Interim Results

8th Nov 2007 07:02

3i Group PLC08 November 2007 8 November 2007 Half-yearly results for the six months to 30 September 2007 Strong results for half-year and key strategic milestones achieved For the six months to 30 September 2007 2006Business activityInvestment £1,234m £589mRealisation proceeds £1,044m £849m ReturnsRealised profits on disposal ofinvestments £337m £216mGross portfolio return on openingportfolio value 14.3% 11.6%Net portfolio return £453m £367mTotal return £512m £374mTotal return on opening shareholders' funds 12.0% 9.3%Interim dividend per ordinary share 6.1p 5.8p Portfolio and assets under management Own balance sheet £5,130m £4,174m Third-party funds £3,053m £2,859m ------- ------- £8,183m £7,033m Net asset value per share (diluted) £10.07 £7.92 Commentary • Strong gross portfolio return of 14.3% in the six months to 30 September 2007, driven by a particularly good performance in both Buyouts and Growth Capital. • Net asset value per share up 27% year-on-year, from £7.92 per share at 30 September 2006 to £10.07 per share at 30 September 2007. • Further progress in implementing strategy with strong growth in assets under management and further diversification by geography and asset class, driven by: - Increased investment and significant value growth in 3i's direct portfolio; - Establishment of external funds advised by the Infrastructure (3i Infrastructure Limited, 3i India Infrastructure Fund) and QPE (3i Quoted Private Equity Limited) business lines. Baroness Hogg, Chairman of 3i Group plc, said: "3i's financial strength, valuesand approach have continued to serve us well in reaching our key strategicmilestones." 3i's Chief Executive, Philip Yea, added: "These are a strong set of half-yearresults. Given the broad spread of our investment business and the strongcapabilities we are building across the world, 3i faces this potentially morechallenging environment from a substantially stronger position than in previouscycles." 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 Philip Gawith Tel: 020 7379 5151The Maitland Consultancy For further information regarding the announcement of 3i's half-yearly resultsto 30 September 2007, including video interviews with Philip Yea, Simon Ball and Jonathan Russell (available at 7.15am) and a live webcast of the resultspresentation (at 10.30am, available on demand from 2.00pm), please seewww.3igroup.com. Notes to editors 3i is a world leader in private equity and venture capital. We focus on buyouts,growth capital and venture capital, infrastructure and quoted private equity andinvest across Europe, Asia and the US. Our competitive advantage comes from our international network and the strengthand breadth of our relationships in business. These underpin the value that wedeliver to our portfolio and to our shareholders. -------------------------------------------------------------------------------Total return-------------------------------------------------------------------------------6 months to 30 September 2007 2006 £m £m-------------------------------------------------------------------------------Realised profits on disposal of investments 337 216Unrealised profits on revaluation of investments 183 141Portfolio income 102 123-------------------------------------------------------------------------------Gross portfolio return 622 480-------------------------------------------------------------------------------Fees receivable from external funds 22 15Carried interest receivable 36 35Carried interest and performance fees payable (98) (48)Operating expenses (129) (115)-------------------------------------------------------------------------------Net portfolio return 453 367-------------------------------------------------------------------------------Net interest payable (1) (2)Movements in the fair value of derivatives 81 11Exchange movements (16) (11)Other (2) (2)-------------------------------------------------------------------------------Profit after tax 515 363-------------------------------------------------------------------------------Reserve movements (pension and currency translation) (3) 11-------------------------------------------------------------------------------Total recognised income and expense ("Total return") 512 374------------------------------------------------------------------------------- -------------------------------------------------------------------------------Gross portfolio return by business line------------------------------------------------------------------------------- Gross portfolio Return as a % return of opening portfolio-------------------------------------------------------------------------------6 months to 30 September 2007 2006 2007 2006 £m £m % %-------------------------------------------------------------------------------Buyouts 405 290 31.6 19.8Growth Capital 180 183 12.3 15.4Venture Capital 31 (69) 4.2 (8.4)Infrastructure 13 (1) 2.8 (1.1)QPE (9) n/a n/a n/aSMI 2 77 0.5 13.7-------------------------------------------------------------------------------Gross portfolio return 622 480 14.3 11.6------------------------------------------------------------------------------- -------------------------------------------------------------------------------Unrealised profits/(losses) on revaluation of investments-------------------------------------------------------------------------------6 months to 30 September 2007 2006 £m £m-------------------------------------------------------------------------------Earnings multiples* 25 22Earnings growth 60 16First-time uplifts 70 64Provisions and impairments (65) (59)Up/down rounds 13 8Uplift to imminent sale 33 160Other 3 (11)Quoted portfolio 44 (59)-------------------------------------------------------------------------------Total 183 141-------------------------------------------------------------------------------\* The weighted average earnings multiple (excluding EBITDA valuations) at 30September 2007 was 12.9 (2006:12.3). The half-yearly report of 3i Group plc for the six months to 30 September 2007 has been drawn up and presented for the purposes of complying with English law.Any liability arising out of or in connection with the half-yearly report for the six months to 30 September 2007 will be determined in accordance withEnglish law. The half-yearly results for 2007 and 2006 are unaudited. This report may contain certain statements about the future outlook for 3i.Although we believe our expectations are based on reasonable assumptions, anystatements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different. Chairman's statement This has been a remarkable period for the private equity industry. High levelsof activity through the spring and summer, especially in the very large buyoutmarket, generated intense interest in the industry from well beyond thefinancial community. The dislocation in the financial markets that then occurredfrom July onwards also brought a fresh set of challenges. 3i has continued to perform well throughout this period, delivering a totalreturn of £512 million for the six months to 30 September 2007. This representsa return of 12.0% on opening shareholders' funds, which compares with a FTSEAll-Share return of 1.0% for the same period. Investment in the half year grewto £1,234 million with an especially strong contribution from our Growth Capitalbusiness, which invested £493 million. The Group has also made further strategic progress, successfully launching twopublic companies in 2007. One of these, 3i Infrastructure Limited, is now a FTSE250 company. The other, 3i Quoted Private Equity Limited, is a £400 millioncompany designed to bring 3i's unique style of investing to smaller publiccompanies. These and other initiatives, such as our new 3i India InfrastructureFund, launched in September, will not only broaden the spread of our activitiesbut also provide a source of earnings for our shareholders. The Directors have approved an interim dividend of 6.1p per ordinary share upfrom 5.8p last year. The Group's continuing commitment to capital efficiency was demonstrated in theperiod with a total of £872 million returned to shareholders. This was achievedthrough a bonus issue of listed B shares (£808 million) and the purchase andsubsequent cancellation of ordinary shares under the buyback authority grantedby shareholders at the AGM in July 2007 (£64 million). 