3i Group plc

Good day and thank you for standing by. At this time all participants are in a listen-only mode. Welcome to the 3i group PLC results presentation webcast for the year to 31st March 2026. After the presentation there will be a question and answer session via the conference call and instructions will follow at that time. Participants can also submit questions to the webcast page using the ask a question button. Please be advised that today's conference is being recorded. I will now hand the conference to the CEO of 3i Group, PLC, Simon Borrows, to open the presentation. Please go ahead.

Good morning. Welcome to 3i's FY26 Annual Results presentation. I'm Simon Borrows, CEO of 3i Group. On the call with me today are James Hatchley, our Group Finance Director, Sylvia Santoro, our Group Investor Relations Director. The slides supporting our remarks have been put on our website this morning. In spite of the challenging market backdrop, we delivered another good result with a return on equity of 22%. Once again, we significantly exceeded our return target of 15%. Our NAV per share finished at £30.30, Private equity produced a 23 percent gross investment return and also generated cash of some 1.8 billion. We ended the year at 2 percent gearing, and we announced a dividend for the year of 84.5 pence per share. That's a 15 percent increase on last year and represented an aggregate of some 5.4 billion pounds of dividends since our restructuring in 2012. You will also have seen that this morning we launched a £750 million share buyback programme, and James will cover that shortly. The 23% gross investment return for private equity includes a 25% gross investment return for action, and that's in spite of a more difficult trading backdrop in France from September of last year. The overall return for the non-action PE portfolio improved this year to 14%, supported by good earnings growth. In fact, 96% of the portfolio by value grew their earnings in the year. We bought a further 7.5% of action for 2.6 billion pounds. Some 800 million of that was cash, with the balance being 3i share consideration. We received portfolio cash proceeds from realizations and refinancings of some 1.5 billion pounds, and we got over 280 million of dividend income. As we move into the new financial year, the PE portfolio is positioned defensively and has decent earnings momentum. This slide shows the spread of earnings across the portfolio. We continue to see a good performance from the majority of our investments, which you can see clearly on our value movement slide. This slide shows that our largest value increases were overwhelmingly supported by solid performance. We again had few detractors this year. Certic Medical performed well, but its earnings were held back by the transition of one of its neuromodulation devices. Action delivered another very good performance in 2025. Net sales were up 16%, and it had over 380 new store openings, as well as 4.9% like-for-like growth on top of 10.3% in 2024. Action also successfully entered two new markets, Switzerland and Romania. Its operating cash flow grew to almost €2 billion, with cash conversion at 83% of operating EBITDA. As a result, Action once again made significant cash distributions, part of which we reinvested to increase our stake last October. While the financial results were strong again for Action, the broad consumer feedback was even stronger. Action gained an increasing share of customer visits, which averaged 21.6 million per week in 2025 across all its markets, old and new. I'd like to zero in on the French consumer in particular. We used this slide at the Capital Markets Day in March to show Action's extraordinary growth in France since it opened its first store there in 2012. EY Parthenon's annual Enseigné préféré de France is an annual study of French consumers' attachment and loyalty to retail brands. And it's been great to see that Action was ranked favorite retailer amongst French consumers for a fourth consecutive year. Past winners are a who's who of the strongest French retailers. So this recognition may be more than anything demonstrates the established and enduring appeal of action in France. As with last autumn, we see a weaker consumer in France and also lower traffic in Germany since the deterioration in the Middle East situation at the end of March. Year-to-date like-for-likes at the end of last week were 2.4% against the 6.8% comparable for last year. Trading has remained good in Holland and Belgium and Southern Europe. And FMCG categories are trading well and benefiting from price reductions made in February and at the start of this month. Unlike for likes, action is about 1.5% behind where we thought it would be at this stage of the year. And that was mainly as a result of lower seasonal sales due to cooler weather over recent weeks compared to last year. Given the strength of last year's Like for Likes in the first half, and in Q2 in particular, we continue to anticipate a stronger second half benefiting from easier comps. This slide is perhaps helpful in illustrating what I mean. How you do on Like for Likes in any given week is a function of how well you did in that week the previous year. Last year, I signaled that action was now too big to continue to grow at double-digit like-for-likes overall. And I suggested that mid-single-digits performance was the more likely run rate as we have seen for some time in the Netherlands. So like-for-likes this year would be much easier if we were competing against the general market as opposed to competing against Action Vintage 2025. Within our budget, we have allowed for the challenging comparables in the first half. As you can see, Q2 is our toughest comp period for the year. And it's clear that the hurdles in Q3 and Q4, which are also by far our biggest quarters for sales and profits, get easier. It's also sensible to look at like for likes over a two-year time horizon. because a two-year view helps deal with the variances of both public holidays, such as Easter, and weather. So rather than say 4% to 5% over one year, it's probably better to look at 8% to 10% over two years. And as you can see, the two-year stack for Q1 is well within the range anticipated. Before moving on, I'd like to reiterate that while like for like is an important KPI, action sales growth remains driven predominantly by its international store rollout. The entry into Croatia this year has gone very well, and the team is