3i Group Plc · LSE:III

3i — H1 2015 Earnings Presentation

55 slides from 3i's earnings presentation, Nov 13, 2014

  1. Slide 1: Results for the six months to 30 September 2014

    Results for the six months to 30 September 2014 13 November 2014

  2. Slide 2: Robust first half, demonstrating continuing momentum at 3i

    Robust first half, demonstrating continuing momentum at 3i Simon Borrows Chief Executive Officer 2

  3. Slide 3: HY 2015 – continuing to benefit from the restructuring

    HY 2015 – continuing to benefit from the restructuring Performance highlights Continued realisations momentum £324m realisation proceeds in the period £218m proceeds received since the period end Strong portfolio performance £360m value growth and income Cost discipline maintained 1.0% annualised co

  4. Slide 4: Strong momentum since the strategic review in 2012

    Strong momentum in the business since the announcement of the strategic review in 2012 Six months to Six months to Six months to Year to Year to Year to 30 Sep 2014 30 Sep 2013 30 Sep 2012 31 Mar 31 Mar 31 Mar 2014 2013 2012 Total return £234m £175m £(5)m £478m £373m £(656)m % over opening net asset

  5. 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

  6. 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 Demonstrate the value of our Realise investments at good uplifts to book existing investment portfolio and value and strong cash-on-cash multipl

  7. Slide 7: Grow investment portfolio earnings

    Grow investment portfolio earnings 17% weighted average LTM earnings growth, driven by buckets 1 and 2 The buckets Selected examples % of value Longer-term hold and value Action, Element, Basic-Fit, c. 45% creation Scandlines Strong performers; position for Hilite, Vedici, LHi c. 30% sale over the n

  8. Slide 8: Investments completed in FY 2014 are performing well

    Grow investment portfolio earnings Investments completed in FY 2014 are performing well  Average entry multiple of 8x EBITDA  Performing in line, or ahead of investment case, with average earnings growth of 23% over the last 12 months  Valued at 1.19x entry cost on a constant currency basis 8

  9. Slide 9: Our 2014 investments are performing well: Dynatect

    Grow investment portfolio earnings Our 2014 investments are performing well:  Strengthened management team: CEO and CFO 25% Adjusted EBITDA growth expected for  Reduced organisational complexity and the current financial reviewed cash intensive non-core year engineering project portfolio 40%  Inv

  10. Slide 10: Our 2014 investments are performing well

    Grow investment portfolio earnings Our 2014 investments are performing well:  New CFO and CIO appointed 7% Organic revenue  Strategy review completed growth  Strong cash conversion New clients won in oil, aerospace and manufacturing sectors 10

  11. Slide 11: Our 2014 investments are performing well: Basic-Fit

    Grow investment portfolio earnings Our 2014 investments are performing well:  42 new clubs added through openings and acquisitions. Total of 241 clubs at September 42 New clubs since 2014 investment  Became market leader in Belgium, in addition >200,000 to the Netherlands New members since investm

  12. Slide 12: Continued realisation momentum in the first half

    Realise investments with good cash-on-cash multiples Continued realisation momentum in the first half £324m  Realised proceeds in the first half 1.8x  Average money multiple over cost £218m  Proceeds received since the period end 2.5x  Average money multiple over cost 72 investments in the Priva

  13. Slide 13: Vedici (2010)

    Realise investments with good cash-on-cash multiples Vedici (2010) Leader in private acute care in France  Supported Vedici in its buy-and-build strategy, £83m Proceeds completing 12 acquisitions at accretive multiples  Implemented key operational effectiveness 2.0x strategies across the business

  14. Slide 14: Hilite (2011)

    Realise investments with good cash-on-cash multiples Hilite (2011) Leading global supplier of highly engineered automotive engine and transmission components £149m Proceeds  Refocused strategy on core business  Invested over €100m in R&D and capital expenditure 2.1x  Leveraged 3i network to accel

  15. Slide 15: Generate a sustainable annual operating profit

    Generate a sustainable annual operating profit Sustained operating cash profit - £16m in the first half £m + Reduction in 250 operating costs + Growth in cash 150 income from Infrastructure and 50 Debt Management (50) (63) (140) (127) ─ Reduction in third- (208) (179) (171) party fee income (150) fr

  16. Slide 16: Debt Management – growth and diversification

    Generate a sustainable annual operating profit Debt Management – growth and diversification Continued CLO  Two new CLOs issued in the period, for issuance sustaining total AUM of £764m growth in AUM  Further £616m raised from a European and a US CLO priced since the period end Diversifying product

