3i Group Plc · LSE:III
3i — Investor Day (May 2017)
56 slides from 3i's investor day presentation, May 30, 2017
Slide 1: 3i Capital Markets Seminar: Action
3i Capital Markets Seminar Action 30 May 2017
Slide 2: Agenda
Agenda Introduction on Action Simon Borrows Update on strategic delivery Sander van der Laan Action business model Financial performance Frederik Lotz 2
Slide 3: Introduction on Action
Introduction on 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 852 # Stores • Transitioned from founders to professional management 655 Buyout • Strengthened the team and 514 built systems and processes 406 • Accelerated international 321 269 growth and expanded into 220 245 six Euro
Slide 6: Strong value creation and continued potential
Strong value creation and continued potential Action – 3i carrying value • £1,708m carrying value £m 2,000 • 16.0x run-rate EBITDA 1,800 1,708 multiple post-liquidity discount 1,549 1,600 1,400 • Action reported EBITDA 1,200 of €310m in 2016 1,000 902 800 712 • 20.8x money multiple 600 501 573 592 o
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 • 26 years of Consumer & Retail experience • >15 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
Slide 9: Action is the leading pan-European non-food discount retailer
Action is the leading pan-European non-food discount retailer Sales: 852 stores €2,675m (+34%) 354 136 Like-for-like sales All stores profitable 135 growth: 6.9% 220 7 EBITDA: 6 countries €310m (+37%) >50% revenue >35,000 employees outside the across 6 countries Netherlands # of stores All informati
Slide 10: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 1 2 Strengthen our unique International geographic customer value expansion proposition 3 A simple, scalable, and cost-effective business model that delivers our strategy 4 Build on the unique Action culture & values 10
Slide 11: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 1 2 Strengthen our unique International geographic customer value expansion proposition 3 Strengthen and protect A simple, Lowest scalable, price and cost-effective brand profile business & company model reputation that
Slide 12: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 1 2 Launch of new digital Build quality private labels Strengthen our unique communication strategy International geographic customer value expansion proposition 3 Strengthen and protect A simple, Lowest scalable, price
Slide 13: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 1 2 Strengthen our unique International geographic customer value expansion proposition 3 Rapid expansion in Expansion & network A simple, scalable, and cost-effective Germany & France business model development in Bene
Slide 14: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 197 stores opened 1 in 2016, 2 8 stores in Austria 44 stores openedStrengthen year to date our unique International geographic customer value expansion proposition 4 3 Rapid expansion in Expansion & network A simple, sc
Slide 15: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 1 2 Strengthen our unique International geographic customer value expansion proposition 3 A simple, scalable, and cost-effective business model that delivers 0 our strategy 4 Effective Strengthen World-class Business or
Slide 16: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 1 2 Strengthened management Upgraded IT Strengthen our unique International geographic customer value expansion proposition 3 A simple, scalable, and cost-effective business model CAR that delivers 0 our strategy Streng
Slide 17: Action's strategy is simple and clear
Action’s strategy is simple and clear Relentless execution of a winning strategy 1 2 Strengthen our unique International geographic customer value expansion proposition 3 Customer Cost A simple, Teamwork Discipline Simplicity Respect focused consciousscalable, and cost-effective business model that
Slide 18: Action business model
Action business model Sander van der Laan 18
Slide 19: Unique business model provides sustainable competitive advantage
Unique business model provides sustainable competitive advantage 1 Price 2 Surprise 3 One brand & one format 4 Scalable business model 5 People 6 Customers 19
Slide 20: Price: main reason for visiting Action
1 Price Main reason for visiting Action 1 For the lowest price 2 Category variety 3 Changing assortment 4 Shop is nearby 5 For specific products I always buy there Source: GfK image and awareness study, January 2016 20
Slide 21: 13 distinct categories in 3 groups
1 Price 13 distinct categories in 3 groups General Merchandise FMCG DIY Food and Drink Toys & Laundry and Entertainment Cleaning Stationery & Personal Care Hobby Decoration Pet Food Multimedia Textiles Household Basic and Fashion Seasonal Linens Source: Company information 21
Slide 22: Unbeatable prices
1 Price Unbeatable prices ~ 35% ~ 30% ~ 25% % of total SKUs (based on a full year 2016(1)) ~ 7% ~ 2% €0-1 €1-2 €2-5 €5-10 >€10 Primary offering Low average selling price(1) of ~€1.70 per product (1) Average selling price including VAT Source: Company information 22
