Interim Results - NAV Up 7.3%
3i Group PLC
25 November 1999
3i Group plc
Interim Results for the six months ended 30 September 1999
RESULTS HIGHLIGHTS
Sir George Russell, chairman of 3i Group plc, commenting on the results, said:
'3i has achieved good results for the six months ended 30 September 1999,
generating a total return of £294.8 million, a return of 8.2% on opening
shareholders' funds. Net asset value has increased to 645p from 601p.'
* Total return: £294.8m
* Return on opening shareholders' funds: 8.2%
* Net asset value: 645p, up 7.3%
* Interim dividend: 4.6p (1998: 4.3p), up 7.0%
* Investment: UK, £328.5m (1998: £332.1m) - strong market leadership
Continental Europe, £194.7m (1998: £113.2m) - expanding
rapidly
* Technology investment: £262.5m, 49.4% of total investment
* Technology portfolio: £1.1bn in over 600 businesses, 24.2% of total
portfolio
Brian Larcombe, chief executive of 3i Group plc, said: 'As Europe's leading
venture capital company we have made excellent progress with our strategies of
building our international network, increasing our investment in technology
assets and growing our funds under management.'
In the UK investment levels were broadly unchanged at £328.5 million, compared
to £332.1 million invested in the same period last year. Investment in
technology has increased and investment in buy-outs has reduced in line with a
slower market.
In continental Europe, 3i achieved a record level of investment, demonstrating
the benefits of further investment in its capabilities, offices and people.
Investment grew strongly with £194.7 million invested, an increase of 72.0% on
the same period last year. A new office was opened in Nantes and 3i
has further plans to continue the development of the continental European
network.
3i continued the ongoing development of its funds under management with the
launch of Eurofund III in September. This fund of Euro 2bn will initially
invest in buy-outs and growth capital investments in continental Europe before
widening its scope to include the UK.
3i's technology business continues to grow strongly with £262.5 million
invested over the six month period. The technology portfolio of over 600
businesses is now valued at £1,147.2 million. Two offices were opened in the
United States to provide an insight into the US technology market and support
for technology portfolio companies in Europe and Asia Pacific, as well as
creating a platform for investment in US technology businesses.
Financial Review
Total return for the six months was £294.8 million, a return of 8.2% on
opening shareholders' funds. Revenue profit after tax was £69.9 million, an
increase of 3.9% over the same period last year. Realised capital profits on
the sale of investments were satisfactory at £58.4 million, although below the
exceptionally high level achieved in the first half of last year. Net
unrealised value growth on investments held throughout the period amounted to
£184.9 million.
The value of the Group's portfolio has increased from £4.6 billion at 31 March
to £4.7 billion at 30 September 1999.
Chief executive, Brian Larcombe, commented: '3i continues to make good
progress in all of the markets in which we operate. Our continued investment
in resources in continental Europe, Asia Pacific and the United States builds
on our strong UK market position and enables us to respond well to our wider
market place.'
For further information, please contact:
Brian Larcombe, Chief Executive Tel: 0171-975 3386
3i
Michael Queen, Finance Director Tel: 0171-975 3400
3i
Liz Hewitt, Director of Corporate Affairs Tel: 0171-975 3283
3i
www.3i.com
CHAIRMAN'S STATEMENT
3i has achieved good results for the six months ended 30 September 1999,
generating a total return of £294.8 million, a return of 8.2% on opening
shareholders' funds. Net asset value has increased to 645p from 601p. The
Directors have declared an interim dividend of 4.6p, which is an increase of
7.0%.
The Group has continued to grow internationally, with the opening of two
offices in the United States and the further development of our operations in
continental Europe and Asia Pacific. In addition, we have substantially
increased funds under management with the completion of a new fund targeted at
European investment.
Our investment policy is to invest in growing, ambitious companies and we have
increased the overall level of investment compared with the same period last
year.
In the UK, however, investment levels were broadly unchanged compared with
last year. Investment in technology has increased and investment in buy-outs
has reduced in line with a slower market.
