3i Group Plc · LSE:III
3i — Debt Investor Presentation (December 2012)
54 slides from 3i's debt investor presentation, Dec 3, 2012
Slide 1: Debt Investor update
Debt Investor update Julia Wilson, Group Finance Director Net Roadshow 3 December 2012
Slide 2: Disclaimer
Disclaimer The distribution of this document may be restricted by the laws and regulations of certain jurisdictions. You should inform yourself of, and comply with, those restrictions. Failure to do so may be a breach of those laws or regulations. This document may only be issued to or passed on in
Slide 3: Content
Content Strategic objectives and progress update Slides 5 to 22 Financial performance Slides 24 to 41 Appendices Slides 43 to 52 Contacts Slide 53 3
Slide 4: Strategic objectives and progress update
Strategic objectives and progress update
Slide 5: A clear vision and strategy
A clear vision and strategy A leading international manager of third-party and proprietary capital with three strong investment platforms delivering top quartile cash investment returns: focused mid-market Private Equity business class-leading Infrastructure investor growing Debt Management business
Slide 6: Three clear phases of organisational change and strategic delivery
Three clear phases of organisational change and strategic delivery Transition and Restructuring Strategic goal delivery FY13 FY14 - 15 FY16+ 6
Slide 7: Immediate priorities
Immediate priorities FY13 FY14 - 15 FY16+ Fitter and Control and Consistency more efficient focus and discipline Strategic mandate to pursue clear and concrete set of measures to maximise shareholder value Strong management focus on execution 7
Slide 8: Restructuring on track
Restructuring on track FY13 FY14 - 15 FY16+ Key targets announced on 29 June On track Reduce staff Headcount reduction of over 160 employees by 31 March 2013, representing over a third of the Group’s headcount of 435 employees at 31 March 2012 More than half of this headcount reduction to have taken
Slide 9: Restructuring on track (cont.)
Restructuring on track (cont.) FY13 FY14 - 15 FY16+ Key targets announced on 29 June On track Annualised run- Targeted annualised run-rate operating cost savings rate operating of £40m to be achieved by 31 March 2013, increasing cost savings to £45m by 31 March 2014 These cost savings are against a
Slide 10: Moving to next stage of recovery – Transition and delivery
Moving to next stage of recovery – “Transition and delivery” FY13 FY14 - 15 FY16+ Align Capital Grow costs with allocation third-party income strategy income Strategic mandate to pursue clear and concrete set of measures to maximise shareholder value 10
Slide 11: Align operating costs with income
Align operating costs with income FY13 FY14 - 15 FY16+ £m 200 + Reduction in operating costs 150 + Reduction in funding costs 100 + Growing third-party income from Infrastructure and Debt 50 Management - (50) ─ Private Equity AUM and third-party fee income (100) reducing over time ─ Challenging Priv
Slide 12: Significant potential to increase shareholder distributions and re-investment
Significant potential to increase shareholder distributions and re-investment FY13 FY14 - 15 FY16+ Average over last three years Target shape (illustrative) Fees and Fees and portfolio portfolio income 27% income 20-25% 5-10% 41% 15-20% 50-55% 3% 29% Realisations Operating Debt Shareholder Funds to
Slide 13: Growth opportunities in Infrastructure
Growth opportunities in Infrastructure FY13 FY14 - 15 FY16+ Core business Grow within a competitive market Explore medium-term strategic growth opportunities Focus on organic growth in core business Opportunistic Assess opportunities to grow inorganically 13
Slide 14: Growth opportunities in Debt Management
Growth opportunities in Debt Management Developments to date FY13 FY14 - 15 FY16+ 3i acquires Mizuho Investment Management debt platform (£3.7bn AUM) to form 3iDM Feb 2011 Team led by Jeremy Ghose, 24 years of global debt experience 3iDM establishes European Credit Opportunities Fund, seeding it wit
Slide 15: Growth opportunities in Debt Management (cont.) – US
