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

Good day, ladies and gentlemen, and welcome to the 3i Capital Market seminar. [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 seminar. Please go ahead.

Good afternoon, and welcome to our Capital Markets seminar. I am Simon Borrows, Chief Executive of 3i. I'm joined today by James Hatchley, 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 of this Capital Markets Day is to tell you about 2 of our private equity investments as well as our approach to debt financing across our private equity portfolio. And the agenda for today is set out on this slide. There will be an opportunity to ask questions at the end of each session as well as for more general Q&A at the end. But before that, I intend to give you a brief update on the 3i portfolio. We have completed our September semiannual portfolio company reviews for private equity and infrastructure. Our investment portfolios continue to make good progress against the difficult macroeconomic backdrop. In our private equity portfolio, assets in the value for money, consumer and private label, health care, specialty industrial and business technology services sectors have generated resilient earnings growth and are showing positive momentum as we head into the second half of our financial year. Our travel-related assets have seen a sustained increase in demand. Luqom and YDEON continue to face challenging sales -- a challenging sales environment following the COVID lockdown period and Tato, Formel D and Wilson are also dealing with weaker end markets and the resulting reduction in customer demand. Through our strong active asset management, processes continue to be a key part of how we mitigate the impact of today's market challenges. Action's impressive performance has continued with very strong sales and EBITDA growth. Year-to-date sales at 17th of September of EUR 7.5 billion and now 31% ahead of the same period last year. like-to-like growth over the same period was 20%, driven primarily by high customer footfall. As previously indicated, like-for-like performance comparisons will be more challenging for the remainder of the current calendar year. Action continues to attract significant new customer flow through very low prices and good product availability in store with strong performance across all geographies and all categories. We expect operating EBITDA for the 12 months to the end of P9 2023 to be circa $1.53 billion compared to $1.036 billion at the end of P9 last year. Cash generation has continued to be strong with cash balances at 17th September at $1.014 billion. Action has now added 140 new stores in the year-to-date and remains on track to add circa 300 by the end of the year. Okay, on to today's presentations. First up is nexeye, which will be presented by Boris Kawohl, who is Head of our Consumer team and is based in our Amsterdam office. We purchased nexeye in 2017, and this is an example of a consumer health asset, this has performed resiliently throughout the last few years. Next will be European Bakery Group, which will be presented by Bastiaan Peer, who is also a partner in our Amsterdam offices and focuses on the private label sector. We completed the initial investment in Dutch Bakery in 2021. Like Royal Sanders and Refresco, this is another example of our conviction in creating the lowest cost private label platform in a large competitive sector. The final presentation builds on the comments I made about 3i's approach to active asset management in May this year. A key subset of this active management approach is 3i's leading expertise in debt financing across both private equity and infrastructure. Anil Kohli, who runs our private equity banking team will tell you more about our approach as well as give you some portfolio statistics. I'll now hand over to Boris for the presentation on nexeye.

Thank you, Simon. My name is Boris Kawohl. I'm the partner of our private equity team based in Amsterdam. I lead our team locally in the Benelux and our consumer sector across the countries. And today, I will give you an update about nexeye, but I will start with a short introduction about our Benelux office and the consumer sector. Next slide, please. 3i has a local office in Amsterdam for more than 25 years. It is a core market for 3i, where we have 10 investment professionals and a total portfolio of 11 companies. Since we focused on private equity investments in 2001, we have invested more than EUR 2.7 billion in equity in 24 companies. These investments generated an upside of more than EUR 20 billion, which exceeds a 10x money multiple and a 40% IRR over that period. And what we are particularly proud of is that we have not lost any money on any investment made in the last 15 years. And on the right side, you see our current investment portfolio, where we will present today nexeye and European Bakery Group. Next slide. In the consumer sector, we target companies that have what we call the winning proposition. This means that they don't need to be positioned in the most sexy subsectors, but they should have a leading position in what they do. They should be structurally differentiated and have international growth either organically or inorganically as a key value driver. And what is very important to us is that the growth should be capital efficient. Simon already mentioned, the performance of the action, which is clearly stellar, as you see on the top right side, but also the rest of the consumer portfolio has performed well. On the bottom right, you see the increase in the value of the consumer assets from roughly EUR 400 million in 20 assets in 2012 to roughly GBP 2 billion in 13 assets in 2023. And one of the themes we like in the consumer sector is value for money. And our focus on the value for money segment also led to 3i's investment in nexeye, on which I will now give an update. Next slide. 3i invested in nexeye in 2017, and we presented the case in 2019 at the Capital Markets Day. Since then, the macro environment has been very volatile with Covid, the war in Ukraine and the sharp increase in inflation and the material shifts in consumer spending patterns. And we sought this merit to give you an update on this investment. And I'm pleased to say that nexeye has realized solid resilient results based on long-term drivers and active ownership initiatives. Sales and EBITDA are higher than they've ever been before. And we believe that the long-term drivers remain unchanged and very supportive for the company going forward. On the next slide, you see the European footprint. Nexeye is a European spectacles company focused on the value for money segment, active in 5 countries. It has 3 formats, Hans Anders nexeye, and Direkt Optik. Hans Anders was founded in 1982 in Holland, it's a volume market leader in the Benelux market. It sells private label frames and aspirational brands in an upsell concept, but with still very attractive prices for the consumers. Eyes + more was acquired as a bolt-on in 2018 and has its biggest footprint in Germany. It is a challenger in the market with an all-in concept. It used to be private label only, but recently, we have also introduced successfully branded frames. And Direkt Optik is focused on Sweden, mainly with the 3-for-1 offering. Next slide. Well, there are 3 different formats that are all successful in the local markets. This is only the consumer-facing part of the business. All operations are centralized, integrated and very scalable. To really bring this alive, we will now show you a video with Bart van den Nieuwenhof , the CEO of nexeye.

Success to me means becoming better everyday. In omni-channel retail this requires continuous curiosity and willingness to apply everything you learn in the store and online and execute the right activities every day. When you do that with the best team, you will achieve the optimal results. That is success to me. We're backed by a team of 3i that has a vast international experience in the retail landscape, different international network to bring along with them, and they helped us with cross-border expansion. We bought back our franchise business in Belgium. We acquired Eyes and More and of course, we profit from the fact that they have in their portfolio to other companies like action and Basic-Fit that also bring a lot experience in the value for money segment. Well, in the current optical retail landscape, the amount of competitors is not growing that fast anymore. The market is less disruptive [indiscernible] independents are going down a little bit in number. Digitalization is a very big topic for us. Most customers touch us somewhere digitally before they enter the store where it all happens, still does. Of course, as a business we also tune into other global trends like aging population and customers demand more fashionable items. And if we look at consumer needs nowadays, customers demand more convenience, also a very important factor is time. So we are looking for new ways, innovative ways to assure that customers, whoever they touch us might be online, might be off-line, it will go smoothly. And therefore, we have to align those channels. So we put all our efforts and focus on doing that. We really transformed from a discounter to a value for money player. We make sure that our customers when they visit our stores do not have to wait too long, for example, by making an appointment. They can do off-line. They can do it online. It's a smooth process. We, as a business, we can adjust our staff to it. So it's a win-win. It's efficiency for the business and convenience for our customers. We want to be a leading value for money, omnichannel player. And to do so, we have created a platform where our current brands or maybe future brands could profit from, for example, with our buying power, our processes, our tools and all the other things that we established over the last 3 years. Retail has been my passion for 25 years. And I'm very proud of what we have achieved over the past 3.5 years at Eyes and More, Direkt Optik and Hans Anders. Very keen to see what lies ahead of us, very excited about it. In this evolving industry, I think we can and will play a leading role. We do this with our board, with the support of our investors. And if we look what lies ahead of us, there's opportunity. Circumstances are in our favor. Population is aging. People are searching for value for money. So basically, everything's there for future profitable growth. So if we as a team, stay as curious as we are and stay on the top of our game, we will deliver.

