3i Group Plc · LSE:III
3i — FY2014 Earnings Presentation
73 slides from 3i's earnings presentation, May 14, 2014
Slide 1: Results for the year to 31 March 2014
Results for the year to 31 March 2014 14 May 2014
Slide 2: Strategic objectives met and good progress
Strategic objectives met and good progress Simon Borrows Chief Executive 2
Slide 3: Generating real momentum in the business
Generating real momentum in the business Strong performance in FY2014 benefiting from the restructuring plan launched in June 2012 We have met or exceeded all of our strategic priorities and targets in the year 3i is now a more streamlined and decisive organisation, with a clearer focus on per
Slide 4: Strong year benefitting from restructuring
Strong year benefitting from restructuring FY2014 performance highlights Strong total shareholder return 30% total shareholder return 20p proposed total dividend Good flow of 43% uplift to Private Equity realisations opening value Building investment £372m of cash momentum in Private Equity investme
Slide 5: A clear vision and strategy
A clear vision and strategy A leading international investment manager of proprietary and third-party capital in: – mid-market Private Equity – Infrastructure – Debt Management 5
Slide 6: The 3i Value Build
The 3i Value Build An attractive, multi-year value proposition Increase the underlying value of Grow investment portfolio earnings our investment portfolio Realise investments at good uplifts Demonstrate the value of our to book value and strong cash-on- existing investment portfolio and cash multip
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 have met or exceeded all of our strategic priorities and targets in FY2014 7
Slide 8: Our strategic priorities for FY2014
Our strategic priorities for FY2014 FY2013 FY2014-2015 FY2016+ We have delivered against all of our strategic priorities and targets for FY2014: 1 Deliver further Private Equity realisations to support an enhanced shareholder distribution in FY2014 2 Realise fully the benefits from the Private Equ
Slide 9: Private Equity
Private Equity Investment portfolio performing well – Good growth in value of “keeper” assets Strong flow of realisations at good uplifts – Streamlining of portfolio with exits of a number of problematic or low-value assets Selective investment through a combination of proprietary and third-pa
Slide 10: Key realisations as part of well constructed exit plans
1 Key realisations as part of well constructed exit plans Notable realisations in FY2014: Uplift to Investment Calendar year Cash opening value Money Residual value realised invested proceeds (31/3/2013) multiple1 (31/3/2014) Xellia 2008 £143m 46% 2.3x Civica 2008 £124m 48% 2.1x Action 2011 £59m 23%
Slide 11: Private Equity: clearly defined portfolio segmentation
2 Private Equity: clearly defined portfolio segmentation The buckets: Selected examples: Action, Element, Longer-term hold and value creation Mayborn, Scandlines Strong performers; position for sale over the Civica, Quintiles next few years Azelis, Bestinvest, Manage intensively; potential value ups
Slide 12: Private Equity: selective investment
3 Private Equity: selective investment Selective and measured investment through a combination of proprietary and third-party capital Proprietary + Date of Proprietary Third-party Investment announcement capital capital Comments Basic-Fit Dec 2013 £81m £95m Discount fitness operator in Europe In
Slide 13: Basic-Fit
Basic-Fit 13
Slide 14: Infrastructure – A Year of Change
4 Infrastructure – A Year of Change Key contributor to Group’s annual cash income through advisory fees and dividend from 3iN India Fund’s performance challenged due to depreciation of rupee and difficult macro-economic conditions Broadening of Infrastructure platform through strategic acquisi
Slide 15: Debt Management – good growth
4 Debt Management – good growth Our platform Top 10 global CLO manager with AUM of £6.5bn 29 investment professionals based in London, New York and Singapore Our Levered senior loan Unlevered loan funds PE FoF & other products funds 2 PE FoF, 1 mezzanine 13 European and 2 open-ended funds loan fund,
Slide 16: Significantly reduced operating costs
