3i Group plc · LSE:III
3i — Investor Day (September 2017)
71 slides from 3i's investor day presentation, Sep 18, 2017
Slide 1: 3i Capital Markets Seminar: Private Equity
3i Capital Markets Seminar Private Equity 18 September 2017
Slide 2: Introduction
Introduction Simon Borrows, Chief Executive
Slide 3: Clear and consistent strategy
Clear and consistent strategy Grow investment portfolio earnings Realise investments with good cash-to-cash returns Maintain an operating cash profit Use our strong balance sheet Increase shareholder distributions 3
Slide 4: Our Private Equity investment approach
Our Private Equity investment approach Targeting mid market investments in sectors with inherent growth and opportunity Three core sectors Business Consumer Industrial • Focused origination Services – Northern Europe, North America – Sector discipline Testing, Polarisation inspection Automotive • De
Slide 5: Our approach is producing good results
Our approach is producing good results Proprietary capital invested in each vintage c£2bn invested £100m £265m £328m £352m £471m £515m since FY2013 Cirtec FY2013-FY2017 Q/Degania MM of 1.7x1 Ponroy Santé Formel D Christ Audley Scand- Travel Lampen- Schlemmer lines welt Q Holding Euro-Diesel Basic-Fi
Slide 6: Today's seminar
Today’s seminar 2015 2013 Manufacturer of pumps and accessories for the air International transmission testing specialist conditioning, heating and refrigeration industry Original cost: £64m Original cost: £74m Residual cost: £80m Residual cost: £39m Valuation: £92m Valuation: £172m 2017 2014 Manufa
Slide 7: Today's presenters
Today’s presenters Pete Wilson Ulf von Haacke Partner Partner, Managing Director, Head of Industrials UK Germany Joined 3i in 2006 and was appointed Partner in 2014. Joined 3i in 2001 and was appointed joint Managing Director and Co- head of Germany in 2009. Rémi Carnimolla Richard Relyea Partner, M
Slide 8: Aspen Pumps
Aspen Pumps Pete Wilson Partner, UK
Slide 9: 3i in the UK
3i in the UK • Investing in UK growth business for 70 years+ • 9 investment professionals 9
Slide 10: Aspen is the global leader in condensate removal pumps
Aspen is the global leader in condensate removal pumps to the HVAC/R industry • Global leader in design, manufacture and assembly of pumps to remove condensate water for air conditioning and refrigeration • Global business, selling into 100+ countries • Strong mega-trends underpinning market growth
Slide 11: How a condensate removal pump works
How a condensate removal pump works 11
Slide 12: Pumps are the core of the business, which is highly international
Pumps are the core of the business, which is highly international Sales by product Sales by geography 9% 14% 3% 19% 39% 8% 9% 72% 27% Pumps Western Europe UK Big Foot (Rooftop support systems) North America Eastern Europe Xtra (accessories) South America Rest of the World 12
Slide 13: We acquired Aspen in a process that played to our strengths
We acquired Aspen in a process that played to our strengths Early • Identified Aspen as part of sub-sector work in flow control identification • Tracking the business a number of months ahead of sale • Existing relationship with Chairman providing early access 3i network • Accelerated 3-4 weeks ahea
Slide 14: Our investment case
Our investment case Structural growth 1 drivers Strong, proven 6 management team 2 Market leadership Attractive financial 5 M&A opportunity 3 profile Strength 4 in channel 14
Slide 15: Strong structural growth and product penetration drivers
Strong structural growth and product penetration drivers Global growth Trend towards Technology driving in use of air ‘split’ systems greater number of conditioning (vs. ‘ducted’) units per system Increase in Increased Increased number volume of AC likelihood pump of pumps per AC units sold will be
Slide 16: Market leader with significant penetration opportunity
Market leader with significant penetration opportunity Aspen share of pump volumes by geography vs. competitors 100% 80% 60% 40% 20% Other Aspen 0 Australasia India UK & GSE & France Southern Eastern Europe North South ROW Ireland Benelux Europe America America 16
Slide 17: Consistently strong growth, increased since our investment
Consistently strong growth, increased since our investment Annual volume of pumps sold, 2010 – 2017 LTM 2010 2011 2012 2013 2014 2015 2016 2017 17
Slide 18: Channel position further strengthened by M&A
Channel position further strengthened by M&A May 2017 JAVAC UK April 2017 Salina May 2016 M&S July 2015 Pro Pipe 18
Slide 19: Strong management team, well aligned with 3i
Strong management team, well aligned with 3i Strong CEO Aligned with 3i Experienced chairman Adrian Thompson • Significant re- Richard Connell • 10 years at the investment of • Introduced by 3i company proceeds into the from BLN • Strong track 3i buyout • Sector relevance record of growth (Ideal Ste
Slide 20: How have we driven value since investment?
