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06/09/2014 22:34

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RNS Number : 6704N
3i Group PLC
30 July 2014 
 
3i Group plc - Interim Management Statement 
 
30 July 2014 
 
3i Group plc ("3i"), a leading international manager of third-party and
proprietary capital across mid-market private equity, infrastructure and debt
management, today issues its Interim Management Statement in accordance with
FCA Disclosure and Transparency Rule 4.3. This statement relates to the
three-month period from 1 April 2014 to 30 June 2014 (the "period" or the
"quarter"); financial information is unaudited. There have been no material
changes to the financial position of 3i from the end of this period to the
date of this announcement. 
 
This statement is presented on 3i's Investment basis in order to provide users
with the most appropriate description of the drivers of 3i's performance. Net
asset value ("NAV") and Total return are the same on the Investment basis and
on an IFRS basis. Further details of the differences between 3i's consolidated
financial statements prepared on an IFRS basis and under the Investment basis
are provided in the 2014 Annual Report and Accounts. 
 
Simon Borrows, 3i's Chief Executive said: 
 
"The new financial year has started well. We are seeing good momentum across
the Group and a growing number of exits at attractive valuations. We remain
cautious investors in both Private Equity and Infrastructure given the
competitive dynamics in those markets but have made selective investment in
all three divisions." 
 
Highlights for the quarter ended 30 June 2014: 
 
§ Received £164 million of Private Equity realisation proceeds, with an
additional c.£245 million expected from exits signed but not yet completed; 
 
§ Continued selective investment across Private Equity, Infrastructure and
Debt Management; 
 
§ Raised a $618 million US CLO; further E525 million European CLO announced
since the quarter end; 
 
§ Good momentum maintained in the Private Equity portfolio with strong
earnings growth; 
 
§ Diluted NAV per share increased by 4% to 361 pence as at 30 June 2014,
before payment of final FY2014 dividend of 13.3 pence per share on 25 July
2014. 
 
Realisations and investment activity 
 
                                     Private  Infrastructure  Debt               
                                     Equity                   Management  Total  
 Cash proceeds                       164      8               -           172    
 Cash investment                     (35)     -               (60)        (95)   
 Net cash divestment / (investment)  129      8               (60)        77     
 Non-cash (investment)               (38)     -               -           (38)   
 Net divestment / (investment)       91       8               (60)        39     
 
 
Note: 3i proprietary capital only 
 
Private Equity 
 
The mid-market private equity market remains fully priced. This has provided
us with the opportunity for good realisations, but continues to result in a
cautious approach to new investment. 
 
In that context, no new investments were completed in the quarter. Cash
investment of £35 million was made from 3i's proprietary capital (three months
to 30 June 2013: £9 million). This included a £27 million investment for an
opportunity to increase 3i's share of the remaining Eurofund V assets with the
purchase of a small third party investor interest in that fund. 
 
Market conditions created opportunities for realisation and refinancings,
which together generated cash proceeds in the quarter of £164 million. The
uplift to 31 March 2014 was modest at 2% as the most material transactions,
the IPO of Phibro and the sale of Foster + Partners, were reflected in the 31
March 2014 NAV. 
 
A number of sales were signed but did not complete in the quarter. They are
expected to generate proceeds of approximately £245 million for 3i, at an
uplift of £45 million, or 23% over the value at 31 March 2014. Together, they
were valued at £240 million at 30 June 2014 and include the sales of Hilite,
the German automotive parts supplier, and Vedici, the French private hospital
group. 
 
Infrastructure 
 
The European portfolio continued to perform well and generated a good level of
cash income to support both dividends and advisory fees from 3i Infrastructure
plc ("3iN") for 3i. In the period, 3i accrued dividend income of £10 million
from 3iN. 
 
The Public Private Partnership ("PPP") investment team continues to see a good
pipeline of opportunities in the European PPP sector. During the period, 3iN
committed to invest £4.6 million in a project to build a new campus for
Ayrshire College in Kilmarnock, Scotland. This is the third investment that
the PPP team has closed since joining 3i in November 2013. 
 
During the period, 3i partially divested its holding in Adani Power, a quoted
power generation business based in Gujarat, India. This investment was held
through the 3i India Infrastructure Fund. 3i received proceeds of £8 million
for its share of the Fund's divestment which represented a realised uplift of
£1 million over the value of the investment at 31 March 2014. 
 
On 8 July 2014, 3iN's shareholders approved a number of amendments to its
investment advisory agreement with 3i. These included the extension of the
fixed term of the agreement for a period of four years, with one year's
rolling notice thereafter. 
 
Debt Management 
 
Fee income from Debt Management remained strong in the quarter, with the
majority of the funds continuing to pay both senior and subordinated fees and
new fund launches adding to total fee income. 
 
The Debt Management team closed Jamestown IV, a new US CLO, in June 2014
raising $618 million. 3i invested $10 million (£6 million) in the equity
tranche of this CLO. 
 
