Interim Results
3i Group PLC
30 October 2001
3i Group plc
3i Group plc announces
Interim results for the six months ended 30 September 2001 and organisational
changes
30 October 2001
Introduction
3i announces today its interim results for the six months to 30 September 2001
and some organisational changes.
Summary of results
* Net asset value per share fell by 22.6% to 631p largely as a result of
the falls in the smaller company and technology public quoted markets.
* 3i has outperformed the FTSE SmallCap total return and the FTSE techMARK
100 indices which were down 24.1% and 40.2% respectively.
* New investment of £600 million is broadly in line with realisations.
* Revenue profit of £69 million was unchanged, after making a provision
for the costs of organisational changes.
* The interim dividend is unchanged at 4.9 pence per share.
Sir George Russell, Chairman of 3i Group plc, commenting on the results, said:
'In this more challenging environment, I am confident that 3i's portfolio
diversity, international network and sound finances will enable us to
strengthen our market position.'
Operating Review
3i has continued to develop its business in line with its objective to be the
leading international venture capital company with a strong position in all
the major venture capital markets.
Over the six months to 30 September, 3i has completed its network in Europe,
opened an office in Hong Kong and continued to grow its business in the United
States.
3i's strategic priorities are developing the strength of its network, ensuring
that it has a balanced business between early and later stage investment and
having the resources to support its portfolio companies.
The value of the international network continues to grow as knowledge,
experience and contacts are increasingly shared across the business. Industry
sector and product teams have continued to develop across the Group. This adds
value to the investment process and to portfolio companies.
These developments are now being supported by some organisational changes. Rod
Perry, Director, will take on responsibility for technology investment across
the business, co-ordinating the market approach and delivering best practice
in all sectors. Jonathan Russell will take on a similar responsibility for the
larger management buy-out business. Martin Gagen, Director of the US business,
will also take on responsibility for activities in Asia Pacific.
The 3i business model which combines our local knowledge with sector expertise
has continued to strengthen and a more focussed approach to the management of
the portfolio has been developed. These approaches require a minimum level of
resourcing that is not feasible in some of the smaller locations and seven
offices in the UK and continental Europe will be closed. 3i will then have 36
offices operating in 16 countries.
In the current uncertain conditions, it is prudent to maintain a strong
balance sheet. Investment is likely to remain at about the current level for
the next year. As a result of this and very low staff turnover, fewer people
are needed to meet expected levels of investment. Following a wide ranging
review of our staffing needs, 3i is announcing today a reduction in staffing
of 185 people, representing about 17% of its staff.
Financial review
Net asset value fell by 22.6% during the period. This represents an
outperformance of the FTSE SmallCap total return and FTSE techMARK 100
indices, which were down 24.1% and 40.2% respectively.
Almost all of the fall in net asset value is due to an unrealised reduction in
the valuation of the portfolio. Revenue profit after tax was maintained at the
same level as the same period last year at £69m after making a provision for
the costs of organisational changes. 3i has, despite a falling stock market,
continued to realise equity investments at above their valuation at 31 March
2001.
Most of the fall in the valuation of the portfolio results directly from the
falls in smaller company and technology stock markets, much of which occurred
in September. This has reduced the valuation of 3i's quoted portfolio and also
the valuation of the unquoted portfolio as the average price earnings ratio
used in earnings based valuations has fallen from 9.7 at 31 March to 7.9 at 30
September. This is the lowest average price earnings ratio used by 3i to value
its portfolio at any time since its flotation in 1994 when the average price
earnings ratio was 14.0. In addition, there has been an increase in
provisions, largely resulting from increased early stage investment over the
last two years and more difficult economic conditions.
New investment has been reduced from last year, broadly in line with
realisations. Overall, realisations proceeds exceeded investment by £115m. As
a result of the acquisition of Atle, a leading Swedish venture capital
investor for £330m, there was a net cash outflow of £220m in the period. The
balance sheet remains strong.
Summary
The results for the six months to September are an outperformance of the FTSE
SmallCap and the FTSE techMARK 100 indices. The fall in net asset value
results largely from the falls in smaller company and technology stock markets
and, to a lesser extent, from an increase in provisions. The majority of the
portfolio continues to perform satisfactorily.
