Interim Results

10th Nov 2005 07:02

3i Group PLC10 November 2005 10 November 2005 "Strong all-round performance" • Total return of 12.1% (£447 million) for the first six months• Over £1 billion of realisations• Good level of investment of £706 million, up from £422 million Interim results for the six months to 30 September 2005 2005 2004*Total return £447m £224mReturn on opening shareholders' funds 12.1% 6.8%Realisation proceeds £1,041m £603mRealisation profits over opening valuation £189m £89mUnrealised profits on revaluation of investments £223m £86mPortfolio income £109m £126mInvestment (excluding co-investment funds) £706m £422mDiluted net asset value per share 677p 574pInterim dividend 5.5p 5.3p *As restated to reflect the adoption of International Financial Reporting Standards ("IFRS") Commentary • Buyouts and Growth Capital both delivered good returns of 13% during the period, with improved performance in the Venture Capital business, which generated an 8% return • SMI delivered an excellent performance generating £161 million of cash proceeds and a return of 12% over the period • £443 million of the £500m return of capital programme was completed at 9 November 2005 • Further good progress was made on our strategic development with the opening of offices in China and India and launching our infrastructure investment business Commenting on the results, Baroness Hogg, Chairman of 3i Group plc, said: "3i achieved further good progress in the first half of this financial year,with investment and realisations both above last year's levels." 3i's Chief Executive, Philip Yea, added: "On the back of a strong all-round performance in the first half, we have made agood start to the second half both in terms of new investments and realisations.There has also been considerable progress on our agenda of developing thebusiness for the longer term." - ends - For further information regarding the announcement of 3i's annual results to 31March 2005, including video interviews with Philip Yea and Simon Ball (available7.15am) and a live webcast of the results presentation (at 10.00am, available ondemand from 2.00pm), please see www.3igroup.com. For further information, please contact: Philip Yea, Chief Executive Tel: 020 7975 33863i Group plc Simon Ball, Finance Director Tel: 020 7975 33563i Group plc Patrick Dunne, Group Communications Director Tel: 020 7975 32833i Group plc Issued by: Tel: 020 7379 5151Philip GawithThe Maitland Consultancy Notes to editors3i is a world leader in private equity and venture capital. We focus on buyouts,growth capital and venture capital and invest across Europe, in the UnitedStates and in Asia Pacific. Our competitive advantage comes from our international network and the strengthand breadth of our relationships in business. It underpins the value that wedeliver to our portfolio and to our shareholders. Chairman's statement 3i achieved further good progress in the first half of this financial year, withinvestment and realisations both above last year's levels. The total return inthe six months to 30 September was £447 million, amounting to 12.1% of openingshareholders' funds. This compares with a return of £224 million, or 6.8%, inthe first half of the last financial year, and £501 million, or 15.2%, in thefull year to 31 March 2005. Our Buyout and Growth Capital teams both achievedreturns above our targets, and there was a further improvement in the returnfrom our Venture Capital business. During the period, we executed the return of capital approved by shareholders inJuly. As well as our normal final dividend of 9.3p per share, we made a specialdividend payment of 40.7p per share, followed by a share consolidation, and havebeen actively repurchasing shares in the market. At 9 November we hadrepurchased nearly £200 million, some 79% of our target. The Directors have nowannounced an interim dividend of 5.5p per share. We benefited in this period from a marked increase in carried interestreceivable on the European funds we manage. In addition, the revival in equitymarkets over the period improved the overall value of our assets; while thestrength of the financing markets enabled our Buyout and Growth Capital teams torealise investments at excellent rates of return. It also helped the teammanaging our large portfolio of smaller minority investments to make significantprogress in reducing the number of these, with a pleasing increase in the rateof return. Moreover, the Venture Capital team succeeded in more than doublingits level of realisations with some notable uplifts in value. In total, werealised £1,041 million compared with £603 million in the first half of lastyear. There was also a significant increase in the level of investment, to a total of£706 million in the six months compared with £422 million in the same periodlast year. 3i's international network enables us to identify opportunities thatmeet our exacting standards even in these markets. Our Growth Capital team'sfocus on larger investments helped them to double their level of investmentcompared with the first half of last year. These six months also saw progress in the execution of the strategy that ourChief Executive, Philip Yea, laid out to shareholders in the spring. Wecontinued to build capabilities in Asia, forming our team in India and openingour office in Shanghai. In Europe, our Infrastructure team is now up andrunning. These developments have been accelerated by the attraction of newtalent to work within our experienced and successful teams. As 3i's activities have become more international, so our ability to combineglobal industry knowledge with specialised investment expertise and localunderstanding has increased. Our diversity and flexibility will be of particularadvantage when the outlook for output, inflation and interest rates isuncertain. The strength of our balance sheet, the breadth of our portfolio andthe quality of our people enable us to combine scale with agility and ambitionwith rigour, in fast-changing markets. Baroness HoggChairman9 November 2005 Chief Executive's statement In my last report to you in May this year, I wrote that I intended to reportfurther good progress towards our performance and strategic goals. The figures reported for the first six months of this year show a strongall-round performance. Our gross portfolio return of £521 million represents12.1% on opening portfolio value and is at the top of the range of our long-termtargets. Buyouts and Growth Capital achieved returns of 13% each. Our VentureCapital business delivered further progress at 8% and SMI generated a strongreturn of 12% over the period. Our total return of 12.1% on opening shareholders' funds compares with 6.8% forthe equivalent period a year ago, helped by the performance of the Eurofund IIIbuyout fund, which has now moved to a position where we can recognise carriedinterest receivable on funds we manage. In very buoyant financing markets, our Buyout business has been both adisciplined investor and an active seller. Realisations totalled £379 million(2004: £218 million). Investment, 57% of which was in continental Europe, was£358 million (2004: £200 million). Recent investments, which illustrate thebreadth of our pan-European Buyout business, include: Giochi Preziosi, a leadingItalian manufacturer and distributor of toys; Aviapartner, a Belgian airlineground handling business; and Wendt, a leading German manufacturer of precisiontools. Our Growth Capital business benefited from a strong investment pipeline at thestart of the period, but aggregate investment levels at £286 million (2004: £143million) also reflect the strategic changes being implemented within thebusiness, as it increasingly focuses on larger individual investments. Weinvested £46 million in I2, as part of a £158 million commitment to this UKinfrastructure fund. We also made our first growth capital investment in India,providing £26 million to Nimbus, a media and entertainment services company. Thelevel of realisations was also strong, including Molnlycke Health Care and RevusEnergy, which delivered some excellent realised profits. Our Venture Capital business was focused on realisations to deliver cashreturns. Consequently, investment of £58 million (2004: £72 million) wassubstantially exceeded by the level of realisations of £120 million (2004: £58 million). 3i's SMI team, which is responsible for managing the disposal of our smallerminority investments, delivered an excellent performance, generating £161 million of cash proceeds from 131 portfolio companies. The consequence of these individual business line performances is that we had astrong level of investment overall of £706 million (2004: £422 million), with anexcellent level of realisations of £1,041 million (2004: £603 million). As aresult, despite returning £396 million of cash to shareholders, our gearing atthe end of the period was 20%. As these figures demonstrate, we have a clear investment model for today and astrong determination to continue to deliver returns through the economic cycleand as we grow in new areas in the future. It is increasingly important to build 3i's differentiation through the ways inwhich we share information and relationships across the areas in which weoperate. We are making excellent progress in achieving this both acrossgeographies and business lines and, in particular, in integrating our newerteams into our worldwide network. In addition, we are actively exploring theopportunity to invest in growth equity situations within the US as a way offurther building value for our shareholders. The following report shows further good evidence of progress on our agenda ofdelivering the present while building for the future. We have made a good start to the second half, in terms of both new investmentsand realisations. Although the pipeline of potential new investments is not asstrong as six months earlier, we continue to originate attractive opportunitiesacross our business lines. Favourable exit conditions seem set to continue overthe near term and should enable us to realise well in the second half, althoughperhaps not at the exceptional levels we achieved in the first half. Philip YeaChief Executive9 November 2005 Interim review Group overviewAs shown in table 1, 3i achieved a total return of £447 million (2004: £224 million) for the period, which equates to 12.1% on restated opening shareholders' funds. Total return is equivalent to the IFRS accounting measure of "total recognised income and expense" used in the financial statements. The gross portfolio return for the period was 12.1% (2004: 6.9%) on the openingportfolio value, reflecting the high level of realisations achieved at gooduplifts to carrying value and continued value growth within the portfolio. Ananalysis of the gross portfolio return by business line is shown in table 2. Table 1: Total return -------------------------------------------------------------------------------- 6 months to 6 months to 30 September 30 September 2005 2004 (as restated)* £m £m--------------------------------------------------------------------------------Realised profits on disposal of investments 189 89Unrealised profits on revaluation of investments 223 86Portfolio income 109 126--------------------------------------------------------------------------------Gross portfolio return 521 301Fund management fee income 15 14Net carried interest and investment performance plans 31 (24)Operating expenses and share-based payments (96) (83)--------------------------------------------------------------------------------Net portfolio return 471 208Net interest payable (12) (25)Exchange movements 35 32Movements in the fair value of derivatives (33) 9Other 1 (1)--------------------------------------------------------------------------------Profit after tax 462 223--------------------------------------------------------------------------------Revaluation movements (pension, property andcurrency translation) (15) 1--------------------------------------------------------------------------------Total recognised income and expense ("Total return") 447 224-------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis of preparation. Table 2: Return by business line (£m)6 months to 30 September------------------------------------------------------------------------------------------- Growth Venture Buyouts Capital Capital SMI Total------------------------------------------------------------------------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 (as restated)*-------------------------------------------------------------------------------------------Grossportfolioreturn 199 145 168 93 61 23 93 40 521 301Return as %of openingportfolio 13.1% 9.8% 13.0% 7.7% 8.2% 3.4% 12.3% 4.2% 12.1% 6.9%-----------------------------------------------------------------------------------------Net portfolioreturn 471 208Return as % ofopeningportfolio 10.9% 4.8%-------------------------------------------------------------------------------------------Total return 447 224-------------------------------------------------------------------------------------------Total returnas % of opening shareholders' funds 12.1% 6.8%------------------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis of preparation. The net portfolio return on the opening portfolio value, after deduction ofoperating expenses and carried interest payable to our investment teams, andinclusion of carried interest and management fees receivable in respect of ourthird party funds, was 10.9% (2004: 4.8%). 