Interim Results

3i Group PLC 08 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 2006 Business activity Investment Â£1,234m Â£589m Realisation proceeds Â£1,044m Â£849m Returns Realised profits on disposal of investments Â£337m Â£216m Gross portfolio return on opening portfolio value 14.3% 11.6% Net portfolio return Â£453m Â£367m Total return Â£512m Â£374m Total 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 Â£5,130m Â£4,174m Third-party funds Â£3,053m Â£2,859m ------- ------- Â£8,183m Â£7,033m Net asset value per share (diluted) Â£10.07 Â£7.92 Commentary â€¢ 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. â€¢ Net asset value per share up 27% year-on-year, from Â£7.92 per share at 30 September 2006 to Â£10.07 per share at 30 September 2007. â€¢ 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, values and approach have continued to serve us well in reaching our key strategic milestones.' 3i's Chief Executive, Philip Yea, added: 'These are a strong set of half-year results. Given the broad spread of our investment business and the strong capabilities we are building across the world, 3i faces this potentially more challenging environment from a substantially stronger position than in previous cycles.' For further information, please contact: Philip Yea, Chief Executive Tel: 020 7975 3386 3i Group plc Simon Ball, Finance Director Tel: 020 7975 3356 3i Group plc Patrick Dunne, Group Communications Director Tel: 020 7975 3283 3i Group plc Philip Gawith Tel: 020 7379 5151 The Maitland Consultancy For further information regarding the announcement of 3i's half-yearly results to 30 September 2007, including video interviews with Philip Yea, Simon Ball and Jonathan Russell (available at 7.15am) and a live webcast of the results presentation (at 10.30am, available on demand from 2.00pm), please see www.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 and invest across Europe, Asia and the US. Our competitive advantage comes from our international network and the strength and breadth of our relationships in business. These underpin the value that we deliver to our portfolio and to our shareholders. ------------------------------------------------------------------------------- Total return ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 Â£m Â£m ------------------------------------------------------------------------------- Realised profits on disposal of investments 337 216 Unrealised profits on revaluation of investments 183 141 Portfolio income 102 123 ------------------------------------------------------------------------------- Gross portfolio return 622 480 ------------------------------------------------------------------------------- Fees receivable from external funds 22 15 Carried interest receivable 36 35 Carried 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 11 Exchange 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 Â£m Â£m % % ------------------------------------------------------------------------------- Buyouts 405 290 31.6 19.8 Growth Capital 180 183 12.3 15.4 Venture Capital 31 (69) 4.2 (8.4) Infrastructure 13 (1) 2.8 (1.1) QPE (9) n/a n/a n/a SMI 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 Â£m Â£m ------------------------------------------------------------------------------- Earnings multiples* 25 22 Earnings growth 60 16 First-time uplifts 70 64 Provisions and impairments (65) (59) Up/down rounds 13 8 Uplift to imminent sale 33 160 Other 3 (11) Quoted portfolio 44 (59) ------------------------------------------------------------------------------- Total 183 141 ------------------------------------------------------------------------------- *The weighted average earnings multiple (excluding EBITDA valuations) at 30 September 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 with English 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, any statements 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 levels of activity through the spring and summer, especially in the very large buyout market, generated intense interest in the industry from well beyond the financial community. The dislocation in the financial markets that then occurred from July onwards also brought a fresh set of challenges. 3i has continued to perform well throughout this period, delivering a total return of Â£512 million for the six months to 30 September 2007. This represents a return of 12.0% on opening shareholders' funds, which compares with a FTSE All-Share return of 1.0% for the same period. Investment in the half year grew to Â£1,234 million with an especially strong contribution from our Growth Capital business, which invested Â£493 million. The Group has also made further strategic progress, successfully launching two public companies in 2007. One of these, 3i Infrastructure Limited, is now a FTSE 250 company. The other, 3i Quoted Private Equity Limited, is a Â£400 million company designed to bring 3i's unique style of investing to smaller public companies. These and other initiatives, such as our new 3i India Infrastructure Fund, launched in September, will not only broaden the spread of our activities but also provide a source of earnings for our shareholders. The Directors have approved an interim dividend of 6.1p per ordinary share up from 5.8p last year. The Group's continuing commitment to capital efficiency was demonstrated in the period with a total of Â£872 million returned to shareholders. This was achieved through a bonus issue of listed B shares (Â£808 million) and the purchase and subsequent cancellation of ordinary shares under the buyback authority granted by shareholders at the AGM in July 2007 (Â£64 million). 3i's financial strength, values and approach have continued to serve us well in a time when markets have been turbulent and the role of private equity has been debated. The Company has been at the vanguard of transparency and disclosure in the industry for many years, benchmarking our performance against our FTSE 100 peers as well as the best in the private equity industry. This, combined with our approach to corporate responsibility, has meant that we have been able to actively and confidently engage in the debate. We therefore welcomed the review undertaken by Sir David Walker, who is due to report later this month. As a member of his advisory group, I have been particularly keen to assist Sir David in his objective of satisfying legitimate interests without placing too great a burden on the private equity industry, and portfolio companies it supports. In July we were delighted to welcome Will Mesdag to the Board. Will, who is based in the United States, is currently the Managing Partner of Red Mountain Capital 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-founded Goldman, Sachs's Capital Markets Group, its Asset Securitization Group and its European Financial Institutions Group. He therefore brings a wide and highly-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 tremendous contribution to 3i over his 24 years with the Company, and his support to me personally in ensuring the smooth operation of the Board has been invaluable. Tony's successor, Kevin Dunn, joined 3i from General Electric in October where he was a Senior Managing Director in GE's Commercial Finance division. In summary, 3i has delivered another strong financial performance in the half year and made further strategic progress. The outlook is particularly difficult to predict. However, the broadening of our asset classes, our continued geographical 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 Hogg Chairman 7 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 company across business