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P E R S P E C T I V E S 2 0 1 6



£307m acquisition of NEC Group

£20m+ MBO of PDG Helicopters taking majority stake

£83m SBO of Synexus

£25m minority stake investment in Aspin Group

£207m MBO of SSP taking majority stake

SBO of Away Resorts with £18.5m investment

Investment in Iglu taking significant minority stake

MBO of Seabrook taking majority stake

Significant investment in the £23m MBO of BOFA International

MBO of Mini-Cam taking substantial minority stake

Investment in Centiq Group taking significant minority stake

Significant equity investment in MBO of Aqualisa

Significant equity investment in MBO of PEI Media taking minority stake


Exit of uSwitch in £160m sale to Zoopla plc

Exit of Ocean Outdoor after Searchlight Capital acquires LDC’s entire stake

£55m sale of Twofour Group to ITV plc

Exit of Blue Rubicon to US-Based Teneo Consulting

Sale of Mama&Co to NYSE-listed Live Nation

£125m sale of Bifold to Rotork plc

Minority stake exit from Easynet following acquisition by Interoute

Exit of Entertainment Magpie after development capital investment from NVM Private Equity

Minority stake exit in $350m sale of MB Aerospace to Blackstone

Minority stake exit in £210m sale of Aim Aviation to China-based AVIC





The outlook for the UK economy and the productivity puzzle



LDC’s recent success on an exit front




Opportunities for growth in the food and drink sector





The disruption in the travel sector




Lessons learnt and battles won in this critical sector








My perspective on forecasting, getting it right and – occasionally – getting it wrong!

Cycling the length of Africa, Mark’s latest World Record – ‘Africa Solo’




Building great businesses and driving value in 2016







LDC’s ‘Perspectives’ provides a collection of opinions and outlooks


from some of the UK’s leading business figures. Its purpose is to bring together the views of those working closely with LDC, and provoke debate on the topics that matter most to forward-thinking businesses and their management teams.

This echoes LDC’s own approach to private equity investment – creating partnerships, fuelling ambition and building value. What’s more, we’re supporting that unique approach with our biggest ever commitment to British business, a pledge to invest £1.2bn of equity over the next three years. This builds on the £1bn we’ve successfully invested over the last three years, which has helped to shape and scale a collection of truly outstanding companies. In the last 12 months alone, we’ve deployed circa £350m of equity in 14 businesses across a diverse range of deal sizes, structures and sectors, supporting their future growth and building lasting value. These include the acquisition of NEC Group from Birmingham City Council, the MBO of leading specialist financial information group, PEI Media, the MBO of electric shower and accessories manufacturer, Aqualisa and the £23m buyout of fume extraction systems manufacturer BOFA International. We’ve also worked with our management teams to deliver an incredible £1bn of exit proceeds from the sale of 28 businesses over the last 18 months - the single most successful period of value creation in LDC’s history. From IPOs to strategic overseas buyers, our experience of building and crystallising value, whatever the headwinds, is clear. This achievement has also been recognised in our industry, with LDC being voted ‘ European Private Equity House of the Year’ for exit performance in the latest Mergermarket M&A awards.

Over the coming pages we will talk about our exit success and also assess new approaches to building value in private equity-backed companies with respected CEOs working alongside our Value Enhancement Group, Paul Thandi of NEC Group and Mike Kingswood of Atcore (p14-15). We also capture the views of our experienced Chairman on the changing dynamics and drivers in key industry sectors, with snack foods veteran and former Golden Wonder CEO Paul Monk, Chairman of Seabrook Crisps (p10-11) and Martyn Williams, Chairman of fast-growing online travel agent Iglu and visiting professor at London Business School (p12-13). Elsewhere, we speak to Trevor Williams, one of the country’s leading economists, for his view on the UK’s macroeconomic landscape and what this means for UK employers (p6-7). And we meet with Roger Bootle an economist, author, columnist, special advisor to the House of Commons and Founder of Capital Economics, to discuss the challenges of forecasting during a time of unprecedented change (p20-21). Speaking to the dozens of management teams we back, it’s clear that business confidence and performance is recovering in many regions and sectors of the UK, driven by generally improving economic mood music and customer sentiment.

and low growth, against a protracted period of political uncertainty and a continued threat of terrorism in the UK, leaves its mark. Meanwhile, uncertainty on future UK monetary and fiscal policy, Britain’s role in Europe and growth forecasts for some of the world’s biggest economies (and their impact on export potential), all cast a shadow over the outlook for UK businesses. Delivering growth in any cycle brings challenges. But with LDC celebrating our 35th anniversary in 2016 and having completed more than 500 investments, have shown us that, time and time again, the common denominator in winning businesses is management, not macroeconomics.Teams with a clarity and purity of ambition, purpose, vision and crucially, the right investment partner, can win out in almost any environment and we both look forward to meeting and working alongside these teams in the future. We at LDC are proud and fortunate to work with a community of people who bring their instinct, experience and judgement to those challenges. We hope you enjoy their contributions. MARTIN DRAPER & CHRIS HURLEY CEOs LDC

But what is equally clear, is just how fragile that confidence is. Running a business through a deep and long period of recession


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ABOUT THE AUTHOR Trevor Williams was the Chief Economist at Lloyds Bank Commercial Banking. He joined the group after working as an economist for the UK Civil Service, a position he was offered while studying for a PhD. With both a BA (Hons) and a master’s degree in economics, Trevor is a well-known voice within the banking sector. He regularly appears in the financial press and shares his expertise on television. Trevor is also a Visiting Professor of Banking and Finance at University of Derby and a member of the Institute for Economic Affairs Shadow Monetary Policy Committee.