3i invested a total of £706 million (£835 million including investment on behalfof co-investment funds), which is significantly up on levels invested in boththe first half (£422 million) and the second half (£333 million) of the lastfinancial year. An analysis of the amount invested, by business line andgeography, is given in table 4. As previously indicated, the investment pipelinecoming into the current financial year was strong and we were able to convertmuch of this during the period. In addition, particularly within Growth Capital,we have been targeting significantly larger investment opportunities and ouraverage deal size during the period increased. 3i generated realisation proceeds of £1,041 million (2004: £603 million) duringthe period, reflecting a profit over 31 March 2005 values of £189 million (22%uplift), compared with £89 million (17%) in the equivalent period last year. Theuplift over 31 March 2005 values on realisations of equity investments was 34% (2004: 28%). Realised profits are stated net of write-offs, which amounted to £40 million (2004: £13 million). Overall, 19.7% of the opening portfolio (by value) was realised during the period (2004: 12%), which is significantly higher than wehave achieved in any six month period over recent years. An analysis ofrealisation proceeds by business line and geography is provided in table 5 and asummary of changes to our portfolio in table 3. Table 3: Summary of changes to investment portfolio-------------------------------------------------------------------------------- 6 months to 6 months to 30 September 30 September 2005 2004 (as restated)* £m £m--------------------------------------------------------------------------------Opening portfolio 4,317 4,362Investment 706 422Realisation proceeds (1,041) (603)Realised profits on disposal of investments 189 90Unrealised profits on revaluation of investments 223 86Other (5) 40--------------------------------------------------------------------------------Closing portfolio 4,389 4,397-------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis ofpreparation. Table 4: Investment by business line and geography (£m)6 months to 30 September--------------------------------------------------------------------------------- Continental UK Europe US Asia Total--------------------------------------------------------------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004---------------------------------------------------------------------------------Buyouts 154 82 204 118 - - - - 358 200Growth 109 45 141 85 - 1 36 12 286 143CapitalVentureCapital 18 20 12 17 28 34 - 1 58 72SMI 2 5 2 2 - - - - 4 7--------------------------------------------------------------------------------- Total 283 152 359 222 28 35 36 13 706 422--------------------------------------------------------------------------------- Table 5: Realisation proceeds by business line and geography (£m)6 months to 30 September--------------------------------------------------------------------------------- Continental UK Europe US Asia Total---------------------------------------------------------------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004----------------------------------------------------------------------------------Buyouts 178 141 201 75 - 2 - - 379 218Growth 135 203 169 41 42 - 35 1 381 245CapitalVentureCapital 56 46 49 6 15 6 - - 120 58SMI 135 55 26 26 - 1 - - 161 82---------------------------------------------------------------------------------- Total 504 445 445 148 57 9 35 1 1,041 603---------------------------------------------------------------------------------- During the period, eight portfolio companies achieved IPOs across sevendifferent markets, including Revus Energy (Oslo), Interhyp (Frankfurt) and FocusMedia (NASDAQ). Sales to financial purchasers through secondary buyoutsrepresented £317 million of proceeds and we generated £66 million of proceedsthrough refinancing portfolio businesses. Sales of quoted equities benefitedfrom the general rise in equity markets, with proceeds of £117 million and aprofit of £30 million (34%) over 31 March 2005 valuations. BuyoutsThe European mid-market for buyouts continued to be highly competitive in termsof investment opportunities, reflecting the substantial amounts raised recentlyby buyout funds and the continuing high availability of debt. Despite this, webelieve we have been able to secure some good opportunities at attractiveprices. During the period, we invested £304 million in 10 transactions and afurther £54 million in supporting existing portfolio companies. Investments madeinclude NCP, the UK-based provider of transport management and parking services,Giochi Preziosi, the Italian toy manufacturer, and Carema, the Swedishspecialist care business. Realisation conditions were favourable during the period, with strongcompetition among both corporate and financial buyers of businesses, more activeIPO markets and supportive debt markets. These conditions enabled us to generate£379 million in proceeds at an aggregate uplift over 31 March 2005 carryingvalues of £62 million (20%). Major contributors were Yellow Brick Road, thetelephone directories group, on which we generated a further £129 million ofproceeds, and Travelex, the foreign currency services provider, where werealised a further £93 million of proceeds in the period. In addition, the Buyout business generated realisation proceeds of £284 millionon behalf of third party funds managed by 3i. Unrealised value movement was £79 million (2004: £76 million), driven mainly byassets being valued on an imminent sale basis, earnings multiple enhancementsand a number of first time uplifts (valuation increases due to assets beingvalued on a basis other than cost for the first time). Portfolio income totalled£58 million (2004: £47 million). Growth CapitalWithin Growth Capital, we have been successful in originating a number ofinvestment opportunities as businesses have sought to expand regionally andinternationally. Investment was strong in the period, as we converted a numberof opportunities within our pipeline and benefited from our focus on largerdeals. We invested £286 million, comprising £203 million in 10 "first"investments (in which 3i had not previously invested), £37 million of "further"investment into existing portfolio companies and £46 million into the I2infrastructure fund, which targets projects in the health, education, transportand defence sectors in the UK. The average deal size for first investments was£27 million, up from £7 million for the previous financial year. Investmentsmade include Boxer, the Stockholm-based digital TV operator, and Hayley, theUK-based operator of conference centres. Growth Capital realisations were strong, generating £381 million of proceeds atan uplift over 31 March 2005 carrying values of £60 million (19%). This is netof realised value losses on Incline Global Technology Services, the UK-basedrepairer of flat panel displays (£28 million), and Allsports, the UK sportsgoods retailer (£5 million), both of which went into administration during theperiod. Unrealised value movement was £86 million (2004: £(3) million). This included£69 million in respect of Petrofac, the oilfield services business, whichachieved a £742 million IPO on the London Stock Exchange in early October 2005,providing 3i with a full exit and proceeds of £116 million on our 2002investment of £21 million. Portfolio income totalled £22 million (2004: £46million), the reduction relative to 2004 being primarily due to reduced levelsof special dividends receivable on realisations of investments. Venture CapitalVenture capital investment conditions in both Europe and the US were competitivefor good later-stage investment opportunities, but much less so for start-up andearly-stage opportunities. The relatively low amount invested (£58 million)reflects both our view of pricing levels for high-quality opportunities and ourfocus during the period on portfolio management and exits. Of the amountinvested by Venture Capital, 84% was further investment into existing portfoliocompanies. Realisation conditions were much improved, with both IPOs and sales to corporateacquirers becoming more prevalent. We generated proceeds of £120 million in theperiod, at an uplift over 31 March 2005 carrying values of £36 million (43%).Notable realisations were dtms, the German telecommunications solutionsprovider, UbiNetics, the "3G" mobile wireless software company, and Searchspace,the UK artificial intelligence software company. Unrealised value movement was £23 million (2004: £12 million), the maincontributors being valuation increases arising on the IPO of portfolio companiesand rises in the share prices of quoted assets. Portfolio income totalled £2million (2004: £1 million). SMISMI continued to be successful in realising assets from its portfolio. The grossportfolio return of 12% is largely attributable to a number of good realisationsof higher value assets, including Cannon Avent, the baby products business,McMullen & Sons, the brewing and pubs business, and EAT, the operator of coffeeand sandwich bars. Table 6: Unrealised profits/(losses) on revaluation of investments-------------------------------------------------------------------------------- 6 months to 6 months to 30 September 30 September 2005 2004 (as restated)* £m £m--------------------------------------------------------------------------------Earnings multiples(1) 66 18Earnings(2) 27 22First-time uplifts(3) 23 32Provisions(4) (37) (44)Up/(down) rounds (3) 21Uplift to imminent sale 128 85Other movements on unquoted investments (39) (42)Quoted portfolio 58 (6)-------------------------------------------------------------------------------- Total 223 86-------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis ofpreparation. 