9 November 2023

3i Group plc announces results for the six months

to 30 September 2023 

Good performance against a challenging macroeconomic and geopolitical backdrop

•Total return of £1,669 million or 10% on opening shareholders' funds (September 2022: £1,765 million, 14%). NAV per share of 1,886 pence (31 March 2023: 1,745 pence), including an 11 pence per share loss (September 2022: 74 pence per share gain) on foreign exchange translation, and after the payment of the 29.75 pence per share second FY2023 dividend in July 2023.

•Our Private Equity business delivered a gross investment return of £1,826 million or 11% (September 2022: £1,970 million, 16%). Action continues to perform very well and a number of our portfolio companies operating in the value-for-money, private label and healthcare sectors are delivering good organic growth. We continue to see weaker performance in our portfolio companies exposed to discretionary consumer spending and more cyclical end-markets. 89% of our Private Equity portfolio companies by value grew earnings in the 12 months to 30 June 2023.

•Action's net sales in the nine months ending on 1 October 2023 ("P9") grew to €7.9 billion (nine months ended P9 2022: €6.1 billion) and like-for-like ("LFL") sales growth was very strong at 19.2%, driven primarily by higher customer footfall. Last 12 months' ("LTM") operating EBITDA to the end of P9 was €1,530 million (LTM P9 2022: €1,036 million), representing a 48% increase over the same period last year. Trading momentum has remained strong at Action, with LFL sales growth in P10 (2 October to 29 October 2023) of 13.4% (P10 2022: 12.0%). In the ten months ending 29 October 2023, net sales and operating EBITDA were 30% and 43% ahead of last year, and LFL sales growth over the same period was 18.5%.

•In October 2023, Action successfully completed its debut US dollar term loan issuance in the US leveraged loan market, raising $1.5 billion. The loan has been fully hedged back to the euro, with 70% of the debt fixed at an all-in cost of 6.3%. Action also completed a capital restructuring with a pro-rata redemption of shares. 3i used €524 million of the €877 million gross proceeds received to acquire further shares in Action, increasing our gross equity stake in Action from 52.9% to 54.8%. Action's cash balance was €1,030 million as at 3 November 2023.

•Our Infrastructure business generated a gross investment return of £31 million, or 2% (September 2022: £35 million, 3%). The return was impacted by a 2.7% decline in 3i Infrastructure plc's ("3iN") share price, despite the 6.3% total return on 3iN's opening NAV it achieved in the first half. 3iN agreed to sell its stake in Attero in the period for proceeds of c.€215 million, at a c.31% uplift on the valuation at 31 March 2023. We completed one new investment in our North American Infrastructure platform.

•We further strengthened our liquidity profile through the successful issue of a six year €500 million euro bond in June 2023. Our gearing at 30 September 2023 remained low at 6%. The first dividend of 26.50 pence per share for FY2024, set at 50% of the total dividend for FY2023, will be paid in January 2024.

Simon Borrows, 3i's Chief Executive, commented:

"Against a tough macroeconomic environment, we delivered another good result in the period for 3i. Action continues to perform very well. Its LFL sales growth, continued new store expansion and significant free cash flow from operations have once again underlined what an exceptional business it is. The strong performance of a number of our other investments in the value-for-money, private label and healthcare sectors underpins our confidence that a number of these investments will also become longer-term compounders over time. 

We remain cautious about the investment and realisation market given the macroeconomic environment in general, the breadth of geopolitical risk and our belief that the full implications of the global recalibration of interest rates are still yet to work fully through the system. We will continue to look for opportunities to deploy capital into this uncertainty, but we will not change our patient and disciplined approach. We have a strong balance sheet and are under no pressure to sell companies if the price or terms do not properly reflect the prospects of the business."

Summary financial highlights under the Investment basis

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 (which is unaudited) is an alternative performance measure ("APM") and is described later in this document. Total return 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 later in this document. The first page of this document until the end of the Financial review is prepared on an Investment basis.

1 Total return is defined as Total comprehensive income for the year, under both the Investment basis and the IFRS basis.

2 Financial measure defined as APM. Further information can be found later in this document.

Disclaimer

These half-year results have been prepared solely to provide information to shareholders. They should not be relied on by any other party or for any other purpose. These half-year results 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.

A PDF copy of this release can be downloaded from www.3i.com/investor-relations

For further information, including a live webcast of the results presentation at 10.00am on 9 November 2023, please visit www.3i.com/investor-relations

3i Group Half-year report 2023 

Chief Executive's review

The Group delivered a good result in the first half of its financial year, generating a total return of £1,669 million, or 10% on opening shareholders' funds (September 2022: £1,765 million, 14%). NAV per share at 30 September 2023 was 1,886 pence (31 March 2023: 1,745 pence), including an 11 pence per share loss (September 2022: 74 pence per share gain) on foreign exchange translation, and after the payment of the 29.75 pence per share second FY2023 dividend in July 2023.

The macroeconomic, geopolitical and market backdrop remains challenging. This has led to a drop in consumer demand and to a general reduction in transaction activity. Our longer-term approach, based on permanent capital and active asset management of our portfolio companies, puts us in a good position to navigate these market conditions, as does our continuing discipline and patience in capital deployment and realisations.

