3i Group Plc · LSE:III
3i — H1 FY2023 Earnings Presentation
38 slides from 3i's earnings presentation, Nov 10, 2022
Slide 1: Results for the six months to 30 September 2022
Results for the six months to 30 September 2022 10 November 2022
Slide 2: Business review
Business review Simon Borrows Chief Executive
Slide 3: Resilient performance in a challenging market
Resilient performance in a challenging market Six months to 30 September 2022 Group Private Equity Infrastructure Total return NAV Gross investment return Gross investment return on equity per share 16% 3% 14% 1,477p Proprietary capital invested Cash income Gearing First FY2023 dividend per share £2
Slide 4: Private Equity: portfolio well positioned in current environment
Private Equity Portfolio well positioned in current environment and exposed to sustainable long-term growth trends Resilient performance across the portfolio • 16% gross investment return. Resilient performance across the portfolio, albeit some investments that rely on discretionary spending are fac
Slide 5: Significant majority of portfolio companies mitigating impact of current challenges
Private Equity Significant majority of portfolio companies mitigating impact of current challenges + ‒ Value-for-money Attractive in a context of reducing Normalisation vs pandemic demand and private label discretionary spending Online retail peaks Continued strong growth in underlying Discretionary
Slide 6: Strong earnings growth across the portfolio
Private Equity Strong earnings growth across the portfolio Portfolio earnings growth of top 20 PE investments1 ≥ 30% £9,733m 6 companies 20 - 29% £279m 2 companies 10 - 19% £1,136m 3 companies 0 - 9% £1,170m 4 companies <0% £1,076m 5 companies 1 Includes top 20 Private Equity companies by value excl
Slide 7: Good overall earnings performance offset by lower multiples
Private Equity Good overall earnings performance offset by lower multiples for a number of assets Largest value increases (>£20m) Largest value declines (>£20m) Value Value at Value Value at Portfolio growth 30 Sep Driver of value Portfolio Driver of value company movement company decline 30 Sep mov
Slide 8: Action – strong trading to P9 and P10
Private Equity Action – strong trading to P9 and P10 • Sales to the end of P91 of €6.1bn, 27% ahead of the same period last year • LFL sales growth of 15.7% vs 12.9% last year • P9 LTM EBITDA of €1,036m, 35% ahead of same period last year and ahead of >€1bn target for end of 2023 • Sales and LTM EBI
Slide 9: Action – LfL sales have accelerated ahead of expectations since the summer
Private Equity Action – LfL sales have accelerated ahead of expectations since the summer LfL sales growth by period 18.1% 18.6% 16.9% 12.0% 8.4% 7.0% 5.6% 4.6% 4.2% 3.6% 1H1 P72 P8 P9 P10 2021 2022 Source: Action. 1. LfL sales growth in 1H based on the YTD P6 LfL sales growth in 2021 and 2022. 2. L
Slide 10: Action – results to P10 2022 indicate very strong year
Private Equity Action – results to P10 2022 indicate very strong year for Action with continued outperformance vs peers Net sales (€m) Stores YoY growth YoY growth 22% 32% 30% 32% 34% 28% 23% 21% 9% 23% 25% 19% 26% 27% 27% 30% 29% 21% 17% 11% 16% 15% 8,259 2,163 6,834 CAGR+22% 1,983 1,888 CAGR+25% 6
Slide 11: Made four new investments in the period
Private Equity Made four new investments in the period… Accounts payable process automation specialist Premium brand offering apparel and accessories focused on the SAP ecosystem for babies and children £100m proprietary capital investment £60m proprietary capital investment Online travel agency in
Slide 12: Continued to build existing platforms through targeted bolt-ons
Private Equity …and continued to build existing platforms through targeted bolt-ons + + B2B manufacturer and distributor of luminaries Online timeshare marketplace and lighting products £34m proprietary capital investment £23m proprietary capital investment Nittmann + & Pekoll + + Austrian abas ERP
