3i Group plc (III) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to 3i Group plc results for the year ended 31st of March 2022. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of 3i Group plc, Simon Borrows, to open the presentation. Please go ahead.

Good morning. Welcome to 3i's FY '22 Annual Results Presentation. I'm Simon Borrows, CEO of 3i Group. And also on the call with me today is Julia Wilson, our CFO. The slides supporting our remarks have been put on our website this morning. It's a pleasure to be announcing these results in a more normal environment than we had in May last year or, in fact, in May 2020. Today, our teams are all back in the office at least 3 days a week, and it's good to be able to travel and hold in-person meetings across our organization. But globally, things are far from back to normal with the Russian invasion of Ukraine and the continuing COVID response in China, creating further uncertainties for us all to work through. Despite these international developments, 3i has continued to focus on the job in hand, and we've delivered some excellent -- exceptional results, with group producing an excellent all-around performance. We managed to double our return on equity this year, achieving a 44% return and that's after the 22% we delivered in FY '21. Private Equity produced a 47% gross investment return, and the Infrastructure team produced 21%. The 2 portfolios delivered good levels of both realisation proceeds and portfolio dividends, and that paid for new and further investments, reduced gearing and funded a group dividend that we've increased by 21%. Before diving into the detail of the results, I'd like to spend a few minutes focusing on our purpose and giving you a brief update on how we are advancing our ESG agenda. Our purpose hasn't changed. It's not about trying to scale up or be the biggest, it's about generating attractive returns for our shareholders and our coinvestors by investing selectively in private equity and infrastructure companies and not being afraid to run our winners to take advantage of the permanent nature of our shareholder capital. With our simplicity of purpose, we have more time than others to devote to thoughtful and creative origination. And 3i's strong central governance underpins consistent price discipline when we're investing and makes sure that we have a laser focus on asset management to add further value to companies in the portfolio. In addition, our long-term perspective underpins our responsible approach to investment, and it mirrors the approach right from the start of 3i's founding after the Second World War with the purpose of filling a funding gap to smaller companies in the U.K. Our people are absolutely critical to the achievement of the firm's mission, and the group benefits from strong values and a can-do team-based culture, which brings the best out of our relatively small but very capable international organization. We are thematic investors. That means we focus on sectors where there is a clear tailwind for companies operating in those sectors. Whether it be for our Private Equity or Infrastructure investment teams, the same megatrends apply: demographics, climate change in the environment, digitalization, and big data and internationalization in the discount and consumer sector. At 3i, we have really picked up the pace of our ESG agenda with the formation of an ESG committee made up from a multidisciplinary team across the group. The ESG group is charged with developing 3i's approach to ESG matters, developing a plan to meet 3i's reporting and other obligations in relation to new U.K. and EU sustainability legislation as well as refining our strategies to embed sustainability as a theme and an opportunity in our investment activities. Many shareholders have been particularly focused on the E in recent conversations. As a group, we've been making good progress over the last few years in collecting GHG emissions data from our portfolios, and we are currently carrying out our first climate scenario analysis. We're also commissioning bespoke seminars to educate the entire 3i organizational climate. That work should improve our collective understanding of this crucial topic and our management of climate risks and opportunities across the group and across our portfolio. Okay. Let me move on to our FY '22 financial results. I'd like to start with Private Equity, where we generated a 47% gross investment return. That outstanding performance is the result of strong earnings and cash flow. As you know, we have a highly disciplined approach to investing, and we maintain that selective approach to new investments. The market saw record transaction valuations across 2021. And despite those elevated prices, we sourced GBP 529 million of investments across new, bolt-on and further investments. And at the same time, we generated GBP 1.1 billion of cash from realizations and distributions. Once again, we had a very encouraging round of portfolio company reviews in March. The majority of the companies in our portfolio are well positioned and have made a good start to this calendar year. In general, the