5 Significantly reduced operating costs Run-rate cost savings (like-for-like basis) +17% +28% £40m £51m £60m £70m 31 March 2013 31 March 2014 Run-rate cost savings Cumulative run-rate cost savings Target Actual Achieved £70m of cumulative run-rate cost savings at March 2014, well ahead of £60m targe
Slide 17: Covering operating costs with annual cash income
15 Covering operating costs with annual cash income £m 200 + Reduction in operating 150 costs 100 + Growth in cash income from Infrastructure and 50 Debt Management - (50) ─ Reduction in third- (140) (127) party fee income from (100) (179) (171) (208) Private Equity (150) (200) (250) FY 2010 FY 2011
Slide 18: 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 incorporating significant 3i shares element 18
Slide 19: Transition and delivery: clear priorities in FY2015
Transition and delivery: clear priorities in FY2015 FY2013 FY2014-2015 FY2016+ Strategic priorities: Focus on consistency and discipline of investment processes and asset management Selective new investment utilising our strong balance sheet to generate attractive returns for our shareholders Mainta
Slide 20: Improvement in capital efficiency and allocation
Improvement in capital efficiency and allocation Average over FY10-FY12 FY14 Fees and Fees and portfolio portfolio income 27% income 19% 31% 41% 14% 36% 3% 29% Realisations Operating Debt Shareholder Funds to Realisations Operating Debt Shareholder Funds to costs, net repayment distributions invest
Slide 21: Combination of proprietary and third-party capital
Combination of proprietary and third-party capital 3i’s mix of proprietary and third-party capital represents a ‘hybrid’ asset manager model 3i Group Total AUM: £13bn Investor Manager Proprietary capital: £3.4bn Third-party capital: £9.5bn 4% 14% 67% 19% 82% 14% Private Equity Infrastructure
Slide 22: Tracking our progress and performance
Tracking our progress and performance Key Performance Indicators: 3i Group Total shareholder return Annual operating cash profit Proprietary Capital investing Fund Management activities Gross investment return Total AUM and fee growth NAV and portfolio income Fund Management profit and m
Slide 23: The 3i Value Build
The 3i Value Build An attractive, multi-year value proposition Increase the underlying value of Grow investment portfolio earnings our investment portfolio Realise investments at good uplifts Demonstrate the value of our to book value and strong cash-on- existing investment portfolio and cash multip
Slide 24: Slide 24
Slide 25: Significant progress with strong returns and momentum
Significant progress with strong returns and momentum Julia Wilson Group Finance Director 25
Slide 26: Strong returns and momentum
Strong returns and momentum Year to 31 March Year to 31 March 2014 2013 Total return £478m £373m % over opening net asset 16.3% 14.2% Dividend per ordinary share 20.0p 8.1p Group Diluted net asset value per ordinary share 348p 311p Operating expenses £136m £170m Annual operating cash profit £5m £(8)
Slide 27: Strong portfolio growth in Q4
Strong portfolio growth in Q4 NAV per share (pence) 370 6 (5) 360 (1) (7) 23 350 348 340 6 330 326 320 310 300 31-Dec-13 Realised Value growth Other Net carry FX Dividends 31-Mar-14 profits (including payable costs, interest, etc.) 27
Slide 28: Good realised profits and restructuring benefits
Good realised profits and restructuring benefits NAV per share (pence) 400 390 50 (1) (9) 380 (12) 370 (12) 360 350 348 340 21 330 320 311 310 300 31-Mar-13 Realised Value growth Other Net carry FX Dividends 31-Mar-14 profits (including, payable costs, interest, etc) 28
Slide 29: Private Equity – excellent portfolio performance
Private Equity – excellent portfolio performance Key metrics, year to 31 March 2014 2013 Gross investment return £647m £562m Core Europe and North America £698m £572m Non-core Europe, Asia and Brazil £(51)m £(10)m Realised profits £201m £190m Uplift over book value 43% 49% Money multiple 1.8x 2.1x C
Slide 30: Good earnings growth in Private Equity portfolio
Good earnings growth in Private Equity portfolio Portfolio earnings growth weighted by March 2014 carrying values1 700 600 587 3i carrying value at 31 March 2014 (£m) 549 500 393 400 300 200 166 148 100 67 23 0 <(20)% (20)-(11)% (10)-(1)% 0 - 9% 10-19% 20-30% >30% Last 12 months’ (LTM) earnings grow
Slide 31: Some positive re-rating of valuation multiples
