3i Group plc

Good morning. Welcome to 3i's interim results presentation. This has been another good half for 3i. We delivered a total return of 10%, giving us a net asset value per share at the end of September of £22.61p. And that's after a 48% per share loss on foreign exchange translation and the payment of the 34.5p pence per share second FY 2024 dividend in July. We ended the half with a gross investment return of 11% from private equity and 3% from infrastructure, as well as 68 million pounds of cash income. Our Maramico chart showing the makeup of the 3i portfolio on a page has continued to develop. Our four resilient sectors of value for money, private label, infrastructure and healthcare now represent 87% of total portfolio value. Private equity delivered a good return. 94% of the portfolio by value grew earnings in the 12 months to the end of June, 2024. Action continued to deliver a strong performance. And we got good growth from private label and better trading from some of our online and discretionary consumer companies. Investment and realization activity has picked up this year. We bought more shares in action, and we have a good level of new investment and bolt-on projects in progress. We're beginning to see more disciplined pricing for potential targets, and we're currently in exclusivity on two new assets. That's after closing the purchase of Constellation in the first half. We've also completed two significant disposals, NEXI in July and WP in October. and we're now preparing for a number of other sale processes. Overall, the portfolios in PE and infrastructure are performing well. That's despite the weak growth and political uncertainties across a number of our markets. We continue to see some specific sector difficulties, including the automotive sector and the white collar recruitment market in North America. That weakness has impacted Formal D and Wilson. Earnings growth across our top 20 companies has been strong. Companies making up 88% of the portfolio value have been growing earnings by more than 10% over the last 12 months. We only have five companies where earnings are declining over the same period. We have a good balance of winners over losers for this period. Only one company, Wilson, suffered a material write-down in the half. This year, the relentless growth of action has continued. Net sales are up 21% and in the first nine months of the year, operating EBITDA is up 26% to 1.34 billion euros. Like-for-like sales to the end of September were up 9.8% and That's on top of the 19.2% like-for-like growth last year. This like-for-like performance is all volume growth with a small negative price effect as a result of 4,000 price reductions over the last 21 months. LTM operating profit accelerated through P9 and finished at 1.89 billion euros. Trading was strong in P10 Net sales to the end of October are now 10.7 billion euros, and year-to-date like-for-likes have increased to 10.1%. Over recent months, consistently good supply chain performance and product availability have helped in delivering an improvement in like-for-like sales. Those improved like-for-like sales combined with tight cost control have delivered a strong EBITDA margin performance. That's despite the negative price effect in the like-for-like growth in the year to date. Up to and including last week, we've added 244 new stores. And we're now on track to add approximately 350 by the end of the year. We now have over 100 stores in a new DC in Italy, 50 stores in a new DC in Spain, 25 stores in Slovakia, and over 360 stores in Poland. We had anticipated and are now seeing like-for-like sales lift in the last quarter relative to last year, and we expect continued good performance throughout the final two months of 2024. We believe volume-driven like-for-like sales of over 10% puts action well ahead of its competitor set. And that performance is all the more impressive when you take account of the cumulative 45% growth in like-for-likes over the prior three years. Action's low prices, a mix of necessities and surprising products, continues to attract a growing consumer following. Trading across Action's new countries of Italy, Spain, and Slovakia has been excellent. Here is our Action track record slide. It shows the consistency in actions growth under 3i stewardship. The track record is truly exceptional. And that strong performance is underpinned by the consumer enthusiasm for action stores in all our new countries. That appeal supports actions considerable white space potential. And the trading to the end of P10 suggests this will be another good year of growth across all of these KPIs. Action completed another refinancing in July this year, raising $1.5 billion in the U.S. market and a further 700 million euros in Europe. Once again, demand for Action's debt was strong. Two-thirds of the debt was fixed at an all-in-euro cost of 5.6%, and leverage has already reduced from 3.2 times off the transaction to under three times at the end of P9. We used some 768 million pounds of our 1.16 billion distribution to increase our stake in action to 57.9%. We've also further reduced the action carry liability, and James will brief you on that shortly. We continue to segment our PE portfolio, as you can see here. Both Sanders and Action are producing returns considerably in excess of our group return hurdle. Action now stands at 140 times our original investment. And Raw Sanders is also trading very strongly, producing a return of 23% in the first six months of this year. Our only new investment of the last half was Constellation in France. Constellation is an IT services business specializing in cloud and cybersecurity, and we talked about it at our Capital Markets Day in September. We were very pleased with the sale of WP signed over the summer for 280 million pounds, which puts our total return for WP at 325 million pounds. We achieved a 2.2 times money multiple and an 18% premium to book value, despite the difficult realization market in the first half of this year. Management doubled the profitability of WP under our ownership, and they did particularly well in managing the business through the real challenges of the pandemic and the Ukraine war. The infrastructure team continues to perform well in both Europe and North America, and they've delivered some good realizations at healthy premiums to book value. But it remains disappointing that the share price of 3i infrastructure has failed to recognize the strength of the underlying portfolio. So taken together, this was another solid first half for 3i. Our teams have done a lot of good work, as have the portfolio management company teams. This result very much reflects the makeup and quality of our underlying portfolios. On that note, I'll hand over to James, who'll fill you in on more detail.

