Good morning. Welcome to 3i's results presentation. It's been another strong half for 3i, with our strategy driving good levels of activity and solid returns. We took another good step forward in portfolio performance and we sold assets at decent uplifts. Our private equity team made significant new investments like Hans Anders in Holland and Formel D in Germany. We had a strong fundraising performance in infrastructure. This has delivered another strong financial result with a total return of 11% in the half. This table throws up an interesting perspective, not only against the restructuring baseline in 2012, but this six-month return equals our full-year return in 2015, underlying the strong, consistent year-on-year value growth of our portfolio. We've entered the second half of the year with good momentum across both divisions.
Again, the portfolio has performed well this year, but I'm also glad to see a good level of new investment in private equity. Our private equity team has delivered an excellent return with a GIR of 15%. 91% of our top 20 assets grew their earnings in the first half, and that's another good indicator of the quality of our portfolio. We made over GBP half a billion of new investments, as well as doing some significant bolt-on acquisitions. Our portfolio has performed well and delivered decent growth across the board with very few write-downs. Apart from Action, the strongest growth has come from those companies we've invested in since our restructuring, and that relatively young 2013/16 portfolio has already delivered 1.9 times cost and value growth so far. Action continues to perform strongly.
For financial reporting, Action uses 13 periods of four weeks, and the numbers in our interims are taken from their period nine, which finished on the 10th of September. Action had opened 111 new stores by that date and is on track to open more than 230 stores by the end of 2017. As of yesterday, Action had opened 192 stores and now has a total of 1,044. That's a significant step up from last year and a major ramp-up in this quarter in particular. That's an ambitious growth initiative, and even after significant levels of new investment in stores, distribution centers, country offices and central functions, like-for-likes and cash flow remain very strong. Without increasing Action's multiple, we've seen GBP half a billion of value growth in the last 12 months alone.
The major store expansion program in this final quarter will create further significant momentum for 3i's second-half valuation. We've produced a marked step-up in our origination activity this year. Origination has always been a great strength of 3i. The group led the PE sector in establishing a European network of offices in the '80s and '90s. Now that we have dealt with most of our legacy issues, our investment teams have been freed up to focus on origination against some tight and carefully considered criteria. That change of focus means a good share of our recent investments have been sourced directly away from competitive bank-driven auction processes. This chart puts this year's activity in context. We've invested about GBP 2 billion of capital since our restructuring, but half of that GBP 2 billion has been invested over the last 15 months alone.
In addition, we enter the second half with a strong pipeline of new and follow-on investment activity. I'd now like to touch on a couple of our recent investments. SurTec was our most recent investment. Like Q Holding, it operates in the medical device sector, and like Q, SurTec is capable of being a platform asset that will combine strong levels of organic growth with M&A. 3i's international credentials were particularly useful in convincing the CEO that we were the right partner for his ambitious plans. I'm very excited about our investment in Lampenwelt, which is the largest specialty online retailer of lighting products in Europe. The business was started in Germany in 2004 by two brothers who were both electrical engineers. Lampenwelt is a classic online disruptive retailer. It already operates in 14 European markets and is planning to selectively expand its geographic footprint further across Europe.
We spotted the business when we were doing a due diligence scan of the sector as part of our review last year of the sale of SLV, another lighting company. One of our German network contacts knew the company and was able to make an introduction that led directly to an entirely off-market transaction. Lampenwelt is already highly profitable and generates lots of cash. I have little doubt that it will become one of our highest growing companies very quickly. As I said a minute ago, we're also seeing a good level of bolt-on activity across the portfolio. Ponroy Santé has the potential to become another important platform asset for 3i, and Ersa is another important step on that journey. I'd like to turn to the portfolio. We've raised GBP 350 million at 2.7 times cost on realizations in the first half.
We move into the second half with a number of important processes in train. As long as markets remain resilient, we expect to raise significantly more cash from refinancings and realizations in the second half. Here's the investment bucket slide that we've been showing you for the last few years. As you can see, the top two buckets continue to dominate the makeup of the portfolio. Basic-Fit continues to grow strongly as a public company, and Refresco is now subject to a take-private bid from PAI. What about infrastructure? They produced another good half, with a strong performance from 3iN, good levels of cash income for the group, and a number of important new fund initiatives. The 3iN portfolio, with its recent core-plus additions, is performing strongly, and several of its larger core assets are now undergoing strategic reviews.
