3i Group Plc · LSE:III
3i — H1 2008/09 Earnings Presentation
38 slides from 3i's earnings presentation, Nov 6, 2008
Slide 1: Half-yearly results to 30 September 2008
Half-yearly results to 30 September 2008 6 November 2008 1
Slide 2: Chief Executive's review
Chief Executive’s review Philip Yea 2
Slide 3: Agenda
Agenda • Results in detail • Portfolio valuation • Outlook for the full year 3
Slide 4: Economy and capital markets
Economy and capital markets First half • Progressive but “predictable” deterioration in economic confidence • M&A markets open for the right transaction • Debt packages available for good deals at conservative multiples Post Lehman’s failure • Significant lurch down in credit markets, multiples and
Slide 5: Key messages
Key messages • Private equity model well suited to managing difficult environments – active management – aligned compensation through carried interest • Portfolio highly diversified – sector – geography – asset class • Strength of financing structures – portfolio level – Group level • Sustained stra
Slide 6: Financial performance headlines
Financial performance headlines 2008/09 2007/08 First half First half Investment £668m £1,234m Realisation proceeds £597m £1,044m Realised profits on disposal £190m £337m Gross portfolio return (1.3)% 14.3% Total return £(182)m £512m Return on opening equity (4.5)% 12.0% Cost efficiency 1.6% 2.5% Ge
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: Cost efficiency and gearing
Cost efficiency and gearing • Cost efficiency – net 3% per annum long term objective – 1.6% at half year • Gearing – 30%-40% through cycle – 47% at half year 8
Slide 9: Assets under management
Assets under management £9.8bn £10.0bn €12.4bn* €12.7bn* £7.1bn £6.8bn €9.1bn* €8.7bn* £6.2bn €7.9bn* £5.7bn €7.2bn* Year to Year to Year to Year to Year to 6 months 31.3.04 31.3.05 31.3.06 31.3.07 31.3.08 to 30.9.08 Direct Funds advised/managed * Sterling/euro conversion at 30 September 2008 £1 = €
Slide 10: NAV growth
NAV growth £10.77 £10.07 £10.19 (12)% (24)% NAV FTSE 100 30.9.07 31.3.08 30.9.08 10
Slide 11: Key issues for today's presentation
Key issues for today’s presentation £5,934m SMI & Disposal progress Venture Portfolio Infrastructure & Listed vehicles, market opportunity, strategic progress QPE Growth Capital Multiples, leverage, valuation bases, portfolio/Active Partnership Buyouts Refinancing risk, multiples, leverage, Active P
Slide 12: Financing in the portfolio
Financing in the portfolio Buyouts - 35% of portfolio • Financing structures typically based on 7-9 year term loans • 5% of leverage in the portfolio repayable before December 2009 • 71% repayable post December 2013 • Weighted average debt/EBITDA multiple 5.4x Growth Capital - 39% of portfolio • Low
Slide 13: A reshaped and diversified business
A reshaped and diversified business 31 March 2008 31 March 2004 • Number of portfolio companies 487 1,878 • Number of investments pa 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 manage
Slide 14: Diversification
Diversification By geography (excluding Infrastructure and QPE) By asset class (including Infrastructure and QPE) £5,934m £5,299m £4,362m £4,362m Rest of World Venture Asia SMI US QPE Infrastructure Continental Europe Growth Capital UK Buyouts As at 31.3.04 As at 30.9.08 As at 31.3.04 As at 30.9.08
Slide 15: A diverse portfolio
A diverse portfolio Portfolio value £5,934m, 451 companies By business line By geography By sector 9% 1% 2% 11% 9% 14% 35% 3% 4% 41% 3% 2% 11% 5% 10% 9% 5% Infrastructure & QPE 8% 7% 11% 39% 38% 23% Buyouts Growth Capital Continental Europe UK India Business Services Consumer Financial Services Infr
Slide 16: Financial review
Financial review Julia Wilson Finance Director Designate 16
Slide 17: Financial performance headlines
Financial performance headlines 2008/09 2007/08 First half First half Investment £668m £1,234m Realisation proceeds £597m £1,044m Realised profits on disposal £190m £337m Gross portfolio return (1.3)% 14.3% Total return £(182)m £512m Return on opening equity (4.5)% 12.0% Cost efficiency 1.6% 2.5% Ge
Slide 18: Total return analysis
Total return analysis 2008/09 2007/08 First half First half £m £m Gross portfolio return (78) (1.3)% 622 14.3% Net carried interest 43 (62) Operating expenses less fees from external funds (93) (107) Net portfolio return (128) (2.1)% 453 10.4% Net interest payable (42) (1) Movement in the fair value
Slide 19: Group – gross portfolio return
Group – gross portfolio return 2008/09 2007/08 First half First half £m £m Realised profits 190 337 Unrealised (losses)/profits (411) 183 Portfolio income 143 102 Gross portfolio return (78) 622 Realised uplift on opening book value 47% 48% 19
Slide 20: Valuation basis
Valuation basis £6,016m £5,934m Quoted Other Provisions £4,362m Fund £4,139m Price of recent investment Net assets Imminent sale Earnings Cost 2006 2007 2008 As at 30.9.08 20
