University and VU Medical Center and
Duin & Kruidberg. Prior to that, many years
of corporate and investment banking at RBS
and ABN AMRO.
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Board leadership and Company purpose continued
Executive Committee
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Executive Committee continued
1 Simon Borrows
Chief Executive
2
3
James Hatchley
Group Finance Director
Jasi Halai
Chief Operating Officer
+ PAGE 97
See profiles
8 Scott Moseley
Managing Partner,
Co-Head of European Infrastructure
Joined 3i in 2007 and was made a Partner in 2012.
Managing Partner, Co-Head of European
Infrastructure since July 2022 and a member of
the Executive Committee, Investment Committee
and Group Risk Committee. Also a non-executive
director of Tampnet, ESVAGT and GCX.
Previous experience
His experience with infrastructure investment has
included various roles within the capital markets
teams at WestLB and Credit Agricole.
9 Bernardo Sottomayor
Managing Partner,
Co-Head of European Infrastructure
Joined 3i in 2015 as a Partner with responsibility
for origination and execution of new investments
across Europe, principally economic infrastructure
businesses. Managing Partner, Co-Head of
European Infrastructure since July 2022 and a
member of the Executive Committee, Investment
Committee and Group Risk Committee. Also
a non-executive director of TCR and a board
observer at Attero and Joulz.
Previous experience
Prior to joining 3i, 18 years of infrastructure
investment experience and was most recently
a Partner at Antin Infrastructure which manages
funds investing in infrastructure opportunities
across Europe. Prior to Antin, he was Managing
Director, Head of Acquisitions for Deutsche Bank’s
European infrastructure fund. His prior experience
was in utilities, as Head of M&A at Energias de
Portugal, and in infrastructure M&A advisory
with UBS and Citigroup in London.
10 Peter Wirtz
Co-Head Private Equity
Joined 3i in 1998 and served as 3i Germany
Co-Head between 2009 and 2019. A member
of the Executive Committee, Investment
Committee and Group Risk Committee. Also
a non-executive director of Luqom and YDEON.
Previous experience
Prior to joining 3i, worked for Deutsche Bank
and spent four years with Procter & Gamble
in various finance functions.
4 Kevin Dunn
General Counsel and
Company Secretary
Joined 3i in 2007 as General Counsel and
Company Secretary. Responsible for 3i’s legal,
compliance, internal audit and company secretarial
functions. A member of the Executive Committee,
Group Risk Committee and ESG Committee.
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.
5 Rob Collins
Managing Partner,
Head of North American Infrastructure
Joined 3i in 2017 as the Managing Partner
for North American Infrastructure. A member
of the Executive Committee. Also a non-executive
director of Smarte Carte, Regional Rail and
EC Waste.
Previous experience
Prior to joining 3i, led Hastings’ infrastructure
investment team in North America and Europe.
Founded the infrastructure M&A practice
at Morgan Stanley and Greenhill where he was
a Managing Director at both firms. Started his
infrastructure career at Goldman Sachs after
serving as a nuclear-power officer in the US Navy.
6 Pieter de Jong
Co-Head Private Equity
Joined 3i in 2004 and served as Managing Director
of 3i Benelux between 2011 and 2019. A member
of the Executive Committee, Investment
Committee and Group Risk Committee. Also
a non-executive director of Yanga, Mepal, Dutch
Bakery and Royal Sanders and a board observer
at WP.
Previous experience
Started his career at Stork in the US, before
joining Van Den Boom Group, a corporate finance
consulting firm in Benelux, where he became
partner/owner responsible for M&A. After selling
the firm to NIBC in 2000, he headed the M&A
department until 2003.
7
Julien Marie
Chief Human Resources Officer
Joined 3i in 2001 as HR Manager and was
appointed HR Director in 2004. A member
of the Executive Committee and Group Risk
Committee.
Previous experience
Prior to joining 3i, worked at Bouygues
Construction and Bouygues Telecom for six years.
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Board leadership and Company purpose continued
The role of the Board
The role of the Board is to lead the Company
in promoting the long-term sustainable success
of the Company and generating value for
shareholders. The Board continues to ensure
compliance with sound corporate governance
principles and ensures that a strong corporate
governance framework is embedded throughout
the organisation. The Board has the primary
oversight over the Company’s purpose (see
page 1), values (see page 15) and strategy and
satisfies itself that these and its culture are aligned.
All Directors are required to act with integrity,
lead by example, and promote the Company’s
culture and values.
The Board approves the Group’s strategic objectives which
are set out on pages 18 and 19. It ensures the necessary resources
are in place for the Company to meet these objectives through
a Board approved planning and budgeting process. The Board
measures performance against those objectives using the KPIs
set out on page 18 which are reported to the Board in the monthly
Board report. As the business evolves and pursues its strategic
objectives, the strong governance framework supports the Board
in ensuring that across the 3i Group decisions are made in the
right way.
The framework of controls established by the Board to enable risk
to be assessed and managed is described in the Risk management
section on pages 78 to 91.
+ PAGE 80
Risk governance structure
The Board ensures that employee policies and practices are
consistent with the Company’s values and supports its long-term
sustainable success during its annual review of the Group Succession
Planning and Strategic Capability Review. The Remuneration
Committee reviews workforce remuneration and the alignment
of incentives and rewards with culture. The Board, through its Audit
and Compliance Committee, assesses and monitors behaviours
and its adherence to the Company’s values. Regular reports from
the Internal Audit and Group Compliance teams consider and
comment on culture within the business and their consistency
with the Company’s culture. Arrangements to enable employees
to raise any matters of concern are described on page 57.
Attendance at Board and Committee meetings1
Total meetings held1
Number attended:
D A M Hutchison
S A Borrows
J G Hatchley2
J H Halai2
J S Wilson3
C J Banszky
S W Daintith
L M S Knox
C McConville
P A McKellar
A Schaapveld
Independence
Independent on appointment
Executive Director
Executive Director
Executive Director
Executive Director
Independent
Independent
Independent
Independent
Independent
Independent
Audit and
Compliance
Committee
6
Board
7
Nominations
Committee
2
Remuneration
Committee
6
Valuations
Committee
4
7(7)
7(7)
6(6)
6(6)
2(2)
7(7)
7(7)
7(7)
7(7)
7(7)
7(7)
–
–
–
–
–
6(6)
6(6)
–
6(6)
–
6(6)
2(2)
–
–
–
–
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
6(6)
–
–
–
–
6(6)
–
6(6)
6(6)
6(6)
–
4(4)
4(4)
3(3)
–
1(1)
–
4(4)
2(4)
–
4(4)
4(4)
1 This table shows the number of scheduled full meetings of the Board and its Committees attended by each Director who is a member thereof in the year, together with (in brackets) the number of meetings they were eligible
to attend. In addition to these meetings a number of additional meetings of the Board and its Committees were held, often at short notice, to deal with ad hoc business as it arose.
2 Mr Hatchley and Ms Halai were both appointed to the Board on 12 May 2022.
3 Ms Wilson retired from the Board on 30 June 2022.
Non-executive Directors also attended a number of other Company meetings to increase their understanding of the 3i business, the portfolio
companies and the strength and depth of our people.
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Board leadership and Company purpose continued
Corporate governance
statement
The Company seeks to comply with established
best practice in the field of corporate governance.
The Board has defined the Company’s purpose
(which is set out on page 1) and determined its
values and strategy (which are further described
on pages 12 to 19). In support of these and to
ensure the Company’s culture is aligned with them,
the Board has adopted core values and global
policies which set out the behaviour expected
of employees 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”) save for provision
19 of the Code in respect of the tenure of the
Chairman. The Code was published by the Financial
Reporting Council (“FRC”) in July 2018 and
is available on the FRC website.
In 2019, when searching for a new Chairman as a successor to Simon
Thompson, the Nominations Committee appointed an external
search firm to assist it in the search process. The Nominations
Committee considered carefully what appointment would be in
the best interests of the Company. In the context of the Company’s
investment business, where, as a long-cycle investor, a number of the
Company’s largest investments are held and developed over periods
well in excess of a decade, a deep knowledge of and familiarity with
the investment portfolio can be critical to a Chairman’s effectiveness.
The Nominations Committee considered a number of external
candidates in addition to David Hutchison. The Nominations
Committee decided that David Hutchison was the best and most
appropriate candidate for appointment. Factors underlying the
Nominations Committee’s decision included David’s deep
knowledge of the Company’s business and its portfolio assets,
in part gained from his seven years as chair of the Company’s
Valuations Committee, as well as his understanding of the rationale
underpinning the Board’s conservative balance sheet and selective
investment strategies.
In taking this decision the Nominations Committee and the Board
were very conscious of the UK Corporate Governance Code
provisions on Chairman tenure in excess of nine years and that David
had then already served as a non-executive Director for eight years.
However, Nominations Committee and the Board believed this
appointment was the most appropriate course for the reasons
mentioned above.
UK Corporate Governance Code
Board leadership and Company purpose
The way in which the Principles set out in section 1 of the Code
have been applied is described on pages 96 to 102.
Division of responsibility
Pages 102 and 107 explain how the Principles set out in section 2
of the Code have been applied.
Composition, succession and evaluation
Details on how the Company has applied the Principles set out in
section 3 of the Code relating to Board composition, succession
and evaluation are set out in the Nominations Committee report
on pages 109 to 113 and in this Directors’ report on page 108.
Audit, risk and internal control
The Audit and Compliance Committee report on pages 114
to 118 and the Risk management section on pages 78 to 91
explain how the Principles set out in section 4 of the Code
have been applied.
Remuneration
The Remuneration report on pages 131 to 152 outlines how
the Company has applied the Principles set out in section 5
of the Code which relate to remuneration.
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The Nominations Committee and the Board are conscious of risks
that can arise from the extended tenure of a chairman. In particular,
the risk that a chairman might cease to exercise objective judgement,
fail to ensure that management were held to account by the Board,
and insufficiently promote constructive challenge amongst Board
members. The Nominations Committee and the Board noted that
the Chairman role was a new role for David and this was therefore
different from a case where a chairman served as chairman for over
nine years. In addition, to mitigate these risks, the Nominations
Committee and the Board also sought to balance this appointment
with the appointment of a very experienced senior director as Senior
Independent Director whose role would include ensuring corporate
governance arrangements remained robust and appropriate and
in particular would include leading the process for considering each
year whether the continued appointment of David as Chairman was
in the best interests of the Company. This led to the appointment
of Lesley Knox as Senior Independent Director in October 2021.
The Nominations Committee will undertake an annual review,
led by the Senior Independent Director, of the continued
appropriateness of David’s appointment.
The first such review of the continued appropriateness of David’s
appointment was held by the Nominations Committee (in the
absence of David) in March 2023. This review concluded that David
continued to perform effectively as Chairman, continued to exercise
objective judgement and continued to appropriately promote
constructive challenge amongst Board members. The Nominations
Committee also noted that in the context of a business where long-
term knowledge of the business and its assets was of great
importance, David’s continued appointment was all the more
appropriate given that following the 2023 AGM two of the five
non-executive Directors will have less than three-year’s service
and a further non-executive Director will have less than four-year’s
service. The Committee’s overall conclusion was that David’s
continued appointment as Chairman for the coming year was
in the best interests of the Company and that the balance
and independence on the Board remained appropriate.
The Board agreed that David should not be a member of
Remuneration Committee after 31 March 2023.
In addition, the appointment in November 2021 of Peter McKellar,
an independent non-executive Director with extensive experience
of asset management and asset valuation, as Chairman of the
Valuations Committee provided continuity and effective governance
of that Committee.
For further details see the Nominations Committee report on pages
109 to 113.
What the Board
did in FY2023
The Board met for seven scheduled full meetings
during FY2023 and also held a strategy day
in December 2022. A table of individual Board
member attendance at the scheduled Board and
Committee meetings is provided on page 100.
The Board’s agenda is set by the Chairman. Board members and, as
appropriate, executives from the relevant business areas are invited
to present on key items allowing the Board the opportunity to debate
and challenge initiatives directly with the senior management team.
As described on page 92, the Board in its decision making has regard
to the interests of stakeholders as well as the section 172 factors
when determining steps that would likely promote the success of
the Company for the benefit of its members as a whole. Examples
of a number of important decisions taken by the Board in the year
together with details of how, where relevant, the Board had regard
to the interests of relevant stakeholders are set out on page 93.
Our key stakeholders are discussed on pages 104 and 105.
In addition to the Board decisions referred to above, the Board also
dealt with its regular annual cycle of business including: the Group’s
strategic plan; related KPIs and annual budget; regular reports from
the Chief Executive and the Board’s Committees; updates on the
Group’s Private Equity and Infrastructure businesses; the
recommendations of the Valuations Committee on valuations
of investments; the Annual report and accounts, Half-yearly report
and quarterly performance updates; and the Group’s
organisational capability and succession plans.
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Division of responsibilities
How the Board
operates
The Board ensures that it has the policies, processes,
information, time and resources it needs in order
to function effectively and efficiently.
The Board meets formally on a regular basis for scheduled Board
meetings and on an ad hoc basis when the need arises. There is a
clear division of responsibilities between the Chairman and Chief
Executive. There is a clearly defined schedule of matters reserved
for the Board. The Board has resumed its practice of holding one
meeting a year at or near one of our non-UK offices or one of our
portfolio companies, providing a chance for non-executive Directors
to meet our local teams and the management of some of our
portfolio companies. This year that meeting was held in Amsterdam
and Directors had the opportunity to meet the Action senior
management team and visit an Action distribution centre and
two Action stores. They also met and received a presentation
from the CEO of Dutch Bakery.
The Board is assisted by various Principal Committees of the Board,
which report to it regularly and details of their activities in the year
are provided on pages 109 to 152.
Matters delegated by the Board to the Chief Executive include
implementation of the Board approved strategy, day-to-day
management and operation of the business, the appointment and
most remuneration of employees below the Executive Committee,
and risk management function. The Board receives regular reports
on potential conflicts of interests involving Directors and any actual
conflicts of interest identified are managed appropriately. This may
involve excluding the Director concerned from relevant information
and discussions.
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,
including the Investment Committee, the Group Risk Committee
and the ESG Committee, which are outlined in the description
of our governance framework on page 80.
Responsibilities of the Chairman
• Leads the Board and is responsible for its overall
effectiveness in directing the Company.
• Leads the Board in its oversight of the purpose,
values and culture of the Company.
• Leads the Board in setting its agenda, approving strategy,
monitoring financial and operational performance,
and establishing the Group’s risk appetite.
• Organises the business of the Board, ensuring
its effectiveness, and that it maintains an effective
system of internal controls.
• Ensures that Directors receive accurate, timely and clear
information. This includes ensuring that the non-executive
Directors receive regular reports on shareholders’ views
on the Group.
• Responsible for the composition of the Board, facilitates
constructive Board relations and the effective contribution
of all non-executive Directors.
• Leads the annual Board and Board Committee evaluation
process.
Responsibilities of the Chief Executive
• Direct charge of the Group on a day-to-day basis
and is accountable to the Board for the financial and
operational performance of the Group.
• Chairs the Investment Committee to review the
acquisition, management and disposal of investments.
• Leads the Executive management team to develop
and implement the Group’s strategy and manage the risk
and internal control framework.
• 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.
Role of non-executive Directors
• Provide constructive challenge, strategic guidance
and hold management to account.
• Scrutinise the performance of management in meeting
agreed objectives.
• Seek assurance on the integrity of the financial information
and that financial controls and systems of risk
management are robust and defensible.
• Determine appropriate levels of remuneration
for Executive Directors and Executive Committee
and together with the Chairman, have a prime role
in appointing Directors and in succession planning
for the Board.
• Ensure that they have sufficient time to meet their Board
responsibilities.
Role of the Senior Independent Director
• The Senior Independent Director provides a sounding
board for the Chairman and serves as an intermediary
for the other Directors and the shareholders, and has
a prime role in succession planning for the Chairman.
• Leads the annual review of the continued appropriateness
of the Chairman’s appointment and the Chairman’s
evaluation.
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Division of responsibilities continued
Engaging with
stakeholders and others
Our key stakeholders and others with whom we have business relationships are described
below together with an explanation of how we engage and foster business relationships
with them and outcomes of such engagement.
Stakeholders and
other relationships
Shareholders
Engagement
Outcome
The Company has an extensive shareholder engagement
programme which enables investors to make informed decisions
about their investment in the Company.
Fund investors
There is extensive engagement with fund investors and co-investors
by the Fund Investor Relations team through regular and ad hoc
meetings, supported by comprehensive reporting and access
to a web-based investor portal for fund investors.
The Chief Executive and relevant investment professionals
participate in some of these meetings, as appropriate.
Employees
Our approach as a responsible employer is described in the
Sustainability section. The Directors’ report on page 157 includes
details on their engagement with our people. We continue
to support our employees and to maintain strong employee
engagement.
A strong relationship with shareholders
is essential for the long-term success
of the business. They provide
our permanent capital and it is for their
benefit that the Directors are required
to promote the success of the Company.
+ FOR MORE INFORMATION
Page 106 Engaging with shareholders
Fund investors provide capital which
we invest as part of our investment
management activities and are customers
to whom we owe regulatory duties. Positive
engagement with Fund investors enhances
our relationship with them and provides
them with the information they require
to maintain their investment in the relevant
fund.
+ FOR MORE INFORMATION
Page 4 Details of total assets under management
3i is a people business. Our people are
critical to the success of the Company
and we rely on having motivated people
with the appropriate expertise and skills
required to deliver our strategy.
» FOR MORE INFORMATION
Pages 52 to 56 Sustainability report
www.3i.com/sustainability/sustainability-reports-library
Investee
companies
Our investment teams work closely with investee companies and
their management both formally at portfolio company board level
and informally on an ongoing basis. One or more investment team
professionals are usually appointed as directors of each investee
company. In addition, regular Chairman, CEO and CFO forums
across the Private Equity and Infrastructure portfolios share best
practice and experience. Most recently, CIOs from both the Private
Equity and Infrastructure portfolio companies attended a forum
to discuss best practice in the effective procurement of information
technology (“IT”) and cyber services.
As part of our long-term responsible
approach to investment, close engagement
with investee companies fosters a strong
governance framework and enables us
to help them grow and create value.
+ FOR MORE INFORMATION
Pages 12 to 13 Our business model
Pages 43 to 51 Sustainability report
Pages 21 to 41 Investment activity
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Division of responsibilities continued
Stakeholders
Engagement
Outcome
Bondholders,
lenders and
hedging
counterparties
Together with the Group Finance Director, the Group Treasurer
manages engagement with the holders of the Company’s bonds,
the lenders in the Company’s revolving credit facility and the
Company’s hedging counterparties through regular reviews
and updates including the Group’s results presentations.
A dedicated section on 3i.com is maintained for debt investors.
Access to bank borrowing, hedging
instruments and the ability to issue bonds
and other debt provides important flexibility
and resilience to the Company’s financial
structure. The successful implementation
of the recent foreign exchange hedging
programme is an example of the benefits
of positive engagement with lenders
and hedging counterparties.
+ FOR MORE INFORMATION
Pages 71 to 72
Government
and Regulators
Our Group Compliance team and local professionals lead our
relationships with national and international regulators, in particular
with the FCA in the UK, the SEC in the US and the CSSF
in Luxembourg.
The Company actively participates in policy forums, engages
on regulatory matters and is a member of a number of industry
consultative bodies, including the British Private Equity & Venture
Capital Association and Invest Europe.
The Company works in a regulated
environment and can only continue to
operate if it is in compliance with relevant
law and regulations. Maintaining
constructive dialogue and strong
relationships with relevant authorities helps
support the achievement of our strategic
goals.
Third-party
professional
advisers and
service providers
The investment teams, Executive Directors and functional teams
lead these relationships and maintain close and regular dialogue
with our professional advisers and service providers. Appropriate
measures are in place to ensure there is a Group-wide approach
to these relationships. 3i ensures that suppliers are paid promptly
in accordance with our procurement policies.
The Company relies on its extensive
network of professional advisers and service
providers to help it originate, analyse and
execute new investments, to assist with
portfolio management and to support the
business operations of the Company.
These advisers and service providers include due diligence providers,
operational and IT support providers, law firms, the Registrars,
the External auditor and the Company’s corporate brokers.
Communities
For details of the Company’s contribution to and engagement
with communities see the Sustainability section.
The Company is committed to contributing
positively to the communities in which it
and its portfolio companies operate.
» FOR MORE INFORMATION
www.3i.com/sustainability/corporate-citizenship/
charitable-giving
Page 59 Community
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Division of responsibilities continued
Engaging with
shareholders
Approach to investor relations and Board oversight
The Board recognises the importance of maintaining an engaged
and purposeful relationship with existing and potential shareholders.
Shareholders provide our permanent capital and it is for their benefit
that the Directors are required to promote the success of the
Company. 3i has a comprehensive Investor Relations programme
to help investors to understand its performance.
The Chief Executive, the Group Finance Director and the Group
Investor Relations Director meet with the Company’s principal
shareholders and with potential shareholders on a regular basis
to discuss the Group’s activities, strategy and financial performance.
The Chairman offers to meet major shareholders on corporate
governance, strategy and management annually and is available
as required. Non-executive Directors are also available to meet
shareholders, as required.
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 communicated to the Board.
Investor Relations programme
We engage our market audiences through a full programme of events. Our results presentations
and capital markets seminars are webcast live and available to all who are interested. On-demand webcasts
are also available on the website after the events.
Our FY2023 Investor Relations programme
2022
May
• Annual results
announcement and
presentation webcast
• UK and international
investor meetings
• Kepler Investment
Companies Conference
• Chairman’s meetings
with shareholders
June
• UK and international
investor meetings
(continued)
• Numis UK Conference
• BNP Paribas Exane
European CEO
Conference
• Annual General Meeting
November
• Half-yearly results
announcement and
presentation webcast
• UK and international
investor meetings
• JPMorgan Cazenove
Best of British
Conference
December
• UK and international
investor meetings
(continued)
• Numis Pan-European
Investor Conference,
New York
July
• Q1 performance update
• Group investor call
October
September
• Private Equity capital
markets seminar
• Bank of America
Financial Services
conference
• Institutional shareholder
dinner in London
2023
January
• Q3 performance update
• Group investor call
February
• UK investor meetings
March
• Action capital markets
seminar
• Group investor call
Website
3i’s website provides a brief description of 3i’s history, current operations,
strategy and portfolio, as well as articles, interviews and videos to showcase
specific themes and investments. It also includes an archive of over 10 years
of news and historical financial information on the Group and details of
forthcoming events for shareholders and analysts.
» FOR MORE INFORMATION
ABOUT 3I AND REGULAR UPDATES
www.3i.com/investor-relations
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Division of responsibilities continued
Engaging with shareholders continued
Institutional investors
The Executive Directors and Group Investor Relations Director
meet with the Group’s principal shareholders on a one-on-one
basis twice a year, generally following the publication of annual
and half-yearly results, but also as required during the year.
They also host large group investor calls after the publication
of quarterly performance updates, to target both existing
and potential shareholders.
The Chairman offers to meet large shareholders annually and
he and the Senior Independent Director are available to meet
with shareholders as required.
The Executive Directors and Group Investor Relations Director
also meet with potential investors on a regular basis throughout
the year, as part of arranged UK and international roadshows
and as required.
Throughout the year, the Executive Directors and Group Investor
Relations Director participated in conferences for institutional
investors organised by Bank of America, JPMorgan Cazenove,
BNP Paribas Exane, Kepler Cheuvreux and Numis.
In FY2023, the investors engaged principally on the
operational and financial health of the portfolio in light of the
macroeconomic disruption and on the market conditions for new
investment and realisations. There is also an increasing focus
on the performance and growth prospects of Action, our largest
portfolio company.
Individual investors
Individual investors are encouraged to engage with the Group
and provide feedback through the Group Investor Relations
Director and the Company Secretary, whose contact details are
available on the website, as well as at the Annual General
Meetings. Individual investors can attend the live webcasts
of results presentations and capital markets seminars, and access
a wealth of information on 3i, its portfolio and financial and non-
financial news on the website. Please see “Website” on page
106 for more information on this content.
Capital markets seminars
We held two capital markets seminars in FY2023, including
one in September 2022 and one in March 2023. Both were held
virtually via a webcast accessible to all on the 3i website.
The presentation materials and on-demand webcasts remain
available on the website.
During our September 2022 capital markets seminar,
we presented on three of our Private Equity investments:
BoConcept, Cirtec Medical and WilsonHCG. The presentations
were delivered by the Private Equity investment executives
responsible for those investments.
The Action capital markets seminar in March 2023 consisted
of presentations by the 3i Chief Executive and the management
team of Action. This event focused on Action’s business model
and strategy, its financial performance and its approach to
sustainability.
Annual and half-yearly results presentations
The Executive Directors present the annual and half-yearly
results via live webcasts accessible to all on the 3i website.
Viewers are encouraged to submit questions to the presenters
during the webcasts. The presentation materials are made
available on the website and the on-demand webcasts remain
available on the website for a period of 12 months.
Annual General Meeting
The AGM is an important opportunity for the Board
to communicate with 3i’s individual shareholders, who are
encouraged to ask questions during the meeting, and have
an opportunity to meet Directors before and after the formal
proceedings.
At the Meeting, business presentations are generally made
by the Chairman and the Chief Executive. The Chairs 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 External auditor and the dividend
declaration. During the Meeting, shareholders are also asked
to approve the financial statements and reports of the Directors
and the External auditor. In addition, shareholders are asked
to approve the Directors’ remuneration report.
The 2022 AGM was again held in person, after the pared back
proceedings of 2020 and 2021 as a result of the Covid-19
pandemic.
The 2022 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. At the 2022
AGM, all resolutions were passed with at least 90% of the votes
in favour.
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Audited financial
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other information
Composition, succession and evaluation
Skills and experience
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.
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.
All non-executive Directors have the opportunity to access the
Company’s Compliance e-training modules which are used to
train the Company’s employees on regulatory compliance matters.
In the year, Directors received a series of training presentations from
EY on a range of matters related to climate risks, climate scenario
analysis, net zero commitments and transition plans, emerging ESG
themes, regulatory horizon on climate risk management and
reporting, market insights and TCFD and ESG reporting. They also
received through the Audit and Compliance Committee updates
on developments in relation to regulatory matters, financial and other
reporting requirements and the UK and global tax environment.
Directors have the opportunity to suggest additional subjects
for presentations where they believe it would be helpful.
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 an annual evaluation
of its own performance and that of its Committees and individual
Directors. This year the process was conducted internally by
the Chairman with the support of Lintstock Limited (“Lintstock”)
(who facilitated the full external evaluation in 2022). Lintstock has
no other connections with the Company. The evaluation consisted
of a questionnaire completed by all Board members and the other
members of the Executive Committee, and a summary results report.
The Chairman then held one-to-one discussions with each Director
informed by the results of the questionnaire. The Chairman
subsequently reported the results of the evaluation to the Board.
The topics covered by the annual Board evaluation included:
• Board composition and expertise;
• stakeholder engagement;
• Board dynamics;
• Board support;
• the performance of the Board’s Committees;
• management and focus of Board meetings;
• the Board’s strategic and operational oversight;
• risk management and internal control;
• succession planning and people; and
• priorities for change.
The overall finding of the review was that the Board had continued
to perform strongly and had benefited from the leadership provided
by the Chairman.
The review concluded that the Board’s size and composition was
broadly appropriate. Whilst no new non-executive Director
appointments were anticipated in the short-term, the review
identified attributes in any new appointees which could be valuable
to the Board in due course. The review recognised the importance
of non-executive Directors deepening their understanding of the
Company’s portfolio investments (and building their relationships
with the Company’s investment teams) by attending the semi-annual
portfolio company review meetings.
The review noted the benefits to the Directors of visiting a 3i non-UK
office once a year to maintain contact with overseas investment
teams. In addition, the January 2023 visit to Action and meetings
with Action’s senior management were noted as being extremely
useful in broadening the Directors’ insight into Action. The review
also recognised the importance of maintaining focus on the other
3i portfolio companies - both Private Equity and Infrastructure -
to ensure the Board’s oversight and its support to maximise their
potential and their ability to grow on their own merits.
One of the principal areas where improvement was noted was
in relation to the Board’s work on ESG matters and the greater
confidence in its consideration and management of risk.
The review also identified priorities for the Board to pursue
in the coming year which included:
• continued focus on Board diversity in its widest form;
• focusing on talent development, retention and recruitment across
the business, supported by increased reporting on remuneration
matters to the Board by the chair of the Remuneration Committee;
and
• overseeing the continued refinement of the Group’s ESG policy.
In her role as Senior Independent Director, Lesley Knox led a review
by the Directors of the performance of the Chairman which was also
facilitated by a questionnaire and summary results report prepared
by Lintstock. Ms Knox subsequently reported back to the Board
on the review and provided feedback to the Chairman.
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Governance
Audited financial
statements
Portfolio and
other information
Composition, succession and evaluation continued
Nominations
Committee report
I am pleased to present the
Nominations Committee report
for the year ended 31 March 2023.
My report explains the role of
the Committee as well as its
work this year.
Dear Shareholder
Role and membership of the Committee
The Committee’s principal role is to ensure that the Board has
the necessary skills and experience to enable the Group to deliver
its current and future strategic objectives. In doing this it keeps under
review the balance and composition of the Board and ensures that
plans are in place for orderly succession to both the Board and senior
management positions, including contingency plans for
unanticipated events. It also reviews the Company’s work on diversity,
equity and inclusion. The Committee’s discussions are
complemented by discussions at meetings of the full Board
where appropriate.
Directors
Directors’ biographical details are set out on page 97.
All Directors are subject to re-appointment every year.
Accordingly, at the AGM to be held on 29 June 2023, all the Directors
will retire from office and, being eligible, will seek re-appointment,
save for Caroline Banszky who is retiring from the Board at the
conclusion of the AGM. The Board’s recommendation for the
re-appointment of Directors is set out in the 2023 Notice of AGM.
During the year Julia Wilson, formerly Group Finance Director,
retired from the Board on 30 June 2022. James Hatchley joined
the Board as Group Finance Director Designate on 12 May 2022
and became Group Finance Director on 30 June 2022. Jasi Halai
joined the Board as Chief Operating Officer on 12 May 2022.
Throughout the year Lesley Knox continued to serve as Senior
Independent Director. As Senior Independent Director Lesley
provides support to me, acts as an intermediary with the other
Directors, if necessary, and oversees my appraisal by the
other Directors. Lesley is also available to the Company’s
shareholders to address any concerns they have been unable
to resolve through me, Simon Borrows or James Hatchley
or where they consider these channels to be inappropriate.
David Hutchison
Committee Chairman
What the Committee reviewed in FY2023
• Board and senior management succession
– Chairman tenure
– Contingency Executive Director succession plan
– Board and senior management succession plans
• Board evaluation
• Size, balance and composition of the Board
Committee membership
David Hutchison (Chairman)
Caroline Banszky
Stephen Daintith
Lesley Knox
Coline McConville
Peter McKellar
Alexandra Schaapveld
Meetings
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
The column above headed “Meetings” shows the number of meetings of the Committee
attended by each member during the year, together with, in parentheses, the number
of meetings they were entitled to attend. As explained in this report Mr Hutchison did
not attend discussions on the Chairman’s tenure.
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Audited financial
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Portfolio and
other information
Composition, succession and evaluation continued
Nominations Committee report continued
Appointments and appointment process
We have a formal, rigorous and transparent process to identify
the skills and experience required, appraise suitable candidates
and appoint new Directors. In the case of non-executive Directors,
the appraisal includes an assessment of whether potential candidates
have sufficient time available to fulfil their roles. Recommendations
for appointment are put to the full Board for approval. Specialist
recruitment consultants assist the Committee with the appointment
process for non-executive Directors. During the year there were
no non-executive Director recruitment exercises and accordingly
the Committee did not work with any external search consultants
in the year. The Committee reviewed its appointment process
and agreed the process remained appropriate. Work in the year
in relation to Director recruitment is described in the table
on page 112.
Succession planning
The Committee considers long-term succession planning as well
as ensuring an appropriate level of refreshment and diversity on
the Board. Contingency plans to cater for unexpected events are
also considered. Our approach to succession planning at Board level
seeks to ensure that retirements are planned for and take place
in a coordinated manner to minimise the risk to the Company’s
strategic objectives through gaps in key skills on the Board or a lack
of continuity. The Committee is of the view that length of service will
not necessarily compromise the independence or contribution of
directors of a company such as 3i, where continuity and knowledge
of the Company’s investment business, its strategic objectives and
its largest individual investments are beneficial to the Board.
Accordingly, the Committee does not believe the adoption of
inflexible numerical limits on the Directors’ Board tenure is the best
way to ensure diversity and Board refreshment overall. In determining
the appropriate length of service for each Director, the Nominations
Committee judges the appropriate balance between the retention
of the corporate memory of the Company with a suitable rate
of refreshment at any given point in time.
The Board and Nominations Committee has carefully considered
the question of Chairman tenure. They believe it should be aligned
with the Chairman’s role in enabling the Board to lead the Company
towards its long-term sustainable success, generating value for
shareholders and by behaving responsibly with regards to the
impacts of its action on wider society.
In my absence the Nominations Committee, chaired by the Senior
Independent Director, reviewed my tenure as Chairman in March
2023. Further details are set out in Report from the Senior
Independent Director on page 113 and in the Corporate governance
statement on pages 101and 102.
The Board also recognises that in providing leadership, governance,
challenge and support it must, when considering the Chairman
tenure, take account of matters including: the importance of Director
independence; the need to periodically refresh the Board and its
leadership; knowledge and understanding of the Company’s
investment business and its strategic objectives; as well as diversity,
continuity and retention of corporate memory. We believe that
an appropriate balance of all these factors is essential both for
the effective functioning of the Board and the delivery of the Board’s
purpose. At times this may result in some longer-serving Directors,
including potentially the Chairman.
Diversity and inclusion
The Board strongly supports the principle of boardroom diversity.
The Board’s aim is to have a Board and Board Committees which
are diverse in terms of skills, gender, social and ethnic backgrounds,
and cognitive and personal strengths. Where we engage external
consultancies on Director appointments, they are instructed to put
forward a diverse range of candidates for consideration. The Board
makes appointments on merit and against objective criteria.
The Board currently comprises 10 Directors of whom five are women
and following our June 2023 AGM the Board will comprise nine
Directors of whom four will be women. This exceeds the 40% female
gender diversity target set by the FTSE Women Leaders review.
The Board meets the Parker Review recommendation of having
at least one Director from a minority ethnic group.
During the year the Committee reviewed the Company’s Equal
Opportunities and Diversity policy and decided that no changes to
the policy were required at this time. The Committee also reviewed
the Company’s diversity, equity and inclusion activities during the
year and considered how the Company’s current diversity policy had
been implemented, its objectives and linkage to Company strategy.
Further details on diversity policy are set out in the Sustainability
report on page 52 and 53.
The Committee reviews and monitors initiatives aimed at developing
a diverse pipeline of talent within the Company below Board level
through the succession planning process referred to above and the
appointments process. As a business with in the region of
250 employees globally, 3i makes relatively few new hires each year
but, when hiring, we proactively seek to recruit from a diverse pool
of candidates. As importantly, we take a long-term, sustainable
approach to improving the diversity of our workforce and are
committed to creating an inclusive culture in which both existing
and newly-recruited staff can reach their potential, regardless of their
gender, social or ethnic backgrounds.
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Audited financial
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Portfolio and
other information
Composition, succession and evaluation continued
Nominations Committee report continued
The gender balance of our employees and our senior managers
is reported in more detail in the Sustainability section on page 53.
At 31 March 2023 our employees were 59.8% male and 40.2% female.
The under-representation of women in senior management and
investment roles at 3i is an issue we share with much of the private
equity and alternative asset investment sector. Nonetheless, 3i
continues to focus on increasing the number of women in these roles,
whilst recognising that significant change will take time to achieve.
As at 31 March 2023, 26% of Executive Committee plus direct
reports were female.
As at 31 March 2023, around one in eight of 3i’s total UK employees
were people with an ethnic minority (excluding white minority)
background. The proportion of our employees from an ethnic
minority (excluding white minority) background in mid to higher
salary brackets also exceeded one in eight.
The Company participates in a number of diversity, equity and
inclusion initiatives, details of which are contained in the Sustainability
section on pages 52 to 54.
David Hutchison
Chairman, Nominations Committee
10 May 2023
Diversity of individuals on the Company’s Board and in executive management
In accordance with LR 9.8.6 R (9) of the FCA Listing Rules the Board confirms that as at 31 March 2023 the Company met the targets
set out in that rule in that at least 40% of the Board were women, that at least one of the specified senior positions on the Board
(the Chair, the Chief Executive, the Senior Independent Director or the Chief Financial Officer) was held by a woman and that at least
one Director was from a minority ethnic background. There have been no changes to the Board since 31 March 2023 which would
affect the Company’s ability to meet these targets.
In accordance with LR 9.8.6 R (10) of the FCA Listing Rules the following tables set out data as at 31 March 2023 on the ethnic
background and the gender identity or sex of the individuals on the Company’s Board and in its executive management.
