REG - 3i Group PLC - 3i Group plc - Q3 performance update
01/02/2024 07:00
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RNS Number : 6099B 3i Group PLC 01 February 2024
1 February 2024
3i Group plc
FY2024 Q3 performance update
A good result for the third quarter of FY2024
• Increase in NAV per share to 2,034 pence (30 September 2023: 1,886
pence) and total return of 18% for the nine months to 31 December 2023, after
a negative foreign exchange translation impact of £151 million or 16 pence.
• Action produced another excellent result with very strong sales, EBITDA
and cash generation in 2023. In the 12 months to 31 December 2023, net sales
and operating EBITDA were 28% and 34% ahead of 2022.
• Action generated like-for-like ("LFL") sales growth of 16.7% in the year
(2022:18.1%) and 11.4% in Q4 2023 (Q4 2022: 23.4%).
• 3i received a dividend from Action of £189 million in December 2023.
After this distribution, Action ended 2023 with a cash balance of €1,087
million, and its net debt to run-rate EBITDA ratio was less than 2x.
• The value-for-money, private label, healthcare and infrastructure
investments continue to perform resiliently and represented 86% of our
investment portfolio at 31 December 2023. Outside of these sectors,
performance was more mixed.
• Successful refinancing completed for Royal Sanders, returning proceeds
of £109 million to 3i, and amend and extend completed for WP.
• Investment activity across both business lines focused primarily on
buy-and-build, with the completion of bolt- on acquisitions for MAIT and
Regional Rail and agreement to add a further bolt-on acquisition for Evernex.
• 3i Infrastructure plc's ("3iN") underlying portfolio continues to
perform ahead of the expectations set at the beginning of this financial year
and we have seen a partial recovery in its share price, recognising a 6%
increase in the period.
• Well-funded Group balance sheet at 31 December 2023, with gross cash of
£666 million, an undrawn RCF of £900 million and gearing of 3%.
Simon Borrows, Chief Executive, commented:
"Action has again produced an all-round, impressive set of results and has
started 2024 with good momentum across all of its markets. Action's mission is
to help customers by offering great value products at low prices and selling
an increasing range of essentials through its flexible format. Some 2,500
prices were reduced in the second half of 2023, which is driving strong LFL
performance and further increasing the price gap between Action and other
retailers.
Macroeconomic conditions and global uncertainty are likely to continue to have
an impact on selected names within the portfolio but we feel our unrelenting
focus on good capital allocation means that 3i is well set for a strong return
for the Group for this financial year."
Private Equity
Portfolio performance and valuation at 31 December 2023
In the 12 months to 31 December 2023, Action generated net sales growth of 28%
and added 303 stores, taking its total store base to 2,566 stores across 11
countries. Provisional 2023 operating EBITDA, which is still subject to audit,
was €1,615 million, 34% ahead of 2022. The €1,615 million operating EBITDA
includes one-off expenses of €18.5 million, the majority of which relates to
a specific net payment to each full-time Action employee in December 2023 to
mark Action's 30 year trading anniversary.
Action generated LFL sales growth of 16.7% for the year (2022: 18.1%) and
11.4% in Q4 2023 against 23.4% in Q4 in the previous year. Transaction volumes
accounted for 89% of the LFL increase over the year, and 106% in December,
which is Action's largest trading month. Action reduced some 2,500 prices over
the second half of the year to pass on lower buying prices. All geographies
performed well with strong LFL performance across Action's newer and
established markets. Over the three years to December 2023 Action's LFL growth
totalled approximately 46%.
Cash generation remained strong and Action paid an interim dividend to
shareholders in December 2023, resulting in a distribution of £189 million to
3i. Action finished the year with a cash balance of €1,087 million,
resulting in a net debt to run-rate EBITDA ratio of 1.97x.
As announced in November 2023, Action successfully completed its debut US
dollar term loan issuance in the US leveraged loan market in October 2023,
raising $1.5 billion, and a capital restructuring with a pro-rata redemption
of shares. 3i used €524 million (£455 million) of the €877 million (£762
million) gross proceeds from the share redemption to acquire further shares in
Action, increasing its gross equity stake from 52.9% to 54.8%.
Action is carefully monitoring the situation in the Red Sea and working with
its freight partners to ensure disruption is minimised. Freight costs in the
short term may be higher due to surcharges but, provided the situation does
not escalate, the impact on profitability can be managed.
At 31 December 2023, Action was valued using LTM run-rate EBITDA to 31
December 2023 of €1,753 million, comprising adjusted LTM EBITDA of €1,634
million, including the add-back of one-off expenses of €18.5 million, the
majority of which relates to the specific payment to all full-time staff, and
our normal run-rate adjustment to reflect stores opened in the year. The
multiple of 18.5x net of the liquidity discount remained unchanged, resulting
in a valuation of £13,772 million for 3i's 54.8% equity stake (30 September
2023: £12,862 million for 3i's 52.9% equity stake).
