3i Group Regulatory News (III)

14 May 2015

3i Group plc announces full year resultsto 31 March 2015

All three businesses are performing well

§ Strong total return of 20% (£659m) in the year

§ Good flow of Private Equity realisations with proceeds of £831m; continued selective investment of £369m in four transactions and strong earnings growth in the portfolio underpinned a £719m investment return

§ Gross investment return of 20% in Infrastructure, which benefited from a 25% total shareholder return from 3i Infrastructure plc, its strongest performance since IPO

§ Debt Management raised £2.4bn AUM during the year, closing 6 CLOs and diversifying its offering through the €250m first close of the European Middle Market Loan Fund

§ Continued material improvement in cash income and ongoing operational efficiency led to operating cash profitof £28m

§ Robust balance sheet with gross debt and interest costs reduced to £815m and £49m respectively. Net cash of £49m and nil gearing at 31 March 2015

§ 14% increase in NAV to 396 pence per share, despite significant foreign exchange headwinds of £114m or 12 pence per share

§ Proposed final dividend of 14.0 pence per share, bringing the total dividend for FY2015 to 20.0 pence per share, subject to shareholder approval

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

"This has been a strong year for 3i with all three of our businesses performing well. We have reshaped our business model and our shareholders are benefiting from attractive returns and dividends. We look forward with confidence."

Financial highlights

ENDS

For further information, please contact:

Silvia Santoro, Investor Relations Director Tel: 020 7975 3258

Kathryn van der Kroft, Communications Director Tel: 020 7975 3021

For further information regarding the announcement of 3i's annual results to 31 March 2015, including a live videocast of the results presentation at 10.00am, please visit www.3i.com.

Notes to editors

3i is a leading international investment manager focused on mid-market Private Equity, Infrastructure and Debt Management. Our core investment markets are northern Europe and North America. For further information, please visit: www.3i.com.

Notes to the announcement of the results

Note 1

All of the financial data in this announcement is taken from the Investment basis financial statements. The statutory accounts are prepared under IFRS for the year to 31 March 2015 and have not yet been delivered to the Registrar of Companies. The statutory accounts for the year to 31 March 2014 have been delivered to the Registrar of Companies. The auditors' reports on the statutory accounts for these years are unqualified and do not contain any matters to which the auditor drew attention by way of emphasis or any statements under section 498(2) or (3) of the Companies Act 2006. This announcement does not constitute statutory accounts.

Note 2

Copies of the Annual report and accounts 2015 will be distributed to shareholders on or soon after 26 May 2015.

Note 3

This announcement has been prepared solely to provide information to shareholders. It should not be relied on by any other party for any other purpose.

This announcement may contain statements about the future including certain statements about the future outlook for 3i Group plc and its subsidiaries ("3i"). These are not guarantees of future performance and will not be updated. Although we believe our expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

Note 4

Subject to shareholder approval, the proposed final dividend is expected to be paid on 24 July 2015 to holders of ordinary shares on the register on 19 June 2015.

Excellent progress and strong results

Chairman's statement

"2015 has been another good year and 3i continues to make excellent progressagainst its strategic plan."

Sir Adrian MontagueChairman

When I joined 3i in 2010, I believed that it was fundamentally a strong business which had not recovered purpose and direction since the financial crisis. The appointment of Simon Borrows as Chief Executive in 2012, and the subsequent strategic review, resulted in a clear set of objectives designed to enable 3i to generate long-term value through the economic cycle. 3i has focused back to its core sectors and geographies, underpinned by a strengthened investment process and by a disciplined approach to cost management. I am pleased to report that Simon and his management team have made excellent progress against these objectives and the 3i of today is a more resilient and high performing operation.

Performance

In 2015 all three businesses contributed to the good performance. Against an unstable macro-economic environment and geo-political landscape we generated strong realisations of £841 million (2014: £677 million). We added four new companies to our Private Equity portfolio with total cash invested of £369 million (2014: £276 million). With significant levels of capital searching for good investment and returns as well as the continuation of central bank measures such as quantitative easing, we have invested selectively. We have focused on companies where our sector expertise and international experience can generate enhanced returns. Our Infrastructure business performed well and our holding in 3i Infrastructure plc delivered a 25% total shareholder return, its strongest annual return since its IPO in 2007. Debt Management benefited from a very good year of fund raising in its CLO funds and, in an important diversification, launched a €250 million European Middle Market Loan fund.

Dividend

The Board has declared a total dividend of 20.0p (2014: 20.0p) for 2015. This is made up of an 8.1p base dividend and an 11.9p additional dividend, making a total of 20.0p for the year after taking into account the interim dividend paid in January 2015. Due to net divestment in the year and our robust balance sheet, we have proposed an additional dividend above the top end of our 15% - 20% distribution range, equivalent to 23% of gross realised proceeds. Subject to shareholder approval, we will pay the final dividend of 14.0p (2014: 13.3p) in July 2015.

Outlook

We remain cautious about the current environment. Many financial markets are at or near all time highs and currencies are subject to increased volatility. We are focused on enhancing the value of our existing investment portfolio as well as pursuing investment opportunities if the strategic and financial case is strong.

Board changes

I will be stepping down as Chairman after the AGM in June 2015. The Board has announced that Simon Thompson will succeed me as Chairman. Simon is an experienced FTSE 100 chairman and non-executive director. He joined the Board in April and will take over from me in June. It has been a great privilege to serve in the role of Chairman over the last five years as 3i has progressively recovered its poise, and I am confident that, in its 70th year, I am leaving the Group in very capable hands.

I wish 3i, its employees, investors and all of its stakeholders every success for the future.

Strategic report

Delivering our strategic plan

Chief Executive's review

"This has been a strong year for 3i with all three of our businesses performing well. We have reshaped our business model and our shareholders are benefiting from attractive returns and dividends. We look forward with confidence."

Simon BorrowsChief Executive

Introduction

We are now at the end of our three-year restructuring and have met or exceeded all of the priorities set out in our scorecard. Since 2012, we have made considerable progress by streamlining and refocusing 3i into a more resilient business capable of generating long-term value through the economic cycle. This is reflected in this year's strong performance and good progress against all of the Group's KPIs over the last three years.

This year's financial results build on the momentum established last year. 3i generated a total shareholder return of 27%, compared to 6% for the FTSE 100. All three of our businesses performed well and contributed to the Group's total return on shareholders' funds of 20% (2014: 16%) and 14% increase in NAV per share to 396p (31 March 2014: 348p). The strong performance was achieved despite significant foreign exchange headwinds, with the euro alone depreciating by 13% against sterling, reducing the NAV per share by 12 pence.

How we performed in the year

Private Equity had another very successful year, generating a gross investment return of £719 million, or 24% on opening value (2014: £647 million, 24%). This reflected strong earnings growth and a flow of realisations ahead of our expectations at this time last year. Earnings growth of 19% was driven by our larger assets such as Action, Element and Basic-Fit, and a significant reduction in investments with declining earnings.

