TIDMIII
RNS Number : 8948N
3i Group PLC
26 January 2023
26 January 2023
3i Group plc
FY2023 Q3 performance update
A positive third quarter. On track to deliver another year of good growth
* Increase in NAV per share to 1,649 pence (30
September 2022:1,477 pence) and total return of 26.8%
for the nine months to 31 December 2022
* Action produced another excellent result with very
strong sales, EBITDA and cash generation in 2022. In
the 12 months to 1 January 2023, net sales and EBITDA
were 30% and 46% ahead of 2021
* The value for money, private label, healthcare and
infrastructure investments continue to perform
resiliently and represented 83% of our investment
portfolio at 31 December 2022. We continue to see
headwinds across our discretionary consumer portfolio
companies
* Strong cash generation from the Private Equity
portfolio in the quarter with GBP474 million of
realised proceeds received from divestments and
GBP166 million of cash dividends
* Our buy-and-build momentum continues with four
bolt-on acquisitions completed or signed, including
the acquisitions of two components of Q Holding's
medical business by SaniSure and Cirtec Medical
* Signed the full disposal of Christ at a c.43% uplift
on 31 March 2022 opening value, with completion
expected in Q4 FY2023
* Good contribution from 3i Infrastructure plc ("3iN")
and our US Infrastructure portfolio. Two bolt-on
acquisitions completed for Regional Rail and one for
EC Waste
* Well-funded balance sheet at 31 December 2022 with
gross cash of GBP495 million and gearing of 3%
Simon Borrows, Chief Executive, commented:
"Action has once again delivered some very impressive results
and starts the New Year with good momentum across all ten of its
geographic markets. The fundamentals of the business and financial
model are very strong and its low prices and flexible category
format are generating significant customer traffic. Action has a
considerable white space roll-out opportunity ahead of it and we
anticipate another strong year of performance in 2023.
The Private Equity and Infrastructure portfolio continues to
demonstrate its resilience in challenging trading conditions. Our
strategy of investing in assets backed by long-term, through the
cycle growth trends means we are well equipped to mitigate
macroeconomic headwinds that are impacting a small pocket of the
portfolio, most notably the discretionary consumer segment. We
remain disciplined and selective in deploying our proprietary
capital and we continue to enhance our portfolio through targeted
bolt-on acquisitions".
Private Equity
Portfolio performance and valuation at 31 December 2022
In the 12 months to 1 January 2023, Action generated net sales
growth of 30% and added 280 stores, taking its total to 2,263
stores across ten countries. Provisional 2022 EBITDA, which is
still subject to audit, was EUR1,205 million, 46% ahead of 2021.
Net sales (EUR8,859 million) and EBITDA (EUR1,205 million) were 73%
and 123% ahead of 2019. Sales leverage and good cost discipline
were the main drivers behind the increased EBITDA margin of 13.6%.
Covid-19 restrictions were limited to the first quarter of 2022
with full store closures in the Netherlands in the first two weeks
of the year.
Given the Covid-19 disruption in December 2021, like-for-like
("LFL") sales growth was particularly strong in Q4 2022, averaging
23% in the quarter. Action generated LFL sales growth for the year
of 18%, with transactions significantly ahead of last year. Action
generated good sales across all its geographies.
The new country openings in Italy and Spain have started very
well and are trading materially ahead of their investment case.
Action's supply chain performed effectively throughout the year
ensuring improved availability across the store base
notwithstanding the global logistical challenges of 2022.
Action paid an interim dividend to shareholders in December
2022, resulting in a distribution of GBP159 million to 3i, and
finished the year with a cash balance of over EUR697 million.
Action has performed remarkably well since the early days of the
Covid-19 pandemic, reaching its 2019 five year plan target of EUR1
billion of EBITDA a year and a quarter ahead of schedule, and has
more than doubled EBITDA over the three years since 2019.
At 31 December 2022, Action was valued using the LTM run-rate
earnings of EUR1,312 million to 1 January 2023 and an unchanged
multiple of 18.5x net of the liquidity discount, resulting in a
valuation of GBP10,276 million (30 September 2022: GBP8,612
million) for 3i's 52.7% equity stake.
A good number of our large Private Equity portfolio companies
continue to trade resiliently despite the tough macroeconomic
backdrop. In the quarter we saw strong performance from AES
following sustained demand in the global seal market, from Royal
Sanders which continued to generate strong sales from existing
customers, and from WilsonHCG which has continued to grow
year-on-year. Whilst we saw some destocking effects across parts of
the healthcare sector, we made significant strategic progress in
consolidating our segment capabilities in our healthcare assets to
ensure we can maximise their potential in the coming years. Our
travel assets continue to recover strongly.
