3i Group Plc · LSE:III
3i — Investor Presentation (March 2018)
66 slides from 3i's investor presentation, Mar 9, 2018
Slide 1: 3i Capital Markets Seminar: Action
3i Capital Markets Seminar Action 9 March 2018
Slide 2: Agenda
Agenda Introduction to Action Simon Borrows Update on strategic delivery Sander van der Laan Refresher on Action Business model Sander van der Laan 2017 performance and beyond Sander van der Laan Financial performance Frederik Lotz 2
Slide 3: Introduction to Action
Introduction to Action Simon Borrows 3
Slide 4: 3i acquired Action in September 2011
3i acquired Action in September 2011 • Acquired from founders in primary buyout for 8.3x EBITDA • Investment triggered by proactive approach from 3i • Six months exclusive off market due diligence process 4
Slide 5: Acceleration of international growth under 3i’s ownership
Acceleration of international growth under 3i’s ownership Milestones 2011-2017 Total no. of Action stores • Transitioned from founders to 1095 professional management • Strengthened the team and built Buyout 852 systems and processes 655 • Accelerated international growth and expanded into seven 514
Slide 6: Strong value creation and continued potential
Strong value creation and continued potential Action – 3i carrying value, £m • £2,312m carrying value at December 2017 2,312 2,009 • Valued at 16.0x run-rate EBITDA multiple post liquidity discount 1,708 1,549 • Action reported EBITDA of €387m in 2017 • 26.5x 3i gross money multiple in euro terms at
Slide 7: Today’s speakers
Today’s speakers Sander van der Laan Frederik Lotz Chief Executive Officer Chief Financial Officer • Joined in October 2015 • Joined in August 2015 • 27 years of Consumer & Retail experience • >16 years of CFO experience • Various positions at Ahold (1998 – 2015) • Previous CFO roles: – CEO Albert H
Slide 8: Update on strategic delivery
Update on strategic delivery Sander van der Laan 8 CAPITAL MARKETS SEMINAR 08/03/2018
Slide 9: Update on strategic delivery: 2017 proved to be another successful year
Update on strategic delivery: 2017 proved to be another successful year €3,418 5.3% €387 243 2 1 Million Like-for- Million Stores New New revenue, Like sales Operating added distribution country +28% growth EBITDA centres 9 CAPITAL MARKETS SEMINAR
Slide 10: Update on strategic delivery
Update on strategic delivery Strengthen our unique (International) geographic 1 2 customer value proposition expansion A cost-effective, simple and scalable business model that delivers 3 our strategy 4 Build on the unique Action culture & values 10 CAPITAL MARKETS SEMINAR
Slide 11: Update on strategic delivery
Update on strategic delivery Strengthen our unique International geographic expansion customer value proposition Strengthen and protect brand Rapid expansion in Expansion & network Always the lowest price profile & company reputation Germany & France development in Benelux Roll out in Austria & Famo
Slide 12: Significant international growth since the investment by 3i in 2011
Update on strategic delivery: significant international growth since the investment by 3i in 2011 367 6 149 216 4 # of stores 335 18 €m Revenue # of stores % NL revenue # of DCs 607 3,418 245 1,095 ~95% ~33% 1 71 1) Including 2 DCs under construction 2010 2017 12 CAPITAL MARKETS SEMINAR
Slide 13: Consistent high growth track record
Update on strategic delivery: consistent high growth track record Strong net sales growth (€m) Strong EBITDA growth (€m) 3,418 387 2,675 310 1,995 226 1,506 166 1,155 128 718 873 86 99 426 515 607 49 71 39 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016
Slide 14: Refresher on Action Business model
Refresher on Action Business model Sander van der Laan 14 CAPITAL MARKETS SEMINAR 08/03/2018
Slide 15: Unique business model providing sustainable competitive advantage
Unique business model providing sustainable competitive advantage One brand & Price Surprise one format Scalable Customers business People model 15 CAPITAL MARKETS SEMINAR