Slide 23: Unbeatable prices for competition
1 Price Unbeatable prices for competition Strong low-price points(1) 100 171 100 169 100 171 100 204 Action price Competitor group basket (1) Chart shows comparison of shopping baskets between countries as at October 2016. Price index excludes promo pricing. Source: Company information 23
Slide 24: Why are our prices so low
1 Price Why are our prices so low Resilient pricing model Large No fixed volumes assortment Economies of scale reinvested in low price proposition First mover advantage Simple Efficient business logistics High SKU rotation difficult to implement in supply chain model Dedicated and trusted supplier n
Slide 25: Good quality can come at a good price
1 Price Good quality can come at a good price Enhance Action quality system Strengthen quality & sustainability function Action Ethical Sourcing Policy 100% factory audits of all direct imports Formulate & communicate our objectives and efforts Source: Company information 25
Slide 26: Circa 150-200 new products every week
2 Surprise Circa 150 – 200 new products every week Illustrative new articles introduced over a 6 week period Week 1 2 3 4 5 6 DIY Toys and Entertainment Stationery and Hobby Decoration Multimedia Household Seasonal Laundry and Cleaning Food and Drink Personal Care Pet Food Basics and Fashion Linen S
Slide 27: Seasonal offering adds to the surprise perception
2 Surprise Seasonal offering adds to the surprise perception Summer & Back to school Christmas Easter Garden Seasonal offering further adds to the surprise perception, resulting in higher frequency of shopping and client retention Source: Company information 27
Slide 28: Balanced assortment
2 Surprise Balanced assortment 2016 Net sales by product category 2016 Net sales by product type 7% 11% 7% 3% 13% 10% Fixed 35% 5% 8% 65% In / Out 3% 7% 11% 12% 5% Balanced assortment Multiple price point offering c.150 – 200 new products per week Source: Company information 28
Slide 29: Loyal clients spreading the word
2 Surprise Loyal clients spreading the word Customer awareness per country(1) 96% 78% 54% 48% Stores per country 354 135 136 220 Source: Company information (1) GfK Image and Awareness Study December 2016 29
Slide 30: Customers acknowledge our surprising assortment
2 Surprise Customers acknowledge our surprising assortment(1) 73% Average 47% competitor 55% Average 41% competitor 62% Average 30% competitor 44% Average 36% competitor Source: Company information (1) GfK Image and Awareness Study December 2016 30
Slide 31: Standardised store format
3 One brand & one format Standardised store format One brand One store format One store operating model Majority of stores between 700m2 and 1,100m2 ~90% of SKUs equal across all stores and countries Source: Company information 31
Slide 32: Continued strong store roll-out track record in 2016
4 Scalable business model Continued strong store roll-out track record in 2016 2012 2013 2014 2015 2016 852 655 514 324 406 341 354 321 303 262 220 135 136 93 117 76 120 51 68 22 45 52 7 1 13 1 7 Number of stores across countries Total stores ~50k ~90k ~600k ~300k ~1,250k Population per store per co
Slide 33: Significant further roll out potential in existing markets
4 Scalable business model Significant further roll out potential in existing markets Highly experienced expansion team with: Germany ~25 acquisition managers Country specific construction teams 10 store opening teams Austria Standardized store opening process Disciplined IP approval process France A
Slide 34: 3 tier strategic sourcing approach with Direct Import on track
4 Scalable business model 3 tier strategic sourcing approach with Direct Import on track Wholesale 400 suppliers – Partnership established with local partner Li & Fung majority Dutch Set-up of local Action office in Hong Kong in 2017 Direct Import Current Direct Import share already significant and
Slide 35: Proven DC expansion strategy, doubling capacity in 6 months
4 Scalable business model Proven DC expansion strategy, doubling capacity in 6 months DC-A: DC-B: Store capacity DC network 420 stores 320 stores DC-F DC-C: DC-E 260 stores DC-D DC-D: 300 stores DC-C DC-B DC-E: 120 stores DC-A 2017E DC-F: 180 stores 2015 2016 2017E 2018E 2018E Source: Company inform
Slide 36: Working on a supply chain fit for accelerated growth
4 Scalable business model Working on a supply chain fit for accelerated growth Scale-up of DC opening potential Develop end-to-end supply chain Handle Direct Import volumes Efficient transport Creating a sustainable supply chain infrastructure to support the future growth of Action Source: Company i
Slide 37: Company culture is fundamental
5 People Company culture is fundamental 1 Customer focused 2 Cost conscious 3 Teamwork 4 Discipline 5 Simplicity 6 Respect Source: Company information 37
Slide 38: Engaged and proud employees