The UK looks set to continue to be one of the best performing major economies in 2016. A stronger-than-expected recovery has been led by domestic demand and consumption, a flexible labour market and supportive, ultra-low interest rates and a dollop of QE. Financial imbalances in the economy have narrowed somewhat; corporate and household balance sheets are in better shape; and the government deficit has come down, though there’s still more to do on that, and total debt. If you look at the shape of the UK recovery in terms of output, it’s being driven by the service sector, which is now some 10% larger than its pre-crisis peak, whereas manufacturing (minus 6%) and construction (minus 2.3%) are still below where they were in 2007-8. Yet recorded productivity performance remains relatively weak. This looks odd because the UK is highly competitive in services - and that’s where employment growth has also been strongest.


How do we explain this productivity puzzle? One explanation may be that productivity is harder to measure in the service sector than in manufacturing. We just don’t seem to have found a way to properly account for some of the technology and innovation gains that make our lives easier, and improved the supply side of the economy. Take Uber. Instead of waiting out in the rain hailing a cab you can now book a taxi for when you want it, and carry on working until it arrives. That’s clearly a big improvement in productivity, but where in the statistics is that measured? There are plenty of other examples of gains that aren’t being properly captured either, not just in services, but also in manufacturing, for instance the use of 3D printing, printable circuits and miniaturisation. And just as technological advances are boosting productivity they are also driving down prices, at least in real terms.

Of course, a relatively strong exchange rate, which make imports cheaper, and lower oil as well as energy costs, have also helped to keep a lid on inflation. Why? Because even if you take these effects into account, price inflation is only 1% up on the year, still well below the Bank of England’s 2% target – and that’s after an above-trend recovery of three years. So we shouldn’t underestimate the impact of technology and innovation on productivity, prices and living standards, even if they’re not yet fully reflected in the official figures. And we know that data revisions can lead to a significant re-writing of economic history. For example, the double-dip recession that was officially reported at the time didn’t actually happen and worries about a triple dip were overdone. The revised statistics show that the worries we had then were wrong. Indeed, if the data had been accurate, the Bank of England may have made a policy error and raised interest rates too early (because it was worried about inflation), only to subsequently reverse them as other central banks have had to do.


“If you look at the shape of the UK recovery in terms of output, it’s being driven by the service sector, which is now some ten percent larger than its pre-crisis peak (2007-8)”



- 6%


- 2.3%

Looking ahead, there’s little evidence to suggest we are on the verge of an inflationary break-out, for the reasons I’ve outlined above, and little prospect that interest rates will rise any time soon. In fact, low inflation looks like it is becoming embedded in the economy. Companies may need to prepare for a ‘new normal’ in which prices are not only flat but falling and in real terms at least, falling fast. Some sectors such as retail are already making what for them is a painful adjustment to this deflationary environment. Others, like capital goods, may choose to delay important investment decisions until the outlook becomes clearer. In the meantime, the UK economy faces a number of external challenges. One is now that the US Fed has lifted interest rates from zero and the effect this could have on global financial markets. Another is the slowdown in China and the knock-on effect that is having on global trade. This undoubtedly will make the going tougher for exporters. As important will be any impact on Chinese inward investment into the UK, though we’ve yet to see it.

On the flip side, as China’s high growth rates and demand have moderated, commodity prices have tumbled, helping to boost real incomes in the UK. Moreover, faster growth in China’s 100m-plus middle class may help boost UK exports, including services, where we have a productivity advantage. Another positive is the recovery in the Eurozone, which looks like it’s going to endure. Growth in what is our largest export market could be as high as 2% in 2016. That can only be good news for UK exporters, regardless of the uncertainties surrounding the outcome of the EU referendum.

Trevor Williams gives his view on the outlook for the UK economy in 2016, why companies must prepare for the ‘new normal’ and tries to solve the productivity puzzle.


02 8

Martin Draper and Chris Hurley look back at LDC’s exit track record of the past 18 months and offer their views for market conditions in 2016.