Gender identity or sex
Men
Women
Not specified/prefer not to say
Ethnic background
White British or other white (including minority-white groups)
Mixed/Multiple ethnic groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group including Arab
Not specified/prefer not to say
Number
of Board
members
Percentage
of the Board
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Number
in executive
management
Percentage
of executive
management
5
5
–
9
–
1
–
–
–
50 %
50 %
–
90 %
–
10 %
–
–
–
3
1
–
4
–
–
–
–
–
9
1
–
6
–
1
–
–
3
90 %
10 %
–
60 %
–
10 %
–
–
30 %
The tables above include data for three individuals who are included in both the Board and executive management. The Company’s approach to collecting the data used for the purposes of the above disclosures was
to use data on gender or sex from our employee records and to ask the individuals which ethnic background was applicable to them together with permission to use it for this purpose, save where individuals were located
in non-UK jurisdictions where we believed it would be inappropriate to make such a request.
Composition of the Board at 10 May 2023
Sector experience
Tenure
Gender diversity
l 80%
Financial
Services
l 20% Other
l 20% >9 years
l 20% 6-9 years
l 20% 3-6 years
l 20% 1-3 years
l 20% 0-1 years
l 50% Women
l 50% Men
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Composition, succession and evaluation continued
Nominations Committee report continued
Activities in the year
Board and senior
management succession
The Committee keeps Board
and senior management
succession under regular
review.
The Committee considers long-
term succession planning as
well as ensuring an appropriate
level of refreshment and
diversity on the Board. The
Committee’s approach to
succession planning at Board
level seeks to ensure that
retirements are planned for
and take place in a coordinated
manner to minimise risk to the
Company’s strategic objectives
through gaps in key skills on
the Board or a lack of
continuity. Contingency plans
to cater for unexpected events
are also considered. The
Committee regularly discusses
planned and contingency
succession arrangements for
the Executive Directors and
other senior positions.
Outcome
The Committee remains of the view that a nine
or 10 member Board is an appropriate size of
Board for the Company and that the Board
has the right balance of skills and experience.
The Committee decided that whilst there was
no immediate need for non-executive Director
recruitment, in the interests of long-term
succession planning the Committee would
likely commence a search process for a further
non-executive Director in the second half
of 2023.
Outcome
The appointments of James Hatchley and
Jasi Halai in consequence of Julia Wilson’s
retirement were finalised and took effect
in the year.
Outcome
Following James Hatchley’s and Jasi Halai’s
appointments the Committee approved
revised contingency arrangements for
circumstances where any of the executive
Directors suddenly became unable to carry
out their duties.
Outcome
The Board and the Committee were able
to satisfy themselves as to the appropriateness
of the succession planning process in place
for senior positions within the Group.
What the Committee did
Size, balance and composition of the Board,
and non-executive Director appointments
Following the appointment of Lesley Knox
as a non-executive Director there were
no additional non-executive Director
appointments during the year. The Committee
has continued to keep the size, balance and
composition of the Board under review during
the year. Immediately following the 2023
AGM the Board will comprise nine Directors,
being the Chairman, three executive Directors
and five independent non-executive Directors.
What the Committee did
Executive Director appointments
The Committee’s work in relation to
the retirement of Julia Wilson and the
appointments of James Hatchley and Jasi
Halai in summer 2022 largely took place
in the prior financial year and is described
in the 2022 Nominations Committee report.
What the Committee did
Contingency Executive Director
succession plan
The Committee reviewed its short-term
contingency succession plans for scenarios
where any of the executive Directors were
unexpectedly unable to carry out their duties.
What the Committee did
Senior management succession plans
In relation to succession planning below
Board level, and as part of the Board’s work
to support the development of a diverse
pipeline of talent, the Committee and the
Board considered and discussed the 2022
Group Succession Planning and Strategic
Capability Review which was presented
to the Directors by relevant Executive
Committee members and the Chief Human
Resources Officer. This annual review
identifies development and succession plans
for key staff including all members of the
Executive Committee and their direct reports
with details of short-term contingency
arrangements in case of a sudden vacancy,
planned successors and identification of those
who, with further experience, could be
potential longer-term successors.
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Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Composition, succession and evaluation continued
Nominations Committee report continued
Activities in the year continued
Board evaluation
Review of Chairman tenure
What the Committee did
Details on how the annual Board
evaluation process was conducted and areas
covered are on page 108. Following an
externally facilitated evaluation in FY2022,
the evaluation process for the year was
conducted internally with assistance
from Lintstock.
The Committee reviewed the evaluation
process which had been followed in the year
with a view to identifying whether any changes
or improvements should be made for future
years.
What the Committee did
The Committee keeps the continued tenure
of the Chairman under regular review.
This process is led by the Senior Independent
Director and is particularly important given
that the Chairman has served as a Director
for in excess of nine years.
Outcome
Details on the outcome of the evaluation are
set out on page 108. The evaluation process
informed the development of the Board’s
rolling agenda for the subsequent year and
confirmed the Board’s key strategic priorities
and objectives.
The Committee and the Board agreed that
further consideration should be given over
the coming year to evaluation arrangements
going forward including benchmarking for
external facilitators to conduct the Board’s
next externally facilitated evaluation process
which is required to be held not later
than FY2025.
Outcome
Led by the Senior Independent Director,
and in the absence of the Chairman,
the Committee reviewed the appropriateness
of the Chairman’s continued appointment
in March 2023. Details of the review are set
out below in the report from the Senior
Independent Director. The Committee
concluded that the Chairman’s continued
appointment for the coming year was
in the best interests of the Company.
Report from the Senior Independent Director on the Committee’s annual review of Chairman tenure
David Hutchison, who was appointed as Chairman of the Board
in November 2021, has now served as a Director for in excess
of nine years. This does not comply with the provisions of the
UK Corporate Governance Code (“the Code”) and a full
explanation of the background to David’s appointment as
Chairman and why the Nominations Committee and the Board
believe it appropriate for the Chairman to continue in office
is therefore set out on pages 101 and 102.
The Board and Nominations Committee are aware of the risks
to good corporate governance which could follow from excessive
Chairman tenure. As one of the measures adopted to mitigate
this risk the Nominations Committee has decided that it will
review annually the continued appropriateness of the Chairman’s
appointment. This review will be led by the Senior Independent
Director and will take place in the absence of the Chairman.
The first such review, led by me, took place in March 2023.
The Nominations Committee discussed the reasoning behind
the provisions of the Code limiting Chairman tenure, reviewed
the circumstances of David Hutchison’s appointment
as Chairman and reviewed his performance in this role over
the past year.
This review concluded that David continued to perform
effectively as Chairman, continued to exercise objective
judgement and continued to appropriately promote
constructive challenge amongst Board members.
The Nominations Committee also noted that in the context
of a business where long-term knowledge of the business
and its assets was of great importance, David’s continued
appointment was all the more appropriate given that
following the 2023 AGM two of the five non-executive
Directors will have had less than three-year’s service and
a further non-executive Director will have had less than
four-year’s service. The Committee concluded that David’s
continued appointment for the coming year was in the best
interests of the Company.
Lesley Knox
Senior Independent Director
10 May 2023
+ FOR MORE INFORMATION
Pages 101 and 102
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Audit, risk and control
Audit and Compliance
Committee report
I am pleased to present the Audit
and Compliance Committee report
for the year ended 31 March 2023.
My report explains the Committee’s
work this year.
Dear Shareholder
We held six regular scheduled meetings this year, four of
which were coordinated with 3i’s external reporting timetable.
In addition to the Committee’s usual focus on internal controls and
the integrity of the Group’s financial reporting, this year the Board
completed sustainability training focused on climate risk and scenario
analysis, net zero commitments, emerging ESG themes and TCFD
reporting. We also spent time reviewing management’s approach
to cyber risk and developments in reporting and disclosure including
the European Single Electronic Format (“ESEF”).
On 24 October 2022, we received a letter from the FRC detailing
a review of 3i Group’s Annual report and accounts for the year ended
31 March 2022 in accordance with the FRC Corporate Reporting
Review Operating Procedures. The FRC review was based solely
on the Annual report and accounts and did not benefit from detailed
knowledge of our business or an understanding of the underlying
transactions entered into. The review was concluded with no
questions or queries raised. We have taken into account the
disclosure enhancements suggested as part of the review.
During the year we implemented the required processes and
reporting under the Investment Firms Prudential Regime (“IFPR”)
and successfully filed the new returns. As part of this, we undertook
the first Internal Capital Adequacy and Risk Assessment (“ICARA”).
On 31 May 2022, the Government published its responses
to its consultation on its White Paper: “Restoring trust in audit
and corporate governance (March 2021)”. On 10 March 2023,
the Department for Business and Trade shared new draft reporting
regulations which will implement certain new reporting requirements
for large listed and private companies, many of which were confirmed
in the Government’s response to its White Paper. The Committee will
continue to monitor closely any proposed legislation, changes in
corporate governance requirements and emerging best practice.
Caroline Banszky
Committee Chair
What the Committee reviewed in FY2023
• Financial and non-financial reporting
• External audit
• Internal control, compliance and risk management
• Risk review
Committee membership
Caroline Banszky (Chairman)
Stephen Daintith
Coline McConville
Alexandra Schaapveld
Meetings
6(6)
6(6)
6(6)
6(6)
The column above headed “Meetings” shows the number of meetings of the Committee
attended by each member during the year, together with, in parentheses, the number of
meetings they were entitled to attend. Other regular attendees at the Committee meetings
include the following: Group Chairman; Chief Executive; Group Finance Director; Chief
Operating Officer; Company Secretary; Director of Group Reporting and Valuations; Head
of Internal Audit; Head of Group Compliance; and the External auditor, KPMG LLP.
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other information
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What the Committee
reviewed in FY2023
Financial and non-financial reporting
• Annual and half-year reports
• Quarterly performance updates
• Key accounting judgements and estimates
• Update on the relevant thematic reviews from
the FRC
• European Single Electronic Format (“ESEF”)
developments
• Reviewed the Annual report to ensure that it is fair,
balanced and understandable, including APMs
• Going concern and viability
• Resilience statement
• ESG disclosure enhancements
External audit
• Confirmation of the External auditor independence
• Policy and approval for non-audit fees
• FY2023 audit plan, including significant audit risks
(being the valuation of the unquoted investment
portfolio and the calculation of carried interest)
• Audit results report, including the results
from testing Key Audit Matters
• External auditor performance and effectiveness
Internal control, compliance
and risk management
• Review of 3i’s system of control and risk
management
• External and internal audit reports
In advance of each Committee meeting, I met the Group
Finance Director, the Chief Operating Officer and the Heads
of Compliance, IT, Tax and Internal Audit to discuss their reports
as well as any relevant issues. I also met privately with KPMG as
part of my ongoing review of their effectiveness and, periodically,
with other members of the 3i senior management team.
I have continued to have regular discussions and planning meetings
with management and KPMG on delivering the Annual report and
accounts as part of my review of their ongoing effectiveness. As part
of my year-end review, I met with KPMG to discuss their approach to
audit quality and what assurance had been taken in connection with
their audit of 3i. I also met with KPMG’s engagement quality controls
partner for the 3i audit, an independent audit partner who reviews
and challenges the key audit areas, and discussed how the risk
assessment would be challenged, and audit procedures and
conclusions reached by the audit team. I am pleased to report
that there were no significant findings arising from KPMG’s review.
The rest of the report sets out in detail the Committee’s activities
in the year. It is structured into four parts:
• Governance
• Report on the year
• Internal audit
• External audit
I look forward to engaging with you on the work of the Committee.
• Review of the Viability statement and the supporting
As noted in the Chairman’s statement, I will be retiring from the
Board following the 2023 Annual General Meeting and I am pleased
to confirm that Stephen Daintith will become the next Chairman
of the Audit and Compliance Committee.
Caroline Banszky
Chair, Audit and Compliance Committee
10 May 2023
» AUDIT AND COMPLIANCE COMMITTEE’S TERMS OF REFERENCE
www.3i.com/investor-relations/governance/principal-board-committees
stress test scenarios
• Update on cyber security and penetration tests
• Business resilience including IT and disaster recovery
• Staff annual verification exercise
• Audit and Assurance policy
Risk review
• Valuation reports and recommending the
investment portfolio valuation to the Board
• Review of investment themes from portfolio
company review process and portfolio performance
including ESG issues and risks
• Regular reviews of compliance with regulatory rules
and compliance monitoring findings
• Annual tax update and reports on tax policy
and strategy
• Reports from the Group Risk Committee (“GRC”)
and the risk log
• Update on litigation matters
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Governance
All members of the Committee are independent non-executive
Directors. The Board believes members have the necessary range
of financial, risk, control and commercial experience required to
provide effective challenge to management. In particular, the Board
is satisfied that Caroline Banszky and Stephen Daintith have the
recent and relevant financial experience as outlined in the FRC’s
Corporate Governance Code and the Committee as a whole
has competence relevant to the sector in which it operates.
The attendance of members at meetings is shown in the table
on page 100.
• 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.
Taxation
The Committee received an annual update from the Group Tax
Director on the Group’s taxation status which covered liaison with
fiscal authorities in the UK and overseas, the resourcing of elements
of the Group’s compliance obligations and potential fiscal
developments given the current economic climate.
The Committee meets privately for part of its meetings and also has
regular private meetings with the External auditor, the Group Finance
Director, the Chief Operating Officer, the Head of Internal Audit
and the Head of Compliance in the absence of other members
of the management team.
Report on the year
In addition to assessing and evaluating the areas of significant
accounting judgement and monitoring the effectiveness of 3i’s risk
management framework, the Committee particularly focused on
a number of topics, which are set out below.
Financial reporting regulators
The Committee considered the letter received from the FRC,
as detailed on page 114 of this report and papers from the FRC,
including its annual review of corporate reporting and their published
thematic reviews. The Committee reviewed a paper prepared
by management, which detailed how it had taken due account of
the matters raised and the enhancements it proposed to relevant
disclosures in the Half-yearly accounts 2022 and Annual report and
accounts 2023. The Committee also considered a paper prepared
by management which detailed 3i’s approach to the developments
in the European Single Electronic Format for digital reporting.
The Group’s internal control and risk management systems including
those in relation to the financial reporting process include:
• a comprehensive system of key control and oversight processes,
including regular reconciliations, line manager reviews and
systems’ access controls;
• updates for the Committee on 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
re-forecasting as required;
• 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;
Going concern and viability
The Directors are required to make a statement in the Annual report
and accounts as to 3i’s viability. The Committee provides advice to
the Board on the form and content of the statement, including the
underlying assumptions. In advance of the year end the Committee
reviewed the Group’s proposed stress test scenarios to support the
going concern basis and Viability statement. At the year end, the
Committee evaluated a report from management setting out its view
of 3i’s viability and content of the proposed Viability statement.
This report was based on the Group’s strategic plan and covered
forecasts for investments and realisations, liquidity and gearing,
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. It incorporated the 31 March 2023 valuations,
and consideration of a range of economic outcomes. The Committee
discussed whether the choice of the three-year period remained
appropriate. It concluded that it remained the most appropriate
period and provided more certainty on the Group’s performance due
to the nature of the Group’s business and its risk appetite to invest
in Private Equity and Infrastructure investments for a period of four
to five years, whilst acknowledging the reduced reliability of
assumptions in the later period of the plan.
The Directors believe the Group has sufficient financial resources
and liquidity, is well placed to manage business risks in the current
economic environment, and can continue operations for a period
of at least 12 months from the date of issue of these financial
statements. The Directors have also considered key dependencies
set out within the Risk management section including investment
and operational requirements.
Taking into account the assessment of the Group’s stress testing
results and its risk appetite statement (as disclosed on page 79),
the Committee agreed to recommend the Viability statement
and three-year viability period which was subsequently approved
by the Board.
Areas of accounting judgement and control focus
The Committee pays particular attention to matters it considers
to be important by virtue of their complexity, level of judgement
and potential impact on the financial statements and wider business
model. Significant areas of focus considered by the Committee are
detailed in the table below, alongside the actions taken by the
Committee (with appropriate challenge from the External auditor)
to address them.
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Areas of accounting judgement and control focus
Valuation of the
proprietary capital
investment portfolio
Carried interest
payable
Area of significant attention
The most material area of judgement
and estimation in the financial statements,
and noted as a significant risk and Key Audit
Matter by the External auditor, relates to
the valuation of the unquoted investment
portfolio, which at 31 March 2023 was
£17,426 million, or 91% of gross assets,
under the Investment basis.
In recognition of the importance of this
area, the Board has a Valuations Committee
to review the valuations policy, process
and application to individual investments.
The Valuations Committee provides
quarterly oral reports to the Audit and
Compliance Committee and the Board.
What the Committee reviewed and concluded
On behalf of the Board, the Committee received
and evaluated quarterly reports from the Chairman
of the Valuations Committee and the External
auditor, with particular focus on the assumptions
supporting the valuation of unquoted asset
investments, any valuation uncertainties and the
proposed disclosure in the financial statements.
Members of the Committee also attend the
Valuations Committee meetings.
The detail on the key valuation considerations
and the review and challenge undertaken in the year
is included in the Valuations Committee report
on pages 126 to 130.
The Committee reviewed and concluded that no fair
value adjustment should be made to the investment
entity subsidiaries’ NAVs and judgement for control
is appropriate for those investees and funds
consolidated within the Group.
Area of significant attention
The valuation of the investment portfolio
is a primary input into the carried interest
payable and receivable balances, which
are determined by reference to the
valuation at 31 March 2023.
What the Committee reviewed and concluded
Internal Audit reviews the carried interest balances
and carry plan distributions made to plan participants
before the payments are made. Summaries of the
work done are included in updates to the
Committee.
As at 31 March 2023, following 3i’s decision
to crystallise a portion of the outstanding
carried interest liability in the Buyouts
2010-12 scheme, c.£200 million will be paid
to participants in May 2023.
The Committee reviewed a summary of carried
interest payable as part of the overall summary
prepared by management to support the Annual
report and accounts 2023.
Fair, balanced and
understandable and the
presentation of 3i’s
reports and accounts
Area of significant attention
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 provide a disaggregated view of the
underlying portfolio alongside the IFRS
basis to aid in the understanding of the
results and performance of the underlying
portfolio.
What the Committee reviewed and concluded
The Committee reviewed the Half-yearly and Annual
financial statements as well as the Quarterly
performance updates with management, focusing
on the integrity and clarity of disclosure and enabling
the Board to provide the fair, balanced and
understandable confirmation to shareholders
in the Annual report and accounts 2023.
A report summarising the considerations for the
Annual report and accounts 2023 was reviewed
by the Committee in advance of the year end and
a summary of the detailed procedures undertaken
was prepared alongside the Annual report and
accounts 2023.
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Internal audit
The Committee continued to monitor the scope, activity,
and resources of the Group’s Internal Audit function, including
approving the internal audit plan and assessing whether its operating
model remained effective. The Committee monitors internal audit
activity quarterly, which includes the results of its reviews of 3i’s
investment offices and updates on outstanding agreed actions from
previous reports, as well as other areas of identified higher risk.
The Committee concluded that the Internal Audit function
remained effective.
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 GRC,
the risk management processes in place and Internal Audit’s
assessment of the effectiveness of controls, the use of the Group’s
whistle blowing facility and compliance with the UK Bribery Act.
As highlighted on page 81 in the Risk management section, a report
summarising each quarterly GRC meeting is provided to the
Committee for review and discussion. This report provides an update
on the assessment of the Group’s principal risks and new and
emerging risks, together with details of how these are being
managed or mitigated. The Committee also receives a twice-yearly
update on key ESG and sustainability risks and developments across
the portfolio. In addition, the Head of Internal Audit prepares an
annual report providing an independent assessment of the
effectiveness of 3i’s risk management and internal control systems
for presentation to the Committee.
The overall risk management and internal control process is regularly
reviewed by the Committee as well as the Board and complies with
the Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting issued by the FRC. The 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 2023.
External audit
The Committee has responsibility for making recommendations
to the Board on the appointment of the External auditor,
determining its independence from the Group and its management
and agreeing the scope and fee for the audit.
Auditor independence
The Group has a policy for setting out what non-audit services can be
purchased from the firm appointed as External auditor or a member
of the firm’s network. 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. It also
ensures that where fees for approved non-audit services are greater
than a pre-determined limit, they are subject to the Committee
Chair’s prior approval.
The policy permits certain non-audit services to be procured,
following approval, when the Committee continues to see benefits
for the Group in engaging KPMG. Examples of this include work:
• that is closely related to the external audit as described in para 5.36
of the FRC’s Ethical Standards;
• where a detailed understanding of the Group is required; and
• where KPMG 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 present or perceived or without
any proper safeguards in place. In line with the FRC’s Ethical
Standards, 3i will not generally use KPMG for any non-audit services
(unless explicitly permitted) that are not closely related to KPMG’s
role as 3i’s External auditor. This includes tax and legal, consulting
and investment-related services such as due diligence.
All proposals for services with KPMG must be forwarded to the Chief
Operating Officer in the first instance and will require approval by the
Chairman of the Audit and Compliance Committee above a defined
limit and provided the work is not closely related to KPMG’s role of
3i’s External auditor. Examples of services that require additional
approval include:
• the fee exceeds £100,000; or
• the service is work other than services closely related to KPMG’s
role as 3i’s External auditor.
Smaller engagements with fees of less than £100,000 and services
that are explicitly permitted and are not considered closely related
to the audit are approved by the Chief Operating Officer on behalf
of the Committee.
KPMG has reviewed its own independence in line with these criteria
and its own ethical guideline standards. This includes the review of
due diligence processes undertaken within the Group’s investment
activities. KPMG has confirmed to the Committee that following its
review it is satisfied that it has acted in accordance with relevant
regulatory and professional requirements.
Audit and non-audit fees
The total audit fee for the year was £2.8 million (2022: £2.7 million).
Non-audit fees paid to the External auditor were £0.4 million
(2022: £0.3 million). The Committee concluded that these fees fell
within its criteria for engaging KPMG and do not believe they pose
a threat to the External auditor’s independence or objectivity.
Assessing external audit effectiveness
The Committee reviews the effectiveness of KPMG through the
use of questionnaires completed by management, by considering
the extent of its contribution at Committee meetings throughout
the course of the year, and in one-to-one meetings.
The FY2023 evaluation also reviewed the quality of the audit process,
the use of KPMG’s valuation specialists to support the audit of the
portfolio valuations and the technical knowledge of the team.
The Committee concluded that the audit was effective and that
there should be a resolution to shareholders to recommend the
re-appointment of KPMG LLP at the 2023 AGM.
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Audit and
Assurance policy
As an investment company, our business model
is to allocate, invest and manage risk capital.
We do this from a platform that has good and
responsible values, a grounded team culture,
a prudent financial approach and a wide
international reach and diversity through our
well-established office network. Our investment
executives are able to use the power of broader
portfolio experience and learnings to grow and
improve each specific investment. This only works
with rigorous processes, robust central control
and an uncompromising attitude to the resilience
of the investment portfolio, all of which is
governed by the Investment Committee.
Through a comprehensive and consistent process, we apply
a high degree of judgement in setting the investment valuations
which underpin our periodic reported financial performance and
are the most material area of judgement in the financial statements.
The Valuations Committee sets policy and provides oversight of the
integrity of this valuation process. On behalf of the Board, the Audit
and Compliance Committee receives quarterly reports from the
Chairman of the Valuations Committee and the External auditor,
with a focus on key assumptions, valuation uncertainties and
disclosure in the financial statements. As a FTSE100 company,
transparency and integrity of our reporting of investment
outcomes and valuations is fundamental.
Purpose and scope
This Audit and Assurance policy (“Policy”) sets out the framework
and requirements by which the Board ensures that our investment,
valuation and reporting processes and controls (in the broadest
sense) are adhered to, and that the employee culture is aligned with
our strategic delivery, providing appropriate mitigation of the risk and
judgement inherent in our business model. The Policy covers external
and internal audit activities and other sources of assurance available
to the Board.
The scope and nature of the Group’s audit and assurance activities
are influenced by the Group’s legal, regulatory, governance and
operating structures. As a listed company, the Group is subject to the
Listing Rules of the UK Listing Authority and the provisions of the UK
Corporate Governance Code. In headcount terms, 3i is a relatively
small organisation with a non-hierarchical operating structure.
The Group provides investment management and other services
for which regulatory authorisation is required. It does not, however,
have permission to deal with retail clients. 3i is regulated in a number
of jurisdictions; primarily in the UK by the Financial Conduct
Authority. The contracts for 3i’s investment services and its regulatory
authorisations carry a wide range of obligations which are
incorporated into the Group’s systems and controls and apply to all
staff. These requirements include the need to maintain minimum
levels of regulated capital which are monitored by way of an internal
capital and risk assessment. This involves the use of stress testing
scenarios which also link into the Group’s viability assessment work.
Development
This Policy is owned by the Board and developed based on a range
of inputs including the views of Executive Committee and assurance
providers, and benchmarking against emerging good practice.
The Policy is reviewed at least annually and its operation overseen
by the Audit and Compliance Committee.
Risk and assurance
The Group Risk Committee, Executive Committee and senior
managers are required to provide the Audit and Compliance
Committee with regular updates on a range of topics to enable
the Committee to form a view on the adequacy of the planned
assurance work in relation to the Group’s principal risks, risk
mitigation plans and any significant new risks, themes or
developments.
Both the External and Internal auditors are expected to form
an independent view on the principal risks and the controls to
mitigate these, taking into account the risk profile and strategy
of the business and the assessment performed by the Group Risk
Committee. This in turn provides the basis for making informed risk-
based decisions regarding the scope and focus of assurance work.
The auditors are required to present details of their respective risk
assessments, areas of focus and audit approach to the Audit and
Compliance Committee for its consideration and input.
In addition to scheduled updates from Finance, Group Compliance,
IT and Tax, the Audit and Compliance Committee may seek
assurance work in other areas from time to time, either from internal
sources or externally commissioned work. The oversight work of the
other Board Committees, notably the Valuations and Remuneration
Committees, is also taken into consideration.
Viability and going concern
There is an established process for preparing the Group’s Viability
statement, coordinated by Group Finance. This involves engagement
with 3i’s Group Strategy team and Private Equity and Infrastructure
business lines to develop a range of plausible and relevant stress test
scenarios, which are also linked back to the Group’s principal risks.
The views of the Group Risk Committee are sought on the test
scenarios, results and proposed disclosures. This is then presented
to the Audit and Compliance Committee for consideration and input.
The External auditor also provides independent assurance on the
reasonableness of the inputs, key assumptions and stress test
scenario analysis, in the context of its work on viability and going
concern.
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Audit and Assurance policy continued
Key internal controls and assurance
The design of the Group’s key control framework is directly linked
to the Group’s risk mitigation plans, and is summarised in the table
below.
The Audit and Compliance Committee requisitions assurance
work which focuses on the design and effectiveness of the internal
control framework. The adequacy of assurance coverage is
considered as part of the presentation of the respective external
and Internal audit assurance plans described above. Use is also made
of external benchmarking and frameworks to provide additional
assurance in specific areas. For example, the National Institute of
Standards and Technology (“NIST”) Cybersecurity Framework is
deployed to assess and improve 3i’s ability to prevent, detect and
respond to cyber attacks. Assurance work is expected to adapt to
changes to the Group’s risk and operating profile, illustrated by the
examples in the Audit and Assurance approach section on page 121.
3i is reliant on a number of key third-party suppliers, notably in the
areas of IT and accounting support services. For the purposes of
oversight and management, these suppliers are grouped into tiers
based on their business criticality using a bespoke Supplier
Relationship Management Toolkit and taking into account their
impact on 3i’s regulated investment activities. This tool provides
a structured and consistent risk-based approach to assessing supplier
performance, including areas such as data security and business
resilience. 3i also engages the services of a procurement specialist
to provide supplier management and procurement support. From
an assurance standpoint, 3i obtains copies of Independent Service
Auditor’s Reports where available and Internal Audit carries out
reviews of the key supplier relationship management processes
as part of its cyclical programme of work.
Given the importance of people to 3i’s business, the Board carries
out an annual in-depth review of succession planning and other key
people-related matters, and receives regular updates from across the
business. The Remuneration Committee oversees 3i’s remuneration
arrangements, designed to ensure there is appropriate alignment
between staff performance, conduct and behaviours on the one
hand, and the Group’s strategic objectives, risk appetite and internal
control framework on the other.
Summary of Key control framework
Investment process
Investment portfolio companies
Investment portfolio management
• Due diligence process
• Investment procedures
• Investment Committee review and approval
• ESG and sustainability assessment
• Responsible Investment policy
• 3i appointed directors
• Minimum required governance standards
• Investment procedures for investment
and portfolio company management
• Monthly portfolio company dashboards
and performance monitoring
• Six-monthly investment and portfolio
company reviews
• 3i board representatives and active
management of senior appointments
• Setting and monitoring of ESG and
sustainability requirements
Viability and going concern
Valuations process
Financial reporting
• Stress testing methodology and modelling
• Analysis of assets and liabilities
• Capital adequacy review process
• Group strategy and liquidity forecasting
models
• Approved Valuations policy
• Investment and portfolio company review
• Framework of key financial controls
and reconciliations
processes
• Portfolio, fund and partnership accounting
• Central oversight by the Valuations team,
Investment Committee and Valuations
Committee
processes
• Documented analyses of complex
transactions and changes in accounting
requirements and disclosures
People and culture
Advisory relationships
Third-party service suppliers
• Values framework and HR policies
• Performance management framework
• Remuneration policies
• Conduct and compliance policies
and monitoring
• Succession planning process
• Pre-approved suppliers of investment
• Use of 3i’s Supplier Relationship
due diligence services
• Tendering and approval process
for other advisers, eg legal, tax
• Monitoring of performance and patronage
• Confidentiality and conflicts management
Management tool
• Required contractual protections, eg data
security and business continuity
• Oversight and governance frameworks
for critical suppliers
• Independent service organisation reports
Balance sheet management
Change management
IT systems and security
• Treasury policy and control framework
• Liquidity monitoring framework
• Fund transfer and release controls
• Portfolio concentration and vintage control
monitoring framework
• Foreign Exchange hedging programmes
• Approval process for changes to corporate
structure or new products/business areas
• Ongoing monitoring of legal and regulatory
• IT policies and procedures
• Access and data security controls
• Back-up and disaster recovery procedures
changes
and testing
• Active participation and engagement with
government, regulators and trade bodies
• IT and cyber security monitoring and control
framework, and regular penetration tests
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other information
Audit, risk and control continued
Audit and Assurance policy continued
In addition to the direct work of the Board and its Committees,
both Group Compliance and Internal Audit are required to provide
an independent view on conduct, culture, behaviours and other
people-related matters as an integral part of their monitoring
and review work. Internal Audit also carries out an annual review
of the implementation of 3i’s key remuneration policies.
In order to assist in its annual review of the effectiveness of internal
systems and controls, the Audit and Compliance Committee also
requires an annual risk and control effectiveness review from Internal
Audit and an end-of-audit report from the External auditor.
In addition, the Executive Committee, in turn supported by their
direct reports, is required to sign-off an annual control attestation
which is coordinated by Group Compliance and reviewed
and reported on independently by Internal Audit to the Audit
and Compliance Committee.
Reporting of control findings
For monitoring and reporting purposes, a significant control
failure or weakness is defined as one resulting in or with potential
to result in a material misstatement in the financial statements or loss
to the business, or significant reputational damage, penalties or
sanctions.
Both the External and Internal Auditors are required to provide the
Audit and Compliance Committee with details of their respective
reporting frameworks including, for example, materiality limits, risk
ratings and reporting thresholds. This is to ensure there is a degree
of consistency and understanding of the definitions applied. It further
assists in understanding the nature and severity of any control
findings reported; the appropriateness of proposed remedial actions,
timelines and ownership; and the need for disclosure.
The Board and Executive Committee have a very limited tolerance
for operational risk events and errors. Accordingly, a relatively low
reporting threshold is applied by both Group Compliance and
Internal Audit with respect to any findings. This involves both
a qualitative and quantitative impact assessment. A similarly low
threshold is set for the Group’s risk log reporting process, under
which any financial losses or exposures greater than £20,000 must
be reported.
Assurance over company reporting
The Group’s approach to assurance over company reporting is
grounded in a culture of transparency and openness. The External
auditor, for example, holds regular catch-up meetings with senior
managers across the business, the Audit and Compliance Committee
Chair and Internal Audit throughout the year, not only during the
reporting cycle.
The Group aims to identify changes in reporting requirements and
potential technical accounting or disclosure issues at an early stage
and to engage fully with the External auditor, Audit and Compliance
Committee and external advisers as appropriate. Areas of greater
complexity or judgement are documented to facilitate the overall
process and regular updates are provided to the Audit and
Compliance Committee. In more specialist areas where there
is limited in-house expertise, such as reporting on climate change,
the Group seeks to employ external experts both to assist with the
analysis and, where appropriate, provide some assurance on the
relevant reporting.
The External auditor’s report in the Annual report and accounts
provides a comprehensive overview of Key Audit Matters, audit
scope and materiality. This includes details of the main audit risks
and the approach taken to information in the Annual report other
than the audited financial statements. The other information in the
Annual report includes the presentation of the financial results on a
separate non-GAAP Investment basis, in the interest of transparency
and understanding, which are reconciled to the audited accounts
prepared using the IFRS basis of consolidation. The Group’s half-
yearly financial report is subject to a review in accordance with
the relevant auditing standards on the review of interim financial
statements. Details are set out in the External auditor’s report
in the full-year and half-year reports.
The preparation of 3i’s external reporting is subject to a well-
established input, review and verification process, covering the
financial statements and other information in the Annual report;
the Half-yearly report; and other reporting by the Company.
The process involves close engagement with 3i’s investment
and professional service teams and Internal Audit to ensure that
the reporting is fair, balanced and understandable, as well as
complete and accurate. The Audit and Compliance Committee
is briefed and consulted at each stage of the process.
Audit and assurance approach
The Group’s audit and assurance approach is adapted to reflect
changing circumstances. Specific examples during the year
included:
• continued focus on new and emerging cyber security risks,
and management updates and assurance work in relation to:
(i) protective and detective cyber controls; (ii) results of
penetration and other tests; and (iii) cyber and IT security staff
training and awareness;
• additional processes put in place to assess the impact
of increased market and geopolitical uncertainties, including
sanctions, on investment portfolio company performance and
valuations (and subject to additional assurance work where
appropriate);
• increased focus and more frequent updates on the review
of sustainability reporting, covering reporting obligations, data
capture, and related internal processes and controls; engaged
EY’s sustainability practice to advise on 3i’s climate disclosures
and related processes;
• ongoing assurance with respect to the oversight and
performance of key service providers, including business
continuity arrangements;
• independent views sought from Group Compliance
and Internal Audit on people-related matters; for example,
the effectiveness of 3i’s hybrid working model, staff morale,
conduct, culture and behaviours.
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Audit, risk and control continued
Audit and Assurance policy continued
Approach to investment portfolio companies
The companies in 3i’s proprietary capital and managed investment
portfolios operate independently of 3i, with their own boards. 3i’s
oversight is exercised through the appointment of 3i investment
executives to serve as directors on the boards. Each board is
responsible for its own audit and assurance arrangements including
the appointment of their external auditors and, where appropriate,
internal auditors.
3i sets minimum governance standards for its investment portfolio
companies overseen by the 3i appointed directors. The standards
cover the overall governance structure; independent financial review;
internal controls; IT systems and cyber security; legal and regulatory
compliance; critical incident management; and financial reporting.
These governance standards form part of a broader range of ESG
and sustainability measures applied by 3i to each investment
portfolio company, benchmarked against industry standards
for the relevant sector. Reporting against these standards and
the development of specific action plans is an integral part of
3i’s semi-annual investment portfolio company review process.
3i’s Internal Auditors provide an independent assessment of the
completeness and accuracy of the investment portfolio company
review reports as part of their work on 3i’s investment business units.
Approach to fraud risk
The assessment of fraud risk forms part of the assurance planning
presented to the Audit and Compliance Committee. Internal Audit,
for example, undertakes a detailed fraud risk assessment and carries
out a cyclical programme of anti-fraud assurance work, the results
of which are reported to the Audit and Compliance Committee.
3i investment executives are required to report any significant fraud
incidents occurring at the investment portfolio company level. This
includes details of the root cause and remedial actions. This reporting
enables both the Group Risk and Audit and Compliance Committees
to assess any potential reputational risks to 3i and possible reporting
or notification requirements.
Auditor independence and effectiveness
The Audit and Compliance Committee assesses the independence
and effectiveness of both the External and Internal Auditors at least
annually and in accordance with the relevant professional standards
and FRC Guidance. In addition, the Committee Chairman meets
regularly with the external audit team and Head of Internal Audit.
Internal Audit also reports against a small number of agreed key
performance indicators and is subject to an external quality
assessment at least every five years.
Assurance resourcing
There are a number of different categories of assurance activities.
The Audit and Compliance Committee’s involvement in the review
of assurance budgets and resourcing is based on the profile, risk
and nature of those activities. The overall objective is to ensure that
resourcing is adequate to meet the assurance needs of the Board
in a way which is operationally efficient and reflects any relevant
external developments.
The audit scoping and fees for the External auditor are reviewed
and approved in detail by the Audit and Compliance Committee
on an annual basis. The Committee also reviews any fees paid for
non-audit services and fees paid by 3i’s investment portfolio
companies, as part of its assessment of the External auditor’s
objectivity and independence.
Resourcing for Internal Audit, including any co-sourcing needs,
is reviewed annually and confirmed on a regular basis directly with
the Head of Internal Audit, to ensure that this is sufficient to support
the requirements of the agreed assurance plan. The Head of Internal
Audit is responsible for the associated budgeting and management
of costs.
