Good morning, and welcome to 3i Capital Markets seminar. I'm Simon Burrows, Chief Executive at 3i. I'm joined today by Julia Wilson, our Group Finance Director and Silvia Santoro, our Investor Relations Director. I'm also joined by some executives from our private equity team, who I will introduce shortly. The main purpose for this Capital Markets Day to tell you about 3 private equity investments made over the last year.
And the agenda for today is set out on this slide. There will be an opportunity to ask questions on each investment at the end of each session as well as for more general Q and A at the end. But before that, I intend to give you a brief update on the 3i portfolio. Our investment portfolios in private equity and infrastructure have continued to make good progress in this financial year to date. We have now completed our September semiannual portfolio company reviews for private equity infrastructure and scan lines, which have confirmed strong performance in the significant majority of our investments, including our healthcare investments, our retail and e commerce investments and our value for money companies.
Action's impressive performance has continued with sales, EBITDA and cash generation above budget for Q3 to date. Year to date sales at over €4,500,000,000 and now over 20% ahead of last year with strong trading continuing across all geographies. We expect LTM EBITDA to the end of P9 to be over €760,000,000 compared to €579,000,000 at September last year and €506,000,000 at September 2019. Cash generations continue to be strong with a current cash balance of approximately €900,000,000 Action has now opened 150 stores in 2021, including its first five stores in Italy, where trading has been ahead of plan. There are 3 investments we plan to cover today, which come from our digital retail, healthcare and consumer teams.
Turning to the Private Equity presenters. If you remember, last year we heard from colleagues from France, America and Italy. This year, we're ringing for changes, and today, we'll hear from Germany, America and the U. K. Peter Wirtz leads our investment in Gartner House and has been with 3i since 1998 and was appointed Co Managing Director at 3i Deutschland in 2009 and Co Head of Private Equity in 2019.
Rich Rallia leads the investment in 1023 and joined 3i in 2007 and was appointed Co Managing Director of North America in 2015. And finally, Rupert Howard, who joined 3i in 2018 and as Co Head of our U. K. Private Equity team, Rupert leads the investment in NPM. Before I hand over to Peter for the presentation on Garpenhouse, a quick reminder that you will be able to submit questions in writing by clicking on the Questions tab as shown on this slide.
Alternatively, some of you will have chosen to dial into the conference call associated with the webcast. If you choose to dial into the conference call, please mute the webcast to avoid feedback issues. I'll now hand over to Peter for the presentation on Garpenhouse.
Thank you very much, Simon. Good afternoon also from my side. Those of you who attend our Capital Markets Day regularly may remember And I have presented Lumentenfeld at the Capital Markets Day in 2018, just after we had bought the company. Blood and Mail has developed very well over the last years, and we expect it to more make more than €350,000,000 of sales this year. This compares to roughly €60,000,000 the year before we bought the business in 2017.
We did a number of acquisitions over the year and have renamed the company to do LUCOM to underline the international ambition that we have for it. The reason why I'm referring back to LUCOM now is that our investment thesis for Gartenhaus is very similar To the one we had for Lompenblad at the time, and I will refer to Ducommun a number of times in the following presentation. Next slide, please. Before I do that, I just want to spend a few words on 3i in Germany. We opened the Frankfurt office In 1984, we were really one of the pioneers of private equity in Germany, where nobody knew what private equity Leverage powered our management by ours actually meant at the time.
And as a result, we have a very strong Reputation in Germany with a very broad and deep network that we acquired over the years. On the chart, you see a selection of our current and former investments. Actually, there are quite a lot of current investments in there. 7 of them are active investments, and 3 of them have been done over the last 3 12 months. So you can see that the team is very busy.
It's garden house, it's Mayd and 1023, and Rich my colleague Rich is going to talk about 1023 later on. It has been let out of the U. S. With the help of the German team. And I think it's a strong testimonial of cross border cooperation within 3i.
So as you can see, we are fairly busy, and we are have a very diverse and A strong team of executives in Germany, currently 15 investment professionals. Moving then to Garden House. Garden House was actually our first investment since the beginning of COVID. And If you see that the picture of Piccadilly Circus there, I think it captures the atmosphere very nicely how it felt in the first lockdown was very calm. And we as a business went in the after we've been through the first shock, the first priority was, of course, to see that The portfolio was in good shape that the portfolio was survived, that they had enough liquidity because nobody knew what was coming.
But then we relatively quickly started to change in opportunity mode and look for opportunities that might arise. And our broad portfolio that we have helped us to differentiate between the winners And the losers in a COVID environment. And in that respect, it's not a coincidence that we have invested in Garten House. In particularly, our e commerce businesses like NuCom did extremely well, and that's where we started to look for opportunities. So in the next slide, you see what Garden House actually does.
Garden House is an e com pure player for garden homes. Garden saunas on the left the picture on the left top It's actually a sauna, a garden sauna, sheds and related products. It's an 80% private label Business, so we're not depending on any external brands. Outsource Manufacturing, very capital efficient. The company is based in Hamburg with the majority of the business in Germany still.
But today, we already have 10 web shops in Europe. Garden House is the market leader in Germany and the under market line has a very Attractive growth profile, I'm going to talk about this later on in the presentation. We invested €70,000,000 but expect to increase that number significantly over the lifetime of the investment by supporting a strong buy and build I'm proud to say that we already did the first investment did the first add on, and we hope to be able to announce a few further ones over the next 12 months. As we have done at LUKOM, we are again partnered with Project A. So a reminder what Project A is.
Project A is a Berlin based operational venture capital fund. They exclusively invest in digital companies And provide their company's addition to capital with operational support by a team of 100 in house experts, including all areas across product, growth, data and people. And for companies like Glocom and Gartnerhaus, which in a highly dynamic environment, we consider it as absolutely key to be cutting edge in all those areas In order to be successful and to disrupt. And the partnership worked very well at LUKOM, so we decided to expand it to Garden House as well. Thanks, Mike.
So we developed a conviction early on that the company is well positioned for a sustainable growth trajectory. Let me talk about the key trends that we identified and that provided us with early conviction. So first of all, accelerated digitalization through COVID, Force adoption, we call it. So people were forced to buy online, particular those Older people who tended to buy stationery will force you to try and buy online. And actually, we believe that this is a sustainable shift going forward that these consumers will stay with us and also by online in the future simply because they made a good experience from the previous purchases.
And then the other effect that we saw is the cocooning effect. That is our cocooning or nesting Consumer invests in their home and gardens, and we expect that also the cooling effect is at least partially sustainable post COVID. So those were the three trends that we saw happening through COVID and that gave us the conviction to do this deal. How did we get in the position to invest in this company? First of all, the sector knowledge that we acquired over the years through our investment in London Belt was instrumental both in identifying Garden House as a target and in running a thorough and efficient DE process.
In terms of process, it's important to say that our investment in Garden House was the result of the subsector deep dive where we looked at e commerce companies that showed specific features. I'm going to speak about these features On the next slide, but we basically found that business and approached the owners. They ran a process eventually, but we were we clearly had a head start and we were able to get this head start over the line In the process, we're really in a front runner position here and eventually bought the business. We work with the same strong BLM members that we had used on LUCOM. Again, I'm going to spend some time later in the presentation talking about this.
But most importantly, this is a deal, this is Bangor's strategy on a number of fronts: investing in the market leader in a growing market in a structurally growing market partnering with management Significant buy and build potential and clear international internationalization potential. So that is absolutely key with what we want to do. And therefore, we were very happy to be able to buy The Garden House. What are actually the features that we are looking for in an investment like that? There are 4 pillars, and I'm going to talk To all of them in the following slides.
The first one, favorable market dynamics and shift to online. 2nd, leading online specialist with scale advantages, resilient financial profile and cash generation and then lastly, management. Coming to the first one, favorable market dynamics. The underlying home and garden market is growing moderately with roughly 2%. However, if you look at the online market for this category, you get to double digit growth rates on the back of increased online penetration.
