3i Group Plc · LSE:III
3i — H1 FY2024 Earnings Presentation
40 slides from 3i's earnings presentation, Nov 9, 2023
Slide 1: Results for the six months to 30 September 2023
Results for the six months to 30 September 2023 9 November 2023
Slide 2: Business review
Business review Simon Borrows Chief Executive
Slide 3: Resilient performance in a challenging market
Resilient performance in a challenging market Six months to 30 September 2023 Group Private Equity Infrastructure Total return NAV Gross investment Gross investment on equity per share return return 10% 1,886p 11% 2% Gearing First FY24 % of portfolio value Cash income dividend per share growing earn
Slide 4: Careful portfolio construction
Careful portfolio construction Our portfolio delivers resilience across the economic cycle Portfolio at 30 September 2023 Value-for-money, Private Label, Infrastructure and Healthcare represent ~85% of portfolio 4
Slide 5: Private Equity: portfolio benefiting from careful construction and active management
Private Equity Portfolio benefiting from careful portfolio construction and active asset management Exceptional performance at Action, resilient performance across rest of portfolio • 11% gross investment return for the portfolio overall • 15% gross investment return for Action • 89%1 of portfolio g
Slide 6: Good earnings growth across the portfolio; challenging environment impacting some assets
Private Equity Good earnings growth across the portfolio; challenging environment impacting some assets Portfolio earnings growth of top 20 PE investments (97% of PE portfolio by value)1 ≥ 30% £13,353m 4 companies 20 - 29% £1,027m 3 companies 10 - 19% £559m 3 companies 0 - 9% £894m 2 companies <0% £
Slide 7: Divergence in performance across the portfolio
Private Equity Divergence in performance across the portfolio Largest value increases (>£20m) Largest value declines (>£20m) Portfolio company Value Value at Driver of Portfolio company Value Value at Driver of growth 30 Sep value decline 30 Sep value (excl FX) 2023 movement (excl FX) 2023 movement
Slide 8: Action – strong trading to P9 and P10
Private Equity Action – strong trading to P9 and P10 • Strong trading YTD to P9 (1 October 2023) ‒ Net sales of €7,912m, up 31% on PY ‒ Operating EBITDA of €1,065m, up 44% on PY ‒ LFL sales growth of 19.2% ‒ 153 stores added, vs 150 in PY • Performance sustained YTD to P10 (29 October 2023) ‒ Net sa
Slide 9: Action – strong LFL sustaining with tough comparables ahead
Private Equity Action – strong LFL sustaining with tough November and December comparables ahead LFL sales growth by period 21.8% 18.7% 17.8% 17.2% 17.1% 13.4% 12.0% 10.2% 8.5% 5.7% H11 P7 P8 P9 P10 2022 2023 Source: Company information. 1 H1 LFL sales growth based on YTD P6 LFL sales growth in 2023
Slide 10: Action – results to P10 2023 indicate another very strong year
Private Equity Action – results to P10 2023 indicate another very strong year Net sales (€m) Stores YoY growth YoY growth 32% 30% 32% 34% 28% 23% 21% 9% 23% 30% 32% 26% 27% 27% 30% 29% 21% 17% 11% 16% 14% 13% 10,890 2,448 2,263 2,163 8,859 CAGR+22% 1,983 8,259 1,716 CAGR+26% 6,834 1,552 1,325 5,114
Slide 11: Action – $1,500m USD TLB issuance completed in October
Private Equity Action - $1,500m USD TLB issuance completed in October Transaction overview Leverage Size • $1,500m achieved vs $1,000m initial target P9 Pro forma (post transaction) Pricing • 325bps margin • 25bps margin reduction vs initial indications Senior debt1 €3,125m €4,544m Maturity 2030 Cas
Slide 12: Action – capital restructuring/share redemption
Private Equity Action – capital restructuring/share redemption Gross proceeds to 3i from pro-rata share redemption €877m 3i re-investment of proceeds in purchase of Action shares €524m Net proceeds €353m 3i interest in Action From 52.9% to 54.8% 12
Slide 13: Infrastructure: portfolio continues to perform robustly
Infrastructure Portfolio continues to perform robustly, in line with expectations Portfolio continues to perform well, but GIR impacted by 3iN’s share price volatility • 2% gross investment return • Total return of 6.3% for 3iN for the first half, but share price performance remains under pressure •