There are a range of “2nd line” functions and roles which are
also an important source of assurance. These include, for example,
Group Compliance, the Chief Information Security Officer, and
Health and Safety officer. Assurance work may also be requisitioned
from external providers in specialist areas, such as the measurement
of greenhouse gas emissions, or in the form of expert advice on
specific matters. The review of resourcing for these areas forms
an integral part of the Group’s budgeting process and is the
responsibility of the relevant Executive Committee member.
The Group’s operating costs budget is subject to Board approval.
Further information
Investment basis
+ PAGE 73
Background to Investment basis
financial statements
Principal risks
and mitigations
+ PAGES 78-86
Risk governance and oversight
arrangements
PAGES 87-91
Summary of principal risks and risk
mitigation
PAGES 124-125
Going concern and viability
Audit and Compliance
Committee report
+ PAGES 116-117
Areas of accounting judgement
and control focus
PAGE 118
Internal audit
PAGE 118
External auditor independence
PAGE 118
Audit and non-audit fees
PAGES 119-122
Audit and Assurance policy
PAGES 123-125
Resilience statement
Accounting policies
+ PAGE 167
Basis of preparation – going concern
Notes to the accounts
+ PAGE 176
Details of fees for audit
and non-audit services
Independent Auditor’s report
+ PAGES 209-212
Overview of audit
PAGE 213
Going concern risk and response
PAGE 215
Key audit risks and response
PAGE 222
Materiality
PAGE 223
Audit scope
PAGE 224
Audit work on other information
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Resilience statement
Our resilience is dependent on the success
of our investment strategy, careful management
of our balance sheet and costs, and the ability
to attract and retain a capable and diverse team.
This is underpinned by a strong institutional culture
and values, robust corporate governance, and
effective risk and operational management.
The success of our investment strategy, in particular, requires a long-
term, responsible and risk-based approach to building a resilient
portfolio with strong growth potential, and maintaining and
developing the expertise, relationships and institutional culture
to support this. This foundation supports 3i’s ability to generate
attractive returns through sustainable growth.
Our resilience assessment draws upon a number of interdependent
components, illustrated below. Further information can be found
in the sections on the Group’s business strategy (pages 12 to 17),
Approach to risk management (pages 78 to 91) and Sustainability
(pages 43 to 66).
Resilience
assessment
People
Portfolio
Net asset value
Liquidity
Sustainability approach
Stress test scenarios
• Economic downturn
• Concentration
• Geopolitical crisis
• Climate change
Principal risks analysis
Long-term risks
and opportunities
3i Business model
Investment Committee
Investment strategy and
Responsible Investment policy
Megatrends/investment themes
Demographic and social change
Value-for-money and discount
Digitalisation, automation
and big data
Energy transition, energy security
and resource scarcity
Strategy and risk
assessment
Strategic objectives
and Key performance
indicators
Short to medium-term
risk assessment
• External environment
• Investment outcomes
• Operational
Longer-term
risk assessment
• Climate/environmental
• Geopolitical
• Societal and demographic
• Technological
• Economic
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Resilience statement continued
Short-term resilience
In assessing our short-term resilience, we undertake regular portfolio
monitoring, including six-monthly strategic portfolio company
reviews and monthly trading updates for each portfolio company.
These reviews highlight and appraise sources of risk at a portfolio
company level and feed into the quarterly valuation process.
Regular portfolio updates are provided to the Board and Audit
and Compliance Committee.
We also carry out periodic assessments of the Group’s operational
resilience, including key people risks, IT systems and security
infrastructure, and critical third-party suppliers.
Active management of liquidity underpins our short-term resilience,
which is supported by the ready availability of short-term funding
and a conservative balance sheet policy that ensures a low level
of structural gearing at the holding company level. This short-term
resilience was demonstrated during the pandemic and, more recently
during the challenging macroeconomic conditions, when 3i was able
continue to invest in new acquisitions and buy-and-build
opportunities.
The identification of material uncertainties, that could cast significant
doubt over the ability of the Group to continue as a going concern,
forms the basis of the Directors’ Going concern statement below.
Going concern statement
Going concern is assessed for a period of at least 12 months
from the date of approval of the Annual report and accounts.
The Directors are required to evaluate whether the Group has
adequate resources to continue in operational existence for at
least the next 12 months. The Directors have made an assessment
of going concern, taking into account both the Group’s current
performance and outlook using the information available up
to the date of issue of these financial statements.
In carrying out their assessment of going concern and short-term
resilience, the Directors considered a wide range of information,
including:
• details of the Group’s strategy, risk appetite, and business
and operating models;
• information on the Group’s principal risks and mitigation plans;
• a summary of the financial position considering performance; and
• current market volatility and geopolitical and economic
uncertainties.
The Group monitors its funding position and its liquidity risk
throughout the year to ensure it has access to sufficient funds
to meet forecast cash requirements.
At 31 March 2023, the Group remained well funded with liquidity
of £1,312 million (31 March 2022: £729 million). Liquidity comprised
cash and deposits of £412 million (31 March 2022: £229 million)
and undrawn RCF of £900 million (31 March 2022: £500 million).
During the year, we repaid our £200 million fixed-rate 2023 bond
and increased our existing base £500 million RCF with an additional
two-year £400 million tranche that provides the Group with additional
financial flexibility at low cost. Since 31 March 2023, we extended
the maturity of the £400 million additional tranche to July 2025.
To preserve liquidity, the Group monitors liquidity regularly, ensuring
it is adequate and sufficient. This is underpinned by the monitoring
of investments, realisations, foreign exchange hedging, operating
expenses and receipt of portfolio cash income.
In addition, the Group implemented a moderately sized euro
and US dollar medium-term foreign exchange hedging programme.
The purpose of the programme is to partially reduce the sensitivity
of the Group’s net asset value and impact of mismatched currency
cash flows to changes in foreign exchange rates. The liquidity impact
of this programme was carefully assessed prior to implementation
and incorporated into the Group’s liquidity monitoring framework.
Liquidity is also central to the Group’s dividend policy to maintain
or grow the dividend year on year. This policy is subject to
maintaining a conservative balance sheet approach and is therefore
informed by the outlook for investment and realisation levels.
Allowing the Group to exercise discretion over the level of dividends
paid ensures that the Directors can recommend a sustainable
dividend which takes into account the need to maintain liquidity
for new investment and operating expenses.
The Directors have acknowledged their responsibilities in relation
to the financial statements for the year to 31 March 2023. After
making the assessment on going concern and short-term resilience,
the Directors considered it appropriate to prepare the financial
statements of the Company and the Group on a going concern basis.
The Group has sufficient financial resources and liquidity and is well
positioned to manage business risks in the current economic
environment and can continue operations for a period of at least
12 months from the date of this report. The Directors have concluded
that there are no material uncertainties or risks that could cast
significant doubt over the short-term resilience of the Group
or its ability to continue as a going concern over the duration
of that period based on investment and operational requirements.
Medium-term resilience
The assessment of medium-term resilience, which includes
the modelling of stress tests and reverse stress tests, considers
the viability and performance of the Group in the event of specific
stressed scenarios which are assumed to occur over a five-year
horizon in line with the Group’s strategic planning process.
The stress testing focuses upon the principal risks, but also
considers those new and emerging risks which are considered to be
of sufficient importance to require active monitoring by the GRC;
these include, for example, concentration risk in the portfolio and
the impact of climate change. The medium-term resilience of the
Group is examined through analysing the impact of these scenarios
on key metrics such as net asset value and liquidity.
In each stress test scenario, the Group remains viable. The medium-
term resilience of 3i is further supported by the availability of
controllable management actions that can mitigate the impact
of certain stress events. These actions include, for example,
the flexing of investment and dividend levels for liquidity purposes.
Viability statement
The stress testing as detailed above forms the basis of the Viability
statement. 3i conducts its strategic planning over a five-year period;
the Viability statement is based on the first three years, which reflects
the nature of the Group’s business and its risk appetite to invest in
Private Equity and Infrastructure investments for a period of four to
five years and, therefore, provides more certainty over the forecasting
assumptions used. The Directors assess 3i’s viability and medium-
term resilience over a three-year period from the date that the
Annual report and accounts is approved. 3i’s strategic plan and
associated principal risks, as set out on pages 87 to 91, are the
foundation of the Directors’ assessment.
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Resilience statement continued
The assessment is overseen by the Chief Operating Officer and
Finance Director and is subject to challenge by the GRC, review by
the Audit and Compliance Committee and approval by the Board.
The Group’s 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 meeting in December and updated during
the year as appropriate. At the strategy meeting, 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 assessment of viability and medium-term
resilience. The current iteration of the strategic plan reflects the
residual effect of the pandemic and other recent economic
developments.
The Group’s viability testing considers multiple severe, yet plausible,
individual and combined stress scenarios. These scenarios include a
range of estimated impacts, primarily based on providing additional
support to portfolio companies as a result of the downturn and
delaying the Group’s ability to realise and make new investments.
A key judgement applied is the extent of the impact of the ongoing
Russian invasion of Ukraine together with the effects of higher
inflation and tighter monetary policy. The scenarios tested are
as follows:
• Widespread economic turmoil – considers the impact of
a recession, triggered by persistent inflation, high interest rates
and weak consumer demand, with a significant impact
on valuations and realisations;
• Concentration risk – considers a material adverse event affecting
a single large asset in the investment portfolio;
• Combined scenario with widespread economic turmoil and
concentration risk – considers both scenarios occurring at the same
time;
• Loss of key personnel – considers the impact of the loss of key
personnel;
• Impact of a significant event – considers the impact of a loss in
value of certain portfolio companies following a material event
such as significant operational underperformance, covenant
breaches, fraud, a cyber security breach or other ESG issues; and
• Climate change – considers the impact of climate change on
3i’s portfolio, driven by changes in consumer behaviour,
regulations, and other physical and business risks.
The assessment projects the amount of capital the Group needs
in the business to cover its risks, including financial and operational
risks, under such stress scenarios. The results of each of the stress test
scenarios indicate that the Group is able to meet its obligations as
they fall due for the viability period over three years from the date of
approval of these financial statements by, in certain cases, making
use of controllable management actions. In all these scenarios the
Directors expect the Group to be able to recover without a
permanent long-term impact on its solvency or capital requirements.
Mitigating actions within management control include reducing new
investment levels, dividend levels and drawing on the existing RCF.
The analysis shows that, while there may be a significant impact on
the Group’s reported performance in the short term under a number
of these scenarios, the resilience and quality of the balance sheet is
such that solvency is maintained, and the business remains viable.
As part of the assessment of viability and medium-term resilience,
the Group also undertakes reverse stress testing to identify the
circumstances under which the Group’s business model would no
longer remain viable. These circumstances include a prolonged delay
in the projected realisation date of investments, at the same time as
continued investment by the Group at a level not supported by the
liquidity forecast. In the absence of any mitigating management
actions, these reverse stress tests determine the point at which the
Group would lack the liquidity to remain viable. Overall, the reverse
stress tests are sufficiently improbable as to provide a low risk
of impact to the Group’s viability and medium-term resilience.
In practice, in the event of a market downturn and a significant
delay in realisations, mitigating actions within management control
would be exercised to provide sufficient liquidity.
Taking the inputs from the strategic planning process and its stress
scenarios, the 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 the end of the three-year period of the assessment.
Long-term resilience
The long-term resilience of our business is underpinned
by our capabilities as a leading investor in Private Equity
and Infrastructure and our effective risk management of the
core elements of our business model (pages 12 to 13). This includes
our long-term responsible approach to investment, conservative
balance sheet strategy and an effective team built on a consistent
set of shared values.
Fundamental to our long-term resilience is our investment strategy.
We invest capital in businesses to deliver capital returns and portfolio
and fund management cash income to cover our costs, and increase
returns to our investors. Our long-term investment horizon is possible
because we have a permanent capital base and are not driven
by fundraising cycles. We adopt a sector and thematic approach
to origination and portfolio construction which in turn supports long-
term sustainable growth in the portfolio.
Crucially, this investment approach can be adapted in response
to new and emerging risks and challenges including climate change,
societal and demographic trends and technological changes. It also
informs decision taking on portfolio realisations enabling
the composition of the investment portfolio to evolve over time.
The analysis and management of our principal risks is focused on
the short to medium term, and used as a basis to develop a range
of stress test scenarios. Although these are modelled over a five-year
horizon, the resilience shown by the Group, and its ability to recover
from these stressed situations, supports the assessment of our
resilience over a longer term. The availability and effectiveness of
management actions employed in the stress testing demonstrates
the flexibility with which we can respond to new and emerging risks.
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Valuations Committee
report
I am pleased to present the
Valuations Committee report
for the year ended 31 March 2023.
My report explains the role of the
Committee, as well as the work we
reviewed this year.
Dear Shareholder
The Valuations Committee plays a key role in providing the Board
with assurance that the valuation methodology and process are
robust and independently challenged. During the year, we met
four times as part of the Group’s external reporting timetable.
We reviewed and challenged the assumptions behind management’s
proposed asset valuations and reported to the Audit and
Compliance Committee and the Board.
Our principal focus year on year is the Group’s unquoted investments
in Private Equity and Infrastructure, as well as in Scandlines, as a high
level of judgement is required to value this portfolio of assets. This
portfolio accounts for 95% of 3i’s investment portfolio. The valuation
of the Group’s largest Infrastructure investment, namely the quoted
holding in 3iN, represents 5% of 3i’s investment portfolio, and the
valuation is based on the share price of the listed company at the
relevant balance sheet date.
Peter McKellar
Committee Chairman
Committee membership
Peter McKellar (Chairman)
Simon Borrows
Stephen Daintith
James Hatchley1
David Hutchison
Lesley Knox
Alexandra Schaapveld
Julia Wilson2
Meetings
4(4)
4(4)
4(4)
3(3)
4(4)
2(4)
4(4)
1(1)
The column above headed “Meetings” shows the number of meetings of the Committee
attended by each member during the year, together with, in parentheses, the number
of meetings they were entitled to attend. Other regular attendees at the Committee include
the following: Audit and Compliance Committee Chair; Chief Operating Officer; Group
General Counsel; Managing Partners of Private Equity; Director of Group Reporting and
Valuations; and the External Auditor, KPMG LLP.
1 Mr Hatchley was appointed to the Board on 12 May 2022.
2 Ms Wilson retired from the Board on 30 June 2022.
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Valuations Committee report continued
At the start of FY2023, the Valuations Committee’s main area
of attention was on the immediate impact of Russia’s invasion
of Ukraine. Through our March 2022 individual portfolio company
review (“PCR”) process and rigorous portfolio monitoring, we quickly
established the limited value impact on our portfolio. The focus for
the remainder of FY2023 was the challenging macroeconomic
headwinds, such as rising inflation and energy prices and weakening
of consumer sentiment affecting some of our portfolio companies.
The majority of our portfolio companies continue to mitigate these
headwinds through effective margin management, operational
efficiencies and organic and acquisitive growth. A small number
of our portfolio companies, mainly concentrated in the discretionary
consumer sector, have seen significant trading pressure and external
sector derating which we reflected in the valuations of Luqom and
YDEON in particular.
» VALUATIONS COMMITTEE’S TERMS OF REFERENCE
www.3i.com/investor-relations/governance/principal-board-committees
At each Committee meeting we received a detailed report from the
Group Finance Director and Chief Operating Officer recommending
the proposed valuation of the Group’s investment portfolio. This
report highlights the main drivers of value movement, analysed
between performance (movement in earnings and net debt), multiple
movements and other factors. At each meeting we also reviewed
selected assets for detailed discussion; examples of such assets
covered during the year included Action, Evernex, Mepal, MPM,
Luqom and YDEON.
I met the Group Finance Director and Chief Operating Officer in
advance of each meeting to discuss the key valuation assumptions
and to review management’s paper before circulation. I also met
the External auditor, KPMG, privately to discuss the results of its
quarterly reviews. These reviews challenged management’s approach
to valuations, the selection of comparable companies and the
relevance of earnings adjustments. Additionally, KPMG selected
a sample of 14 assets across the half-year and full-year ends for an
in-depth review by its specialist valuations team to help to derive
an independent valuation range. In January 2023, KPMG and
I discussed their approach to the year-end audit and their sample
of assets selected.
In advance of the full-year and half-year ends, management hold
PCR meetings with the respective investment teams. Non-executive
Directors, including members of the Committee, attended a
significant proportion of the meetings held in September 2022
and March 2023.
Our valuation approach remains consistent. The valuation inputs
for the Group’s portfolio companies are reviewed on a case-by-case
basis and considered against business plans, budgets, shorter and
longer-term views on trading, and sector performance. Management
considers various data points to support the fair value of investments,
including estimates of run-rate and forecast earnings and the
maintainability of these, in addition to historic earnings. A very small
portion of our portfolio is at an earlier stage of its growth cycle than
our traditional investments. For those investments we consider
financial and operational milestones to inform fair value, as well
as triangulation to a discounted cash flow (“DCF”) model.
The judgements applied and resulting valuations were discussed
with the Committee and the External auditor throughout the year.
We continue to progress our ESG agenda, focusing on supporting
our portfolio companies through their ESG initiatives and preparing
the Group to comply with ESG regulatory reporting requirements.
We embed an assessment of ESG factors throughout our investment
lifecycle. These assessments, which are typically included as part of
our PCR process, help inform investment decisions, mitigation of risk
or value creation opportunities. It is our view that portfolio companies
that have high ESG standards are better able to achieve sustainable
business growth. Management continues to progress the collection
of quantitative and qualitative ESG data and the ability to store and
monitor it. As part of our case-by-case review of our portfolio
companies the risks and opportunities from climate change are
an important consideration in the overall discussion on fair value.
The rest of this report sets out in more detail what the Committee
did in the year.
Peter McKellar
Chairman, Valuations Committee
10 May 2023
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The Committee focused on the following significant issues in FY2023:
What the Committee reviewed
and concluded
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.
All multiples used by management have been
adjusted where the longer-term view of the exit
or multiple supports the use of a different
multiple. At 31 March 2023, three portfolio
company valuation multiples, including Action,
were valued above their peer set averages but
remain well within the peer set range. Notable
changes in multiples, which commonly result
from significant bolt-on acquisitions, a change
in performance or a shift in market sentiment
in that sector, are presented to the Committee
quarterly and adjustments are reviewed by the
Committee at each meeting.
Earnings and
multiple
assumptions
Area of significant attention
Of the total portfolio by value, 88% is valued using a
multiple of earnings at 31 March 2023, or 27% excluding
Action (see further detail on Action as an area of
significant attention on page 129). This requires
judgement, as the earnings of the portfolio company
may be adjusted so that they are considered
“maintainable”. We also apply a liquidity discount to the
enterprise value determined according to factors such as
our alignment with management and other shareholders
and our investment rights in the company. The liquidity
discounts vary between 5%-25% of the enterprise value
of each portfolio company.
There is also a significant degree of judgement in
selecting the set of comparable quoted companies and
transactions which are used as a key data point in
determining the appropriate multiple to calculate an
enterprise value. Multiples are selected by reference to
the market valuation of 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
continues to be an important exercise given the market
volatility we have seen as a result of the macroeconomic
environment. We continue to consider the impact of IFRS
16 and ASC 842 on the quoted comparable companies
for those assets that report under local GAAP.
Private Equity assets are typically valued using a multiple
of earnings. However, alternative valuation
methodologies, such as DCF valuations, may be
considered as an alternative benchmark for potential
values or as a cross-check relative to the earnings-based
valuation.
In the year, the Committee placed a key focus on:
• the revised projections for each portfolio company
versus performance, considering the impact of
increased costs and market sentiment;
• the maintainability of earnings across LTM, forecast
and run-rate earnings and the impact of one-off
related normalisation adjustments; and
• our long-term, through-the-cycle, view on multiples
against the volatility of capital markets and the average
of the quoted comparable peer sets.
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Audit, risk and control continued
Valuations Committee report continued
The Committee focused on the following significant issues in FY2023:
Action
Area of significant attention
Action forms 61% of the total portfolio by value. Valued
on a multiple of earnings basis, Action is the largest
investment for the Group and, therefore, its valuation
is a key area of focus.
What the Committee reviewed
and concluded
The Committee noted Action’s excellent
performance in the year, against a very
challenging macroeconomic environment.
Action’s run-rate earnings grew significantly in the
12 months to the end of Action’s P3 2023 (which ended
on 2 April 2023), driven by further new store openings,
higher footfall and a higher number of transactions.
Action’s buying power, flexibility in its category
assortment and ability to absorb some of the inflationary
pressure enabled it to manage both cost and pricing
effectively. Action remains highly cash generative and
the business distributed two dividends to all shareholders
in the year, of which 3i received £325 million.
Action was valued using its run-rate earnings for the
12 months to P3 2023 of €1,439 million and a run-rate
multiple of 18.5x (31 March 2022: 18.5x) after applying
a liquidity discount of 5%.
When considering the multiple for Action we paid
particular attention to the following areas:
• the appropriateness of the comparable peers from
both a forward and backward-looking view; and
• the performance of peers compared to that of Action.
Management also cross-checked the earnings-based
valuation against a DCF model.
Area of significant attention
For assets valued using a DCF basis, which represent
6% of the total portfolio by value, the key valuation
judgements relate to longer-term assumptions that drive
the underlying business plan and cash flows and
decisions on the appropriate discount rates.
Scandlines, Smarte Carte, Regional Rail and EC Waste
are the significant investments valued using a DCF
valuation basis. In the year, Christ, previously valued
on a DCF basis, was sold and we moved Audley Travel
from a DCF basis to an earnings basis.
The Committee reviewed the work done
by management on the comparable peer set
and Action’s relative performance across its
key performance indicators, as well as the
potential use of the DCF model.
The Committee agreed with management’s
approach of valuing Action on the basis of
a multiple of earnings, but noted that the
DCF model provides a useful reference point.
The Committee reviewed the run-rate
adjustments and earnings normalisations
to ensure a consistent valuation
methodology was applied.
What the Committee reviewed
and concluded
Material assumptions for the DCF valuations and
any changes to these assumptions are reviewed
by the Committee. Sensitivity to assumptions is
also noted. Any material changes are reviewed
by the Committee and external advice is sought
from time to time.
Assets valued
using a DCF basis
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Valuations Committee report continued
The Committee focused on the following significant issues in FY2023:
Imminent sale
assets
Area of significant attention
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 move may occur
on signing, even if the time to completion is a period
of some months. 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 completion risk around
unquoted equity transactions.
What the Committee reviewed
and concluded
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 proposes a treatment for each
asset in a sales process, which the Committee
reviews at each meeting.
The Committee discussed the disposals of
Havea and Christ, which were realised at
premiums of 50% and 45% respectively, relative
to their opening valuations. The Committee also
considered the partial disposals of Q Holding.
Although not an area of valuation judgement,
the Committee reviews the results of the back-
testing that management prepares on material
assets disposed of to reconcile the price
achieved with the carrying value at the last
quarterly valuation. In the case of Havea,
continued strong performance and a
competitive exit process led to a significant
uplift over opening value.
Review process
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 Committee members or the
External auditor;
• sought assurance from the External auditor as to whether and how
they had considered the appropriateness of valuations and the
underlying assumptions made;
• reviewed the consistency of the views of management and
the External auditor and their valuation specialists; and
• reviewed and challenged the differential between carrying values
and those implied by the multiples of comparable quoted
companies and transactions.
The Committee was satisfied that the application of the valuation
policy and process was appropriate during the period under review,
and recommended the portfolio valuation to the Audit and
Compliance Committee and the Board at each quarter end
for approval by the Board.
In addition, 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 2023, incorporating minor updates following the release
of the revised IPEV guidelines in December 2022. Management
was involved in the consultation process.
More information on our valuation methodology, including
definitions and rationale, is included in Note 13 - Fair values of
assets and liabilities on page 184 and in the Portfolio
valuation – an explanation section on page 229.
External audit
As part of its year-end audit, KPMG’s specialist valuations team
reviews a selection of investments to support its overall audit opinion
on the financial statements as a whole.
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Directors’ remuneration report
Directors’ remuneration
report
Dear Shareholder
This letter summarises the key Executive Director remuneration issues
considered by the Committee in the year and decisions we arrived at.
FY2023 Performance
Against the backdrop of very strong overall results for the year, the
FY2023 scorecard, as set out in the annual report on remuneration,
shows good performance against the scorecard’s financial metrics,
and also strong performance against the qualitative measures set
for the year.
3i generated a total return on shareholders’ funds in the year of 36%,
delivered predominantly by the strong performance of Action, as well
as through good contributors from the majority of the remaining
portfolio, particularly those operating in the value-for-money and
private label, healthcare and infrastructure sectors. This was achieved
in spite of challenging macroeconomic headwinds including the
consequences of Russia’s invasion of Ukraine, high inflation, rising
interest rates and increased energy prices plus some ongoing
Covid-19 unwind difficulties. The Group’s clear and consistent
strategy has ensured that our portfolio, while not immune to these
pressures, has shown resilience at all stages of the economic cycle.
The Private Equity business completed four deals in the year, as well
as 11 bolt-on acquisitions, in a market that has slowed considerably
in 2022 as compared to 2021. Despite challenging market conditions,
Private Equity realised proceeds of £857 million, demonstrating the
appeal of our portfolio companies.
Demand for Infrastructure assets continued but we remained
disciplined on price when deploying capital. 3iN completed two new
investments in the year, and our North America infrastructure team
also closed two bolt-on acquisitions for Regional Rail and one for EC
Waste.
We have made significant progress in the year on our sustainability
agenda. We have implemented a range of sustainability initiatives
within the Group and across the portfolio prioritising portfolio
emissions data collection, ESG training, climate scenario analysis
and deepening our engagement with (and support for) the portfolio
on ESG matters. After careful consideration, we have committed
to setting a near-term science-based target for the Group under
the Science Based Targets initiative. Work is underway to formulate
a science-based target covering the Group’s direct Scope 1 and 2
emissions, as well as the Scope 3 emissions associated with our
portfolio. We expect to submit a target for validation during FY2024.
Meanwhile, a significant proportion (83%) of our core portfolio
companies now report Scope 1 and 2 carbon emissions.
Coline McConville
Committee Chair
Committee membership during the year
Name
Coline
McConville
Caroline
Banszky
David
Hutchison
Lesley
Knox
Peter
McKellar
Membership status
Chair since June 2020
and member since
December 2018
Member since
November 2015
Member since
December 2013 and
until March 2023
Member since
November 2021
Member since June
2021
Meetings
6(6)
6(6)
6(6)
6(6)
6(6)
The column above headed “Meetings” shows the number of meetings of the Committee
attended by each member during the year, together with, in parentheses, the number
of meetings they were entitled to attend.
The Chief Executive, the Remuneration Director and the General Counsel & Company
Secretary attend Committee meetings by invitation, other than when their personal
remuneration is being discussed.
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During the year the Company successfully implemented a foreign
exchange hedging programme to partially reduce the sensitivity
of the Group net asset value and the impact of mismatched currency
cash flows to changes in euro and US dollar exchange movements.
The exposure of the Group’s underlying investment portfolio to
currency fluctuation has increased significantly in recent years due
to the growth of our existing European and US portfolio businesses
and them being denominated in euro or US dollars.
This year’s results are reflected in the outcomes against the FY2023
scorecard, and the Committee determined that the FY2023 bonus
awards be set at 85% of maximum (FY2022: 98% of maximum) for
Executive Directors. The Committee considered that the formulaic
outcome under the scorecard was a fair reflection of overall
performance and that it was not necessary to exercise any upward
or downward discretion to adjust the outcome.
2020 LTIP outcomes
In line with the approach that has been in place since 2013, the 2020
LTIP award was based on two equally weighted performance
conditions: absolute TSR and relative TSR against the FTSE 350.
You will see in this report that based on performance over the three
year period, the 2020 LTIP achieved 100% vesting with absolute TSR
growth of 20% per annum and relative TSR well above the upper
decile of the peer group. The starting share price of 1,006 pence
used for measurement of TSR performance was based on the three-
month average closing share price from 1 January 2020 to 31 March
2020 (i.e. a period that was mostly undisturbed by the steep falls
in the share price due to Covid-19).
In considering whether any windfall gain adjustment was appropriate
for awards, the Committee took into account a number of factors
both at grant and at vesting, including:
• The starting share price of 1,006 pence for measurement of TSR
compared to the 798.4 pence share price on the date of the award
(which was used to calculate the number of shares) meant that
the element of the award subject to absolute TSR was 21%
(i.e. 207.6 pence) underwater. Therefore, TSR of 27.5% per annum
was required to achieve full vesting of the absolute TSR element,
which further increased the stretch in the target.
• The exceptional performance of the business over the
measurement period including Gross Investment Returns of 26%
in FY2021, 43% in FY2022 and 36% in FY2023 and the strong TSR
performance as shown in the graph opposite.
• The strict and consistent application of the policy during the
period, where bonus awards for FY2020 were materially reduced
and previous LTIP cycles were impacted by absolute TSR
performance.
Factoring in all of the above, the Committee considered that the
value of awards being released was appropriate without adjustment.
3i total shareholder return vs FTSE 350 total return
over the 3 years to 31 March 2023
l 3i Group l FTSE 350
Rebased at 100 at 31 March 2020
Looking forward
As noted in my letter last year, Jasi Halai and James Hatchley joined
the Board on 12 May 2022, with remuneration arrangements set in
line with the shareholder approved policy and at a level that would
allow progression in their roles over time.
Following a review of Jasi’s performance and progress in the role,
the Committee feels that it would be appropriate to increase Jasi’s
base salary by 7.5%, an increase that is the same rate as for those
outside the higher earners (including senior management) within 3i.
As Jasi continues to develop in her role the Committee may want to
acknowledge this through periodic base salary increases at a higher
percentage than other Executive Directors, as appropriate.
As set out in the report, the base salaries for Simon Borrows
and James Hatchley are to be increased by 3.75%, in line with
other senior employees in the Group. The Committee will
continue to keep their remuneration arrangements under review.
Remuneration policy
Our remuneration policy being presented to shareholders this year
remains largely unchanged since it was first presented to
shareholders in 2014. This clear, simple and consistent policy
has delivered short-term and long-term remuneration outcomes
that are directly linked to the Company’s strategic objectives.
I hope that you will find this report a clear account of the way in which
the Committee has implemented the remuneration policy during
the year and I look forward to your support for our Annual Report
on Remuneration and Remuneration Policy at the upcoming AGM.
Coline McConville
Chair, Remuneration Committee
10 May 2023
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132
2020202120222023100150200250
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The Annual report on remuneration (Implementation report)
During FY2023, we operated under the remuneration policy approved at the 2020 AGM, which can be found on our website at www.3i.com.
Director remuneration for the year (audited)
Single total figure of remuneration for each Director
Salary
/fees Benefits Pension
Total
Fixed
Pay
Annual
bonus
LTIP
Total
Variable
Pay
Salary/
Total
fees Benefits Pension
Total
Fixed
Pay
Annual
bonus
Total
Variable
Pay
LTIP
Total
FY2023
FY2022
687
431
121
298
325
–
96
84
94
96
96
84
16
14
5
16
–
–
–
–
–
–
–
–
18 721 2,357 5,464 7,821 8,542 661
45 490 921 282 1,203 1,693
–
– 139 481
13 139
–
31 345 573 190 763 1,108
–
–
– 325
–
–
– 96
– 84
– 94
– 96
– 96
– 84
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 325 187
– 191
–
93
–
81
–
44
–
72
–
93
–
81
–
96
84
94
96
96
84
16
–
18
–
–
–
–
–
–
–
–
–
–
–
18 695 2,613 2,907 5,520 6,215
–
51 550 1,188 1,321 2,509 3,059
–
–
–
–
–
–
–
–
–
– 187
– 191
93
–
81
–
44
–
72
–
93
–
81
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 187
– 191
93
–
81
–
44
–
72
–
93
–
81
–
£’000
S A Borrows
J G Hatchley
J S Wilson
J H Halai
D A M
Hutchison
S R Thompson
C J Banszky
S W Daintith
L M S Knox
P A McKellar
C McConville
A Schaapveld
• The amounts shown in the above table represent the remuneration paid to Mr Hatchley and Ms Halai from appointment to the Board
on 12 May 2022, apart from the LTIP, which is the full value of shares vesting. The amounts shown for Mrs Wilson represent payments
made for FY2023 up until retiring from the Board on 30 June 2022.
• Benefits for Executive Directors include a car allowance, provision of health insurance and, for Mrs Wilson and Ms Halai, the value
of the Share Incentive Plan matching share awards.
• The amounts shown as pension are salary supplements in lieu of pension contributions. These supplements were in line with pension
contributions for the Group’s employees generally (12% of pensionable salary).
• Annual bonus awards made in respect of the year are delivered as 60% 3i Group plc shares deferred over four years, and the remaining 40%
as a cash payment in May 2023. All annual bonus awards are subject to the malus/clawback policy. Those shares deferred over four years
are released in four equal annual instalments commencing June 2024 and all share awards carry the right to receive dividends and other
distributions.
• In addition to the table above, dividends or dividend equivalents on unvested deferred share awards were paid during the year
(Mr Borrows: £139k, Mr Hatchley: £56k, Ms Halai: £14k and Mrs Wilson: £63k).
• The values shown in the FY2023 LTIP column represent the performance shares vesting from the 2020 LTIP, together with the value
of accrued dividends on those shares. The shares have been valued using the three-month average closing share price to 31 March 2023
(1,559.45 pence). The 2020 LTIP value attributable to share price growth since the awards were granted is £2,469k, £127k and £86k for
Mr Borrows, Mr Hatchley and Ms Halai respectively. Further detail is provided on page 137. The values shown in the FY2022 LTIP column
represent the shares that vested from the 2019 LTIP last year, together with the value of accrued dividends on those shares. This value has
been restated using the prevailing share price at the time of vesting (1,123.5 pence), being the third anniversary of grant (i.e. 27 June 2022).
• The fees shown for the non-executive Directors include fees used to purchase shares in the Company.
• Non-executive Directors receive reimbursement for their reasonable expenses for attending Board meetings. The Group meets
the associated tax cost.
• Mr Hatchley retained Directors’s fees of £8k from Great Ormond Street Hospital for Children NHS Foundation Trust (to 30 September 2022)
and Ms Halai retained Directors’ fees of £43k from Porvair plc (to 31 January 2023) and £17k from Barratt Developments plc
(from 1 January 2023).
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FY2023 performance
Formulaic performance measures (70% of total. FY2022 payout 55.5%)
Area of strategic focus
Portfolio returns
(excl. Action)
Portfolio returns
(Action)
Portfolio returns
Portfolio returns
Operating performance
Weighting Metric
30.0 % Private Equity Gross investment return
(% of opening portfolio value)
27.5 % Gross investment return
(% of opening portfolio value)
7.5 % 3iN total return
2.5 % Scandlines return
2.5 % Operating cash profit
• The successful implementation of foreign currency hedging across our portfolio improved the Private Equity Gross investment return by 2%.
• The threshold and maximum return targets are set in line with 3iN’s public return objectives.
• Excluding the dividend received from Action (£325 million) the operating cash profit was £39 million.
Qualitative performance measures (30% of total. FY2023 payout 29.5%)
Threshold
10 %
Maximum
15 %
Performance
12 %
Pay-out
52 %
17 %
8 %
8 %
£0m
23 %
61 %
100 %
10 %
10 %
>£0m
15 %
9.8 %
£364m
100 %
92 %
100 %
Weighting Metric
Expectation
Performance Comments
Area of strategic
focus
Investment
management
and
operations
7.5%
Private Equity
portfolio
earnings
growth
New capital
invested in
Private Equity
Up to
€700m
€394m
>10%
18%
90% of our portfolio by value grew earnings to the end of 2022,
with particularly strong performance from our assets operating in
the value-for-money and private label and healthcare sectors.
New 3iN capital
committed in
Core/PPP
£500m
£416m
Development
of assets
relative to their
investment
plans
Total new capital invested in Private Equity in the year reflects the
considerable slow-down in these markets during FY2023 compared
to prior years. The Private Equity business continued its disciplined
approach to the deployment of capital in these markets and
we invested in four new portfolio companies, xSuite, Konges Slojd,
VakantieDiscounter and Digital Barriers. In the year, we also
completed 11 bolt-on acquisitions, three of which we supported
with further investment of £63 million.
The demand for Infrastructure assets remained strong and the team
has continued to deploy capital while retaining its pricing discipline.
During the year the 3iN team completed the acquisitions of Global
Cloud Xchange and Future Biogas as well as the purchase of an
additional stake in TCR (a portion of which was subsequently
syndicated to external investors).
The Group has continued to benefit from the carefully constructed
portfolio, in both the Private Equity and Infrastructure businesses,
aligned around specific sectors whose growth characteristics have
supported performance and underpinned its resilience. The portfolio
is effectively managed to support them addressing current challenges
including inflationary pressures, supply chain issues and the reduction
in some areas of consumer spending.
In aggregate, in a challenging environment, we generated total
Private Equity proceeds of £857 million, including Havea (£471 million),
at a healthy premium to opening value, and three partial disposals
by Q Holding (£332 million).
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Area of strategic
focus
ESG
Weighting Metric
10.0%
Environmental,
social and
governance
targets across
the portfolio
and 3i Group
Strategy
5.0%
Development
of the strategic
vision of the
Group and
progress
of corporate
projects
People
7.5%
Development
of the quality
and strength of
the Group’s
staff
Expectation
Performance Comments
We continue to make good progress in developing the Group’s ESG
strategy. The ESG Committee met frequently through the year and
focused on portfolio data collection and management, climate training,
climate scenario analysis as well as deepening ESG engagement with
the portfolio. After careful consideration, we have made a public
commitment under the Science Based Targets initiative to set
near-term science-based targets for the Group. Work is now underway
to formulate science-based targets that will cover the Group’s direct
Scope 1 and 2 emissions, as well as the Scope 3 emissions associated
with our portfolio. We expect to submit a target for validation during
FY2024.The Board has received regular reports on progress,
and this complex project is ongoing.
