Chief Executive’s review with Jonathan Muir

Performance highlights

It is an understatement to say that 2020 was a challenging year but we came through not only intact, but stronger for the experience. It is in large part due to our people, so firstly a huge thank you to all throughout L1.

In terms of financial performance we weathered the economic storm reasonably well, ending the year with a decrease in net asset value to $22.3bn from $23.4bn in 2019. We experienced growth in valuations across several business units, including Pamplona, DIA, and Holland & Barrett. Our healthcare assets of K2 and Destination Pet also grew. These were offset by decreases in Wintershall Dea, caused by reduced oil and gas prices, and in VEON and Turkcell due to performance and currency impacts. Treasury again delivered a very positive result.

Overall portfolio resilience during COVID-19

Sustainability is now recognised as fundamental for businesses. In reflecting on 2020, it is evident that our portfolio has a firm foundation. We invested in industries and sectors that traded through the turbulence and adapted to the new environment without the need to furlough or cease operations. Without exception, they have come out stronger, more digital, and focused on the future.

Our overall resilience and success are underpinned by our belief that a combination of long-term investment horizons, entrepreneurship, and innovation will serve us well as the world changes.

We have seen evidence of this last year through business performance, but also our ability to adapt and take opportunities as they arise. We have, for example, changed the capital structure in DIA, not to earn short-term arbitrage gains, but to build a base to allow the supermarket chain to invest and improve its business for the future.

In addition, we are responding to the rapid pace of change in the ways customers want to access products and services. Digital and omni-channel delivery will be paramount, and all our businesses will deliver on digital strategies that have been developed and enhanced for 2021 and beyond.

Wintershall Dea driving efficiencies

Wintershall Dea has made good progress this year, despite the fall in the oil price. Full-year production was in line with guidance at 623 mboe/d, underpinned by solid operating performance.

EBITDAX was impacted by the weaker commodity price environment, but the team responded by safely reducing its underlying production costs to €3.5 per boe, and through operational excellence and continuous improvement, it expects further cost efficiencies in the future.

VEON and Turkcell restructured

Despite the pandemic, VEON made good progress with its strategy and completed its transformation from a centralised entity to fully empowered country operations governed by strengthened local operating boards.

VEON delivered FY 2020 results in line with guidance, with full-year revenue falling slightly to $8bn but, most importantly, starting to see some green shoots of growth in both the core business and digital strategies.

In 2020 L1 entered into a series of agreements to restructure ownership of Turkcell and put an end to many years of shareholder disagreements. As a result, L1 increased its interest to a 24.8% more liquid stake in this successful company. Subsequently, L1 sold 5% of Turkcell shares and decreased its economic exposure to Turkcell to 19.8%.

Our healthcare operations adapted well

In healthcare, K2, our lending operation in biopharma, has continued successful deployment of capital, ending the year with 11 loans and $185m in capital deployed. It also delivered over 11% in core yield with a healthy pipeline of opportunities.

Destination Pet LLC, which is our vet and animal health business in the US, has also traded through the crisis, with vet practices in particular operating successfully in what was a very difficult environment.

Holland & Barrett – essential retailer played an important role during COVID-19

Looking at retail, during the pandemic Holland & Barrett played an important role in providing customers and local communities with access to advice and products, both in stores and online, to support immunity and provide food staples.

While the lockdown did reduce high street footfall, this was offset by higher online demand. Overall revenue for the year ended 30 September 2020 increased by 2.8% to £730m with EBITDA rising significantly to £124m.

DIA – positive results of its transformation plan

DIA delivered stable top line performance, with like-for-like improvement showing early positive results of its business transformation plan.

The lockdown period, which affected each of its markets in different ways, was clearly a contributor to improving sales as businesses were shut and people prepared meals at home.

This performance was supported by continued cost discipline and underpinned by a strengthened financial structure leading to EBITDA increasing strongly to €123m.

In addition, in order to put in place a capital structure to support the transformation plan, L1 supported a successful capital raise of €605m, which increased our holding to 74.8%.

L1 Treasury – performed well in 2020

L1 Treasury’s portfolio performed well in 2020, producing a return of 5.50% for the year, equivalent to 4.87% over one-month LIBOR. All of our investment books showed positive performance, with the biggest contribution coming from our hedge fund investments and our bond portfolio.

Jonathan Muir

Chief Executive Officer