And if you compare the online penetration in that sector, in the garden and house sector or this specific Sector, garden houses and garden projects. The online And penetration is still significant below that in other sectors where you have up to 50% penetration that compares to 16% of penetration online penetration in the Dutch region. And as a result, we expect a double digit online growth going forward. And I think it's also important that these are stable markets. Due to the cooling effect I alluded to earlier, the house and garden sector tends to be relatively stable also in recession as consumer tend to cut back on more like out of home heating expenses or travel spendings.
We have seen that in previous recessions that, that's the case and that's actually a very resilient market. And the obvious question for us was, of course, on how sustainable the rapid growth in the company achieved that the company achieved was since COVID started. So a great deal of our commercial due diligence way we assess this effect was through discussions with consumers and customers to exactly find out their motivation, why they bought now and why they bought online and what their intentions were for the future, how they would how much they would buy in the future, how much they intend to buy in the future And on this slide, you can see the result of this analysis. There's clearly a certain bump, but the whole online market Bump element for valuation purposes, we have assumed a lower structure in EBITDA in our valuation Then the EBITDA that was actually achieved. So we took a certain discount there to make sure we're not overpaying for that bump.
The next slide is actually one of the key slides here. And it speaks about the competitive positioning of Garden House. First of all, we believe that the markets in which Garden House is active lends itself to online Due to the nature of the product, the variety of the product, the choice you can offer online in comparison to stationery. And we differentiated it between 3 competitors. First of all, the stationary, the offline competition Then secondly, the specialist online players, the peers of Garden House and then the Amazons of these worthy online aggregators.
Let me go through them 1 by 1. So like in many other markets competitors Other large stationary formats like the DIY stores. But what you can see that they are struggling With quite a bit of legacy that they have to transition online, leaving room for online players like Garden House Do they disrupt their business model and to grow at their cost? Then you go then to the online specialist, So the peers of Garden House, there is absolutely key to be the market leader. And if you are the market leader, you benefit from scale effects.
And these scale effects are self enforcing in favor of the market leader. He can invest more in the assortment. He can invest more in infrastructure, in the IT and so on. And that's the effect that we can clearly see at NuCom. And that leaves us with a third group of potential competitors, The large online generalists are aggregators like Amazon.
And this is, of course, the obvious question that you always To ask yourself if you invest in an e commerce business, how defendable is your business against Amazon? And I'm using Amazon just as a proxy for other online aggregators. In the case of Garden House, we believe that their market is well protected from the threat for the following reasons. First of all, it's a category which requires customer education. So consumer require consultation, For example, whether they need a building permit or not, it's not a product that you just buy with a click.
That's why we have a hotline. That's where people can call, ask their questions. And we have a hotline in the language of all the countries that we are present in. Secondly, there is no EAN, no European article number, which that you simply can type into a search engine and then you have an offer or you have many offers stores that can sell it. It's mainly an unbranded category, which makes it more difficult for consumer to orientate themselves.
And therefore, They are looking for a well curated site like we have here on Garden House. And lastly, These are bulky products, and the logistics is very challenging or sophisticated. And that's also that Amazon hates. And therefore, that's not really a category that they are very interested in. And that leaves rooms for people like us or for companies like us, like Artenhaus, to focus on that niche of the market.
The 3rd feature, the resilient financial profile and the strong financial profile in many dimensions. First of all, of course, the strong growth that you can see here. 2020 was, of course, an exceptional year, I'm pleased to say that we also expect to grow 25% in 2021. GardenHouse is profitable, which as you all know is not a given for fast growing e commerce business and cash generative as well as a result of their business model with outsourced manufacturing and logistics. And if you go one level deeper to unit which is the profitability of a single order, these numbers are also very strong, very high average order value, Attractive gross margins and moderate marketing costs, particularly in comparison with other categories.
So I think this is a very strong financial profile and an additional attraction. And then finally, very important for us and very important particular for this company where we are building something, Management Team. And with Sebastian Arendt, we found a perfect CEO in the business. He was already there when When we invested, he previously worked for at Obi NEXX. Obi is the leading Yeah.
Why chain in Germany and NEXX is their digital operations. So they basically outsourced their digital efforts into a Separate unit called Next and we was heading that unit. So ideally positioned to take over the job at Garden House. He also worked at work as BCG, where he learned all the toolboxes that he need to run and grow our company. We further strengthened the organization with various key hires.
We brought in a CFO and a CEO and many other positions on the segment here. And like always in our investment, we have strong alignment with the management team. They co invest and so the interests are absolutely on the same page. I talked about the BLN previously. Jochen Wilms, he's also our Executive Chairman for LUKOM.
He's a very close Contact of us and someone we really trust. He comes from the building industry or Building supply industry with Schuco and Gorr has a lot of digital experience. He helped a lot of company to digitalize And their sales effort, therefore, was an ideal recruit not only for Lukom, but also here for Gratnauers. Ulrich Simson, former Principal at PMIRA and then CFO of 1 of their portfolio companies, He is helping the management team, in particular, the CFO. He is a aspiring partner for the CFO To build up the right reporting structure that satisfied our needs as a private equity company.
And then Ben Fisher, Again, we work very closely with him at LUKOM. He's a general partner at Project A, former B and Company consultant and very knowledgeable about e commerce in general. So what's the value the route to your value creation over the next 3, 5 years? Firstly, To strengthen our position in the DACH region, we still see a lot of room to grow there. We want to Gain market share from our competitors, from all the competitors I mentioned before.
But then again, and this is always The ambition for our company is to grow internationally. And to look into other countries, again, there is LUKOM is a perfect example for that. We are market leader in almost all European countries. And that should also be the ambition that we have for GartenHouse to really expand internationally. And with the e com business, a digital company, it's not that difficult.
Opening a store and supporting that one in a different country is not so difficult. And then lastly, M and A. This is a hugely fragmented market. And we see huge potential to grow through acquisitions and to strengthen our market position in product categories we already serve, but also in adjacent product categories like, for example, fences or terraces. Following the announcement of our acquisition of Garden House, we had numerous inbounds from potential targets, And the team is constantly working on add on.
And right now, they are working on 1, very interesting one that we'll hopefully be able to announce in some months. Sustainability, like with all of our companies, is absolutely key. I think it's fair to say that the category Which Garden House serves is as such ESG friendly. It uses natural materials such as wood also contributes to the well-being of consumers. And the key is absolutely that we need to make sure that the What we are using is coming from sustainable sources, and we are working with the FSC And at PEFC, to make sure that our competitors our suppliers Apply to those sustainability rules.
But we're also switching to green electricity suppliers. There's still a lot to do. It's a small company, but it's very high on the agenda going forward. So what's the vision of our company? Building the leading European platform for home and garden projects, there's quite a lot in that statement.
I start with building. We didn't buy a complete company. This is something we want to that's our ambition we are building. We are Investing in the company, we're investing in the management team, in the infrastructure. We are adding buy and builds.
So this is a project where we try over many over the years, build something up just as we have done with LUKA. And it's our ambition to be leading European. I talked about this on the previous slides. That is not enough for us. The DACH region is not big enough for us.
We want to have European ambitions. There's also a platform, which means it's not one category. It's not only garden houses. It's multi we have a multi category ambition for home and garden projects. And that's the last important point I want to make here.
It's a project. So we are not selling products. We are selling more projects. A garden house for the owner of a garden or a family, A garden house is a project, it's not a product. And a project is much more difficult to sell.
It has a higher value, but that's Actually, where our ambition is, it's not our ambition to be the to sell you the best barbecue grill or the lawnmower is bigger than that. So turning to the first year of our ownership. At 3i, we are following the program of best practices of what to do in the 1st year of our ownership that every new portfolio company follows. And 1st and foremost, ensure that we achieve actually the budget we invested on. And I'm pleased to say that we Absolutely achieved this in a challenging environment if you have followed the raw material developments of wood That have come down again, but also in the availability of products was a key challenge in the 1st year of our ownership.
