Interim Results - NAV Up 7.3%

3i Group PLC 25 November 1999 3i Group plc Interim Results for the six months ended 30 September 1999 RESULTS HIGHLIGHTS Sir George Russell, chairman of 3i Group plc, commenting on the results, said: '3i has achieved good results for the six months ended 30 September 1999, generating a total return of £294.8 million, a return of 8.2% on opening shareholders' funds. Net asset value has increased to 645p from 601p.' * Total return: £294.8m * Return on opening shareholders' funds: 8.2% * Net asset value: 645p, up 7.3% * Interim dividend: 4.6p (1998: 4.3p), up 7.0% * Investment: UK, £328.5m (1998: £332.1m) - strong market leadership Continental Europe, £194.7m (1998: £113.2m) - expanding rapidly * Technology investment: £262.5m, 49.4% of total investment * Technology portfolio: £1.1bn in over 600 businesses, 24.2% of total portfolio Brian Larcombe, chief executive of 3i Group plc, said: 'As Europe's leading venture capital company we have made excellent progress with our strategies of building our international network, increasing our investment in technology assets and growing our funds under management.' In the UK investment levels were broadly unchanged at £328.5 million, compared to £332.1 million invested in the same period last year. Investment in technology has increased and investment in buy-outs has reduced in line with a slower market. In continental Europe, 3i achieved a record level of investment, demonstrating the benefits of further investment in its capabilities, offices and people. Investment grew strongly with £194.7 million invested, an increase of 72.0% on the same period last year. A new office was opened in Nantes and 3i has further plans to continue the development of the continental European network. 3i continued the ongoing development of its funds under management with the launch of Eurofund III in September. This fund of Euro 2bn will initially invest in buy-outs and growth capital investments in continental Europe before widening its scope to include the UK. 3i's technology business continues to grow strongly with £262.5 million invested over the six month period. The technology portfolio of over 600 businesses is now valued at £1,147.2 million. Two offices were opened in the United States to provide an insight into the US technology market and support for technology portfolio companies in Europe and Asia Pacific, as well as creating a platform for investment in US technology businesses. Financial Review Total return for the six months was £294.8 million, a return of 8.2% on opening shareholders' funds. Revenue profit after tax was £69.9 million, an increase of 3.9% over the same period last year. Realised capital profits on the sale of investments were satisfactory at £58.4 million, although below the exceptionally high level achieved in the first half of last year. Net unrealised value growth on investments held throughout the period amounted to £184.9 million. The value of the Group's portfolio has increased from £4.6 billion at 31 March to £4.7 billion at 30 September 1999. Chief executive, Brian Larcombe, commented: '3i continues to make good progress in all of the markets in which we operate. Our continued investment in resources in continental Europe, Asia Pacific and the United States builds on our strong UK market position and enables us to respond well to our wider market place.' For further information, please contact: Brian Larcombe, Chief Executive Tel: 0171-975 3386 3i Michael Queen, Finance Director Tel: 0171-975 3400 3i Liz Hewitt, Director of Corporate Affairs Tel: 0171-975 3283 3i www.3i.com CHAIRMAN'S STATEMENT 3i has achieved good results for the six months ended 30 September 1999, generating a total return of £294.8 million, a return of 8.2% on opening shareholders' funds. Net asset value has increased to 645p from 601p. The Directors have declared an interim dividend of 4.6p, which is an increase of 7.0%. The Group has continued to grow internationally, with the opening of two offices in the United States and the further development of our operations in continental Europe and Asia Pacific. In addition, we have substantially increased funds under management with the completion of a new fund targeted at European investment. Our investment policy is to invest in growing, ambitious companies and we have increased the overall level of investment compared with the same period last year. In the UK, however, investment levels were broadly unchanged compared with last year. Investment in technology has increased and investment in buy-outs has reduced in line with a slower market. In continental Europe, we have achieved a record level of investment, which demonstrates the