During the year, our Private Equity team generated total proceeds of £831 million (2014: £669 million) from realisations. These included £155 million returned as a result of refinancings (2014: £59 million). Favourable debt markets have allowed us to enhance capital structures and introduce higher leverage in a number of our best performing and highly cash generative assets. Despite this, average debt to EBITDA within the portfolio remained stable at 3.1x (2014: 3.1x). Proceeds from refinancings are generally returned as a repayment of shareholder loans, and do not usually generate a profit over value. Excluding refinancings, we realised profits of £144 million over opening valuation, an overall uplift of 27%, from a combination of asset sales and IPOs (2014: £190 million, 45%), including sales of Hilite at 2.1x and Vedici at 2.0x original cost.

In particular, the sustained, constructive market backdrop for realisations has meant that we have made very good progress in selling some of our smaller, more challenged investments and the number of portfolio companies has reduced to 65 at 31 March 2015 (31 March 2014: 81). The sale of Azelis, signed in February 2015 and completed in May 2015, is an excellent example of the potential for recovery, when we are able to focus on more intensive asset management. Over the last few years we have changed the Chairman and management at Azelis and agreed a new plan and financial structure which has underpinned its successful recovery and exit. We recognised £40 million of value growth in the year against an opening value of £26 million at 31 March 2014.

In strong equity markets, we have also had the opportunity to IPO investments such as Eltel, Refresco and Phibro.We generated £273 million in proceeds from quoted equity sales at, or post, IPO. Strong performance from our quoted portfolio, including prior listings such as Quintiles, has meant that the Private Equity quoted portfolio generated £177 million in value growth and realised profits of 49% on the opening value.

Notwithstanding the strong overall performance, our portfolio companies are not immune to wider macro issues and we had to reduce the value of one investment materially during the course of the year. Inspecta, which had been impacted by the economic environment in Finland and Russia, declined in value by £32 million during the year. We announced the sale of Inspecta in April 2015 and expect it to complete in the first half of FY2016, with proceeds in line with our 31 March 2015 valuation.

Although we have continued to be net divestors, we have maintained the investment momentum started in FY2014. Our approach remains selective, as the availability of competing capital can quickly move prices outside our target returns. However, our sector and market expertise has continued to deliver attractive opportunities during the year. We invested in two US headquartered businesses, Q Holding and Dynatect, and a UK business, Aspen Pumps, which have ambitious plans to grow internationally. Together with our Eurofund V investors, we also invested in Christ, a German-based jewellery retailer, alongside our existing investment in Amor. During the year our portfolio companies made over 20 acquisitions, representing a combined enterprise value of over €400 million, funded almost entirely out of the companies' own finances. These acquisitions are an important part of building the strategic value of our portfolio companies, including delivering their international growth potential. In total we made cash investments of £457 million, of which £369 million was 3i's proprietary capital (2014: £372 million, £276 million).

We continue to review a wide number of opportunities, but many are not pursued if we judge that the sale price is likely to move beyond where we see value.

Our longer term hold investments now account for approximately 50% of our portfolio value, and their strong performance, together with realisations, has led to material improvement in Eurofund V and the Growth Capital Fund, with multiples of 1.4x and 1.7x of invested capital respectively (31 March 2014: 1.1x, 1.3x respectively).

Infrastructure had a good year as gross investment return increased to £96 million, or 20% (2014: £2 million, 0%). The European portfolio continued to perform well and the dividends and advisory fees from 3iN generated a good level of cash income for the Group.

3iN's total shareholder return was 25% in the year, following the highly successful sale of its holding in Eversholt Rail. This transaction demonstrates how competitive the environment for large European Core infrastructure investments has become, as sovereign wealth and pension funds increase their investment appetite in the face of prolonged low interest rates. The team achieved a good level of new investment for 3iN, with £114 million of total investment commitments in the year (2014: £80 million). The Infrastructure team used its expertise gained through an existing investment in Oystercatcher and its strong relationship with Oiltanking to invest €107 million in two oil storage facilities in the Netherlands and Belgium. The team also completed five PPP deals, committing a total of £37 million.

3iN has a portfolio of high quality Core infrastructure assets and this is reflected in significant increases in value in addition to Eversholt Rail. Core infrastructure accounted for 83% of 3iN's total investments at 31 March 2015.

3i has recognised £30 million of advisory and management fees (2014: £24 million) and £45 million of performance fees during the period (2014: nil). £35 million of these fees was accrued as carry payable to the investment team (2014: nil). This carry will be paid out to the team over a number of years.

The more favourable credit markets ensured that Debt Management had a good year of fundraising, launching six CLOs in Europe and North America and increasing AUM by 12% to £7.2 billion (31 March 2014: £6.5 billion). The team also launched a European Middle Market Loan Fund with an investment mandate that permits a wider range of investments, typically investing in smaller businesses than CLOs. In the US, our Senior Loan Fund passed the $100 million milestone which has created more investor interest in the product. Both initiatives were important steps in diversifying the business beyond CLOs and generating additional fee income. In total, Debt Management recognised fee income of £34 million in FY2015 (2014: £32 million), as new fundraising offset the effect of the run-off of older funds.

The CLO markets are subject to increased regulatory change. Regulators in Europe have mandated that CLO managers hold a minimum amount of capital investments in their products. The US market has introduced a similar practice although the corresponding legislation does not come into force until December 2016. 3i is well placed to comply with these changes given its proprietary capital. 3i supported the development of the business and invested £79 million in new CLOs in the year (2014: £40 million). These equity investments generate a good cash yield which, together with the fee income, is an important component of our operating cash profit.

In 2012 we were operating with a substantial annual operating cash loss and, as this was diluting capital returns to investors, we set a KPI to achieve an operating cash profit. We undertook a significant transformation programme, focusing on recurring fee income and operational efficiencies and as a result, in FY2014, we recorded a first annual profit of £5m. This measure improved significantly to £28 million in FY2015. All of the businesses have contributed to increased cash income with additional fundraising in Debt Management and strong portfolio income from Private Equity and Infrastructure. Operating expenses also declined in FY2015 to £131 million or 1.0% of AUM (2014: £136 million, 1.0%). These costs included £12 million relating to acquisitions made since 2012 and £1 million of restructuring costs (2014: £6 million, £9 million). To reflect increased activity levels, we have recruited to support origination in both Private Equity and Infrastructure and fundraising in Debt Management. The Group has also now launched a Graduate Programme and will welcome its first graduates in the Autumn. Looking forward, further cost efficiencies are not expected and expenses will increase marginally as the businesses continue to grow.