Our discretionary consumer portfolio companies continue to
experience challenging consumer headwinds and detract from the
overall performance of the Private Equity portfolio. Whilst this
continuing pressure was largely expected, Luqom saw weak trading in
December 2022, with muted consumer demand and mix effects causing a
further reduction in its earnings forecast for the year which
resulted in a value reduction of GBP72 million in the quarter to 31
December 2022.
Peer group multiples across the portfolio generally improved
over the quarter, reflecting a partial recovery in stock market
indices. No adjustments were made to the portfolio companies
valuation multiples in the period.
Private Equity investments
Private Equity Investment
investment Type Business description Date GBPm
------------------ ------------------- ----------------------------------- --------------------------- -----------
ten23 health Further Pharmaceutical product CDMO October and December 2022 9
Quality assurance provider for the
Formel D Further automotive industry November 2022 11
Digital platform for home and
YDEON Further garden projects across Europe December 2022 15
Provider of unique video
Digital Barriers Further compression technology December 2022 10
Accounts payable invoice
xSuite Return of funding automation software December 2022 (7)
Total Q3 FY2023 investment 38
---------------------------
H1 FY2023 investment 292
---------------------------------------------------------------------------- --------------------------- -----------
Total investment as at 31 December 2022 330
---------------------------------------------------------------------------- --------------------------- -----------
In the quarter, we completed a GBP10 million further investment
in Digital Barriers and a GBP9 million further investment in ten23
health as we continue to develop their platforms. We also invested
GBP15 million in YDEON and GBP11 million in Formel D, supporting
both businesses through challenging trading conditions.
Our buy-and-build momentum continued in the quarter. AES
acquired Vibtech Analysis, a reliability service provider based in
Canada and WilsonHCG agreed to acquire Personify, a provider of
recruitment processing outsourcing services. This acquisition
completed post the quarter end, with a 3i contribution of $7
million.
Following our partial disposal of Q Holding's QSR division
earlier in this financial year, we carved out two components of Q
Holding's remaining QMD business, which are being acquired by our
existing portfolio companies SaniSure and Cirtec Medical. In
December 2022, SaniSure completed the acquisition of Q Holding's
Twinsburg site, a leading silicone extrusion business, and its
customers who operate in the single-use technology bioprocessing
industry. Also in December 2022, Cirtec Medical agreed terms for
the acquisition of Q Holding's Precision Components business, an
elastomeric solutions provider in the medical device outsourcing
market. Both acquisitions will be self-funded by the portfolio
companies and will provide differentiated capabilities and enhance
their strong growth momentum. As a result of this transaction, 3i
is expected to receive a distribution of c.$172 million from Q
Holding in Q4 FY2023.
Private Equity realisations
Private Equity Realisation proceeds
Realisations GBPm
------------------------------------------------ ---------------------
Havea 471
Other 3
Total Q3 FY2023 realised proceeds 474
H1 FY2023 realised proceeds 193
------------------------------------------------ ---------------------
Total realised proceeds as at 31 December 2022 667
------------------------------------------------ ---------------------
In the quarter, we recognised total realised proceeds of GBP474
million, of which GBP471 million was from the full divestment of
Havea.
In December we agreed the sale of Christ, our last investment in
EuroFund V, for gross proceeds to 3i of up to EUR53 million, at a
c.43% uplift on 31 March 2022 opening value.
Infrastructure
3iN's underlying portfolio continues to perform very well,
showing strong growth momentum and generating a good level of
portfolio income. Its share price increased by 10% in the quarter
to 31 December 2022 to 334 pence (30 September 2022: 304 pence),
valuing 3i's 30% stake at GBP899 million (30 September 2022: GBP817
million). We also recognised GBP15 million of dividend income from
3iN in the quarter.
Smarte Carte continues to perform well, driven by strong
footfall. Our North American Infrastructure platform was active in
the quarter, with Regional Rail completing two bolt-on
acquisitions, comprising three short-line rail assets in the
mid-west region of the United States and a portfolio of rail assets
located across central Canada. 3i invested a further GBP7 million
to support these transactions. EC Waste completed the self-funded
bolt-on acquisition of A&A Waste Management, a business that
provides non-hazardous solid waste collections in Puerto Rico.