Brian Larcombe added 'Our longer term view of the venture and management
buy-out markets remains very positive. There is uncertainty about the industry
outlook in the short term, but on a medium term view, we expect that the
market will return to its growth path.
The Group continues to strengthen the working of its international network.
The changes announced today will reinforce our capabilities in industry
sectors and products and support the development of the network. The balance
sheet is strong which enables 3i to take advantage of good investment
opportunities in the markets in which it operates.'
- ends -
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.
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 10:30: 30 October 2001
on 3i's website: www.3i.com/investor.
Chairman's statement
Over the last year, most major economies have been slowing down and this trend
has accelerated in recent months. The steep fall in the quoted smaller company
and technology markets has particularly affected 3i's return for the six
months. The Directors have announced an unchanged interim dividend of 4.9p.
In this more challenging environment, 3i's portfolio diversity, international
network and financial strength are particularly important. We are committing
significant resources to managing our investments and assisting our portfolio
companies, as well as taking advantage of good investment opportunities at
lower price levels.
We are continuing to strengthen our competitive position and the development
of our teams with specialist skills across our international network. We are
closing seven smaller offices so that all our offices will have the critical
mass needed to be part of our international network. This change, together
with further steps to reduce our staffing levels, enables 3i to match
opportunities and resourcing in the short term while building a strong
platform from which to move forward.
I will be retiring from 3i at the end of December after nearly 10 years. 3i
has changed enormously during my involvement, from a primarily UK business to
an international venture capital company while retaining the same strong core
values. My time at 3i has been challenging, interesting and exciting;
sometimes all three at once.
I have thoroughly enjoyed working with the people at 3i and being part of this
great company. Sarah Hogg who succeeds me as Chairman on 1 January 2002, has
been a Director of 3i since 1997 and has already made a valuable contribution
to the Board. I am proud of the growth 3i has achieved and its long term
financial performance and I have every confidence that this will continue
under its new Chairman.
Sir George Russell
Chairman
29 October 2001
Operating and financial review
A general slowdown in economies, particularly difficult conditions in some
technology sectors and weak public stock markets for smaller companies have
all made an impact on returns in this period.
Net asset value has fallen by 22.6%, an outperformance of the FTSE SmallCap
(-24.1%) and the FTSE techMARK 100 (-40.2%).
Most of this fall results directly from the decline in smaller company and
technology stock markets, much of which happened in September. Our portfolio
has generally performed satisfactorily and, for that part of the portfolio
which is valued on an earnings basis, there has been a small increase in
overall earnings. This has not resulted in higher valuations as these assets
are valued by reference to price earnings multiples based on the smaller
company quoted markets which are now at the lowest point for many years.
Over the last two years, we have invested significantly in early stage
companies where both the potential rewards and the risks of failure are high.
It has always been the case that many of the weaker companies will fail before
the winners come through and, as a result, provisions have increased.
The short term outlook for business confidence remains weak, but when it
recovers, the strongest performing businesses will be those operating in high
growth markets. The venture capital industry saw a very high level of activity
last year, but this has fallen sharply since the summer. There are still
substantial funds available for investment in the management buy-out market
although there are now signs that the pricing of transactions is beginning to
fall. In the technology markets many of the new entrants have either retreated
or have left the market entirely. This has also led to better pricing and has
enabled 3i to maintain its leading market position.
In the six months to 30 September 2001, we invested at a lower level. We have
also seen lower levels of realisations as a result of the subdued mergers and
acquisitions market and stock markets being virtually closed to new issues.
Our strategy is unchanged. We continue to invest in a broad range of
businesses which have high growth potential, using our network to add value to
our investment process and to our portfolio. This strategy produces a
portfolio which is well balanced by sector, maturity of company and geography.
This is not the first time we have experienced difficult conditions and we
will continue to invest through the cycle. Venture capital is a long term
business.
The 3i business model of combining our local knowledge with sector expertise
has continued to strengthen. Our increasing focus on specific sectors, such as
healthcare and oil and gas, has led to the further development of specialist
teams within the network. We have also developed a more focused approach to
the management of the portfolio.