Some positive re-rating of valuation multiples Value weighted earnings Multiples March March 2014 2013 growth of 19% FTSE 250 13.3x 11.1x Use of forecast earnings for 4 portfolio companies 3i pre-discount 10.6x 8.8x (3% by value) 3i post-discount 9.9x 7.9x Gross multiples increased by 20% sinc
Slide 32: Action valuation
Action valuation Run-rate earnings used to reflect dynamic growth in store rollout – Stores increased from 321 to 406 in year Comparable set of multiples re-set to include high growth discount retailers, including Poundland – Multiple set at 12.5x post-discount Strong cash generation means net
Slide 33: Private Equity – continued market recovery lifting values
Private Equity – continued market recovery lifting values, portfolio earnings growing Private Equity YTD value movement by basis (£m) 182 Performance 1 216 Multiples 11 DCF (10 ) Other - Provision 9 Imminent Sale 70 Quoted -50 - 50 100 150 200 250 1 Performance includes value movements relating to e
Slide 34: Private Equity portfolio
Private Equity portfolio As at 31 March 2014 Investment Business description Country Value Trend Action Non-food discount retailer Benelux £501m Scandlines Ferry operator in the Baltic Sea Germany £193m Element Testing and inspection Benelux £124m Quintiles Clinical research outsourcing soluti
Slide 35: Strong performance leading to increased carry provision
Strong performance leading to increased carry provision Year to 31 March (£m) 2014 2013 Payable (85) (12) Receivable 3 4 Total return charge (82) (8) Net cash paid (20) (10) Recognised on an accruals basis, cash paid on realisation Improved performance means that substantially all of the portfol
Slide 36: Infrastructure – building capability
Infrastructure – building capability Key metrics, year to 31 March (£m) 2014 2013 Portfolio income 21 18 Gross investment return 2 22 Fee income 24 21 AUM 2,294 1,579 Portfolio value 487 507 Underpins cash operating profitability 36
Slide 37: Debt Management – investing to support growth
Debt Management – investing to support growth Key metrics, year to 31 March (£m) 2014 2013 Fee income 32 31 Portfolio income 12 7 AUM 6,485 6,440 Portfolio value 143 81 Cash investment 61 23 Progress in CLO markets 37
Slide 38: Profitable Fund Management platform
Profitable Fund Management platform Year to 31 March (£m) 2014 2013 Income 127 127 - of which synthetic fee 51 56 Operating expenses (108) (140) Operating profit before carry 19 (13) Implementation and amortisation costs 14 30 Underlying Fund Management profit 33 17 Underlying Fund Management margin
Slide 39: Sterling strengths
Sterling strengths Net asset exposure by currency 1% 1% Gross 2% % investment change in return Currency period impact 32% 27% US Dollar 8.8% £(55)m Indian rupee 17.3% £(13)m Euro 1.9% £(25)m Brazilian real 18.8% £(8)m 37% Swedish krona 8.4% £(8)m Other n/a £(4)m Sterling/non-revaluing Euro US dollar
Slide 40: Proprietary Capital – strong returns and growing momentum
Proprietary Capital – strong returns and growing momentum Key metrics year to 31 March 2014 (£m) 2014 2013 Gross Investment return1 662 598 Interest payable 54 101 Cash investments 337 149 1 Excludes £3m of portfolio fees receivable allocated to Fund Management. 40
Slide 41: Robust balance sheet
Robust balance sheet Year to 31 March (£m) 2014 2013 Portfolio value 3,565 3,295 Gross debt (857) (1,081) Cash 697 746 Net debt (160) (335) Other net liabilities (97) (26) Net assets 3,308 2,934 Gearing reduced to 5% 41
Slide 42: Enhanced shareholder distributions
Enhanced shareholder distributions In May 2012, announced enhanced distribution policy to give shareholders a direct share of gross cash realisations, provided that: – Gearing <20% – Gross debt is on target to be <£1bn by June 2013 Total dividend in FY14 of 20p per share, including base divi
Slide 43: Strong progress through transition and delivery
Strong progress through transition and delivery FY2013 FY2014-2015 FY2016+ Excellent performance in Private Equity business Achieved milestone of annual operating cash profit Outperformance against all our strategic targets The momentum to build further value for shareholders 43
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Slide 45: Appendix
Appendix
Slide 46: Contents
Contents 1. Presentation of 3i’s business model 2. IFRS 10 3. Additional financial information 46
