This has been a year of challenge and change for
3i. Our mid-market buy-out business achieved a strong performance,
despite the faltering economic recovery. But market conditions
were particularly difficult for our technology portfolio. 3i
has responded to the challenge by restructuring its organisation
along product lines, giving clear leadership to all parts of
the business, while using its international network to help
the portfolio companies in which it invests to realise their
potential for growth.
The rigour with which we have reviewed the value of our technology
portfolio has had an impact on our net asset value, contributing
to a negative return on shareholders’ funds of 23.7% over the
year to 31 March 2003. It may be small comfort to shareholders
that this is still less than the drop in our benchmark, the
FTSE All-Share, which fell 29.8%, or the FTSE SmallCap, which
was down 33.4%. As the charts on page 1 show, we have also maintained
our record of long term outperformance. But our share price,
which proved volatile during the year, was 47% down in the year
to 31 March.
Despite the virtual closure of the market for new issues, we
achieved a strong flow of realisations: a total of nearly £1
billion, at a healthy profit over the value at which these investments
were held at the beginning of the year. Income, too, has held
up well in a difficult environment, and costs have been reduced.
The Board is recommending a final dividend of 8.6p, making a
total dividend of 13.5p, an increase of 3.8% from 13.0p last
year.
A particular strength of 3i’s business in times like these is
the balance of our three key product groups – buy-outs, growth
capital and early stage technology. Our Chief Executive, Brian
Larcombe, has carried out an extensive reorganisation of management
and investment processes to provide each with international
leadership and focus.
The buy-out business, led by Jonathan Russell, achieved some
strong realisations during the year such as Go, the low cost
airline. The benefits of local origination of investment opportunities,
sector focus and product expertise are also coming through with
new investments by the buy-out team, such as De Telefoongids.
Our growth capital investment business, for which there is a
considerable market opportunity, has received fresh impetus
under the leadership of Chris Rowlands, who has rejoined 3i
as a member of the Executive Committee.
Under the leadership of Rod Perry, our early stage technology
business is now more narrowly targeted on the sectors which
we believe will offer the best investment opportunities. It
is also focused on achieving good realisations from our existing
portfolio.
As I indicated at the half-year, there have been a number of
changes to the Board. Two executive Directors, Richard Summers
and Peter Williams, retired from the Board at the end of 2002.
I would like to thank them for the major part they played in
the development of 3i right through the 1980s and 1990s. Christine
Morin-Postel, who joined the Board in September as a non-executive
Director, brings a wealth of international experience in financial
services and industry and is already making an important contribution.
I would also like to pay tribute to our staff, who have shown
a high degree of energy and realism throughout the year, and
are constantly alert to good opportunities to invest.
The strength of 3i’s balance sheet and its leading positions
in the key venture capital and private equity markets mean that
the business has the robustness needed during the downturn in
markets and economic conditions. This combination also means
that 3i is well positioned to take advantage of an upturn.
The substantial changes we have made to the business in the
past year to sharpen our competitive position, improve our investment
processes and increase efficiency provide 3i with a much stronger
base for growth. |
|
“The substantial changes we have made to the
business in the past year to sharpen our competitive
position, improve our investment processes and
increase efficiency provide 3i with a much stronger
base for growth.” |
