3i Group Plc · LSE:III
3i — FY2006 Earnings Presentation
43 slides from 3i's earnings presentation, May 11, 2006
Slide 1: Annual results to 31 March 2006
Annual results to 31 March 2006 11 May 2006 1
Slide 2: Welcome
Welcome Baroness Hogg Chairman 2
Slide 3: Agenda
Agenda Performance review and return of capital Simon Ball Strategy and outlook Philip Yea Q&A 3
Slide 4: A strong position in a buoyant market
“A strong Detailed position quote title in a buoyant market enabled Quote name/source here the Group to deliver a return of £831 million for the year. In addition, good progress has been made towards achieving our vision.” 4
Slide 5: Performance review and return of capital
Performance review and return of capital Simon Ball Finance Director 5
Slide 6: Financial performance headlines
Financial performance headlines 2006 2005 (as restated) • Total return £831m £501m • Return on opening shareholders’ funds 22.5% 15.2% • Gross portfolio return 24.4% 16.7% • Realised profits £576m £250m • Realisation proceeds £2,207m £1,302m • New investment £1,110m £755m • Net asset value per share
Slide 7: Portfolio value and gross returns by business line
Portfolio value and gross returns by business line Portfolio by value £4,317m* 2006 2005 £4,139m* (as restated) UK Buyouts 35% 35% Gross portfolio return 24.4% 16.7% Buyouts 29.4% 20.2% Growth Capital 26.4% 23.2% 31% 30% Continental Growth Venture Capital Europe 17.1% 11.1% Capital SMI 18.2% 6.8% 20
Slide 8: Investment
Investment £1,110m • 58 new UK investments Buyouts 41% • Largest ten account for 46% £755m • Average size €22m – Buyouts €55m* 45% – Growth Capital €30m**Growth Continental Europe Capital – Venture Capital €5m** 45% 35% Venture Capital 14% 19% US 2005 1% 2006 * Buyouts average new investment excludi
Slide 9: A selection of investments
A selection of investments Buyouts National Car Parks UK Transport management £96m Giochi Preziosi Italy Toy retailer and wholesaler £61m Carema Nordic Elderly care £36m Growth Capital I2 UK Infrastructure investment fund £79m Boxer TV-Access Nordic Digital TV distributor £60m Hayley Conference Cent
Slide 10: Realisations
Realisations £2,207m • 474 realisations UK (278 SMI) Buyouts • Uplift over value 35% 40% • Portfolio turn by value 38% £1,302m • IPOs on 9 different markets Continental Growth 39% Europe Capital 39% 34% 9% Venture 12% Capital US 12% 15% 2006 2005 SMI Venture Capital Growth Capital Buyouts 10
Slide 11: Realisation highlights
Realisation highlights 3i Money IRR Buyouts proceeds multiple % Yellow Brick Road Europe Telephone directories publisher £129m 4.2 110 Betapharm Germany Generic prescription drugs £105m 2.1 48 Travelex UK Foreign currency services £93m 9.2 59 Growth Capital Petrofac UK Oil and gas services £116m 5.2
Slide 12: Net portfolio and total return
Net portfolio and total return 2005 2006 (as restated) £m £m Gross portfolio return 1,053 24.4% 727 16.7% Fund management fees 24 30 Net carried interest 15 (64) Operating expenses (211) (177) Net portfolio return 881 20.4% 516 11.8% Net interest payable (17) (42) Exchange movements 47 13 Movement i
Slide 13: Net carried interest
Net carried interest 1st half 2nd half Full year 2005 2006 2006 2006 (as restated) £m £m £m £m Carry receivable 57 22 79 2 Carry payable (26) (38) (64) (66) Net carried interest receivable/(payable) 31 (16) 15 (64) • 1st half - Eurofund III measurement hurdles passed • 2nd half – carry receivable ac
Slide 14: Operating expenses
Operating expenses • Year-on-year increase £34m (19%) • Strategic initiatives – Asia and Infrastructure – variable compensation – preparation for fundraising 14
Slide 15: Movement in the fair value of derivatives
Movement in the fair value of derivatives pence 1000 3i share price 900 Conversion price 838p 800 700 600 1 April 30 September 31 March 2005 2005 2006 • Fair value of equity option in the convertible bond is related primarily to share price • Full year movement in fair value of convertible bond £(75
Slide 16: Net portfolio and total return
Net portfolio and total return 2005 2006 (as restated) £m £m Gross portfolio return 1,053 24.4% 727 16.7% Fund management fees 24 30 Net carried interest 15 (64) Operating expenses (211) (177) Net portfolio return 881 20.4% 516 11.8% Net interest payable (17) (42) Exchange movements 47 13 Movement i
Slide 17: Net cash flow
Net cash flow 2006 2005 £m £m Cash invested (1,068) (719) Net realisation proceeds 2,213 1,287 Net investment cash flow 1,145 568 Portfolio income, operating expenses and other (42) (50) Net cash inflow before dividend 1,103 518 Ordinary dividend (86) (85) Return of capital (467) - Net cash inflow 5
Slide 18: Balance sheet
Balance sheet 2006 2005 £m (as restated) £m Investment assets 4,139 4,317 Other net liabilities (77) (73) 4,062 4,244 Net borrowings 56 545 Shareholders’ funds 4,006 3,699 4,062 4,244 Gearing 1% 15% 18
Slide 19: Return of capital update
Return of capital update • £467m of £500m completed • Average price of buyback 734p • Balance outstanding to be rolled up into proposed additional return • Renewal of buyback authority to provide flexibility 19
Slide 20: Proposed return of capital
Proposed return of capital • Quantum – £700m • Method – bonus issue of listed B shares • Share consolidation • Balancing current gearing and future cashflow expectations • Timing – subject to shareholder approval, shares expected to be listed in July 20
Slide 21: Financial summary