Thank you, Simon, and good morning, everyone. As Simon said right at the start, Our total return on equity for the first half of the financial year was 10%, as you can see here. The increase in NAV was driven by value growth of 261 pence per share. Foreign exchange movements were negative 48 pence and carry movements negative 5 pence. Our dividend payment reduced NAV by 35 pence. That meant we closed the half with an NAV per share of £22.61. You can see the components of the 261 pence per share, or 2.5 billion pounds of value growth here. Action continued to deliver an impressive contribution. For the first time, it crossed the 2 billion mark in the half at 2.17 billion pounds. Other PE value increases include Royal Sanders, a rebound in value at Taito, good contributions from Orderly and Certec. Collectively, these companies generated the majority of the 319 million of value growth in the half. P-value decreases were smaller in the period at 66 million, and that includes the value reduction in Wilson. We only made two changes in multiples in the half, one up and one down. so the net movement was small, as you can see on the chart, at plus 8 million. The change in the quoted investment portfolio of 48 million largely came from the increase in the 3IN share price. The uplift to imminent sale movement of 44 million related to the premium we achieved on the sale of WP. The portfolio ended the period with a value of 23 billion pounds. The valuation approach we apply to all of our investments, including our investment in action, remains unchanged. We continue to value action on a post-discount multiple of 18.5 times its LTM run rate EBITDA of 2.065 billion euros. At 30th September, that gives us an enterprise value for action of 38.2 billion euros. The valuation on the 3i balance sheet is 15.5 billion pounds. We don't disclose a forward-looking earnings estimate for action, so it's not possible to tell you what the action multiple is on an NTM basis. But we can look back a year to September 2023 when action was valued at an EV of 30.2 billion euros. That was at the same 18.5 times multiple. And you can compare that to the outturn for run rate EBITDA this September. This would have translated to a forward-looking multiple of only 14.6 times the run rate EBITDA action achieved one year later. Having these two benchmarks for the action valuation, 18.5 times and 14.6 times, is helpful when you're comparing action to the usual peer set. We do that on the next slide on both an LTM and an NTM basis. These charts cover the period from September 2023 to September 2024. On an LTM basis, actions valuation sits well within the better rated peers. We think that is more than justified given its stellar performance. On an NTM basis, action sits above but closer to the average of the peers. But as you know, our valuation process takes a long term through the cycle approach. So in that context, it's helpful to look at multiples over a longer timeframe. This chart shows the peer group average multiples over five years. This five year period includes some significant periods of external uncertainty and volatility. I'm referring to things like COVID, Russia's invasion of Ukraine, and the significant change in the inflation and interest rate environment. We track the action multiple against averages rather than any individual stock. Today, as you can see, actions multiple of 18.5 times sits above the average of all the peers. We think that this is justified based on the consistent outperformance of actions KPI versus the peers. 18.5 times sits below the average of the better rated peers and has withstood the test of time well. It's also been the mark used for transactions within the LP pool between buying and selling LPs. In addition, we triangulate the resulting action valuation through a DCF model to make sure the assumptions required to underpin the value are justified. Let's now have a look at the whole portfolio and its valuation multiples compared to the peer sets. Just to remind you, this chart shows the valuation multiples for our PE assets in dark blue and the average of the multiples from the relevant valuation peer sets in light blue. The picture hasn't changed materially from the position at year end. All the assets remain within their respective ranges. One asset valuation multiple was marked up and one down during the period. In both cases, they reflect company specific factors. Being able to realize assets in what remains a difficult transaction market is the ultimate test of value. We successfully exited two sizable assets at good money multiples with valuations that were higher than our book value. You can see this on the next slide. We talked about Nexi at the full year results, and Simon has already covered the exit of WP. It is worth mentioning that our infrastructure team has also been busy. They executed two transactions in the period for Future Biogas and Valorem, both at 15% uplift to 31st March valuation marks. These two assets are part of the 3IM portfolio that 3i manages. All PE and infrastructure assets are captured as part of the 3i independent valuation process. These transactions are in line with the group's consistent track record of achieving premiums to book value on realisation events. So turning back to the business line