BUILDING FOR THE FUTURE It is hardly surprising that ambitious management teams turn to private equity to achieve a step-change in business growth. The ability of this asset class to take companies into new markets and geographies, transform operations and drive scale organically and through acquisition is unrivalled. Yet, private equity has more to offer than just funding, it provides vital strategic direction and a platform for transformation. At LDC, our performance as an investor is, as ever, measured by the value that we create through that journey, and track record in completing successful disposals. Since May 2014, LDC has exited 28 portfolio businesses. Collectively, their enterprise value has more than doubled during our tenure, from around £1.2bn on investment to over £2.4bn at the time of exit. However, we must remember that these businesses do not operate in isolation. Private equity has a tangible impact on the wider economy when it invests and supports the growth of a business. The most visible effect is on job creation. For the exits completed between May 2014 and November 2015, LDC has helped generate over 1,500 jobs across the country during the investment period while average revenue grew by 25%. With a portfolio of over 90 businesses employing more than 37,000 people and with revenues of over £6bn, LDC is a constant driver of economic activity. The success of each sale is not only determined by its value and the company’s growth whilst part of the portfolio. Identifying and securing the right route to exit is essential in order to achieve optimal returns, the best valuation and offer the most appropriate platform for further growth. Over the past 18 months, we have delivered sales through multiple channels and our commitment to the interests of the business


and attention to achieving the best ‘fit’ has helped generate exit proceeds in excess of £1bn. Our money multiple for the exits achieved during the period averaged at 2.9x with an IRR of 50%. While public market listings offered some of the best opportunities in 2014 – as shown by Fever-Tree’s £154.4m IPO and Quantum Pharma’s £130m listing – international trade buyers have made a significant impact on the market in 2015. Examples include the sale of reputation management consultancy Blue Rubicon to Teneo Holdings, the international consultancy firm, in a transaction that will see it become part of one of Europe’s largest communications groups and the exit of our investment in live music business MAMA & Company in a sale to NYSE-listed Live Nation Entertainment. Listed businesses in the UK have also opened their acquisition war chests and snapped up highly prized assets. This has included the £160m sale of price comparison site uSwitch to Zoopla Property Group plc after our team spent two years driving significant expansion in market share and service offering, ITV plc’s £55m acquisition of Twofour Group,

which we backed in 2013, in a deal that opens up a wealth of international distribution options for the fast growing business and the sale of Bifold Group to Rotork plc in a £125m transaction. Looking ahead to 2016, we don’t expect this momentum to let up as more buyers come to the fore from the UK and abroad, including trade and other private equity buyers. The global economy may have experienced some jitters, but the general mood is positive and has not subdued appetite for M&A and expansion. For us, we continue to plan and identify appropriate exit routes for companies across our portfolio. While competition can be intense and multiple routes can be considered, our focus is on securing a buyer and outcome that is aligned to the strategy of the management team. Only with a shared vision and future will you get the most value out of a sale and ultimately, generate the best returns.

LDC EXIT STATISTICS (from exits completed beween May 2014 – November 2015)








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There are few other sectors as competitive as the UK food and drink industry. While the battle for shelf-space is intense and the manufacturers behind the brands face the unforgiving challenge to maintain margins, there are plentiful opportunities to grow in the current market.

UK FOOD AND DRINK: ROOM TO GROW IN 2016 Spending in the food services sector, notably the buoyant casual dining scene, is growing and suggests that consumers have cash to spend and are happy to do so. However, grocery has not had the same success as enjoyed by the wider economy. It is well-documented that the way we shop and consume is changing at an astonishing rate. The transition to online shopping, disruption to consumer spending patterns, the growth of discounters and preference for convenience have presented mixed fortunes for major supermarket chains. For manufacturers, the price pressures seen on the high street have partially found their way onto the profit and loss accounts of suppliers. As such, the agenda for management teams is now heavily influenced by the need to manage margins through intelligent cost reduction and driving efficiencies from end-to-end in the manufacturing process to minimise waste. However, the future of the food and drink sector is not all about keeping costs down. The determination to grow top-line sales is as ardent as ever. When looking for the next big opportunity, and while international ambitions should not be abandoned, businesses must look closer to home first. It never ceases to amaze me how many companies overlook their own domestic markets. Many either get carried away with the allure of exporting abroad, while others simply haven’t done their research to identify the gap and miss out on revenue opportunity.

Paul Monk is Chairman at Seabrook Crisps

For a brand like Seabrook Crisps, we have a strong presence in the North of England, but there is still considerable room for us to grow further in our regional heartland. Alongside LDC, we are investing to expand our operations that will help us get onto the shelves of as many supermarkets and convenience stores as possible. But, expansion of distribution is a complex process. Like most successful food companies, we have great relationships with

the major retailers, which offer scale on both a national and regional level. That said, companies should not forget other less trodden routes to market, such as Britain’s 33,500 convenience outlets. With individual units sold at premium prices, these retailers can offer a lucrative sales channel and healthy margins and a strategy that many companies would benefit from. It is understandable that pursuing these markets is not as straightforward as it sounds. While major supermarkets will have centralised buying functions and a single decision making point, convenience stores require a concerted and direct effort for each individual store. This is demanding on resources and so a disciplined approach is essential. Pragmatism should also be taken when considering product development. Bringing something new to market is notoriously risky, with most launches failing within the first 12 months. Therefore, when the cashflow is tight, businesses should look first to incremental development of their products, rather than step-change products, which don’t come by very often. The growth opportunities and lessons for those in the food and drink industry are also apparent for businesses from all reaches of the economy. Sometimes the best opportunities can be right under our noses and it takes some helpful guidance to realise the potential. For me, the most successful companies are those that do their research, know their market and position, and acknowledge their strengths and weaknesses. With that focus, any business has the potential to forge its own path to success in 2016.


