3i Group Plc · LSE:III
3i — Investor Day (March 2020)
71 slides from 3i's investor day presentation, Mar 19, 2020
Slide 1: 3i Capital Markets Seminar
3i Capital Markets Seminar 19 March 2020
Slide 2: Action – liquidity event for EFV LPs completed
Action – liquidity event for EFV LPs completed • Action remains 3i’s biggest investment and best compounder of returns • Transaction completed in January 2020 to provide liquidity to Eurofund V LPs • 3i-led governance model, which has been instrumental to Action’s success, unchanged • 3i re-investme
Slide 3: Why 3i reinvested in Action
Why 3i reinvested in Action ✓ Discount retail sector opportunity Action – 3i carrying value, £m1 • Increasing customer acceptance of underpenetrated discount retail sector Carrying valuation 3,461 • Counter-cyclical opportunity based on lowest prices £835m returned to 3i over the period2 ✓ Winning c
Slide 4: Today’s presenters
Today’s presenters Sander van der Laan Joost Sliepenbeek Chief Executive Officer Chief Financial Officer • Joined in October 2015 • Joined in November 2018 • 29 years of Consumer & Retail experience • 19 years of Consumer & Retail experience • 32 years experience in finance, 20 years as CFO • Variou
Slide 5: Agenda
Agenda 1. Introduction Simon Borrows 2. Business performance 2019 Sander van der Laan 3. Strategy update Sander van der Laan 4. Financial performance 2019 Joost Sliepenbeek 5. Wrap Up Simon Borrows 5 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 6: 2019 was another year of strong performance and investment for the future
2019 was another year of strong performance and investment for the future €5,114 5.6% €541 230 77% Million Like-for-like Million New stores Cash net sales sales Operating opened conversion +21% growth EBITDA1) +20% 3 New DCs opened 2nd year of significant investment in organisational capability and
Slide 7: Our high growth track record continues
Our high growth track record continues Net sales (€m) Operating EBITDA (€m) 5,114 541 4,216 450 3,418 387 2,675 310 1,995 226 1,506 166 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 Store expansion (numbers) & # countries LfL sales growth (%) 1,552 7.6% 7.2% 6.9% 1,325 1,095 5.6% 5.3%
Slide 8: In 2019 we opened 230 new stores, continuing our strong geographic expansion
In 2019 we opened 230 new stores, continuing our strong geographic expansion +12 +32 387 57 +59 +15 347 182 +3 8 +16 +93 54 517 8 ACTION | 3I CAPITAL MARKETS SEMINAR 2020 1) Net stores added was 227 as a result of three store closings in the Netherlands xx # of stores 2019 xx New stores opened in 20
Slide 9: Maturing DC network across countries
Maturing DC network across countries Peine, DE (2019) Osła, PL (2019) Katowice, PL (2021) Verrières, FR (2020) Bratislava, SL (2020) FR (2022) Belleville, FR (2019) Marseille, FR (Hub, 2019) 9 ACTION | 3I CAPITAL MARKETS SEMINAR 2020 DCs to open in ≥2020 DCs opened in 2019 DCs opened <2019
Slide 10: Strong LfL driven by growth in footfall and development of multiple customer touchpoints
Strong LfL driven by growth in footfall and development of multiple customer touchpoints Stores # of social media followers +20% +74% >8m 1.9m 1.2m store visits Facebook Instagram p/w fans followers Bi-weekly leaflet Emails and website +55% +6% >24m 4.2m 5.6m leaflets email web / 2 wks subscrib. vis
Slide 11: 2019 business performance
2019 business performance Excellent growth in sales and EBITDA Strong, broad-based category performance underpinning strong LfLs Much improved operational performance with further investment in supply chain, IT and digital Another year of significant investment in expansion, infrastructure and futur
Slide 12: Current trading 2020
Current trading 2020 • Trading performance to the end of week 11 has been strong • Action is ahead of budget for sales, LfL, EBITDA and cash flow • LfL sales growth to the end of week 11 was over 7% • Longer term growth story and competitive positioning remain intact • Cash position and liquidity ar
Slide 13: COVID-19 update (1/3)
COVID-19 update (1/3) I. General • Governments are taking extreme measures with significant impact on society, businesses and Action • We are forced to temporarily close stores in a number of countries. Rules vary by country and in Germany by region • Taking all necessary actions to operate and supp
Slide 14: COVID-19 update (2/3)
COVID-19 update (2/3) II. Stores Country # stores (YTD) Status Netherlands 388 All stores open Sell full assortment Belgium 183 All stores closed March 18 to April 6 Luxembourg 9 8 stores open Allowed to sell only essentials (~55% of sales) France 523 All stores currently closed, but set to reopen A