PE portfolio has come through the last 2 years very well. And against what could become a very challenging set of issues for both consumers and companies, we expect another resilient performance this year. PE delivered another very good year of earnings growth with Action rejoining the top tier. By value of these top 20 companies represent 96% of the total Private Equity portfolio. The top heavy profile of this chart is very encouraging as is the left-side bias of the next slide, where you can see the top 14 contributors to value growth as well as a small number of detractors. As you can see, a good number of the portfolio are developing very well. In fact, they are growing at a rate at least as fast as the mighty Action, which has also enjoyed a very good year of recovery after its resilient performance in FY '21. The Action performance was truly remarkable last year, and that is despite the fact that they still had to cope with store closures and restrictions in 6 out of 12 months in the year. The Netherlands, Germany and Austria all saw extensive store closures or restrictions last year. But in all other countries, we saw record results. Sales, profits and cash flow were particularly strong. And Action distributed dividends of EUR 669 million in the 3i year to the 31st of March. Despite ongoing restrictions in the early part of Q1, 2022 has started well for Action. Q1 in 2021 was a very tough quarter because there were significant restrictions and closures in place with some lasting until May. As you can see on Slide 12, Hajir has made a strong start as Action's new CEO with LTM EBITDA growing over EUR 100 million in the quarter to EUR 932 million. And they've had a very encouraging start of a pilot in Spain with 4 new stores opened and trading well ahead of our investment case. So far this year, footfall has been very strong across the network, while average basket sizes have been smaller with one less item and more items purchased in our lower-priced categories. Action has opened 44 stores so far this year, and we continue to believe Action will thrive in today's challenging environment. A lot of our companies in the PE portfolio have grown strongly, and it's been great to see the continued development of our healthcare portfolio in particular. SaniSure has moved forward very well over the last couple of years. SaniSure is a leading independent bioprocessing consumables business created out of a number of smaller companies, several of which came out of Q Holding. It's on a very good trajectory with compound growth rates in both revenue and EBITDA in double digits. BoConcept also had an excellent year and is now close to doubling the EBITDA since our initial investment. They have strengthened the franchise base, and we've opened 70 new stores since we bought the business. Sales in Japan have been particularly good. Hans Anders, our discount optical retailer, executed a very strong recovery last year after the challenging first year of the pandemic. They produced resilient trading across the business with continued store growth across both Belgium and Germany. After our investment in further management resources and IT, Hans Anders has become very much an omnichannel business. Our PE team has been active but selective in the new investment market. The 6 investments they've made are all on the smaller side, but we have strong partnerships with these new management teams and have exciting development plans for all of their businesses. So we anticipate significant organic and M&A growth over the coming years. And in the cases of ten23, MAIT and Dutch Bakery, we've already made sizable bolt-on acquisitions, as we have across the rest of the portfolio. Mepal is an interesting new investment from our Dutch team. It's a strong consumer lifestyle brand in the Netherlands with a growing business in Germany. The business is well known for its sustainable food and drink storage and serving products and has a strong reputation for innovation and clean design. We think the business has a significant opportunity for both online and international growth. The Private Equity portfolio has delivered very decent cash generation with some strong realizations and a good spread of distributions across the portfolio. The sales of magnitude and recently announced QSR out of Q Holding's both resulted in 100% -- over 100% uplifts over the March '21 valuations. And that clearly underlines the value opportunity in our portfolio. We still own the Q Holding healthcare division, which is performing well as part of our healthcare portfolio. Infrastructure had another predictably solid year with a 21% GIR, including a 17% increase in 3iN's share price. Cash income to the group was strong at GBP 91 million, and we continue to see good growth in our North American infrastructure platform with the addition of EC Waste. Scandlines has also had a good year of recovery with strong freight traffic ahead of 2019, resulting in a GIR of 26%. And we also received a dividend of GBP 13 million after no dividends in 2020. Okay. That finishes my section. So I'll now hand over to Julia for the financial review.

