3i Group Regulatory News (III)

15 November 2018

3i Group plc announces Half-year results

to 30 September 2018

Another good half for 3i

· Total return of £728 million, or 10% on opening shareholders' funds, and NAV per share of 776 pence (31 March 2018: 724 pence)

· Good performance from Private Equity with gross investment return of £667 million, or 11%, driven by growth across our larger investments in particular

· Completed two new Private Equity investments, totalling £245 million, in Royal Sanders and International Cruise and Excursions ("ICE")

· Cash realisations of £1,057 million in the first half, or £528 million net of the £529 million Group reinvestment into Scandlines

· Advised 3i Infrastructure plc ("3iN") on three investments and three refinancings. 3iN's share price increased by 14% in the first half

· Maintained our conservative balance sheet and ended the period with net cash of £512 million

· Interim dividend of 15.0 pence, in line with our new dividend policy announced in May 2018

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

"This was another good half for 3i. We generated a total return of 10%, completed the sale and our subsequent 35% reinvestment into Scandlines, invested in two new Private Equity portfolio companies and advised 3iN on the acquisition of three new investments.

We remain confident in the growth plans across our investments and will maintain our focus on active management to maximise value for our shareholders and co-investors. We have good momentum across our portfolio, but remain cautious about the pricing of new investment in general and are focusing our origination efforts particularly on bilateral processes and on our buy-and-build platforms."

Summary financial highlights under the Investment basis

3i prepares its statutory financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). However, we also report a non-GAAP "Investment basis" whichwe believe aids users of our report to assess the Group's underlying operating performance. The investment basis (which is unaudited) is an alternative performance measure ("APM") and is described in the "Reconciliation of the Investment basis to IFRS" section. Total return and net assets are the same under the Investment basis and IFRS and we provide a reconciliation of our Investment basis financial statements to the IFRS statements in the "Reconciliation of the Investment basis to IFRS" section.

Half-year report

Chief Executive's review

Introduction

This was another good half for 3i. We completed the sale and our subsequent 35% reinvestment into Scandlines, acquired two new Private Equity portfolio companies and advised 3iN on the acquisition of three new investments. Overall we generated a total return of £728 million (September 2017: £655 million), or 10% on opening shareholders' funds. NAV per share increased to 776 pence (31 March 2018: 724 pence), after the payment of the FY2018 dividend of 22 pence in July 2018.

Private Equity

The Private Equity portfolio continued to perform strongly as earnings increased in 88% of our top 20 assets by value (September 2017: 91%). Our largest investment, Action, continued to deliver good growth, driven by opening 257 new stores and relocating and / or refurbishing a further 50 over the last 12 months to 30 September 2018. Action had 1,235 stores in seven countries at 30 September 2018 and, with value growth for 3i of £271 million in the half (September 2017: £247 million), was valued at £2.4 billion (31 March 2018: £2.1 billion).

Action is an exceptional business and to achieve its full potential of international growth, it is investing significantly in its commercial, stock planning, distribution and supply chain capabilities. During 2018, Action has recruited a new planning team and added further resource to its buying and supply chain teams. It is accelerating the roll out of its distribution centre ("DC") network: it currently has five operational DCs, with three more due to open in 2019, and a further three to open in the following 18 months. This investment will facilitate further store roll out in France, Germany, Poland, Austria and new countries. It will also mitigate the effect of the DC performance and product availability issues that Action has experienced over the last 12 months, particularly in France. The DC expansion is being accompanied by the roll out of new IT systems to support stock planning and DC organisation, in order to manage better the increasing complexity inherent in the end-to-end supply chain planning, given the rapid roll out of Action stores and DCs across Europe.

