UPDATE 2-3i signals full year dividend increase

Thu Nov 10, 2011 4:49am EST

* Interim dividend 2.7 pence, signals 8.1p for full year

* Net asset value falls 16 percent to 294 pence since March

* Challenging environment had direct impact on results

By Simon Meads

LONDON, Nov 10 (Reuters) - Private equity firm 3i Group Plc unveiled a sharp increase in dividend payments to placate shareholders frustrated at its underperforming share price, despite turbulent markets knocking its performance in the first half.

3i has come under fire from shareholders over a share price that has trailed asset values by around 40 percent in recent months, and the writedowns of businesses like outsourcing company Enterprise Group.

The firm, which has investments in architecture group Foster + Partners and Tommee Tippee baby bottle maker Mayborn, lifted its interim dividend payout to 2.7 pence from 1.2 pence last year, and said it would more than double the full year dividend to 8.1 pence, a 125 percent increase on the previous year.

However, 3i said its business was not immune to the stormy economic conditions battering global markets.

"This environment has had a direct impact on our results, particulary because when we value assets we use multiples derived from stock markets," chief executive Michael Queen said in a conference call with reporters on Thursday.

The group said net asset value fell 16 percent from end March to 294 pence, towards the middle of analysts' expected range of 281 pence to 310 pence.

Shares were up 2.2 percent at 204.3 pence at 0945 GMT, with analysts welcoming the increased dividend.

"This raised dividend implies a respectable yield of now 4 percent," said Barclays Capital in a note to investors.

NO TO BUYBACKS

3i's Queen said the board had looked very seriously at the prospect of share buybacks but ruled them out in the near term.

"In the current financial climate it would be irresponsible of any board to take on additional leverage to return capital at this moment in time," Queen said.

"Will that satisfy shareholders? Time will tell," he added.

As concerns about sovereign debt crisis in Italy batter already fragile markets, Queen said the environment for selling companies had deteriorated in recent months.

The group realised 532 million pounds ($847 million) in the first half from company disposals, such as industrials groups Hyva and Norma, though the bulk of the proceeds came through in the first couple of months of the period.

"We are not anticipating a significant level of realisations over the next 6-12 months," Queen said. The group has pulled the sale of chemicals distribution firm Azelis and will focus on boosting the business in emerging markets.

New investment is also expected to be muted as the firm takes a more cautious approach and the investment period on the firm's 5 billion euro ($6.77 billion) buyout fund expires shortly, requiring it to fund future deals off balance sheet.

"Investment activity is low. I think you have to be very selective, pricing for assets hasn't come down significantly to reflect the uncertainties out there," Queen said.

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