Slide 15: COVID-19 update (3/3)
COVID-19 update (3/3) III. Employees • We want to provide a safe and secure work environment and have established clear protocols and guidelines • So far we have been confronted with 11 confirmed COVID-19 cases IV. Customers • Action has a role in offering essential products to feed, protect and sup
Slide 16: Agenda
Agenda 1. Introduction Simon Borrows 2. Business performance 2019 Sander van der Laan 3. Strategy update Sander van der Laan 4. Financial performance 2019 Joost Sliepenbeek 5. Wrap Up Simon Borrows 16 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 17: Within the retail environment, specific trends are driving demand for value retail concepts
Within the retail environment, specific trends are driving demand for value retail concepts Premium Value More hybrid shopping behaviour Reducing strength of branded products Consumers are moving to premium and value shopping – the middle ground is Branded products command less value from under incr
Slide 18: Action’s strategy remains simple and consistent
Action’s strategy remains simple and consistent I II Strengthen our unique International expansion customer value proposition III A simple, efficient, responsible and scalable operating model IV Organisation, people & values 18 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 19: Action’s winning customer proposition and brand appeals to everyone
Action’s winning customer proposition and brand appeals to everyone and is supported by a strong business model… Brand promise - We go beyond expectations everyday at ACTION 150-200 new articles per week 6,000 SKUs in Surprising Every day the Weekly Easy Quality and 14 categories assortment lowest p
Slide 20: … which is both low-cost and scalable…
… which is both low-cost and scalable… One brand, one format, one operating model We buy No fixed Efficient Low overhead big volumes assortment logistics costs Low marketing Standardised store No high street Simple business expenditure processes locations model 20 ACTION | 3I CAPITAL MARKETS SEMINAR
Slide 21: …with a sustainable advantage and best-in-class unit economics
…with a sustainable advantage and best-in-class unit economics Action continues to reinvest in the customer value proposition through even lower prices, quality and continuous surprise Customer value proposition Competitive advantage Action’s increasing scale Action’s attractive customer value enhan
Slide 22: Strengthen our unique customer value proposition
Strengthen our unique customer value proposition Strengthen our unique customer value proposition 22 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 23: Action operates an assortment of 14 complementary categories
Action operates an assortment of 14 complementary categories Product types ~6,000 items across 14 categories A-brands1) €0.95 €3.95 €1.95 Garden & Sport Personal care outdoor Decoration DIY Pets Supplier brands2) €0.85 €4.99 €0.99 Laundry & Toys & Multimedia cleaning entertainment Stationery & Linen
Slide 24: Significant expansion of new private labels across categories in 2019
Significant expansion of new private labels across categories in 2019 1) 10 other private labels €7.95 €9.95 €5.95 €5.95 24 ACTION | 3I CAPITAL MARKETS SEMINAR 2020 1) Not a new Private Label, but also known as LSC Light Bulbs, extended with a range of Smart products: LSC Smart Connect
Slide 25: 21 awards won in 5 different countries across categories
21 awards won in 5 different countries across categories, reinforcing quality and value to our customers €3.99 €2.99 €2.99 €1.49 €0.99 €19.95 25 ACTION | 3I CAPITAL MARKETS SEMINAR 2020 Country award won for ‘Best product of the year’
Slide 26: Surprising assortment offered to our customers with unbeatable prices
Surprising assortment offered to our customers with unbeatable prices Does Action have a surprising Assortment structure Unbeatable prices assortment? 63% 100 Average Coca Cola (375ml) 29% 165 competitor €0.73 52% 100 ~1/3 fixed Average 23% 145 competitor 57% 100 Sunscreen (SPF 20) Average 25% 145 €
Slide 27: Action attracts a broad audience across all customer demographics
Action attracts a broad audience across all customer demographics Gender Age Education Male Female 18-34 35-49 50+ Low Middle High 44% 56% 25% 27% 48% 23% 42% 35% 40% 60% 29% 28% 43% 28% 40% 32% 39% 61% 32% 24% 44% 34% 33% 33% 33% 67% 23% 33% 44% 35% 20% 45% 36% 64% 26% 34% 40% 21% 54% 25% 34% 66% 5
Slide 28: Action’s proposition delivers market leading sales densities
Action’s proposition delivers market leading sales densities with customers purchasing more than intended Purchase behaviour of customers during last shopping trip (%) Average sales density (sales / m2) vs. competitors 53 36 7 4 2.8x Avg. competitors 62 29 7 2 2.7x 62 25 9 4 Avg. competitors 67 21 9