Slide 21: Unrealised value movement
Unrealised value movement 2008/09 2007/08 2007/08 First half Full year First half £m £m £m Earnings multiples (194) (162) 25 Earnings 78 307 60 First time movements (30) 154 70 Provisions and impairments (248) (188) (65) Up/down rounds (2) 7 13 Uplifts to sale 148 83 33 Other movements on unquoted i
Slide 22: Earnings multiples
Earnings multiples September March % 2008 2008 change Weighted average PE multiples* 9.9 10.8 (9.1) Weighted average EBITDA - Buyouts 5.8 6.3 (7.9) - Growth Capital 6.2 7.2 (13.9) *Weighted average PE multiples exclude those valued on an EBITDA basis 22
Slide 23: Earnings growth
Earnings growth • 37% of unquoted portfolio by value on an earnings basis • £78m contribution in the period (September 2007: £60m) • Objective to use maintainable earnings • Full disclosure and worked example in 3i Group Annual report 2008 Sept March • Accounts used: 2008 2008 – audited 48% 58% – ma
Slide 24: Provisions
Provisions Provisions and impairments as a percentage of opening portfolio value 4.4% 4.3% 4.1% 3.2% Second half First half 1.7% 2005 2006 2007 2008 First half 2009 24
Slide 25: Gross portfolio return – by business line
Gross portfolio return – by business line First half 2008/09 Gross Portfolio portfolio Realised Unrealised income return £m £m £m £m Buyouts 115 (51) 67 131 7% Growth Capital 40 (237) 39 (158) (7)% Infrastructure 6 7 23 36 7% QPE - (37) - (37) (26)% SMI 4 2 8 14 6% Venture Portfolio 25 (95) 6 (64) (
Slide 26: Net portfolio return and total return
Net portfolio return and total return 2008/09 2007/08 First half First half £m £m Gross portfolio return (78) (1.3)% 622 14.3% Net carried interest 43 (62) Operating expenses less fees from external funds (93) (107) Net portfolio return (128) (2.1)% 453 10.4% Net interest payable (42) (1) Movement i
Slide 27: Balance sheet
Balance sheet Sept March Sept 2008 2008 2007 £m £m £m Investment assets 5,934 6,016 5,130 Other net liabilities (280) (321) (143) 5,654 5,695 4,987 Net borrowings 1,802 1,638 1,143 Equity 3,852 4,057 3,844 5,654 5,695 4,987 Gearing 47% 40% 30% 27
Slide 28: Funding facility structure and maturity profile
Funding facility structure and maturity profile £1,116m Undrawn committed facilities Drawn £650m (24)% £600m Cash, cash deposits and undrawn committed facilities of £954m as at 30 September 2008 £104m £92m Less than 1 1 to 2 years 2 to 3 years 3 to 5 years Greater than year 5 years Refers to financi
Slide 29: Currency hedging
Currency hedging • Hedging effected by core currency debt, commercial paper and FX swaps • Current market conditions create greater cash volatility in shorter term durations • Changing policy to reduce use of swaps – close out NAV neutral • Will therefore be hedged on c.10% of the US$ portfolio and
Slide 30: Financial summary
Financial summary • Resilient financial performance in challenging markets • No significant change to liquidity in the first half • Well diversified portfolio 30
Slide 31: Closing remarks
Closing remarks Philip Yea Chief Executive 31
Slide 32: Buyouts – performance
Buyouts – performance Vintage IRR performance Vintage Cost As at As at year remaining 30 Sept 2008 31 March 2008 2008 100% 6% n/a 35% of direct 2007 83% 38% 35% portfolio value 2006 33% 50% 57% £4.7bn assets 25% 64% under management 2005 62% 2004 21% 36% 37% Vintage year is the financial year ended
Slide 33: Growth Capital – performance
Growth Capital – performance Vintage IRR performance Vintage Cost As at As at year remaining 30 Sept 2008 31 March 2008 2008 100% 5% n/a 39% of direct 2007 92% 6% 17% portfolio value 2006 62% 34% 43% £2.5bn assets 38% under management 2005 28% 31% 2004 10% 26% 26% Vintage year is the financial year
Slide 34: Outlook by business line
Outlook by business line £5,934m SMI & Disposal progress Venture Portfolio Infrastructure & Listed valuations, market opportunity, strategic progress QPE Growth Capital Multiples, earnings, first time movements Buyouts Multiples, earnings, financing 34
Slide 35: Focus on the portfolio
Focus on the portfolio • Active partnership approach • Value creation plans driving earnings • Tightly managing leverage where relevant 35
Slide 36: Outlook
Outlook Short-term • Earnings and multiples likely to be constrained • Risk to first time uplifts from cost • Continued low level of investments and realisations Mid-term • Multiple recovery ahead of earnings recovery • Investment opportunities • Maturity of portfolio (ripe for harvest) Focus • Driv
Slide 37: Final comments
Final comments A more challenging second half • Squeeze in credit markets • Economic slowdown • Subdued M&A markets Our focus • Managing the portfolio • Maintaining liquidity • Highly selective investment • Cost control 37
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