1 The weighted average earnings multiple applied to investments valued on an earnings basis increased from 12.0 to 12.2 over the period. For those investments valued on an earnings basis at both the start and end of the period, the weighted average earnings multiple increased from 11.9 to 12.3.2 The aggregate attributable earnings of investments valued on an earnings basis at both the start and end of the period increased by 2%.3 The net valuation impact arising on investments being valued on a basis other than cost for the first time.4 Provisions against the carrying value of investments in businesses which may fail. Carried interest and investment performance plansThe charge for the period in respect of amounts payable to our investment staffunder carried interest schemes and investment performance plans was £26 million(2004: £25 million). Carried interest receivable for the period of £57 million (2004: £1 million)relates primarily to Eurofund III, 3i's 1999 pan-European fund, whose cumulativeperformance has now passed through the point at which recognition of carriedinterest receivable within 3i's financial statements is triggered. This resultedin a net carried interest receivable for the period of £31 million (2004: £24million payable) CostsOperating expenses totalled £92 million (2004: £80 million) in the period. Theincrease over 2004 reflects a number of factors, including higher remunerationcosts and costs associated with the strategic development of the business. Staffheadcount at the period end stood at 732 (2004: 740). The charge in respect of share-based payments, to reflect the fair value ofoptions granted to employees, was £4 million (2004: £3 million). Net interest payable for the period was £12 million (2004: £25 million),reflecting the lower average net borrowings compared to the equivalent periodlast year and an increase in the proportion of borrowings in non-sterlingcurrencies for which interest rates are currently more favourable. We incurred an unrealised value movement of £33 million (2004: gain of £4million) as a result of marking derivatives to fair value. Of this, £14 millionrelates to the derivative element of the €550 million Convertible Bonds due2008, where the increase in 3i's share price over the period was a significantfactor. The portfolioThe number of investments in the portfolio (excluding SMI) fell from 695 at thestart of the period to 609 at the end, reflecting the high level of realisationsachieved. The number of investments in the SMI portfolio fell from 807 at the start of theperiod to 676 at the end. Within this portfolio, the largest 20 investments byvalue represented 31% of the total value as at 30 September. Cash flows and capital structureNet cash outflow for the period was £192 million (2004: £64 million inflow). Netborrowings at the period end increased to £752 million from £545 million at 31March 2005. The level of gearing rose from 15% as at 31 March 2005 (restated) to20% at 30 September. The above numbers reflect the progress to-date on the £500 million return ofcapital to shareholders, which was approved by shareholders on 6 July. A specialdividend of £245 million was paid to shareholders in July and, as at 30September, £151 million of share purchases had been made under the sharebuy-back programme. Since 30 September, a further £47 million of share purchaseshave been made. Valuation policyThere have been no significant changes to 3i's valuation methodology in theperiod. In order to comply with IFRS, discounts are no longer applied to marketprices in valuing our quoted investments and investments are valued at bid pricerather than mid price. As a result, the carrying value of our quoted portfolioat the period end was £27 million higher (31 March 2005: £25 million higher)than it would have been under the previous methodology. Changes to accounting policiesAs set out in the Basis of preparation, 3i has adopted IFRS for the first timethis period. As a result, certain accounting policies and methods have beenamended to comply with IFRS. The comparative figures in respect of 2004 havebeen restated to reflect these adjustments. Consolidated income statementfor the six months to 30 September 2005---------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) Notes £m £m £m----------------------------------------------------------------------------------Realised profits overvalue on the disposal ofinvestments 189 89 250Unrealised profits on therevaluation of investments 2 223 86 245---------------------------------------------------------------------------------- 412 175 495Portfolio income Dividends 39 52 104 Income from loans and receivables 52 55 101 Fees receivable 18 19 27----------------------------------------------------------------------------------Gross portfolio return 1 521 301 727Carried interest receivable 57 1 2Carried interest andinvestment performance plans (26) (25) (66)Fund management fees 15 14 30Operating expenses (92) (80) (171)Share-based payments (4) (3) (6)----------------------------------------------------------------------------------Net portfolio return 471 208 516Treasury interest received 3 25 21 46Interest payable 3 (37) (46) (89)Movements in the fairvalue of derivatives (33) 9 13Finance income on pension plan 1 1 1Exchange movements 4 35 32 13Other income 1 - 1----------------------------------------------------------------------------------Profit before tax 463 225 501Income tax (1) (2) (3)----------------------------------------------------------------------------------Profit after tax andprofit for the period 462 223 498----------------------------------------------------------------------------------Earnings per share Basic (pence) 5 79.6p 36.9p 82.6p Diluted (pence) 5 77.0p 36.3p 81.0p---------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis ofpreparation. The rates and amounts of dividends paid and proposed are shown in note 6. Consolidated statement of recognised income and expensefor the six months to 30 September 2005-------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) £m £m £m--------------------------------------------------------------------------------Profit for the period 462 223 498Gain/(loss) on valuation of property 1 - (1)Exchange differences ontranslation of foreign operations (9) (2) 5Actuarial (losses)/gains (7) 3 (1)--------------------------------------------------------------------------------Total recognised incomeand expense for the period 447 224 501--------------------------------------------------------------------------------Analysed in reserve as: Revenue 52 69 129 Capital 404 157 367 Exchange differences on translation (9) (2) 5------------------------------------------------------------------------------- Consolidated reconciliation of movement in equityfor the six months to 30 September 2005-------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) Notes £m £m £m--------------------------------------------------------------------------------Total equity at start of period 3,699 3,294 3,294Total recognised income and expense for the period 447 224 501Share-based payments 4 3 6Ordinary dividends 6 (56) (53) (85)Special dividends 6 (245) - -Issues of shares 5 2 5Share buy-backs (151) - -Own shares 8 5 (22)--------------------------------------------------------------------------------Total equity at end of period 3,711 3,475 3,699-------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis ofpreparation. Consolidated balance sheetas at 30 September 2005------------------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited)Assets Notes £m £m £m-------------------------------------------------------------------------------------------------Non-current assetsInvestments Quoted investments 260 279 235 Equity investments 2,625 2,586 2,682 Loans and receivables 1,504 1,532 1,400-------------------------------------------------------------------------------------------------Investment portfolio 7 4,389 4,397 4,317Carry receivable 65 8 9Interests in joint ventures 39 29 46Property, plant and equipment 35 34 33Investment property 7 5 6-------------------------------------------------------------------------------------------------Total non-current assets 4,535 4,473 4,411-------------------------------------------------------------------------------------------------Current assetsOther current assets 199 160 116Derivative financialinstruments 29 22 35Deposits 501 504 576Cash and cash equivalents 373 440 623-------------------------------------------------------------------------------------------------Total current assets 1,102 1,126 1,350-------------------------------------------------------------------------------------------------Total assets 5,637 5,599 5,761-------------------------------------------------------------------------------------------------LiabilitiesNon-current liabilitiesLoans and borrowings (1,145) (1,193) (1,195)Convertible Bonds (353) (347) (352)Subordinated liabilities (49) (48) (50)Retirement benefit obligation (30) (20) (23)Deferred income tax - (1) (1)Provisions (6) - (5)-------------------------------------------------------------------------------------------------Total non-current liabilities (1,583) (1,609) (1,626)-------------------------------------------------------------------------------------------------Current liabilitiesTrade and other payables (226) (216) (245)Loans and borrowings - (222) (102)Derivative financialinstruments (108) (72) (80)Current income tax (2) (2) (2)Provisions (7) (3) (7)-------------------------------------------------------------------------------------------------Total current liabilities (343) (515) (436)-------------------------------------------------------------------------------------------------Total liabilities (1,926) (2,124) (2,062)------------------------------------------------------------------------------------------------ Net assets 3,711 3,475 3,699-------------------------------------------------------------------------------------------------EquityIssued capital 8,9 296 307 307Share premium 9 368 361 364Capital redemption reserve 9 13 1 1Share-based payment reserve 9 13 6 9Translation reserve 9 (4) (2) 5Capital reserve 9 2,866 2,403 2,613Revenue reserve 9 228 449 477Own Shares 9 (69) (50) (77)-------------------------------------------------------------------------------------------------Total equity 3,711 3,475 3,699------------------------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis of preparation. Approved by the Board9 November 2005 Consolidated cash flow statementfor the six months to 30 September 2005-------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) £m £m £m--------------------------------------------------------------------------------Cash flow from operating activitiesPurchase of investments (724) (426) (719)Proceeds from sales of investments 1,025 605 1,287Interest received 28 26 64Dividends received 39 53 103Fees received 30 33 56Operating expenses paid (132) (160) (228)Income tax paid (1) (1) (1)--------------------------------------------------------------------------------Net cash flow from operations 265 130 562--------------------------------------------------------------------------------Cash flow from financing activitiesProceeds from issues of share capital 5 2 5Repurchase of own shares (151) - (25)Dividend paid (301) (54) (85)Interest receivable 26 20 46Interest paid (36) (37) (81)Payment of finance lease liabilities - (1) (1)Proceeds from long-term borrowings 1 10 44Repayment of long-term borrowings (47) (1) (32)Net cash flow from short-term borrowings (86) 50 (67)Net cash flow from deposits 75 (59) (131)--------------------------------------------------------------------------------Net cash flow from financing activities (514) (70) (327)--------------------------------------------------------------------------------Cash flow from investing activitiesPurchases of property, plant and equipment (2) (2) (4)Sales of property, plant and equipment - - 1Divestment from joint venture 2 5 14--------------------------------------------------------------------------------Net cash flow from investing activities - 3 11--------------------------------------------------------------------------------Change in cash and cash equivalents (249) 63 246Cash and cash equivalents at 1 April 623 374 374Effect of exchange rate fluctuations (1) 3 3-------------------------------------------------------------------------------Cash and cash equivalents at theend of the period 373 440 623------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis of preparation. Notes to the financial statements1 Segmental analysisThe Group carries on its private equity activities in four business segments.There are three distinct business lines (Buyouts, Growth Capital and VentureCapital). The fourth segment (SMI) contains the Group's smaller, minority investments. The Group allocates all items of income and expenditure within gross portfolioreturn to a business segment. 