How have we driven value since investment? Salesforce Global programme rolled out effectiveness Sales growth in all key territories Increased focus on core pumps Organisation design Further recruitment of high quality talent Built out pipeline M&A 3i resource internationally to execute d
Slide 21: Clear opportunities for future value creation
Clear opportunities for future value creation Further M&A Marketing New product launches Ongoing investment into IP/ technology 21
Slide 22: ATESTEO
ATESTEO Ulf von Haacke Partner, Managing Director, Germany
Slide 23: 3i in Germany
3i in Germany • Frankfurt office since 1984 • 13 investment professionals • Strong core team with recent new hires • Market reputation as one of the oldest PE houses in Germany 23
Slide 24: ATESTEO – a global leader in drivetrain testing services
ATESTEO – a global leader in drivetrain testing services • Global market leader in independent automotive drivetrain testing services with over 3x more capacity than next competitors and a Opportunity to significant share of OEMs in customer base invest into a • Prime objective is to ensure durabili
Slide 25: Our investment in ATESTEO
Our investment in ATESTEO 2x From an owner-managed diversified engineering Doubled adj. EBITDA in company to a world leading testing and inspection 2013-2017 specialist for the automotive industry >30% increase in testing capacity International expansion, especially in China 25
Slide 26: Unique origination process
Unique origination process Sector track record Local network & personal relations Strong BLN network a) China b) Germany Long-term vision 26
Slide 27: Why 3i decided to invest
Why 3i decided to invest 1 Fundamental qualities of business Market leadership Attractive margins and high cash conversion 5 Primary transaction 2 Market growth Professionalisation leading to Underlying growth trends efficiency gains Outsourcing opportunity Multiple arbitrage from reposi
Slide 28: The automotive industry is undergoing fundamental change
The automotive industry is undergoing fundamental change Electrification Connectivity • Electrification of the • Increasing communication powertrain at the expense of abilities of cars due to the internal combustion High level implications: internet access, WLAN and engine (ICE) other technologies •
Slide 29: ATESTEO is well positioned on drivetrain testing market drivers
ATESTEO is well positioned on drivetrain testing market drivers >5% • Increasing testing demand from higher powertrain complexity Underlying market • Outsourcing trend due to customer cost savings growth 2013-17 • Safety concerns and quality improvements lead to more tests ~25% • Fundamental shift o
Slide 30: How we created value since investment
How we created value since investment Transition from family business Enhanced transparency Increasing focus on cash & return 1 and profit focus Improved governance framework and reporting Proactive growth in Chinese market Market opportunity Key market for capacity expansion through the 2
Slide 31: We have internationalised and focused the business
We have internationalised and focused the business through our period of ownership Testing share Customer origin split Other Asia 24% 10% 2013 Rest of Testing Europe 76% 16% Germany 74% USA Other Asia 3% 11% 22% 2016 Rest of Europe 8% Germany Testing 67% 89% Note: % of revenues 31
Slide 32: ATESTEO's financial performance since 2013 has validated our investment thesis
ATESTEO’s financial performance since 2013 has validated our investment thesis Sales Adj. EBITDA ROCE Group sales 8.4% 21.4% Testing sales 13.9% 65 59 61 26 58 24 20% 51 51 17% 19 42 15% 39 14% 14 39% 39% 33% 28% 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 Note: Percentages above cha
Slide 33: ATESTEO has significant potential for future growth
ATESTEO has significant potential for future growth New Regional lab tests expansion & penetration • E-Mobility Road testing • NVH €26m • North China • Climate • USA 2016 EBITDA • France & UK • South Germany 33
Slide 34: Groupe Ponroy Santé
Groupe Ponroy Santé Rémi Carnimolla Partner, Managing Director, France
Slide 35: 3i in France
3i in France • Paris office since 1983 • Historic offices in Nantes, Lyon and Strasbourg underpin breadth of network • 7 investment professionals • Core expansion country for Action, Basic-Fit, BoConcept, Lampenwelt, etc. 35
Slide 36: What is Ponroy?