I hope the video gives you a bit of an impression of nexeye and the CEO of the business. We are very proud to have Bart as the CEO of nexeye and on what he and his team has achieved and on this slide, you see it back in the figures. The company realized a long-term growth of 8% per year within IFRS EBITDA margin of 24% in 2022. This was realized despite the macro events I mentioned in the beginning, but you clearly see the impact of Covid when retail operations were closed for several weeks in 2020, 2021, and also for some weeks in 2022. Sales levels of nexeye still had held up quite decently, partly driven by the strong omnichannel capabilities the company has developed. And I'm happy to say that we still see good trading momentum in the business also this year. On the next slide. So the company realized a solid long-term growth and strong profitability. And on this slide, we have tried to summarize the reasons how they do it. So first, it's a structurally attractive market. Second, the company has best prices for the customers and three, with great quality in their service. So for the customer, having a proposition with the best prices and greater quality gives them little reason to shop somewhere else. And the profitability is driven by number 4 on the slide, operational best practices and high volumes that generate economies of scale and allow high profitability. And I will now go through each of these items a little bit deeper. The market is large with sales exceeding EUR 40 billion annually in Europe and their structural growth is more and more people need spectacles. This is due to the aging population. And as you see on the top right hand of the slide, due to the fact that almost all of us need visual aids by the age of roughly 50 years. And also at the younger age, the penetration is increasing since all of us look too much at screens nearby like we probably all do now. At the same time, we see an increasing number of spectacles owned per customer since it has become a more fashionable item, also helped by the fact that fashionable frames are now available in the value for money segment. And it's just more likely that you own 2 pairs of spectacles if you pay EUR 100, than if you pay EUR 800. And at the bottom right, you see that the market is still very fragmented, with the chains winning market share. And within the chains segment, value for money is winning market share. As increasing price transparency helps customers understand that they can buy good quality spectacles at much lower prices. On the next slide, you see the price per spectacle in Germany for Eyes and More compared to the market. So both for the multifocal and for the single vision spectacles, you see that the price is materially lower than what is available in the market. But it's not just the price as you see on the next slide. Nexeye also provides good quality products and services, and this leads to a very good customer experience. On the product side, the company offers high-quality lenses from leading global and suppliers as they sell high-quality private label but also branded frames. The service and shopping environment is very good with 100% of the Eyes and More stores and 80% of Hans Anders stores on the latest store. This leads to a very strong customer experience and the NPS is measured for every single customer after every single visit. Externally visible is the trustpilot score of 4.7 stars out of 5, which is clearly very strong. And nexeye has also got the highest possible TUV rating in Germany for customer satisfaction and price quality ratio. Next slide, please. So the market is attractive with long-term structural growth drivers. So let's now focus on how this leads to the strong profitability. First, there's operational excellence, where we have made large improvements since our investment back in 2017. The management has worked on the assortment, the customer service and also implemented the appointment tool, as Bart mentioned in the video, whereas the industry previously was a work in model. This has allowed the customers to avoid waiting times in the stores but it has also allowed the company to predict and steer peak moments in the stores in a much better way. And together with the workforce management tools, it allows the company to plan the stuff in a way that better matches the customer demand and realizes a strongly improved productivity. And finally, omni-channel capabilities are key and we will now go into these on the next slide. So optics, in our view, is an omni-channel market. That is how the customers want to shop. E-com-only players where you see some of the logos at the top of this slide has also recognized and all of them have started to open stores, which is clearly very different from operating a purely e-commerce business. And nexeye is well positioned as an omni-channel player. Online is seamlessly integrated into the customer journey, which often starts online where the lead generation is a key, the customer considers different frames on the website, then takes the decision to make an appointment and can then be helped by some of our 2,400 opticians and sales people in roughly 700 locations nearby the customers. And this data is then clearly recorded in the CRM system, which enables, again, the lead generation for the next purchase. The next slide shows an overview of nexeye's omnichannel systems, which are well invested, and this has been a focus since our initial investment in 2017. You might recognize some of the logos on this slide, but we have invested in scalable systems for the whole customer journey. And as a volume player, we have large customers and potential customers with more than 7 million active customers in the CRM system, who can be targeted in a very focused way. So on the next slide, I come to the final point 5. The driver of profitability, which is volume. As I mentioned, Hans Andres is a volume market leader in the Dutch market. And on this slide, you see that Hans Andres has a volume market share of roughly 25% in that market while the sales market share is only around 15%. And this, in our view, is a very powerful setting and it is a very strong driver of profitability. In a market with a gross margin of over 70%, most costs don't scale with volume. So this generates large scale advantages and leads to very good unit economics despite very low consumer prices. On the next slide, you can see that this leads to market-leading EBITDA margins of around 24%. The industry is margin-rich, but nexeye is able to realize these margins with very attractive prices for the consumers. And what you also see on the right side of the slide is that the companies that started as e-com-only companies realize significantly lower margins in this omni-channel game. So the next slide is a slide I also showed in 2019, which demonstrates how we looked at the value creation opportunity in the company. And this is still how we look at it today. On the right side, you see the status on each lever. And without repeating the point, I made earlier in the presentation. I think it is fair to say that we have made good progress on all points, but that we are also far from finished. And this takes me to the last slide, and we wanted to illustrate here that in our view, the long term drivers for the business are still in place. It's an attractive market with an aging population, where almost all of us will need visual aids by the age of 50 and increasingly at the younger age due to the increased use of screens. And nexeye is well positioned as a chain that wins market share and positioned in the value for money segment, that is running market share. Operational improvements have been realized, but it's not yet best practice. Omni-channel is the way customers prefer to shop and nexeye has a strong backbone in place, which is well invested and scalable. Store roll out will continue with ample wide space available, which is self-funded from the high return on capital employed the business generates. And finally, selective M&A will remain [indiscernible]. And with that, I would like to open up for any questions.

Thank you. [Operator Instructions] The first question is from Bruce Hamilton of Morgan Stanley.

So just a couple of questions from me. Firstly, on the sort of EBITDA margins, I think you indicated 24% compares pretty well with the peer average of 16. But what would you view as sort of peak margins? Is it the sort of high 20s. I think one of the peers? Or could you go higher than that? what's the constraint on EBITDA and margin upside? And then secondly, and perhaps linked on the sort of further internationalization potential, are there any obvious markets that share similarities to the ones you're currently in equally, are there other markets in Europe or elsewhere that would be more problematic because of competitive dynamics or other? .

On the first question on EBITDA margins. The company clearly could realize higher EBITDA margin, let's say, with increased prices towards the customers. We have decided, which is I think also what you see back in a number of our consumer investments to keep the prices low for the customers and thereby enabling a long-term growth. And therefore, we don't look like a substantially further increase EBITDA margins in the business other than from generating further economies of scale from like-for-like growth in the businesses. On your question about the European landscape, what for us is very important that we remain positioned in the value for money segment. So we do not want to get into the higher end of the market. We like the value for money segment. And that is available in most of the European countries. Countries where there is a strong -- where the market with a lot of regulation or a reimbursement system from an insurance company is something that we try to avoid. Of course, our value for money positioning works best if the customers need to pay their spectacles by themselves, but that is also the case in most European countries nowadays.