In continental Europe, we have achieved a record level of investment, which
demonstrates the benefits of the further investment we have made in our
capabilities, offices and people.
Our Asia Pacific businesses, based in Japan and Singapore, have also benefited
from increased resources and are now well placed to take advantage of expected
market growth.
Our strategy for developing an international technology business by harnessing
the strength of our network has progressed with the move to the United States
of Martin Gagen, previously joint head of investment in the UK, to lead our US
technology business.
I am pleased to welcome to the Board both Oliver Stocken, as a non-executive
Director, and Rod Perry who has executive responsibility for Asia Pacific and
Group Services, having been a member of the Executive Committee since 1996.
We are pleased to announce the introduction of a dividend re-investment plan,
which will enable shareholders to re-invest their dividends in 3i shares.
Details of the scheme are being sent to shareholders with these results.
Looking forward, the markets in which we operate continue to show good growth
potential. The Enterprise Barometers, our regular surveys of investee
companies, show continued strength in business confidence both in the UK and
continental Europe.
Sir George Russell CBE, Chairman
24 November 1999
OPERATING AND FINANCIAL REVIEW
As Europe's leading venture capital company we have made excellent progress
with our strategies of building our international network, increasing our
investment in technology assets and growing our funds under management.
Europe
3i maintained its leading market position in the UK and increased activity in
continental Europe during the six month period, with our network of offices
generating a good flow of investment opportunities across all sectors of the
economy.
Investment levels in continental Europe grew strongly to £194.7 million from
£113.2 million in the same period last year. We have opened an office in
Nantes and have plans to open further offices in continental Europe.
In the UK, we invested £328.5 million compared with £332.1 million. The UK
buy-out market has been slower but we expect a stronger market in the next six
months.
Jonathan Russell has been appointed to the Executive Committee with
responsibility for buy-outs and buy-ins. Portfolio management resources have
been increased in the UK with the creation of specific teams to focus on the
management of smaller investments.
Technology
Our technology business continues to grow with £262.5 million (49.4% of total
investment) invested in the six month period. 3i's leading position as a
technology investor is demonstrated by our own portfolio of £1,147.2 million
invested in over 600 businesses. We make technology investments in a broad
range of sectors including telecommunications, life sciences and healthcare,
computer services, e-businesses and electronics. The portfolio includes
businesses at all stages of development.
USA
As part of the strategy for our technology business we have opened two offices
in the United States, in Palo Alto and Boston. Our US offices provide an
insight into this market and provide support for our technology portfolio
companies in Europe and Asia Pacific as well as making new investments in
local technology businesses.
Asia Pacific
In South-East Asia, we continue to build our business from our base in
Singapore where we have seen an increasing number of investment opportunities.
In Japan, the new 3i Kogin joint venture is recruiting local staff so that it
can take advantage of the expected opportunities arising from the
restructuring of the Japanese economy.
Fund Management
In September, we announced the raising of our third European fund. This fund
of Euro 2 billion will initially invest in buy-outs and growth capital
investments in continental Europe and at a later stage will also invest in the
UK. Paul Waller, who has responsibility for fund management, has been
appointed to the Executive Committee.
Financial Review
Total return for the six months was £294.8 million, a return of 8.2% on
opening shareholders' funds. This compares with returns of -1.2% and 13.7% in
the FTSE All-Share and FTSE SmallCap (excluding investment trusts) Total
Return indices respectively. In the UK, total return was 9.0% and the
continental European return was 2.5% in local currency.
3i's international expansion and increased investment in technology assets
will gradually increase the proportion of capital profits relative to revenue
profits. This trend is also reinforced by a change in the UK venture capital
market towards lower revenue yielding capital structures for investments.
Revenue Profit
In the six months to 30 September 1999, revenue profit after tax was £69.9
million, an increase of 3.9% over the same period last year. Lower yields were
earned on fixed income shares and loan investments. Although dividend income
from equity shares was higher, this included the receipt of special dividends
arising mainly from the realisation of investments, which was partly offset by
a lower rate of UK dividend tax credit. Interest payable on borrowings less
other interest receivable was similar to last year.
