3i Group (LON:III) reported a 5% total return for the six months ended September and announced a second share buyback of up to £750 million, as growth at discount retailer Action helped offset a foreign exchange loss.
Net asset value stood at £31.54 per share at the end of September, after a 48 pence dividend payment and a 47 pence per share loss from currency translation. Chief Executive Simon Borrows said the company’s private equity and infrastructure portfolios performed well despite inflation, supply disruptions and weak consumer confidence in parts of Europe and the U.S.
3i completed its first buyback program during the period, acquiring about 29.5 million shares for cancellation at an average price of £24.95 each. The new program is scheduled to run through the end of May 2027.
Action Sales Rise as Price Cuts Drive Traffic
Action, 3i’s largest investment, increased net sales by 13.6% in the first nine months of the year. Operating EBITDA rose 10.7% to €1.73 billion, while like-for-like sales grew 3.4%.
Borrows said transaction volumes were the main driver of comparable sales after Action reduced prices on more than 1,000 products in its fixed assortment over nine months. Most of those reductions were in the 5% to 10% range, he said. The cuts were made across all countries, with more concentrated in France and Germany.
Action’s net sales reached €14.3 billion at the end of October, while operating EBITDA rose to €1.96 billion. Borrows said the retailer’s EBITDA margin exceeded 15% in October, following a weaker first week of the month when higher fuel prices affected traffic and sales.
Subject to no further material disruption, 3i expects Action to open at least 400 stores this year, with like-for-like sales growth of about 4% and an EBITDA margin of 14.7% or 14.8%. The retailer had added 286 stores through the week before the presentation and expects to generate approximately €2.25 billion of operating cash this year, Borrows said.
Action plans to enter Bulgaria and the U.S. next year. Borrows said early trading in Croatia and Slovenia had been strong, although the sample of stores was small. He added that the company had about 20 professionals working in the U.S. and that entry costs would not materially change its full-year margin outlook.
Margin Pressures and Portfolio Valuations
Asked about a third-quarter decline in Action’s EBITDA margin, Borrows cited lower-than-anticipated sales during a hot summer, a rise in inventory shrink in certain countries and higher labor costs associated with absenteeism. He said Action was implementing measures that could include changes to labeling and displays and additional security at some stores.
“We are very confident that there is going to be quite a material step-up in EBITDA margins in Q4, as October has already illustrated,” Borrows said.
Group Finance Director James Hatchley said Action contributed £1.5 billion to the group’s value growth during the half. 3i increased its stake in Action by 2.1 percentage points to 67.5%, and valued the holding on its balance sheet at £25.5 billion at the end of September.
Hatchley said the Action valuation used a post-discount multiple of 18.5 times its last-12-month run-rate EBITDA of €2.8 billion. The transaction to acquire additional Action equity was completed at a price consistent with that valuation multiple, he said.
Across private equity, the gross investment return was £1.5 billion after a £482 million negative foreign exchange impact. Borrows said 96% of the portfolio by value grew earnings, and there were no material write-downs during the period. The company also took a majority stake in French and Spanish food supplements business Nutergia.
Buyback and Dividend Plans
3i’s infrastructure portfolio was valued at £2.1 billion at the end of September, including Scandlines. Hatchley said the segment benefited from an increase of more than 18% in the share price of 3i Infrastructure, or 3iN.
The group ended the half with net debt of £1.3 billion, gearing of 4% and liquidity of more than £1 billion. It plans to pay a first fiscal 2027 dividend of 42.25 pence per share in early January.
Asked how the company would finance the new buyback alongside its dividend, Hatchley pointed to Action’s history of dividend payments, its lower gearing, the potential for investment realizations and 3i’s liquidity. He said the company was comfortable it could execute the repurchase and maintain a progressive dividend policy.
Borrows said further buybacks remained attractive while 3i shares traded at a discount to what the company considers the fundamental value of its portfolio, though he did not announce another program beyond the one disclosed at the results.
About 3i Group (LON:III)
3i is an investment company specialising in Private Equity and Infrastructure. We invest in mid-market companies headquartered in Europe and North America. We generate attractive returns for our shareholders and co-investors by investing in private equity and infrastructure assets. As proprietary capital investors we have a long-term, responsible approach. We aim to compound value through thoughtful origination, disciplined investment and active management of our assets, driving sustainable growth in our investment companies.