Maintaining the profitability of the combined fund management platform is a key component of operating cash profit. This measure improved in the year, as Debt Management's fundraising offset the expected decline in Private Equity fees as a result of its strong realisations. Actual fund management profit grew strongly to £26 million, with a margin of 21% (2014: £19 million, 15%). Underlying profit, after restructuring and acquisition costs, was stable at £33 million, with a margin of 26% (2014: £33m, 26%).

Reflecting our confidence in the future growth and cash generation capacity of the business, we have announced a final dividend ahead of our established guidance. We propose to pay a total dividend for the year of 20 pence per share (2014: 20 pence per share). This results in a final dividend for 2015 of 14.0p, subject to shareholder approval.

What we have achieved in the last three years

To strengthen 3i both commercially and financially, our emphasis has been on asset management, cash generation, cost control and fund management margins. We have now completed our transformation programme and our performance against our June 2012 objectives is summarised on the next page and detailed below.

The six asset management initiatives were an essential part of the strategic plan as Private Equity is, and will continue to be, the biggest contributor to value growth for the Group. Since 2012 we have rebalanced the Private Equity business, selling off non-core or underperforming assets and refocusing on a smaller number of high growth middle-market companies. Over the longer term we aim to have a portfolio of fewer than 40 investments and, to date, we have made very good progress. The number of assets has reduced to 65 at 31 March 2015 (31 March 2012: 124) and 89% of assets by value are now held in our core geographies of northern Europe and North America (31 March 2012: 77%). The improvement in asset management is also producing quantifiable results. Unrealised value growth over the last three years has principally been driven by earnings which have improved to 19% in 2015 (2012: 9%). This was driven by excellent performance in our largest assets and a material reduction in smaller and non-core assets with negative earnings growth. 22% of the portfolio by value at 31 March 2012 had negative earnings growth compared to 7% at 31 March 2015. Early indications on the new investments made since 2012 are very promising.

This stronger portfolio of assets was valued at an average of 10.5x EBITDA (post discount) at 31 March 2015 compared to 14.6x EBITDA for the FTSE 250.

The Group's AUM has increased by 9% per annum to £13.5 billion at 31 March 2015 (31 March 2012: £10.5 billion) predominantly driven by Infrastructure and Debt Management. Infrastructure acquired a PPP platform in 2013, which is delivering deal flow to 3iN, and Debt Management expanded in the US via an acquisition in 2012. Debt Management, in particular, has successfully raised new funds in both Europe and the US in the last two years.

A critical part of our strategic plan was to reduce the operating cost base in order to use shareholders' capital for distribution or reinvestment. Against a March 2012 run-rate cost base of £185 million, we have savings of £70 million and reduced costs to 1.0% of AUM (2012: 1.6%). Headcount reduced by 45% to 240 at 31 March 2015, excluding acquisitions, and 276 including acquisitions (31 March 2012: 435).

In 2012 we set out a target capital allocation model to rebalance returns to our investors. Over the last three years we have generated £2,124 million of realisation proceeds, invested £766 million in new Private Equity investments, and £189 million to support Debt Management fundraising. Following the reduction of gross debt of £542 million, we initiated an enhanced shareholder distribution policy in July 2013. Including the proposed final dividend for this year we will have returned £506 million of dividends to shareholders, whilst reaching a net cash position and maintaining a robust balance sheet to support longer term net asset growth.

At the end of our three-year restructuring, the Group has three diverse, but complementary, businesses underpinned by the expertise of our people and differentiated by our selective investment approach and disciplined focus on returns.

The scorecard below reports on our achievements against the objectives set following the Chief Executive's strategic review as announced in June 2012.

3i's total shareholder return between 28 June 2012 and 31 March 2015 significantly outperformed benchmarks

achievements against 2012 objectives

Our business today

Today 3i offers a differentiated and attractive value proposition. By combining proprietary capital investing and the management of third-party capital, our business model generates capital returns and recurring fund management income. 3i is the largest single investor in its Private Equity and Infrastructure funds and this ensures that the interests of our shareholders, our fund investors and co-investors are aligned. It also enables us to retain a material share of the "alpha-generating" returns from mid-market private equity and infrastructure investing. Recurring management fee income contributes to the financial resilience of the business and eliminates the capital dilution caused by the costs of running the business. Capital growth and regular dividends evidence our progress and provide long-term value for our shareholders.

In Private Equity, our strong international network of local investment teams and proven ability to develop businesses internationally allows us to build credibility with management and vendors. Our proprietary capital affords us flexibility and speed, which differentiates our competitive position.

Combining our focus on driving operational excellence within our portfolio companies and an institutional approach to the process of investment management supports our strategic objective to achieve our target of at least 2x our money invested over three to five years.

Monetary policy across the developed world has led to an abundance of equity and debt capital chasing a limited supply of investment opportunities. So the principal constraint on our activity is investment opportunity at sensible prices. We expect to invest in four to seven new investments a year and commit €500 - €750 million. But we will only do this if investments meet our demanding strategic and financial criteria. Given the strength of the Group's financial position, and the scale of potential investment, we intend to fund this activity principally from proprietary capital.

As a result, we have decided not to initiate a new third-party fundraising in the short to medium term, notwithstanding our improved performance.

The impact of central bank intervention on sovereign wealth and pension fund managers' appetite for infrastructure investing is expected to persist. Although the Infrastructure team is actively participating in bidding processes, our priority, as investment adviser to 3iN, is to maintain a disciplined approach to new investments. The team continues to monitor and review opportunities in adjacent markets, including new sectors and geographies. In the meantime, significant value growth in the existing portfolio is supporting 3iN's NAV appreciation and the business will continue to be an important contributor to our fund management profitability and to operating cash profit.

Our Debt Management business is principally a fund management platform; its calls on 3i's proprietary capital are limited to regulatory requirements and seed capital for new product development. Aided by the positive market conditions throughout FY2014 and FY2015, our US and European teams were very successful in raising new funds. We expect this general environment to persist as banks continue to actively manage their lending exposures by syndicating assets to alternative funds such as CLOs. The current appetite for yield is also supportive for our new product offerings such as the European Middle Market Loan Fund and the US Senior Loan Fund.

Outlook

3i is demonstrably a more resilient business, both commercially and financially, than it was when we started the restructuring three years ago. The focus we have placed on embedding institutional quality investment management processes throughout the businesses and our ongoing cost discipline has generated real results. We are confident that this, along with the expertise and integrity of our people, will underpin our aim to generate attractive shareholder returns through the cycle.

None of this progress would have been possible without the dedication and hard work of the 3i team. I would like to thank them for their application and good work over the period to bring 3i back to today's healthy position. I would also like to take this opportunity to thank Sir Adrian Montague, our departing Chairman. He has been a pleasure to work with over the last three years and he has revamped our Board in line with the restructuring of the Group.

We look to the future with confidence in the knowledge that there is still much more to achieve at 3i.