What is Ponroy? 36
Slide 37: "Naturality" applied to cosmetics and food supplements
“Naturality” applied to cosmetics and food supplements through strong brands Natural cosmetics Natural foods supplements / OTC Baby care Teas, Vitamins & Dietary Supplements in HM/SM Teas, Vitamins & Dietary Supplements in Pharma Natural and Bio personal care Mail-order & e-commerce 37
Slide 38: Examples of products supported by medical studies
Examples of products supported by medical studies 38
Slide 39: A multi-channel and international distribution strategy
A multi-channel and international distribution strategy leading to nascent or promising global brands Net sales 2016 (after rebates) = €108m Net sales 16 €27m Net sales 16 €81m O/W FRANCE 83% NATURAL NATURAL FOOD O/W FRANCE 74% O/W INTERNATIONAL 17% O/W INTERNATIONAL 26% COSMETICS SUPPLEMENTS / 25%
Slide 40: Long-term steady growth track record and strong financial economics
Long-term steady growth track record, accelerated over recent years, and strong financial economics NET SALES (after discount and rebates - €M) 00-16 CAGR: +7% 122 108 101 95 86 87 86 75 71 76 60 66 61 49 53 41 44 40 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201
Slide 41: Best-in-class in-house manufacturing and R&D capabilities
Best-in-class in-house manufacturing meets pharma standards, with strong R&D capabilities 41
Slide 42: A typical 3i deal: Local, Sector, BLN
A typical 3i deal Local Sector BLN 42
Slide 43: Local: winning in a competitive environment
Local: winning in a competitive environment thanks to our local network and long-standing presence Local • 3i Nantes office (1999-2004) Sector BLN • First meeting with the Ponroy family in 2003 • Proactive follow-up since then • Better understanding of CEO & Family agenda • No M&A involved; process
Slide 44: BLN: Philippe Charrier, a successful entrepreneur
BLN: Philippe Charrier, a successful entrepreneur, with a long and trustful relationship with 3i • In 3i network since 2005 Local • CEO of Labco between 2010 and 2016 Sector BLN • Mutual trust • Assessment of many deal opportunities together • Decision to review Food Supplement sector together • Ide
Slide 45: Ponroy's growth opportunities
BLN: Philippe Charrier has the best possible track record to realise Ponroy’s growth opportunities Local Mass-market P Sector BLN Pharmacies P Brand building P P Medical R&D P P M&A P P International P P P P Entrepreneur / PE P P P 45
Slide 46: Sector: Natural Consumer Healthcare targeted by 3i since 2012
Sector: Natural Consumer Healthcare has been targeted by 3i across Europe and the US since 2012 1 • Attractive sector identified by 3i’s Consumer team Local – Secular trends – Fragmented industry; many small and mid-sized companies Sector BLN 2 • Deep-dive launched in 2012 with BLN, incl. Philippe C
Slide 47: Natural Consumer Healthcare is a mega consumer trend
Sector: Natural Consumer Healthcare is a mega consumer trend in food and cosmetics … Local Sector BLN SELF MEDICATION REGULATION HEALTH AWARENESS AVOIDING SIDE EFFECTS ORGANIC FOOD ECO-FRIENDLY HEALTHY LIFE NATURAL WELL BEING … 47
Slide 48: Natural vs. synthetic ingredients in food and cosmetics
Sector: Natural Consumer Healthcare is a mega consumer trend in food and cosmetics … Local % of natural vs. synthetic ingredients used in Food and Cosmetics industry Sector BLN 65% 33% 15% 2008 2015 2020e Natural ingredients Synthetic ingredients Source: Chr. Hansen 48
Slide 49: A core strategy for large FMCG and pharma players
… and a core strategy for large FMCG and pharma players… Local Sector BLN 49
Slide 50: Strong M&A activity in a very fragmented market
…driving strong M&A activity in a very fragmented market, where SMEs have a better track record of innovation Date Acquirer Target Price Local August 2017 18x EBITDA Sector BLN June 2017 15x EBITDA September 2016 3x Sales July 2016 21x EBITDA July 2016 5x Sales 2014 14x EBITDA 2012 16x EBITDA 2010 1
Slide 51: Vision for Ponroy: more than double size
Vision for Ponroy: more than double size through brand stretching, internationalisation, innovation and buy-and-build 1 From a family-owned to a PE-owned company: driving cultural, organisation and system changes; creating the platform for accelerated growth. 2 Create global & digital brands: focus
Slide 52: Digitalisation is at the core of our brand building strategy
Example: digitalisation is at the core of our brand building strategy From ponroy.com Digital brands to full online distribution Coordination with a CDO Know your Market places customers (analytics) 52
Slide 53: 2017: current trading is in line with plan
2017: after the first months of ownership, current trading is in line with plan and transformation is well advanced • Cultural change ongoing 1 From family-owned to PE-owned • Philippe Charrier full time CEO • Organisation & talents upgrade: − From accountant to CFO / Business Partner P − From Head
Slide 54: Q Holding
Q Holding Richard Relyea Partner, Managing Director, North America
Slide 55: 3i in the US
3i in the US • 7 Private Equity investment professionals in New York office • Focus on Industrials, Business & Technology Services and Healthcare 55
Slide 56: Q Holding: a leader in silicone solutions
Q Holding (“Q”): a leader in silicone solutions and other challenging applications across growing end markets Q is a manufacturer of critical highly engineered components and finished devices for a targeted set of end markets catalyzed by long-term secular growth drivers Medical & drug Electrical co
