FORECAST - LDC

Portfolio reviewCOMPANY REVIEW04In the past year the combined turnover of LDCSouth’s portfolio businesses has almost doubledto over half a billion pounds.That’s the vanity statistic. The reality is thatprofit has also doubled and there are now over2,000 people employed by the companies wehave invested in, up from 1,500 in 2009.Not bad for an economy which was in recessionfor much of that period and certainly an indicationthat we have a solid book as we approach 2011with average annual turnover growth of 33 percent, compared to 21 per cent in 2009.This growth has come from afocus on sales, R&D and, in somecases, expor ting to new markets.Two new direct investments – United HouseGroup and Speed Check Services – and ourexit from Kylmar is a healthy level of activitywhen you consider how the wider economy iscurrently performing.It’s a diverse portfolio, from financial services,healthcare, technology driven businesses such asQuantel and Epi-V, a fund which operates in theoil and gas sector and has shown rapid growththanks to its own investments.Our growth has continued throughout thedownturn. In fact, our Internal Rate of Return(IRR) in 2009 was 39 per cent (up from 19per cent in 2008). During the same period,the BVCA’s annual calculation of UK privateequity returns was 15.9 per cent, down from16.4 per cent in 2008.We have also reaffirmed our commitmentto smaller businesses, making £100millionavailable over the next three years tobusinesses seeking investment of under£10million (see page 6).This should add a number of smaller,ambitious and growing companies tothe portfolio.At the moment we are holding eightinvestments – our average investment is£30million – but we would expect thenumber of companies in the portfolio togrow significantly over the next few yearsand diversify further.Out of our current investments, all are at verydifferent stages in their cycle. Some are newto private equity ownership, while others havebeen with us for several years and will beready for exiting over the next couple, giventhe right circumstances.LDC doesn’t just invest inbusinesses; we pride ourselves onstrong due diligence and investingin ambitious management teams.The best of these come to the fore when timesget tough. Winners, leaders, motivators –board members who can take a step backfrom the day to day and plot an upwardcourse for the next three to five years.It is these kind of people you will findthroughout LDC South’s portfolio. We arequietly confident about their futures and ours.Investing through the cycle.The most recent addition to the LDCSouth portfolio in 2010, United HouseGroup specialises in the new build andrefurbishment of social housing, urbanregeneration and the delivery of PublicPrivate Partnership projects.From its Kent HQ, United House Groupoperates three separate companies but isvery much one business. And respondingto the due diligence of private equityinvestors has helped the group focus onthis, according to CEO Jeff Adams.“The process that we went through withLDC was a fantastic reminder that whilewe had three different profit centres, wewere very much one business and hadto think strategically on that basis.“We started down the route towardsfinding a private equity partner beforethe recession. Not every investmentpartner showed the same commitment tous throughout the process or demonstratedthat they understood our business whenthe downturn impacted our industry.”LDC didn’t pull out, which impressed us.Their enthusiasm and interest was clear.”“They kept in contact, learned moreabout the business and its prospectswhich made it easier to choose LDCas a private equity partner.”“The fact that LDC was prepared to investjust after the UK had officially come outof recession clearly demonstrated thatthey were looking at the longer termopportunities for us within our market.“Our involvement in social housing is thekey to our potential – for instance, 40years from now all housing has to havecut carbon emissions. Someone has todo that work, either building replacementhousing or overhauling existing stock.“Public sector spending will continue tobe cut overall but there are areas wherethe Government has to lead the way andhousing is a priority. Funding that kind ofchange hasn’t even really kicked in butour expertise puts us at the forefrontwhen it does.”Jeff Adams, CEO, United House