How we performed

Key Performance Indicators

Business review

This business review reports on the activity of each of our businesses. Financial performance is summarised in the Chief Executive's review and reported in detail in the Financial review.

Private Equity

Business lines

"A strong performance across all aspects of the business, including £457 million of investment."

Private Equity is the largest contributor to the Proprietary Capital returns; accounting for 81% of the Proprietary Capital portfolio at 31 March 2015 (31 March 2014: 82%). The portfolio's performance was strong in the year; driven by growth of 19% in earnings and good realisations, through sales and IPOs as well as refinancings. The gross investment return was £719 million for the year, or 24% on the opening portfolio (2014: £647 million, 24%).

Investment activity

We increased the amount of investment in the year and completed four new transactions. In total £457 million was invested; including £369 million of 3i's Proprietary Capital (2014: three, £372 million, £276 million).

Each new investment demonstrates our origination and investment execution strengths. We invested in Q Holding and Dynatect, which are both leading US headquartered industrial businesses with clear strategies to accelerate their growth internationally. Our sector focus and proven experience in achieving international growth and diversification, recently demonstrated by Mold-Masters and Hilite, were important as key differentiators against competing US private equity firms for both investments.

Table 1 : Private Equity cash investment in the year to 31 March 2015

We also invested in Christ, a German-based jewellery retailer, and Aspen Pumps, a UK-based specialist manufacturer of condensate removal pumps. Christ was acquired through Eurofund V, alongside our investment in Amor. We had followed Christ as a potential target since late 2012. This positioned us well when the process started, allowing us to move quickly and secure the investment. Similarly, we had followed Aspen since early 2014, allowing us to develop a good understanding of the business and broader market environment as well as build relationships with management, which gave us good insight when a sales process was initiated.

In June 2014, we took the opportunity to purchase a small additional stake in Eurofund V at the 31 March 2014 NAV, adjusted for cash flows, which further increased our exposure to investments we know well.

An important part of building the strategic value of our portfolio companies, including achieving international expansion, is an active acquisition programme. Our portfolio companies made over 20 acquisitions in the year, with a combined enterprise value of over €400 million, primarily funded from the companies' own cash and banking facilities.

Realisations activity

Realisations, refinancings and IPOs generated £831 million of proceeds during the year. Excluding refinancings of £155 million, this represented an uplift over opening value of £144 million, or 27% (2014: £190 million, 45%). The uplift was lower than the prior year due to a number of investments being valued on an imminent sales basis at 31 March 2014. Proceeds from refinancings are usually recognised primarily as a repayment of shareholder loans with minimal uplifts as a result.

In addition to the number of notable larger exits and IPOs, we continued to sell smaller and non-core assets. At 31 March 2015, there were 65 investments in the Private Equity portfolio, down from 81 at 31 March 2014. In the longer term, we expect to hold a portfolio of fewer than 40 Private Equity investments.

Table 2 details the Private Equity realisations activity in the year.

Table 2: Private Equity realisations in the year to 31 March 2015

Assets under management

AUM declined to £3.8 billion at 31 March 2015 (31 March 2014: £4.1 billion) as a result of net divestment activity. AUM is calculated as the original cost of our managed portfolio and, while this has reduced, the value of the portfolio has increased to £4.8 billion (2014: £4.6 billion) as a result of strong value growth.

The performance of Eurofund V and the Growth Capital Fund continued to improve with money multiples at 31 March 2015 of 1.4x and 1.7x respectively (31 March 2014: 1.1x, 1.3x). The investments made in the second half of Eurofund V, post 2010, are showing a particularly strong performance, with a money multiple of 2.6x at 31 March 2015 (31 March 2014: 2.1x).

The Group is well placed to fund the current level of activity from current resources and future realisations. Consequently we have no plans to initiate a new Private Equity fundraising in the short to medium term, notwithstanding the success of the team in improving the performance of our most recent funds.

The results of the business have been delivered by an internationally cohesive team, further strengthened by recruitment at associate level in the year.

Table 3: Assets under management

Infrastructure

"The business delivered a strong result, driven by the performance of its investment in 3i Infrastructure plc."

Infrastructure generates returns for Proprietary Capital, primarily through our holding in 3iN, and Fund Management returns from advisory and management fees from 3iN, PPP funds and the legacy Indian Infrastructure fund. Infrastructure performed strongly in the year with a gross investment return of £96 million,or 20% on the opening portfolio (2014: £2 million, 0%). The business generated £30 million (2014: £24 million)of advisory and management fees across its funds and £10 million of net performance fees (2014: nil).

INVESTMENTS ADVISER TO 3iN

In its capacity as 3iN's investment adviser, 3i advised on six new investments including the acquisition of holdings in two further oil storage facilities and a number of primary PPP projects. In total, 3iN committed £114 million to new investment in 2015 (2014: £80 million).

We also advised 3iN on the exit of its holding in Eversholt Rail, one of the three leading rail rolling stock companies in the UK. Eversholt Rail was acquired by 3iN in December 2010 as part of a consortium. In January 2015, all of the consortium partners agreed to sell the business. This resulted in proceeds of approximately £381 million for 3iN, inclusive of a £15 million dividend received by 3iN in December 2014. This compares to a 31 March 2014 valuation of £160 million.

In July 2014, 3iN's shareholders approved a number of amendments to its Investment Advisory Agreement with 3i. These included the extension of the fixed term of the agreement for a period of four years, with one year's rolling notice thereafter.

Under the terms of the investment advisory agreement, 3i received an advisory fee of £17 million (2014: £16 million) and a NAV-based performance fee of £45 million (2014: nil), of which £34 million (2014: nil) is accrued as payable to the team. Actual payments will be made over a number of years. A further £1 million in performance fees payable to the team has been accrued as a result of performance of other reward schemes.

3iN PERFORMANCE

In addition to its role as investment adviser, 3i holds a 34% (2014: 34%) stake in 3iN. 3iN performed strongly in the year; the share price increased by 19% to 160 pence at 31 March 2015 (31 March 2014: 135 pence) and it delivered a 25% total shareholder return in the year, the strongest annual return since the IPO in 2007.

In total, 3i's investment in 3iN contributed £77 million of value growth (2014: £5 million) and £20 million of dividend income in 2015 (2014: £21 million). This uplift was underpinned by the exit of Eversholt Rail, and value growth across its Core infrastructure portfolio, supported by the continued returns compression and consequent reduction in discount rates applied.

ASSETS UNDER MANAGEMENT

Due to the growth in 3iN's NAV, AUM increased to £2.5 billion (31 March 2014: £2.3 billion). 3iN's strong performance offset a small value reduction in the India Infrastructure Fund following the first realisations of investments in the Fund, and where the portfolio continues to face a number of challenges. 3i's share of the Indian portfolio is now valued at £64 million (2014: £75 million).

