3i Group Plc · LSE:III
3i — H1 2014 Earnings Presentation
61 slides from 3i's earnings presentation, Nov 14, 2013
Slide 1: Results for the six months to 30 September 2013
Results for the six months to 30 September 2013 Private Equity Infrastructure Debt Management 14 November 2013
Slide 2: Generating real momentum in the business
Generating real momentum in the business
Slide 3: Strategic objectives and progress
Strategic objectives and progress Simon Borrows Chief Executive 3
Slide 4: A clear vision and strategy
A clear vision and strategy A leading international investor and asset manager with three strong investment platforms: – focused mid-market Private Equity – class-leading Infrastructure – growing Debt Management 4
Slide 5: Complementary investment platforms
Complementary investment platforms Private Equity Infrastructure Debt Management Capital allocation Third-party capital Third-party capital Third-party capital Proprietary capital Proprietary capital Proprietary capital Key return 1. Portfolio returns 1. Portfolio income 1. Fee income 2. Portfolio i
Slide 6: The 3i Value Build
The 3i Value Build An attractive, multi-year value proposition Grow Private Equity investment Grow NAV portfolio earnings Realise investments at good uplifts to Optimise value of existing book value and strong cash-on-cash portfolio and enhance multiples P/NAV rating Generate a sustainable annua
Slide 7: Key phases of organisational change and strategic delivery
Key phases of organisational change and strategic delivery FY2013 FY2014 - 15 FY2016+ Transition and Restructuring Strategic goal delivery We delivered all of our FY2013 strategic priorities We are making good progress in the next phase of our strategic plan: “Transition and delivery” 7
Slide 8: Transition and delivery
Transition and delivery Clear strategic priorities FY2013 FY2014-2015 FY2016+ 1 Deliver further Private Equity realisations to support an enhanced shareholder distribution in FY2014 2 Realise fully the benefits from the Private Equity asset management improvement initiatives 3 Invest in Private Equi
Slide 9: Key realisations as part of well constructed exit plans
1 Key realisations as part of well constructed exit plans Notable realisations in the first half: Uplift to Investment Calendar year Cash opening value Money Residual value realised invested proceeds (31/3/2013) multiple1 (30/9/2013) Xellia 2008 £143m 46% 2.3x Civica 2008 £124m 48% 2.1x Action 2011
Slide 10: Portfolio segmentation
2 Portfolio segmentation Key categories: Selected examples: Longer-term hold and value creation Action, Element, Mayborn Strong performers; position for sale over the Civica, Mold-Masters next few years Manage intensively; potential value upside Azelis, OneMed, Xellia Low or nil-valued assets Enterp
Slide 11: Growing third-party AUM and fee income: Private Equity
3 Growing third-party AUM and fee income Private Equity Selective and measured investment through proprietary and third-party capital Proprietary + Date of Proprietary Third-party Investment announcement capital capital Comments Scandlines Nov 2013 £77m £138m Purchase of an additional equity stake
Slide 12: Growing third-party AUM and fee income: Infrastructure
4 Growing third-party AUM and fee income (cont.) Infrastructure Key contribution to Group’s annual cash income through portfolio income and advisory fees from 3iN European portfolio continues to perform well and generate a good level of cash income India Fund’s performance challenged due to de
Slide 13: Acquisition of Barclays' infrastructure fund management business
4 Growing third-party AUM and fee income (cont.) Infrastructure Completion of strategic acquisition of Barclays’ infrastructure fund management business AUM of c.£780m Overview Manages a number of unlisted funds investing in UK and of business European PPP and energy projects Investment team b
Slide 14: Growing third-party AUM and fee income: Debt Management
4 Growing third-party AUM and fee income (cont.) Debt Management Strong momentum since establishing European platform in 2011 through MIM acquisition – Acquired CLO contracts from Invesco in August 2012 Strong – Acquisition of Fraser Sullivan in September 2012 to establish a US platform momentum –
Slide 15: Significantly reduced operating costs
5 Significantly reduced operating costs Base-line operating Run-rate cost savings cost base (like-for-like basis) +28% +33% £180m £185m £40m £51m £45m £60m FY12 Annualised 31 March 2013 31 March 2014 actual run-rate at Run-rate cost savings Cumulative run-rate cost reported 31 March savings 2012 Ori
Slide 16: Substantially reduced interest expense
