3i Group performs well thanks to value and infrastructure assets

Investment company 3i Group reported a total return of £4.59bn in its full-year results on Thursday, representing a 36% increase on opening shareholders' funds compared to the prior year's figure of £4.01bn, which itself saw a higher growth rate of 44%.

The FTSE 100 firm said its net asset value per share showed substantial growth, reaching 1,745p, compared to 1,321p in March 2022.

Notably, a gain of 65p per share on foreign exchange translation contributed to its positive results.

The company put its strong performance down to its private equity business, which delivered a gross investment return of £4.97bn, reflecting a 40% increase from the prior year's figure of £4.17bn.

3i said the performance of its portfolio company, European discount retailer Action, played a significant role in the result.

Action achieved annual revenue growth of 30% and EBITDA growth of 46% in 2022, and its value growth was £3.71bn during the year, along with £325m in cash dividend distributions to 3i.

While most portfolio companies showed favourable performance, a small proportion experienced weaker trading, particularly in the discretionary consumer segment.

Despite that, 3i said the overall impact on the portfolio was minimal.

Within the private equity segment, £381m was invested throughout the year, including four new investments and three bolt-on acquisitions.

Additionally, 3i's portfolio companies independently completed eight bolt-on acquisitions using their own balance sheets.

Realisations from the private equity portfolio amounted to £857m, which included the successful sales of Havea and Christ at uplifts of 50% and 45% respectively, as well as the sales of Q Holding's QSR and Precision Components businesses and its Twinsburg site.

3i Group said its infrastructure business generated a gross investment return of £86m, representing a 6% return compared to the prior year's figure of £241m, which demonstrated a higher growth rate of 21%

The decline in the share price of 3i Infrastructure influenced that result, but positive contributions from US infrastructure assets, particularly Smarte Carte, helped mitigate the impact.

3i said its portfolio exposure remained resilient, with 83% invested in the value-for-money and private label, infrastructure, and healthcare sectors, which had shown durability in the current market environment.

During the financial year, the company received more than £1.3bn in cash, primarily through portfolio company realisations and income.

After repaying a fixed-rate bond of £200m due in March, 3i Group ended the year with liquidity of £1.3bn, net debt of £363m, and a gearing ratio of 2%.

In light of its strong performance, a total dividend of 53p per share for the year ended 31 March was declared, with a second financial year dividend of 29.75p per share planned for payment in July, subject to shareholder approval.

“Our portfolio has been carefully assembled and its resilience and consistent financial performance in recent years reflects the benefits of thematic investing, disciplined pricing and active asset management,” said chief executive officer Simon Borrows.

“No portfolio company reflects this approach better than Action, which continues to be 3i's largest and most resilient portfolio investment.”

Borrows said 3i was now focussed on developing a “select number” of other companies to fulfil their potential to also become long-term compounders for the group.

“Whilst we expect macroeconomic conditions to remain challenging in the near term, we have started the 2024 financial year with good momentum and are confident that we have the right people, portfolio and processes to continue to compound value from our portfolio and deliver consistent returns through the cycle.”

At 0953 BST, shares in 3i Group were up 0.83% at 1,760.5p.

Reporting by Josh White for Sharecast.com.