Slide 29: Driving Research Online, Purchase Offline (ROPO)
Driving Research Online, Purchase Offline (ROPO) Store Web (& app) sessions per year1) Customer Leaflets Service PR Email Website +36% Digital 198 M marketing App (new) 146 M Social media 2018 2019 2020 2021 2022 2023 Integrated marketing approach drives store traffic and ticket size and is delivere
Slide 30: Launch of Action app and loyalty programme to drive customer footfall
Launch of Action app and loyalty programme to drive customer footfall Early updates Polls & questionnaires World of Action Exclusive benefits.. Launch in 2020 in NL Seasonal stamp card Shop (in store) & Win ..and many more functionalities (product catalogue, digital receipt, wish list etc.) 30 ACTIO
Slide 31: ESG: Action Social Responsibility is a core element of our customer value proposition
ESG: Action Social Responsibility is a core element of our customer value proposition Product Environment We minimise our environmental impact across the Our products are safe and responsibly sourced supply chain People Good citizenship We contribute to society and serve local We are a responsible e
Slide 32: We seek to source our products responsibly and minimise our impact on the environment…
We seek to source our products responsibly and minimise our impact on the environment… Product Sustainability policies Supplier reviews Double decker and LNG trucks Packaging policies specification sheets Environment Product compliance Ethical Sourcing Policy LED & usage monitors Solar panels (DCs &
Slide 33: …and contribute to the wellbeing of our employees and of society
…and contribute to the wellbeing of our employees and of society Scholarship fund Inclusion Weekly Promo: ‘Green Thumbs up’ People €9.95 Charity Local initiatives Citizenship € €4.98 33 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 34: Development of internal and external reporting tools in order to accelerate ASR ambitions
Development of internal and external reporting tools in order to accelerate ASR ambitions 4 Reporting on progress Complete study of business-wide baseline footprint… 1 Establish a baseline of the current footprint …incorporate UN S.D.G. and bring focus… 2 Focus within the UN S.D.G. on 4 priorities 9
Slide 35: International expansion
International expansion International expansion 35 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 36: New store roll-out is the engine behind Action’s growth story
New store roll-out is the engine behind Action’s growth story The reason is simple… … and the economics are extremely attractive 1 One single and successful format 1 year average historical payback on new store capex 2 Proven to travel across borders Every single LfL1 Action store is profitable 3 Fi
Slide 37: One format across all countries
One format across all countries 1 1 1 brand store format store operating model The Action name resonates in all All stores look the same Same policies languages Stores between 700 to 1,100m2 Same ordering systems Marketing and packaging is consistent Over 90% of assortment is the same Same processes
Slide 38: Rapid store roll-out in current markets with considerable white space potential
Rapid store roll-out in current markets with considerable white space potential Population in millions 17 12 67 9 83 38 % of store potential 1,552 stores open as of 2019 NL BE LU FR AT DE PL Rapid expansion in Remaining potential in existing FR, GE, PL, and AT markets is ~2,300 new stores 38 ACTION
Slide 39: France: continued exceptional performance driven by improved supply chain performance
France: continued exceptional performance driven by improved supply chain performance DC Echt 517 DC Biblis (2017) 424 335 220 • Population 67m 17m DC 120 • Action stores 517 387 Moissy (2016) 52 1 13 • Population per store 130k 44k DC 2012 2013 2014 2015 2016 2017 2018 2019 Verrieres (2020) DC • Fu
Slide 40: Germany: fastest growing non-food discounter in Germany
Germany: fastest growing non-food discounter in Germany with another 59 stores opened 347 288 216 • Population 83m 17m DC 136 45 76 • Action stores 347 387 Zwaagdijk DC 7 22 Peine (2019) • Population per store 239k 44k DC DC 2012 2013 2014 2015 2016 2017 2018 2019 Echt Osla (2019) • Continued expans
Slide 41: Poland: total number of stores increased to 57
Poland: total number of stores increased to 57 57 Peine • Population 38m 17m (2019) 25 • Action stores 57 387 DC 6 • Population per store 667k 44k DC 2016 2017 2018 2019 Osła (2019) • Stores continue to show strong growth in 2nd and 3rd year DC • Opened our Polish country office in Katowice Katowice