ABOUT THE AUTHOR Paul Monk has over 40 years’ experience working within the consumer goods industry. He has held a number of senior management positions in some of the sector’s biggest names, including Mars, M&S, Golden Wonder, Finsbury Foods, Quorn and Burtons Biscuits. Paul also established a management consultancy; InVentaBrand 14 years ago to help UK grocery businesses implement transformational change in their performance. The business has over 20 clients and eight consultants. Elsewhere, Paul leads The Monkey Business Foundation, a charity designed to raise funds on behalf of GroceryAid and WorKing Options. Paul established WorKing Options in 2011, which aims to help sixth-form students in state education realise their full potential.

SEABROOK In July 2015, LDC backed the management buyout of iconic Yorkshire crisp brand Seabrook. Established in 1945, Seabrook produces a range of crinkle cut, straight cut and premium hand-cooked lattice crisps, as well as low-calorie stick snacks, at its headquarters in Bradford, Yorkshire. The company supplies over 20 million bags of crisps each month and employs nearly 150 staff. The deal, which has seen LDC take a majority equity stake in the business, will support Seabrook as it looks to invest in its manufacturing infrastructure, new product development and progress domestic and international sales opportunities.





ABOUT THE AUTHOR Martyn Williams is Chairman of Iglu, the online travel agent which specialises in ski and cruise holidays. LDC backed the business in June 2015.

For anyone running a travel business, the last decade has been without doubt the most disruptive period the sector has ever seen. As operators and agents wrestled with falling volumes resulting from the financial crisis and subsequent downturn, the pace with which customers switched to digital when researching and booking their holidays brought fresh challenges. These twin challenges tested both the mettle of management teams and the robustness of business models, exposing weaknesses in both. There were high profile winners and even more high profile losers. The industry has undergone a major recalibration. And the forecast for the sector has improved, with latest figures from the Office for National Statistics showing Britons went on 38.5 million holidays last year the highest level since before the financial crisis in 2008. We’ve also been privy to a substantial growth in low cost airlines, which have largely broken down the traditional tour operator model. Dynamic agents have since thrived on self-packaging holidays tailored at travelers who want better prices, and more flexibility with their holidays. As Chairman of Iglu, I’ve continued to monitor these changes with particular interest. In stark contrast to the sector, Iglu grew its sales and market share at its fastest


rate during this period of disruption, so it’s interesting to consider what lessons can be drawn as we look ahead to a period of predicted growth, and how businesses can take advantage of the new dawn in travel. DEMAND FOR DIGITAL – AND THE POWER OF DATA In most consumer industries, a digital-first model, where the entire offering, sales effort and customer journey is built around the online channel, is key. Iglu was conceived as an internet business in the late 90s at the height of the dotcom boom, and those brands with lower cost and more nimble operating models gained huge advantages during the financial downturn when volumes and margins fell. However, platforms, technology and user expectations change continually, which means digital needs to be DNA, not a department. Not only does it ensure businesses meet consumer demands but it can make it easier to explore different international markets that perhaps wouldn’t be reachable in other circumstances. If websites disrupted the travel sector, mobile has picked up the baton, as smartphone ownership has continued to increase exponentially. Two thirds of us now own one, and we spend two hours a day browsing online - twice as long as on laptops and PCs.

Ensuring that your product, proposition and experience delivers the optimal experience on mobile is critical to continuing success. Similarly, digital marketing is a discipline to invest in. The growth of social media platforms like Instagram and the impact of online video represents an enormous opportunity for those brands with the right expertise to bring destinations to life through carefully curated content and create armies of fans. We spend an average of 30 hours researching destinations online before booking, if this is your content, you’re more likely to secure the booking. Iglu’s own YouTube channel was a major feature in our success online and we’re now investing in new ways to provide information and inspiration to our customers. The biggest advantage of digital however is data, which is like a river of gold for a travel brand. The data generated by our customers and our ability to harness its power enables us to spot trends, patterns of behaviour and marketing performance in minutes, not months, enabling us to continually fine tune our product and marketing for optimal impact. EXPERIENCE COUNTS Whilst Iglu was committed to a digital-first approach, we certainly weren’t digital-only.


Holidays are a big-ticket discretionary purchase for most, which means customers seek reassurance, more so in our core cruise market where the demographics are different to the overall market. We recognised early that, whilst customers wanted to research and book online, they also wanted to speak to someone before taking the plunge. Offering a complementary call centre channel, staffed by 240 experienced travel agents who know the ships and destinations inside out and have direct relationships with operators, has been crucial to our growth. In the end, people build loyalty, not platforms. Many customers have complex travel needs, depending on the shape and age of the group, there are new opportunities coming to the market every week. Having someone to help advise is the secret ingredient to building trust. This trend will only continue, as people increasingly seek a tailor-made holiday experience as individual as they are, whist ensuring value for money. NEW MARKETS When you have a successful and scalable model, arguably the biggest failure is the failure to expand.

