Interim Results - Part 1
3i Group PLC
23 November 2000
Part 1
3i GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000
Sir George Russell, chairman of 3i Group plc, commenting on the
results, said: '3i achieved good results for the six months to
30 September 2000, generating a total return of £1,040 million,
a return of 20% on opening shareholders' funds. The Directors
have announced an interim dividend of 4.9p, an increase of 6.5%
over last year.'
RESULTS HIGHLIGHTS
- Total return of £1,040 million
- Return on opening shareholders' funds of 20%, outperforming
all major stock market indices
- Diluted net asset value per share increased from 847p to 1011p
- Interim dividend of 4.9p per share, up 6.5%
- Investment of £902 million
Brian Larcombe, chief executive of 3i Group plc, said: 'I am
pleased with 3i's performance in the six months to 30 September
and particularly with the progress that we have made in building
the business. 3i's international network is enabling us to
invest in exciting businesses across the world and to achieve
good returns from these investments.'
In the UK, investment rose to £511 million compared with £327
million in the same period last year. Investment in continental
Europe increased by 79% to £352 million, with particularly
strong growth in Germany and Spain.
Quoted markets were receptive to good quality technology IPOs
for most of the period. There were 27 IPOs of 3i backed
companies in Europe compared with 17 in the whole of the
previous financial year. Of these IPOs, 12 were in the UK and 10
were in Germany. There were 67 trade sales compared with 59 in
the same period last year.
3i's European network has expanded with the acquisition of
Helsinki-based SFK Finance and the opening of an office in
Zurich. Since September, 3i has also acquired Bank Austria TFV,
an Austrian technology venture capital investor.
3i's US offices in Boston and Palo Alto add value to 3i's
overall technology portfolio, as well as providing good
investment opportunities. 3i made eight investments during the
six months, investing £29 million. Since opening in the US last
year, 17 investments have been made, with 3i leading nine of
these investments. The Group is very pleased with the continued
development of this business.
In Singapore 3i's business has continued to develop, focussing
on technology companies and other fast growth businesses with
the capacity to establish international operations. 3i has built
a good team in Japan but the buy-out market there continues to
develop slowly.
3i currently manages around £2.3 billion of unquoted third party
funds which are invested alongside 3i's own capital. 3i is the
investment manager to four quoted investment companies, with the
launch of 3i European Technology Trust in early April. By
managing these assets 3i builds on its expertise to manage
quoted investments in certain specialist areas which helps 3i to
manage its quoted portfolio.
FINANCIAL REVIEW
Total return for the six months was £1,040 million, a return on
opening shareholders' funds of 20.1%. This return compares very
favourably with total returns of the FTSE 100 and the TechMARK
100 which were down 2.7% and 15% respectively. In line with
recent trends, an increasing proportion of total return
comprised realised and unrealised capital profits, with revenue
profits marginally lower than last year.
Technology investments accounted for all of the Group's total
return. Performance of 3i's non-technology, buy-out and growth
capital businesses was satisfactory given difficult trading
conditions in certain sectors. 3i's European businesses
performed well with the UK making a total return of £909 million
and continental Europe a return of £174 million.
REVIEW OF STRATEGIC OBJECTIVES
3i has achieved the strategic objectives which were set out
three years ago. As a result, 3i has taken the opportunity to
set further objectives that reinforce the Group's international
ambition.
- Increase investment in continental Europe to at least 30% of
the total portfolio by 2006
- Increase the US portfolio to at least 10% of 3i's portfolio by
2006
- Increase the portfolio in Asia Pacific to at least 5% of the
Group's portfolio by 2006
- Continued innovation in the UK to maintain 3i's market leading
position
3i has exceeded the objectives set for investment in technology
companies. The investment policy is to invest in growth
companies and it is becoming increasingly difficult to define
those which are technology businesses and those whose growth
will be driven by the application of new technology. For this
reason, a specific technology objective has not been reset.
Brian Larcombe commented: '3i has achieved good results and the
Group continues to develop its international network, making
significant progress in key markets. Investment activity and
realisations since 30 September have continued at a high level.'