These approaches require a minimum level of resourcing that is not feasible in
some of our smaller locations and seven offices in Europe will be closed. We
will then have 36 offices operating in 16 countries.
Our longer term view of the venture and management buy-out markets remains
very positive. There is uncertainty about the industry outlook in the short
term, but on a medium term view, we expect that the market will return to its
growth path.
Despite this, the slowdown in activity means that our current staffing levels
are too high and we have announced 185 job losses.
With the acquisition of Atle in Sweden in April 2001 and the opening of an
office in Copenhagen, we have now completed our European network. We have also
opened an office in Hong Kong.
This international network is unique in the venture capital industry and
provides great benefits to us and our portfolio companies. Its value continues
to grow as we share knowledge, experience and contacts across the business.
Industry sector and product teams have continued to develop across the Group.
This adds value to our investment process and to our portfolio companies.
These developments are now being supported by some organisational changes. Rod
Perry, Director, will take on responsibility for our technology investment
across the business, co-ordinating our market approach and delivering best
practice in all sectors. Jonathan Russell will take on a similar
responsibility for our larger management buy-out business. Martin Gagen,
Director of our US business, will also take on responsibility for our Asia
Pacific business.
Financial review
Total return
Total return for the six months to 30 September 2001 was £(1,097) million,
which represents a reduction of 22.1% on shareholders' funds at 31 March 2001.
This result is due almost entirely to a fall in the valuation of the
portfolio. Most of this fall results directly from the decline in smaller
company and technology stock markets, much of which occurred in September. Our
portfolio has generally performed satisfactorily but there has been an
increase in provisions for companies which may fail, largely resulting from
increased technology investment over the last two years.
Our European business accounted for almost all the total return, with small
negative returns in our developing businesses in the US and Asia Pacific.
Technology investments accounted for £(715) million of the total return,
mainly because of a reduction in the valuation of quoted investments as well
as an increase in provisions for companies which may fail. Over the past year
technology companies, particularly those in the software and
telecommunications sectors, have suffered a sharp contraction in demand which
has resulted in significant over capacity. Non technology investments have
also seen more difficult trading conditions but their total return of £(308)
million is largely due to falls in price earnings ratios used to value these
companies.
Revenue profit
Revenue profit before tax was £71 million, the same as in the period to
September 2000. Underlying dividend income was lower than last year because of
increased investment in lower income yielding assets. Dividend income of £77
million includes £31 million of dividends received on the sale or
restructuring of investments (September 2000: £20 million). Fee income was £32
million which is £3 million lower than September 2000.
Administrative expenses amounted to £86 million compared with £78 million last
year. The current period includes £3 million of operating expenses in respect
of Atle which was acquired in the period. Expenses allocated to the capital
reserve have decreased from £26 million to £23 million.
In addition, a provision of £18 million has been made for organisational
changes and staff reductions. Of this, £9 million has been charged to the
revenue account and £9 million to capital reserve.
Realised capital profits
Corporate mergers and acquisitions markets have been much weaker throughout
the period and there has been a lower level of sales to trade buyers and far
fewer Initial Public Offerings ('IPO') than in recent years.
Overall there was a net realised loss of £5 million on all investments
realised compared with their valuation at 31 March 2001, (September 2000: £302
million profit), although a profit of £8 million was made on the sale of
equity investments.
Proceeds from the sale of investments quoted at March 2001 amounted to £388
million and a further £14 million was received on the IPO of three companies
during the period.
The sale of unquoted companies has resulted in equity proceeds of £123 million
(2000: £251 million) and there were repayments of loans and preference shares
of £87 million (2000: £168 million).
Overall 13% of the value of the equity portfolio at March 2001 has been
realised. We have, despite a falling stock market, continued to realise equity
investments at amounts over their valuation at 31 March 2001, with the average
uplift on the sale of equity investments amounting to 2% (September 2000:
79%).
Unrealised value movement
There has been a net reduction of £1,060 million in the valuation of the
portfolio. The main driver has been the impact of falling stock markets, which
led to a reduction in value of £430 million in quoted investments held
throughout the period.