Slide 57: Company highlights
Company highlights 1 Attractive end markets with strong secular growth 2 Leading market position with a global footprint 3 Low cost, mission-critical products 4 Unparalleled material science & vertical integration for highly-engineered solutions 5 Numerous organic and inorganic growth opportunities
Slide 58: Q Life Sciences – growing, non-cyclical medical device market
Q Life Sciences – growing / non-cyclical medical device market Q’s healthcare segment is well positioned with strong macro tailwinds and attractive device markets Macro growth drivers Global medical device market • Aging population living longer, more active lifestyles • Increasing access to healthc
Slide 59: Q Life Sciences – increasing medical device outsourcing trends
Q Life Sciences – increasing medical device outsourcing trends Q’s healthcare segment is well positioned with exposures to non-cyclical therapeutic healthcare end markets and finished medical devices and is also benefiting from the rise of component outsourcing Outsourcing growth drivers Outsourcing
Slide 60: Q Life Sciences – highly sensitive customers; critical products
Q Life Sciences – highly sensitive customers; critical products Used daily in hospital settings Example: balloon catheter Interaction with patients and/or Criticality devices in life saving applications of Highly regulated environments products Increasing supplier quality expectations • Balloon cath
Slide 61: QSR – increasing electrification and content
QSR – increasing electrification & content across a broad mix of industrial applications QSR is benefiting from various macro tailwinds increasing the need for electrical management solutions across a number of industrial end markets and applications Key drivers End market trends • Active driver ass
Slide 62: QSR – critical products
QSR – critical products Protection against harsh Example: electrical connector seals environments – breach of seal Criticality results in failure of product of Tight tolerances govern size and products design of connectors Automated customer assembly requires zero defect standard • Highly complex 10
Slide 63: Key capabilities and differentiators that make Q a market leader
Key capabilities & differentiators that make Q a market leader in its respective segments End-to-end capabilities Capabilities Materials In-house Advanced Cleanroom Supply development tool processing manufacturing chain and mixing / production technologies & assembly management compounding • Design
Slide 64: 3i investment thesis
3i investment thesis Strong organic • Conversion of strong pipeline in healthcare and connector end markets driven by growth potential secular trends • Drive additional scale and operating leverage across geographic footprint Further operational • Leverage low cost manufacturing and assembly operati
Slide 65: Accomplishments under 3i ownership
Accomplishments under 3i ownership 1 Strengthened healthcare platform via organic growth and M&A 2 Strong management team and board 3 Expanded international footprint 4 Improved operations through continuous improvement and ERP / WMS investments 5 Achieved attractive organic growth 65
Slide 66: Strengthened healthcare platform via organic growth and M&A
Strengthened healthcare platform via organic growth and M&A Combination of organic growth and acquisitions has strengthened Q’s position in the healthcare market • Created leading global healthcare • Acquired in December 2016 component & device manufacturer • HQ: Israel with manufacturing sites • Pr
Slide 67: Strong management team and board
Strong management team and board Q’s management team consists of talented individuals that are well positioned to drive growth and operational excellence. CEO (Tom Hook) EVP & CFO VP HR VP M&A & Strat VP Op Ex VP Adv. Tech QSR – Electrical Q Life Sciences (Cary Glay) (Anna Gluck) (Eric Haag) (George
Slide 68: Expanded global footprint
Expanded global footprint 3i has invested in expanding the global footprint of Q, focusing on key strategic markets that complement local design & development with low-cost manufacturing Twinsburg, OH Nottingham, UK Saclay, France Samorin, Slovakia Sturtevant, WI Degania, Israel Dongguan, China Jasp
Slide 69: Improved operations through lean initiatives and ERP / WMS investments
Improved operations through lean initiatives and ERP / WMS investments Q has improved efficiency and cost structure to better serve its customers P Standardized / harmonized ERP systems across sites Installed Work Management Systems to better track metrics and identify areas for P operational improv
Slide 70: Consistent organic and acquisition growth
Consistent organic and acquisition growth Q has achieved sustained topline growth through a combination of organic growth and M&A, and is poised to continue to benefit from attractive market trends and increasing share 2010 2011 2012 2013 2014 2015 2016 2017E Note: 3i acquired Q Holding in December
Slide 71: Q is well positioned to capitalize on secular trends
Q is well positioned to capitalize on secular trends Secular tailwinds in medical and connector markets Leading technical capabilities focused on challenging applications Global footprint with presence in key emerging markets Strong management team 71