3i's financial strength, values and approach have continued to serve us well ina time when markets have been turbulent and the role of private equity has beendebated. The Company has been at the vanguard of transparency and disclosure inthe industry for many years, benchmarking our performance against our FTSE 100peers as well as the best in the private equity industry. This, combined withour approach to corporate responsibility, has meant that we have been able toactively and confidently engage in the debate. We therefore welcomed the review undertaken by Sir David Walker, who is due toreport later this month. As a member of his advisory group, I have beenparticularly keen to assist Sir David in his objective of satisfying legitimateinterests without placing too great a burden on the private equity industry, andportfolio companies it supports. In July we were delighted to welcome Will Mesdag to the Board. Will, who isbased in the United States, is currently the Managing Partner of Red MountainCapital Partners LLC. As a former Partner and Managing Director of Goldman,Sachs & Co., he has worked in the USA, the UK and Germany and co-foundedGoldman, Sachs's Capital Markets Group, its Asset Securitization Group and itsEuropean Financial Institutions Group. He therefore brings a wide andhighly-relevant range of experience to 3i. On behalf of the Board I would like to pay a special tribute to Tony Brierley,who retires from the Group in January 2008. Tony has made a tremendouscontribution to 3i over his 24 years with the Company, and his support to mepersonally in ensuring the smooth operation of the Board has been invaluable.Tony's successor, Kevin Dunn, joined 3i from General Electric in October wherehe was a Senior Managing Director in GE's Commercial Finance division. In summary, 3i has delivered another strong financial performance in the halfyear and made further strategic progress. The outlook is particularly difficultto predict. However, the broadening of our asset classes, our continuedgeographical development and an absolute focus on high-quality investment not only help to generate growth but also provide a robust position from which to deal with more challenging market conditions. Baroness HoggChairman7 November 2007 Chief Executive's statement Our purpose: to provide quoted access to private equity returns. Our vision: to be the private equity firm of choice: - operating on a world-wide scale; - producing consistent market-beating returns; - acknowledged for our partnership style; and - winning through our unparalleled resources. Our strategy: - to invest in high-return assets; - to grow our assets and those we manage on behalf of third parties; - to extend our international reach, directly and through investing in funds; - to use our balance sheet and resources to develop existing and new business lines; and - to continue to build our strong culture of operating as one companyacross business lines, geographies and sectors. I am pleased to be able to report a strong set of half-year results, whichevidence further progress in the delivery of 3i's strategy. Returns are strong;investment is significantly increased and our mix of geographies and assetclasses continues to broaden. Further milestones in our strategic development were achieved; the listing of 3iQuoted Private Equity Limited, the launch of our first Indian infrastructurefund and the first investment by our recently established New York GrowthCapital team. Both our Venture Capital and SMI businesses continued theirsuccessful programmes to reduce the number of older investments. Total return of £512 million for the first six months was 12.0% of openingshareholders' funds, comparing well with £374 million and 9.3% for theequivalent period a year ago. This strong return was built on further excellentrealisations, another exceptional result from our Buyouts business, and a verystrong contribution from our Growth Capital business. Our Venture Capitalbusiness showed some progress, albeit that accounting returns were below ourlong-term cash-to-cash targets. Modest returns from our Infrastructure and QPEbusinesses were largely reflective of the start-up status of their funds andresulting long-cash positions. At the Group level, the movement in the fairvalue of derivatives contributed £81 million (2006: £11 million) to totalreturn. The level of new investment at £1,234 million was significantly higher than the£589 million invested in the first half of last year. This reflects an increasein average deal size across our existing business lines as well as our initialinvestment of £181 million in 3i Quoted Private Equity Limited and a seedinvestment of £56 million in our recently launched 3i India Infrastructure Fund.Both our Buyouts and Growth Capital businesses were very active in terms of newinvestments, with Growth Capital at £493 million more than doubling last year's£198 million, and the Buyout investment of £436 million being significantlyahead of £236 million in the first half of last year. Realisations continued to be strong at £1,044 million (2006: £849 million) withBuyouts again generating significant gains on disposal, by presenting attractiveassets to receptive markets. The average uplift to opening book value achievedacross all realisations was 48%, delivering realised profits of £337 million,significantly ahead of last year's £216 million. Unrealised profits remainedstrong at £183 million (2006: £141 million). An important element of our strategy is to grow assets under management, whetherdirectly or through managed or advised funds. This is being achieved byincreasing the diversity of the geographies and asset classes where 3i is nowactive, as well as progressively increasing the average size of our investments.At the end of the half year, our assets under management were some £8.2 billion,up from £7.0 billion a year ago. Our assets in Asia represented some 10% of 3i'sportfolio of investment assets (2006: 5%) and the average size of the Group'snew investments was £32 million compared to £16 million a year ago. From time-to-time markets go through periods of adjustment. As a result of thesub-prime crisis in the USA, the external environment for both 3i and itsinvestee companies changed significantly from the middle of July. 3i Groupitself has a strong financial position with significant liquid resources.However the possible effects on consumer and business confidence have yet to befully played out in terms of effects on corporate profits and the wider M&Amarkets. For some 18 months our Buyouts business had been anticipating that the levels ofleverage available on new transactions would adjust downwards. In the event, thechange has been triggered by factors extraneous to the leveraged debt marketsthemselves. Leverage multiples on new transactions are, as expected, generallyfalling, but it is too soon to judge at what level the leveraged finance marketswill ultimately settle or over what period the necessary adjustments will takeplace. As previously anticipated, the very high levels of realisations recentlyachieved are likely to reduce over the coming period, not least due to therelative immaturity of our portfolios. In the near term levels of new investmentwithin our Buyouts business may be lower than otherwise. However, so far, ourGrowth Capital business continues its recent strong momentum. Any effects of changes in the wider economy on our own portfolio have so farbeen hard to determine. Our returns model has been built on the criticalselection of new investment opportunities and active engagement with managementteams to deliver value during the period of 3i's involvement. I remain confidentthat our highly-focused approach can deliver cash-to-cash returns consistentwith our through-the-cycle targets. Given the broad spread of our investment business, and the strong capabilitieswe are building across the world, 3i faces this potentially more challengingenvironment from a substantially stronger position than in previous cycles. Ilook forward to reporting further progress in the delivery of our strategy atthe end of the financial year. Philip YeaChief Executive7 November 2007 Business review Group measures The key Group financial performance measures are: Total return Gross portfolio return Cost efficiency Gearing Net asset value growth Business activity Group overviewThe Group continues to invest in building its capabilities and is now managingand advising funds with a value of £8,183 million (2006: £7,033 million). This16% increase has been delivered through new investment and significant valuegrowth in 3i's direct portfolio, as well as the raising of new external funds. Realisation proceeds from the portfolio exceeded £1 billion for the secondconsecutive six-month period as the Group continued its strategy of sellingactively in receptive markets. The Group also continued to broaden its investment activities across assetclasses and geographies. New investment totalled £1,234 million (2006: £589million) and 28 new companies were added to the portfolio (2006: 33 companies). With increasing deal size across each of the Growth Capital, Buyouts and VentureCapital business lines, combined with the £181 million investment in 3i QuotedPrivate Equity Limited, the Group's direct investment exceeded realisationproceeds by £190 million (2006: net divestment of £260 million). InvestmentThe average size of new portfolio company investment increased to £32 millioncompared to £16 million a year earlier. In the Growth Capital business line, thestrategy to target larger transactions has led to substantial growth ininvestment to £493 million (2006: £198 million). Buyout investment alsoincreased, with several large deals in continental Europe completed in theperiod. 3i invested £56 million of a total commitment of $250 million to the 3i IndiaInfrastructure Fund, which announced its first close in September 2007. 3i isthe nominated investment adviser to the new fund, which has also received acommitment of $250 million from 3i Infrastructure Limited. In June 2007 3i invested £181 million in 3i Quoted Private Equity Limited, a newinvestment vehicle listed on the London Stock Exchange. 