But the company and the management coped with it extremely well. Then we need to make sure that we are Align on the strategy, at Garden House, the key challenge is to choose the options that you want to follow. There are so many stuff that you can do that you need to make sure that you're actually choosing the right ones and the ones that create the biggest value in the long run. Upgrade of the organization, I already touched on that. We hired a CFO and CEO.
And IT and Finance is also one of the key stuff that you do at the beginning. Make sure that the IT It's long term on the right track and that we have the financial the best financial controls. That's always something we do right at the beginning because they are the basis of what we actually do. And then the growth initiatives, and there I'm very proud that we have already delivered on the first one on the first add on With the acquisition of Porehus, we see that on the next slide. Porehus It's equivalent more or less of Aarthenhaus in the Nordic region.
They will do €20,000,000 in sales in fiscal year 2021. Sweden based, also run by the founder. Nordics is a very interesting market for us given the space available in those regions. And the synergies mainly lie in cross listing of assortment. And Basically that you take the assortment that Polus has or Garden House has on their side and expand it to the other side.
We made very good experiences With that, when Luca, Margarten, however, Knappenverd acquired a Dutch competitor, and that was hugely accretive, value accretive for the business. In terms of integration, the founder stayed on board, is absolutely keen to retain that and that works very well at the moment. And my last slide is the lens that the European The European map with now 10 countries that we are active in, but you can see there's still a lot of gray and our ambition is certainly to fill that gray with blue going forward. And with that, I would like to open it up for questions.
Thank you. At 3i. We will take our first question from Philip Middleton of Bank of America. Please go ahead.
Yes, thank you. That was really interesting. I just wondered looking at, Loucom versus Gartner House, I can see why I buy a light fitting online. Getting me to buy a big piece of garden sort of building online feels to me Harder because I'd actually want to go and see and touch it before buying it. Is that why online penetration is lower?
And how do you sort of counteract that issue?
It might be the reason for it. I think, I mean, to Go and see actually garden house. The one you want to buy is actually not so easy also for the stationery businesses. So if you go to Amahe Darya, we store they may have 1 or 2 garden houses there. So you get an impression.
But that's why I'm saying the Keturary lends itself to online because the all the variety that you can get online, the various versions That I think is easier online. But I think people got more comfortable around ordering Something like a garden house online without having seen it in the past. I think that's what we have seen in COVID. But some people still struggle with it. Actually, what we are trying to do is that we do some People who bought a garden house that they allow or do some kind of program to for other peoples to come and see That garden house come to their home and visit it.
That's how we try to get around that issue that people might want to see it first before they buy something.
Okay. Thank you.
And we'll take our next question from Luke Mason of Exane BNP Paribas. Please go ahead.
Yes. Hi, there. My first question is actually on LUKOM. So you spoke about acquiring that business a number of years ago, and I think it's Actually, more than kind of 2 times as many, which is what 3i target more broadly. I'm just wondering what kind of the outlook on future value creation There was for LUKOM and the potential for more bolt on deals.
And then roughly, is there a potential exit down the pipeline for LUKOM, for example? And then just secondly on Gartner House in terms of the sourcing process. Can you say any more on kind of how competitive that process was? And how much of an advantage was it for yourselves in terms of having a similar business in NuCom and the experience you had there? Thanks.
Okay. The first question around LUKOM, I think we see ample room for LUKOM to grow. And that story is Not completed at all. I mean, numerous levers Not that I'm not going into further detail here, but I think there is plenty to go for. And therefore, I think we're very happy to own it and to keep it.
And of course, I mean, there is You all know that e commerce businesses are very much on book at the moment, and we get interest. But I think we're very pleased with it. And I think we want to harvest some of the growth of the future growth ourselves. In terms of process for Garden House, There I think that was the fact that we owned LUKOM was very, very Helpful, both internally as well as externally. I think with Houlucan, we build knowledge, sector knowledge.
We build confidence around our ability to diligent these kinds of businesses. We have the network around it. So that helped us internally to build the conviction I was speaking about it. But also externally with the sellers, they knew what we were doing and the management also knew what we were doing. That gave us a lot of credibility also to be the choice of management that they saw what we can do and what we can do to help them to internationalize.
I think that was absolutely key
here. Great. Thanks.
There are no further questions queued on the phone.
We have some questions from the web. The first from a person who wishes to remain anonymous How much of the 2022 growth are you targeting from add on investments? And secondly, does Bergent House also sell its products through 3rd party channels?
First of all, the first one is so with the 25% I was alluding to, more than 25%, This is purely organic growth. And with add ons, it's pretty digital whether we do them or not. But I mean, we can they can be quite sizable Given that Garden House is not a huge itself, Add on acquisition can be very sizable for that kind of business in terms of sales. And then the second part of the question was?
Does Burton House also sell its products through 3rd party channels?
We used to, but we're doing it only through our website. Also because it was I mean, 3rd party, if we are using Amazon as marketplace as a sales channel, yes, but not through private white labeling for other businesses.
And we have a question from Greg Knox at Numis. And the question is, how much consumer debt is used for buying the buildings? And do you help In organizing this finance?
No. Actually, financing doesn't play such a big role. I mean, it's The average price is a bit north of €2,000 So it's not a massive investment and we're not getting involved in the financing yet.
We have a question from Mark Samdehuis at Primark Capital. Would you move into actual housing or micro housing?
Well, I think that it's micro housing and garages might be Probably fluent, I guess. I mean, I think we have focused more on the garden houses and Microhousing, it's not really a topic for us. I mean, it's more those wooden Garden sheds a lot more
or less. Then we have another question from an anonymous questioner, which is how Should we think about market saturation and or resale? How long do the products last?
The products normally last 10 to 15 years, I would say. But I think the market is Far from being saturated, as I said, I mean, it's growing with 2% roughly, and it's moving to online. That's why we think that there is market growth for us available. But normally, that's the parameters in which we're looking.
Then we have a question from Ruth Hamilton at Morgan Stanley, which is can you provide any more color on possible risks From sourcing, our core supply chain related cost pressures.
We actually had that Quite a bit. The situation relaxed quite a bit already, but we could see that 6 to 9 months ago when the timber prices went up. And then I think what you have to do is or what we did is We try to expand our sourcing opportunities our sourcing organization. So historically, we only bought from suppliers in Estonia or mainly from Suppliers in Estonia, we started to look further east, but we also started to look into suppliers for some of the components in China. But the timber prices have gone up significantly.
Management did a very good job and that's the beauty of to be an online business that I can adjust the sales prices immediately. They did a very nice job increasing the prices. And actually as a result, we realized higher gross margins Then when the prices were the timber prices were actually lower. So I think you have to be very, Very agile in your business or in your operations to react to these spikes in prices and to cope with those increases.
Our next question is from Omar Coombs at Kepler Cheuvreux, Which is do you have any plans to open some physical stores to supplement your offer?
Not at the moment.
The next question is from Peter D'Souza at GLG. How large is the market of potential consumers for a garden house taking into
Well, I mean, first of all, as I said, it's a €2,000 Average order value admin is not humongous, it's not huge. So and The market size, I don't have it on top of my mind right now exactly. But it's a substantial it's a Significant large market and as I said, we are not only in the market for garden houses. There are adjacent product categories. As in total, The market for garden projects where everything that you have at bigger expenditure in the garden It's definitely big enough on a European level to have growth over many years to come.
The next question is from an anonymous questioner, and it is, in terms of the international opportunity, is the current level of garden house ownership in Southern European countries similar To DAS. Or is it right to think the opportunity in these regions might be smaller than in existing geographies?