The supply chain and product availability challenges Action has been experiencing have had an impact on like-for-like sales in what are otherwise some of Action's most profitable stores. As a result, like-for-like sales growth across Action's three main markets (the Netherlands, Germany and France) is around 3% ahead year-to-date. In order to manage the peak December demand for its French store network, Action has decided to defer some 20 store openings in France from Q4 2018 into Q1 2019. As a result, total store openings for 2018 are expected to be approximately 230 across the group. In the meantime, management remains focused on investing in a more resilient supply chain to support significant further growth. The fundamentals of Action's format and business remain compelling.

Schlemmer, a German manufacturer of cable management solutions for the global automotive industry, has had a challenging 2018. Despite increasing revenue over the last six months, there have been pressures on profitability and cash flow. We have changed the Chief Executive and Chief Financial Officer to ensure that there is better focus on operations and cash generation and to put in place more robust controls and financial processes to manage what is a highly international business. We reduced the value by £53 million in the first half and are managing the asset intensively, working closely with the new management team to put the business back on track.

The remaining portfolio performed well overall, with some excellent returns from assets in our 2013-16 and 2016-19 vintages. We sold 24% of our shareholding in Basic-Fit at €30.50 per share, generating proceeds of £89 million, and retain an 18% stake in the business. The cash return is already over 2x and our overall investment is over 5x the original cost, with a 50% IRR. As highlighted at our Capital markets seminar in September 2018, Audley Travel is benefiting from investment in its people and operations and from strong demand in both the UK and US for experiential tailor-made travel. Assets with a buy and build strategy, such as Cirtec Medical, generated good earnings growth from their recent acquisitions. It is early days, but the initial signs for our most recent investments, ICE and Royal Sanders, are promising.

The pipeline for new investment has some interesting opportunities, but we remain disciplined in our pricing approach, and are also focused on further bolt-ons for our existing portfolio, where the acquisitions come with cash synergies and strategic benefits.

Infrastructure

Our Infrastructure team had another busy half year. We advised 3iN on its commitment to invest in Tampnet, in consortium with the Danish pension fund ATP, the completion of its Attero acquisition, including a subsequent partial syndication of 3iN's holding to two co-investors and the completion of the acquisition of Alkane, a bolt-on for Infinis. 3iN's portfolio is making good progress and this performance was reflected in its share price, which increased by 14% to 244 pence at 30 September 2018 (31 March 2018: 214 pence) and remained stable despite the subsequent market sell off in October 2018.

The remainder of our infrastructure platform performed well. The team is focused on asset management and origination in both Europe and the US. The pipeline remains active with a number of potential opportunities, but competition for all classes and sizes of infrastructure assets remains fierce.

Corporate Assets

We completed the sale and our subsequent 35% reinvestment into Scandlines in June 2018, generating net proceeds to 3i of £306 million. As Scandlines is now a longer-term hold asset, managed separately from the Group's Private Equity and Infrastructure businesses, we introduced a new category of segmental reporting, Corporate Assets, into our financial reporting this half.

A key part of our reinvestment case was Scandlines' ability to generate considerable cash flows. During the period, we received a dividend of £22 million from Scandlines and, as a result, generated a total Group operating cash profit of £4 million at 30 September 2018 (September 2017: £16 million loss).

Balance sheet and dividend

We closed the period with net cash of £512 million (31 March 2018: net cash of £479 million). In line with our new dividend policy, announced in May 2018, we have decided to pay an interim dividend of 15.0 pence, which is 50% of our FY2018 total dividend. This interim dividend will be paid to shareholders on 9 January 2019.

3i's strategic clarity and focus in the face of market uncertainty

Despite the political and economic uncertainty that we have seen over the last six months, competition for private assets is very strong. Dry powder is at record levels and investment managers continue to raise record-breaking fund commitments. Our proprietary capital model means that we are not under pressure to deploy funds or exit investments when market conditions are unfavourable. We have a diversified portfolio, which is not highly leveraged, and is built around significant developing megatrends, such as value-for-money retail and health and wellness. Our approach to origination and investment is flexible and can be adapted to respond to developing market dynamics.

