Portfolio reviewCOMPANY REVIEW04In the past year the combined turnover of <strong>LDC</strong>South’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.<strong>LDC</strong> 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 <strong>LDC</strong> South’s portfolio. We arequietly confident about their futures and ours.Investing through the cycle.The most recent addition to the <strong>LDC</strong>South 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 with<strong>LDC</strong> 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.”<strong>LDC</strong> 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 <strong>LDC</strong>as a private equity partner.”“The fact that <strong>LDC</strong> 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
COMPANY REVIEWCOMPANY REVIEWStrategic growth supported.Driving entrepreneurial growth.Based in Berkshire, Quantel is a cuttingedge technology business which developsinnovative content creation equipment andsoftware used to engineer stunning visualimages – including some seen in Avatar, theworld’s highest grossing movie to date.Quantel is a portfolio business whichperfectly demonstrates <strong>LDC</strong>’s long termvision and approach to investment.We first invested in 2000 and haveremained supportive as the company hasadapted, changed and grown.Now an international company, Quantelsystems are installed at broadcast facilitiesthroughout the world. Its products are usedto create countless TV dramas, commercialsand documentaries and more than 1000movies have featured Quantel’s digitaltechnology.CEO Ray Cross joined in 2007 to helptake the business forward and continueits growth through development of newproducts and services.What made him take on anotherbusiness challenge?“<strong>LDC</strong>’s proposition and approachwas well thought out.”“The existing Quantel directors had clearlyseen a great opportunity here and I wasattracted by the style of the business.It is a forward-thinking and innovativecompany with supportive backers.”“I joined and loved the people and theenvironment – it’s very professional butat the same time collegiate.“We changed certain things within thecompany. When I joined there was astrong focus on research and development,which is important, but less emphasis onsales and customer service.“By strengthening this we are nowstrong in all three, building long termrelationships with customers who buyupgraded versions of our products andhelp deliver organic growth. It’s been apositive operational change which makesus look a lot further ahead.”“<strong>LDC</strong> has supported us all the waywith capital, strategic advice andoperational guidance.”Ray Cross, CEO, QuantelIf there’s a portfolio company whichdemonstrates <strong>LDC</strong>’s commitment toinvesting in management teams to takea business forward, it’s Reading’s DaviesGroup – a fast growing firm providingservices to insurers built around a coreloss adjusting capability.<strong>LDC</strong> invested in 2008 and a number ofnew faces have joined the managementteam to provide it with capacity andcapability for growth.CEO Charles Crawford explains: “DaviesGroup was a partnership, a good businessbut with a number of partners approachingretirement, so the focus on the long-termfuture of the business was understandablylighter as they looked to exit.“To move the business forward we neededsome fresh thinkers, people who would lookfor opportunities and bring entrepreneurialvalues to play in a very competitive market.“I resigned from Churchill to take up thejob here about a year ago. Once Churchillhad been bought out, I began to feel stifled.What had been a fast-moving environmentwhere we could take quick decisionsbecame bogged down in meetings.“It isn’t like that working with <strong>LDC</strong>.Despite having an “institutional” investorwe have been encouraged to becomeentrepreneurial to deliver growth.“Our business is often the only ‘face’ aclaimant customer sees when dealing withan insurance company. Part of our rethinkand professionalisation has been to ensurethat we handle this relationship so well thatour client – the insurer – sees us as addingvalue by representing and becoming anextension of their brand.“This is valuable when everyone is looking attheir costs and people are saying what elsedoes your business bring to the relationship?”And it has worked well for the Davies Group.Turnover has increased by 14 per centin just two years and profit has nearlydoubled, with most of that growthdelivered in the past year.Charles Crawford is confident it will continue.“The discipline of reporting to our investorsand looking ahead to ensure we are takingthe right decisions to maintain growth is goodfor the business. <strong>LDC</strong>’s involvement helps tokeep us focused.”Charles Crawford, CEO, Davies Group05