CDC Group plc Financial Review 2009 Our mission is to foster growth in sustainable businesses, helping to raise living standards in developing countries. Our investment policy is to make more than 75% of new investments in low income countries* and to invest more than 50% of our funds in sub-Saharan Africa. Contents 2 Statement from the Chairman 4 Our Business 12 Statement from the Chief Executive 14 Board of Directors 16 Business Review – Africa 18 Business Review – Asia 20 Performance Review 28 CDC Universe * Those with an annual gross national income (GNI) per capita of less than US$905. CDC Group plc Financial Review 2009 1 2009 Highlights £359m New investments in developing countries, 61% in Africa £207m Total return after tax £742m1 Other capital mobilised £162m Portfolio cash generated for re-investment in developing countries £1,411m Portfolio of fund investments £207m New commitments to funds in a difficult period for fundraising £1,561m Outstanding commitments to funds 794 Underlying portfolio companies located in 71 countries CDC’s Investment Code Process externally audited for the first time 1 See page 22 for an explanation of how mobilisation is measured. 2 CDC Group plc Financial Review 2009 Statement from the Chairman Richard Gillingwater CBE In the deepest recession that we’ve 2009 also saw the first year of had in many decades in developed CDC’s new investment policy, markets, the emerging markets which the organisation has fully in which CDC invests its capital embraced. The new policy, which showed some positive growth and takes us through to the end of a steady return to financial stability 2013, targets 75% of CDC’s new in 2009. investments over a five year rolling basis in low income countries with The poorer countries of Africa and a particular focus on sub-Saharan Asia that are at the heart of CDC’s Africa and South Asia. It is in investment focus rebounded from these countries that a shortage the lows of 2008 much more of investment for promising strongly than developed markets businesses is still a major of the West and have experienced obstacle to economic growth and a year of unexpected resilience. development. In 2009, 59% of While there remain concerns over CDC’s total of £359m invested what are still fragile developing went into low income countries economies, there are grounds with 53% going to sub-Saharan for optimism based on their Africa. Our pioneering commitment fundamental strengths: lower debt this year to Sierra Investment Fund, and higher growth rates than in the first ever private equity fund in the developed economies. These Sierra Leone, provides an example strengths mean that, despite lower of the innovative and imaginative levels of economic activity last ways in which we are implementing year and accompanying investor our new investment policy. restraint, CDC is cautiously optimistic that in 2010 emerging A major highlight of my first year markets will strengthen and begin as Chairman of CDC was the to attract the capital that is vital publication of our first ever to their economic development. development impact report, ‘Growth for Development’. A huge The high levels of uncertainty in amount of work and effort went early 2009 meant that trading into its production and it signifies conditions were still weak, with that CDC is determined to look at fund managers and businesses the wider development impact of reluctant to undertake new what we do. Understanding the business. As the year went on, impact of our work in supporting business and consumer confidence economic development means we in many developing countries will need to evaluate continually returned and enabled CDC to and learn from our experiences. achieve positive returns of £207m This year’s updated development this year, increasing the company’s impact report will build on the net value to £2.5bn. lessons we have learnt. CDC Group plc Financial Review 2009 3 As well as providing the capital for I am very privileged to have taken investment in promising businesses over the role of Chairman from in poorer countries, CDC has been Sir Malcolm Williamson in April last at the cutting edge of some of the year. I am indebted to him for the thinking around supporting the excellent job he did in chairing private sector in the developing the Board for five years and world. The Royal African Society’s the leadership that he gave speech series that CDC sponsors in overseeing the remarkable has prompted considerable debate development of CDC during that and support, as did the seminar period. This year has also seen and launch event for our the appointment of one new development impact report. Putting Non-executive Director, Ian Goldin. innovative thinking into practice He will replace Jonathan Kydd who saw the CDC Board visiting has given 12 years of dedicated Bangladesh in November