  17. Slide 17: Infrastructure – strong portfolio performance

    Generate a sustainable annual operating profit Infrastructure – strong portfolio performance  3iN performed strongly in the period, with a 10.8% total return  Steady flow of primary PPP investment opportunities; building core infrastructure investment pipeline  Weak performance of India Fund desp

  18. Slide 18: Successfully invested in further value creating opportunities

    Utilise our strong balance sheet Successfully invested in further value creating opportunities in FY2015 to date  Announced three Private Equity investments  Opportunistically purchased an LP holding in Eurofund V  Seeded 4 new CLOs and established new warehouse facilities in preparation for new

  19. Slide 19: Private Equity investment: Dynatect

    Utilise our strong balance sheet Private Equity investment: Leading manufacturer of engineered, mission critical protective equipment with operations in North America and Germany  Revenues of $91m in 2013  3i investment of £65m / EV of $203m 19

  20. Slide 20: Private Equity investment: Holding

    Utilise our strong balance sheet Private Equity investment: Holding Leading global manufacturer of highly engineered, precision moulded rubber and silicone components  Headquartered in Ohio, with six manufacturing facilities in North America and China and sales offices in Germany and Mexico  3i in

  21. Slide 21: Private Equity investment: German jewellery retailer

    Utilise our strong balance sheet Private Equity investment: Leading retailer of jewellery and watches in Germany, focused on the affordable luxury segment  220 retail outlets throughout Germany; growing e-commerce platform  3i investment of c. £96m (c. €214m for Eurofund V) 21

  22. Slide 22: Increase shareholder distributions through our enhanced distribution policy

    Increase shareholder distributions through our enhanced distribution policy  Policy to pay out 15-20% of gross realisations proceeds, provided that: – Gearing <20%  – Gross debt is on target to be <£1bn   Announcing an interim dividend of 6.0p per share, including – including base of 2.7p (one-t

  23. Slide 23: Continue to improve capital efficiency and allocation

    Continue to improve capital efficiency and allocation Average over FY10-FY12 Year to 30 September 2014 Fees and Fees and portfolio portfolio income 27% income 23% 41% 10% 31% 36% 3% 29% Realisations Operating Debt Shareholder Funds to Realisations Operating Debt Shareholder Funds to costs, net repay

  24. Slide 24: Clear strategic priorities for FY2015

    Clear strategic priorities for FY2015 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 Maintain cost discipline Continue to improve capital allocation, focu

  25. Slide 25: Building value for our investors

    Building value for our investors Julia Wilson Group Finance Director 25

  26. Slide 26: Financial highlights

    Financial highlights Six months to Six months to Year to 30 Sep 2014 30 Sep 2013 31 Mar 2014 Total return £234m £175m £478m % over opening net asset 7.1% 6.0% 16.3% Base dividend per share 2.7p 2.7p 8.1p Group Additional dividend per share 3.3p 4.0p 11.9p Diluted NAV per share 358p 322p 348p Operati

  27. Slide 27: Financial highlights – 3i Value Build

    Financial highlights – 3i Value Build  17% earnings growth Grow investment portfolio earnings  £307m value growth Realise investments at good uplifts to book value and strong  £324m, 1.8x, uplift of 12% cash-on-cash multiples Generate a sustainable annual  £16m operating cash profit operating pr

  28. Slide 28: Good portfolio momentum in the first half…

    Good portfolio momentum in the first half… NAV per share (pence) 400 390 32 (8) 380 (3) (2) 371 (13) 370 360 358 4 350 348 340 330 320 310 300 31-Mar-14 Realised Value FX Net carry Other FY14 final 30-Sep-14 profits growth payable dividend 28

  29. Slide 29: … and in second quarter

    … and in second quarter NAV per share (pence) 380 375 10 - (2) (1) 371 (13) 370 365 3 361 360 358 355 350 345 30-Jun-14 Realised Value FX Net carry Other FY14 final 30-Sep-14 profits growth payable dividend 29

  30. Slide 30: Good Private Equity portfolio momentum

    Good Private Equity portfolio momentum Investment Business description Country Value at 30 Trend September 2014 Action Non-food discount retailer Benelux £573m  Scandlines Ferry operator in the Baltic Sea Germany £218m  Hilite International Fluid control component supplier Germany £152m  Quintile