Fee income of £24.3 million was earned. Higher fees were earned on the
management of co-investment funds, offset by lower fees on the arrangement of
investments.
Total administrative expenses increased to £57.2 million from £48.2 million
mainly because of increases in staff and other costs to build the business
outside the UK. A higher level of expenses has been allocated to the capital
reserve than in the same period last year in accordance with our policy of
allocating a proportion of portfolio management costs less related fee
income, to the capital reserve.
Profit before tax has fallen when compared with last year, mainly as a result
of the reduction in the rate of UK dividend tax credit. If the same rate of
tax credit had applied at September 1999, as at September 1998, dividend
income and consequently revenue profit before tax, as well as the revenue tax
charge, would have been £8.6 million higher. This has had no impact on revenue
profit after tax.
Capital Profits
Realised capital profits on the sale of investments were satisfactory at £58.4
million, although below the exceptionally high level achieved in the first
half of last year. The rate of realisations was slightly higher with 7.4% of
the portfolio being sold. As a result of less receptive stockmarkets, both in
the UK and in continental Europe, there were only five flotations of portfolio
companies, compared with 16 in the first half of last year.
Net unrealised value growth of investments held throughout the period amounted
to £184.9 million. The weighted average price earnings multiple used to value
the majority of the unquoted equity portfolio has increased to 9.8 at 30
September from 8.8 at 31 March. However, there has been a net reduction of
£84.7 million in the value of the portfolio of companies that we consider may
fail, compared with a net reduction of £64.7 million at September 1998.
Balance Sheet
The value of the Group's portfolio has increased to £4.7 billion at 30
September. Net borrowings fell during the period by £65.8 million to £968.8
million and represented 25.0% of shareholders' funds at the balance sheet
date.
Millennium
3i has addressed the Year 2000 date issue as a business priority. Our core
systems have been examined and, where necessary, amended. Consequently, we
believe that our core business systems are now Year 2000 compliant.
We have maintained our policy of influencing our investee companies to achieve
Year 2000 compliance through existing relationship contacts, newsletters and
regional seminars.
Although we have been rigorous in our Year 2000 testing, plans have been
developed to enable us to continue our operations in the unlikely event that
some degree of Year 2000 related disruption occurs. 3i's Year 2000 contingency
arrangements were successfully tested during September and October 1999.
Nonetheless, while we believe we have taken all reasonable steps to protect
3i's business from the millennium issue, the complexities are such that, in
common with other businesses, it is impossible to guarantee that there will be
no adverse affects on the Group or its portfolio.
Summary
3i continues to make good progress in all of the markets in which we
operate. Our continued investment in resources in continental Europe, Asia
Pacific and the United States builds on our strong UK market position and
enables us to respond well to our market place.