6 months to 6 months to 12 months to 30 September 30 September 31 March (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) 2005 2004 2005Gross portfolio return £m £m £m---------------------------------------------------------------------------------Buyouts Realised profits over value on the disposal of investments 62 22 103 Unrealised profits on the revaluation of investments 79 76 122 Portfolio income 58 47 76--------------------------------------------------------------------------------- 199 145 301-------------------------------------------------------------------------------Growth Capital Realised profits over value on the disposal of investments 60 50 110 Unrealised profits on the revaluation of investments 86 (3) 109 Portfolio income 22 46 66--------------------------------------------------------------------------------- 168 93 285-------------------------------------------------------------------------------Venture Capital Realised profits over value on the disposal of investments 36 10 35 Unrealised profits of investments 23 12 37 Portfolio income 2 1 4--------------------------------------------------------------------------------- 61 23 76-------------------------------------------------------------------------------SMI Realised profits over value on the disposal of investments 31 7 2 Unrealised profits on the revaluation of investments 35 1 (23) Portfolio income 27 32 86--------------------------------------------------------------------------------- 93 40 65--------------------------------------------------------------------------------- 521 301 727---------------------------------------------------------------------------------2 Unrealised profits on the revaluation of investments---------------------------------------------------------------------------------------------------------- 6 months to 30 6 months to 30 12 months to 31 September 2005 September 2004 March 2005 (unaudited) (as restated)* (as restated)* (unaudited) (unaudited)---------------------------------------------------------------------------------------------------------- Loans and Loans and Loans and---------------------------------------------------------------------------------------------------------- Equity Receivables Total Equity Receivables Total Equity Receivables Total---------------------------------------------------------------------------------------------------------- £m £m £m £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------Movement inthe fairvalue of equity 313 - 313 174 - 174 440 - 440Impairment ofloans andreceivables - (53) (53) - (44) (44) - (129) (129)Provisions (24) (13) (37) (16) (28) (44) (28) (38) (66)---------------------------------------------------------------------------------------------------------- 289 (66) 223 158 (72) 86 412 (167) 245---------------------------------------------------------------------------------------------------------- Provisions have been recognised on investments where it is considered there is a significant risk of failure. *As restated for the adoption of IFRS, as explained in the Basis of preparation. 3 Net interest payable---------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) £m £m £m----------------------------------------------------------------------------------------Treasury Interest receivable----------------------------------------------------------------------------------------Interest on bank deposits 25 21 46----------------------------------------------------------------------------------------Interest payableInterest on loans and borrowings (29) (38) (73)Interest on Convertible Bonds (3) (3) (5)Amortisation of Convertible Bonds (4) (4) (8)Interest on subordinated borrowings (1) (1) (3)---------------------------------------------------------------------------------------- (37) (46) (89)----------------------------------------------------------------------------------------Net interest payable (12) (25) (43)---------------------------------------------------------------------------------------- 4 Exchange movements----------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) £m £m £m-----------------------------------------------------------------------------------------Exchange movements on assets andliabilities held at fair value 4 29 19---------------------------------------------------------------------------------------Other recognised exchange movementsExchange movements on loan investments 7 11 8Exchange on movements on borrowings 7 (29) (17)Exchange movements on other assetsand liabilities 17 21 3----------------------------------------------------------------------------------------- 31 3 (6)-----------------------------------------------------------------------------------------Total exchange movements in the income statement 35 32 13-----------------------------------------------------------------------------------------Exchange differences on translationof foreign operations (9) (2) 5-----------------------------------------------------------------------------------------Net exchange movement 26 30 18--------------------------------------------------------------------------------------- *As restated for the adoption of IFRS, as explained within the Basis of preparation. 5 Per share informationThe earnings and net assets per share attributable to the equity shareholders of theCompany is based on the following data: Earnings per share---------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited)-----------------------------------------------------------------------------------------Basic 79.6p 36.9p 82.6p----------------------------------------------------------------------------------------Diluted 77.0p 36.3p 81.0pEarnings (£m)Profit for the year attributable toequity holders of the Company 462 223 498Effect of dilutive potential ordinary shares 5 5 11---------------------------------------------------------------------------------------- 467 228 509---------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (unaudited) (unaudited) (unaudited) Number Number Number-----------------------------------------------------------------------------------------Number of sharesWeighted averagenumber of shares in issue 580,583,146 604,250,584 603,240,340Effect of dilutive potential ordinary shares Share options 1,697,906 381,696 119,980 Convertible Bonds 24,750,000 24,750,000 24,750,000----------------------------------------------------------------------------------------Diluted shares 607,031,052 629,382,280 628,110,320---------------------------------------------------------------------------------------- Net assets per share----------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)*(as restated)* (unaudited) (unaudited) (unaudited)-----------------------------------------------------------------------------------------Basic 679p 574p 615p------------------------------------------------------------------------------------------Diluted 677p 574p 614pNet assets (£m)Net assets attributable toequity holders of the Company 3,711 3,475 3,699----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (unaudited) (unaudited) (unaudited) Number Number Number-----------------------------------------------------------------------------------------Number of sharesNumber of shares in issue 546,363,945 605,010,144 601,912,869Effect of dilutive potential ordinary shares Share options 1,952,013 538,649 1,007,723----------------------------------------------------------------------------------------- 548,315,958 605,548,793 602,920,592----------------------------------------------------------------------------------------- No adjustment has been made to the opening number of shares used in the abovecalculations for the share consolidation on 8 July 2005. *As restated for the adoption of IFRS, as explained within the Basis of preparation. 6 Dividends------------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) p per share p per share p per share-------------------------------------------------------------------------------------------Declared and paid during the periodOrdinary shares Final dividend 9.3 8.9 8.9 Special dividend 40.7 - - Interim dividend - - 5.3------------------------------------------------------------------------------------------- 50.0 8.9 14.2-------------------------------------------------------------------------------------------Proposed dividend 5.5 5.3 9.3-------------------------------------------------------------------------------------------The Directors have proposed an interim dividend of 5.5p per share. ------------------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2005 2004 2005 (as restated)* (as restated)* (unaudited) (unaudited) (unaudited) £m £m £m-------------------------------------------------------------------------------------------Declared and paid during the periodOrdinary shares Final dividend 56 53 53 Special dividend 245 - - Interim dividend - - 32------------------------------------------------------------------------------------------- 301 53 85-------------------------------------------------------------------------------------------Proposed dividend 30 32 56------------------------------------------------------------------------------------------- 7 Investment portfolio------------------------------------------------------------------------------------------ Quoted Equity Loans and Investments Investments receivables (unaudited) (unaudited) (unaudited) £m £m £m-----------------------------------------------------------------------------------------Book value at 1 April 2005* 235 2,682 1,400Additions 3 312 391Transfers 64 (34) (30)Disposals, repayments and write-offs (98) (515) (257)Unrealised profits on the revaluation of portfolio investments 56 171 1Currency and translation movement - 9 (1)------------------------------------------------------------------------------------------Book value at 30 September 2005 260 2,625 1,504------------------------------------------------------------------------------------------ *As restated for the adoption of IFRS, as explained within the Basis of preparation. 8 Issued capital--------------------------------------------------------------------------------------------------------- 30 September 30 September 30 September 30 September 31 March 31 March 2005 2005 2004 2004 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Authorised Number £m Number £m Number £m---------------------------------------------------------------------------------------------------------Ordinary shares of 50p - - 820,000,000 410 820,000,000 410---------------------------------------------------------------------------------------------------------Ordinary shares of 53 1/8p 771,764,704 410 - - - ---------------------------------------------------------------------------------------------------------Unclassifiedshares of 10p 1,000,000 - 1,000,000 - 1,000,000 ----------------------------------------------------------------------------------------------------------Issued and fully paidOrdinary shares of 50pBalance at thebeginning ofthe period 614,409,167 307 613,479,159 307 613,479,159 307Share options 268,792 - 358,324 - 930,008 -Shareconsolidation (614,677,959) (307) - - - ----------------------------------------------------------------------------------------------------------Closingbalance - - 613,837,483 307 614,409,167 307---------------------------------------------------------------------------------------------------------During the period to 8 July 2005, the Company issued shares for cash on the exercise of share options atvarious prices from 467p to 664p per share. The Company repurchased 400,452 shares at 683p per share. Theseshares were cancelled after the Company consolidated its share capital on 8 July 2005. The Company consolidated its share capital by issuing 16 53 1/8p shares for every 17 50p shares held. This coincided with the payment ofa special dividend of 40.7p per share (see note 6).--------------------------------------------------------------------------------------------------------- 30 September 30 September 30 September 30 September 31 March 31 March 2005 2005 2004 2004 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Number £m Number £m Number £m---------------------------------------------------------------------------------------------------------Ordinary shares of 53 1/8pBalance at the beginning of theperiod - - - - - -Shareconsolidation 578,520,432 307 - - - -Share options 523,503 - - - - -Sharescancelled (21,256,896) (11) - - - ----------------------------------------------------------------------------------------------------------Closing balance 557,787,039 296 - - - ---------------------------------------------------------------------------------------------------------- Since 11 July, the Company issued shares for cash on the exercise of share options at various prices from 467p to 664p per share. The Company repurchased 20,880,000 shares at an average price of 712p per share. These shares, and those purchased before the share consolidation, were cancelled and a transfer made to the capital redemption reserve equal to the nominal value of the shares repurchased. 