Action is again performing very strongly this year. We continue to see a real divergence in performance across our remaining Private Equity portfolio, with portfolio companies operating in the value-for-money, private label and healthcare sectors delivering good organic growth, offsetting weaker performance in our portfolio companies exposed to discretionary consumer spending and more cyclical end-markets. 

Private Equity

The Private Equity portfolio delivered a gross investment return ("GIR") of £1,826 million, or 11% on opening value in the period, including a £127 million loss on foreign exchange translation, after the impact of foreign exchange hedging. Action generated a GIR of £1,700 million, or 15%, over its opening value. In the 12 months to the end of 30 June 2023, 89% of our portfolio companies by value grew earnings, with particularly good performance from a number of our portfolio companies that have strong market positions as well as high-performing business models. However, we are not immune to the persistent macroeconomic headwinds that have so far defined 2023, and this is reflected in the softer performance that has continued across our discretionary consumer businesses, as well as across a number of portfolio companies that are moving through a more challenging phase of their respective end-market cycles.

Action performance 

Action continues to trade very strongly. In the nine months ending on 1 October 2023 ("P9"), Action generated net sales of €7,912 million (nine months ended P9 2022: €6,062 million) and operating EBITDA of €1,065 million (nine months ended P9 2022: €740 million), 31% and 44% ahead of the same period last year. Over the same period, like-for-like ("LFL") sales growth was 19.2%, driven primarily by higher customer footfall. The EBITDA margin of 13.5% reflects sales leverage and good cost control.

Action added 153 stores in the first nine months of the year (nine months ended P9 2022: 150 stores), including 11 stores in Slovakia, its eleventh country and a new expansion market. The store roll-out across its more recent expansion markets, Italy and Spain, continues at a fast pace with encouraging trading results. Action remains on track to add c.300 stores in 2023. The business opened two further distribution centres in the period, in France and Poland, growing its distribution centre network to 13 across Europe.

At 30 September 2023, Action was valued using the last 12 months ("LTM") run-rate earnings to 1 October 2023 of €1,634 million. This includes our normal run-rate adjustment to reflect stores opened in the year. Our valuation multiple remains unchanged at 18.5x net of the liquidity discount, resulting in a valuation of £12,862 million (31 March 2023: £11,188 million) for 3i's 52.9% equity stake at 30 September 2023.

In October 2023, Action successfully completed its debut US dollar term loan issuance in the US leveraged loan market. The issue was significantly oversubscribed, enabling it to be upsized in syndication by $500 million to $1.5

billion and to be priced very attractively. The loan has been fully hedged back to euro, with 70% of the debt fixed at an all-in cost of 6.3%. This was an outstanding outcome for a debut issue by a European company in the US private debt markets and reflects significant enthusiasm amongst US investors for Action's impressive track record and growth prospects. As part of the transaction, S&P and Moody's upgraded Action's credit rating to BB Stable / Ba2 Stable. Action's total senior debt now stands at c.€4.5 billion. In October 2023, Action also completed a capital restructuring with a pro-rata redemption of shares. 3i used €524 million of the €877 million gross proceeds from the share redemption to acquire further shares in Action, increasing our gross equity stake from 52.9% to 54.8%.

Action's strong performance has continued through October 2023, with net sales increasing to €8,848 million and operating EBITDA to €1,212 million in the ten months to 29 October 2023 ("P10"). Action again delivered strong LFL sales growth at 13.4% for the month and added 32 stores to bring the year's total to P10 to 2,448 stores. After completing the debt issue and capital restructuring, Action's cash as at 3 November 2023 was €1,030 million, meaning Action's current net debt to P9 2023 LTM run-rate earnings ratio is c.2.1x.

Private Equity portfolio performance in the period

Royal Sanders continues to deliver strong organic growth from its key customers and is consistently outgrowing the overall market. It is an established buy-and-build platform, and its most recent self-funded acquisition of Lenhart, which completed in April 2023, further strengthened its position in the DACH market. In the period, we invested £38 million to support Dutch Bakery's combination with coolback, a German bakery group specialised in bake-off bread, creating the European Bakery Group ("EBG"). Panelto, an Irish bakery group specialised in bake-off artisan breads, joined EBG later in the period and established a UK and Ireland platform for the combined group. The newly established platform is performing ahead of our original investment case with significant scope for further consolidation in what remains a highly fragmented market.

AES continues to harness its unique position in the mechanical seal sector and delivered another period of strong financial, strategic and operational performance. Recent capital investment, including its new headquarters factory in Rotherham, will ensure that it remains at the forefront of precision engineering and reliability services on a sustainable basis.