5 Substantially reduced interest expense In June 2012, announced target to reduce gross debt to below £1bn by June 2013 – Target achieved by April 2013, ahead of schedule – Since 31 March 2012, prior to strategic review, gross debt reduced by 46% to £873m at 30 September 2013 Announcement in May
Slide 17: New compensation arrangements fully implemented
6 New compensation arrangements fully implemented Fair and transparent split of returns Closely aligned with key strategic objectives Focused on creating shareholder value New compensation arrangements aligned with key strategic objectives and with creating shareholder value 17
Slide 18: Transition and delivery: key objectives
Transition and delivery: key objectives FY2013 FY2014-2015 FY2016+ Cover operating costs with annual cash income On track Grow third-party income and generate a sustainable annual operating profit from our fund management On track activities Improve capital allocation strategy; focus on enhanced sha
Slide 19: More balanced contribution of our three businesses to income
More balanced contribution of our three businesses to income over time Growing Debt Management Third-party fee income1 (% of total) – Established in FY11 100% – AUM grown to £6.3bn Focusing platform in 80% Infrastructure 60% – Focus on Europe – Broadening capability with 40% BIFM acquisition 20%
Slide 20: Capital allocation strategy
Capital allocation strategy Average over FY10-FY12 Target shape (illustrative) Fees and Fees and portfolio portfolio income 27% income 41% 3% 29% Realisations Operating Debt Shareholder Funds to Realisations Operating Debt Shareholder Funds to cash flows 1 repayment distributions invest cash flows1
Slide 21: Enhanced shareholder distributions
Enhanced shareholder distributions In May 2012, announced enhanced distribution policy to give shareholders a share of gross cash realisations, provided that: – Gearing <20% – Gross debt is on target to be <£1bn by June 2013 Board intends to propose total dividend in FY14 of 20p per share, i
Slide 22: Business model
Business model Simon Borrows Chief Executive 22
Slide 23: Our distinctive business
Our distinctive business Private Equity Infrastructure Debt Management Capital allocation Third-party capital Third-party capital Third-party capital Proprietary capital Proprietary capital Proprietary capital Strong balance sheet and permanent capital Capital returns from proprietary investing
Slide 24: Alignment of interests
Alignment of interests 3i’s own capital at work alongside third-party investors – 3i is largest investor in key funds and co-investments Active owner and manager – “Engaged LP” New employee compensation structure – Fair and transparent split of returns between stakeholders Alignment of interes
Slide 25: Key objectives
Key objectives 3i Group Efficient capital allocation driving total shareholder returns Proprietary capital investing Fund management activities Maximise investment returns Grow fund management profits An attractive, multi-year value proposition through delivering the 3i Value Build 25
Slide 26: Combination of proprietary and third-party capital
Combination of proprietary and third-party capital 3i Group Total AUM: £11.8bn Investor Manager Proprietary capital: £3.2bn Third-party capital: £8.6bn 4% 15% 72% 13% 81% 15% Private Equity Infrastructure Debt Management Combination of proprietary investor and manager of third-party capital re
Slide 27: Tracking our progress and performance
Tracking our progress and performance 3i Group Annual operating cash profit Capital allocation and efficiency Shareholder distributions per share Share price Total shareholder return Proprietary capital investing Fund management activities Realisations AUM and fee growth – Uplift to bo
Slide 28: Generating real momentum in the business
Generating real momentum in the business
Slide 29: Financial performance
Financial performance Julia Wilson Group Finance Director 29
Slide 30: Financial highlights – a solid set of results
Financial highlights – a solid set of results Six months to Six months to Year to 30 September 30 September 31 March 2013 2012 2013 Gross portfolio return £315m £180m £546m Fee income £36m £36m £71m Net carried interest £(26)m £(2)m £(15)m Income Operating costs £(68)m £(105)m £(170)m statement Net
Slide 31: Cash returns continue to drive NAV growth
Cash returns continue to drive NAV growth NAV per share (pence) 350 19 3 322 311 300 (5) (6) 250 200 31 March 2013 Ordinary dividends Non-cash Realised profits / Unrealised / 30 September Opening NAV accounting items cash income other 2013 Closing NAV (actuarial, FX, derivatives) 31
Slide 32: Second quarter impacted by non-cash items
Second quarter impacted by non-cash items NAV per share (pence) 350 326 8 322 (5) (1) (6) 300 250 200 30 June 2013 Ordinary dividends Non-cash Realised profits / Unrealised / 30 September Opening NAV accounting items cash income other 2013 Closing NAV (actuarial, FX, derivatives) 32