Slide 42: Significant potential from further new country expansion
Significant potential from further new country expansion Population in millions 226 61 11 210 % of store potential 1,552 stores open as of 2019 Existing markets IT CZ Rest of Europe Conservative estimate of white 2020: Entry IT + CZ space potential in new and existing ≥ 2021: to be explored markets
Slide 43: A simple, efficient, responsible and scalable operating model
A simple, efficient, responsible and scalable operating model A simple, efficient, responsible and scalable operating model 43 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 44: Action continues to grow its DC network to enable its store roll-out strategy
Action continues to grow its DC network to enable its store roll-out strategy and reduce SC costs Coverage within ‘one day delivery’ of a distribution centre Average delivery distance store to DC (2019-2023) Existing DCs 5 ~(25)% New in 2019 3 New DCs ≥2020 4 DC-A DC-G DC-H DC-B DC-K DC-C DC-D DC-I
Slide 45: Development of multi-layer SC network
Development of multi-layer SC network Hubs and XCC increase flexibility and efficiency in • Hubs will organise the deconsolidation of inbound stock handling containers to support multiple DCs • Cross-dock centres (XCC) will consolidate smaller orders Suppliers More frequent and smaller volume supply
Slide 46: Continued growth of our Direct Sourcing (DS) volume
Continued growth of our Direct Sourcing (DS) volume Sourcing model (illustrative) Ambition to grow DS to 20% of sales 20% Wholesalers A-brands / local sourcing 10% Direct sourcing 2018 2019 2020 2021 2022 2023 Traders % of sales # of containers 1 2 3 4 Diversification of Control over quality Supplie
Slide 47: Supported by IT investments in existing and new technologies
Supported by IT investments in existing and new technologies enabling further growth and scalability Customer facing processes Technology road map to deliver new capabilities Supply chain systems (Digital) End-to-End customer interface planning Self Check-out Agile & scalable ERP Forecast & Demand c
Slide 48: Organisation, people & values
Organisation, people & values Organisation, people & values 48 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 49: New organizational design accelerating new market entries
New organizational design accelerating new market entries Focus new markets CEO Sander Director Real CFO HR Director van der Laan Estate Joost Sliepenbeek Luc de Baets Angus Booth Director Commercial Director Head of East & South Europe Supply Chain Director Technology & IT Bart Joost Bous Hajir Haj
Slide 50: Retail is all about people
Retail is all about people Value based Code of Action Values Voice of Action business conduct 2,506 26,777 training 240 apprenticeships Develop our people promotions participants in 2019 in 2019 in 2019 5k net new ~41k Large employer ~26k FTEs2) employees added in employees1) 20191) Very diverse 129
Slide 51: Our values, at the heart of our organisation
Our values, at the heart of our organisation, ensure we remain authentic and treat our employees respectfully Action Value Booklet The combination of a winning customer value proposition, competitive operating model, and strong culture makes Action truly unique 51 ACTION | 3I CAPITAL MARKETS SEMINAR
Slide 52: Strategy wrap up
Strategy Wrap Up Strategy wrap up 52 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 53: Action’s business model becomes increasingly difficult to replicate as scale grows
Action’s business model becomes increasingly difficult to replicate as scale grows 1 Customer value proposition with the lowest prices, surprises and quality 7 Efficiencies from 2 scale re-invested to Creates market- reinforce customer leading sales proposition through volumes and even lower prices
Slide 54: Agenda
Agenda 1. Introduction Simon Borrows 2. Business performance 2019 Sander van der Laan 3. Strategy update Sander van der Laan 4. Financial performance 2019 Joost Sliepenbeek 5. Wrap Up Simon Borrows 54 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 55: Our repeatable financial model remains unchanged
Our repeatable financial model remains unchanged 1 2 • Low SKU count • New store roll-out and country expansion • Consistent gross margin across Clear value Superior store categories drivers • Like-for-like sales growth economics • All Like-for-like stores profitable • EBITDA margin • High sales den
Slide 56: Continued strong sales and EBITDA growth