They might be very different. Mean, I agree that from a I mean, it has a lot to do with habits And the culture around that so I can't exactly tell you what the greenhouse penetration in a country like Italy is, for example. But there might be other Product categories that Southern or in a different geography that people spend their money on. But I think it's fair to say that people love their gardens or their houses and gardens and invest in them. And we try to find out the product that is right for that geography market.
So we are not limited to garden houses. I mean, that's or again, the beauty of our model that we can Choose whatever is best for a certain geography. We're not limited to a certain to one category.
And we have a few questions from Will James at Premier Miter. Firstly, what portion of sales are saunas And what are the trends you see in that area?
So Sona is a growing category. It's interesting for us particularly because it's anti cyclical from throughout the year. So I mean you sell the garden house in spring then you sell the saunas in the autumn. So that is quite nice for us. And then if you think about it, that a garden sauna It's a garden house with a oven in it.
So it's not that different as a category in reality. So it's a quite Good addition. And we only started that category started to focus on that category over the last 1 or 2 years. So it's still relatively small in comparison at growing.
Then what are customer satisfaction scores like Given the online approach, which may mean customers may not have a chance to see or feel the finished product, do you have a return policy?
Actually,
when people get their Garden, the customer satisfaction is actually quite high. And there is not a lot of complaints around the people expected something else when they get the product. We had a little Mike, in negative comments that was due to delivery last year, we saw that spike and the company Almost doubled in from 1 year to the other and they were struggling with some operational challenges. I think that has been sorted. But actually the people are quite pleased when they have gotten us and didn't expect necessarily something else.
In terms of return policy, once the thing that the garden house has been built, we don't take it back.
And another question from Sintudak Chandal at Canaccord. How many countries could Garden House be rolled out In the next 3 to 5 years?
I mean, theoretically,
This is
feasible is a different question. At the moment, we are in 10. I would say it's probably going to be In 5 years, 20 or more.
And the follow-up question. Would the garden house product range lend itself to energy efficiency in terms of adding solar panels, etcetera?
That's certainly something you can think about. And something also we think about adding as accessory and so on. But that's actually when you get into electric, so you need to be careful what you actually do there. But I mean, That's itself to that kind of product, yes.
It looks like that's All the questions we have on Garten House, and we are just in time to move on to 1023.
Rich?
Thank you, Simon. Thank you, Sylvia.
Go to Page 2. Good afternoon. My name is Richard Reglier. And as Simon noted, I'm a partner and co head of our business in North America. And along with my team, I helped oversee our global healthcare sector activities.
By way of background, we've been actively investing in the U. S. Market Since roughly 2,007, our focus is on the healthcare, the business technology services and the industrial sectors principally. And since opening the office, we've been very active in the market putting to work over $2,000,000,000 in a number of leading companies in those sectors. And I've had the opportunity to introduce in the past during these sessions several of our healthcare portfolio, including Q Holding, Certech and Sanisure.
And today, We'll be introducing our most recent healthcare investment in biologics CMO platform, 1023 Health. Next page. So within healthcare, we focus our Active efforts on a very defined set of areas, preferring to be narrow and deep rather than broad and more shallow. Importantly, we want to do this within certain of the most attractive segments of healthcare, which benefit from Strong tailwinds and have high value defensive business models. One of these areas is the broad biotech and pharmaceutical value chain, where we're active across the spectrum of stages in bringing life saving and life changing therapies to market.
This includes discovery, development, including the clinical trial and approval process and commercialization and post commercial activities. Our focus in these areas is on companies that help sponsors ranging from large pharma to emerging biotechs, Bringing their products to market faster, more cost effectively and with greater efficacy and patient safety. Now this can involve investing in spruces companies, Investing in manufacturers of instrumentation or consumable products used in the process, or investing in outsourced Providers of manufacturing and services relating to the drug product itself or an intermediate drug product for various media and excipients that are involved. But we would not take A principal position in the drug therapy itself within this strategy. Within this ecosystem, The Biologics segment is an area in which we spend a particular amount of time, including with our recent platform investment in Sanisure.
I'm Simon Burrows designed to manufacture single use fluid path products used in areas ranging across discovery to commercial production, transport and storage. And I'm happy to say that the business off to a very strong start reflecting the growth potential we described when we introduced it as well as envisioned both in the market and for that Business in particular. As a firm, we're looking to continue to make investments in the space in complementary business models Such as the biologics CDMO sector in which 1023 operates. Now very briefly for those of us familiar with the market, Biologics are drugs that are made from living cell cultures as opposed to chemicals. And this can include antibodies, protein The field of biologics has created the ability to target a number of complex and chronic illnesses, Including rheumatoid arthritis, certain cancers, diabetes and have resulted in many of today's largest selling drugs including blockbusters Humira and Rituxan.
Yes. Importantly, from our vantage point, this market has only begun to realize its therapeutic and commercial potential and the pipeline of candidates that are in discovery and in various stages of clinical trials is enormous. As successful molecules make their way to commercial products, This will lead to substantial need for services to support these drugs, as well as manufacturing infrastructure, relevant media and materials, Instrumentation and production related consumable products, all areas in which we are or may look to be active. And our ambition overall is to support an ecosystem of complementary businesses addressing this sector as we believe it is one of the most compelling in healthcare And the synergies we can create among our businesses could enable them to bring tremendous value to their customers, to patients And along the way to create considerable value for us as stakeholders in the process. Next page.
So to that end, 1023 Health represents the 2nd active platform in the sector, which we've recently launched in partnership with 1 of the leading experts in Drug Product Development Services and Related Manufacturing, Doctor. Hans Christian Mahler. Together With Doctor. Mahler, we're building a biologic CDMO specializing in services, including formulation and process development, Analytic method development, molecule selection support and sterile fill and finish manufacturing. The platform will grow via organic investments and acquisitions and was formally launched on September 1 with lab operations and headquarters in Basel, Switzerland.
Now while starting in this manner may not be typical for a 3i deal, the reason we've taken this approach is it's a sector that we know well. Yes, pricing for mature assets is high. And Hans Christian is a leading expert who's done it before and he and we know what we're trying to build and that it will have particular Strategic value if we're successful. So in many respects, we're inverting our more typical buy and build strategy to begin with building and over time that will be complemented With what we anticipate to be a series of strategic acquisitions. Next page.
In addition to being one of the foremost scientific and process experts in the field, Doctor. Mahler has built and ran leading drug product development operations Twice already. 1st within Roche to serve their internal development and formulation needs and subsequently and most Recently within Lonza, where he built one of the leading drug product contract development and manufacturing organizations or CDM organizations in the world through initially a greenfield launch of a formulation lab and subsequently through the acquisition of fill and finish manufacturing capacity, very similar to the approach we will take. We're now backing Doctor. Mahler and a team of other experts in the field who joined 10.23 since its formation.
And importantly, one of the things that gives us tremendous confidence in Doctor. Mahler is he He's a fantastic team builder. He attracts tremendous talents. He brings deep and very strong customer relationships. He's an expert in the field being a panel member at many of the leading scientific industry groups where he has tremendous recognition.
And importantly, he has a very strong entrepreneurial spirit and his culture is well aligned with us, including everything from how he thinks about building a business To managing talent, to his ESG approach. On to Page 6 the next page rather. A number of attractive themes underpin this interest in the biologic CDMO space. First, as described, it's a large Underlying market experiencing rapid growth and innovation. There's correspondingly a large market for outsourcing of Critical services and manufacturing and that market is growing even faster, particularly where critical expertise exists In areas like formulation development and the production of novel therapies.
It's got attractive long term supply demand dynamics, Considering the number of molecules making their way through the pipeline. And lastly, this area can help to address a number of critical topics within healthcare such as Rising costs and access to care globally. Yes, as proper formulation or reformulation can lower dosing costs, Can extend drug shelf lives, make therapies widely available to patient populations and can increase patient compliance. Next page. Yes, so these trends all underpin our investment thesis in 1023 Health, which in summary, is that we're backing an experienced global leader and his strong team to repeat the success that he's had elsewhere.
