3i Group Plc · LSE:III
3i — H1 2010 Earnings Presentation
45 slides from 3i's earnings presentation, Nov 12, 2009
Slide 1: Half-yearly results to 30 September 2009
Half-yearly results to 30 September 2009 12 November 2009 1
Slide 2: Michael Queen, Chief Executive
Michael Queen Chief Executive 2
Slide 3: Key themes
Key themes • Transformed financial position • Remain cautious about the economy • Confident in the strength of the portfolio • Ready for the upturn 3
Slide 4: Agenda
Agenda • Introduction • Progress against priorities • Key financials • Drivers of future performance • Closing remarks 4
Slide 5: Priorities at May 2009
Priorities at 8 May 2009 • Reduce net debt to about £1bn over next 12/15 months • Preserve and optimise existing portfolio • Position the business for the upturn • Grow external funds under management 5
Slide 6: Progress in the first half
Progress in the first half • Reduced net debt from £1.9bn at 31 March to £854m • Reduced gearing from 103% at 31 March to 31% • Extended maturity profile of debt with new Revolving Credit Facility • Realisations exceeded new investment by £317m • 33% of opening non-core portfolio value realised in t
Slide 7: Stephen Halliwell
Stephen Halliwell 7
Slide 8: Key financials
Key financials 6 months 6 months 6 months Investment activity 30.9.09 31.3.09 30.9.08 Investment £190m £300m £668m Realisations £507m £711m £597m Returns and balance sheet Total return £81m £(1,968)m £(182)m Return on opening equity 3.2% (48.5)% (4.5)% Gross portfolio return 7.8% (35.4)% (1.3)% Net
Slide 9: Realisations - £507m in six months to September 2009
Realisations - £507m in six months to 30 September 2009 • Three largest realisations 11% 15% – Venture Production (£145m proceeds) – AWG (£44m proceeds) 11% – Salamander (£43m proceeds) 13% • Venture Portfolio realisations of £93m – agreed sale of a further £105m • 3% uplift over opening portfolio 5
Slide 10: Investment - £190m in six months to September 2009
Investment - £190m in six months to 30 September 2009 • All investment into portfolio 5% 9% • £47m for equity rescue/equity cures 13% 25% • £92m of capitalised interest including PIK notes • Balance to support portfolio development through acquisition or other means 48% • £94m cash investment Acquis
Slide 11: Total return analysis
Total return analysis 6 months to 6 months to 6 months to 30.9.09 31.3.09 30.9.08 £m £m £m Gross portfolio return 316 (2,128) (78) Fees receivable from external funds 28 37 38 Net carried interest (4) 10 43 Operating expenses (108) (119) (131) Net portfolio return 232 (2,200) (128) Net interest paya
Slide 12: Gross portfolio return
Gross portfolio return 6 months to 6 months to 6 months to 30.9.09 31.3.09 30.9.08 Group £m £m £m Realised profits/(losses) 13 (127) 190 Unrealised profits/(losses) 227 (2,029) (411) Portfolio income 76 28 143 Gross portfolio return 316 (2,128) (78) Realised uplift on opening book value 3% (15)% 47%
Slide 13: Movement in portfolio value
Movement in portfolio value £m Value movement £227m 5000 617 190 4,050 4000 (41) 3,780 (193) (349) (494) 3000 2000 1000 0 Opening Investment Value Unrealised Unrealised Unrealised - Other Closing portfolio realised market driven investment other movement portfolio movement specific including FX move
Slide 14: Earnings multiples - £464m value movement
Earnings multiples - £464m value movement At 30.9.09 At 31.3.09 At 30.9.08 Weighted average EBITDA multiple post discount 7.1x 5.9x 6.2x • 71% of unquoted portfolio valued on an earnings basis (2008: 37%) • No assets held at cost (2008: 25%) • Weighted average multiple up 21% from March to September
Slide 15: Valuation earnings - £(322)m value impact
Valuation earnings - £(322)m value impact At 30.9.09 At 31.3.09 At 30.9.08 Audited 22% 37% 48% Management 39% 42% 21% Forecast 39% 21% 31% • Portfolio earnings down 6% in the period • Earnings used for valuation down 13% • Value impact of falls concentrated in a small number of investments 15
Slide 16: Unrealised profits/(losses) on revaluation of investments