FOR FURTHER INFORMATION, PLEASE CONTACT:
Brian Larcombe, Chief Executive Tel: 020 7975 3386
3i Group plc
Michael Queen, Finance Director Tel: 020 7975 3400
3i Group plc
Liz Hewitt, Director Corporate Affairs Tel: 020 7975 3283
3i plc
Issued by:
Philip Gawith Tel: 020 7379 5151
The Maitland Consultancy
NOTES TO EDITORS:
3i brings capital, knowledge and connections to the creation and
development of businesses around the world. It invests in a wide
range of opportunities from start-ups to buy-outs and buy-ins,
focusing on businesses with high growth potential and strong
management.
3i invests in businesses across three continents through local
investment teams in Europe, Asia Pacific and the USA. To date,
3i has invested almost £13 billion (including co-investment
funds). In the six months to September 2000, an average of £7.2
million (including co-investment funds) was invested each
working day. 3i's current investment portfolio is valued at
almost £7 billion.
The Interim Results press release, the presentation and speeches
given by Brian Larcombe, chief executive and Michael Queen,
finance director, announcing the Interim Results will be
published from 10:00: 23 November 2000 on 3i's website:
www.3i.com/investor.
CHAIRMAN'S STATEMENT
3i achieved good results for the six months to 30 September
2000, generating a total return of £1,040 million, a return of
20% on opening shareholders' funds. The Directors have announced
an interim dividend of 4.9p, an increase of 6.5% over last year.
Worldwide venture capital markets have continued to grow at a
fast rate. Against this backdrop, 3i's international expansion
has continued, both organically and through acquisition. In May,
we opened an office in Zurich, our first in Switzerland, and in
June acquired one of Finland's leading venture capital
investors, SFK Finance. Since 30 September, we have established
3i Austria through the acquisition of Bank Austria TFV, a
specialist high technology venture capital investor. By building
our international network we can deliver specialist knowledge
and skills in our main markets in Europe, the US and Asia
Pacific.
Looking forward, economic fundamentals in the countries in which
we operate are sound and this creates a positive medium term
outlook. Despite this, we have seen volatility in quoted markets
which may continue and this has created uncertainty and a fall
in confidence in certain sectors. We are committed to investing
in unquoted growth companies that provide good investment
returns irrespective of fluctuating quoted markets.
We have achieved the strategic objectives which were set out
three years ago. As a result, we have taken the opportunity to
set further objectives which reinforce our international
ambitions.
SIR GEORGE RUSSELL CBE
CHAIRMAN
22 November 2000
OPERATING and FINANCIAL REVIEW
I am pleased with 3i's performance in the six months to 30
September and particularly with the progress that we have made
in building the business. 3i's international network is enabling
us to invest in exciting businesses across the world and to
achieve good returns from these investments.
PERFORMANCE
3i achieved a total return of £1,040 million, largely from
increases in the value of investments in our technology
portfolio and from strong realisations. A feature of the six
months is that a small number of IPOs, in the communications,
healthcare and software and computer services sectors, made a
significant contribution to the total return. Performance across
the portfolio was mixed, with a number of companies experiencing
difficult trading conditions.
Market growth in Europe, combined with the expansion of our
operations in the US and Asia Pacific, has resulted in higher
investment. We invested £902 million (1999: £532 million) in 440
businesses of which 62% was in technology businesses and £352
million was in continental Europe.
STRATEGY
Our objective is to be the leading international venture capital
company with a strong position in all of the major venture
capital markets. Our strategy to achieve this objective is to
expand our international network and combine this local strength
with specialist sector knowledge. International expansion
enables 3i to take advantage of the growth in venture capital
markets and to use our scale and network as a unique competitive
advantage.
Three years ago we announced a number of strategic objectives
for 3i which we have now achieved. I think all our staff can be
proud of this success. As a result, we are now setting new
objectives.
In the UK, we aim to maintain the leading position we have held
for many years through continued innovation and customer focus.
We continue to see continental Europe as a major growth market
and have further expanded our network. We are now planning to
increase our activity so that at least 30% of the total
portfolio will be in continental Europe by 2006.
The US is the world's leading technology and venture capital
market and it is important to have a strong presence in the US.
Our business there is developing well and we expect that the US
will represent at least 10% of 3i's portfolio by 2006.