In line with our strategy to grow Infrastructure's contribution to our Fund Management profits, we continue to explore opportunities to grow AUM. Our acquisition of BIFM in 2013 broadened the Infrastructure team's skill set and market access and, as the business grows, we expect to continue to enhance both our investment and support capabilities.

Debt Management

"Six new CLOs and important product diversification added £2.4 billion of new AUM."

Jeremy GhoseManaging Partner, and CEO, 3i Debt Management

Debt Management is principally a Fund Management business which primarily generates returns through managing third-party capital through CLOs and other senior debt focused funds. We also generate Proprietary Capital returns from 3i's investment in funds managed by Debt Management. Such investments are made to support new products or for regulatory purposes and totalled £105 million during the year (2014: £61 million).

The Debt Management team had a good year of fundraising, closing six new CLOs and a new €250 million European Middle Market Loan Fund. AUM grew to £7.2 billion at the end of the year (31 March 2014: £6.5 billion) as £2.4 billion of new AUM was offset by run-off and foreign exchange movements of £1.7 billion of AUM. The business generated £34 million of fee income in the year (2014: £32 million).

Fundraising activity

In the year the team closed three CLOs in Europe and three in the US, raising a total of £2.2 billion new CLO AUM. We continue to operate CLO warehouse vehicles in both Europe and the US ahead of establishing new CLO vehicles. We also held a first close of the European Middle Market Loan Fund at €250 million, entirely with third-party funds. This is a new fund established to invest in smaller businesses than we typically target in the CLOs and is an important diversification.

The US Senior Loan Fund, an open-ended fund, performed strongly and outperformed its benchmarks in the year. AUM increased to $157 million at 31 March 2015 (31 March 2014: $79 million).

The team was able to take advantage of strong CLO markets and grow AUM without increasing resource in the year but is likely to require some incremental additional resource for further AUM growth, particularly as we look to diversify and grow our non-CLO product offering.

Table 4 details Debt Management AUM.

Regulatory environment

The regulatory environment continues to evolve. European regulation now in force requires CLO sponsors or originators to retain a 5% minimum stake in each CLO raised. Similar rules are being introduced in the US and many new US CLOs are being structured to comply with both the European rules and the future US rules. This is concentrating the CLO market to those managers with access to long-term capital, such as 3i, but it is also giving rise to new business models and vehicles to support future CLOs, which 3i continues to monitor.

Valuations and income

Debt Management generated a negative gross investment return of £10 million (2014: £16 million profit), primarily as a result of an unrealised value reduction of £25 million during the year (2014: £10 million gain). As noted above, 3i is required to hold at least 5% of the European CLOs it manages. We typically invest in the most junior ranked level subordinated notes, which we account for as equity given its characteristics. During the year, we typically invested at or near par in the most junior ranked subordinated notes to satisfy the 5% holding requirement. In most cases, third-party investors have invested at a discount to 3i's investment, which sets an external reference point for valuation. This resulted in a fair value reduction of £5 million in the year. Value also reduced as a result of strong distributions from the CLO portfolio; £16 million of income was recognised. Finally, in our older European CLOs and Palace Street 1, there were a small number of underlying assets that were restructured in the year, contributing to value losses.

The performance of all of the CLOs launched in the last two years is very good, with early performance ahead of plan. There were no defaults and distributions are providing an annualised yield of between 8% and 20%.

Table 4: Assets under management - Debt Management

Financial review

"All of our three businesses are performing well as demonstrated by these strong results."

Julia WilsonGroup Finance Director

The Group delivered a strong result in the year. The table below summarises our key financial data under the investment basis.

Table 5: Summary financial data

Basis

3i adopted IFRS 10 in 2014 as its investment entity exception prevented the risk of investment companies, such as 3i, having to consolidate their portfolio investments.

However, as described in our 2014 Annual Report and Accounts, we also report using a non-GAAP "Investment basis" as we believe it aids users of our report to assess the Group's underlying operating performance. Total return and net assets are the same under the Investment basis and IFRS and we provide more detail on IFRS 10, as well as a reconciliation of our Investment basis financial statements to the audited IFRS statements, at the end of this section.

Total return

The Group generated a total return of £659 million, or a profit on opening shareholders' funds of 19.9% (2014: £478 million or 16.3%) in 2015, reflecting further progress and achievement of our strategic priorities. Operating profit before carry for the Proprietary Capital business was £721 million (2014: £539 million). Strong underlying portfolio performance generated a gross investment return of £805 million, despite negative foreign exchange movements on the portfolio of £154 million (2014: £665 million and negative £113 million). Fund Management operating profit before carry was £26 million (2014: £19 million). Further details regarding the performance during the year is provided below.

Table 6: Total return for the year to 31 March

Proprietary capital returns

Operating profit before carry on our Proprietary Capital increased by 34% to £721 million (2014: £539 million) due to strong value growth in the portfolio and good uplifts on realisations. This performance is despite foreign exchange losses of £114 million (2014: £116 million) which have principally resulted from the weakening of the euro against sterling.

By business line, the gross investment return on the opening portfolio was 24% from Private Equity (2014: 24%) and 20% from Infrastructure (2014: 0%) while Debt Management recorded a loss of 7% (2014: profit of 20%) as a result of mark to market movements which reduced CLO equity valuations. Private Equity accounts for 81% of the Proprietary Capital portfolio at 31 March 2015 (31 March 2014: 82%) and remains the primary driver of Proprietary Capital returns.

Realised profits

Realised profits of £162 million in the year to 31 March 2015 (2014: £202 million) were driven by another year of strong exits, with realisation proceeds totalling £841 million (2014: £677 million). Realisations, excluding refinancings, were achieved at an uplift over opening value of 27%, which was lower than the 45% achieved in 2014 due to a number of assets being valued on an imminent sales basis at the beginning of the year. This past year also saw a higher level of refinancing activity, which results in cash proceeds with limited realised profit but concentrates value in the remaining investment. We continue to pursue realisations through careful exit planning, and in the current environment of high prices, will take advantage of opportunities to divest should they arise.

The majority of the realisations were from the Private Equity portfolio, which contributed £831 million (2014: £669 million), including £155 million of refinancing proceeds (2014: £59 million). Table 2, in the Private Equity section, details the Private Equity realisations in the year and sets out the accounting uplift reflected in this year's total return and the longer-term cash-to-cash results. The Private Equity realisations completed in the year have generated a money multiple of 2.0x over their investment life.

We also made our first realisation from our Indian Infrastructure portfolio, with the partial sale of the quoted shares held in Adani Power. This generated £10 million of proceeds at an uplift over the opening value of £1 million.

Unrealised value movements

Unrealised value movement was very positive in the year, predominantly due to strong value growth from the Private Equity portfolio. The table below summarises the revaluation movement by category and each category is discussed further below.