benefits of the further investment we have made in our capabilities, offices and people. Our Asia Pacific businesses, based in Japan and Singapore, have also benefited from increased resources and are now well placed to take advantage of expected market growth. Our strategy for developing an international technology business by harnessing the strength of our network has progressed with the move to the United States of Martin Gagen, previously joint head of investment in the UK, to lead our US technology business. I am pleased to welcome to the Board both Oliver Stocken, as a non-executive Director, and Rod Perry who has executive responsibility for Asia Pacific and Group Services, having been a member of the Executive Committee since 1996. We are pleased to announce the introduction of a dividend re-investment plan, which will enable shareholders to re-invest their dividends in 3i shares. Details of the scheme are being sent to shareholders with these results. Looking forward, the markets in which we operate continue to show good growth potential. The Enterprise Barometers, our regular surveys of investee companies, show continued strength in business confidence both in the UK and continental Europe. Sir George Russell CBE, Chairman 24 November 1999 OPERATING AND FINANCIAL REVIEW As Europe's leading venture capital company we have made excellent progress with our strategies of building our international network, increasing our investment in technology assets and growing our funds under management. Europe 3i maintained its leading market position in the UK and increased activity in continental Europe during the six month period, with our network of offices generating a good flow of investment opportunities across all sectors of the economy. Investment levels in continental Europe grew strongly to £194.7 million from £113.2 million in the same period last year. We have opened an office in Nantes and have plans to open further offices in continental Europe. In the UK, we invested £328.5 million compared with £332.1 million. The UK buy-out market has been slower but we expect a stronger market in the next six months. Jonathan Russell has been appointed to the Executive Committee with responsibility for buy-outs and buy-ins. Portfolio management resources have been increased in the UK with the creation of specific teams to focus on the management of smaller investments. Technology Our technology business continues to grow with £262.5 million (49.4% of total investment) invested in the six month period. 3i's leading position as a technology investor is demonstrated by our own portfolio of £1,147.2 million invested in over 600 businesses. We make technology investments in a broad range of sectors including telecommunications, life sciences and healthcare, computer services, e-businesses and electronics. The portfolio includes businesses at all stages of development. USA As part of the strategy for our technology business we have opened two offices in the United States, in Palo Alto and Boston. Our US offices provide an insight into this market and provide support for our technology portfolio companies in Europe and Asia Pacific as well as making new investments in local technology businesses. Asia Pacific In South-East Asia, we continue to build our business from our base in Singapore where we have seen an increasing number of investment opportunities. In Japan, the new 3i Kogin joint venture is recruiting local staff so that it can take advantage of the expected opportunities arising from the restructuring of the Japanese economy. Fund Management In September, we announced the raising of our third European fund. This fund of Euro 2 billion will initially invest in buy-outs and growth capital investments in continental Europe and at a later stage will also invest in the UK. Paul Waller, who has responsibility for fund management, has been appointed to the Executive Committee. Financial Review Total return for the six months was £294.8 million, a return of 8.2% on opening shareholders' funds. This compares with returns of -1.2% and 13.7% in the FTSE All-Share and FTSE SmallCap (excluding investment trusts) Total Return indices respectively. In the UK, total return was 9.0% and the continental European return was 2.5% in local currency. 