Slide 47: Presentation of 3i's business model
Presentation of 3i’s business model 47
Slide 48: Greater transparency on Proprietary Capital investing and Fund Management activities
Greater transparency on Proprietary Capital investing and Fund Management activities 3i Group Efficient capital allocation driving total shareholder returns Proprietary Capital investing Fund Management activities (PC) (FM) Invests own balance sheet capital Manages funds on behalf of the PC in i
Slide 49: Proprietary Capital
Proprietary Capital Investing from our own balance sheet is part of our heritage Putting our own capital to work alongside third-party investors is a fundamental part of our business model and strategy 3i is the largest single investor in its Private Equity and Infrastructure funds Our role
Slide 50: Key concepts – Proprietary Capital
Key concepts – Proprietary Capital Objective: maximise investment returns Gross Investment Return – Same measure as GPR, except deal fees shared with the FM and foreign exchange impact on portfolio translation included Synthetic fee allocated to the FM – Fee allocated to the FM from the PC for m
Slide 51: Fund Management
Fund Management In addition to the investment returns that we generate on 3i’s own capital, we also focus on the profitability of our Fund Management activities Concept of synthetic management fees for managing 3i’s proprietary capital in order to more fairly compare ourselves to the broader pee
Slide 52: Key concepts – Fund Management
Key concepts – Fund Management Objective: grow activities profitably FM operating profit – Fee income from managing funds less operating costs – Presented on a combined basis, consistent with the strategic model of growing Debt Management and Infrastructure AUM to support Private Equity Fee inco
Slide 53: Tracking our progress and performance
Tracking our progress and performance Key Performance Indicators: 3i Group Total shareholder return Annual operating cash profit Proprietary Capital investing Fund Management activities Gross investment return Total AUM and fee growth NAV and portfolio income Fund Management profit and m
Slide 54: New segmental reporting
New segmental reporting Historic reporting New segmental reporting Proprietary capital Fund management activities Total return Realised profits Realised profits Realised profits Unrealised profits Unrealised profits Unrealised profits Portfolio income Portfolio income Portfolio income Portfolio inco
Slide 55: New segmental reporting FY 2014
New segmental reporting FY 2014 Proprietary capital Fund management activities Total return (£m) (£m) (£m) Realised profits 202 Realised profits 202 Unrealised profits 475 Unrealised profits 475 Portfolio income 98 Portfolio fee income 3 Portfolio income 101 Foreign exchange movements on investments
Slide 56: New segmental reporting FY 2013 (restated)
New segmental reporting FY 2013 (restated) Proprietary capital Fund management activities Total return (£m) (£m) (£m) Realised profits 190 Realised profits 190 Unrealised profits 253 Unrealised profits 253 Portfolio income 103 Portfolio fee income - Portfolio income 103 Foreign exchange movements on
Slide 57: Summary financial data - Group
Summary financial data - Group FY14 FY13 Total return £478m £373m Total return on opening shareholders’ funds 16.3% 14.2% Dividend per ordinary share 20.0p 8.1p Total shareholder return1 30% 54% Operating expenses £136m £170m As a percentage of assets under management2 1.0% 1.3% Annual operating cas
Slide 58: Summary financial data – Proprietary Capital
Summary financial data – Proprietary Capital FY14 FY13 Realisation proceeds £677m £606m Uplift over opening book value £202m / 43% £190m / 46% Money multiple 1.8x 2.1x Gross investment return1 £662m £598m Gross investment return as a % of opening 3i portfolio value 20.1% 18.7% Operating profit 2 £53
Slide 59: Summary financial data – Fund Management
Summary financial data – Fund Management FY14 FY13 Total assets under management £12,911m £12,870m Third-party capital £9,508m £9,176m Proportion of third-party capital 74% 71% Total fee income £127m £127m Third-party fee income £76m £71m Operating profit / (loss)1 £19m £(13)m Underlying Fund Manage
Slide 60: IFRS 10
IFRS 10 60
Slide 61: IFRS 10: What is it?