Table 7: Unrealised profits/(losses) on revaluation of investments for the year to 31 March

Private Equity unrealised value growth

The Private Equity portfolio performed strongly with value growth of £641 million in the year (2014: £478 million). This was underpinned by good value weighted earnings growth of 19% (2014: 19%) and a multiple increase of 6% (2014: 20%), following rises in quoted comparable multiples during the year and the re-rating of a small number of assets. Net debt remained stable at 3.1x EBITDA notwithstanding the fact that we took advantage of favourable debt conditions to refinance a number of our high quality companies (2014: 3.1x). The majority of the portfolio (93% by value, 2014: 87%) grew its earnings in the year and the larger investments continue to perform very well.

Consistent with good performance and strong equity markets, our opening quoted portfolio and the successful IPOs of Phibro, Eltel, Dphone and Refresco during the year, resulted in unrealised value growth of £46 million in addition to realised profits of £63 million in the year.

Performance

Improvements in the performance of the portfolio valued on an earnings basis resulted in an increase in value of £417 million (2014: £182 million). Value weighted earnings, the most relevant measure of NAV impact, increased by 19% (2014: 19%) in the year. Action, as our largest asset, with over 30% earnings growth in the 12 months, is a big contributor to this measure. Excluding Action, the earnings growth is still a very robust 16% and now includes all our recent investments. Acquisitions, principally funded from portfolio companies' balance sheets, contributed 2% of the 19% growth.

Table 8: Portfolio earnings growth weighted by March 2015 carrying values1

Although performance overall was good, there were a small number of investments where company and geography specific issues impacted value. In total, value reductions of £44 million, in relation to seven assets, offset the general improvement. The largest single negative movement related to Inspecta where performance was impacted by the economic environment in Finland and Russia. Inspecta reduced in value from £34 million at 31 March 2014 to £6 million at 31 March 2015. After the year end, we agreed an exit for this investment which is in line with the year-end valuation.

Forecast earnings, used when the forecast EBITDA outlook is lower than the last 12 months' data, were used for only two investments at 31 March 2015, representing 6% of the portfolio by number and 3% by value (2014: four, 9% by number and 3% by value). Table 8 shows the earnings growth rates across the portfolio.

In the case of Action, the Dutch headquartered discount retailer, EBITDA for valuation purposes is adjusted to reflect a run-rate basis. Action is growing strongly due, in part, to its successful store roll-out programme. We believe this run-rate methodology fairly reflects the high growth characteristics of this business, and therefore its maintainable earnings. Following a number of IPOs by more directly comparable businesses in the discount retail sector in the last 18 months, we have also reviewed the valuation comparable set for Action. We have increased the EBITDA multiple applied to Action's run-rate earnings to 14.2x pre-liquidity discount and 13.5x post-discount (2014: 13.2x, 12.5x). Based on the run-rate earnings and capital structure at 31 March 2015, a 1x movement in the EBITDA multiple applied would increase or decrease Action's value by £56 million. At £592 million (2014: £501 million), Action is the largest Private Equity investment by value, representing 19% of the Private Equity portfolio (2014: 17%).

We took the opportunity to refinance a number of high quality companies, both increasing and extending the maturity of portfolio debt, with 88% of the debt now repayable in 2017 or later (2014: 65%). Table 9 shows the ratio of net debt to EBITDA weighted by portfolio value.

Table 9: Ratio of debt to EBITDA - Private Equity portfolio weighted by March 2015 carrying values1

Multiple movements

Equity markets performed strongly throughout the year and the average EBITDA multiple in the FTSE 250 increased by 10% to 14.6x in the year (source: Capital IQ, excluding investment companies and banks). As a matter of policy, we select an appropriate multiple for each investment based on a comparable set of quoted companies and adjust these comparable multiple sets with discounts and occasionally premiums to take account of relevant size, sector, growth and cycle considerations as appropriate. Against a strong market backdrop, we have continued to apply a high level of adjustments to reflect our caution about realistic valuation uplifts.

The average EBITDA multiple used to value the Private Equity portfolio increased by 6% to 11.2x before liquidity discount (2014: 10.6x) and 10.5x after liquidity discount (2014: 9.9x). This translated into a positive movement in the year of £64 million (2014: £216 million), including £45 million relating to the Action multiple change. Excluding Action, the average EBITDA multiple increased by 3% to 10.1x pre discount (2014: 9.8x) and 9.3x (2014: 9.0x) post discount.

Imminent sale

Four exit processes were sufficiently progressed to value on an imminent sales basis at 31 March 2015 and the uplift to imminent sale was £22 million (2014: £9 million). All four have been announced since 31 March 2015 and are: Azelis, Inspecta, Touchtunes and Soyaconcept.

Discounted cash flow

The largest investment valued using DCF in the Private Equity portfolio is the Danish/German ferry group, Scandlines, which recorded value growth of £94 million. Scandlines' largest ferry route, Rødby-Puttgarden, is expected to have direct competition from a new tunnel (the Fehmarn Belt project) at some point in the future. In light of recent public commentary around expected potential delays to the opening of this new tunnel, we have moved back our assumption for the likely tunnel opening date in the latest 31 March 2015 DCF valuation of Scandlines. This change, combined with the profitable sale of a JV route in the year, were the primary drivers of the increase in the value of our investment in Scandlines in the period.

Quoted portfolio

The Private Equity quoted portfolio, including IPOs in the year, generated unrealised value growth of £46 million (2014: £70 million). The investments in Gain and Phibro were fully divested in the year and are noted in the realisations table . Table 10 details the movement in the year and closing quoted portfolio.

Table 10: Quoted portfolio movement for the year to 31 March 2015

Infrastructure unrealised value movement

The Infrastructure portfolio primarily consists of our 34% holding in 3iN. 3iN grew strongly in value during the year, as a result of the divestment of Eversholt Rail and a re-rating of a number of the remaining Core infrastructure investments following a year of returns compression in the market. 3iN generated value growth of £77 million for 3i Group in the year, driven by a 19% increase in the share price to 160 pence (2014: 135 pence). This was slightly offset by further modest falls in value of the Indian Infrastructure portfolio as the investments continued to face a number of challenges.

Debt Management unrealised value movement

The unrealised value movement in Debt Management comprises mark-to-market valuations on both the CLO equity and the direct investments held through warehouses, the US Senior Loan Fund and Palace Street I. Of the unrealised loss of £25 million in the year (2014: £10 million gain), £22 million has been recognised on CLO equity. Three factors have driven the CLO prices. Firstly, as funds make distributions, they effectively convert value to portfolio income; £16 million of distributions were received by 3i in the year. Secondly, new investments into European CLOs have typically been made by 3i, as sponsor, at par value but other investors often invest at a discount. This can result in a fall in value in the short term as the independent market prices we source typically trend towards the non-sponsor trades. This resulted in a fair value reduction of £5 million in the year. Long-term cash returns remain unaffected (ie the valuation volatility at the time of issue is not considered to be an indicator of long-term cash returns of the CLO). Finally, a number of the older CLOs had exposure to two poorer performing pre-crisis assets, which were restructured in the year and further reduced value.