now preparing for entry into Slovenia in the autumn. The broader store opening program is moving forward as we expected, with 69 stores opened up to this week. And we remain on track to achieve our store opening target for the year, which will deliver close to 13% store growth year on year. Strong cash generation is also a key element of our investment case for Action. And now that Action's cash balance is reaching Euro 1 billion, the Board has approved another dividend to be paid this month, and 3i will receive some 255 million pounds. As you know, Action was active in the debt markets in 2025, achieving good extensions to two existing debt issues. as well as a total interest cost saving of over Euro 33 million. It also secured a total of Euro 1.6 billion of further debt issuance. We used our share of the cash from actions October share redemption exercise to purchase further equity interest in action. We couldn't use all of our proceeds to buy more action equity because a number of LPs were also buyers in October. but we also bought further interest in September and January in exchange for newly issued 3i shares. Royal Sanders had another busy year in FY2026, generating excellent sales and profit growth and acquiring Bondaleo. We took the opportunity to invest further capital in Royal Sanders, and our holding is now over 90%. The portfolio apart from Action and Royal Sanders is broadly balanced across our investment sectors, consumer, healthcare, industrials, and services and software. And within that, we have a very small exposure to software. The PE portfolio apart from Action and Royal Sanders delivered a good performance. The consumer sector produced some very good growth with only a slight drag from some smaller discretionary businesses. Healthcare is now well poised for a good step up in returns as orders and sales grow across all the companies in that sector. AES and Taito both traded well relative to their sectors, and we saw decent trading across services and software portfolio. We had two strong realizations in the year with good money multiples and IRR returns, as well as strong premier over their book values. The infrastructure team delivered another very solid year, with 104 million of cash income to the group. 3IN continued to perform well and benefited from an outstanding return on the announced sale of TCR. TCR is the largest independent lesser of airport ground support equipment, and the exit produced a 50% uplift on realization, as well as a 3.6 times money multiple and a gross IRR of 20%. Thank you, and I'll pass over to James for his section.

Thank you, Simon, and good morning, everyone. Our total return on equity for the financial year was 22%. That's another good year of compounding. You can see the detail here. The increase in NAV was principally driven by value growth of 409 pence per share. Foreign exchange movements were in our favour this year and added 77 pence. Portfolio income and fees contributed to the net increase of 74 pence. The dividend payments in the year reduced NAV by 79 pence. That meant we closed the year with an NAV per share of £30.30, up 19% from last year. You can see the components of the 409 pence per share here. It's important to note that it really wasn't a straightforward year in terms of the geopolitical and economic environment. That said, the portfolio did well and generated 4.2 billion pounds of value growth. As Simon said, action continued to deliver with an increase in value of 3.5 billion pounds. The PE performance increases were 628 million, That increase largely reflects the value growth in our other long-term hold asset, Royal Sanders, and in Orderly and Lucom. The decreases in the year are principally related to Certec and Wilson. Over the year, we made a number of changes in multiples, nearly all of which were down, which I will cover later, but the net effect was a reduction of £40 million. The increase in the quoted investment portfolio of £75 million came from the performance of 3IN and Basic Fit. The portfolio ended the period with a value of 31.8 billion pounds. Embedded in our value growth is the consistent application of our valuation processes, with our cross-cycle approach continuing to serve us well. That means we come into periods of volatility with decent buffers compared to peer sets. So let's start with action. We continue to value Action on a post-discount multiple of 18.5 times its LTM run rate EBDA of 2.65 billion euros. At 31st March, that gave us an enterprise value for Action of 49.1 billion euros. The valuation of our 65.4% holding was 23.7 billion pounds. During the year, we acquired, either for cash or for 3i equity, an additional 7.5% of actions equity. All of these equity transactions took place at our reported valuation, i.e. 18.5 times. At the same time as our cash transaction, other LPs bought and sold equity stakes in action at the same valuation as our trades. If we look back a year to March 2025, when action was valued at an EV of 43.1 billion euros, and compare that EV to the outturn for the run rate EBITDA this March, you arrive at a forward-looking multiple of 16.2 times. 18.5 times LTM run rate EBITDA and 16.2 times as a forward-looking proxy are the two benchmarks we've consistently used when comparing action to our usual peer set. These two charts cover the core peer set. over the year from March 2025 to March 2026. As usual, there are some fluctuations in the latest quarterly marks for some of the peers. This is nothing new. On an LTM run rate basis, actions valuation multiple continues to sit well within the pack. It's above the overall average, but nearer the lower rated of the four better rated peers. On a forward-looking basis, Action also sits in a similar position, above the average but nearer the lower rated of the four better rated peers. We always reference Action and its KPIs relative to the peer group. At the CMD, we showed the charts on the top half of this slide, store growth, like-for-like sales growth, net sales, and operating EBITDA growth, on both a five-year view and over the last 12 months. At the top of the slide, we repeat just the LTM charts for action and its peers. As you can see, action outperforms the peer group average on all measures, which is consistent with where it stands in terms of valuation. I also wanted to show some additional metrics, which we think are important because they further demonstrate the power of the action model. These are shown on the bottom half