Thank you, Simon. This has been an excellent year for 3i. Once again, we have demonstrated the resilience of our business model. That resilience was clear during the immediate stress of the pandemic, and it is continuing now that we are seeing the effects of inflation and supply chain issues as well as the more recent consequences of Russia's invasion of Ukraine that Simon touched on. We delivered a 44% return on equity in the year, which, as you can see here, is substantially due to the value growth in our portfolio. Although sterling has been volatile during the year, it finished up against the euro, down against the dollar and largely flat overall. So after paying dividends of 40p per share in the year, we closed with an NAV per share of GBP 13.21. That's a 12-month increase of 39%. The value growth of 396p per share or GBP 3.8 billion in total includes another significant increase in the value of our investments in Action. So I'll cover Action first. Simon has talked about Action's performance in 2021, and a lot of you will have attended the Capital Market Seminar that we hosted in March. We haven't changed our valuation methodology, applying a multiple of 18.5x to its run rate earnings to the 3rd of April of EUR 1.012 billion. That gives a valuation on our balance sheet at the 31st of March 2022 of GBP 7.165 billion, and that's after we received GBP 284 million of cash dividends during the year. We are well aware that there has been some downward pressure on the multiples of the companies we refer to when we're thinking about what at multiple to apply to Action. There is quite a mixed picture amongst that group of companies you can see here. We do a careful analysis of Action's performance against each one of them, and Action continues to compare very favorably on all the important KPIs we monitor. We combine that analysis with our long-term approach, and that's why we are comfortable holding the 18.5x constant. So when we take account of earnings growth and cash generation, we recognized value growth of GBP 2.655 billion, as you can see here. During the year, many of our Private Equity portfolio companies have contributed a very good performance. They include SaniSure, BoConcept and Hans Anders, all of whom have benefited from our active management approach. The negatives reflect our decision not to attribute any value to any earnings directly relating to Russia and ongoing pressures in the automotive sector. Our sum of the parts category relates entirely to Q Holding. As Simon has explained, after careful development of that business since our original investment in 2014, we signed the disposal of QSR, the automotive division of the Q business, in April this year. We've valued that transaction on an imminent sales basis, applying the usual 2.5% discount, and we expect to receive proceeds of about $255 million after the repayment of Q Holdings debt. The medical business, which remains, is now debt-free and has been valued on an earnings basis. By way of reminder, we set the multiples we used to value the portfolio with reference to a set of appropriate comparable companies. But as I described for Action earlier, we take a long-term approach in doing that. We take account of average sector multiples and look through short-term market volatility, both up and down. This approach won't insulate us entirely from a very severe market shock like we saw in March 2020, but it has continued to provide a significant degree of buffer for short-term volatility in our valuations. The tragedy of Russia's invasion of Ukraine on February 24 did not translate to a widespread or very deep markdown in equity markets at the end of March. But concerns about inflation, supply chain and the geopolitical volatility did mean that there was a general decline in multiples across peer companies in the first quarter of 2022. This slide shows how our long-term approach has created protection for these sorts of markets. In a small number of cases, we've actually increased the multiples. We've done that to remain consistent with our approach of waiting until we achieve particular milestones in our investment strategy. This might happen when a company shows meaningful progress relative to the sector in which it operates or when we're making preparations for an exit. But we are still careful when we do this. We increased the multiple on SaniSure, for example, and that company is still sitting towards the left of this chart. That sort of solid progress in the portfolio underpins Private Equity's excellent performance, reflected in our gross investment return of 47%. Our realizations in the year were GBP 684 million, generating realized profits of GBP 228 million, and that includes the sale of Magnitude Software at an uplift of over 100%. Total cash generated by the business was just over GBP 1 billion, including the dividends we received from Action of GBP 284 million. And as Simon said, we invested a good amount of capital into new, further and bolt-on opportunities. Our Infrastructure team also delivered a strong performance in the year with a gross investment return of 21%. As well as another growth year from 3iN, we have made good progress with our U.S. Infrastructure platform. We have brought in 2 third-party investors to co-invest in EC Waste and Regional Rail. As a result, GBP 161 million was returned from those transactions, partly through realization proceeds and partly through a return of investment. And it's been good to see a strong recovery in Scandlines as freight has now comfortably exceeded the 2019 levels and leisure travel is showing signs of recovery. As you know, both Infrastructure and Scandlines are important contributors to our operating cash profit. This year, we also had an exceptionally strong contribution from Private Equity, especially in the form of the Action dividends I mentioned a minute ago. But even if you exclude that income, we still made a healthy profit of GBP 56 million, and that's well ahead of our breakeven objective. A quick word on costs. We do expect our operating costs to increase in FY '23. That's partly because we see a full year effect of the recruitment that we've done in the year, and we've also got to be able to attract and retain the best people across our business in what has become a highly competitive market for talent. Even allowing for increased staff costs, our focus on cost discipline is unchanged. In fact, we expect costs to remain well below 1% of assets under management. Our focus on maintaining a simple balance sheet and a conservative approach to capital management is also unchanged. We closed the period with liquidity of GBP 729 million. We extended the maturity of the RCF to 2027. We have used that facility during the year to manage short-term investment and realization flows. But as of the 31st of March, we were back to being undrawn. Whilst we recognize that there are uncertainties, we have a good line of sight for the realizations and refinancings that lie ahead. This is an important consideration in setting the second dividend for the year to remain in line with our policy. Reflecting the strength of the year's financial performance and our confidence in the balance sheet for the year ahead, we announced this morning our intention to pay a second dividend of 27.25p. Of course, that's subject to shareholder approval. Thank you, and I will now hand back to Simon for some closing remarks.