Action financial metrics
Last 12 months to P12 2023 Last 12 months to P12 2022
(31 December 2023) (1 January 2023)
Financial metrics €m €m
Net sales 11,324 8,859
LFL sales growth 16.7% 18.1%
Operating EBITDA 1,615 1,205
Operating EBITDA margin 14.3% 13.6%
Run-rate EBITDA 1,753 1,312
Net new stores added 303 280
We continue to see good performance from a number of our portfolio companies
operating in the resilient sectors of value-for-money, private label and
healthcare. Royal Sanders delivered another strong period of growth and cash
generation and European Bakery Group ("EBG") continues to demonstrate momentum
in its trading and in the integration of recent acquisitions. Across our
healthcare portfolio, Cirtec Medical performed well in the period following
further ramp up in new contracts, and the remaining business of Q Holding
continues to see increased sales to key customers. SaniSure continues to
operate through an industry-wide destocking of single-use consumables,
resulting in a softer order book through to the end of 2023. Despite the
continuing near- term uncertainty, the medium and long-term outlook for the
industry is still positive and SaniSure remains well positioned to capitalise
on the overall long-term growth opportunity. Audley Travel has had a positive
year post pandemic and is seeing strong demand continue into 2024. Other
notable contributions across the portfolio in the period include MPM, AES, and
Mepal.
We continue to see softer performance from a number of our portfolio companies
operating in sectors that have been disproportionately impacted by persistent
macroeconomic headwinds or that are working through adverse phases of their
market cycles. BoConcept saw softer trading performance in the period, while
Luqom saw relatively stable trading. Tato's markets remained subdued, but it
is seeing a more favourable margin environment than that experienced in the
first half of 2023 as inventory levels and demand normalise. Wilson's
performance continues to be impacted by a weaker labour market for
white-collar workers, albeit management actions are partially offsetting the
impact with a healthy new business pipeline for 2024. arrivia performed well
in the period but the business is facing weakness with certain customers which
we expect to negatively impact its short-term outlook. Trading at Formel D and
YDEON remains challenging.
While the average of our quoted comparable multiples across the portfolio
generally improved over the quarter, reflecting good equity market
performance, we made no adjustments to portfolio company valuation multiples
in the period.
The ratio of net debt to EBITDA across the Private Equity portfolio increased
from 2.1x at 30 September 2023 to
2.6x at 31 December 2023, reflecting the additional US dollar debt issue and
capital restructuring at Action. The average Private Equity portfolio leverage
excluding Action increased from 3.8x to 4.0x.
Private Equity investments and realisations
We remain cautious about the investment and realisation market, but continue
to look for opportunities to deploy capital into this uncertainty. In the
quarter we prioritised reinvestment into our existing portfolio either
directly or through buy-and-build and refinancing opportunities. We are under
no pressure to sell companies if the price or terms do not properly reflect
the prospects of the business.
Private Equity investments
Portfolio company Type Business description Date £m
Action Reinvestment General merchandise discount retailer Nov 2023 455
Royal Sanders Reinvestment Private label and contract manufacturing producer of personal care products Dec 2023 26
ten23 health Further Biologics focused CDMO Various 11
Other Further Various Various 3
Total Q3 cash investment 495
Total investment in H1 FY2024 50
Total cash investment as at 31 December 2023 545
In the quarter, we completed £495 million of total investment, of which £455
million was the reinvestment into Action. We also completed a purchase of a
minority holding in Royal Sanders, investing £26 million, and we continued to
develop ten23 health with a further investment of £11 million.
In October 2023, MAIT strengthened its position as a leading provider of
product lifecycle management solutions in Switzerland, with the bolt-on
acquisition of Quadrix, its seventh acquisition since our initial investment.
In December 2023, Evernex agreed the bolt-on acquisition of a leading
Brazilian provider of third-party maintenance services.
Private Equity realisations
Portfolio company Type Date £m
Action Refinancing Nov 2023 762
Royal Sanders Refinancing Dec 2023 61
Other Various Various 2
Total Q3 FY2024 realised proceeds 825
H1 FY2024 realised proceeds 1
Total realised proceeds as at 31 December 2023 826
In the quarter, we recognised total realised proceeds of £825 million, £762
million of which were proceeds received from Action's capital restructuring.
In December 2023, Royal Sanders successfully completed an all-senior debt
refinancing, upsizing its debt facilities at attractive pricing in the current
market. Proceeds from this transaction and some surplus cash on the company
balance sheet were distributed to shareholders, with 3i receiving £109
million, of which £48 million was recognised as income. Also in December
2023, WP completed a successful amend and extend of its debt facilities.
