3i Group Plc · LSE:III
3i — H1 2007/2008 Earnings Presentation
41 slides from 3i's earnings presentation, Nov 8, 2007
Slide 1: Half-yearly results to 30 September 2007
Half-yearly results to 30 September 2007 8 November 2007 1
Slide 2: Chief Executive's introduction
Chief Executive’s introduction Philip Yea 2
Slide 3: Agenda
Agenda • Financial review Simon Ball • Asia Chris Rowlands • Leveraged markets Jonathan Russell • Strategy and closing remarks Philip Yea 3
Slide 4: Key messages
Key messages • Strong first-half performance • Key strategic milestones achieved • Well positioned in a potentially more challenging market 4
Slide 5: Financial review
Financial review Simon Ball 5
Slide 6: Financial highlights
Financial highlights 2007/2008 2006/2007 First half First half Investment £1,234m £589m Realisation proceeds £1,044m £849m Assets under management £8,183m £7,033m Realised profits on disposal £337m £216m Gross portfolio return 14.3% 11.6% Total return £512m £374m Return on opening equity 12.0% 9.3%
Slide 7: Investment: recent performance
Investment: recent performance £m 1250 1000 • 28 new investments 750 • Average amount invested increased to £32m (2006: £16m) 500 250 0 March Sept March Sept March Sept March Sept 2004 2004 2005 2005 2006 2006 2007 2007 Growth Capital Buyouts Venture Capital Infrastructure QPE 7
Slide 8: Realisations: recent performance
Realisations: recent performance £m 1600 1400 1200 • 135 assets realised 1000 • 16% churn on opening portfolio value 800 • Uplift on opening value 600 of 48% 400 200 0 March Sept March Sept March Sept March Sept 2004 2004 2005 2005 2006 2006 2007 2007 Buyouts Growth Capital Venture Capital SMI Infra
Slide 9: Portfolio value by business line
Portfolio value by business line Direct portfolio Total assets under management £8,183m 4% 5% 11% £7,033m 8% 1% 9% 12% £5,130m 6% 25% 22% 3% 10% £4,174m 12% 14% 2% 20% 36% 29% 46% 57% 31% 37% As at 30.9.07 As at 30.9.06 As at 30.9.07 As at 30.9.06 Buyouts Growth Capital Venture Capital SMI Infrastru
Slide 10: Total return analysis
Total return analysis 2007/2008 2006/2007 First half First half £m £m Gross portfolio return 622 14.3% 480 11.6% Fund management fees 22 15 Net carried interest (62) (13) Operating expenses (129) (115) Net portfolio return 453 367 Net interest payable (1) (2) Movement in the fair value of derivative
Slide 11: Group – gross portfolio return
Group – gross portfolio return 2007/2008 2006/2007 First half First half £m £m Realised profits 337 216 Unrealised profits 183 141 Portfolio income 102 123 Gross portfolio return 622 480 Realised uplift on opening book value 48% 34% 11
Slide 12: Buyouts – performance
Buyouts – performance First half First half 2007/2008 2006/2007 Gross portfolio return 31.6% 19.8% (for the six months) Vintage IRR performance per annum Vintage Cost As at As at year remaining 30 Sept 2007 31 March 2007 2007 88% 33% 9% 2006 60% 50% 47% 2005 43% 59% 54% 2004 25% 34% 30% 2003 11% 50%
Slide 13: Growth Capital – performance
Growth Capital – performance First half First half 2007/2008 2006/2007 Gross portfolio return 12.3% 15.4% (for the six months) Vintage IRR performance per annum Vintage Cost As at As at year remaining 30 Sept 2007 31 March 2007 2007 100% 3% (2)% 2006 66% 40% 35% 2005 54% 32% 35% 2004 24% 24% 25% 200
Slide 14: Venture Capital – performance
Venture Capital – performance First half First half 2007/2008 2006/2007 Gross portfolio return 4.2% (8.4)% (for the six months) Vintage IRR performance per annum Vintage Cost As at As at year remaining 30 Sept 2007 31 March 2007 2007 95% 3% (2)% 2006 96% 3% 5% 2005 100% 3% (1)% 2004 61% 8% 14% 2003
Slide 15: Total return analysis
Total return analysis 2007/2008 2006/2007 First half First half £m £m Gross portfolio return 622 14.3% 480 11.6% Fund management fees 22 15 Net carried interest (62) (13) Operating expenses (129) (115) Net portfolio return 453 367 Net interest payable (1) (2) Movement in the fair value of derivative
Slide 16: Fees from external funds
Fees from external funds First half First half 2007/2008 2006/2007 £m £m Eurofund III 1 2 Eurofund IV 3 5 Eurofund V 13 5 3i Infrastructure Limited 4 - 3i QPE Limited - - Earlier funds 1 3 Fees from external funds 22 15 16
Slide 17: Net carried interest
Net carried interest First half First half 2007/2008 2006/2007 £m £m Carry receivable 36 35 Carry payable (98) (48) Net carried interest payable (62) (13) • Carry receivable is generated substantially from Buyouts • Carry payable – relates to all business line activities – increasing importance in m
Slide 18: Operating expenses
Operating expenses £129m • Overall increase UK in operating Buyouts £115m expenses of 12% year-on-year, below recent levels • Cost KPI targets – mid-term 4.5% pa – long-term 3.0% pa Growth Capital • Cost metric 5.0% annualised first half 2007/2008 (5.3% full year 2006/2007) Venture Capital US First
Slide 19: Net portfolio and total return