of the slide. sales and profit densities, cash conversion, and a two-year stack for like-for-like sales growth. Action also outperforms the peer group average on all of these measures. Our valuation is also supported by a DCF analysis based on cautious assumptions of Action's long-term growth trajectory. Finally, I wanted to look at a longer time series as we've done before, because it's important in our valuation process. that we have due regard to cross cycle or longer term valuation benchmarks. This slide shows actions peer group LTMEBDA average multiples over five years. This five year timeframe includes some significant periods of external uncertainty and volatility. COVID, Russia's invasion of Ukraine, the change in the inflation and interest rate environment, significant shifts in US tariff policy and now, a new Middle Eastern situation. By putting a greater weight on averages over a longer time series and not focusing on individual peers in individual moments, there's a lot less noise in this presentation of the Comp Set. We've also highlighted the average of the better rated peers and the average of the best rated peers, Costco and Dollarama. We like this approach as a way to judge the market's consistent view of fair value for the different companies in this sector. Each quarter, the Board's Valuation Committee at 3i, and of course our auditors, also do their own independent work on our valuations. Let's now have a look at how the rest of the portfolio and its valuation multiples compare to the Peersets. This chart shows the valuation multiples for our PE assets in dark blue, and the average of the multiples from the relevant valuation Peersets in light blue. With the underperformance of the market running into year-end, we have seven out of 24 companies with a valuation multiple above the average of the peer group. For three of those seven, the difference is very small. Importantly, all the assets across the portfolio remain within their respective peer group ranges. One multiple moved up and six multiples moved down during the year. They reflect company-specific factors and market dynamics. or proximity to exit. Overall, the weighted average post-discount non-action LTM multiple across the portfolio is 13 times. That's down from 13.4 times this time last year. In terms of exits, 3i had a strong year with two exits in private equity and one in infrastructure, as mentioned by Simon. These were high-quality companies that were able to sell well despite tricky exit markets Exiting at a premium is something we've consistently done over the years since our restructuring in 2012. And that's not just in the PE portfolio. So turning back to the business line performance for the year, our private equity portfolio generated a gross investment return of 23% for the year. Our gross return in the year was 5.3 billion, of which 806 million was foreign exchange movements. In terms of realization, we saw strong cash proceeds from Action and from NPM and MATE in the year. Our investment in the year of $2.6 billion is principally 3i's purchases of additional Action equity. We also made additional investments in a number of other existing portfolio companies, including Royal Sanders and 1023. Overall, the overall PE portfolio ended the period with a value of 29.7 billion pounds. In terms of the leverage position across the portfolio, we show that on the next slide. The leverage position compared to the beginning of the year is broadly unchanged. Action leverage is fairly similar. Net debt to run rate EBDA moved from 2.7 times to 2.8 times. over the 12 months to the end of March, even after its refinancing and cash distributions of over €2.2 billion to all shareholders. Leverage across the non-action portfolio moved from 3.5 times to 3.2 times over the year. As we've said before, these levels are very modest when compared to the average level of debt used across the PE industry more generally. As a reminder, we focus on simple senior-only financing structures with over two-thirds of our overall lending, x the action debt, which is widely syndicated, provided by banks. So, on to infrastructure. The infrastructure result was better this year, mainly reflecting the uplift in the 3IN share price over the year, which increased by 5%. The underlying portfolio return over the year in 3IM was also in line with its target at 8.5%. The net investment return from infrastructure, including fee income, was 10%. Together with Scanlines, our infrastructure portfolio is valued at just over £2.1 billion, and it produces a very useful cash income contribution, as you can see on the next slide. Overall cash income totaled £421 million. Operating cash expenses were £145 million. And we again ended the year with a healthy cash operating profit, even before taking into account the dividend we got from action. So now let's take a look at our balance sheet and capital allocation. 3i balance sheet is simple and very strong. with cash at 31st of March of £664 million and liquidity of £1.9 billion, as our RCF is currently undrawn. This is before any receipt of the approved second action dividend of £255 million, which we expect to receive before the end of May. We announced this morning that we will commence a buyback programme of up to £750 million over the period to the end of December 2026. shares purchased under the program will be canceled. Let me explain the capital allocation rationale for this. When the shares traded at a premium to NAV, as they've done over most of the time in recent years, we have supplemented our business as usual investment by deploying significant capital to buy in further equity in action at our book value, all of which has made great sense. Today, with the current dislocation in the share price to what we see as fundamental value, we have an opportunity to use some of our capital to buy back shares at very attractive levels. It's important to note that the overall composition of our portfolio today, not least with action as a long-term hold, gives us a very good line of sight on a significant and regular dividend flow. So finally, let's turn to the 3i dividend. This morning, we announced our intention to pay a second dividend of 48 pence. When you add that to the interim dividend we paid in January, it will make a full year dividend of 84.5 pence. That remains subject to shareholder approval and would represent a growth of 15.8% on the prior year. Now, before we get into Q&A, I'll hand back to Simon.