It's a market that we know well, which is large, fragmented and undergoing rapid growth. Scale assets within the market, particularly with Pure Biologic exposure are rare and are highly valued. We can employ our proven playbook of strategically transforming a business through geographic growth, Organic Investment and M and A. And if we're successful in creating a high end integrated operation serving the leading pharma and bio Tech companies and innovators across the world will have the chance to create significant value for all involved parties. Next page.
To provide a bit more color on the services that 1023 will offer, they can generally be captured by saying that the company will help Design the process that will be used to turn active ingredients into final drugs, which will then be produced, Transported across the globe, stored and eventually administered into patients. Now these services can include the actual process development, the steps taken From substance through to finished product, formulation, analytical QC activities that help to turn drug substance Into a drug that can be administered to a patient effectively and safely. Now this could involve helping a sponsor decide early on which of the molecules they're focused on can be manufactured into drugs, obviously a critical decision as not all molecules will and choosing the ones that not only have Therapeutic potential, but also can be produced into a drug that will work safely as intended and taking into context the delivery, storage and dosing realities of our healthcare is extremely important. Formulation development as a service involves picking the mixture of drug substance, the active, Excipients and water for injectables that will allow the finished drug to be stable, shipped, stored, dosed safely and easily And generally used successfully, excuse me.
Now process development means picking the steps, the equipment, the production consumables, the primary packaging, whether it's vials, Syringes, etcetera, that will be used in the process of producing the final drug product. And then lastly, sterile fill and finish manufacturing is the actual process Filling the drugs into their primary packaging or dosing devices and that occurs both in the clinical trial process as well as commercial. All of these will be within scope for 1023 and having a broad range of these allows an integrated offering which He's of tremendous value to customers. So on to the next page. So this represents the broad process of bringing a drug to market.
And 1023 services are used during many steps of this process. So they're used early on, as I said, when customers rely on 1023 For advice about how to manufacture and whether a molecule is manufacturable as well as certain early aspects of formulation. It's all their services are also involved throughout the clinical trial and approval process from preclinical through Phases 1, 2 and 3, and that could be for formulation or other drug product development services, as well as for clinical scale manufactured product gets used in the trials themselves. And then when commercial, 1023 services such as reformulation into other dosing forms And for commercial scale production, our Alto service is offered to customers. This allows for a number of touch points with Drug sponsors as well as reoccurring revenues throughout the lifecycle of drug approval and commercialization.
They also these steps also place the business in a strategic position of working with customers up to their point of commercialization and beyond, Which for large scale fill and finish CDMOs represents a very compelling lead generation opportunity and hence a very strategic asset in 10/23. Next page. Now given the high cost and time required to bring a biologic drug to market, which can be 10 years $1,000,000,000 of capital, Drug product development services can have a meaningful impact on customers' economics. Picking the right molecules for manufacturability or other Early, getting the formulation right, modifying the formulation through the clinical process to optimize impact on patients and limit risks Such as toxicity can shorten lead times and avoid costly delays, saving potentially 100 of 1,000,000 of dollars Either in cost or in lost time a drug is under patent. So tremendous value to customers in getting this process right and in the right formulation advice.
On to the next page, you'll see Yes, these delays are well recognized within the industry. Over 60% of surveyed respondents indicated that formulation choices Had an impact on their process resulting in delays and those delays were often more than 12 months, again having a tremendous financial impact as well as speed of bringing Critical therapies to market. So working with a partner who's a true expert in the field and can help solve problems before they arise is of tremendous importance and value. And in 10/23, we've got a team that's recognized as one of the best in the world. This will open opportunities for us that we can leverage in other aspects of the business we're building, such as Phil Finish Manufacturing and the ongoing revenue stream that represents.
On to the next page. In addition to reduced lead time to market and reduced risk of failure in drug product development, there are a number of other important aspects of formulation, which Could include longer shelf lives, could include lower manufacturing costs, facilitated transport and logistics and In many of the sponsors' minds at the top of the list is true competitive advantage in the product, which means that formulation can give the drug itself an advantage. Now that could be in easier dosability, it can be in putting it into new delivery mechanisms, it could involve extending the IP. But in any case, the value of formulation services on a number of different dimensions is extremely high for sponsors and biotechs. On to the next page.
Given this value proposition and given the increasing complexity of both Molecule and modality as well as delivery mechanism for drugs, the spend on formulation development is expected to rise materially over time, particularly for the most Complex programs that will be served by the leaders in the sector like 1023. This can become an additional strong growth driver for 1023 along with The core growth in the number of molecules in development and coming into the pipelines given the strong continued funding environment and promising innovation. So that's a very attractive backdrop of growth On to the next page. Now to put the growth in the number of molecules and assets into perspective, The overall biologics market is expecting double digit growth in the number of molecules. With the modalities of primary focus for 1023, Areas like monoclonal antibodies, cell therapies, gene therapies representing some of the fastest growth areas And those range anywhere from low teens to 20s plus CAGRs over the coming years.
Now we will also serve other large markets That are slightly more mature like recombinant proteins, but offer a business like 1023 with its expertise tremendous white space. On to the next page. This chart, in addition to the overall growth in the market, gives some perspective of how many molecules are in varying stages of Clinical to commercial process overall. And importantly, how many of those are in the early stages, in particular with novel modalities like cell therapies and gene therapies. These categories are strong candidates for drug product services And in particular, with high end expertise, given their complexity and the number that sit within the emerging biotechs who themselves don't tend to have the in house expertise that someone like 1023 does.
So again, not only a large and strong And well growing market, but one in which the complexion of the market when you look across the discoveries And development cycle provides a tremendous tailwind of growth for a business like 1023 in some of those extremely attractive modalities or drug therapy categories. Now onto the next page. So one area in which 1023 will offer strong value again is complex delivery devices That could include prefilled syringes, cartridges, auto injectors. We'll also address traditional vials, which is an area of opportunity to utilize the team's expertise, but we'll certainly be active in the more complex delivery categories as well. And In terms of the backdrop of why this is interesting, these more complex delivery devices often offer strong value propositions for the stakeholders involved.
They're easier to use and more convenient for patients and in some cases can allow for home administration and increasing compliance On the part of patients, they tend to be more cost effective for payers and providers as they're easier to administer. They don't require the same level of Professional staff involvement and time as an IV bag based delivery, for example, and they can often be administered, as I said, at home, which frees hospital resources For other activities. Lastly, for the pharma themselves, they enable innovation in delivery that provides a competitive advantage, as I said before. And they can offer the opportunity for extended patent protection. So a new formula and or a new delivery device can extend the patent life of a valuable drug and the improved compliance that goes along with that can help to validate the efficacy of the drug, which is important in both uptake and payer access.
On to the next page. So this table, intends to help Show the cost difference between a novel delivery device, which is captured in this case under SC standing for Subcutaneous versus IV bag delivery, which is administered by a hospital professional directly into the bloodstream. Given the attention to reducing healthcare costs, this is a notable driver alongside patient benefits. As you see, the top half is From an administration cost standpoint, much lower in subcutaneous delivery mechanisms than in IV based delivery mechanisms. Again, feeding the benefit of being able to offer Advice and services to the complex therapies that will be a strong suit for 1023.
On to the next page. Over time, in addition, we expect more therapeutic areas to benefit from subcutaneous delivery devices And some of the largest such as oncology may be likely to benefit in the hospital setting still while others are already or are expected to from being administered in home or other self administered settings. On to the next page. So If we're successful, 1023 will over time build a compelling suite of drug product development services along with product manufacturing and other complementary services. We anticipate having operations in both Europe and the U.
