3i Group Plc · LSE:III
3i — FY2003 Earnings Presentation
48 slides from 3i's earnings presentation, May 15, 2003
Slide 1: Results for year ended 31 March 2003
Results for year ended 31 March 2003 1
Slide 2: Preliminary results year ended 31 March 2003
Preliminary results year ended 31 March 2003 15 May 2003
Slide 3: Agenda
Results for year ended 31 March 2003 Brian Larcombe Agenda CEO’s review Brian Larcombe Product reviews - Buy-outs Jonathan Russell - Early stage technology Rod Perry - Growth capital Chris Rowlands Financial review Michael Queen Closing remarks Brian Larcombe 3
Slide 4: Key messages
Results for year ended 31 March 2003 Brian Larcombe Key messages · A tough year and a year of change · Disappointing fall in NAV, though an outperformance of benchmarks · Strong realisations, investment rebalanced · Business organised on product basis · Competitive advantages developed 4
Slide 5: Financial highlights
Results for year ended 31 March 2003 Brian Larcombe Financial highlights · Total return on opening shareholders’ funds (23.7)% · Net asset value per share 480p · Realised profits on disposal £184m · Net cash inflow £170m · Final dividend 8.6p 5
Slide 6: Total return by investment product
Results for year ended 31 March 2003 Brian Larcombe Total return by investment product 2003 %* Mid-market buy-outs 5% Smaller buy-outs (16)% Growth capital (10)% Early stage technology (51)% * % return on opening portfolio 6
Slide 7: The world market – funds invested: raised
Results for year ended 31 March 2003 Brian Larcombe The world market – funds invested: raised US$bn Investment Funds raised 300 250 247 200 199 150 155 151 135 138 108 104 Est. 100 101 82 59 50 49 Est. 0 1997 1998 1999 2000 2001 2002 Source: 3i/PwC Global Private Equity Review 7
Slide 8: 3i European Barometer Index
Results for year ended 31 March 2003 Brian Larcombe 3i European Barometer Index compared with EU 15 real GDP annual growth rate for equivalent quarter Inex Index % 100 4.5 80 4 60 3.5 40 3 20 Index 0 2.5 GDP growth -20 2 -40 1.5 -60 1 -80 -100 0.5 -120 0 Q2 Q4 Q2 Q4 Q2 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Slide 9: Actions taken - market
Results for year ended 31 March 2003 Brian Larcombe Actions taken - market · Made some great investments · Realisations at good prices · Reinforced competitive advantage 9
Slide 10: 10 large investments made in year to 31 March 2003
Results for year ended 31 March 2003 Brian Larcombe 10 large investments made in year to 31 March 2003 10 10
Slide 11: 10 large realisations made in year to 31 March 2003
Results for year ended 31 March 2003 Brian Larcombe 10 large realisations made in year to 31 March 2003 11 11
Slide 12: Actions taken – organisation
Results for year ended 31 March 2003 Brian Larcombe Actions taken – organisation · Increased product focus · Reshaped local and product leadership · Strengthened investment processes – all products · Rebalanced network · Reduced costs 12 12
Slide 13: Strategy
Results for year ended 31 March 2003 Brian Larcombe Strategy · Developing the business internationally · Building a balanced investment business · Using the network as our key competitive advantage · Investing primarily in growth companies 13 13
Slide 14: Portfolio analysis
Results for year ended 31 March 2003 Brian Larcombe Portfolio analysis Portfolio by value at 31 March 2003 Value 6% Buy-outs £1,927m 15% Growth capital £1,206m Early stage technology £589m Quoted £217m Total £3,939m 48% 31% Excludes co-investment funds 14 14
Slide 15: Buy-outs
Jonathan Russell Buy-outs
Slide 16: Buy-outs – performance 2002/03
Results for year ended 31 March 2003 Jonathan Russell Buy-outs – performance 2002/03 Mid-market Smaller buy-outs buy-outs Investment* £385m £97m Income yield 4.8% 7.4% Realisations proceeds £345m £268m Total return** 5% (16)% Portfolio (excluding funds) £1,073m £928m * Includes co-investment funds o
Slide 17: European mid-market buy-outs