9 Equity Share Capital based Share Share redemption payment Translation Capital Revenue Own Total capital premium reserve reserve reserve reserve reserve shares equity (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £m £m £m £m £m £m £m £m £m------------------------------------------------------------------------------------------------------------------------Six months to 30 September 2005Balance at 1 April 2005* 307 364 1 9 5 2,613 477 (77) 3,699Total recognisedincome and expense (9) 404 52 447Share-based payments 4 4Issues of shares 1 4 5Dividends paid (301) (301)Share buy-backs (12) 12 (151) (151)Own shares 8 8------------------------------------------------------------------------------------------------------------------------Balance at 30 September 2005 296 368 13 13 (4) 2,866 228 (69) 3,711------------------------------------------------------------------------------------------------------------------------ Six months to 30 September 2004*Balance at 1 April 2004 307 359 1 3 2,246 433 (55) 3,294Total recognisedincome and expense (2) 157 69 224Share-based payments 3 3Dividends paid (53) (53)Issues of shares 2 2Own shares 5 5------------------------------------------------------------------------------------------------------------------------Balance at 30September 2004 307 361 1 6 (2) 2,403 449 (50) 3,475------------------------------------------------------------------------------------------------------------------------Year to 31 March 2005*Balance at 1 April 2004 307 359 1 3 2,246 433 (55) 3,294Total recognisedincome and expense 5 367 129 501Share-based payments 6 6Dividends paid (85) (85)Issues of shares 5 5Own shares (22) (22)------------------------------------------------------------------------------------------------------------------------Balance at 31March 2005 307 364 1 9 5 2,613 477 (77) 3,699------------------------------------------------------------------------------------------------------------------------ Share-based payment reserveThe share-based payment reserve is a reserve to recognise those amounts in retained earnings in respect of share-based payments. Transfers are made from this reserve as share options are exercised, lapse or expire. Translation reserveThe translation reserve comprises all exchange differences arising from the translation of the financial statements of international operations. *As restated for the adoption of IFRS, as explained within the Basis of preparation. Basis of preparation The interim financial statements of 3i Group plc are for the six months to30 September 2005. These interim consolidated financial statements have beenprepared in accordance with those IFRS standards and IFRIC interpretationsissued and effective or issued and early adopted as at the time of preparingthese statements (November 2005) and in respect of the revisions to IAS 39published by the International Accounting Standards Board ("IASB") in June 2005and IAS 19 issued but awaiting EU ratification. The standards to be applied,which will be adopted for the first time for the purpose of preparingconsolidated financial statements for the year to 31 March 2006, will be thoseissued by the IASB and endorsed by the EU as at 31 March 2006.The IFRS standardsand IFRIC interpretations that will be applicable at 31 March 2006, includingthose that will be applicable on an optional basis, are not known with certaintyat the time of preparing these consolidated financial statements. 3i Group plc's consolidated financial statements were prepared in accordancewith the United Kingdom's Generally Accepted Accounting Principles (UK GAAP)until the year to 31 March 2005. In preparing 3i Group plc's interimconsolidated financial statements, the Board of Directors has amended certainaccounting and valuation methods applied in the UK GAAP financial statements tocomply with IFRS. The comparative figures in respect of 2004 were restated toreflect these adjustments. These figures have not been subject to audit. The Group's IFRS accounting policies (Transition to IFRS) have been consistentlyapplied to all periods presented. The effects of the transition from UK GAAP toIFRS on the Group's profit after taxation, net assets and cash flows areprovided in the Transition to IFRS. These interim consolidated financial statements have been prepared on thehistorical cost basis, except for investment property, land and buildings,derivative financial instruments and financial assets at fair value throughprofit or loss that have been included at fair value. The basis of consolidationis included in the Transition to IFRS. The interim report does not constitute statutory accounts. The statutoryaccounts for the year to 31 March 2005, prepared under UK GAAP, have been filedwith the Registrar of Companies on which the auditors issued a report, which wasunqualified and did not contain a statement under section 237(2) or section 237(3) of the Companies Act 1985. Transitional arrangements Rules regarding transitional arrangements are set outin IFRS 1, First-time adoption of IFRS, which generally requires fullretrospective adoption of all accounting standards at the reporting date.Details of the primary IFRS exemptions that the Group has taken advantage of areincluded in the Transition to IFRS. Forward-looking statements 3i's actual future results may differ materially fromthe plans, goals and expectations set forth in any of its forward-lookingstatements. Any forward-looking statements speak only as of the date they aremade. 3i does not undertake to update forward-looking statements to reflect anychanges in its expectations with regard thereto or any changes in events,conditions or circumstances on which any such statement is based. Independent review report to 3i Group plc Introduction We have been instructed by the Company to review the financialinformation for the six months ended 30 September 2005 which comprises theConsolidated Income Statement, Consolidated Statement of Recognised Income andExpenses, Consolidated Reconciliation of Movements in Equity, ConsolidatedBalance Sheet, Consolidated Cash Flow Statement, and the related notes 1 to 9.We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 "Review of interim financial information" issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financialinformation contained therein, is the responsibility of, and has been approvedby, the Directors. The Directors are responsible for preparing the interimreport in accordance with the Listing Rules of the Financial Services Authority.As disclosed in the Basis of preparation, the next annual financial statementsof the Group will be prepared in accordance with those IFRSs adopted for use bythe European Union. The accounting policies are consistent with those that the Directors intend touse in the next financial statements. There is, however, a possibility that theDirectors may determine that some changes to these policies are necessary whenpreparing the full annual financial statements for the first time in accordancewith those IFRSs adopted for use by the European Union. This is because asdisclosed in the Basis of preparation, the Directors have anticipated that therevisions to IAS 39 published by the IASB in June 2005 and IAS 19, which haveyet to be formally adopted for use in the EU will be so adopted in time to beapplicable to the next annual financial statements. Review work performed We conducted our review in accordance with guidancecontained in Bulletin 1999/4 "Review of interim financial information" issued bythe Auditing Practices Board for use in the United Kingdom. A review consistsprincipally of making enquiries of group management and applying analyticalprocedures to the financial information and underlying financial data, and basedthereon, assessing whether the accounting policies have been applied. A reviewexcludes audit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordinglywe do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any materialmodifications that should be made to the financial information as presented forthe six months ended 30 September 2005. Ernst & Young LLPLondon, 9 November 2005 Note 1The Interim report 2005 will be posted to shareholders on 21 November 2005 andthereafter copies will be available from the Company Secretary, 3i Group plc, 91Waterloo Road, London SE1 8XP. Note 2The interim dividend will be payable on 4 January 2005 to holders of shares onthe register on 2 December 2005. The ex-dividend date will be 30 November 2005. New investment analysisThe Group's equity, fixed income and loan investment totals £706m for the 6months to 30 September 2005 (excluding co-investment funds and joint ventures).Details of investment including co-investment funds are included in'Portfolio and investment analysis including co-investment funds'. ------------------------------------------------------------------------------ 6 months to 6 months to 12 months to 30 September 30 September 31 MarchInvestment by business line (£m) 2005 2004 2005------------------------------------------------------------------------------Buyouts 358 200 338Growth Capital 286 143 263Venture Capital 58 72 143SMI 4 7 11------------------------------------------------------------------------------Total 706 422 755------------------------------------------------------------------------------Investment by geography (£m) ------------------------------------------------------------------------------UK 283 152 334Continental Europe 359 222 341US 28 35 51Asia 36 13 29------------------------------------------------------------------------------- Total 706 422 755-------------------------------------------------------------------------------Continental European investment (£m)-------------------------------------------------------------------------------Benelux 61 11 17France 3 61 73Germany/Austria/Switzerland 44 73 92Italy 83 10 20Nordic 111 42 81Spain 42 23 41Other European 15 2 17-------------------------------------------------------------------------------Total 359 222 341-------------------------------------------------------------------------------Other European includes investments in countries where 3i did not have anoffice at the period end. Investment by FTSE industrial classification (£m)-------------------------------------------------------------------------------Resources 16 63 68Industrials 125 97 163Consumer goods 174 66 155Services and utilities 327 116 234Financials 22 43 59Information technology 42 37 76-------------------------------------------------------------------------------Total 706 422 755-------------------------------------------------------------------------------First and subsequent investment (£m)-------------------------------------------------------------------------------First investment in new investee companies 512 258 488Drawdown on existing arrangements for first 8 11 10investmentsInvestment by 3i in external funds 62 17 26Newly arranged further investment in existingportfolio companies 91 98 167Other - including capitalised interest 33 38 64 --------------------------------------------------------------------------------Total 706 422 755-------------------------------------------------------------------------------- Portfolio analysisThe Group's equity, fixed income and loan investments total £4,389 million at 30September 2005 (excluding co-investment funds and joint ventures).