Scandlines
Scandlines produced another solid result in the quarter
following a good peak summer season. Whilst 2022 was a strong year
for freight volumes, there is an expectation of tougher
macroeconomic conditions in 2023. Good operational performance and
liquidity management continues and the business is well equipped to
mitigate potential headwinds. A dividend of GBP12 million was paid
to 3i in the quarter.
Top 10 investments by value(1) at 31 December 2022
Valuation Valuation
Valuation Valuation Sep-22 Dec-22
basis currency GBPm GBPm Activity in the quarter
----------------- ----------- ----------- ---------- ---------- -------------------------------------------------
Action Earnings EUR 8,612 10,276 GBP159 million dividend received
----------- ----------- ---------- ---------- -------------------------------------------------
3iN Quoted GBP 817 899 GBP15 million dividend recognised
----------- ----------- ---------- ---------- -------------------------------------------------
Cirtec Medical Earnings USD 613 569 Agreed terms to acquire the bolt-on acquisition
of Q Holding's Precision Components business
----------- ----------- ---------- ---------- -------------------------------------------------
Scandlines DCF EUR 554 557 GBP12 million dividend received
----------- ----------- ---------- ---------- -------------------------------------------------
Tato Earnings GBP 437 428 GBP7 million dividend received
----------- ----------- ---------- ---------- -------------------------------------------------
SaniSure Earnings USD 422 404 Completed the bolt-on acquisition of Q Holding's
Twinsburg site
----------- ----------- ---------- ---------- -------------------------------------------------
nexeye Earnings EUR 401 396
----------- ----------- ---------- ---------- -------------------------------------------------
Royal Sanders Earnings EUR 322 339
----------- ----------- ---------- ---------- -------------------------------------------------
AES Engineering Earnings GBP 298 314
----------- ----------- ---------- ---------- -------------------------------------------------
Evernex Earnings EUR 314 303
----------- ----------- ---------- ---------- -------------------------------------------------
1. The valuations are translated at the spot rate of the balance sheet
date and exclude the impact of the foreign exchange hedging. Sterling
weakened by 1% against the euro and strengthened by 8% against the
US Dollar in the quarter to 31 December 2022.
The 10 investments in the table above comprised 83% (30
September 2022: 78%) of the total
investment portfolio value of GBP17,528 million (30 September
2022: GBP16,417 million).
Total return and NAV position
In the quarter, we implemented a medium-term foreign exchange
hedging programme to partially reduce the sensitivity of the
Group's future returns to euro and US dollar exchange movements.
Over that period, sterling weakened by 1% against the euro and
strengthened by 8% against the US dollar resulting in a foreign
exchange gain of GBP102 million and a foreign exchange loss of
GBP171 million respectively, before the impact of hedging.
Including the impact of hedging, we recognised a net GBP28 million
gain in the quarter on foreign exchange translation, and a net gain
of GBP739 million in the nine months to the end of December
2022.
Based on the net assets at 31 December 2022 and including the
impact of hedging, a 1% movement in the euro and US dollar would
result in a net total return movement of GBP96 million and GBP13
million respectively. The diluted NAV per share increased to 1,649
pence (30 September 2022: 1,477 pence) or 1,625.75 pence after
deducting the 23.25 pence per share first FY2023 dividend, which
was paid on 11 January 2023.
Balance sheet
At 31 December 2022, cash was GBP495 million (30 September 2022:
GBP55 million), and, including our undrawn GBP900 million revolving
credit facility, liquidity was GBP1,395 million (30 September 2022:
GBP801 million). Net debt was GBP480 million and gearing 3% (30
September 2022: GBP1,074 million and 8%). The first FY2023 dividend
of GBP223 million (or 23.25 pence per share) was paid on 11 January
2023.
The Group will repay its GBP200 million fixed rate bond when it
falls due in March 2023.
- ENDS -
Notes
1. Balance sheet values are stated net of foreign exchange translation. Where applicable, the
GBP equivalents
at 31 December 2022 in this update have been calculated at a currency exchange rate of EUR1.1276:
GBP1 and $1.2025: GBP1 respectively.
2. At 31 December 2022 3i had 964 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 1 January 2023 of EUR1,312 million. The LTM run-rate earnings used include
our normal adjustment to reflect stores opened in the year.
4. As at 31 December 2022, the notional amount of the forward foreign exchange contracts held
by the Group was EUR2.6 billion (including EUR600 million associated with Scandlines) and
$1.2 billion.
For further information, please contact:
Silvia Santoro
Group Investor Relations Director
Tel: 020 7975 3258
Kathryn van der Kroft
Communications Director
Tel: 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
three-month period ended 31 December 2022 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 2022 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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