Over the last 18 months, we have focused on investing in more fragmented markets where we think a buy-and-build strategy can generate material value without always requiring additional equity. In total, our portfolio companies announced or completed eight such bolt-on investments in the 12 months to 30 September 2018, with an enterprise value of c.€375 million, typically outside of competitive auction processes. These acquisitions can be transformative and offer good potential for operational synergies.

Outlook

This was another good half for 3i and the portfolio generated attractive returns. We remain confident in the growth plans of our investments and will maintain our focus on active management to maximise value for our shareholders and co-investors. We have good momentum across our portfolio, but remain cautious about the pricing of new investment in general and are focusing our origination efforts particularly on bilateral processes and on our buy-and-build platforms.

Overall, whilst we cannot be immune to market developments, careful asset management and clear strategic focus mean that our portfolio is better positioned than in the past. Our balance sheet strength allows us to withstand market turbulence, holding investments for longer if necessary, while maintaining our focus on delivering mid to high teens returns for shareholders through the cycle.

Simon Borrows

Chief Executive

Business and financial review

Basis of preparation: Scandlines transaction

On 21 June 2018, the Group and investors in Eurofund V ("EFV") sold their 96% interest in Scandlines. Up to and including the transaction date of 21 June 2018, the investment was managed by the Private Equity division and reported in its results. On 21 June 2018, the Group subsequently reinvested into Scandlines, alongside First State Investments and Hermes, acquiring a 35% interest. This investment is now managed outside the Private Equity division and is reported in a new Corporate Assets segment. For this interim report, the performance of Scandlines as a Corporate Asset since 21 June 2018 is included within the Overview of financial performance.

Private Equity

The Private Equity business had a productive first half of the year, generating a gross investment return of £667 million (September 2017: £715 million), or 11% of the opening portfolio value (September 2017: 15%), including a gain on foreign exchange of £116 million (September 2017: £84 million).

Investment

Table 1: Private Equity cash investment in the six months to 30 September 2018

We invested £245 million in two new portfolio companies. This included a £135 million investment in Royal Sanders, a private label and contract manufacturing producer of personal care products and a £110 million investment in ICE, a global travel and loyalty company that connects leading brands, travel suppliers and end consumers. In addition to our proprietary investment, we continued to originate acquisition opportunities for our portfolio companies. Royal Sanders announced its acquisition of McBride's European personal care liquids business in July 2018 and Ponroy Santé continued its buy-and-build strategy with the acquisition of Densmore, a natural food supplement laboratory mainly specialising in ophthalmic solutions, in July 2018. WP completed its acquisition of Proenfar, a Colombia-based manufacturer of pharmaceutical and cosmetics plastic packaging solutions for the Latin American market, in May 2018. Finally, we acquired £12 million of Action shares from other shareholders, increasing the 3i holding to 44.23%.

Realisations

Private Equity generated proceeds of £1,052 million (September 2017: £350 million), principally from the gross £835 million proceeds from the sale of Scandlines. The Scandlines disposal generated a money multiple of 7.7x on our investment and contributed £31 million to realised profit in the period, representing principally the unwind of the 2.5% imminent sale discount. We also sold our investments in SLR and Etanco. The sale of Etanco, at 1.3x cost, was a good recovery for an asset that reached 0.4x cost at its lowest valuation point. We sold 24% of our holding in Basic-Fit, generating proceeds of £89 million, taking the cash return to date to 2.2x and the total multiple to 5.3x, which includes our 18% residual holding. In total, we generated realised profits on disposal of £75 million (September 2017: £53 million). The realisations were achieved at an uplift over opening value of 8% (September 2017: 18%) reflecting the fact that Scandlines and SLR were valued at imminent sale at 31 March 2018 and therefore substantially all of their uplift to sale was recognised in FY2018.

Table 2: Private Equity realisations in the six months to 30 September 2018

Portfolio performance

The Private Equity portfolio generated good returns, with strong contributions from Action, Cirtec Medical, Audley Travel, Formel D, ICE and AES in particular, resulting in unrealised value growth of £417 million (September 2017: £517 million) in the first half.