lines, geographies and sectors. I am pleased to be able to report a strong set of half-year results, which evidence further progress in the delivery of 3i's strategy. Returns are strong; investment is significantly increased and our mix of geographies and asset classes continues to broaden. Further milestones in our strategic development were achieved; the listing of 3i Quoted Private Equity Limited, the launch of our first Indian infrastructure fund and the first investment by our recently established New York Growth Capital team. Both our Venture Capital and SMI businesses continued their successful programmes to reduce the number of older investments. Total return of Â£512 million for the first six months was 12.0% of opening shareholders' funds, comparing well with Â£374 million and 9.3% for the equivalent period a year ago. This strong return was built on further excellent realisations, another exceptional result from our Buyouts business, and a very strong contribution from our Growth Capital business. Our Venture Capital business showed some progress, albeit that accounting returns were below our long-term cash-to-cash targets. Modest returns from our Infrastructure and QPE businesses were largely reflective of the start-up status of their funds and resulting long-cash positions. At the Group level, the movement in the fair value of derivatives contributed Â£81 million (2006: Â£11 million) to total return. The level of new investment at Â£1,234 million was significantly higher than the Â£589 million invested in the first half of last year. This reflects an increase in average deal size across our existing business lines as well as our initial investment of Â£181 million in 3i Quoted Private Equity Limited and a seed investment of Â£56 million in our recently launched 3i India Infrastructure Fund. Both our Buyouts and Growth Capital businesses were very active in terms of new investments, with Growth Capital at Â£493 million more than doubling last year's Â£198 million, and the Buyout investment of Â£436 million being significantly ahead of Â£236 million in the first half of last year. Realisations continued to be strong at Â£1,044 million (2006: Â£849 million) with Buyouts again generating significant gains on disposal, by presenting attractive assets to receptive markets. The average uplift to opening book value achieved across all realisations was 48%, delivering realised profits of Â£337 million, significantly ahead of last year's Â£216 million. Unrealised profits remained strong at Â£183 million (2006: Â£141 million). An important element of our strategy is to grow assets under management, whether directly or through managed or advised funds. This is being achieved by increasing the diversity of the geographies and asset classes where 3i is now active, as well as progressively increasing the average size of our investments. At the end of the half year, our assets under management were some Â£8.2 billion, up from Â£7.0 billion a year ago. Our assets in Asia represented some 10% of 3i's portfolio of investment assets (2006: 5%) and the average size of the Group's new investments was Â£32 million compared to Â£16 million a year ago. From time-to-time markets go through periods of adjustment. As a result of the sub-prime crisis in the USA, the external environment for both 3i and its investee companies changed significantly from the middle of July. 3i Group itself has a strong financial position with significant liquid resources. However the possible effects on consumer and business confidence have yet to be fully played out in terms of effects on corporate profits and the wider M&A markets. For some 18 months our Buyouts business had been anticipating that the levels of leverage available on new transactions would adjust downwards. In the event, the change has been triggered by factors extraneous to the leveraged debt markets themselves. Leverage multiples on new transactions are, as expected, generally falling, but it is too soon to judge at what level the leveraged finance markets will ultimately settle or over what period the necessary adjustments will take place. As previously anticipated, the very high levels of realisations recently achieved are likely to reduce over the coming period, not least due to the relative immaturity of our portfolios. In the near term levels of new investment within our Buyouts business may be lower than otherwise. However, so far, our Growth Capital business continues its recent strong momentum. Any effects of changes in the wider economy on our own portfolio have so far been hard to determine. Our returns model has been built on the critical selection of new investment opportunities and active engagement with management teams to deliver value during the period of 3i's involvement. I remain confident that our highly-focused approach can deliver cash-to-cash returns consistent with our through-the-cycle targets. Given the broad spread of our investment business, and the strong capabilities we are building across the world, 3i faces this potentially more challenging environment from a substantially stronger position than in previous cycles. I look forward to reporting further progress in the delivery of our strategy at the end of the financial year. Philip Yea Chief Executive 7 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 overview The Group continues to invest in building its capabilities and is now managing and advising funds with a value of Â£8,183 million (2006: Â£7,033 million). This 16% increase has been delivered through new investment and significant value growth in 3i's direct portfolio, as well as the raising of new external funds. Realisation proceeds from the portfolio exceeded Â£1 billion for the second consecutive six-month period as the Group continued its strategy of selling actively in receptive markets. The Group also continued to broaden its investment activities across asset classes and geographies. New investment totalled Â£1,234 million (2006: Â£589 million) and 28 new companies were added to the portfolio (2006: 33 companies). With increasing deal size across each of the Growth Capital, Buyouts and Venture Capital business lines, combined with the Â£181 million investment in 3i Quoted Private Equity Limited, the Group's direct investment exceeded realisation proceeds by Â£190 million (2006: net divestment of Â£260 million). Investment The average size of new portfolio company investment increased to Â£32 million compared to Â£16 million a year earlier. In the Growth Capital business line, the strategy to target larger transactions has led to substantial growth in investment to Â£493 million (2006: Â£198 million). Buyout investment also increased, with several large deals in continental Europe completed in the period. 3i invested Â£56 million of a total commitment of $250 million to the 3i India Infrastructure Fund, which announced its first close in September 2007. 3i is the nominated investment adviser to the new fund, which has also received a commitment of $250 million from 3i Infrastructure Limited. In June 2007 3i invested Â£181 million in 3i Quoted Private Equity Limited, a new investment vehicle listed on the London Stock Exchange. 