January 31, 2013 / 8:56 AM / in 5 years

UPDATE 2-UK's 3i plans disposals as restructuring progresses

* Expects to exceed cost-cutting targets for year

* Asset values rise 4.8 percent in three months to Dec. 31

* On track to cut gross debt below 1 bln stg by June

By Kylie MacLellan

LONDON, Jan 31 (Reuters) - British private equity group 3i is to focus on further asset disposals over the coming months, saying that it intends to build on strong progress made in its efforts to restructure the business.

Since shareholder frustration at poor share price performance and weak results from its buyout business forced a change in chief executive last year, the owner of women’s fashion retailer Hobbs and Tommee Tippee baby bottle maker Mayborn has been on a drive to reboot its flagging fortunes.

Former banker Simon Borrows, who spent his first six months in charge cutting jobs and closing offices as the company retrenched to its northern European roots, said he expects 3i to exceed its cost-cutting targets for the financial year.

“We are well into the first phase of restructuring at 3i and have made strong and measurable progress,” he said in Thursday’s third-quarter statement.

The company said that net asset value (NAV) grew 4.8 percent to 286 pence a share in the three months to Dec. 31, reducing to 283 pence after paying its interim dividend this month.

Gross debt, which stood at 1.2 billion pounds ($1.9 billion) at Dec. 31, is on track to fall below 1 billion pounds by June, the company said.

This week 3i revealed that activist investor Edward Bramson’s Sherborne Investors and its broker Jefferies had been buying shares in the company.

In a call with reporters, Finance Director Julia Wilson declined to comment further on Bramson, who has a history of taking on the managements of businesses he considers to be underperforming. Wilson would only say that 3i had not had any communication with Bramson or Sherborne.


Oriel Securities analyst Iain Scouller thinks that Sherborne’s interest in 3i could prove to be short-lived.

“In the past Sherborne abandoned potential investments after prices of targets rose. We think this must be a possibility in the 3i situation, given their initial activity appeared to be below the 230 pence price level,” he said.

Shares in 3i, which have risen by about 47 percent since Borrows took over, fell 2.4 percent to 266 pence by 1015 GMT.

The company said that private equity investment disposals, which it describes as “realisations”, generated 210 million pounds in the nine months to Dec. 31. That compared with 93 million pounds of new investments in the period.

“Over the past six months, in addition to implementing the reorganisation and cost-reduction programme, we have been busy preparing for realisations within private equity,” Borrows said.

“We expect to see the benefits of this coming through over the next 18 months, with a number of key realisations as well as an increasing level of investment activity.”

3i, which was set up after the Second World War to help with the reconstruction of British industry, sold its remaining stake in German engineering group Norma last month.

At the time, a source familiar with the situation said the company was preparing to sell more companies, including Canadian manufacturer Mold Masters, UK software maker Civica and German-Danish ferry operator Scandlines, over the next few months.

“From here, we believe the story will be about NAV growth and capital returns; hence we believe the market will likely focus heavily on disposals,” Barclays analysts said in a note on Thursday.

“We expect a strong pick-up (in realisation activity) from businesses being prepared for divestment.”

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