Commercial momentum remains strong at Cirtec Medical with several new contracts ramping up in the year to date, and additional programmes set to launch in 2024. The integration of key work streams from the acquisition of Precision Components from Q Holding is largely complete, with competencies from each business being leveraged across the Cirtec Medical group. The remaining business of Q Holding, Q Medical Devices, performed well in the period, driven by increased sales to key customers across its vascular unit and new product launches. ten23 health, our biologics focused contract development and manufacturing organisation ("CDMO") located in Basel and Visp, Switzerland, has made good progress in 2023, significantly expanding its commercial pipeline since the start of the year and growing its manufacturing operations in Visp and its service offering at its Basel site. Following two consecutive years of outperformance, SaniSure has seen sales orders weaken in 2023 as a result of inventory destocking across the wider bioprocessing industry. The financial impact has been somewhat mitigated by a strong order book coming into 2023 and operational efficiencies implemented by management, ensuring that the business is well positioned as industry demand recovers. The company continues to launch new programmes and expand its sales and marketing footprint in new geographies.

MAIT's earnings continued to grow steadily, driven by a combination of organic top-line growth and value accretive bolt-on acquisitions, including the June 2023 acquisition of etagis, a provider of production planning software for ERP systems, MAIT's sixth acquisition since our initial investment. MPM generated good growth across its core regions in the period, as it continues to expand its operations in the US, which is now its largest market. 

Following a sustained period of significant growth from the outset of the pandemic to well into 2022, Tato has faced challenging trading headwinds in 2023. Subdued DIY and construction end-markets, pressure on input costs driven by inflation and heightened pricing competition as a result of market consolidation, have resulted in reduced volumes and margins in Tato's core business. Importantly, there are some initial signs of trading conditions moderating in Tato's favour and, as one of the three leading global biocide businesses, Tato is well positioned for market recovery. Constraints on consumer discretionary spending have continued to impact performance in a small number of our portfolio companies. Luqom's trading remains impacted by lower consumer demand and by discounting in the market due to overstocking, whilst YDEON continues to experience muted demand across its core geographies. Over the course of 2023, WilsonHCG has faced a weaker white-collar recruiting market environment, with existing clients reducing recruiter spend and potential new clients exhibiting longer sales cycles, given market uncertainty. Management have taken steps to manage the short-term softness whilst ensuring that the business can respond quickly and scale once positive recruitment sentiment returns. Formel D's recovery remains challenging, which has been reflected in its performance in the period.

Infrastructure

The Infrastructure portfolio delivered a GIR of £31 million, or 2% on opening value in the period. 3i Infrastructure plc ("3iN") generated a total return on its opening NAV of 6.3% in the six months to 30 September 2023, resulting in a NAV of 351.4 pence per share. Its underlying portfolio continues to perform ahead of the expectations set at the beginning of this financial year, with particularly strong performance from Tampnet and TCR offsetting softer performance in DNS:NET. Despite the continued robust returns generated by its underlying portfolio, 3iN's share price decreased to 304 pence at 30 September 2023 (31 March 2023: 313 pence), reflecting wider market sentiment and weaker demand for the shares of listed infrastructure investment companies. 3iN agreed to sell its stake in Attero in the period for proceeds of c.€215 million, a c.31% uplift on the valuation at 31 March 2023. This transaction is expected to complete by the end of 2023.

We continued to develop our North American Infrastructure platform with a new investment in AmWaste, a provider of non-hazardous solid waste disposal services in the south eastern region of the US. Regional Rail continues to scale its platform via bolt-on acquisitions, acquiring rail assets from the Clinton Terminal Railroad in North Carolina. Our proprietary capital investment in Smarte Carte continues to outperform expectations through positive contract economics, sustained US domestic travel and improved international traffic.

Scandlines

Scandlines performed steadily in the period. Leisure traffic volumes were ahead of last year after a strong summer. This offset the impact of a weaker freight market, as a result of the more challenging macroeconomic backdrop. Cash generation remains strong and we received a dividend of £10 million from Scandlines in the period.

Sustainability

We are making good progress on our sustainability agenda. In particular, our ESG Committee continues to meet frequently to oversee a number of climate-focused initiatives. We are formulating our near-term science-based targets to reduce our greenhouse gas ("GHG") emissions and enhancing our portfolio data collection capabilities, including the collection of portfolio GHG emissions data. We are also refining our assessment of climate-related risks and opportunities in our investment and portfolio management processes through further climate scenario analysis. We will report in alignment with the TCFD framework by the 2024 deadline set by the FCA for asset managers such as 3i.

Balance sheet, liquidity, foreign exchange and dividend

During the period, we further strengthened our liquidity profile through the successful issue of a six year €500 million euro bond at a coupon of 4.875%. We ended the period with cash of £55 million (31 March 2023: £412 million) following the payment of the second FY2023 dividend and crystallisation of a portion of carried interest payable related to Action, including the completion of the previously announced £200 million payment and a further £258 million payment that completed in August 2023.

Total liquidity at 30 September 2023 was £955 million (31 March 2023: £1,312 million), including an undrawn RCF of £900 million. Net debt was £1,153 million, with gearing of 6% (31 March 2023: £363 million, 2%).

As we move into the second half of our financial year we remain cautious on realisations but expect to receive good cash inflows from refinancing proceeds and dividends. Following Action's US debt issue in October 2023, we received gross proceeds of €877 million of which we retained €353 million.