Slide 13: Realisation of Havea evidences quality of the portfolio
Private Equity Realisation of Havea evidences quality of the portfolio • Significant transformation achieved over a five-year holding period, doubling size • Proceeds of £476m received in October 2022 • Signed in June 2022, with uplift to March 2022 valuation of 50% • Sterling money multiple of 3.1x
Slide 14: Infrastructure: portfolios continue to perform well, GIR impacted by 3iN share price
Infrastructure Portfolios performing strongly in current environment, with positive correlation to inflation and power prices Portfolios continue to perform well, but GIR impacted by 3iN’s share price volatility • 3% gross investment return, impacted by a 12.4% decline in the share price of 3iN in t
Slide 15: 3iN's first half results were ahead of target
Infrastructure 3iN’s first half results were ahead of target • Total return of 9.3% in the first half already outperforming medium term annual target • £98m of income and non-income cash generated in the period, supporting dividend payments • Strong portfolio performance ‒ proven resilience ‒ positi
Slide 16: Financial review
Financial review James Hatchley Group Finance Director
Slide 17: Total return on equity of 14% in the first half
Total return on equity of 14% in the first half of the financial year NAV per share (pence) 1550 74 2 (27) 1500 1,477 124 (17) 1450 1400 1350 1,321 1300 1250 1200 1 2 31-Mar-22 Value growth Net carry payable FX Other Dividends 30-Sep-22 NAV per share up 12% to 1,477 pence 1 FX net of derivatives. 2
Slide 18: Good value growth despite market headwinds
Good value growth despite market headwinds £1.2bn value increase driven by earnings growth and cash generation Value movement by basis excluding FX (£ million) 1,156 Action 1 347 PE performance increases 1 (205) PE performance decreases (180) Multiples 154 Uplift to imminent sale (148) Quoted 67 DCF
Slide 19: Action valuation basis unchanged
Private Equity Action valuation basis unchanged Enterprise value (post discount) €21.0bn €18.7bn • LTM EBITDA to P9 2022 of €1,036m €15.6bn • LTM run-rate EBITDA earnings of €1,135m €12.6bn • Net debt of €2,226m at 30 September 2022 • 18.5x (Mar-22: 18.5x) multiple post discount • Valuation at 30 Se
Slide 20: Valuation multiples compare favourably to peer set averages
Private Equity Valuation multiples continue to compare favourably to average multiples for peer sets1 Valuation mutliple Peer set average multiple 20 out of 25 portfolio companies have valuation marks below peer set average All multiples are within peer set ranges 1 Valuation multiples used for 25 c
Slide 21: Realisation premiums maintained through difficult markets
Private Equity Realisation premiums maintained through difficult markets Realisation premium vs book value >100% • 2.5x money multiple >100% • Proceeds of £346m • 2.8x2 money multiple 50% • Proceeds of £190m • 3.1x money multiple Magnitude Q/QSR1,2 Havea • Proceeds of £476m Sep 2021 Apr 2022 Jun 202
Slide 22: Private Equity: good portfolio performance
Private Equity Good portfolio performance Six months to 30 September £ million 2022 2021 Gross investment return 1,970 2,373 of which foreign exchange 685 97 GIR % of opening portfolio 16% 27% Realisations 193 118 Cash investment 292 58 30 September 31 March £ million 2022 2022 Portfolio value 14,48
Slide 23: Portfolio leverage is moderate
Private Equity Portfolio leverage is moderate Ratio of total net debt to earnings Debt maturity (% of fair value) Action Excluding Action 57% 4.6x 4.3x 4.1x 3.6x 2.5x 25% 2.0x 13% 5% ~0% Mar-211 Mar-221 Sep-221 2022 2023 2024 2025 >=2026 Over two thirds of PE portfolio term debt hedged against inter
Slide 24: Infrastructure and Scandlines
Infrastructure and Scandlines Solid performance in the period Six months to 30 September £ million 2022 2021 Infrastructure gross investment return 35 60 Realised profits over value - 3 Unrealised (losses)/profit on revaluations1 (47) 30 Dividend and interest income from the portfolio 24 20 Foreign