Table 3: Unrealised profits on the revaluation of Private Equity investments1 in the six months to 30 September

Earnings growth

Earnings growth in those investments valued on an earnings basis resulted in an increase in value of £342 million (September 2017: £283 million). The largest contributor to the increase was Action. At 30 September 2018, Action was valued using run-rate earnings to 30 September 2018. Action's post discount run-rate multiple was unchanged at 16.5x, which resulted in a valuation of £2,381 million (31 March 2018: £2,064 million). Action represented 42% of the Private Equity portfolio value and 33% of the 3i Group portfolio value at 30 September 2018 (31 March 2018: Private Equity, 35%, Group, 31%).

We are seeing strong earnings growth in a number of our larger assets. Capitalising on its position as a leader in the experiential tailor-made travel market, Audley Travel is performing strongly. Investment in country specialists and in new product development underpinned the continued growth of its UK and US businesses in the first half. Assets with a buy-and-build strategy in high growth sectors, such as Cirtec Medical, generated strong earnings growth as their recent acquisitions enabled them to scale up and generate synergies. Formel D, the quality assurance provider for the automotive industry, is seeing the early benefit of the initiatives we introduced during our first year of ownership to improve its operating margins. Finally, AES is delivering good growth as it benefits from its leading position in the mechanical seal after-market and its well-diversified customer proposition.

We continue to see some portfolio company specific challenges. Operational issues at Schlemmer continued to affect its profitability and cash flows in the period. Although Schlemmer is generating good revenue growth, higher raw material prices and increased costs have impacted operating margins. We have changed the Chief Executive and Chief Financial Officer and our investment team is very focused on supporting the management team to execute the operational improvements required and increase the focus on profitability and cash flow management. Reflecting these challenges, we recognised a £53 million value reduction on our investment in Schlemmer in the period.

Overall, 88% of the top 20 assets by value in our portfolio grew their earnings in the period (September 2017: 91%) and one investment was valued using forecast earnings at 30 September 2018 (31 March 2018: one), representing 2% of the Private Equity portfolio by value (31 March 2018: 1%).

Table 4: Earnings growth of the top 20 Private Equity assets1

The weighted average net debt in the portfolio remained at 4.0x valuation earnings (31 March 2018: 4.0x) as the increase in gross debt in WP and Ponroy Santé to fund their respective acquisitions of Proenfar and Densmore offset the impact of the disposal of Scandlines (31 March 2018: 4-5x category). Excluding Action, which is in the 4-5x category, weighted average net debt was 3.6x (31 March 2018: 3.3x). Table 5 shows the ratio of net debt to valuation earnings by portfolio value at 30 September 2018.

Table 5: Ratio of net debt to Valuation earnings1

Multiple movements

The increase in value of £30 million due to movements in multiples (September 2017: £59 million) reflected moderate increases in the multiples of four of our stronger investments. As we invest in mid-market companies that often have limited direct quoted comparable sets, we consider a number of factors such as relative performance, enterprise value, geographic footprint, comparable recent transactions and our exit plans when setting our valuation multiples. Taking into account the strength of equity markets at 30 September 2018, we selected multiples that were adjusted downwards relative to the comparable set in 14 out of the 22 companies valued on an earnings basis (31 March 2018: 14 out of 21).

The run-rate multiple used to value Action at 30 September 2018 remained unchanged at 16.5x post liquidity discount (31 March 2018: 16.5x). As at 30 September 2018, a 1.0x movement in Action's post discount multiple would increase or decrease the valuation of 3i's investment by £196 million (31 March 2018: £176 million).