In addition, the fall in smaller company stock markets has resulted in a
reduction in the average price earnings ratio used for earnings based
valuations of the unquoted portfolio from 9.7 at 31 March to 7.9 at 30
September. This is the lowest average price earnings ratio used to value the
portfolio at any time since 3i's flotation in 1994 when the average price
earnings ratio was 14. The impact of this fall in price earnings ratios is to
reduce the value of the portfolio by £314 million.
There has also been a reduction in valuation of £252 million in respect of
those companies that we consider may fail, compared with a reduction of £144
million last period. Investee companies' earnings used as a basis of valuation
at both 31 March and 30 September 2001 have increased on average by 5%.
Investment
Total investment in the period amounted to £600 million (£498 million from 3i
and £102 million from co-investment funds), 33% lower than investment to
September 2000. Approximately 50% of investment has been in technology
companies with 58% of this invested in existing portfolio companies.
Of total investment, 45% was in the UK, where £273 million was invested
(September 2000: £496 million). In continental Europe £246 million was
invested compared with £367 million last year. There has been growth in
investment in the US, up to £72 million from £29 million in the period to
September 2000.
Goodwill
Outstanding goodwill arising on acquisitions of technology venture capital
businesses made in previous years has been amortised in full in this period
rather than, as previously, over a five year term. This has resulted in a
charge of £74 million (£72 million to capital reserve and £2 million to the
revenue account) instead of £9 million, based on a five year amortisation
period. Full amortisation of goodwill is considered appropriate as market
conditions facing technology companies have become tougher. The businesses
acquired are no longer trading as separate entities and have been successfully
integrated into the 3i network.
Acquisition
In April, 3i together with a joint venture partner, Ratos AB, acquired Atle
AB, a public company in Sweden and a leading venture capital investor. 3i's
share of the
consideration was £330 million. Since then most of the investments held by
Atle have been transferred to either 3i or Ratos. Those transferred to 3i are
included in the share
and loan portfolio and the remaining investments are included as our share of
joint venture assets. These assets have been valued in accordance with the 3i
valuation policy.
Balance sheet and cash flow
Since 31 March 2001, the valuation of the Group's investment portfolio has
fallen by £761 million to £5,044 million. This is primarily due to the high
level of disposals of quoted investments and the fall in value of the
remaining portfolio. As a result quoted investments now represent 10% of the
total portfolio.
There has been a net cash outflow of £220 million in the period. This largely
results from the acquisition of Atle for a purchase consideration of £330
million. Investment in the period, excluding co-investment funds, amounted to
£498 million while the return flow from the sale and realisation of
investments amounted to £613 million.
The fall in value of the portfolio and the increase in net borrowings has
resulted in an increase in gearing from 22% at 31 March 2001 to 34%. Of the
net borrowings of £1,316 million, £600 million has a maturity in excess of 20
years.
Summary
The results for the six months to September represent an outperformance of the
FTSE SmallCap and the FTSE techMARK 100 indices. The negative total return
results largely from the fall in smaller company and technology stock markets
and, to a lesser extent, from an increase in provisions. The majority of the
portfolio continues to perform satisfactorily.
The Group continues to strengthen the working of its international network.
The balance sheet is strong which enables 3i to take advantage of good
investment opportunities in the markets in which it operates.