-------------------------------------------------------------------------------- At 30 September At 31 March 2005 2005Portfolio value by business line (£m) (as restated)*--------------------------------------------------------------------------------Buyouts 1,665 1,521Growth Capital 1,321 1,292Venture Capital 740 748SMI 663 756--------------------------------------------------------------------------------Total 4,389 4,317--------------------------------------------------------------------------------Portfolio value by geography (£m)--------------------------------------------------------------------------------UK 2,178 2,258Continental Europe 1,843 1,693US 262 277Asia 106 89--------------------------------------------------------------------------------Total 4,389 4,317--------------------------------------------------------------------------------Continental European portfolio value (£m)-------------------------------------------------------------------------------Benelux 157 180France 254 292Germany/Austria/Switzerland 540 503Italy 149 69Nordic 394 344Spain 282 249Other European 67 56--------------------------------------------------------------------------------Total 1,843 1,693--------------------------------------------------------------------------------Other European includes investments in countries where 3i did not have an office at the period end. Portfolio value by FTSE industrial classification (£m)-------------------------------------------------------------------------------Resources 152 162Industrials 1,230 1,077Consumer goods 991 969Services and utilities 1,266 1,214Financials 228 326Information technology 522 569-------------------------------------------------------------------------------Total 4,389 4,317--------------------------------------------------------------------------------Portfolio value by valuation method (£m)-------------------------------------------------------------------------------Imminent sale or IPO 281 373Listed 216 198Secondary market 44 37Earnings 1,155 1,138Cost 605 468Further advance 162 203Net assets 96 92Other (including other Venture Capital assets valued below cost) 326 408Loan investments and fixed income shares 1,504 1,400--------------------------------------------------------------------------------Total 4,389 4,317--------------------------------------------------------------------------------Buyout portfolio value by valuation method (£m)--------------------------------------------------------------------------------Imminent sale or IPO 96 134Listed 56 48Secondary market 1 1Earnings 358 372Cost 131 71Net assets 4 4Other 78 22Loan investments and fixed income shares 941 869--------------------------------------------------------------------------------Total 1,665 1,521--------------------------------------------------------------------------------Growth Capital portfolio value by valuation method (£m)--------------------------------------------------------------------------------Imminent sale or IPO 136 120Listed 31 62Secondary market 24 9Earnings 395 360Cost 220 159Further advance 8 14Net assets 28 33Other 79 200Loan investments and fixed income shares 400 335--------------------------------------------------------------------------------Total 1,321 1,292--------------------------------------------------------------------------------Venture Capital portfolio value by valuation method (£m)--------------------------------------------------------------------------------Imminent sale or IPO 17 33Listed 121 72Secondary market 15 22Earnings 5 25Cost 248 221Further advance 151 186Net assets 1 1Other Venture Capital assets valued below cost 76 71Other 45 55Loan investments and fixed income shares 61 62--------------------------------------------------------------------------------Total 740 748--------------------------------------------------------------------------------- of which early stage Venture Capital 622 561-------------------------------------------------------------------------------SMI portfolio value by valuation method (£m)--------------------------------------------------------------------------------Imminent sale or IPO 32 86Listed 8 16Secondary market 4 5Earnings 397 381Cost 6 17Further advance 3 3Net assets 63 54Other 48 60Loan investments and fixed income shares 102 134--------------------------------------------------------------------------------Total 663 756--------------------------------------------------------------------------------Venture Capital portfolio value by sector (£m)--------------------------------------------------------------------------------Healthcare 238 228Communications 162 189Electronics, semiconductors and advanced technologies 130 141Software 210 190--------------------------------------------------------------------------------Total 740 748--------------------------------------------------------------------------------*As restated for the adoption of IFRS, as explained within the Basis of preparation. Realisations analysisAnalysis of the Group's realisation proceeds (excluding third party co-investment funds and joint ventures).------------------------------------------------------------------------------ 6 months to 6 months to 12 months toRealisation proceeds by business 30 September 30 September 31 Marchline (£m) 2005 2004 2005-------------------------------------------------------------------------------Buyouts 379 218 505Growth Capital 381 245 443Venture Capital 120 58 156SMI 161 82 198-------------------------------------------------------------------------------Total 1,041 603 1,302-------------------------------------------------------------------------------Realisation proceeds by geography (£m)--------------------------------------------------------------------------------UK 504 445 897Continental Europe 445 148 365US 57 9 34Asia 35 1 6--------------------------------------------------------------------------------Total 1,041 603 1,302--------------------------------------------------------------------------------Realisation proceeds (£m)-------------------------------------------------------------------------------IPO 45 34 41Sale of quoted investments 117 38 134Trade and other sales 638 345 744Loan and fixed income share repayments 241 186 383--------------------------------------------------------------------------------Total 1,041 603 1,302--------------------------------------------------------------------------------Realisation proceeds by FTSE industrial classification (£m)-------------------------------------------------------------------------------Resources 84 60 105Industrials 88 90 142Consumer goods 255 90 394Services and utilities 349 282 457Financials 173 3 29Information technology 92 78 175--------------------------------------------------------------------------------Total 1,041 603 1,302-------------------------------------------------------------------------------- Portfolio and investment analysisincluding co-investment funds------------------------------------------------------------------------------ 6 months to 6 months to 12 months to 30 September 30 September 31 MarchInvestment by business line (£m) 2005 2004 2005------------------------------------------------------------------------------Buyouts 483 291 532Growth Capital 290 149 274Venture Capital 58 73 144SMI 4 8 12------------------------------------------------------------------------------Total 835 521 962------------------------------------------------------------------------------ Investment by geography (£m)--------------------------------------------------------------------------------UK 345 201 440Continental Europe 423 268 433US 28 35 51Asia 39 17 38--------------------------------------------------------------------------------Total 835 521 962-------------------------------------------------------------------------------- At 30 September At 31 March 2005 2005Portfolio value by business line (£m) (as restated)*--------------------------------------------------------------------------------Buyouts 2,600 2,521Growth Capital 1,501 1,474Venture Capital 749 747SMI 721 813--------------------------------------------------------------------------------Total 5,571 5,555-------------------------------------------------------------------------------- Portfolio value by geography (£m)--------------------------------------------------------------------------------UK 2,650 2,742Continental Europe 2,531 2,428US 262 283Asia 128 102--------------------------------------------------------------------------------Total 5,571 5,555--------------------------------------------------------------------------------*As restated for the adoption of IFRS, as explained within the Basis of preparation. Funds under management-------------------------------------------------------------------------------- At 30 September At 31 March(£m) 2005 2005--------------------------------------------------------------------------------Third party unquoted co-investment funds 1,817 1,913-------------------------------------------------------------------------------- Ten large investmentsThe table below shows investments valued at £50 million or above. One investmenthas been excluded for commercial reasons.--------------------------------------------------------------------------------------------------------------- First Residual Directors' Business invested cost valuation(1)Investments Description of business line Geography in £m(1) £m---------------------------------------------------------------------------------------------------------------Petrofac Ltd Oilfield services Growth Capital UK 2002 Equity shares 22 116--------------------------------------------------------------------------------------------------------------- 22 116---------------------------------------------------------------------------------------------------------------Oval (2040) Ltd Transport management and Buyouts UK 2005(NCP) parking services Equity shares 1 1Loans 98 98--------------------------------------------------------------------------------------------------------------- 99 99---------------------------------------------------------------------------------------------------------------SR Technics Technical solutions provider Buyouts Switzerland 2002Holding AG for commercial aircraft fleetsEquity shares 7 60Loans 34 33--------------------------------------------------------------------------------------------------------------- 41 93---------------------------------------------------------------------------------------------------------------Giochi Preziosi Manufacturer and Buyouts Italy 2005Spa distributor of toysEquity shares 83 83--------------------------------------------------------------------------------------------------------------- 83 83---------------------------------------------------------------------------------------------------------------ERM Holdings Environmental consultancy Buyouts UK 2001Ltd Equity shares 1 45Loans 42 35--------------------------------------------------------------------------------------------------------------- 43 80---------------------------------------------------------------------------------------------------------------Betapharm Supplier of generic Buyouts Germany 2003Arzneimittel prescription drugsGmbH Equity shares 33 55Loans 19 20--------------------------------------------------------------------------------------------------------------- 52 75---------------------------------------------------------------------------------------------------------------Vetco Oilfield Buyouts UK 2004International equipment manufacturerLtd(2) Equity shares - 33Loans 30 31--------------------------------------------------------------------------------------------------------------- 30 64---------------------------------------------------------------------------------------------------------------Boxer TV - Digital TV distributor Growth Capital Nordic 2005Access AB Equity shares 58 59--------------------------------------------------------------------------------------------------------------- 58 59---------------------------------------------------------------------------------------------------------------Williams Lea Outsourced print services Growth Capital UK 1965Group Ltd Equity shares 33 59--------------------------------------------------------------------------------------------------------------- 33 59--------------------------------------------------------------------------------------------------------------Extec Holdings Manufacturing of screening and Buyouts UK 2002Ltd crushing machineryEquity shares 7 32Loans 12 12Fixed income 6 6--------------------------------------------------------------------------------------------------------------- 25 50--------------------------------------------------------------------------------------------------------------- Notes1 The investment information is in respect of the Group's holding and excludes any co-investment by 3i managed funds.2 As the residual cost of this investment is less than £0.5million, this cost is not shown in the above table. Transition to IFRS Introduction3i prepared its 31 March 2005 consolidated financial statements in accordancewith accounting standards issued by the UK Accounting Standards Board, thepronouncements of the Urgent Issues Task Force, relevant Statements of StandardAccounting Practice, the Association of Investment Trust Companies' InvestmentTrust SORP and in compliance with the Companies Act 1985. The Company was authorised and regulated by the Financial Services Authority asa deposit taker and its March 2005 consolidated financial statements wereprepared in accordance with the requirements of Part VII of the Companies Act1985 in respect of banking companies and Groups. The Company surrendered itsauthorisation on 27 May 2005. Consequently, these accounts are not presented asthose of a bank. For accounting periods beginning on or after 1 April 2005, 3i is preparing itsconsolidated financial statements in accordance with International FinancialReporting Standards, International Accounting Standards and interpretationsissued by the International Financial Reporting Interpretation Committee and itspredecessor body (together "IFRS"). The standards to be applied, which will beadopted for the first time for the purpose of preparing consolidated financialstatements for the year to 31 March 2006, will be those issued by theInternational Accounting Standards Board ("IASB") and endorsed by the EuropeanUnion ("EU") as at 31 March 2006. 