  31. Slide 31: Value driven by 17% earnings growth

    Value driven by 17% earnings growth Portfolio earnings growth weighted by September 2014 carrying values1 £899m, 6 companies £371m, 8 companies £209m, £166m, 4 companies 6 companies £105m, £20m, 4 companies 2 companies - <(20)% (20)-(11)% (10)-(1)% 0-9% 10-19% 20-30% >30% 1 Includes all companies va

  32. Slide 32: Private Equity – earnings momentum driving value growth

    Private Equity – earnings momentum driving value growth Performance1 £209m September March Multiples 2014 2014 FTSE 250 12.0x 13.3x Multiples £13m 3i pre-discount 11.0x 10.6x 3i post-discount 10.2x 9.9x DCF £33m 3i post-discount ex. Action 9.1x 9.0x Industry metric £4m September March Use of earning

  33. Slide 33: Good realisations from well executed plans

    Good realisations from well executed plans Calendar year Uplift to opening value Residual value Investment realised invested Cash proceeds (31/3/2014) Money multiple1 (30/9/2014) Key realisations Vedici 2010 £83m 48% 2.0x - Phibro 2009 £68m - 1.5x £38m Foster + Partners 2007 £66m - 1.8x £40m John Ha

  34. Slide 34: Carry now accruing as a proportion of portfolio return

    Carry now accruing as a proportion of portfolio return 6 months to 30 September (£m) 2014 2013 Payable (45) (25) Receivable 19 3 Total return charge (26) (22) Net cash paid (7) (15)  Recognised on an accruals basis, cash paid on realisation when cash paid hurdle met  Performance hurdles achieved f

  35. Slide 35: Maintaining discipline over costs

    Maintaining discipline over costs Operating expenses £m  Restructuring now 200 180 170 completed 150 136  Annualised operating 100 costs as a percentage 68 63 of AUM now at 1.0% 50 compared to 1.6% in 2012 0 2012 2013 2014 HY2014 HY2015 Excluding restructuring costs Restructuring costs 35

  36. Slide 36: Focusing on cash income

    Focusing on cash income Cash income1 £m 140 Cash income (£m) HY15 HY14 120 100 Private Equity 30 23 80 Infrastructure 22 23 60 Debt Management 27 24 40 Total 79 70 20 0 Income recognised 94 85 2013 2014 HY2014 HY2015 Private Equity Infrastructure Debt Management 1 Includes third party fee income and

  37. Slide 37: Profitable Fund Management platform

    Profitable Fund Management platform 6 months to 30 September (£m) 2014 2013 Income 63 63 - of which synthetic fee 22 25 Operating expenses (50) (55) Operating profit before carry 13 8 Operating profit margin 21% 13% Implementation and amortisation costs 3 7 Underlying Fund Management profit 16 15 Un

  38. Slide 38: Cautious and selective investor

    Cautious and selective investor  Private Equity – Dynatect, $106m, US headquartered global manufacturer of engineered, mission critical protective equipment – €34m third party stake acquired in Eurofund V, increasing 3i’s exposure from 56% to 57%  Debt Management – Harvest IX, €525m CLO, €27m in e

  39. Slide 39: A strong balance sheet

    A strong balance sheet £500m undrawn LIBOR + 1.0-1.5% £2.7m p.a. £375m £350m undrawn 5.75% fixed LIBOR + 0.6% £22m p.a. €331m £1.2m p.a. 5.625% fixed €19m p.a. £200m 6.875% fixed £14m p.a. FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY32  Gearing low at 5% (March 2014: 5%)  Over £1bn of liquidity

  40. Slide 40: Dividend policy

    Dividend policy  Give shareholders a direct share of gross cash realisations, provided that: – Gross debt <£1bn  – Gearing <20%   15% to 20% pay-out depending on levels of investment  Commitment to base dividend of 8.1 pence per annum 40

  41. Slide 41: Expect at least 15p total dividend

    8.1p base confirmed, 6p interim, expect to pay at least 15p total Total Interim Final 1. Proceeds of £542m to date, £108m / 11.4p 20% to be distributed 2. Allocate to base dividend £77m / 8.1p £26m / 2.7p £51m / 5.4p first 3. Distribute current excess as £31m / 3.3p £31m / 3.3p interim additional di