Results for year ended 31 March 2003 Jonathan Russell European mid-market buy-outs · Deal range Up to £500m Sweet spot £25m-£350m · Target characteristics - Local relationship significant - Operational issues vital - Less competitive/non-price issues - Exit via consolidation/strategic plan · Buy
Slide 18: 3i is well placed to exploit this market
Results for year ended 31 March 2003 Jonathan Russell 3i is well placed to exploit this market Strategy · See the market - Geography, sector teams, people programmes · Pick the winners - Operational expertise – Industry Group, people programmes, sector teams - Execution experience - Management angle
Slide 19: The future
Results for year ended 31 March 2003 Jonathan Russell The future The market · Distressed corporates · Attractive pricing · Portfolio health · Exit environment 3i · Rigorous application of strategy · Aggressive approach to market and quality 19 19
Slide 20: Early stage technology
Rod Perry Early stage technology
Slide 21: Early stage technology – performance
Results for year ended 31 March 2003 Rod Perry Early stage technology – performance 2002/03 Investment* £176m Income yield 0.6% Realisations proceeds £93m Total return** (51)% Portfolio (excluding funds) £589m * Includes co-investment funds of £6m ** Total return on opening portfolio 21 21
Slide 22: The market – investment
Results for year ended 31 March 2003 Rod Perry The market – investment European technology market Volume €m Value Volume Value of deals 500 3000 462 435 2500 400 383 375 2000 300 305 1500 250 200 198 1000 180 100 133 500 0 0 *VentureOne estimate Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Source: VentureOne 2001 20
Slide 23: 2002/03 technology realisations
Results for year ended 31 March 2003 Rod Perry 2002/03 technology realisations Company Sector Country Proceeds Profit IRR £m £m Sophos Software UK 10.2 7.6 45% Adaytum Software UK 12.6 6.5 25% PlaceWare Software US 8.0 3.2 49% Medeval Healthcare UK 5.1 3.7 29% Dendron Healthcare Germany 3.5 1.7 69%
Slide 24: Substantial change
Results for year ended 31 March 2003 Rod Perry Substantial change · Rescale to market opportunity · More focused, more experienced teams in fewer locations · Key assets focused on most senior people · Transformation of - new investment processes - portfolio management - delivery of added value 24 24
Slide 25: Growth capital
Chris Rowlands Growth capital
Slide 26: Growth capital
Results for year ended 31 March 2003 Chris Rowlands Growth capital 26 26
Slide 27: Growth capital – performance 2002/03
Results for year ended 31 March 2003 Chris Rowlands Growth capital – performance 2002/03 Investment* £273m Income yield 6.2% Realisations proceeds £270m Total return** (10)% Portfolio (excluding funds) £1,349m * Includes co-investment funds of £39m ** Total return on opening portfolio 27 27
Slide 28: Market attractiveness
Results for year ended 31 March 2003 Chris Rowlands Market attractiveness For the company For 3i · Equity attractions v debt · Attractive yields (6.2%) · Absence of IPO option · Diversity - sector, size and situation · Local relationship with international reach · Realisations through the cycle · Pl
Slide 29: Financial review
Michael Queen Financial review
Slide 30: Total return
Results for year ended 31 March 2003 Michael Queen Total return 2002 2003 £m £m Operating income 309 274 Realised capital profits (39) 184 Costs: - Net interest payable (74) (76) - Management expenses (171) (153) - Organisational change costs (18) (10) (263) (239) Operating return 7 219 Unrealised v
Slide 31: Operating income
Results for year ended 31 March 2003 Michael Queen Operating income 2002 132 111 56 10 £309m 2003 -1 113 106 56 £274m £m -50 0 50 100 150 200 250 300 350 Loan interest and fixed rate dividend Equity dividends Fee income Joint venture and operating income 31 31
Slide 32: Operating costs
Results for year ended 31 March 2003 Michael Queen Operating costs 2002 74 171 18 £263m 2003 76 153 10 £239m £m 0 50 100 150 200 250 300 Net interest payable Management expenses Organisational change costs 32 32
