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LONDON (Alliance News) - Private equity and venture capital company 3i Group PLC said Thursday that it believes its portfolio is defensively positioned against geopolitical and financial volatility, but warned some of its investments are exposed, including luxury lingerie retailer Agent Provocateur which also has an undetailed accounting issue.
Shares in 3i were down 4.7% at 625.00 pence Thursday, one of the worst performers in the FTSE 100.
FTSE 100-listed 3i said its total return for the six month period to September 30 was 23% of opening shareholders' funds, a total of GBP1.0 billion.
3i reported a private equity gross investment return of GBP989 million for the period. 3i made GBP643 million unrealised profit on positive revaluation movements in its portfolio, with GBP282 million of that coming from the performance of its investments on an earnings basis.
Dutch discount store-chain Action was the biggest driver of the positive portfolio movement, with its valuation increased to GBP1.55 billion at September 30 from GBP902 million at March 31, after 3i received a number of offers for the company earlier in the year. Other strong performers included northern European ferry operator Scandlines and power systems manufacturer Euro-Diesel.
However, 3i warned that market volatility and macroeconomic developments did affect a number of its portfolio companies.
"We saw continuing weakness in a limited number of assets, especially those exposed to capital expenditure in the oil and commodities sector (Dynatect and JMJ) or weaker consumer sentiment and decelerating tourist flows which have reduced spending on discretionary consumer goods in Europe. In particular, Agent Provocateur continues to be impacted by declining luxury spend in a number of its key markets," said 3i.
"The effect of this has been compounded by the inconsistent execution of its recent store expansion programme and the discovery of accounting issues. We are supporting the new management team to put in place a new strategic plan, which involves a restructuring of the business," added 3i, in reference to the lingerie chain.
The company noted it reduced the value of its investment in Agent Provocateur by GBP39 million in the period.
3i received GBP654 million in proceeds from realisations of companies during the period, at an average money multiple of 2.3 times. The largest sale was that of baby brands owner Mayborn for proceeds of GBP136 million. 3i also partially realised its investment in discount gym operator Basic-Fit, taking proceeds of GBP82 million from its flotation in Amsterdam.
The company's net asset value per share increased to 551 pence at September 30 from 463p at March 31 and said its total return for the six month period was 23% of opening shareholders' funds, a total of GBP1.0 billion. The company invested a further GBP291 million in private equity and GBP131 million in its infrastructure arm over the period.
3i declared an interim dividend per share of 8.0 pence, up from 6.0p the year before, and said it expects to recommend a total dividend for its current financial year of no less than the 22.0p paid out last year.
3i also said its previously announced sale of its Debt Management division to Investcorp for cash proceeds of GBP222 million is expected to complete by March 31, 2017.
"Since our strategic review in 2012, the Debt Management business has played an important role in the group's restructuring. Predominantly a third-party asset management business, it has provided us with cash fee income, contributing to achieving and maintaining a group operating cash profit, as well as good cash returns from our investments in the underlying CLOs. However, the cash income from Debt Management is now less important as we focus on building our Private Equity and Infrastructure portfolios from a robust position, with a strong balance sheet and a lean cost base," said Simon Borrows chief executive.
"3i continues to benefit from its clear strategy and a portfolio with limited exposure to the repercussions caused by the current geopolitical and financial market volatility. We are navigating these challenges from a position of strength; our diverse portfolio, rigorous investment processes and robust balance sheet underpin our confidence about the future success of the group," added Borrows.
By Adam Clark; adamclark@alliancenews.com
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