3i Quoted Private EquityLimited successfully raised £400 million, including 3i's investment, to investin European quoted assets as advised by 3i's QPE team. -------------------------------------------------------------------------------Table 1: Investment by business line and geography (£m) 6 months to 30 September------------------------------------------------------------------------------- Continental Rest of Europe UK Asia US World Total ------------------------------------------------------------------------------- 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006-------------------------------------------------------------------------------Buyouts 294 128 141 106 - - - - 1 2 436 236Growth Capital 206 116 207 (3)* 52 85 27 - 1 - 493 198Venture Capital 11 10 17 34 2 - 33 76 2 9 65 129Infra-structure - - 2 10 56 - - - - - 58 10QPE - - 182 14 - - - - - - 182 14SMI - 1 - 1 - - - - - - - 2-------------------------------------------------------------------------------Total 511 255 549 162 110 85 60 76 4 11 1,234 589------------------------------------------------------------------------------- *Growth Capital figures previously included Infrastructure and QPE. The 2006figures in this Business review have been restated to reflect this. UKinvestment in Growth Capital in 2006 was negative due to a syndication of anearlier investment. Realisation proceedsA number of large buyout assets sold in the first quarter gave rise tosubstantial uplifts over book value. As well as benefiting the Group's cashflow, these disposals have delivered distributions of over £200 million toinvestors in 3i's managed buyout funds. The buoyant market conditionsexperienced at the beginning of the year have moderated recently as a result ofuncertainty in leveraged finance markets. Realisation proceeds from Growth Capital, although slightly lower than theprevious year, continued to be generated across a good balance of UK andcontinental European assets. Venture Capital realisations picked up markedlyfrom 2006 following disposals from the German early stage technology portfolio. SMI, the operation set up to realise value from small and often illiquid assetsfrom older investment vintages, generated proceeds of £71 million (2006: £118million), leaving the remaining SMI portfolio valued at £312 million (2006: £504million) or 6% (2006: 12%) of the total portfolio. -------------------------------------------------------------------------------Table 2: Realisation proceeds by business line and geography (£m)6 months to 30 September------------------------------------------------------------------------------- Continental Rest of Europe UK Asia US World Total ------------------------------------------------------------------------------- 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006-------------------------------------------------------------------------------Buyouts 202 171 338 217 - - - - - - 540 388Growth Capital 128 165 132 111 13 37 - - - - 273 313Venture Capital 55 6 32 5 4 - 20 15 - - 111 26Infra-structure 6 - 26 4 - - - - - - 32 4QPE - - 17 - - - - - - - 17 -SMI 8 26 63 92 - - - - - - 71 118-------------------------------------------------------------------------------Total 399 368 608 429 17 37 20 15 - - 1,044 849------------------------------------------------------------------------------- Assets under management Assets under management have increased by 16% to £8,183 million (2006: £7,033million). At 30 September 2007, co-investment funds accounted for £2,451 million(2006: £2,859 million) of third-party funds under management and external quotedfunds £602 million (2006: £nil). The 3i directly-owned portfolio increased in value to £5,130 million (2006:£4,174 million) following an increase in Growth Capital investment, combinedwith 3i's direct investment in 3i Infrastructure Limited and 3i Quoted PrivateEquity Limited. Continental European assets remain the largest geographic concentration withinthe portfolio at 45% (2006: 48%). Investment in India and China has led to theAsian portfolio increasing to £497 million or 10% of the total portfolio (2006:£210 million, 5%). -------------------------------------------------------------------------------Table 3: Assets under management (£m)as at 30 September 2007 2006-------------------------------------------------------------------------------3i direct portfolio 5,130 4,174Managed co-investment funds 2,451 2,859Advised quoted funds 602 --------------------------------------------------------------------------------Total 8,183 7,033------------------------------------------------------------------------------- -------------------------------------------------------------------------------Table 4: 3i direct portfolio value by business line and age (£m)-------------------------------------------------------------------------------as at 30 September Up to 1yr 1-3yrs 3-5yrs 5-7yrs Over 7yrs 2007 2006-------------------------------------------------------------------------------Buyouts 653 774 65 16 63 1,571 1,534Growth Capital 769 622 214 185 64 1,854 1,201Venture 137 309 110 66 93 715 826CapitalInfrastructure 479 - 23 - - 502 96QPE 174 2 - - - 176 13SMI 1 4 9 27 271 312 504-------------------------------------------------------------------------------Total 2,213 1,711 421 294 491 5,130 4,174-------------------------------------------------------------------------------2007 percentage 43% 33% 8% 6% 10% 100%-------------------------------------------------------------------------------2006 percentage 27% 37% 13% 9% 14% 100%------------------------------------------------------------------------------- -------------------------------------------------------------------------------Table 5: Portfolio value by geography (£m)-------------------------------------------------------------------------------as at 30 September 2007 2006-------------------------------------------------------------------------------Continental Europe 2,331 1,984UK 1,962 1,645Asia 497 210US 321 319Rest of World 19 16-------------------------------------------------------------------------------Total 5,130 4,174------------------------------------------------------------------------------- Group returns Total returnTotal return for the six months to 30 September 2007 was £512 million (2006:£374 million), which represents a 12.0% return on opening shareholders' funds(2006: 9.3%). The increase in total return was primarily due to a strong grossportfolio return of 14.3% of opening portfolio value (2006: 11.6%), combinedwith a positive movement in the fair value of derivatives of £81 million (2006:£11 million). -------------------------------------------------------------------------------Table 6: Total return-------------------------------------------------------------------------------6 months to 30 September 2007 2006 £m £m-------------------------------------------------------------------------------Realised profits on disposal of investments 337 216Unrealised profits on revaluation of investments 183 141Portfolio income 102 123-------------------------------------------------------------------------------Gross portfolio return 622 480-------------------------------------------------------------------------------Fees receivable from external funds 22 15Carried interest receivable 36 35Carried interest and performance fees payable (98) (48)Operating expenses (129) (115)-------------------------------------------------------------------------------Net portfolio return 453 367-------------------------------------------------------------------------------Net interest payable (1) (2)Movements in the fair value of derivatives 81 11Exchange movements (16) (11)Other (2) (2)-------------------------------------------------------------------------------Profit after tax 515 363-------------------------------------------------------------------------------Reserve movements (pension and currency translation) (3) 11-------------------------------------------------------------------------------Total recognised income and expense ("Total return") 512 374------------------------------------------------------------------------------- Gross portfolio returnGross portfolio return of £622 million (2006: £480 million) included anothervery strong contribution from the Buyouts business of £405 million, representinga 31.6% gross return on the opening Buyouts portfolio value (2006: £290 million,19.8%). Realised profits were very strong, representing an uplift of some 48% againstopening value for those assets sold in the period. Unrealised value growth contributed £183 million (2006: £141 million) to grossportfolio return. Earnings growth in the portfolio has remained robust. Quoted value growth of £44 million (2006: £(59) million) was largely due to a£72 million uplift on the merger of a Eurofund V asset, Dockwise, with a quotedcompetitor, which offset losses on quoted Venture Capital stocks and the Group'sinvestment in 3i Quoted Private Equity Limited. Portfolio income at £102 million (2006: £123 million) represents a six-monthyield on the opening portfolio of 2.3% (2006: 3.0%). This reduction arose fromthe disposal of several high-yielding buyout investments, which has reducedinterest income in the period, and reflects two large one-off redemptionpremiums received in the first half of 2006. -------------------------------------------------------------------------------Table 7: Gross portfolio return by business line------------------------------------------------------------------------------- Gross portfolio return Return as a % of opening portfolio-------------------------------------------------------------------------------6 months to 30 September 2007 2006 2007 2006 £m £m % %-------------------------------------------------------------------------------Buyouts 405 290 31.6 19.8Growth Capital 180 183 12.3 15.4Venture Capital 31 (69) 4.2 (8.4)Infrastructure 13 (1) 2.8 (1.1)QPE (9) n/a n/a n/aSMI 2 77 0.5 13.7-------------------------------------------------------------------------------Gross portfolio return 622 480 14.3 11.6------------------------------------------------------------------------------- Net portfolio returnNet portfolio return is the return achieved after including fees receivable fromexternal funds, net carried interest and operating expenses. This has grown to£453 million or 10.4% of opening portfolio value (2006: £367 million, 8.9%). Fees receivable from external fundsFees receivable from external funds, representing management and advisory fees,have increased to £22 million in the period (2006: £15 million). Management feesfrom Eurofund V, the €5 billion mid-market Buyout fund raised by the Group lastyear, have been receivable since