Financial summary • Total return of 22.5% • Exceptional level of realisations • Cash flow to support further return of £700m to shareholders • Good growth in high quality investment • A strong position looking forward 21
Slide 22: Strategy and outlook
Strategy and outlook Philip Yea Chief Executive 22
Slide 23: Strategy
Strategy Vision for 3i Worldwide Market plus Winning Partnership scale returns resources Strategic questions Markets Model for returns People Strategy for 3i Group Buyouts Growth Venture New opportunities? 23
Slide 24: Priorities 18 months ago
Priorities 18 months ago Delivery of the key priorities • Continued success of Buyout business • Increased focus – Growth Capital – Venture stage two • Creating further options for future growth – Infrastructure – Asia • Financial strategy – target returns – leverage 24
Slide 25: The Buyout business continues to perform
The Buyout business continues to perform Gross portfolio return by year (%) 29 27 Target through the cycle 20% 20 2004* 2005** 2006 * Restated to exclude unrealised currency movements ** Restated for the adoption of IFRS 25
Slide 26: Increased focus is being delivered
Increased focus is being delivered 3000 2874 2759 2606 2500 2162 2000 1878 SMI 1502 1500 SMI 1087 1000 SMI 500 0 2000 2001 2002 2003 2004 2005 2006 As at 31 March 26
Slide 27: Growth Capital – strategy is being delivered
Growth Capital – strategy is being delivered €m Number New investment* 600 40 Value Number €492m 35 500 30 400 25 300 €284m €272m 20 €243m 15 200 10 100 5 0 0 2003 2004 2005 2006 Year ended 31 March * Excluding investment into externally managed funds 27
Slide 28: Venture business refines its model
Venture business refines its model • Build on international value added • Increase in mix towards late stage investing • Target return of 25% cash to cash IRR with lower volatility – cycle volatility +/-7% – annual volatility +/-15% 28
Slide 29: Priorities 18 months ago
Priorities 18 months ago Delivery of the key priorities • Continued success of Buyout business • Increased focus – Growth Capital – Venture stage two • Creating further options for future growth – Infrastructure – Asia 29
Slide 30: Priorities 18 months ago
Priorities 18 months ago Delivery of the key priorities • Continued success of Buyout business • Increased focus – Growth Capital – Venture stage two • Creating further options for future growth – Infrastructure – Asia • Financial strategy – target returns – leverage 30
Slide 31: Strategic focus 2006/07
Strategic focus 2006/07 Making 3i the best it can be • Markets – where? – sectors – asset classes • Model for returns - how? – profitability/costs – differentiation • People – who? – capabilities 31
Slide 32: Markets – where?
Markets – where? Asset markets • Excess of capital – differentiate through knowledge • Acceleration in rate of change – provides opportunity • Alternative asset classes are growing – prioritisation Financing markets • Convergence of public and private equity 32
Slide 33: 3i’s competitive differentiation
3i’s competitive differentiation • Mid-market positioning • Knowledge access and sharing – one culture • International scale • Balance sheet/quote – speed to market – flexibility – cost of capital – access to public and private funding • Partnership style and approach 33
Slide 34: Model for returns – how?
Model for returns – how? • Performance culture • Flexible business line partnerships within open Group culture • Knowledge sharing through sector teams • Group returns optimised through leverage and third party fees • Shareholder value – delivery of targets – managed volatility – transparency of pro
Slide 35: People – who?
People – who? • Continuous upgrading of existing teams • Assemble talented new business teams • Co-investment schemes • “Great place to work” 35
Slide 36: Initiatives - markets
Initiatives - markets • Acceleration of Asian strategy – Beijing – buyout capacity – extension of relationships • Infrastructure – opportunity for our European business • Build our US Growth Capital presence – international opportunity 36
Slide 37: Initiatives – model for returns
Initiatives – model for returns • Grow assets under management – direct as principal – fee-based income • Eurofund V – size – own capital • Maintain financial flexibility within balance sheet – leverage at low end – reduce cash “drag” • Investigation of new private equity models 37
Slide 38: Initiatives – people and capabilities
Initiatives – people and capabilities • Internal capabilities – Asia – US Growth – Infrastructure • Extend partnership relationships – Russia – Israel – Dubai – TBA 38
Slide 39: Growth in international scale
Growth in international scale International portfolio value as percentage of total % 60 58% 50 48% 42% 40 37% 34% 30 29% 22% 20 10 0 2000 2001 2002 2003 2004 2005 2006 As at 31 March 39
Slide 40: Acceleration of shareholder value
Acceleration of shareholder value • Good set of results • Detailed strategy for the future • Confidence high “Determined to accelerate the development of 3i to deliver further shareholder value” 40
Slide 41: Outlook statement
Outlook statement “Markets remain favourable, and although we expect our levels of realisations in the coming financial year to be below last year’s exceptional levels, we expect to increase our level of investment again if the present economic conditions continue.” 41
Slide 42: Questions and answers
Annual results to 31 March 2006 Questions and answers 42
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