Following the quarter end we also announced the closing of a further new
European CLO, Harvest IX, at E525 million. 3i invested E27 million (£22
million) in the equity tranche of this CLO. Harvest IX is the largest European
CLO raised in 2014 to date and the first loan-only Volcker compliant CLO
issued in Europe. 
 
We continue to use warehouse facilities that allow the build up of portfolios
ahead of transfer to new CLO structures. We have warehouses established in
both Europe and the US and invested a net £54 million into these structures
during the quarter. 
 
Assets under management 
 
New CLO issuance in Debt Management somewhat mitigated the effect of net
divestment activity in Private Equity and Infrastructure and the continued
strength of sterling. AUM of £12.5 billion at 30 June 2014 compared to £12.9
billion as at 31 March 2014, 74% of which related to third-party capital
(March 2014: 74%). Debt Management, Infrastructure and Private Equity
accounted for 50%, 18% and 32% respectively of total AUM. 
 
Portfolio 
 
The unaudited valuations of our top 10 investments as at 30 June 2014 are
shown in the table below. The investments detailed comprise 54% of the total
Proprietary Capital portfolio by value. 
 
Top 10 investments by value at 30 June 2014 
 
                                       Valuation  Valuation                                                   
                        Valuation      Mar-14     Jun-14                                                      
 Investment             basis          £m         £m         Activity in the quarter                          
 Action1                Earnings       501        542                                                         
 3i Infrastructure plc  Quoted         404        409        Ex-div 18 June 2014, closing share price 136.3p  
 Scandlines1            DCF            193        200                                                         
 Hilite1                Imminent sale  133        154        Divestment signed                                
 Element1               Earnings       124        130                                                         
 Quintiles              Quoted         122        124        Closing share price $53.29                       
 Mayborn                Earnings       116        116                                                         
 ACR                    Other          101        103                                                         
 AES                    Earnings       96         99                                                          
 Eltel1                 Earnings       70         97         Completed refinancing shortly after period end   
 
 
1 During the quarter 3i Group purchased a small third party investor's stake
in Eurofund V and increased its exposure to the investments in that fund by
just under 2% 
 
The Private Equity portfolio continues to perform well, with value weighted
earnings growth over the last twelve months of 17% (March 2014: 19%). There
were no new provisions in the period, and no material individual valuation
write-downs. 
 
The average EBITDA multiple used to value the Private Equity portfolio
increased by 2% to 10.8x before marketability discount (March 2014: 10.6x) and
10.1x after marketability discount (March 2014: 9.9x). There has been no
change to the multiple used to value Action since 31 March 2014 (12.5x
run-rate EBITDA, post liquidity discount). 
 
Quoted assets increased in value by £22 million during the quarter, including
growth of £5 million from 3i Infrastructure plc, £12 million from Phibro
following its IPO, and £6 million from Quintiles. 
 
Returns 
 
The continuing strength of sterling resulted in a negative impact from foreign
exchange translation movements of £68 million in the period, consistent with
the guidance given at the year end. Based on the balance sheet at 30 June
2014, a 1% movement in the euro and US dollar will lead to a movement of
approximately £16 million and £6 million in total return respectively. 
 
Notwithstanding this, the strong value growth from the Private Equity
portfolio in particular led to unaudited total return of £135 million, or 4%
on opening shareholders' funds, for the period (three months to 30 June 2013:
£146 million, 5%). Diluted NAV per share as at 30 June 2014 of 361 pence
(March 2014: 348 pence) increased by 4%. 
 
Balance sheet 
 
The Group's balance sheet remains strong with low gearing and a high level of
liquidity. 
 
The Group's outstanding B shares were repurchased on 13 June 2014 reducing
gross debt by £6 million. Gross debt as at 30 June 2014 was £839 million,
compared to £857 million at 31 March 2014. Net debt as at 30 June 2014 was
£104 million, representing gearing of 3% (March 2014: £160 million, 5%). The
reduction is driven by the net realisation proceeds received during the
period. 
 
Liquidity as at 30 June 2014 was £1.2 billion (March 2014: £1.2 billion),
comprising £735 million cash and cash deposits and £500 million undrawn
committed facilities. 
 
Shareholder distributions 
 
The final FY2014 dividend of 13.3 pence per share was paid on 25 July 2014.
This comprised a base dividend of 5.4 pence and an additional dividend of 7.9
pence. After accounting for this payment, the diluted NAV per share was 348
pence on a pro-forma basis as at 30 June 2014. 
 
- Ends - 
 
For further information, please contact: 
 
 Silvia Santoro               
 Investor Relations Director  
 Tel: 020 7975 3258           
 
 
 Kathryn van der Kroft    
 Communications Director  
 Tel: 020 7975 3021       
 
 
Notes to editors: 
 
About 3i Group 
 
3i is a leading international investment manager focused on mid-market Private
Equity, Infrastructure and Debt Management across Europe, North America and
Asia. For further information, please visit: www.3i.com. 
 
This information is provided by RNS
The company news service from the London Stock Exchange