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
value1 at 31 December 2023
|
Valuation basis
|
Valuation currency
|
Valuation
Sep-23 £m
|
Valuation
Dec-23 £m
|
Activity in the quarter
|
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.
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.