We recorded a total foreign exchange translation loss of £107 million (September 2022: £711 million gain) in the period, including a gain on foreign exchange hedging.

In line with our dividend policy, we will pay a first FY2024 dividend of 26.50 pence per share, which is half of our FY2023 total dividend. This first FY2024 dividend will be paid to shareholders on 12 January 2024.

Valuation

We continue to take 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 and governed by our robust valuation process, with independent challenge from our auditors and the Board's Valuations Committee. In our Private Equity portfolio, we have reflected instances of weaker trading performance and declines in the relevant valuation peer groups by reducing four valuation multiples in the period. These reductions are in addition to the eight reductions made in FY2023. We increased two valuation multiples in the period, reflecting the progress of each business against its investment case, including recent bolt-on activity. Our non-Action portfolio was valued at a weighted average of 12.9x EBITDA at 30 September 2023 (31 March 2023: 13.1x). The average valuation level is well supported by the investment cases which underpin our portfolio and by our aim to generate at least a 2.0x return on their invested cost.

We take the same long-term, through-the-cycle view on Action's multiple and its current LTM run-rate EBITDA post-discount multiple of 18.5x remains supported by its continued superior performance against its North American and

European value-for-money retail peers. Action's excellent growth meant its valuation at 30 September 2022 of 18.5x LTM run-rate EBITDA translated to 12.8x the run-rate EBITDA achieved one year later.

Outlook 

Against a tough macroeconomic environment, we delivered another good result in the period for 3i. Action continues to perform very well. Its LFL sales growth, continued new store expansion and significant free cash flow from operations have once again underlined what an exceptional business it is. The strong performance of a number of our other investments in the value-for-money, private label and healthcare sectors underpins our confidence that a number of these investments will also become longer-term compounders over time.

We remain cautious about the investment and realisation market given the macroeconomic environment in general, the breadth of geopolitical risk and our belief that the full implications of the global recalibration of interest rates are still yet to work fully through the system. We will continue to look for opportunities to deploy capital into this uncertainty, but we will not change our patient and disciplined approach. We have a strong balance sheet and are under no pressure to sell companies if the price or terms do not properly reflect the prospects of the business.

Simon Borrows

Chief Executive

8 November 2023

Business and Financial review 

Private Equity

Our Private Equity portfolio generated a GIR of £1,826 million (September 2022: £1,970 million), or 11% of the opening portfolio value (September 2022: 16%), including a loss on foreign exchange on investments, after the impact of foreign exchange hedging, of £127 million (September 2022: £685 million gain).

Table 1: Gross investment return for the six months to 30 September

Investment activity

Table 2: Private Equity cash investment in the six months to 30 September 2023

Table 3: Private Equity portfolio bolt-on acquisitions funded by the portfolio company

in the six months to 30 September 2023 

In the period, Dutch Bakery combined with coolback, a German bakery group specialised in bake-off bread, to create the EBG, a pan-European bakery platform. We supported this acquisition with a £38 million investment in July 2023. In August 2023, EBG combined with Panelto, a manufacturer of bake-off artisan breads, establishing a UK and Ireland platform within the group. This acquisition was self-funded. We continued to develop ten23 health with a further investment of £12 million in the period.

Within the portfolio we also completed self-funded bolt-on acquisitions for Royal Sanders with the acquisition of Lenhart, a manufacturer of private label products for the personal care industry, as well as for MAIT with the completion of its software acquisition in etagis, a provider of ERP solutions, software development and consulting services. AES completed the acquisition of Triseal, a company specialising in mechanical seals and rotating equipment.

Portfolio performance

Table 4: Unrealised profits/(losses) on the revaluation of Private Equity investments1 

in the six months to 30 September

1 More information on our valuation methodology, including definitions and rationale, is included in our Annual report and accounts 2023 on page 229.

Action performance and valuation

As detailed in the Chief Executive's review, Action continues to perform very well. In the 12 months to the end of its P9 2023 (which ended 1 October 2023), Action generated run-rate EBITDA growth of 44% and very strong cash flow.

At 30 September 2023, Action was valued using its LTM run-rate earnings to the end of P9 2023 of €1,634 million. The LTM run-rate earnings used included our normal adjustment to reflect stores opened in the year. We continue to value Action at a multiple of 18.5x net of the liquidity discount (31 March 2023: 18.5x), supported by Action's superior performance against its peer group.

Action ended P9 2023 with cash of €941 million and a net debt to LTM run-rate earnings ratio of 1.3x. Further details on Action's capital restructuring in October 2023 are provided in the Chief Executive's review.

At 30 September 2023, the valuation of our 52.9% stake in Action was £12,862 million (31 March 2023: £11,188 million) and we recognised unrealised profits from Action of £1,810 million (September 2022: £1,156 million), as shown in Table 4.

Table 5: Action financial metrics as at P9 

Performance (excluding Action)

Excluding Action, the private equity portfolio generated £353 million (September 2022: £347 million) of performance-driven unrealised value growth, which more than offset performance-driven unrealised value losses of £219 million (September 2022: £205 million).

