3i Group plc · LSE:III
3i — H1 2012 Earnings Presentation
54 slides from 3i's earnings presentation, Nov 10, 2011
Slide 1: Half-yearly results to 30 September 2011
Half-yearly results to 30 September 2011 10 November 2011
Slide 2: Michael Queen, Chief Executive
Michael Queen Chief Executive 2
Slide 3: Agenda
Agenda Update Michael Queen Financial performance Julia Wilson Private Equity Menno Antal Summary Michael Queen 3
Slide 4: Context
Context • Challenging operating environment – uncertainty and volatility in financial markets – low business confidence • 3i is not immune to this turmoil – stock market declines have reduced multiples used for valuation • Average increase in earnings of 8% on a value-weighted basis • 2007 and 2008
Slide 5: 3i's strong position
3i’s strong position • Significantly lower level of leverage in the portfolio – average debt multiple in Buyout portfolio is 4.4x EBITDA • 3i balance sheet much stronger – net debt reduced from a peak of £1.9bn (31.3.09) to £531m today • Asset management and investment capabilities strengthened • Lo
Slide 6: Private Equity development
Private Equity development • Announced changes to 3i’s European Private Equity business – reshaped business for current market opportunity – integration of US team to create developed markets private equity capability – likely to result in further operational efficiencies • Anticipated cost savings
Slide 7: Leadership Team changes
Leadership Team changes Chief Investment Officer Simon Borrows Developed Markets Private Equity Menno Antal Alan Giddins Developing Markets Private Equity Guy Zarzavatdjian 7
Slide 8: Infrastructure and Debt Management development
Infrastructure and Debt Management development Infrastructure • Continued good performance from European assets • Preferred bidder on Thameslink contract • Indian Infrastructure Fund II Debt Management • Debt CLO funds performing ahead of plan • Credit Opportunities Fund 8
Slide 9: Our priorities
Our priorities • Maximise value of our existing investments • Maintain our investment discipline • Manage the balance sheet in a conservative way • Grow the business in a measured way Deliver the strategic model, to provide shareholders with stable and more consistent returns 9
Slide 10: A significant rebasing of the dividend
A significant rebasing of the dividend • Review to determine appropriate proportion of returns in cash • Proposed full year dividend of 8.1p – a proposed increase of 125% – 2.7p interim dividend declared today • Progressive dividend in line with performance and balance sheet strength 10
Slide 11: Financial performance – six months to September 2011
Financial performance – six months to 30 September 2011 • Gross portfolio return of (8.3)%, driven by market conditions • Net portfolio return of (9.6)% after costs • Total return of £(523)m, a (15.6)% return on opening shareholders’ funds • Good realisations of £532m, although at lower uplifts due
Slide 12: Financial performance
Financial performance Julia Wilson Finance Director 12
Slide 13: Total return for the six months to September 2011
Total return for the six months to 30 September 2011 Gross portfolio return Net portfolio return Total return Realised profits £31m Gross portfolio return £(331)m Net portfolio return £(385)m Unrealised value movement £(441)m Fees receivable £43m Net interest payable £(52)m Portfolio income £79m Net
Slide 14: Gross portfolio return by business line
Gross portfolio return by business line As at 30 September 2011 (£m) Private Infrastructure Debt Total* Total Equity Management six months six months to 30.9.11 to 30.9.10 Realised profits 25 - - 31 30 Unrealised value growth (414) (11) (3) (441) 196 Portfolio income 68 9 1 79 812 Total (321) (2) (2
Slide 15: Unrealised value growth
Unrealised value growth Six months to (£m) Sept 2011 March 2011 Sept 2010 Multiples (182) (76) (71) Earnings growth (52) 295 273 Impairments (66) (196) (68) Provisions (43) (71) (40) Uplift to imminent sale 6 240 66 Quoted (58) 23 16 Other (46) 110 20 Total (441) 325 196 15
Slide 16: Earnings multiples
Earnings multiples By sector Business Services Weighted average EBITDA multiple at: Consumer September 2011 8.2x Financial Services Industrials and Energy March 2011 8.8x Healthcare September 2010 9.0x Media TMT Infrastructure Total portfolio value of £3,412m By geography Continental Europe UK Asia
Slide 17: Earnings growth for valuations
Earnings growth for valuations • Contraction of 1%, including the impact of forecasts • Use of forecast earnings increased to 23% of companies (March 2011: 12% - September 2010: 9%) 17
Slide 18: Earnings performance
Earnings performance Weighted average Carrying value £m 8% 800 14 700 16 600 13 500 400 300 9 200 6 100 4 12 0 <-30% <-20-10% <-10-0% >0-10% >10-20% >20-30% >30% LTM earnings growth (June 2011) 18
Slide 19: Total portfolio value
