3i Group plc · LSE:III
3i — H1 2011 Earnings Presentation
50 slides from 3i's earnings presentation, Nov 11, 2010
Slide 1: Half-yearly results to 30 September 2010
Half-yearly results to 30 September 2010 11 November 2010 1
Slide 2: Michael Queen, Chief Executive
Michael Queen Chief Executive 2
Slide 3: Agenda
Agenda Overview Michael Queen Financial review Julia Wilson Infrastructure Cressida Hogg Growing 3i Michael Queen 3
Slide 4: Key themes
Key themes Increased momentum throughout the business Good portfolio performance (gross portfolio return 8.7%) Strategic development Three platforms for growth 4
Slide 5: Financial review
Financial review Julia Wilson Finance Director 5
Slide 6: Financial highlights – half-year to September 2010
Financial highlights – half-year to 30 September 2010 • Investment of £327m (2009 half-year: £190m) • Good gross portfolio return of 8.7% reflecting strong earnings growth • Operating costs down to £89m • Total return of £117m, a 3.8% return on opening shareholders’ funds • Interim dividend of 1.2p
Slide 7: Investments and realisations
Investments and realisations • Investment of £327m (2009 half year: £190m) – £58m new investment – more than one-third expanding our investment in portfolio companies • Realisations £293m (2009 half year: £507m) – 11% uplift on opening value – almost all to non-financial buyers 7
Slide 8: Total return for the six months to September 2010
Total return for the six months to 30 September 2010 Gross portfolio return Net portfolio return Total return Realised profits £30m Gross portfolio return £307m Net portfolio return £236m Unrealised value movement £196m Fees receivable £30m Net interest payable £(72)m Portfolio income £81m Net carri
Slide 9: Unrealised profits on revaluation of investments
Unrealised profits on revaluation of investments Six months to (£m) Sept 2010 March 2010 Sept 2009 Earnings growth 273 151 (322) Multiples (71) 72 464 Provisions (40) 3 (27) Impairments (68) 38 54 Uplift to imminent sale 66 (29) 1 Quoted 7 (31) 108 Other 29 27 (51) Total 196 231 227 Higher quality v
Slide 10: Unrealised value movement - £196m
Unrealised value movement - £196m Earnings growth across the portfolio Market multiples weakened Change in the to September 2010 to March 2010 to September 2009 six months % Value % Value % Value change impact change impact change impact Earnings +8% £273m +5% £151m -13% £(322)m Multiples -5% £(71)m
Slide 11: Total return analysis
Total return analysis Six months to September (£m) 2010 2009 Gross portfolio return 307 8.7% 316 7.8% Fees receivable 30 28 Net carried interest (12) (4) Operating expenses (89) (108) Net portfolio return 236 6.7% 232 5.7% Net interest payable (72) (55) Exchange movements (29) (66) Actuarial loss (7
Slide 12: Balance sheet
Balance sheet (£m) 30.9.10 31.3.10 30.9.09 Investment assets 3,679 3,517 3,780 Other net liabilities (166) (191) (180) 3,513 3,326 3,600 Net borrowings 352 258 854 Equity 3,161 3,068 2,746 3,513 3,326 3,600 Gearing 11% 8% 31% Liquidity £2.1bn £2.7bn £2.0bn NAV £3.30 £3.21 £2.86 Conservative balance
Slide 13: Financial highlights
Financial highlights Good portfolio performance Conservative balance sheet management Well positioned 13
Slide 14: Infrastructure
Infrastructure Cressida Hogg Managing Partner, Infrastructure 14
Slide 15: Infrastructure at 3i – a brief history
Infrastructure at 3i – a brief history Corporate/strategic developments Investments Infrastructure assets purchased through PFI investments on balance sheet 1996/ 2005 private equity business (Octagon, Alma Mater, I2, Alpha) Infrastructure established as a separate Public-to-private of AWG b
Slide 16: Infrastructure at 3i – two investment vehicles
Infrastructure at 3i – two investment vehicles No direct on balance sheet investment Investment activity conducted through two investment vehicles 3i Infrastructure plc 3i India Infrastructure Fund 33.1% direct holding $250m commitment 12% Total return objective, net 18% Return objective, net 5% Yie
Slide 17: 3i Infrastructure plc - track record
3i Infrastructure plc - track record Continued growth in returns to shareholders 140 132.6 th 130 row 128.8 e dg ali s nu 121.1 120 an 119.0 % 9.5 116.3 Pence per share 110.6 110 103.1 100 100 90 80 Mar Sep Mar Sep Mar Sep Mar Sep 2007 2007 2008 2008 2009 2009 2010 2010 Diluted NAV per share (post d
Slide 18: 3i India Infrastructure Fund – track record
3i India Infrastructure Fund – track record • Valued at 156% of cost: – Adani Power: 1.97x (2.21x pre-exchange loss) – Soma: 1.06x (1.21x pre-exchange loss) – Krishnapatnam: 1.25x (1.13x pre-exchange gain) • Through J-curve after one year Gross IRR 19.3% Gross Money Multiple 1.56x As at 30 September
Slide 19: Infrastructure at 3i – how does it contribute to Group returns?
