3i is returning to the dealmaking fray after fixing its own financial problems, its chief executive said on Thursday, as the UK’s oldest private equity house bounced back into the black with pre-tax profits of £159m.
Michael Queen, who took over amid the company’s serious financial crisis last year, said: “There are still challenges in the economic environment but this actually creates opportunities for 3i.”
Having raised extra capital through a rescue rights issue last year, disposals and a new growth capital fundraising, Mr Queen said 3i had increased its firepower for new deals from £1bn to £2.7bn.
He said good areas for investment included UK manufacturers that will benefit from the weaker pound, European companies needing capital to grow and infrastructure projects in India.
“Our pipeline is the strongest it has been for 18 months,” said Mr Queen. He said 3i planned to beef up its dealmaking teams in India and China, as Asia became an increasingly important part of its business.
However, he warned there was too much unspent capital chasing too few attractive deals, driving asset prices up. “There is a lot of capital around in the world, particularly in the buy-out market,” he said.
Mr Queen said 3i’s financial position had been “transformed” after its net debt fell from £1.91bn a year ago to £258m at the end of March, cutting its gearing from 103 per cent to 8 per cent.
As 3i sat on the sidelines last year, investments shrank two-thirds to £386m. Realisations inched up to £1.39bn, with a 21 per cent uplift above holding values.
The group has lost three investments this year: British Seafood, an importer of fish from Asia; Global Garden Products, the Italian lawnmower maker, and Ultralase, the UK laser eye surgery chain.
But Mr Queen said provisions for potential losses had fallen 85 per cent to £24m. This, combined with a big rise in the value of unrealised assets, helped it report a total return on equity of £407m, against a £2.1bn loss last year.
In the year to March 31, 3i reported pre-tax profits of £159m, against a loss of £1.94bn the previous year.
Total assets under management shrank 10 per cent to £9.63bn, but 3i’s diluted net asset value per share, a key measure of private equity performance, rose from 279p to 321p. It announced a total dividend of 3p (6.3p) with a 2p final.
The shares closed up 20.5p at 288.7p.
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