3i Group plc · LSE:III
3i — H1 2006/07 Earnings Presentation
44 slides from 3i's earnings presentation, Nov 9, 2006
Slide 1: Interim results to 30 September 2006
Interim results to 30 September 2006 9 November 2006 1
Slide 2: Philip Yea, Chief Executive
Philip Yea Chief Executive 2
Slide 3: Agenda
Agenda Key messages Philip Yea Financial review Simon Ball Venture Capital Jo Taylor Growth Capital Michael Queen Buyouts Jonathan Russell Summary Philip Yea Q&A The team 3
Slide 4: Key messages
Key messages • Continued good financial performance • Further strategic milestones – Eurofund V – Asia – New York office – Venture • Building for the future 4
Slide 5: Financial highlights
Financial highlights 2006/2007 2005/2006 First half First half Gross portfolio return 11.6% 12.1% Total return £374m £447m Return on opening shareholders’ funds 9.3% 12.1% Adjusted return on opening shareholders’ funds 11.0% - Growth in NAV per share 53p 63p Closing NAV per share 792p 677p 5
Slide 6: Activity levels
Activity levels 2006/2007 2005/2006 First half First half Realisation proceeds £849m £1,041m Realised uplift over opening value 34% 22% New investment £589m £706m International portfolio 61% 50% Number of portfolio companies 942 1,285 6
Slide 7: Simon Ball, Finance Director
Simon Ball Finance Director 7
Slide 8: Gross portfolio return by business line
Gross portfolio return by business line Portfolio by value £4,174m £4,139m 2006/2007 2005/2006 First half First half 37% 35% Gross portfolio return £480m £521m % of opening portfolio 11.6% 12.1% Buyouts 19.8% 13.1% 31% 31% Growth Capital 14.2% 13.0% Venture Capital (8.4)% 8.2% 20% 20% SMI 13.7% 12.3
Slide 9: Gross portfolio return: recent history
Gross portfolio return: recent history % 14 12.1% 12.1% 12 11.6% 9.7% 10 8.5% 8 7.0% 6 4 2 0 March Sept March Sept March Sept 2004 2004 2005 2005 2006 2006 Gross portfolio returns for the six months ended 9
Slide 10: Investment: recent history
Investment: recent history £m 800 700 600 • 33 new investments 500 • Later stage focus in 400 Venture Capital • Growth in Asia 300 200 100 0 March Sept March Sept March Sept 2004 2004 2005 2005 2006 2006 Buyouts Growth Capital Venture Capital 10
Slide 11: Realisations: recent history
Realisations: recent history £m 1200 1000 • 178 assets realised 800 • 15% churn on opening portfolio value 600 • Uplift on opening value of 34% 400 200 0 March Sept March Sept March Sept 2004 2004 2005 2005 2006 2006 Buyouts Growth Capital Venture Capital SMI 11
Slide 12: Net portfolio return and total return
Net portfolio return and total return 2006/2007 2005/2006 First half First half £m £m Gross portfolio return 480 11.6% 521 12.1% Fund management fees 15 15 Net carried interest (13) 31 Operating expenses (115) (96) Net portfolio return 367 8.9% 471 10.9% Net interest payable (2) (11) Movement in the
Slide 13: Cash flow
Cash flow 2006/2007 2005/2006 First half First half £m £m Cash invested (559) (724) Net realisation proceeds 858 1,025 Net investment cash flow 299 301 Portfolio income, operating expenses and other (52) (41) Net cash inflow before dividend 247 260 Ordinary dividend (52) (56) Return of capital (689)
Slide 14: Balance sheet
Balance sheet Balance sheet As at As at 30.9.06 31.3.06 £m £m Investment assets 4,174 4,139 Other net liabilities (51) (77) 4,123 4,062 Net borrowings 475 56 Shareholders’ funds 3,648 4,006 4,123 4,062 Gearing 13% 1% 14
Slide 15: Financial summary
Financial summary • Another strong gross portfolio return • Total return – 9.3% for six months – 11.0% post B share adjustment • Balance sheet – Gearing up from 1% to 13% 15
Slide 16: Jo Taylor, Venture Capital
Jo Taylor Venture Capital 16
Slide 17: Venture Capital – strategy
Venture Capital – strategy • Increased later stage investment – Lower volatility – Swifter path to liquidity – Plays to strengths of team and 3i’s added value • Resourcing model • US strategy – Adding capabilities – Continue building brand awareness – Extending the network • Venture advisory board i
Slide 18: Venture Capital – performance to 30 September 2006
Venture Capital – performance to 30 September 2006 6 months to 6 months to 30 Sept 2006 30 Sept 2005 Gross portfolio return £(69)m £61m (8.4)% 8.2% Realised profits £5m £36m Unrealised profits/(losses) £(78)m £23m Realisation proceeds £26m £120m Investment £129m £58m Of which late stage £72m £16m Av
Slide 19: Venture Capital – key drivers of performance
Venture Capital – key drivers of performance • Fall in listed markets • Vonage and CSR • Lower levels of M&A activity in portfolio 19
Slide 20: Venture Capital – long term vintage performance
Venture Capital – long term vintage performance Long term IRR performance Cost As at As at remaining 30 Sept 2006 31 March 2006 2006 100% (3)% 0% 2005 100% (6)% 0% 2004 83% 20% 36% 2003 83% (16)% (19)% 2002 54% (12)% (12)% Vintage year is the financial year ended 31 March 20
Slide 21: Venture Capital – investment activity
Venture Capital – investment activity A selection of new investments Home Décor Products £21m Online retailer of home improvement products Demand Media £21m Internet provider of domain name registry services Icera Semiconductor £11m Semiconductor component development Health Care Brands Ltd £3m Heal
Slide 22: Venture Capital – in summary
Venture Capital – in summary • Late stage - 82% of new investment in the period • Resourcing model changed to fit strategy • Advisory board in place 22
Slide 23: Michael Queen, Growth Capital
