3I GROUP PLC (III): 2025 PERFORMANCE, KEY DRIVERS, AND 2026 OUTLOOK

Understanding 3i Group's 2025 Financial Performance

3i Group plc (LSE: III), a leading investment company headquartered in London, experienced a significant year in 2025 across its private equity and infrastructure operations. Known for its long-term value creation strategy, 3i focuses primarily on investing in mid-market companies across Europe and North America through its Private Equity business, and in infrastructure assets via 3i Infrastructure plc (majority-owned).

For the financial year ending 31 March 2025, 3i reported strong results. The Group’s total return was £2.5 billion, representing a net asset value (NAV) total return of 13% on the opening NAV of £19.3 billion. These figures outperform inflation and interest rates during the same period, underlining the resilience of their diversified portfolio.

Private Equity Division Outperforms

The main contributor to 3i's performance remained its private equity portfolio, particularly in resilient, consumer-led companies. Action, the discount retail chain and 3i’s crown jewel, continued its consistent growth trajectory and now represents around 55% of the Group’s portfolio value. Action reported like-for-like net sales growth of 9.7% and EBITDA growth of 12.5% for the calendar year 2024, heavily influencing 3i’s performance in fiscal 2025.

The strength of euro-denominated assets over the pound also boosted valuations on currency translation, creating positive gains for UK investors.

Infrastructure Growth Momentum

3i Infrastructure plc (3IN), in which 3i has a 30% holding, delivered a total shareholder return (TSR) of 8.3% and continued its strategy of long-term investments in energy and digital infrastructure projects. Projects like TCR (ground support for airports) and ESVAGT (offshore wind service) benefited from sustained regulatory support for renewable energy investments in the UK and Europe.

Portfolio Management and Realisations

Realisation activity in 2025 was moderate. The lack of IPO activity across Europe and cautious deal-making sentiment in leveraged buyouts meant that 3i refrained from any major disposals. However, 3i continued to focus on value optimisation and achieved selective disposals such as the exit from Magnitude Software in Q2 2025, generating strong IRRs.

Dividend and Investor Returns

The Group increased its full-year dividend by 11.8% to 67p per share, reflecting strong operating cash flows and NAV growth. This increase stands in contrast to broader FTSE 100 companies, many of which maintained flat or reduced payouts amid economic uncertainties.

Macroeconomic Environment

Despite inflation moderating towards the Bank of England's 2% target, fears of recession continued in the UK economy throughout 2025. However, 3i’s long-term, globally diversified focus insulated it from domestic market volatility to a higher extent than many UK-focused asset managers.

In conclusion, 3i's 2025 performance reflected robust positioning around high-performing assets and a disciplined investment approach.

Key Drivers Behind 3i’s 2025 Growth

3i’s solid performance in 2025 can be attributed to a combination of strategic portfolio management, selective investments, focus on high-performing businesses, and external tailwinds such as foreign exchange gains and resilient consumer demand in key geographies.

1. Action – The Star Performer

The standout contributor remains Action, a non-food discount retailer operating across Europe. Operating over 2,400 stores by the end of 2025 and entering new markets like Portugal and Lithuania, Action delivered another impressive year. Its lean operating model, strong brand recognition, and optimal pricing strategy helped it increase revenues and profitability against a backdrop of cautious consumer spending in Western Europe.

Because 3i holds a roughly 55% stake in Action via its private equity arm, this single asset now represents a significant portion of its overall portfolio exposure, making its performance a central theme for investors tracking 3i’s share price.

2. Effective Portfolio Management

3i’s active approach to value creation, particularly with digitalisation initiatives and operational excellence strategies within its investments, contributed positively. A few examples:

• Evernex expanded into Latin America through bolt-on acquisitions
• Royal Sanders grew online personal care sales by 35%
• BoConcept improved margins through vertical supply chain control

The firm’s approach to nurturing companies within its portfolio before considering exits has created long-term, compounded value.