Brian Larcombe
Chief Executive
29 October 2001
Consolidated statement of total return
for the six months to 30 September 2001
6 months to 30 6 months to 30 12 months to 31
March
September 2001 September 2000 2001
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£m £m £m £m £m £m £m £m £m
Capital profits
Net realised (5) (5) 302 302 453 453
(losses)/
profits over
opening
valuation
Net unrealised (1,060)(1,060) 712 712 (676) (676)
value movement
in the period
(1,065)(1,065) 1,014 1,014 (223) (223)
Total 204 204 182 182 358 358
operating
income before
interest
payable
Interest (59) (3) (62) (59) (1) (60) (117) (4) (121)
payable
145 (1,068) (923) 123 1,013 1,136 241 (227) 14
Administrative (63) (23) (86) (52) (26) (78) (121) (49) (170)
expenses
Amortisation (2) (72) (74) - (8) (8) - (18) (18)
of goodwill
Cost of (9) (9) (18)
changes to
organisational
structure
Return before 71 (1,172) (1,101) 71 979 1,050 120 (294) (174)
tax and
currency
translation
adjustment
Tax (2) 8 6 (2) (9) (11) (4) 19 15
Return for the 69 (1,164) (1,095) 69 970 1,039 116 (275) (159)
period before
currency
translation
adjustment
Currency - (2) (2) (7) 8 1 - 17 17
translation
adjustment
Total return 69 (1,166) (1,097) 62 978 1,040 116 (258) (142)
Total return
per share
Basic (pence) 11.4p (191.8)p 180.4)p 10.2p 161.7p 171.9p 19.1p (42.5)p (23.4)p
Diluted 11.4p (191.3)p(179.9)p 10.1p 159.5p 169.6p 18.9p (42.0)p (23.1)p
(pence)
6months to 6 months to 12 months to
30 September 30 September 31 March
2001 2000 2001
Movement in shareholders' funds (unaudited) (unaudited) (audited)
for the six months to 30 September 2001 £m £m £m
Opening balance 4,973 5,174 5,174
Revenue return 69 62 116
Capital return (1,166) 978 (258)
Total return (1,097) 1,040 (142)
Dividends (29) (29) (78)
Proceeds of issues of shares 7 12 19
Movement in the period (1,119) 1,023 (201)
Closing balance 3,854 6,197 4,973
Consolidated revenue statement
for the six months to 30 September 2001
6 months to 6 months to 12 months
30 30 to
September September 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
£m £m £m
Interest receivable on loan investments 60 51 99
Fixed rate dividends 9 12 21
Other interest receivable and similar income 26 20 43
Interest payable (59) (59) (117)
Net interest income 36 24 46
Dividend income from equity shares 68 64 123
Share of net profits/(losses) of joint 8 (1) (2)
ventures
Fees receivable 32 35 72
Other operating income 1 1 2
Total operating income 145 123 241
Administrative expenses and depreciation (63) (52) (121)
Amortisation of goodwill (2) - -
Cost of changes to organisational structure (9)
Profit on ordinary activities before tax 71 71 120
Tax on profit on ordinary activities (2) (2) (4)
Profit for the period 69 69 116
Dividends
Interim (4.9p per share proposed, 2001: 4.9p (29) (29) (29)
per share paid)
Final (2001: 8.1p per share paid) (49)
Profit retained for the period 40 40 38
Earnings per share
Basic (pence) 11.4p 11.5p 19.2p
Diluted (pence) 11.4p 11.3p 18.9p
Consolidated balance sheet
as at 30 September 2001
30 September 30 September 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
Assets £m £m £m £m £m £m
Treasury bills and other eligible bills 1 - 1
Loans and advances to banks 673 515 890
Debt securities held for treasury purposes 216 237 201
Debt securities and other fixed income
securities held as financial fixed asset
investments
Loan investments 1,477 1,363 1,522
Fixed income shares 390 504 434
Equity shares
Listed 406 1,869 971
Unlisted 2,771 3,355 3,030
5,044 7,091 5,957
Interests in joint ventures
Share of gross assets 267 55 46
Share of gross liabilities (152) - -
115 55 46
Goodwill - 72 74
Tangible fixed assets 60 54 60
Other assets 220 253 210
Total assets 6,329 8,277 7,439
Liabilities
Deposits by banks 632 140 617
Debt securities in issue 1,487 1,606 1,503
Other liabilities 269 285 276
Subordinated liabilities 87 49 70
2,475 2,080 2,466
Called up share capital 304 303 304
Share premium and redemption reserve 341 328 334
Capital reserve 2,917 5,319 4,083
Revenue reserve 292 247 252
Shareholders' funds 3,854 6,197 4,973
Total liabilities 6,329 8,277 7,439
Net asset value per share
Basic (pence) 633p 1022p 819p
Diluted (pence) 631p 1011p 815p
Approved by the Board
29 October 2001
Consolidated cash flow statement
for the six months to 30 September 2001
6 months to 6 months to 12 months
30 30 to