to meet contribution to CDC, during a investors, businesses and policy- period of immense change. We are makers in order to evaluate extremely grateful to him and thank conditions for investment in him for his hard work. the country and to make the case for private equity and its I would like to thank our developmental benefits. The Board shareholder DFID for all its support visited women benefiting from during the year. Finally, thank you CDC-supported microfinance to all the staff at CDC who have schemes as well as seeing performed admirably and with businesses that will benefit from great dedication during a the commitment CDC plans to challenging year. make to Frontier Fund Private Equity, the first ever Bangladeshi private equity fund. I was also lucky enough to visit Nigeria this year and I was struck by the incredible progress that its private sector investment Richard Gillingwater CBE infrastructure has made. From a Chairman very few funds providing business with risk capital in the late 1990s, the West African nation’s market has become competitive and now provides many opportunities for entrepreneurs to benefit from the added value of private equity investment. In this regard there are striking parallels with Bangladesh as that South Asian economy looks to expand its nascent investment network and build on its economic resurgence. 4 CDC Group plc Financial Review 2009 Our Business One of the most serious barriers to economic growth in poor countries is the shortage of risk capital to help promising businesses grow. Mobilising CDC other capital people’s 1 money Fund We help mobilise managers private investment in poorer countries by demonstrating a successful track 4 2 record. Economic growth Investee 3 companies CDC Group plc Financial Review 2009 5 CDC capital (p6) CDC has assets of £2.5bn (US$4.0bn). Our purpose is to stimulate economic growth in emerging markets, particularly sub-Saharan 1 Africa and South Asia, by investing in the private sector. Fund managers (p7) Commitments are principally with local private equity fund managers who know and understand developing economies. 2 Managers are asked to target returns appropriate to asset class. Investee companies (p10) Fund managers raise capital from other investors, alongside CDC, thus increasing the levels of capital invested in poor 3 countries. Managers invest responsibly in accordance with CDC’s Investment Code. Economic growth (p11) Successful portfolio companies employ and train people and boost tax revenues for 4 their local governments. They also improve practices on environmental, social and governance issues. 6 CDC Group plc Financial Review 2009 Our Business – CDC capital No country has succeeded in reducing poverty in a sustainable manner without economic growth. Successful businesses employ and train people, 1 pay taxes and create and operate infrastructure. Portfolio by region CDC’s objective is to invest in a CDC has not received any new commercially sustainable manner investment from its shareholder in the poorer countries of the for 14 years. However, by making 2 3 1 Africa 52% developing world and to attract successful investments, CDC has 2 Asia 43% 3 Other 5% others to invest by demonstrating more than doubled its net worth success. over the last five years, growing from £1,214m in 2004 to £2,535m CDC’s capital is focused on the in 2009. This has allowed CDC 1 private sector as the engine of to increase its investments in the growth. Investments: developing world. Net assets • provide much needed capital By demonstrating successful for growing businesses; and investment over the last five years, CDC’s current investment policy • attract other investors by has mobilised US$5bn of capital £2.5bn demonstrating success. commitment from other investors alongside CDC’s commitment. Since 2004, CDC has invested primarily through private equity New commitments funds that in turn invest in “CDC has made a credible companies in the poor countries contribution to economic of the world. This new investment development in poor countries model was created from a major £207m restructuring by CDC’s shareholder, while also encouraging other the UK Department for International foreign investors to engage Development (DFID). Two new with them.” private equity fund managers, CDC value growth (£m) Actis and Aureos, were created The UK National Audit Office to manage CDC’s existing Report on DFID’s oversight Profit 1,473 of CDC, 2008. 1,321 investments and CDC became Investment 1,114 a fund-of-funds business. 801 426 1,214 1,214 1,214 1,214 1,214 05 06 07 08 09 Fund drawdowns (£m) 436 412 359 257 156 05 06 07 08 09 CDC Group plc Financial Review 2009 7 Our Business – Fund managers CDC commits capital to funds managed by skilled fund managers who know and understand 2 emerging markets and the challenges they face.