Slide 16: One concept across all countries
One brand One concept across all countries 1 1 1 brand store format store operating model • Stores between 700 to 1,100 sqm • More than 90% of assortment is the same across all countries • Focus on simplicity enables fast growth 16 CAPITAL MARKETS SEMINAR
Slide 17: Unbeatable prices offered to our customers
Price Unbeatable prices offered to our customers % of products in different price ranges Unbeatable prices for competition(1) ~ 35% 100 ~ 30% 154 ~ 25% 100 163 100 ~ 7% 160 ~ 2% 100 161 €0-1 €1-2 €2-5 €5-10 >€10 Action Competitor minimal basket Primary offering (1) GfK Image and Awareness Study Dece
Slide 18: Unbeatable prices offered to our customers
Price Unbeatable prices offered to our customers Oral-B Power Electric Sesame snaps Freija cat food Lifecare pregnancy Toothbrush test Green Boots green mould remover Sento Caring Shampoo Panasonic AAA Batteries 18 CAPITAL MARKETS SEMINAR
Slide 19: Unbeatable price offering based on multiple factors
Price Unbeatable price offering based on multiple factors We buy big No fixed Efficient logistics Low overhead volumes assortment costs Low marketing Standardised store No high street Simple business expenditure processes locations model 19 CAPITAL MARKETS SEMINAR
Slide 20: Surprising assortment essential for our strong customer proposition
Surprise Surprising assortment essential for our strong customer proposition 2/3 of the assortment is constantly changing > 150 new articles every week Weekly specials Seasonal offers 20 CAPITAL MARKETS SEMINAR
Slide 21: Loyal customer base is spreading the word
Customer Loyal customer base is spreading the word Total country-wide brand awareness and catchment area brand awareness(1) Total country Catchment area 97 97 79 79 70 58 42 22 Prizes won in 2017 (country wide awards) Living Department Department Best price Household General Gifts accessories Discou
Slide 22: Strong brand with a very strong conversion towards buying at Action
Customer Strong brand with a very strong conversion towards buying at Action Awareness 97% 79% 58% 70% Conversion from awareness to consideration 75% 59% 74% 54% Consideration 73% 47% 43% 38% Conversion from consideration to purchase 96% 95% 73% 95% Buying behaviour(2) 70% 45% 31% 36% National Withi
Slide 23: Proposition travels across borders, allowing fast roll-out
Scalable Proposition travels across borders, allowing fast roll-out in several countries simultaneously 1,095 2012 2013 2014 2015 2016 2017 852 655 341 324 354 367 514 303 335 406 262 216 220 321 135 117 153 136 120 93 76 51 68 45 52 7 22 1 13 1 7 18 6 # of stores across countries Total # of stores
Slide 24: Scalable supply chain with 2 new DCs in 2017
Scalable Scalable supply chain with 2 new DCs in 2017 and 2 more DCs under construction DC-A (Zwaagdijk, NL) DC-G (Peine, DE) Open Under Existing construction 2003 New in 2017 Under construction DC-B (Echt, NL) Open Q2 2014 DC-D (Biblis, DE) Open Q2 2017 DC-C (Moissy, FR) Open Q2 2016 DC-F (Bellevil
Slide 25: Company culture is fundamental to our success
People Company culture is fundamental to our success 1 Customer focus 2 Cost consciousness 3 Teamwork 4 Discipline 5 Simplicity 6 Respect 25 CAPITAL MARKETS SEMINAR 07/11/2017
Slide 26: Experienced management team continues to deliver profitable growth
People Experienced management team continues to deliver profitable growth Action operating team Executive Board members CEO CFO Sander van der Laan Frederik Lotz Commercial Director Supply Chain Director Operations Director Hajir Hajji Joost Bous Bart Raeymakers Communications Marketing Director Leg
Slide 27: Significant focus on Action Social Responsibility
Significant focus on Action Social Responsibility 27 CAPITAL MARKETS SEMINAR
Slide 28: 2017 performance and beyond
2017 performance and beyond Sander van der Laan 28 CAPITAL MARKETS SEMINAR 08/03/2018
