3i Group ups dividend policy as portfolio performs strongly

After delivering a total return of 22% and lifted net asset value 17% per share in the year to 31 March, private equity giant 3i Group cheered investors further with a healthy payout and an improved dividend policy.

Sending the shares to their highest point this year, 3i proposed a final dividend of 16p per share to lift the total dividend for 10% to 22p per share. The current approach of distributing between 15-20% of cash realisation proceeds will from this year be raised to at least 16%, with an additional final dividend each year taking account of cash realisations, the investment pipeline and the balance sheet at year end.

Chief executive Simon Borrows said the company enjoyed "continued momentum in the face of challenging macro-economic conditions".

Although global markets remain turbulent, 3i has limited its direct exposure to the most challenged sectors and so its portfolio performed well.

There were strong year-on-year improvements in performance from the group's largest investments, including Dutch non-food discount retailer Action, European ferry operator Scandlines and the 46%-owned, FTSE 250-listed 3i Infrastructure subsidiary.

This led to private equity gross investment return of £1.01bn, or 32%.

3i said momentum in private equity realisations continued with proceeds of £743m in the year and around a further £224m in April 2016 as it expects to remain a net divestor in the new financial year "due to a healthy pipeline of realisations and significant amounts of capital chasing limited investment opportunities that may mean that prices move outside our target range".

Management have maintained a more disciplined approach to investment, with only £365m invested in three new portfolio companies: Audley Travel, Weener Plastic and Euro-Diesel.

On the outlook, the combination of continuing market volatility and the upcoming Brexit referendum was stated as "likely to weigh on investor sentiment, with reduced M&A volumes and delays in capital investment" while the uncertainty remains, but the company remains confident its position and approach, with a robust balance sheet with net cash of £165m and no gearing, combined with its selective investment approach.