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Actis in review 2013 The positive power of capital Contents 03 Where we are now 08 Portfolio at work Banque Commerciale du Rwanda 10 Portfolio at work Garden City 13 Actis at a glance 14 Portfolio at work Bellagio 17 Portfolio at work Globeleq Mesoamerica Energy 20 Portfolio at work Asiri Group 23 Portfolio at work AGS 26 Regions and sectors 28 Investments 29 Investors 30 Portfolio companies 34 The team São Paulo, Brazil Welcome This report summarises the events and achievements of Actis in the last twelve months. Whether we are sharing the story of the Rwandan bank in which we invested nearly a decade ago, or the ATM chain rolling out across India, the tale we tell is of strong businesses, in attractive sectors, in some of the most populous and dynamic parts of the world. Our goal is to give you a sense of the breadth of our work, and the depth of our expertise. Providing insight into the energy and promise of those high growth markets which have already begun to define this century. I hope you enjoy reading this year’s annual review. Paul Fletcher Senior Partner Accra, Ghana Where we are now If the financial meltdown corporate governance, health and safety, labour law, and environmental and social practices. of August 2008 taught They must also be highly profitable. us anything it is that Our investment professionals have this in mind everything connects. The from the first dollar and day of the investment. Everything they do is focused on creating value. fortunes of a Manhattan Their work is supplemented by a dedicated team of in-house consultants who do nothing but headquartered bank, a implement best practices, and share what they know works from their past experiences in the string of late night phone same sectors. calls, a rumour of lost We think of the stewardship of Xiabu Xiabu, the confidence and the status immensely popular Chinese hot pot chain, which grew from 60 outlets at the point of our US$52m quo collapsed. investment in 2008, to over 300 in four short years. The strategy was replicable success, the introduction With it went the assumption of easy growth, of of a central kitchen and higher standards of food soaring revenues, inflation-beating house prices, safety and staff training, resulting in a business that salary rises and abundance. Growth must now be was snapped up when we sold it in December 2012. earned steadily and painstakingly over time. Or XP, the largest independent securities brokerage This is no less true in emerging market private firm in Latin America with US$3.5bn assets under equity. The heady days of buying cheap and selling custody as at October 2012, and a growth rate of high are over. If you can’t find growth you must 150% since Actis invested US$58m in 2010. With create it. Consultants call this ‘value creation’. Actis’s backing XP has more than doubled in value, What it means to us is taking nothing for granted diversified into new product lines, and made five and engaging a team of diverse professionals acquisitions; client numbers have increased twofold dedicated to generating superior returns. to 70,000 active customers. Actis partially exited XP at the end of last year, returning money We begin by identifying, scrupulously and over to investors while remaining an active partner in time, the right business, in the right sector. the business. We are not generalists. Instead we concentrate our efforts on six industries – Consumer, Energy, When we invest in a business, we see it afresh, Financial Services, Healthcare, Industrials and Real aided by assessments made during a thorough Estate. The businesses are frequently family-owned. due-diligence process. We often adopt a view from We seek fundamentally well-run companies that a new angle. In the case of Vlisco Group, our need the capital, experience, global network and fashion fabrics company, we could see when we counsel that a professional business partner can invested US$151m in 2010 that its distinctive bring. When we begin this journey we work hard product, tradition with a twist, would appeal to the to ensure alignment with the founder; we strive growing community of sophisticated African towards the same goal and share a common consumers. Nostalgic for the vivid and distinctive understanding of success. Our partners need to patterns worn by their mothers and grandmothers, benefit at least as much as we do. customers liked the contemporary designs coming out of the Dutch design headquarters. By stretching Ultimately, to be attractive to a global the product range to include seasonal designs, multinational (Actis’s preferred route for exit) bespoke handbags, luxury silk scarves and domestic companies, full of energy, innovation accessories, the Vlisco Group brand has evolved. and resilience must be polished, rationalised Its development has enchanted the media, as part and reformed to comply with global standards in of a story of urban growth, and the emergence of a 03 Where