S. And possibly over time in Asia Pacific. These activities will involve M and A addition to organic growth, given the timeframe required for pure organic growth in areas such as fill and finish manufacturing. And on to the next page. And I think importantly, one of the company's key goals and one of the aspects of 1023 of which we're most proud is Doctor.
Mahler's commitment and his team's commitment to ESG. He takes this as seriously as any leader with whom I've had the opportunity to work. It underpins his values and as a result the company's culture. They don't just speak about their commitment to patients, people and the planet. These principles are Central to their hiring practices, to their business processes, to their procurement vendor selection, Capital investment decisions and overarching company goals.
For example, the business will be carbon neutral from the outset or aim to be. And one of the first hires it made was a fair sustainability officer, which for a company of this size is an incredible indication of how seriously they plan to embed these principles into their operations from the outset. Into their operations from the outset. On to the next page. So far, 10/23 is making strong progress against our future business goals as just described.
Lab operations are up and running. Leadership team is largely filled out and also the next tier of employees including scientists, commercial individuals, engineers, etcetera are on board. The reaction has been very strong to the company's launch with several programs already won and a strong pipeline being developed. Now this rapid response considering our September 1 formal go live is a real testament to the reputation and capability of Doctor. Mahler and the team that has been assembled.
And lastly, we're already in discussions with a number of both M and A targets and also strategic partnership candidates That would allow us to access other parts of the value chain. On to the next page. And if we're successful and can build a midsized player with high end capabilities and clear leadership in interesting areas of biologics, We should represent an attractive and scarce asset of strategic value. As you see and as noted previously, the market is certainly rewarding players with exposure to this sector. On the left side, you see public companies with strong biologics exposure, such as Lonza, WuXi Biologics, Catalent, Samsung Biologics and Avid Biosciences.
These companies are trading, needless to say, at very compelling valuations. And similarly, on the right side, you'll see CDMOs have always received strong values in M and A transaction and this theme has only picked up in the last years And it's particularly the case for biologic focused CDMOs, which tend to trade at a strong premium to those focused either entirely or largely on small molecules. And as we stated, 1023's focus will certainly be on being a native and almost entirely biologic focused CDMO. So going forward, 1023's priorities are continue to build out its development services platform And we will continue to invest strongly in the infrastructure and equipment needed to serve customers. We have a solid team in place already and we'll be continuing to grow it as the company's commercial success accelerates.
We'll seek to convert the already commercial success we're seeing into a very compelling base of customers who can be both services customers as well as eventually manufacturing customers. We want to execute our strategic goal of expanding via M and A the platform and fill finished capacity is our top priority, but we continue to look at opportunities to expand into the U. S. And to expand further the suite of complementary services that we offer. And as noted a moment ago, if we execute effectively, Given the strength of the team and the brand we're building behind Doctor.
Mahler and his team, we should be able to create a business of very attractive strategic value with strong impact on patients and our customers. With that, I'll turn it over to Q and A.
Thank you. There are no phone questions queued at this time.
We have one question from Well, it is from Alex Codrington at Schoenfeld. The question is, Lonza is a company with a CHF 53,000,000,000 market And the industry is highly capital intensive. What gives you the confidence that you can compete?
Yes. It's a good question. See, I think importantly, you need to distinguish between certain of the large scale activities that are of the highest capital intensity And those that are a mix of high end services and more efficient capital intensity, 10/23 will focus very much on The high end services relating to drug product development, formulation as described, as well as manufacturing, but not at the Scale of Alonzo as you point out. And through a combination of targeted, efficient focus on the right areas And also, yes, hopefully creative and value accretive M and A. We believe we can build a base of strong fill finish, which tends to be the more expensive side, I think, as you're pointing out, capabilities that will complement well the services that we offer, that will allow us to capture The ongoing revenue streams throughout the clinical and the commercial scale, while still doing this based on expertise rather than Large Scale Capital.
We have another question from the web, and it is Who are the key competitors 1023 is targeting?
There are a number of I think that several of the companies I mentioned, which are Large CDMOs offer product development services. There are a number of niche product development services businesses. I think As I mentioned, Doctor. Mahler built within Lonza from the ground up a leading We are one of the leading product development services businesses for biologics in the world. And so, we will be competing with those offering the highest end services, Which in many cases will be niche providers of reasonably modest scale.
And so the actual universe Competitors within our set will be limited groups of some of the larger CMOs and a very small set of high end Services businesses that are independent. So in a highly fragmented market, we see our competitor set as being a very small segment given the capabilities and the expertise that Doctor. Marlin.
We then have a question from Kim Virgo of Numis. Can you give us an example of a potential client?
Potential client could be anyone from the large pharma companies to the large biotechs And a number of emerging innovators. Both the large pharma, it could be Roche, Novartis, J and J, others have a very strong recognition of the value of formulation. So while they have their own capabilities in house, Where they need real where they need expertise that is complementary to their expertise, they have a very strong understanding for And the expertise in house. So our customer base will range throughout the small and innovative through to the largest and most sophisticated Pharma and Biotech players in the world. And those are that's the group with whom we're that spectrum is the group with whom we're currently In discussions and that's yes, that represents a very nice cross section of Doctor.
Mahler's network and his team's network.
The next question is on valuation. How should we think about the valuation of the company at this stage and in the coming years? I think I'll Pass that on to Julia. Yes.
Thanks, Helene. I mean, it's very early days of the investment, obviously. So the easy answer today is you can expect to see if it costs at September. And then we'll have to see how the business progresses in the next couple of years because there's obviously some interesting multiples on the slide
that Rich put up earlier.
There are no phone questions at this time.
And there are no more questions from the webcast. So I think we can move on to NPM.
Thanks, Simon. Good afternoon. Delighted to join you today to talk through our investment into NPM. I'm Rupert Howard, and I co head the U. K.
PE team. I've been at 3i for 3 years now where focus on consumer, retail and leisure, having previously spent 13 years at Rothschild. Next slide. The U. K.
Has been at the heart of 3i since our inception, and we've been investing in the U. K. For over 70 years. Our investment team of 9 oversee a portfolio of 3 companies, which includes Audley, our tailor made travel business AES Seal, our sealing solutions manufacturer and NPM, which is the subject of our discussion today. In the past, we've obviously had a number of successful realizations from the UK portfolio in the form of MKM, Maybourne and most recently Aspen.
Next slide. MPM is an international premium and natural pet food business, founded in 2002 and based in Manchester, with operations in 50 countries worldwide and further teams on the ground in the U. S, Australia and China. It operates through 3 brands with a coherent differentiated proposition of being cat first and exceptional quality. The food is human grade.
I've eaten it, All natural and clean label with manufacturing outsourced to our partners across the world. The Applause brand is sold through the Specialist channel with Encore and Reveal targeting the grocery channel. Having first identified NPM back in 2017, We acquired the business in November 2020 through the depths of COVID, investing GBP 125,000,000 Next slide. Over 2 years ago, we started developing our thesis around pet And in particular, the pet food market, identifying a number of characteristics that make it an attractive area for investment, Some of which are obvious and some which are a bit more nuanced. To start with the obvious ones, it's big at over £60,000,000,000 globally.
It's growing almost universally in every market. It's international. The ultimate consumer, the pet, It's a homogeneous across all markets, and it's resilient. Even before COVID, it was clear that pet owners would prioritize their spend on their pets Above virtually all other discretionary consumer spend, the sector performance throughout COVID has only underpinned this. Some of the more nuanced characteristics are that pet food trends mirror human food trends.
As a result, pet owners or pet parents are incredibly discerning about the ingredients that go into their pet's diet. This has driven rapid growth in natural pet food with clearly identified and recognizable ingredients and away from the sludge and chemical ingredients, effectively food production byproducts or waste of the past. And in common with lots of consumer markets, it's premiumizing and polarizing, with growth seen at the top end of the market and by private label store brands at the expense of middle of the range undifferentiated products. This all led us to conclude that what we were looking for was a natural premium pet food business with clear international capability. Next slide.
