Final Results

3i Group PLC
17 May 2001


PART 1

3i Group plc

Preliminary statement of annual results
for year to 31 March 2001

www.3i.com

17 May 2001

Results Highlights

  * Total return of £(142) million, a negative return of 2.7% on opening
    shareholders' funds
  * Outperformance of the main FTSE indices
  * Revenue profit after tax of £116 million
  * Net realised profit of £911 million over cost. Net realised profit of £
    453 million over opening valuation
  * Unrealised value decrease of the portfolio of £(676) million
  * £2.0 billion (including co-investment funds) invested in over 700
    companies
  * Diluted net asset value per share of 815p
  * Recommended final dividend of 8.1p per share, making a total dividend
    for the year of 13.0p (2000: 12.2p), up 6.6%

Sir George Russell, chairman of 3i Group plc, commenting on the results, said:
'This is a strong result in relative market terms as 3i has outperformed the
main FTSE indices by over 8% and each of the main European technology indices
by over 50%. Our long-term financial performance has been outstanding and I
have every confidence this will continue.'



Results Overview

  * This is a strong performance in relative market terms as 3i has
    outperformed the main FTSE indices by over 8% and each of the main
    technology indices by over 50%.
  * This result has been achieved by maintained revenue profits and very
    high realised profits on the sale of investments which together offset
    most of the fall in the valuation of the portfolio.
  * The fall in the valuation of the portfolio largely resulted from the
    decrease in value of quoted technology investments.
  * Record level of investment of almost £2 billion in over 700 companies.
  * Record realisations and return flow that exceeded investment.

Strategic Review

  * 3i has made outstanding progress with its strategic objectives during
    the year. 3i's objective is to be the leading international venture
    capital company with a strong position in all of the major venture capital
    markets. Within the next five years, we expect to have about half of our
    total portfolio outside of the UK, with at least 30% in continental
    Europe, at least 10% in the United States and around 5% in Asia Pacific.
  * In the UK, we have maintained our leading market position and further
    developed our leadership position in technology investment and in
    mid-market buyouts. We have extended our sector team working, particularly
    in a number of technology based industries, which has helped us to gain
    real benefits from our international network.
  * In Europe, our network of offices and teams is now substantially
    complete. We have built a strong business in the Nordic region through the
    acquisition of SFK in Finland during the year and since the year-end
    through the acquisition of Atle AB, the leading quoted venture capital
    company in Sweden. We acquired Bank Austria TFV in Austria and have
    established new offices in Copenhagen and Zurich and, since the year-end,
    in Dublin.
  * We now have 341 staff in 22 offices across continental Europe and a
    market leading position with a balanced capability between technology and
    buy-out investing. Our continental European portfolio increased to 23% of
    Group assets.
  * Our US business, which opened in 1999, has rapidly built a strong market
    position in certain technology sectors. Our international network is
    proving to be a significant competitive advantage in winning business. We
    have made good progress against our other strategic objectives, namely to
    assist our existing technology portfolio, to gain a window on innovation
    and technology trends and to access high quality deal flow.
  * In Asia Pacific, our office in Singapore, which opened in 1997, has
    continued to develop well and we are planning to expand our operations by
    opening an office in Hong Kong to access the north Asia market. In Japan,
    where we focus on buy-outs, we completed the then largest buy-out
    transaction in Japan during the year and are continuing to develop this
    market.

Operating Review

United Kingdom

In the UK, we had an active year with record levels of investment and
realisations. We invested £1.0 billion in 328 companies across a wide range of
sectors and maintained our leadership position in both the technology and
mid-market buy-out sectors.

Continental Europe

We have continued to increase investment in all countries and our total
investment in continental Europe grew by 82% to £770 million in 354 companies.
Strong realised profits, especially in Italy and Germany, were offset by the
fall in value of quoted investments, particularly those quoted on the Neuer
Markt. We achieved 21 IPOs on six different continental European markets.

US

During the year we have invested £134 million in 29 companies. We have
recruited locally and now have 27 staff in our offices in Palo Alto and
Boston.

Asia Pacific

Asia Pacific continues to be an important market for 3i and, despite
continuing economic uncertainty, the environment for our business in the
region remains positive. Our Singapore based team had an active year in the
region, resulting in 14 investments made in the last year totalling £40
million. The US$400 million Asia Pacific Technology Fund is now 15% invested
and one investment has already been listed on the Singapore Stock Exchange.

Fund management

3i now manages and advises third party unquoted funds totalling £2.1 billion
of commitments on behalf of external investors. Following substantial
fundraising last year we did not require any major new fundraising activity
during the year.

3i Asset Management increased the amount of third party quoted funds under
management generating a substantial increase in fee income.



Financial Review

Revenue profit before tax increased by £1 million to £120 million with a
particularly strong increase in fee income from £55 million to £72 million. We
achieved a high level of realisations in the year. Net realised profits (after
deduction of realised losses) increased to £453 million (2000: £350 million).
Equity proceeds amounted to £1,308 million, up £486 million from last year.
There was a net reduction of £676 million in the valuation of the portfolio.