performance for the half year. Our private equity portfolio generated a gross investment return of 11% for the half. Without the FX headwind, that return would have been 13%. We saw the strong realizations of Action and Nexi in the half. Reinvestments included the buying of an additional 3% of Action and the purchase of Constellation. The overall PE portfolio value ended the period at 20.9 billion pounds. In terms of the leverage position across the portfolio, We show that on the next slide. There are two changes from the position at year end. First, in terms of action, the refinancing in July increased the leverage at action from 2.2 to 2.9 times. Secondly, in terms of the non-action portfolio, leverage levels reduced slightly and remain modest. The maturity profile has also moved out slightly, reflecting the action refinancing. Our interest rate hedging remains prudent and is similar to the position we had at the year end, with approximately 70% of the interest rate risk hedged within the portfolio. So, on to infrastructure. Infrastructure had a solid performance, although the results were impacted by the strength of sterling against the dollar. The share price was up 4%, but The overall valuation level remains disappointing in comparison to both the quality and the performance of the underlying portfolio. Scanline's valuation reflects both the currency headwind and the payment of its dividend in the period. We remain cautious on the valuation of this asset in large part because of its exposure to two of the weaker economies in Europe, Germany and Sweden. The cash contribution from infrastructure and scanlines was a combined £68 million, broadly in line with the contribution last year, and we expect to end the year with a cash operating profit even before taking into account any dividend we might get from action. So now let's take a quick look at the balance sheet. The balance sheet is looking strong. with cash of $386 million at the end of September. We received an additional $280 million of proceeds from the sale of WP in October, and that added to the liquidity position you can see here. So turning to carried interest. The carrier accrual in the period was $42 million, and the balance sheet accrual is £456 million at the end of September. The £456 million is net of the carry purchase of £283 million made in the period relating to action. As at 30 September, about 20% of the total PE carry payable related to action. Our guidance for the carry accrual going forward is about 12% of GIR on the rest of the PE portfolio and just 1% on action. So finally, let's turn to the dividend. Here you can see our dividend policy. In line with that policy, we will pay our first FY25 dividend of 30.5 pence per share in early January. That 30.5 pence is half of last year's full-year total dividend. Now, before we get into Q&A, I will hand back to Simon.

Thank you, James. This was another decent half for 3i, and despite weak growth across Europe, we're expecting a second half of more good progress. Action Royal Sanders, our two long-term hold investments, are both trading well and delivering sector-leading performance against their peer groups. As you have seen, actions like-for-like performance so far this year is now over 10%. Price has been a negative factor, so action-strong performance is simply down to growth in the number of customer transactions. Many consumers are still under a lot of pressure across Europe, and we see no sign of the situation changing very much anytime soon. It's clear that a lot of consumers are tight on funds in the week before they get their paychecks. Unlike the majority of the PE industry, we have a long-term perspective and we focus on identifying potential long-term holds and running our winners. We are not constrained by time-limited fund capital. That means we can choose to put capital to work for decades so long as it continues to meet our strategic and financial requirements. And retail is a sector where successful companies can become very large and keep growing for many years. On this slide, we have picked four examples from the retail sector where growth has been sustained over many years. But in three of these cases, the private equity owners sold out very early in the growth story and missed out on the lion's share of value creation. Our core holding of action is profiled in the bottom right box. But the power of compounding is best illustrated on the next slide, where we have two giants of the retail sector, Walmart and Costco. Both have delivered significant annualized returns over years and years. Aldi, Lidl and IKEA have all done the same thing from a European base for their respective families and foundations. Now, Action is early on its journey compared to these giants, but its sales and profit densities and overall store economics already compare very well with any peer group in the retail sector. Action's focus on low prices and store growth attracts a growing number of consumers, which in turn gives it tremendous scale benefits across the narrow set of SKUs it buys. This is a simple and powerful business model And we believe action will continue to compound and exceed our 15% return hurdle for many years to come. With that, I'll close the presentation and we'll open up the lines for calls. Thank you.