The remaining £3 million value loss related principally to the wind down of Palace Street I, which had exposure to the same two restructured assets.

Portfolio income

Income from the portfolio increased by 15% and was £113 million in the year to 31 March 2015 (2014: £98 million) of which £80 million was received in cash (2014: £57 million). Dividends of £45 million were received (2014: £44 million), including £20 million from 3iN (2014: £21 million) and £16 million from Debt Management CLO investments (2014: £10 million). Interest income totalled £62 million (2014: £50 million), with £56 million (2014: £46 million) generated from Private Equity investments and £6 million (2014: £4 million) generated from Debt Management investments. Approximately 75% of Private Equity interest income is capitalised and received on exit, although activity in the portfolio during the year resulted in a higher element of interest being received as cash.

Net foreign exchange movements

The total net foreign exchange loss of £114 million (2014: £116 million) was driven by the strengthening of sterling against the euro (12.5%), Brazilian real (20.9%) and Swedish krona (15.7%) resulting in losses of £175 million, £6 million and £13 million respectively. Sterling weakened against the US dollar (12.4%) and Indian rupee (7.8%) during the year, resulting in gains of £76 million and £5 million respectively. The net foreign exchange loss reflects losses on non-sterling denominated portfolio assets, as well as the translation of non-portfolio net assets, including non-sterling cash held at the balance sheet date and gross debt.

As at 31 March 2015, a 1% movement in the euro, US dollar and the Swedish Krona would give rise to a £16 million, £8 million and £1 million movement in total return respectively.

The net assets of the Group by currency are shown in Table 11 below.

Table 11: Net asset of the Group by currency at 31 March 2015

Proprietary Capital costs

Proprietary Capital costs include 100% of costs in relation to the CEO, Group Finance Director and General Counsel and elements of finance, IT, property, legal and regulatory, strategy and human resources. Operating expenses increased by 14% to £32 million (2014: £28 million) as the Group recognised the costs of regulatory changes.

Synthetic fees, as defined in the glossary, of £45 million (2014: £51 million) reflect the lower level of Proprietary Capital being managed as a result of net divestment activity, predominantly in Private Equity.

Net interest payable

The gross interest paid was £49 million (2014: £54 million) and 18% below the target set in 2012 to reduce interest paid to £60 million per annum. Included within this year's expense is £1.5 million of arrangement fees in relation to the Group's Revolving Credit Facility ("RCF") which were written off when it was replaced with a new £350 million facility. The new facility will reduce ongoing financing costs by £1.5 million per year.

The current gross debt position is detailed further in the Balance Sheet section of this Financial Review and inNote 16 of the Accounts (Note 7 in this document).

Cash interest received remained stable at £3 million (2014: £3 million).

Fund Management returns

The Group's Fund Management income is driven by total AUM, which was £13.5 billion at 31 March 2015 (31 March 2014: £12.9 billion). The launch of six CLOs, the European Middle Market Loan Fund and further commitments to the US Senior Loan Fund in the Debt Management business offset a fall in AUM arising from net divestment activity in Private Equity. The proportion of third-party assets under management grew marginally to 75% (2014: 74%).

An increase in third-party fee income and a fall in operating expenses were offset by a fall in synthetic fees applied from the Proprietary Capital business as a result of net divestment in Private Equity.

As a result of the completion of our transformation plan, Fund Management improved both its absolute profit and profit margin to £26 million and 21% respectively (2014: £19 million, 15%). Excluding restructuring and amortisation costs, underlying operating profit and margin remained stable at £33 million (2014: £33 million) and 26% (2014: 26%).

Table 12: Fund Management underlying profit for the year to 31 March

Total return


Table 13: Summarised total return for the year to 31 March

Net carried interest and performance fees payable

Net carried interest and performance fees payable decreased in the year, with a net payable of £62 million (31 March 2014: £82 million payable). On a gross basis, carried interest and performance fees payable increased to £142 million (2014: £85 million) and the receivable increased to £80 million (2014: £3 million).

Our largest Private Equity fund, Eurofund V, which includes assets purchased in 2007-12, has not yet met the performance hurdle due to the performance of the 2007-09 vintages. Although we have seen a strong recovery in that fund's multiple to 1.4x (March 2014: 1.1x)invested capital, with 2010-12 investments valued at 2.6x (March 2014: 2.1x), the drag from these earlier investments means that we have not yet recognised carry receivable from this fund.

Assets in the Growth Capital Fund include Quintiles, Refresco-Gerber, Touchtunes and BVG and, as a result of their strong performance, its multiple on invested capital is now 1.7x (March 2014: 1.3x). We are now recognising carry receivable on an accruals basis and £25 million was recognised in the year (31 March 2014: nil).

We pay carry to our Private Equity investment teams on proprietary capital invested and share a proportion of carry receivable from third-party funds. This total carry payable is provided through schemes which have been structured historically over two or three year vintages to maximise flexibility in resource planning. The improved performance of the Private Equity portfolio over the last two years means that the majority of assets by value are now held in carry payable schemes that have met their performance hurdles, assuming the portfolio was realised at its 31 March 2015 valuation. Carry payable typically will increase or decrease in line with the gross investment return at rates between 10% and 15%. The gross investment return in Private Equity of £719 million (2014: £647 million) resulted in an accrual of £103 million carry payable in the year, or 14% of gross investment return (31 March 2014: £82 million, 13%). Carry is usually only paid once the hurdles are passed in cash terms and, during the year, £7 million was paid (2014: £19 million).

3iN pays a performance fee on an annual basis, subject to a hurdle rate of return and a high-water mark based on net asset value. The strong performance of the European assets held by 3iN, including the exit of Eversholt Rail, resulted in an accrual of £45 million of performance fees receivable in the year (31 March 2014: nil). Our Infrastructure investment team shares in the performance fee receivable from 3iN, with the majority of individual payments deferred over a number of years. Carry payable to the Infrastructure team of £35 million has been accrued (2014: nil) including £34 million in relation to the 3iN performance fee.

Pension

The IAS19 liabilities of the Group's defined benefit pension schemes have been impacted by decreases in their discount rates, driven by the AA corporate bond yields. This resulted in a re-measurement loss of £14 million (2014: £11 million gain) for the year. On an IAS19 basis the pension scheme remains in a significant surplus.

The 2013 triennial valuation of the UK defined benefit pension scheme was completed in March 2014. It resulted in a very small surplus and consequently no further contributions were made, or are planned, as a result of this valuation.

