REG - 3i Group PLC - 3i Group plc FY2025 Q1 performance update

3iAnnouncement

18/07/2024 07:00

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RNS Number : 8402W  3i Group PLC  18 July 2024

18 July 2024

3i Group plc

FY2025 Q1 performance update

 

An encouraging start to FY2025

•  Increase in NAV per share to 2,167 pence (31 March 2024: 2,085 pence)
and total return of 4% for the three months to 30 June 2024, after a negative
foreign exchange translation impact of £113 million or 12 pence.

•  Strong performance from Action in the quarter (P4-P6 2024), with net
sales and operating EBITDA of €3,224 million and €446 million (P4-P6 2023:
€2,701 million and €374 million).

•  In the six months to the end of Action's P6 (ending 30 June 2024),
like-for-like ("LFL") sales growth was 9.0%. YTD operating EBITDA to the end
of P6 was €843 million, 23% ahead of the same period last year.

•  After the quarter end, Action successfully completed a refinancing
event, raising €2.1 billion, as well as a capital restructuring with a
pro-rata redemption of shares. 3i used €821 million of the €1,374 million
gross proceeds received to acquire further shares in Action, increasing our
gross equity stake from 54.8% to 57.6%.

•  We continue to see good performance across the remaining Private Equity
portfolio overall, including some of the assets that saw weaker trading in
2023.

•  We agreed the c.€116 million new Private Equity investment in
Constellation in May 2024, and completed four bolt-on acquisitions across our
existing portfolio in the quarter, including an acquisition for Royal Sanders.

•  We agreed the realisation of nexeye in April 2024, for proceeds of
c.€452 million, and expect this to complete at the end of July 2024.

 

Simon Borrows, Chief Executive, commented:

"Action had a good first half of 2024, with net sales and operating EBITDA
ahead of budget and prior year, despite a continued focus on price reductions
and the impact of softer seasonal sales in a rather wet and cold June across
north western Europe. We are confident that Action will continue to perform
well in the second half of 2024. The successful completion of another sizable
refinancing reflects Action's impressive growth and strong cash generation. We
have allocated part of the proceeds from this transaction to increase our
holding in Action, which we believe will benefit shareholders in the months
and years to come.

We are encouraged by the good start to 2024 for the remaining portfolio, and
are seeing positive developments in some of the assets which experienced
headwinds in 2023. We remain selective in our capital allocation and, in the
quarter, secured a new investment and a number of bolt-on acquisitions, as
well as a significant realisation."

 

Private Equity

 

Action performance and valuation at 30 June 2024

In the six months ending 30 June 2024 (P6), Action generated net sales of
€6,228 million and operating EBITDA of €843 million, 20% and 23%
respectively ahead of the same period last year. Over the same period, LFL
sales growth was 9.0%, driven by a combination of a high volume of
transactions, outperformance in everyday necessities and a negative price
effect. LFL sales growth for the same period last year, which included an
element of inflation, was 21.8%. Action added 119 new stores to the end of P6
(YTD P6 2023: 90) and remains on track to meet its target of 330 stores added
this year. Action ended the period with cash of €645 million and a net debt
to run-rate EBITDA ratio of 2.0x.

 

In July 2024, Action successfully completed a refinancing event, raising
€2.1 billion in total, including a second US dollar term loan issuance of
$1.5 billion. The US dollar term loan was fully hedged at an all in cost of
5.5%. As a result, Action's total senior debt is c.€6.6 billion and, based
on Action's cash position of €546 million on 14 July 2024 and the P6
run-rate LTM EBITDA, Action's net debt to run-rate EBITDA ratio is 3.2x. In
July 2024, Action also completed a capital restructuring with a pro-rata
redemption of shares. 3i, alongside a number of existing LPs in the 2020
Co-Investment Programme, took the opportunity to reinvest in Action. 3i used
€821 million of the €1,374 million gross proceeds from the share
redemption to acquire further shares in Action, increasing our gross equity
stake from 54.8% to 57.6%. This change to ownership occurred in early July
2024 and will only be reflected in the result for the period ending 30
September 2024.

 

Action financial metrics

 

                          YTD to P6 2024                YTD to P6 2023
                          (30 June 2024)                (2 July 2023)
 Financial metrics        €m                            €m
 Net sales                6,228                         5,186
 LFL sales growth                   9.0%                            21.8%
 Operating EBITDA         843                           683
 Operating EBITDA margin              13.5%                         13.2%
 Net new stores added     119                           90

 

                          LTM to P6 2024                LTM to P6 2023
                          (30 June 2024)                (2 July 2023)
 Financial metrics        €m                            €m
 Net sales                12,365                        10,160
 Operating EBITDA         1,775                         1,439
 Operating EBITDA margin              14.4%                         14.2%
 Run-rate EBITDA          1,936                         1,556

 

At 30 June 2024, Action was valued using an LTM run-rate EBITDA to 30 June
2024 of €1,936 million, which includes the usual adjustment to reflect
stores opened in the last 12 months and one-off expenses of €18.5 million,
the majority of which related to a specific net payment to each full-time
Action employee in December 2023 to mark Action's 30-year trading anniversary.
The multiple of 18.5x, net of the liquidity discount, remained unchanged,
resulting in a valuation of  £14,838 million for 3i's 54.8% equity stake (31
March 2024: £14,158 million).