3i has generated a net cash inflow during the year and as a result gearing is
now 22% compared to 23% at 31 March 2000. The Group has a strong balance sheet
and the capacity to continue to invest in attractive opportunities.



Summary

Commenting on the results, 3i's chief executive, Brian Larcombe, said:
'Looking ahead, our plans anticipate another challenging year and while we are
devoting more of our resources to assist our portfolio companies, this is not
a time to be shy of making new investments.

We have the capabilities, in the strength of the network, our brand and our
people, to continue to outperform.'

- ends -

For further information, please contact:


Brian Larcombe, Chief Executive                       Tel: [phone]
3i Group plc
Michael Queen, Finance Director                       Tel: [phone]
3i Group plc
Liz Hewitt, Director Corporate Affairs                Tel: [phone]
3i Group plc
Issued by:                Philip Gawith
                          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 over £13.5
billion (including co-investment funds). In the 12 months to 31 March 2001, an
average of £7.8 million (including co-investment funds) was invested each
working day. 3i's current portfolio is valued at almost £6 billion.


Chairman's statement

For the first time in many years, 3i has not generated a positive total return
in a financial year. The negative return of £(142) million, (2.7)% of opening
shareholders' funds is in relative market terms a strong result. 3i has
outperformed the main FTSE indices by over 8% and each of the main European
technology indices by over 50%.


This has been achieved by maintained revenue profits and very high realised
capital profits, which together offset most of the fall in the valuation of
the portfolio. The deterioration of the financial markets, particularly in the
technology sectors, and a worsening corporate earnings outlook, was
particularly marked in the second half of the year.


The Board is recommending a final dividend of 8.1p making a total dividend of
13.0p for the year, an increase of 6.6%.


Aside from the impact of markets on the valuation of our investments, it has
been a year of exceptional progress. A record of nearly £2 billion of
investment has been made and we have strengthened our market positions. The
return of capital from investments sold has fully funded investment and the
Group maintains a strong balance sheet. The business has exceeded its own
strategic objectives with the expansion of its international network.


Acquisitions in Finland and Austria and, since the year end, in Sweden, have
strengthened our European capabilities and, together with some new office
openings, our European network is substantially complete. Progress has
continued in Asia Pacific, and in the US our business is now firmly
established. This network has become a unique competitive advantage for 3i.


3i has long experience of operating in more difficult economies and markets,
which present both challenges and opportunities. So while we are devoting more
of our resources to assist our portfolio companies, this is not a time to be
shy of making new investments.


Our achievements this year would not have been made without the commitment of
our people throughout the business. I would like to thank all of them for
their contribution.


I have announced that, after nearly ten years with 3i, I will retire as
Chairman at the end of this year. I am delighted that Sarah Hogg, who has been
a Director since 1997 and deputy Chairman for the last year, will succeed me.


The period since I took on the chairmanship has been one of great change for
3i. We floated in 1994 and settled into the top half of the FTSE100. The
company has grown rapidly, mainly organically, and has seen a major increase
in its share price and shareholder funds over the period. We now have a very
clear strategy for 3i.


It has been delightful working with two outstanding chief executives in Ewen
Macpherson and Brian Larcombe, together with a team of very capable
professionals.


I am proud of the growth that 3i has achieved. Its long term financial
performance has been exceptional and I have every confidence that this will
continue under its new chairman.

Sir George Russell, Chairman
16 May 2001


Chief Executive's review

This has been a challenging year for 3i. Although we have strongly
outperformed the most commonly used benchmark indices this year, we have not
been able to maintain our longstanding achievement of increasing our net asset
value every year.


In the past financial year, we have made record revenue and realised capital
profits, but these have been exceeded by the fall in the valuation of our
investments, which has largely occurred in the second half of the year. This
has been caused by stock markets anticipating a harsher economic climate and,
generally, weaker corporate earnings growth. The technology sectors have seen
the greatest fall, both because valuations were over-stretched and because the
outlook for certain sectors has been significantly down-rated. In this
respect, it seems reasonable to say that we have had to give back some of the
exceptional return which we made in the year to 31 March 2000.


We invested, together with our managed funds, nearly £2 billion in over 700
companies. Despite this record level of investment, cash flow has been
positive and the balance sheet remains strong.


The short-term economic outlook remains uncertain and we are planning on the
assumption that there are no significant improvements in the corporate outlook
or the quoted markets in the current year.


In the next section of this Report, the market position, strategies and
performance of each of our regional businesses are reviewed. A more detailed
Financial review is then provided. In this statement, I will focus on our
achievements in building the business and our Group strategy going forward.


When we presented our interim results, we said that we had continued to
develop our central business objectives and these have not changed. The
strategic objective is to be the leading international venture capital company
with a strong position in all of the major venture capital markets. Within the
next five years, we expect to have about half of our total portfolio outside
of the UK, with at least 30% in continental Europe, at least 10% in the United
States and around 5% in Asia Pacific.