Operating cash profit

Table 14: Operating cash profit for the year to 31 March

Third-party fees increased during the year following the launch of six Debt Management CLOs and the European Middle Market Loan Fund. Alongside growth in third-party fees we have focused on generating cash income from the portfolio. Increased investment into cash yielding Debt Management funds has generated good income and the Private Equity portfolio has benefited from increased deal fees on higher levels of activity. Consequently, the Group has been able to materially improve its operating cash income to £158 million (2014: £132 million) despite the net divestment activity in Private Equity.

Total operating expenses declined by 4% to £131 million (2014: £136 million) as restructuring costs, which comprise redundancy, office closures and organisational changes, reduced to £1 million (2014: £9 million) as we reached the end of our transformation plan. Excluding restructuring costs, operating expenses increased by 2% to £130 million (2014: £127 million) principally due to an increase in variable compensation resulting from share based payments. Operating expenses as a percentage of weighted average AUM remained stable at 1.0% (2014: 1.0%), as a result of the continuing cost focus combined with the new CLO fund launches in the year. We expect costs to rise marginally as we look to grow the business, increase activity and deal with increased regulation but we expect costs to remain at c1.0% of AUM.

In total, the operating cash profit position increased strongly to £28 million (2014: £5 million).

Cash flow

Investment and realisations

Cash proceeds from realisations of £841 million (2014: £677 million) were partly offset by cash investment of £474 million (2014: £337 million) and resulted in net cash inflow of £367 million (2014: £340 million). A further £140 million of investment was in non-cash form (2014: £167 million) and total investment was £614 million (2014: £504 million).

Further detail on investment and realisations is included in the relevant business line sections.

Table 15: Investment activity - Proprietary Capital and third-party capital for the year to 31 March

Balance sheet

Table16: Simplified balance sheet as at 31 March

The Proprietary Capital portfolio increased to £3,877 million at 31 March 2015 (31 March 2014: £3,565 million) as cash investment of £474 million and unrealised value growth of £684 million offset the good realisations and the negative impact of foreign exchange movements.

The mix of the portfolio remained broadly stable. The marginal decline in Private Equity to 81% (31 March 2014: 82%) was offset by a 1% increase in Debt Management to 5% (31 March 2014: 4%). The weighting of the Infrastructure portfolio remained stable at 14% (31 March 2014: 14%).

Net divestment activity and an operating cash profit led to cash on the balance sheet increasing to £864 million (31 March 2014: £697 million). Combined with a reduction in the sterling equivalent of the 2017 euro denominated bond, the Group was in a net cash position of £49 million at 31 March 2015 (31 March 2014: £160 million net debt) ahead of paying the final dividend for FY2015.

Gearing and borrowings

Table 17: Gearing and borrowings as at 31 March

Gearing reduced to nil at 31 March 2015 (31 March 2014: 5%) as the Group ended the year in a net cash position. Overall shareholders' funds increased to £3,806 million (31 March 2014: £3,308 million) following the total return of £659 million in the year to 31 March 2015.

Liquidity

Total liquidity was substantially unchanged at 31 March 2015 compared to 31 March 2014 at £1,214 million (31 March 2014: £1,197 million). Cash and deposits increased to £864 million (31 March 2014: £697 million) as a result of net divestment and undrawn facilities reduced to £350 million (31 March 2014: £500 million) following the RCF refinancing.

Foreign exchange hedging

As a result of the reduction in non-sterling gross debt, and the increased concentration of the portfolio into a smaller number of individually significant assets, the use of derivatives for portfolio value hedging purposes is less effective. As a result, derivatives are no longer used to hedge currency movements on a portfolio basis and foreign exchange risk is considered as an integral part of the investment process. Specific short-term hedging on entry or exit of an investment may be used as appropriate.

Diluted NAV

The diluted NAV per share at 31 March 2015 was 396 pence (31 March 2014: 348 pence). This was driven by the total return in the year of £659 million (2014: £478 million), and partially offset by dividend payments in the year of £183 million (2014: £114 million).

Dividend

The Board has declared a total dividend of 20.0p (2014: 20.0p) for 2015. This is made up of a 8.1p base dividend and an 11.9p additional dividend. Due to our current net divestment activity and robust balance sheet, we have proposed an additional dividend above the top end of our 15%-20% distribution range, equivalent to 23% of gross realised proceeds. Subject to shareholder approval, we will pay the final dividend of 14.0p (2014: 13.3p) on 24 July 2015 to shareholders on the register at 19 June 2015.

Investment basis

CONSOLIDATED Statement of comprehensive income

Investment basis

CONSOLIDATED Statement of financial position

Investment basis

CONSOLIDATED Cash flow statement

Reconciliation of Investment basis to IFRS

Background to investment basis financial statements

The Group makes investments in portfolio companies directly, held by 3i Group plc, and indirectly, held through intermediate holding company and partnership structures ("Investment entity subsidiaries"). It also has other operational subsidiaries which provide services and other activities such as employment, regulatory activities, management and advice ("Trading subsidiaries"). The application of IFRS 10 requires us to fair value a number of intermediate holding companies that were previously consolidated line by line. This fair value approach, applied at the intermediate holding company level, effectively obscures the performance of our proprietary capital investments and associated transactions occurring in the intermediate holding companies. The financial effect of the underlying portfolio companies and fee income, operating expenses and carried interest transactions occurring in Investment entity subsidiaries are aggregated into a single value. Other items which were previously eliminated on consolidation are now included separately.

As a result we introduced separate non-GAAP "Investment basis" Statements of comprehensive income, financial position and cash flow in our 2014 Annual Report and Accounts to aid understanding of our results. The Strategic report is also prepared using the Investment basis as we believe it provides a more understandable view of our performance. Total return and net assets are equal under the Investment basis and IFRS; the Investment basis is simply a "look through" of IFRS 10 to present the underlying performance. The two diagrams below illustrate these changes, together with an illustrative example to show how information can be aggregated.

Recent IFRS 10 developments

The IASB issued a narrow scope amendment to IFRS 10 in December 2014, and subsequently the Group has revisited its initial assessment of all of its subsidiaries, resulting in a small number of entities now being consolidated rather than fair valued in the IFRS financial statements. The Group has chosen to adopt the changes provided in the narrow scope amendment, and has accounted for the change in treatment retrospectively. The change has no effect on total return or net asset value as reported in the Group's IFRS financial statements. The Investment basis statements are unchanged, as the entities now being consolidated in the IFRS statements have always been consolidated in the Investment basis. Given the judgement involved in interpreting the standard, and ongoing discussion amongst the IASB and practitioners, similar changes in future years remain possible.

Reconciliation between investment basis and IFRS

A detailed reconciliation from the Investment basis to IFRS basis of the Statement of comprehensive income, Statement of financial position and Cash flow statement is shown below.

Reconciliation of CONSOLIDATED Statementof comprehensive income