3i Quoted Private Equity Limited successfully raised Â£400 million, including 3i's investment, to invest in European quoted assets as advised by 3i's QPE team. ------------------------------------------------------------------------------- Table 1: Investment by business line and geography (Â£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 2 436 236 Growth Capital 206 116 207 (3)* 52 85 27 - 1 - 493 198 Venture Capital 11 10 17 34 2 - 33 76 2 9 65 129 Infra- structure - - 2 10 56 - - - - - 58 10 QPE - - 182 14 - - - - - - 182 14 SMI - 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 2006 figures in this Business review have been restated to reflect this. UK investment in Growth Capital in 2006 was negative due to a syndication of an earlier investment. Realisation proceeds A number of large buyout assets sold in the first quarter gave rise to substantial uplifts over book value. As well as benefiting the Group's cash flow, these disposals have delivered distributions of over Â£200 million to investors in 3i's managed buyout funds. The buoyant market conditions experienced at the beginning of the year have moderated recently as a result of uncertainty in leveraged finance markets. Realisation proceeds from Growth Capital, although slightly lower than the previous year, continued to be generated across a good balance of UK and continental European assets. Venture Capital realisations picked up markedly from 2006 following disposals from the German early stage technology portfolio. SMI, the operation set up to realise value from small and often illiquid assets from older investment vintages, generated proceeds of Â£71 million (2006: Â£118 million), leaving the remaining SMI portfolio valued at Â£312 million (2006: Â£504 million) or 6% (2006: 12%) of the total portfolio. ------------------------------------------------------------------------------- Table 2: Realisation proceeds by business line and geography (Â£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 - - - - - - 540 388 Growth Capital 128 165 132 111 13 37 - - - - 273 313 Venture Capital 55 6 32 5 4 - 20 15 - - 111 26 Infra- structure 6 - 26 4 - - - - - - 32 4 QPE - - 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 Â£8,183 million (2006: Â£7,033 million). At 30 September 2007, co-investment funds accounted for Â£2,451 million (2006: Â£2,859 million) of third-party funds under management and external quoted funds Â£602 million (2006: Â£nil). The 3i directly-owned portfolio increased in value to Â£5,130 million (2006: Â£4,174 million) following an increase in Growth Capital investment, combined with 3i's direct investment in 3i Infrastructure Limited and 3i Quoted Private Equity Limited. Continental European assets remain the largest geographic concentration within the portfolio at 45% (2006: 48%). Investment in India and China has led to the Asian portfolio increasing to Â£497 million or 10% of the total portfolio (2006: Â£210 million, 5%). ------------------------------------------------------------------------------- Table 3: Assets under management (Â£m) as at 30 September 2007 2006 ------------------------------------------------------------------------------- 3i direct portfolio 5,130 4,174 Managed co-investment funds 2,451 2,859 Advised quoted funds 602 - ------------------------------------------------------------------------------- Total 8,183 7,033 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Table 4: 3i direct portfolio value by business line and age (Â£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 1,534 Growth Capital 769 622 214 185 64 1,854 1,201 Venture 137 309 110 66 93 715 826 Capital Infrastructure 479 - 23 - - 502 96 QPE 174 2 - - - 176 13 SMI 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 (Â£m) ------------------------------------------------------------------------------- as at 30 September 2007 2006 ------------------------------------------------------------------------------- Continental Europe 2,331 1,984 UK 1,962 1,645 Asia 497 210 US 321 319 Rest of World 19 16 ------------------------------------------------------------------------------- Total 5,130 4,174 ------------------------------------------------------------------------------- Group returns Total return Total return for the six months to 30 September 2007 was Â£512 million (2006: Â£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 gross portfolio return of 14.3% of opening portfolio value (2006: 11.6%), combined with a positive movement in the fair value of derivatives of Â£81 million (2006: Â£11 million). ------------------------------------------------------------------------------- Table 6: Total return ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 Â£m Â£m ------------------------------------------------------------------------------- Realised profits on disposal of investments 337 216 Unrealised profits on revaluation of investments 183 141 Portfolio income 102 123 ------------------------------------------------------------------------------- Gross portfolio return 622 480 ------------------------------------------------------------------------------- Fees receivable from external funds 22 15 Carried interest receivable 36 35 Carried 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 11 Exchange 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 Gross portfolio return of Â£622 million (2006: Â£480 million) included another very strong contribution from the Buyouts business of Â£405 million, representing a 31.6% gross return on the opening Buyouts portfolio value (2006: Â£290 million, 19.8%). Realised profits were very strong, representing an uplift of some 48% against opening value for those assets sold in the period. Unrealised value growth contributed Â£183 million (2006: Â£141 million) to gross portfolio return. Earnings growth in the portfolio has remained robust. Quoted value growth of Â£44 million (2006: Â£(59) million) was largely due to a Â£72 million uplift on the merger of a Eurofund V asset, Dockwise, with a quoted competitor, which offset losses on quoted Venture Capital stocks and the Group's investment in 3i Quoted Private Equity Limited. Portfolio income at Â£102 million (2006: Â£123 million) represents a six-month yield on the opening portfolio of 2.3% (2006: 3.0%). This reduction arose from the disposal of several high-yielding buyout investments, which has reduced interest income in the period, and reflects two large one-off redemption premiums 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 Â£m Â£m % % ------------------------------------------------------------------------------- Buyouts 405 290 31.6 19.8 Growth Capital 180 183 12.3 15.4 Venture Capital 31 (69) 4.2 (8.4) Infrastructure 13 (1) 2.8 (1.1) QPE (9) n/a n/a n/a SMI 2 77 0.5 13.7 ------------------------------------------------------------------------------- Gross portfolio return 622 480 14.3 11.6 ------------------------------------------------------------------------------- Net portfolio return Net portfolio return is the return achieved after including fees receivable from external funds, net carried interest and operating expenses. This has grown to Â£453 million or 10.4% of opening portfolio value (2006: Â£367 million, 8.9%). Fees receivable from external funds Fees receivable from external funds, representing management and advisory fees, have increased to Â£22 million in the period (2006: Â£15 million). Management fees from Eurofund V, the â‚¬5 billion mid-market Buyout fund raised by the Group last year, have been receivable since July 2006. Advisory fees relating to 3i Infrastructure Limited were Â£4 million (2006: Â£nil). Carried interest Carried interest aligns the incentivisation of 3i's investment staff and the management teams in 3i's portfolio with the interests of 3i's shareholders and fund investors. Carried interest receivable is related principally to the performance of 3i's Eurofunds where carry is earned once certain performance hurdles have been achieved. Some Â£9 million of carried interest receivable has been recorded on Eurofund V, which was 29% invested at 30 September 2007, and Â£36 million has been