The next question we have is from Luke Mason of BNP Paribas Exane.

The first question is just on bolt-on acquisitions. So both of the companies we look at today have done bolt-on acquisitions. So could you give more detail, I guess, around the philosophy of when you're mapping out an investment case, how you look for potential bolt-on deals and is there [a bit of] less competition for those smaller deals like when you acquired Eyes and More in 2018, how was that sourced, for example? Just the last part of that question is, it still seems like a very fragmented market. So are there a lot more opportunities for further bolt-on deals for Hans Anders or nexeye. And then secondly, just in terms of ownership period acquired in 2017 have been held for 6 years now. I'm just wondering, is nexeye a potential candidate for exit or is it a long-term kind of core compound of the 3i spoken about before that could go into that bucket? And just how big is the potential runway for nexeye in terms of number of stores, please?

On the first question, how we look at the bolt-on opportunities. This is a market where you have long repurchasing cycles, so on average, 2 to 3, sometimes for 4 years. And therefore, it is easier to acquire a local known brand, and that's what we have done with Eyes and More and then use that locally recognized brands to roll it out in the countries they are present in. That is a model we like, and it is also a model we would look to replicate in other countries. It is much less logical to do in the -- fill-in acquisition in a certain country where we are already present because we don't want to operate with multiple formats in one market. And if we -- do we brand them, we could also just go ahead and rent and open new stores. On the question of ownership period, I think what I described is that we have been very focused on delivering it's operations and delivering the growth and the rollout. And that is something where still a lot of potential remains, but at the same time, it is, of course, also on a periodic basis on the agenda to review the holding period. And it is not something we have bought in the long-term bucket. And when the M&A markets open up again, it might be something we consider. At the same time, we are in no hurry at all because we believe in the long-term potential of the business.

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

We have a question from Kim Bergoe at Numis, asking whether there are any differences in customer behavior in different geographies? .

There are some differences. So one, you will see on the assortment, there are local tastes, certainly on the branded side, some brands do better in certain country than in another country. But is a composition we have is a value for money proposition, which is overriding team across performance we have, and that works in the same way across country borders. On the European landscape, there are some regions where brands are more important than in other regions. So for example, in Southern Europe, brands in general are more important to the customers and where the market is more fragmented. But in [indiscernible] on a macro level, the trends are very similar across most of the European countries.

[indiscernible] mutual and you showed us good market share stats on volume. How much further can that go before that tops out? Then another question, are you able to share benefits of scale across the 3 brands with buying power and the network you have and of brands that want to supply you? Also, you made a comment regarding the market having not stabilized. And why is that? if it is such a large and growing market with a good demographic underpin. And why is competition not coming in or competing as hard?

Okay. Let me start with scale advantages. So one is, of course, the scale advantage of just like our buying prices on the frames -- on the lenses, but also for the equipment for the stores, for the marketing material and if you are the player was a national coverage in a certain country, we also have the economies on scale on the marketing side, which is a very important element in this market. So with a higher volume, clearly, you can spread out the marketing costs across more customers and more spectacles. And then there's a scale advantage on operational best practices, so very often given that Hans Andres is the most mature format, that's where we start to implement the best practices. And once we see the results there, we create a blueprint and then roll it out to the other countries. Can you remind us the other 2 questions, Silvia.

It was one about the volume share, has that topped out or will it top out?

Yes. So Hans Andres is already present in the Dutch market for more than 40 years, and it continues to gain market share. So with one competitor the markets are growing since more people need spectacles. So there is a potential there. It is also on the journey of Hans Andres initially is focused only on private label frames, for example. We have then introduced branded frames because there is a segment in the market and where people do want to buy branded frames and otherwise, they don't shop with you. So that allowed us to target a new customer audience. But there are still the perception in the market that Hans Andres is only selling at the lowest end of the market, which is not the case anymore. But with the longer repurchasing cycles, it does take some time for people to recognize [that app]. And that allows us a strong proposition to [indiscernible] prices in our view, still for substantial market share gains also in the Dutch market, which is the most mature of the 3 markets we are in.

And the last one is about competition. Given the high margins and the growth ahead, why aren't more people coming in?

Well, as I showed in the slide with the margins across the different formats. So new formats have entered the market initially from the online-only side, then became omni-channel players. And I think what is visible there is that, yes, the gross margins are high, but operations still are not easy. It's an industry that where you have to have very good practices, which is not that easy to copy. The gross margins are high, but there are plenty of players in the industry that don't realize the EBITDA margins we showed there. And there are different formats that enter as a market, very often also with more fashionable or more niche proposition, which will be there, and they will continue to be there. But we target the broad market, which is the people who need spectacles and who addresses a value for money segment and the tendency we see that in general, people increase prices and, therefore, moving to the higher mid-market or the upper part of the market, which provides us space to grow. So having the value for money proposition, you need to have volume without volume, you cannot make the unit economics work. And that is, as we have also seen in a lot of other consumer businesses we have invested in, that is something that is not easy to replicate because without volumes, you cannot make the prices work without the prices, you don't get the volumes.

Thanks, Boris. We now have 2 questions from Samarth Agrawal at Citi. I'll ask them one at a time. The first is what is your customer segmentation by age group? Do you have any thoughts around how nexeye differentiates its offering versus the competition for different generations of customers, say, between GenX and millennials who may have different preferences.

So the segmentation on the age profile. As I showed on the slide with the penetration of visual aids per age category. That is actually a pretty good reflection on our customer demographics, and that is also a very interesting feature in our view because the 50-plus audience, they need multifocal lenses, which have higher price standpoints, and that is an area where we have a larger market share. So the average age of our customers depending a little bit between the country, but it's around 50 years old. Second question?

The second question is, what is your strategy for ramping up growth for higher value-add segments such as sports glasses?

Yes. Well, the highest -- the most attractive part are prescription lenses. And within the prescription lenses is the multifocal segment. And the multifocal segment is particularly relevant for the 50-plus, so that's how we segment the market. Sports glasses, we do sell them in a D2C model under the Drive brand. It's a niche proposition, but it is an extra to the core business, but will not become [indiscernible] like a leading part of the business.

Looks like we have no more questions from the website. Any more on the phone line.

There are no further questions on the conference call.

Thank you, Boris. I think we can now hand over to Bastiaan for European Bakery Group.