Michael Queen Growth Capital 23
Slide 24: Growth Capital – performance to 30 September 2006
Growth Capital – performance to 30 September 2006 6 months to 6 months to 30 Sept 2006 30 Sept 2005 Gross portfolio return 14.2% 13.0% Realised profits £90m £60m Unrealised profits £56m £86m Portfolio income £36m £22m Realisation proceeds £317m £381m Investment £222m £286m Average size of new invest
Slide 25: Growth Capital – first half activity
Growth Capital – first half activity Selection of new investments and realisations Investments STEN £81m Spanish formwork systems Mundra £27m Indian port HTC Sweden £20m Manufacturer of grinding/polishing machines China Digitone £12m Mobile phone retailer Realisations Proceeds Multiple IRR Sector Fo
Slide 26: Growth Capital – long term vintage performance
Growth Capital – long term vintage performance Long term IRR performance Cost As at As at remaining 30 Sept 2006 31 March 2006 2006 91% 6% 1% 2005 63% 36% 32% 2004 44% 21% 21% 2003 29% 24% 22% 2002 22% 8% 8% Vintage year is the financial year ended 31 March 26
Slide 27: Growth Capital
Growth Capital • Strategically well placed – Market positioning – Resources • Asian growth – Market access – Track record – Investment doubled • US opportunity – Good offering – Team in place – Highly-selective approach 27
Slide 28: Infrastructure
Infrastructure • Strategy – Build diversified portfolio of infrastructure assets – Return objective – Capitalise on 3i’s private equity skills and network • 3i differentiators – Brand and corporate reputation – Private equity skills – Specialist team 28
Slide 29: Stages of investment and value creation
Stages of investment and value creation Primary Secondary Tertiary Early stage/construction Operational ramp-up Mature/steady state Bridging Operational construction transformation risk • Greenfield projects • Buy & build portfolios • Corporate acquisition • New build PFI/PPP • Privatisations • Long
Slide 30: Jonathan Russell, Buyouts
Jonathan Russell Buyouts 30
Slide 31: Buyouts – performance to 30 September 2006
Buyouts – performance to 30 September 2006 6 months to 6 months to 30 Sept 2006 30 Sept 2005 Gross portfolio return 19.8% 13.1% Realised profits £76m £62m Unrealised profits £151m £79m Portfolio income £63m £58m Realisation proceeds £388m £379m Investment £236m £358m Average size of new investment £
Slide 32: Buyouts – long term vintage performance
Buyouts – long term vintage performance Long term IRR performance Cost As at As at remaining 30 Sept 2006 31 March 2006 2006 100% 12% 3% 2005 59% 50% 38% 2004 42% 29% 32% 2003 33% 50% 49% 2002 3% 61% 61% Vintage year is the financial year ended 31 March 32
Slide 33: Buyouts - investment strategy
Buyouts - investment strategy Value creation Premium market access + Operational expertise Ability to benchmark Breadth of choice Clarity of value plan Advantaged buyer Delivering the plan Access to industrial talent 33
Slide 34: Sources of value creation, fully-realised buyouts
Sources of value creation, fully-realised buyouts* 100% 10% 27% 63% Realised money multiple 2.7x Cost Earnings Multiple Debt Realised growth expansion reduction value *Figures represent total equity for 28 fully-realised Eurofund III and Eurofund IV buyouts ie up to 30 June 2006 34
Slide 35: Buyouts – first half activity
Buyouts – first half activity A selection of new investments and realisations 3i and Investments 3i only funds total Mayborn £46m £58m Manufacturer of baby products Chorion £36m £56m Owner of intellectual property ABX Logistics £33m £47m Industrial transportation GES - Global Energy Services £32m £4
Slide 36: Buyouts – Eurofund V
Buyouts – Eurofund V • Initial target €3.5bn mid-market pan-European buyout fund • To invest c€1bn pa in c15 transactions pa • First closing in August 2006 €4.3bn • Capped at €5bn • Commitment from 3i Group €2.75bn • Commitment from investment professionals €50m 36
Slide 37: Philip Yea, Chief Executive
Philip Yea Chief Executive 37
Slide 38: Closing remarks May 2006
Closing remarks May 2006 • Detailed strategy for the future • Determined to accelerate the development of 3i to deliver further shareholder value 38
Slide 39: Strategy
Strategy • Invest in high-return assets • Grow our assets and those we manage on behalf of third parties • Extend our international reach, directly and through investing in funds • Use our balance sheet and resources to develop existing and new business lines • Continue to build our strong culture o
Slide 40: Infrastructure – next steps
Infrastructure – next steps • Build international team • Prepare long-term hold vehicle • Advisory and performance fees • Prepare for Infrastructure to become standalone business line - Michael Queen - Guy Zarzavatdjian 40
Slide 41: Returns on equity – 3 year rolling average
Returns on equity – 3 year rolling average % 20 18.5% 17.2% 15 11.4% 10 5 2.5% 1.1% 0 -5 -10 -8.6% 3 year average* 3 year average* 3 year average* 3 year average* 3 year average* 3 year average* to March 2004 to Sept 2004 to March 2005 to Sept 2005 to March 2006 to Sept 2006 *3 year rolling simple a
Slide 42: Closing remarks
Closing remarks • 3i well positioned against current market opportunity • Taking steps to extend the scope of our business • Expect to report further progress over coming period 42
Slide 43: Questions and answers
Interim results to 30 September 2006 Questions and answers 43
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