Slide 33: Heading towards a sustainable annual operating cash profit
Heading towards a sustainable annual operating cash profit H1 (£m) FY10 FY11 FY12 FY13 FY14 Third-party capital fees 56 62 91 70 39 Portfolio fees (2) 1 7 4 6 Portfolio dividends and interest 75 56 53 58 25 Cash income 129 119 151 132 70 Operating expenses1 221 181 180 170 68 Less: Restructuring and
Slide 34: Maintaining fee income
Maintaining fee income Fee income1 £m 100 90 H1 H1 Fee income (£m) FY14 FY13 80 70 Private Equity 9 10 60 Infrastructure 11 10 50 40 Debt Management 16 16 30 20 Total 36 36 10 Cash 39 35 0 2008 2009 2010 2011 2012 2013 H1 2014 Private Equity Infrastructure Debt Management 1 Chart reflects income sta
Slide 35: On track to deliver increased cost reduction target
On track to deliver increased cost reduction target Actual costs significantly Operating expenses below prior year as benefits £m now being seen 300 − £68m vs £105m H1 FY13 250 − Includes £4m of 200 implementation costs 150 100 50 0 2008 2009 2010 2011 2012 2013 H1 2014 Operating expenses Implemen
Slide 36: Significantly reduced gross debt – ahead of schedule
Significantly reduced gross debt – ahead of schedule Gross debt of £873m at Gross debt progression (£bn) September 2013 £2.6bn £2.5bn 2.5 Repaid revolving facility drawings in April, taking £2.0bn gross debt reduction to 2.0 over 46% since March 2012 £1.6bn 1.5 Impact of reduced gross debt now
Slide 37: Gross debt remains under review
Gross debt remains under review Gross debt maturity and interest costs (£m) £375m outstanding 5.75% fixed rate 400 £22m annual interest 350 €331m outstanding 5.625% fixed rate 300 €19m annual interest 250 £200m outstanding 6.875% fixed rate £14m annual interest 200 150 100 50 0 FY14 FY15 FY16 FY17 F
Slide 38: Exchange movements
Exchange movements Net asset exposure by currency 1% % Total 2% 2% change in return 3% Currency period impact US Dollar 6.1% £(41)m 22% 38% Indian rupee 18.6% £(15)m Euro 1.0% £(8)m Brazilian real 15.2% £(7)m Swedish krona 4.6% £(5)m Other n/a £(3)m 32% Total return impact £(79)m Sterling/non-revalu
Slide 39: All three business lines contribute
All three business lines contribute Strong realisations and stable portfolio contribute to Private Equity good investment returns Stable fee income and good dividend income from Infrastructure 3i Infrastructure plc contribute to annual operating cash profit, but affected by Indian challenges Debt Gr
Slide 40: Infrastructure – improved operating performance
Infrastructure – improved operating performance Key metrics, six months to 30 September 2013 2012 Fee income £11m £10m Portfolio income £11m £9m Operating expenses £(9)m £(13)m Unrealised value growth £(24)m £(2)m Net return on opening portfolio £(10)m £4m (2.0)% 0.8% AUM £1,555m £1,552m Portfolio v
Slide 41: Debt Management – investing to support growth
Debt Management – investing to support growth Key metrics, six months to 30 September 2013 2012 Fee income £16m £16m Operating expenses £(17)m £(16)m Net return on opening portfolio £2m £4m 2.5% 9.5% Underlying net return on opening portfolio1 £10m £7m 12.3% 16.7% AUM £6,294m £4,439m Portfolio value
Slide 42: Private Equity – strong realisations supporting good performance
Private Equity – strong realisations supporting good performance Key metrics, six months to 30 September 2013 2012 Realisation proceeds £528m £238m Uplift over opening value 32% 35% Money multiple 1.6x 2.1x Investment £10m £96m Operating expenses £(42)m £(76)m Net return on opening portfolio £265m £
Slide 43: Improving Private Equity portfolio
Improving Private Equity portfolio By region By sector By vintage 7% 4% 6% 5% 10% 2% 22% 30% 21% 18% 11% 13% 71% 16% 27% 28% 1% 8% UK & Northern Europe Business & Financial Services 2013 2012 Consumer 2011 2010 North America Healthcare 2009 2008 Brazil Industrials & Energy 2007 Pre 2006 TMT Asia Sou
Slide 44: Private Equity portfolio
Private Equity portfolio1 As at 30 September 2013 Investment Business description Country Value Performance Action Non-food discount retailer Benelux £299m Quintiles Clinical research outsourcing solutions US £146m Element Testing and inspection Benelux £119m ACR Pan-Asian non-life reinsurance
Slide 45: Good earnings growth in Private Equity portfolio
Good earnings growth in Private Equity portfolio Portfolio earnings growth1 600 500 6* 3i carrying value at 30 September 2013 8* 400 9* 300 4* 200 100 4* 3* 6* - <(20)% (20)-(11)% (10)-(1)% 0-9% 10-19% 20-29% >30% Last 12 months’ (LTM) earnings growth 1 Includes all companies valued on an earnings b
Slide 46: Private Equity valuations demonstrate better stability