July 2006. Advisory fees relating to 3iInfrastructure Limited were £4 million (2006: £nil). Carried interestCarried interest aligns the incentivisation of 3i's investment staff and themanagement teams in 3i's portfolio with the interests of 3i's shareholders andfund investors. Carried interest receivable is related principally to the performance of 3i'sEurofunds where carry is earned once certain performance hurdles have beenachieved. Some £9 million of carried interest receivable has been recorded onEurofund V, which was 29% invested at 30 September 2007, and £36 million hasbeen accrued across all buyout funds combined (2006: £35 million). Carried interest and performance fees payable have increased. This reflects boththe rise in absolute levels of gross portfolio return achieved and the increasedproportion of total return being created from more recent vintages, where higherlevels of carried interest participation were introduced in line with marketpractice. -------------------------------------------------------------------------------Table 8: Unrealised profits/(losses) on revaluation of investments-------------------------------------------------------------------------------6 months to 30 September 2007 2006 £m £m-------------------------------------------------------------------------------Earnings multiples* 25 22Earnings growth 60 16First-time uplifts 70 64Provisions and impairments (65) (59)Up/down rounds 13 8Uplift to imminent sale 33 160Other 3 (11)Quoted portfolio 44 (59)-------------------------------------------------------------------------------Total 183 141------------------------------------------------------------------------------- \* The weighted average earnings multiple (excluding EBITDA valuations) at 30September 2007 was 12.9 (2006:12.3). -------------------------------------------------------------------------------Table 9: Portfolio income-------------------------------------------------------------------------------6 months to 30 September 2007 2006 £m £mDividends 34 35Income from loans and receivables 57 81Fees receivable 11 7-------------------------------------------------------------------------------Portfolio income 102 123-------------------------------------------------------------------------------Portfolio income/opening portfolio ("income yield") 2.3% 3.0%------------------------------------------------------------------------------- Operating expensesOver the last two to three years, the Group has made significant investment inbuilding new capabilities with a resulting increase in new investment, fundsunder management and operating expenses. Last year the Group introduced a new performance measure for cost efficiency,being operating expenses (net of fund management and advisory fee income) as apercentage of opening portfolio value. The Group published a mid-term target of4.5% per annum and a longer term objective of reducing this measure to 3.0% perannum. On an annualised basis, the measure stood at 5.0% at 30 September 2007, comparedwith 5.3% for the year to 31 March 2007, reflecting the progress that has beenmade. -------------------------------------------------------------------------------Table 10: Cost efficiency-------------------------------------------------------------------------------6 months to 30 September 2007 2006 £m £m-------------------------------------------------------------------------------Operating expenses 129 115Fees receivable from external funds (22) (15)-------------------------------------------------------------------------------Net operating expenses 107 100-------------------------------------------------------------------------------Net costs/opening portfolio ("cost efficiency") 2.5% 2.4%------------------------------------------------------------------------------- Movements in fair value of derivativesChanges in 3i's share price during each accounting period have a direct impacton the fair value of the derivative element of 3i's €550 million 2008Convertible Bond. During the six months to 30 September 2007, 3i's share pricedecreased from £11.36 to £9.97. As a consequence, the movement in the fair valueof the equity derivative liability reduced, generating a gain of £69 million(2006: £4 million), which is the major contributory factor relating to the £81million (2006: £11 million) gain in the income statement. Group balance sheet Capital structureThe Group's continuing commitment to capital efficiency was demonstrated in theperiod with a total of £872 million returned to shareholders. This was achieved through a bonus issue of listed B shares (£808 million) andthe purchase and subsequent cancellation of ordinary shares under the buybackauthority granted by shareholders at the AGM in July 2007 (£64 million). In June 2007, 3i Group plc issued a €500 million five year floating rate note,providing core funding for the Euro-denominated portfolio. On 6 July 2007, 3iHoldings plc repaid its £200 million floating rate bond on maturity, out ofexisting Group funds. Net investment in the period further improved the Group's balance sheeteffectiveness and at 30 September 2007 gearing was 30% (2006: 13%). Table 11: Group balance sheet (£m)-------------------------------------------------------------------------------as at 30 September 2007 2006-------------------------------------------------------------------------------Shareholders' funds 3,844 3,648Net borrowings (1,143) (475)-------------------------------------------------------------------------------Gearing 30% 13%-------------------------------------------------------------------------------Diluted net asset value per share £10.07 £7.92------------------------------------------------------------------------------- Growth in diluted net asset value ("NAV")The Group's NAV per share increased by 8.0% over the six month period to £10.07at 30 September 2007. The major contributor to this was the total return, whichequated to 134p per share based on the fully diluted number of shares in issue. The bonus issue of B shares and accompanying share consolidation in July 2007had the effect of diluting NAV per share by 33p. Deducting the final dividend of 10.3p per share, combined with a number of othersmall movements, led to a 75p overall increase in the period, and a 215pincrease or 27% over the past 12 months. Risks and uncertainties The principal risks and uncertainties faced by the Group are set out in the RiskManagement section of the 3i Group Report and accounts 2007. This interimmanagement report also refers to specific risks and uncertainties, and theseshould be viewed in conjunction with those principal risks. Business lines The key financial performance measures for our business lines are: Gross portfolio returnPortfolio healthLong-term IRRs by vintage Buyouts ReturnsGross portfolio return: £405 million, 31.6% of opening portfolio value (2006:19.8%) Total realised profits of £256 million (2006: £76 million) were the main driverof the gross portfolio return from the Buyouts business line. The business actively realised several large assets at significant uplifts overcarrying value as the favourable market conditions experienced in the year to 31March 2007 continued into the first quarter of this financial year. The largestrealised profits were achieved on Care Principles (£66 million), Marken (£55million) and HSS Hire Service (£45 million). Dockwise, the first Eurofund V investment, was merged with a quoted competitorin May of this year and was the main contributor to total unrealised profits of£101 million (2006: £151 million). Portfolio income of £48 million (2006: £63 million) has reduced in line withchanges in the portfolio mix, with several high-yielding investments being soldin the last 12 months. Table 12: Returns from Buyouts (£m)-------------------------------------------------------------------------------6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realised profits over value on the disposal of investments 256 76Unrealised profits on the revaluation of investments 101 151Portfolio income 48 63-------------------------------------------------------------------------------Gross portfolio return 405 290-------------------------------------------------------------------------------Fees receivable from external funds 18 13------------------------------------------------------------------------------- Fund management fee incomeFee income has increased in the period following the final close of Eurofund V,3i's €5 billion mid-market buyout fund, in November 2006. The income stream fromthis new fund has offset a fall in income from earlier buyout funds which havereduced in size, following an extended period of strong realisation activity. Business activityInvestment and divestment in the period were strong and produced a net cashinflow of over £100 million. In highly competitive market conditions, the Buyouts business completed sevennew investments across Europe, with a good sector spread. The largest of theseinvestments were Eltel, the Nordic telecommunications company (£74 million),DEUTZ Power Systems, the German power supplier (£68 million), and Bestinvest,the UK-based provider of investment advice (£56 million). -------------------------------------------------------------------------------Table 13: Business activity - investment and divestment activity (£m)-------------------------------------------------------------------------------6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realisation proceeds 540 388Investment (436) (236)-------------------------------------------------------------------------------Net operational cash inflow 104 152------------------------------------------------------------------------------- Significant developments after the period endIn