Total portfolio value £m 4,500 448 (441) 4,250 3,993 (501) 4,000 3,750 (87) 3,500 3,412 3,250 3,000 Opening Investment Value Divestment Other Closing portfolio movement at value movement portfolio 19
Slide 20: Net portfolio return by business line
Net portfolio return by business line Six months to 30 September 2011 (£m) Private Infrastructure Debt Total* Equity Management Gross portfolio return (321) (2) (2) (331) Fees 15 11 17 43 Net carry 9 (4) (4) 1 Operating expenses (74) (11) (10) (98) Total (371) (6) 1 (385) % opening portfolio value (
Slide 21: Total return
Total return Six months to September (£m) 2011 2010 Gross portfolio return (331) (8.3)% 307 8.7% Fees receivable 43 30 Net carried interest 1 (12) Operating expenses (98) (89) Net portfolio return (385) (9.6)% 236 6.7% Net interest payable (52) (72) Exchange movements (19) (29) Actuarial loss (49) (
Slide 22: NAV progression
NAV progression pence 375 (35) 3 (46) 351 350 325 8 (10) (12) 300 294 275 250 Opening Realised Unrealised Portfolio Net operating Funding Closing NAV NAV 1.4.11 profits value income expenses costs 30.9.11 movement Gross portfolio return Note: Diluted number of shares: 952,495,068 22
Slide 23: Balance sheet
Balance sheet (£m) 30.9.11 31.3.11 30.9.10 Investment assets 3,412 3,993 3,679 Cash 1,191 1,521 1,804 Gross debt (1,722) (2,043) (2,156) Other net liabilities (77) (114) (166) Shareholders’ equity 2,804 3,357 3,161 Net borrowings 531 522 352 Gearing 19% 16% 11% Liquidity £1.7bn £1.8bn £2.1bn NAV £2.
Slide 24: Debt repayment profile
Debt repayment profile as at 30 September 2011 £m 700 600 500 400 300 200 100 0 March March March March March March March March March March March March March March 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2033 24
Slide 25: Distribution policy
Distribution policy Dividends • Announcing an annual dividend of 8.1p per share • Interim dividend of 2.7p declared today • Progressive dividend policy thereafter 25
Slide 26: Summary
Summary • Market conditions impacted the underlying value of the PE portfolio • Committed to maintaining a conservative balance sheet • Model for returns underpinned by a progressive dividend policy 26
Slide 27: Private Equity
Private Equity Menno Antal Co-Head Developed Markets Private Equity 27
Slide 28: Agenda
Agenda • Update on the European Private Equity market • Our approach and strategy • Portfolio overview A reshaped European Private Equity business 28
Slide 29: The European private equity market
The European private equity market €bn 120 Funds raised 100 Investment 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* *Six months to 30 June 2011 Source: EVCA for 2007-2010, EVCA/Thomson Reuters/PwC for previous years Current market activity is around 2004 levels 29
Slide 30: Regional differences across Europe
Regional differences across Europe Short Medium term term Germany • Fewer, but high quality investment opportunities, Nordic although it varies across countries Benelux • High quality management teams, although understanding of private equity varies France • Mature markets, plenty of investment, hig
Slide 31: Our strategy
Our strategy Firmly mid-market: sweet spot deal size €100m - €500m 3i deal criteria 3i competitive advantage Targeted sub-sector/ Sector insight and experience robust end markets Fragmented market place/ Demonstrated capability in buy-and-build cross-border transactions Operational improvement poten
Slide 32: Recent investments
Recent investments 3i deal criteria SMT Hilite Action • Targeted sub-sector • International opportunity • Fragmented market place/buy-and-build • Operational improvement potential • Key people differentiator/Business Leaders Network 32
Slide 33: Recent investments: Hilite
Recent investments: Hilite General Industrial | Germany/USA | €190m investment | June 2011 Buyout from US bank syndicate • Track record provided a unique perspective • Leading global supplier of fuel efficiency and emissions reduction components • 2010 sales of c€300m/EV of 6.5x 2010 (5.4x:2011) EBI
Slide 34: Delivering clear value creation
Delivering clear value creation 8% 31% Limited use of debt 61% reduction and financial structure optimisation to achieve returns Multiple enhancement driven through successful strategic repositioning of companies Significant majority of value created through earnings growth Total equity Earnings gro
Slide 35: Summary
Summary • Quality team determined to deliver the portfolio • Clear regional and sub-sector strategies • Economy has impacted portfolio, but will deliver interesting buying opportunities 35
Slide 36: Michael Queen, Chief Executive
Michael Queen Chief Executive 36
Slide 37: In summary
In summary • Uncertainty in financial markets require a greater margin of safety • Macroeconomic headwinds will weigh on portfolio performance • Decisive actions in response to these market conditions – good underlying performance in recent investments – continued deleveraging of the portfolio – red
Slide 38: 38