The Company has supported nine charity partners which work across
a variety of areas, donating a total of £1 million. In addition, £500,000
was donated to the Turkey Mozaik Foundation in support of victims
of the earthquake in Turkey and Syria.
The Company invested £30 million to purchase a small additional stake
in Action as part of a liquidity window and at the same time we
crystallised c. £200 million of the outstanding carried interest in the
Buyouts 2010-12 scheme relating to Action. The North American
Infrastructure platform delivered solid performance. Regional Rail
expanded its footprint through two bolt-on acquisitions and one new rail
services contract, including three short-line railroads in the Midwest
region of the US and several short-line railroads in Canada. Smarte Carte
traded strongly in 2022 driven by robust US travel and retail demand
across each of its lines of business, coupled with a steady recovery in
international volumes. During the year the Company successfully
implemented a foreign exchange hedging programme to partially
reduce the sensitivity of Group net asset value and impact of
mismatched currency cash flows to changes in euro and US dollar
exchange movements. The exposure of the Group’s underlying
investment portfolio to euro and US dollar movements has increased
significantly in recent years due to the growth of our existing European
and US portfolio businesses and due to most new investments being
denominated in euro or US dollars.
The transition of the Finance Director, the appointment of the new Chief
Operating Officer and the appointment of the co-heads of Infrastructure
were completed successfully during the year.
The newly promoted Private Equity Partners have bedded in well
and the leadership of Private Equity is reviewing origination capabilities
and structure across the team.
We continue to take part in various initiatives to improve DE&I internally
and across the industry, including sponsorship of Level 20, offering
internships as part of GAIN (Girls are Investors) and #10000BlackInterns
programmes.
Consistent with previous years, the Board did not set a threshold and maximum for all metrics, and set expectations rather than targets for
some. This is because the timing of investments and realisations is highly sensitive to market conditions, and a more prescriptive approach
would run the risk of creating perverse incentives for executives. For example, setting a target level of realisations may result in the earlier sale
of assets than would otherwise be appropriate, and setting a target level of investments may result in investing at inflated prices.
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Executive Director annual bonus outcomes
In light of the performance detailed above, and following an assessment taking into account the shareholder, employee, and wider
stakeholder experience, the Committee awarded bonuses to the Executive Directors of 85% of maximum. The Committee considered that
the formulaic outcome under the scorecard was a fair reflection of overall performance and that it was not necessary to exercise any upward
or downward discretion to adjust the bonus outcomes. Bonuses are delivered as 40% paid in cash immediately and 60% deferred into the
Company’s shares, vesting in equal instalments over four years. Annual bonus awards are subject to the malus/clawback policy.
Share awards vesting in FY2023 subject to performance conditions
2020 Long-term incentive award (audited)
The Long-term incentive awards granted in June 2020 were subject to performance conditions based on absolute and relative Total
Shareholder Return over the three financial years to 31 March 2023. The table below shows the achievement against these conditions
and the resulting proportion of the awards which will vest in June 2023.
Weighting
Threshold
Maximum
Actual
Total Shareholder Return Measure
Absolute Total Shareholder Return
Relative Total Shareholder Return
(as measured against the
FTSE 350 Index)
%
50 %
50 %
Performance
10% pa
Median
% vesting
20 %
25 %
Performance
18% pa
Upper
quartile
% vesting
100 %
100 %
Performance
20% pa
Above
Upper
quartile
Total
% vesting
100 %
% vesting
100 %
100 %
The table below shows the grants made to each Executive Director on 27 June 2020 at a share price of 798 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 three month average closing share price to 31 March 2023 of 1,559.45 pence.
As set out in the cover letter from the Committee Chair, reflecting on performance delivered over the performance period (in terms of
operational performance of the business and returns delivered to our shareholders), the Committee considered the formulaic out-turn to be
an appropriate reflection of performance and therefore did not exercise any discretion or downwards adjustment in relation to the award.
S A Borrows
J Hatchley
J Halai
Basis of award at grant
Face value award of 4 times base salary of £647k
Discretionary award made in 2020
Discretionary award made in 2020
Face value
at grant £'000
2,587
134
90
Number of
shares awarded
at 798p
per share
324,230
16,760
11,272
% vesting
Number of
shares vesting
100 %
100 %
100 %
324,230
16,760
11,272
Value of
shares vesting
at 1,559.45p
per share £'000
5,056
261
176
The proportion of the award vesting to Simon Borrows is subject to a further holding period, and shares will be released on the fifth
anniversary of grant together with the value of dividends that would have been received during the period from grant to the release date.
The awards made to James Hatchley and Jasi Halai were granted before they became Executive Directors and are not subject to a further
holding period. Accordingly, they will be released in June 2023.
Change in the remuneration of the Directors compared to other employees
The table below shows the percentage change in remuneration paid to each Director and employees as a whole for the past three
performance years.
S A Borrows
J G Hatchley
J H Halai
D A M Hutchison
C J Banszky
S W Daintith
L M S Knox
P A McKellar
C McConville
A Schaapveld
FY2023
FY2022
Salary/Fees
4 %
–
–
0 %
0 %
0 %
0 %
0 %
0 %
0 %
Benefits
0 %
–
–
–
–
–
–
–
–
–
Bonus Salary/Fees
(10) %
3 %
–
–
–
–
–
–
–
–
–
85 %
0 %
0 %
0 %
0 %
3 %
(5) %
Benefits
0 %
Bonus Salary/Fees
0 %
9 %
Benefits
0 %
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9 %
0 %
0 %
0 %
0 %
3 %
467 %
–
–
–
–
–
–
–
FY2021
Bonus
149 %
–
–
–
–
–
–
–
All other employees
13 %
2 %
6 %
7 %
9 %
32 %
2 %
2 %
76 %
D A M Hutchison was appointed Chairman in November 2021. The change in the fees shown above is due to part-year payments.
3i Group plc | Annual report and accounts 2023
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Details of share awards granted in the year
LTIP
Performance share awards were granted to the Executive Directors during the year as shown in the table below.
Description of award
Face value
A performance share award, which releases shares, subject to satisfying the performance
conditions, on the fifth anniversary of award.
Chief Executive – 400% of salary, being 210,792 shares.
Group Finance Director – 250% of salary, being 92,892 shares.
Chief Operating Officer - 225% of salary, being 57,810 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 2022 annual results
(1,315.5 pence). We continue to apply our long-held consistent policy of measuring
performance using the three-month average closing share price to 31 March and granting
awards using the five-day average closing price (starting on the day of the announcement
of the annual results).
1 April 2022 to 31 March 2025.
50% of the award is based on absolute TSR measured over the performance period,
and vests:
• 0% vesting below 10% pa TSR;
• 20% vesting at 10% pa TSR;
• straight-line vesting between 10% and 18% pa TSR; and
• 100% vesting at 18% pa 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.
Total shareholder returns are calculated based on the average closing share price over
the first three months of the calendar year.
The Committee can reduce any award which would otherwise vest if there are unauthorised
breaches of the Group’s liquidity and gearing policies or where significant adjustment is
required to ensure the outcome is a fair reflection of the performance of the Company and
the individual.
Performance period
Performance targets
Remuneration Committee discretion
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Deferred bonuses awarded in FY2023
The Chief Executive is considered to be Identified Staff and, for awards made during FY2023, 60% of the annual bonus was delivered in 3i
Group plc shares deferred over four years (and which vest one quarter per annum over those four years). The remaining 40% was delivered
as a cash bonus in May 2022. The awards for Mr Hatchley and Ms Halai were made while they were Directors but are in respect of performance
in their roles prior to being appointed to the Board. The following awards were made on 4 June 2022 in respect of FY2022 performance:
S A Borrows
J G Hatchley
J H Halai
Face value at grant
£1,568k
£821k
£212k
Number of shares awarded
at 1,315.5p per share
119,178
62,441
16,115
Vesting
Four equal instalments annually from 1 June 2023
Three equal instalments annually from 1 June 2023
Three equal instalments annually from 1 June 2023
The face value of the award made to Mr Borrows was reported in the FY2022 single figure of remuneration. 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 2022 (12 May 2022 to 18 May 2022), which was 1,315.5 pence. These awards are not subject
to further performance conditions but are subject to our malus and clawback policy.
Share Incentive Plan
During the year, Mrs Wilson and Ms Halai 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 forfeited if the participant resigns within three years of grant. Dividends are reinvested in further
ordinary shares (“dividend shares”).
During the year, Mrs Wilson purchased 36 partnership shares, and received 72 matching shares at prices ranging between 1,118.67 pence
and 1,296.17 pence per share, with an average price of 1,231.78 pence. Ms Halai purchased 138 partnership shares, and received
276 matching shares and 816 dividend shares at prices ranging between 1,105.17 pence and 1,649 pence per share, with an average price
of 1,330.83 pence.
Hedging of share awards
As a matter of policy the Group ensures that it holds the maximum potential number of shares granted under the LTIP and Deferred Share
Plan from the date of grant. Shares are purchased by the Employee Benefit Trust in the market as and when required to ensure that coverage
is maintained.
Pension arrangements (audited)
The Executive Directors receive pension benefits on the same percentage basis (12%) of their pensionable salaries as other employees
of the Company. During the year, they received salary supplements in lieu of pension of £18k (Mr Borrows), £45k (Mr Hatchley) and £31k
(Ms Halai) respectively.
Payments to past Directors (audited)
Mrs Wilson left the Board on 30 June 2022 and remained an employee until 30 September 2022. For the three months to 30 September 2022
she received regular salary, pension and benefits totalling £147k. As disclosed in last year’s annual report and accounts, Mrs Wilson did not
receive an FY23 annual bonus.
Payments for loss of office (audited)
No payments to Directors for loss of office were made in the year.
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Statement of Directors’ shareholding and share interests (audited)
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 and Chief Operating Officer. In addition, shareholding targets have been introduced for other members of the
Executive Committee at 1.5 times their gross salaries and for partners in the Group’s businesses at 1.0 times their gross salaries. Since 2018
non-executive Directors and the Chairman are required to build up over time and thereafter maintain a shareholding in the Company’s shares
equivalent to at least 1 times their respective annual base fees (cash and shares).
Executive Directors are expected to maintain a shareholding in the Company for two years post employment at the lower of their
shareholding at the time they leave employment and the levels set out above.
Details of Directors’ interests (including interests of their connected persons) in the Company’s shares as at 31 March 2023 are shown
in the table below. The closing share price on 31 March 2023 was 1,685 pence.
S A Borrows
J G Hatchley
J H Halai
D A M Hutchison
C J Banszky
S W Daintith
L M S Knox
P A McKellar
C McConville
A Schaapveld
Owned outright Deferred shares
16,289,972
309,240
72,514
760,745
128,553
49,939
Subject to
performance
421,887
103,804
65,149
Shareholding
requirement
300 %
200 %
200 %
Shares owned
outright
103,351
25,987
20,083
1,788
102,211
9,067
4,485
Shareholding
requirement
100 %
100 %
100 %
100 %
100 %
100 %
100 %
Current
shareholding
(% salary)
42,469
1,867
935
Current
shareholding
(% base fee)
535
642
496
44
2,523
224
111
• The share interests shown for Ms Halai 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.
• The number of shares shown includes the 2020 Performance Share award. The performance against the performance targets results in 100% of the shares being released as described on page 137.
• Directors are restricted from hedging their exposure to the 3i share price.
• From 1 April 2023 to 1 May 2023, Ms Halai became interested in a further 8 shares overall outright (SIP Partnership Shares) and a further 16 deferred shares (SIP Matching Shares). There were no other changes to Directors’ share
interests in that period.
Treatment of Julia Wilson’s share awards
As set out in the cover letter from the Remuneration Committee Chair accompanying the 2022 Directors’ remuneration report, Julia Wilson
retired during the year and has been treated as a good leaver for the purposes of outstanding incentive awards. The table below sets out
the awards she retains, and when they will be released to her (the LTIP shares continuing to be subject to performance). All awards will remain
subject to our malus and clawback policy. A shareholding in the Company is required for two years after leaving at the lower of the
shareholding at the time employment ends and the levels required while they were a Director (being 200% of salary for the Group Finance
Director).
Award Date
28 June 2018
7 June 2019
27 June 2019
4 June 2020
25 June 2020
4 June 2021
1 July 2021
1 June 2022
Award type
LTIP
Deferred Shares
LTIP
Deferred Shares
LTIP
Deferred Shares
LTIP
Deferred Shares
Shares
19,734
14,964
53,925
16,359
122,881
39,724
47,976
54,172
Subject to
performance
No
No
No
No
No
No
Yes
No
Release dates
June 2023
June 2023
50% June 2023 and June 2024
50% June 2023 and June 2024
June 2025
33% June 2023, 33% June 2024 and 34% June 2025
July 2026
25% June 2023, 2024, 2025 and 2026
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Performance graph – TSR graph
This graph compares the Company’s Total ShareholderReturn for the 10 financial years to 31 March 2023 with the Total Shareholder Return
of the FTSE 350 Index. The FTSE 350 Index is considered to be an appropriate comparator as it reflects both the variety of the Company’s
portfolio of international investments as well as the diverse currencies in which those investments are denominated.
3i Total Shareholder Return vs FTSE 350 total return over the 10 years to 31 March 2023
l 3i Group l FTSE 350
Rebased at 100 at 31 March 2013
Chief Executive’s single figure remuneration history (£’000)
l Fixed remuneration l Cash bonus l Deferred Share Award l Value of LTIP vesting at grant price l Additional LTIP value due to share price growth and dividends
3i Group plc | Annual report and accounts 2023
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2013201420152016201720182019202020212022202302004006008007216956816786666466289431,0459533834724584571,4141,5681,4295751,8871,8321,8272,5872,5501,7492,1922,3342,2662,2002,8773564982962,5181,6452,433FY2023FY2022FY2021FY2020FY2019FY2018FY2017
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Performance table
Table of historic Chief Executive data
Year
FY2023
FY2022
FY2021
FY2020
FY2019
FY2018
FY2017
FY2016
FY2015
FY2014
Relative importance of spend on pay
Remuneration of all employees
Dividends paid to shareholders
Chief Executive
S A Borrows
S A Borrows
S A Borrows
S A Borrows
S A Borrows
S A Borrows
S A Borrows
S A Borrows
S A Borrows
S A Borrows
Single figure of total
remuneration £’000
8,542
6,215
5,310
4,124
7,877
6,847
7,544
5,821
8,278
3,222
Percentage of
maximum
annual bonus paid
85 %
98 %
92 %
37 %
93 %
93 %
95 %
93 %
93 %
93 %
Percentage
of maximum
LTIP vesting
100 %
100 %
71 %
91 %
100 %
100 %
100 %
98 %
91 %
– %
FY2023
£97m
£485m
FY2022
£89m
£389m
Change %
9 %
25 %
Statement of implementation of the remuneration policy in the coming year
The table below sets out how the Committee intends to operate the remuneration policy in FY2024.
Policy element
Base salary
Pension
Implementation of policy during FY2024
Base salaries for employees will be increased by 7.5% for junior staff (40% of staff) and 3.75% for senior staff. The 3.75%
increase will also be applied to the Chief Executive and Group Finance Director. As set out in further detail in the
cover letter from the Remuneration Committee Chair, the base salary of the Chief Operating Officer will be increased
to reflect development in the role. Effective from 1 July 2023, salaries for the current Executive Directors will therefore
be as follows:
• Chief Executive: £719,240 (3.75%)
• Group Finance Director: £507,130 (3.75%)
• Chief Operating Officer: £363,350 (7.5%)
No changes to the current arrangements are proposed for FY2024 and a pension contribution or salary supplement
will be as follows:
• Chief Executive: £18k
• Group Finance Director: 12% of salary
• Chief Operating Officer: 12% of salary
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. Salary linkage was
removed in February 2023 and replaced with a time-limited cash allowance, which the Chief Operating Officer
receives, in line with other, similar affected staff.
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Policy element
Annual bonus
Benefits
Long-term
Incentive Plan
Implementation of policy during FY2024
The maximum annual bonus opportunities for FY2024 will remain unchanged, in line with the remuneration policy,
as follows:
• Chief Executive: 400% of salary
• Group Finance Director: 250% of salary
• Chief Operating Officer: 225% 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.
The Committee has agreed that the scorecard for the year will be driven 70% by quantitative financial targets around
portfolio returns and similar metrics, with the balance measured against a series of investment management, ESG,
strategic and people goals.
The Committee considers that the specific targets and expectations contained within the FY2024 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 out-turns.
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.
No changes to the current arrangements are proposed for FY2024.
Benefits will continue to include a car allowance, provision of health insurance and any Share Incentive Plan matching
share awards.
Awards under the Long-term Incentive Plan in FY2024 will remain unchanged and be made as follows:
• Chief Executive: 400% of salary
• Group Finance Director: 250% of salary
• Chief Operating Officer: 225% of salary
Performance will be measured over a three-year period and will be determined by the Remuneration Committee.
Performance measures remain 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% pa TSR;
• 20% vesting at 10% pa TSR;
• straight-line vesting between 10% and 18% pa TSR; and
• 100% vesting at 18% pa 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.
Total shareholder returns are calculated based on the average closing share price over the first three months
of the calendar year.
Awards are subject to the Company’s malus and clawback policy.
To the extent that shares vest, awards are subject to a holding period whereby they are released on or around
(but not earlier than) fifth anniversary of grant.
The Chief Executive, Group Finance Director and Chief Operating Officer do not participate in carried interest plans
or similar arrangements.
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Policy element
Shareholding
requirements
Non-executive
Director fees
Implementation of policy during FY2024
Shareholding requirements will be as follows:
• Chief Executive: 300% of salary
• Group Finance Director: 200% of salary
• Chief Operating Officer: 200% of salary
• Non-executive Directors (including the Company Chairman): 100% of base fee (cash and shares)
• Executive Directors will be expected to maintain a shareholding in the Company for two years post employment
at the lower of their shareholding at the time they leave employment and of the levels set out above. Deferred
bonus awards and shares to be released under the Long-term Incentive Plan may be reduced or withheld if the
post-employment shareholding targets for the Executive Directors are not met.
The base fees for the non-executive Directors have increased by 3% and in FY2024 will be:
Chairman fee:
Non-executive Directors:
Board membership base fee:
Senior Independent Director fee:
Committee Chairman:
Committee member:
£259,500 plus £75,700 in 3i shares
£54,000 plus £16,250 in 3i shares
£10,000
£20,000
£8,000
Malus and
clawback policy
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 may be
forfeited or reduced in exceptional circumstances on such basis as the Committee considers to be fair, reasonable
and proportionate taking into account an individual’s role and responsibilities. Such exceptional circumstances
include:
(1) a material misstatement in the financial statements of the Company or Group or any Member of the Group; or
(2) where an individual has caused, wholly or in part, a material loss for the Group as a result of:
(i) reckless, negligent or wilful actions or omissions; or
(ii) inappropriate values or behaviour.
(3) an error in assessing any applicable Performance Conditions or the number of shares;
(4) the assessment of any applicable Performance Conditions and/or the number of shares to be released being
based on inaccurate or misleading information;
(5) misconduct on the part of the individual concerned;
(6) a Member of the Group is censured by a regulatory body or suffers a significant detrimental impact on its
reputation, provided that the Committee determines that the individual was responsible for, or had management
oversight over, the actions, omissions or behaviour that gave rise to that censure or detrimental impact; or
(7) the Company (or entities representing a material proportion of the Group) becomes insolvent or otherwise suffers
a corporate failure so that ordinary shares in the Company cease to have material value, provided that the
individual is responsible (in whole or in part) for that insolvency or failure.
In exceptional circumstances (and on such basis as the Committee considers fair, reasonable and proportionate taking
into account an individual’s role and responsibilities), 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. In arriving at its decision,
the Committee will take into consideration such evidence as it may reasonably consider relevant including as to
the impact of the affected individual’s conduct, values or behaviours on the material misstatement or material loss,
as the case may be.
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Remuneration Committee advisers
The Committee appointed Deloitte LLP as advisers in 2013 and during the year they provided the Committee with external, independent
advice.
Deloitte LLP 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 £63,500 (excluding VAT) (2022: £37,200 (excluding VAT)).
Result of voting at the 2020 and 2022 AGM
At the 2022 AGM, shareholders approved the Remuneration report that was published in the 2022 Annual report and accounts. At the 2020
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 2022 AGM
Votes for
Votes against
698,465,310
50,874,149
93.21 %
6.79 %
Total votes cast
749,339,459
Votes withheld
222,221
Approval of the Directors’ remuneration policy at the 2020 AGM
716,053,723
43,782,598
759,836,321
2,395,365
94.24 %
5.76 %
Audit
The tables in this report (including the Notes thereto) on pages 133 to 144 marked as “audited” have been audited by KPMG.
By order of the Board
Coline McConville
Chair, Remuneration Committee
10 May 2023
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Directors’ remuneration policy
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 2023 Annual General Meeting. This policy will be put forward for shareholder approval at the 2023 Annual
General Meeting in accordance with section 439A of the Companies Act 2006.
Changes to the policy operated in FY2023: No material changes
In developing the revised remuneration policy the Committee followed a robust process which included discussions on the content
of the policy at three Remuneration Committee meetings. The Committee considered input from management and from its independent
remuneration advisers and assessed the Policy against the provisions of the UK Corporate Governance Code. We have made no material
changes to the policy. Minor changes have been made to provide the Committee with flexibility to implement the policy as intended over
its term and align with best practice. Minor changes have also been made to the policy to reflect Jasi Halai joining the Board.
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 both to
support retention
and recruit people
of the necessary
calibre.
Operation
Opportunity
Performance metrics
• 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.
• Participation in the defined contribution
pension scheme (3i Retirement Plan)
or cash equivalent.
• 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. Salary linkage was removed
in February 2023 and replaced with
a time-limited cash allowance in line
with other, similarly affected staff.
• Whilst there is no maximum
salary level, increases are
generally considered in the
context of those awarded
to other employees and the
wider market.
• 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.
• 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.
• Executive Directors receive
• n/a
a pension contribution or cash
allowance of up to 12% of
pensionable salary. The pension
policy for Executive Directors
is identical to the pension policy
for other employees.
• 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 on remuneration
for the year.
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Purpose and link to
strategic objectives
Benefits
Operation
Opportunity
Performance metrics
• To provide market
• Executive Directors are entitled to
competitive
benefits at the
level needed to
attract and retain
high-performing
people.
• To provide health
benefits to
support the well-
being of
employees.
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.
a combination of benefits, including,
but not limited to, non-pensionable
car allowance, private medical insurance,
an annual health assessment and life
assurance.
• The Remuneration Committee may
remove benefits that Executive Directors
receive or introduce other benefits if it
is appropriate to do so.
• 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. Awards are typically determined
by the Committee after the year end
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 in
exceptional circumstances.
• Participants receive the value of
dividends in cash or shares 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 148).
• n/a
• Whilst there is no maximum level
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.
• Maximum bonus of 400% of
salary for the Chief Executive.
• Maximum bonus of 250% of
salary for the Group Finance
Director.
• Maximum bonus of 225% of
salary for the Chief Operating
Office.
• 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.
• The Committee has discretion
to adjust the annual bonus
outcomes, both upwards and
downwards (where significant
adjustment is required), to ensure
the outcome is a fair reflection
of the overall performance of
the Company and the individual.
• Details of the annual performance
targets/expectations (and
performance against them)
are shown within the Annual
report on remuneration.
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Purpose and link to
strategic objectives
Long-term Incentive Plan
Operation
Opportunity
Performance metrics
• Alignment of
• All performance targets, along with
• Awards granted in respect of
• The scorecard will contain at least
reward with long-
term, sustainable
Company
performance and
the creation of
shareholder value
over the longer
term.
• The selection
of absolute and
relative return
targets for
shareholder
returns ensures
participants’ and
shareholders’
interests remain
aligned
irrespective of
market conditions.
relative weightings, are reviewed and set
by the Committee prior to awards being
made.
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.
• Awards granted in respect of
a financial year will have a face
value of up to 225% of salary
for the Chief Operating Officer.
• 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.
• 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
in exceptional circumstances.
• Awards vest subject to the Group’s
achievements against the performance
targets over a fixed three-year period.
• To the extent that shares vest, awards
are subject to a holding period whereby
they are released on or around (but not
earlier than) the fifth anniversary 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.
• Awards are subject to the malus/
clawback policy (as set out on the next
page).
two measures of shareholder
return, including at least one
absolute and one market/peer
group relative measure together
with any other metrics the
Committee feel are applicable
at the time of grant.
• The achievement against these
targets is measured over a three-
year period and is determined
by the Committee.
• The Committee has discretion
to adjust the formulaic LTIP
outcomes, both upwards and
downwards (where significant
adjustment is required), to ensure
the outcome is a fair reflection
of the performance of the
Company and the individual.
• The Committee can reduce
any award which would otherwise
vest if gross debt or gearing limits
are breached.
• Details of the current
performance conditions
are shown within the Annual
report on remuneration.
Shareholding requirements
• The shareholding targets for
the Executive Directors are:
• n/a
• Chief Executive – 3.0 times salary
• Group Finance Director –
2.0 times salary
• Chief Operating Officer –
2.0 times salary
• Executive Committee members
have a target of 1.5 times salary
and selected “partners”
1.0 times salary.
• 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.
• Post cessation of employment,
Executive Directors are also expected
to remain aligned with the interests
of shareholders for a period after leaving
the Company, save for in exceptional
circumstances. Details of this policy are
set out in the Annual report of
remuneration.
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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.
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 the 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
The Group’s Long-term Incentive Plan, approved by shareholders on 4 July 2001, 6 July 2011 and 25 June 2020, prohibits the Chief Executive
and Group Finance Director from participating in carried interest plans and similar arrangements. In addition, the Committee’s policy is that
no current Executive Director will benefit from these arrangements.
Malus/clawback policy
Long-term incentive awards and deferred bonus share awards that have not been delivered to Executive Directors, may be forfeited
or reduced in exceptional circumstances on such basis as the Committee considers to be fair, reasonable and proportionate taking into
account an individual’s role and responsibilities. Such exceptional circumstances include:
(1) a material misstatement in the financial statements of the Company or Group or any Member of the Group; or
(2) where an individual has caused, wholly or in part, a material loss for the Group as a result of:
reckless, negligent or wilful actions or omissions; or
(i)
(ii) inappropriate values or behaviour.
(3) an error in assessing any applicable Performance Conditions or the number of shares;
(4) the assessment of any applicable Performance Conditions and/or the number of shares to be released being based on inaccurate
or misleading information;
(5) misconduct on the part of the individual concerned;
(6) a Member of the Group is censured by a regulatory body or suffers a significant detrimental impact on its reputation, provided that the
Committee determines that the individual was responsible for, or had management oversight over, the actions, omissions or behaviour
that gave rise to that censure or detrimental impact; or
(7) the Company (or entities representing a material proportion of the Group) becomes insolvent or otherwise suffers a corporate failure
so that ordinary shares in the Company cease to have material value, provided that the individual is responsible (in whole or in part)
for that insolvency or failure.
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.
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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
• 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.
Opportunity
• 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 Chair
• Committee membership
• Committee fees are payable in respect of the Audit
and Compliance Committee, Remuneration
Committee, Valuations Committee and other
Committees where appropriate.
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. Where necessary relocation costs (including any tax) will be paid together
with any legal fees or other costs incurred by the individual in relation to their appointment.
It may be necessary to compensate the new Executive Director for remuneration terms 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 judgement, as set out above, 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 buyout arrangements.
For both internal and external appointments, it may be deemed appropriate, in order to attract and compensate a new Executive Director,
to buy out awards held in carried interest or other asset-related incentive arrangements. The Committee’s intention is that any such buyout
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.
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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
• Mr J Hatchley – 12 May 2022
• Ms J Halai – 12 May 2022
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 Committee may also make a payment in respect of outplacement costs and legal fees
where appropriate.
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 were otherwise approved by shareholders; or (iii) at a time when
the relevant individual was not a Director of the Company (or other person to whom this policy applied) and, in the opinion of the Committee,
the payment was not in consideration for the individual becoming a Director of the Company or such other person. 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. This policy applies equally to any individual who is required to be treated
as a Director under the applicable regulations.
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Plan
Deferred share
awards
Long-term
Incentive Plan
Good leaver categories
• 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)
Good leaver treatment1
• Awards vest in full on
the normal vesting date.
• On death, awards vest
in full immediately.
Bad leaver treatment1
• Unvested awards lapse in full.
• Vested awards structured as
options may be exercised for three
months following the participant’s
cessation of employment.
• 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.
• 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
Deferred share awards will generally vest early on a takeover, merger or other corporate reorganisation. Alternatively, participants may be
allowed or required to exchange their awards for new awards.
Long-term Incentive Plan awards will generally vest early on a takeover, merger or other corporate reorganisation. Alternatively, participants
may be allowed or required to exchange their awards for new awards. Where an award vests early in these circumstances, the Committee will
determine the level of vesting based on performance to that date and the proportion of the performance period that has passed.
Scenarios
Chief Executive (£’000)
Finance Director (£’000)
Share price
growth
10%
36%
54%
7,945
Share price
growth
16%
34%
50%
3,751
Maximum
12%
44%
44%
6,507
Maximum
18%
41%
41%
3,117
Actual
FY2023
13%
39%
48%
5,987
Actual
FY2023
21%
33%
46%
2,771
Minimum
100% 753
Minimum
100% 582
l Fixed remuneration
l Annual bonus (including deferred element)
l Long-term incentive
l Fixed remuneration
l Annual bonus (including deferred element)
l Long-term incentive
Chief Operating Officer (£’000)
The assumptions made in preparing these graphs are that:
Share price
growth
17%
33%
50%
2,466
• Minimum – this includes only the fixed elements of pay, being base
salary, benefits and pension;
Maximum
20%
40%
40%
2,058
• Actual – this represents the remuneration received by each
Actual
FY2023
23%
32%
45%
1,813
Minimum
100% 423
l Fixed remuneration
l Annual bonus (including deferred element)
l Long-term incentive
3i Group plc | Annual report and accounts 2023
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
• Share price growth – this is calculated as the fixed elements and
the maximum annual bonus and Long-term Incentive Plan awards
(assuming a 50% share price appreciation).
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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:
• the range of 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 the range 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.
Consideration of shareholder views
The Committee has remained engaged with shareholders during the period since 2020, 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
Coline McConville
Chair, Remuneration Committee
10 May 2023
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Additional statutory and corporate governance information
This section of the Directors’ report contains the
corporate governance statement required by FCA
Disclosure Guidance and Transparency Rule 7.2.
Corporate governance
The Corporate Governance Code to which the Company is subject
is the UK Corporate Governance Code (the “Code”) which
was published by the FRC in July 2018 and which is available on
the FRC website.
Details on the Company’s compliance with the Code and an
explanation as to why the Company has not complied throughout
the year with provision 19 of the Code in respect of Chairman tenure
are set out in the Corporate Governance statement on pages 101
and 102 and in the report on the Nomination Committee’s review
of Chairman tenure on page 113.
The Group’s internal control and risk management systems, including
those in relation to the financial reporting process, are described
in the Risk management section on pages 78 to 91 and in the Audit
and Assurance policy on pages 119 to 122.
Directors and independence
Directors’ biographical details are set out on page 97. The Board
currently comprises the Chairman, six non-executive Directors and
three Executive Directors. Mr D A M Hutchison (Chairman), Ms C J
Banszky, Mr S A Borrows, Mr S W Daintith, Ms L M S Knox, Mr P A
McKellar, Ms C L McConville and Ms A Schaapveld all served as
Directors throughout the year under review. Mr J G Hatchley and
Ms J H Halai joined the Board on 12 May 2022 and they both
remained in office for the remainder of the year. Mrs J S Wilson
served as a Director throughout the year until her retirement from
the Board on 30 June 2022.
The Board regularly considers the independence of non-executive
Directors. The Board considers all of the Company’s non-executive
Directors to be independent. The Chairman was independent on
appointment as Chairman.
Investment policy
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. The
current policy is set out below. No changes have been made to
the policy since it was published in the Company’s 2018
Report and Accounts.
• 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 cost1
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 portfolio business provided the aggregate
cost of that investment and of all other unrealised investments
in that portfolio business 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.
1 Where 3i makes an investment in an existing portfolio business as part of a restructuring or reorganisation of its investment in that existing portfolio business (which restructuring or reorganisation may involve, without
limitation, 3i disposing of all or part of its existing investment in the relevant portfolio business and reinvesting all or part of the proceeds into a different entity which acquires or holds the relevant portfolio business or a
substantial part thereof), the cost of that investment, for the purposes of determining the maximum exposure limit under this policy, shall, to the extent that the investment does not increase 3i’s exposure to the relevant
portfolio business, be deemed to be the cost of 3i’s existing investment in the relevant portfolio business (or, in the case of a partial reinvestment, the pro-rated cost of 3i’s existing investment in the relevant portfolio
business) immediately prior to the restructuring or reorganisation. If 3i’s investment includes a further investment, such that 3i increases its overall exposure to the relevant portfolio business as part of the restructuring
or reorganisation, the cost of any such further investment at the date of such investment shall be added to the cost of the investment in the existing portfolio business as determined pursuant to the previous sentence.
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Appointment and re-election of Directors
Subject to the Company’s Articles of Association, the Companies
Acts and satisfactory performance evaluation, non-executive
Directors are appointed for an initial 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 all Directors to
retire from office at every Annual General Meeting of the Company
although they may offer themselves for reappointment by the
shareholders.
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 re-appointment. 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.
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 97 to 152. 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 2022, 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 2023 AGM are
set out in the 2023 Notice of AGM.
The Board’s diversity policies in relation to Directors are described
in the Nominations Committee report on page 110 and such policies
in relation to employees are described on page 156.
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.
Rights and restrictions attaching to shares
A summary of the rights and restrictions attaching to shares
as at 31 March 2023 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 that 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).
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Additional statutory and corporate governance information continued
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.
Share capital and debentures
The issued ordinary share capital of the Company as at 1 April 2022
was 973,238,638 ordinary shares and at 31 March 2023 was
973,312,950 ordinary shares of 7319∕22 pence each. It increased
over the year by 74,312 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 2022, the
Directors were authorised to repurchase up to 97,000,000 ordinary
shares in the Company (representing approximately 10% of the
Company’s issued ordinary share capital as at 11 May 2022) until
the Company’s AGM in 2023 or 29 September 2023, if earlier.
This authority was not exercised in the year. Details of the authorities
which the Board will be seeking at the 2023 AGM are set out
in the 2023 Notice of AGM.
As at 31 March 2023 the Company had sterling fixed rate notes
in issue as detailed in Note 17 to the accounts.
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.
Where appropriate, the Company looks to the provisions included
within the Association of Investment Companies SORP.
Major interests in ordinary shares
The table below shows notifications of major voting interests in
the Company’s ordinary share capital (notifiable in accordance with
Chapter 5 of the FCA’s Disclosure Guidance and Transparency Rules
or section 793 Companies Act 2006) which had been received
by the Company as at 31 March 2023 and 20 April 2023.
As at
31 March
2023
34,324,935
% of
issued
share
capital
3.53 34,175,832
As at
20 April
2023
% of
issued
share
capital
3.51
97,162,296
29,296,147
9.98 111,171,740 11.42
2.88
3.01 28,048,580
43,104,309
4.43 43,104,309
4.43
Artemis Investment
Management LLP
BlackRock, Inc
Legal & General
Investment
Management Limited
Vanguard Group Inc
3i Investments plc
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 seven AIFs,
including the Company and 3i Infrastructure plc. In compliance
with regulatory requirements, 3i Investments plc has ensured that
a depository has been appointed for each AIF. This is Citibank
UK Limited.
The Annual report and accounts meet certain 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 (“FUND Disclosures”)
for the Company as a standalone entity. The Company’s profit for
the year is stated in its Company statement of changes in equity
on page 165 and its financial position is shown on page 164.
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 the Company on a solo basis. This is because
the Company 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 disclosures required to be made
under FUND 3.2.2R in the past year.
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Additional statutory and corporate governance information continued
Although certain FUND Disclosures are made in this Annual report,
full disclosures are summarised on the 3i website at www.3i.com.
This will be updated as required and changes noted in future
Annual reports.
For the purposes of the FUND Disclosures set out in FUND 3.3.5(R)
(5) and (6), the total amount of remuneration paid by the AIFM to its
staff for the year to 31 March 2023 was £200 million, of which
£45 million was fixed remuneration and £155 million was variable
remuneration. The total number of beneficiaries is 241.
The aggregate total remuneration paid to AIFM Remuneration
Code Staff for the year to 31 March 2023 was £66 million, of which
£54 million was paid to senior management and £12 million was paid
to other AIFM Remuneration Code Staff. A summary of the
remuneration policy of 3i can be found on the Company’s website.
Dividends
A first FY2023 dividend of 23.25 pence per ordinary share in respect
of the year to 31 March 2023 was paid on 11 January 2023.
The Directors recommend a second FY2023 dividend of 29.75 pence
per ordinary share be paid in respect of the year to 31 March 2023
to shareholders on the Register at the close of business
on 23 June 2023.
The trustee of The 3i Group Employee Trust and the trustee
of the 2010 Carry Trust have each waived (subject to certain minor
exceptions) dividends declared on shares in the Company held
by those trusts 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, external
appointments and 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.