Growth opportunities in Debt Management (cont.) US FY13 FY14 - 15 FY16+ Core business Take advantage of positive market conditions to grow core business Explore medium-term strategic growth opportunities Target organic or acquisition-led growth in associated markets Opportunistic Assess bolt-on oppo
Slide 16: Growth opportunities in Debt Management (cont.) – Europe
Growth opportunities in Debt Management (cont.) Europe FY13 FY14 - 15 FY16+ Core business Market conditions currently less favourable than in US; growth expected to be slower Explore medium-term strategic growth opportunities Focus on medium-term growth strategies as European market dynamics change
Slide 17: Private Equity
Private Equity Busy last six months focused on restructuring and implementation of asset management initiatives Realisation levels and investment activity have been low – low M&A volumes and difficult macroeconomic conditions, particularly in Europe Key realisations in the period include Esmalglass,
Slide 18: Specific and clear strategic priorities over the next months
Specific and clear strategic priorities over the next 18 months FY13 FY14 - 15 FY16+ Next six months Next financial year Reduce operating costs - fitter and Implement new compensation more efficient arrangements Reduce gross debt and funding Reduce operating costs and gross costs materially debt fur
Slide 19: More detail to track our progress
More detail to track our progress Specific targets set out in June for reduction of operating costs and gross debt Additional financial information and KPIs provided to help measure our progress: Emphasising cash income compared to reported income in terms of management fees and portfolio income Ann
Slide 20: Shape of 3i today
Shape of 3i today 3i Group London Stock Share price: £2.10(1) Ticker: III Exchange Market cap: £2.0bn Total AUM £11.3bn(2) Third-party AUM £7.3bn Private Equity Infrastructure Debt Management Investing and managing Investing primarily in Management of funds in mid-market companies utilities, transpo
Slide 21: Our strategic goal
Our strategic goal Illustrative shape of 3i to come FY13 FY14 - 15 FY16+ Private Equity Infrastructure Debt Management Illustrative capital allocation Third-party Third-party Third-party Proprietary capital Proprietary capital Proprietary capital 1. Portfolio returns 1. Portfolio income 1. Fee incom
Slide 22: 3i and the market
3i and the market FY13 FY14 - 15 FY16+ Broader peers and valuation basis Investment trusts/ Managers of third-party balance sheet investors funds Electra 3i Blackstone HgCapital Trust Carlyle SVG Capital KKR Permanent capital Traditional asset mgrs >£7bn third-party Valued on a P/NAV AUM Valued on a
Slide 23: Financial performance
Financial performance 23
Slide 24: Financial highlights
Financial highlights Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 Gross portfolio return £180m £(331)m £(329)m Fee income £36m £43m £89m Net carried interest £(2)m £1m £(5)m Income Operating costs £(105)m £(98)m £(180)m statement Net portfolio return £109m £(
Slide 25: Business performance underpins NAV
Business performance underpins NAV Diluted NAV per share (pence) 285 280 279 (5) 275 (3) 10 273 (2) 270 (6) 265 260 255 31 March 2012 Ordinary Implementation Gross debt Non-cash Business 30 September Opening NAV dividends costs reduction costs accounting items performance 2012 NAV (actuarial, FX, de
Slide 26: All three business lines contribute
All three business lines contribute Debt Private Infrastructure Management(1) Equity Total(2) Six months to 30 September 2012 Gross portfolio return £7m £5m £129m £180m Fees £10m £16m £10m £36m Net carry - £(1)m £(1)m £(2)m Operating expenses £(13)m £(16)m £(73)m £(105)m Net portfolio return £4m £4m
Slide 27: On track to deliver £40m run-rate savings target by year end
On track to deliver £40m run-rate savings target by year end Operating expenses Implementation costs £m of £25m recognised 300 250 Headcount reduced by 104 on 200 a net basis to the end of the period, on track to reduce by 150 over 160 by March 2013 100 50 Expect costs for FY2013 to be similar to pr
Slide 28: Infrastructure – another solid period