Over the last year, we have invested heavily in expanding our capabilities and
particularly, in growing our international network.


We have successfully integrated last year's acquisition of Technologieholding
in Germany and, this year, SFK in Helsinki and Bank Austria TFV in Vienna.
With the acquisition of Atle in Sweden and office openings in Copenhagen and
Dublin, we now have a comprehensive network throughout Europe. Elsewhere in
the world, our businesses in the United States and in Asia Pacific have grown
strongly and will be expanded by a new office in Hong Kong.


This international network, which is unrivalled in the venture capital
industry, provides us with outstanding investment opportunities and real
competitive advantage in the marketplace. We have an investment model which is
proven in all of the major continental European economies, which generally
remain less competitive than the UK and the US. The network also provides us
with the ability to seek 'best of breed' opportunities across the world, to
provide valuable connections to our portfolio companies and to attract the
most talented entrepreneurs to 3i.


A great strength of 3i has long been our team of industry specialists who
provide indepth sector knowledge to our investment executives. We have, over
the past year, significantly extended our sector team working, particularly in
a number of technology based industries, such as biotechnology and
communications. This reinforces further the benefit of our network for us and
our portfolio companies.


We are also investing in our resources and our programmes to attract the best
entrepreneurs and the best managers who want to build significant businesses
with us. Again, we can use our network to match the right people with the
right opportunities.


Our policy has been to build a diversified portfolio, by geography, industry
sector and maturity of investment.


Investment policy objectives do change within an overall strategy that we
should invest in growth companies. We continue to believe that most of the
fastest growth businesses will be technology driven and we will continue to
invest substantially in new economy companies, from start-up to established
businesses. The correction in quoted markets for technology companies has led,
in recent months, to much reduced competition and better priced opportunities
for us. It is also already clear that many of the newer entrants into the
venture capital business, particularly the incubators and those companies for
whom this was not a core activity, will not stay in the game.


In the private equity business, which concentrates on buy-outs and buy-ins,
the environment is different to the venture capital business. There was not
the roller coaster of the public markets and there has been more steady growth
and a more consistent mergers and acquisitions market to assist with
profitable investment realisations. But this is also a challenging business as
the value of leveraged financing structures is less potent with low inflation
and there is a lot of money chasing the best deals. In the past year, we have
increased the amount invested, but have invested in fewer transactions. We
have been concerned with pricing but we now see some signs that value
opportunities are improving.


Buy-outs remain a good business for us where the incentives of management
ownership and independence can lead to significant improvements in
performance. Throughout our business, we are focusing on transactions in the
'mid-market' with a value of between £10 million and £500 million and where we
have a clear angle on value creation. Our network continues to generate an
excellent flow of these opportunities.


We have continued to commit more resources to managing our investments and
assisting our portfolio companies. Our belief is that we can best add value by
using our network of contacts to strengthen management teams and boards, to
work with them on setting an agenda for shareholder value and by providing
connections through our office network. As an illustration, 3i's Independent
Directors Programme now has around 600 members in 12 countries and they are on
the boards of over 1,250 3i-backed businesses.


In the latter half of last year, we carried out a review of our brand. Our
investment approach has changed considerably since the time of our last brand
review over a decade ago. We now not only are Europe's leading venture capital
company, but have an unrivalled international network. We invest to a
timescale which aligns our interests with the management of our portfolio
companies and now commit substantial resources to help build these businesses.
We continue to invest in most industries but only where there is growth and
where we can expect significant realised returns.


The conclusion of our branding review was to focus on 'globally networked' as
our brand position. It describes where we are going and is a position of
unique competitive advantage. We have refreshed our logo and adopted a
strapline of 'The world is yours'. This captures the ambition which we have
for the companies in which we invest and for 3i and, of course, for our
shareholders.


Looking ahead, our plans anticipate another challenging year. We have the
capabilities, in the strength of our network, our brand and our people, to
continue to outperform.

Brian Larcombe, Chief Executive
16 May 2001

Operating review

United Kingdom

In the UK, we had an active year with record levels of investment and
realisations.


We maintained our market leadership position and made good progress in
implementing our longer-term strategic objectives.


Market

The UK market is the most developed in Europe and ranks second only to the US
in the scale of its venture capital industry.


There has been a trend in the private equity market towards fewer, higher
value buy-outs over the last few years. The overall level of investment in
these transactions has, however, continued to rise.


Venture capital activity increased substantially as a large number of new
funds were attracted by the potential returns from technology investment.
Difficult quoted market conditions in the second half of the year, and the
need to continue to support existing investments, is resulting in lower levels
of new investment activity.


Strategy

Our aim in the UK is to maintain our leading market position. This allows us
to use the scale of our operations as a competitive advantage. In a dynamic
market like the UK, this has required continuous evolution of our business
model. Our network of offices keeps us close to the market and we have the
capability to deliver specialist expertise throughout the UK.