Iglu’s roots were in ski holidays, but we saw the opportunity in cruise and moved quickly, both through organic growth with our existing customer base and with the acquisition of Planet Cruise in 2013. Looking ahead, we see huge opportunity for growth in a number of areas, from new geographies to new categories, such as luxury cruises, tailor-made and long haul. When you have a winning formula, you have a duty to maximise its potential. That’s an attitude that binds and unifies the management team, as well as our shareholder partners.

The travel sector has been disrupted beyond recognition with new models like Iglu making the most of the turmoil – but a clear focus on customer experience remains the principal driver of success, which can be enhanced by digital and data.





LDC’s Value Enhancement Group is a dedicated team of specialist advisors that develop and execute strategies to drive growth, develop partnerships and increase shareholder value within the portfolio. With expertise across a range of sectors, the team works with management teams to create bespoke 100-day and shareholder value creation programmes to identify and execute opportunities to add value to business through cash generation, operational improvements, revenue growth and cost saving initiatives.


What do you identify as the key area to add value to a business looking ahead to 2016? Keith Holdt: “Online presence and digital strategy, both in B2B and B2C channels, has become increasingly prevalent in sales and marketing. To drive topline value, investing in digital infrastructure and having a clear online strategy will help a business gain traction in reaching its target market, communicating the right messages and further engaging with its customers. “If it’s done effectively, it can result in a higher level of customer acquisition and retention, resulting in substantial revenue gains.” Mike Kingswood: “Opportunities to add value at Atcore are fairly prescriptive. We mainly work with large tour operators, but there is scope for us to widen our portfolio of clients to include specialist operators so we can tap into the more niche sectors of the industry.

markets. Over the last year we’ve seen an uplift in the volume of ticket sales in line with the increase in business activity and disposable income. “To tap into this opportunity, one of the key areas in our value creation programme is optimising our digital capabilities to improve our customer’s online experience and further drive ticket sales and sales excellence. Investing in our online infrastructure also means we can tap into data analytics to drive our future strategy to ensure we are targeting the right customers.” Do you see the international or domestic market presenting more growth opportunities?

“As part of our value creation plan, we’re looking to grow our customer base and increase our long-term customer retention rate through optimising our sales and marketing effectiveness. That way we can secure a larger and more stable revenue stream.”

Keith Holdt: “We work with UKheadquartered businesses, so naturally the domestic market is where we look to in the first instance for growth opportunities. As we’ve seen an uplift in economic activity here in the UK, avenues for growth on home soil have become an increasingly attractive option. Nonetheless, when implementing a value creation programme we ensure both international and domestic opportunities are considered in order to achieve the best possible returns.”

Paul Thandi: “As the UK continues in its economic recovery, it has had a positive impact on us as a venue management and services business in both B2B and B2C

Mike Kingswood: “We see our future growth coming from extending our geographic reach to new locations such as in Canada or the BRIC countries. It’s early days for tour


Keith Holdt, Head of LDC’s Value Enhancement Group, discusses value creation and growth opportunities with CEOs of LDC’s portfolio businesses, Paul Thandi of The NEC Group and Mike Kingswood, Atcore.





operators in those regions, but as the sector grows, we’d look to introduce our services to the market and capitalise on growth opportunities there.” Paul Thandi: “Our growth opportunities largely lie within the UK market. Economic conditions here are currently favourable as wages are on the increase, the living wage has been introduced and interest rates are at a low. This means that consumers have more purchasing power, which in turn will increase venue bookings for conferences and meetings, as well as increasing ticket sales for shows and concerts.” Do you see value creation opportunities being driven from the top line or bottom line? Keith Holdt: “Keeping costs down and investing in growth opportunities go handin-hand when it comes to creating value in a business. Implementing bottom line strategies gives a more measurable gauge of performance improvement, but to achieve substantial gains on the topline, the focus should be on areas such as clear messaging, sales excellence, pricing and marketing strategy which can increase profit margins and deliver substantial growth.” Mike Kingswood: “Since LDC’s backing we have established a clear cut operational plan to build on the framework and control systems we already had in place to optimise our efficiency and day-to-day operations.

“Our focus currently lies with achieving topline growth. We’re looking to increase our customer base and up our long term support contracts as it’s more profitable for us in the long term. Looking ahead to next year, we’re hoping to undertake acquisitions, whether that’s of a like-for-like firm or adding onto our core business model with additional capabilities.” Paul Thandi: “We are currently implementing a sales effectiveness programme as part of our value creation plan, looking at how we can further commercially engage with our target market to drive sales. “We have a great relationship with our supply chain, and we work closely with them to improve our procurement strategy to ensure we’re making cost savings where necessary, whilst ensuring quality isn’t compromised.”

Mike Kingswood: “Atcore operate in a market that is heavily impacted by world events, having a knock-on effect down the travel industry supply chain. For us, it’s about mitigating that risk and ensuring we operate on a sustainable low-risk business model. “The skills shortage is certainly a challenge for us. Businesses in the IT sector are competing for the same talent pool which makes recruitment difficult without investing substantial time and capital in training programmes.” Paul Thandi: “Our central focus is on customer experience and this will continue to be at the forefront of our strategy moving into 2016. As we expect to see an increase in sales and bookings, our main goal is to strive to continue to deliver exceptional service and offer our customers an unrivalled events and conferencing facility.”