Slide 29: Action has an ambition to become a €10 billion company
Action has an ambition to become a €10 billion company Action revenue in €m €10b 3,418 2,675 1,995 1,506 1,155 607 718 873 426 515 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20xx 29 CAPITAL MARKETS SEMINAR
Slide 30: 2017 was another strong year
2017 was another strong year 2017 was another strong …but some areas Underlying performance year… required attention remains strong • Like-for-Like at 5.3% • Supply chain transition • Like-for-Like sales growth • 243 stores added costs in all countries • EBITDA €387m (EBITDA • Soft performance in •
Slide 31: In 2017 we focused on strengthening the company for future growth
In 2017 we focused on strengthening the company for future growth Like-for-Like Expansion Foundation 31 CAPITAL MARKETS SEMINAR
Slide 32: Strong Like-for-Like sales growth in 2017 to be delivered again in 2018
Strong Like-for-Like sales growth in 2017 to be delivered again in 2018 Drive Like-for- New Category Private Label Refresh Digital Marketing Like all Sports Programme Format Transformation Programme categories 32 CAPITAL MARKETS SEMINAR
Slide 33: Like-for-Like – continuous development of all categories
Like-for-Like – continuous development of all 14 categories • Overall Like-for-Like sales growth of 5.3% in 2017 • Healthy Like-for-Like growth in all markets • Q4 showed softness in two of our product categories (Fashion & Decoration) 14 categories • Within categories, focus on: → Price → Surprise
Slide 34: Like-for-Like – Sports will be introduced as our 14th category
Like-for-Like – Sports will be introduced as our 14th category • 14th category within Action assortment, taking over store space from fashion • In store from March 2018 onwards with 9 meters of racking • Starting with ~80 SKUs from existing assortment, increasing to ~125 SKUs by the end of 2018 • As
Slide 35: Like-for-Like – steadily expanding our range of private labels
Like-for-Like – steadily expanding our range of private labels • Over the next years we want to invest significantly in our private label portfolio • Private labels are a big opportunity for Action: → Stronger Like-for-Like sales growth and margin performance compared to other non-branded products →
Slide 36: Like-for-Like – pilot started for a refreshed Action format
Like-for-Like – pilot started for a refreshed Action format • Pilot started in 2017 in Haarlem (Netherlands) • First findings positive: → Stimulates Like-for-Like development of stores → Enhances customer store experience → Brings innovation to the store • Refreshed format will also be tested in Ger
Slide 37: Like-for-Like – digital transformation on the move
Like-for-Like – digital transformation on the move • Customer experience to be strengthened over the coming years through improved digital presence via: → Website (www.action.com launched in 2017) → Social media → E-mail • Action has significantly invested in its digital customer proposition in orde
Slide 38: Like-for-Like – optimising our non-digital marketing spend
Like-for-Like – optimising our non-digital marketing spend 2017 2018 6 times per year in 3 media 48 times per year 6 times per year in 2 media New non-digital marketing spend expected to increase store traffic and Like-for-Like growth 38 CAPITAL MARKETS SEMINAR
Slide 39: Continuous acceleration of growth via expansion to new countries and more store openings
Continuous acceleration of growth via expansion to new countries and more store openings Quality of Opening France Germany Poland Remodelling execution profile 39 CAPITAL MARKETS SEMINAR
Slide 40: Expansion - acceleration of store opening pace continued in Germany
Expansion - acceleration of store opening pace continued in Germany, with 80 new stores in 2017 216 136 • Population 82.8m 17.1m 76 • Action stores 216 367 45 7 22 • Population per store 383k 47k # of stores 2012 - 2017 Country statistics • Country entered in 2009 • 80 new stores in 2017 • Local hea