Net portfolio and total return 2007/2008 2006/2007 First half First half £m £m Gross portfolio return 622 14.3% 480 11.6% Fund management fees 22 15 Net carried interest (62) (13) Operating expenses (129) (115) Net portfolio return 453 367 Net interest payable (1) (2) Movement in the fair value of d
Slide 20: Balance sheet
Balance sheet Balance sheet As at As at 30.9.07 31.3.07 £m £m Investment assets 5,130 4,362 Other net liabilities (143) (114) 4,987 4,248 Net borrowings 1,143 (1) Equity 3,844 4,249 4,987 4,248 Gearing 30% 0% 20
Slide 21: Financial summary
Financial summary • Strong returns at gross, net and total level • Vintage performance record reflecting investment disciplines • Portfolio growth, both own and managed/advised funds • Balance sheet efficiency 21
Slide 22: Asia
Chris Rowlands Asia | \ \4
Slide 23: Asia
Asia • 3i in Asia today • India • China • South East Asia • 3i differentiators 23
Slide 24: 3i in Asia
3i in Asia 3i in Asia 2004* 3i in Asia today • Two locations • Five locations • Team of 8 investment professionals • Team of 28 investment professionals • Portfolio: 53 investments valued at £75m • Portfolio: 32 investments valued at £497m • Focus on Growth and Venture Capital • Focus on Growth Capi
Slide 25: India
India • Mumbai based team • 11 investments, £234m value, 10 Growth Capital investments, £178m value • Infrastructure - April 2007 partnership with IIFCL - first closing at $500m - 3i India Infrastructure Fund - Adani Power investment announced at $227m • Market opportunity 25
Slide 26: China
China • Beijing, Hong Kong, Shanghai teams • 7 investments, £107m value • Investment in CDH China Growth Capital Fund II £22m • Good experience on realisations • Market opportunity 26
Slide 27: South East Asia
South East Asia • Singapore team • 14 investments, £157m value • Global and sector expertise significant • Good experience on realisations 27
Slide 28: Asia – 3i differentiators
Asia – 3i differentiators • FTSE 100 and 60 year track record • Minority investing skills and experience • Partnership style • Value added approach – international network – sector track record 28
Slide 29: Leveraged markets
Leveraged markets Jonathan Russell 29
Slide 30: 3i Buyouts – our business
3i Buyouts – our business • 12-15 deals per annum with mid-market focus – up to €1bn deal size • Investments made through Eurofund V, a €5bn fund which had its final close in November 2006 • European focus – including up to 10% in EU accession countries – separately up to 10% outside the EU • Circa
Slide 31: Buyout market pre-July
Buyout market pre-July • Activity – leveraged loans at record levels in Mid-market activity Europe €bn T ransaction value No T ransaction volume – unprecedented levels of second lien 50 300 – mezzanine levels eroding 250 40 • Debt multiples 200 30 – all time high > six times EBITDA 150 • Terms 20 10
Slide 32: Buyouts market August and September
Buyouts market August and September • Leverage loan market: significant reduction in liquidity • Institutional CLO/hedge fund capacity severely diminished • At same time, large volume of syndicated loans in progress • Underwriting banks under pressure to sell down loans • Paralysis at top end of mar
Slide 33: Buyouts market – the environment now
Buyouts market – the environment now • Banks prepared to fund mid-market deals • Banks’ appetite steadily improving • So relationships are important • Deal structures returning to levels of 3-4 years ago • Debt multiples coming off 1-2 points • Debt is available in the market – but you have to club
Slide 34: So what does this mean for 3i?
So what does this mean for 3i? Recent and new deals • We had been anticipating a correction for a year – modelled multiple contraction on a number of deals – clubbed a number of recent deals • No debt overhang issue • Happy with the fundamentals on these investments • New investment pipeline is stre
Slide 35: Strategy and closing remarks
Strategy and closing remarks Philip Yea 35
Slide 36: 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 37: Strategic progress
Strategic progress • Growth Capital – investment growth – Asia and US delivery • Infrastructure and QPE business lines now represent 16% of AUM • Further integration of knowledge and resources – Knowledge and Resource Centre in Bangalore – sectors 37
Slide 38: Effect of financial markets
Effect of financial markets • Buyout leverage settling at new levels • Realisations will slow due to portfolio immaturity rather than debt cycle • Wider effects on consumer and business confidence yet to play out 38
Slide 39: Response to market challenges
Response to market challenges • Highly-selective investment approach • Active engagement with portfolio • Cash-to-cash targets through cycle reconfirmed 39
Slide 40: Closing remarks
Closing remarks • Strong first half performance • Key strategic milestones achieved • Well positioned in a potentially more challenging market Given the broad spread of our investment business … … 3i faces this potentially more challenging environment from a substantially stronger position than in p
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