3i presents below the details of theaccounting policies and the transitional exemptions or choices it has applied inadopting IFRS. Reconciliations of retained profit and equity for the comparativeperiods are shown to illustrate the impact of the move from UK GAAP to IFRS.These reconciliations have been prepared in accordance with those IFRS standardsand IFRIC interpretations issued and early adopted as at the time of preparingthese statements, and in respect of the revisions to IAS 39 published by theIASB in June 2005 and IAS 19 issued but waiting EU ratification. Group accounting policies under IFRSA Basis of preparation These interim financial statements have been prepared, for the first time, on the basis of the IFRS accounting policies set out below. The disclosures required by IFRS 1, First-time adoption of IFRS, concerning thetransition from UK GAAP are also given below. The adoption date for 3i is 1 April 2004 (the start of its 2005 financial year). The financial statements have been prepared on the historical cost basis, exceptfor investment property, land and buildings, derivative financial instrumentsand financial assets at fair value through profit or loss that have beenincluded at fair value. The preparation of accounts in accordance with IFRS requires management to makeestimates and assumptions that affect the: - reported amounts of assets and liabilities; - disclosure of contingent assets and liabilities at the date of the accounts;and - reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The most significanttechniques for estimation are described in the accounting policies below. B Basis of consolidation The consolidated financial statements incorporate thefinancial statements of the Company and its subsidiaries. A subsidiary is anentity where the Company has the power to govern the financial and operatingpolicies so as to obtain benefit from its activities. The results of subsidiaries are included in the consolidated financialstatements from the date on which control is transferred to the Group or up tothe date when control ceases. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. C Investments in associates An associate is an entity over which the Group hassignificant influence and is neither a subsidiary nor an interest in a jointventure. Significant influence is the power to participate in the financial andoperating policy decisions of the investee but is not control or joint control. Investments that are held as part of the Group's investment portfolio arecarried in the balance sheet at fair value even though the Group may havesignificant influence over those companies. This treatment is permitted by IAS28 Investment in Associates which allows investments held by venture capitalorganisations to be excluded from the scope of IAS 28 Investment in Associatesprovided that those investments upon initial recognition are designated as fairvalue through profit or loss and accounted for in accordance with IAS 39Financial Instruments: Recognition and Measurement, with changes in fair valuerecognised in profit or loss in the period of the change. D Interests in joint ventures A joint venture is a contractual arrangementwhereby the Group and other parties undertake an economic activity that issubject to joint control, which is when the strategic financial and operatingpolicy decisions relating to the activities require the unanimous consent of theparties sharing control. Joint venture arrangements that involve the establishment of a separate entityin which each venturer has an interest are referred to as jointly controlledentities. The Group reports its interest in jointly controlled entities throughwhich it carries on its business using the equity method. Interests in joint ventures that are held as part of the Group's investmentportfolio are carried in the balance sheet at fair value. This treatment ispermitted by IAS 31 Interests in Joint Ventures, which allows venturer'sinterests held by venture capital organisations to be excluded from the scope ofIAS 31 Interests in Joint Ventures provided that those investments upon initialrecognition are designated as fair value through profit or loss and accountedfor in accordance with IAS 39 Financial Instruments: Recognition andMeasurement, with changes in fair value recognised in profit or loss in theperiod of the change. When the Group transacts with its jointly controlled entities, unrealisedprofits and losses are eliminated on consolidation to the extent of the Group'sinterest in the joint venture. E Foreign currencies The presentation currency of the Group is pounds sterling. Transactions in foreign currencies are translated into the functional currencyof the group company that is party to the transaction at the exchange ratesruling at the dates of the transactions. At each balance sheet date, monetaryassets and liabilities denominated in foreign currencies are retranslated at theexchange rates ruling at the balance sheet date. Non-monetary items carried atfair value in the balance sheet that are denominated in foreign currency areretranslated at the rates prevailing on the date when the fair value wasdetermined. Non-monetary items that are measured in terms of historical cost ina foreign currency are translated at the rate as on the date of the initialtransaction. Exchange differences arising on the settlement of monetary items and on theretranslation of monetary items are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period. The assets and liabilities of foreign operations are translated into poundssterling at the exchange rates ruling at the balance sheet date. The income andexpenses of foreign operations are translated into sterling at the exchangerates ruling at the date of the transactions. Foreign exchange differencesarising on retranslation are recognised directly in the translation reserve inequity. On disposal of foreign operations the cumulative amount of foreignexchange previously recognised in equity is recognised in the income statement. F Property, plant and equipment Land and buildings held by the Group are carriedin the balance sheet at fair value less depreciation and impairment. Fair valueis determined at each balance sheet date from valuations undertaken byprofessional valuers using market-based evidence. Any revaluation surplus iscredited directly to the asset revaluation reserve in equity except to theextent that it reverses a previous valuation deficit on the same asset chargedin profit or loss in which case the surplus is recognised in profit or loss tothe extent of the previous deficit. Any revaluation deficit that offsets apreviously recognised surplus in the same asset is directly offset against thesurplus in the asset revaluation reserve. Any excess valuation deficit over andabove the previously recognised surplus is charged in profit or loss. Depreciation on revalued buildings is charged in profit or loss. On subsequentsale or retirement of a revalued property, the attributable revaluation surplusin the asset revaluation reserve is transferred directly to accumulated profits. Plant and equipment is stated at cost less accumulated depreciation andimpairment. Depreciation is charged to profit or loss on a straight-line basisover the estimated useful life of plant and equipment, generally over three tofive years. Assets held under finance leases are depreciated over their expected useful lifeon the same basis as owned assets or, where shorter, the lease term. Assets arereviewed for impairment when events or changes in circumstances indicate thatthe carrying amount may not be recoverable. G Investment property Investment properties are held in the balance sheet atfair value at the balance sheet date. Gains or losses arising from the changesin fair value are recognised in profit or loss for the period in which theyarise. H Financial instruments Financial assets and liabilities are recognised in theGroup's balance sheet when the Group becomes a party to the contractualprovisions of the instrument. I Investments Investments are recognised and derecognised on a date where thepurchase or sale of an investment is under a contract whose terms require thedelivery or settlement of the investments. The Group manages its investmentswith a view to profiting from a return based on the receipt of interest anddividends and changes in fair value of equity investments. Therefore, all equityinvestments are designated as at fair value through profit or loss andsubsequently carried in the balance sheet at fair value. Other investmentsincluding loan investments and fixed income shares are classified as loans andreceivables and subsequently carried in the balance sheet at amortised cost lessimpairment. All investments are initially recognised at the fair value of theconsideration given and held at this value until it is appropriate to measurefair value on a different basis, applying 3i's valuation policies. Thesepolicies remain unchanged from previous years except that under IFRS, quotedinvestments are valued at bid price without discount. Acquisition costs areattributed to equity and recognised immediately in profit or loss. J Cash and cash equivalents Cash and short-term deposits in the balance sheetcomprise cash at bank and in hand and short-term deposits with an originalmaturity of three months or less. For the purposes of the cash flow statement, cash and cash equivalents comprisecash and short-term deposits as defined above and other short-term highly liquidinvestments that are readily convertible into cash and are subject to aninsignificant risk of changes in value, net of outstanding short-termborrowings. K Bank loans, loan notes and borrowings All loans and borrowings are initiallyrecognised at the fair value of the consideration received net of issue costsassociated with the borrowings. After initial recognition, these aresubsequently measured at amortised cost using the effective interest method,which is the rate that exactly discounts the estimated future cash flows throughthe expected life of the liabilities. Amortised cost is calculated by takinginto account any issue costs and any discount or premium on settlement. L Convertible Bonds Convertible Bonds, where the Bonds are issued in the samefunctional currency as the issuing entity, are regarded as compound instrumentsconsisting of a liability component and an equity component. Where the functional currency of the Convertible Bonds differs from that of theissuing entity, the Convertible Bonds are regarded as compound instrumentsconsisting of a liability and a derivative instrument (see policy below forderivatives). On issue of the Convertible Bonds, the fair value of thederivative component is determined using a market rate for an equivalentderivative. Subsequent to initial recognition the conversion option is measuredas a derivative financial instrument. The remainder of the proceeds is allocatedto the liability component and this amount is carried as a long-term liabilityon the amortised cost basis until extinguished on conversion or redemption. Issue costs are apportioned between the liability and derivative component ofthe Convertible Bonds based on their relative carrying amounts at the date ofissue. The portion relating to the derivative instrument is recognised initiallyas part of the financial derivative instrument. The interest expense on the liability component is calculated by applying theprevailing market interest rate for similar non-convertible debt to theliability component of the instrument. The difference between this amount andthe interest paid is added to the carrying value of the Convertible Bonds. M Equity instruments Equity instruments issued by the Company are recognised atthe proceeds received, net of any direct issue costs. N Derivative financial instruments The Group uses derivative financialinstruments to manage the risks associated with and foreign currencyfluctuations from its investment portfolio and changes in interest rates on itsborrowings. This is achieved by the use of foreign currency contracts, currencyswaps and interest rate swaps. All derivative financial instruments are held atfair value. The Group does not use derivative financial instruments forspeculative purposes. Derivative financial instruments are recognised initially at fair value on thecontract date and subsequently remeasured