Results for year ended 31 March 2003 1 1
15 May 2003 2
Results for year ended 31 March 2003 Brian Larcombe Agenda CEO’s review Brian Larcombe Product reviews - Buy-outs Jonathan Russell - Early stage technology Rod Perry - Growth capital Chris Rowlands Financial review Michael Queen Closing remarks Brian Larcombe 3 3
Results for year ended 31 March 2003 Brian Larcombe Key messages � A tough year and a year of change � Disappointing fall in NAV, though an outperformance of benchmarks � Strong realisations, investment rebalanced � Business organised on product basis � Competitive advantages developed 4 4
Results for year ended 31 March 2003 Brian Larcombe Financial highlights � Total return on opening shareholders’ funds (23.7)% � Net asset value per share 480p � Realised profits on disposal £184m � Net cash inflow £170m � Final dividend 8.6p 5 5
Results for year ended 31 March 2003 Brian Larcombe Total return by investment product 2003 %* 5% Mid-market buy-outs (16)% Smaller buy-outs (10)% Growth capital (51)% Early stage technology * % return on opening portfolio 6 6
Results for year ended 31 March 2003 Brian Larcombe The world market – funds invested: raised US$bn Investment Funds raised 300 250 247 200 199 155 150 151 138 135 108 104 100 101 Est. 82 59 50 49 Est. 0 1997 1998 1999 2000 2001 2002 Source: 3i/PwC Global Private Equity Review 7 7
Results for year ended 31 March 2003 Brian Larcombe 3i European Barometer Index compared with EU 15 real GDP annual growth rate for equivalent quarter Inex Index % 100 4.5 80 4 60 3.5 40 3 20 Index 2.5 0 GDP growth -20 2 -40 1.5 -60 1 -80 0.5 -100 -120 0 Q2 Q4 Q2 Q4 Q2 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1998 1999 2000 2001 2002 2003 8 8
Results for year ended 31 March 2003 Brian Larcombe Actions taken - market � Made some great investments � Realisations at good prices � Reinforced competitive advantage 9 9
Results for year ended 31 March 2003 Brian Larcombe 10 large investments made in year to 31 March 2003 10 10
Results for year ended 31 March 2003 Brian Larcombe 10 large realisations made in year to 31 March 2003 11 11
Results for year ended 31 March 2003 Brian Larcombe Actions taken – organisation � Increased product focus � Reshaped local and product leadership � Strengthened investment processes – all products � Rebalanced network � Reduced costs 12 12
Results for year ended 31 March 2003 Brian Larcombe Strategy � Developing the business internationally � Building a balanced investment business � Using the network as our key competitive advantage � Investing primarily in growth companies 13 13
Results for year ended 31 March 2003 Brian Larcombe Portfolio analysis Portfolio by value at 31 March 2003 Value 6% Buy-outs £1,927m Growth capital £1,206m 15% Early stage technology £589m Quoted £217m Total £3,939m 48% 31% Excludes co-investment funds 14 14
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Results for year ended 31 March 2003 Jonathan Russell Buy-outs – performance 2002/03 Mid-market Smaller buy-outs buy-outs Investment* £385m £97m Income yield 4.8% 7.4% Realisations proceeds £345m £268m Total return** 5% (16)% Portfolio (excluding funds) £1,073m £928m * Includes co-investment funds of £159m for mid-market buy-outs and £10m for smaller buy-outs ** Total return on opening portfolio 16 16
Results for year ended 31 March 2003 Jonathan Russell European mid-market buy-outs � Deal range Up to £500m Sweet spot £25m-£350m � Target characteristics � Local relationship significant � Operational issues vital � Less competitive/non-price issues � Exit via consolidation/strategic plan � Buy local, sell global 17 17
Results for year ended 31 March 2003 Jonathan Russell 3i is well placed to exploit this market Strategy � See the market Geography, sector teams, people programmes � � Pick the winners Operational expertise – Industry Group, people programmes, � sector teams Execution experience � Management angles � � Drive the value Aggressive pursuit of business plan � Management effectiveness � Exit vision � Create superior returns 18 18
Results for year ended 31 March 2003 Jonathan Russell The future The market � Distressed corporates � Attractive pricing � Portfolio health � Exit environment 3i � Rigorous application of strategy � Aggressive approach to market and quality 19 19