Slide 14: Infrastructure: strong portfolio performance and progress on priorities
Infrastructure Strong portfolio performance and good progress across strategic priorities 3i Infrastructure plc North American infrastructure • 6.3% total return in H1, on track to meet annual return • Good progress with North American infrastructure objective of 8-10% and dividend target for the ye
Slide 15: Financial review
Financial review James Hatchley Group Finance Director
Slide 16: NAV per share progression
NAV per share progression Total return on equity of 10% for the half NAV per share (pence) 1 2 NAV per share up 8% to 1,886 pence 1 FX net of derivatives. 2 Other includes portfolio income, third-party fee income and operating costs. 16
Slide 17: Good value growth despite challenging macroeconomic climate
Good value growth despite challenging macroeconomic and geopolitical climate £1.9bn value increase driven by Action's performance Value movement by basis excluding FX (£ million) Action PE performance increases1 PE performance decreases1 Multiples Quoted DCF Other Portfolio value of £20.3 billion 1
Slide 18: Action valuation approach unchanged
Private Equity Action valuation approach unchanged Enterprise value (post discount) • LTM Operating EBITDA to P9 2023 of €1,530m €30.2bn1 €26.6bn • LTM run-rate EBITDA of €1,634m €21.0bn €18.7bn • Net debt of €2,184m at 30 September 2023 • 18.5x (Mar-23: 18.5x) multiple post discount • Valuation at
Slide 19: Action – peer group multiples support 18.5x run-rate EBITDA multiple
Private Equity Action – peer group multiples support 18.5x run-rate EBITDA multiple for Action EV / LTM EBITDA EV / NTM EBITDA 25x 25x Costco, 23.5x Costco, 21.2x Dollarama Inc., 21.2x 20x Ollie’s, 19.9x 20x Dollarama, 19.1x Five Below, 17.2x Ollie’s, 16.1x 15x Avg, 15.1x 15x Five Below, 14.5x Groce
Slide 20: Action – peer group valuation multiples over time
Private Equity Action – peer group valuation multiples over time EV / LTM EBITDA over the last five years 25x Costco, Dollarama, Five Below, Ollie’s Avg. 5Y, 21.2x 20x Avg. 5Y, 18.1x Average of all peers1 15x 10x 1-Jan-19 1-Jul-19 1-Jan-20 1-Jul-20 1-Jan-21 1-Jul-21 1-Jan-22 1-Jul-22 1-Jan-23 1-Jul-
Slide 21: Valuation multiples compare favourably to peer set averages
Private Equity Valuation multiples continue to compare favourably to average multiples for peer sets1 Only three companies have valuation marks above their peer set averages All multiples are within peer set ranges 1 Valuation multiples used for assets valued on an earnings basis compared to a peer
Slide 22: Private Equity: good portfolio performance
Private Equity Good portfolio performance Six months to 30 September 2023 2022 £ million Gross investment return 1,826 1,970 of which foreign exchange1 (127) 685 GIR % of opening portfolio 11% 16% Realisations 1 193 Cash investment 50 292 £ million 30 September 2023 31 March 2023 Portfolio Value 18,
Slide 23: Portfolio leverage remains moderate
Private Equity Portfolio leverage remains moderate Ratio of total net debt to earnings Debt maturity (% of value, Sep-2023) Action Excluding Action 2023 2024 2025 2026 2027 or later Debt maturity (% of value) pro-forma Action debt issue Sep-221 Mar-231 Sep-231 Action pro- 2023 2024 2025 2026 2027 or
Slide 24: Infrastructure: solid performance in the period
Infrastructure Solid performance in the period Six months to 30 September 2023 2022 £ million Infrastructure gross investment return 31 35 Realised loss over value (3) – Unrealised profit/(losses) on revaluations1 2 (47) Dividend and interest income from the portfolio 24 24 Foreign exchange 8 58 GIR
Slide 25: Operating cash position
Operating cash position Objective to at least break even Six months to September 2023 2022 £ million Private Equity 16 7 Infrastructure 62 48 Scandlines 10 12 Cash income 88 67 Operating cash expenses1 (82) (84) Operating cash profit/(loss) 6 (17) 1 Operating cash expenses includes leases paid. 25
Slide 26: Simple balance sheet and conservative capital management
