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3i will slash workforce, boost dividend

by Jonathan Braude In London  |  Published November 10, 2011 at 5:05 PM
MichaelQueen3iGroup.jpgMore heads will roll at London-listed 3i Group plc over the next financial year, CEO Michael Queen (pictured) admitted Thursday, Nov. 10, as the old lady of British private equity investment further reshuffles its top management team, sets in train a 10% cut in operating costs and puts off raising a new fund for at least 12 months. But while Queen blamed a tough macroeconomic environment for a first-half loss, he signaled a substantial increase of 125% in the firm's annual dividend to its shareholders.

"We are a people business," Queen told an analysts' meeting following the announcement of interim results Thursday. "If we are looking at a 10% cost reduction, that really flows through to a 10% head count fall."

3i refused to confirm a news report that the cull will include buyout partner Simon Freer, who leads the technology, media and telecommunications practice at the firm, and his colleague Chris Williams, who heads the industrials and energy sector team. But a spokeswoman did admit that the ax will fall largely in London and that with a global staff of 480, a ballpark estimate that 50 people would lose their jobs was likely not far off the mark.

However, Queen argued the cuts, designed to reduce the cost-base by about £15 million ($24 million) a year from 2012-13, would be largely achieved by introducing a more efficient structure to the company as well as improving back-office systems.

"We are doing to ourselves what we do to each of our portfolio companies in terms of driving inefficiencies out of the business," he said.

3i announced last year that it planned to combine its growth capital and buyout streams into a single business, prompting then head of buyouts Jonathan Russell to leave the company.

Now, Queen said, he was further reshaping the firm to reflect current market conditions and the likely investment environment over the coming years.

The U.S. and European teams would now be integrated into a new developed markets team, under the leadership of Menno Antal and Alan Giddins, while Paris managing director Guy Zarzavatdjian will be in charge of Asia and Brazil, while keeping his role overseeing the Paris office. Bob Stefanowski will step down as managing partner and chairman for the U.S. and North America to concentrate on some of the firm's biggest portfolio companies.

Queen denied a report that the firm had extended the investment period of its Eurofund V for a further year after the buyout fund's current investment period runs out Nov. 15. But he said 3i would not start fundraising again until the growth capital fund's investment period is close to expiration late in 2012. The €5 billion ($6.9 billion) Eurofund, raised in 2006, is about 84% invested. The €1.2 billion growth capital fund is 52% invested and its investment period expires at the end of December 2012.

Queen was clear that the firm will be able to invest in buyouts over the coming year from the permanent capital on its balance sheet. The spokeswoman added that although there would be no automatic access to third-party funds in the interim, 3i would be able to look for co-investments on a deal-by-deal basis.

3i also reported interim results for the six months to September 2011: a negative return of 15.6%, or £523 million, on opening shareholders' funds, compared with £117 million in April to September 2010. Realizations in the period were £532 million (2010: £293 million) and investments were £448 million (2010: £327 million).

Queen said the board had decided against a share-buyback in current market conditions, but announced an interim dividend of 2.7 pence a share and a full-year dividend expected to be 8.1 pence.

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Tags: 3i Group plc | Alan Giddins | Bob Stefanowski | Chris Williams | dividend | Eurofund V | Guy Zarzavatdjian | job cuts | Jonathan Russell | Menno Antal | Michael Queen | Simon Freer

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