I'll briefly put a few stats around the global pet market, which I mentioned is worth nearly £60,000,000,000 and of which nearly half and growing is premium. The largest market for premium pet food by some margin is the U. S, followed by EMEA, giving a total addressable market of nearly $23,000,000,000 to NPM. And when we drill down further into premium wet food and specifically premium wet cat food, which is the heart of our business. The split is similar, with EMEA taking a slightly larger share of the £4,400,000,000 core market.
And as you can see on the right hand side, growth in all of MPM's core markets is north of 4%. With just over £100,000,000 worth of sales today, there's clearly significant headroom for growth. Next slide. And as I mentioned, in addition to being scale and growing, another attraction of the market is its resilience. As you can see on the left hand side, in the 2,008 to Economic downturn, growth in pet food and in particular in premium pet food, hardly missed a step.
Some of the rationale for this is clear from the response we received to some of our consumer surveys, with spend on pet being one of the last things that people would cut, almost ahead of all other discretionary spending, including holidays, eating out, entertainment and in some cases, spend on their children. Next slide, please. Some of these attractive trends have been further boosted by COVID-nineteen. There's been a step change in pet ownership, with pets at home referencing an estimated 8% growth in U. K.
Pet ownership through COVID. And given the average lifespan of a pet, this isn't a one off blip, but a step change in the number of pets and, logically, demand for pet food. This has been particularly prevalent in younger pet parents, with 1 third of 24 to 35 year olds in the UK having a pet. As you'll be aware, these millennial consumers are well informed. They have a propensity to spend on premium and natural products and are very keen to build meaningful relationships with the brands that they purchase.
They also happen to be the largest consumer group for NPM. Other shifts caused by COVID that have deepened the relationship that people have with pets include more working from home, giving people who couldn't the opportunity to have a pet or those who already have a pet to spend more time with them. And in addition, the shift to more online purchases that we have seen across a number of categories continues to play out in pet food. Next slide. As mentioned at the start, we first identified MPM back in 2017, which allowed us to develop significant conviction behind the investment well ahead of the process.
With its UK headquarters and international operations, MPM sat well within our mandate, we leveraged our international capabilities to develop deep insight into MPM's core market. An upside of a predominantly virtual world was deal team included colleagues from the U. S, U. K, France and Germany. As articulated, The market ticked a number of boxes on a macro level, but MPM's niche positioning was particularly attractive.
An asset light outsourced business model is something we were able to understand quickly given it was the same at both Aspen and Maybourne, And we felt well placed to assess the brands given our investments in other strong branded businesses like Havertz, Vaux Concept and Audley. A particularly attractive dynamic around MPM was the management team, who led the transition from founder ownership, I've done one turn of PE ownership and were therefore both proven and hungry for the next phase of growth. As is often the case in a competitive auction, Our established relationship and alignment with the management team was critical in helping us to win the deal. And As you'll be aware, sustainability is a priority thesis across 3i, and we're delighted that sustainability takes such prominence with NPM and sits at the very core of its proposition, which I'll cover in more detail later. And finally, the financial profile of the business is also hugely attractive With a relatively simple outsourced asset light model, delivering compounding revenue growth of over 25% over the last 10 years, Improving Profitability and High Cash Generation.
It wasn't the most straightforward process falling right at the outset of COVID. A typical round 1 launched in February 2020, by which point we had a number of management meetings, had developed high internal conviction even completed our Phase 1 commercial DD. But you may recall that the first lockdown came into force on the 16th March 2020, which was the day just before the bid deadline. So the process was put on hold. But over COVID, we were pretty active trying to find a way to unlock the asset, convinced that it would be a winner despite COVID, but couldn't get the stars to align until September.
And that meant that we were extremely well placed With a very high degree of institutional conviction when the process came back in September, and we always had our nose in front, able to move quickly through our diligence to sign a deal at the start of November. Next page. I thought it would be helpful to set out 6 of the key attractions for us to the MPM opportunity and in the process, dive a little bit deeper into the business. Next slide. So as I mentioned, over the last 10 years, NPM has delivered a revenue CAGR of over 25%, with its differentiated proposition and product resonating well with pet parents across the world, resulting in continued new listings in major specialist accounts and more recently, major grocery accounts.
Excitingly, this has continued under our ownership with the business performing ahead of our investment case and winning some new accounts faster than we had anticipated. Next page. The moment at the bowl is one of the most important bonding moments between a pet and their pet parent. And as pet parents treat their pets more and more like children, It's only logical that they feed them products that they would be happy to eat themselves. It's hard over a webcast to be able to convey how different the product is, But I'd like you to imagine for a moment your typical perception of wet pet food, that brown goo with the odd chunk floating in some sort of gravy or jelly And that fairly rancid smell.
Well, MPN's food couldn't be more different. Clearly recognizable flaked fish or shredded chicken breast with some rice and water. And that's it. No fillers, no preservatives, no unrecognizable animal derivatives, And all 100 percent natural. Next page.
This clean label approach is hugely differentiated When you look at our competitor offerings, with as many as 28 separate ingredients going into a competing chicken product, This is a visibly premium product, and it more than justifies the price position for the pet parent. Next slide. A further point of differentiation that attracted us to NPM It is cat first proposition. It's an obvious point that cats are very different to dogs. Yet the vast majority of pet food brands achieve scale in the larger dog market and then think that they can expand easily into cats.
One of the main differences is that cats are very fussy eaters, whereas a dog will eat almost anything you put in front of them. In addition, a cat is a pure carnivore as they can't synthesize taurine or vitamin A from other food products and therefore must eat meat. Palatability, in particular, texture, taste and aroma is absolutely key. Understanding all of these attributes gives MPM genuine authority in the category and expertise in the niche when talking to pet parents and retail buyers. Next slide.
As we touched on earlier, understanding an asset light outsource model was something we were able to easily do. And this slide sets out quite how diversified the supply chain is. On the website, the majority of MPN focused predominantly on human food production with pet food manufacturing an attractive secondary business line for them. As a result, their facilities are all operated to high standards such as BRC certification. NPM is of sufficient scale to be one of the larger pet food customers to these suppliers, ensuring a regular and reliable dialogue with both sides benefiting from the growth that NPM has delivered.
Nevertheless, NPM is constantly evaluating new source options, We recently started producing product in Equidor. This ability to shift supply and scale rapidly allows MPM to be agile and dynamic as it opens new accounts and geographies. As a result, NPM has not been impacted in the same way as a number of competitors who've been struggling with supply shortages and empty shelves. Next slide. A bit of context on the shape and diversification of the business.
For a start, the business is broadly split into thirds when it comes to the channel mix across specialist, online and grocery. As we've explained, the focus of the business is on wet count, which accounts for about 80% of sales, with dry cat used tactically to build the brand and support our retail partners. And finally, our lead brand, Applause, accounts for about 80% of sales, with Encore and Reveal adding revenue primarily in the grocery channel. Next slide. This multi brand strategy allows the business to operate clear brand identities And avoid any channel conflicts.
This is particularly important in the specialist channel, where having specialist brands is important for the retailers. If you think about the consumer journey, a visitor to a pet specialist is making a specific trip to purchase something for their pet, whereas a grocery buyer is likely to be purchasing pet food alongside their family shop. Online clearly sits across both channels, with the brands available across both Specialist and Grocery website. In all cases, the core proposition of the business remains true. Premium natural cat first products that deliver a great margin to the retailers and a superior product to the pet.
Next slide. While the end consumer is homogeneous across the globe, the business benefits from a very broad geographic presence, And this portfolio insulates it from any specific single country shocks. The U. K. Is the heritage of the business accounting for nearly 30% of sales, And key customers here include pets at home and Amazon.