Unrealised profits/(losses) on revaluation of investments 6 months to 6 months to 6 months to 30.9.09 31.3.09 30.9.08 £m £m £m Earnings and multiple based valuations Earnings - Earnings multiples 464 (218) (194) - Earnings growth (322) (64) 78 Loans - Impairments (earnings basis) 2 (564) (56) First
Slide 17: Total return analysis
Total return analysis 6 months to 6 months to 6 months to 30.9.09 31.3.09 30.9.08 £m £m £m Gross portfolio return 316 (2,128) (78) Fees receivable from external funds 28 37 38 Net carried interest (4) 10 43 Operating expenses (108) (119) (131) Net portfolio return 232 (2,200) (128) Net interest paya
Slide 18: Further reduction in operating costs
Further reduction in operating costs £131m £119m £108m 6 months to 30.9.08 6 months to 31.3.09 6 months to 30.9.09 Headcount 731 607 537 18
Slide 19: Strong cash flow generation
Strong cash flow generation 3,000 110% 90% 2,000 70% 1,000 50% 30% 0 10% (1,000) -10% (2,000) -30% -50% (3,000) -70% (4,000) -90% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 30.9.09 Investment (£m) Return flow (£m) Other (£m) Gearing (%, RH Axis) Net cash flow (£m
Slide 20: Balance sheet
Balance sheet As at As at As at 30.9.09 31.3.09 30.9.08 £m £m £m Investment assets 3,780 4,050 5,934 Other net liabilities (180) (276) (280) 3,600 3,774 5,654 Net borrowings 854 1,912 1,802 Equity 2,746 1,862 3,852 3,600 3,774 5,654 Gearing 31% 103% 47% NAV £2.86 £2.79* £5.90* * The September 2008 N
Slide 21: Changes to maturity profile of debt
Changes to maturity profile of debt Type Amount Start date Maturity date Multi-currency bilateral facility £100m September 2009 October 2012 Replacement of £150m multi-currency bilateral facility Forward start facility £275m September 2010 October 2012 Multi-currency bilateral facility £200m Novembe
Slide 22: Financial summary
Financial summary • Significantly improved financial position • Positive return for the first half • £317m net divestment • Reduced operating expenses 22
Slide 23: Michael Queen, Chief Executive
Michael Queen Chief Executive 23
Slide 24: Key themes
Key themes • Economic outlook • Private equity market • 3i today • Strategic focus • Positioning 3i for the future • Overview of performance 24
Slide 25: Industry and market
Industry and market €bn Total European private equity investm ent 180 160 140 Other private equity Buyouts 120 100 80 60 40 20 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (6 months) Source: S&P European Private Equity 2009 Industry challenges Opportunities for 3i • Overhang of capi
Slide 26: 3i today
3i today (as at 30 September 2009) 3i Group Buyouts Growth Capital Infrastructure Mid-market transactions in Europe Minority investments in established Investing principally in and Asia and profitable businesses across transportation, utilities and social Europe, Asia and the North infrastructure Tr
Slide 27: Growth companies – examples from the portfolio
Growth companies – examples from the portfolio • UK public sector and utilities outsourcing • Eurofund V invested £166m • Revenue growth 29%, EBITDA 41% driven by contract wins and Buyout - 2007 successful acquisition of Accord • US based global business • Outsourced product development/commercialis
Slide 28: Strategic focus
Strategic focus • Invest in high-return assets • Grow our assets and those we manage on behalf of third parties • Continue to build our strong culture of operating as one company across business lines, geographies and sectors 28
Slide 29: Value creation strategy
Value creation strategy Creating value throughout the investment process Asset Market access + + model Execution + management • Brand • Brand • Aligned interests • International network • International network • Value creation plans • Sector teams • Sector expertise • Systematic approach • Business
Slide 30: Value creation
Value creation Buyouts Growth Capital 17% 37% 3% 25% 60% 58% Equity value Earnings Multiple Debt Equity value Equity value Earnings Multiple Debt Equity value at entry growth enhancement reduction at exit at entry growth enhancement reduction at exit 60 realised investments since 2001 25 realised in