Thank you, Julia. I would like to finish this presentation by having a look back at the last 10 years, and I want to do that because Julia is about to retire from 3i and she has been such a key member of the team since 3i's restructuring in 2012. As this slide shows, there's been a complete transformation of 3i since 2012. The group has become a highly effective PE and infrastructure investor with real focus and discipline across the entire organization and investment processes. We are now a top performer in our sector with the rewards flying to shareholders, as you can see on this slide. If any of you have been smart enough to invest in 3i in late May 2012 or had blind faith, as my mother and a few of my former colleagues did, by 31st of March this year, you'd have been looking at what my PE team like to call a 10x on your investment. Many people at 3i have been responsible for that performance, but few have had such an influential role as Julia. She's been my go-to person whenever I wanted another view on a people decision or a judgment, and she never fails to give me an insightful and completely objective response. Julia has been an outstanding finance director and role model at 3i and will be sorely missed by everyone here. But in James Hatchley, we have a more than capable successor, who is already very highly regarded within the 3i organization. So while I'm sorry to see Julia leave, I'm also really excited about working with James as Finance Director and Jasi as Chief Operating Officer in the years to come. Of course, I'm also looking forward to continue to work with us and support our strong teams in Private Equity and Infrastructure. We still have a lot to achieve at 3i, but we can now pursue our further potential from very strong rock solid foundations. I'm now going to finish by using virtually the same outlook slide as we used last year. We're clearly facing a very uncertain environment. And sitting here today, it's very challenging to predict just how difficult things will become for consumers and for the corporate sector. But from a 3i point of view, we've never been best at place to face some of the difficult headwinds we may encounter. Our teams have many years' experience of doing things well and actively managing our portfolio to get ahead of issues. Our portfolio has demonstrated its resilience over the last few years and is a focused, high-quality collection of companies with over 80% of our proprietary capital invested in Action, infrastructure, healthcare, discount consumer and B2B services. And they all have the underpinning of being bought with firm price discipline and relatively low levels of gearing. Also, 90% by value of the PE portfolio is outside of the U.K. If Mr. Putin decides to provoke a broader conflict in Europe, then all bets are off. But as it stands, we believe 3i can continue to deliver strong returns, and we're certainly not stepping away from our mid- to high teens return target that we have materially exceeded over the last 10 years. And in many ways, the 3i model is now becoming a real compounder for its shareholders, as Action has become for 3i. That's the end of the presentation. And we'll now open things up for questions.