 

Portfolio (excluding Action) performance

 

We continue to see strong performance from Royal Sanders and European Bakery
Group, whilst Audley Travel's booking numbers for the first half of 2024 are
ahead of the same period in 2023 and 2019 (pre-pandemic). Cirtec Medical is
showing good momentum through strong demand from its customers across its key
products and SaniSure's YTD 2024 trading is in line with our expectations.
Tato and Luqom continue to see positive trading momentum in the YTD 2024,
after facing headwinds in 2023. WilsonHCG continues to operate through a
challenging white collar recruitment market.

 

The ratio of net debt to EBITDA across the Private Equity portfolio decreased
from 2.7x at 31 March 2024 to 2.5x at 30 June 2024. The average Private
Equity portfolio leverage excluding Action decreased from 3.9x to 3.8x.

We made no adjustments to portfolio company valuation multiples in the period.

 

Private Equity investment and realisations

In May 2024, we agreed a new c.€116 million investment in Constellation, an
IT managed services provider specialised in hybrid cloud and cyber security.
Headquartered in France, Constellation supports mid-sized and enterprise-level
customers by managing their IT infrastructure across both public and private
cloud environments, and overseeing cyber security through its Security
Operations Centre. We expect this transaction to complete in Q2 FY2025.

 

In the period, we also completed four bolt-on investments. Royal Sanders
completed the self-funded acquisition of Karium, a platform of established
brands across the hair care, body care and skin care categories. The
combination with Royal Sanders and its existing brand portfolio will provide
significant growth opportunities.

 

MAIT completed two self-funded bolt-on acquisitions (Cad n'Org and ISAP) both
of which complement its existing digital solutions offering in product
lifecycle management. We also invested £6 million to support xSuite's
acquisition of tangro, a highly comparable peer of xSuite that also focuses on
Accounts Payable Automation Software in the SAP ecosystem. We continued to
support the development of ten23 health with a further £14 million investment
in the period.

 

We agreed the sale of nexeye in April 2024, for expected proceeds of c.€452
million, and expect the transaction to complete by the end of July 2024.

 

Infrastructure

 

3iN's share price decreased by 2% in the quarter to the end of June 2024,
closing at 320 pence (31 March 2024: 327 pence), valuing 3i's 29% stake at
£862 million (31 March 2024: £879 million). We also recognised dividend
income of £16 million from 3iN in the quarter.

 

Our remaining infrastructure portfolio companies are performing largely in
line with our expectations.

 

Top 10 investments by value(1) at 30 June 2024

 

                                            Valuation  Valuation
                  Valuation      Valuation  Mar-24     Jun-24
                  basis          currency   £m         £m         Activity in the quarter
 Action           Earnings       EUR        14,158     14,838
 3iN              Quoted         GBP        879        862        £16 million dividend recognised
 Royal Sanders    Earnings       EUR        580        641
 Cirtec Medical   Earnings       USD        586        597
 Scandlines       DCF            EUR        519        516        £12 million dividend received
 AES Engineering  Earnings       GBP        403        403
 nexeye           Imminent sale  EUR        377        373        Sale agreed in the quarter and due to complete in July 2024
 Tato             Earnings       GBP        335        345        £5 million dividend received
 SaniSure         Earnings       USD        334        333
 Evernex          Earnings       EUR        331        325

 

1. The valuations are translated at the spot rate of the balance sheet date.
Sterling strengthened by 0.9% against the euro and by 0.1% against the US
dollar in the quarter to 30 June 2024. Individual valuations exclude the
benefit of the foreign exchange hedges.

The 10 investments in the table above comprised 86% (31 March 2024: 86%) of
the total investment portfolio value of £22,452 million (31 March 2024:
£21,636 million).

 

Total return and NAV position

 

The Group recorded a total foreign exchange translation loss of £113 million,
including the impact of foreign exchange hedging in the quarter, as a result
of sterling strengthening by 0.9% against the euro and by 0.1% against the US
dollar.

Based on the net assets at 30 June 2024 and including the impact of hedging,
a 1% movement in the euro and US dollar would result in a net total return
movement of £145 million and £12 million respectively. The diluted NAV per
share increased to 2,167 pence (31 March 2024: 2,085 pence) or 2,132.5 pence
after deducting the 34.5 pence per share (£332 million) second FY2024
dividend, which will be paid on 26 July 2024.

 

Balance sheet

 

At 30 June 2024, cash was £336 million (31 March 2024: £396 million), and,
including our undrawn £900 million revolving credit facility, liquidity was
£1,236 million (31 March 2024: £900 million and £1,296 million
respectively). Net debt was £863 million and gearing was 4% (31 March 2024:
£806 million and 4%).

 

Our cash position at 30 June 2024 is before Action's refinancing and pro-rata
share redemption that completed in July 2024 and before the planned reduction
of the carried interest liability of c.€345 million which is expected to
complete in Q2 FY2025. The Buyouts 2010-12 vintage will now accrue net carried
interest payable of less than 1% (31 March 2024: c.3%) of Action's GIR.

- ENDS -

 

 

Notes

 1.  Balance sheet values are stated net of foreign exchange translation. Where
     applicable, the GBP equivalents at 30 June 2024 in this update have been
     calculated at a currency exchange rate of €1.1795: £1 and $1.2642: £1
     respectively.
 2.  At 30 June 2024 3i had 968 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 30 June 2024 of €1,936 million.
 4.  As at 30 June 2024, 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 Europe and North
America. For further information, please visit: www.3i.com
(http://www.3i.com/) .

 

All statements in this performance update relate to the three-month period
ended 30 June 2024 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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