Good morning, everyone. Welcome to 3i's results to 31st of March 2019. Thanks for being so prompt. In preparing for today, I was struck by how much the group has changed over the last few years. We're a much simpler business today, with fewer parts. We're based off a stronger balance sheet with consistent momentum. We're putting a strong emphasis on proprietary investment. The quality and potential of our portfolio of investments has improved every year. We now have more than our fair share of high-performing companies. Our investment processes are very well ingrained. Our teams now benefit from having a good number of years of applying disciplined active management to our portfolio of companies. We still have to demonstrate the true value of the portfolio we've assembled over the last few years. In my view, that's simply a matter of when, not if.
Now, let's take a look at the detail of 2019. We closed the year with an 18% total return on equity, a net asset value of 815p, and an increased dividend for the year of 35p. Julia will say more about that in a minute. All our teams performed very well again, delivering some major realizations at significant premiums to book value and to our cost. It was another year of over GBP 1 billion of proceeds for the group. We closed the year with net cash of GBP 495 million, having paid GBP 358 million of dividends in the year. Today, there's a great deal of interest in private assets. That's leading to a growing mountain of dry powder in both private equity and infrastructure. We've positioned ourselves to avoid the worst excesses of behavior and pricing that this dry powder generates.
We have a tight focus on the mid-market, where price competition tends to be less acute. We focus on well-defined sectors and geographies where we're established and where we have a competitive advantage. Our goal is to buy companies which benefit from long-term secular growth trends. That's because we're aiming to turn 1x into 2x or better over a four-to-five-year period. We're fortunate to have a quality contact book of experienced business leaders who like working with us to screen opportunities, as well as getting involved in the companies once we own them. With proprietary capital, we can be patient and invest at the right times without the pressure to deploy third-party funds. Over the last six years, we've constructed a portfolio that contains a good number of platform assets which are capable of growth through acquisition as well as growing organically.
Our portfolio M&A activity produces synergies and uses our sector knowledge to put us ahead of many of the other financial players. Cirtec is a great example of the approach I'm talking about. This slide demonstrates how we have built a medical device manufacturing platform from the relatively modest GBP 103 million initial investment we made in Cirtec in 2017. FY 2019 was another strong year of earnings growth across the PE portfolio, where we had a good number of material value uplifts. We have focused a lot of active investment around some of our weaker performers, with assets like Dynatect returning to decent earnings growth. We also initiated the wholesale change of management and stabilization of trading challenges at Schlemmer. Our one write-down of any size during the year. Our asset buckets continue to evolve.
We have a further concentration into our top two buckets, that's after having transferred Scandlines out of the top bucket and into our corporate assets bucket. It's been a very good year for Action. The company has recovered well from some difficult supply chain challenges during last year, and they have delivered another strong set of results. Like-for-like results recovered to 4.4% in Q4 last year, and now have moved on again in the first four and a half months of 2019. In Q1, they opened two new distribution centers in France and Germany. Both centers have started well and added enough capacity to significantly de-risk the supply chain.
Of course, this is a key year for Action because we intend to manage a sale of some of the Eurofund V limited partner holdings. As you know, we firmly believe in the continued significant growth prospects of Action, 3i will be retaining our holding in Action. We also recognize the importance of 3i's active portfolio management to make absolutely sure that Action sets ambitious but realistic targets, manages its way through the challenges of being a very fast-growing retailer. That will mean staying true to its founding principles and focusing on the long-term success of the business. Action is a very special business, as any of those companies that compete with it across seven different countries will tell you. This is a chart that Action presented in March. It shows the white space opportunity in front of Action in Europe.
This is a real opportunity because Action is one of a small number of retailers which has an offer and a brand that travels well across borders. It has strong appeal, just as it is, to consumers in every country it enters. We've just finished the annual update of Action's five-year plan. The shape of this plan is compelling. It doubles the store base from the end of 2018. It puts us close to our EUR 10 billion sales target. That increase in scale delivers a group EBITDA margin in excess of 12%. Beyond this plan, we would expect to see the margin move up further as our younger countries continue to scale and move towards the margins of our more established countries. At the moment, this is just a plan, and the execution is still all to do.