The return for 3i's shareholders on the 3iN June 2006 equity placing is now at a very respectable 22%. We've made our first move into U.S. infrastructure with the announcement of our acquisition of Smarte Carte. Smarte Carte is the leading provider of airport baggage carts and self-storage lockers across the U.S. Our U.S. infra team is already performing well, and they are coming up with a good flow of interesting investment ideas. We intend to fund infrastructure investments in the U.S. initially from our own balance sheet with a view to deploying third-party capital in due course. Another good half for 3i. With the private equity and the infrastructure teams producing good levels of alpha in their respective sectors, as well as significant income for the group from infrastructure. Today, our portfolios are producing excellent returns, and we now have only a small number of underperformers.
Importantly, the macroeconomic environment across our chosen geographies and sectors is better than it has been for some time, even if the politics remains very tricky. Technology advances and globalization are both having a greater and greater impact on every commercial sector. We remain very focused on buying companies that can thrive in this fast-changing environment. Without that competitive edge or resilience, companies across many different sectors are facing formidable and accelerating challenges. Testing a company's readiness for and resilience in the face of rapid digital change is an essential part of our pre-investment reviews. Our teams are energized about what they are doing, and they are setting high standards in international mid-market investing. We are really benefiting from consistent investment processes and discipline. In fact, I'm really struck by how much simpler we have made our business and our investment portfolio.
How much more straightforward it is to focus and set the right priorities across the group. We enter the second half with good earnings momentum and a good pipeline of new investment and business initiatives. Our current portfolio looks like it should generate returns significantly better than our 2 times target. Thanks. I'll now pass over to Julia.
Thanks, Simon. With a total return of 11% and over GBP 500 million of new investment completed, we closed the period with an NAV per share of GBP 6.52. You can see here how we generated that GBP 6.52 of NAV. With GBP 0.61 of strong performance from our portfolio companies. We got a modest contribution from FX of GBP 0.06. That compares to about GBP 0.30 this time last year. We paid our final dividend of GBP 0.185 in July. For those of you who are interested in the quarter-over-quarter movement, there is a bridge in the back of the pack, but the shape is pretty much the same.
Our private equity business was the biggest contributor to our returns, generating GBP 715 million of gross investment return, realized profits of GBP 53 million on GBP 350 million of proceeds, with an uplift on opening book value of 21%. Those realized profits came mainly from the sales of Mémora, the Spanish funeral services provider, and Óticas Carol, our last Brazilian investment. This was a strong half with good performance from Action, Scandlines, and our more recent investments, which together contributed to the GBP 517 million value growth. When you add the GBP 500 million of new investments that Simon's just talked about, portfolio is now valued at GBP 5.7 billion, and that's up from GBP 4.8 billion at the start of the period. Over 90% of the portfolio by value has grown earnings, and this is the profile of earnings of our top 20 investments.
Action has had another excellent period, but as you can see, it has moved from the 30%+ bar to the 20%-29% bar this time. That's reflecting the company's investment in its growth agenda, particularly in its distribution centers and logistics. The growing contribution that we're getting from the investments that we've made since the change in our strategy is also important. They make up all of the companies in the greater than 30% category and the rest of the greater than 20% category. Together with Action, these were the biggest contributors to the GBP 283 million of performance in the value growth analysis that you can see here. Now, as you know, we tend to use multiples based on longer term sector averages if we think that the current multiples in the comparable companies have expanded well ahead of longer term sector trends.
In a couple of cases, we've reviewed our investments position relative to these longer term averages and the comp sets, and we've then moved these multiples up to reflect their performance. This time, we've done that for a small number of assets, including AES and Taenque. These were not substantial re-ratings, but they do largely explain the GBP 59 million movement here. We've made no change to the multiple that we use to value Action, which remains at 16x post-discount run rate. These changes to multiples have flowed through to the weighted average multiple for those assets that we valued on an earnings basis. It also includes the effect of some of the investments made in the period, such as Lampenwelt and SurTec, which are in higher rated sectors.
