3i Group Plc · LSE:III
3i — FY2007 Earnings Presentation
42 slides from 3i's earnings presentation, May 10, 2007
Slide 1: Annual results to 31 March 2007
Annual results to 31 March 2007 10 May 2007 1
Slide 2: Welcome
Welcome Baroness Hogg Chairman 2
Slide 3: Strategy and progress
Strategy and progress Philip Yea Chief Executive 3
Slide 4: Key messages
Key messages • Very strong results • Strategy on track • 3i model delivering • Chosen markets remain attractive 4
Slide 5: Very strong results
Very strong results • Return on equity 26.8% (2006: 22.5%) • Investment up by £466m to £1,576m • Realisations of £2,438m at a 52% uplift • £800m return of capital • Growth in assets under management 25% 5
Slide 6: 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 7: Strategic delivery – 3 year record
Strategic delivery – 3 year record • Average gross portfolio return of 25% • £1.6bn of investment for 2007 – double the average of the three years to March 2005 • Assets outside UK now 59% of total – Asia now up to 9% (2006: 4%) • 3i Infrastructure Limited launched and QPE established • People engag
Slide 8: Investment
Investment £1,576m • 62 new investments • Average UK deal size continues to rise Buyouts • Asia investment up to £259m £1,110m (2006: £91m) • Infrastructure £380m £784m £716m £755m – includes £91m investment into 3i Infrastructure Limited Growth Capital Venture Capital US 2003 2004 2005 2006 2007 Bu
Slide 9: Model is delivering - statistics
Model is delivering - statistics • Fewer, larger investments – 62 in 2007 (85 in 2004) – average investment size £26m (£7m in 2004) • Portfolio halved in size over three years – total of 762 (1,878 in 2004) – core of 469 (799 in 2004) • Carry payable has risen to £142m (£40m in 2004) • Buyout model
Slide 10: Model is delivering - examples
Model is delivering - examples • Fewer, larger investments – Buyouts - Dockwise (Eurofund V) - €173m (Benelux) – Growth Capital – ACR - $200m (Singapore) – Venture Capital – Demand Media - $40m (US) • Value added divestments – NCP 3.0x – SR Technics 4.5x – Keolis 4.0x 10
Slide 11: Market themes
Market themes • Internationalisation, particularly Asia • Multiple asset classes under management • Move towards institutionalisation • Raising of permanent capital for both investing and management companies • Pressure for disclosure 11
Slide 12: Market opportunity for 3i is significant
Market opportunity for 3i is significant • Mid-market growing as a result of growth in deal size • Rate of change in global economy accelerating • Opportunities for private equity model in public markets – limited liquidity – increased regulation – reduced analyst coverage 12
Slide 13: Performance review and return of capital
Performance review and return of capital Simon Ball Finance Director 13
Slide 14: Financial performance headlines
Financial performance headlines 2007 2006 Investment £1,576m £1,110m Realisation proceeds £2,438m £2,207m Realised profits on disposal £830m £576m Gross portfolio return 34.0% 24.4% Total return £1,075m £831m Return on opening equity 26.8% 22.5% Net asset value per ordinary share (diluted) 932p 739p
Slide 15: Total return analysis
Total return analysis 2007 2006 £m £m Gross portfolio return 1,406 34.0% 1,053 24.4% Fees from external funds 37 24 Net carried interest (61) 15 Operating expenses (255) (211) Net portfolio return 1,127 27.2% 881 20.4% Net interest payable (9) (17) Movement in the fair value of derivatives (29) (78)
Slide 16: Group – gross portfolio return
Group – gross portfolio return 2007 2006 £m £m Realised profits 830 576 Unrealised profits 323 245 Portfolio income 253 232 Gross portfolio return 1,406 1,053 Realised uplift on opening book value 52% 35% Of which “crystallized”* 82% 82% *“crystallized” includes realised profits, realised portfolio
Slide 17: Portfolio value and gross returns by business line
Portfolio value and gross returns by business line Portfolio by value £4,362m 9% £4,139m 1% 14% UK 2007 2006 Buyouts 11% 2% Gross portfolio return 34.0% 24.4% 17% 20% Buyouts 53.8% 29.4% Growth Capital 47.7% 26.4% 33% 29% Venture Capital Continental (5.6)% 17.1% Growth Europe Capital Infrastructure
Slide 18: Buyouts – performance to 31 March 2007
Buyouts – performance to 31 March 2007 2007 2006 £m £m Investment 498 451 Average commitment per deal 41 31 Realisation proceeds 1,341 877 Gross portfolio return Realised profits 538 208 Unrealised profits 123 124 Portfolio income 127 115 788 447 Gross portfolio return % 53.8% 29.4% 18
Slide 19: Buyouts – vintage IRR performance
Buyouts – vintage IRR performance Vintage IRR performance Vintage Cost As at As at year remaining 31 March 2007 31 March 2006 2007 100% 9% - 2006 63% 47% 3% 2005 46% 54% 38% 2004 34% 30% 32% 2003 18% 50% 49% Vintage year is the financial year ended 31 March 19
Slide 20: Growth Capital – performance to 31 March 2007
Growth Capital – performance to 31 March 2007 2007 2006 £m £m Investment 482 *408 Average commitment per deal 26 21 Realisation proceeds 691 855 Gross portfolio return Realised profits 235 232 Unrealised profits 269 60 Portfolio income 65 49 569 341 Gross portfolio return % 47.7% 26.4% *Excludes £89
Slide 21: Growth Capital – vintage IRR performance
Growth Capital – vintage IRR performance Vintage IRR performance Vintage Cost As at As at year remaining 31 March 2007 31 March 2006 2007 100% (2)% - 2006 74% 35% 1% 2005 57% 35% 32% 2004 29% 25% 21% 2003 25% 25% 22% Vintage year is the financial year ended 31 March 21
