3i’s cost-cutting £10m ahead of schedule

London-listed 3i Group continued its cost-cutting push by reducing its outgoings by £70 million (€86 million, $118 million), as part of its ongoing restructuring efforts, last year.

In a conference call following the publication of its annual results on Wednesday, chief executive Simon Borrows said 3i had exceeded its cost reduction target during 2013 by £10 million.

A much smaller proportion of the cost-savings came from reducing headcount compared to last year, he said. “We closed a great deal of the office space we no longer needed last year, so we saw some important property savings coming through this year,” he added.

3i reduced its gross debt to £857 million, from £917 million last April, while gross interest costs were cut to £54 million, ahead of its £60 million target.

As well as cutting costs, the group continued its realisation efforts. Total private equity divestment proceeds, including from the funds managed by 3i, were £1.1 billion in the period. These realisations delivered a total money multiple of 1.8x, which Borrows called “very good, especially since we sold a number of our smaller and underperforming investments during the year.”

3i has not sold any of its longer-term hold investments which make up the largest part of its portfolio value, the group said. The improved performance of these portfolio companies has led to a rise in valuations of Eurofund V and the Growth Capital Fund, which have now recovered to 1.13x and 1.32x respectively of invested capital at 31 March 2014, compared to 0.93x and 0.95x at 31 March 2013 respectively.

Despite the improved performance of 3i’s Eurofund V, the group will not consider raising a successor vehicle until next year, Borrows said. “We have said very consistently that we will look at that issue in calendar year 2015.We are not intending to bring that review forward. We have a lot of our own capital at the moment as you can see from realisations, so we don’t need a fund.”

The group deployed £276 million in private equity last year, which is below 3i’s €500 million target. High valuations were to blame, Borrows said. “We are very cautious about pricing. The four deals that we did this year, we bought at 8x EBITDA or less which is testament to the fact that we found those deals away from competitive processes. When you step into an [auction] process you look at double digit EBITDA multiples, which makes the job of returning a 2x a lot harder than when you buy at a lower multiple,” he said.

It is nearly two years since Simon Borrows became chief executive at 3i and announced a major restructuring process. Since then, the firm has cut headcount by a third and closed six offices.

At 10.00 BST, 3i shares were trading at 393.20p, up 14.90p, giving the group a market capitalisation of £3.82 billion.