accrued across all buyout funds combined (2006: Â£35 million). Carried interest and performance fees payable have increased. This reflects both the rise in absolute levels of gross portfolio return achieved and the increased proportion of total return being created from more recent vintages, where higher levels of carried interest participation were introduced in line with market practice. ------------------------------------------------------------------------------- Table 8: Unrealised profits/(losses) on revaluation of investments ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 Â£m Â£m ------------------------------------------------------------------------------- Earnings multiples* 25 22 Earnings growth 60 16 First-time uplifts 70 64 Provisions and impairments (65) (59) Up/down rounds 13 8 Uplift to imminent sale 33 160 Other 3 (11) Quoted portfolio 44 (59) ------------------------------------------------------------------------------- Total 183 141 ------------------------------------------------------------------------------- *The weighted average earnings multiple (excluding EBITDA valuations) at 30 September 2007 was 12.9 (2006:12.3). ------------------------------------------------------------------------------- Table 9: Portfolio income ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 Â£m Â£m Dividends 34 35 Income from loans and receivables 57 81 Fees receivable 11 7 ------------------------------------------------------------------------------- Portfolio income 102 123 ------------------------------------------------------------------------------- Portfolio income/opening portfolio ('income yield') 2.3% 3.0% ------------------------------------------------------------------------------- Operating expenses Over the last two to three years, the Group has made significant investment in building new capabilities with a resulting increase in new investment, funds under 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 a percentage of opening portfolio value. The Group published a mid-term target of 4.5% per annum and a longer term objective of reducing this measure to 3.0% per annum. On an annualised basis, the measure stood at 5.0% at 30 September 2007, compared with 5.3% for the year to 31 March 2007, reflecting the progress that has been made. ------------------------------------------------------------------------------- Table 10: Cost efficiency ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 Â£m Â£m ------------------------------------------------------------------------------- Operating expenses 129 115 Fees 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 derivatives Changes in 3i's share price during each accounting period have a direct impact on the fair value of the derivative element of 3i's â‚¬550 million 2008 Convertible Bond. During the six months to 30 September 2007, 3i's share price decreased from Â£11.36 to Â£9.97. As a consequence, the movement in the fair value of the equity derivative liability reduced, generating a gain of Â£69 million (2006: Â£4 million), which is the major contributory factor relating to the Â£81 million (2006: Â£11 million) gain in the income statement. Group balance sheet Capital structure The Group's continuing commitment to capital efficiency was demonstrated in the period with a total of Â£872 million returned to shareholders. This was achieved through a bonus issue of listed B shares (Â£808 million) and the purchase and subsequent cancellation of ordinary shares under the buyback authority granted by shareholders at the AGM in July 2007 (Â£64 million). In June 2007, 3i Group plc issued a â‚¬500 million five year floating rate note, providing core funding for the Euro-denominated portfolio. On 6 July 2007, 3i Holdings plc repaid its Â£200 million floating rate bond on maturity, out of existing Group funds. Net investment in the period further improved the Group's balance sheet effectiveness and at 30 September 2007 gearing was 30% (2006: 13%). Table 11: Group balance sheet (Â£m) ------------------------------------------------------------------------------- as at 30 September 2007 2006 ------------------------------------------------------------------------------- Shareholders' funds 3,844 3,648 Net borrowings (1,143) (475) ------------------------------------------------------------------------------- Gearing 30% 13% ------------------------------------------------------------------------------- Diluted net asset value per share Â£10.07 Â£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 Â£10.07 at 30 September 2007. The major contributor to this was the total return, which equated 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 2007 had the effect of diluting NAV per share by 33p. Deducting the final dividend of 10.3p per share, combined with a number of other small movements, led to a 75p overall increase in the period, and a 215p increase or 27% over the past 12 months. Risks and uncertainties The principal risks and uncertainties faced by the Group are set out in the Risk Management section of the 3i Group Report and accounts 2007. This interim management report also refers to specific risks and uncertainties, and these should be viewed in conjunction with those principal risks. Business lines The key financial performance measures for our business lines are: Gross portfolio return Portfolio health Long-term IRRs by vintage Buyouts Returns Gross portfolio return: Â£405 million, 31.6% of opening portfolio value (2006: 19.8%) Total realised profits of Â£256 million (2006: Â£76 million) were the main driver of the gross portfolio return from the Buyouts business line. The business actively realised several large assets at significant uplifts over carrying value as the favourable market conditions experienced in the year to 31 March 2007 continued into the first quarter of this financial year. The largest realised profits were achieved on Care Principles (Â£66 million), Marken (Â£55 million) and HSS Hire Service (Â£45 million). Dockwise, the first Eurofund V investment, was merged with a quoted competitor in May of this year and was the main contributor to total unrealised profits of Â£101 million (2006: Â£151 million). Portfolio income of Â£48 million (2006: Â£63 million) has reduced in line with changes in the portfolio mix, with several high-yielding investments being sold in the last 12 months. Table 12: Returns from Buyouts (Â£m) ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 ------------------------------------------------------------------------------- Realised profits over value on the disposal of investments 256 76 Unrealised profits on the revaluation of investments 101 151 Portfolio income 48 63 ------------------------------------------------------------------------------- Gross portfolio return 405 290 ------------------------------------------------------------------------------- Fees receivable from external funds 18 13 ------------------------------------------------------------------------------- Fund management fee income Fee income has increased in the period following the final close of Eurofund V, 3i's â‚¬5 billion mid-market buyout fund, in November 2006. The income stream from this new fund has offset a fall in income from earlier buyout funds which have reduced in size, following an extended period of strong realisation activity. Business activity Investment and divestment in the period were strong and produced a net cash inflow of over Â£100 million. In highly competitive market conditions, the Buyouts business completed seven new investments across Europe, with a good sector spread. The largest of these investments were Eltel, the