[Operator Instructions] We will take our first question from Luke Mason from BNP Paribas.

Just 3 questions for me, please. Firstly, on deployment. I noticed a mention of aggressive pricing for private market assets. Given the downturn we've seen in the market year-to-date, are you seeing more opportunities? Or do you expect to see more opportunities perhaps for bigger deals this year? And then just secondly, just a broader question on rising interest rates. Just interested in your views, how this will impact 3i across different spectrums, I guess, on valuation multiples, portfolio financing costs, future returns, et cetera, if there's anything to comment there. And then just on Action. I know we've heard from them recently. Just in terms of store openings, 44 so far this year. I think the target is for more than last year. I know there's talks previously about some difficulties, perhaps in store opening, and I know it's H2 weighted. But is there anything you can comment there in terms of what you're seeing so far?

Okay. Why don't I take the first and the last and Julia take the second. I mean I think this is going to be a pretty interesting year for investment, if you want my view at the moment. We have interesting WIP ahead of us, and we're obviously seeing some material corrections across the place. And while we've performed very well over the last 10 years, the one KPI that we fail to meet every year is our investment target of GBP 700 million. And we fail to meet that because of price concerns generally, and we've been very cautious in that regard. And for instance, in FY '22, we've essentially bought GBP 335 million worth of new investments in Private Equity. And in FY '20, we bought GBP 275 million worth. We did spend quite a bit more on things like bolt-ons and stuff. But in terms of pure new investments, you can see how gun-shy we've been on these 2 highly priced vintages in particular. So for me at the moment, this feels like there's going to be more opportunity, and we stand a better chance of hitting that KPI that we've really struggled against for the last 10 years. And then just let me just pick up on Action before I hand it to Julia. We are about 20 to 23 stores behind plan in terms of store openings so far this year. And that's the 2 specifics in particular. The largest part of that number is because we did suspend store openings in Poland for over a month with the outbreak of the Ukraine war. We just weren't sure whether it was appropriate to push forward with that because quite a number of those stores were in the middle and towards the east of the country. Anyway, we've taken decision to refi that plan up. And so broadly speaking, we expect to be back on plan for store openings by the late summer. And we're also anticipating that we are going to open more stores this year than we opened last year. So that is still the plan. Julia, do you want to do rising interest rates?

Yes. Thanks, Luke. And as you allude to, it has many implications. And clearly, some of the pressures we're seeing in market today is a general concern about rising interest rates. So when we think about multiples, I'd say, interest rates is just one of many factors that falls into the market multiples that we look at. And as I talked about earlier, we're quite careful not to follow the market up as it has done on the back of low interest rates. And so we've built these -- established these buffers in our valuation, which certainly gives us a shock absorber effect. So that policy, if you like, is protecting us from this current volatility. I think when you think about financing for the portfolio, I mean, first things first, we don't aggressively leverage the Private Equity portfolio. When we put refinancings in place, it's because it's a business that's performing well, that's generating good cash, that can manage the leverage quite comfortably. So we're not trying to pressurize there. In terms of interest rate hedging, we have a systematic approach for each company about the right strategy for that company, taking into account its financing profile, our exit plans and all those sorts of things. And clearly, in Europe, we've got "the benefit" of the 0% floors on the facilities that are in place as well as interest rates start to rise in Europe. So we're not blind to it, but our banking team has a very close attention to all of those financing considerations. And then I suppose the final dimension I'd say is, actually, we tend to sit on fairly high levels of cash at the center here. So actually, rising interest rates and generating a bit of return on that cash might be nice for a change.

The next question is coming from Philip Middleton from Bank of America.

Particularly thank you to Julie for all the help over the last few years, and I hope you enjoy whatever you do next. I'm sure you will. Simon, I think you -- but certainly somebody in the statement talked about building a stable of compounders on top of Action. This is something you've discussed before a few times. Could you talk a little bit more about how close you think you are to that? How close do you think you are to moving more things into a kind of longer and longer hold bucket and how important that is to you?

Sure. Thanks, Philip, and thanks for those remarks about Julia. We don't have anything that is quite where Action is or about to be moved into what we would term a long-term hold position where we'd approach the assets slightly differently. But we do think we've got 4 or 5 potential candidates, particularly from the health care and the consumer sector. Now not all of those will achieve that goal. And we see that as the gold star for what we do is having further long-term compounders. But we do see several of those are being very likely to move across. And as I've said before, I don't want to curse any of them by naming them. So you will know about them when they graduate into that place.

The next question is coming from Romain Kumps from Kepler Cheuvreux.

So first question, if I look at the Q1 of Action, it seems that sales were in line with the Q3 2021, but margins were quite well below, roughly just over 10%, I would say. Could you maybe elaborate a bit on margin dilution you're seeing due to inflation, I guess, on Action? And maybe related to that, how do you see that evolve in the coming quarters?