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Results for year ended 31 March 2003 Rod Perry Early stage technology – performance 2002/03 Investment* £176m Income yield 0.6% Realisations proceeds £93m Total return** (51)% Portfolio (excluding funds) £589m * Includes co-investment funds of £6m ** Total return on opening portfolio 21 21
Results for year ended 31 March 2003 Rod Perry The market – investment European technology market Volume €m Value Volume Value of deals 500 3000 462 2500 435 400 383 375 2000 300 305 1500 250 200 198 1000 180 133 100 500 0 0 *VentureOne estimate Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Source: VentureOne 2001 2002 2003 22 22
Results for year ended 31 March 2003 Rod Perry 2002/03 technology realisations Company Sector Country Proceeds Profit IRR £m £m Sophos Software UK 10.2 7.6 45% Adaytum Software UK 12.6 6.5 25% PlaceWare Software US 8.0 3.2 49% Medeval Healthcare UK 5.1 3.7 29% Dendron Healthcare Germany 3.5 1.7 69% 23 23
Results for year ended 31 March 2003 Rod Perry Substantial change Rescale to market opportunity � More focused, more experienced teams in fewer locations � Key assets focused on most senior people � Transformation of � � new investment processes � portfolio management � delivery of added value 24 24
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Results for year ended 31 March 2003 Chris Rowlands Growth capital 26 26
Results for year ended 31 March 2003 Chris Rowlands Growth capital – performance 2002/03 Investment* £273m Income yield 6.2% Realisations proceeds £270m Total return** (10)% Portfolio (excluding funds) £1,349m * Includes co-investment funds of £39m ** Total return on opening portfolio 27 27
Results for year ended 31 March 2003 Chris Rowlands Market attractiveness For the company For 3i � Equity attractions v debt � Attractive yields (6.2%) � Absence of IPO option � Diversity - sector, size and situation � Local relationship with international reach � Realisations through the cycle � Plays to regional strength 28 28
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Results for year ended 31 March 2003 Michael Queen Total return 2002 2003 £m £m Operating income 309 274 Realised capital profits (39) 184 Costs: - Net interest payable (74) (76) - Management expenses (171) (153) - Organisational change costs (18) (10) (263) (239) Operating return 7 219 Unrealised value movement (890) (1,165) Other – goodwill, tax and currency (77) 11 Total return (960) (935) 30 30
Results for year ended 31 March 2003 Michael Queen Operating income 2002 132 111 56 10 £309m 2003 £274m -1 113 106 56 £m -50 0 50 100 150 200 250 300 350 Loan interest and fixed rate dividend Equity dividends Fee income Joint venture and operating income 31 31
Results for year ended 31 March 2003 Michael Queen Operating costs 2002 74 171 18 £263m 2003 76 153 10 £239m £m 0 50 100 150 200 250 300 Net interest payable Management expenses Organisational change costs 32 32
Results for year ended 31 March 2003 Michael Queen Realised profits on disposal 2002 2003 £m £m Total proceeds and repayments 939 976 Net realised (loss)/profit (39) 184 Equity realisations - proceeds 728 640 - net realised profit 4 164 - equity uplift over value 1% 34% Loan/fixed income share repayments 211 336 33 33
Results for year ended 31 March 2003 Michael Queen Unrealised value movement £(1,165)m £m (209) (244) 48 (379) Quoted portfolio PE movement (361) Earnings growth Provisions (20) Down rounds & restructuring Other 34 34
Results for year ended 31 March 2003 Michael Queen The market – investment European technology market €m Value FTSE techMARK 100 Value of deals 1,500 1,250 1,000 750 500 250 0 *VentureOne estimate Q1 Q2 Q3 Q4 Q1* Q2 Source: VentureOne 2002 2003 35 35
Results for year ended 31 March 2003 Michael Queen Revised investment trust SORP � Implemented in current financial year � No impact on total return � Revenue profit increased by £50m and capital return down by £50m � Cost allocation updated � Proportion of costs charged to capital = 70% 36 36
Results for year ended 31 March 2003 Michael Queen Balance sheet 2002 2003 £m £m Investment assets 5,109 3,939 Other net assets/(liabilities) 23 10 5,132 3,949 Net borrowings 1,187 1,013 Shareholders’ funds 3,945 2,936 5,132 3,949 Gearing 30% 35% 37 37
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