late October 2007, Telecity, a 2006 buyout, which was previously a 3i VentureCapital investment, was successfully floated on the London Stock Exchange at acapitalisation of £436 million, valuing 3i's stake, at that time, at £103million, compared to the book value of £29 million at 30 September 2007. In early November 2007, Coor Service Management, a 2004 Buyouts investment, wassold, subject to competition clearance, realising a projected uplift of £79 million over the 30 September 2007 book value. Portfolio healthSince 2001, the aggregate level of provisions recognised is equivalent to 4%(2006: 3%) of cumulative investment to 30 September 2007, and the realised lossrate is 1% (2006: 1%). Long-term performanceRealisations from recent investment vintages have helped to extend thesuccessful track record of the Buyouts business. The vintages 2002 to 2006 havenow all returned funds in excess of the original cost and in the case of theearlier vintages, 2002 and 2003, these have already returned more than twice theoriginal cost. The cross-cycle cash-to-cash IRR target for Buyouts is 20%, whichthe business line is significantly exceeding, as table 14 shows. -------------------------------------------------------------------------------Table 14: Long-term performance-------------------------------------------------------------------------------New investments made in the financial years ending 31 March Total Return Value IRR to IRR toVintage year investment flow remaining 30 Sep 30 Sep (£m) (£m) (£m) 2007 2006-------------------------------------------------------------------------------2007 477 96 480 33% n/a2006 463 478 405 50% 12%2005 337 645 200 59% 50%2004 301 505 48 34% 29%2003 265 662 33 50% 50%2002 186 441 8 61% 61%------------------------------------------------------------------------------- Growth Capital ReturnsGross portfolio return: £180 million, 12.3% of opening portfolio value (2006:15.4%) In a period of substantial growth in new investment, the Growth Capital businessline also realised some large assets in the UK and continental Europe. Relatively low profits on realisation accrued in this period since HayleyConference Centres, Smart & Cook and Clinica Baviera, which were successfullysold in the first quarter, were all valued on an imminent sales basis at thestart of the year. These profits have however been supplemented by value growthon the existing portfolio. Notable increases in value include a £16 millionfirst time uplift from cost of Nimbus, the Indian media company, and earningsgrowth on two investments in the Swedish portfolio, DIAB and Boxer, which haveled to a combined value uplift of £48 million. -------------------------------------------------------------------------------Table 15: Returns from Growth Capital (£m)-------------------------------------------------------------------------------6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realised profits over value on the disposal of investments 37 90Unrealised profits on the revaluation of investments 110 57Portfolio income 33 36-------------------------------------------------------------------------------Gross portfolio return 180 183-------------------------------------------------------------------------------Fees receivable from external funds -* 2-------------------------------------------------------------------------------* Less then £0.5 million. Business activityInvestment in new markets and increasing deal size led to the Growth Capitalbusiness ending the period with a net cash outflow, in contrast to the sameperiod last year. The period marked 3i's first Growth Capital deal in the USwith a £27 million investment in Fulcrum, a fund administration business, basedin Bermuda. Large new investments, such as the £110 million investment in AIM-listed VentureProduction, the North Sea oil and gas producer, and the £97 million investmentin Nordic-based DNA, the integrated telecommunications and cable TV operator,are consistent with the strategic shift towards increasing investment size. -------------------------------------------------------------------------------Table 16: Business activity - investment and divestment activity (£m)-------------------------------------------------------------------------------6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realisation proceeds 273 313Investment (493) (198)-------------------------------------------------------------------------------Net operational cash (outflow)/inflow (220) 115------------------------------------------------------------------------------- Portfolio healthOverall the portfolio health remains robust: at the balance sheet date 92% ofthe portfolio was classified as healthy, which compares to 88% one yearpreviously and a rolling three-year average of 85%. Long-term performanceThe above table shows good progress against this business line's IRR targetacross the cycle of 20%. Recent vintages have shown increasing asset quality, asevidenced by the IRR measured at 30 September 2007, and substantial early returnflow, in particular from the 2005 and 2006 vintages. Table 17: Long-term performance-------------------------------------------------------------------------------New investments made in the financial year Total Return Value IRR to IRR toending 31 March investment flow remaining 30 Sep 30 SepVintage year (£m) (£m) (£m) 2007 2006-------------------------------------------------------------------------------2007 435 7 438 3% n/a2006 401 322 352 40% 6%2005 179 170 131 32% 36%2004 293 370 98 24% 21%2003 222 355 69 25% 24%2002 493 573 167 13% 8%------------------------------------------------------------------------------- Venture Capital ReturnsGross portfolio return: £31 million, 4.2% of opening portfolio value (2006: loss(8.4)%) Venture Capital's gross portfolio return was achieved despite several quotedstocks in the portfolio recording losses, including a further £13 million writedown on the 2004 investment, Vonage, the NASDAQ-listed US voice-over-internetbusiness. Realised profits of £41 million (2006: £5 million) relate largely to thedisposal of the German internet pharmaceuticals business DocMorris, which wassold in the period and generated a profit over opening value of £33 million. -------------------------------------------------------------------------------Table 18: Returns from Venture Capital (£m)------------------------------------------------------------------------------- 6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realised profits over value on the disposal of investments 41 5Unrealised profits on the revaluation of investments (13) (78)Portfolio income 3 4-------------------------------------------------------------------------------Gross portfolio return 31 (69)-------------------------------------------------------------------------------Fees receivable from external funds -* -*-------------------------------------------------------------------------------* Less then £0.5 million. Business activityThe Venture Capital business is now focused on delivering a smaller number ofhigher value later-stage investments. Three new deals were completed in theperiod (2006: 13). Total investment was £65 million (2006: £129 million).Divestment proceeds were in line with expectations and at £111 million (2006:£26 million) were significantly higher than 2006. -------------------------------------------------------------------------------Table 19: Business activity - investment and divestment activity (£m)-------------------------------------------------------------------------------6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realisation proceeds 111 26Investment (65) (129)-------------------------------------------------------------------------------Net operational cash inflow/(outflow) 46 (103)------------------------------------------------------------------------------- Portfolio healthThe risk inherent in the Venture Capital portfolio is higher than in 3i's otherbusiness lines, reflected in the return targets set and volatilitiesanticipated. At 30 September 2007, 68% of the cost of the portfolio wasclassified as healthy, compared to 72% in the prior year and the three-yearrolling average of 68%. Long-term performanceThe longer life cycle of Venture Capital investments and the tendency for themajor element of returns to be generated on exit, means that it is too early toassess the performance of the most recent vintages, which are currently showingsmall positive IRRs. -------------------------------------------------------------------------------Table 20: Long-term performance-------------------------------------------------------------------------------New investments made in the financial year Total Return Value IRR to IRR toending 31 March investment flow remaining 30 Sep 30 SepVintage year (£m) (£m) (£m) 2007 2006-------------------------------------------------------------------------------2007 141 8 136 3% n/a2006 91 10 84 3% (3)%2005 88 - 92 3% (6)%2004 141 84 88 8% 20%2003 120 27 42 (16)% (16)%2002 328 131 77 (11)% (12)%------------------------------------------------------------------------------- Infrastructure ReturnsThe largest asset in the Infrastructure portfolio throughout the period was theGroup's 46% shareholding in 3i Infrastructure Limited. The share price of 3iInfrastructure Limited, which is now a constituent of the FTSE 250, has increased 1.2% in the period and this is reflected in unrealised profits asshown. 