3i Group Plc · LSE:III
3i — FY2008 Earnings Presentation
48 slides from 3i's earnings presentation, May 15, 2008
Slide 1: Annual results to 31 March 2008
Annual results to 31 March 2008 15 May 2008 1
Slide 2: Welcome
Welcome Baroness Hogg Chairman 2
Slide 3: Agenda
Agenda • Chief Executive’s review Philip Yea • Financial review Julia Wilson • Closing remarks Philip Yea 3
Slide 4: Chief Executive's review
Chief Executive’s review Philip Yea 4
Slide 5: Key themes
Key themes • Good performance in more challenging markets • Realistic in outlook – debt markets – M&A markets – global economic conditions; portfolio performance • Confident in strategy – further progress to report – setting new targets for the future 5
Slide 6: Financial performance headlines
Financial performance headlines 2008 2007 Investment £2,160m £1,576m Realisation proceeds £1,742m £2,438m Realised profits on disposal £523m £830m Gross portfolio return 23.9% 34.0% Total return £792m £1,075m Return on opening equity 18.6% 26.8% Net asset value per ordinary share (diluted) £10.77 £9
Slide 7: Our vision and strategy
Our vision and strategy Vision Strategy To be the private equity firm of choice • To invest in high-return assets • Operating on a world-wide scale • To grow our assets and those we manage on behalf of third parties • Producing consistent market- beating returns • To extend our international reach,
Slide 8: A reshaped and diversified business
A reshaped and diversified business 2008 2004 • Number of portfolio companies 487 1,878 • Number of investments 47 85 • Average size of investment £37m £7m • UK portfolio 38% 58% • International coverage 10 EU offices 25 EU offices 7 US/Asia 4 US/Asia • Total assets under management £9,792m £6,837m
Slide 9: Confident in our strategy
Confident in our strategy • Total return strong at 18.6% • Growth in AUM for second successive year – QPEL listed, funded and 26% invested – 3i Infrastructure Limited performing very strongly – India Infrastructure Fund exceeds target size ($1.2bn) • Geographic expansion and increased deal size deli
Slide 10: Realistic in the outlook
Realistic in the outlook • New investments – 47 in 2008 compared with 62 last year • M&A markets hesitant – large LBO market remains closed – Asia still performing – strategics are active; mid-market open for right deals • Debt markets open for mid-market deals in good sectors – at 2004/05 pricing a
Slide 11: Half-yearly results presentation – November 2007
Half-yearly results presentation – November 2007 • Highly selective with new investments • Active engagement with management teams • Reconfirmed our through the cycle targets • Confident in further delivery of our strategy 11
Slide 12: Strategy in action in today's markets
Strategy in action in today’s markets • Progress in all business lines • Portfolio performing well • 3i’s market position plays to the current conditions 12
Slide 13: Buyouts
Buyouts Strategic progress • New team in Asia – first buyout closed in April • Central and Eastern Europe team – EDS closed May 2007 • Debt management opportunity Market positioning • Well positioned as the leading European mid-market buyout firm • Long-term banking relationships delivering Portfoli
Slide 14: Wendt case study
Wendt case study • Buyout from Anglo American At entry On exit March 2005 June 2007 • New, more ambitious strategy EBITDA €12.1m €20.4m • Introduction of Chairman and CFO EBITDA multiple 5.7 7.5 • Support for international expansion – China, India, Spain, US IRR 120% • Increased capital expenditure,
Slide 15: Growth Capital
Growth Capital Strategic progress • Move to higher average deal size - £37m (2007: £26m) • Geographical extension – US Growth Capital – four investments in the year totalling $489m – continued development in Asia Market positioning • Well positioned as the leading international growth capital busine
Slide 16: Infrastructure
Infrastructure Strategic progress • 3i Infrastructure Limited (£700m listed fund) • 3i India Infrastructure Fund ($1.2bn fund announced on 16 April 2008) • Capabilities in Europe, US and Asia now in place Market positioning • 3i’s track record in infrastructure, government relationships and FTSE 100