Excluding Action, the weighted average EBITDA multiple increased marginally to 11.8x before liquidity discount (31 March 2018: 11.7x) and was 11.1x after liquidity discount (31 March 2018: 11.0x). The pre-discount multiples used to value the portfolio ranged between 8.1x and 17.4x (31 March 2018: 8.5x to 17.4x) and the post discount multiples ranged between 7.2x and 16.5x (31 March 2018: 6.3x to 16.5x).

Quoted portfolio

Basic-Fit is currently the only quoted asset in the Private Equity portfolio. We generated an unrealised value gain of £50 million from Basic-Fit in the period (September 2017: £28 million gain) as it's share price increased to €29.30 at 30 September 2018 (31 March 2018: €23.35) in addition to realised profits of £20 million on the disposal of 24% of our shareholding on 28 September 2018 at €30.50 per share. At 30 September 2018, our residual 18.0% shareholding was valued at £256 million (31 March 2018: 23.7% shareholding valued at £270 million).

Private Equity proprietary capital

At 30 September 2018, the portfolio contained 34 assets, including one quoted stake (31 March 2018: 36 assets including one quoted stake). The value of 3i's Private Equity proprietary capital decreased to £5.7 billion (31 March 2018: £5.8 billion) as the value growth and investment in the period was offset by the disposal of Scandlines.

Table 6: Private Equity proprietary capital 

The value of the Private Equity portfolio including third-party capital decreased to €8.7 billion (31 March 2018: €9.5 billion) as the increase in Action's valuation was offset by the disposals of Scandlines and Etanco.

Table 7: Private Equity proprietary capital by office location

Infrastructure

The Infrastructure business had a good first half of the year, generating a gross investment return of £107 million, or 13% of opening value (September 2017: £32 million, 5%). Our investment in 3iN performed particularly strongly, generating a 16% gross investment return (September 2017: 5%) and contributing £28 million to cash income (September 2017: £26 million). Due to the increase in 3iN's share price, the value of 3i's proprietary capital invested in Infrastructure increased to £912 million in the first half (31 March 2018: £832 million).

Table 8: Gross investment return for the six months to 30 September

Infrastructure portfolio performance

Table 9: Unrealised profits/(losses) on the revaluation of Infrastructure investments1 in the six months to 30 September

Quoted 

The 3iN share price increased by 14% in the period to close at 244 pence on 30 September 2018 (31 March 2018: 214 pence) as the infrastructure asset class and 3iN's well-diversified portfolio of assets remained attractive to investors. We recognised £82 million of unrealised value growth on our 3iN investment and £11 million of dividend income (September 2017: £19 million of unrealised value growth and £13 million of dividend income). At 30 September 2018, our investment in 3iN was valued at £659 million (31 March 2018: £581 million).

Discounted cash flow

The only asset included in the DCF category was Smarte Carte. We recognised a small uplift on our valuation, in addition to £5 million of interest income received (September 2017: nil).

Other

The investments in the 3i India Infrastructure Fund are valued on other bases, such as expected consideration. We remain focused on maximising value from the investments that remain in that Fund, but they are subject to significant challenges.

3iN

The 3iN portfolio continued to perform well and 3iN generated a total return on opening NAV of 9% in the period (September 2017: 7%), ahead of its target total return of between 8 and 10% per annum to be achieved over the medium term. The outperformance is due principally to a revision of the DCF assumptions for one of 3iN's investments, Cross London Trains, whose train fleet successfully moved into operation in the period.

In the first half, 3iN announced its investment in Tampnet, in a consortium with Danish pension fund ATP, and completed its investments in Attero and Alkane Energy. Our team also advised 3iN on the partial syndication of Attero, as well as on the refinancings of Infinis, WIG and TCR. Demand for infrastructure assets remains strong and, as a result, the team remains disciplined on price and focused on maintaining a balanced and carefully selected portfolio for 3iN.

3iN paid an advisory fee to 3i of £15 million for the six-month period to 30 September 2018 (September 2017: £13 million) with the uplift due to the increased investment activity.