The detail has been carefully considered against our rollout experience so far, and we're well underway in building an organization and a supply chain to manage that growth. The strong cash flow and profit growth in the plan comfortably exceeds our overall target of delivering mid-to-high teens net returns for our 3i shareholders. FY 2019 was another busy year for realizations. We took advantage of the appetite of financial buyers to sell a number of our older assets, while at the same time recovering significant value in the case of Atento and OneMed. We saw further good evidence of value growth through realizations of our 13-16 portfolio. In March, we announced a GBP 139 million investment in Magnitude Software. They're a data management business with strong relationships with SAP and Oracle.
We see good potential to continue Magnitude's strong growth through an organic and a buy-and-build approach across both the U.S. and Europe. Our infrastructure team delivered another year of sector-leading performance in 2019. They managed a lot of investment and realization activity, as well as a very strong performance from 3IN, with a 33% TSR after last year's 29% return. Our infrastructure team contributed over GBP 80 million of cash income to the group last year and has led the way in their sector in focusing on core plus investments like WIG, the telecom towers business, while selling those assets from their portfolio with much greater regulatory risk. The team's performance has been crucial in underpinning last year's operating cash profit performance for the group.
In the end, that means that all the returns we create from our proprietary capital approach in private equity go to the shareholders without any cost leakage. 3i shareholders are effectively paying less than a 1% management fee for our asset management, as well as benefiting from very competitive carry rates and FTSE 100 liquidity. We approach FY 2020 in exactly the same way as we approached last year. We're wary of the macroeconomic scene, we are cautious of market volatility. We're also concerned about the behaviors arising out of the need of many PE firms to put dry powder to work. We have a resilient portfolio of investments, energetic and knowledgeable teams, a lean cost base, and a strong balance sheet. We've got a growing reputation as a capable investor focused on the long term.
Moving into FY 2020, we benefit from strong portfolio momentum, we're confident that we will execute another year of solid progress for the group. Thank you. I'll hand over to Julia now
Thank you, Simon. As you've seen, this has been another strong year for 3i, with a total return of 18%. That's right in line with our objective of generating mid to high teen returns through the cycle. We closed the year with NAV per share of GBP 8.15. That's an increase of 13%, it's supported by strong performance from our investments, it's after paying out GBP 0.37 in dividends to our shareholders. The significant increase of GBP 1.12 comes from over GBP 1 billion of group value growth. As you can see here, Action is the biggest contributor by some margin, generating GBP 701 million. You've heard from Simon about the exceptional nature of that investment, I'll talk about how we've approached Action's valuation in more detail in a minute. It isn't all about Action.
The rest of the private equity portfolio has delivered some very good returns. We got positive contributions of GBP 342 million from many of our 2013-2016 and 2016-2019 investments, including Audley Travel, Formel D, Sertec, and Aspen Pumps. Schlemmer accounts for GBP 70 million of the GBP 127 million downs. Infrastructure has also had another great year. They added GBP 162 million of value growth as a result of the 29% increase in 3iN's share price. Looking at this performance in a bit more detail. I'll start with our private equity business. We generated a gross investment return of 20% in FY 2019. That 20% return included realized profits of GBP 131 million. As we talked about at the half year, the sale of Scandlines was an excellent realization. It generated GBP 835 million and a 7.7 times return for private equity.
The timing of that transaction meant we'd taken most of the uplift over value in FY 2018. The disposals of Etanco and OneMed produced good uplifts over value, and they account for GBP 76 million of our realized profits this year. You can see the components of the apparently modest change in portfolio value from GBP 5.8 billion at the 31st of March 2018 to GBP 6 billion at the 31st of March 2019 here. The unrealized value growth of GBP 916 million is again supported by good earnings increases across the private equity portfolio. Five companies had earnings growth in excess of 20%, and two of them were over 30%. Action is obviously in the 10%-19% bar.
For those of you who made it to the Action Capital Markets Day in March, you saw how the need to invest in its distribution network and a number of other external factors had affected its 2018 EBITDA growth. That has naturally also had an impact on the run rate EBITDA included in this chart. The good earnings flow through to the performance component of value growth, which together with changes in portfolio net debt, was GBP 654 million for the year. The GBP 219 million movement attributable to changes in multiples is made up of a positive GBP 260 million from the upgrade in Action's multiple, and a net reduction of GBP 41 million from the rest of the portfolio. The weighted average multiple of the 18 companies valued on an EBITDA basis, excluding Action, was 11.1 times net of the liquidity discount.