Thank you very much, Silvia. Good afternoon. My name is Bastiaan Peer I'm a partner in the private equity business based in Amsterdam having joined 3i roughly 10 years ago. The private label and conduct manufacturing for consumer goods investment thesis has been a key focus area for myself since the last 6-plus years. And this has led to the investments in Royal Sanders in 2018 and more recently, the European Bakery Group in 2021. Next slide, please. European Bakery Group is an industrial bakery group focused on bake-off bread, this means that every product produced by European Bakery Group typically requires one further bake-off step in order to be ready for consumption. This final bake-off step can either be done at home in the supermarket or in the food service channel. The product portfolio of European Bakery Group is positioned in the mass market. Hence, the core of the business model is to cost competitively produce and innovate a quality product at scale with industry-leading service levels, whilst managing complexity at the same time. And to give you some perspective on that, the European Bakery Group today produces roughly 1.75 billion rolls per year, which equates to more than 5 million rolls per day and more than 4,000 rolls per minute. We consider bake-off bread is one of the winning segments within the broader bread universe, which is characterized by polarization and company performance. The Bake-off segment typically comprises 25% to 35% of the overall bread market and is structurally growing share largely at the expense of the industrial fresh alternatives. European Bakery Group as a business has been established through the combination of Dutch Bakery, which was acquired as an initial platform investment in 2021. Coolback in Germany in '23 and Panelto in Ireland in 2023 as well. Next slide, please. The business itself is primarily active today in the Benelux, U.K. and Ireland, German-speaking Dutch region in Nordics. The Bakery coolback and Panelto are all leading businesses in their respective markets and benefit from group synergies across commercial initiatives, sourcing efficiencies as well as operational best practices. The group has a strong focus on ESG with natural ingredients, reduction of food waste and securing waste to limit plastic usage at its core. The customer base includes all major food retailers across Western Europe, with the business being over-indexed towards what we regard the winners in the market, such as Tesco and Lidl in the U.K. and Aldi, Lidl and [indiscernible] in Germany. Cost inflation has been a major theme for the business in the last 18 months. However, due to the value-adding position towards its customers, European Bakery Group has been able to manage margin levels, albeit with a delay. 3i invested in Dutch bakery in 2021 with a clear investment thesis to drive growth and consolidation in the market of bake-off bread and snack products across Europe. Less than 2 years post the original investment, European Bakery Group has now more than tripled its revenues and profitability through a combination of organic growth, driven by growth in volumes as well as 4 completed acquisitions. Of which 2 more significant ones being coolback and Panelto. As a result, it has been quite a transformational journey for the business to date, delivering on the original investment thesis at an accelerated pace. Next slide, please. The investment thesis underlying the European Bakery Group, investment has strong similarities to the investments in Refresco, which is active in private label on account of manufacturing for the drinks industry. And Hans Andres active in the health and beauty industry with a very similar business model. Both businesses were national leaders with emerging footprints outside of the Benelux regions, where we invested and are now key consolidators in their respective markets, creating significant value for its shareholders. Next slide, please. The private label and contract manufacturing market for consumer goods has been a long-standing investment focus area for 3i where private label refers to the manufacturing of consumer goods for retailer or store brands, and contract manufacturing refers to supplying brand owners. The overall end market such as bread in the case of European Bakery Group or shampoo in the case of Hans Andres are typically resilient with growth rates in line or slightly ahead of GDP. However, there are multiple underlying circular trends that underpin a significantly higher growth rate for best-in-class private label operator and contract manufacturer as the overall penetration of private label and contract manufacturing structurally increasing driven by a combination of factors, which I outlined on this page, which I will briefly touch on. Firstly, private label is typically more profitable for the retailer and well-developed store and the retailer brands allow for differentiation versus competition. Secondly, discounters or value for money concept have been structurally growing share in the market and have historically always had a stronger focus on their private label offering. Thirdly, established brand owners are increasingly focused on capital efficiency, whereas emerging brands often have an outsourced strategy from inception. This combination underpins a structurally growing contract manufacturing market. Finally, as the quality of the private label offering across the market has significantly improved over the years. The customer acceptance and hence, the private label penetration itself has been structurally growing over the past decade. On top of this market growth, consolidators in the industry have the potential for a long runway of growth and genuine value creation through M&A driven by consolidation -- driven by a combination of factors. Firstly, a tangible M&A pipeline as often these markets tend to be highly fragmented with a long-tail of operators. These operators often struggle to be profitable due to a lack of scale and innovation in the market. As a result thereof the right consolidation strategy will most likely result in a sustainable commercial as well as cost advantages compared to competition. The industry has been a long-standing investment focus area for 3i given the strong fit with the 3i platform and the overall investment thesis of supporting and driving international growth ambitions of winning businesses. where we are very much focused to partner with unique and best-in-class operators, supporting them with long-term capital to drive sustainable growth platforms. Next page, please. When partnering with management teams, often with the ambition to build the right EUR 1 billion plus EV consolidation platforms, key attributes we focus on are listed on this page. And I will name a couple of them. Firstly, we're very much focused on making an initial platform, which is regarded as a best-in-class operator in its space, driven by a strong focus on operational discipline and cost efficiencies. Secondly, we are very focused on ensuring that the end market itself has the potential for organic growth opportunities. Thirdly, when looking at the customer base, of a business, we look for a business that is well in tranche with the winning retailers and to brand owners in this market. Next to that, we look for strong and proven leadership teams where we seek upfront alignment on the M&A strategy. And finally, we look for a fragmented industry with a long tail of operators for the reason mentioned on the previous page. Similar to Royal Sanders, European Bakery Group has these key elements in place. With these elements in place, the ambition is to drive towards structural outgrowing the market, which is regarded as typically low single-digit growth industries, driven by increased private label and to contract manufacturing penetration and winning with winning retailers in the market. Overall, this translates into a focus on building long-term sustainable compounders that meet or exceed 3i's annual value growth objectives. Next page, please. Turning to the bakery itself, which was the initial platform investment in 2021, Dutch Bakery is a business with a strong market positioning in the Benelux, driven by a unique breadth of product offering. And to put that a bit into contact dutch bakery is selling roughly 400 SKUs versus typical competition selling less than 50. The investment thesis was to drive growth and consolidation in the market of bake-off bread and snack products in Europe as the market, firstly, is still highly fragmented, with no real consolidator to date. And secondly, potential targets are often family owned with no real succession in place. Additionally, we saw an organic growth opportunity on the back of and ongoing premiumization of the category next to driving operational efficiencies by partnering with a very seasoned CEO and management team. The resilient end markets and cash generation profile in the business protects downside risk in the investment. As the business is operating in the mass market, scale customers comprise the vast majority of the customer base. This is an intensive part of the strategy of winning with the winning retailers in the market. However, being able to deliver and further develop a quality product offering with strong service levels at good value is something few can do well on a consistent basis. Hence, we regard ultimately being able to scale with scale customers as a long-term differentiator in the market. Next slide, please. Zooming in a bit further into the business profile of dutch Bakery. Within the bake-off segment, in the broader bread phase, Dutch Bakery has historically been focused on what we call the modified atmosphere packaging or the MAP segment and is now also increasingly active in other segments, most notably frozen and chilled. MAP bread is ambient packaged and par baked bread with a relatively long shelf life, typically 2 plus months. Before consumption, the product requires one final baking step. The packaging operations are done in clean rooms. This process is relatively complex in the bakery industry and not easily [indiscernible] scale. Due to the combination of an ambient product and long shelf life, this is an attractive category for the retailer as there are no energy costs, either in baking or cooling, [involved] and waste levels are neglectable, whereas bread is usually a category with relatively high waste levels for the retail. The MEP category itself is an important segment in the overall category within a typical Dutch food retailer. As illustrated by the roughly 30 SKUs in average Dutch food retailer would have in the MAP segment on the shelves across the entire value range from value to premium. Dutch Bakery is primarily focused on the food retail segment in the Benelux with all major food retailers in the Benelux being a customer. From an operational setup, the business operates 6 bakeries across the Netherlands. This setup enables Dutch Bakery to offer the most comprehensive product assortment in the market whilst at the same time, the specialization at the individual bakeries ensures focus and a low-cost culture in the individual bakeries. Next slide, please. Dutch bakery recorded structural growth ahead of the market on the back of organic growth and positioning itself as a buy-and-build platform in the Benelux market. On the 3i ownership, we continue to buy buy-and-build journey of Dutch bakery with 2 add-ons in the last 2 years. Both businesses were acquired in bilateral processes. The business has a strong track record of acquiring and integrating add-ons, strengthening the commercial proposition towards its customers. Led by an experienced management team, the local buy-and-build strategy has significant further value creation potential. In addition to the continuation of the M&A strategy within dutch bakery, we are focused on creating the European bakery group in order to drive growth in consolidation at the pan-European level. Next slide, please. With the acquisitions of coolback in Germany and Panelto in Ireland, the business has become genuinely pan-European since the original investment in the Dutch Bakery in 2021. Going forward and in line with the Dutch Bakery M&A strategy to date, coolback, Panelto as well as Dutch Bakery are positioned as individual platforms for its local markets within European Bakery Group. The individual platforms are led by strong entrepreneurial management team with full P&L responsibility. In addition to the continuation of the M&A strategy within this bakery, we are focused on creating the European Bakery Group in order to drive growth in consolidation at the pan-European level. Next slide, please. With the acquisitions of coolback in Germany and Panelto in Ireland, the business has become genuinely pan-European since the original investment ended bakery in 2021. Going forward and in line with this M&A strategy to date, coolback, Panelto as well as Dutch Bakery are positioned as individual platform for its local markets within European Bakery Group. The individual platforms are led by strong entrepreneurial management team with full P&L responsibility. The highly complementary combination benefits from a substantially enlarged and enhanced product portfolio and increased geographic reach. The creation of the group earlier this year substantially enhances the overall customer proposition, drives scope for sourcing efficiencies and enables the group to leverage operational best practices. Today, European Bakery Group is more than 3x larger than the original platform investments made in this bakery 2021. Next slide, please. A brief introduction into coolback and Panelto. Firstly, coolback was established in the early 2000s, and coolback was a priority target for us and for the European Bakery Group since the initial Dutch Bakery investment, largely driven by business as well as cultural fit. The business was acquired in 2023 from its founding family. coolback is a long-standing German industrial bakery with the focus on volume categories, both in the frozen and MAP baker segment. The company services both food retail as well as food service customers. The former shareholders invested significantly in new bakery in 2018, which enables coolback to continue its track record of winning with the winning food retailers in bake-off in Germany, most notably [indiscernible], Aldi and Lidl. The acquisition added a sizable frozen offering to the European Bakery Group and added Germany and the Nordics as 2 new core markets. Panelto was acquired also in 2023 and was established similar -- very similar to coolback also in the early 2000s. Panelto has been a key target for us to establish the U.K. and Ireland platform within the European Bakery Group. The business was acquired from its founder, again, very similar to coolback. And Panelto is a long-standing Irish industrial bakery with a focus on frozen par-baked bread targeting the installed baker segment in the U.K. and Ireland. Similar to coolback, the former shareholders invested significantly in a new bakery in 2018, enabling Panelto to continue its track record of winning with the winning food retailers in bake-off in U.K. and Ireland, most notably, Tesco and Lidl. On the bake-off superior product quality and service levels, the acquisition added a further sizable frozen offering with a frozen in-store bake-off to the European Bakery Group, at a U.K. and Ireland as 2 new core markets. Next slide please. As a final wrap up regarding the long-term ambition following the completion of the acquisitions of coolback and Panelto, the business is now firmly established as a consolidated in the pan-European market for bake-off bread and snack products. Going forward, the group will focus on the Benelux, U.K. and Ireland and German-speaking regions with a tangible pipeline of organic as well as inorganic growth opportunities. We look to replicate the success of the local buy-and-build strategy of Dutch Bakery by driving inorganic growth strategy in Germany and U.K. With the platform now in place, we believe European Bakery Group is well positioned to capture growth opportunities across the European market of bake-off bread and snack products, providing a significant runway for further growth. Thank you. Now I'll open up for questions.

