3i performance flat but headway made with cost cuts

London-listed 3i Group drastically reduced the amount of new investments it made in Q2 compared to a year earlier as the business instead focused on cost-cutting.

3i Group’s portfolio performance was largely flat in the three months to 30 June, delivering an increase in earnings of just one percent over the quarter in aggregate. Earnings growth was offset by a reduction of one percent in multiples, resulting in flat unrealised profits, it said in its interim results statement on Friday. Net asset value per share fell from 279 pence per share at the end of Q1 to 275 pence.

The valuation of the group’s infrastructure arm fell from £375 million ($590 million; €479 million) at the end of Q1 to £364 million by 30 June, it said. Peer Holdings, Mold-Masters, ARC Capital Holdings and Scandferries also saw their valuations decrease. Eco US holdings, Mayborn Group, Element Materials Technology and Quintiles Transnational Corporation all enjoyed valuation uplifts however.

Group finance director Julia Wilson explained on a conference call that currency fluctuations had adversely impacted some of the portfolio valuations.

3i Group made just £71 million of new investments in the three months to 30 June, it said, a 70 percent decrease compared to the second quarter of 2011’s £233 million. That figure did not however include 3i’s maiden deal in Brazil, a £28 million investment in Blue Interactive, which it announced in December and completed this month. It did however feature capital set aside for severance payments associated with the group’s strategy review, which involves the closes of several offices and 160 redundancies.

Simon Borrows, 3i’s chief executive said: “We are making good progress in implementing the strategic changes announced at the end of June to refocus our investment capabilities and reduce the group’s cost base.”

The group’s debt management arm also announced during the quarter an agreement to acquire CLO fund management contracts from Invesco, a deal which will add about €2 billion to 3i’s assets under management and concomitant fee income.

Although gross debt was cut from £1.62 billion to £1.25 billion from first to second quarter, net debt actually increased from £464 million to £490 million due to operating and interest costs, 3i said. As a result, gearing increased by one percent to 19 percent.

The group has £1.3 billion of liquidity, comprising £764 million of cash and £491 million of undrawn committed facilities.