As a best-in-class operator in private label and contract manufacturing of personal care products, Royal Sanders continues to benefit from operating in a non-cyclical defensive industry with increased volumes from its key customers delivering growth ahead of the overall market. Its recent bolt-on acquisitions, including the acquisition of Lenhart in April 2023, continue to perform ahead of our expectations, confirming Royal Sanders as a key consolidator in its market. The newly formed EBG (as detailed under Investment activity above) is performing ahead of our expectations, as Dutch Bakery's trading momentum continues, and coolback and Panelto are both showing good volume growth and integrating well within the overall group. AES delivered another period of outperformance, following a stronger than expected increase in sales volumes. AES's commitment to scaling and investment in the latest manufacturing technology and reliability services positions the business well for continued growth in its market. It completed the bolt-on acquisition of Triseal in the period.

Following steady performance in the first half of 2023, Cirtec Medical is positioned for a strong end to the year. The integration of Precision Components, which it acquired from our portfolio company Q Holding, is largely complete, enabling Cirtec Medical to penetrate new markets, and recent trading shows a good increase in orders from existing and new customers. The remaining business of Q Holding, Q Medical Devices, has seen higher demand from its vascular unit customers and has benefited from operational initiatives across its sites which have resulted in better productivity and improved margins. Since the start of 2023, ten23 health has seen a meaningful scale up of its manufacturing output across its sites in Basel and Visp, Switzerland. This scaling of output has helped support the business secure a strong order pipeline in 2023 from new and existing customers. We will continue to support the business as it builds on this momentum and expands its service capability and manufacturing output. An industry-wide destocking of single-use consumables has resulted in a softer order book for SaniSure in 2023. SaniSure has somewhat mitigated these near-term headwinds with a strong order book coming into 2023 and with the implementation of process improvements and efficiencies. The medium to long-term outlook for the industry remains very positive and SaniSure is very well positioned to excel upon the market recovery.

MAIT has seen good momentum in its performance through a combination of organic sales growth and strategic M&A,  completing the bolt-on acquisition of etagis in the period. MPM delivered sales growth across all of its key geographies in the period. Its now largest market, the US, has seen accelerated growth, with particularly encouraging sales and profitability from its online offering.

A small number of our portfolio companies continue to face challenging trading conditions and weak end-markets. Tato's underperformance in 2023 is being driven primarily by weak DIY and construction end-markets, inflationary cost pressures and heightened pricing competition from the consolidation of its competitors. Encouragingly, recent trading is showing some signs of improvement. Luqom and YDEON continue to face a challenging discretionary consumer market driven by muted customer demand and the discounting in the market of excess stock. WilsonHCG has been impacted by a weaker hiring environment across its core business functions, and Formel D's recovery has slowed as its end-markets remain challenging.

Overall, 89%1 of our Private Equity portfolio companies by value grew their earnings in the 12 months to 30 June 2023.

1 Based on LTM adjusted earnings to June 2023. Includes 31 companies.

Table 6: Portfolio earnings growth of the top 20 Private Equity investments2

2  Includes top 20 Private Equity companies by value excluding ten23 health. This represents 97% of the Private Equity portfolio by value (31 March 2023: 96%). LTM adjusted earnings to 30 June 2023 and Action based on LTM run-rate earnings to P9 2023. P9 2023 runs to 1 October 2023.

Leverage

Our Private Equity portfolio is funded with all senior debt structures, with long-dated maturity profiles and, as at 30 September 2023, 80% is repayable from 2026 and beyond. Across our Private Equity portfolio, term debt is well protected against interest rate rises with over two thirds of total term debt hedged at a weighted average tenor of more than three years. The average all-in debt cost across two thirds of the portfolio is 6%. Average leverage was 2.1x at 30 September 2023 (31 March 2023: 2.5x). Excluding Action, leverage across the portfolio was 3.8x (31 March 2023: 4.0x). Table 7 shows the ratio of net debt to adjusted earnings by portfolio value at 30 September 2023.

Table 7: Ratio of net debt to adjusted earnings1

Multiple movements

When selecting multiples to value our portfolio companies we take a long-term, through-the-cycle approach and consider a number of factors including recent performance, outlook and bolt-on activity, comparable recent transactions and exit plans, and the performance of quoted comparable companies. At each reporting date our valuation multiples are considered as part of a robust valuation process, which includes independent challenge throughout, including from our external auditors, culminating in the quarterly Valuation Committee of the Board. In the period, capital markets remained relatively volatile due to rising inflation and interest rates and geopolitical uncertainty. Taking into consideration our valuation approach and market developments, we adjusted four of our valuation multiples down and two up, resulting in a net multiple-driven unrealised value loss of £23 million in the period (September 2022: £180 million unrealised value loss).

Action's valuation multiple at 30 September 2023 remained unchanged at 18.5x net of the liquidity discount. Based on the valuation at that date, a 1.0x movement in Action's post-discount multiple would increase or decrease the valuation of 3i's investment by £749 million.