Slide 41: Expansion - growth in France has been significant
Expansion - growth in France has been significant, with 115 new stores in 2017 335 220 • Population 67.0m 17.1m 120 • Action stores 335 367 52 13 • Population per store 200k 47k 1 # of stores 2012 - 2017 Country statistics • Country entered in December 2012 • 115 new stores in 2017 • Local headquart
Slide 42: Expansion – successful entry into Poland in 2017
Expansion – successful entry into Poland in 2017 • Six pilot stores were opened in the South-West of Poland in the fourth quarter • Action formula appeals to our new Polish customers and we are planning to open more stores in Poland in 2018 • In the process of setting up a local office in Katowice 4
Slide 43: Expansion - further foundation for expansion
Expansion - further foundation for expansion Remodelling Quality of execution Opening profile • Step up in number of remodellings • Continuous improvement in quality • Create more equal spread of store with focus on NL and Belgium of new stores openings throughout the year • 2017: • Focus on improve
Slide 44: Foundation
Foundation Sourcing People Systems 44 CAPITAL MARKETS SEMINAR
Slide 45: Foundation – developing Sourcing and Supply infrastructure
Foundation – developing Sourcing and Supply infrastructure to support long-term growth Sourcing models (illustrative) Far East Sourcing Direct Sourcing Europe Wholesalers A-brands / local sourcing • Network of ~1,000 suppliers, of which >400 direct suppliers • Diversity in sourcing models requires i
Slide 46: Foundation – growth to be supported by the right Systems & People
Foundation – growth to be supported by the right Systems & People Systems (key focus areas) In-store technology Supply Chain HR Digital (Payment terminals, (Planning, upgraded (Cloud-based system for all upgraded POS software, Warehouse Management (CRM) countries) headsets) software) People Signific
Slide 47: Store roll out over the years (2013 – 2015 – 2017)
Store roll out over the years (2013 – 2015 – 2017) 2013 2015 2017 47 CAPITAL MARKETS SEMINAR
Slide 48: Still significant potential in existing and new countries
Still significant potential in existing and new countries Population in million 17 12 67 83 9 38 282 % penetration NL BeLux FR DE AU PL Other EU 48 CAPITAL MARKETS SEMINAR
Slide 49: Financial performance
Financial performance Frederik Lotz 49 CAPITAL MARKETS SEMINAR 08/03/2018
Slide 50: Consistent high growth track record
Consistent high growth track record Rapid net sales growth (€m) Strong EBITDA growth (€m) 3,418 387 2,675 (1) 310 1,995 (1) 226 1,506 1,155 166 873 128 718 86 99 515 607 71 426 39 49 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EBITDA margin Sou
Slide 51: Action’s repeatable economic model
Action’s repeatable economic model 1 2 • Consistent gross margin • Like-for-Like sales growth across categories Clear value Superior store • # new stores • All Like-for-Like stores drivers economics profitable • EBITDA margin • Converting EBITDA margins 3 4 • Proven • Low capital intensity Strong Ex
Slide 52: Strong Like-for-Like sales growth
1 Strong Like-for-Like sales growth Key Like-for-Like driver is increase in number of customers 7.6% 7.2% 6.9% 5.3% 2014 2015 2016 2017 Source: Company information 52 CAPITAL MARKETS SEMINAR
Slide 53: New store openings
1 New store openings (1) 244 6 11 197 6 115 141 1 100 108 68 85 39 Poland 12 Austria 15 80 23 31 60 France 17 Germany 25 24 18 18 BELUX 41 21 17 13 14 Netherlands 2013 2014 2015 2016 2017 Source: Company information 53 CAPITAL MARKETS SEMINAR (1) Net new store openings was 243 as a result of one sto
Slide 54: Limited seasonality in sales
1 Limited seasonality in sales Net sales by trading period EBITDA by trading period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 Source: Company information 54 CAPITAL MARKETS SEMINAR Note: Q1 comprises 4 periods of 4 weeks; Q2, Q3, Q4 all comprise of 3 periods of 4 weeks