Infrastructure at 3i – how does it contribute to Group returns? 3i Gross portfolio return Net portfolio return Total return return Reflects fund Reflects funding costs model Performance of the management fees and and impact of foreign investment portfolio costs exchange 3i Infrastructure plc
Slide 20: Infrastructure at 3i – why being part of 3i makes a difference
Infrastructure at 3i – why being part of 3i makes a difference Brand Network Active Partnership Business Leaders’ Network Advisers and Corporate relationships intermediaries A platform for successful future development 20
Slide 21: 3i Infrastructure plc new investment - Eversholt Rail Group
3i Infrastructure plc new investment - Eversholt Rail Group • One of the three leading rail rolling stock companies in the UK • Owns 29% of the total British rail fleet What • 19 fleets on lease to 7 TOCs – primary revenue stream consists of monthly rental payments from the TOCs • 100% of the asset
Slide 22: Themes for infrastructure investment
Themes for infrastructure investment • Increased flow of government disposals/privatisations Public sector budget constraints • Opportunities for private investment in government-led projects (PFI/PPP) Developed world Non-core • Financial institutions and corporates deleveraging regulatory pressur
Slide 23: Growing 3i
Growing 3i Michael Queen Chief Executive 23
Slide 24: Our strategy
Our strategy Invest Grow our business • in growing companies that • in areas consistent with our skills fit with our values • by strengthening our • with management teams and international network and entrepreneurs, working with them building our sector capabilities to deliver their full potential •
Slide 25: Invest - Trescal
Invest - Trescal Profile • French-based calibration service provider • 60 labs,11 countries, €110m revenue, €12m EBITDA • 1,200 employees, 12,000 clients in aeronautic, electronic, defence and automotive sectors • EV €110m; 3i Eurofund V equity €49.5m for 66% stake • Won through relationship with ma
Slide 26: Grow our business
Grow our business New investment Portfolio growth Strategic investment 26
Slide 27: Portfolio growth - MWM
Portfolio growth - MWM Investment • 2007: €360m buyout of MWM from Deutz AG • Manufacturer of diesel and gas engines with an environmentally friendly focus Value creation • Introduction of Peter Grosch from 3i’s Business Leaders Network • Improved service offering • Sales force effectiveness program
Slide 28: Debt management
Debt management • Debt management capability established October 2007 • Objectives – in-house banking expertise for our deal teams and portfolio – buy high-quality debt in non 3i investments • Investments made through debt warehouse facility 28
Slide 29: Strategic investment - MIM
Strategic investment - MIM Acquisition signed 27 September 2010 • Mizuho Investment Management from Mizuho Corporate Bank • Manages eight corporate, senior and subordinated debt funds Rationale • Builds on 3i’s existing debt management capabilities – adds team of 28 led by Jeremy Ghose • Creates a p
Slide 30: Our business (post MIM acquisition)
Our business (post MIM acquisition) 3i Group AUM £13.0bn Private Equity Infrastructure Debt Management Buyouts Growth Capital Mid-market investor in Minority investments of Investing in infrastructure A leading European debt companies with an between €25m-€150m assets, primarily utilities, managemen
Slide 31: Private Equity – rationale for change
Private Equity – rationale for change • Convergence of 3i Buyouts and Growth Capital models in Europe Same: – mid-market focus EV €100m- €1bn – investment and portfolio management processes – active partnership approach – network, sector and Business Leaders Network • Anticipating the next generatio
Slide 32: Private Equity – implementation
Private Equity – implementation • Positive feedback from advisers, management teams, BLN and our people • Eurofund V and Growth Capital Fund • Committed to manage existing Buyout and Growth capital funds on same governance basis through to the end of their investing periods Growing 3i - increasing o
Slide 33: Additions to Leadership Team
Additions to Leadership Team Menno Antal Alan Giddins Cressida Hogg 33
Slide 34: Our business (post MIM acquisition)
Our business (post MIM acquisition) 3i Group AUM £13.0bn Private Equity Infrastructure Debt Management Buyouts Growth Capital Mid-market investor in Minority investments of Investing in infrastructure A leading European debt companies with an between €25m-€150m assets, primarily utilities, managemen