Where do you see challenges lying in value creation looking ahead to 2016? Keith Holdt: “From my experience of working closely with management teams, one of the main challenges I’ve seen businesses face is balancing activities that directly drive value with the day-to-day running of the company. Our role as LDC’s Value Enhancement Group is to ensure businesses remain focused and committed to executing growth plans and that value creation strategy is not sidelined in favour of business as usual activity.”


06 16

LDC’s experts in manufacturing reveal their perspective on the sector that plays such a pivotal role in shaping the economic health of the UK.

MANUFACTURING, LESSONS LEARNT AND BATTLES WON The UK manufacturing sector has played a critical role in the economic recovery and is a long-standing foundation of the British economy. Notwithstanding some more recent market headwinds, with wider economic trading conditions remaining generally steady, and lower global commodity prices helping to offset rising wage costs, manufacturing businesses should remain confident and continue to explore growth opportunities. As a driving force of the UK economy, it comes as little surprise that LDC has put so much focus on ensuring manufacturing businesses have access to the right support to enable them to fulfil their strategic objectives. Since launching its manufacturing commitment four years ago, LDC has increased its investment target dramatically from £200m to £550m and is on track to meet this goal before the end of 2016. SKILLS GAP The UK manufacturing sector has worldwide recognition for the quality of its products, design capabilities and technical innovation. In order to retain this reputation many businesses have recognised the need for significant investment to address the widening skills gap, recognised as one of the sectors greatest challenges. Steve Aston, a Director at LDC Birmingham and manufacturing specialist, believes that the issue must be addressed immediately or the country faces being left behind by international competition. “The shortage of specialist skills is at the forefront of the challenges facing the manufacturing sector. With not enough people studying STEM subjects at school, access to a pool of skilled workers has been an issue for firms here in the Midlands, as well as across the UK.” Ged Gould is a Director and Co-Head of LDC North West and recently completed


the investment in pipeline inspection systems manufacturer Mini-Cam agrees, and suggests the lack of apprentices is hindering the sector. “The lack of readily available apprentices has stalled the growth as training requires both time and cost commitments that not all businesses have the ability to incur. Instead, firms look to recruit workers who already have necessary skills to add instant value to a business.” Aston adds that upskilling the workforce through focused apprenticeship schemes and training programmes will help combat the issue. “With the government promising to produce three million apprentices by 2020 and increase their minimum wage, the outlook heading into 2016 looks more positive as these initiatives begin to gather momentum.” MAINTAINING COMPETITIVENESS Improving efficiency and, therefore, competitiveness remain at the heart of the manufacturing sector. While growth into new markets and expanding capacity are required, maintaining profitability and efficiency lies at the heart of the manufacturing businesses plan. For Yann Souillard, Managing Director and Head of LDC South, “Top-line growth is important, but protecting profit margins, increasing efficiency and remaining competitive on a global basis are essential to any manufacturing businesses. Identifying areas to capture operational efficiencies and investing to achieve this are important foundations for adding long term value.”



LDC’S MANUFACTURING COMMITMENT LDC recognises the significant growth potential of the UK’s specialist engineering and manufacturing businesses and having placed £320m in the sector since 2011, the current target is to invest £550m before the end of 2016. With recent investments in BOFA International, Mini-Cam and Aqualisa we are on target to reach this.

“We are delighted to have completed the recent management buyout of fume extraction equipment manufacturer BOFA International, which has capitalised on increasing global demand driven by regulation and safety legislation whilst continually driving robust manufacturing efficiency.” Gould added, “Firms need to continually examine where value can be created. This can be through direct investment in the business to build greater capacity or management capability. Looking across our own portfolio, value is often created through growth initiatives, such as new service or product development, new vertical sectors being addressed and new geographies being targeted - and sometimes all of the above.” Aston comments, “We are pleased to have recently invested in Aqualisa, the market-leading manufacturer of showers and related accessories. We are now actively working with its management team to unlock its operational potential, as well as driving growth through new product development and innovation.” EXPORTING Looking further afield, the British manufacturing industry has an outstanding reputation on the world stage. All of LDC’s portfolio businesses in the sector have an active export programme. The wider economic climate has had a direct impact on the sector, with global factors such as falling commodity prices, the contracting oil crisis and uncertainty in Europe impacting on the strategy of manufacturers embarking on export activity or expansion into foreign markets.


Aston believes that the current macroeconomic issues are one of the main challenges faced. “Export activity in the manufacturing sector has been affected by the strength of the pound, which reduces competitiveness of British manufactured goods and may also be impacted by current economic uncertainty over Europe and Asia. This has, however, forced businesses to critically review supply chains and manufacturing practices.” Amid mounting global uncertainty, the manufacturing sector is looking to the domestic market to drive demand for products, as well as fast growth markets further afield, such as Asia and India. Gould agrees, stating: “Manufacturing is intrinsically linked with wider global economic issues, and the fall in oil prices has had a two-fold effect on the sector. Although it has helped reduce input costs for oil-intensive manufacturing firms, fresh concerns around Middle East and North Sea oil prices have had a knock on effect for businesses in its downstream supply chain which remains a key issue at the forefront of the sector as we move into 2016.” “Mini-Cam has seen a steady growth in the UK market. However, as part of our investment strategy we’re now looking to identify opportunities in fast growth export markets.” “Looking ahead to 2016, manufacturing firms look set to face considerable challenges on both a micro and macro level. As market conditions go through a period of volatility, it is the aptitude and determination of ambitious management teams that can secure the future growth of the sector.”