3i's international expansion and increased investment in technology assets will gradually increase the proportion of capital profits relative to revenue profits. This trend is also reinforced by a change in the UK venture capital market towards lower revenue yielding capital structures for investments. Revenue Profit In the six months to 30 September 1999, revenue profit after tax was £69.9 million, an increase of 3.9% over the same period last year. Lower yields were earned on fixed income shares and loan investments. Although dividend income from equity shares was higher, this included the receipt of special dividends arising mainly from the realisation of investments, which was partly offset by a lower rate of UK dividend tax credit. Interest payable on borrowings less other interest receivable was similar to last year. Fee income of £24.3 million was earned. Higher fees were earned on the management of co-investment funds, offset by lower fees on the arrangement of investments. Total administrative expenses increased to £57.2 million from £48.2 million mainly because of increases in staff and other costs to build the business outside the UK. A higher level of expenses has been allocated to the capital reserve than in the same period last year in accordance with our policy of allocating a proportion of portfolio management costs less related fee income, to the capital reserve. Profit before tax has fallen when compared with last year, mainly as a result of the reduction in the rate of UK dividend tax credit. If the same rate of tax credit had applied at September 1999, as at September 1998, dividend income and consequently revenue profit before tax, as well as the revenue tax charge, would have been £8.6 million higher. This has had no impact on revenue profit after tax. Capital Profits Realised capital profits on the sale of investments were satisfactory at £58.4 million, although below the exceptionally high level achieved in the first half of last year. The rate of realisations was slightly higher with 7.4% of the portfolio being sold. As a result of less receptive stockmarkets, both in the UK and in continental Europe, there were only five flotations of portfolio companies, compared with 16 in the first half of last year. Net unrealised value growth of investments held throughout the period amounted to £184.9 million. The weighted average price earnings multiple used to value the majority of the unquoted equity portfolio has increased to 9.8 at 30 September from 8.8 at 31 March. However, there has been a net reduction of £84.7 million in the value of the portfolio of companies that we consider may fail, compared with a net reduction of £64.7 million at September 1998. Balance Sheet The value of the Group's portfolio has increased to £4.7 billion at 30 September. Net borrowings fell during the period by £65.8 million to £968.8 million and represented 25.0% of shareholders' funds at the balance sheet date. Millennium 3i has addressed the Year 2000 date issue as a business priority. Our core systems have been examined and, where necessary, amended. Consequently, we believe that our core business systems are now Year 2000 compliant. We have maintained our policy of influencing our investee companies to achieve Year 2000 compliance through existing relationship contacts, newsletters and regional seminars. Although we have been rigorous in our Year 2000 testing, plans have been developed to enable us to continue our operations in the unlikely event that some degree of Year 2000 related disruption occurs. 3i's Year 2000 contingency arrangements were successfully tested during September and October 1999. Nonetheless, while we believe we have taken all reasonable steps to protect 3i's business from the millennium issue, the complexities are such that, in common with other businesses, it is impossible to guarantee that there will be no adverse affects on the Group or its portfolio. Summary 3i continues to make good progress in all of the markets in which we operate. Our continued investment in resources in continental Europe, Asia Pacific and the United States builds on our strong UK market position and enables us to respond well to our market place. Brian Larcombe, Chief Executive 24 November 1999 CONSOLIDATED STATEMENT OF TOTAL RETURN for the six months to 30 September 1999 6 months 6 months 12 months to 30 September to 30 September to 31 March 1999 1998 1999 (unaudited) (unaudited) (audited) Rev- Capi- Total Rev- Capi- Total Rev- Capi- Total enue tal enue tal enue tal £m £m £m £m £m £m £m £m £m Capital profits Net realised profits over opening valuation 58.4 58.4 118.1 118.1 180.1 180.1 Net unrealised value growth in the period 184.9 184.9 (502.7) (502.7) (90.0) (90.0) ----- ----- ----- ----- ----- ----- 243.3 243.3 (384.6) (384.6) 90.1 90.1 Total operating income before interest payable 173.9 173.9 182.0 182.0 336.4 336.4 Interest payable (50.8) - (50.8) (56.5) - (56.5) (109.7) - (109.7) ----- ----- ----- ----- ----- ----- ----- ----- ----- 123.1 243.3 366.4 125.5 (384.6) (259.1) 226.7 90.1 316.8 Admini- strative expenses (42.1)(15.1) (57.2) (40.9) (7.3) (48.2) (90.1) (21.2) (111.3) ----- ----- ----- ----- ----- ----- ----- ----- ----- Return before tax and currency translation adjustment 81.0 228.2 309.2 84.6 (391.9) (307.3) 136.6 68.9 205.5 Tax (11.1) (5.0) (16.1) (17.3) (7.3) (24.6) (26.3) (5.4) (31.7) ----- ----- ----- ----- ----- ----- ----- ----- ----- Return for the period before currency translation adjustment 69.9 223.2 293.1 67.3 (399.2) (331.9) 110.3 63.5 173.8 Currency translation adjustment 6.0 (4.3) 1.7 (0.7) 3.5 2.8 (1.7) 5.0 3.3 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total return 75.9 218.9 294.8 66.6 (395.7) (329.1) 108.6 68.5 177.1 ===== ===== ===== ===== ===== ===== ===== ===== ===== Total return per share Basic 12.7p 36.8p 49.5p 11.2p (66.5)p (55.3)p 18.3p 11.5p 29.8p (pence) Diluted 12.6p 36.4p 49.0p 11.2p (66.2)p (55.0)p 18.2p 11.5p 29.7p (pence) ===== ===== ===== ===== ===== ===== ===== ===== ===== 6 months 6 months 12 months to 30 September to 30 September to 31 March 1999 1998 1999 (unaudited) (unaudited) (audited) Reconciliation of movement in shareholders' funds £m £m £m Opening balance 3,603.9 3,488.9 3,488.9 ------ ------ ------ Revenue return 75.9 66.6 108.6 Capital return 218.9 (395.7) 68.5 ------ ------ ------ Total return 294.8 (329.1) 177.1 Dividends (27.0) (25.3) (66.3) Proceeds of issues of shares 6.3 3.6 4.2 ------ ------ ------ Movement in the period 274.1 (350.8) 115.0 ------ ------ ------ Closing balance 3,878.0 3,138.1 3,603.9 ====== ====== ====== CONSOLIDATED REVENUE STATEMENT for the six months to 30 September 1999 6 months 6 months 12 months to 30 September to 30 September to 31 March 1999 1998 1999 (unaudited) (unaudited) (audited) £m £m £m Interest receivable on loan investments 45.9 48.3 92.0 Fixed rate dividends 19.6 29.6 51.8 Other interest receivable 13.9 19.5 37.8 Interest payable (50.8) (56.5) (109.7) ------ ------ ------ Net interest income 28.6 40.9 71.9 Dividend income from equity shares 69.8 60.7 101.1 Income from joint ventures (0.2) (0.6) (1.2) Fees receivable 24.3 24.2 53.5 Other operating income 0.6 0.3 1.4 ------ ------ ------ Total operating income 123.1 125.5 226.7 Administrative expenses (42.1) (40.9) (90.1) ------ ------ ------ Profit on ordinary activities before tax 81.0 84.6 136.6 Tax on profit on ordinary activities (11.1) (17.3) (26.3) ------ ------ ------ Revenue profit for the period 69.9 67.3 110.3 Dividends Interim (27.0) (25.3) (25.2) Final (41.1) ------ ------ ------ Revenue profit retained for the period 42.9 42.0 44.0 ====== ====== ====== Dividend per share (pence) 4.6p 4.3p 11.3p ====== ====== ====== Earnings per share Basic (pence) 11.7p 11.3p 18.5p Diluted (pence) 11.6p 11.3p 18.5p ====== ====== ====== CONSOLIDATED BALANCE SHEET as at 30 September 1999 30 September 30 September 31 March 1999 1998 1999 (unaudited) (unaudited) (audited) Assets £m £m £m Treasury bills and other eligible bills 15.7 15.4 15.5 Loans and advances to banks 348.2 301.6 270.8 Loans and advances to customers 0.7 1.2 0.8 Debt securities held for treasury purposes 166.0 210.6 173.8 Debt securities and other fixed income securities held as financial fixed asset investments ------ ------ ------ Loan investments 1,120.4 914.5 1,094.3 Fixed income shares 667.8 766.7 729.5 Equity shares Listed 753.0 575.3 742.1 Unlisted 2,192.5 1,693.0 1,991.4 ------ ------ ------ 4,733.7 3,949.5 4,557.3 Interests in joint ventures 62.3 39.1 44.0 Tangible fixed assets 47.0 46.4 48.2 Other assets 199.7 206.5 196.9 ------ ------ ------ Total assets 5,573.3 4,770.3 5,307.3 ====== ====== ====== Liabilities Deposits by banks 83.0 49.7 68.8 Debt securities in issue 1,415.7 1,387.0 1,425.9 Other liabilities 196.6 195.5 208.7 ------ ------ ------ 1,695.3 1,632.2 1,703.4 ------ ------ ------ Share capital 298.5 297.6 297.7 Share premium and redemption reserve 263.3 257.3 257.8 Capital reserve 3,099.9 2,416.8 2,881.0 Revenue reserve 216.3 166.4 167.4 ------ ------ ------ Shareholders' funds 3,878.0 3,138.1 3,603.9 ------ ------ ------ Total liabilities 5,573.3 4,770.3 5,307.3 ====== ====== ====== Net asset value per share Basic (pence) 650p 527p 605p Diluted (pence) 645p 525p 601p ====== ====== ====== Approved by the Board 24 November 1999 CONSOLIDATED CASH FLOW STATEMENT for the six months to 30 September 1999 6 months 6 months 12 months to 30 September to 30 September to 31 March 1999 1998 1999 (unaudited) (unaudited) (audited) £m £m £m Operating activities Interest received and similar income arising from debt securities and other fixed income securities held as financial fixed asset investments 60.1 68.5 126.6 Other interest received and similar income 16.5 16.2 37.5 Interest paid on borrowing (47.2) (55.5) (113.2) Dividends received from equity