The venture capital market in Asia Pacific is much less
developed than in the US and Europe. However, there is strong
growth and we expect to have around 5% of the Group's portfolio
in Asia Pacific by 2006.
We have exceeded the objective which was set for investment in
technology companies. Our investment policy is to invest in
growth companies and it is becoming increasingly difficult to
define those which are technology businesses and those whose
growth will be driven by application of new technologies. For
this reason, we have not reset a specific technology objective.
These objectives underline our commitment to grow our
international activities and they provide guidance for the
future direction of the business.
OPERATING REVIEW
EUROPE
In Europe, we invested £863 million compared with £524 million
last year. Investment in European technology companies continued
to increase, with £523 million invested in 299 companies across
a broad range of sectors.
Although there have been lower levels of activity in the buy-out
market, overall we made more investments. The average size of
these investments was also higher and we invested £300 million
(1999: £202 million) in total.
In the UK, investment rose to £511 million compared with £327
million in the same period last year. Investment in continental
Europe increased by 79% to £352 million, with particularly
strong growth in Germany and Spain.
Quoted markets were receptive to good quality technology IPOs
for most of the period. There were 27 IPOs of 3i backed
companies in Europe compared with 17 in the whole of the
previous financial year. Of these IPOs, 12 were in the UK and 10
were in Germany. There were 67 trade sales compared with 59 in
the same period last year.
Our European network has expanded with the acquisition of
Helsinki-based SFK Finance and the opening of an office in
Zurich. Since September, we have also acquired Bank Austria TFV,
an Austrian technology venture capital investor.
USA
Our offices in Palo Alto and Boston add value to our overall
technology portfolio, as well as providing good investment
opportunities. We made eight investments in the six months,
investing £29 million. Since opening our offices in the US last
year, we have made 17 investments and are the leading investor
in nine of them. We are very pleased with the continued
development of this business.
ASIA PACIFIC
In Singapore, our business has continued to develop, focussing
on technology companies and other fast growth businesses with
the capacity to establish international operations. We have
built a good team in Japan but the buy-out market there
continues to develop slowly.
FUNDS UNDER MANAGEMENT
3i currently manages around £2.3 billion of unquoted third party
funds which are invested alongside 3i's own capital.
3i is the investment manager to four quoted investment
companies, with the launch of 3i European Technology Trust in
early April. By managing these assets we build our expertise to
manage quoted investments in certain specialist areas which
helps us to manage our own quoted portfolio.
FINANCIAL REVIEW
TOTAL RETURN
Total return for the six months was £1,040 million, a return on
opening shareholders' funds of 20.1%. This return compares very
favourably with total returns of the FTSE100 and the TechMARK
100 indices which were down 2.7% and 15.0% respectively. In line
with recent trends, an increasing proportion of total return
comprised realised and unrealised capital profits, with revenue
profits marginally lower than last year.
Returns generated by technology investments accounted for all of
the Group's total return. Performance of our non-technology, buy-
out and growth capital businesses was satisfactory given the
difficult trading conditions in certain sectors. Our European
businesses have performed well with the UK making a total return
of £909 million and continental Europe a return of £174 million.
REVENUE PROFIT
Revenue profit after tax was £69 million, £1 million lower than
last year. The increased focus on technology investments
resulted in lower underlying income yields and equity dividend
income included some large dividends received on the sale of
investments. Fee income for the six months increased to £35
million (1999: £24 million), as a result of a rise in fees
received from the management of unquoted and quoted funds.
Total administrative expenses increased to £78 million from £57
million, because of our continued international expansion and
the inclusion for the first time of the operating costs of newly
acquired businesses in Finland and Germany. Costs are allocated
between capital and revenue based on the expected future split
of returns, between capital gains and income. Following a
review, the expected proportion of returns in the form of
capital has been increased from 70% to 80%, in accordance with
increasing investment in technology companies which generate
higher capital returns. The expenses allocated to the capital
reserve have increased from £15 million to £26 million. Despite
the cost increase, net costs (costs less fees received) as a
percentage of shareholders' funds are lower than last year.