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Slide 39: Appendix
Appendix 39
Slide 40: Investment assets
Investment assets (£m) 30.9.11 31.3.11 30.9.10 Opening portfolio value 3,993 3,517 3,517 Investment 448 719 327 Value disposed (501) (485) (263) Unrealised value growth (441) 325 196 Exchange and other movements (87) (83) (98) Closing portfolio value 3,412 3,993 3,679 40
Slide 41: Realisations
Realisations As at 30 September 2011 Total* Total Private Debt 6 months 6 months Equity Infrastructure Management to 30.9.11 to 30.9.10 Cash proceeds £523m £1m - £532m £293m Uplift to sale 5% 0% 0% 6% 11% *Total includes cash proceeds from the non-core portfolio of £8m 41
Slide 42: Buyouts - performance
Buyouts - performance Long-term performance – new investments made in the six months to 30 September Total Value Vintage investment1 Return flow remaining IRR to IRR to year £m £m £m 30.9.11 31.3.11 2012 229 - 227 n/a n/a 2011 258 - 281 12% n/a 2010* - - - - - 2009 410 2 248 (9)% 1% 2008 841 154 419
Slide 43: Growth Capital - performance
Growth Capital - performance Long-term performance – new investments made in the six months to 30 September Total Value Vintage investment1 Return flow remaining IRR to IRR to year £m £m £m 30.9.11 31.3.11 2012 66 - 63 n/a n/a 2011 21 - 22 12% n/a 2010 46 - 28 (43)% 7% 2009 208 45 122 (8)% 4% 2008 1
Slide 44: Portfolio valuation
Portfolio valuation • Forecast earnings used, rather than historic, where future earnings are likely to fall £3,993m £3,517m £3,412m Quoted DCF Industry metric Fund Other Price of recent investment Net assets Imminent sale Earnings Broker quotes Year to 31.3.10 Year to 31.3.11 6 months to 30.9.11 44
Slide 45: Recent investments delivering
Recent investments delivering Equity How deal was Date Investment investment Description How 3i has added value Key risks sourced (3i+Funds) Sep 2010 €49m Leading 3i’s support for organic growth backed by Competitive auction - Ability to European our sector knowledge (Inspicio, Inspecta, – 3i’s trac
Slide 46: Recent investments delivering
Recent investments delivering Equity How deal was Date Investment investment Description How 3i has added value Key risks sourced (3i+Funds) Mar 2011 €185m Medical supplies 3i’s global network will enhance OneMed’s Competitive - Customer company in ability to access new suppliers (eg Asia) to auctio
Slide 47: Recent investments delivering
Recent investments delivering Equity How deal was Date Investment investment Description How 3i has added value Key risks sourced (3i+Funds) Aug 2011 $40m Leading 3i's international network will support growth Proprietary deal - Technology in-venue outside of the US, particularly in Europe and – 3i
Slide 48: Largest investments
Largest investments MWM GmbH mwm.net Provider of Business line: Buyout decentralised Geography: Germany power generation First invested in: 2007 systems Valuation basis: Imminent sale Proportion of equity shares held: 41.3% Residual cost: £71m Valuation: £193m ACR Capital Holdings asiacapitalre.com
Slide 49: Largest investments
Largest investments Foster + Partners fosterandpartners.com Architectural Business line: Growth services Geography: UK First invested in: 2007 Valuation basis: Earnings Proportion of equity shares held: 40.0% Residual cost*: Valuation: £122m *The residual cost of this investment cannot be disclosed
Slide 50: Largest investments
Largest investments Quintiles quintiles.com Clinical research Business line: Growth outsourcing Geography: US solutions First invested in: 2008 Valuation basis: Earnings Proportion of equity shares held: 4.9% Residual cost: £74m Valuation: £96m Hilite hilite.com Fluid control Business line: Buyout c
Slide 51: Ten largest investments at September 2011
Ten largest investments at 30 September 2011 Company Business line Value at Value at 30.9.11 31.3.11 £m £m 3i Infrastructure plc Infrastructure 363 320 MWM GmbH Buyout 193 191 ACR Capital Holdings Growth 147 146 Action* Growth 131 **n/a Foster + Partners Growth 122 132 Mémora Servicios Funerarias Bu
Slide 52: Assets under management
Assets under management Gross money Original Original 3i % invested multiple Close date fund size commitment at Sept 2011 at Sept 20111 AUM Private Equity 3i Eurofund III July 1999 €1,990m €995m 91% 2.1x €98m 3i Eurofund IV June 2004 €3,067m €1,941m 96% 2.3x €691m 3i Eurofund V Nov 2006 €5,000m €2,7
Slide 53: Funding model
Funding model • Mix of own balance sheet and external funds • Conservative approach to net debt - £531m at 30 September 2011 As at 30 September 2011 Private Debt Equity Infrastructure Management Own balance sheet 64% 31% 1% External 36% 69% 99% 53
Slide 54: Pension update
Pension update • Triennial valuation agreed with trustees on 29 September 2011 • Funding contributions agreed: – £60m paid on 30 September 2011 – £36m to be paid by April 2012 • Contingent asset arrangement – £150m ordinary shares of 3i Infrastructure plc – all income and capital rights remain with