  42. Slide 42: Financial highlights – 3i Value Build

    Financial highlights – 3i Value Build  17% earnings growth Grow investment portfolio earnings  £307m value growth Realise investments at good uplifts to book value and strong  £324m, 1.8x, uplift of 12% cash-on-cash multiples Generate a sustainable annual  £16m operating cash profit operating pr

  43. Slide 43: Additional information

    Additional information 43

  44. Slide 44: Private Equity – key metrics

    Private Equity – key metrics Key metrics, 6 months to/as at 30 September 2014 2013 Gross investment return £282m £257m Core Europe and North America £267m £312m Non-core Europe, Asia and Brazil £15m £(55)m Realised profits £34m £129m Uplift over book value 12% 32% Money multiple 1.8x 1.6x Cash inves

  45. Slide 45: Private Equity portfolio

    Private Equity portfolio By region (%) By sector (%) By vintage (%) 2 8 3 4 73 1 20 24 11 27 29 24 77 10 35 6 1 8 UK & Northern Europe Business & Financial Services 2015 2014 North America Consumer 2013 2012 Brazil Healthcare 2011 2010 Asia Industrials & Energy 2009 2008 Southern Europe TMT Pre 2007

  46. Slide 46: Infrastructure – key metrics

    Infrastructure – key metrics Key metrics, 6 months to/as at 30 September 2014 2013 Portfolio income £10m £11m Gross investment return £22m £(18)m Fee income £14m £11m AUM £2,344m £1,555m Portfolio value £491m £479m 46

  47. Slide 47: Debt Management – key metrics

    Debt Management – key metrics Key metrics, 6 months to/as at 30 September 2014 2013 Fee income £18m £16m Portfolio income £8m £6m AUM £6,675m £6,294m Portfolio value £197m £155m Cash investment £95m £82m 47

  48. Slide 48: Operating cash profit

    Operating cash profit (£m) FY10 FY11 FY12 FY13 FY14 HY15 Third-party capital fees 56 62 91 70 75 37 Portfolio fees (2) 1 7 4 4 4 Portfolio dividends and interest 75 56 53 58 53 38 Cash income 129 119 151 132 132 79 Operating expenses1 221 181 180 170 136 63 Less: Restructuring and redundancy costs (

  49. Slide 49: Third-party fee income

    Third-party fee income Fee income1 £m 100 Fee income (£m) HY15 HY14 90 80 Private Equity 9 9 70 60 Infrastructure 14 11 50 40 Debt Management 18 16 30 Total 41 36 20 10 Cash 37 39 0 2009 2010 2011 2012 2013 2014 HY2015 Private Equity Infrastructure Debt Management 1 Chart reflects income statement f

  50. Slide 50: Net asset exposure by currency

    Net asset exposure by currency 1% 1% 2% Change Currency in period Impact 24% 31% Euro (6.2)% £(79)m US Dollar 2.5% £13m Swedish krona (7.9)% £(7)m Brazilian real (5.2)% £(2)m Other n/a £2m 41% Total return impact £(73)m Sterling/non-revaluing Euro US dollar Indian rupee Brazilian real Other 1% movem

  51. Slide 51: Balance sheet metrics

    Balance sheet metrics 30 September 2014 31 March 2014 Portfolio value 3,672 3,565 Gross debt (831) (857) Cash 670 697 Net debt (161) (160) Other net liabilities (85) (97) Net assets 3,426 3,308 Gearing 5% 5% Liquidity 1,020 1,197 51

  52. Slide 52: Assets under management – Private Equity

    Assets under management – Private Equity Gross Remaining 3i % money commitment invested at multiple1 at Fee income Original Original 3i at September September September received Close date fund size commitment 2014 2014 2014 AUM in the period 3i Growth March €1,192m €800m €374m 53% 1.5x €561m £1.0m

  53. Slide 53: Assets under management – Infrastructure

    Assets under management – Infrastructure Remaining Gross Fee 3i % money income commitment invested at multiple1 at received Original Original 3i at September September September in the Close date fund size commitment 2014 2014 2014 AUM period 3iN March 2007 n/a n/a n/a n/a n/a £1,172m2 £7.6m India F

  54. Slide 54: Assets under management – Debt Management

    Assets under management – Debt Management Par value of Realised equity Annualised Fees received Closing Reinvestment Maturity fund at money equity cash in the period date period end date launch 1 multiple2 AUM yield3, 4, 5 £m European CLO funds Harvest CLO IX Jul-14 Aug-18 Aug-26 €525m 0.0x €507m n/

  55. Slide 55: 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

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