REALISED CAPITAL PROFITS
Realised profits on the sale of investments were significantly
higher at £302 million compared with £58 million in the first
half of last year. This was mainly as a result of the sale of
part of our holding in investments that achieved an IPO during
the period. Proceeds from the sale of equity investments
amounted to £713 million (1999: £280 million). The average
uplift over the book value at 31 March 2000 achieved on the sale
of equity investments was 79% (1999: 39%). Profit over cost
amounted to £570 million, an uplift of 400% over cost.
UNREALISED VALUE GROWTH
As a result of difficult trading conditions, we have reduced the
valuation of the portfolio by £144 million in respect of
companies we consider may fail (1999: £85 million). Despite
this, the value of companies held throughout the period
increased by £712 million. This is due mainly to a relatively
small number of technology investments.
BALANCE SHEET AND CASH FLOW
The valuation of the Group's investment portfolio has increased
by £919 million to £7.1 billion. An increasing trend has been
the IPO of technology companies at an earlier stage in their
life cycle, leading to venture capital businesses having larger
proportions of their portfolios in quoted stocks. As a result of
this, 3i's quoted portfolio (including those companies quoted on
secondary markets) has increased to £2.3 billion.
Since 30 September 2000 quoted markets have been volatile with
technology companies seeing falls in their share prices. If 3i's
£2.3 billion quoted portfolio was adjusted for market movements
up to 22 November its value would be approximately £575 million
lower. A schedule of the ten largest investments is included in
this report. These are all investments in technology based
companies in which 3i invested when they were much smaller
unquoted companies. The analysis given at the end of this
announcement provides a more complete picture of the portfolio
as a whole.
A net cash inflow of £133 million (1999: £64 million) resulted
from record proceeds on the sale of investments which exceeded
investment for the six months. Gearing has fallen to 17%, as a
result of the increase in the valuation of the portfolio and the
consequent increase in shareholders' funds relative to debt.
SUMMARY
3i has achieved good results for the six months to 30 September
2000. The Group continues to develop its international network,
making significant progress in key markets. Investment activity
and realisations since 30 September have continued at a high
level.
BRIAN LARCOMBE
CHIEF EXECUTIVE
22 November 2000
CONSOLIDATED STATEMENT OF TOTAL RETURN
FOR THE SIX MONTHS TO 30 SEPTEMBER 2000
6 months to 30 6 months to 30 12 months to 31
September 2000 September 1999 March 2000
(as restated)*
(unaudited) (unaudited) (audited)
Reven Capita Total Reven Capit Tota Reven Capita Total
ue l ue al l ue l
£m £m £m £m £m £m £m £m £m
Capital
profits
Net
realised
profits
over
opening
valuation 302 302 58 58 350 350
Net
unrealis-
ed value
growth in
the
period 712 712 185 185 1,167 1,167
------ ----- ----- ---- ------ -----
1,014 1,014 243 243 1,517 1,517
Total
operating
income
before
interest
payable 182 182 165 165 325 325
Interest
payable (59) (1) (60) (51) - (51) (104) (1) (105)
----- ------ ----- ----- ----- ---- ----- ------ -----
123 1,013 1,136 114 243 357 221 1,516 1,737
Admini-
strative
expenses (52) (26) (78) (42) (15) (57) (102) (33) (135)
Amortisa-
tion of
goodwill - (8) (8) - - - - (2) (2)
----- ------ ----- ----- ----- ---- ----- ------ -----
Return
before
tax and
currency
transla-
tion
adjust-
ment 71 979 1,050 72 228 300 119 1,481 1,600
Tax (2) (9) (11) (2) (5) (7) (4) (13) (17)
----- ------ ----- ----- ----- ---- ----- ------ -----
Return
for the
period
before
currency
transla-
tion
adjust-
ment 69 970 1,039 70 223 293 115 1,468 1,583
Currency
transla-
tion
adjust-
ment (7) 8 1 6 (4) 2 4 (8) (4)
----- ------ ----- ----- ----- ---- ----- ------ -----
Total 62 978 1,040 76 219 295 119 1,460 1,579
return
===== ====== ===== ===== ===== ==== ===== ====== =====
Total
return
per share
Basic
(pence) 10.2p 161.7p 171.9p 12.7p 36.8p 49.5p 19.9p 244.1p 264.0p
Diluted
(pence) 10.1p 159.5p 169.6p 12.6p 36.4p 49.0p 19.7p 241.7p 261.4p
===== ====== ===== ===== ===== ==== ===== ====== =====
6 months to 6 months to 12 months to
30 September 30 September 31 March
2000 1999 2000
(unaudited) (unaudited) (audited)
Movement in £m £m £m
shareholders' funds
Opening balance 5,174 3,604 3,604
------ ------ ------
Revenue return 62 76 119
Capital return 978 219 1,460
------ ------ ------
Total return 1,040 295 1,579
Dividends (29) (27) (72)
Proceeds of issues 12 6 63
of shares
------ ------ ------
Movement in the 1,023 274 1,570
period
------ ------ ------
Closing balance 6,197 3,878 5,174
====== ====== ======
* as restated to reflect the adoption of Financial Reporting
Standard 16 - Current Tax.