[Operator Instructions] We have a question from Bruce Hamilton of Morgan Stanley.

A couple of questions for me. Firstly, just how to think about the possible risks from the drive towards sort of healthy living. When you talked about long shelf life, I saw additives and something that people are generally trying to move away from. So anything around that? Secondly, sort of EBITDA margins delivered by the business today and where those could sort of go to as you scale. And then finally, in terms of kind of leveraging ideas across very different consumer groups, nexeye, European Baker Group and others. What are the most -- the obvious sort of commonalities around operational improvements that you been able to sort of get from looking at different business types?

Yes. So thank you very much. Maybe first, the risk of healthy living. I think but probably good is to mention the European Bakery Group itself is active in a couple of categories within bake-off bread and the one with long shelf life at an ambient temperature is MAP, which is where Dutch Bakery specializes in. And the long shelf life is ultimately achieved by removing the oxygen from the packaging in a pretty complex operation during the packaging operations and which is done in clean rooms. So it's actually -- it is a natural product that goes into the packaging, but it's a very special packaging operations, which enables the long shelf life. So it's actually -- it is a natural product. It is very similar to bread you would buy elsewhere fresh. It's just that you bake it off the final step at home. On EBITDA margins, that's typically something we do not comment on. The only thing I could say is that European Bakery Group is trading healthy in line or ahead of where the market is. When it comes to operational improvements, I think the similarities -- European Bakery group, the success of European Bakery Group is really being a successful manufacturing company in its core manufacturing consumer good products. So probably the operational improvement looks through from retail formats or consumer health format is probably less relevant. So the key relevance that we see there is the comparison to [indiscernible] Royal Sanders or Refresco in the past where it's really about what I mentioned in the beginning of the presentation, managing very high complexity when it comes to significant volumes being a low-cost operator, managing those 2 together. So there, we have, I think, quite a bit of synergy by looking at our historic investments in the private label contract manufacturing area.

There are no further questions on the conference line. I will now hand over to Silvia Santoro for Investor Relations.

So we have a few questions from [ Rob Platt ]. And a few mutual. I'll ask them one at a time. So one is on margin level inflation impact and cost recovery with customers in bakery, which I think you've addressed on the last question. The second is also a variation of the previous question. So there seems to be a good level of investment in production. Could you talk about the investments made and the efficiency gains and labor cost mitigation that, that has achieved?

Yes. So if we look at both coolback and Panelto, the investments done per bakery, let's say, are in the tens of millions and are typically investments, which are done with a good level of automation in the back of mind because ultimately, for -- to run an industrial bakery, one of the key constraints is to find adequate levels of staff to run the bakery. So that from the outset of designing a new bakery is a key part of designing a new bakery and ultimately, let's say, the new volumes that come into market are really to continue to grow with the skilled customers that both businesses have.

And the third question from Rob is what percentage of Tesco's and Lidl's baked good you produce now on average? And is there a big difference by country?

I don't think we could indicate exact percentages, but the in-store bakery business of Tesco and Lidl in the U.K., I think we have a more than fair share in that. Driven really by service levels and product quality in the business. So it's a structurally growing share.

Another variation to the same question from [ Kim Bergoe ]. How should we think about sensitivity to energy prices, energy costs as a percentage of total cost?

Yes. So energy cost is one of the key operational costs in the business and is a discussion item with customers, I would say, since the energy price volatility started 2 years ago, more or less monthly or quarterly basis.

And we have a couple of questions from [ Greg Knox Nunez ]. So what percentage is what should food services be, seeing the rise of premium bakeries using partial big goods like [ Gales ]. How can premium -- how premium can European Bakery Group go?

So European Bakery Group more or less in the operational setup it has today can cover everything from real value for money. So talking anywhere that's roughly $0.10 a roll up to the very premium end and food service today is primarily a focus area in coolback and to a lesser extent in Dutch Bakery. And then you need to think in the area of petrol stations as an example or the general food service channels in which it plays.

And another question from Greg. Over 400 SKUs seems quite high. Is there an optimal level to get to scale?

Yes. So for Dutch Bakery, the number of SKUs really is a differentiator, given it's really positioned as the category leader, category manager for food we do in the Benelux when it comes to the MAP category. So it's really a differentiator that we look to keep in place.

