Pre-close period briefing

06 Mar 2009

 

3i Group plc ("3i"), the international private equity company, today announces a trading update for the 11 months to 28 February 2009 ahead of entering its close period for the year ending 31 March 2009.

Commenting on the statement, Michael Queen, 3i Chief Executive said:

"In these challenging markets our key priorities are to manage our existing portfolio, to take actions to reduce the Group's net debt and to position 3i for the upturn. We have made progress on each of these objectives since our last statement in January, a period which has seen no improvement in general market conditions.

Actions include a further £181 million of realisations in January and February which means we have delivered total realisations for the 11 months of £1.1 billion. We have also announced a recommended offer to acquire the assets of 3i Quoted Private Equity plc.

The businesses in our portfolio have continued to perform relatively well, although valuations will inevitably be impacted by further falls in quoted markets since 31 December, and by tougher general economic conditions. We believe the emphasis we have placed on supporting our portfolio will help 3i to maximise value and win business opportunities as they arise and markets improve."

1. Valuations

3i conducts a full valuation of its portfolio twice-yearly at 30 September and 31 March. In recognition of the severe market volatility during the last quarter of 2008, 3i conducted an additional valuation exercise for the period from 30 September to 31 December (using largely unaudited 31 December 2008 accounts) of the Top 50 assets at 30 September 2008. To that end, 3i reported an estimated 21% reduction in the value of those investments (before foreign exchange gains) in its Interim Management Statement published in January. 

The full and detailed valuation exercise for 31 March 2009 has recently commenced. Key factors that will be taken into account in that process are the actual market multiples as at 31 March 2009, which are likely to be materially lower than those seen at 31 March 2008, as well as information provided in the forecast and management accounts of the portfolio companies reflecting business performance subsequent to the 31 December audited accounts.

Despite the relatively good performance of the underlying portfolio, the continued significant declines in key indices since 31 December will inevitably have a further negative impact on portfolio valuations. For example, the FTSE Euro Mid index fell by a further 15.8% between 31 December 2008 and 27 February 2009, and by 42.2% since 31 March 2008.

At 30 September 2008, £1,504 million (25%) of the total portfolio was valued at cost. In the Interim Management Statement published in January 2009, it was reported that £420 million of this portfolio was moved from a cost based valuation. The Board has decided that no assets will be held at cost at 31 March 2009. In addition, the non-core assets in the SMI and Venture portfolios will be valued on their expected disposal proceeds.

2. Realised profits

Realisations in the two months to 28 February included the sale of a number of non-core holdings in the Venture portfolio, the placing of 9.5% of the issued share capital of 3i Infrastructure plc, and a number of Growth Capital disposals. The uplift on opening carrying value from the sale of investments has declined significantly from 47% for the six months to 30 September 2008 to 28% for the eleven months to 28 February 2009. The continued sale of non-core assets in March will further reduce this average uplift percentage.

3. Investments and realisations

3i invested a total of £898 million in the 11 months ended 28 February 2009, compared with £2,154 million in the equivalent period last year. 

Investment by business line is as follows:

  9 months ended
31 December
2008
Two months ended
28 February
2009
11 months to
28 February
2009 (total)
11 months to
29 February
2008 (total)
Buyouts 486 21 507 823
Growth Capital 290 5 295 960
Infrastructure 22 25 47 54
QPE - - - 182
SMI - - - 6
Venture Portfolio 43 6 49 129
Total 841 57 898 2,154

Realisation proceeds received by 3i totalled £1,123 million in the 11 months ended 28 February 2009 (2008: £1,619 million).

Realisation proceeds by business line were as follows:

  9 months ended
31 December
2008
Two months ended
28 February
2009
11 months to
28 February
2009 (total)
11 months to
29 February
2008 (total)
Buyouts 488 3 491 843
Growth Capital 259 99 358 432
Infrastructure 55 62 117 32
QPE - - - 17
SMI 27 - 27 127
Venture Portfolio 113 17 130 168
Total 942 181 1,123 1,619

4. 3i Quoted Private Equity plc

On 23 February 2009, the Boards of the Group and of 3i Quoted Private Equity plc ("3i QPEP") announced that they had reached agreement on the terms of a recommended acquisition of the assets of 3i QPEP by 3i, to be effected through a voluntary solvent liquidation of 3i QPEP. This would result in a net cash inflow to 3i of approximately £110 million and in the transfer of the five assets in 3i QPEP's portfolio to 3i's Growth Capital business.

The proposed acquisition values each 3i QPEP share at 88.8 pence. Under the proposed acquisition, 3i would offer all third-party 3i QPEP shareholders (i) 50p in cash and (ii) 0.1706 shares in 3i Group for each 3i QPEP share, based on the 3i share price of 227.5p on 19 February 2009. Upon the liquidation of 3i QPEP, the liquidators will implement a scheme involving the distribution of assets of 3i QPEP to 3i Group.

This transaction is subject to approval by an EGM of 3i QPEP shareholders, which is expected to be held at the end of April 2009. Subject to EGM approval, 3i QPEP will be delisted and will cease to exist as an independent entity.

For information please contact:

3i Group plc
Patrick Dunne, Group Communications Director -  020 7975 3573

Maitland
Lydia Pretzlik -  020 7379 5151

This statement aims to give an indication of 3i's expected return (and of key components of that return) for the twelve months to 31 March 2009. These indications reflect the Boards current view. They are subject to a number of risks and uncertainties and could change. In particular, an important element in the determination of 3i's results for the twelve months to 31 March 2009 is the detailed valuation exercise carried out on its investment portfolio as at that date. The final results for the twelve months to 31 March 2009 may differ accordingly. 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.