Slide 55: Balanced revenue mix between countries
1 Balanced revenue mix between countries Already over 60% of sales generated outside the Netherlands Sales share by country Poland Austria Luxembourg France Germany Belgium Netherlands 2012 2013 2014 2015 2016 2017 Source: Company information 55 CAPITAL MARKETS SEMINAR
Slide 56: Superior growth versus selection of peers
1 Superior growth versus selection of peers 31.0% 2012-2017E Sales CAGR 25.0% 24.7% 24.6% Average 17.5% 14.8% 12.1% 11.3% 10.6% 9.9% 8.0% (1) (2) (3) Source: Company information, broker research Note: Sales not calendarised, fiscal year ending in January for Five Below, Dollar Tree, Inditex and Doll
Slide 57: Consistent margins across all categories
2 Consistent margins across all categories 60% 50% % Gross margin(1) 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 Category(2) Source: Company information (1) (Net sales - Cost of goods sold) / Net sales 57 CAPITAL MARKETS SEMINAR (2) Excluding 14th category Sports
Slide 58: All Like-for-Like stores are consistently profitable across all countries
2 All Like-for-Like stores¹ are consistently profitable across all countries Store Contribution (’000) 600 0 Store Contribution YTD Store Contribution % YTD Source: Company information Note: Chart shows store contribution (€k) and store contribution as % of net sales (2017). Store contribution is st
Slide 59: Underlying country EBITDA margins increasing over time
2 Underlying country EBITDA margins increasing over time + ~70 bps + ~100 bps + ~150bps + ~150bps Country EBITDA margin (%) -/- ~30bps Action Group EBITDA 2016 2017 Source: Company information 59 CAPITAL MARKETS SEMINAR
Slide 60: Very attractive pay-back periods for new stores
3 Very attractive pay-back periods for new stores Highly attractive new store dynamics Average payback of new stores (illustrative) • Rapid sales ramp-up post-opening ~ 3.0 • Real estate discipline driving low rent costs: → No high street locations → At market or lower than market rent ~1 year ~ 0.5
Slide 61: Cashflow in 2016 benefitted from a non-recurring structural improvement
3 Cashflow in 2016 benefitted from a non-recurring structural improvement Operating cashflow 2016 - 2017 • Reported operating cashflow in 2017 declines vs 2016 268 • Significant difference as a result of structural 223 improvement in credit terms in 2016 • This windfall gain did not re-occur in 2017
Slide 62: Action enjoys negative structural working capital
3 Action enjoys negative structural working capital €0 Net working capital in €m • Total net working capital in Action is negative throughout the calendar year • Creditors are fully financing company inventories • The faster Action grows, the stronger the cash flow performance P1 P2 P3 P4 P5 P6 P7 P
Slide 63: Strong economic model
4 Strong economic model Low and centralised overheads Rigorous, uniform and tight financial governance • Buying • Daily performance tracking • Supply Chain • CEO/CFO approve all new stores • IT • One process for real estate • Finance Proven Consistent Predictable Robust Cost consciousness embedded i
Slide 64: Action continued to deliver strongly in 2017
Action continued to deliver strongly in 2017 2017 2016 Change Sales (€m) 3,418 2,675 +28% Like-for-Like sales growth 5.3% 6.9% Operating EBITDA (€m) 387 310 +25% EBITDA margin 11.3% 11.6% Number of stores 1,095 852 +243 Source: Company information 64 CAPITAL MARKETS SEMINAR
Slide 65: Action presents a compelling long-term growth opportunity
Action presents a compelling long-term growth opportunity Sales development of selected peers after reaching $1bn in sales Total sales in $ billion Source: Company information, Factset Years after reaching $1 billion in sales Note: Dollar General acquired Family Dollar (July 2015); a TJX figures fro
Slide 66: Thank you for your attention!
What do we expect from Reckitt Benckiser Thank you for your attention! 66 RECKITT BENCKISER 07/11/2017