Operational review

The total return from the UK was £81 million. The main driver of this result
was strong realised profits achieved on the realisation of investments,
reduced by a fall in the value of our quoted portfolio retained throughout the
year.


We achieved 17 flotations during the year, despite turbulent stock market
conditions, and were able to achieve substantial realisations and an increase
in value from these investments. In addition, we also achieved good
realisations on trade sales.


In the UK, we invested £1.0 billion in 328 companies across a wide range of
sectors and maintained our leadership position in both the technology and
mid-market buy-out sectors.


We established a 'partnership programme', during the year, to work closely on
an exclusive basis with a small number of the highest quality business
managers. This programme creates investment opportunities by matching the
managers' skills and 3i's capabilities. Our expertise includes sector
knowledge, market information, financial structuring skills and access to key
individuals who can add value to our investment.


Investment management

In the UK, we have a large portfolio consisting of investments valued at £4.1
billion. The portfolio is well diversified by industry sector, by geography
and by stage and size of investment. In order to add value to our investees
and to manage the portfolio efficiently, we have continued to segment the
portfolio.


We have continued to direct our resources so that they are best placed to
serve the market. We have closed three offices during the year, redeploying
the people as part of the regional teams. These larger teams offer a wider
product range and sector knowledge which strengthen our position in the
market-place.


We established a regionally based team to manage our 'small and medium
investments' last year. This team is now fully operational and is adding value
by providing more focused service and support for these investments.


We have applied a similar approach to large buy-outs, high value companies and
technology investments. We are combining specialist skills and dedicated
resources to enhance the value of these companies.


While the majority of the portfolio has performed well, current more difficult
trading conditions faced by our portfolio companies has led to an increasing
proportion underperforming against their plans.


People

The UK remains a source of experience for the Group as a whole and, during the
year, 23 people moved from the UK to positions in continental Europe, the US
and Asia Pacific.


Our increasing need to deploy the Group's most appropriate resource to any
opportunity, wherever located, creates a number of management challenges and
requires a high level of flexibility from our staff. We have made great
progress in this during the year, and are well placed to make even further use
of 3i's unique network both within the UK and internationally.

Continental Europe

We have continued to increase investment in all countries and, by the year
end, the former strategic objective of having 20% of the Group's portfolio in
continental Europe was achieved. Our network has continued to expand both
through acquisition and organic growth and is now substantially complete.
Today 3i has offices and networks in ten countries in continental Europe. We
now have a market leading position with a balanced capability between
technology and buy-out investing.


Market

There has been significant growth in venture capital investment during the
year. The recent high level of fund raising has translated into substantially
increased investment by the market. The venture capital industry in
continental Europe has continued to grow and develop.


The growth in venture capital activity this year was particularly driven by
the high levels of funding for technology investments throughout Europe,
although, towards the end of the year, the investment pace was slowing in
response to the diminishing IPO prospects for technology businesses.


The private equity market continued to grow by value, particularly in France
and Italy, and decline by number of buy-outs, reflecting a move towards fewer,
larger investments in a number of national markets.


Tax changes in Germany will result in a more favourable environment for
corporate restructuring next year. This is likely to increase the market for
buy-outs in Germany.


We are the clear market leader in technology investing in Germany, leader in
buy-outs in Spain and have strong positions in all product areas in France,
Italy, Switzerland and Benelux.


Strategy

Our strategy to grow the business in continental Europe to represent at least
30% of the Group's portfolio by 2006 was introduced during the year. The
network, which has now grown to 22 offices in the year, will enable us to
achieve this aim.


The scale of our network provides a valuable competitive advantage. In
addition to local coverage, close co-operation between offices gives us
opportunities to create value. The first staff moves from the continental
business to our US business have further enhanced our transatlantic
networking.


Operational review

The continental European total return was £(113) million after exchange
adjustments. Strong realised profits, especially in Italy and Germany, were
more than offset by the fall in value of quoted investments, particularly
those quoted on the Neuer Markt.


Our investment in continental Europe grew by 82% to £770 million.


We achieved 21 IPOs on six different continental European markets. These
include Kontron in Germany, Novuspharma, specialising in cancer drug discovery
and development, Datamat and Biosearch, one of Italy's leading biotechnology
companies.


In buy-outs, we have made good progress during the year and concluded our
first public to private transaction in continental Europe. In Holland, our
market position continues to develop as evidenced by the completion of our
largest deal to date, De Boer, a world market leader in temporary structures.
Our market position in Spain continued to be strong with £43 million invested
in buy-outs. In France, all three offices have a strong presence in the local
markets. During the year, we also achieved the flotation of Monsieur
Bricolage, a well known DIY chain where 3i first invested in 1995.


The continental offices participate fully in our focus on key sectors across
the world and common worldwide training and conferences further develop the
links between all our investment executives.


We are able to facilitate cross-border deals in Europe via a dedicated team of
senior investment executives based in London from where many cross-border
transactions are advised.