Nordic telecommunications company (Â£74 million), DEUTZ Power Systems, the German power supplier (Â£68 million), and Bestinvest, the UK-based provider of investment advice (Â£56 million). ------------------------------------------------------------------------------- Table 13: Business activity - investment and divestment activity (Â£m) ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 ------------------------------------------------------------------------------- Realisation proceeds 540 388 Investment (436) (236) ------------------------------------------------------------------------------- Net operational cash inflow 104 152 ------------------------------------------------------------------------------- Significant developments after the period end In late October 2007, Telecity, a 2006 buyout, which was previously a 3i Venture Capital investment, was successfully floated on the London Stock Exchange at a capitalisation of Â£436 million, valuing 3i's stake, at that time, at Â£103 million, compared to the book value of Â£29 million at 30 September 2007. In early November 2007, Coor Service Management, a 2004 Buyouts investment, was sold, subject to competition clearance, realising a projected uplift of Â£79 million over the 30 September 2007 book value. Portfolio health Since 2001, the aggregate level of provisions recognised is equivalent to 4% (2006: 3%) of cumulative investment to 30 September 2007, and the realised loss rate is 1% (2006: 1%). Long-term performance Realisations from recent investment vintages have helped to extend the successful track record of the Buyouts business. The vintages 2002 to 2006 have now all returned funds in excess of the original cost and in the case of the earlier vintages, 2002 and 2003, these have already returned more than twice the original cost. The cross-cycle cash-to-cash IRR target for Buyouts is 20%, which the 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 to Vintage year investment flow remaining 30 Sep 30 Sep (Â£m) (Â£m) (Â£m) 2007 2006 ------------------------------------------------------------------------------- 2007 477 96 480 33% n/a 2006 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 Returns Gross portfolio return: Â£180 million, 12.3% of opening portfolio value (2006: 15.4%) In a period of substantial growth in new investment, the Growth Capital business line also realised some large assets in the UK and continental Europe. Relatively low profits on realisation accrued in this period since Hayley Conference Centres, Smart & Cook and Clinica Baviera, which were successfully sold in the first quarter, were all valued on an imminent sales basis at the start of the year. These profits have however been supplemented by value growth on the existing portfolio. Notable increases in value include a Â£16 million first time uplift from cost of Nimbus, the Indian media company, and earnings growth on two investments in the Swedish portfolio, DIAB and Boxer, which have led to a combined value uplift of Â£48 million. ------------------------------------------------------------------------------- Table 15: Returns from Growth Capital (Â£m) ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 ------------------------------------------------------------------------------- Realised profits over value on the disposal of investments 37 90 Unrealised profits on the revaluation of investments 110 57 Portfolio income 33 36 ------------------------------------------------------------------------------- Gross portfolio return 180 183 ------------------------------------------------------------------------------- Fees receivable from external funds -* 2 ------------------------------------------------------------------------------- * Less then Â£0.5 million. Business activity Investment in new markets and increasing deal size led to the Growth Capital business ending the period with a net cash outflow, in contrast to the same period last year. The period marked 3i's first Growth Capital deal in the US with a Â£27 million investment in Fulcrum, a fund administration business, based in Bermuda. Large new investments, such as the Â£110 million investment in AIM-listed Venture Production, the North Sea oil and gas producer, and the Â£97 million investment in 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 (Â£m) ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 ------------------------------------------------------------------------------- Realisation proceeds 273 313 Investment (493) (198) ------------------------------------------------------------------------------- Net operational cash (outflow)/inflow (220) 115 ------------------------------------------------------------------------------- Portfolio health Overall the portfolio health remains robust: at the balance sheet date 92% of the portfolio was classified as healthy, which compares to 88% one year previously and a rolling three-year average of 85%. Long-term performance The above table shows good progress against this business line's IRR target across the cycle of 20%. Recent vintages have shown increasing asset quality, as evidenced by the IRR measured at 30 September 2007, and substantial early return flow, 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 to ending 31 March investment flow remaining 30 Sep 30 Sep Vintage year (Â£m) (Â£m) (Â£m) 2007 2006 ------------------------------------------------------------------------------- 2007 435 7 438 3% n/a 2006 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 Returns Gross portfolio return: Â£31 million, 4.2% of opening portfolio value (2006: loss (8.4)%) Venture Capital's gross portfolio return was achieved despite several quoted stocks in the portfolio recording losses, including a further Â£13 million write down on the 2004 investment, Vonage, the NASDAQ-listed US voice-over-internet business. Realised profits of Â£41 million (2006: Â£5 million) relate largely to the disposal of the German internet pharmaceuticals business DocMorris, which was sold in the period and generated a profit over opening value of Â£33 million. ------------------------------------------------------------------------------- Table 18: Returns from Venture Capital (Â£m) ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 ------------------------------------------------------------------------------- Realised profits over value on the disposal of investments 41 5 Unrealised profits on the revaluation of investments (13) (78) Portfolio income 3 4 ------------------------------------------------------------------------------- Gross portfolio return 31 (69) ------------------------------------------------------------------------------- Fees receivable from external funds -* -* ------------------------------------------------------------------------------- * Less then Â£0.5 million. Business activity The Venture Capital business is now focused on delivering a smaller number of higher value later-stage investments. Three new deals were completed in the period (2006: 13). Total investment was Â£65 million (2006: Â£129 million). Divestment proceeds were in line with expectations and at Â£111 million (2006: Â£26 million) were significantly higher than 2006. ------------------------------------------------------------------------------- Table 19: Business activity - investment and divestment activity (Â£m) ------------------------------------------------------------------------------- 6 months to 30 September 2007 2006 ------------------------------------------------------------------------------- Realisation proceeds 111 26 Investment (65) (129) ------------------------------------------------------------------------------- Net