Yes. I think Q1, Romain, it's always a lower turnover quarter for us at Action, and it always produces a degree lower EBITDA. Ultimately, as you get through to EBITDA margin, then you would see in the other quarters where there are higher densities of sales coming through. There are 2 things that have affected this. One is that we did have ongoing restrictions in this Q1 as well as last year. We had our stores completely shut in Holland for the first half of January, for instance, and there were other restrictions affecting other countries. So we've probably lost a marginal GBP 50 million plus of sales from that sort of thing where you'd probably see a higher margin put on those marginal sales than would normally be the case. So there are a number of things, noise still in the numbers, which have pulled that Q1 number slightly back. We still expect margins to be in line with what we said in March for the year as a whole, notwithstanding what we've seen to date.

All right. And then the second question, looking a bit at the rising rates environment, I was wondering how could that impact future refinancings at Action, noting that cost of debt, of course, is already quite high in the company. Could we maybe see more traditional dividend being paid as opposed to refinancings on the back of that?

Well, I think we've just had a year of traditional dividends and the likelihood is that we -- that we will have another of that. So we're not in a rush at the moment to go to another refinancing.

The next question is coming from Bruce Hamilton from Morgan Stanley.

I'd echo Philip's comments to Julia, so all the best for the future. Just on the kind of the inflationary impacts and ability to sort of reprice or move the top line and pricing to offset that, can you run through a little bit how you see that across the, say, top 20 assets? I know with Action, there's been some scope. But is there further scope from here? And how should we think about the other assets within the portfolio?

Okay. I'll have a go at that, Bruce. I think in the consumer sector, you would say we're likely to see a mixed response there. So you've actually got a number of companies in that sector which we think will thrive from a tighter, more difficult consumer environment where inflation is, if you like, affecting not only input prices but particularly the purchasing of goods. So we think Action is going to thrive this year. All the early signs indicate that. We think Hans Anders is likely to have another really solid year in terms of the sort of value lines. And we think Royal Sanders will have another very solid year. And then you've got a number which will be sticky, we think, and a good indication of that might be something like MPM, the cat food business, which is growing very strongly in The States, but it's also facing much higher input costs. So the 2 things going together are going to produce a solid year, I would say, a solid year of good growth again in that thing. And then there's, I guess, a couple of questions which -- around companies like a BoConcept. They've just had a record sales months in April, their best-ever sales month. But it might be that we see orders start to slow as we go through the rest of the year if the concerns about the economic -- economies in general are as people say they are. So not seeing it yet, but that could well be on the cards. In terms of the healthcare assets, we're actually seeing strong trading across all of them. So we don't have too many concerns about that this year. And then in some of the B2B assets, again, it's a little bit of a mixed bag, with 1 or 2 bits of caution around new contracts being one of things like that, whereas other things like Wilson, our people business, is on a real tear as employment has been picking up across The States and across Europe and other places. So it's really a mixed bag, I would say. But the majority of our companies we think have real pricing power and can take advantage of the current disruption in the markets.

The next question is coming from Michael Sanderson from Barclays.

Obviously, echo the comments for Julia once again, and I hope Barclays don't cause you too many troubles in the future from your role there. Two questions, please. The first one is you sort of moved the dividend up, talking about sort of the outlook on realizations and refinancing. Any color you're willing to share about sort of how you think about the year ahead in the mix between those 2 buckets of realization and refinancing? And the second one is around the multiples. Clearly, we've got a couple of names trading above the average of their peer groups. And that's, as from what I've always understood, is performance supported. How comfortable would you be with having more than a couple at above public peer group given sort of public or market volatility at the moment?

Do you want to take that second one?

Yes.

I think in terms of the dividend, Mike, it -- we've always had the view that the dividend -- the progress and momentum in the group should be not only reflected in NAV, but the development in the dividend as well. We do see our major problem in the next few years as being a buildup of cash, and that is what we see. We haven't changed our view about that. We have a pretty interesting line of disposals over the next 18 months. We've started those well. If we look at the Q disposal, the industrial business was meant to be the weaker part of that business. And lo and behold, we got $625 million for it. And so we're sitting with a healthcare business with effectively no debt in Q now. So we do think for good companies, the interest is there. And we have a further set of sales plan for this year, and some of those will be well understood by bankers and others because they're already in motion. So we do think we should see some further good realization proceeds going forward, and we're confident in the returns that we can generate for the NAV as well.