Brian Larcombe, Chief Executive
24 November 1999
CONSOLIDATED STATEMENT OF TOTAL RETURN
for the six months to 30 September 1999
6 months 6 months 12 months
to 30 September to 30 September to 31 March
1999 1998 1999
(unaudited) (unaudited) (audited)
Rev- Capi- Total Rev- Capi- Total Rev- Capi- Total
enue tal enue tal enue tal
£m £m £m £m £m £m £m £m £m
Capital
profits
Net realised
profits over
opening
valuation 58.4 58.4 118.1 118.1 180.1 180.1
Net
unrealised
value growth
in the
period 184.9 184.9 (502.7) (502.7) (90.0) (90.0)
----- ----- ----- ----- ----- -----
243.3 243.3 (384.6) (384.6) 90.1 90.1
Total
operating
income
before
interest
payable 173.9 173.9 182.0 182.0 336.4 336.4
Interest
payable (50.8) - (50.8) (56.5) - (56.5) (109.7) - (109.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
123.1 243.3 366.4 125.5 (384.6) (259.1) 226.7 90.1 316.8
Admini-
strative
expenses (42.1)(15.1) (57.2) (40.9) (7.3) (48.2) (90.1) (21.2) (111.3)
----- ----- ----- ----- ----- ----- ----- ----- -----
Return
before tax
and currency
translation
adjustment 81.0 228.2 309.2 84.6 (391.9) (307.3) 136.6 68.9 205.5
Tax (11.1) (5.0) (16.1) (17.3) (7.3) (24.6) (26.3) (5.4) (31.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Return for
the period
before
currency
translation
adjustment 69.9 223.2 293.1 67.3 (399.2) (331.9) 110.3 63.5 173.8
Currency
translation
adjustment 6.0 (4.3) 1.7 (0.7) 3.5 2.8 (1.7) 5.0 3.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Total return 75.9 218.9 294.8 66.6 (395.7) (329.1) 108.6 68.5 177.1
===== ===== ===== ===== ===== ===== ===== ===== =====
Total return
per share
Basic 12.7p 36.8p 49.5p 11.2p (66.5)p (55.3)p 18.3p 11.5p 29.8p
(pence)
Diluted 12.6p 36.4p 49.0p 11.2p (66.2)p (55.0)p 18.2p 11.5p 29.7p
(pence)
===== ===== ===== ===== ===== ===== ===== ===== =====
6 months 6 months 12 months
to 30 September to 30 September to 31 March
1999 1998 1999
(unaudited) (unaudited) (audited)
Reconciliation of
movement in shareholders' funds £m £m £m
Opening balance 3,603.9 3,488.9 3,488.9
------ ------ ------
Revenue return 75.9 66.6 108.6
Capital return 218.9 (395.7) 68.5
------ ------ ------
Total return 294.8 (329.1) 177.1
Dividends (27.0) (25.3) (66.3)
Proceeds of issues of
shares 6.3 3.6 4.2
------ ------ ------
Movement in the period 274.1 (350.8) 115.0
------ ------ ------
Closing balance 3,878.0 3,138.1 3,603.9
====== ====== ======
CONSOLIDATED REVENUE STATEMENT
for the six months to 30 September 1999
6 months 6 months 12 months
to 30 September to 30 September to 31 March
1999 1998 1999
(unaudited) (unaudited) (audited)
£m £m £m
Interest receivable on
loan investments 45.9 48.3 92.0
Fixed rate dividends 19.6 29.6 51.8
Other interest receivable 13.9 19.5 37.8
Interest payable (50.8) (56.5) (109.7)
------ ------ ------
Net interest income 28.6 40.9 71.9
Dividend income from
equity shares 69.8 60.7 101.1
Income from joint ventures (0.2) (0.6) (1.2)
Fees receivable 24.3 24.2 53.5
Other operating income 0.6 0.3 1.4
------ ------ ------
Total operating income 123.1 125.5 226.7
Administrative expenses (42.1) (40.9) (90.1)
------ ------ ------
Profit on ordinary
activities before tax 81.0 84.6 136.6
Tax on profit on ordinary
activities (11.1) (17.3) (26.3)
------ ------ ------
Revenue profit for the
period 69.9 67.3 110.3
Dividends
Interim (27.0) (25.3) (25.2)
Final (41.1)
------ ------ ------
Revenue profit retained
for the period 42.9 42.0 44.0
====== ====== ======
Dividend per share (pence) 4.6p 4.3p 11.3p
====== ====== ======
Earnings per share
Basic (pence) 11.7p 11.3p 18.5p
Diluted (pence) 11.6p 11.3p 18.5p
====== ====== ======
CONSOLIDATED BALANCE SHEET
as at 30 September 1999
30 September 30 September 31 March
1999 1998 1999
(unaudited) (unaudited) (audited)
Assets £m £m £m
Treasury bills and other
eligible bills 15.7 15.4 15.5