Infrastructure
3iN's share price increased by 6% in the quarter to 31 December 2023, closing
at 322 pence (30 September 2023: 304 pence), valuing 3i's 29% stake at £866
million (30 September 2023: £818 million). We also recognised dividend income
of £16 million from 3iN in the quarter. In the period, 3iN completed the sale
of its c.25% stake in Attero for net proceeds of €214 million, a c.31%
uplift on opening value.
Bolt-on activity within the North America Infrastructure platform continued
with Regional Rail acquiring Indiana Eastern Railroad and Ohio South Central
Railroad in the period, adding 107 miles of freight rail to the platform.
Scandlines saw stable performance in the period given the weaker macroeconomic
backdrop. Following continued good cash generation, we received a dividend of
£14 million in the period.
Top 10 investments by value(1) at 31 December 2023
Valuation basis Valuation currency Valuation Sep-23 Valuation Dec-23 Activity in the quarter
£m £m
Action Earnings EUR 12,862 13,772 Received capital restructuring proceeds of £762 million and £189 million
dividend proceeds. Completed further investment of £455 million
3i Infrastructure plc Quoted GBP 818 866 £16 million dividend recognised
Cirtec Medical Earnings USD 579 579
Scandlines DCF EUR 547 536 £14 million dividend received
Royal Sanders Earnings EUR 486 489 £109 million refinancing proceeds received
AES Engineering Earnings GBP 396 406
SaniSure Earnings USD 375 331
Evernex Earnings EUR 315 323
Tato Earnings GBP 330 320 £7 million dividend received
Smarte Carte DCF USD 316 303
1.We have excluded one asset from the Top 10 investments by value due to
commercial sensitivity. The valuations are translated at the spot rate of the
balance sheet date. Sterling strengthened by 0.1% against the euro and by 4.4%
against the US dollar in the quarter to 31 December 2023. Individual
valuations exclude the benefit of the foreign exchange hedges.
The 10 investments in the table above comprised 85% (30 September 2023: 84%)
of the total investment portfolio value of £21,109 million (30 September
2023: £20,255 million).
Total return and NAV position
The Group recorded a total foreign exchange translation loss of £44 million,
including the impact of foreign exchange hedging in the quarter, as a result
of sterling strengthening by 0.1% against the euro and by 4.4% against the US
dollar.
Based on the net assets at 31 December 2023 and including the impact of
hedging, a 1% movement in the euro and US dollar would result in a net total
return movement of £134 million and £11 million respectively. The diluted
NAV per share increased to 2,034 pence (30 September 2023: 1,886 pence) or
2,007.5 pence after deducting the 26.5 pence per share first FY2024 dividend,
which was paid on 12 January 2024.
Balance sheet
At 31 December 2023, cash was £666 million (30 September 2023: £55 million),
and, including our undrawn
£900 million revolving credit facility, liquidity was £1,566 million (30
September 2023: £900 million and £955 million respectively). Net debt was
£542 million and gearing was 3% (30 September 2023: £1,153 million and 6%).
The first FY2024 dividend of 26.5 pence (£255 million), was paid on 12
January 2024.
- ENDS -
Notes
1. Balance sheet values are stated net of foreign exchange
translation. Where applicable, the GBP equivalents at 31 December 2023 in this
update have been calculated at a currency exchange rate of €1.1537: £1 and
$1.2745: £1 respectively.
2. At 31 December 2023 3i had 967 million diluted shares.
3. Action was valued using a post-discount run-rate EBITDA multiple of
18.5x based on its LTM run-rate earnings to 31 December 2023 of €1,753
million.
4. As at 31 December 2023, the notional amount of the forward foreign
exchange contracts held by the Group was €2.6 billion (including €600
million associated with Scandlines) and $1.2 billion.
For further information, please contact:
Silvia Santoro
Group Investor Relations Director Telephone: 020 7975 3258
Kathryn van der Kroft Communications Director Telephone: 020 7975 3021
About 3i Group
3i is a leading international investment manager focused on mid-market Private
Equity and Infrastructure. Our core investment markets are northern Europe and
North America. For further information, please visit: www.3i.com
(http://www.3i.com/) . (http://www.3i.com/)
All statements in this performance update relate to the nine-month period
ended 31 December 2023 unless otherwise stated. The financial information is
unaudited and is presented on 3i's non-GAAP Investment basis in order to
provide users with the most appropriate description of the drivers of 3i's
performance. Net asset value ("NAV") and total return are the same on the
Investment basis and on an IFRS basis. Details of the differences between 3i's
consolidated financial statements prepared on an IFRS basis and under the
Investment basis are provided in the Annual report and accounts. There have
been no material changes to the financial position of 3i from the end of this
quarter to the date of this announcement.
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