Infrastructure – another solid period Six months to 30 September 2012 2011 Realised profits - - Unrealised profits £(2)m £(11)m Portfolio income £9m £9m Gross portfolio return £7m £(2)m Fees £10m £11m Net carry - £(4)m Operating expenses £(13)m £(11)m Net portfolio return £4m £(6)m % opening portfol
Slide 29: Debt Management – performed well again
Debt Management – performed well again Six months to 30 September 2012 2011 Realised profits £3m - Unrealised profits £1m £(3)m Portfolio income £1m £1m Gross portfolio return £5m £(2)m Fees £16m £17m Net carry £(1)m £(4)m Operating expenses(1) £(16)m £(10)m Net portfolio return £4m £1m % opening po
Slide 30: Private Equity – better portfolio performance
Private Equity – better portfolio performance Six months to 30 September 2012 2011 Realised profits £22m £25m Unrealised profits £69m £(414)m Portfolio income £38m £68m Gross portfolio return £129m £(321)m Fees £10m £15m Net carry £(1)m £9m Operating expenses £(73)m £(74)m Net portfolio return £65m
Slide 31: Private Equity - realisations at good uplifts
Private Equity - realisations at good uplifts Total Private Equity realisations of £165m – Realised profit over opening value of £22m – Uplift over value of 15% Notable realisations: Year Money Asset Country Proceeds IRR(1) invested multiple(1) NORMA Germany 2006 £56m 5.8x 38% HILITE Germany 2011 £4
Slide 32: Private Equity portfolio
Private Equity portfolio By region By sector By vintage 8% 4% 2% 13% 16% 5% 29% 23% 4% 45% 28% 4% 11% 1% 23% 13% 13% 22% 6% 30% Northern Europe Business Services 2013 2012 Southern Europe Consumer 2011 2010 UK Healthcare 2009 2008 Industrials India 2007 Pre 2006 TMT China Other Asia Americas 32
Slide 33: Private Equity portfolio
Private Equity portfolio 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Percentage of portfolio companies ahead of prior year last 12 months' EBITDA at each quarter-end (based on number of portfolio companies) 55% of companies growing, over 70% by valu
Slide 34: Private Equity portfolio
Private Equity portfolio Investment Business description Country Performance Action Non-food discount retailer Benelux Mayborn Manufacturer and distributor of baby products UK Foster + Partners Architectural services UK -(1) ACR Reinsurance in large risk segments Singapore HILITE Fluid control compo
Slide 35: Private Equity – September valuations
Private Equity – September valuations Sept March Sept Multiples increased by 1% Multiples 2012 2012 2011 since March 2012 FTSE 250 9.6x 9.6x 9.0x Use of forecast earnings for 16 portfolio companies 3i pre discount 8.3x 8.2x 8.2x Growth in valuation earnings 3i post discount 7.4x 7.6x 7.5x of 1% sinc
Slide 36: Unrealised value movement
Unrealised value movement September September 2012 2011 Performance(1) £60m £(49)m Multiple movement £4m £(237)m Provisions £4m £(43)m Uplift to imminent sale £(1)m £6m Discounted cash flow £1m £(2)m Quoted £6m £(58)m Debt Management broker quotes £1m £(3)m Industry metric £(10)m £(24)m Other £1m £(
Slide 37: A stronger balance sheet
A stronger balance sheet Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 Gross portfolio return £180m £(331)m £(329)m Fee income £36m £43m £89m Net carried interest £(2)m £1m £(5)m Income Operating costs £(105)m £(98)m £(180)m statement Net portfolio return £109
Slide 38: On track to achieving gross debt target
On track to achieving gross debt target Met target to reduce gross Gross debt debt to less than £1.3bn by £m September 2012 2,500 Gross debt at £1.2bn at September 2012 through 2,000 combination of maturities and tactical repayments 1,500 Interest payable for the six months of £60m: 1,000 – includes
Slide 39: Gross debt and repayment profile
Gross debt and repayment profile £m 400 350 300 250 200 150 100 50 0 2013 2014 2015 2016 2017 2018 2022 2023 2024 2033 Rating BBB/Baa2 with stable outlook 39
Slide 40: Capital distribution policy
Capital distribution policy Rebased dividend in November 2011 to 8.1p per share per annum Defined basis of aggregate shareholder distributions as 15-20% of gross cash proceeds from realisations, provided that: – gearing <20% – gross debt is on target to be <£1bn by June 2013 Confirming 2.7p dividend
Slide 41: Good progress - setting the foundation for increased distributions