Well, thanks, Bastiaan, there are no further questions through the webcast. I think we can now handover to Anil for the banking presentation.

Great. Well, thank you, Silvia. Good afternoon. My name is Anil Kohli, and I'm the Head of the Private Equity Banking and Risk team. The banking team is an integral part of the 3i active asset management approach and has been a long-standing element of the Private Equity business. We work closely with our colleagues across the 3i Group and 3i Infrastructure and hence, collectively, 3i is in the debt markets on a very regular and constant basis. I'm going to take you through what the team does, how we work, the debt portfolio overview and finally provide some sense of the array of debt transactions we work on. So turning to the next slide. To set the scene, 3i has one of the, if not the, longest-standing Private Equity debt capital markets teams in the market. This has been in place since 2005. I myself have been with 3i for over 16 years, having joined the team formally not long after its establishment. I prior to joining the team worked as an adviser to the team on financing what the original 3i investment in Scandlines and clearly did something right to then join shortly thereafter. As a specialist team, the core aim has been to consolidate a consistent approach to the lending market whilst maintaining a prudent approach to leverage. The debt markets have clearly peaked and troughed with leverage ballooning especially in times of cheap debt. 3i has not been distracted by this. And what we tried to do is maintain a consistent approach, which [indiscernible] on this in the following slides. The team, as you can see, is comprised of purely debt professionals with over 70 years of aggregate experience in the debt markets. And this has been accumulated from various banks as well as from within 3i. We work closely across the Private Equity and portfolio companies globally in managing 3i Private Equity lending relationships and interactions. And this covers all stages of the life cycle of an investment and is fully integrated at all stages. To give you some flavor of the team's activity, in addition to the day-to-day interactions that we have, the team has done over 12 transactions in the year to July '23, and raised over EUR 4.5 billion of financings. And over the last decade, that is well over 120 transactional situations. The risk approach, which originates from the debt side is embedded in our internal processes and monitoring, and that's covered in both our monthly monitoring review of every asset and semiannual formal company reviews. I myself and part of the partner review panel. I also act as what we call a second partner, an independent [indiscernible] the deal teams as we assess all new transactions. Now let me turn to the next slide and take you through how the banking team is involved as part of the wider deal team on all stages of the life cycle of a Private Equity investment. Worth noting again that this is done from the lens of a consistent approach. We have taken all senior financings and is at prudent leverage. And that approach is at the heart of the investment thesis as our returns, as you've heard from my colleagues, is not driven by financial engineering or maximizing leverage. It is about tailoring the debt of the business and the investment thesis we are seeking to pursue. And sometimes, this means taking no debt upfront. The main phases are covered here, and it commences when we start an early assessment of a potential new opportunity, and this is well before a transaction is done. So that includes sitting with the team and working through an assessment of the appropriate debt capacity, who would lend to it and the right lenders for the journey and defining and negotiating thereafter the right terms that align with the profile of the business and how it may grow in its investment thesis. And as we manage through the life of an investment, we provide ongoing dedicated support or buy-and-build, amendments and extension of debt facilities, refinancings and recapitalizations. One of the team, if not 2 of the team, will be attached to every single portfolio name. And given our approach to upfront leverage, the evolution of these businesses and their high growth, our flexible approach to long-term ownership, we can find ourselves addressing the debt facilities on a very regular basis. Now clearly, the poster chart for this has been our investment in action, but there are many more examples of this through the portfolio. At exit, we ensure the business has the right support from the debt markets for its next phase, and that will facilitate the right return for 3i. Now turning to the next slide. What I have covered just now is the main milestone event financings that we see. However, it doesn't capture the day-to-day wider specialist topics we help to manage with the close control of the deal teams and portfolio company finance teams. And this gives you a sense of the depth we need to go to. Having selected key lenders counter party management of those stakeholders is a key component because it is the basis of that and development of that relationship, which will underpin the financings as we progress through the life of our ownership. And these lender groups constantly evolve and grow, especially in the case of buy-and-build. In addition, raising ancillary financings for these businesses are extremely important. The portfolio of finance teams will require day-to-day advice as to how they can access operational financing as part of the business strategy, lifeblood of the underlying businesses. And that includes whether that is leasing, trade lines, overdraft facilities, it can go to discussing merchant acquirers, which is how you use your credit cards for some of these businesses. The banking team regularly get involved to assess our flexibility to access those and how we may execute those. Currently, I'm working with the U.S. team on how we may look at some specialist equipment financings and who the right people may be. Hedging is a key area and we've maintained a consistent approach, ensuring that prudent leverage is aligned with the clarity on the all-in cost of financing. Now this has been a long-term approach by 3i. It's not something just in reaction to the recent rate hike cycle, and I will cover more of this in the following slide. Now reporting might sound like a boring topic, just back on the previous slide. And whilst it's fully laid out in the documents that we have, we do work with the portfolio of companies to make sure that we interpret and deliver effective, accurate and confident communication in compliance of our documentation, but it is also a core part of professionalizing the businesses that we take on and develop through their life. And we work with portfolio finance teams to advise and facilitate in best practice because what it leads to and what it should lead to is close control around cash flows and covenant monitoring. This is a key focus for us and the deal teams to ensure we maintain an early warning system to any changes in performance. And with the team collectively having seen multiple cycles and multiple scenarios, this is a key discipline and it feeds back into our internal monitoring because we feed this back to the banking team's own databases to the control we have across the platform into our monthly and regular portfolio company reviews. And the banking team is part of all of those discussions. We, as a team, as I said, will sit down every week and discuss every asset. Now turning to the next page. We don't work in isolation. We maintain an integrated approach with a wider 3i Group. And this is a virtuous circle as it enables a consistent approach to the lending community and ensures that the patronage that we have related to debt transactions is effectively deploying that we are rewarding the right people who have supported us on a long-term basis. The 3i Group treasury team, led by the CFO, manages a 3i Group lending relationships, and we maintain a constant dialogue to ensure alignment. They also provide expert advice on key hedging areas and the banking team alongside group treasury and portfolio company finance teams will then enable best factors as we execute hedging. I will say a word about 3i Infrastructure's debt team that is also a long-standing team in the market. And although we operate in different respective markets with different structures, we share notes on competencies and best approach and integrate views. Now turning to the next page. Let me just talk a little bit about the market back up and how we assess that. The market is an ever changeable environment and some of the themes are outlined on this page. Whether this is a fast pace of interest rate rises, the slow macro and elevated inflation levels, changing lender profiles, valuation pressures or rising defaults and a flight to quality in the life of an investment, we will face multiple themes and sub things underneath this. And that is before we speak about events such as COVID or exceptional events like war. To travel through such a changeable environment, the approach 3i has taken is to balance that approach to all senior leverage at lower levels with a good maturity runway and funding costs that are optimized and predominantly locked in for the period of our investment. Having a diversified lending base underneath that is also important. Now talking a little bit more on the hedging side of things. The debt book is currently hedged at around 70% of our total term debt at a weighted average tenor of 3 years, and our all-in cost of that hedge debt, so that includes both the underlying hedge rate and the margins we face is around 6%. Now this level of hedging has been consistent for many years. And if I wind the clock back over the last 5 years, so this is a period to when we had 0 and flat rates, we maintained a hedge ratio of somewhere between 60% and 70%. So that conservative hedging alongside all senior debt at lower leverage levels means we can provide our portfolio companies with a good buffer to travel through these changeable environment and have sufficient cash flow to meet their obligations and meet their investment thesis. In other words, what we have not done is bank on low interest rates for longer. And I can say that we are regularly told by market participants, especially since and post the rate hike cycle that the level of hedging we maintain is materially higher than what they see in other parts of their leveraged finance portfolio. The reason we are not 100% hedged is to provide some flexibility for movements in rates, cash generation and possible prepayments and repayments as well as exit timing. Now turning