In order to mitigate the risk of additional tax costs following the implementation of the OECD's Base Erosion and Profit Shifting ("BEPS") project, in May 2018 the Board of 3iN announced its intention to move 3iN's tax residence and management to the UK. Following 3iN shareholder approval of the terms of a new Investment Management Agreement ("IMA") at the Extraordinary General Meeting on 17 September 2018, 3i Investments plc became 3iN's Investment Manager on 15 October 2018. Under the terms of the IMA, from 1 April 2019, 3i will receive a management fee of between 1.2% and 1.4% on a tiered basis and a performance fee of 20% of returns above a hurdle of 8% of the growth in NAV per share with a deferral and clawback mechanism in the event of subsequent performance below the hurdle. The fees payable by 3iN to 3i for FY2019 will be calculated on the existing basis.

Assets under management

The 3i Managed Infrastructure Acquisitions LP and the 3i European Operational Projects Fund performed in line with expectations. The team is focused on the management of the funds' portfolios as well as identifying and completing appropriate and well-priced acquisitions for the 3i European Operational Projects Fund, which is currently 15% invested.

Infrastructure AUM increased to £3.7 billion (31 March 2018: £3.4 billion) and we generated fee income of £23 million from our fund management activities in the half (September 2017: £21 million), with the increases due mainly to the increased value of 3iN.

Table 10: Assets under management and advisory agreement at 30 September 2018

Overview of financial performance

3i generated a total return of £728 million, or a profit on opening shareholders' funds of 10%, in the six months to 30 September 2018 (September 2017: £655 million, or 11%). The diluted NAV per share at 30 September 2018 increased to 776 pence (31 March 2018: 724 pence) after the payment of the final FY2018 dividend of £213 million, or 22 pence per share (September 2017: £178 million, 18.5 pence per share).

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

Gross investment return was £789 million in the period (September 2017: £746 million) due to the continued good performance of our investment portfolio and to a £139 million currency gain on translation of our investments (September 2017: £73 million gain). Further information on the drivers of performance of Private Equity and Infrastructure is included in their respective business reviews.

As noted in the Basis of preparation: Scandlines transaction, the performance of Scandlines since our reinvestment on 21 June 2018 is shown in a new Corporate Assets segment. Scandlines generated £22 million of dividend income and a gain on foreign exchange revaluation of £8 million, partially offset by an unrealised reduction of £15 million in its DCF valuation. We have aligned our DCF valuation to the transaction value; the reduction in our valuation reflects the dividend we received. Overall, Scandlines delivered a gross investment return of 3% in the three-month period since our reinvestment.

Operating expenses

Operating expenses were £62 million in the first six months of the year (September 2017: £58 million) consistent with the second half run rate for FY2018 and reflecting recruitment in Infrastructure to support our asset management capability and the hiring of a new US infrastructure team.

Table 12: Operating cash profit/(loss) for the six months to 30 September

3i generated an operating cash profit of £4 million in the period (September 2017: £16 million loss). Cash income increased to £73 million (September 2017: £55 million) due to the £22 million dividend received from Scandlines. Cash operating expenses incurred during the period decreased to £69 million (September 2017: £71 million) principally due to lower cash compensation costs.

Foreign exchange

At 30 September 2018, 78% of the Group's assets were denominated in euros or US dollars (31 March 2018: 77%). The Group recorded a total net foreign exchange gain of £145 million during the period (September 2017: £52 million gain) as sterling continued to weaken against both the US dollar and the euro largely due to the political and economic uncertainty created by the UK's upcoming exit from the European Union.

Table 13: Net assets and sensitivity by currency at 30 September 2018

Carried interest and performance fees payable and receivable

We pay carried interest to participants in plans relating to our proprietary capital invested. We also receive carried interest from third-party funds and pay a portion to participants in our carry plans.