Good progress - setting the foundation for increased distributions A period of considerable change Good progress in restructuring the business and balance sheet Stable results reflect: ─ better performance from Private Equity portfolio and steady contributions from Infrastructure and Debt Management
Slide 42: Appendices
Appendices
Slide 43: Growth opportunities in Infrastructure
Growth opportunities in Infrastructure FY13 FY14 - 15 FY16+ Core business 3i Infrastructure plc - continue to invest 3i India Infrastructure Fund - continue to focus on portfolio management Grow within a competitive market Balance sheet - invest directly alongside 3iN where the opportunity allows Ex
Slide 44: Growth opportunities in Debt Management – US
Growth opportunities in Debt Management US FY13 FY14 - 15 FY16+ Core business Issue new CLOs - market open; expect to be an active issuer Take advantage of Grow senior loan fund - build on top decile track record positive market to grow AUM from current c.$50m conditions to grow core business Establ
Slide 45: Growth opportunities in Debt Management – Europe
Growth opportunities in Debt Management Europe FY13 FY14 - 15 FY16+ Core business Credit Opportunities Fund - seek to raise third-party capital alongside 3i’s own capital Market conditions CLO issuance - look to be one of the early issuers if and currently less favourable when market returns than in
Slide 46: Assets under management as at 30 September 2012
Assets under management as at 30 September 2012 % Gross Outstanding 3i invested money Original Original 3i commitment at at Sept multiple at Close date fund size commitment Sept 2012 2012 Sept 2012(1) AUM Private Equity 3i Eurofund III July 1999 €1,990m €995m €90m 91% 2.0x €11m 3i Eurofund IV June 2
Slide 47: Assets under management as at 30 September 2012 (cont.)
Assets under management as at 30 September 2012 (cont.) Outstanding 3i Gross money Original Original 3i commitment at % invested multiple at Close date fund size commitment Sept 2012 at Sept 2012 Sept 2012(1) AUM Debt Management Average paying yield(2) Harvest I April 2004 €514m €15m - 100% 8..3% €2
Slide 48: 20 large investments as at 30 September 2012
20 large investments as at 30 September 2012 Value at Value at 31 March 2012 30 September 2012 Company Business line Country Sector £m £m 3i Infrastructure plc Infrastructure UK Infrastructure 375 380 Action Private Equity Benelux Consumer 143 173 Mayborn Private Equity UK Consumer 105 117 Foster +
Slide 49: Movements in portfolio value
Movements in portfolio value £m 4,000 138 66 (203) 3,500 (72) (18) 3,204 3,000 3,115 2,500 2,000 1,500 Private Equity £2,500m 1,000 (80%) 500 0 Opening Investment Value Divestment Foreign Other Closing portfolio movement at value exchange portfolio 49
Slide 50: Realisations
Realisations 31 March 2012 Value uplift % Total cash Calendar Proceeds opening on opening Profit/(loss) Total Total profit/(loss) IRR Asset year in the value portfolio in the cash cash over cash Money 3i only Name Country invested period (3i only) value1 period invested returned invested multiple2 (
Slide 51: Private Equity – leverage in the portfolio
Private Equity Leverage in the portfolio £m Net debt to EBITDA(1) % Debt repayment profile(2) 800 50 700 45 40 600 35 500 30 400 25 300 20 15 200 10 100 5 - 0 <1x 1-2x 2-3x 3-4x 4-5x 5-6x >6x 2012 2013 2014 2015 2016 2017 2018 or later (1) Private Equity portfolio weighted by 30 September 2012 carry
Slide 52: Private Equity – portfolio earnings growth
Private Equity Portfolio as at 30 September 2012 Portfolio earnings growth by value (1) 3i carrying value at 30 September 2012 £m 1,000 15 900 800 700 600 500 15 400 7 300 5 6 200 14 100 - <(20)% (20) to (10)% (10) to 0% 0 to10% 10 to 20% >20% (1) This represents 88% of the Private Equity portfolio,
Slide 53: Contacts
Contacts Julia Wilson Maureen Rawlins Group Finance Director Group Treasurer Tel: +44 (0)20 7975 3285 Tel: +44 (0)20 7975 3115 Email: julia.wilson@3i.com Email: maureen.rawlins@3i.com Silvia Santoro Matt Shelley Investor Relations Director Deputy Group Treasurer Tel: +44 (0)20 7975 3258 Tel: +44 (0)
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