Slide 33: Realised profits on disposal
Results for year ended 31 March 2003 Michael Queen Realised profits on disposal 2002 2003 £m £m Total proceeds and repayments 939 976 Net realised (loss)/profit (39) 184 Equity realisations - proceeds 728 640 - net realised profit 4 164 - equity uplift over value 1% 34% Loan/fixed income share repay
Slide 34: Unrealised value movement
Results for year ended 31 March 2003 Michael Queen Unrealised value movement £(1,165)m £m (209) (244) 48 (379) Quoted portfolio PE movement (361) Earnings growth Provisions (20) Down rounds & restructuring Other 34 34
Slide 35: The market – investment
Results for year ended 31 March 2003 Michael Queen The market – investment European technology market €m Value FTSE techMARK 100 Value of deals 1,500 1,250 1,000 750 500 250 0 *VentureOne estimate Q1 Q2 Q3 Q4 Q1* Q2 2002 2003 Source: VentureOne 35 35
Slide 36: Revised investment trust SORP
Results for year ended 31 March 2003 Michael Queen Revised investment trust SORP · Implemented in current financial year · No impact on total return · Revenue profit increased by £50m and capital return down by £50m · Cost allocation updated · Proportion of costs charged to capital = 70% 36 36
Slide 37: Balance sheet
Results for year ended 31 March 2003 Michael Queen Balance sheet 2002 2003 £m £m Investment assets 5,109 3,939 Other net assets/(liabilities) 23 10 5,132 3,949 Net borrowings 1,187 1,013 Shareholders’ funds 3,945 2,936 5,132 3,949 Gearing 30% 35% 37 37
Slide 38: Gearing
Results for year ended 31 March 2003 Michael Queen Gearing £m 6,000 125% 5,000 100% 4,000 75% 3,000 50% 2,000 25% 1,000 0 0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Closing net debt Closing equity shareholders' funds Gearing ratio - net borrowing/shareholders' funds 38 38
Slide 39: Net cash flow
Results for year ended 31 March 2003 Michael Queen Net cash flow 2002 2003 £m £m Cash invested (842) (673) Net realisation proceeds 969 975 Net investment cash flow 127 303 Other (269) (133) Net cash outflow (142) 170 39 39
Slide 40: Net cash flow - long term trend
Results for year ended 31 March 2003 Michael Queen Net cash flow - long term trend £m 2000 Cash inflow Cash outflow 1500 Net cash flow 1000 500 0 -500 -1000 -1500 -2000 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 for year to 31 March 40 40
Slide 41: Third party funds under management
Results for year ended 31 March 2003 Michael Queen Third party funds under management 7% 22% Unquoted European buy-out funds £1,454m Other unquoted funds £135m Quoted funds under management £452m Total £2,039m Total 3i and third party funds under 71% management are £5,978m 41 41
Slide 42: Comparative return
Results for year ended 31 March 2003 Michael Queen Comparative return After10 years 10.1% 5.5% 5.7% 3.6% After 7 years 3.7% 2.0% 3i return (NAV + dividend) 2.6% -0.4% FTSE All-Share FTSE 100 After 5 years FTSE SmallCap (ex IT) -2.0% -6.6% -7.1% -6.4% After 3 years -15.8% -15.4% -15.6% -18.6% 42 42
Slide 43: Dividend history
Results for year ended 31 March 2003 Michael Queen Dividend history pence 14 13.0 13.0 13.5 12.2 12 11.3 10.3 10 9.2 8.1 8 7.2 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 Interim Final 43 43
Slide 44: Financial summary
Results for year ended 31 March 2003 Michael Queen Financial summary · Net investor in second half, investment rebalanced · Strong realisations, good portfolio income, cost reduction · Total return affected by stock market falls and technology sector weakness · Strong balance sheet · Continued recor
Slide 45: Results for year ended 31 March 2003
Results for year ended 31 March 2003 Michael Queen 45 45
Slide 46: Closing remarks
Brian Larcombe Closing remarks
Slide 47: Closing remarks
Results for year ended 31 March 2003 Brian Larcombe Closing remarks ‘Cautious about the short-term outlook but confident about the business.’ 47 47
Slide 48: Results for year ended 31 March 2003
Results for year ended 31 March 2003 48 48