07 20

ROGER BOOTLE: MY PERSPECTIVE ON FORECASTING, GETTING IT RIGHT AND – OCCASIONALLY GETTING IT WRONG ABOUT THE AUTHOR Roger Bootle is one of the City of London’s best-known economists. As well as running Capital Economics, which he founded in 1999, Roger is also a Specialist Adviser to the House of Commons Treasury Committee and an Honorary Fellow of the Institute of Actuaries. Roger studied at Oxford University and then became a Lecturer in Economics at St Anne’s College, Oxford. During his career, Roger has written many articles and several books on monetary economics.

I’m often asked to predict the future. The obvious questions - like when will interest rates go up – I can handle. But you get thrown some real curveballs. “Roger, what’s going to happen to the Vietnamese dong?” Or even: “What’s the next big global economic shock going to be?” On the latter, I have to tell them that, by definition, I don’t know. Forecasting is incredibly difficult and I often wonder if there is anything I can genuinely say about the future that’s useful. Economics is more art than science. Yes, it’s rooted in rigorous analysis, in a deep understanding about what’s happened in the past and what’s going on now, but ultimately it’s about your judgement. At Capital Economics our insights are based on a deep grounding in the data and the history. We know our stuff inside out. Forecasting is about the outcome. I really enjoy the prelude – understanding what’s going on, the analysis, assessment and then the judgement.


The fact that the judgment can be proved right or wrong is what makes it worthwhile. Without it, it would be like medieval philosophers speculating on how many angels can dance on the head of a pin. I suppose it’s a bit like betting on horses. You study the form, go the races, talk to people. But if you want to stand a chance of making money you should only bet occasionally when you have all the right information. It’s the same in economics. You can sometimes make intelligent predictions with a certain amount of conviction. The trouble in my business is that people expect you to forecast everything. And when you get things badly wrong, it hurts. Equally, it’s rather nice when you take a stand on something and be proved right. Perhaps the biggest call I’ve got right was on inflation in the early 1990s. We’re still in the world I imagined at the time when I wrote my best-selling book, ‘The Death of Inflation’, published in 1996. I must have been one of the first to even raise the possibility of deflation in the West, and to talk about the possibility of zero or even negative interest rates.

What made it particularly gratifying was that I received quite a lot of stick. Various central bankers poured nasty substances on me from a great height, including the Bank of England and the Bundesbank, but it was a fantastic call, a big call, a global call. I’m very proud of that. I was wrong about the Euro. Not that I was wrong about it being a bad idea - it’s been a disaster - but I was wrong to think they wouldn’t go through with it. And I was only half-vindicated in calling the top of the housing market 8-10 years ago. House prices did of course fall eventually, by more than 20%, but for a long time I felt uncomfortable about the forecast. I just kept my head down. I was late to see the UK recovery, although I was in good company because almost everyone else didn’t see it coming either. I’m still kicking myself about the financial crisis of 2008-9. I half saw it in my book ‘Money for Nothing’ - my least commercially successful, but probably best book. It did correctly identify the vulnerability of the financial system, especially the bull

conditions in the property market, as being very dangerous, but I just didn’t take it far enough. I didn’t imagine quite how vulnerable the financial system actually was.


It’s very difficult because you can become emotionally attached to a view and it’s hard to accept you’ve been wrong, but, yes, you’re perfectly entitled to change your mind when the facts change. Indeed, you must stop.

“What you absolutely shouldn’t do is change your mind just because the market hasn’t moved your way yet. Once you start to call things wrong like that you end up getting them wrong big time and your confidence goes.“ My greatest successes over the years have been on interest rates. They are much more plausible to predict, not least because at the short end at least they are controlled by the policy authorities. If you understand their psychology, what they are about, and you have a handle on what’s going on in the economy, then you have a reasonable chance of getting it right. There are some things I find really hard to predict, like exchange rates and the gold price. We ought to be able to publish forecast documents where there is a list of questions and against them we give answers like: ‘I haven’t got a clue’ or ‘no reason to disagree with the consensus’. Every so often there’d be a forecast we had strong grounds to believe in. But that‘s not the way of the world. We’re expected to forecast a whole series of variables, some of which we feel quite confident about, others we don’t. I suppose the remarkable thing is not that people get the future wrong. The remarkable thing is that anyone ever gets it right! As Mark Twain once said: ‘Predictions are very difficult, especially if they’re about the future.’ There are things that are genuinely unknowable - Donald Rumsfeld’s famous ‘known unknowns’. I would rather not be asked to forecast.

Capital Economics founder Roger Bootle explains why despite advanced data mining techniques, predicting the future remains more art than science, and reveals the forecasts he got right – and the ones he wished he had.