IFRS 10 What is it? A new accounting standard on consolidation to be applied when preparing consolidated Group accounts Requires “Investment Entities” such as 3i to hold all subsidiaries at fair value (with movements going through profit and loss) rather than consolidating them on a line by line
Slide 62: IFRS 10: Impact
IFRS 10 Impact Subsidiaries which hold portfolio investments (such as carry partnerships and other intermediate holding vehicles) will now be held at fair value Two thirds of 3i Group’s portfolio is held through subsidiaries and therefore visibility of portfolio movements, portfolio income, opex
Slide 63: IFRS 10: Consequences
IFRS 10 Consequences No change to total return or Net Asset Value for the group Greatly reduced level of disclosure in primary statements, income statement, balance sheet and cash flow. Performance of entities held at fair value recorded in one single line in income statement Introduction of a
Slide 64: IFRS 10: Changes to basis of consolidation
IFRS 10 Changes to basis of consolidation Key: Entity consolidated in the accounts of Entity held at fair value with movements 3i Group plc on a line by line basis going through profit and loss 64
Slide 65: IFRS 10: Illustrative example
IFRS 10 Illustrative example 65
Slide 66: Additional financial information
Additional financial information 66
Slide 67: Annual operating cash profit
Annual operating cash profit (£m) FY10 FY11 FY12 FY13 FY14 Third-party capital fees 56 62 91 70 75 Portfolio fees (2) 1 7 4 4 Portfolio dividends and interest 75 56 53 58 53 Cash income 129 119 151 132 132 Operating expenses1 221 181 180 170 136 Less: Restructuring and redundancy costs (13) (2) (9)
Slide 68: Fee income
Fee income Fee income1 £m 100 90 Fee income (£m) FY14 FY13 80 70 Private Equity 17 19 60 Infrastructure 24 21 50 40 Debt Management 32 31 30 20 Total 73 71 10 Cash 75 70 0 2008 2009 2010 2011 2012 2013 2014 Private Equity Infrastructure Debt Management 1 Chart reflects income statement fee recogniti
Slide 69: Improving Private Equity portfolio
Improving Private Equity portfolio By region By sector By vintage 4% 4% 6% 6% 3% 9% 1% 29% 15% 24% 10% 26% 13% 25% 76% 11% 30% 6% 2% UK & Northern Europe Business & Financial Services 2014 2013 North America Consumer 2012 2011 Brazil Healthcare 2010 2009 Asia Industrials & Energy 2008 2007 Southern
Slide 70: Assets under management – Private Equity
Assets under management – Private Equity Gross Fee Remaining 3i % money income commitment invested multiple1 received Original Original 3i at March at March at March in the Close date fund size commitment 2014 2014 2014 AUM year 3i Growth March €1,192m €800m €376m 53% 1.3x €562m £2m Capital Fund 201
Slide 71: Assets under management – Infrastructure
Assets under management – Infrastructure Remaining Gross Fee 3i % money income commitment invested multiple1 received Original Original 3i at March at March at March in the Close date fund size commitment 2014 2014 2014 AUM year 3iN March £1,072m2 £366m3 n/a n/a n/a £1,084m £16m 2007 India Fund Marc
Slide 72: Assets under management – Debt Management
Assets under management – Debt Management Par Realised Fees value of equity Annualised received Closing Reinvestment Maturity fund at money equity cash in the year date period end date launch 1 multiple2 AUM yield3, 4, 5 £m European CLO funds Harvest CLO VIII Mar-14 Apr-18 Apr-26 €425m n/a €425m n/a
Slide 73: Assets under management – Debt Management notes
Assets under management – Debt Management Notes 1 Includes par value of assets and principal cash amount. 2 Multiple of total equity distributions over par value of equity at launch. 3 Average annualised returns since inception of CLOs calculated as annualised cash distributions over par value of eq