3i upbeat despite £960m losses

VENTURE capitalist 3i has declared the market for deals is improving but reported a 19.3% negative return - a loss of £960m on shareholders' funds in the past year. Chief executive Brian Larcombe described a 'year of two halves' with a far stronger final six months giving hope that the worst of the market collapse was over.

3i's portfolio had a negative return in the first half of £1.1bn but a positive return of £137m in the second half. 'Our feeling is that the worst of the downturn is over, conditions are improving and there is a pick-up in activity levels generally,' he said.

3i's net asset value per share - a key performance measure - came in at 645p for the year ended March, beating analysts' expections of about 635p. The shares had jumped 39p to 761p by early afternoon.

The firm realised £1.1bn from its portfolio of investments through a smattering of flotations and several trade sales, more than covering its much-reduced outlay of £1.04bn in investments on 551 businesses.

Larcombe said: 'Although the previous year was stronger, there has been quite a lot of activity in mergers and acquisitions. In a year where there were basically no new issues, we still managed to realise £1.1bn.'

Currently on the road to promote the £1bn flotation of the John Wood energy group - one of 3i's main investments - Larcombe said the initial public offering (IPO) market was solid for the right company, despite Punch Taverns' decision to pull its float. 'From the discussions I have with them, my overall sense is that institutions are interested in new issues. But they want good growth stories at a reasonable price,' he said.

For the first time, 3i's portfolio is made up more from non-UK businesses than domestic investments. That follows a significant expansion of its overseas office network.

3i's main hit last year came from its over-investment in the telecoms equipment supply industry. Demand for that sector dried after the technology bubble burst. Just 20% of the portfolio is now invested in tech companies, with the group taking a more ruthless approach to which companies it continues to support.

The company's respected Enterprise Barometer, which gauges the attitudes of its investee companies towards the economy and business conditions, will next week show a robust improvement in the environment, Larcombe said. 3i invested £889m in Europe during the year, about 45% of which was in the UK.