As a result, the weighted average has increased from 9.9x post-discount at March to 10.8x today. Turning to our infrastructure business. Just to remind you, the significant majority of our investment return currently comes from our 34% investment in 3iN, which announced its results last week. Our team have also raised two new funds, the 3i Managed Infrastructure Acquisitions Fund and the 3i European Operational Projects Fund. So far, these funds have added GBP 830 million to our assets under management, and we have committed GBP 69 million to those funds. As you've just heard, our U.S. infrastructure team have announced their first new investment since the period end. Of course, these new initiatives don't have a material impact on the numbers for our infrastructure business in the first half.
The gross investment return of GBP 32 million comes mainly from the good share price performance of 3iN, together with its dividend income and the fee income from our associated advisory agreement. This income means our infrastructure business is already a good contributor to operating cash income. As expected, our cash costs exceeded our cash income by GBP 16 million in the first half because we no longer had the income from the debt management business. That measure will also be improved by infrastructure's fundraising initiatives. This has been a good half for 3i in terms of performance, but importantly, also in terms of investment. We were net investors in the period as we saw a good number of attractive investment opportunities. In total, we've invested GBP 572 million, all funded from our strong balance sheet.
We realized GBP 374 million from private equity and from the residual debt management business. We started the year with net cash of GBP 419 million and liquidity of GBP 1.3 billion. After the investments and realization activity that we have been talking about and paying the final dividend, we had net debt of GBP 48 million and liquidity of GBP 877 million at the 30th of September. Looking forward to the remainder of the year, and of course, subject to the usual caveats about market conditions, with a strong pipeline of realizations, we expect the profile of investments and realizations to reverse in the second half compared to the first half. We will also be paying our interim dividend in the second half.
To remind you about our dividend policy, we pay a base dividend of GBP 0.16, half of which is paid as an interim and half as a final. We will also pay an additional dividend with the final. We set the amount of that additional dividend by taking account of our outlook for investments and realizations and the strength of our balance sheet. You will be familiar with this slide, which shows that distributions to shareholders are a fundamental part of our capital allocation model. Our portfolio continues to perform well, and we have made some excellent new investments, which means we are well-positioned to deliver continued growth. Thank you. We will now take questions.
Daniel.
Good morning. Daniel Garrard from Barclays. A couple of questions from me. First on Action's growth profile, you clearly detail in the slide that it has dipped into that 20%-29% bracket. I think earlier in the year, you had said expectations of Action's growth profile in 2017 being similar rate to 2016. From your comments, it sounded like the store opening is heavily biased to sort of this final quarter of the calendar year. Do you see it as just temporarily that it has dipped into that bracket? Can we see it recovering back into the more than 30% category? Is it just temporary around store opening? Second question is, the one asset you outline in your slide, Simon, of where there has been some value declines in the half is Schlemmer, a newly sort of purchased asset. You knew that was requiring a turnaround when you bought it.
Where have you been negatively surprised, I guess, that this caused that small valuation reduction on that specific asset, please? Thank you.
Okay. Taking Action first, again, to set things in perspective, until a couple of years ago, Action was working with one distribution center. It then opened another on the southern Dutch border. It opened its third distribution center last year, Moissy. It's actually opened two this year, one in the south of France, one in Germany, and it's invested more into Moissy, the distribution center around Paris. There's significant people and systems costs that go with all of that, but the goal is to reduce those transport mile costs that you face as the company broadens out geographically. We are accelerating the store rollout program, and we're accelerating the support that goes with that. There will be an impact upon, if you like, the margin for the business this year. It's not hugely material.
It'll still be spectacular growth at the top line and at the EBITDA line. It has tripped it below 30% at this point.
So-
Schlemmer, it was a business that we purchased in the knowledge that we'd have to make quite a lot of changes to because it hadn't really been run as a private equity business that we would focus on. It has a significant growth agenda, but there is a lot of effective management that can be brought into it. We've been particularly focused on changing one plant in Germany and dealing with some operational problems that they had in North America. That's really affected the results in the current year. Top line growth in Schlemmer is very strong there.
Merrell, just a couple of things. Firstly, looking at your private equity portfolio, how's the balance of where you see value creation changing? Are you able to focus more on the operational side now things are more straightforward? Are you able to focus indeed more on bolt-ons and M&A and supporting your company through further capital allocations? How are you thinking about driving value in what is a relatively competitive market for investments? Secondly, and rather more pickily, I thought that the net carry was a bit lower than I'd have guessed. I know this is a fiendishly difficult calculation, which is way beyond me, but if you could talk us through a little bit about why that was and how we should think about that going forward, which is awful jargon. Thank you very much.