Private Equity valuations demonstrate better stability Growth in aggregate valuation Multiples Sep March earnings of 5% since March 2013 2013 2013 FTSE 250 11.7x 11.1x Use of forecast earnings for 7 portfolio companies 3i pre-discount 9.6x 8.8x (8% by value) 3i post-discount 8.8x 7.9x Net mult
Slide 47: Private Equity – continued market recovery lifting values
Private Equity – continued market recovery lifting values, portfolio earnings growing Six months to 30 September 2013 2012 Performance1 £32m £60m Multiple movement £78m £4m Quoted £75m £8m Provisions - £4m Imminent sale £(13)m £(1)m Discounted cash flow £(11)m £1m Other - £(9)m Total £161m £67m 1 Pe
Slide 48: Capital distribution policy
Capital distribution policy Expect to declare 20.0p per share for full year Confirming base interim dividend of 2.7p per share, paid from revenue reserves Announcing special interim dividend of 4.0p per share, paid from capital reserves Both base and special interim dividend to be paid on 8
Slide 49: Progress in transition and delivery
Progress in transition and delivery FY2013 FY2014-2015 FY2016+ Strong realisations and a stable portfolio An annual operating cash profit Lower interest costs and no gearing Declaration of the special dividend today Generating real momentum in the business 49
Slide 50: Generating real momentum in the business
Generating real momentum in the business
Slide 51: Appendices
Appendices
Slide 52: 25 large investments as at 30 September 2013
25 large investments as at 30 September 2013 Valuation Value at Value at basis at 31 Mar 13 30 Sep 13 Company Business Country Business description 30 Sep 13 £m £m 3i Infrastructure plc Infra UK Quoted investment company, investing in infrastructure Quoted 398 400 Action PE Benelux Non-food discount
Slide 53: Infrastructure – financial highlights
Infrastructure – financial highlights Six months to 30 September 2013 2012 Realised profits - - Unrealised profits £(24)m £(2)m Portfolio income £11m £9m Gross portfolio return £(13)m £7m Fees £11m £10m Net carry £1m - Operating expenses £(9)m £(13)m Net portfolio return £(10)m £4m % opening portfol
Slide 54: Debt Management – financial highlights
Debt Management – financial highlights Six months to 30 September 2013 2012 Realised profits £1m £3m Unrealised profits - £1m Portfolio income £5m £1m Gross portfolio return £6m £5m Fees £16m £16m Net carry £(3)m £(1)m Operating expenses1 £(17)m £(16)m Net portfolio return £2m £4m % opening portfoli
Slide 55: Debt Management – fee income
Debt Management – fee income Six months to 30 September 2013 2012 Original European business1 £9.8m £14.9m - of which catch up - £3.7m Europe Acquired European funds2 £2.9m £1.2m Total Europe £12.7m £16.1m Acquired US business3 £2.1m - North America New US funds4 £1.5m - Total North America £3.6m -
Slide 56: Private Equity – financial highlights
Private Equity – financial highlights Six months to 30 September 2013 2012 Realised profits £129m £62m Unrealised profits/(losses) £161m £67m Portfolio income £32m £39m Gross portfolio return £322m £168m Fees £9m £10m Net carry £(24)m £(1)m Operating expenses £(42)m £(76)m Net portfolio return £265m
Slide 57: Realisations in the period
Realisations in the period 31 March 3i Realised Uplift on Money Calendar 2013 realised profit/(loss) opening 30 Sep multiple year value proceeds in the period value1 2013 over Investment Country invested £m £m £m % value cost2 IRR Private Equity Xellia Nordic 2008 99 143 45 46% n/a 2.3x 18% Civica U
Slide 58: Long-term performance
Long-term performance Private Equity: Buyouts New investments made in Cash Return Value IRR to IRR to financial years to 31 March investment flow remaining 30 September 31 March Vintage year £m £m £m 2013 2013 2013 56 – 51 n/a1 n/a1 2012 270 104 443 43% 43% 2011 271 60 284 9% 8% 2010 – – – – – 2009
Slide 59: AUM movements in the period
AUM movements in the period Assets under management by business line Private Equity Infrastructure Debt Management Total £m £m £m £m AUM at 31 March 2013 4,851 1,579 6,440 12,870 of which proprietary capital 3,145 481 68 3,694 of which third-party capital 1,706 1,098 6,372 9,176 Investment (cost) 48
Slide 60: Private Equity and Infrastructure AUM
Private Equity and Infrastructure AUM Remaining 3i % invested Gross money commitment at multiple1 at Original Original 3i at September September September Close date fund size commitment 2013 2013 2013 AUM Private Equity 3i Eurofund III July 1999 €1,990m €995m €90m 91% 2.1x €11m 3i Eurofund IV June
Slide 61: Debt Management AUM
Debt Management AUM Assets under management Reinvestment Maturity Par value of Realised equity Annualised equity European CLO funds Closing date period end date fund at launch1 money multiple2 AUM cash yield 3, 4, 5 Harvest CLO I Apr-04 Mar-09 Mar-17 €514m 0.7x €106m 7.4% Harvest CLO II Apr-05 May-1