The Board has adopted a policy on Directors’ other appointments
under which additional external appointments should not be
undertaken without prior approval of the Board. Executive Directors
should not take on more than one non-executive directorship in
a FTSE 100 company or other significant appointment.
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 Qualifying Pension Scheme Indemnity Provisions for the benefit
of the directors of one associated company, Gardens Pension
Trustees Limited.
Directors’ employment contracts
Mr S A Borrows, Ms J H Halai and Mr J G Hatchley 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. Further details
on equal opportunities and diversity are included in the Strategic
report on pages 52 to 53 and in the Nominations Committee report
on pages 110 and 111.
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 employee 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. Members of the Board
have regular formal and informal interaction with a significant number
of 3i employees, including through office visits and one-to-one
meetings.
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 employees 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 line 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.
3i Group plc | Annual report and accounts 2023
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Additional statutory and corporate governance information continued
Employees are able to raise in confidence with the Company any
matters of concern. Issues can be raised with line management, the
Internal Audit team and the Human Resources team as appropriate.
Employees can also raise matters with an externally run confidential
telephone reporting line, and can do so anonymously if they wish.
Matters raised are investigated and followed up as appropriate.
The Board monitors any matters reported to the externally run
telephone reporting line through an annual report to Audit and
Compliance Committee from Internal Audit.
Workforce engagement
The Company has a Staff Engagement strategy which has been
adopted by the Board as the most appropriate way for the Company
to comply with the relevant requirements of the UK Corporate
Governance Code. This is in preference to adopting one of the three
workforce engagement examples specifically mentioned in the UK
Corporate Governance Code. The Board believes this Strategy is
appropriate and proportionate in the context of an office-based
workforce with in the region of 250 employees worldwide, all of
whom engage regularly with members of senior management.
Senior management and members of the Board meet formally
and informally with staff in a variety of contexts including office visits,
investment reviews, Board and Committee presentations and Board
dinners with investment teams. A general “open door” policy
(whether physically or virtually) adopted by senior management
encourages interaction with staff. The Human Resources team
are a point of contact for all members of staff and they as well as line
managers report issues requiring management attention to senior
management as they occur. The Internal Audit and Group
Compliance teams consider employee matters including culture,
compliance with the Company’s values and staff turnover in their
reports to senior management. The formal annual appraisal process
provides a further opportunity for engagement.
During the year the Board visited 3i’s Amsterdam office and met
formally and informally with the Amsterdam team. Directors receive
updates on employee matters in presentations from the business line
heads as well as from the Chief Human Resources Officer in the
annual Board consideration of the Group Succession Planning and
Strategic Capability Review. Committee Chairs held a number of
private and other meetings with function heads during the year.
Non-executive Directors also meet with a wide range of members
of the investment teams at the twice-yearly PCR meetings.
Diversity and inclusion policy
Details of the Company’s approach to diversity and inclusion are set
out under the heading Employment on page 156, in the Sustainability
section on pages 52 and 53 and in the Nomination Committee
report on pages 110 and 111.
Political donations
In line with Group policy, during the year to 31 March 2023
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 2023, 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 £900 million
multi-currency Revolving Credit Facility Agreement dated 13 March
2020, between the Company, Barclays Bank PLC and a number of
other banks. The Company is required to promptly notify Barclays
Bank PLC, as agent bank, of a change of control. This opens a 20-day
negotiation period to determine if each lender is willing to continue
participating in the facility. For any lender with whom no agreement
is reached, amounts outstanding to that lender would be repayable
and their commitment cancelled, with no less than 10 business days’
notice after the end of the negotiation period.
Internal control and risk management systems
A description of the Group’s internal control and risk management
systems in relation to the financial reporting process is set out in the
Risk management section on pages 78 to 91 and in the Audit and
Assurance policy on pages 119 to 122.
Going concern
The Directors have acknowledged their responsibilities in relation
to the financial statements for the year to 31 March 2023.
After making enquiries, the Directors considered it appropriate
to prepare the financial statements of the Company, and the Group,
on a going concern basis. The Viability statement is included
on pages 124 and 125.
Audit information
Pursuant to section 418(2) of the Companies Act 2006, each
of the Directors confirms that:
• so far as they are aware, there is no relevant audit information
of which the Company’s Auditor is unaware; and
• 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 re-appointment of KPMG LLP as the
Company’s Auditor will be put to members at the forthcoming AGM.
Information required by Listing Rule 9.8.4
Information required by Listing Rule 9.8.4 not included in this section
of the Directors’ report may be found as set out below:
Topic
Capitalised interest
Share allotments
Location
Portfolio income on page 69
Note 20 on page 189
3i Group plc | Annual report and accounts 2023
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Additional statutory and corporate governance information continued
Information included in the 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; engagement with
suppliers, customers and others; employee involvement; and
greenhouse gas emissions. The Directors’ Viability statement
is also shown in the Strategic report on pages 124 and 125.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual report
and the Group and parent Company financial statements for each
financial year in accordance with applicable United Kingdom law
and regulations. They are required to prepare the Group financial
statements in accordance with UK adopted international accounting
standards and applicable law and have elected to prepare the parent
Company financial statements on the same basis.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic report, Directors’ report,
Directors’ remuneration report and Corporate governance statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement of the Directors in respect
of the Annual financial report
The Directors confirm that to the best of their knowledge:
• the financial statements, prepared in accordance with the
applicable set of 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
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent Company and of their
profit or loss for that period. In preparing each of the Group and
parent Company financial statements, the Directors are required to:
• 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.
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable, relevant
and reliable;
The Directors consider this Annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
• state whether they have been prepared in accordance with UK-
adopted international accounting standards and applicable law;
The Directors of the Company and their functions are listed
on page 97.
• assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related
to going concern; and
• use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent Company and enable them to ensure
that its financial statements comply with the Companies Act 2006.
They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error, and
have 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.
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 Governance section on pages
94 to 158 other than the Directors’ remuneration report on pages 131
to 152.
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
10 May 2023
Registered office:
16 Palace Street
London SW1E 5JD
3i Group plc | Annual report and accounts 2023
158
What’s in this section
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
KPMG LLP’s independent auditor’s report
160
161
162
163
164
165
166
167
171
208
3i Group plc | Annual report and accounts 2023
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Overview
and strategy
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Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Consolidated statement of comprehensive income
for the year to 31 March
Realised 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
Movement in the fair value of derivatives
Gross investment return
Fees receivable from external funds
Operating expenses
Interest receivable
Interest payable
Exchange movements
Income from investment entity subsidiaries
Other (expense)/income
Operating profit before carried interest
Carried interest
Carried interest and performance fees receivable
Carried interest and performance fees payable
Operating profit before tax
Tax charge
Profit for the year
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations
Other comprehensive income that will not be reclassified to the income statement
Re-measurements of defined benefit plans
Other comprehensive income for the year
Total comprehensive income for the year ("Total return")
Earnings per share
Basic (pence)
Diluted (pence)
The Notes to the accounts section forms an integral part of these financial statements.
Notes
2
3
12
4
18
4
5
14
15
8
26
9
9
2023
£m
64
1,897
2,112
229
29
10
203
122
4,666
70
(137)
4
(54)
(6)
30
(1)
4,572
41
(38)
4,575
(2)
4,573
4
8
12
4,585
475.0
473.8
2022
£m
89
1,781
1,974
206
30
6
(9)
2
4,079
62
(127)
–
(53)
16
32
2
4,011
53
(46)
4,018
(5)
4,013
(1)
2
1
4,014
415.4
414.3
3i Group plc | Annual report and accounts 2023
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Overview
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Business
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Sustainability
Performance
and risk
Governance
Audited financial
statements
Portfolio and
other information
Consolidated statement of financial position
as at 31 March
Notes
2023
£m
2022
£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
Right of use asset
Derivative financial instruments
Deferred income taxes
Total non-current assets
Current assets
Carried interest and performance fees receivable
Other current assets
Current income taxes
Derivative financial instruments
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
Derivative financial instruments
Retirement benefit deficit
Lease liability
Deferred income taxes
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Carried interest and performance fees payable
Loans and borrowings
Derivative financial instruments
Lease liability
Current income taxes
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 to the accounts section forms an integral part of these financial statements.
David Hutchison
Chairman
10 May 2023
3i Group plc | Annual report and accounts 2023
11,13
11,13
12,13
14
16
26
18
8
14
16
18
19
15
17
18
26
8
19
15
17
18
20
27
21
841
8,677
7,844
17,362
3
30
5
53
3
9
73
–
17,538
40
30
1
48
162
281
17,819
(4)
(43)
(775)
(3)
(20)
(5)
(1)
(4)
(855)
(76)
(34)
–
(1)
(5)
(4)
(120)
(975)
16,844
719
790
43
31
(2)
14,044
1,327
(108)
16,844
934
5,708
6,791
13,433
9
45
6
53
3
13
7
1
13,570
51
104
1
10
212
378
13,948
(14)
(42)
(775)
–
(26)
(9)
(1)
(3)
(870)
(80)
(35)
(200)
–
(5)
(4)
(324)
(1,194)
12,754
719
789
43
33
(6)
10,151
1,125
(100)
12,754
161
Overview
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Business
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Sustainability
Performance
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Governance
Audited financial
statements
Portfolio and
other information
Consolidated statement of changes in equity
for the year to 31 March
2023
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
Total comprehensive income for the year
Share-based payments
Release on exercise/forfeiture of share awards
Exercise of share awards
Ordinary dividends
Purchase of own shares
Issue of ordinary shares
Total equity at the end of the year
1 Refer to Note 20 for the nature of the capital and revenue reserves.
2022
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
Total comprehensive income for the year
Share-based payments
Release on exercise/forfeiture of share awards
Exercise of share awards
Ordinary dividends
Purchase of own shares
Issue of ordinary shares
Total equity at the end of the year
1 Refer to Note 20 for the nature of the capital and revenue reserves.
Share
capital
£m
719
–
Share
premium
£m
789
–
Capital
redemption
reserve
£m
43
–
Share-
based
payment
reserve
£m
33
–
Translation
Capital
reserve1
reserve
£m
£m
(6) 10,151
4,064
–
Revenue
reserve1
£m
1,125
509
Own
shares
£m
Total
equity
£m
(100) 12,754
4,573
–
–
–
–
–
–
–
–
–
–
719
–
–
–
–
–
–
–
–
1
790
–
–
–
–
–
–
–
–
–
43
–
–
–
19
(21)
–
–
–
–
31
4
–
4
–
–
–
–
–
–
–
8
4,072
–
–
(22)
(157)
–
–
(2) 14,044
–
–
509
–
21
–
(328)
–
–
1,327
–
–
–
–
–
22
–
(30)
–
4
8
4,585
19
–
–
(485)
(30)
1
(108) 16,844
Share
capital
£m
719
–
Share
premium
£m
788
–
Capital
redemption
reserve
£m
43
–
Share-
based
payment
reserve
£m
34
–
Translation
reserve
£m
(5)
–
–
–
–
–
–
–
–
–
–
719
–
–
–
–
–
–
–
–
1
789
–
–
–
–
–
–
–
–
–
43
–
–
–
18
(19)
–
–
–
–
33
(1)
–
(1)
–
–
–
–
–
–
(6)
Capital
reserve1
£m
6,733
3,547
–
2
3,549
–
–
(18)
(113)
–
–
10,151
Revenue
reserve1
£m
916
466
–
–
466
–
19
–
(276)
–
–
1,125
Own
shares
£m
(64)
–
–
–
–
–
–
18
–
(54)
–
(100)
Total
equity
£m
9,164
4,013
(1)
2
4,014
18
–
–
(389)
(54)
1
12,754
The Notes to the accounts section forms an integral part of these financial statements.
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Consolidated cash flow statement
for the year to 31 March
Cash flow from operating activities
Purchase of investments
Proceeds from investments
Amounts paid to investment entity subsidiaries
Amounts received 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
Operating expenses paid
Co-investment loans received/(paid)
Tax received
Interest received
Net cash flow from operating activities
Cash flow from financing activities
Issue of shares
Purchase of own shares
Dividend paid
Repayment of long-term borrowing
Lease payments
Interest paid
Net cash flow from financing activities
Cash flow from investing activities
Purchases of property, plant and equipment
Net cash flow from investing activities
Change in cash and cash equivalents
Cash and cash equivalents at the start of the year
Effect of exchange rate fluctuations
Cash and cash equivalents at the end of the year
The Notes to the accounts section forms an integral part of these financial statements.
Notes
14
15
21
10
17
17
2023
£m
(46)
227
(535)
841
23
12
223
5
67
58
(29)
(128)
5
–
4
727
1
(30)
(485)
(200)
(5)
(54)
(773)
(1)
(1)
(47)
212
(3)
162
2022
£m
(324)
294
(349)
685
11
3
204
9
68
10
(14)
(105)
(3)
1
–
490
1
(54)
(389)
–
(4)
(52)
(498)
–
–
(8)
216
4
212
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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
Derivative financial instruments
Total non-current assets
Current assets
Carried interest and performance fees receivable
Other current assets
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Loans and borrowings
Derivative financial instruments
Total non-current liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Derivative financial instruments
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 2023 is £4,538 million (2022: £3,925 million).
The Notes to the accounts section forms an integral part of these financial statements.
David Hutchison
Chairman
10 May 2023
Notes
2023
£m
2022
£m
11,13
11,13
14
23
16
18
14
16
18
17
18
19
17
18
20
27
21
841
8,677
9,518
81
7,867
16
73
17,555
17
9
48
128
202
17,757
(775)
(3)
(778)
(728)
–
(1)
(729)
(1,507)
16,250
719
790
43
31
14,563
212
(108)
16,250
934
5,708
6,642
62
6,801
24
7
13,536
26
89
10
188
313
13,849
(775)
–
(775)
(667)
(200)
–
(867)
(1,642)
12,207
719
789
43
33
10,577
146
(100)
12,207
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Company statement of changes in equity
for the year to 31 March
2023
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 awards
Exercise of share awards
Ordinary dividends
Purchase of own shares
Issue of ordinary shares
Total equity at the end of the year
1 Refer to Note 20 for the nature of the capital and revenue reserves.
2022
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 awards
Exercise of share awards
Ordinary dividends
Purchase of own shares
Issue of ordinary shares
Total equity at the end of the year
1 Refer to Note 20 for the nature of the capital and revenue reserves.
Share
capital
£m
719
–
–
–
–
–
–
–
–
719
Share
capital
£m
719
–
–
–
–
–
–
–
–
719
Share
premium
£m
789
–
–
–
–
–
–
–
1
790
Capital
redemption
reserve
£m
43
–
–
–
–
–
–
–
–
43
Share
premium
£m
788
–
–
–
–
–
–
–
1
789
Capital
redemption
reserve
£m
43
–
–
–
–
–
–
–
–
43
Share-
based
payment
reserve
£m
33
–
–
19
(21)
–
–
–
–
31
Share-
based
payment
reserve
£m
34
–
–
18
(19)
–
–
–
–
33
Capital
reserve1
£m
10,577
4,165
4,165
–
–
(22)
(157)
–
–
14,563
Capital
reserve1
£m
7,109
3,599
3,599
–
–
(18)
(113)
–
–
10,577
Revenue
reserve1
£m
146
373
373
–
21
–
(328)
–
–
212
Revenue
reserve1
£m
77
326
326
–
19
–
(276)
–
–
146
Own
shares
£m
(100)
–
–
–
–
22
–
(30)
–
(108)
Own
shares
£m
(64)
–
–
–
–
18
–
(54)
–
(100)
Total
equity
£m
12,207
4,538
4,538
19
–
–
(485)
(30)
1
16,250
Total
equity
£m
8,706
3,925
3,925
18
–
–
(389)
(54)
1
12,207
The Notes to the accounts section forms an integral part of these financial statements.
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Company cash flow statement
for the year to 31 March
Cash flow from operating activities
Purchase of investments
Proceeds from investments
Amounts received from subsidiaries
Amounts paid to subsidiaries
Net cash flow from derivatives
Portfolio interest received
Portfolio dividends received
Portfolio fees paid
Carried interest and performance fees received
Co-investment loans received/(paid)
Interest received
Tax received
Net cash flow from operating activities
Cash flow from financing activities
Issue of shares
Purchase of own shares
Dividend paid
Repayment of long-term borrowing
Interest paid
Net cash flow from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at the start of the year
Effect of exchange rate fluctuations
Cash and cash equivalents at the end of the year
The Notes to the accounts section forms an integral part of these financial statements.
Notes
14
21
10
17
2023
£m
(46)
227
1,034
(805)
23
12
223
(1)
34
5
3
–
709
1
(30)
(485)
(200)
(54)
(768)
(59)
188
(1)
128
2022
£m
(324)
294
803
(509)
11
3
204
(2)
3
(3)
–
2
482
1
(54)
(389)
–
(51)
(493)
(11)
195
4
188
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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 2023 comprise of 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 Basis of preparation
The Group and Company accounts have been prepared and approved by the Directors in accordance with UK-adopted international
accounting standards. The financial statements are presented to the nearest million sterling (£m), the functional currency of the Company.
The Group did not implement the requirements of any new standards in issue for the year ended 31 March 2023. No other standards
or interpretations have been issued that are expected to have a material impact on the Group’s financial statements.
The principal accounting policies applied in the preparation of the Group accounts 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. These policies have been consistently
applied and apply to all years presented, except for in relation to the adoption of new accounting standards.
Going concern
These financial statements have been prepared on a going concern basis as disclosed in the Directors’ report. The Directors have made
an assessment of going concern for a period of at least 12 months from the date of approval of the accounts, taking into account the Group’s
current performance, financial position and the principal and emerging risks facing the business.
The Directors’ assessment of going concern, which takes into account the business model on pages 12 to 13 and the Group’s liquidity
of £1,312 million, indicates that the Group and parent company will have sufficient funds to continue as a going concern, for at least the next
12 months from the date of approval of the accounts. As detailed within the Financial review on pages 69 to 73 on the Investment basis the
Group covers its cash operating costs, £133 million at 31 March 2023, with cash income generated by our Private Equity and Infrastructure
businesses and Scandlines, £497 million at 31 March 2023. The Group’s liquidity comprised of cash and deposits of £412 million (31 March
2022: £229 million) and an undrawn multi-currency facility of £900 million (31 March 2022: £500 million), which has no financial covenants.
During the year the Group increased its existing RCF base of £500 million with an additional two-year £400 million tranche which provides
the Group with additional liquidity in the medium term at low cost. Post 31 March 2023 the Group has successfully extended its £400 million
tranche by a further year to July 2025.
The Group manages liquidity with the aim of ensuring it is adequate and sufficient, by regular monitoring of investments, realisations,
operating expenses and portfolio cash income and there have been no post balance sheet changes that would be materially detrimental
to liquidity. The Directors are of the opinion that the Group’s cash flow forecast is sufficient to support the Group given the current market,
economic conditions and outlook.
In addition, the Directors have modelled a number of severe, yet plausible, individual and combined stress scenarios for a period of at least
12 months from the date of issue of these financial statements. The scenarios include the consideration of the potential impact of a recession
triggered by persistent inflation, high interest rates and weak consumer demand, as well as the impact of a significant downturn event
specifically on the Group’s largest asset. These scenarios include a range of estimated impacts, primarily based on providing additional
support to portfolio companies. The scenarios are most sensitive to a delay in realisations which contribute to the liquidity of the Group.
A key judgement applied is the extent of recessionary impacts alongside the likely recovery profile of portfolio companies.
The results of each of the stress test scenarios indicate that the Group is able to meet its obligations as they fall due for a period of at least
12 months from the date of approval of these financial statements including, where appropriate, making use of controllable management
actions. In all these scenarios the Directors expect the Group to be able to recover without a permanent long-term impact on its solvency
or capital requirements. Mitigating actions within management control include for example, drawing on the existing RCF or temporarily
reducing new investment levels.
Having performed the assessment on going concern, the Directors considered it appropriate to prepare the financial statements
of the Company and Group on a going concern basis, and have concluded that the Group has sufficient financial resources, is well placed
to manage business risks in the current economic environment, and can continue operations for a period of at least 12 months from the
date of issue of these financial statements.
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Significant accounting policies continued
B Basis of consolidation
In accordance with IFRS 10 the Company meets the criteria as an investment entity and therefore is required to recognise subsidiaries that also
qualify as investment entities at fair value through profit or loss. It does not consolidate the investment entities it controls. Subsidiaries that
provide investment related services, such as advisory, management or employment services, are not accounted for at fair value through profit
and loss and continue to be consolidated unless those subsidiaries qualify as investment entities, in which case they are recognised at fair
value. Subsidiaries are entities controlled by the Group. Control, as defined by IFRS 10, is achieved when the Group has all of the following:
• power over the relevant activities of the investee;
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to affect those returns through its power over the investee.
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.
Subsidiaries are fully consolidated from the date on which the Group effectively obtains control. All intragroup balances and transactions
with subsidiaries are eliminated upon consolidation. Subsidiaries are de-consolidated from the date that control ceases.
The Group comprises several different types of subsidiaries. For a new subsidiary, the Group assesses whether it qualifies as an investment
entity under IFRS 10, based on the function the entity performs within the Group. For existing subsidiaries, the Group annually reassesses the
function performed by each type of subsidiary to determine if the treatment under IFRS 10 exception from consolidation is still appropriate.
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 and corporate
subsidiaries meet the definition of an investment entity and are accounted for 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 profit or loss.
Associates – Fair valued
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.
Further detail on our application of IFRS 10 can be found in the Reconciliation of Investment basis to IFRS section.
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Significant accounting policies continued
C Critical accounting judgements and estimates
The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underpin 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.
(a) Critical judgements
In the course of preparing the financial statements, one judgement has been made in the process of applying the Group’s accounting
policies, other than those involving estimations, that has had a significant effect on the amounts recognised in the financial statements
as follows:
I. Assessment as an investment entity
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.
(b) Critical estimates
In addition to these significant judgements the Directors have made two estimates, which they deem to have a significant risk of resulting
in a material adjustment to the amounts recognised in the financial statements within the next financial year. The details of these estimates
are as follows:
I. Fair valuation of the investment portfolio
The investment portfolio, a material group of assets of the Group, is held at fair value. Details of valuation methodologies used and
the associated sensitivities are disclosed in Note 13 Fair values of assets and liabilities in this document. 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 (including a review of the assumptions made) is included in the Valuations Committee
report on pages 126 to 130.
II. Carried interest payable
Carried interest payable is calculated based on the underlying agreements, and assuming all portfolio investments are sold at their fair
values at the balance sheet date. The actual amounts of carried interest paid will depend on the cash realisations of these portfolio
investments and valuations may change significantly in the next financial year. The fair valuation of the investment portfolio is itself a critical
estimate, as detailed above. The sensitivity of carried interest payable to movements in the investment portfolio is disclosed in Note 15.
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D Other accounting policies
(a) Gross investment return
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.
The substantial majority is investment income and outside the scope of IFRS 15. It is analysed into the following components with
the relevant standard shown where appropriate:
i. Realised profits or losses over value on the disposal of investments are the difference between the fair value of the consideration
received in accordance with IFRS 13 less any directly attributable costs, on the sale of equity and the repayment of interest income from
the 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 in accordance with IFRS 13
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
must be met before the income is recognised:
• Dividends from equity investments are recognised in profit or loss when the shareholders’ rights to receive payment have been
established;
• Interest income from the 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; and
• The accounting policy for fee income is included in Note 4.
v. Foreign exchange on investments arises on investments made in currencies that are different from the functional currency of the Company,
being sterling. Investments are translated at the exchange rate ruling at the date of the transaction in accordance with IAS 21. At each
subsequent reporting date, investments are translated to sterling at the exchange rate ruling at that date.
vi.Movement in the fair value of derivatives relates to the change in fair value of forward foreign exchange contracts which have been used
to minimise foreign currency risk in the investment portfolio. See Note 18 for more details.
(b) Foreign currency translation
For the Company and those subsidiaries and associates whose balance sheets are denominated in sterling, which is the Company’s functional
and presentational currency, monetary assets and liabilities and non-monetary assets held at fair value 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 profit or loss.
The statements of financial position of subsidiaries, which are not held at fair value, 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 profit or loss in the
period in which the subsidiary or associate is disposed of.
(c) Treasury assets and liabilities
Short-term treasury assets, and short and long-term treasury liabilities are used in order to manage cash flows.
Cash and cash equivalents comprise cash at bank 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. Derecognition occurs when rights to cash flows from a financial asset expire,
or when a liability is extinguished.
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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 returns generated 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. To aid the readers’ understanding
we have split out Action, Private Equity’s largest asset, into a separate column. Action is not regarded as a reported segment as the chief
operating decision maker reviews performance, makes decisions and allocates resources to the Private Equity segment, which includes Action.
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 Scandlines.
The segmental analysis is prepared on the Investment basis. The Investment basis is an APM and we believe it provides a more
understandable view of performance. For more information on the Investment basis and a reconciliation between the Investment basis
and IFRS, see pages 73 to 76.
Investment basis
Year to 31 March 2023
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
Movement in the fair value of derivatives
Gross investment return
Fees receivable from external funds
Operating expenses
Interest receivable
Interest payable
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 before tax
Tax charge
Profit for the year
Other comprehensive income
Re-measurements of defined benefit plans
Total return
Realisations1
Cash investment2
Net divestment/(investment)
Balance sheet
Opening portfolio value at 1 April 2022
Investment3
Value disposed
Unrealised value movement
Other movement (including foreign exchange)
Closing portfolio value at 31 March 2023
Infrastructure
£m
–
23
Scandlines
£m
–
–
Private
Equity
£m
169
3,746
345
77
7
493
129
4,966
4
(88)
Of which
Action
£m
–
3,708
328
–
1
285
22
4,344
–
–
33
14
–
16
–
86
66
(48)
4
(392)
–
–
37
(26)
857
(381)
476
12,420
496
(688)
3,746
451
16,425
–
(30)
(30)
7,165
30
–
3,708
285
11,188
–
(16)
(16)
1,352
16
–
23
18
1,409
Total4
£m
169
3,769
416
91
7
530
122
5,104
70
(138)
4
(54)
(29)
(1)
4,956
41
(418)
4,579
(2)
4,577
8
4,585
857
(397)
460
14,305
512
(688)
3,769
490
18,388
38
–
–
21
(7)
52
–
(2)
–
–
–
–
–
533
–
–
–
21
554
1 Realised proceeds may differ from cash proceeds due to timing of cash receipts. During the year, Private Equity received £1 million and Infrastructure received £33 million of cash proceeds which were recognised as realised
proceeds in FY2022. Private Equity recognised £6 million of realised proceeds which are to be received in FY2024.
2 Cash investment per the segmental analysis is different to cash investment per the cash flow due to a £57 million syndication in Infrastructure which was recognised in FY2022 and received in FY2023 and a £10 million investment
in Private Equity which was recognised in FY2023 and is to be paid in FY2024.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines, “Of which Action” is part of Private Equity.
Interest received, interest paid, exchange movements, other income, tax charge and re-measurements of defined benefit plans
are not managed by segment by the chief operating decision maker and therefore have not been allocated to a specific segment.
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1 Segmental analysis continued
Investment basis
Year to 31 March 2022
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
Movement in the fair value of derivatives
Gross investment return
Fees receivable from external funds
Operating expenses
Interest receivable
Interest payable
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 before tax
Tax charge
Profit for the year
Other comprehensive income
Re-measurements of defined benefit plans
Total return
Realisations1
Cash investment2
Net divestment/(investment)
Balance sheet
Opening portfolio value at 1 April 2021
Investment3
Value disposed
Unrealised value movement
Other movement (including foreign exchange)
Closing portfolio value at 31 March 2022
Private
Equity
£m
228
3,545
331
73
6
(11)
–
4,172
4
(83)
3
(416)
684
(457)
227
8,814
568
(456)
3,545
(51)
12,420
Of which
Action
£m
–
2,655
288
–
1
(56)
–
2,888
–
–
–
–
–
–
–
4,566
–
–
2,655
(56)
7,165
Infrastructure
£m
10
178
Scandlines
£m
–
101
31
12
(3)
13
–
241
58
(43)
51
(38)
104
(85)
19
1,159
85
(94)
178
24
1,352
13
–
–
(4)
2
112
–
(2)
–
–
–
(1)
(1)
435
1
–
101
(4)
533
Total4
£m
238
3,824
375
85
3
(2)
2
4,525
62
(128)
–
(53)
9
2
4,417
54
(454)
4,017
(5)
4,012
2
4,014
788
(543)
245
10,408
654
(550)
3,824
(31)
14,305
1 Realised proceeds may differ from cash proceeds due to timing of cash receipts. During the year, Private Equity received £3 million of cash proceeds which were recognised as realised proceeds in FY2021.
Infrastructure recognised £32 million of realised proceeds which are to be received in FY2023 and Private Equity recognised £1 million of realised proceeds which are to be received in FY2023.
2 Cash investment per the segmental analysis is different to cash investment per the cash flow due to a £53 million syndication in Infrastructure which was recognised in FY2022 and to be received in FY2023.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines, “Of which Action” is part of Private Equity.
Interest received, interest paid, exchange movements, other income, tax charge and re-measurements of defined benefit plans
are not managed by segment by the chief operating decision maker and therefore have not been allocated to a specific segment.
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Notes to the accounts continued
1 Segmental analysis continued
Investment basis
Year to 31 March 2023
Realised profits over value on the disposal of investments
Unrealised profits on the revaluation of investments
Portfolio income
Foreign exchange on investments
Movement in fair value of derivatives
Gross investment return
Realisations
Cash investment
Net (investment)/divestment
Balance sheet
Closing portfolio value at 31 March 2023
Investment basis
Year to 31 March 2022
Realised profits over value on the disposal of investments
Unrealised profits on the revaluation of investments
Portfolio income
Foreign exchange on investments
Movement in fair value of derivatives
Gross investment return
Realisations
Cash investment
Net (investment)/divestment
Balance sheet
Closing portfolio value at 31 March 2022
UK
£m
1
57
63
–
–
121
1
(30)
(29)
Northern
Europe
£m
168
3,388
435
418
22
4,431
524
(293)
231
North
America
£m
–
317
16
113
100
546
332
(74)
258
Other
£m
–
7
–
(1)
–
6
–
–
–
Total
£m
169
3,769
514
530
122
5,104
857
(397)
460
2,050
14,189
2,122
27
18,388
UK
£m
1
276
60
–
–
337
10
(25)
(15)
Northern
Europe
£m
48
3,053
390
(78)
2
3,415
328
(374)
(46)
North
America
£m
185
493
13
76
–
767
442
(144)
298
Other
£m
4
2
–
–
–
6
8
–
8
Total
£m
238
3,824
463
(2)
2
4,525
788
(543)
245
1,948
10,388
1,947
22
14,305
2 Realised profits over value on the disposal of investments
Realisations
Valuation of disposed investments
Of which:
– profits recognised on realisations
Realisations
Valuation of disposed investments
Of which:
– profits recognised on realisations
3i Group plc | Annual report and accounts 2023
2023
Unquoted
investments
193
(129)
64
64
64
2022
Unquoted
investments
323
(234)
89
89
89
Total
£m
193
(129)
64
64
64
Total
£m
323
(234)
89
89
89
173
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3 Unrealised profits on the revaluation of investments
Movement in the fair value of investments
Of which:
– unrealised profits
– unrealised losses
Movement in the fair value of investments
Of which:
– unrealised profits
– unrealised losses
4 Revenue
2023
Unquoted
investments
£m
1,990
2023
Quoted
investments
£m
(93)
2,152
(162)
1,990
–
(93)
(93)
2022
Unquoted
investments
£m
1,644
2022
Quoted
investments
£m
137
1,658
(14)
1,644
137
–
137
Total
£m
1,897
2,152
(255)
1,897
Total
£m
1,781
1,795
(14)
1,781
Accounting policy:
The following items from the Consolidated statement of comprehensive income fall within the scope of IFRS 15:
Fees receivable are earned for providing services to 3i’s portfolio companies, which predominantly fall into one of two categories:
Negotiation and other transaction fees are earned for providing services relating to a specific transaction, such as when a portfolio
company is bought, sold or refinanced. These fees are generally of a fixed nature and the revenue is recognised in full at the point
of transaction completion.
Monitoring and other ongoing service fees are earned for providing a range of services to a portfolio company over a period of time.
These fees are generally of a fixed nature and the revenue is recognised evenly over the period, in line with the services provided.
Fees receivable from external funds are earned for providing management and advisory services to a variety of fund partnerships and other
entities. Fees are typically calculated as a percentage of the cost or value of the assets managed during the year and are paid quarterly,
based on the assets under management at that date. The revenue is recognised evenly over the period, in line with the services provided.
Carried interest and performance fees receivable – the accounting policy for carried interest and performance fees receivable is shown
in Note 14.
Items from the Consolidated statement of comprehensive income which fall within the scope of IFRS 15 are included in the table below:
Year to 31 March 2023
Total revenue by geography1
UK
Northern Europe
North America
Other
Total
Revenue by type
Fees receivable2
Fees receivable from external funds
Carried interest and performance fees receivable2
Total
Private
Equity
£m
Infrastructure
£m
6
10
2
–
18
10
4
4
18
95
6
2
–
103
–
66
37
103
Total
£m
101
16
4
–
121
10
70
41
121
1 For fees receivable from external funds and carried interest and performance fees receivable the geography is based on the domicile of the fund.
2 Fees receivable and carried interest receivable above are different to the Investment basis figures included in Note 1. This is due to the fact that Note 1 is disclosed on the Investment basis and the table above is shown on the IFRS
basis. For an explanation of the Investment basis and a reconciliation between Investment basis and IFRS basis see pages 73 to 76.
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4 Revenue continued
Year to 31 March 2022
Total revenue by geography1
UK
Northern Europe
North America
Other
Total
Revenue by type
Fees receivable2
Fees receivable from external funds
Carried interest and performance fees receivable2
Total
Private
Equity
£m
Infrastructure
£m
7
4
5
–
16
9
5
2
16
105
2
(3)
1
105
(3)
57
51
105
Total
£m
112
6
2
1
121
6
62
53
121
1 For fees receivable from external funds and carried interest and performance fees receivable the geography is based on the domicile of the fund.
2 Fees receivable and carried interest receivable above are different to the Investment basis figures included in Note 1. This is due to the fact that Note 1 is disclosed on the Investment basis and the table above is shown on the IFRS
basis. For an explanation of the Investment basis and a reconciliation between Investment basis and IFRS basis see pages 73 to 76.
Consolidated statement of financial position
As at 31 March 2023, other current assets in the Consolidated statement of financial position include balances relating to fees receivable
from portfolio and fees receivable from external funds of £4 million and £5 million respectively (31 March 2022: £4 million and £1 million
respectively). Details of the carried interest and performance fees receivable included in the Consolidated statement of financial position
are shown in Note 14. These are different to the balances included in the Investment basis Consolidated statement of financial position.
For an explanation of the Investment basis and a reconciliation between Investment basis and IFRS basis see pages 73 to 76.
5 Operating expenses
Operating expenses of £137 million (2022: £127 million) recognised in the IFRS Consolidated statement of comprehensive income,
include the following amounts:
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Audit fees (Note 7)
Staff costs (Note 6)
Redundancy costs
2023
£m
1
4
1
3
97
–
2022
£m
2
4
1
3
89
2
Including expenses incurred in the entities accounted for as investment entity subsidiaries of £1 million (2022: £1 million), the Group’s total
operating expenses on the Investment basis for the year were £138 million (2022: £128 million).
6 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
Social security costs
Share-based payment costs (Note 27)
Pension costs
Total staff costs
The average number of employees during the year was 241 (2022: 234), of which 152 (2022: 152) were employed in the UK.
3i Group plc | Annual report and accounts 2023
2023
£m
72
12
9
4
97
2022
£m
68
10
8
3
89
175
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6 Staff costs continued
Wages and salaries shown above include salaries paid in the year, as well as bonuses and portfolio incentive schemes relating to the year
ended 31 March 2023. These costs are included in operating expenses. The table below analyses these costs between fixed and variable
elements.
Fixed staff costs
Variable staff costs1
Total staff costs
2023
£m
45
52
97
2022
£m
41
48
89
1 Includes cash bonuses and equity and cash settled share awards.
More detail on this information is included in the Directors’ remuneration report on pages 131 to 152.
7 Information regarding the Group’s Auditor
During the year, the Group received the following services from its external auditor, KPMG 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
Total audit services
Non-audit services
Other assurance services
Total audit and non-audit services
8 Tax
2023
£m
1.7
0.7
0.4
2.8
0.4
3.2
2022
£m
1.5
0.7
0.5
2.7
0.3
3.0
Accounting policy:
Tax represents 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 with in equity.
The tax currently payable is based on the taxable profit for the year. This may differ from the profit included in the Consolidated 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 where relevant on temporary timing differences,
at the rates of tax expected to apply when these differences crystallise. The UK Finance Act 2021, which was enacted on 10 June 2021,
increased the main corporation tax rate from 19% to 25% with effect from 1 April 2023. Therefore, the deferred tax assets and liabilities
have been calculated using the corporation tax rate in the UK of 25% (2022: 25%).
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.
IFRIC 23 has been applied to the recognition and measurement of uncertain tax provisions held at the year end. There were no material
uncertain tax positions arising during the year or at the year end.
