3i Plc, the international venture capital provider, said today that “for the first time in many years”, it had not generated a positive total return on opening shareholder funds.
Overall the group’s investments showed negative returns of £142m, equivalent to a minus of 2.7 per cent.
Profits before taxes for the year to March 31 rose by merely £1m to £120m, with £72m coming from free income. During the year, 3i invested a record £2bn in over 700 companies, including co-investment funds. European venture capital investments rose 82 per cent to £770m.
The group blamed difficult market conditions for the slow-down and described its performance as good given the circumstances. “This is a strong performance in relative market terms as 3i has outperformed the main FTSE indeces by over 8 per cent and each of the main technology indices by over 50 per cent”, said Sir George Russell, the group’s chairman.
Nevertheless like many of its peers 3i was hit by the downturn in technology investments. Investment in this area produced negative returns of £62m, resulting from weak technology markets and bad prospects for unquoted companies.
“The downside has been caused by the decline in value of our quoted holdings, which had a particular impact in the final quarter of the year”, finance director Michael Queen told PEO.
In continental Europe, 3i showed negative returns of £145m, and the number for the US was minus £62m. Germany's Neuer Markt created particular problems, as it dropped by around 75 per cent over the period. In the UK, its home market, 3i did well, generating returns of £81m.
Looking ahead, 3i's outlook remains positive. Said Queen: “Prospects for continental Europe are uncertain, but we are in a very strong financial position. In other cycles we've seen that we make some of our best investments during downturns, and we are not shy to continue to invest capital at this point in the cycle.”
3i certainly has the money to invest. According to Queen, the company generated around £1.4bn from realisations and has the ability to gear up the balance sheet quite significantly, as gearing is currently at a five year low of 22 per cent. Other third party funds could also be raised. “Capital is not a constraint for us. The real constraint is identifying good quality opportunities.”