operational cash inflow/(outflow) 46 (103) ------------------------------------------------------------------------------- Portfolio health The risk inherent in the Venture Capital portfolio is higher than in 3i's other business lines, reflected in the return targets set and volatilities anticipated. At 30 September 2007, 68% of the cost of the portfolio was classified as healthy, compared to 72% in the prior year and the three-year rolling average of 68%. Long-term performance The longer life cycle of Venture Capital investments and the tendency for the major element of returns to be generated on exit, means that it is too early to assess the performance of the most recent vintages, which are currently showing small positive IRRs. ------------------------------------------------------------------------------- Table 20: Long-term performance ------------------------------------------------------------------------------- New investments made in the financial year Total Return Value IRR to IRR to ending 31 March investment flow remaining 30 Sep 30 Sep Vintage year (Â£m) (Â£m) (Â£m) 2007 2006 ------------------------------------------------------------------------------- 2007 141 8 136 3% n/a 2006 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 Returns The largest asset in the Infrastructure portfolio throughout the period was the Group's 46% shareholding in 3i Infrastructure Limited. The share price of 3i Infrastructure Limited, which is now a constituent of the FTSE 250, has increased 1.2% in the period and this is reflected in unrealised profits as shown. 3i receives fees for its role as adviser to 3i Infrastructure Limited: Â£4 million is included as fund advisory fee income in the Group's total return. ------------------------------------------------------------------------------- Table 21: Returns from Infrastructure (Â£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 activity 3i made new commitments in the period to the Bahrain-based Infrastructure fund Manara ($50 million committed, nil invested) and to the newly formed 3i Indian Infrastructure Fund ($250 million committed, Â£56 million invested). This fund, which has a target size of $1 billion, is to be invested wholly in Indian 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 Â£58 million including a further investment into Alma Mater. QPE Returns The returns from the QPE business line largely comprised changes to the valuation 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 Â£9 million for the first half. Table 22: Returns from QPE (Â£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 activity In 2006 3i created a new business line, QPE, to invest in European quoted stocks using private equity investment techniques. After establishing a team of specialist investors, drawn from industry and from private equity, a Â£400 million fund was successfully raised on the London Stock Exchange in which 3i invested Â£181 million for a 45% stake. During the period the QPE team also invested a further Â£1 million in Strategic Recovery Fund, an investment from 2006, taking total investment in the QPE business line to Â£182 million. ------------------------------------------------------------------------------- Consolidated income statement for 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) Â£m Â£m Â£m ------------------------------------------------------------------------------- Realised profits over value on the disposal of investments 337 216 830 Unrealised profits on the revaluation of investments 183 141 323 ------------------------------------------------------------------------------- 520 357 1,153 Portfolio income Dividends 34 35 81 Income from loans and receivables 57 81 158 Fees receivable 11 7 14 ------------------------------------------------------------------------------- Gross portfolio return 1 622 480 1,406 Fees receivable from external funds 1 22 15 37 Carried interest Carried interest receivable from managed funds 36 35 81 Carried interest and performance fees payable (98) (48) (142) Operating expenses (129) (115) (255) ------------------------------------------------------------------------------- Net portfolio return 453 367 1,127 Treasury interest receivable 61 47 91 Interest 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 1,059 Income 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 expense for 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) Â£m Â£m Â£m ------------------------------------------------------------------------------- Profit for the period 515 363 1,056 Revaluation of own use property - - 1 Exchange differences on translation of foreign operations 1 (3) 5 Actuarial (losses)/gains (4) 14 13 ------------------------------------------------------------------------------- Total recognised income and expense 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 equity for 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) Â£m Â£m Â£m Opening total equity 4,249 4,006 4,006 Total recognised income and expense for the period 512 374 1,075 Share-based payments (1) 5 9 Ordinary dividends (47) (52) (79) Issue of B shares (808) (700) (700) Issues of shares 16 10 18 Share buy-backs (64) - (74) Own shares (13) 5 (6) ------------------------------------------------------------------------------- Closing total equity 3,844 3,648 4,249 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Consolidated balance sheet as at 30 September 2007 ------------------------------------------------------------------------------- Notes 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) Â£m Â£m Â£m ------------------------------------------------------------------------------- Assets Non-current assets Investments 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 4,362 Carried interest receivable 94 108 83 Property, plant and equipment 32 31 32 ------------------------------------------------------------------------------- Total non-current assets 5,256 4,313 4,477 ------------------------------------------------------------------------------- Current assets Other current assets 156 99 197 Derivative financial instruments 24 25 21 Deposits 617 763 1,668 Cash and cash equivalents 583 711 486 ------------------------------------------------------------------------------- Total current assets 1,380 1,598 2,372 ------------------------------------------------------------------------------- Total assets 6,636 5,911 6,849 ------------------------------------------------------------------------------- Liabilities Non-current liabilities Carried 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 liabilities Trade 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 ------------------------------------------------------------------------------- Equity Issued capital 287 294 289 Share premium 394 379 387 Capital redemption reserve 38 22 27 Share-based payment reserve 18 22 18 Translation reserve 6 (3) 5 Capital reserve 2,868 2,718 3,280 Revenue reserve 317 280 318 Own shares (84) (64) (75) ------------------------------------------------------------------------------- Total equity 3,844 3,648 4,249 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Consolidated cash flow statement for 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) Â£m Â£m Â£m ------------------------------------------------------------------------------- Cash flow from operating activities Purchase of investments (1,216) (559) (1,503) Proceeds from investments 1,105 858 2,364 Interest received 22 53 68 Dividends received 34 35 66 Fees received 33 11 54 Carried interest received 25 5 76 Carried 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 activities Proceeds