Interim Management Statement

28 Jan 2009

 

3i Group today issues its unaudited Interim Management Statement for the three months period from 30 September 2008 to 31 December 2008.

3i Group plc ("3i"), the international private equity firm, today issues its Interim Management Statement in accordance with FSA Disclosure and Transparency Rule 4.3. This statement which, as usual, is unaudited, relates to the three month period from 30 September 2008 to 31 December 2008 and the key points are as follows:

  • Realisations of £345 million and new investment of £173 million
  • Estimated 21% reduction in the value of the top 50 investments before foreign exchange gains
  • Net foreign exchange gains in total return of £279 million
  • Further disclosure relating to the valuation of the Group's largest investments
  • Net debt on a constant currency basis largely unchanged

Julia Wilson, 3i's Finance Director, said:

"Since we published our half-yearly results in November, conditions in the real economy have been very challenging and credit markets have remained dislocated. In view of this exceptional environment, we are publishing the valuation of our largest assets to assist investors in understanding some of the implications for 3i. As expected in a well-diversified portfolio, we have continued to see some earnings growth in the period, but it is too early to tell how current conditions will affect the near-term outlook.

The management and performance of our investee companies remain our highest priority. We continue to be highly selective with respect to new investment and determined to achieve realisations where it makes sense. We are planning on the basis that the current business environment will continue for a sustained period."

1. Returns and portfolio valuation

As usual, an important element in the determination of 3i's results for the full year to 31 March 2009 will be the detailed valuation exercise carried out on its investment portfolio as at that date.

In recognition of the extreme volatility in the markets, the Group has undertaken a special exercise to value its largest investments at 31 December 2008. These investments, which are those portfolio companies listed on pages 40 and 41 of the Group's half-yearly report as in the Ten largest investments and Forty other large investments ("top 50 investments"), accounted for approximately 61% of the £5,934 million total portfolio value at 30 September 2008. On a sector and geography basis, these top 50 investments are representative of the total portfolio. However, on a business line basis, Buyouts represented 45% of the top 50 investments compared to 35% of the total portfolio.

This valuation exercise has been conducted in accordance with our valuation policy which is set out in detail on pages 106 and 107 of our annual report and is consistent with the recognised industry guidelines. Given the timing of the exercise, earnings data used in this process is based largely on 2008 unaudited accounts of portfolio companies.

For those assets valued on an earnings basis at both 30 September 2008 and 31 December 2008, there was a negative total value movement of £(214) million before foreign exchange translation movements. This comprised earnings multiple movements of £(164) million, which were partially offset by earnings growth of £16 million and earnings and multiple related impairments to loans of £(66) million. As previously mentioned, given the timing of the exercise, earnings data used in this process is based largely on 2008 unaudited accounts of portfolio companies.

At 30 September 2008, £1,504 million (25%) of the total portfolio was valued at cost of which £1,175 million (78%) was included in the top 50 investments. As a result of the exercise, £420 million of the £1,175 million has been moved from a cost based valuation, resulting in a negative first time movement of £(92) million and provisions of £(57) million. Consequently, the total assets held at cost in the top 50 at 31 December 2008 reduced to £762 million before foreign exchange translation movements (£868 million after foreign exchange translation movements).

Total provisions in the top 50, including those moving from cost, were £(147) million in the period. The remaining value movements relate to investments valued on a quoted basis of £(168) million, investments valued on an "other" valuation basis of £(61) million and a further £(182) million which relates primarily to the reclassification of ABX, which was valued on an imminent sales basis at 30 September 2008. Other movements on unquoted investments includes assets held on a provision basis, as well as companies valued on a basis other than earnings (eg ACR, the re-insurance company, and AWG, the water utility company).

Top 50 investments for the period 30 September 2008 to 31 December 2008 (£m)
  Three months to
31 December 2008
top 50 investments
Earnings multiples (164)
Earnings growth 16
Impairments to loans (66)
First-time movements (92)
Provisions (147)
Quoted portfolio (168)
Other movements on unquoted investments (61)
  (682)*
Uplift to imminent sale (including investments sold during the period) (182)
Total (864)

*The estimated 21% reduction in the value of the top 50 investments before foreign exchange gains excludes uplift to imminent sale as this refers to investments that were sold during the period

2. Investment

3i invested £173 million during the quarter, bringing the total invested in the nine months to 31 December 2008 to £841 million. Investment for the equivalent nine month period last year was £1,778 million. In addition, £325 million (2007: £471 million) was invested in the quarter on behalf of co-investment funds managed by 3i.

Investment by business line was as follows:

Investment (£m)
  Six months ended
30 September
2008
Three months ended
31 December
2008
Nine months to
31 December
2008 (total)
Nine months to
31 December
2007 (total)
Buyouts 338 148 486 644
Growth Capital 279 11 290 738
Infrastructure 22 - 22 83
QPE - - - 182
SMI - - - 6
Venture Portfolio 29 14 43 125
Total 668 173 841 1,778

3. Realisations

Realisation proceeds received by 3i (excluding co-investment funds) were £345 million for the third quarter, bringing realisation proceeds to £942 million for the nine months to 31 December 2008(2007: £1,473 million).

Realisations by business line were as follows:

Realisations (£m)
  Six months ended
30 September
2008
Three months ended
31 December
2008
Nine months to
31 December
2008 (total)
Nine months to
31 December
2007 (total)
Buyouts 326 162 488 830
Growth Capital 169 90 259 358
Infrastructure 8 47 55 32
QPE - - - 17
SMI 21 6 27 95
Venture Portfolio 73 40 113 141
Total 597 345 942 1,473

4. Cashflow and balance sheet

The Group had cash, cash deposits and undrawn committed facilities of £839 million as at 31 December (30 September 2008: £954 million). The significant cash movements in the period were investment of £173 million, realisations of £345 million, closing out of foreign exchange swaps of £102 million and net European commercial paper settlements of £126 million. As a result of these cashflows, net debt remained broadly flat in the quarter before taking account of the foreign exchange translation of non-sterling long-term debt.

As disclosed in the Group's half-year results, the decision was taken to close out the Group's foreign exchange swap portfolio, which provided a substantial proportion of the Group's balance sheet hedging. There is a net foreign exchange gain in total return for the quarter of £279 million. This is comprised of a £728 million increase on total portfolio values (of which £387 million related to the top 50 investments) being offset by £217 million on translation of long-term debt and a further £232 million relating to movements from other balance sheet items. Taking account of the foreign exchange translation movements, actual net debt was £2,110 million at 31 December 2008.

For further information please contact:

3i Group plc
Julia Wilson, Finance Director -  020 7975 3356
Patrick Dunne, Group Communications Director -  020 7975 3566

Maitland
Lydia Pretzlik -  020 7379 5151

This statement aims to give an indication of material events and transactions that have taken place during the period from 30 September 2008 to 31 December 2008 and their impact on the financial position of 3i Group plc. These indications reflect the Board's current view. They are subject to a number of risks and uncertainties and could change. Factors which could cause or contribute to such differences include, but are not limited to, general economic and market conditions and specific factors affecting the financial prospects or performance of individual investments within 3i's portfolio.