3i receives fees for its role as adviser to 3i Infrastructure Limited: £4million is included as fund advisory fee income in the Group's total return. -------------------------------------------------------------------------------Table 21: Returns from Infrastructure (£m)-------------------------------------------------------------------------------6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realised profits over value on the disposal of investments - -Unrealised profits on the revaluation of investments 7 (1)Portfolio income 6 --------------------------------------------------------------------------------Gross portfolio return 13 (1)-------------------------------------------------------------------------------Fees receivable from external funds 4 -------------------------------------------------------------------------------- Business activity3i made new commitments in the period to the Bahrain-based Infrastructure fundManara ($50 million committed, nil invested) and to the newly formed 3i IndianInfrastructure Fund ($250 million committed, £56 million invested). This fund, which has a target size of $1 billion, is to be invested wholly inIndian infrastructure projects, and will be managed by 3i. The first investment,Adani Power, was completed by the 3i India Infrastructure Fund shortly after the$500 million first close of the fund was announced in September 2007. Total investment for the Infrastructure business line was £58 million includinga further investment into Alma Mater. QPE ReturnsThe returns from the QPE business line largely comprised changes to thevaluation of the Group's shareholding in 3i Quoted Private Equity Limited. 3i Quoted Private Equity Limited's share price at 30 September 2007 was 96p compared with 100p on listing. This contributed to an unrealised loss of £9 million for the first half. Table 22: Returns from QPE (£m)-------------------------------------------------------------------------------6 months to 30 September 2007 2006-------------------------------------------------------------------------------Realised profits over value on the disposal of investments - -Unrealised profits on the revaluation of investments (9) -Portfolio income - --------------------------------------------------------------------------------Gross portfolio return (9) --------------------------------------------------------------------------------Fees receivable from external funds - -------------------------------------------------------------------------------- Business activityIn 2006 3i created a new business line, QPE, to invest in European quoted stocksusing private equity investment techniques. After establishing a team ofspecialist investors, drawn from industry and from private equity, a £400million fund was successfully raised on the London Stock Exchange in which 3iinvested £181 million for a 45% stake. During the period the QPE team also invested a further £1 million in StrategicRecovery Fund, an investment from 2006, taking total investment in the QPEbusiness line to £182 million. -------------------------------------------------------------------------------Consolidated income statementfor the six months to 30 September 2007------------------------------------------------------------------------------- Notes 6 months 6 months 12 months to 30 to 30 to 31 September September March 2007 2006 2007 (unaudited) (unaudited) (audited) £m £m £m-------------------------------------------------------------------------------Realised profits over value on thedisposal of investments 337 216 830Unrealised profits on therevaluation of investments 183 141 323------------------------------------------------------------------------------- 520 357 1,153Portfolio income Dividends 34 35 81 Income from loans and receivables 57 81 158 Fees receivable 11 7 14-------------------------------------------------------------------------------Gross portfolio return 1 622 480 1,406Fees receivable from external funds 1 22 15 37Carried interest Carried interest receivable from managed funds 36 35 81 Carried interest and performance fees payable (98) (48) (142)Operatingexpenses (129) (115) (255)-------------------------------------------------------------------------------Net portfolio return 453 367 1,127Treasury interest receivable 61 47 91Interest payable (62) (49) (100)Movements in the fair value of derivatives 81 11 (29)Exchange movements (16) (11) (31)Other income - - 1-------------------------------------------------------------------------------Profit before tax 517 365 1,059Income taxes (2) (2) (3)-------------------------------------------------------------------------------Profit after tax and profit for the period 515 363 1,056------------------------------------------------------------------------------- Earnings per share Basic (pence) 2 122.0 71.8* 220.4* Diluted (pence) 2 100.6 68.8* 217.9*-------------------------------------------------------------------------------*As restated. -------------------------------------------------------------------------------Consolidated statement of recognised income and expensefor the six months to 30 September 2007------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £m £m £m-------------------------------------------------------------------------------Profit for the period 515 363 1,056Revaluation of own use property - - 1Exchange differences ontranslation of foreign operations 1 (3) 5Actuarial (losses)/gains (4) 14 13-------------------------------------------------------------------------------Total recognised income andexpense for the period 512 374 1,075-------------------------------------------------------------------------------Analysed in reserves as Revenue 46 69 134 Capital 465 308 936 Translation reserve 1 (3) 5------------------------------------------------------------------------------- 512 374 1,075------------------------------------------------------------------------------- -------------------------------------------------------------------------------Consolidated reconciliation of movements in equityfor the six months to 30 September 2007------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £m £m £mOpening total equity 4,249 4,006 4,006Total recognised income andexpense for the period 512 374 1,075Share-based payments (1) 5 9Ordinary dividends (47) (52) (79)Issue of B shares (808) (700) (700)Issues of shares 16 10 18Share buy-backs (64) - (74)Own shares (13) 5 (6)-------------------------------------------------------------------------------Closing total equity 3,844 3,648 4,249------------------------------------------------------------------------------- -------------------------------------------------------------------------------Consolidated balance sheetas at 30 September 2007------------------------------------------------------------------------------- Notes 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £m £m £m-------------------------------------------------------------------------------AssetsNon-current assetsInvestments Quoted equity investments 778 279 570 Unquoted equity investments 2,593 2,507 2,534 Loans and receivables 1,759 1,388 1,258-------------------------------------------------------------------------------Investment portfolio 1 5,130 4,174 4,362Carried interest receivable 94 108 83Property, plant and equipment 32 31 32-------------------------------------------------------------------------------Total non-current assets 5,256 4,313 4,477-------------------------------------------------------------------------------Current assetsOther current assets 156 99 197Derivative financial instruments 24 25 21Deposits 617 763 1,668Cash and cash equivalents 583 711 486-------------------------------------------------------------------------------Total current assets 1,380 1,598 2,372-------------------------------------------------------------------------------Total assets 6,636 5,911 6,849------------------------------------------------------------------------------- LiabilitiesNon-current liabilitiesCarried interest payable (145) (106) (153)Loans and borrowings (1,087) (1,038) (916)Convertible Bonds (377) (359) (363)B shares (21) (11) (11)Subordinated liabilities (11) (21) (21)Retirement benefit obligation (4) (3) (1)Deferred income taxes (1) (1) (1)Provisions (9) (4) (7)-------------------------------------------------------------------------------Total non-current liabilities (1,655) (1,543) (1,473)-------------------------------------------------------------------------------Current liabilitiesTrade and other payables (185) (138) (179)Carried interest payable (71) (31) (71)Loans and borrowings (740) (400) (675)Derivative financial instruments (131) (145) (189)Current income taxes (3) (3) (2)Provisions (7) (3) (11)-------------------------------------------------------------------------------Total current liabilities (1,137) (720) (1,127)-------------------------------------------------------------------------------Total liabilities (2,792) (2,263) (2,600)------------------------------------------------------------------------------- Net assets 3,844 3,648 4,249------------------------------------------------------------------------------- EquityIssued capital 287 294 289Share premium 394 379 387Capital redemption reserve 38 22 27Share-based payment reserve 18 22 18Translation reserve 6 (3) 5Capital reserve 2,868 2,718 3,280Revenue reserve 317 280 318Own shares (84) (64) (75)-------------------------------------------------------------------------------Total equity 3,844 3,648 4,249------------------------------------------------------------------------------- -------------------------------------------------------------------------------Consolidated cash flow statementfor the six months to 30 September 2007------------------------------------------------------------------------------- 6 months to 6 months to 12 months to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £m £m £m-------------------------------------------------------------------------------Cash flow from operating activitiesPurchase of investments (1,216) (559) (1,503)Proceeds from investments 1,105 858 2,364Interest received 22 53 68Dividends received 34 35 66Fees received 33 11 54Carried interest received 25 5 76Carried interest paid (109) (49) (58)Operating expenses (155) (118) (202)Income taxes paid (2) (1) (8)-------------------------------------------------------------------------------Net cash flow from operations (263) 235 857------------------------------------------------------------------------------- Cash flow from financing activitiesProceeds from issues of share capital 16 10 18Repurchase of ordinary shares (64) - (74)Movement in own shares (13) - (12)Repurchase of B shares (798) (689) (689)Dividend paid (47) (52) (79)Interest received 58 44 80Interest paid (46) (40) (101)Proceeds from long-term borrowings 529 1 1Repayment of long-term borrowings (200) (2) (2)Net cash flow from short-term borrowings (121) 18 211Net cash flow from deposits 1,051 345 (560)-------------------------------------------------------------------------------Net cash flow from financing activities 365 (365) (1,207)------------------------------------------------------------------------------- Cash flow from investing activitiesPurchases of property, plant and equipment (2) (3) (9)Sales of property, plant and equipment - 1 2-------------------------------------------------------------------------------Net cash flow from investing activities (2) (2) (7)------------------------------------------------------------------------------- Change in cash and cash equivalents 100 (132) (357)-------------------------------------------------------------------------------Cash and cash equivalents at 1 April 486 847 847Effect of exchange rate fluctuations (3) (4) (4)-------------------------------------------------------------------------------Cash and cash equivalents at the endof the period 583 711 486------------------------------------------------------------------------------- Notes to the accounts 1 Segmental analysis -------------------------------------------------------------------------------6 months to Quoted Smaller 30 September Growth Venture Infra- Private Minority 2007 Buyouts Capital Capital structure Equity Investments Total(unaudited) £m £m £m £m £m £m £m-------------------------------------------------------------------------------Gross portfolio return Realised profits overvalue on the disposal of investments 256 37 41 - - 3 337Unrealisedprofits on therevaluation ofinvestments 101 110 (13) 7 (9) (13) 183Portfolio income 48 33 3 6 - 12 102------------------------------------------------------------------------------- 405 180 31 13 (9) 2 622------------------------------------------------------------------------------- Fees receivablefrom externalfunds 18 - - 4 - - 22 Net (investment)/divestmentRealisationproceeds 540 273 111 32 17 71 1,044Investment (436) (493) (65) (58) (182) - (1,234)------------------------------------------------------------------------------- 104 (220) 46 (26) (165) 71 (190)-------------------------------------------------------------------------------Balance sheetValue ofinvestmentportfolio atend of period 1,571 1,854 715 502 176 312 5,130------------------------------------------------------------------------------- -------------------------------------------------------------------------------6 months to Quoted Smaller 30 September Growth Venture Infra- Private Minority 2007 Buyouts Capital Capital structure Equity Investments Total(unaudited) £m £m £m £m £m £m £m-------------------------------------------------------------------------------Gross portfolio returnRealised profits over value on the disposal ofinvestments 76 90 5 - - 45 216Unrealisedprofits on therevaluation ofinvestments 151 57 (78) (1) - 12 141Portfolioincome 63 36 4 - - 20 123------------------------------------------------------------------------------- 290 183 (69) (1) - 77 480------------------------------------------------------------------------------- Fees receivablefrom externalfunds 13 2 - - - - 15 Net (investment)/divestmentRealisationproceeds 388 313 26 4 - 118 849Investment (236) (198) (129) (10) (14) (2) (589)------------------------------------------------------------------------------- 152 115 (103) (6) (14) 116 260-------------------------------------------------------------------------------Balance sheetValue ofinvestmentportfolio atend of period 1,534 1,201 826 96 13 50 4,174------------------------------------------------------------------------------- -------------------------------------------------------------------------------12 months to Quote Smaller 31 March Growth Venture Infra- Private Minority 2007 Buyouts Capital Capital structure Equity Investments Total(audited) £m £m £m £m £m £m £m-------------------------------------------------------------------------------Gross portfolio returnRealised profits over value on the disposal of investments 538 235 12 (15) - 60 830Unrealisedprofits on therevaluation ofinvestments 123 269 (61) 3 6 (17) 323Portfolioincome 127 65 3 27 - 31 253------------------------------------------------------------------------------- 788 569 (46) 15 6 74 1,406------------------------------------------------------------------------------- Fees receivablefrom externalfunds 33 3 1 - - - 37Net(investment)/divestmentRealisationproceeds 1,341 691 187 5 - 214 2,438New investment (498) (482) (200) (380) (14) (2) (1,576)------------------------------------------------------------------------------- 843 209 (13) (375) (14) 212 862--------------------------------------------------------------------------------------------------------------------------------------------------------------Balance sheet-------------------------------------------------------------------------------Value ofinvestmentportfolio atend of period 1,281 1,460 741 469 20 39 4,362------------------------------------------------------------------------------- 2 Per share information The net assets per share attributable to the equity shareholders of the Companyare based on the following data:------------------------------------------------------------------------------- 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited)-------------------------------------------------------------------------------Net assets per share (pence)Basic 1,020 798 944Diluted 1,007 792 932-------------------------------------------------------------------------------Net assets (£m)Net assets attributable toequity holders of the Company 3,844 3,648 4,249------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) Number Number Number-------------------------------------------------------------------------------Number of shares in issueOrdinary shares 387,988,093 467,344,551 461,106,007Own shares (11,162,984) (10,035,981) (10,931,404)------------------------------------------------------------------------------- 376,825,109 457,308,570 450,174,603Effect of dilutive potential ordinary shares Share options 4,997,911 3,320,915 5,896,253-------------------------------------------------------------------------------Diluted shares 381,823,020 460,629,485 456,070,856------------------------------------------------------------------------------- Accounting policies Basis of preparationThese financial statements are the unaudited condensed half-yearly consolidatedfinancial statements (the "Half-yearly Financial Statements") of 3i Group plc, acompany incorporated in Great Britain and registered in England and Wales, andits subsidiaries (together referred to as the "Group") for the six-month periodended 30 September 2007. The Half-yearly Financial Statements have been preparedin accordance with International Accounting Standard 34 Interim FinancialReporting ("IAS 34") and should be read in conjunction with the ConsolidatedFinancial Statements for the year to 31 March 2007 ("Report and accounts 2007"),as they provide an update of previously reported information. The Half-yearly Financial Statements were authorised for issue by the Directorson 7 November 2007. The Half-yearly Financial Statements have been prepared in accordance with theaccounting policies set out in the Report and accounts 2007 as the new andrevised International Financial Reporting Standards ("IFRS")and interpretationseffective in the period have had no impact on the accounting policies of theGroup. The presentation of the Half-yearly Financial Statements is consistentwith the Report and accounts 2007. Where necessary, comparative information hasbeen reclassified or expanded from the previously reported Half-yearly FinancialStatements to take into account any presentational changes made in the Reportand accounts 2007. The Half-yearly Financial Statements do not constitute statutory accounts. Thestatutory accounts for the year to 31 March 2007, prepared under IFRS, have beenfiled with the Registrar of Companies on which the auditors issued a report,which was unqualified and did not contain a statement under section 237(2) orsection 237(3) of the Companies Act 1985. The preparation of the Half-yearly Financial Statements requires management tomake judgments, estimates and assumptions that affect the application ofpolicies and reported amounts of assets and liabilities, income and expenses.The estimates and associated assumptions are based on historical experience andother factors that are believed to be reasonable under the circumstances, theresults of which form the basis of making the judgments about carrying values ofassets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. The most significant techniques for estimation are described inthe accounting policies and in our "valuation methodology" for investments inthe Report and accounts 2007. The Group operates in business lines where significant seasonal or cyclicalvariations in activity are not experienced during the financial year. Independent review report to 3i Group plc IntroductionWe have been engaged by 3i Group plc to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30September 2007 which comprises the Consolidated income statement, Consolidatedstatement of recognised income and expense, Consolidated reconciliation ofmovements in equity, Consolidated balance sheet, Consolidated cash flowstatement and the related notes. We have read the other informationcontained in the half-yearly financial report and considered whether it containsany apparent misstatements or material inconsistencies with the information inthe condensed set of financial statements. This report is made solely to the Company in accordance with guidance containedin ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performedby the Independent Auditor of the Entity" issued by the Auditing PracticesBoard. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our work, for this report,or for the conclusions we have formed. Directors' responsibilitiesThe half-yearly financial report is the responsibility of, and has been approvedby, the Directors. The Directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. As disclosed in the accounting policies note, the annual financial statements ofthe Group are prepared in accordance with IFRSs as adopted by the EuropeanUnion. The condensed set of financial statements included in this half-yearlyfinancial report has been prepared in accordance with International AccountingStandard 34, "Interim Financial Reporting", as adopted by the European Union. Our responsibilityOur responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of reviewWe conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of half-yearly financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. ConclusionBased on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 30 September 2007 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. Ernst & Young LLPLondon7 November 2007 Ten largest investments The list below contains 10 of our 11 largest investments by value, with oneexcluded from the list for commercial reasons.------------------------------------------------------------------------------- First Residual Directors' Business Invested cost valuationInvestment line Geography in £m £m-------------------------------------------------------------------------------3i Infrastructure Limited Infrastructure UK(1) 2007Quoted investment company, investing in infrastructureEquity shares 325 336------------------------------------------------------------------------------- 325 336-------------------------------------------------------------------------------3i Quoted Private Equity QPE UK(1) 2007LimitedQuoted investment company, investing in quoted companiesEquity shares 181 174------------------------------------------------------------------------------- 181 174-------------------------------------------------------------------------------Venture Production plc Growth UK 2002Oil and gas productionLoans 76 76Equity shares 34 55------------------------------------------------------------------------------- 110 131-------------------------------------------------------------------------------Laholm Intressenter AB (DIAB) Growth Sweden 2001Polymer based sandwich construction laminatesEquity shares 44 100------------------------------------------------------------------------------- 44 100-------------------------------------------------------------------------------Kirko Newco plc (Enterprise) Buyouts UK 2007UK utilities and public sector maintenance outsourcingLoans 97 97Equity shares 3 3------------------------------------------------------------------------------- 100 100-------------------------------------------------------------------------------DNA Oy Growth Finland 2007Telecom OperatorEquity shares 97 99------------------------------------------------------------------------------- 97 99-------------------------------------------------------------------------------ACR Capital Holdings Pte Ltd Growth Singapore 2006Reinsurance in large risk segmentsEquity shares 105 98------------------------------------------------------------------------------- 105 98-------------------------------------------------------------------------------Sistemas Tecnicos deEncofrados Growth Spain 2006S.A.(STEN)Sale and rental of formwork and scaffolding equipmentEquity shares 78 92------------------------------------------------------------------------------- 78 92-------------------------------------------------------------------------------Ambea AB (H-Careholding) Buyouts Sweden 2005Elderly, primary and specialist careLoans 59 60Equity shares 11 28------------------------------------------------------------------------------- 70 88-------------------------------------------------------------------------------Boxer TV-Access AB Growth Sweden 2005Digital TV distributorEquity shares 56 87------------------------------------------------------------------------------- 56 87------------------------------------------------------------------------------- Notes (1) Quoted on the London Stock Exchange. Forty other large investmentsIn addition to the ten largest investments detailed below areforty other large investments which are substantially all of the Group'sremaining investments valued over £25 million. This does not include oneinvestment that has been excluded for commercial reasons. -------------------------------------------------------------------------------Investment Residual Directors' Business First cost valuationDescription of business line Geography invested £m £m-------------------------------------------------------------------------------Anglian WaterGroup Limited Infrastructure UK 2006 86 86Provider of drinkingwater and waste waterservicesGiochi Preziosi S.r.l. Buyouts Italy 2005 63 84Retailer and wholesalerof toysDockwise Buyouts Netherlands 2007 1 78Specialist in heavytransport shippingwithin the marine andoil and gas industryEltel Networks Oy Buyouts Finland 2007 74 77Network servicesCoor ServiceManagement Group AB Buyouts Sweden 2004 31 75Facilities managementservicesDEUTZ PowerSystems GmbH Buyouts Germany 2007 68 70Provider ofdecentralised powergeneration systemsTato Holdings Limited SMI UK 1989 2 57Manufacture and sale ofspecialist chemicalsSenoble Holding SAS Growth France 2004 27 57Manufacturer of dairyproducts and chilleddesserts3i India InfrastructureHoldings Limited Infrastructure India 2007 56 56Fund investing in IndianinfrastructureEmperor I Limited (Bestinvest) Buyouts UK 2007 56 56Wealth managementJake HoldingsLimited (Mayborn) Buyouts UK 2006 54 54Manufacturer anddistributor of baby andhousehold productsNimbus Communications Limited Growth India 2005 39 51Media and entertainmentservicesPolyconcept Investments B.V. Growth Netherlands 2005 26 49Supplier of promotionalproductsPlanet Acquisitions HoldingsLimited (Chorion) Buyouts UK 2006 48 48Owner of intellectualpropertyScandferries Holding AG(Scandlines) Buyouts Germany 2007 45 47Ferry operator in theBaltic Sea Hobbs HoldingsNo. 1 Limited Buyouts UK 2004 40 47Retailer of women'sclothing and footwearAviapartner Group S.A. Buyouts Belgium 2005 43 45Airport ground handlingVolnay B.V.(VNU Media) Buyouts Netherlands 2007 43 45Dutch recruitmentclassified advertisingDemand Media Inc Venture US 2006 31 41Online media publisherSneca HoldingOy (Inspecta) Buyouts Finland 2007 39 40Supplier of testing,inspection andcertification (TIC)servicesConsulting 1 S.p.A(Targetti Sankey) Growth Italy 2007 38 39Design and manufacturingof lighting fixturesCDH ChinaGrowth Capital Fund II LP Growth China 2005 22 36China growth capital fundABX Logistics Group Buyouts Belgium 2006 35 35Industrial transportationSofitandus S.L. (GES - Global Energy Services) Buyouts Spain 2006 34 35Wind power service providerSparrowhawk HoldingsLimited (Crown Media) Buyouts UK 2005 23 34UK and International TVchannel business and librarySelbatoneil S.L. (La Sirena) Buyouts Spain 2006 29 31Specialist frozen foodretailerEverisParticipaciones S.L. Growth Spain 2007 30 31IT consulting businessNORMA GroupHolding GmbH Buyouts Germany 2005 26 31Provider of plastic andmetal connecting technologyAzelis Group Buyouts Italy 2007 28 30Distributor of speciality chemicals, polymers and related servicesAlo Intressenter AB Growth Sweden 2002 31 29Manufacturer of frontend loadersTelecity Group plc Buyouts UK 1998 17 29Services for internetservice providersPILATUS Aircraft Limited Growth Switzerland 2006 17 28Manufacturer of aircraftYugureda S.L. (Gebomsa) Buyouts Spain 2005 2 27Concrete pumpingFulcrum Limited Growth US 2007 27 26Outsourced hedge fundadministrationDaorje Grupo Buyouts Spain 2007 25 26Spanish waste managementbusinessKneip Communications S.A. Growth Luxembourg 2007 25 26Outsourced publicationof investment fund dataMorse plc Buyouts UK 1995 8 26Technology integratorNCP ServicesTopco Limited Buyouts UK 2005 3 26Transport management andparking servicesHunan Zhongkai Property Co Limited (Joyon) Growth China 2007 25 25Real estate/developerNavayuga EngineeringCompany Limited Growth India 2006 23 25Engineering andconstruction ------------------------------------------------------------------------------- Note AThe half-yearly report 2007 will be posted to shareholders on 19 November 2007and thereafter copies will be available from the Company Secretary, 3i Groupplc, 16 Palace Street, London SW1E 5JD. Note BThe interim dividend will be payable on 2 January 2007 to holders of ordinaryshares on the register on 30 November 2007. The ex-dividend date will be 28November 2007. This information is provided by RNS The company news service from the London Stock Exchange

---

Related Shares:

3i Group