shares 62.9 49.5 82.8 Fees and other net cash receipts 24.8 24.4 51.9 Operating and administrative costs paid (59.9) (47.9) (81.3) ------ ------ ------ Net cash inflow from operating activities 57.2 55.2 104.3 ------ ------ ------ Taxation received 13.0 3.1 9.4 ------ ------ ------ Capital expenditure and financial investment Investment in equity shares, fixed income shares and loans (400.5) (343.0) (836.9) Sale, repayment or redemption of equity shares, fixed income shares and loan investments 441.4 522.6 872.7 Decrease in advances to customers 0.1 - 0.4 Investment administrative expenses (15.1) (7.3) (21.2) Net divestment of joint ventures 6.2 6.4 11.9 Disposal of investment properties 0.8 5.1 6.8 Purchase of tangible fixed assets (4.3) (5.6) (9.3) Sale of tangible fixed assets 0.5 0.4 1.4 ------ ------ ------ Net cash inflow from capital expenditure and financial investment 29.1 178.6 25.8 ------ ------ ------ Equity dividends paid (41.1) (37.6) (62.8) ------ ------ ------ Management of liquid resources (62.8) (95.4) (20.5) ------ ------ ------ Net cash (outflow)/inflow before financing (4.6) 103.9 56.2 ------ ------ ------ Financing Debt due within one year (7.3) (87.5) (15.5) Debt due after more than one year 13.1 (24.7) (42.4) Issue of shares 6.3 3.6 4.2 ------ ------ ------ Net cash inflow/(outflow) from financing 12.1 (108.6) (53.7) ------ ------ ------ Increase/(decrease) in cash 7.5 (4.7) 2.5 ====== ====== ====== NOTES TO THE FINANCIAL STATEMENTS for the six months to 30 September 1999 1 Reconciliation of revenue profit before tax to net cash inflow from operating activities 6 months 6 months 12 months to 30 September to 30 September to 31 March 1999 1998 1999 (unaudited) (unaudited) (audited) £m £m £m Revenue profit before tax 81.0 84.6 136.6 Depreciation of equipment and vehicles 3.1 2.7 5.7 (Increase) in other assets - (13.8) (19.0) Tax on franked investment income included within income from UK companies (9.6) (16.6) (28.5) (Increase) in prepayments and accrued income (9.3) (17.8) (6.5) (Decrease)/increase in accruals and deferred income (7.3) 15.7 16.1 Reversal of (profits)/losses of joint ventures less distributions received (0.5) 0.6 0.5 Profit on sale of tangible fixed assets (0.2) (0.2) (0.6) ------ ------ ------ Net cash inflow from operating activities 57.2 55.2 104.3 ====== ====== ====== 2 Reconciliation to net debt 6 months 6 months 12 months to 30 September to 30 September to 31 March 1999 1998 1999 (unaudited) (unaudited) (audited) £m £m £m Increase/(decrease) in cash in the period 7.5 (4.7) 2.5 Cash outflow from management of liquid resources 62.8 95.4 20.5 Cash (inflow)/outflow from debt financing (5.8) 112.2 57.9 ------ ------ ------ Decrease in net debt from cash flows 64.5 202.9 80.9 Foreign exchange movements 1.3 2.1 (1.4) New finance leases and other non-cash changes (0.1) - 0.2 ------ ------ ------ Movement in net debt in the period 65.7 205.0 79.7 Net debt at start of period (1,037.5) (1,117.2) (1,117.2) ------ ------ ------ Net debt at end of period (971.8) (912.2) (1,037.5) ====== ====== ====== 3 Analysis of net debt Other 1 April Cash flow non-cash Exchange 30 Sept 1999 changes movement 1999 £m £m £m £m £m Cash and deposits repayable on demand 22.0 7.5 - (0.5) 29.0 Treasury bills, other loans, advances and treasury debt securities 438.1 62.8 - - 500.9 Deposits and debt securities repayable within one year (281.6) 7.3 (45.6) 1.8 (318.1) Deposits and debt securities repayable after one year (1,213.1) (13.1) 45.6 - (1,180.6) Finance leases (2.9) - (0.1) - (3.0) ------ ------ ------ ------ ------ (1,037.5) 64.5 (0.1) 1.3 (971.8) ====== ====== ====== ====== ====== 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 1999. 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 1999 are 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 and we have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements 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 Listing Rules of the London Stock Exchange 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. 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 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 1999. Ernst & Young London 24 November 1999 Note 1 The Interim Report for the six months ended 30 September 1999 will be posted to shareholders on 7 December 1999 and thereafter copies will be available from the Company Secretary, 3i Group plc, 91 Waterloo Road, London SE1 8XP. Note 2 The Interim dividend will be paid on 28 January 2000 to holders of shares on the register on 10 December 1999. The ex-dividend date will be 6 December 1999. Note 3 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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