CONSOLIDATED REVENUE STATEMENT
FOR THE SIX MONTHS TO 30 SEPTEMBER 2000
6 month to 6 month to 12 months to
30 September 30 September 31 March
2000 1999 2000
(as restated)*
(unaudited) (unaudited) (audited)
£m £m £m
Interest receivable 51 46 87
on loan investments
Fixed rate dividends 12 17 34
Other interest 20 14 31
receivable
Interest payable (59) (51) (104)
------ ------ ------
Net interest income 24 26 48
Dividend income from 64 63 117
equity shares
Income from joint (1) - (1)
ventures
Fees receivable 35 24 55
Other operating 1 1 2
income
------ ------ ------
Total operating 123 114 221
income
Administrative (52) (42) (102)
expenses
------ ------ ------
Profit on ordinary 71 72 119
activities before tax
Tax on profit on (2) (2) (4)
ordinary activities
------ ------ ------
Revenue profit for 69 70 115
the period
Dividends
Interim (29) (27) (27)
Final (45)
------ ------ ------
Revenue profit 40 43 43
retained for the
period
====== ====== ======
Dividends per share 4.9p 4.6p 12.2p
(pence)
====== ====== ======
Earnings per share
Basic (pence) 11.5p 11.7p 19.3p
Diluted (pence) 11.3p 11.6p 19.1p
====== ====== ======
* as restated to reflect the adoption of Financial Reporting
Standard 16 - Current Tax.
CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2000
30 30 31 March
September September
2000 1999 2000
(unaudited) (unaudited) (audited)
Assets £m £m £m £m £m £m
Treasury bills and other - 16 -
eligible bills
Loans and advances to 515 348 478
banks
Debt securities held for 237 166 191
treasury purposes
----- ----- -----
Debt securities and other
fixed income securities
held as financial fixed
asset investments
Loan investments 1,363 1,120 1,292
Fixed income shares 504 668 594
Equity shares
Listed 1,869 753 1,304
Unlisted 3,355 2,193 2,982
----- ----- -----
7,091 4,734 6,172
Interests in joint 55 62 122
ventures
Goodwill 72 - 76
Tangible fixed assets 54 47 53
Other assets 253 200 189
----- ----- -----
Total assets 8,277 5,573 7,281
----- ----- -----
Liabilities
Deposits by banks 140 83 190
Debt securities in issue 1,606 1,416 1,613
Other liabilities 285 196 271
Subordinated liabilities 49 - 33
----- ----- -----
2,080 1,695 2,107
----- ----- -----
Share capital 303 299 302
Share premium and 328 263 317
redemption reserve
Capital reserve 5,319 3,100 4,341
Revenue reserve 247 216 214
----- ----- -----
Shareholders' funds 6,197 3,878 5,174
----- ----- -----
Total liabilities 8,277 5,573 7,281
===== ===== =====
Net asset value per share
Basic (pence) 1022p 650p 857p
Diluted (pence) 1011p 645p 847p
===== ===== =====
APPROVED BY THE BOARD
22 NOVEMBER 2000
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS TO 30 SEPTEMBER 2000
6 months to 6 months to 12 months
to
30 September 30 September 31 March
2000 1999 2000
(unaudited) (unaudited) (audited)
£m £m £m
Operating activities
Interest received and 56 60 114
similar income arising
from debt securities and
other fixed income
securities held as
financial fixed asset
investments
Other interest received 19 16 35
and similar income
Interest paid on (57) (47) (103)
borrowings
Dividends received from 63 63 115
equity shares
Fees and other net cash 34 25 54
receipts
Operating and (55) (60) (109)
administrative costs paid
----- ------ -----
Net cash inflow from 60 57 106
operating activities
----- ------ -----
Taxation (paid)/received (2) 13 19
----- ------ -----
Capital expenditure and