5 People Engaged and proud employees 2017 Total favourable score(1) Versus retail norm Leadership 77 5 Supervision 85 7 Operating efficiency 84 9 Career development 70 7 Client & image 89 5 Working relationships 90 8 Empowerment 81 7 Rewards & performance 68 5 Engagement 85 2 Source: Tower Watson st
Slide 39: Highly experienced and dedicated international management team
5 People Highly experienced and dedicated international management team Action operating team CEO CFO Executive Board members Sander van der Laan Frederik Lotz Buying & Operations Director Marketing Director Merchandise Director Hajir Hajji René Repko Simon Hathway Supply Chain Communications Legal
Slide 40: Our strategy will remain simple and clear
Our strategy will remain simple and clear 1 2 Strengthen our unique International geographic customer value expansion proposition 3 A simple, scalable, and cost-effective business model that delivers our strategy 4 Build on the unique Action culture & values Source: Company information 40
Slide 41: Financial performance
Financial performance Frederik Lotz 41
Slide 42: Consistent high growth track record
Consistent high growth track record Rapid net sales growth (€m) Strong EBITDA growth (€m) 2,675 310 (1) 1,995 (1) 226 1,506 166 1,155 873 128 718 99 607 86 515 71 426 49 39 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Company information (1) Exclu
Slide 43: Action economic model
Action economic model 1 2 • Like-for-like sales Superior • Consistent gross margin Clear value growth store • All stores profitable drivers • #new stores economics • Very fast pay-back • EBITDA margin 3 4 • Proven Excellent • Low capital intensity Strong • Consistent cash • Very fast payback economi
Slide 44: Strong Like-for-Like sales growth
1 Strong Like-for-Like sales growth 9.6% 8.0% 7.6% 7.2% 6.9% 2012 2013 2014 2015 2016 Source: Company Information 44
Slide 45: New store openings
1 New store openings 197 141 108 85 52 (1) 2012 2013 2014 2015 2016 2017 Source: Company information 45
Slide 46: Consistent growth and low seasonality
1 Limited seasonality Consistent growth and low seasonality Net sales by trading period EBITDA by trading period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 Source: Company information 46 Note: Q1 comprises 4 periods of 4 weeks; Q2, Q3, Q4 all comprise 3 periods of 4 weeks
Slide 47: Already over 50% of sales outside home market
1 Balanced revenue mix between countries Already over 50% of sales outside home market Sales per country Austria Luxembourg France Germany Belgium Netherlands 2012 2013 2014 2015 2016 Source: Company information 47
Slide 48: Consistent margins across all categories
2 Consistent margins across all categories 80% 70% 60% % Gross margin(1) 50% 40% 30% 20% 10% 0% Category 1 Category 2 Category 3 Category 4 Category 5 Category 6 Category 7 Category 8 Category 9 Category 10 Category 11 Category 12 Category 13 Source: Company Information (1) (Net sales - Cost of good
Slide 49: All stores profitable
2 All stores profitable All LFL stores(1) are consistently profitable across all countries 2,000 30.0% 1,800 25.0% 1,600 Store contribution margin % Store Contribution (’000) 1,400 20.0% 1,200 1,000 15.0% 800 10.0% 600 400 5.0% 200 0 0.0% Store contribution per store Store contribution margin (%) pe
Slide 50: Strong cash conversion
3 Strong cash conversion Cash conversion and operating cash flow Key drivers 96.8% (2) Low capital intensity 267 85.4% 78.2% 225 71.1% Fast payback for new (1) 65.5% stores 153 98 94 Negative working capital facilitates rapid growth 2012 2013 2014 2015 2016 Source: Company Information Note: Cash con
Slide 51: Very short pay-back periods for new stores
3 Very short pay-back periods for new stores Highly attractive new store dynamics Average payback of new stores Rapid sales ramp-up post-opening ~ 3.3 ~20% store All stores EBITDA positive in the first year contribution Real estate discipline driving low rent costs: ~ 0.6 • B/C Locations • At market
Slide 52: Strong economic model
4 Strong economic model Rigorous, uniform and tight financial Low and centralized overheads governance Finance One process for real estate IT CEO/CFO approve all new stores Supply Chain Daily performance tracking Buying Proven Consistent Predictable Robust Cost consciousness embedded in our organiza
Slide 53: Action continued to deliver strongly in 2016
Action continued to deliver strongly in 2016 2015 2016 Change Sales (€m) 1,995 2,675 +34% LfL sales growth 7.6% 6.9% EBITDA (€m) 226 310 +37% EBITDA margin 11.3% 11.6% Cash flow from operations (€m) 225 267 +19% Number of stores 655 852 +197 Source: Company information 53
Slide 54: 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 Years after reaching $1 billion in sales Source: Company information, Factset Note: Dollar General acquired Family Dollar (July 2015); a TJX figures fro
Slide 55: Conclusions
Conclusions Significant growth We are able Action is unique opportunities to deliver Source: Company information 55
Slide 56: We are proud
We are proud 56