to the next page and focusing on the Private Equity portfolio debt book. We can go back one more slide. The chart on the left indicates the diversity of our lending book, which totals EUR 7 billion. The action debt is a large portion of this at EUR 3.625 billion, and we would note it's one of the largest euro loans in the market. And as a large syndicated deal, this is very well diversified. But we would note that there are some key lead banks and key underlying fund lenders that have supported action repeatedly for well over 10-plus years. Of the remaining non-action debt book, this is sized at around EUR 3.4 billion with no significant concentrations in terms of that overall book of EUR 7 billion with no one representing more than 5%. And we maintain a broad set of long-standing relationships and the lending comprises mainly those with syndicated clubs, but banks also a prominent feature of our lending book. Now this is different to a lot of mid-market private equity firms, which have in recent times gone more heavily towards, especially in the smaller end deals, private credit and so-called unitranche financings, which are principally done on a bilateral or concentrated basis. And as an example, when you look at mid-market financings in Europe, especially in the U.K. and other jurisdictions, 40% to 50% of new debt structures are so-called unitranche. When we look within our portfolio of debt, unitranche and concentrated bilateral facilities are less than 5%. And why is this? Well, we will continue to evaluate all options, but we are not seeking to maximize leverage and we do look for lender diversification because of the journey we are going to progress through. We are also helped by the fact that the history of 3i is FTSE 100 status, the long-term approach we've had to many of those lending relationships. And the fact that we have an in-house team with the deal teams willing to put together the right club of lenders means we can harness best terms and counterpart profiles. And we do track closely our lead lenders both by the amount of exposure, which you see here, but the frequency of transactions. And as I said earlier, the patronage paid. Now turning to the next slide. Another aspect of the 3i Private Equity debt book is the maturity profile. This chart outlines the total Private Equity debt book by year-end maturity, and it underlines what we have, which is an orderly runway across the next 5 years, heavily weighted towards 2028 or later. Now I would note that action is obviously a key part of the debt maturities that we would focus on. And those maturities are EUR 625 million in 2027 and EUR 2.5 billion in 2028. But overall, when you look at this picture and when compared to the market as a profile, we do feel we are more spread out. The European high-yield and leverage loan market, for example, are seeing heavy maturities in '24 and '25 with now EUR 150 billion coming up in that period. And certainly, quite a large proportion coming at it are up to 2027. We take a proactive approach to managing maturities, definitely in the context of how we see exit and how we see repayments as well and amortizations. And you should expect us to continue as we continue through our ownership, and we have maintained this approach to maturity scheduling in both strong and weak debt markets. Now the next page outlines our leverage profile and as you can see from there, weighted by valuation on the left-hand chart, the buckets of our valuation, which sit within certain leverage ranges. This is something that we have released in our accounts. And the overall portfolio leverage is 2.3x, with leverage excluding action at 3.9x. And when we compare that statistic to the market, we feel this is materially lower, where market average levels since 2018 have been at 5.5x and higher than those. So we operate well within that. And another reason apart from prudency for that is that we tend to pace leverage alongside what are normally platform assets, where we are growing them over time and will be progressing leverage over time alongside the M&A and buy-and-build thesis. Where we do see higher leverage levels, which you can see towards the right-hand of the chart, these are either assets more suited to higher leverage because of their inherent sector exposure, be that health care or recurring financial profiles. But there will be, in some cases, some underperformers where leverage has ticked up. And in that context, we cover those in a proactive way with early warning and with a responsible approach. And an example of this is exemplified through COVID where we have shepherded many assets, especially those exposed to travel through periods where there were even 0 revenues through to this period now of recovery. Now turning to the next slide. Having talked you through top-down the portfolio. I wanted to just touch upon a couple of the financing situations myself and the team address and if I take you from left to right, first, I'd start with primary acquisitions. You've heard Bastiaan speak about the European Bakery Group and the pace of development of that business. I would say an entry from a lending perspective, appetite for the bakery segment can be polarized. And I think the fact that 3i was entering this space with its history and track record in adjacent businesses provided a foundation piece to put into place a solid upfront financing with 3 main lenders. And what we have done with that with the pace of both its performance and then growth is we have also grown the facilities alongside that. And following coolback and Panelto, facilities are now being increased to greater than EUR 175 million and a lender group, which is expanding to 9. And the leverage level and flexibility that underpins that financing allows the team to continue with the growth agenda and buy-and-build agenda, which was our main focus as we put those facilities in place, with a sized group that can help to deliver that. This last financing was closed just a couple of weeks ago in August. Now Konges Sløjd is a very different situation. This is our leading premium Danish lifestyle brand. offering apparel and everyday child care products. Boris leads that investment as well alongside the wider team. From a financing point of view, we took the perspective that as a primary investment consumer exposed with an agenda of high growth and at a relatively modest opening size, upfront, external leverage, which would, in all likelihood, be very highly priced would not be suitable at entry, not for the investment thesis we were seeking to pursue. However, we wanted to maintain good working capital facilities to enable part of the growth that it has. And then we work alongside the vendor to put in place what is an initially flexible vendor loan note. Now this provides a flexible product to start with to enable and underpin the business, which can then be externalized at the optimal type. It also evidences how we work with vendors and tailor the financing to the business needs and not the other way around. If I turn to some of the refinancings and amendments, recaps we've seen, I should probably just touch on action for the moment. The banking team has been proud to be front and center in structuring, coordinating and executing all the financings since our acquisition in 2011 and it's 7 in total and accounting. We've evolved those facilities from an original EUR 375 million of debt facilities. And I should note that back in 2011, we faced a much more uncertain debt market for a consumer-exposed business. It was a stub syndication originally, but the markets could not resist. The pace of growth and the success of that business. And to now what is one of the largest euro term loans with total facilities, including our working capital of over EUR 3.6 billion. And this has been very well received in the market across that time, evidenced by our recent transaction in April this year, where we extended maturities for the bulk of actions debt well ahead of its contractual maturities and this was successfully completed in optimal market window at good pricing and really led the market at that time. The other name I wanted to turn to is Cirtec. Now this is an attractive end sector of health care. Cirtec is our leading medical device outsource manufacturer, and it continues to look at attractive buy-and-build opportunities in its space. And at the end of 2022, we didn't want to interrupt that and wanted to execute a material add-on financing foreign acquisition and extend maturities. But the U.S. debt markets at that time, if you may recall, were very subdued, but we were not deterred, and we self arranged with a wide club of lenders over 9 of the banks and funds, a new financing of over $400 million, and we're one of the few financings at that time. This enables the business to continue its journey uninterrupted. Now we should touch on where things are more defensive because not all journeys are smooth or linear, and as part of close monitoring, we aim to address these issues early and proactively. And some examples here I'd like to touch on. The first is Christ, which is a leading German jewelry retailer. The retail landscape has gone through many changes since our original investment where Christ was a 2014 add-on to another earlier successful investment. The deal team and banking team shepherded this business through multiple debt amendments as we sought to manage both covenants and maturity. And we were eventually able to travel through to an exit in 2022 with all lenders repaid and some value recovery to 3i. Audley is another example, a very successful operator in the travel space. He had an excellent trajectory as we approached the COVID crisis with a stable and supporting base of long-standing lenders. Now as I noted earlier, we shepherded responsibly our businesses through COVID, even when there were 0 revenues. The crisis impacted all areas of the travel sector and as a deal team and banking team, we acted with our wider colleagues to ensure we could travel through both covenants, any cash requirements. And here, regulatory requirements as we manage towards the reopening post COVID and I'm pleased to say we are currently on a good recovery path. The [indiscernible] provides a flavor of the variety of transaction scenarios, structures, sectors, geographies that we cover. And in conclusion, what I'd like to say is the banking team is a long-standing and stable team. And this competency forms a core part of our approach to risk. The debt underpinning our portfolio of companies is leveraged prudently on an all senior basis, diversified set of lenders and orderly maturity profile and is well hedged, and we expect that to continue. I'll now pass back for Q&A.