Loans and advances to banks 348.2 301.6 270.8
Loans and advances to customers 0.7 1.2 0.8
Debt securities held for
treasury purposes 166.0 210.6 173.8
Debt securities and other fixed
income securities held as
financial fixed asset investments
------ ------ ------
Loan investments 1,120.4 914.5 1,094.3
Fixed income shares 667.8 766.7 729.5
Equity shares
Listed 753.0 575.3 742.1
Unlisted 2,192.5 1,693.0 1,991.4
------ ------ ------
4,733.7 3,949.5 4,557.3
Interests in joint ventures 62.3 39.1 44.0
Tangible fixed assets 47.0 46.4 48.2
Other assets 199.7 206.5 196.9
------ ------ ------
Total assets 5,573.3 4,770.3 5,307.3
====== ====== ======
Liabilities
Deposits by banks 83.0 49.7 68.8
Debt securities in issue 1,415.7 1,387.0 1,425.9
Other liabilities 196.6 195.5 208.7
------ ------ ------
1,695.3 1,632.2 1,703.4
------ ------ ------
Share capital 298.5 297.6 297.7
Share premium and redemption
reserve 263.3 257.3 257.8
Capital reserve 3,099.9 2,416.8 2,881.0
Revenue reserve 216.3 166.4 167.4
------ ------ ------
Shareholders' funds 3,878.0 3,138.1 3,603.9
------ ------ ------
Total liabilities 5,573.3 4,770.3 5,307.3
====== ====== ======
Net asset value per share
Basic (pence) 650p 527p 605p
Diluted (pence) 645p 525p 601p
====== ====== ======
Approved by the Board
24 November 1999
CONSOLIDATED CASH FLOW STATEMENT
for the six months to 30 September 1999
6 months 6 months 12 months
to 30 September to 30 September to 31 March
1999 1998 1999
(unaudited) (unaudited) (audited)
£m £m £m
Operating activities
Interest received and similar
income arising from debt securities
and other fixed income securities
held as financial fixed asset
investments 60.1 68.5 126.6
Other interest received
and similar income 16.5 16.2 37.5
Interest paid on
borrowing (47.2) (55.5) (113.2)
Dividends received from
equity shares 62.9 49.5 82.8
Fees and other net cash
receipts 24.8 24.4 51.9
Operating and
administrative costs paid (59.9) (47.9) (81.3)
------ ------ ------
Net cash inflow from
operating activities 57.2 55.2 104.3
------ ------ ------
Taxation received 13.0 3.1 9.4
------ ------ ------
Capital expenditure and
financial investment
Investment in equity shares,
fixed income shares and loans (400.5) (343.0) (836.9)
Sale, repayment or redemption of
equity shares, fixed income
shares and loan investments 441.4 522.6 872.7
Decrease in advances to customers 0.1 - 0.4
Investment administrative expenses (15.1) (7.3) (21.2)
Net divestment of joint ventures 6.2 6.4 11.9
Disposal of investment properties 0.8 5.1 6.8
Purchase of tangible fixed assets (4.3) (5.6) (9.3)
Sale of tangible fixed assets 0.5 0.4 1.4
------ ------ ------
Net cash inflow from capital
expenditure and financial investment 29.1 178.6 25.8
------ ------ ------
Equity dividends paid (41.1) (37.6) (62.8)
------ ------ ------
Management of liquid resources (62.8) (95.4) (20.5)
------ ------ ------
Net cash (outflow)/inflow
before financing (4.6) 103.9 56.2
------ ------ ------
Financing
Debt due within one year (7.3) (87.5) (15.5)
Debt due after more than
one year 13.1 (24.7) (42.4)
Issue of shares 6.3 3.6 4.2
------ ------ ------
Net cash inflow/(outflow)
from financing 12.1 (108.6) (53.7)
------ ------ ------
Increase/(decrease) in cash 7.5 (4.7) 2.5
====== ====== ======
NOTES TO THE FINANCIAL STATEMENTS
for the six months to 30 September 1999
1 Reconciliation of revenue profit before tax to net cash inflow
from operating activities
6 months 6 months 12 months
to 30 September to 30 September to 31 March
1999 1998 1999
(unaudited) (unaudited) (audited)
£m £m £m
Revenue profit before tax 81.0 84.6 136.6
Depreciation of equipment
and vehicles 3.1 2.7 5.7
(Increase) in other assets - (13.8) (19.0)
Tax on franked investment income
included within income from
UK companies (9.6) (16.6) (28.5)