from issues of share capital 16 10 18 Repurchase 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 80 Interest paid (46) (40) (101) Proceeds from long-term borrowings 529 1 1 Repayment of long-term borrowings (200) (2) (2) Net cash flow from short-term borrowings (121) 18 211 Net cash flow from deposits 1,051 345 (560) ------------------------------------------------------------------------------- Net cash flow from financing activities 365 (365) (1,207) ------------------------------------------------------------------------------- Cash flow from investing activities Purchases 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 486 847 847 Effect of exchange rate fluctuations (3) (4) (4) ------------------------------------------------------------------------------- Cash and cash equivalents at the end of 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) Â£m Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------- Gross portfolio return Realised profits over value on the disposal of investments 256 37 41 - - 3 337 Unrealised profits on the revaluation of investments 101 110 (13) 7 (9) (13) 183 Portfolio income 48 33 3 6 - 12 102 ------------------------------------------------------------------------------- 405 180 31 13 (9) 2 622 ------------------------------------------------------------------------------- Fees receivable from external funds 18 - - 4 - - 22 Net (investment)/divestment Realisation proceeds 540 273 111 32 17 71 1,044 Investment (436) (493) (65) (58) (182) - (1,234) ------------------------------------------------------------------------------- 104 (220) 46 (26) (165) 71 (190) ------------------------------------------------------------------------------- Balance sheet Value of investment portfolio at end 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) Â£m Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------- Gross portfolio return Realised profits over value on the disposal of investments 76 90 5 - - 45 216 Unrealised profits on the revaluation of investments 151 57 (78) (1) - 12 141 Portfolio income 63 36 4 - - 20 123 ------------------------------------------------------------------------------- 290 183 (69) (1) - 77 480 ------------------------------------------------------------------------------- Fees receivable from external funds 13 2 - - - - 15 Net (investment)/divestment Realisation proceeds 388 313 26 4 - 118 849 Investment (236) (198) (129) (10) (14) (2) (589) ------------------------------------------------------------------------------- 152 115 (103) (6) (14) 116 260 ------------------------------------------------------------------------------- Balance sheet Value of investment portfolio at end 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) Â£m Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------- Gross portfolio return Realised profits over value on the disposal of investments 538 235 12 (15) - 60 830 Unrealised profits on the revaluation of investments 123 269 (61) 3 6 (17) 323 Portfolio income 127 65 3 27 - 31 253 ------------------------------------------------------------------------------- 788 569 (46) 15 6 74 1,406 ------------------------------------------------------------------------------- Fees receivable from external funds 33 3 1 - - - 37 Net (investment)/ divestment Realisation proceeds 1,341 691 187 5 - 214 2,438 New investment (498) (482) (200) (380) (14) (2) (1,576) ------------------------------------------------------------------------------- 843 209 (13) (375) (14) 212 862 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Balance sheet ------------------------------------------------------------------------------- Value of investment portfolio at end 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 Company are based on the following data: ------------------------------------------------------------------------------- 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) ------------------------------------------------------------------------------- Net assets per share (pence) Basic 1,020 798 944 Diluted 1,007 792 932 ------------------------------------------------------------------------------- Net assets (Â£m) Net assets attributable to equity 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 issue Ordinary shares 387,988,093 467,344,551 461,106,007 Own shares (11,162,984) (10,035,981) (10,931,404) ------------------------------------------------------------------------------- 376,825,109 457,308,570 450,174,603 Effect 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 preparation These financial statements are the unaudited condensed half-yearly consolidated financial statements (the 'Half-yearly Financial Statements') of 3i Group plc, a company incorporated in Great Britain and registered in England and Wales, and its subsidiaries (together referred to as the 'Group') for the six-month period ended 30 September 2007. The Half-yearly Financial Statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ('IAS 34') and should be read in conjunction with the Consolidated Financial 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 Directors on 7 November 2007. The Half-yearly Financial Statements have been prepared in accordance with the accounting policies set out in the Report and accounts 2007 as the new and revised International Financial Reporting Standards ('IFRS')and interpretations effective in the period have had no impact on the accounting policies of the Group. The presentation of the Half-yearly Financial Statements is consistent with the Report and accounts 2007. Where necessary, comparative information has been reclassified or expanded from the previously reported Half-yearly Financial Statements to take into account any presentational changes made in the Report and accounts 2007. The Half-yearly Financial Statements do not constitute statutory accounts. The statutory accounts for the year to 31 March 2007, prepared under IFRS, have been filed 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) or section 237(3) of the Companies Act 1985. The preparation of the Half-yearly Financial Statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results 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 the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The most significant techniques for estimation are described in the accounting policies and in our 'valuation methodology' for investments in the Report and accounts 2007. The Group operates in business lines where significant seasonal or cyclical variations in activity are not experienced during the financial year. Independent review report to 3i Group plc Introduction We have been engaged by 3i Group plc to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2007 which comprises the Consolidated income statement, Consolidated statement of recognised income and expense, Consolidated reconciliation of movements in equity, Consolidated balance sheet, Consolidated cash flow statement and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept 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 half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in the accounting policies note, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of half-yearly financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2007 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. Ernst & Young LLP London 7 November 2007 Ten largest investments The list below contains 10 of our 11 largest investments by value, with one excluded from the list for commercial reasons. ------------------------------------------------------------------------------- First Residual Directors' Business Invested cost valuation