[Operator Instructions] The first question we have is from Luke Mason of BNP Paribas Exane.

This one has been asked a number of times over time. But just in terms of actions debt, it's delevering quite a way now it's less than 1.5x net debt to EBITDA. So could you just talk about perhaps the outlook here in terms of debt capital markets opening back up what you could see potentially for action in terms of timing of refinancing, size of refinancing, that would be helpful. And then just secondly, you mentioned the all-in cost of financing on the hedged current portfolio companies. What is the all-in cost of financing you're seeing on new acquisitions today? And how does that vary across the different sectors that 3i operate in, please?

Look, I'll take the first. You're correct to say that we are seeing some nice green shoots in terms of the debt markets. And it's fair to say that Anil's team, along with the action team are looking at this at the moment, but there is nothing concrete to report at the moment.

And if I take the second question, and you're right to focus on the all-in cost of financing today, which is obviously a key part of how we're also looking at new transactions. So where we are today, geographically, if you look at it, is you're seeing in the all senior space, so this is, should we say, the lower leverage area of the world, you would see all-in cost of debt at somewhere between 8% to 9% in Europe, and possibly 10% to 11% as we go across the U.S. and principally the U.K. And what is that made up of? I mean in the U.S. and U.K., you'll see underlying base rates, that's sort of the mid-5s area, and in Europe at sort of near the 4% area. And then the margins on top of that are sort of operating anywhere up to around that 4% to 5%. Now clearly, if you move leverage up, and this is the key discussion as we look back at debt capacity because it's not just about leverage, you will see higher levels of margin according to that. So when we talk about markets like the unitranche market, you'll principally hear where there are slightly higher leverage, margins that go above that. So these points about all-in cost of debt are a core part of how we're looking at what the right debt is to place on a business for its cash flows and how that might distract away from other core investment requirements.

Next question we have is from Bruce Hamilton of Morgan Stanley.

Just on the -- obviously, on the private credit market, you sounded sort of quite cautious. Do you see -- could you elaborate a bit? And do you see sort of bad practice in certain areas, but a lot of players are doing sensible things or how to kind of think about that? And I know this is almost [indiscernible] in history, but if you talk about very prudent leverage and so forth. And I know the GFC was a peculiar time. But the problems that 3i encountered there, was that, you would say, principally due to the group balance sheet leverage rather than practices at portfolio company levels? Or what were the kind of learnings from that?

Yes. Thanks for your questions. So I think I just want to be a on the private credit market. I mean we should make the point that this is a growing proportion of the leveraged loan market. And as it stands, we'll continue to be the case and there's a whole load of reasons behind that, and part of this is regulatory as bank look at their cost of capital. What I would also say is that, that space has grown up and is professionalizing and actually houses very high standard debt professionals within that. I think our approach to private credit is we will continue to evaluate and test whether it is the right product for us for each situation that we look at. And we would not point to bad practice of any sort in any of those organizations. They are performing extremely well in the way they come at their deals. I think the question we have as an organization ourself is as we assess the journey of a transaction, what is the right counter party that will help us grow with that business, that will help us then professionalize as we take the business from EUR 10 million, EUR 20 million EUR 30 million of EBITDA up towards very high levels, we hope and where is the place we wish to place that. And that's the assessment and lens, under which we put who the right counter parties are and also both the cost of that instrument against the leverage we are seeking to attain. So typically, if you are going to have a higher cost of instruments, but don't want high leverage, you have to balance that equation and have a very firm reason as to why. Most of our syndicates will now house a mix of both types. So we will have banks and private credit and funds sitting together. And that has been a practice that we were probably quite early with almost 9, 10 years ago because the U.S. market has operated that way for a long time, and the European markets are increasingly doing. But what the point I was making is what we're not trying to do is go immediately to an answer which says, it's one lender, it's high leverage and will take high pricing because that is not always the right answer for the situations that we face. So we continue to balance both sides of the product and availability and 3i does get the opportunity to test both sides because of its longevity, we do get a strong mainstream lender response, which alongside private credit, we can compare our cost benefit.

Bruce, on the GFC, perhaps I could comment on that. I think the unfortunate thing around that time was that the group borrowed several billion worth of sterling to buy in shares at pretty close to the peak of the market. No doubt in order to enhance returns and the market then turned and they were caught with significant leverage. There was adding contribution to that in that there were some weak investments made in the first 2 years of Eurofund V but it was not really anything to do with the financing policy of the debt side of the private portfolio per se.

There are no further questions on the conference line. I will now hand over to Silvia Santoro for Investor Relations.

There are no further questions on the banking presentation. I'll hand over to Simon.

Okay. Thanks, Anil. I hope you found today's presentation is useful with 2 strong companies from the consumer portfolio as well as a briefing on our approach to debt finance in the PE business. We're happy to take any remaining general questions now if you have some.

[Operator Instructions] We have a question from Luke Mason of BNP Paribas Exane.

On the presentation. Just a couple of follow-up questions on deployment and exit. So in terms of deployment did a number of bolt-on deals this year just in terms of kind of new larger acquisitions? What are you seeing in terms of your pipeline, you're seeing a lot more deal activity coming up for the types of companies you're focused on? And how are valuations for the types of companies you're looking at faired recently? And then just secondly, on exit, I think you made the comment on full year results just around the potential realization pipeline into the second half. Can you give any more insight on that? And just what you're seeing because there seems to be more activity as some of your peers across Europe, let's say.

Thanks, Luke. Yes, let me comment. So on the pipeline for new investments. I think it's looking better than it's looked in the first half. So the teams are actively engaged on a number of situations. So I think there's a pretty good chance that we'll be announcing stuff in due course. I think it's been slow to pick back up in the market that we've been looking at, frankly, because we felt the vendors have been sticking to price expectations, which we didn't find made any sense to us. So harder to make new investments when you have vendors with that position as opposed to bolt-ons and things where we get synergies. Again, I think maybe a bit of realism is beginning to creep into some of those situations given the lack of progress. In terms of exits, again, we're pretty active on a number of situations. So we would expect to see some exit news in the second half as we signaled in May that we would.

We have no further questions on the conference line.

There is question action from [ Rob Platt ] [indiscernible]. He is asking that retailers globally seem to be commenting on an increase in stock loss. And I was wondering if [indiscernible] any change and whether this leads to any further investment needed in securities and cameras, et cetera.

I mean we have seen an increase in shrinkage and notable that, that's been commented across the industry. I don't think it's been quite as material for us as perhaps has been evidenced in some other reports from retailers, but there's definitely been an increase and one particular stark example was a store in Toulouse, which we've had to close because the crime and the violence that came with people coming into the store and threatening staff and stuff was not something we could continue to tolerate. So we did actually close a store in Toulouse earlier this year for that reason.

There are no further questions through the webcast.

Thanks, Silvia. Okay. Thank you, everyone. We appreciate your attention. Good afternoon.