2022 has undoubtedly tested the resilience of L1, but I firmly believe that we have navigated the year in a way that is true to our values and successfully protected the many thousands of jobs that rely on us.

As we entered 2022, little did we imagine the horrific events that would unfold and the impact this would have on L1 and our businesses. Our main responsibility has been to protect our business and the many vital jobs our investments support, while playing our part to support charities helping those affected by the war in Ukraine. I’m proud of the way we have done this, in line with our values and with complete transparency with all regulators, stakeholders and counterparties.

Alongside clear and effective steps to separate L1 from its shareholders, I am pleased to have strengthened and evolved the foundations of the business. We have committed to a new purpose: We Build Businesses that Matter, reflecting our heritage of long-term investment in sectors vital for society; and building on this with a substantial new commitment to social impact. This is backed by new values – we are determined, honest and open-minded in everything we do, operating with complete transparency and flexibility.

The war, sanctions and wider economic environment has provided a challenging backdrop for L1 and our portfolio businesses. It has had a material impact on our overall AUM. But despite this, our underlying portfolio performance has been encouraging. Both Dia and Holland & Barrett are making progress; our Health portfolio is strong and growing; and Energy and Technology have navigated a hugely complicated year with skill. The team and I are confident we will now return to stability.

Thanks to our strong liquidity of approaching $8bn, we have also continued to make some cautious investments approaching $1.5bn in the last six months. Our focus has been on consolidating and strengthening our portfolio, whether through the buyback of £885mn of Holland & Barrett debt at an attractive discount; acquiring full ownership of Remedica and Sun Wave Pharma; investments in high growth opportunities, such as Tigo and Breakwater; and beginning the process of acquiring new businesses to support existing business models. This is evidence of our long-term vision and appeal as a supportive, expert investor.

However difficult the year has been for business, we know that this is irrelevant compared to the suffering of millions of Ukrainians fighting to protect their country from an illegal invasion. I’m pleased that L1 has been able to contribute, donating almost $50mn to charities supporting those affected by the war (see p.22). I am grateful to these charities for the work they are doing and for giving me the opportunity to meet some of the beneficiaries face to face, understand their experiences and witness their amazing resilience.

Our new commitment to impact investing will help us to build on this. We will take the time needed to build the right plan and help us deliver real value by scaling up businesses with clear, measurable social impact at their heart. I hope we will make our first substantial investments this year.

Portfolio performance

While L1 is now in a stable position with many strong relationships, Russia’s invasion of Ukraine and subsequent sanctions imposed on two of our UBOs have had a negative impact on our operations and financial position. For VEON and Wintershall Dea, the war has led to exiting Russian operations; for other portfolio companies it has meant substantial time and disruption dealing with uncertainty and working openly with counterparties to ensure business continuity. While this has caused our AUM to fall from $27bn to $19bn, it is clear that the underlying performance of much of our portfolio is strong and we expect to return to growth this year.

L1 Energy

It has been an unprecedented year for the global energy industry, consumers and governments. Our Energy portfolio was well-placed to support energy security, with a particular focus on gas through our stake in Wintershall Dea, while continuing to invest in firms set to accelerate global net zero ambitions.

Wintershall Dea performed well, with EBITDAX of €7.7bn, free cash flow of €3.9bn and solid levels of oil and gas production (597 kboed). While the decision to exit upstream assets in Russia materially reduces the scale of the businesses to an expected 325- 350k boe/d, it remains well-placed to continue to support a stable and balanced energy transition.

Our New Energy portfolio has performed well. Plastic Energy – which recycles previously unrecyclable plastic waste – has made progress on project delivery and plant commissioning, while new business development has accelerated substantially. H2scan – our advanced hydrogen sensing business – is well-set, becoming the first and only company to receive important approval from FM Global for a hydrogen sensor with its GRIDSCAN 5000 product. Backed by investment in product development and new target markets, there are clear opportunities for growth in 2023.

Our newest investment, Tigo, is a leading provider of intelligent energy and solar storage solutions, based in the US. L1 has provided access to funding to underpin the strong growth profile of the company and we look forward to working closely together in the coming years. The overall value of our New Energy portfolio has now reached c$200mn and we expect further targeted investments in 2023.