Quoted portfolio

Basic-Fit is the only quoted investment in our Private Equity portfolio. We recognised an unrealised value loss of £31 million from Basic-Fit in the period (September 2022: unrealised value loss of £31 million) as its share price decreased to €26.86 at 30 September 2023 (31 March 2023: €36.32). At 30 September 2023, our residual 5.7% shareholding was valued at £88 million (31 March 2023: £121 million).

Assets under management

The value of the Private Equity portfolio, including third-party capital, increased to £25.7 billion (31 March 2023: £22.9 billion) principally due to unrealised value movements in the period.

Table 8: Private Equity 3i proprietary capital

1 Assets included in these vintages are disclosed in the Glossary at the end of this document.

2 Includes Action value of £10,646 million (31 March 2023: £8,220 million) for 3i's direct share and including the stake held through the 2020 Co-investment vehicles. Overall, including the Buyouts 2010-12 vintage, 3i's share of Action value is £12,862 million (31 March 2023: £11,188 million).

3 3i carrying value is the unrealised value for the remaining investments in each vintage.

4 Vintage money multiple (GBP) includes realised and unrealised value as at the reporting date.

Table 9: Private Equity assets by geography

Table 10: Private Equity assets by sector

Infrastructure

Our Infrastructure portfolio generated a GIR of £31 million in the period, or 2% on the opening portfolio value (September 2022: £35 million, 3%), including a gain on foreign exchange on investments of £8 million (September 2022: £58 million).

Table 11: Gross investment return for the six months to 30 September

Fund management

3iN

In the six months to 30 September 2023, 3iN generated a total return on opening NAV of 6.3% (September 2022: 9.3%) and is on track to meet its dividend target for the year to 31 March 2024 of 11.90 pence per share, up 6.7% year-on-year.

3iN's underlying portfolio continues to deliver strong earnings growth and reinvestment opportunities. There was particularly strong performance from Tampnet, TCR and Valorem, offsetting softer performance from DNS:NET which is experiencing a more challenging fibre sector outlook in Germany, resulting in a delayed rollout of its network around Berlin. In the period, 3iN announced the sale of its c.25% stake in Attero for expected net proceeds of c.€215 million, a c.31% uplift from its valuation of €164 million at 31 March 2023.

As investment manager, 3i received a management fee from 3iN of £25 million in the period (September 2022: £23 million).

North American Infrastructure platform

We continue to develop our North American Infrastructure platform. In the period, we completed a new investment in AmWaste, a provider of non-hazardous solid waste disposal services in the south eastern region of the US and a further bolt-on acquisition for Regional Rail, with the acquisition of rail assets from Clinton Terminal Railroad, which further expanded its presence in North Carolina. Freight load traffic across Regional Rail's existing railroads outperformed our March 2023 expectations. EC Waste saw good performance from its residential collection contracts, landfill operations and through contract wins for debris clean ups, offsetting higher expenses. Regional Rail and EC Waste were valued on a DCF basis at 30 September 2023.

During the period, our North American Infrastructure platform received further external commitments. This resulted in a pro-rata rebalancing of existing platform holdings which resulted in proceeds to 3i of £18 million.

Other funds

3i EOPF and the 3i Managed Infrastructure Acquisitions LP both performed in line with expectations in the period.

Assets under management

Infrastructure AUM was £6.6 billion at 30 September 2023 (31 March 2023: £6.4 billion) and we generated fee income of £34 million from our fund management activities in the period (September 2022: £30 million).

Table 12: Assets under management as at 30 September 2023

1 AUM based on the share price at 30 September 2023.

2 % invested is the capital deployed into investments against the total Fund commitment.

3 First close completed in March 2022.

3i's proprietary capital infrastructure portfolio

The Group's proprietary capital infrastructure portfolio consists of its 29% stake in 3iN, its investment in Smarte Carte and direct stakes in other managed funds.

Quoted stake in 3iN

At 30 September 2023, our 29% stake in 3iN was valued at £818 million (31 March 2023: £841 million) as a result of a 2.7% decrease in 3iN's share price to 304 pence in the period (31 March 2023: 313 pence). We recognised an unrealised loss of £23 million (September 2022: unrealised loss of £117 million), offset by £15 million of dividend income (September 2022: £14 million).

North America Infrastructure proprietary capital

Smarte Carte performed well in the period. Strong US domestic leisure travel demand and further improvements in international travel volumes drove better than expected performance across all lines of business. At 30 September 2023, the business was valued on a DCF basis.

Table 13: Unrealised profits/(losses) on the revaluation of Infrastructure investments1 

in the six months to 30 September

1 More information on our valuation methodology, including definitions and rationale, is included in our Annual report and accounts 2023 on page 229.

Scandlines

Scandlines generated a GIR of £10 million (September 2022: £11 million) or 2% of opening portfolio value in the period (September 2022: 2%).

Table 14: Gross investment return for the six months to 30 September

Performance

Scandlines performed steadily in the period, with leisure volumes ahead of a strong prior year and of pre-pandemic levels. After back-to-back record years, freight volumes have been impacted by a more challenging macroeconomic backdrop. Cash generation in the business remains good and we received a dividend of £10 million in the period. At 30 September 2023, Scandlines was valued at £547 million (31 March 2023: £554 million) on a DCF basis.