we are now self-confident Africa. This is precisely the sort rotten network with failing conductors and of opportunity that Actis is able to identify, and wooden poles weakened by an unremitting to develop, by building a market strategically, invasion of termites, vegetation and humidity. rather than simply serving what is already there. The disruption of education during the turbulent years of 1980-1990 meant that many adults didn’t In other instances value creation comes from understand the dangers of touching fallen efficiency. Actis owns a network of higher conductors. The customer database was full of education colleges in China. Rising student ghost consumers: billing was sporadic and often numbers were growing revenues, but that was inaccurate. The investment manager, in partnership not necessarily translating to the bottom line. with Actis’s Responsible Investment team, set about In Chinese culture, where education is culturally a root-and-branch review of the Environmental the most important investment, and state Social and Govemance (ESG) systems. The IPO provision cannot keep pace, secondary and symbolises the progress they made. college education is a high growth sector. But high growth companies in high growth These examples demonstrate an engrained habit: sectors do not always translate into high profit, take what is there, review it, refine it, invest in it, or high returns, without smart management. strengthen it, demand more from it, and consider every aspect of its operations. Seek to do what is We found that by sharing teaching materials, creative; a new product line, an updated strategy, lectures and expertise between the colleges, while keeping an eye focused on cost, and returns. introducing a single management board, group Engage fully in managing the company, call on Chief Executive, and applying a common set of in-house consultants, listen attentively, and standards across all the colleges, China Post- act decisively. Secondary Education (PSE) was able to expand its student numbers to 52,000 and in parallel And so, everything connects. Well run energetic lower its fixed costs. Meanwhile, the expertise companies pump high-quality products into a acquired from our management at PSE has market place, bringing with them employment, equipped us to do other deals in the Chinese innovation, and a higher quality of life. Their value is education space. Elsewhere in Brazil, our backing accretive. One successful company is more likely to of Universidade Cruzeiro do Sul Educacional in spawn another. Standards rise inexorably, and the 2012 led to a subsequent investment in English value that has been steadily created transfers from language training provider, CNA. owner to employees, from founder to investor, from suppliers to customers, and back again. Take what is there, This is what Actis will continue to do. It is what we review it, refine it, invest have always done. in it, strengthen it, demand more from it. No discussion of value creation is complete without reference to responsible investment. It is, rightly, impossible to IPO a company without absolute adherence to world-class environmental and social responsibility standards. This is what we did with the Ugandan electricity distribution company, Umeme, which listed on the Ugandan and Kenyan stock exchanges in 2012. When Actis invested in 2005, Umeme’s physical assets were in a sad state of disarray: years of underinvestment had created a 04 Where we are now Beijing, China Mumbai, India Portfolio at work Banque Commerciale du Rwanda There are some investments that are, intuitively, Actis investments. They may be the first of their kind in their market, in a country where others fear to tread, or demand a level of sustained portfolio management which some fund managers might baulk at. Banque Commerciale du Rwanda (BCR) is one such investment. In 2003/4, Rwanda was a post-conflict society with a financial services sector that was largely undeveloped and in need of capital. The vast majority of the population was unbanked. Actis took an 80% stake in the national Rwandan bank, BCR in 2004, with the Rwandan Date of investment Government retaining a 20% shareholding. 2004 Location Established in 1963 and headquartered in Kigali, Actis built on BCR’s Rwanda strong heritage to grow both its corporate and retail provision; Sector recruiting and training Rwandan professionals to create a centre of Financial Services excellence within the country’s banking sector. Actis broadened BCR’s Deal type range of services with a particular focus on SMEs, mortgage finance, Control and innovative leasing and savings products. Investment amount US$5m Actis partnered with the BCR management team to improve corporate governance, develop its staff and improve systems and controls. A new Corporate Social Responsibility strategy swung into action: supporting seedling small and medium-sized enterprises by providing grass roots education and accounting skills to local communities.