Continued strong sales and EBITDA growth Net sales (€m) Operating EBITDA (€m) +21% +20% 5,114 541 4,216 450 3,418 387 2,675 310 (1) 1,995 (1) 1,506 226 166 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 Source: company information 56 ACTION | 3I CAPITAL MARKETS SEMINAR 2020 (1) Excludin
Slide 57: Strong like-for-like performance
Strong like-for-like performance 7.6% 7.2% 6.9% 5.6% 5.3% +240 bps 3.2% 2014 2015 2016 2017 2018 2019 57 ACTION | 3I CAPITAL MARKETS SEMINAR 2020 Source: company information
Slide 58: Store openings: continued rapid expansion in France, Germany and Poland
Store openings: continued rapid expansion in France, Germany and Poland (1) 244 (2) (3) 6 232 230 11 19 197 32 20 6 16 115 141 89 1 100 93 Poland 108 68 Austria 39 France 80 72 Germany 23 31 60 59 BELUX 25 24 18 18 19 18 Netherlands 21 17 13 14 13 12 2014 2015 2016 2017 2018 2019 (1) Net stores adde
Slide 59: Consistent margins across all categories
Consistent margins across all categories 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Categories 59 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 60: Consistent profitability across all geographies
Consistent profitability across all geographies Average store contribution margin by country (%) – 20191) Avg. store contribution margin of 21.5% 1993 2005 2009 2012 2015 2017 2) Source: Company information xxxx Year of entry 1) Store contribution divided by net sales of active stores opened before
Slide 61: Attractive payback periods for new stores
Attractive payback periods for new stores • All stores show rapid ramp-up of sales and store LTM store contribution1 (€) contribution after opening, underpinning exceptional payback periods 1,000,000 • On average, the LTM store contribution exceeds the average investment to open a store in about one
Slide 62: CAPEX development
CAPEX development 5% 11% • CAPEX growth overall mainly driven by new DCs, IT and digital investments • Lower CAPEX for new stores reflecting continuous reduction of CAPEX per square meter • Continued investment in IT Other DC maintenance Store maintenance / RERs IT New DC (incl. IT) 2017 2018 2019 S
Slide 63: Strong cash flow: 2019 cash conversion of 77%
Strong cash flow: 2019 cash conversion of 77% • 2019 cash conversion 100% 600 100 increased versus 2018, 92% notwithstanding significant 86% investment 500 77% 80 70% • Low capital intensity, negative 419 working capital and fast 400 58% payback for new stores lead 60 314 to strong cashflow 300 268
Slide 64: Impact of IFRS16 on Action 2019 financials
Impact of IFRS16 on Action 2019 financials OPERATING EBITDA (€m) RIGHT-OF-USE ASSET AND • The average lease period of Action’s store LEASE LIABILITIES (€m) portfolio is 3 years but differs per country +33% • Action is desired as a tenant by landlords as it 719 735 drives traffic to the destination 7
Slide 65: Overview of high-level financials
Overview of high-level financials 2018 2019 Change Net sales (€m) 4,216 5,114 +21.3% Like-for-like sales growth 3.2% 5.6% Operating EBITDA (€m) 450 541 +20.2% EBITDA margin 10.7% 10.6% Cash conversion 70% 77% Number of stores (end of 1,325 1,552 +2271) year) 65 ACTION | 3I CAPITAL MARKETS SEMINAR 20
Slide 66: Summary 2019 financial performance
Summary 2019 financial performance • Strong numbers across all countries Strong LfL performance • FR LfL supported by well performing supply chain 5,114 4,216 • Continued improvement in FR, GE, AU and PL Country EBITDA • Margin pressure NL and Belux related to labour being addressed • Strongly impro
Slide 67: Current trading 2020
Current trading 2020 • Trading performance to the end of week 11 has been strong • Action is ahead of budget for sales, LfL, EBITDA and cash flow • LfL sales growth to the end of week 11 was over 7% • Cash position and liquidity are very strong • Completion of event financing of €625m in January 202
Slide 68: COVID-19 impact too early to predict
COVID-19 impact too early to predict • COVID-19 will disrupt 2020 especially over the next few months - too early to predict outcome • Store openings and sales traditionally weighted to Q4 • Action is preparing for severe disruption in Q2 • (Financial) response to COVID-19: o Opex measures being tak
Slide 69: Agenda
Agenda 1. Introduction Simon Borrows 2. Business performance 2019 Sander van der Laan 3. Strategy update Sander van der Laan 4. Financial performance 2019 Joost Sliepenbeek 5. Wrap Up Simon Borrows 69 ACTION | 3I CAPITAL MARKETS SEMINAR 2020
Slide 70: Action’s business plan
Action’s business plan 2011 2019 Business plan 2023 Sales €0.7bn 7.3x €5.1bn c.€9.0bn EBITDA €86m 6.3x €541m > €1bn # Stores 269 5.8x 1,552 c.2,750 # Countries 3 7 > 12 # DCs 1 8 c.15 70
Slide 71: Thank you for your attention!
Thank you for your attention! Thank you for your attention!