Foreign exchange

We hedge the balance sheet value of our investment in Scandlines for foreign exchange translation risk. We recognised a loss of £7 million on foreign exchange translation (September 2022: £21 million gain) offset by a fair value gain of £7 million (September 2022: £22 million loss) from derivatives in our hedging programme.

Overview of financial performance

We generated a total return of £1,669 million, or a profit on opening shareholders' funds of 10%, in the six months to 30 September 2023 (September 2022: £1,765 million, or 14%). The diluted NAV per share at 30 September 2023 increased to 1,886 pence (31 March 2023: 1,745 pence) including the 11 pence per share loss on foreign exchange translation in the period (September 2022: 74 pence per share gain), and after the payment of the second FY2023 dividend of £286 million, or 29.75 pence per share in July 2023 (September 2022: £262 million, 27.25 pence per share).

Table 15: Gross investment return for the six months to 30 September

The GIR was £1,867 million in the period (September 2022: £2,016 million), driven by the very strong performance of Action and good contributions from a number of our portfolio companies operating in the value-for-money, private label and healthcare sectors, offset by weaker performance in our portfolio companies exposed to discretionary consumer spending and more cyclical end-markets. The GIR also includes a £119 million foreign exchange loss on translation of our investments, including the impact of foreign exchange hedging in the period (September 2022: £742 million gain). Further information on the Private Equity, Infrastructure and Scandlines valuations is included in the business reviews.

Table 16: Operating cash profit /(loss) for the six months to 30 September

1 Cash operating expenses include operating expenses paid and lease payments.

We generated an operating cash profit of £6 million in the period (September 2022: £17 million loss). Cash income increased to £88 million (September 2022: £67 million) principally due to an increase in dividend income and interest received compared to the same period last year. Cash operating expenses incurred during the period remained broadly in line with the prior period at £82 million (September 2022: £84 million).

Net foreign exchange movements

The Group recorded a total foreign exchange translation loss of £107 million, including the impact of foreign exchange hedging in the period, (September 2022: £711 million gain) as a result of sterling strengthening by 1% against the euro, which was partially offset by sterling weakening by 1% against the US dollar.

At 30 September 2023, the notional value of the Group's forward foreign exchange contracts was €2.6 billion and $1.2 billion. The €2.6 billion includes the €600 million notional value of the forward foreign exchange contracts related to the Scandlines hedging programme.

Table 17 sets out the sensitivity of net assets to foreign exchange movements at 30 September 2023 and sensitivity after the hedging programme

Table 17: Net assets and sensitivity by currency at 30 September 2023

1 The sensitivity impact calculated on the net assets position includes the impact from foreign exchange hedging.

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. 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.

In total, we accrued carried interest payable of £147 million (September 2022: £157 million) for Private Equity in the period. This was driven by the continued strong performance of the 2010-12 vintage, which holds Action, as well as by the return generated by other Private Equity carry vintages.

In Infrastructure, following the agreed sale of Attero by 3iN, we recognised £21 million of performance fees receivable, of which £16 million was recognised as carried interest payable.

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.

In the period, we completed the previously announced £200 million carried interest payment to participants in the Buyouts 2010-12 carry scheme and, in August 2023, we crystallised a further portion of the carried interest liability related to Action, resulting in a further payment of £258 million to participants in the same scheme. In total, carried interest and performance fee cash paid in the period was £510 million (September 2022: £39 million). The total performance fee cash received in the period was £37 million (September 2022: £51 million).

Overall, the effect of the income statement charge, the cash payments, as well as the currency translation meant that the balance sheet carried interest and performance fees payable decreased to £985 million at 30 September 2023 (31 March 2023: £1,351 million).

Following Action's capital restructuring in October 2023, as detailed in the Chief Executive's review, 3i's gross investment in Action increased from 52.9% to 54.8% and 3i's investment in Action, net of carry, increased from 50% to 52%. In Private Equity, in relation to Action, we will accrue net carried interest payable of c.5% of Action GIR.

Table 18: Carried interest and performance fees for the six months to 30 September

Table 19: Carried interest and performance fees 

Balance sheet and liquidity

During the period, we successfully issued a six year €500 million euro bond at a coupon of 4.875%, further strengthening our liquidity profile. At 30 September 2023, the Group had net debt of £1,153 million (31 March 2023: £363 million) and gearing of 6% (31 March 2023: 2%) following the payment of carried interest and performance fees payable of £510 million and the second FY2023 dividend of £286 million.

The Group had liquidity of £955 million at 30 September 2023 (31 March 2023: £1,312 million) comprising cash and deposits of £55 million (31 March 2023: £412 million) and an undrawn RCF of £900 million (31 March 2023: £900 million). Following Action's US debt issue in October 2023, we have received gross proceeds of €877 million of which we have retained €353 million.

The investment portfolio value increased to £20,255 million at 30 September 2023 (31 March 2023: £18,388 million) mainly driven by unrealised profits of £1,909 million in the period.