Slide 17: QPE
QPE Strategic progress • 3i Quoted Private Equity Limited launched on the London Stock Exchange in June 2007 • New investments made – Jelf and Phibro Market positioning • Value add partner for smaller quoted companies • Differentiated by 3i’s resources and brand Portfolio • Active partnership in pla
Slide 18: Confident in our positioning
Confident in our positioning Opportunity Outlook/key differentiators Buyouts Mid-market Banking relationships Growth Capital Origination pipeline Suitability for LP funding Infrastructure Performing; funded Non-correlated QPE Funded Pricing attractive 18
Slide 19: Venture going forward
Venture going forward • Current portfolio of 180 investments managed by dedicated “Venture Portfolio Team” • Managing for value with further investments as required 19
Slide 20: Growth in assets under management
Growth in assets under management £9.8bn €12.3bn* • 37% growth in assets under £7.1bn management for 2008 €8.9bn* • Direct investment driven by £5.7bn average size €7.2bn* • Funds advised/managed driven by Infrastructure and QPE • Target AUM of c.€20bn by 2010 2006 2007 2008 Direct Funds advis ed/m
Slide 21: Valuation basis
Valuation basis £6,016m Quoted Other Price of recent investment £4,362m £4,139m Net assets Imminent sale Earnings Cost 2006 2007 2008 21
Slide 22: Convertible
Convertible • Existing €550m convertible bond matures August 2008 • New c.£425m convertible bond – 60% effective conversion premium – three year maturity 22
Slide 23: Financial review
Financial review Julia Wilson Deputy Finance Director 23
Slide 24: Financial performance headlines
Financial performance headlines 2008 2007 Investment £2,160m £1,576m Realisation proceeds £1,742m £2,438m Realised profits on disposal £523m £830m Gross portfolio return 23.9% 34.0% Total return £792m £1,075m Return on opening equity 18.6% 26.8% Net asset value per ordinary share (diluted) £10.77 £9
Slide 25: Total return analysis
Total return analysis 2008 2007 £m £m Gross portfolio return 1,041 23.9% 1,406 34.0% Net carried interest (92) (61) Operating expenses less fees from external funds (214) (218) Net portfolio return 735 16.9% 1,127 27.2% Net interest payable (16) (9) Movement in the fair value of derivatives 158 (29)
Slide 26: Group – gross portfolio return
Group – gross portfolio return 2008 2007 £m £m Realised profits 523 830 Unrealised profits 291 323 Portfolio income 227 253 Gross portfolio return 1,041 1,406 Realised uplift on opening book value 43% 52% 26
Slide 27: Unrealised profits
Unrealised profits 2008 2007 £m £m Earnings multiples (162) 5 Earnings 307 142 First time uplift 154 142 Provisions (188) (71) Up rounds 7 15 Uplifts to sale 83 139 Other movements on unquoted investments 26 (12) Quoted portfolio 64 (37) Total 291 323 27
Slide 28: Earnings multiples
Earnings multiples March September March 2007 2007 2008 EBITDA multiples 6.8 7.2 5.8 Weighted average PE multiples* 11.6 12.9 10.8 *Weighted average PE multiples exclude those valued on an EBITDA basis 28
Slide 29: Earnings growth
Earnings growth • Increase in earnings for assets valued on an earnings basis at both start and end of year £307m, and first time uplifts £154m • 21 of the top 50 assets are valued on an earnings (or equivalent) basis – 10 showing increase of more than 20% • Portfolio performing well 29
Slide 30: Provisions
Provisions Provisions and impairments as a percentage of opening portfolio value 4.4% 4.3% 3.6% 3.2% 1.7% 2004 2005 2006 2007 2008 30
Slide 31: Buyouts – performance
Buyouts – performance Vintage IRR performance Vintage Cost As at As at year remaining 31 March 2008 31 March 2007 2008 100% n/a n/a 34% of direct 2007 88% 35% 9% portfolio value 2006 45% 57% 47% £4.6bn assets 29% 62% under management 2005 54% 2004 22% 37% 30% Vintage year is the financial year ended
Slide 32: Growth Capital – performance
Growth Capital – performance Vintage IRR performance Vintage Cost As at As at year remaining 31 March 2008 31 March 2007 2008 100% n/a n/a 39% of direct 2007 97% 17% (2)% portfolio value 2006 65% 43% 35% £2.5bn assets under management 2005 50% 31% 35% 2004 10% 26% 25% Vintage year is the financial y