Slide 31: Active Partnership: driving value through performance improvement
Active Partnership: driving value through performance improvement • Delivering value in key functional areas – Working capital management – Pricing – Sales force effectiveness – Procurement – Lean manufacturing 3i Net A dedicated portal for our portfolio • Sharing experience across the portfolio – E
Slide 32: Positioning 3i for the upturn
Positioning 3i for the upturn • Comprehensive review of investment processes • Improved investment processes as a result • “Rebuying of our key assets” • Cultural development – “One 3i” • Increased cost effectiveness • Continuing development on corporate responsibility 32
Slide 33: Drivers of future performance
Drivers of future performance • Performance of existing portfolio • Good realisations • New investment • Growth in assets under management • Cost control 33
Slide 34: Closing remarks
Closing remarks • Transformed financial position • Remain cautious about the economy • Confident in the strength of the portfolio • Ready for the upturn 34
Slide 35: 35
35
Slide 36: Appendix
Appendix 36
Slide 37: Buyouts - performance
Buyouts - performance Vintage IRR performance Vintage Cost As at As at year remaining 30 Sept 2009 31 March 2009 2009 100% (8)% n/a 41% of direct 2008 99% (26)% (30)% Group portfolio value 2007 80% 22% 25% £3.8bn assets 2006 34% 47% 46% under management 2005 26% 61% 62% Sept March March March March
Slide 38: Growth Capital - performance
Growth Capital - performance Vintage IRR performance Vintage Cost As at As at year remaining 30 Sept 2009 31 March 2009 2009 100% (19)% n/a 41% of direct 2008 87% (5)% (16)% Group portfolio value 2007 82% (6)% (2)% £1.6bn assets 2006 37% 23% 23% under management 2005 28% 26% 27% Sept March March Mar
Slide 39: Infrastructure
Infrastructure As at As at 30.9.09 30.9.08 Contribution to Group results £m £m Realised profits - 6 Unrealised profits 47 7 Portfolio income 10 23 Gross portfolio return 57 36 Fees receivable from external funds 8 16 Assets under management 1,528 1,477 39
Slide 40: Portfolio leverage – Buyouts and Growth Capital
Portfolio leverage – Buyouts and Growth Capital Buyouts repayment profile of acquisition debt – Growth Capital portfolio debt repayment profile, index weighted by 3i carrying value weighted by 3i Group value % % 100 70% 90 60% 80 50% 70 40% 60 50 30% 40 20% 30 10% 20 0% 10 2009 2010 2011 2012 2013 2
Slide 41: Diversified portfolio
Diversified portfolio By business line By geography Continental Europe UK Buyouts India Growth Capital China Infrastructure Other Asia Non-core North America Rest of the World By vintage By sector Business Services Consumer Pre 2005 Financial Services 2005 General Industrial 2006 Healthcare 2007 Med
Slide 42: Conservative valuation basis
Conservative valuation basis • No assets held at cost • Forecast earnings used, rather than historic, where future earnings are likely to fall • Weighted average EBITDA multiple 7.1 £6,016m £4,362m £4,050m £3,780m Quoted DCF Industry metric Fund Other Price of recent investment Net assets Imminent s
Slide 43: Unrealised value movement
Unrealised value movement Value movement £227m £617m Debt warehouse £45m Quoted £108m Earnings multiple £464m movement Market adjustment £(40)m Other £(1)m Earnings £(41)m movement £(322)m Provisions £(27)m £(349)m Unrealised market Unrealised investment Unrealised - other driven movement specific m
Slide 44: Investment assets
Investment assets 6 months 6 months to 30.9.09 to 30.9.08 £m £m Opening portfolio value 4,050 6,016 Investment 190 668 Realisation proceeds (507) (597) Realised profits on disposal 13 190 Unrealised value growth 227 (411) Exchange and other movements (193) 68 Closing portfolio value 3,780 5,934 44
Slide 45: Top 10 assets at 30 September 2009
Top 10 assets at 30 September 2009 Company Business line Value at Value at 30.9.09 31.3.09 £m £m 3i Infrastructure plc Infrastructure 277 228 Quintiles Growth 148 109 ACR Growth 135 125 Enterprise Buyout 135 125 Ambea* Buyout 133 102 Inspicio Buyout 123 105 Foster + Partners Growth 119 111 Memora Bu