Investment line Geography in Â£m Â£m ------------------------------------------------------------------------------- 3i Infrastructure Limited Infrastructure UK(1) 2007 Quoted investment company, investing in infrastructure Equity shares 325 336 ------------------------------------------------------------------------------- 325 336 ------------------------------------------------------------------------------- 3i Quoted Private Equity QPE UK(1) 2007 Limited Quoted investment company, investing in quoted companies Equity shares 181 174 ------------------------------------------------------------------------------- 181 174 ------------------------------------------------------------------------------- Venture Production plc Growth UK 2002 Oil and gas production Loans 76 76 Equity shares 34 55 ------------------------------------------------------------------------------- 110 131 ------------------------------------------------------------------------------- Laholm Intressenter AB (DIAB) Growth Sweden 2001 Polymer based sandwich construction laminates Equity shares 44 100 ------------------------------------------------------------------------------- 44 100 ------------------------------------------------------------------------------- Kirko Newco plc (Enterprise) Buyouts UK 2007 UK utilities and public sector maintenance outsourcing Loans 97 97 Equity shares 3 3 ------------------------------------------------------------------------------- 100 100 ------------------------------------------------------------------------------- DNA Oy Growth Finland 2007 Telecom Operator Equity shares 97 99 ------------------------------------------------------------------------------- 97 99 ------------------------------------------------------------------------------- ACR Capital Holdings Pte Ltd Growth Singapore 2006 Reinsurance in large risk segments Equity shares 105 98 ------------------------------------------------------------------------------- 105 98 ------------------------------------------------------------------------------- Sistemas Tecnicos de Encofrados Growth Spain 2006 S.A.(STEN) Sale and rental of formwork and scaffolding equipment Equity shares 78 92 ------------------------------------------------------------------------------- 78 92 ------------------------------------------------------------------------------- Ambea AB (H-Careholding) Buyouts Sweden 2005 Elderly, primary and specialist care Loans 59 60 Equity shares 11 28 ------------------------------------------------------------------------------- 70 88 ------------------------------------------------------------------------------- Boxer TV-Access AB Growth Sweden 2005 Digital TV distributor Equity shares 56 87 ------------------------------------------------------------------------------- 56 87 ------------------------------------------------------------------------------- Notes (1) Quoted on the London Stock Exchange. Forty other large investments In addition to the ten largest investments detailed below are forty other large investments which are substantially all of the Group's remaining investments valued over Â£25 million. This does not include one investment that has been excluded for commercial reasons. ------------------------------------------------------------------------------- Investment Residual Directors' Business First cost valuation Description of business line Geography invested Â£m Â£m ------------------------------------------------------------------------------- Anglian Water Group Limited Infrastructure UK 2006 86 86 Provider of drinking water and waste water services Giochi Preziosi S.r.l. Buyouts Italy 2005 63 84 Retailer and wholesaler of toys Dockwise Buyouts Netherlands 2007 1 78 Specialist in heavy transport shipping within the marine and oil and gas industry Eltel Networks Oy Buyouts Finland 2007 74 77 Network services Coor Service Management Group AB Buyouts Sweden 2004 31 75 Facilities management services DEUTZ Power Systems GmbH Buyouts Germany 2007 68 70 Provider of decentralised power generation systems Tato Holdings Limited SMI UK 1989 2 57 Manufacture and sale of specialist chemicals Senoble Holding SAS Growth France 2004 27 57 Manufacturer of dairy products and chilled desserts 3i India Infrastructure Holdings Limited Infrastructure India 2007 56 56 Fund investing in Indian infrastructure Emperor I Limited (Bestinvest) Buyouts UK 2007 56 56 Wealth management Jake Holdings Limited (Mayborn) Buyouts UK 2006 54 54 Manufacturer and distributor of baby and household products Nimbus Communications Limited Growth India 2005 39 51 Media and entertainment services Polyconcept Investments B.V. Growth Netherlands 2005 26 49 Supplier of promotional products Planet Acquisitions Holdings Limited (Chorion) Buyouts UK 2006 48 48 Owner of intellectual property Scandferries Holding AG (Scandlines) Buyouts Germany 2007 45 47 Ferry operator in the Baltic Sea Hobbs Holdings No. 1 Limited Buyouts UK 2004 40 47 Retailer of women's clothing and footwear Aviapartner Group S.A. Buyouts Belgium 2005 43 45 Airport ground handling Volnay B.V. (VNU Media) Buyouts Netherlands 2007 43 45 Dutch recruitment classified advertising Demand Media Inc Venture US 2006 31 41 Online media publisher Sneca Holding Oy (Inspecta) Buyouts Finland 2007 39 40 Supplier of testing, inspection and certification (TIC) services Consulting 1 S.p.A (Targetti Sankey) Growth Italy 2007 38 39 Design and manufacturing of lighting fixtures CDH China Growth Capital Fund II LP Growth China 2005 22 36 China growth capital fund ABX Logistics Group Buyouts Belgium 2006 35 35 Industrial transportation Sofitandus S.L. (GES - Global Energy Services) Buyouts Spain 2006 34 35 Wind power service provider Sparrowhawk Holdings Limited (Crown Media) Buyouts UK 2005 23 34 UK and International TV channel business and library Selbatoneil S.L. (La Sirena) Buyouts Spain 2006 29 31 Specialist frozen food retailer Everis Participaciones S.L. Growth Spain 2007 30 31 IT consulting business NORMA Group Holding GmbH Buyouts Germany 2005 26 31 Provider of plastic and metal connecting technology Azelis Group Buyouts Italy 2007 28 30 Distributor of speciality chemicals, polymers and related services Alo Intressenter AB Growth Sweden 2002 31 29 Manufacturer of front end loaders Telecity Group plc Buyouts UK 1998 17 29 Services for internet service providers PILATUS Aircraft Limited Growth Switzerland 2006 17 28 Manufacturer of aircraft Yugureda S.L. (Gebomsa) Buyouts Spain 2005 2 27 Concrete pumping Fulcrum Limited Growth US 2007 27 26 Outsourced hedge fund administration Daorje Grupo Buyouts Spain 2007 25 26 Spanish waste management business Kneip Communications S.A. Growth Luxembourg 2007 25 26 Outsourced publication of investment fund data Morse plc Buyouts UK 1995 8 26 Technology integrator NCP Services Topco Limited Buyouts UK 2005 3 26 Transport management and parking services Hunan Zhongkai Property Co Limited (Joyon) Growth China 2007 25 25 Real estate/developer Navayuga Engineering Company Limited Growth India 2006 23 25 Engineering and construction ------------------------------------------------------------------------------- Note A The half-yearly report 2007 will be posted to shareholders on 19 November 2007 and thereafter copies will be available from the Company Secretary, 3i Group plc, 16 Palace Street, London SW1E 5JD. Note B The interim dividend will be payable on 2 January 2007 to holders of ordinary shares on the register on 30 November 2007. The ex-dividend date will be 28 November 2007. This information is provided by RNS The company news service from the London Stock Exchange

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