During the year, we successfully completed the integration of the
Technologieholding businesses. In addition, we opened an office in Zurich and
acquired Bank Austria TFV which gave us an office in Vienna. Our business unit
managed from Frankfurt now comprises nine offices covering Germany,
Switzerland and Austria.


In the summer, we acquired SFK Finance Oy together with 14 Helsinki-based
executives. This represented the start of our activities in the Nordic region.
Subsequently, we opened an office in Copenhagen. In February, we announced our
intention to buy the majority of the business of a leading Swedish venture
capitalist, Atle. This acquisition completed on 27 April 2001. As a result, we
have during the year built a Nordic business operating in Sweden, Denmark and
Finland, with a balanced capability in both buy-outs and technology. The
Nordic market is a major venture capital market, with Sweden, for example,
being Europe's second largest market (after the UK) in relation to its
national income.


Investment management

Following a successful focus on investment management in the UK, specialist
portfolio management teams have been created in continental Europe.


People

The number of staff we now have in continental Europe has increased from 203
to 305 (341 including Atle staff).


Building this resource has been a major challenge in recent years, and has
involved considerable investment in initial training and integration. Our
network gives us an excellent base from which to build on our leadership
position as experience and cross team working continue to develop.

United States

Market

The US represents one of the most exciting market opportunities for 3i. It is
a highly developed market with an efficient and competitive venture capital
community. The US has the highest concentration of venture capital investing
in the world, accounting for over 70% of the total committed globally to
venture capital and private equity investing, compared with about 20% for all
of Europe.


While the opportunity is clear, the US is also one of the most competitive
markets.


Strategy

This guided our strategy to develop a niche focus in technology rather than
compete in all sectors. The objectives of 3i's business in the US, which
opened in 1999, are threefold. First, to extend 3i's technology business into
the US to assist our existing portfolio. Second, to gain a window on
innovation and technology trends in this market. Third, to access high quality
deal flow. In each case, we have exceeded the milestones set last year.


Through our offices in Palo Alto and Boston, we have provided practical
contacts and assistance to a wide range of companies and to 3i executives
around the world. In addition, the US team has benefited from our
international connections and 3i's ability to assess investment opportunities
across three continents. It is clear that 3i is one of the very few venture
capital organisations in the US with a genuine international capability. This
has proved attractive to entrepreneurs and has provided a good deal flow of US
sourced opportunities.


During the year, the substantial decline in the quoted markets, particularly
technology stocks, has been well reported. The NASDAQ composite is down 60% on
the year to March 2001. We have, however, remained highly selective and have
built a portfolio in communications, internet infrastructure and corporate
applications. Each of these plays to 3i's strengths internationally. 3i's
reputation as a well funded and experienced investor has become even more
attractive during the recent downturn.


Operational review

Since we began operations in November 1999, we have invested £162 million in
27 companies, the majority of which were led by 3i and are in partnership with
some excellent US venture firms and technology companies. Despite the current
downturn, the pricing and stage of these investments offers potentially
attractive returns in coming years.


People

Finally, we have recruited locally and now have 27 staff in our two offices.
The team consists of a mix of US and international staff, that balances
experienced 3i staff with new talent.


In summary, we have a long term strategy for the US and believe we have built
a strong foundation. Looking forward, we will focus on further improvement of
our contact base in the US, innovation in our investment strategy, and on the
returns of our growing portfolio.

Asia Pacific

Market

Asia Pacific continues to be an important market for 3i and, despite
continuing economic uncertainty, the environment for our business in the
region remains positive. While market conditions have changed since we entered
the region, many of these changes have improved the environment for venture
capital investment.


Strategy

Our initial entry into Asia was through the opening of a regional office in
Singapore in May 1997. The majority of investments made to date have been in
Singapore based technology businesses, due largely to the location of our core
team in this market, increased awareness of 3i, our relationship with the
Singapore government and its drive to create a knowledge based economy.


In Japan, our focus has been on building a buy-out business. We recently
completed our first major buy-out in Japan, which has supported growing
recognition of the 3i brand. We continue to see significant potential for
buy-outs in Japan and, despite recent economic difficulties, the need for
restructuring continues which will stimulate the buy-out market.


In order to build a diversified regional business, we announced earlier this
year the opening of our third Asia Pacific office in Hong Kong. The office
will provide the regional team with a point of access to the growing venture
capital markets in both Hong Kong and North Asia. We have relocated two
experienced investment executives to Hong Kong, who, together with a new local
team, will work closely with existing teams in Singapore and Japan on both
technology related businesses and buy-out opportunities in North Asia.


Operational review

We have invested £62 million this year, and our Asia Pacific portfolio has a
value of £98 million including co-investment funds.


Despite the satisfactory performance of investments made since our current
Asia Pacific operations started in 1997, we only saw a £23 million increase in
our overall portfolio. This was due largely to a fall in the value of publicly
listed investments made during an earlier joint venture.