to fair value at each reporting date.The fair value of forward exchange contracts is calculated by reference tocurrent forward exchange contracts for contracts with similar maturity profiles.The fair value of currency swaps and interest rate swaps is determined withreference to future cash flows and current interest and exchange rates. Allchanges in the fair value of derivative financial instruments are taken throughprofit or loss. Derivatives embedded in other financial instruments or other non-financial hostcontracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss. O Provisions Provisions are recognised when the Group has a present obligationas a result of past events, and it is probable that the Group will be requiredto settle that obligation and a reliable estimate of that obligation can bemade. The provisions are measured at the Directors' best estimate of the amountto settle the obligation at the balance sheet date, and are discounted topresent value if the effect is material. P Portfolio return Gross portfolio return represents the sum of realised profitover value on the disposal of investments, the movement in the fair value ofequity investments, the impairment of loans and receivables and investmentincome. This is considered to be "revenue" under IFRS. Realised profits over value on the disposal of investments is the differencebetween the fair value of the consideration received less any directlyattributable costs, on the sale of equity and the repayment of loans andreceivables and the fair value of the equity and the amortised cost of the loansand receivables at the start of the accounting period. Unrealised profits on the revaluation of investments is the movement in carryingvalue of investments between the start and end of the accounting periodconverted into sterling using the exchange rates in force at the date of themovement. Foreign exchange gains and losses on equity investments and loans andreceivables are disclosed as part of the currency movement in profit or loss. Portfolio income is that portion of income that is directly related to thereturn from individual investments and is recognised to the extent that it isprobable that the economic benefit will flow to the Group and the income can bereliably measured. The following specific recognition criteria must be metbefore the income is recognised: Income from loans and receivables is recognised as it accrues by reference tothe principal outstanding and the effective interest rate applicable, which isthe rate that exactly discounts the estimated future cash flows through theexpected life of the financial asset to that asset's carrying value. Dividends from equity investments are recognised when the shareholders' rightsto receive payment have been established. Fee income is earned directly from investee companies when an investment isfirst made and through the life of the investment. Fees that are earned on afinancing arrangement are considered to relate to a financial asset measured atfair value through profit or loss and are recognised when that investment ismade. Fees that are earned on the basis of providing an ongoing service to theinvestee company are recognised as that service is provided. Investment management fees are earned from the ongoing management of privateequity funds, which primarily co-invest alongside the Group. This income isrecognised to the extent that it is probable that the economic benefit will flowto the Group and the income can be reliably measured. Q Retirement benefit costs Payments to defined contribution retirement benefitplans are charged as they fall due. For defined benefit retirement plans, thecost of providing benefits is determined using the projected unit credit methodwith actuarial valuations being carried out each balance sheet date. Currentservice costs are recognised in profit or loss. Past service costs arerecognised to the extent that they are vested immediately in profit or loss.Actuarial gains or losses are recognised outside profit or loss as part of thestatement of recognised income and expense. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligations as reduced by the fair value ofplan assets. R Borrowing costs Borrowing costs are recognised as an expense in the period inwhich they are incurred in accordance with the benchmark treatment. S Share-based payments In accordance with the transitional provisions of IFRS 1,the Group has applied the requirements of IFRS 2, Share-based Payment to allgrants of equity instruments after 7 November 2002, that were unvested at 1January 2005. The Group enters into arrangements that are equity-settled share-based paymentswith certain employees (including Directors). These are measured at fair valueat the date of grant, which is then recognised in profit or loss on astraight-line basis over the vesting period, based on the Group's estimate ofshares that will eventually vest. Fair value is measured by use of anappropriate model. The charge is adjusted at each balance sheet date to reflectthe actual number of forfeitures, cancellations and leavers during the period. T Income tax Income tax expense represents the sum of the tax currently payableand deferred tax. The tax currently payable is based on the taxable profit for the year. This maydiffer from the profit included in the consolidated income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates and laws thathave been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. Deferred tax assets and liabilities are recognised for taxable temporarydifferences arising on investments in subsidiaries and associates, and interestsin joint ventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised using tax ratesand laws that have been enacted or substantively enacted by the balance sheetdate. Tax is charged or credited in the income statement, except when it relatesto items charged or credited directly to equity, in which case the tax is alsodealt with in equity. U Investment Trust status The Company is an investment company as defined bysection 266 of the Companies Act 1985 and carries on its business and isapproved by the HM Revenue & Customs as an investment trust. Investment trustsapproved in this way are not liable for income tax on capital profits. TheArticles of Association prohibit the distribution of its capital profits by wayof dividend. Fees receivable earned and deal related costs incurred as an intrinsic part ofthe intention to acquire or dispose of an investment, have been accounted fordirectly in the capital reserve. Income tax losses have been transferred betweencapital and revenue in order to be utilised against excess taxable profits inthose reserves. Administrative expenses incurred associated with the making andmanaging of investments are allocated between capital and revenue. Finance costsless interest income on surplus funds have been allocated between revenue andcapital. Transition effectsIFRS 1 permits those companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. 3i hastaken the following key exemptions: a) The effect of changes in foreign exchange rates: Under IFRS 1, cumulativetranslation differences on the consolidation of subsidiaries are beingaccumulated from the date of transition to IFRS and not from the originalacquisition date. b) Share-based payment: IFRS 2 has been adopted from the transition date and isonly being applied to relevant equity instruments granted on or after 7 November2002 and not vested as at 1 January 2005. 3i has elected not to take up theoption of full retrospective application of the standard. c) All equity investments have been designated at the date of transition to beassets at fair value through profit or loss. Reconciliations of UK GAAP to IFRS for comparative periodsUnder IFRS, the 'Total recognised income and expense' is the equivalent of'Total return', as reported previously. In order to comply with IFRS 1, weprovide below a reconciliation of total return to the net profit per the incomestatement. -------------------------------------------------------------------------------- 30 September 31 March 2004 2005 Note £m £m--------------------------------------------------------------------------------Total return under UK GAAP 231 512IAS 39 - Quoted investments (a) (9) (11)IAS 39 - Fair valuation of derivatives (b) (12) 1IAS 39 - Convertible Bonds (c) 17 5IFRS 2 - Share-based payments (d) (3) (6)IAS 21 - Functional currencies and exchange rates(e) 2 (5)IAS 16 - Own use property (f) - 1IAS 19 - Retirement benefits (g) (3) 1--------------------------------------------------------------------------------Profit under IFRS 223 498-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 30 September 31 March 1 April 2004 2005 2004 Note £m £m £m--------------------------------------------------------------------------------Total equity under UK GAAP 3,436 3,637 3,230IAS 39 - Quoted investments (a) 27 25 36IAS 39 - Fair valuation of (b) (39) (26) (27)derivativesIAS 39 - Convertible Bonds (c) 19 7 2IAS 10 - Dividends payable (h) 32 56 53--------------------------------------------------------------------------------Total equity under IFRS 3,475 3,699 3,294-------------------------------------------------------------------------------- 30 September 31 March 2004 2005 Note £m £m--------------------------------------------------------------------------------Change in cash under UK GAAP (24) 68IAS 7 - Short-term deposits (i) 87 178--------------------------------------------------------------------------------Change in cash and cash equivalents under IFRS 63 246------------------------------------------------------------------------------ Notes(a) Under IFRS, quoted investment assets are valued at bid price. Under UK GAAP, these had been valued at mid-market price with discounts applied for illiquidity.(b) 3i uses derivatives in the form of swap and forward exchange contracts to manage 3i's current exposures to interest rates and currency. Under IFRS, these are held at fair value whereas they were held at cost under UK GAAP.(c) Under UK GAAP, the Convertible Bonds which were issued on 1 August 2003 were held at the face value of the Bonds (€550m). Under IFRS, the derivative element of the Bonds is held at fair value with the Bonds being held at amortised cost. Subsequent to the IFRS presentation on 23 June 2005, a further review of the carrying value of the Bonds and of their derivative element has been carried out. This has resulted in a decrease in shareholders' funds of £13 million at 31 March 2005 and a reduction in profit of £8 million for the year to 31 March 2005 compared with the IFRS numbers previously presented.(d) Under UK GAAP, the approach in respect of share-based payments was to record a charge in profit or loss based on the intrinsic value of awarded shares at the grant date, with the charge being spread over the performance period. IFRS 2 requires the fair value of the equity instruments issued to be recognised in profit and loss over the vesting period of the instrument. The cost is calculated using option pricing methods and applies to all options granted after 7 November 2002 and not vested by 1 January 2005.(e) Under UK GAAP, 3i's policy in respect of foreign currency translation was to translate all foreign currency revenue items, assets, liabilities and reserves, including those of non-UK subsidiary undertakings into sterling at the exchange rates ruling at the balance sheet date. Under IFRS, revenue items will be held at the rates in force at the time of the transaction. Exchange differences on the retranslation of the opening net investment in foreign entities and the retranslation of profit or loss items to closing rate are recorded as movements on reserves.(f) Under IFRS, unrealised profits or losses on the revaluation of properties in use by the Group are taken directly to equity and do not appear in the income statement.(g) Under IFRS, the actuarial gain or loss on retirement benefit obligations is taken directly to equity and does not appear in the income statement.(h) Under IFRS, dividends declared after the balance sheet date are not recognised as a liability at the balance sheet date.(i) Under IFRS, short-term deposits are classified as cash equivalents whereas they were included in liquid resources under UK GAAP. The move from UK GAAP does not significantly change any of the cash flows of the Group. This information is provided by RNS The company news service from the London Stock Exchange

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