L1 Health

L1 Health has had a successful year. K2 HealthVentures has surpassed $1bn in commitments across 22 companies. The team has completed three exits, two refinancings and eight portfolio additions, increasing net asset value from $399mn in 2021 to over $514mn. Remedica and Sun Wave Pharma have also performed strongly, with revenue growth of 20% and 24% respectively. I’m delighted that we have recently taken full ownership of both businesses (from an initial 49% stake), giving us a leading position in generic pharma and consumer health and allowing us to accelerate the expansion of these businesses.

In the US, Destination Pet has grown its number of locations by 30% and now has over 135 locations in 20 states, with revenues growing by 49%.

L1 Retail

Our flagship retail businesses, Dia and Holland & Barrett, have both faced challenges with inflation, disrupted supply chains and huge pressures on consumer spending, but both have done well to support their customers during a cost of living crisis and improve underlying business processes.

Dia has made particular strides in the development of its proximity strategy across nearly 5,700 company-owned and franchised stores in Spain, Argentina, Brazil and Portugal. The company closed the year with an adjusted EBITDA of €200mn, €76mn more than 2021, and an adjusted EBITDA margin of 2.8% on Net Sales, 0.9pp better than 2021.

For Holland & Barrett, revenue was flat year-on-year at £725mn – an increase in retail footfall was offset by a corresponding decline in digital sales as consumers returned to stores in the UK and Netherlands following COVID lockdowns in FY21. During the year, Holland & Barrett reduced its retail estate by 22 stores, to close the year with 1,018 stores. In addition, it also engages in 57 worldwide franchise outlets and 519 worldwide franchise shop-in-shops. Adj EBITDA for the year was £160mn. Momentum is building in the business, which recorded its most successful Christmas, with investments in digitisation and building a portfolio of wellness ventures. L1 was pleased to be able to complete the debt buyback meaning that Holland & Barrett has practically no external debt.

H&B expects sustained growth for the business going forward.

L1 Technology

Our telecoms businesses have done well in difficult circumstances. VEON has had a vital role to play in Ukraine, maintaining connectivity across the country, including connecting 2.4mn refugees to their homeland. The overall business closed 2022 with 85mn 4G customers, adding 14mn 4G users year-on-year and reaching 54% 4G penetration in the customer base. This, backed by an increasing range of digital products, has supported 12.6% year on year EBITDA growth in local currency (-5.3% in reported currency) and helped the business win the Mobile World Congress Global Best Service for Customers award.

The decision to exit Russia in 2023 will significantly reduce overall debt and support a refocused growth strategy. Turkcell had strong operational and financial results, thanks to its digital-oriented strategy. FY22 revenues increased +50.0% year-on-year to TRY53.9bn due to increased Average Revenue Per User (ARPU) growth and a growing subscriber base at Turkcell Turkey and Turkcell International. EBITDA grew +27.9% year-on-year to TRY21.9bn, with EBITDA margin of 40.8%. Due to FX pressure, USD revenues of FY22 revenues and EBITDA declined by 19.8% and 21.8% respectively due to the increase of USD/TRY from 8.8 to 16.5 between 2021 and 2022.

L1 Treasury

L1 Treasury recorded a positive return of 0.10% despite difficult conditions in financial markets and limitations in its ability to invest and hedge due to concerns about sanctions.

These limitations are beginning to ease as the steps we have taken during the year have been better understood, so we will be able to target a higher return for 2023.

2022 has undoubtedly tested the resilience of L1, but I firmly believe that we have navigated the year in a way that is true to our values and successfully protected the many thousands of jobs that rely on us.I’m delighted to be joined by our new Board members and confident that we have given ourselves and our businesses a platform for growth going forward.

Whatever the year ahead brings, we are confident we can overcome any challenges. But this is only possible because of the admirable resilience, fortitude, innovation and absolute dedication our colleagues have shown to ensuring our success.

I’d also like to thank the many counterparties who have continued to support us. We appreciate the time and effort they have put in to understand our circumstances and the steps we have taken and how this has helped us to support the many jobs and communities in which we operate. We will continue to operate with full transparency, and value and invest in the strong relationships that power our success.