Earlier this year, 3i completed its first major investment in Japan, the
buy-out of Vantec Corporation, the logistics subsidiary of Nissan Motor
Company. The transaction was the largest of its kind undertaken in Japan at
that time, and has attracted significant interest. Winning the mandate to lead
this transaction was an endorsement of 3i's ability to bring together an
experienced team from around the Group.


Our Singapore based team had an active year in the region, resulting in 14
investments made in the last year totalling £40 million. The US$400 million
Asia Pacific Technology Fund is now 15% invested and one investment has
already been listed on the Singapore Exchange.

Fund management

Unquoted funds

3i now manages and advises third party unquoted funds totalling £2.1 billion
of commitments on behalf of external investors. Five funds are open to new
investment. The remaining funds are fully invested and the focus is now on
managing value in the existing portfolios. Each fund has a different mandate
and is invested across our European and Asia Pacific network.


Following substantial fundraising in 1999/2000 we did not require any major
new fundraising activity during the year. The change in funds under management
has arisen in part because of the acquisition of SFK in Finland, and an
increase in amounts committed by investors to our UK managed funds, offset by
distributions and value movements.


Our unquoted funds are typically invested on a 50:50 basis alongside 3i's own
capital thereby enabling us to make larger investments and manage larger
shareholdings than we would otherwise be able to do. This activity generated
fee income of £41 million for the year. The fee income and profit share from
these funds enable us to enhance our own investment returns and in recent
years have made a substantial financial contribution to the Group's revenue
profit.


Quoted funds

3i Asset Management is a team dedicated to managing the Group's own portfolio
of quoted assets (largely built from the IPO of our previously unquoted
investments) as well as £0.9 billion of third party quoted funds. These
comprise the Group's own pension fund and four quoted investment companies.
These are 3i Smaller Quoted Companies Trust and 3i UK Select, which focus on
smaller UK companies and on larger UK stocks respectively, 3i Bioscience
Investment Trust which invests in life science and healthcare companies and 3i
European Technology Trust which invests in quoted companies across Europe
which have a significant focus on technology oriented activities, excluding
life sciences.


3i Asset Management's objectives are to optimise the value that we derive from
our IPO successes and to utilise the skillbase that we have through managing
specialist external funds in areas that are of direct relevance to 3i's core
business. Asset Management generated substantially increased fee income of £9
million this year.


Overall we are committed to building our fund management business in areas
that both enhance 3i's financial returns and add value to our core investment
business.

Corporate social responsibility

3i is committed to being a responsible member of the communities in which it
operates and has corporate standards and values in place to guide employees'
conduct. The Board as a whole is accountable for the Group's ethical policy.


The environment

3i is committed to acting as a responsible company and investor in relation to
environmental issues. A Board member is accountable for the Group's
environmental policies. As a member of Business in the Environment, 3i
participates in the Index of Corporate Environmental Engagement and
Performance of the FTSE 100 companies since its inception five years ago. The
Group measures energy and resource usage where practical and monitors
performance against benchmarks. The outcome is regularly reported to the
Board. We have introduced procedures to reduce the use of energy and other
resources where this is practical and within our control.


Socially responsible investment

The Group attaches priority to being a socially responsible investor and
account is taken of environmental, social and ethical issues when making
investment decisions. The Group believes it is important to invest in
companies whose management acts responsibly on environmental, ethical and
social matters.


Community involvement

The 3i Charitable Trust makes charitable donations on behalf of 3i and as a
member of the Per Cent Club, donations of 0.5% of pre-tax UK revenue profits
are made each year by the trust. The trust favours charities that work in the
communities in which 3i has offices and charities which 3i staff support. As a
financial services business, the Group aims to make contributions that fit
with our culture, for example by teaching business courses for young people.


The 3i Charitable Trust also matches pound for pound the fundraising efforts
of 3i staff and matches all staff contributions to the Give As You Earn
Scheme. This year about 20% of the trust's donations went to charities
supported by employees. Employee support in many cases is in the form of time
as well as cash donations.


In London we support the North Lambeth Day Centre, a drop-in centre for the
homeless, as well as the Young Vic, contributing to its New Opportunities
Programme. Our long running association with the Royal Academy of Music,
sponsoring the Sinfonia Orchestra, also continues.


Japan 2001, a major series of educational cultural events being held this year
to foster relations between the UK and Japan, has also benefited with a
donation from the trust. 3i will also be sponsoring one major event as part of
the programme.


As an international company, 3i aims to be commercial and fair and to maintain
its integrity and professionalism in the communities in which it operates.


Financial review

3i's total return of £(142) million, a return of (2.7)% on opening
shareholders funds represents a good performance relative to all major stock
market indices.


Total return from technology investments amounted to £(62) million partly
resulting from the fall in technology markets and a more difficult short-term
outlook for unquoted companies. Non technology investments produced a return
of £(80) million. These companies have also been affected, but to a lesser
extent, by quoted market movements and tougher trading conditions.