Simple balance sheet and conservative capital management • Portfolio value £20,255m • High quality, well constructed portfolio £55m • Gross cash held centrally • Gross fixed term debt made up of bonds expiring 2029, 2032 and 2040 £1,208m • Average cost of 4.8% • Undrawn RCF £900m • Base £500m RCF av
Slide 27: Further payment of carried interest related to Action
Private Equity Further payment of carried interest related to Action in the period of £258m Six months to September 2023 2022 £ million Income statement Carried interest receivable – 2 Carried interest payable (147) (157) Net total expense (147) (155) £ million 30 September 2023 31 March 2023 Balanc
Slide 28: GIR dilution from Action carried interest payable reduced
Private Equity GIR dilution from Action carried interest payable reduced significantly since September 2022 September March September Pro forma 2022 2023 2023 share purchase Gross holding in Action 52.7% 52.9% 52.9% 54.8% Further investment in Action – £30m – £455m1 Action carry dilution on GIR (app
Slide 29: First FY2024 dividend of 26.50 pence per share
First FY2024 dividend of 26.50 pence per share Our dividend policy aims to maintain or grow the dividend year-on-year subject to: • maintaining our conservative balance sheet strategy • careful consideration of the outlook for investments and realisations and market conditions 29
Slide 30: Closing remarks
Closing remarks Simon Borrows Chief Executive
Slide 31: Our permanent capital allows us to compound value over the long term
Our permanent capital allows us to compound value over the long term Private Equity portfolio construction Core PE portfolio Longer-term compounders • Our origination engine, • 5-6 assets to be identified • Returns materially in excess invested with a 2x MM of 3i’s return objective objective • EBITD
Slide 32: Power of compounding is starting to manifest for Action
Power of compounding is starting to manifest for Action Illustrative time required for Action’s MM to reach Historical evolution of Action’s money multiple, EUR1 200x at constant valuation multiple 120x ~110x 100x +25% EBITDA CAGR ~2.5 years 80x +20% EBITDA CAGR ~3.0 years 60x 40x +15% EBITDA CAGR ~
Slide 33: Additional information
Additional information
Slide 34: 3i has significant long-term potential
3i has significant long-term potential Permanent capital. Long-term, sustainable approach Thematic approach to investment with exposure to long-term secular growth trends Proven model, underpinned by robust processes, patience and price discipline Active management of portfolio companies with signif
Slide 35: Q2 NAV increased from 1,814 pence to 1,886 pence
Q2 NAV increased from 1,814 pence to 1,886 pence NAV per share (pence) 1 1 FX net of derivatives. 35
Slide 36: 3i Group large investments
3i Group 20 large investments Valuation Valuation Investment Business description September 2023 March 2023 (£m) (£m) Action General merchandise discount retailer 12,862 11,188 3i Infrastructure plc Quoted investment company, investing in infrastructure 818 841 Cirtec Medical Outsourced medical devi
Slide 37: Private Equity portfolio by value at 30 September 2023
Private Equity portfolio by value at 30 September 2023 By location (%) By sector (%) 2% 1% 4% 4% 7% 6% 6% 9% 12% 79% 70% Action (Consumer) Consumer Industrial Technology Netherlands US UK Germany France Healthcare Services Software Portfolio of 39 investments (31 March 2023: 39) 37
Slide 38: Net asset exposure by currency
Net asset exposure by currency Net assets by currency 30 September 2023 1% 7% • €2.6bn (incl. Scandlines) of euro and $1.2bn 25% of US dollar exposure now hedged • Majority of net asset exposure to euro and US dollar remains • Including the hedging programme: 1% movement in euro = £121m, 1% movement
Slide 39: Our purpose
Our purpose We generate attractive returns for our shareholders and co-investors by investing in private equity and infrastructure assets. As proprietary capital investors we have a long-term, responsible approach. We aim to compound value through thoughtful origination, disciplined investment and a
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