Investor relations

Key performance indicators

We use a number of key performance indicators (KPIs) to assess progress against our strategic objectives, including both financial and non-financial measures.

These KPIs are helpful in assessing progress but are not exhaustive as management also takes account of a wide range of other measures in assessing performance.

Gross investment return (“GIR”)1,2 as % of opening portfolio value

The performance of the proprietary investment portfolio expressed as a percentage of the opening portfolio value.

Progress, outlook and key risks

FY2020 progress and FY2021 outlook

  • Resilient performance across our portfolio throughout the year, with COVID-19 only having a material impact in the final month, resulting in a GIR in Private Equity of 6%, a 3iN total return of 11% and a Group GIR of 4%
  • Action had another good year, opening 230 new stores in calendar year 2019 and generated LFL sales growth of 5.6%
  • The strength of Action’s model is endorsed by the introduction of a significant number of new investors in 2020

Key risks

  • Exposure of specific portfolio assets to COVID-19 disruption and wider economic downturn impacts performance
  • Investment rates or quality of new investments are lower than expected
  • Operational underperformance in the portfolio companies impacts earnings growth and exit plans
  • Sterling materially strengthens against the euro and US dollar; at 31 March 2020, 78% of the portfolio was denominated in euros or US dollars

  

NAV per share2

The measure of the fair value per share of our proprietary investments and other assets after the net cost of operating the business and dividends paid in the year.

Progress, outlook and key risks

FY2020 progress and FY2021 outlook

  • Very strong performance for the first 11 months of FY2020
  • 1% decrease in NAV per share to 804 pence (31 March 2019: 815 pence), after payment of 37.5 pence dividend per share in the year
  • Progress impacted by valuation effect of COVID-19 at the end of March 2020

Key risks

  • COVID-19 disruption, market volatility and wider economic downturn impacts portfolio company earnings and valuation multiples
  • Ongoing market volatility and geo-political and economic uncertainty further dampens investor sentiment

  

Cash realisations1,2

Support our returns to shareholders, as well as our ability to invest in new opportunities.

Progress, outlook and key risks

FY2020 progress and FY2021 outlook

  • Cash proceeds of £801 million, including £402 million from the Action transaction, which were reinvested back into Action
  • Cash realisation levels expected to be lower in FY2021
  • We expect to receive the first and most significant tranche of proceeds from the disposal of ACR in Q3 2020, and we expect to complete the sale of Kinolt in August 2020

Key risks

  • Market volatility and related COVID-19 disruption may delay exits or affect pricing
  • Subdued M&A activity in our core sectors reduces investor appetite for our assets
  • Macro-economic uncertainty limits investor appetite for the private equity and infrastructure asset classes
  • Debt markets become less supportive of leveraged buyouts or refinancings

   

Cash investment1,2,5

Identifying and investing in new and further investments is the primary driver of the Group’s ability to deliver attractive returns.

Progress, outlook and key risks

FY2020 progress and FY2021 outlook

  • Invested £413 million in three new Private Equity investments
  • Reinvested £591 million into Action, increasing our gross equity stake to 52.6% as part of the Action transaction
  • Completed 13 bolt-on acquisitions for the Private Equity portfolio
  • Cash investment levels expected to be lower in FY2021
  • Our focus will be on bolt-on acquisitions and supporting our existing portfolio through tough trading conditions. We also continue to work on new opportunities

Key risks

  • Competition from other private equity and infrastructure investors, as well as trade and other financial buyers, makes it more challenging to source investments at prices that will allow us to meet our return targets
  • Failure to attract, invest in and retain the right investment executives impacts our ability to originate and manage assets
  • Failure to maintain and develop our network of advisers and business leaders reduces the quality of potential deal flow

   

Operating cash profit1,2,3

By covering the cash operating cost of running our business with cash income, we reduce the potential dilution of capital returns.

Progress, outlook and key risks

FY2020 progress and FY2021 outlook

  • Infrastructure and Scandlines generated cash income of £78 million (2019: £82 million) and £37 million (2019: £28 million) respectively
  • Remained disciplined over cash operating expenses, which were £120 million4 (2019: £109 million)
  • Operating cash profit expected to be lower in FY2021 as cash yields will be reduced as a number of companies focus on preserving liquidity

Key risks

  • Portfolio performance, and therefore portfolio income, is weak
  • Reduced ability to generate interest and dividend income in a private equity structure
  • Infrastructure initiatives do not generate sufficient fee income
  • Unplanned increase in the cost base; for example, legal, compliance or regulatory issues

   

Total shareholder return2

The return to our shareholders through the movement in the share price and dividends paid during the year.

Progress, outlook and key risks

FY2020 progress and FY2021 outlook

  • TSR of (17)% driven by a share price decrease of 20% in the year, offsetting the impact of dividend payments of 37.5 pence in the year
  • Strong balance sheet and strong cash generation support a total FY2020 dividend of 35.0 pence per share

Key risks

  • Lower NAV due to investment underperformance or market volatility and economic uncertainty
  • Investor appetite for 3i shares could reduce in a volatile macroeconomic environment
  • Uncertainty around Brexit and the future of the UK/EU trading relationship could impact general confidence in the UK economy and equity markets

 
1 A number of our KPIs are calculated using financial information which is not defined under IFRS and therefore they are classified as APMs.
2 Further information on how these KPIs are factored into decisions concerning the Executive Directors’ remuneration is included in the Directors’ remuneration report on page 95.
3 Operating cash profit balances up to 2016 include the contribution of the Debt Management business, sold to Investcorp in March 2017.
4 Cash operating expenses includes lease expense.
5 Cash investment of £1,248 million. Includes a £31 million syndication of cash investment in Private Equity, which is to be received in FY2021

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