Okay. Why don't I deal with the first one, Julia can deal with the second one on carry. The portfolio has a number of different characteristics about it. You've got the big beast Action, which really is still by far and away the most significant investment, and that's all about managing a growth agenda. It is a car driving at 100 miles an hour. Ensuring that the rest of the operation can keep up with our remarkable store opening teams. We are now up to opening 16 stores a week in the busy period of Action. As you can imagine, these stores are not small stores. They put a lot of pressure on the rest of the system. You need to feed the store opening beast. That is all operational agenda, and it's about getting your investment in front of your store opening program.
That's the critical challenge there. That takes up a great deal of that management time as well as our own time. We have quite a number of our own executives focused on supporting Action. You've then got some very stable businesses that are much more focused on a growth agenda. That can be both organic. It can be M&A. I would say a big theme that you will see this year is consistent levels of M&A coming out of what I call our platform assets. We're picking that back up again because the businesses are growing strongly. They now have the market positions. Are confident enough to step out and make some important M&A. Significant value adds and synergies coming off that. You saw the Degania acquisition for Q. We talked about that in September.
This Ponroy acquisition is a very important one. There are others in the pipeline that we're pretty advanced on it at this point. The third category is some of the stuff we buy off market is stuff that hasn't been made ready for a sale to a private equity party. There's quite a bit of work left in it, and Schlemmer is the classic example of that. We'll often find with stuff like that, the trade-off for getting it at a better price than if it had been ready to be sold through a bank auction is that we have to asset manage that company quite intensively for the first couple of years. We have to reorganize. We very often replace the CFO quite quickly. We might make bigger executive changes even than that once we get within the business.
There's a part of the portfolio that represents that type of asset. Again, that represents considerable upside over time. It takes a bit of a while to get your hands around the problems. Get the company moving forward in the way you'd like. There's a nice blend of different challenges in the portfolio. It's what makes it stimulating for the investment teams. For the investment committee to sit above all of this.
I think you said fiendishly complicated, which is probably about right. The carry as a percentage of gross investment return is lower in this period. The guidance that we've given you in the past is 10%-15% of gross investment return, and we've said we expect to be at the lower end of that range. I would still say as a rule of thumb, that should be what you're sort of working towards. It is fiendishly complicated, to use your words. In a particular period, we'll have a particular mix of where the value growth has come from, which can drive some different numbers, and that's really what's happened in this first half.
The only thing I can really say is if you stick with that overall 10-15 and very much the lower end of that, over time, that should come out roughly about the right sort of level.
Any other questions? Over here.
Thank you. Just two questions. One is just in terms of your cash return objective. Looking at the realizations you've made in the last 12-18 months in terms of when you look at the money multiple, it's been above 2x. Just in terms of how are you thinking about the objective of 2x cash return going forward, especially when you consider your existing portfolio assets. Secondly, just in terms of your list of 20 top investments, noticed Scandlines is missing there. Is it up for interim sale? Yeah.
Okay. I think I can deal with those two. The two times cash that we talked about going back to 2012 was just a very simple measure that would drive a net 15%-16% type return after carry payments and cost of the platform to shareholders. It delivers a very respectable return in the context of the financial services sector in the stock market. What we're seeing today is a very different portfolio with very different makeup, far more high growth companies, far more companies behaving as they should and generating significant growth. The two times hurdle is looking much lower hurdle than it used to look for us. We have quite a number of assets now which we think will considerably outstrip that type of hurdle.
It has to be said that for a good company, this is a very good selling environment as well, and we, like the rest of the industry, have benefited from some of that. It's not a particularly easy environment to sell a bad company, I have to say, or a challenged company. If you're selling a good asset, there's a lot of money chasing that sort of thing. It's a favorable environment, but really the driver of this is the quality of the portfolio. Two times is not a demanding objective, and I think we have a whole bunch of companies that will significantly exceed that now. In terms of Scandlines, it is embarking on a strategic review, and I think a lot of you know what that might mean. We have a number of big assets that are in that phase currently.
I really don't want to say more than that because it's a carefully managed process, and I don't want to put my foot in it. That is about to kick off and will take place in the second half of our year. Anything else? No? Okay. Thank you for coming.