September September 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
£m £m £m
Operating activities
Interest received and similar income arising 59 56 103
from debt securities and other fixed income
securities held as financial fixed asset
investments
Other interest received and similar income 26 19 43
Interest paid on borrowings (56) (57) (115)
Dividends received from equity shares 68 63 121
Fees and other net cash receipts 34 34 75
Operating and administrative costs paid (75) (55) (94)
Net cash inflow from operating activities 56 60 133
Taxation (paid)/received (2) (2) 12
Capital expenditure and financial investment
Investment in equity shares, fixed income (493) (715) (1,541)
shares and loans
Investment in equity shares acquired from (174) - -
joint venture
Sale, repayment or redemption of equity 617 834 1,586
shares, fixed income shares and loan
investments
Investment administrative expenses (23) (26) (49)
Investment interest paid (3) (1) (4)
Investment in joint ventures (330) (1) (4)
Divestment or repayment of interests in joint 223 22 27
ventures
Disposal of investment properties - 2 2
Purchase of tangible fixed assets (4) (4) (11)
Sale of tangible fixed assets - 1 2
Net cash (outflow)/inflow from capital (187) 112 8
expenditure and financial investment
Acquisitions
Acquisition of subsidiary undertakings (46) (4) (11)
Equity dividends paid (48) (45) (74)
Management of liquid resources 183 (81) (378)
Net cash (outflow)/inflow before financing (44) 40 (310)
Financing
Debt due within one year (223) (19) (20)
Debt due after more than one year 241 (31) 352
Issues of shares 7 12 18
Net cash inflow/(outflow) from financing 25 (38) 350
(Decrease)/increase in cash (19) 2 40
Notes to the financial statements
for the six months to 30 September 2001
1 Reconciliation of revenue profit before tax to net cash inflow from operating
activities
6 months to 6 months to 12 months
30 30 to
September September 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
£m £m £m
Revenue profit before tax 71 71 120
Depreciation of equipment and vehicles 4 3 8
Amortisation of goodwill 2 - -
Increase in other assets associated with (3) (15) (2)
operating activities
Tax on investment income included within - (1) (2)
income from overseas companies
Increase in prepayments and accrued income (19) (19) (7)
associated with operating activities
Increase in accruals and deferred income 9 20 14
associated with operating activities
Reversal of (profits)/losses of joint (8) - 2
ventures less distributions received
Loss on sale of tangible fixed assets - 1 -
Net cash inflow from operating activities 56 60 133
2 Reconciliation of cash flows to movements in net debt
6 months to 6 months to 12 months
30 30 to
September September 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
£m £m £m
(Decrease)/increase in cash in the period (19) 2 40
Cash (inflow)/outflow from management of (183) 81 378
liquid resources
Cash (inflow)/outflow from debt financing (1) 66 (296)
Cash (inflow) from subordinated liabilities (17) (16) (36)
Change in net debt from cash flows (220) 133 86
Foreign exchange movements 2 (9) (17)
Movement in net debt in the period (218) 124 69
Net debt at start of period (1,101) (1,170) (1,170)
Net debt at end of period (1,319) (1,046) (1,101)
3 Analysis of net debt
Other 30
1 April Cash Exchange non-cash September
flow 2001
2001 movement changes
£m £m
£m £m £m
Cash and deposits repayable on demand 87 (19) - - 68
Treasury bills, other loans, advances 1,005 (183) - - 822
and treasury debt securities
Deposits and debt securities (663) 223 4 (13) (449)
repayable within one year
Deposits and debt securities (1,457) (224) (2) 13 (1,670)
repayable after one year
Subordinated liabilities (70) (17) - - (87)
Finance leases (3) - - - (3)
(1,101) (220) 2 - (1,319)
Basis of preparation and independent review report
Basis of preparation
The accounting policies used in the preparation of this Interim report are the
same as those used in the statutory accounts for the year to 31 March 2001.
The adoption of Financial Reporting Standards, which become effective for the
first time during the year to 31 March 2002, will not give rise to any changes
to these policies in the Accounts at 31 March 2002. The six month period is
treated as a discrete period except in so far as tax in the revenue account is
charged on the basis of an estimated annual effective rate.