Yes. And thanks, Mike. Yes, in theory, when you think about the point of the buffer, as I said, we haven't followed the market up, and we're not necessarily following the market down when it's in a period of volatility. We're obviously not trying to do a mark-to-market valuation of the portfolio. We're trying to do a long-term approach, which is really focused on ultimately where we're going to get to an exit. And whilst I don't think you should be baking in a 100% uplifts on every exit that we do, that does give you a touch point in what has been a difficult market period. And I'd particularly point to the QSR transaction, which we signed in early April. So that's quite in the sort of heat, if you like, of what we're seeing at the moment. So I think it would very much depend at the time when it came to looking at the valuations of what's causing, if you like, the flip of the buffers that would come through. One other factor I haven't really talked about as well that we mustn't forget, it's very easy to get distracted by Bloomberg on a day like today that we are operating in private markets. And so the other factor that we do have in mind is our ultimate exit and transaction multiples, and that would be another factor that we'd be thinking about when we're seeing the short-term volatility. So there isn't an immediate alarm bell that runs off just because things get closer to those marks that we've got on the comparable companies.

[Operator Instructions] There are no further questions on the conference line. So I will now hand over to Silvia Santoro, Group Investor Relations Director, to address the written questions submitted via the webcast page.

So we have one that's related to the last question that was on multiple, which is, what might cause you to relook at multiples at the end of June? And then [ doubly ], what's the average multiple on the non-Action PE portfolio?

Okay. So we do do a quarterly valuation process. I've always made the point that the valuation processes that we do at September, March are, if you like, a deeper dive because we have the benefit of the semiannual portfolio company review meetings that have happened just before that when we've retested against the investment strategy and we've talked about exit process. So in the normal course, a June and a December valuation would be more like a roll-forward approach. But that said, we look at it in detail every single time. So for the factors that I've just talked about, we would continue to be thinking about where the company is sitting on its investment strategy and where the market is going. So I think that will be a standard valuation process. And the second question, Silvia?

The average multiple ex-Action.

Yes. We're sitting at around about 13x at the moment in the book.

It might be worth adding that we -- when we value the PE portfolio, we're doing it off the previous quarter end. So when we're talking about today, we're doing it off the earnings for the calendar year to December. And in June, when we're updating the market, we're talking about the earnings to March, which we obviously already know about. And that's why we said the portfolio has had a good start to the year.

Yes.

And we do have a further question from the web, which is, how do you factor higher interest rates and cost of equity into your valuation multiples, particularly for Action? And are there any sensitivities you can provide?

Do you want me to take that one as well? I mean I'd say we factored them in in the way that we -- when we buy a company, we have to decide what's the set of companies that we're going to track against. And that will often be the companies that we've used to think about the price that we want to pay for the investment. They are typically much larger quoted companies. And so when we set, if you like, the -- if you think about it as almost like the starting buffer, we're looking at the size and the maturity of our company relative to those other companies. And so implicit in that is the gearing structures, the cost of equity and all the factors that go into that. And then it really is about tracking the company against the investment strategy and how we're feeling in terms of progress towards exit. So I couldn't give you a sensitivity relative to interest rates and cost of equity because it's really not a formulaic approach. It's a very careful judgment around each company that we're thinking about in terms of its investment strategy and how we think we're going to grow the value.

And we hedge the financial packages when we make a new investment so that they're all completely hedged.

Yes.

And another question, please could you offer some KPIs for April and early May for Action by geography and for the asset as a whole and perhaps the portfolio as a whole?

Well, in terms of Action, April has been another really good month. But there's -- again, there were some restrictions in April last year. So we'd expect to see a continuation of very strong like-for-likes in footfall. So it's been another very good month. And we've had all of the week in the new period, and that was a good week ahead of budget.

We have no further questions. So I think we can close the presentation here.

Okay. Well, thank you to everyone. We appreciate the questions. We appreciate you calling in. And we look forward to meeting with some of you over the next few weeks. Thanks very much.

Thanks very much, everybody.