Total return from the UK and continental Europe was £81 million and £(145)
million respectively, before a favourable currency adjustment. Our Italian
business generated a strong total return of £74 million.


The negative US return of £(56) million comprises largely the fall in value of
quoted US companies whose shares were acquired in exchange for unquoted 3i
investments in Europe. In addition, our remaining older joint venture
investment portfolio has reduced in value. Our newly established business in
the US has performed well and has not suffered a significant reduction in the
valuation of investments.


In Asia Pacific, the total return of £(63) million is largely caused by the
fall in valuation of quoted investments held by our long standing joint
venture in Japan which reversed last year's gains.


A favourable currency adjustment of £41 million arose mainly from translation
gains on the continental European portfolio as a result of sterling's
depreciation against the Euro.


Revenue profit

Revenue profit before tax was £120 million (2000: £119 million). As expected,
underlying income yields continued to fall as investment in non-revenue
yielding technology companies has increased. Dividend and interest income of £
243 million (2000: £238 million) included £35 million of dividends on the
realisation of investments (2000: £26 million). Fees earned rose by 31% to £72
million mainly as a result of an increase in fees earned from managing both
quoted and unquoted funds.


Interest on net borrowings was £78 million (2000: £73 million) of which £4
million has been allocated to the capital reserve.


Total administrative costs increased by 26% to £170 million, of which staff
costs amounted to £97 million (2000: £84 million). Staff employed increased
over the year by 153 to 1,038, with expansion concentrated in our
international activities. A full year's costs of our acquisition in Germany in
February 2000 has been included for the first time, as well as costs relating
to acquisitions this year in Austria and Finland.


As reported in the interim statement, the balance of returns between capital
and revenue profits is expected to move in favour of capital returns due to
higher technology investment. Accordingly the proportion of expenses allocated
to the capital reserve has increased from 70% to 80%. This results in an
increase in expenses allocated to capital from £33 million last year to £49
million this year.


Net costs (total costs less fee income) as a percentage of shareholders' funds
have increased from 1.6% last year to 2.0%, despite fee income increasing
proportionately more than costs.


Realised capital profits

We achieved a high level of realisations in the year. Net realised profits
(after deduction of realised losses) increased to £453 million (2000: £350
million).


Equity proceeds amounted to £1,308 million, up £486 million. During the first
half of the year, we sold a significant proportion of the quoted portfolio to
take advantage of favourable stock market conditions.


There were 38 IPOs in the year, 33 of which were from the technology
portfolio. The disposal of equity investments that achieved an IPO in the year
contributed £341 million of proceeds and £267 million of realised profit. We
also achieved good trade sales and other realisations, which generated equity
proceeds of £475 million. Realisations were strong in both the UK and
continental Europe. Overall, 19% of the equity portfolio was realised at an
uplift over opening valuation of 63%. Realisations from our quoted portfolio
would have been higher but for the effect of lock-ups on new IPOs, 3i's policy
of adopting a responsible approach to shareholdings in newly quoted companies,
falling stock markets and reduced liquidity.


As a result of the more difficult market conditions in some sectors, losses on
the failure of investments increased from £54 million last year to £113
million.


Unrealised value movement

There was a net reduction of £(676) million in the valuation of the portfolio
compared with value growth of £1,167 million last year. The main driver of the
reduction in value has been the fall in share prices of technology investments
during the period. However, investments which achieved an IPO during the year
contributed £196 million to value growth as most were valued at cost at 31
March 2000.


There was also a net reduction of £238 million in the valuation of the
unquoted portfolio held throughout the year compared with value growth of £252
million last year. Included within this amount is a reduction in valuation of
£317 million in respect of companies we consider may fail, compared with an
equivalent amount of £205 million last year. Price earnings ratios used to
value the unquoted portfolio have fallen from 10.1 to 9.7. Where investee
companies' earnings have been used as the basis of valuations at both 31 March
2001 and 31 March 2000, those earnings have risen by 7% in aggregate.


Taxation

Profits on the realisations of investments held by 3i Group plc are not
subject to UK taxation because of its investment trust status. Tax charges for
the year comprise withholding tax on foreign income and taxes borne by Group
undertakings outside the UK.


Investment

We invested £1,972 million, 43% more than last year. Almost 50% was invested
outside the UK with continental Europe accounting for £770 million (2000: £422
million). Investment in Germany grew by 132% to £301 million. Investment in
the US and Asia Pacific also grew strongly to £134 million and £62 million
respectively. Overall, about 56% of investment was in technology companies
including technology buy-outs with the remainder spread across other industry
sectors. We concentrated on larger buy-outs and growth capital opportunities,
while still focusing on those smaller investments where we believe the
absolute level of return will be high.


Acquisitions

In June, we acquired SFK, one of Finland's leading venture capital investors
for a consideration of £7 million. We also established 3i Austria in October
through the acquisition of Bank Austria TFV for a consideration of £8 million
and the purchase of the assets it managed for a consideration of £39 million.
Goodwill of £13 million arose on these acquisitions. Since the year end, 3i,
together with a partner, Ratos AB, have acquired Atle AB, a public company in
Sweden and a leading venture capital investor. 3i's share of the consideration
is £363 million, payable in cash.