financial investment
Investment in equity (715) (400) (1,278)
shares, fixed income
shares and loans
Sale, repayment or 834 441 1,162
redemption of equity
shares, fixed income
shares and loan
investments
Investment administrative (26) (15) (33)
expenses
Investment interest paid (1) - (1)
Net divestment of joint 21 6 7
ventures
Disposal of investment 2 1 4
properties
Purchase of tangible fixed (4) (4) (11)
assets
Sale of tangible fixed 1 - 1
assets
----- ------ -----
Net cash inflow/(outflow) 112 29 (149)
from capital expenditure
and financial investment
----- ------ -----
Acquisitions
Acquisition of subsidiary (4) - (78)
undertakings
----- ------ -----
Equity dividends paid (45) (41) (69)
----- ------ -----
Management of liquid (81) (63) (189)
resources
----- ------ -----
Net cash inflow/(outflow) 40 (5) (360)
before financing
----- ------ -----
Financing
Debt due within one year (19) (7) 9
Debt due after more than (31) 13 309
one year
Issue of shares 12 6 64
----- ------ -----
Net cash (outflow)/inflow (38) 12 382
from financing
----- ------ -----
Increase in cash 2 7 22
----- ------ -----
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS TO 30 SEPTEMBER 2000
1. Reconciliation of revenue profit before tax to net cash
inflow from operating activities
6 months to 6 months to 12 months
to
30 September 30 September 31 March
2000 1999 2000
(unaudited) (unaudited) (audited)
£m £m £m
Revenue profit before tax 71 72 119
Depreciation of equipment 3 3 6
and vehicles
(Increase) in other (15) - (13)
assets
Tax on investment income (1) - (2)
included within income
from overseas companies
(Increase) in prepayments (19) (9) (9)
and accrued income
Increase/(decrease) in 20 (8) 4
accruals and deferred
income
Reversal of - (1) 1
(profits)/losses of joint
ventures less
distributions received
Loss on sale of tangible 1 - -
fixed assets
----- ----- -----
Net cash inflow from 60 57 106
operating activities
----- ----- -----
2. Reconciliation of cash flows to movements in net debt
6 months to 6 months to 12 months to
30 September 30 September 31 March
2000 1999 2000
(unaudited) (unaudited) (audited)
£m £m £m
Increase in cash in the 2 7 22
period
Cash outflow from 81 63 189
management of liquid
resources
Cash outflow/(inflow) 66 (6) (309)
from debt financing
Cash (inflow) from (16) - (9)
subordinated
liabilities
------- ------- -------
Change in net debt from 133 64 (107)
cash flows
Debt acquired with - - (23)
subsidiary undertakings
Foreign exchange (9) 2 (2)
movements
------- ------- -------
Movement in net debt in 124 66 (132)
the period
Net debt at start of (1,170) (1,038) (1,038)
period
------- ------- -------
Net debt at end of (1,046) (972) (1,170)
period
------- ------- -------
3. Analysis of net debt
Other
1 April non-cash Exchange 30 September
2000 Cash flow changes movement 2000
£m £m £m £m £m
Cash and 42 2 - - 44
deposits
repayable on
demand
Treasury 627 81 - - 708
bills, other
loans,
advances and
treasury debt
securities
Deposits and (393) 19 (20) (9) (403)
debt
securities
repayable
within one
year
Deposits and (1,410) 47 20 - (1,343)
debt
securities
repayable
after one year
Subordinated (33) (16) - - (49)
liabilities
Finance leases (3) - - - (3)
------- ---------- -------- -------- ------------
(1,170) 133 - (9) (1,046)
------- ---------- -------- -------- ------------
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