08 22


LDC Corporate Ambassador, Mark Beaumont does not break cycling world records, he shatters them. In 2008, he cycled over 18,000 miles around the world in just over 194 days, beating the previous record by 81 days. Earlier this year Mark cycled the length of Africa in 41 days and 10 hours, 17 days faster than the previous record. Perspectives caught up with Mark to find out what he learned on this latest extraordinary journey. How did you come up with the idea for the Africa Solo expedition? In 2010 I left the bike behind to take on a new challenge: the oceans, which started well but ended with a serious accident in the Atlantic. My team and I capsized 500 miles offshore and spent 14 hours fighting for our lives. After that, I changed paths and spent two years as a TV sports presenter. I was working with BBC World in the build-up to the 2014 Commonwealth Games, and travelled to nearly 70 nations and territories, interviewing hundreds of inspiring young athletes. It was after hearing their stories that I realised that I wasn’t ready to give up. That context is important to me because this trip to Africa wasn’t just another big cycle, it was a real evolution. The next major step for me as an athlete.

“Having just six months gave the whole project a real intensity. It spurred us to be better, faster.” What did you enjoy most about the trip? Africa as a continent is so different than what you’d expect. There’s an incredible open-door policy throughout, with a few exceptions in Ethiopia. Sudan has had a lot of bad press, but for me it was so welcoming and interesting. A specific highlight was the Sahara, vast desert riding, through sandstorms. Another was Botswana, through hundreds of miles of wildlife reserves. At that point I was doing a lot of night riding, when there’s nobody else on the road for hours at a time. Riding past elephants, lions and giraffes is scary, but it’s absolutely beautiful at the same time. What was the biggest hurdle?

How did you plan such a mammoth trip? The route’s fairly prescribed, so that’s where you start: it’s as simple as pulling out maps, and considering the challenges you’ll face. Then I had to think about the personal journey: how do I go from a twoyear break, to being on the best form of my life in six short months? Not to mention I had to train during the British winter. My team encouraged me to train longer and delay the trip, but this wasn’t my plan. I knew I had one chance to get started before temperatures soared in the Sahara desert. Besides, having just six months gave the whole project a real intensity. It spurred us to be better, faster.

I had originally thought Egypt was going to be the biggest challenge because it’s very bureaucratic. I spent more time planning Egypt than I did the other seven countries combined. Keegan Longueira, who previously held the record, lost days on border crossings but my slowest one was three hours, thanks to the huge amount of work put into diplomacy. But during the ride itself I’d say my time in Ethiopia was where I came across the biggest hurdles. Unfortunately, the education levels in some areas are rock-bottom and unemployment is sky-high. It’s the one place I did experience hostility from time to time. It’s also massively mountainous: I had serious climbing every day. In one week, I got water poisoning and food poisoning, so I was


incredibly weak on the bike. Carrying on was really tough, but I know from experience that the real record-breaking happens on your worst days, not on your best days. If you can push yourself to carry on when you’re feeling low then this becomes your margin of success. “I know from experience that the real record-breaking happens on your worst days, not on your best days. If you can push yourself to carry on when you’re feeling low then this becomes your margin of success.” On a personal and a business level, what did you learn? The big lesson is the importance of setting really tough timelines, not just in breaking the record, but also in getting to the start line. It’s the same with business: you need to set incredibly tough timelines to get a real focus and momentum with the team. With a long timeline, people don’t have that intensity. It was seriously tough pulling everything together in time, but I’m so glad we did because otherwise we’d be leaving a year later and the journey wouldn’t have had the same focus “The big lesson is the importance of setting really tough timelines, not just in breaking the record, but also in getting to the start line.” What sets this apart from what you’ve done before? This was about creating an historic milestone in ultra-endurance. It was about resetting


expectations as to what’s possible. I was very determined this year to take my comfort zone and ability to a whole new level. Would you do it again? No. Part of the beauty of these big rides is the unknown. Once you do know, the harsh reality is there’s quite a lot of pain, a lot of discomfort, and it’s a massive commitment. If you could, would you do anything differently? The honest answer is, probably not. It’s the first time in my life I can say I couldn’t have gone any quicker. Other world records I’ve set have always been a compromise between the speed, and the fact I’m filming it for a documentary. That slows you down, but in the end it’s a big part of the project. This time there was no compromise, so I didn’t get to finish and think ‘I could’ve gone quicker if...’’. You did this for a fantastic cause too, why did you choose Orkidstudio as your charity? Orkidstudio is a charity that I’m a patron for, and I’ve known about since it was founded

by James Mitchell. He was interested in taking architecture to parts of the world which don’t have structures that become the heart of a community. He creates medical centres and education centres that have real architectural integrity and become more than just a token gesture or a permanent tent. I’ve always tried to help Orkidstudio in as big a way as possible, and they’ve done so much work in Africa that they were a perfect fit. What are you planning next? I’m afraid I couldn’t possibly say at this stage but LDC has been on the journey with me for almost a decade, so when I am ready to announce plans, they will know from the start. What I can say is I am planning something exciting soon. I’m firmly back on the saddle.


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