Q: How did the L1 portfolio perform during the pandemic?

A: The L1 portfolio proved its exceptional resilience in 2020 and performed exactly as hoped. As the portfolio comprises of companies supplying largely essential services and products, demand remained robust throughout the crisis.

None of the companies experienced financial difficulties, and L1’s cautious management of portfolio company balance sheets enabled the Group to take advantage of significantly improved debt market conditions to further strengthen the capital of DIA, Holland & Barrett, and Wintershall Dea.

Q: Is being a long-term investor an advantage in this volatile investment climate?

A: L1’s long-term, fundamental investing discipline means that it was able to look over the temporary price and volume volatility in the oil and gas sector and that it was able to quickly reposition traditional bricks and mortar retailers towards a more digital offering. The necessity to live more digitally connected lives has also opened opportunities to invest in attractive green-field projects in fibre communications in the UK. While the increasing popularity of pets in the US has offered opportunities to invest in the veterinary space.

Q: Looking forward, how is the portfolio positioned?

A: Going forward, the portfolio is very well positioned for multi-year trends that will emerge in the post-pandemic economy. Health and wellness, food and nutrition, pet care, communication technology, and gas, which is a transition fuel enabling the energy transition and about to benefit from the lack of investment in production capacity over the last few years. While L1 is a long-term investor and not driven by short-term fluctuations in valuations, all its portfolio companies stand to benefit from considerable earnings growth and multiple re-ratings in the future. The latter is especially notable as most of the sectors in which we invest have until recently been rather out of favour with investors who have pursued more pure tech plays.

Q: How might the portfolio be impacted by ESG?

A: Climate change and ESG are increasingly impacting investors’ flows of funds and valuation of businesses. The disruption to traditional business models, from retail to automotive, poses great challenges to investors as seemingly stable businesses can be suddenly disrupted. L1 is embracing ESG across its portfolio, but rather than as a single issue or marketing ploy, as one of the many paradigm shifts affecting business models today. The key to this is really culture change; in the near-term mitigating risk but in the longer term being innovative enough to identify and capitalise on new commercial opportunities brought about by this paradigm shift.

Q: What should L1’s priorities be this year?

A: As asset values are overall very high, L1’s focus this year will be to consolidate the acquisitions made, ensuring it has strong management teams in place, clear strategies and continuously improved execution. The portfolio is rather insulated from both the economy and financial markets, and L1 should therefore not be materially impacted by what may be some uncertain months for financial markets as they face the inevitable uncertainty that follow years of financial excesses and policy experimentations, which have to become ever wilder with every new crisis. Our Treasury management is conservatively run, mostly investing in liquid high-quality securities and funds. Even during the severe market correction experienced in March 2020, the value of the Treasury portfolio barely moved.