Table 14: Carried interest and performance fees for the six months to 30 September

The continued good performance of Action and the sale of Scandlines, the largest investments in our Private Equity fund EFV, led to a corresponding increase of £54 million in the carried interest receivable from EFV (September 2017: £63 million). This is calculated assuming that the portfolio was realised at the 30 September 2018 valuation. The fund's gross multiple was 2.6x at 30 September 2018 (31 March 2018: 2.5x).

In Private Equity, we typically accrue net carried interest payable at between 10% and 12% of gross investment return. The majority of assets by value are now held in schemes that would have met their performance hurdles, assuming that the portfolio was realised at the 30 September 2018 valuation. We accrued carried interest payable of £79 million (September 2017: £81 million) for Private Equity in the period, of which £35 million relates to the team's share of carried interest receivable from EFV (September 2017: £29 million).

Carried interest is paid to participants when the performance hurdles are passed in cash terms and then only when the cash proceeds are actually received following a realisation, refinancing event or other cash distribution. Due to the length of time between investment and realisation, the schemes are usually active for a number of years and their participants are both current and previous employees of 3i. During the period, £37 million was paid to participants in the Private Equity plans (September 2017: £21 million).

Overall, the effect of the income statement charge, the cash payments, as well as the currency translation meant that the balance sheet carried interest and performance fees payable increased to £910 million (31 March 2018: £870 million). The £90 million performance fee from 3iN, accrued at 31 March 2018, was received in the period, and the receivable therefore decreased to £556 million (31 March 2018: £596 million).

Table 15: Carried interest and performance fees 

Impact of IFRS 15 on the recognition of carried interest receivable

The IFRS 15 revenue recognition standard became applicable to 3i from 1 April 2018. Carried interest receivable is the only material balance within the scope of the standard. Under IFRS 15, our calculation of carried interest is unchanged. IFRS 15 introduces the judgement that variable revenue, such as carried interest, can only be recognised if it is highly probable that a significant reversal will not occur. Therefore, we are now required to consider if there are any specific constraints to our revenue recognition. The factors that 3i considers when making its judgement include the remaining duration of the fund, the current position in relation to the cash hurdle, the remaining assets in the fund and the potential for clawback.

The substantial majority of 3i's carried interest receivable is due from EFV. EFV has been extended to November 2019, when the fund is due to come to an end. At 30 September 2018, there were only three assets left in the fund: Action, Christ and OneMed (31 March 2018: five). At 30 September 2018, EFV investments had generated proceeds of €3.6 billion, including €0.8 billion received from the disposals of Scandlines and Etanco in the period and the fund was over 80% of the way towards its cash hurdle. Given the relatively small size of Christ and OneMed, the payment of carried interest receivable is dependent on the performance of Action. At 30 September 2018, the EFV investment in Action was valued at €2,060 million (31 March 2018: €1,815 million). Due to Action's strong performance and forecast growth profile, and consistent with our investment strategy for and valuation of the asset together with an expected liquidity event for EFV investors in FY2020, we have concluded that IFRS 15 does not have an impact on our recognition of carried interest at 30 September 2018.

As at 30 September 2018, the carried interest receivable accrued on 3i's balance sheet from EFV was £546 million (31 March 2018: £484 million), with a corresponding £370 million (31 March 2018: £334 million) accrued as payable to carry plan participants. The net NAV impact from EFV carried interest is £176 million (31 March 2018: £150 million) or 18 pence per share (31 March 2018: 15 pence per share).

Balance sheet and NAV

Table 16: Simplified consolidated balance sheet

Net cash increased to £512 million at 30 September 2018 (31 March 2018: £479 million) because of the net realisations during the period, partially offset by the payment of the FY2018 final dividend. The net cash balance does not include the £89 million of cash proceeds from Basic-Fit, which were received on 9 October 2018.

The investment portfolio value increased to £7,119 million at 30 September 2018 (31 March 2018: £6,657 million) as unrealised value growth of £478 million and cash investment offset the book value of realisations in the period.

Table 17: Investments and realisations by business line

Further information on investments and realisations is included in the Private Equity and Infrastructure business reviews.