Balance sheet and cash flow

At 31 March 2001, the Group's portfolio was valued at £6.0 billion, 3% lower
than last year. This is primarily because of the fall in valuation of quoted
technology investments as well as the disposal of a significant proportion of
the quoted portfolio. As a result, quoted investments represent 19% of the
portfolio at 31 March 2001 (2000: 27%). There was a net cash inflow of £86
million as, although investment (excluding unquoted funds) increased by 43% to
£1.5 billion, there was also an even larger increase in total return flow from
realisations to £1.6 billion. Gearing has fallen from 23% last year to 22% at
31 March 2001. Cash of £340 million was drawndown before the year end and was
subsequently used to fund the acquisition of Atle AB. The Group has a strong
balance sheet and the capacity to continue to invest in attractive
opportunities.


Regulation of the Group

During March 2001, the Group reorganised its financial services regulation. It
is now regulated for 'conduct of business' purposes by the Securities and
Futures Authority whereas previously it was regulated by the Financial
Services Authority (FSA). The FSA remains the lead regulator as a result of 3i
Group plc's status as an authorised institution under the Banking Act 1987. 3i
plc, a Group company, surrendered its banking licence during the period.


Risk management

3i has a comprehensive framework to manage the risks that are inherent in its
business. The main risks comprise treasury risk, investment risk, economic
risk and people risk.


Treasury risk management

The overall funding objective continues to be that each category of investment
asset is broadly matched with liabilities and shareholders' funds with
corresponding characteristics in terms of risk and maturity. This overall
objective continued to be met during the year to 31 March 2001.


All assets and liabilities are held for non-trading purposes and as a result
the Group does not have a trading book. The Group does not trade in
derivatives and does not enter into transactions of either a speculative
nature or unrelated to the Group's investment activities. Derivatives are used
to manage the risks arising from the Group's investment activities.


The main funding risks faced by the Group are interest rate risk and exchange
rate risk. The level of these risks is mitigated by the overall objective and
the Board regularly reviews and approves policies on the approach to each of
these risks.


3i's policy on exchange rate risk is not generally to hedge its overall
portfolio in continental Europe or the US. In line with its funding policy,
approximately 25% of those assets are funded by borrowings in local currency
and as a result a partial hedge exists. 3i's largest exposure is £1.2 billion
in respect of net assets in continental Europe. The level of exposure to
exchange rate risk is reviewed on a periodic basis.


Day to day management of treasury activities is delegated to executive
Directors and the Group Treasurer. Regular reports on the Group's funding
position have been considered during the year by the Board. There has been no
change during the year or since the year end to the major funding risks faced
by the Group, or to the Group's approach to such risks.


Investment risk

This includes investing in companies that may not perform as expected, being
over exposed to one sector of the economy and the portfolio valuation being
partly based on stock market valuations.


3i's investment criteria focus on management ability and market potential.
Investment appraisal and due diligence is undertaken in a rigorous manner by
drawing on our international network and experts in individual industry
sectors. Proposed investments over £5 million are presented to the Group's
Investment Committee, a committee of senior management including executive
Directors.


3i invests in all sectors of the economy. Management periodically reviews the
portfolio, which is well diversified by industry sector, to ensure that there
is no undue exposure to any one sector.


The valuation of a large proportion of 3i's equity portfolio is based on stock
market valuations for the relevant industry sector. Quoted investments are
valued using the market price at the balance sheet date. About 37% of the
unquoted equity portfolio is valued using stock market price earnings ratios
for the relevant industry sector discounted for non marketability.
Accordingly, stock market valuations for individual sectors are an important
factor in determining the valuation of 3i's portfolio and the total return.


There are regular reviews of holdings in quoted equities and exposure to
individual sectors in order to monitor the level of risk and mitigate exposure
where appropriate. In particular, the level of future funding of technology
companies is kept under review. However, it is not possible to protect against
the risks of a downturn in stock markets generally or in any specific sector.


Accordingly, the valuation of 3i's portfolio and opportunities for realisation
depend on stock market conditions and the buoyancy of the wider mergers and
acquisitions market.


Economic risk

3i invests mainly in European companies but continues to develop its
operations in the US and Asia Pacific. However, the majority of investment is
still in UK companies and there is an element of exposure to the UK economic
cycle. To mitigate this, 3i has invested in different sectors of the UK
economy with different economic cycles. In addition, an increasing proportion
of assets is invested in continental Europe and in the US and Asia Pacific,
which may have different economic cycles.


People risk

The ability to recruit, develop and retain capable people is of fundamental
importance to achieving our strategic objectives. We operate in a competitive
industry and aim to remunerate our staff in line with best practice and to
provide superior development opportunities.


Summary

3i has achieved a good relative financial performance and has maintained a
strong balance sheet.

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