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8 Tax continued
Current taxes
Current year:
UK
Overseas
Prior year:
UK
Overseas
Deferred taxes
Current year
Total tax charge in the Consolidated statement of comprehensive income
2023
£m
2022
£m
2
1
(1)
(1)
1
2
1
4
–
–
–
5
Reconciliation of tax 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 19% (2022: 19%), and the differences are
explained below:
Profit before tax
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2022: 19%)
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
Tax losses brought forward and utilised on which deferred tax not previously provided
Prior year tax credits
Total income tax charge in the Consolidated statement of comprehensive income
2023
£m
4,575
869
(793)
(75)
1
4
1
1
(3)
(2)
2
2022
£m
4,018
763
(702)
(67)
(6)
7
–
4
–
–
5
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.
Including a net tax charge of nil (2022: nil) in investment entity subsidiaries, the Group recognised a total tax charge of £2 million (2022:
£5 million) under the Investment basis.
Deferred income taxes
Opening deferred income tax asset/(liability)
Tax losses
Income in accounts taxable in the future
Recognised through Consolidated statement of comprehensive income
Tax losses recognised
Income in accounts taxable in the future
Closing deferred income tax asset/(liability)
Tax losses
Income in accounts taxable in the future
3i Group plc | Annual report and accounts 2023
2023
£m
2022
£m
1
(1)
–
–
(1)
(1)
1
(2)
(1)
1
(1)
–
–
–
–
1
(1)
–
177
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8 Tax continued
At 31 March 2023, the Group had carried forward tax losses of £1,379 million (31 March 2022: £1,384 million), capital losses of £87 million
(31 March 2022: £87 million) and other deductible temporary differences of £59 million (31 March 2022: £50 million). With the additional
restrictions on utilising brought forward losses introduced from 1 April 2017, and the uncertainty that the Group will generate sufficient
or relevant taxable profits not covered by the Investment Trust exemption in the foreseeable future to utilise these amounts, no deferred tax
asset has been recognised in respect of these losses. Deferred tax assets and liabilities have been calculated using the corporation tax rate
in the UK of 25% (2022: 25%).
9 Per share information
The calculation of basic net assets per share is based on the net assets and the number of shares in issue at the year end. When calculating
the diluted net assets per share, the number of shares in issue is adjusted for the effect of all dilutive share awards. Dilutive share awards
are equity awards with performance conditions attached see Note 27 Share-based payments for further details.
Net assets per share (£)
Basic
Diluted
Net assets (£m)
Net assets attributable to equity holders of the Company
Number of shares in issue
Ordinary shares
Own shares
Effect of dilutive potential ordinary shares
Share awards
Diluted shares
2023
2022
17.50
17.45
13.24
13.21
16,844
12,754
2023
2022
973,312,950
(10,660,078)
962,652,872
973,238,638
(10,212,745)
963,025,893
2,849,520
965,502,392
2,705,623
965,731,516
The calculation of basic earnings per share is based on the profit attributable to shareholders and the weighted average number of shares
in issue. The weighted average shares in issue for the year to 31 March 2023 are 962,674,183 (2022: 966,091,793). When calculating the diluted
earnings per share, the weighted average number of shares in issue is adjusted for the effect of all dilutive share awards. The diluted weighted
average shares in issue for the year to 31 March 2023 are 965,273,696 (2022: 968,636,820).
Earnings per share (pence)
Basic
Diluted
Earnings (£m)
Profit for the year attributable to equity holders of the Company
10 Dividends
Declared and paid during the year
Ordinary shares
Second dividend
First dividend
Proposed dividend
2023
2022
475.0
473.8
415.4
414.3
4,573
4,013
2023
pence per
share
2023
£m
2022
pence per
share
27.25
23.25
50.50
29.75
262
223
485
285
21.00
19.25
40.25
27.25
2022
£m
203
186
389
262
The Group introduced a simplified dividend policy in May 2018. In accordance with this policy, subject to maintaining a conservative balance
sheet approach, the Group aims to maintain or grow the dividend each year. The first dividend has been set at 50% of the prior year’s total
dividend.
The dividend can be paid out of either the capital reserve or the revenue reserve subject to the investment trust rules, see Note 20 for details
of reserves.
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10 Dividends continued
The distributable reserves of the parent company are £4,940 million (31 March 2022: £ 3,968million) and the Board reviews the distributable
reserves bi-annually, including consideration of any material changes since the most recent audited accounts, ahead of proposing any
dividend. The Board also reviews the proposed dividends in the context of the requirements of being an approved investment trust.
Shareholders are given the opportunity to approve the total dividend for the year at the Company’s Annual General Meeting.
Details of the Group’s continuing viability and going concern can be found in the Risk management section.
11 Investment portfolio
Accounting policy:
Investments are recognised and derecognised 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 accounted for at fair value through profit and loss. 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 accounted for at fair value through profit and loss. 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 “Valuations Committee report” on pages 126 to 130.
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 12.
Opening fair value
Additions
– of which loan notes with nil value
Disposals, repayments and write-offs
Fair value movement1
Other movements and net cash movements2
Closing fair value
Quoted investments
Unquoted investments
Closing fair value
1 All fair value movements relate to assets held at the end of the year.
2 Other movements includes the impact of foreign exchange.
Group
2023
£m
6,642
908
(6)
(129)
1,897
206
9,518
841
8,677
9,518
Group
2022
£m
5,010
138
(4)
(282)
1,781
(1)
6,642
934
5,708
6,642
Company
2023
£m
6,642
908
(6)
(129)
1,897
206
9,518
841
8,677
9,518
Company
2022
£m
5,010
138
(4)
(282)
1,781
(1)
6,642
934
5,708
6,642
3i’s investment portfolio is made up of longer-term investments, with average holding periods greater than one year, and thus is classified
as non-current.
The table below reconciles between purchase of investments in the cash flow statement and additions as disclosed in the table above.
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11 Investment portfolio continued
Purchase of investments
Transfer of portfolio investments from/(to) investment entity subsidiaries1
Syndication2
Investment payable
Investment
Capitalised interest received by way of loan notes
Additions
2023
£m
46
781
57
2
886
22
908
2022
£m
324
(157)
(53)
–
114
24
138
1 Includes the transfer of assets of £781 million (31 March 2022: nil) from the Buyouts 10-12 partnerships which are classified as investment entity subsidiaries, relating to Action.
2 In the year to 31 March 2022 we recorded a £53 million syndication in Infrastructure which is treated as negative investment against our additions and recognised as a receivable as at 31 March 2022. In the year to 31 March 2023,
we received the £57 million cash syndication.
Included within profit or loss is £29 million (2022: £30 million) of interest income. Interest income included £14 million (2022: £17 million)
of accrued income capitalised during the year noted above, £12 million (2022: £3 million) of cash income and £3 million (2022: £10 million)
of accrued income remaining uncapitalised at the year end.
Quoted investments are classified as Level 1 and unquoted investments are classified as Level 3 in the fair value hierarchy, see Note 13 for details.
12 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 in accordance
with IFRS 9.
These entities are typically limited partnerships and other intermediate investment holding structures which hold the Group’s interests
in investments in portfolio companies. The fair value can increase or decrease from either amounts paid to or received from the investment
entity subsidiaries 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 of these entities is their net asset
value.
We determine that, in the ordinary course of business, the net asset value of investment entity subsidiaries is 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 value 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 (31 March
2022: no adjustment required) and, after due consideration, we concluded that the net asset values were the most appropriate reflection
of fair value at 31 March 2023.
Level 3 fair value reconciliation – investments in investment entity subsidiaries
Non-current
Opening fair value
Amounts paid to investment entity subsidiaries
Amounts received from investment entity subsidiaries
Fair value movements on investment entity subsidiaries
Transfer of portfolio investments (from)/to investment entity subsidiaries
Transfer of assets to investment entity subsidiaries
Closing fair value
Group
2023
£m
6,791
535
(841)
2,112
(781)
28
7,844
Group
2022
£m
4,905
349
(685)
1,974
205
43
6,791
Transfer of portfolio investments from investment entity subsidiaries includes the transfer of investment portfolio between investment entity
subsidiaries and the Company at fair value. The consideration for these transfers can either be cash or intra-group receivables. During the year
the Company received a transfer of assets of £781 million (31 March 2022: nil) from the Buyouts 10-12 partnerships which are classified
as investment entity subsidiaries, relating to Action.
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12 Investments in investment entity subsidiaries continued
Restrictions
3i Group plc, the ultimate parent company, receives dividend income from its subsidiaries. There is £225 million (31 March 2022: nil)
of restrictive cash held in investment entity subsidiaries relating to carried interest and performance fees payable.
Support
3i Group plc continues to provide, where necessary, ongoing support to its investment entity subsidiaries for the purchase of portfolio
investments. The Group’s current commitments are disclosed in Note 24.
13 Fair values of assets and liabilities
Accounting policy:
Financial instruments are initially classified at either amortised cost or fair value through profit or loss. Financial instruments classified at fair
value through profit or loss are subsequently measured at fair value with gains and losses arising from changes in fair value recognised
in profit or loss in the Statement of comprehensive income. Financial instruments classified at amortised cost are subsequently measured
at amortised cost using the effective interest method with interest income or expense and foreign exchange gains and losses recognised
in profit or loss in the Statement of comprehensive income.
(A) Classification
The following tables analyse the Group’s assets and liabilities in accordance with the categories of financial instruments in IFRS 9:
Assets
Quoted investments
Unquoted investments
Investments in investment entities
Other financial assets
Total
Liabilities
Loans and borrowings
Other financial liabilities
Total
Assets
Quoted investments
Unquoted investments
Other financial assets
Total
Liabilities
Loans and borrowings
Other financial liabilities
Total
Group
2023
Classified at fair
value through
profit and loss
£m
Group
2023
Other financial
instruments at
amortised cost
£m
841
8,677
7,844
142
17,504
–
4
4
–
–
–
82
82
775
167
942
Group
2022
Classified at fair
value through
profit and loss
£m
Group
2022
Other financial
instruments at
amortised cost
£m
934
5,708
6,791
54
13,487
–
–
–
–
–
–
172
172
975
185
1,160
Group
2023
Total
£m
841
8,677
7,844
224
17,586
775
171
946
Company
2023
Classified at fair
value through
profit and loss
£m
Company
2023
Other financial
instruments at
amortised cost
£m
Company
2022
Classified at fair
value through
profit and loss
£m
Company
2022
Other financial
instruments at
amortised cost
£m
Company
2023
Total
£m
841
8,677
131
9,649
–
4
4
–
–
113
113
775
728
1,503
841
8,677
244
9,762
775
732
1,507
934
5,708
34
6,676
–
–
–
–
–
184
184
975
667
1,642
Group
2022
Total
£m
934
5,708
6,791
226
13,659
975
185
1,160
Company
2022
Total
£m
934
5,708
218
6,860
975
667
1,642
Within the Company, Interests in Group entities of £7,867 million (31 March 2022: £6,801 million) includes £7,845 million (31 March 2022:
£6,792 million) held at fair value and £22 million (31 March 2022: £9 million) held at cost less impairment.
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13 Fair values of assets and liabilities continued
(B) Valuation
The fair values of the Group’s financial assets and liabilities not held at fair value, are not materially different from their carrying values, with
the exception of loans and borrowings. The fair value of the loans and borrowings is £686 million (31 March 2022: £1,069 million), determined
with reference to their published market prices. The carrying value of the loans and borrowings is £775 million (31 March 2022: £975 million)
and accrued interest payable (included within trade and other payables) is £12 million (31 March 2022: £13 million).
Valuation hierarchy
The Group classifies financial instruments measured at fair value 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
Derivative financial instruments
Unquoted investments
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
can be found on page 184.
The table below shows the classification of financial instruments held at fair value into the valuation hierarchy at 31 March 2023:
Group
2023
Level 1
£m
Group
2023
Level 2
£m
Assets
Quoted investments
Unquoted investments
Investments in
investment entity
subsidiaries
Other financial assets
Liabilities
Other financial liabilities
Total
841
–
–
–
–
841
–
–
–
121
(4)
117
Group
2023
Level 3
£m
–
8,677
7,844
Group
2023
Total
£m
841
8,677
7,844
21
142
–
16,542
(4)
17,500
Group
2022
Level 1
£m
Group
2022
Level 2
£m
934
–
–
–
–
934
–
–
–
17
–
17
Group
2022
Level 3
£m
–
5,708
6,791
Group
2022
Total
£m
934
5,708
6,791
37
54
–
12,536
–
13,487
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13 Fair values of assets and liabilities continued
We determine that, in the ordinary course of business, the net asset value of an investment entity subsidiary is 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 12 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 are set out in the table below:
Opening fair value
Additions
– of which loan notes with nil value
Disposals, repayments and write-offs
Fair value movement1
Other movements and net cash movements2
Closing fair value
1 All fair value movements relate to assets held at the end of the year.
2 Other movements include the impact of foreign exchange and accrued interest.
Group
2023
£m
5,708
908
(6)
(129)
1,990
206
8,677
Group
2022
£m
4,213
138
(4)
(282)
1,644
(1)
5,708
Company
2023
£m
5,708
908
(6)
(129)
1,990
206
8,677
Company
2022
£m
4,213
138
(4)
(282)
1,644
(1)
5,708
Unquoted investments valued using Level 3 inputs also had the following impact on profit and loss: realised profits over value on disposal
of investments of £64 million (2022: £89 million), dividend income of £200 million (2022: £179 million) and foreign exchange gains of
£203 million (2022: losses of £9 million).
Assets move between Level 1 and Level 3 when an unquoted equity investment lists on a quoted market exchange. There were no transfers
in or out of Level 3 during the year. In the 12 months to 31 March 2023, three assets changed valuation basis within Level 3, with all assets
moving to an earnings-based valuation, having previously been valued on a sum-of-the-parts basis, DCF or fair value in line with the price of
recent investment. The changes in valuation methodology in the period reflect our view of the most appropriate method to determine the fair
value of the three assets at 31 March 2023. Further information can be found in the Private Equity and Infrastructure sections of the Business
and Financial reviews starting on page 20.
The following table summarises the various valuation methodologies used by the Group to fair value Level 3 instruments, the inputs and the
sensitivities applied and the impact of those sensitivities to the unobservable inputs. The majority of our portfolio companies have responded
well to, and so far largely mitigated, high inflation, increased energy prices and interest rates and weaker consumer sentiment, an important
consideration in our portfolio valuation at 31 March 2023. As part of our case-by-case review of our portfolio companies the risks and
opportunities from climate change are an important consideration in the overall discussion on fair value. These risks are adequately
captured in the multiple sensitivity. All numbers in the table below are on an Investment basis.
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13 Fair values of assets and liabilities continued
Level 3 unquoted investments
Methodology
Earnings
(Private Equity)
Description
Most commonly used
Private Equity valuation
methodology.
Used for investments
which are typically
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 multiples
When selecting earnings multiples, we consider:
(1) Comparable listed companies current
performance and through-the-cycle averages
(2) Relevant market transaction multiples
(3) Company performance, organic growth
and value-accretive add-ons, if any
Fair value at
31 March 2023
(£m)
16,109
(2022: 11,586)
Fair value
impact of
sensitivities (£m)
+5%/-5%
928
(2022: 695)
(930)
(2022: (697))
Sensitivity on key
unobservable input
For the assets
valued on an
earnings basis,
we have
applied a 5%
sensitivity to the
earnings
multiple
(4) Exit expectations and other company specific
factors
For point 1 and 2 of the above 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
The pre-discount multiple ranges from 6.4x -
20.0x (2022: 8.0x - 20.0x)
Other inputs:
Earnings
Reported earnings are adjusted for non-
recurring items, such as restructuring expenses,
for significant corporate actions and,
in exceptional cases, adjustments to arrive
at maintainable earnings
The most common measure is earnings before
interest, tax, depreciation and amortisation
(“EBITDA”)
Earnings are usually obtained from portfolio
company management accounts to the
preceding quarter end, with reference also
to forecast earnings and the maintainable
view of earnings
Action, our largest asset, is valued using run-rate
earnings
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
The range of discount rates used in our DCF
valuations is 10.5% to 16.9% (2022: 10.0%
to 15.0%)
Net asset value reported by the fund manager.
The valuation of the underlying portfolio
is consistent with IFRS
618
(2022: 417)
(619)
(2022: (417))
Action is our
largest asset,
and we have
included a 5%
sensitivity on
Action’s
earnings
multiple of
19.5x
(equivalent to
18.5x net)
1,024
(2022: 1,023)
For the assets
valued on a
DCF basis, we
have applied a
5% sensitivity to
the discount
rate
(37)
(2022: (41))
39
(2022: 37)
97
(2022: 77)
A 5% increase
on closing NAV
5
(2022: 4)
Discounted
cash flow
(Private Equity/
Infrastructure/
Scandlines)
Appropriate for
businesses with long-
term stable cash flows,
typically in Infrastructure
or, alternatively,
businesses where DCF
is more appropriate in
the short term
NAV (Private
Equity/
Infrastructure)
Used for investments
in unlisted funds
Other (Private
Equity/
Infrastructure)
Used where elements
of a business are valued
on different bases
Values of separate elements prepared on or
triangulated against one of the methodologies
listed above
196
(2022: 556)
A 5% increase
in the closing
value
10
(2022: 28)
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14 Carried interest and performance fees receivable
Accounting policy:
The Group earns a share of profits (“carried interest receivable”) from funds which it manages on behalf of third parties. These profits
are earned when the funds meet certain performance conditions and are paid by the fund when these conditions have been met on a cash
basis. In certain limited circumstances the carried interest received may be subject to clawback provisions if the performance of the fund
deteriorates materially following carried interest being paid.
Carried interest receivable
The carried interest receivable recognised at the balance sheet date is calculated based on the valuation of the remaining portfolio assets
in the fund at that date, discounted to reflect the estimated realisation dates. Following initial recognition, carried interest receivable
is accounted for under the amortised cost method in accordance with IFRS 9.
This includes the requirement to calculate expected credit losses at inception. Given that carried interest is received from a small number
of entities which are managed by the Group and are paid shortly following receipt of the proceeds or finalisation of the calculation which
causes the payments to become due, the expected credit losses for these receivables are expected to be negligible.
Performance fees receivable
The Group earns performance fees from the investment management services it provides to 3i Infrastructure plc (“3iN”) when 3iN’s total
return for the year exceeds a specified threshold. These fees are calculated on an annual basis and paid in three equal instalments over
three years. The second and third instalments will only be recognised and received if either: (a) 3iN’s performance in the year in which the
instalment is paid also triggers payment of a performance fee in respect of that year, or (b) if 3iN’s performance over the three years
starting with the year in which the performance fee is earned exceeds a specified threshold.
The Group also earns performance fees from the investment management services it provides to 3i Managed Infrastructure Acquisitions LP
(“3i MIA”) and 3i European Operational Projects (“3i EOPS”) when the net asset value of the fund exceeds the performance threshold.
These fees are calculated on an annual basis, and are recognised and paid at the end of successive five-year performance periods. The first
five-year performance period ended on 31 March 2023. In accordance with IFRS 15, revenue from performance fees is recognised when
it is sufficiently certain that there will not be a significant reversal, which is usually at the end of the relevant financial year or performance
period, when the calculation is finalised and agreed.
Following initial recognition, performance fees receivable are accounted for under the amortised cost method in accordance with IFRS 9.
This includes the requirement to calculate expected credit losses at inception. Given that performance fees are received from a small
number of entities which are managed by the Group and are paid shortly following receipt of the proceeds or finalisation of the calculation
which causes the payments to become due, the expected credit losses for these receivables are expected to be negligible.
Opening carried interest and performance fees
receivable
Carried interest and performance fees receivable
recognised in profit and loss during the year
Received in the year
Other movements1
Closing carried interest and performance fees
receivable
Of which: receivable in greater than one year
1 Other movements include the impact of foreign exchange.
Group
2023
Carried interest
receivable
£m
Group
2023
Performance
fees receivable
£m
Group
2023
Total
£m
Group
2022
Carried interest
receivable
£m
Group
2022
Performance
fees receivable
£m
9
4
(7)
–
6
3
51
37
(51)
–
37
–
60
41
(58)
–
43
3
9
2
(2)
–
9
9
8
51
(8)
–
51
–
3i Group plc | Annual report and accounts 2023
Group
2022
Total
£m
17
53
(10)
–
60
9
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14 Carried interest and performance fees receivable continued
Opening carried interest and performance fees
receivable
Carried interest and performance fees receivable
recognised in profit and loss during the year
Received in the year
Other movements1
Closing carried interest and performance fees
receivable
Of which: receivable in greater than one year
1 Other movements include the impact of foreign exchange.
Company
2023
Carried interest
receivable
£m
Company
2023
Performance
fees receivable
£m
Company
2023
Total
£m
Company
2022
Carried interest
receivable
£m
Company
2022
Performance
fees receivable
£m
Company
2022
Total
£m
63
42
(9)
2
98
81
25
–
(25)
–
–
–
88
42
(34)
2
98
81
38
29
(3)
(1)
63
62
–
25
–
–
25
–
38
54
(3)
(1)
88
62
The closing carried interest receivable balance above is calculated using the fair value of the assets in the relevant funds at the balance sheet
date. The carried interest receivable recognised in profit and loss during the year predominantly relates to changes in the fair value of the
investments in the relevant funds.
As explained in the accounting policy above, no expected credit losses have been recognised for carried interest and performance fees
receivable as these are deemed to be negligible.
15 Carried interest and performance fees payable
Accounting policy:
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 participants may have an interest in one or more carried interest plans and
participants include current and former investment participants. 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
participants’ 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 payable is accrued based on the expected award. A significant proportion of the amount awarded
is deferred over time and may be granted in 3i Group plc shares. This is recognised over the vesting period in line with the requirements
of IFRS 2 or IAS 19, depending on the type of award.
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 2023, £1,274 million of carried interest payable was recognised in
the Consolidated statement of financial position of these investment entity subsidiaries (31 March 2022: £885 million).
Opening carried interest and performance fees payable
Carried interest and performance fees payable recognised in profit and loss during the year
Cash paid in the year
Other movements1
Closing carried interest and performance fees payable
Of which: payable in greater than one year
1 Other movements include the impact of foreign exchange and a transfer from trade and other payables.
Group
2023
£m
77
38
(29)
(9)
77
43
Group
2022
£m
66
46
(14)
(21)
77
42
The carry payable expense in the table above includes a £13 million (2022: £16 million) charge arising from Infrastructure share-based payment
carry related schemes. The charge includes £10 million (2022: £12 million) of equity awards and nil (2022: £1 million) of cash-settled awards,
see Note 27 Share-based payments for further details and £3 million (2022: £3 million) of social security cost.
A 5% increase in the valuation of all individual assets in the underlying investment portfolio held by investment entity subsidiaries would result
in a £60 million increase in carried interest and performance fees payable (31 March 2022: £54 million).
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15 Carried interest and performance fees payable continued
A 5% decrease in the valuation of all individual assets in the underlying investment portfolio held by investment entity subsidiaries would result
in a £60 million decrease in carried interest and performance fees payable (31 March 2022: £54 million).
16 Other assets
Accounting policy:
Assets, other than those specifically accounted for under a separate policy, are stated at their cost less impairment losses. Financial assets
are recognised at amortised cost in accordance with IFRS 9, which includes the requirement to calculate expected credit losses (“ECLs”)
on initial recognition. Any ECLs are recognised directly in profit and loss, with any subsequent reversals recognised in the same location.
Prepayments
Other debtors
Proceeds/syndication receivable
Total other assets
Of which: receivable in greater than one year
Group
2023
£m
3
51
6
60
30
Group
2022
£m
2
63
84
149
45
Company
2023
£m
–
25
–
25
16
Company
2022
£m
–
29
84
113
24
At 31 March 2023 no ECLs have been recognised against other assets as they are negligible (31 March 2022: nil).
17 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:
Fixed rate
£200 million notes (public issue)
£375 million notes (public issue)
£400 million notes (public issue)
Committed multi-currency facilities
£400 million
£500 million
Total loans and borrowings
Rate
Maturity
6.875 %
5.750 %
3.750 %
2023
2032
2040
SONIA+0.75%
SONIA+0.50%
2024
2027
Group
2023
£m
–
375
400
775
–
–
775
During the year the Company increased the size of its committed multi-currency facility to £900 million (31 March 2022: £500 million).
The syndicated multi-currency facility of £900 million has no financial covenants.
3i Group plc | Annual report and accounts 2023
Group
2023
£m
–
–
775
775
Group
2022
£m
200
–
775
975
Group
2022
£m
Company
2023
£m
Company
2022
£m
200
375
400
975
–
–
975
–
375
400
775
–
–
775
200
375
400
975
–
–
975
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17 Loans and borrowings continued
All of the Group’s borrowings are repayable in one instalment on the respective maturity dates. Post 31 March 2023, we extended the maturity
of the £400 million additional tranche to July 2025. 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 £686 million (31 March 2022: £1,069 million), determined with reference to their
published market prices. The interest payable for loans and borrowings recognised within profit and loss is £53 million (2022: £52 million)
and the interest paid for loans and borrowings recognised within the Consolidated cash flow statement is £54 million (2022: £52 million).
In accordance with the FCA’s Investment Funds sourcebook (FUNDS 3.2.2R and Fund 3.2.6R), 3i Investments plc, as AIFM of the Company,
is required to calculate leverage and disclose this to investors. The leverage is calculated using the gross method and commitment method.
Gross method calculates the overall exposure over the net asset value whereas the commitment method calculates the net exposure over
the net asset value. Leverage at 31 March 2023 for the Group is 121% (31 March 2022: 127%) and the Company is 117% (31 March 2022: 123%)
under both the gross method and the commitment method. The leverage for 3i Investments plc at 31 March 2023 is 100% (31 March 2022:
100%) under both the gross method and the commitment method.
Under the Securities Financing Transactions Regulation and the FCA’s Investment Funds sourcebook (FUNDS 3.2.4A), 3i is required to disclose
certain information relating to the use of securities financing transactions (“SFTs”) and total return swaps. At 31 March 2023, 3i was not party
to any transactions involving SFTs or total return swaps.
Reconciliation of liabilities arising from financing activities
The changes in the Group’s liabilities arising from financing activities are classified as follows:
Opening liability
Additions
Repayments
Closing liability
18 Derivatives
Loans and
borrowings
2023
£m
975
–
(200)
775
Lease liability
2023
£m
14
1
(5)
10
Loans and
borrowings
2022
£m
975
–
–
975
Lease liability
2022
£m
17
1
(4)
14
Accounting policy:
Derivative financial instruments are accounted for at fair value through profit and loss in accordance with IFRS 9. They are revalued at the
balance sheet date based on market prices, with any change in fair value being recorded in profit and loss. Derivatives are recognised in
the Consolidated statement of financial position as a financial asset when their fair value is positive and as a financial liability when their fair
value is negative. The Group’s derivative financial instruments are not designated as hedging instruments.
Statement of comprehensive income
Movement in the fair value of derivatives
Statement of financial position
Non-current assets
Forward foreign exchange contracts
Current assets
Forward foreign exchange contracts
Non-current liabilities
Forward foreign exchange contracts
Current liabilities
Forward foreign exchange contracts
Group
2023
£m
122
Group
2023
£m
73
48
(3)
(1)
Group
2022
£m
2
Group
2022
£m
7
10
–
–
Company
2023
£m
122
Company
2023
£m
Company
2022
£m
2
Company
2022
£m
73
48
(3)
(1)
7
10
–
–
During the year the Group implemented a medium-term foreign exchange hedging program, entering into forward foreign exchange
contracts to partially reduce the effect of fluctuations arising from movements in exchange rates to euro and US dollar. As at 31 March 2023
the notional amount of these forward foreign exchange contracts held by the Company was €2.0 billion (31 March 2022: nil) and $1.2 billion
(31 March 2022: nil).
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18 Derivatives continued
The Company also entered into forward foreign exchange contracts to minimise the effect of fluctuations arising from movements in
exchange rates in the value of the Group’s investment in Scandlines. During the year the Company increased the size of this hedging program
for Scandlines. As at 31 March 2023 the notional amount of these forward foreign exchange contracts held by the Company was €600 million
(31 March 2022: €500 million).
19 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. Financial liabilities are recognised at amortised cost
in accordance with IFRS 9.
Trade and other payables
Amounts due to subsidiaries
Total trade and other payables
Of which: payable in greater than one year
20 Issued capital and reserves
Group
2023
£m
80
–
80
4
Group
2022
£m
94
–
94
14
Company
2023
£m
11
717
728
–
Company
2022
£m
15
652
667
–
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.
Capital reserve recognises all profits and losses that are capital in nature or have been allocated to capital, which include the accumulation
of investment gains and losses as well as changes to the value of financial instruments measured at fair value through profit and loss.
Revenue reserve recognises all profits and losses that are revenue in nature or have been allocated to revenue and is the accumulation
of revenue profits and losses.
Issued and fully paid
Ordinary shares of 7319∕22p
Opening balance
Issued under employee share plans
Closing balance
2023
Number
973,238,638
74,312
973,312,950
2023
£m
719
–
719
2022
Number
973,166,947
71,691
973,238,638
2022
£m
719
–
719
The Company issued 74,312 ordinary shares to the Trustee of the 3i Group Share Incentive Plan for a total cash consideration of £990,277
at various prices from 1,105 pence to 1,649 pence per share (being the market prices on the issue dates which were the last trading day
of each month in the year, with the exception of December 2022, when the issue date was 4 January 2023). These shares were ordinary shares
with no additional rights attached to them and had a total nominal value of £54,890.
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21 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.
Opening cost
Additions
Awards granted
Closing cost
Group
2023
£m
100
30
(22)
108
Group
2022
£m
64
54
(18)
100
Company
2023
£m
100
30
(22)
108
Company
2022
£m
64
54
(18)
100
During the year, The 3i Group Employee Benefit Trust acquired 2.4 million (2022: 4.0 million) shares at an average price of 1,271 (2022: 1,348)
pence per share.
22 Capital structure
The capital structure of the Group consists of shareholders’ equity and net debt or cash. The type and maturity of the Group’s borrowings are
analysed further in Note 17. 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 market and sustain the future development of the business.
Cash and deposits
Borrowings and derivative financial liabilities
Net debt1
Total equity
Gearing (net debt/total equity)
Group
2023
£m
162
(779)
(617)
16,844
4 %
Group
2022
£m
212
(975)
(763)
12,754
6 %
Company
2023
£m
128
(779)
(651)
16,250
4 %
Company
2022
£m
188
(975)
(787)
12,207
6 %
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 (other than those disclosed in Note 12) have
been identified and the Group has been able to distribute profits as appropriate.
The Group has been subject to the FCA’s MIFIDPRU sourcebook (“MIFIDPRU”) since 1 January 2022. The regulatory capital requirements for
the Group and 3i Investments plc, an investment firm regulated by the FCA, are calculated in accordance with MIFIDPRU 2.5, 4.3, 4.5 and 4.6.
These capital requirements are reviewed regularly by the Group’s Audit and Compliance Committee, and the Board of 3i Investments plc,
respectively. In addition, 3i Investments plc prepares an Internal Capital and Risk Assessment (“ICARA”), which is approved by the Board of 3i
Investments plc on an annual basis.
Under MIFIDPRU rules, the Group remained subject to the Individual Capital Guidance given by the FCA under the previous regime,
the Capital Requirements Directive III, until 29 December 2022.
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23 Interests in Group entities
Accounting policy:
The Company has controlling equity interests in, and makes loans to, both consolidated and fair valued Group entities. Equity investments
in, and loans to, investment entities are held at fair value in the Company’s accounts, as this reflects the Group’s business model to hold
assets to seek returns on capital and not contractual cash flow. The net assets of these entities are deemed to represent fair value. Equity
investments in other subsidiaries are held at cost less impairment and any loans to these subsidiaries are held at amortised cost
in accordance with IFRS 9, which includes the requirement to calculate expected credit losses on initial recognition.
Opening book value
Additions
Share of profits from partnership entities
Disposals and repayments
Fair value movements
Exchange movements
Closing book value
Opening book value
Additions
Share of profits from partnership entities
Disposals and repayments
Fair value movements
Exchange movements
Closing book value
Company
2023
Equity
investments
£m
3,912
20
–
–
1,129
–
5,061
Company
2022
Equity
investments
£m
2,387
61
–
–
1,464
–
3,912
Company
2023
Loans
£m
2,889
453
1,148
(1,475)
(225)
16
2,806
Company
2022
Loans
£m
2,534
505
391
(649)
99
9
2,889
Company
2023
Total
£m
6,801
473
1,148
(1,475)
904
16
7,867
Company
2022
Total
£m
4,921
566
391
(649)
1,563
9
6,801
Equity investments in, and loans to investment entities, are held at fair value and equity investments in other subsidiaries are held at cost less
impairment. The measurements at fair value and cost less impairment are assessed against the Company’s equity and loan instruments into
these subsidiaries, which are eliminated on consolidation for the Group. For this reason equity investments and loans into investments entities
do not form part of the investment portfolio for the Company and instead are included within Interests in Group entities. Amounts for equity
investments in, and loans to, investment entities held at fair value and other subsidiaries at amortised cost are detailed in Note 13.
Details of significant Group entities are given in Note 30. No expected credit losses have been recognised on those equity investments
and loans held at amortised cost as they are not material.
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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 are recognised in the balance sheet at the point of settlement
subject to associated risks and rewards being transferred. Commitments at the year end do not impact the Group’s financial results
for the year.
Unquoted investments
Unquoted investments
Group
2023
due within
1 year
£m
9
Company
2023
due within
1 year
£m
9
Group
2023
due between
2 and 5 years
£m
–
Company
2023
due between
2 and 5 years
£m
–
Group
2023
due over
5 years
£m
–
Company
2023
due over
5 years
£m
–
Group
2023
Total
£m
9
Company
2023
Total
£m
9
Group
2022
due within
1 year
£m
20
Company
2022
due within
1 year
£m
20
Group
2022
due between
2 and 5 years
£m
–
Company
2022
due between
2 and 5 years
£m
–
Group
2022
due over
5 years
£m
–
Company
2022
due over
5 years
£m
–
Group
2022
Total
£m
20
Company
2022
Total
£m
20
The amounts shown above include £9 million of commitments made by the Group and Company, to invest into funds (31 March 2022:
£5 million into two companies and £15 million into funds). The Group and Company were contractually committed to these investments
as at 31 March 2023.
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 (“the Plan”) in respect of liabilities of 3i plc to the Plan.
At 31 March 2023, there was no material litigation outstanding, nor any other matter, against the Company or any of its subsidiary
undertakings, which may indicate the existence of a contingent liability.
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26 Retirement benefits
Accounting policy:
Payments to defined contribution retirement benefit plans are charged to profit and loss 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 asset/liability, calculated using the discount rate used to
measure the defined benefit obligation, is recognised in profit and loss. 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. Where the
retirement benefit scheme is in surplus this is recognised net being the lower of any surplus in the fund and the asset ceiling.
(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 total expense recognised, in operating expenses, in profit and loss
is £3 million (2022: £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, is operated separately from the Group and governed 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 was maintained on existing accruals until February 2023.
3i employees who are 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 administered by
the Trustees. The Trustees are responsible for managing and investing the Plan’s assets and for monitoring the Plan’s funding position.
The valuation of the Plan was updated on an IAS 19 basis by an independent qualified actuary as at 31 March 2023. The Plan’s assets
do not include any of the Group’s own equity instruments nor any property in use by the Group.
In May 2020, the Plan’s Trustees completed a £650 million buy-in transaction with Legal & General, an insurance policy that is designed to
provide cash flows that exactly match the value and timing of the benefits payable to the members it covers. This insurance policy, alongside
previous buy-in policies entered into with Pension Insurance Corporation and Legal & General in March 2017 and February 2019 respectively,
means that the Plan benefits of all members are now insured and 3i, as sponsor, is no longer exposed to longevity, interest or inflation risk and
therefore funding requirements. On an IAS 19 basis, the fair value of three buy-in policies will match the present value of the liabilities insured.
During the year the Trustees have taken steps to commence a buy-out and wind up of the Plan, completion of which could take up
to 18 months. This would involve converting the buy-in policies held within the Plan into individual annuity policies in the names of Plan
members. As part of this process, the Group gave notice to terminate the Plan.
Qualifying employees in Germany are entitled to a pension based on their length of service. The future liability calculated by German
actuaries is £20 million (31 March 2022: £26 million). There is a £1 million expense (2022: nil) recognised in operating expenses, in profit and
loss for the year and an £8 million gain (2022: £3 million) in other comprehensive income for this scheme. Changes in the present value of
the obligation, assumptions and sensitivities of this scheme have not been disclosed as they are not material.
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
2023
£m
450
(532)
29
(53)
20
2022
£m
641
(723)
29
(53)
26
A retirement benefit surplus under IAS 19 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.