Slide 33: Venture Capital – performance
Venture Capital – performance Vintage IRR performance Vintage Cost As at As at year remaining 31 March 2008 31 March 2007 2008 100% n/a n/a 12% of direct 2007 95% (11)% (2)% portfolio value 2006 95% 4% 5% £756m assets under management 2005 94% 4% (1)% 2004 53% 10% 14% Vintage year is the financial y
Slide 34: Infrastructure
Infrastructure 2008 2007 Contribution to Group results £m £m Realised profits 6 (15) Unrealised profits 43 3 Portfolio income 18 27 Gross portfolio return 67 15 Fees receivable from external funds 18 - Assets under management 1,213 854 34
Slide 35: Quoted Private Equity
Quoted Private Equity 2008 2007 Contribution to Group results £m £m Unrealised profits (42) 6 Portfolio income - - Gross portfolio return (42) 6 Fees receivable from external funds 1 - Assets under management 411 20 35
Slide 36: Net portfolio and total return
Net portfolio and total return 2008 2007 £m £m Gross portfolio return 1,041 23.9% 1,406 34.0% Net carried interest (92) (61) Operating expenses less fees from external funds (214) (218) Net portfolio return 735 16.9% 1,127 27.2% Net interest payable (16) (9) Movement in the fair value of derivatives
Slide 37: Net carried interest
Net carried interest 2008 2007 £m £m Carry receivable 60 81 Carry payable (152) (142) Net carried interest payable (92) (61) • Asymmetry due to carry being payable to investment staff in all business lines and carry receivable only being received where there are funds (eg Buyouts) • Carry receivable
Slide 38: Operating expense five year trend
Operating expense five year trend £m 300 6.0% +7.5% +20.9% 250 +22.7% 5.0% • Net costs flat 200 4.0% • Cost ratio 5% +5.5% • Expected to be below 4% 2008/09 150 3.0% • Fee income up 54% 100 2.0% • Opening portfolio up 38% 50 1.0% • Gross costs up 7.5% 0 0.0% 2005 2006 2007 2008 2009 Fees Net operati
Slide 39: Total return analysis
Total return analysis 2008 2007 £m £m Gross portfolio return 1,041 23.9% 1,406 34.0% Net carried interest (92) (61) Operating expenses less fees from external funds (214) (218) Net portfolio return 735 16.9% 1,127 27.2% Net interest payable (16) (9) Movement in the fair value of derivatives 158 (29)
Slide 40: Balance sheet
Balance sheet March Sept March 2008 2007 2007 £m £m £m Investment assets 6,016 5,130 4,362 Other net liabilities (321) (143) (114) 5,695 4,987 4,248 Net borrowings/(surplus) 1,638 1,143 (1) Equity 4,057 3,844 4,249 5,695 4,987 4,248 Gearing 40% 30% 0% 40
Slide 41: Investment assets
Investment assets 2008 2007 £m £m Opening portfolio value 4,362 4,139 Investment 2,160 1,576 Realisation proceeds (1,742) (2,438) Realised profits on disposal 523 830 Unrealised value growth 291 323 Exchange and other movements 422 (68) Closing portfolio value 6,016 4,362 41
Slide 42: Liquidity and funding
Liquidity and funding • Available liquid resources of £1,082m including undrawn committed facilities of £286m • Announced today refinancing of convertible bond • More than 50% of total borrowings mature beyond four years, and £600m is long-dated 2023 and 2032 • Credit rating – A+ S&P – A1 Moody’s 42
Slide 43: Financial summary
Financial summary • Good performance in 2008 • Capital efficiency improved • Cost efficiency improved • Strong liquidity 43
Slide 44: Closing remarks
Closing remarks Philip Yea Chief Executive 44
Slide 45: Summary
Summary • Last four years have delivered a reshaped business • Growth in assets under management – diversified by geography and type – selective investment; fewer companies • Group resources redirected to attractive areas – headcount flat over four years – net costs to opening portfolio on track to
Slide 46: Growth in net asset value
Growth in net asset value 1077p 932p 739p 603p 535p 2004 2005 2006 2007 2008 46
Slide 47: Immediate outlook
Immediate outlook Expectations for 2008 • Environment will stimulate opportunity • Continuing a highly selective approach to new investments • Realisations ongoing • Investments and realisations broadly balanced “We enter the new year confident in our strategy and realistic in outlook, intending to
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