REFILE-UPDATE 2-3i eyes Brazil fund amid cost cuts

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  • Posted on November 18, 2012

    Thu Nov 15, 2012 7:22am EST




    By Sarah White


    LONDON Nov 15 (Reuters) – Private equity group 3i wants to launch a $500 million fund next year in Brazil, one new market still underpinning its turnaround plans as it retreats from Spain and Asia.


    3i has been on a drive to reboot its flagging performance since former banker Simon Borrows took over as chief executive earlier this year, and the group said it had already cut just over 100 jobs as it retrenches to its northern European roots.


    It is keeping its nascent business in Brazil, however, and Borrows said it planned to launch a fund there.


    “We are not looking to do that until well into the second half of next year,” Borrows told Reuters in an interview, adding that Brazil was a country with “good demographics” where 3i had set up a strong team.


    3i made its first investment in Brazil, buying a stake in cable TV group Blue Interactive, at the end of last year.


    Elsewhere 3i is pulling back. The group said in its half-year results on Thursday it had shut five offices, from Barcelona to Copenhagen, adding it had made “strong and measurable progress” on the cost cutting plans it outlined in June and was on track with targets.


    It will also exit Birmingham by January, taking its offices down to 13. 3i said it had completed more than half of the 160 layoffs outlined, which represented about a third of its staff.


    3i has now also launched a compensation review, which Borrows said would likely result in “more variability in pay” as the firm differentiates more between low and top performing staff while bringing down overall costs.


    The group, set up after the second world war to help the reconstruction of British industry, has been hit by a spate of poor deals and the retrenchment is a fresh attempt to appease disgruntled shareholders, after former CEO Michael Queen was ousted earlier this year.


    3i, whose investments include women’s fashion retailer Hobbs and Agent Provocateur lingerie, was hurt after paying high prices for companies in declining markets like Spain during the peak of the buy-out boom before the 2007-08 financial crisis.


    Like rivals, it has also been hit by volatile markets and a drop in deals since then, and 3i said on Thursday it was cautious on the macroeconomic outlook, with sovereign debt concerns in Europe still creating uncertainty.


    That could make exiting businesses more challenging.


    The firm did beat expectations on some counts, with asset values coming in at 273 pence per share for the three months to the end of September, above analyst forecasts. Asset values stood at 275 pence per share at the end of June.


    “The cause of the surprise was stronger-than-expected portfolio earnings growth,” Barclays analysts said in a note, adding that 3i still had a “bloated operating and net finance expense base”.


    3i said it was on track to reduce gross debt to below 1 billion pounds ($1.58 billion) by June 2013.


    Shares were down 0.19 percent to 209.3 pence at 0930 GMT. They are up some 17 percent since Burrows took the helm.


    3i is targetting 40 million pounds in annual cost cuts initially, growing to 45 million pounds by 2014. It booked 25 million pounds of expenses in its half-year results related to restructuring costs.


    The group set its interim dividend at 2.7 pence per share, adding that it planned to propose a total dividend for the year of 8.1 pence.


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