Balance sheet

Capital structure and gearing

3i's capital structure comprises a combination of shareholders' funds, long-term borrowing, short-term borrowing and liquid treasury assets and cash. The Board is committed to achieving capital efficiency for the Group and remains of the view that a gearing ratio of debt to shareholders' funds of between 30% and 40% is appropriate across the cycle given both the current profile of the business and its plans for development.

During the year, £774 million was returned to shareholders by way of the B share arrangements (£700 million) and an on-market share buy-back programme (£74 million), as approved by shareholders at an Extraordinary General Meeting and the Annual General Meeting in July 2006.

Despite a 42% increase in investment, repurchases of B shares amounting to £689 million and the aforementioned buy-backs of ordinary shares, the Group ended the year ungeared (0%), with a net cash balance of £1 million (2006: 1% geared, equating to net borrowings of £56 million). At 31 March 2007 there were B shares outstanding at an issued value of £11 million.

On 29 March 2007, the Board announced its intention to return a further £800 million to shareholders by means of a bonus issue of listed preference shares and approval for this issue will be sought at an Extraordinary General Meeting expected to take place in July 2007. Had this further £800 million return taken place before the year end, it would have resulted in gearing of 23% on a pro forma basis at 31 March 2007.

Growth in diluted net asset value

Diluted net asset value ("NAV") per share was 932p at 31 March 2007, which compares with 739p at 31 March 2006, a net increase of 193p.

This increase comprises 236p attributable to the total return of £1,075 million in the year, offset by the combination of the dilutive impact of the £700 million return of capital (14.5p), share buy-backs (1p), the payment of the interim and final dividends (15.5p) and other adjustments (12p), which together totalled 43p.