Liquidity

Liquidity remained strong at £1,437 million at 30 September 2018 (31 March 2018: £1,404 million) and comprised cash and deposits of £1,087 million (31 March 2018: £1,054 million) and undrawn facilities of £350 million (31 March 2018: £350 million).

Alternative Performance Measures ("APMs")

We assess our performance using a variety of measures that are not specifically defined under IFRS and are therefore termed APMs. The APMs that we use may not be directly comparable with those used by other companies. Our Investment basis is itself an APM.

The explanation of and rationale for the Investment basis and its reconciliation to IFRS is provided in the "Reconciliation of the Investment basis to IFRS" section. The table below defines our additional APMs and should be read in conjunction with the Annual report and accounts 2018.

Principal risks and uncertainties

3i's risk appetite statement, approach to risk management and governance structure are set out in the Risk section of the Annual report and accounts 2018, which can be accessed on the Group's website at www.3i.com.

The principal risks to the achievement of the Group's strategic objectives for the remaining six months of its financial year are unchanged from those reported on pages 48 to 51 of the Annual report and accounts 2018 and summarised below. This is not a comprehensive list of all potential risks and uncertainties faced by the Group, but rather a summary of the risks which it currently believes may have a significant impact on its performance and future prospects.

External - Risks arising from external factors including political, legal, regulatory, economic and competitor changes, which affect the Group's operations. There has been a significant amount of uncertainty in the global economy over the last year and, more recently, due to the negotiations on the UK's planned exit from the EU. Although we cannot be immune to wider market conditions and political instability, our balance sheet is well funded with low holding company debt and a portfolio of international companies, and we believe 3i is better placed than in the past. However, we continue to monitor closely the wider implications of current geo-political uncertainties as they develop.

The longer-term implications of the UK's negotiations to leave the EU remain unclear. Therefore, we have implemented an alternative regulatory strategy to ensure continuity of our business across a range of reasonably foreseeable scenarios. This strategy includes permission from the Luxembourg financial regulator, the Commission de Surveillance du Secteur Financier, to establish an Alternative Investment Fund Manager ("AIFM") in Luxembourg. 3i has had a presence in Luxembourg for many years and our new AIFM has been in operation since June 2018. Currently 65% of our portfolio is invested in northern Europe, and this approval will enable 3i to continue the Group's activities in Europe after March 2019, when the UK is expected to leave the EU.

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

Operational - Risks arising from inadequate or failed processes, people and systems or from external factors affecting these. We continue to review and improve our governance and controls to protect our information and operational infrastructure.

The Half-year report provides an update on 3i's strategy and business performance, as well as on market conditions, which is relevant to the Group's overall risk profile and should be viewed in the context of the Group's risk management framework and principal risks as disclosed in the Annual report and accounts 2018.

Reconciliation of the Investment basis to IFRS

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

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

As a result, we include a separate non-GAAP "Investment basis" consolidated statement of comprehensive income, financial position and cash flow to aid understanding of our results. The Investment basis is an APM and the Chief Executive's review and the Business and financial review are prepared using the Investment basis, as we believe it provides a more understandable view of our performance. Total return and net assets are equal under the Investment basis and IFRS; the Investment basis is simply a "look through" of IFRS 10 to present the underlying performance.

A more detailed explanation of the effect of IFRS 10 is provided in the Annual report and accounts 2018 on page 38.

Reconciliation between Investment basis and IFRS

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

Reconciliation of consolidated statement of comprehensive income

The notes relating to the table above are on the next page.

Reconciliation of consolidated statement of comprehensive income continued

Notes: 

Reconciliation of consolidated statement of financial position

The notes relating to the table above are on the next page.

Reconciliation of consolidated statement of financial position continued

Notes:

Reconciliation of consolidated cash flow statement

Notes: 

IFRS Financial statements

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of financial position 

Condensed consolidated statement of changes in equity