That is almost unchanged since the start of the year when it was 11 times, and that's despite the intra-year market volatility. We have continued our approach of taking a longer term approach to longer term sector averages and expectations. When we're setting multiples instead of following markets up and down. At the 31st of March 2019, we valued 12 companies at marks lower than the comparable company average. The GBP 41 million reduction comes principally from our investments in the automotive and consumer sectors, Formel D, Schlemmer and Christ. Coming back to Action. We are valuing it on an 18 times net multiple applied to its March 2019 run rate earnings. Here's a reminder of the history of the valuation in terms of the multiple that we've used.
In setting the value this time around, we have looked at the challenges the business experienced in 2018 and at the significant progress that the Action team has made to address those issues. As you heard from Simon earlier, like-for-like sales started to improve towards the end of 2018, and the five-year outlook for the business is very strong. Just for the avoidance of doubt, this increase in multiple is not based on any offers received. In valuing Action, we have continued to look at Ollie's and Five Below in the U.S. together with Dollarama, B&M and Inditex as a valuation cross-reference. As you can see here, there has been a marked and persistent split between Ollie's and Five Below on the one hand and the rest of the comp set on the other. When you analyze the financials, Action is most like the higher-rated companies.
They are both high-performing discount retailers, but in particular, like Action, they have significant white space in front of them. It's this last factor which is really driving their exceptional growth and stock market rating, and this fits very well with the Action situation and its future prospects. Moving the multiple to an 18 times run rate puts us ahead of the bottom group, but still at a significant discount to the top. Good performance drives our carry payable to the investment teams, as well as the carry receivable from our LP investors. The net carry payable for the year of GBP 78 million was due to the increase in the value of Action, the uplifts from OneMed and Etanco, as well as the value growth in our 2013/16 vintage investments.
Almost all of the balance sheet receivable and a very significant proportion of the payable relates to investments in Eurofund V. We expect those balances to reduce materially after the payouts from any Action transaction later this year. The GBP 77 million of cash paid in the year relates to the Action refinancing we completed in March 2018 and the Scandlines and Etanco transactions. As Simon said, our infrastructure business had another excellent year, and we got a strong contribution from our 33% investment in 3iN, GBP 84 million of dividends and fees, as well as GBP 167 million of unrealized value growth from the 29% increase in 3iN's share price. Whereas our private equity strategy is focused on proprietary capital investment, infrastructure also contributes an important fund management profit through its growth in assets under management.
We reached final close on the 3i European Operational Projects Fund in April 2018, and the recent 3iN, Attero and Tampnet investments also created the opportunity to expand our managed accounts. We announced the U.S. infrastructure team's second year investment, Regional Rail, which should complete in the next couple of months. At the end of the 31st of March 2019, infrastructure's AUM was GBP 4.2 billion. We've made good progress with our GBP 529 million investment in Scandlines, which we're holding separately from private equity and infrastructure as a corporate asset. We're working closely with our co-investors, Hermes and First State, and have received GBP 28 million of cash since the reinvestment in June last year. As a general rule, we don't use hedging to mitigate FX translation risk on our portfolio values. We have taken a different approach for Scandlines.
That's because it stands alone and is a longer term hold. In January 2019, we implemented a EUR 500 million rolling three-year hedging program. Our entry price was at an average in rate of EUR 1.09. That hedging has generated a GBP 21 million gain since then. One of the reasons we invested in Scandlines is because it is a very cash generative business, and that makes it an important contributor to our operating cash profit of GBP 46 million. I've talked about the income from Scandlines and infrastructure. The private equity portfolio also made a good contribution this year, including GBP 18 million of income from the Aspen refinancing and orderly distribution. That means the GBP 18 million is more non-recurring in nature, so I don't expect the operating cash profit to be as high in FY 2020.
Focus on our operating cash profit is an important factor in our resilience. Our strong liquidity is another cornerstone in our conservative balance sheet strategy. We're generally comfortable operating between GBP 500 million of net debt and GBP 500 million of net cash. The GBP 495 million of net cash at the 31st of March is at the upper end where we would feel comfortable, especially if we expect it to persist for a significant length of time. The profile of our private equity portfolio means that realizations activity for FY 2020 is likely to be lower than in recent years. There are a lot of moving parts, but I am working on an assumption of about GBP 350 million-GBP 500 million. We have some interesting opportunities in the whip, and we want to preserve flexibility in any Action liquidity event later in the year.