Slide 22: Venture Capital – performance to 31 March 2007
Venture Capital – performance to 31 March 2007 2007 2006 £m £m Investment 200 156 Of which late stage 130 69 Average commitment per deal 7 3 Realisation proceeds 187 207 Gross portfolio return Realised profits 12 72 Unrealised (losses)/profits (61) 51 Portfolio income 3 5 (46) 128 Gross portfolio re
Slide 23: Venture Capital – vintage IRR performance
Venture Capital – vintage IRR performance Vintage IRR performance Vintage Cost As at As at year remaining 31 March 2007 31 March 2006 2007 96% (2)% - 2006 99% 5% 0% 2005 100% (1)% 0% 2004 79% 14% 36% 2003 59% (19)% (19)% Vintage year is the financial year ended 31 March 23
Slide 24: Infrastructure
Infrastructure 2007 £m £m Opening portfolio 92 Investment in AWG 251 Investment in 3i Infrastructure 325 Transfer of assets (234) Net cash investment in 3i Infrastructure 91 Other movements 35 Closing portfolio 469 Gross portfolio return 15 Gross portfolio return % 16.3% 24
Slide 25: Net portfolio and total return
Net portfolio and total return 2007 2006 £m £m Gross portfolio return 1,406 34.0% 1,053 24.4% Fees from external funds 37 24 Net carried interest (61) 15 Operating expenses (255) (211) Net portfolio return 1,127 27.2% 881 20.4% Net interest payable (9) (17) Movement in the fair value of derivatives
Slide 26: Fees from external funds
Fees from external funds 2007 2006 £m £m Eurofund III 4 7 Eurofund IV 8 11 Eurofund V 19 - Earlier funds 6 6 Fees from external funds 37 24 26
Slide 27: Net carried interest
Net carried interest 2007 2006 £m £m Carry receivable 81 79 Carry payable (142) (64) Net carried interest (payable)/receivable (61) 15 • Carry receivable in 2006 – Eurofund III reaching performance hurdle • Carry payable in 2007 – higher GPR 27
Slide 28: Operating expenses
Operating expenses £255m • Overall increase in operating expenses UK of 21% Buyouts £211m • Strategic expansion – new business lines – geographic 13% • Performance rewards Growth • Network rationalisation Capital Venture Capital 2006 2007 US Underlying operating expenses Performance rewards Network
Slide 29: Movement in the fair value of derivatives
Movement in the fair value of derivatives 1136p 940p 3i share price FTSE 100 1 April 30 September 31 March 2006 2006 2007 29
Slide 30: Total return analysis
Total return analysis 2007 2006 £m £m Gross portfolio return 1,406 34.0% 1,053 24.4% Fees from external funds 37 24 Net carried interest (61) 15 Operating expenses (255) (211) Net portfolio return 1,127 27.2% 881 20.4% Net interest payable (9) (17) Movement in the fair value of derivatives (29) (78)
Slide 31: 5 year view – investment and realisation proceeds
5 year view – investment and realisation proceeds £m 2,500 2,438 2,207 2,000 1,500 1,302 1,000 976 923 500 0 2003 2004 2005 2006 2007 Investment Realisation proceeds 31
Slide 32: Balance sheet
Balance sheet March Sept March 2007 2006 2006 £m £m £m Investment assets 4,362 4,174 4,139 Other net liabilities (114) (51) (77) 4,248 4,123 4,062 Net borrowings/(surplus) (1) 475 56 Equity 4,249 3,648 4,006 4,248 4,123 4,062 Gearing 0% 13% 1% 32
Slide 33: Proposed return of capital
Proposed return of capital • Quantum – £800m • Pro-forma gearing at 31 March 2007 - 23% • Method – bonus issue of listed B shares, share consolidation • Timing – subject to shareholder approval, shares expected to be listed in July • Renewal of buyback authority to provide flexibility 33
Slide 34: Portfolio maturity
Portfolio maturity 100% • 69% of portfolio value less than 90% 3 years old 80% • Unrealised value movements to 70% become more prominent feature 60% in results 50% • Realisation proceeds likely to return 40% to normal levels 30% 20% 10% 0% 2007 2006 2005 2004 Up to 1 yr 1-3 yrs 3-5 yrs 5-7 yrs Over
Slide 35: Financial summary
Financial summary • Very strong annual returns at gross and net levels • Vintage performances consistently at and above target levels in Buyouts and Growth Capital • Continued commitment to investment and balance sheet discipline • A solid foundation for 2007/08 and beyond 35
Slide 36: Closing remarks
Closing remarks Philip Yea Chief Executive 36
Slide 37: Shareholder returns – 3 years
Shareholder returns – 3 years • Net asset value growth from 546p to 932p – + 472p before dividends/dilution • Total shareholder return of 27% pa • 41% of capitalisation returned as cash • Price to book ratio only 1.27x 37
Slide 38: Investment levels
Investment levels • Buyouts, Growth Capital and Venture – deal size – internationalisation – value creation • Infrastructure – US – India • QPE 38
Slide 39: Returns
Returns • Cash to cash targets confirmed • Asset productivity of our network increasing • Financial efficiency 39
Slide 40: Shareholder returns – key considerations
Shareholder returns – key considerations Growth in investment levels • 5 asset classes • Broad geographic spread • Deal size Pricing/returns • Target of 20% GPR (25% 3 years) • Asset selection critical Volatility • Diversification of portfolio • Increasing fee income 40
Slide 41: Outlook
Outlook • Good opportunities in chosen areas • Pricing remains high • Broadening of investment activities • Focus on delivering value asset by asset • Realisations expected to slow • Confident of further progress in delivery of strategy 41
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