(Increase) in prepayments
and accrued income (9.3) (17.8) (6.5)
(Decrease)/increase in
accruals and deferred income (7.3) 15.7 16.1
Reversal of (profits)/losses of
joint ventures less distributions
received (0.5) 0.6 0.5
Profit on sale of tangible
fixed assets (0.2) (0.2) (0.6)
------ ------ ------
Net cash inflow from
operating activities 57.2 55.2 104.3
====== ====== ======
2 Reconciliation to net debt
6 months 6 months 12 months
to 30 September to 30 September to 31 March
1999 1998 1999
(unaudited) (unaudited) (audited)
£m £m £m
Increase/(decrease) in
cash in the period 7.5 (4.7) 2.5
Cash outflow from
management of liquid resources 62.8 95.4 20.5
Cash (inflow)/outflow
from debt financing (5.8) 112.2 57.9
------ ------ ------
Decrease in net debt from
cash flows 64.5 202.9 80.9
Foreign exchange movements 1.3 2.1 (1.4)
New finance leases and
other non-cash changes (0.1) - 0.2
------ ------ ------
Movement in net debt in the period 65.7 205.0 79.7
Net debt at start of period (1,037.5) (1,117.2) (1,117.2)
------ ------ ------
Net debt at end of period (971.8) (912.2) (1,037.5)
====== ====== ======
3 Analysis of net debt
Other
1 April Cash flow non-cash Exchange 30 Sept
1999 changes movement 1999
£m £m £m £m £m
Cash and deposits
repayable on demand 22.0 7.5 - (0.5) 29.0
Treasury bills, other loans,
advances and treasury debt
securities 438.1 62.8 - - 500.9
Deposits and debt
securities repayable
within one year (281.6) 7.3 (45.6) 1.8 (318.1)
Deposits and debt
securities repayable
after one year (1,213.1) (13.1) 45.6 - (1,180.6)
Finance leases (2.9) - (0.1) - (3.0)
------ ------ ------ ------ ------
(1,037.5) 64.5 (0.1) 1.3 (971.8)
====== ====== ====== ====== ======
BASIS OF PREPARATION AND INDEPENDENT REVIEW REPORT
BASIS OF PREPARATION
The accounting policies used in the preparation of this Interim Report are the
same as those used in the statutory accounts for the year to 31 March 1999.
The six month period is treated as a discrete period except in so far as tax
in the revenue account is charged on the basis of an estimated annual
effective rate. The figures for the year to 31 March 1999 are extracted from
the accounts filed with the Registrar of Companies on which the auditors
issued an unqualified report. This Interim Report does not constitute
statutory accounts.
INDEPENDENT REVIEW REPORT TO 3i GROUP PLC
INTRODUCTION
We have been instructed by the Company to review the financial information and
we have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
DIRECTORS' RESPONSIBILITIES
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Listing
Rules of the London Stock Exchange require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.
REVIEW WORK PERFORMED
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board. A review consists principally
of making enquiries of group management and applying analytical procedures to
the financial information and underlying financial data and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed
in accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on
the financial information.
REVIEW CONCLUSION
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 1999.
Ernst & Young
London
24 November 1999
Note 1
The Interim Report for the six months ended 30 September 1999 will be posted
to shareholders on 7 December 1999 and thereafter copies will be available
from the Company Secretary, 3i Group plc, 91 Waterloo Road, London SE1 8XP.
Note 2
The Interim dividend will be paid on 28 January 2000 to holders of shares on
the register on 10 December 1999. The ex-dividend date will be 6 December
1999.
Note 3
Investment statistics referred to in this announcement relate to investments
made by 3i Group and third party co-investment funds unless otherwise stated.
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