All of which means we are likely to be more fully invested and in a net debt position at the end of FY 2020. Recognizing the good performance of our businesses and our strong balance sheet and funding position, we have set the total dividend for the year at GBP 0.35. Having paid a first dividend in January of GBP 0.15, it means the dividend we will pay in July will be GBP 0.20. This has been another strong year for 3i. We enter FY 2020 with our diversified portfolio well positioned and with good momentum for further growth. Together with our careful approach to new investment and a strong balance sheet, we can continue to focus on good returns to shareholders through the cycle. Thank you. We're now happy to take questions.
Do we have mics? Can you come up? If you can say your name, where you're from, and then ask the question.
Good morning. This is Shamali Ravishankar from Morgan Stanley. Just a question on the EBITDA multiples. Historically, you've guided that it remains stable and you have downside protection in bad markets. It's gone down slightly. Are you comfortable at this level? Say, we see another Q4 2018 kind of market or just some drivers behind that. Some color there would be useful. Secondly, just on the Action multiples gone up. Can we expect any more change ahead of November this year?
Kathryn. I'll certainly take the first one. I think this period has really vindicated the approach that we've had in setting multiples for the portfolio. As we've talked about, we do look at sets of comparable companies. We haven't followed the market up over recent years. As we talked about at the half year. As we went into a period of quite significant contraction to the end of 2018, those so-called buffers that we have in the valuation have really helped. I think that has continued to be the case coming through. We do have, as I said, automotive and consumer sectors, which are under quite a lot of pressure. When we look at our particular companies, we've taken a small adjustment to it. I talked about Formel D.
Conversely, Formel D has had a very strong performance during the course of the year, and you saw that on Simon's slide, we've had a significant value growth. We'll always be reasonably thoughtful about assessing the multiples with no real change to the process.
On the Action multiple, obviously referred to the event that we're expecting to manage during the course of this year. Whether that leads to an impact one way or the other by November, I can't say at this point, there'll be a lot going on in the meantime.
Thank you.
Liz Pelly with Bloomberg. Two questions. Firstly, you alluded to realizations being a bit lower this year. And given your comments in the press release about being cautious on investments, should we assume that the portfolio value of the private equity business to remain broadly stable over the short term? Or perhaps going up a little? Secondly, what's your sense of the rest of the portfolio outside of Action, and how are you feeling in regards to performance there? Thank you.
I'll take that.
Yeah.
I wouldn't necessarily assume that, because at the moment, what we're seeing in the portfolio that we have today, we're not going to be selling a lot of it in the next 12 months because we had light investment years in 2012, 2013. In terms of the maturing of the portfolio, it's a very much bigger year in 2021 than it is in 2020. The earnings growth we're seeing across the portfolio is in the teens, so we would expect the value to move on in accordance with that unless we see any dramatic change in terms of the portfolio. In terms of What was the second part? The Action.
The rest of the private equity portfolio, excluding Action, how do you feel about the growth prospects there?
I think really covered in that. That figure captures that.
Morning. Michael Sanderson, Barclays. I was interested if you talked a bit more about the longer-term view on Action and the EBITDA margins seem to expand despite the ongoing investment. I was just wondering if you give us more color as how we're going to go beyond 12% in the EBITDA margin as you talked to.
Okay. Action finished last year at a little below 11%, that was a reflection on the significant investment going in during the course of the year. We don't expect that to change materially this year. Thereafter, we do expect significant appreciation in the EBITDA margin. If you look at it's an average. At the moment, we have three of our longstanding markets, the Benelux, Belgium, Netherlands, and Luxembourg, on country EBITDA margins in the mid-teens. We have a couple of countries that after transport costs are loss-making because we're building relatively immature businesses. Then we have two businesses closer to the average figure that we talked about. All of the countries are moving up in terms of their margins, even the mature businesses. As we get bigger scale, we get more efficiencies. Transport costs come down as we invest in the distribution chain.
Store operations become more efficient. We move to more direct imports as we settle down the supply chain challenges that we have. We do see material movement in the average as a result of dealing with the nascent countries and bringing up the bigger countries to the levels of our more established markets, as well as seeing an improvement in our established markets as their like-for-likes and their efficiencies continue to grow. There's a great deal of scope in terms of scale benefits here. Any more questions? Going. Okay. Thanks for coming, everyone. Much appreciated.