Slide 35: Driving portfolio value - largest investments
Driving portfolio value - largest investments ACR Capital Holdings Pte Limited asiacapitalre.com Reinsurance in Geography: Singapore large risk Business line: Growth segments First invested in: 2006 Valuation basis: Industry metric Proportion of equity shares held: 31.1% Valuation: £151m NORMA Group
Slide 36: Driving portfolio value - largest investments
Driving portfolio value - largest investments Mémora Servicios Funerarias memora.es Funeral service Geography: Spain provider Business line: Buyout First invested in: 2008 Valuation basis: Earnings Proportion of equity shares held: 38.1% Valuation: £107m Mayborn Group Plc mayborngroup.com Manufactur
Slide 37: Driving portfolio value - largest investments
Driving portfolio value - largest investments • International development • Improving strategic position • Operational effectiveness • Buy and build 37
Slide 38: Our strategy
Our strategy Invest Grow our business • in growing companies that • in areas consistent with our skills fit with our values • by strengthening our • with management teams and international network and entrepreneurs, working with them building our sector capabilities to deliver their full potential •
Slide 39: Looking forward – our priorities
Looking forward – our priorities Continue to deliver good financial performance Integrate MIM Take full advantage of the increase in momentum in our investment activity 39
Slide 40: Key themes
Key themes Increased momentum throughout the business Good portfolio performance Strategic development Three platforms for growth 40
Slide 41: 41
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Slide 42: Appendix
Appendix 42
Slide 43: Movement in portfolio value
Movement in portfolio value £m Value movement £196m 4000 327 29 (98) 233 3,679 3,517 (263) (66) 3,517 3000 2000 1000 0 Opening Investment Value Unrealised Unrealised Unrealised - Other Closing portfolio realised market driven investment other movement portfolio movement specific including FX movemen
Slide 44: Investment assets
Investment assets 6 months to 30 September (£m) 2010 2009 Opening portfolio value 3,517 4,050 Investment 327 190 Value disposed (263) (494) Unrealised value growth 196 227 Exchange and other movements (98) (193) Closing portfolio value 3,679 3,780 44
Slide 45: Valuation basis
Valuation basis • No assets held at cost • Forecast earnings used, rather than historic, where future earnings are likely to fall £6,016m £4,050m £3,517m £3,679m Quoted DCF Industry metric Fund Other Price of recent investment Net assets Imminent sale Earnings Market adjustment from cost Cost 2008 2
Slide 46: Top 10 assets by value at 30 September 2010
Top 10 assets by value at 30 September 2010 Company Business Value at Value at line 30.9.10 31.3.10 £m £m 3i Infrastructure plc Infrastructure 310 300 MWM GmbH Buyout 168 127 ACR Capital Holdings Pte Ltd Growth 151 149 Enterprise Group Holdings Limited Buyout 145 144 NORMA Group Holding GmbH* Buyout
Slide 47: Buyouts - performance
Buyouts - performance Vintage IRR performance Vintage Cost As at As at As at year remaining 30.9.10 31.3.10 31.3.09 2010 n/a n/a n/a n/a 2009 98% 9% 9% n/a • 49% of direct portfolio value 2008 53% (11)% (18)% (30)% • £5.1bn assets under management 2007 73% 22% 25% 25% 2006 12% 49% 49% 46% Sept March
Slide 48: Growth Capital - performance
Growth Capital - performance Vintage IRR performance Vintage Cost As at As at As at year remaining 30.9.10 31.3.10 31.3.09 2010 100% n/a n/a n/a 2009 76% 3% (7)% n/a • 36% of direct portfolio value 2008 58% (3)% (3)% (16)% • £2.4bn assets under management 2007 58% 0% (2)% (2)% 2006 28% 22% 24% 23% S
Slide 49: Portfolio leverage – Buyouts and Growth Capital
Portfolio leverage – Buyouts and Growth Capital Contracted repayment profile on acquisition debt Debt repayment profile Buyouts portfolio (1) Growth Capital portfolio (1) % % 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 2010 2011 2012 2013 2014 2015 and beyond 2010 2011 2012 2013 2014 2015 on Ratio
Slide 50: Infrastructure
Infrastructure Contribution to Group results (£m) 6 months 6 months to 30.9.10 to 30.9.09 Realised profits/(losses) - - Unrealised profits/(losses) 22 47 Portfolio income 9 10 Gross portfolio return 31 57 Fees receivable from external funds 9 8 Assets under management 1,611 1,528 50