The figures for the year to 31 March 2001 have been extracted from the
accounts filed with the Registrar of Companies on which the auditors issued an
unqualified report. This Interim report does not constitute statutory
accounts.
Independent review report to 3i Group plc
Introduction We have been instructed by the Company to review the financial
information for the six months ended 30 September 2001 which comprises
Consolidated statement of total return, Consolidated revenue statement,
Consolidated balance sheet, Consolidated cash flow statement and the related
notes 1 to 3 and the basis of preparation. We have read the other information
contained in the Interim report and considered whether it contains any
apparent misstatement or material inconsistencies with the financial
information.
Directors' responsibilities The Interim report, including the financial
information contained therein, is the responsibility of, and has been approved
by the Directors. The Directors are responsible for preparing the Interim
report in accordance with the Listing Rules of the Financial Services
Authority which require that the accounting policies and presentation applied
to the interim figures should be consistent with those applied in preparing
the preceding annual accounts except where any changes, and the reasons for
them, are disclosed.
Review work performed We conducted our review in accordance with guidance
contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in
the United Kingdom. A review consists principally of making enquiries of group
management and applying analytical procedures to the financial information and
underlying financial data and based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit performed in accordance with United Kingdom Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.
Review conclusion On the basis of our review we are not aware of any material
modifications that should be made to the financial information as presented
for the six months ended 30 September 2001.
Ernst &Young LLP
London
29 October 2001
New investment analysis
Analysis of the equity, fixed income and loan investments made by 3i Group.
The analyses below exclude investments in joint ventures.
Investment by geography (3i only - excluding co-investment funds) (£m)
6 months to 6 months to 12 months to
30 September 30 September 31 March
2001 2000 2001
UK 240 409 786
Continental Europe 179 255 560
Asia Pacific 7 8 49
US 72 29 134
Total 498 701 1,529
Investment by geography (including co-investment funds) (£m)
UK 273 496 1,006
Continental Europe 246 367 770
Asia Pacific 9 10 62
US 72 29 134
Total 600 902 1,972
Continental European investment (£m)
Austria 6 2 19
Benelux 62 16 63
Denmark 4 - 4
Finland 12 1 3
France 27 72 117
Germany 76 121 301
Ireland 2 10 17
Italy 8 35 64
Spain 25 84 131
Sweden 20 5 9
Switzerland 4 21 26
Other European1 - - 16
Total 246 367 770
1 Other European includes investments in countries where 3i did not have an
office at the period end.
Investment by product (£m)
Start-ups 56 140 278
Management buy-outs 179 261 617
Management buy-ins 7 39 88
Growth capital 313 392 852
Share purchase 14 56 90
Recoveries 31 14 47
Total 600 902 1,972
Number of investments by product
Start-ups 56 120 187
Management buy-outs 33 36 64
Management buy-ins 10 9 14
Growth capital 210 212 369
Share purchase 11 26 34
Recoveries 41 37 58
Total 361 440 726
Investment by FTSE industrial classification (£m)
Resources 13 53 67
Industrials 60 115 256
Consumer goods 84 150 371
Services and utilities 254 178 482
Financials 11 19 55
Information technology 178 387 741
Total 600 902 1,972
Technology investment by sector (£m)
Life sciences and healthcare 62 51 136
Communications and networking 81 79 224
Electronics and other 36 49 76
technologies
e Business 28 92 185
Software and computer services 94 288 485
Total 301 559 1,106
Portfolio analysis
The Group's equity, fixed income and loan investments total £5,044 million at
30 September 2001. The analyses below exclude investments in joint ventures.
Portfolio value by geography (including co-investment funds) (£m)
At 30 September At 31 March 2001
2001
UK 4,023 4,792
Continental Europe 1,914 2,039
Asia Pacific 99 98
US 261 246
Total 6,297 7,175
Portfolio value by geography (3i only - excluding co-investment funds) (£m)
UK 3,382 4,121
Continental Europe 1,321 1,363
Asia Pacific 86 86
US 255 235
Total 5,044 5,805
Continental European portfolio value (£m)
Austria 12 18
Benelux 85 92
Denmark 10 10
Finland 17 5
France 220 254
Germany 400 456
Ireland 22 45
Italy 119 142
Spain 192 234
Sweden 190 11
Switzerland 40 82
Other European1 14 14
Total 1,321 1,363
1 Other European includes investments in countries where 3i did not have an
office at the period end.