35% of sales are from Europe, with key customers including Zooplus and Fresnap. The USA has been a rapidly growing market for NPM. Having entered Petco in 2016, The U. S. Is now accounting for close to 20% of the total business.
Key customers here include specialists such as PetSmart and Petco, with some exciting listings in grocery at the likes of Kroger and Target and very recently online with chewy.com. And finally, ANZ is an important contributor, accounting for around 14% of sales with strong presence in Coles and Woolworths. Next slide. MPM's management team have been the drivers of its success to date, We're fortunate to be partnering with a team that is capable of running a significantly larger business. In addition, we've used our extensive network assemble a strong team of advisers to the Board, bringing a mix of FMCG, pet retail and pet food expertise across a number of markets.
We feel we've brought together a really heavyweight board who all have themselves run significantly larger businesses and led successful exits and be able to help us manage the continued strong growth that the business is exhibiting. In addition, we're making some senior hires to bring into the leadership team to help the business capitalize on its existing position and deliver on our collective ambition. Next slide. I touched earlier on how important social responsibility was our core consumer. And it's therefore no surprise that it takes such a prominent position in the mindset across the business.
Given our primary ingredient is meat, We're very focused on ensuring that it is all sustainably sourced and traceable. In addition, 90% of our packaging is made from recyclable materials, which we believe is industry leading levels. We're absolutely delighted that back in June, NPM received their B Corp Certification, the first of hopefully many more assets in the 3i portfolio. Clearly, management's focus at the time was around the recall and ensuring that all resources were dedicated to resolving that issue. With that behind us, the team are now sharing this news and landmark certification with our customers and consumers, as you may have seen last week.
An important part of the certification is the quantification And targets, which means that we very much see this as a first step and something we can improve on each year. As you would expect sorry, next slide. As you would expect, our 1st year of ownership plans are in full swing. The business is already performing ahead of our investment case, and we touched earlier on the progress we have made on the people side. We've made great progress with the team around strategy, full potential work and some of the more standard improvements in reporting and governance and around the finance function.
But it hasn't all been plain sailing with a fairly eventful 1st year. From an operations perspective, the team have impressed us With the handling of the product recall in the UK, which represents around 2% of our sales, the first and we very much hope the only case in the business' history. The source of the recall, a high level of mycotoxins, has been isolated to our supplier in the UK, who only manufacture our U. K. Dry cat product.
And like the other brands affected by this recall, We've been working hard to identify how this occurred and obviously to stop it happening again. The team were on the front foot as soon as a risk was identified, ensuring that any potentially affected product was no longer on shelf, working with the FSA and our retailers, and most importantly, supporting our customers and owners who were impacted. We're proud of the responsible and transparent way in which MPM dealt with the crisis and supported their affected consumers. Despite all this going on, the business has continued to trade well and continues to grow in its existing customers as well as securing listings with new accounts. We've taken a strategic decision to be aggressive In building stock positions despite the impact on working capital, particularly in our high growth markets such as the U.
S, which has helped us to support our retailers and manage some of the logistical challenges that we are seeing across our peer set. Next slide, please. Finally, our investment thesis, which is built on 4 key pillars and where we intend to make significant strides over our whole period. The first is, unsurprisingly, to continue doing what the business does so well already, Winning new accounts in new geographies and feeding more pets are wonderful products. We see huge opportunity in the U.
S, where despite its phenomenal success, NPM is just scratching the surface of its potential. We're already making progress here on some initiatives, for example, listing on chewy.com in July, which means that we are trading well ahead of our investment case. To date, the success of NPM has been through a product led strategy. And as the business grows, we're aligned on the importance of driving consumer awareness behind the brands and growing our customer base. And finally, it's no secret that online will continue to be an increasingly important channel for consumers, and we need to ensure that our products are available and appropriate wherever a consumer looks to buy them.
Next slide, please. Now clearly, the pet sector has seen a huge amount of activity in the last couple of years in all geographies. We've seen appetite from other private equity firms, the large trade players and of course the public markets. And while M and A is not a core part of our investment thesis, it is clearly something we keep an active eye on. We're really excited about the opportunity for MPN and believe we've backed a winning business and a great team in a fantastic market.
I hope that was helpful. I'm ready to take any questions that you may have.
Thank
you. We'll take a question from Luke Mason of Exane BNP Paribas. Please go ahead.
Hi, Elliot. Just on valuation multiples continue to rise in this space like NPM, for example, some of the peers like Zooplus. So I'm just wondering if you can give any more details on kind of valuation multiples paid for For NPM or Gartha now, so what you're seeing generally in terms of new opportunities in those types of spaces? And then just a more general question on the portfolio along those Blinds, do you want to add on the valuation multiple uplift? Can you say anything about what we should expect?
Can we help across the portfolio for kind of multiple movements? Thanks.
Hi, Luke. I mean, obviously, we're not updated September yet. So we've done our PCR process, which is the first step on our valuations program and Valuation Progress, we'll be looking at it in the next few weeks. I mean, clearly, we've talked about in the past that we've reinvested in quite a few sectors now with Fairly high ratings, and we always look at those places, but we're not going to move away from our basic process of wanting to have De risking our investment case before we make any moves on multiples.
Thanks. And if I could just ask one quick question on action. I know I'll be some update in the release this morning. So just wondering if you can say any more around kind of the current transaction in terms of For basket sizes and how that compares to the last year, for example, and how that should translate into EBITDA margins in the coming quarters?
It's a little hard to hear the last bit. But Luke, in terms of football and basket sizes, I would say they substantially normalized over the summer. So we've reverted back to a business that looks more like a pre pandemic business with very good levels of footfall and basket sizes moderating as a result of that. So more frequency from shoppers and shopping in a pretty regular fashion, I would suggest. And I didn't quite catch the last bit of the question.
The last bit was just on EBITDA margins. And I guess we saw like in Q2 It's quite an uptick in margins for actions. I'm just wondering if there's any comment you can give there for the coming quarters or in the coming years.
I mean nothing specific again particularly given where we are in the year, but The margins that we're seeing are very much in line with our business plan. And as we've said before, as each country matures, you're going to see The Storey EBITDA margin improved fairly materially.
Great. Thanks.
I have some questions from the webcast. The first is premiumization in pet food is not new. How do you manage to make sure you innovate and lead in this area?
I think that's a very Astute observation is something we like that more and more of the market is moving towards premiumization. I think MPM see themselves as a genuine innovator in the category. For example, their loins and treats products, which they bought out a year or 2 ago, have been incredibly successful as a new way of bringing a premium treat product into the market. But you can be assured that it's a continued focus of the team. It's something that we have every confidence they are very capable of developing.
And the next question is from Kim Virgo at Numis. What is NPM's pricing and margin strategy?
NPM's pricing is understandably a premium one. It's towards the top end, if not the top end product in most of the retailers that it operates. But as I said, if you look at the quality of the product, it's not normally something that consumers find a problem. To give you context, you would buy a can of NPM cat food for a pound and a consumer would typically be spending £3 on a cup of coffee. So in their total spend, it's something that they're more than willing to do.
Seems we have no further questions on NPM, but I do have another on action Simon. So on action, given the strong cash position of €900,000,000 can you give us the latest on net debt, Leverage and how you are thinking about timing and size of the refi?
Well, Action's grace debt is about $2,900,000,000 So you can do the math yourself. And you've You've got the LTM EBITDA figure there, so you can also see the deleveraging that's going on. And it's a little below 3x at the moment.
I think
what we're looking at is not a refi, but a distribution of some description. And we will be looking at that part before the end of the year given the amount of cash on the voucher. Okay. I think that's all the questions for today. I hope you found those Three presentations interesting, each one very different, but sharing a lot of similar themes in the way we approach our businesses and our investment today.
So thanks for your attention and thanks for making the time. Thank you.