3. Currency Tailwinds and Interest Rate Strategy

As sterling weakened slightly against the euro and US dollar during 2025, 3i benefitted from upward valuation pressures on its euro-denominated investments. Additionally, the relative stability of central bank monetary policy, with the Bank of England holding rates at 4.75% for most of the year, allowed 3i to plan financing moves more predictably.

4. Infrastructure’s Rising Role

3i Infrastructure plc’s portfolio, focused on long-duration, inflation-linked assets, continued to provide income and capital appreciation. High occupancy rates across digital networks and airport services drove double-digit EBITDA growth in core holdings.

Infrastructure fits within 3i's strategy of investing in economies’ structural needs—especially as governments in Europe ramp up infrastructure spending aligned with net-zero goals.

5. ESG and Regulatory Alignment

Sustainability improvements across portfolio companies enhanced compliance and appeal to institutional investors, positively impacting valuation multiples. ESG matters increasingly influence the rerating potential during exits, adding a non-traditional growth lever.

6. Limited Exposure to UK Domestic Economic Weakness

With most of its portfolio concentrated outside the UK, 3i was not overly exposed to the UK's sluggish GDP growth or weak consumer sentiment. This geographical hedge supports the Group’s steadier long-term performance even amidst domestic shocks.

To summarise, 3i’s performance in 2025 was primarily driven by an outperforming asset base, proactive management, and macroeconomic diversification strategies that cushioned potential risks.

3i Outlook: What to Expect in 2026?

Following a resilient 2025, market observers and investors are closely watching 3i Group's strategy for 2026. Although the Group’s underlying fundamentals remain strong, several variables could influence returns and share price movements during the coming year.

1. Action’s Growth Sustainability

Action’s ongoing expansion will remain central to 3i’s narrative. In 2026, investors will be watching whether Action can sustain its store openings pace and like-for-like revenue growth. Any signs of saturation in mature markets or operational inefficiencies in newer ones like the Baltics may raise concerns.

Furthermore, higher base comparisons will make year-on-year growth more challenging. If Action slows even slightly, it may disproportionately affect investor sentiment and 3i's valuation.

2. Exit Market Recovery

The dealmaking environment has remained cautious. A potential recovery in IPO markets or private sales could lead to partial or full exits of portfolio companies held for over five years, releasing capital and crystallising gains. Key assets that may be explored for exits in 2026 include:

• Hans Anders – optometry retail with mature European footprint
• Royal Sanders – potential acquisition interest from FMCG players
• Evernex – data services consolidator with global interest

Improving deal terms and higher buyer appetite may reinvigorate exit activity, boosting NAV and return on invested capital.

3. Portfolio Inflation and FX Sensitivity

Although inflation has moderated, changes in input prices, wage pressures, or supply chain disruptions can still affect portfolio companies' margins. Similarly, sterling volatility in response to political changes (such as a general election in the UK) or diverging monetary policies can alter 3i’s reported returns.

4. Geopolitical Risks

Events such as continued tensions in Ukraine, changes in US-EU trade relationships, or an escalated Middle East crisis could destabilise markets. While 3i maintains a diversified risk approach, systemic global shocks can indirectly affect portfolio companies through input cost changes or investor sentiment.

5. 3i Infrastructure's Capital Allocation

3IN may embark on new investments in energy transition projects, data connectivity, or decarbonisation initiatives. Investors will examine whether these assets offer the risk-adjusted return profile that matches previous deals. Capital raising and deployment success remains key to future TSR growth.

6. ESG Regulatory Transparency

As sustainable finance reporting deepens under EU taxonomy and UK SDR requirements, portfolio compliance will be further scrutinised. Stakeholders will seek transparency in carbon footprints and climate-related risk disclosures. 3i's response will be critical to maintaining investor trust.

7. Dividend Policy Stability

Given the firm’s reliable dividend growth track record, any deviations or changes in policy could spark investor concern. Dividend cover and underlying cash flow from investment activity must be monitored to support continuation of 3i’s distribution pattern into 2026 and beyond.

In essence, while 3i enters 2026 from a position of strength, smart capital allocation, healthy underlying portfolio growth, and resilience to macro shocks will be essential to maintaining its outperformance story.