Slide 25: Operating cash position
Operating cash position Operating loss position expected to turn positive by end of financial year Six months to 30 September £ million 2022 2021 Private Equity 7 14 Infrastructure 48 39 Scandlines 12 − Cash income 67 53 Operating cash expenses1 (84) (72) Operating cash loss (17) (19) 1 Operating ca
Slide 26: Simple balance sheet and conservative capital management
Simple balance sheet and conservative capital management £16,417m • High quality, well constructed portfolio £900m • RCF, of which £154m drawn at 30 September 2022, fully repaid in October £55m • Gross cash held centrally with no material restrictions £975m • Gross fixed term debt made up of bonds e
Slide 27: Net asset exposure by currency
Net asset exposure by currency Net assets by currency 30 September 2022 • Medium-term foreign exchange hedging 2% programme executed post 30 September 17% 10% ‒ partial reduction of FX sensitivity ‒ locks rate for future sterling outflows Net assets: • €2.6bn (incl. Scandlines) of euro and $1.2bn £1
Slide 28: First FY2023 dividend of 23.25 pence per share
First FY2023 dividend of 23.25 pence per share • Our dividend policy aims to maintain or grow the dividend year-on-year subject to: ‒ maintaining our conservative balance sheet strategy ‒ careful consideration of the outlook for investments and realisations and market conditions 28
Slide 29: Closing remarks
Closing remarks Simon Borrows Chief Executive
Slide 30: Portfolio positioned to perform resiliently in challenging markets
The portfolio is positioned to continue to perform resiliently in challenging markets Portfolio at 30 September 20221 Value, Infrastructure and Healthcare >80% of portfolio 1 Excludes Havea. 30
Slide 31: 3i has significant long-term potential
3i has significant long-term potential Permanent capital. Long-term, sustainable approach Proven model, underpinned by robust processes, patience and price discipline Thematic approach to investment, with exposure to long-term secular growth trends Resilient and prudently funded portfolio, positione
Slide 32: Additional information
Additional information
Slide 33: Q2 NAV increased from 1,406 pence to 1,477 pence
Q2 NAV increased from 1,406 pence to 1,477 pence NAV per share (pence) 1,550 39 2 (27) 1,500 1,477 65 (8) 1,450 1,406 1,400 1,350 1 30-Jun-22 Value growth Net carry payable Fx Other Dividends 30-Sep-22 1 FX net of derivatives. 33
Slide 34: 3i Group large investments
3i Group 20 large investments Valuation Valuation Investment Business description Sep 22 (£m) Mar 22 (£m) Action General merchandise discount retailer 8,612 7,165 3i Infrastructure plc Quoted investment company, investing in infrastructure 817 934 Cirtec Medical Outsourced medical device manufacturi
Slide 35: Private Equity portfolio by value
Private Equity portfolio by value By office location (%) By sector (%) 13% 13% 6% 8% 8% 6% 5% 68% 59% 14% Action (Consumer) Consumer Industrial Technology Netherlands France Germany UK US B&TS* Healthcare Portfolio of 41 investments (31 March 2022: 37) * Business and Technology Services. 35
Slide 36: Carried interest payable as a result of value growth
Private Equity Carried interest payable a result of value growth in the period Six months to 30 September 2022 2021 £ million Income statement Carried interest receivable 2 2 Carried interest payable (157) (194) Net total expense (155) (192) 30 September 31 March £ million 2022 2022 Balance sheet Ca
Slide 37: Action peers
Action peers EV/LTM EBITDA, pre-IFRS 16 27.5x 25.0x 22.5x Dollarama Inc., 21.3x 20.0x Costco, 20.3x Action RR, 18.5x 17.5x Grocery Outlet, 17.1x Five Below, 16.8x Ollie’s, 15.3x 15.0x Avg, 14.9x Dollar General, 14.3x 12.5x 10.0x Pepco, 8.0x 7.5x B&M, 6.0x Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Ap
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