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26 Retirement benefits continued
The amounts recognised in the Consolidated statement of comprehensive income in respect of the Plan are as follows:
2023
£m
2022
£m
Included in interest payable
Interest income on net defined benefit asset
Included in other comprehensive income
Re-measurement loss
Asset restriction
Total re-measurement gain/(loss) and asset restriction
Total
2
–
1
1
3
The total re-measurement gain recognised in other comprehensive income was £8 million (2022: £2 million). There was a £8 million gain
on our overseas schemes (2022: £3 million), 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 gain/loss:
– gain from change in demographic assumptions
– gain from change in financial assumptions
– experience loss
Benefits paid
Curtailments and settlements
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
Expenses
Benefits paid
Closing fair value of the Plan assets
The fair value of the Plan’s assets at the balance sheet date is as follows:
Annuity contracts
Cash and cash equivalents
2023
£m
641
17
–
(188)
4
(25)
1
450
2023
£m
723
20
(184)
(2)
(25)
532
2023
£m
451
81
532
1
(3)
2
(1)
–
2022
£m
710
13
(1)
(53)
2
(30)
–
641
2022
£m
795
15
(55)
(2)
(30)
723
2022
£m
643
80
723
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26 Retirement benefits continued
Changes in the asset restriction were as follows:
Opening asset restriction
Interest on asset restriction
Re-measurements
Closing asset restriction
2023
£m
29
1
(1)
29
2022
£m
30
1
(2)
29
The principal assumptions made by the actuaries and used for the purpose of the year end valuation of the Plan were as follows:
Discount rate
Expected rate of pension increases
Retail Price Index (“RPI”) inflation
Consumer Price Index (“CPI”) inflation
2023
4.8 %
2022
2.7 %
0% to 3.6% 0% to 3.9%
3.8 %
3.0 %
3.5 %
2.9 %
In addition, it is assumed that members exchange 25% of their pension for a lump sum at retirement on the conversion terms in place at
31 March 2023 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 14 years.
The post-retirement mortality assumption used to value the benefit obligation at 31 March 2023 is 90% of the S3NA very light mortality tables,
allowing for improvements in line with the CMI 2021 core projections with a long-term annual rate of improvement of 1.75% (unchanged from
31 March 2022). The life expectancy of a male member reaching age 60 in 2043 (31 March 2022: 2042) is projected to be 32.7 (31 March 2022:
32.6) years compared to 30.9 (31 March 2022: 30.6) years for someone reaching 60 in 2023.
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 latest triennial valuation for the Plan was completed in September 2020, based on the position
as at 30 June 2019. The outcome was an actuarial surplus of £89 million. This valuation is produced for funding purposes and is calculated
on a different basis to the IAS 19 valuation net asset of £53 million which is shown in the Note above. In light of the results of the triennial
valuation, the third buy-in policy secured with Legal & General, which took place after the triennial valuation date and the Plan’s resulting
strong financial position, it was agreed it was not necessary for the Group to make any contributions to the Plan.
For the year to 31 March 2023 the defined benefit surplus is not impacted by changes in assumptions and sensitivity assumptions are nil
(2022: nil); this is because the defined benefit obligation is matched by annuity contracts following the third and final buy-in policy secured
with Legal & General.
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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 profit or loss over the period that employees provide services,
generally the period between the start of the 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 service 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 current share price, the risk-free interest rate,
the expected volatility of the share price over the life of the award 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 profit and loss, with a corresponding entry in equity.
Liabilities arising from cash-settled share-based payment transactions are recognised in profit or loss 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.
The cost of the share-based payments is allocated either to operating expenses or carried interest depending on the original driver
of the award. Executive Director Long-term Incentive Plans are allocated to operating expenses.
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 cash settled awards under these schemes, which are intended to replicate the financial effects of a share award without entitling
the participant to acquire shares. The weighted average fair value grant price for cash settled awards granted during the year was 1,102p
(31 March 2022: 1,252p) and the reporting price for these awards at 31 March 2023 was 1,685 pence (31 March 2022: 1,389 pence). The carrying
amount of liabilities arising from cash settled awards at 31 March 2023 is £17 million (31 March 2022: £13 million). The total equity settled
share-based payment reserve at 31 March 2023 is £31 million (31 March 2022: £33 million).
The cost of the share-based payments is allocated either to operating expenses or carried interest depending on the original driver
of the award. Executive Director Performance Share Awards 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
Share awards included as carried interest1
Cash-settled share awards2
1 Credited to equity.
2 For the year ended 31 March 2023, £8 million (2022: £4 million) is recognised in operating expenses and nil (2022: £1 million) is recognised in carried interest.
Movements in share awards
The number of equity and cash settled share-based awards outstanding as at 31 March is as follows:
Outstanding at the start of the year
Granted
Exercised
Forfeited
Lapsed
Outstanding at the end of year
Weighted average remaining contractual life of awards outstanding in years
Weighted average fair value of awards granted (pence)
Weighted average market price at date of exercise (pence)
Exercisable at the end of the year
2023
£m
9
10
8
27
2022
£m
8
12
5
25
2023
Number
9,360,595
3,181,041
(2,818,276)
(1,181,767)
(1,198)
8,540,395
1.9
872
1,228
–
2022
Number
10,081,598
2,482,423
(2,943,603)
(86,684)
(173,139)
9,360,595
2.5
1,021
1,245
15,381
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27 Share-based payments continued
Details of the different types of awards are as follows:
Performance Share Awards
Performance Share Awards are granted to employees and Executive Directors under the 3i Group Discretionary Share Plan 2020
(and predecessor rules).
Employees
Performance Share Awards granted to employees (other than Executive Directors) after the financial year end are subject to performance
conditions based on absolute and relative Total Shareholder Return over three financial years. Awards performance vest, to the extent they
satisfy the performance conditions, following the three-year performance period and are then released in the third year from the date of grant
together with a payment equal to the dividends which would have been paid on the released shares during the period from grant to release.
The method of settlement can either be equity or cash depending on the type of award. The equity awards are measured using the Monte
Carlo model. The model simulates the Total Shareholder Return which has been incorporated into the fair value at grant date by applying
a discount to the valuation obtained.
Executive Directors
Performance Share Awards granted to Executive Directors after the financial year end are subject to performance conditions based on
absolute and relative Total Shareholder Return over three financial years. Awards performance vest, to the extent they satisfy the performance
conditions, following the three-year performance period. Outstanding Executive Director awards granted up to and including 2019 are
released, to the extent they have performance vested, together with a payment equal to the value of the dividends which would have been
paid on the released shares during the period from grant to release as to 50% in year three and 25% in each of years four and five. Executive
Director Performance Share Awards granted from 2020 onwards are released, to the extent they have performance vested, in the fifth year
from the date of grant together with a payment equal to the value of the dividends that would have been paid on the released shares during
the period from grant to release. The method of settlement is equity. These awards are measured using the Monte Carlo model. The model
simulates the Total Shareholder Return which has been incorporated into the fair value at the grant date by applying a discount to the
valuation obtained. The features of the Group’s share schemes for Executive Directors are described in the Directors’ remuneration
report on pages 131 to 152.
Restricted Share Awards
Restricted Share Awards are granted under the 3i Group Deferred Bonus Plan 2020 (and predecessor rules) and are granted to employees
and Executive Directors after the financial year end and are subject to continued service conditions. The shares subject to the awards are
transferred to the participants on grant subject to forfeiture if the service condition is not fulfilled and cease to be subject to forfeiture in equal
proportions over the three years following grant or over four years in the case of certain such awards granted to members of the Executive
Committee. Cash dividends are received by participants on the shares during the period in which they remain subject to forfeiture. The
method of settlement can either be equity or cash depending on the type of award. The equity awards are measured using the Black Scholes
model.
Infrastructure Performance Fee Share Awards
Infrastructure Performance Fee Share Awards are granted to employees in the Infrastructure team under the 3i Special Share Award Plan.
Awards are granted to employees after the financial year end and are subject to performance conditions based on receipt by 3i plc of certain
instalments of performance fees payable by 3i Infrastructure plc under the terms of its Investment Management Agreement with 3i. The shares
vest and are released, subject to satisfying the performance conditions, in equal instalments in the first and second years after grant together
with payments equal to the value of the dividends which would have been paid on the released shares during the period from grant to
release. If the performance condition is not met in year one, the award does not lapse but is retested in year two when some or all of the
shares may vest. The method of settlement can either be equity or cash depending on the type of award. The equity awards are measured
using the Black Scholes model.
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27 Share-based payments continued
Measurement of fair values
The fair values of the plans have been measured using either the Monte Carlo model or Black Scholes model for equity share awards.
The inputs used in the measurement of the grants are based on the following assumptions:
Share price at grant date (pence)1
Fair value at grant date (pence)1
Exercise price (pence)
Expected volatility (weighted average)
Expected life (weighted average)
Dividend yield
Risk free interest rate
Monte Carlo model
Black Scholes
2023
1,171
449
–
32.6%
4 years
–
1.70%
2022
1,220
499
–
28.2%
4 years
–
0.16%
2023
1,102
971
–
31.0%
3 years
4.2 %
1.72%
2022
1,282
1,177
–
30.8%
3 years
3.0 %
0.22%
1 Where share awards are granted on multiple dates the average price is disclosed.
Expected volatility was determined by reviewing share price volatility for the expected life of each award up to the date of grant.
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 2023 was
11 million (31 March 2022: 10 million). Dividend rights have been waived on these shares. During the year, the trust acquired 2 million (2022:
4 million) shares at an average price of 1,271 (2022: 1,348) pence per share. The total market value of the shares held in trust based on the year
end share price of 1,685 pence (31 March 2022: 1,389 pence) was £180 million (31 March 2022: £142 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 management section
on pages 78 to 91. This Note provides further detail on financial risk management, cross-referring to the Risk management 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 153 in the 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 227 and 226.
Action is the largest asset in the Group’s investment portfolio. A 5% increase or decrease in value would result in a £559 million (31 March
2022: £358 million) or £(559) million (31 March 2022: £(358) million) impact on the overall value.
Credit risk
The Group is subject to credit risk on its unquoted investments, derivatives, cash and deposits. The maximum exposure is the balance sheet
amount. The Group’s cash is held with a variety of counterparties with a minimum rating above A- with 78% of the Group’s unrestricted surplus
cash held on demand in AAA rated money market funds (31 March 2022: 88%).
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 13.
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28 Financial risk management continued
Liquidity risk
The liquidity outlook is monitored at least 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, as described on page 78 of the Risk management section. The table below analyses the maturity of the Group’s gross contractual
liabilities.
Financial liabilities
As at 31 March 2023
Gross commitments:
Fixed loan notes
Committed multi-currency facility
Carried interest and performance fees payable within one year
Trade and other payables
Lease liabilities
Derivative financial instruments
Total
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
Due more
than 5 years
£m
36
2
34
76
5
1
154
36
1
–
–
4
2
43
110
2
–
–
1
1
114
1,070
–
–
4
–
–
1,074
£m
Total
£m
1,252
5
34
80
10
4
1,385
Gross commitments include principal amounts and interest and fees where relevant. Carried interest and performance fees payable within
non-current liabilities of £43 million (31 March 2022: £42 million) has no stated maturity as it results 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 within
non-current liabilities is shown after discounting, which has an impact of £2 million (31 March 2022: £2 million).
As at 31 March 2022
Gross commitments:
Fixed loan notes
Committed multi-currency facility
Carried interest and performance fees payable within one year
Trade and other payables
Lease liabilities
Derivative financial instruments
Total
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
Due more
than 5 years
£m
250
1
35
80
4
–
370
36
1
–
–
5
–
42
110
3
–
–
5
–
118
1,106
–
–
14
–
–
1,120
£m
Total
£m
1,502
5
35
94
14
–
1,650
The Company disclosures are the same as those for the Group with the following exceptions: carried interest and performance fees payable
due within one year is nil (31 March 2022: nil), trade and other payables due within one year is £728 million (31 March 2022: £667 million), trade
and other payables due more than five years nil (31 March 2022: nil) and lease liabilities due within one year nil (31 March 2022: nil), lease
liabilities due between one and two years nil (31 March 2022: nil) and lease liabilities due between two and five years nil (31 March 2022: nil).
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 deposits.
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 £2 million (2022: £2 million) for the Group and £1 million (2022: £2 million) for the Company. In addition,
the Group and Company have indirect exposure to interest rates through changes to the financial performance and the valuation of portfolio
companies caused by interest rate fluctuations.
(ii) Currency risk
The Group’s net assets in sterling, euro, US dollar, Danish krone and all other currencies combined are shown in the table on the next page.
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.
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28 Financial risk management continued
The Group considers currency risk on specific investment and realisation transactions. Further information on how currency risk is managed
is provided on page 89.
As at 31 March 2023
Net assets1
Sensitivity analysis
Assuming a 10% movement in exchange
rates against sterling:
Impact on net assets
1 Net assets include impact of foreign exchange hedging.
As at 31 March 2022
Net assets1
Sensitivity analysis
Assuming a 10% movement in exchange
rates against sterling:
Impact on net assets
1 Net assets include impact of foreign exchange hedging.
Sterling
£m
4,797
Euro
£m
10,641
US dollar
£m
1,154
Danish krone
£m
222
Other
£m
30
Total
£m
16,844
n/a
1,064
115
22
3
1,204
Sterling
£m
1,562
Euro
£m
8,953
US dollar
£m
2,033
Danish krone
£m
184
Other
£m
22
Total
£m
12,754
n/a
895
203
18
2
1,118
(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 detailed on page 83 in the Risk management section. A 5% change in the fair value of those investments would
have the following direct impact in profit or loss:
Group
At 31 March 2023
At 31 March 2022
Company
At 31 March 2023
At 31 March 2022
Quoted
investment
£m
42
47
Unquoted
investment
£m
434
285
Quoted
investment
£m
42
47
Investment
in Investment
entity
subsidiaries
£m
392
340
Unquoted
investment
£m
434
285
Total
£m
868
672
Total
£m
476
332
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
Group
2023
£m
6
20
Group
2022
£m
28
17
Company
2023
£m
42
–
Company
2022
£m
54
–
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29 Related parties and interests in other entities continued
Statement of financial position
Carried interest receivable
Group
2023
£m
8
Group
2022
£m
34
Company
2023
£m
99
Company
2022
£m
88
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
Unrealised profits on the revaluation of investments
Portfolio income
Statement of financial position
Unquoted investments
Group
2023
£m
89
18
Group
2023
£m
775
Group
2022
£m
98
20
Group
2022
£m
674
Company
2023
£m
89
17
Company
2023
£m
775
Advisory and management arrangements
The Group acted as Investment Manager to 3i Infrastructure plc (“3iN”), which is listed on the London Stock Exchange, for the year
to 31 March 2023. The following amounts have been recognised in respect of the management relationship:
Statement of comprehensive income
Unrealised (losses)/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
2023
£m
(93)
49
35
29
Group
2023
£m
841
35
Group
2022
£m
137
44
26
27
Group
2022
£m
934
26
Company
2023
£m
(93)
–
–
29
Company
2023
£m
841
–
Company
2022
£m
98
20
Company
2022
£m
674
Company
2022
£m
137
–
–
27
Company
2022
£m
934
–
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
its investment manager. 3i Investments plc received a fee of £8 million (2022: £8 million) from 3i plc, a fellow subsidiary, 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 £108 million (2022: £148 million) for this service.
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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
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
2023
£m
6
2
34
13
–
Group
2023
£m
14
22
64
Group
2022
£m
4
2
35
10
–
Group
2022
£m
14
4
69
No carried interest was paid or accrued for the Executive or non-executive Directors as they do not participate in these schemes (2022: nil).
Carried interest paid in the year to other key management personnel was £7 million (2022: £7 million).
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. 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.
Closed-end limited partnerships
The Group manages a number of closed-end limited partnerships, which are either 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
Unquoted investments
Carried interest receivable
Total
Carrying amount
Assets
£m
98
8
106
Liabilities
£m
–
–
–
Net
£m
98
8
106
Maximum loss
exposure
£m
98
8
106
At 31 March 2022, the carrying amount of assets and maximum loss exposure of unquoted investments and carried interest receivable was
£77 million and £34 million respectively. The carrying amount of liabilities was nil.
At 31 March 2023, the total assets under management relating to these entities was £9.0 billion (31 March 2022: £6.0 billion). The Group
earned fee income of £20 million (2022: £17 million) and a carried interest receivable of £6 million (2022: £28 million) in the year.
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 renegotiated. 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.
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29 Related parties and interests in other entities continued
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, 33 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 2023 are listed below:
Description
Subsidiaries
3i Holdings plc
3i Investments plc
3i plc
3i International Holdings
Investors in Industry plc
3i Assets LLP
3i Corporation
3i Deutschland Gesellschaft für Industriebeteiligungen mbH
Gardens Nominees Limited
Gardens Pension Trustees Limited
3i Europe plc
3i Nominees Limited
3i Osprey GP Limited
3i Nordic plc
3i GP 2004 Limited
3i Ademas LP
The 3i Group Employee Trust
3i International Services plc
3i EFV Nominees A Limited
3i EFV Nominees B Limited
3i India Private Limited
3i Sports Media (Mauritius) Limited
3i EFV GP Limited
3i Research (Mauritius) Limited
IIF SLP GP Limited
3i Buyouts 2010 A LP
3i Buyouts 2010 B LP
3i Buyouts 2010 C LP
Holding/share class
Footnote
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares/cumulative preference 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% partnership interest
n/a
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
85% partnership interest
79% partnership interest
60% partnership interest
1
1
1
1
1
1
2
4
1
1
1
1
1
1
3
3
6
1
1
1
7
8
1
8
3
1
1
1
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30 Subsidiaries and related undertakings continued
Description
GP CCC 2010 Limited
3i GC GP Limited
3i GP 2010 Limited
3i Growth Capital A LP
3i Growth Capital G LP
3i Growth 2010 LP
Strategic Investments FM (Mauritius) Alpha Limited
3i GC Nominees A Limited
3i GC Nominees B Limited
3i India Infrastructure Fund B LP
3i 2004 GmbH & Co. KG
3i General Partner 2004 GmbH
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
Pan European Growth (Nordic) Co-invest 2006-08 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
BAM General Partner Limited
BEIF Management Limited
3i BIIF GP LLP
3i PE 2016-19 A LP
3i Managed Infrastructure Acquisitions GP (2017) LLP
3i Managed Infrastructure Acquisitions GP Limited
3i 2016 Gmbh & Co. KG
3i European Operational Projects GmbH & Co. KG
GP 2016 Limited
3i GP 2016 Limited
3i European Operational Projects GP s.a.r.l
3i SCI Holdings Limited
3i North American Infrastructure Partners, LLC
Holding/share class
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% partnership interest
100% partnership interest
85% partnership interest
70% ordinary shares
100% ordinary shares
100% ordinary shares
99% partnership interest
100% partnership interest
100% ordinary shares
100% partnership interest
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% partnership interest
100% partnership interest
100% partnership interest
100% ordinary shares
100% partnership interest
100% partnership interest
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
80% ordinary shares
Footnote
3
1
1
1
1
1
8
1
1
1
4
4
1
1
1
1
1
1
1
3
1
1
1
1
1
1
1
1
4
4
3
1
10
1
26
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30 Subsidiaries and related undertakings continued
Description
3i Abaco ApS
3i Investments (Luxembourg) S.A.
3i 2019-22 DLP SCSp
3i PE 2019-22 A LP
3i PE 2019-22 B LP
3i PE 2019-22 Warehouse LP
3i 2020 Co-investment LP
3i GP 2019 Limited
3i GP 2020 Limited
3i GP 2019 s.a.r.l
3i GP 2019 (Scots) Limited
3i 2020 Co-investment GP s.a.r.l
3i France SAS
3i IP Acquisitions Limited
3i IP Acquisitions GP LLP
2020 Co-Investment 1 LP
2020 Co-Investment 2 LP
3i IIF GP 2020 Limited
3i IIF GP LLP
Coral LP
3i Benelux B.V.
3i Mountain LP
3i NAI Holdings GP Limited
3i PE 2022-25 A LP
3i PE 2022-25 B LP
3i GP 2022 Limited
3i GP 2022 (Scots) Limited
3i PE 2022-25 A (Lux) SCSp
3i PE 2022-25 B (Lux) SCSp
3i GP 2022 s.a.r.l.
3i North American Infrastructure Fund A LP
3i NAI Holdings LP
3i North American Infrastructure GP, LLC
3i ECW Coinvest GP, LLC
3i RR Coinvest GP, LLC
3i Aura GP (2022) Limited
3i Zephyr GP (2022) Limited
3i Infra GP 2022 (Scots) Limited
3i Infra 2022 Warehouse LP
Holding/share class
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% partnership interest
100% partnership interest
94% partnership interest
100% ordinary shares
100% partnership interest
50% carried interest units
100% ordinary shares
99% partnership interest
100% ordinary shares
100% partnership interest
100% partnership interest
100% ordinary shares
100% ordinary shares
100% partnership interest
100% partnership interest
100% ordinary shares
100% equity units
100% partnership interest
100% equity units
100% equity units
100% equity units
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% partnership interest
Footnote
23
10
10
1
1
3
3
1
3
10
3
10
16
1
1
1
1
1
1
3
12
3
3
1
1
1
3
10
10
10
26
3
26
26
26
1
1
3
3
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30 Subsidiaries and related undertakings continued
Description
Associates
3i Growth Carry A LP
3i Growth Carry B LP
Pan Euro Buyouts (Dutch)A Co-invest 2006-08 LP
Pan European Buyouts (Nordic) Co-invest 2006-08 LP
Global Growth Co-invest 2006-08 LP
Strategic Investments FM (Mauritius) B Limited
3i Growth Capital B LP
Moon Topco GmbH
Layout Holdco A/S
Boketto Holdco Limited
Klara HoldCo S.A.
Shield Holdco LLC
Q Holdco Limited
3i Infrastructure plc
Peer Holding I B.V.
AES Engineering Limited
Chrysanthes 1 s.a.r.l
Carter Thermal Industries Limited
Harper Topco Limited
Orange County Fundo de Investmento EM Particpacoes
Tato Holdings Limited
Nimbus Communications Ltd
Aurela TopCo Gmbh
nexeye holding B.V.
C Medical Holdco, LLC
Crown Holdco BV
3i India Infrastructure Holdings Ltd
Racing Topco GmbH
Panda Holdco LLC
Scandlines Infrastructure ApS
Alinghi 1 S.A.S
SaniSure Holdings GP LLC
New Amsterdam Software GP LLC
Garden & House International GmbH
T&J Holdco Limited
WHCG GP LLC
Hydra Holdco BV
European Bakery Group BV
Himalaya Topco BV
MAIT Group GmbH
Ten23 Health GP LLC
George Topco Limited
Solaia TopCo Gmbh
Balearia Topco B.V.
Kite Topco ApS
Holding/share class
Footnote
25% partnership interest
25% partnership interest
39% partnership interest
26% partnership interest
30% partnership interest
36% ordinary shares
36% partnership interest
49% ordinary shares
49% ordinary shares
47% ordinary shares
43% ordinary shares
49% ordinary shares
42% ordinary shares
29% ordinary shares
49% ordinary shares
43% ordinary shares
49% ordinary shares
32% ordinary shares
42% ordinary shares
40% equity units
27% ordinary shares
30% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
21% ordinary shares
49% ordinary shares
49% ordinary shares
35% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
36% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
49% ordinary shares
3
3
1
1
39
8
1
13
14
15
10
32
18
17
19
20
10
21
22
25
28
30
5
27
2
12
8
24
2
31
11
2
32
33
9
32
41
42
40
34
32
35
36
37
38
There are no joint ventures or other significant holdings. The 20 large portfolio companies by fair value are detailed on pages 227 and 228.
The combination of the table above and that on pages 227 and 228 is deemed by the Directors to fulfil the requirements under IFRS 12
on the disclosure of material subsidiaries.
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Footnote
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
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17
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23
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Address
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
Seelbüde 13, 36110 Schlitz, Germany
13 Castle Street, St Helier, JE1 1ES, Jersey
Level 7, The Capital B-Wing, Bandra Kurla Complex, Bandra East, Mumbai, 400051, India
5th Floor, Ebene Esplanade, 24 Bank Street, Cybercity, Ebene, Mauritius
Floor 2, Trident 3, Trident Business Park, Styal Road, Manchester, M22 5XB, UK
9 Rue Sainte Zithe, L-2763 Luxembourg, Grand Duchy of Luxembourg
16 place de l’Iris, 92 400 Courbevoie, France
Cornelis Schuytstraat 72, 1071JL Amsterdam, Netherlands
Einsteinring 10, 85609 Aschheim, Germany
Mørupvej 16 Mørup, 7400 Herning, Denmark
New Mill, New Mill Lane, Witney, Oxfordshire, OX29 9SX, UK
29-31, rue de Berri, 75008 Paris, France
11-15 Seaton Place, St. Helier, JE4 0QH, Jersey
1 Bartholomew Lane, London, EC2N 2AX, UK
Perenmarkt 15, Zwaagdijk East, 1681PG, Netherlands
Bradmarsh Business Park, Mill Close, Rotherham, South Yorkshire, S60 1BZ, UK
90 Lea Ford Road, Birmingham, B33 9TX, UK
1st James Court, Whitefriars, Norwich, Norfolk, NR3 1RU, UK
Nybrogade 12, 1203 København K, Denmark
Schanzenstr. 6-20, Gebäude 2.08, 51063 Cologne, Germany
Avenida Brigadeiro Faria Lima, 2055, 19 andar, 01452-001 – Sao Paulo, SP, Brazil
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle, Delaware, 19801, USA
Papland 21, 4206CK Gorinchem, Netherlands
Thor Specialities (Uk) Ltd, Wincham Avenue, Wincham, Northwich, England, CW9 6GB, UK
Park a Eco Vendee Sud Loire, 85600, Bouffere, France
44 Oberoi Complex, Andheri (West), Mumbai, India
Havneholmen 25, 8. Kobenhavn V, 1561, Denmark
251 Little Falls Drive, Wilmington, DE 19808, New Castle, USA
Bahrenfelder Chaussee 49, 22761, Hamburg, Germany
Berner Feld 10, 78628 Rottweil, Germany
Milton Gate, 60 Chiswell Street, London, EC1Y 4AG, UK
c/o Latham & Watkins LLP, Reuterweg 20, Frankfurt am Main, 60323, Germany
Herengracht 262, 1016 BV Amsterdam, Netherlands
c/o Bruun & Hjejle, Nørregade 21, Copenhagen, 1165, Denmark
2nd Floor, Gaspé House, 66-72 Esplanade, St Helier, JE1 1GH, Jersey
Aalsvoort 101, 7241 MB Lochem, Netherlands
Weidehek 46, 4824 AS Breda, Netherlands
Kronosstraat 2, 5048 CE Tilburg, Netherlands
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KPMG LLP’s independent auditor’s report
1. Our opinion is unmodified
In our opinion:
• the financial statements of 3i Group plc give a true and fair view of the state of the Group’s and of the Parent Company’s affairs
as at 31 March 2023, and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
• the Parent Company financial statements have been properly prepared in accordance with UK-adopted international accounting
standards as applied in accordance with the provisions of the Companies Act 2006; and
• the Group and Parent Company financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
What our opinion covers
We have audited the Group and Parent Company financial statements of 3i Group plc (“the Group”) for the year ended 31 March 2023
(FY2023) included in the Annual Report and Accounts, which comprise:
Group (3i Group plc and its subsidiaries)
Parent Company (3i Group plc)
Consolidated statement of comprehensive income
Company statement of financial position
Consolidated statement of financial position
Company statement of changes in equity
Consolidated statement of changes in equity
Company cash flow statement
Consolidated cash flow statement
Notes to the Consolidated Financial Statements,
including the summary of significant accounting policies
Notes to the Parent Company Financial Statements,
including the summary of significant accounting policies
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit
opinion and matters included in this report are consistent with those discussed and included in our reporting to the Audit and Compliance
Committee (“ACC”).
We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to listed public interest entities.
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2. Overview of our audit
Items
4.1
4.2
Key Audit Matters (Group
and Parent Company)
Valuation
of Unquoted
Investments
Valuation of
investment entity
subsidiaries after
deducting carried
interest payable
in investment
entities as a liability
Newly identified risk
Similar risk to FY2022
Increased risk since FY2022
Decreased risk since FY2022
Factors driving
our view of risks
The year ended 31 March 2023 is our third year as
the Group’s auditor. Following our FY2022 audit,
and considering developments affecting the Group
since then, we have updated our risk assessment.
In early 2022, the conflict between Russia and Ukraine
intensified geopolitical tensions which continued during
2023. In addition, during 2022, energy costs increased
significantly, impacting all sectors of the economy
globally, and this was one of the main drivers for the high
inflation not seen in major economies for decades. This
required central banks to adopt a series of monetary
policy measures, primarily through increases in interest
rates, to seek to contain inflation. Late in 2022, food
supply chains also faced disruption which contributed
to the high levels of cost inflation. All these factors
contributed to an ongoing ‘cost of living’ crisis for many
people, squeezing people’s disposable income, which
in turn impacted many sectors the Group invest in,
such as retail, travel and leisure.
In late 2022 and early 2023, China ended its zero-COVID
policy. While it caused short term supply chain issues
due to the sudden increases in COVID cases, in the long
run, it is a positive move for the global supply chain,
with the caveat that the tension between US and China
continues.
Based on the predictions formed by OECD in March
2023, major economies will see recovery in 2023 and
2024, with the exception of the UK which are expected
to see the economy contracting in both years.
Close to 3i’s financial year end, the global banking sector
saw turmoil with a small number of mainstream banks
in the US and Switzerland having either collapsed
or required rescue. These events have further added
market uncertainties.
These geopolitical and macroeconomic factors have
had a significant impact on the performance of a number
of portfolio companies invested in by 3i. This means
the level of judgement required to be exercised by
the Group and Parent Company in valuations of
unquoted investments, in particular as a result of
volatility in earnings (including earnings adjustments)
and comparable company multiples, continued to
be a focus area.
Carried Interest payable in investment entity subsidiaries
has been similarly impacted, as its calculation is primarily
driven by the valuation of the investment portfolio as at
the year end.
As part of our risk assessment, we have maintained
our focus on the valuation of the unquoted investment
portfolio held directly and by investment entity
subsidiaries and on completeness and accuracy
of carried interest payable included in the valuation
of investment entities. We have designed our audit
procedures accordingly. This has included specific
focus on key assumptions adopted by management.
We have further considered the impact of the
geopolitical uncertainty and macroeconomic downturn
on the portfolio companies. We have also designed
additional procedures over the largest asset in the
portfolio, Action.
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Audit and compliance
committee (“ACC”)
interaction
During the year, the ACC met 6 times. KPMG are invited to attend all ACC meetings and are provided
with an opportunity to meet with the ACC in private sessions without the Executive Directors being present.
For each Key Audit Matter, we have set out communications with the ACC in section 4, including matters
that required particular judgement for each. The matters included in the Audit and Compliance Committee
Chair’s report on page 114 are materially consistent with our observations of those meetings.
Our independence
Total audit fee
£2.8m
Audit related fees
(including interim
review)
Non-audit fee as
a % of audit fee %
Date first
appointed
Uninterrupted
audit tenure
Next financial
period which
requires a tender
Tenure of Group
signing partner
(FY2022: £2.7m)
£0.3m
(FY2022: £0.26m)
10%
(FY2022: 11.1%)
25 June 2020
3 years
31 March 2031
3 years
We have fulfilled our ethical responsibilities under, and
we remain independent of the Group in accordance
with, UK ethical requirements, including the FRC Ethical
Standard as applied to listed public interest entities.
Apart from the matter noted below, we have not
performed any non-audit services during FY2023
the year ended 31 March 2023 or subsequently
which are prohibited by the FRC Ethical Standard.
During 2023, we identified that certain KPMG member
firms had provided preparation of local GAAP financial
statement services over the periods ending 31 March
2018 to 31 March 2023 to some subsidiaries of
controlled portfolio companies of the group.
The services, which have been terminated, were
administrative in nature and did not involve any
management decision-making or bookkeeping.
The work in each case had no direct or indirect effect
on 3i Group plc’s consolidated financial statements.
In our professional judgement, we confirm that based
on our assessment of the breach, our integrity and
objectivity as auditor has not been compromised and
we believe that an objective, reasonable and informed
third party would conclude that the provision of this
service would not impair our integrity or objectivity for
any of the impacted financial years. The Audit and
Compliance Committee have concurred with this view.
We were first appointed as auditor by the shareholders
for the year ended 31 March 2021. The period of total
uninterrupted engagement is for the three financial
years ended 31 March 2023.
The Group engagement partner is required to rotate
every five years. As these are the third set of the
Group’s financial statements signed by Jonathan Mills,
he will be required to rotate off after the FY2025 audit.
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Materiality
(item 6 below)
The scope of our work is influenced by our view
of materiality and our assessed risk of material
misstatement.
We have determined overall materiality for the Group
financial statements as a whole at £141m (FY2022:
£108m) and for the Parent Company financial
statements as a whole at £124m (FY2022: £92m).
A key judgement in determining materiality was
the most relevant metric to select as the benchmark,
by considering which metrics have the greatest bearing
on shareholder decisions.
Consistent with FY2022, we determined that Total
Assets remains the benchmark for the Group as the
valuation of the investment portfolio remains the key
financial measure. As such, we based our Group
materiality on Total Assets, of which it represents 0.79%
(FY2022: 0.77%).
Materiality for the Parent Company financial statements
was determined with reference to a benchmark of
Parent Company Total Assets of which it represents
0.70% (FY2022: 0.66%).
Materiality levels used in our audit
l FY2022 £m
l FY2023 £m
Group
Group Materiality
GPM
PLC
Group Performance Materiality
Parent Company Materiality
AMPT
Reporting Differences Threshold
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We have performed risk assessment and planning
procedures to determine which of the Group’s
components are likely to include risks of material
misstatement to the Group financial statements, the type
of procedures to be performed and the extent of
involvement required. The Parent Company is the only
component in scope for full scope audit of financial
information for consolidation purposes. This is consistent
with the prior year.
The component within the scope of our work accounted
for the percentages illustrated opposite.
We have performed audit procedures centrally across
the Group, as set out in more detail in item 7 In addition,
we have performed Group level analysis on the remaining
components to determine whether further risks of
material misstatement exist in those components.
We consider the scope of our audit, as communicated
to the Audit and Compliance Committee, to be
an appropriate basis for our audit opinion.
Coverage of Group financial
statements
Total Profits and losses that made up
group before tax
Total assets
Revenue
l Full scope audits
l Remaining components
In planning our audit, we have considered the potential impacts of climate change on the Group’s business
and its financial statements.
Climate change impacts the Group in a variety of ways including the impact of climate risk on investment
valuations, potential reputational risk associated with the Group’s delivery of its climate related initiatives,
and greater emphasis on climate related narrative and disclosure in the annual report.
The Group’s exposure to climate change is primarily through the portfolio companies, as the key valuation
assumptions and estimates may be impacted by climate change risks.
As a part of our audit, we have made enquiries of management to understand the extent of the potential
impact of climate change risk on the Group’s financial statements and the Group’s preparedness for this. We
have performed a risk assessment of how the impact of climate change may affect the financial statements and
our audit, in particular over the valuation of portfolio companies. We held discussions with our own climate
change professionals to challenge our risk assessment. For the biggest asset in the portfolio, Action, we read
its sustainability report to understand the climate change risks and considered the impact on its valuations.
On the basis of the risk assessment procedures performed above, we concluded that, while climate change
posed a risk to the determination of the valuation of portfolio companies due to the potential impact on the
maintainability of valuation earnings or free cash flow forecast, the risk was not significant when we considered
the portfolio of investments. As a result, there was no material impact from this on our key audit matters.
We have also read the disclosure of climate related information in the front half of the annual report as set
out on pages 60 to 66 and considered consistency with the financial statements and our audit knowledge.
We have not been engaged to provide assurance over the accuracy of these disclosures.
Group scope
(item 7 below)
The impact of climate
change on our audit
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3. Going concern, viability and principal risks and uncertainties
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Parent
Company or to cease their operations, and as they have concluded that the Group’s and the Parent Company’s financial position means that
this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).
Going concern
We used our knowledge of the Group and Parent Company, their industry, and the general
economic environment to identify the inherent risks to its business model and analysed how
those risks might affect the Group’s and Parent Company’s financial resources or ability to
continue operations over the going concern period. The risks that management considered
most likely to adversely affect the Group’s and Parent Company’s available financial resources
over this period are:
• Continued geopolitical tension and macroeconomic downturn, including persistent
inflation, cost of living crisis and market uncertainties, impacting the performance of
portfolio companies, including their liquidity (which may require 3i to provide further
liquidity support to portfolio companies);
• A material downturn in performance of the Group’s largest portfolio company, Action; and
• A combination of the two scenarios.
We critically assessed the assumptions in the Directors’ downside scenarios relevant to
liquidity metrics, in particular, in relation to the continued impact of macroeconomic downturn
and geopolitical uncertainties on the severely impacted portfolio companies, the expected
recovery for these companies, and the potential liquidity support required. We assessed
whether the scenarios applied take into account all reasonably possible downsides.
Our procedures also included an assessment of whether the going concern disclosure in
Accounting Policy A to the financial statements gives a complete and accurate description of
the Directors’ assessment of going concern.
Accordingly, based on those procedures, we found the Directors’ use of the going concern
basis of accounting without any material uncertainty for the Group and Parent Company to be
acceptable. However, as we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements that were reasonable at
the time they were made, the above conclusions are not a guarantee that the Group or the
Parent Company will continue in operation.
Our conclusions
• We consider that the Directors’ use of the
going concern basis of accounting in the
preparation of the financial statements
is appropriate;
• We have not identified, and concur with
the Directors’ assessment that there is not,
a material uncertainty related to events or
conditions that, individually or collectively,
may cast significant doubt on the Group’s
or Parent Company's ability to continue
as a going concern for the going concern
period;
• The Parent Company is in a net current
liabilities position. The current liabilities
primarily consist of amounts due to
subsidiaries, and the Parent Company
holds quoted investments within non-
current assets with the value in excess
of the current liabilities;
• We have nothing material to add or draw
attention to in relation to the Directors’
statement in Accounting Policy A to the
financial statements on the use of the
going concern basis of accounting with
no material uncertainties that may cast
significant doubt over the Group and
Parent Company’s use of that basis for the
going concern period, and we found the
going concern disclosure in Accounting
Policy A to be acceptable; and
• The related statement under the Listing
Rules set out on page 124-125 is
materially consistent with the financial
statements and our audit knowledge.