Table 20: Simplified consolidated balance sheet

1 Gearing is net debt as a percentage of net assets.

Going concern

The Half-year consolidated financial statements are prepared on a going concern basis following the assessment by the Directors, taking into account the Group's current performance and outlook.

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 later in this document. The table below defines our additional APMs and should be read in conjunction with our Annual report and accounts 2023.

Principal risks and uncertainties

3i's risk appetite statement, approach to risk management and governance structure are set out in the Risk section of the Annual report and accounts 2023, which can be accessed on the Group's website at www.3i.com.

Notwithstanding the continued global economic uncertainties and increased geopolitical tensions in the period, the principal risks to the achievement of the Group's strategic objectives are unchanged from those reported on pages 87 to 91 of the Annual report and accounts 2023 and remain broadly stable in terms of impact and likelihood. The Group's principal risks continue to be closely monitored and may be subject to change.

Principal risks

External - Risks arising from external factors including political, legal, regulatory, economic and competitor changes, which affect the Group's investment portfolio and operations.

Most of the external risk factors are continuations of themes outlined at the time of the Annual report and accounts 2023. These include the increased cost of living, higher interest rates and lower forecast economic growth. These combined headwinds have the potential to affect trading performance, liquidity and valuations in varying degrees across 3i's investment portfolio. As outlined below, 3i has a well-funded balance sheet and carefully constructed portfolio of international companies operating in a range of different sectors, which has performed well overall in a challenging environment.

The Group and our portfolios have no material direct exposure to the Middle East, although we continue to closely monitor the impact of the ongoing situation in the region.

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

The portfolio continues to perform resiliently in the current market and economic conditions; notably those operating in the value-for-money, private label and healthcare sectors. However, some of our portfolio companies are more exposed to the impact of cost pressures and lower consumer discretionary spend and more cyclical end-markets, and are being closely monitored. In addition, an extended period of higher interest rates could impact debt markets and, in turn, potentially affect investment activity levels or refinancing plans.

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

The Group's day-to-day operations are largely unchanged in the period. This includes the continued resilience and security of the Group's IT systems and maintenance of robust processes and internal controls. Staff turnover rates have been stable.

Capital management - Risks in relation to the management of capital resources including liquidity risk, currency exposures and leverage risk.

3i's approach to capital management remains conservative, with a well-funded balance sheet. The Group issued a six year €500 million bond at a coupon of 4.875% in June 2023 providing additional liquidity and euro hedging. The investment and divestment pipeline and balance of investment and realisation flows are subject to regular reviews.

The Half-year report provides an update on 3i's strategy and business performance, as well as on market conditions, which is relevant to the Group's overall risk profile and should be viewed in the context of the Group's risk management framework and principal risks as disclosed in the Annual report and accounts 2023.

Reconciliation of the Investment basis to IFRS

Background to Investment basis numbers used in the Half-year report

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 investment entity subsidiaries that were previously consolidated line by line. This fair value approach, applied at the investment entity subsidiary level, effectively obscures the performance of our proprietary capital investments and associated transactions occurring in the investment entity subsidiaries.

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 and aid understanding of our results, we include a separate non-GAAP "Investment basis" consolidated statement of comprehensive income, financial position and cash flow. The Investment basis is an APM and the Chief Executive's review and the Business and financial review are 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.

A more detailed explanation of the effect of IFRS 10 is provided in the Annual report and accounts 2023 on page 73.

Reconciliation between 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 later in this document.

Reconciliation of consolidated statement of comprehensive income

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 periods. 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 Other items also aggregated into the "Fair value movements on investment entity subsidiaries" line include operating expenses, carried interest and performance fees receivable, carried interest and performance fees payable and tax. Operating expenses, carried interest and performance fees receivable and tax do not impact fair value movements on investment entity subsidiaries for the six months to 30 September 2023.

4 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 entity subsidiaries".

Reconciliation of consolidated statement of financial position

Notes:

1 Applying IFRS 10 to the Consolidated statement of financial position aggregates the line items of investment entity subsidiaries 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.

2 Intercompany balances between investment entity subsidiaries and trading subsidiaries also impact the transparency of our results under the IFRS basis. If an investment entity subsidiary has an intercompany balance with a consolidated trading subsidiary of the Group, then the asset or liability of the investment entity subsidiary will be aggregated into its fair value, while the asset or liability of the consolidated trading subsidiary will be disclosed as an asset or liability in the Consolidated statement of financial position of the Group.

3 Investment basis financial statements are prepared for performance measurement and therefore reserves are not analysed separately under this basis.

Reconciliation of consolidated cash flow statement

Notes:

1 The Consolidated cash flow statement is impacted by the application of IFRS 10 as cash flows to and from investment entity subsidiaries are disclosed, rather than the cash flows to and from the underlying portfolio. Therefore, in our Investment basis financial statements, we have disclosed our consolidated 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.

IFRS Financial statements

Condensed consolidated statement of comprehensive income

The Notes to the accounts section forms an integral part of these financial statements.

Condensed consolidated statement of financial position