Portfolio value by FTSE industrial classification (£m)
Resources 256 232
Industrials 920 1,081
Consumer goods 1,058 1,237
Services and utilities 1,443 1,538
Financials 236 256
Information technology 1,131 1,461
Total 5,044 5,805
Portfolio value by valuation method (£m)
Imminent sale or IPO 32 106
Listed 406 818
Secondary market 115 266
Earnings 815 1,033
Cost 1,125 1,078
Net assets 165 147
Other 520 401
Loan investments and fixed income shares 1,866 1,956
Total 5,044 5,805
Technology portfolio value by sector (£m)
Life sciences and healthcare 451 526
Communications and networking 350 400
Electronics and other technologies 162 203
e Business 176 220
Software and computer services 750 980
Total 1,889 2,329
Technology portfolio value by valuation method (£m)
Imminent sale or IPO 5 44
Listed 238 475
Secondary market 105 248
Earnings 66 69
Cost 874 841
Further advance 209 227
Net assets 2 1
Other 91 79
Loan investments and fixed income shares 299 345
Total 1,889 2,329
Funds under management (£m)
Third party unquoted co-investment funds 1,960 2,131
Quoted investment companies1 656 870
Total 2,616 3,001
1 Includes the 3i Group Pension Plan.
Ten largest investments
At 30 September 2001, the Directors' valuation of the ten largest investments
was a total of £414 million. These investments cost £339 million.
Investment (date first invested) and description Proportion Directors'
of business valuation
Cost of equity
£m
£m shares
(Note 1)
(Note held
1)
Go Fly Ltd (2001) Low cost airline
Equity shares 1 43.3% 1
Loans 57 57
58 58
Beltpacker plc (2000) Manufacture/marketing of
healthcare/beauty products, footwear and
accessories
Equity shares 12 35.6% 12
Loans 38 38
50 50
Nordisk Renting AB (2001) Renting business in real
estate
Equity shares 58 47
58 47
Mettis Group Ltd (1999) Manufacture and sale of
forgings
Equity shares 1 40.0% 1
Loans 43 43
44 44
Weston Medical Group plc (Note 2) (1993)
Needle-free medical device manufacture
Equity shares 1 17.8% 43
1 43
General London Construction Holdings Ltd (2001)
Regional housebuilder
Equity shares 1 41.6% 1
Loans 41 41
42 42
ERM Plc (2001) Environmental consultancy
Equity shares 1 42.4% 1
Loans 35 35
36 36
Target Express Holdings Ltd (2000) Freight
transport by road
Equity shares (Note 3) - 33.8% -
Loans 33 33
33 33
Morse plc (Note 2) (1995) Leading technology
integrator
Equity shares 9 21.5% 32
9 32
Venture Production Company Ltd (1997) Oil and gas
production
Equity shares 8 23.3% 29
8 29
Notes
1. The investment information is in respect of 3i's holding and excludes any
co-investment by 3i managed funds.
2. Quoted company (including secondary markets).
3. The cost and Directors' valuation of the equity held of Target Express
Holdings Ltd is £106,000.
Note 1
The statutory accounts for the year to 31 March 2001 were filed with the
Registrar of Companies on 9 August 2001. The auditors' report on those
statutory accounts was unqualified and did not contain any statement under
Section 237 (2) or (3) of the Companies Act 1995.
Note 2
The Interim report 2001 will be posted to shareholders on 9 November 2001 and
thereafter copies will be available from the Company Secretary, 3i Group plc,
91 Waterloo Road, London SE1 8XP.
Note 3
The interim dividend will be payable on 2 January 2002 to holders of shares on
the register on 30 November 2001. The ex-dividend date will be 28 November
2001.
Note 4
Investment statistics referred to in this announcement relate to investments
made by 3i Group and third party co-investment funds unless otherwise stated.
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