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Our reporting
We have nothing material to add or draw
attention to in relation to these disclosures.
We have concluded that these disclosures
are materially consistent with the financial
statements and our audit knowledge.
KPMG LLP’s independent auditor’s report continued
Disclosures of emerging and principal risks and longer-term viability
Our responsibility
We are required to perform procedures to identify whether there is a material inconsistency
between the Directors’ disclosures in respect of emerging and principal risks and the viability
statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation
to:
• the Directors’ confirmation within the Principal risks and mitigations statement that they
have carried out a robust assessment of the emerging and principal risks facing the Group,
including those that would threaten its business model, future performance, solvency and
liquidity;
• the Principal risks and mitigations disclosures describing these risks and how emerging risks
are identified and explaining how they are being managed and mitigated; and
• the Directors’ explanation in the Viability Statement of how they have assessed the
prospects of the Group, over what period they have done so and why they considered that
period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group 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.
We are also required to review the Viability statement set out on page 124-125 under
the Listing Rules.
Our work is limited to assessing these matters in the context of only the knowledge acquired
during our financial statements audit. As we cannot predict all future events or conditions and
as subsequent events may result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of anything to report on these
statements is not a guarantee as to the Group’s and Parent Company’s longer-term viability.
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4. Key audit matters
What we mean
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which
had the greatest effect on:
• the overall audit strategy;
• the allocation of resources in the audit; and
• directing the efforts of the engagement team.
We include below the Key Audit Matters (unchanged from FY2022) in decreasing order of audit significance together with our key audit
procedures to address those matters and our results from those procedures. These matters were addressed, and our results are based
on procedures undertaken, for the purpose of our audit of the financial statements as a whole. We do not provide a separate opinion
on these matters.
4.1 Valuation of unquoted investments (Group and Parent Company)
Financial Statement Elements
Our assessment of risk vs FY2022
Our results
Unquoted investments – Group
(Note 11, 13)
Unquoted investments – Parent Company
(Note 11, 13)
FY2023
FY2022
£8,677m
£5,708m
£8,677m
£5,708m
Our assessment is the risk is similar to
FY2022.
FY2023:
Acceptable
FY2022:
Acceptable
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Description of the Key Audit Matter
Our response to the risk
Subjective valuation
The proprietary investment portfolio comprises a number of
unquoted investments. These are held by the Group and the Parent
Company, both directly and indirectly within unconsolidated
investment entity subsidiaries whose fair value consists primarily
of the valuation of the unquoted investments it holds (Refer
to section 4.2 for valuation of investment entity subsidiaries).
As these investments are unquoted and illiquid, the fair value
is determined through the application of valuation techniques.
The application of valuation techniques involves the exercise
of significant judgement by the Group and Parent Company in
relation to the assumptions and inputs into the respective models
(e.g., maintainable earnings, earnings multiple, and discount rate).
During the year, a number of portfolio companies faced challenging
trading conditions primarily driven by geopolitical tensions and
macroeconomic downturn. The impact of these events on individual
portfolio companies vary. Accordingly, the level of judgement
required to be exercised by the Group and the Parent Company
to determine maintainable earnings and earnings multiple remain
high in FY2023.
We have considered the impact of the geopolitical uncertainty
and macroeconomic downturn (including supply chain issues
and the cost of living crisis (inflationary)) in our risk assessment
and have designed our audit procedures accordingly.
The effect of these matters is that, as part of our risk assessment,
we determined that the subjective estimates in fair value
measurement of unquoted investments, as detailed above, have
a high degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality for the financial
statements as a whole, and possibly many times that amount.
Our procedures to address the risk included:
Control design: We obtained an understanding of any key changes
to the processes and controls to determine the fair value of
unquoted investments. We documented and assessed the design
and implementation of the investment valuation processes and
controls. We performed the tests below rather than seeking to rely
on any of these controls because the nature of the balance is such
that we would expect to obtain audit evidence primarily through
the detailed procedures described.
Control observation: We attended quarterly Valuations Committee
meetings with the Directors and management to assess their
discussion and review of the investment valuations.
Benchmarking assumptions: We challenged the Group and Parent
Company on key judgements affecting investee portfolio company
valuations, such as the maintainability of the earnings used in
valuations, the determination of earnings multiples (with reference
to a selection of comparable companies’ earnings multiples),
projected cash flows, discount factors and terminal value for
discounted cash flow valuations. We challenged the assumptions
around maintainability of earnings based on the plans of investee
portfolio companies and whether these are achievable. Our work
considered the current macro-economic conditions, including
the cost of living crisis. and geopolitical uncertainties.
Our valuation expertise: For a sample of investments, selected
based on audit materiality and risk profile of each investment,
we used our own valuations specialists to assist us in assessing
the principles and appropriateness of the valuation methodology,
critically reviewing the key assumptions, and independently
providing a reasonable range for earnings multiples.
Understanding of the business: For the largest asset in the
portfolio, Action, we visited Action’s Head Office in the Netherlands,
an Action store in Amsterdam, and a distribution centre in the
Netherlands, to observe its operations to enhance our business
understanding. We also held discussions with Action management
and the external audit team for Action to understand the business
strategy, how accounting estimates are made and any key audit
findings.
Historical comparisons: We assessed investment realisations in
the period and compared actual investment sales proceeds to prior
valuations to understand the reasons for significant variances and
determine whether they are indicative of bias and error in the
Group’s approach to valuations.
Assessing transparency: We considered the appropriateness,
in accordance with relevant accounting standards, of the disclosures
in respect of unquoted investments and the effect of changing one
or more inputs to reasonably possible alternative valuation
assumptions.
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Communications with the 3i Group plc Audit and Compliance Committee and Valuations committee
Our discussions with and reporting to the Audit and Compliance Committee and the Valuations Committee included:
• Our approach to the audit of the fair value of the unquoted investment portfolio including details of our planned substantive
procedures and the extent of our control reliance.
• Our conclusions on the appropriateness of 3i’s fair value methodology and policy.
• Our conclusions on the appropriateness of the valuation outcome for individual portfolio companies and, for the sample of investments
subject to valuation specialists’ review, an indication of where the Group’s valuations multiple (where applicable) lays within our
reasonable range.
• The adequacy of the sensitivity disclosures, particularly as they relate to valuation inputs.
Areas of particular auditor judgement
Auditor judgement is required to assess whether the directors' estimate of the following key assumptions fall within an acceptable range:
• For assets valued using an earnings multiple approach:
– Determination of valuation multiples
– Determination of maintainable earnings (including any earnings adjustments)
• For assets valued using a discounted cash flow approach:
– Discount rate
– Projected cash flows
– Terminal value exit multiple
– Terminal value earnings
Our results
Based on the risk identified and our procedures performed, we consider the valuation of the unquoted investments to be acceptable
(FY2022: acceptable).
Further information in the Annual Report and Accounts: See the Audit and Compliance Committee Report on page 114-118 and the Valuation
Committee report on page 126-130 for details on how the committees considered Valuation as an area of significant attention, and page 182
for the accounting policy for unquoted investments.
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4.2 Valuation of investment entity subsidiaries after deducting carried interest payable in investment entity subsidiaries
as a liability (Group and Parent Company)
Financial Statement Elements
Our assessment of risk vs FY2022 Our results
Investments in investment entity subsidiaries –
Group (Note 12,13)
Interest in Group entities – Parent Company
(Note 23)
Carried interest payable recognised in
investment entity subsidiaries (Note 15)
FY2023
£7,844
FY2022
£6,791
£7,867
£6,801
£1,274m
£885m
Our assessment is the risk
is similar to FY2022.
FY2023: Acceptable
FY2022: Acceptable
Description of the Key Audit Matter
Our response to the risk
The valuation of investment entity subsidiaries is primarily driven
by the valuation of unquoted investments held in investment entity
subsidiaries and the carried interest liabilities of the investment entity
subsidiaries. The risks attributable to the unquoted investments held
in investment entity subsidiaries are consistent with those risks
in section 4.1 above in respect of unlisted investments.
Carried interest payable is a liability for the investment entity
subsidiaries which reduces the Net Asset Value (‘NAV’) for investment
entity subsidiaries. Carried interest payable is calculated as a function
of the investment returns that would be achieved if the investments
within each fund or scheme were realised at reported fair value at the
year-end date, subject to the relevant hurdle rates or performance
conditions (as set out in relevant limited partnership agreements)
being met.
Calculation error
Due to the number of bespoke, complex agreements and the
manual nature of the calculation and recognition process, there
is an increased risk of error in relation to carried interest payable.
The financial statements (Note 15) disclose the sensitivity estimated
by the Group and the Parent Company.
Our procedures to address the risk included:
Subjective valuation
Our audit procedures for the valuation of unquoted investments held
in investment entity subsidiaries are consistent with those outlined
in section 4.1.
Calculation error
Control design: We obtained an understanding of the Group
and Parent Company’s processes to determine the carried interest
payable. We documented and assessed the design and
implementation of the processes and controls. We performed the
tests below rather than seeking to rely on any of the Group’s and
Parent Company’s controls because the nature of the balance
is such that we would expect to obtain audit evidence primarily
through the detailed procedures described.
Methodology implementation: We agreed the methodology used
in management’s calculations to the relevant limited partnership
agreements.
Reperformance: We vouched key inputs, including estimated
valuations, relevant hurdles, and performance obligations, to
supporting documentation. We independently reperformed
calculations and compared our reperformance to management’s
calculations.
Completeness: To assess the completeness of carry expense/
payable recorded, we reperformed calculations of the funds’
investment returns and compared them to the relevant hurdle rates
or performance conditions.
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Communications with the 3i Group plc Audit and Compliance Committee
Our discussions with and reporting to the Audit and Compliance Committee included:
• Our approach to the audit of the fair value of the unquoted investment portfolio including details of our planned substantive
procedures and the extent of our control reliance.
• Our conclusions on the appropriateness of 3i’s fair value methodology and policy.
• Our conclusions on the appropriateness of the valuation outcome for individual portfolio companies and, for the sample of investments
subject to valuation specialists’ review, an indication of where the Group’s valuations multiple (where applicable) lays within our
reasonable range.
• The adequacy of the sensitivity disclosures, particularly as they relate to valuation inputs.
• Our assessment of whether an overstatement identified through these procedures was material.
• Our approach to the audit of carried interest payable.
• The results of our work over the carried interest payable balance held within investment entities.
Areas of particular auditor judgement
Auditor judgement is required to assess whether the directors' estimate of the following key assumptions fall within an acceptable range:
• For assets valued using an earnings multiple approach:
– Determination of valuation multiples
– Determination of maintainable earnings (including any earnings adjustments)
• For assets valued using a discounted cash flow approach:
– Discount rate
– Projected cash flows
– Terminal value exit multiple
– Terminal value earnings
Our results
Based on the risk identified and our procedures performed, we consider the valuation of investment entity subsidiaries after deducting
carried interest payable in investment entity subsidiaries to be acceptable (FY2022: acceptable).
Further information in the Annual Report and Accounts: See the Audit and Compliance Committee Report on page 114-118 for details
on how the Audit and Compliance Committee considered carried interest as an area of significant attention, and page 186-187 for the
accounting policy and sensitivity disclosure on carried interest payable, and page 180 for accounting policy on investments in subsidiaries.
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5. Our ability to detect irregularities, and our response
Fraud – identifying and responding to risks of material misstatement due to fraud
Fraud risk assessment
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions
that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud.
In this risk assessment we considered the following:
• Our meetings throughout the year with the Group General Counsel and Head of Compliance including
obtaining and reviewing supporting documentation such as;
– Board and Audit and Compliance Committee minutes;
– Internal audit reports;
– Internal risk registers; and
– Breaches registers.
• Enquiries of directors, finance team, the Group General Counsel, the Head of Compliance, internal audit,
and the Audit and Compliance Committee as to whether they have knowledge of any actual, suspected,
or alleged fraud.
• Consideration of the Group’s remuneration policies, key drivers for remuneration and bonus levels; and
• Discussions among the engagement team regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud. The engagement team includes audit partners and staff
who have extensive experience of working with companies in the same sectors as 3i operates, and this
experience was relevant to the discussion about where fraud risks may arise.
We communicated identified fraud risks throughout the audit team and remained alert to any indications
of fraud throughout the audit.
As required by auditing standards, and taking into account possible pressures to meet performance targets,
we performed procedures to address the risk of management override of controls, in particular the risk that
Group management may be in a position to make inappropriate accounting entries and the risk of bias in
accounting estimates and judgements such as the valuation of the unquoted investment portfolio.
On this audit we assessed there to be no fraud risk related to revenue recognition because the Group
has a relatively simple revenue model with no material estimation or judgement; the simple nature and low
volume of individual revenue transactions means there is a remote risk of material misstatement from
fraudulent manipulation; and opportunities for a material misstatement due to fraudulent revenue
recognition are limited due to the nature of the portfolio income received.
We identified additional fraud risks relating to the valuation of unquoted investments held on balance sheet
and within investment entity subsidiaries. As these investments are unquoted and illiquid, they are valued
using valuation techniques. Such techniques are subjective and involve the exercise of judgement by
the Group and Parent Company over areas such as the maintainability of the earnings used in valuations,
the determination of earnings multiples, projected cash flows, discount factors and terminal value for
discounted cash flow valuations. In addition, the valuation of unquoted investments drives the share price
of the Group, which in turn drives remuneration of the Executive Directors, and is a key indicator for their
performance. Due to the highly judgemental nature of these valuations, the reliance on unobservable
inputs, and the linkage to Executive Directors’ remuneration, we consider there to be increased risk of fraud
in relation to the valuation of unquoted investment portfolio. We have further identified that the group CEO
is also the chair of the group’s largest investment, Action. The CEO can influence decisions made from
an operational point of view and could affect the investment held in Action. We consider this to be
increased risk of fraud in relation to the valuation of Action.
We have challenged key judgements and assumptions used in the valuation of unquoted investments.
Further detail in respect to procedures performed over the valuation of unquoted investments is contained
within the key audit matter disclosures in section 4.1 of this report.
We performed substantive audit procedures including:
• Identifying journal entries to test based on risk criteria and comparing the identified entries to supporting
documentation. These included, post close journals, those journals containing unusual pairings or those
containing unusual journal descriptions; and
• Assessing significant accounting estimates, including valuation of unquoted investments and investment
entity subsidiaries after deducting carried interest payable in investment entities as a liability, for any
indicators of management bias.
Risk communications
Fraud risks
Link to KAMs
Procedures to address
fraud risks
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Laws and regulations - identifying and responding to risks of material misstatement
relating to compliance with laws and regulations
Laws and regulations
risk assessment
Identifying and responding to risks of material misstatement related to compliance with laws
and regulations.
We identified areas of laws and regulations that could reasonably be expected to have a material effect
on the financial statements from our general commercial and sector experience ,and through discussion
with the Directors and other management (as required by auditing standards), and from inspection
of the Group’s regulatory and legal correspondence and discussed with the Directors and other
management the policies and procedures regarding compliance with laws and regulations.
As the Group operates in a highly regulated environment, our assessment of risks involved gaining an
understanding of the control environment including the entity’s procedures for complying with regulatory
requirements. Our assessment included inspection of key frameworks, policies, and standards in place,
understanding and evaluating the role of the compliance function in establishing these and monitoring
compliance and testing of related controls around whistleblowing and complaints.
We communicated identified laws and regulations throughout our team and remained alert to any
indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including:
• financial reporting legislation (including related companies legislation)
• distributable profits legislation
• taxation legislation
We assessed the extent of compliance with these laws and regulations as part of our procedures
on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-
compliance could have a material effect on amounts or disclosures in the financial statements, for instance
through the imposition of fines or litigation or the loss of the Group’s license to operate in countries
where the non-adherence to laws could prevent trading in such countries.
We identified the following areas as those most likely to have such an effect:
• Anti-bribery and corruption;
• Competition legislation;
• Pensions legislation;
• Regulatory capital and liquidity
• Health and safety legislations;
• Market abuse regulations; and
• Certain aspects of company legislation recognising the financial and regulated nature of two
of the Group’s subsidiaries and their legal form.
Auditing standards limit the required audit procedures to identify non-compliance with these laws
and regulations to enquiry of the Directors and other management and inspection of regulatory and legal
correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident
from relevant correspondence, an audit will not detect that breach.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected
some material misstatements in the financial statements, even though we have properly planned and
performed our audit in accordance with auditing standards. For example, the further removed non-
compliance with laws and regulations is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit
procedures are designed to detect material misstatement. We are not responsible for preventing non-
compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
Risk communications
Direct laws context
and link to audit
Most significant
indirect law/
regulation areas
Context of the ability
of the audit to detect
fraud or breaches
of law or regulation
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6. Our determination of materiality
The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative considerations
to help us determine the scope of our audit and the nature, timing and extent of our procedures, and in evaluating the effect
of misstatements, both individually and in the aggregate, on the financial statements as a whole.
£141m
(FY2022: £108m)
Materiality for the
financial statements
as a whole
£105m
(FY2022: £81m)
Performance materiality
£7m
(FY2022: £5m)
Audit misstatement
posting threshold
What we mean
A quantitative reference for the purpose of planning and performing our audit.
Basis for determining materiality and judgements applied
Materiality for the Group financial statements as a whole was set at £141m (FY2022: £108m). Consistent
with FY2022, we determined that Total Assets remains the main benchmark for the Group as the valuation
of the investment portfolio remains the key financial measure.
Our Group materiality of £141m was determined by applying a percentage to the Total Assets. When
using an asset related measure to determine overall materiality, KPMG’s approach for listed public
interest entities considers a guideline range 0.5% - 1% of the measure. In setting overall Group materiality,
we applied a percentage of 0.79% (FY2022:0.77%) to the benchmark.
Materiality for the Parent Company financial statements as a whole was set at £124m (FY2022: £92m),
determined with reference to a benchmark of Parent Company total assets, of which it represents 0.70%
(FY2022: 0.66%).
What we mean
Our procedures on individual account balances and disclosures were performed to a lower threshold,
performance materiality, so as to reduce to an acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material amount across the financial statements
as a whole.
Basis for determining performance materiality and judgements applied
We have considered performance materiality at a level of 75% (FY2022: 75%) of materiality for 3i Group
financial statements as a whole to be appropriate.
The Parent Company performance materiality was set at £93m (FY2022: £69m), which equates to 75%
(FY2022: 75%) of materiality for the Parent Company financial statements as a whole.
We applied this percentage in our determination of performance materiality because we did not identify
any factors indicating an elevated level of risk.
What we mean
This is the amount below which identified misstatements are considered to be clearly trivial from a
quantitative point of view. We may become aware of misstatements below this threshold which could
alter the nature, timing and scope of our audit procedures, for example if we identify smaller misstatements
which are indicators of fraud.
This is also the amount above which all misstatements identified are communicated to 3i Group plc’s Audit
and Compliance Committee.
Basis for determining the audit misstatement posting threshold and judgements applied
We set our audit misstatement posting threshold at 5% (FY2022: 5%) of our materiality for the Group
financial statements. We also report to the Audit and Compliance Committee any other identified
misstatements that warrant reporting on qualitative grounds.
The overall materiality for the Group financial statements of £141m (FY2022: £108m) compares as follows to the main financial statement
caption amounts:
Financial Statement
Caption
Group Materiality
as % of caption
Total Gross investment income
Group profit for the year
Total Group Net Assets
FY2023
FY2022
FY2023
FY2022
FY2023
FY2022
£4,666m
£ 4,079m
£4,573m
£ 4,013m
£16,844m
£12,754m
3.0%
2.6%
3.1%
2.7%
0.8%
0.8%
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7. The scope of our audit
What we mean
How the Group audit team determined the procedures to be performed across the Group.
We have performed risk assessment and planning procedures to determine which of the Group’s
components are likely to include risks of material misstatement to the Group financial statements, the type
of procedures to be performed and the extent of involvement required. We have scoped one component
for the audit of financial information for consolidation purposes.
Scope
Number of components
Range of materiality applied
Full scope audit
Audit of one or more account
balances
1 (FY2022:1)
0 (FY2022: 0)
£124m (FY2022:£92m)
n/a (FY2022: n/a)
Group scope
Specified audit procedures
The scope of the audit work performed was fully substantive as we did not rely upon the Group's internal
control over financial reporting.
n/a (FY2022: n/a)
0 (FY2022: 0)
We have performed audit procedures centrally across the Group in the following areas:
• Journal entry analysis, to identify journals with higher risk such as those posted by Group management
and those containing unusual pairings;
• Share based payments; and
• Defined Benefit Pension.
Group audit team
oversight
In addition, we have performed Group level analysis on the remaining components to determine whether
further risks of material misstatement exist in those components.
What we mean
The extent of the Group audit team’s involvement in component audits.
Only the Parent Company was scoped in for full scope audit. As this audit is performed by the Group
engagement team, no additional audit team oversight was required.
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8. Other information in the annual report
The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
All other information
Our responsibility
Our responsibility is to read the other information and, in doing so, consider whether, based on
our financial statements audit work, the information therein is materially misstated or inconsistent
with the financial statements or our audit knowledge.
Our reporting
Based solely on that work we have not
identified material misstatements or
inconsistencies in the other information.
Strategic report and Directors’ report
Our responsibility and reporting
Based solely on our work on the other information described above we report to you as follows:
• we have not identified material misstatements in the strategic report and the Directors’ report;
• in our opinion the information given in those reports for the financial year is consistent with
the financial statements; and
• in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
Our responsibility
We are required to form an opinion as to whether the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with the Companies Act 2006.
Corporate governance disclosures
Our responsibility
We are required to perform procedures to identify whether there is a material inconsistency
between the financial statements and our audit knowledge, and:
• the Directors’ statement that they consider that the annual report and financial statements taken
as a whole is fair, balanced and understandable, and provides the information necessary for
shareholders to assess the Group’s position and performance, business model and strategy;
• the section of the annual report describing the work of the Audit and Compliance Committee,
including the significant issues that the Audit and Compliance Committee considered in relation
to the financial statements, and how these issues were addressed; and
• the section of the annual report that describes the review of the effectiveness of the Group’s risk
management and internal control systems.
Our reporting
In our opinion the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
Our reporting
Based on those procedures, we
have concluded that each of these
disclosures is materially consistent
with the financial statements and
our audit knowledge.
We are also required to review the part of the Corporate Governance Statement relating to the
Group’s compliance with the provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in this
respect.
Other matters on which we are required to report by exception
Our responsibility
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate
Our reporting
We have nothing to report in these
respects.
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.
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9. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 158, the Directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in an annual financial report prepared using the single electronic reporting
format specified in the TD ESEF Regulation. This auditor’s report provides no assurance over whether the annual financial report has been
prepared in accordance with that format.
10. The purpose of our audit work and to whom we owe our responsibilities
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.
Jonathan Mills (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
10 May 2023
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What’s in this section
20 large investments
Portfolio valuation – an explanation
Information for shareholders
Glossary
227
229
230
232
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20 large investments
The 20 investments listed below account for 94% of the portfolio at 31 March 2023 (31 March 2022: 93%). All investments have been assessed
to establish 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.
Investment
Description of business
Action*
General merchandise discount retailer
3i Infrastructure plc*
Quoted investment company,
investing in Infrastructure
Scandlines
Ferry operator between Denmark
and Germany
Cirtec Medical*
Outsourced medical device
manufacturing
Tato
Manufacturer and seller of specialty
chemicals
nexeye*
Value-for-money optical retailer
SaniSure*
Manufacturer, distributor
and integrator of single-use
bioprocessing systems and
components
Royal Sanders*
Private label and contract
manufacturing producer of personal
care products
AES Engineering
Manufacturer of mechanical
seals and support systems
Business line
Geography
First invested in
Valuation basis
Private Equity
Netherlands
2011/2020
Earnings
Infrastructure
UK
2007
Quoted
Scandlines
Denmark/
Germany
2018
DCF
Private Equity
US
2017
Earnings
Private Equity
UK
1989
Earnings
Private Equity
Netherlands
2017
Earnings
Private Equity
US
2019
Earnings
Private Equity
Netherlands
2018
Earnings
Private Equity
UK
1996
Earnings
Residual
cost1
March
2023
£m
653
Residual
cost1
March
2022
£m
623
Valuation
March
2023
£m
11,188
Valuation
March
2022
£m
7,165
305
305
841
934
Relevant
transactions
in the year
£325 million cash
dividend received
£30 million further
as part of the 2020
Co-investment Programme
£29 million dividend
received
530
530
554
533
£38 million dividend
received
172
172
552
513
2
2
411
407
269
269
393
345
Acquisition of Precision
Components from Q
Holding in January 2023
£12 million dividend
recorded
76
76
389
277
Acquisition of Twinsburg
from Q Holding in
December 2022
136
136
369
297
30
30
351
269
£5 million dividend
recorded
3i Group plc | Annual report and accounts 2023
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20 large investments continued
Investment
Description of business
Evernex*
Provider of third-party maintenance
services for data centre infrastructure
Business line
Geography
First invested in
Valuation basis
Private Equity
France
2019
Earnings
Smarte Carte*
Provider of self-serve vended luggage
carts, electronic lockers and concession
carts
Infrastructure
US
2017
DCF
WP*
Global manufacturer of innovative
plastic packaging solutions
Luqom*
Online lighting specialist retailer
WilsonHCG*
Global provider of recruitment process
outsourcing and other talent solutions
MPM*
An international branded, premium
and natural pet food company
Audley Travel*
Provider of experiential tailor-made
travel
BoConcept*
Urban living designer
Dynatect*
Manufacturer of engineered, mission
critical protective equipment
Basic-Fit
Discount gyms operator
Q Holding*
Manufacturer of catheter products
serving the medical device market
Private Equity
Netherlands
2015
Earnings
Private Equity
Germany
2017
Earnings
Private Equity
US
2021
Earnings
Private Equity
UK
2020
Earnings
Private Equity
UK
2015
Earnings
Private Equity
Denmark
2016
Earnings
Private Equity
US
2014
Earnings
Private Equity
Netherlands
2013
Quoted
Private Equity
US
2014
Earnings
*Controlled in accordance with IFRS.
1 Residual cost includes cash investment and interest net of cost disposed.
Residual
cost1
March
2023
£m
299
Residual
cost1
March
2022
£m
285
Valuation
March
2023
£m
305
Valuation
March
2022
£m
291
189
187
300
207
257
239
274
234
245
196
271
448
83
77
196
115
153
139
181
162
271
243
162
117
110
99
160
184
65
11
65
128
102
11
121
129
162
162
117
398
4,018
3,846
17,263
13,127
Relevant
transactions
in the year
Acquisitions of XS
International and Integra
in September 2022
£10 million distribution
received
£34 million further
investment in June 2022
to provide funding for the
acquisition of Brumberg
£6 million further
investment in January 2023
to provide funding for the
acquisition of Personify
Received proceeds of
£332 million following the
disposals of QSR, Precision
Components and
Twinsburg in the year
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Portfolio valuation – an explanation
Policy
The valuation policy is the responsibility of the Board, with additional
oversight and annual review from the Valuations Committee. The
policy is reviewed at least annually, with the last update in January
2023. 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 IPEV guidelines. The policy covers the Group’s Private Equity,
Infrastructure and Scandlines 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 2022). Fair value is 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 material
restrictions on our ability to sell at a time of our choosing.
Note 13 Fair values of assets and liabilities outlines in more detail
the range of valuation methodologies available to us, as well as the
inputs and adjustments necessary for each. Through effective margin
management, operational efficiencies and organic and acquisitive
growth, the portfolio, on the whole, has navigated well through the
macroeconomic conditions. We have considered the fair value of our
investments on a case-by-case basis considering historical, current
and forward looking data. Where forward-looking data forms the
base of a valuation, the accuracy, reliability and maintainability of
these forecasts has been considered.
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.
(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 unquoted 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.
Scandlines unquoted valuation
Scandlines is valued on a DCF basis. This is consistent with
the Infrastructure methodology.
3i Group plc | Annual report and accounts 2023
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Information for shareholders
Financial calendar
Ex-dividend date
Record date
Annual General Meeting
Second FY2023 dividend to be paid
Half-year results (available online only)
First FY2024 dividend expected to be paid
Information on ordinary shares
Shareholder profile: Location of investors at 31 March 2023
UK
North America
Continental Europe
Other international
Share price
Share price at 31 March 2023
High during the year 31 March 2023
Low during the year 17 June 2022
Dividends paid in the year to 31 March 2023
Second FY2022 dividend, paid 22 July 2022
First FY2023 dividend, paid 11 January 2023
Balance analysis summary
Number of holdings
Balance as at 31 March 2023
Thursday 22 June 2023
Friday 23 June 2023
Thursday 29 June 2023
Friday 28 July 2023
November 2023
January 2024
60 %
23 %
14 %
3 %
1,685
1,685
1,059
27.25p
23.25p
Range
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
Individuals
9,788
4,135
108
6
–
–
14,037
Corporate
bodies
Number of
shares
4,219,145
170
380 10,510,652
505 22,460,317
375 133,175,909
147 384,543,340
16 418,403,587
1,593 973,312,950
%
shares
0.43
1.08
2.31
13.68
39.51
42.99
100.00
Total
holdings
Individual
shares
Corporate
shares
58,715
4,160,430
8,958,830
1,551,822
2,377,186 20,083,131
1,314,758 131,861,151
– 384,543,340
– 418,403,587
15,630 16,811,204 956,501,746
9,958
4,515
613
381
147
16
The table above provides details of the number of shareholdings within each of the bands stated in the register of members at 31 March 2023.
It should be noted that because many individuals and institutions hold shares through nominees (such as brokers, investment managers
or investment platforms) the actual number of beneficial owners of shares will be greater than the numbers of holdings in the above table.
3i Group plc | Annual report and accounts 2023
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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
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The 2023 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 https://www.3i.com/investor-relations/
shareholder-centre/.
Investor relations enquiries
For all investor relations enquiries about 3i Group plc, including
requests for further copies of the Annual 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/
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Registrars
For shareholder administration enquiries, including changes
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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).
Information for shareholders continued
The Common Reporting Standard
Tax legislation under the Organisation for Economic Co-operation
and Development (“OECD”) Common Reporting Standard for
Automatic Exchange of Financial Account Information requires
investment trust companies to provide personal information about
certain investors who hold shares in investment trusts to HMRC.
As an investment company, 3i Group plc is therefore required to
provide information annually to HMRC on certain certificated
shareholders and corporate entities. This information includes
country of tax residency as well as details of shares held and
dividends received. HMRC may in turn exchange the information
with the tax authorities of another country or countries in which
the shareholder may be tax resident, where those countries (or tax
authorities in those countries) have entered into agreements to
exchange financial account information. Certain shareholders have
been and will in future be sent a certification form for the purposes
of collecting required information.
Boiler room and other scams
Shareholders should be wary of any unsolicited investment advice,
offers to buy shares at a discounted price or offers to buy 3i
shareholdings. These fraudsters use persuasive and high-pressure
tactics to lure shareholders into scams. We have become aware
of what appears to be an increase in calls to current and former
3i shareholders.
The Financial Conduct Authority (“FCA”) has found that victims
of share fraud are often seasoned investors with victims losing
an average of £20,000.
Please keep in mind that firms authorised by the FCA are unlikely
to contact you unexpectedly with an offer to buy or sell shares.
You should consider getting independent financial or professional
advice before you hand over any money or even share any
information with them.
If you receive any unsolicited approaches or investment advice,
you should proceed with caution. Steps that you might wish to take
could include the following:
• always ensure the firm is on the 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 FCA 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.
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Glossary
3i 2013-2016 vintage includes Aspen Pumps, Audley Travel, Basic-
Fit, Dynatect, Kinolt, ATESTEO, JMJ, Q Holding, WP, Scandlines
further (completed in December 2013), Christ, Geka, Óticas Carol
and Blue Interactive.
CAGR is the compound annual growth rate.
Capital redemption reserve is established in respect
of the redemption of the Company’s ordinary shares.
3i 2016-2019 vintage includes BoConcept, Cirtec Medical, Formel
D, nexeye, arrivia, Luqom, Havea, Royal Sanders, Magnitude
Software and Schlemmer.
3i 2019-2022 vintage includes Evernex, SaniSure, YDEON, MPM,
WilsonHCG, Dutch Bakery, ten23 health, insightsoftware, MAIT,
Mepal and Yanga.
3i 2022-2025 vintage includes xSuite, Digital Barriers, Konges Sløjd
and VakantieDiscounter.
3i Buyouts 2010-2012 vintage includes Action, Amor, Element,
Etanco, Hilite, OneMed and Trescal.
3i Growth 2010-2012 vintage includes Element, Hilite, BVG,
Go Outdoors, Loxam, Touchtunes and WFCI.
Alternative Investment Funds (“AIFs”) At 31 March 2023,
3i Investments plc as AIFM, managed seven AIFs. These were
3i Group plc, 3i Growth Capital B LP, 3i Growth Capital C LP,
3i Europartners Va LP, 3i Europartners Vb LP, 3i Managed
Infrastructure Acquisitions LP and 3i Infrastructure plc. 3i Investments
(Luxembourg) SA as AIFM, managed one AIF, 3i European
Operational Projects SCSp.
Capital reserve recognises all profits and losses 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 payable 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 when
the relevant performance hurdles are met and the accrual is
discounted to reflect expected payment periods.
Carried interest receivable The Group earns a share of profits
from funds which it manages on behalf of third parties. These profits
are earned when the funds meet certain performance conditions and
are paid by the fund once these conditions have been met on a cash
basis. The carried interest receivable may be subject to clawback
provisions if the performance of the fund deteriorates following
carried interest being paid.
Company 3i Group plc.
DACH The region covering Austria, Germany and Switzerland.
Alternative Investment Fund Manager (“AIFM”) is the regulated
manager of AIFs. Within 3i, these are 3i Investments plc and
3i Investments (Luxembourg) SA.
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.
APAC The Asia Pacific region.
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. In the absence of a third-party fund in Private Equity,
it is not a measure of fee generating capability.
B2B Business-to-business.
Board The Board of Directors of the Company.
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.
EMEA The region covering Europe, the Middle East and Africa.
Executive Committee The Executive Committee is responsible
for the day-to-day running of the Group (see page 98).
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.
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Glossary continued
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 (or Fees receivable) is earned for providing services
to 3i’s portfolio companies and predominantly falls into one of two
categories. Negotiation and other transaction fees are earned for
providing transaction related services. Monitoring and other ongoing
service fees are earned for providing a range of services over
a period of time.
Fees receivable from external funds are earned for providing
management and advisory services to a variety of fund partnerships
and other entities. Fees are typically calculated as a percentage
of the cost or value of the assets managed during the year and are
paid quarterly, based on the assets under management to date.
Foreign exchange on investments arises on investments made
in currencies that are different from the functional currency of the
Company. 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, movements
in the fair value of derivatives 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 prepared in accordance with UK adopted
international accounting standards.
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 useful 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.
IRR Internal Rate of Return.
Key Performance Indicator (“KPI”) is a measure by reference
to which the development, performance or position of the Group
can be measured effectively.
Like-for-like compare financial results in one period with those
for the previous period.
Liquidity includes cash and cash equivalents (as per the Investment
basis Consolidated cash flow statement) and undrawn RCF.
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 Consolidated cash flow statement) and our
operating expenses and lease payments (as per the Investment
basis Consolidated 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, exchange movements,
other income, carried interest and tax.
Organic growth is the growth a company achieves by increasing
output and enhancing sales internally.
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Glossary continued
Performance fee receivable The Group earns a performance fee
from the investment management services it provides to 3i
Infrastructure plc (“3iN”) when 3iN’s total return for the year exceeds
a specified threshold. This fee is calculated on an annual basis
and paid in cash early in the next financial year.
Share-based payment reserve is a reserve to recognise those
amounts in retained earnings in respect of share-based payments.
SORP means the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital
Trusts.
Syndication is the sale of part of our investment in a portfolio
company to a third party, usually within 12 months of our initial
investment and for the purposes of facilitating investment by a co-
investor or portfolio company management in line with our original
investment plan. A syndication is treated as a negative investment
rather than a realisation.
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.
Unrealised profits or losses on the revaluation of investments is
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.
Portfolio effect is the level of risk based on the diversity
of the investment portfolio.
Portfolio income is that which is directly related to the return from
individual investments. It is comprised of dividend income, income
from loans and receivables and fee income.
Proprietary Capital is 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.
Realised profits or losses over value on the disposal of
investments is the difference between the fair value of the
consideration received, less any directly attributable costs, on the sale
of equity and the repayment of loans and receivables and its carrying
value at the start of the accounting period, converted into sterling
using the exchange rates at the date of disposal.
Revenue reserve recognises all profits and losses that are revenue
in nature or have been allocated to revenue.
Revolving credit facility (“RCF”) The Group has access to a credit
line which allows us to access funds when required to improve our
liquidity.
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 intrasegment revenue and costs being
eliminated on consolidation. Income and expenses directly
associated with each segment are included in determining business
segment performance.
3i Group plc | Annual report and accounts 2023
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3i Group plc
Registered office: 16 Palace Street,
London, SW1E 5JD, UK
Registered in England No. 1142830
An investment company as defined by
section 833 of the Companies Act 2006
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