Shareholder Executive

CDC

Purpose

CDC's mission is to maximise the creation and long term growth of viable businesses in poorer developing countries through responsible investment and mobilising private finance as part of the mission of DfID to fight world poverty.

Legal Status and Ownership

CDC (formerly called the Commonwealth Development Corporation) is a Government company originally formed in 1948, wholly owned by the Secretary of State for International Development. In July 2004 it spun out Actis, a private equity fund manager. CDC is now a fund-of-funds investment company, whose funds consist predominantly of equity investments in the poorer countries of the developing world.

Two of CDC's non-executive directors are nominated by the Department for International Development (DfID).

Government's Objectives

Vision

To generate wealth, broadly shared, in emerging markets, particularly in poorer countries, by providing capital for investment in sustainable and responsibly managed private sector businesses.

Objectives

CDC is required by DfID to:

• invest in private companies in countries with a per capita income below US$9,075 (the 'CDC universe') and within this at least 50% in sub-Saharan Africa and south Asia, and at least 70% of new investments in 'poorer' countries (per capita income below US$1,750)
• operate in accordance with business principles on sustainable and responsible investing agreed with DfID and promote improvements on environmental, social and governance matters for the companies in which its funds are invested
• invest its funds profitably within DfID’s policy framework
• mobilise third party capital.

CDC does not normally make direct investments in companies, but instead invests indirectly in a range of developing market funds offered by fund management businesses. Currently, CDC's investments are mostly (66%) managed by Actis and its other fund manager Aureos.

The commercial relationship between CDC and Actis is detailed in a five-year framework agreement, under which CDC commits most of its capital to Actis and Aureos. However, there is also provision for a proportion of CDC's capital to be made available for investment in funds offered by other fund managers. This relationship expires at the end of 2008.

Financial Performance*

£m	2007	2006	2005
Turnover	629	337	387
Operating Profit	621	331	382
Profit/(Loss) for the year	672	375	426
Net Cash flow	634	95	359
Net Operating Assets (valuation basis)	2,687	2,015	1,640
RONA	23.1%	16.4%	23.3%
Shareholders' Funds	2,687	2,015	1,640
Dividends	-	-	-

^* CDC's year end is 31 December. As an investment company.
CDC's financial performance is reported here on a valuation basis.
CDC's full audited consolidated accounts can be found in the CDC Annual Report.

Commentary

As a fund-of-funds, CDC's performance is best appraised by measures appropriate to an investment company. CDC's gross portfolio return (in US$) increased to 57% (2006: 43%). This exceeds by 20% the Morgan Stanley MSCI Emerging Markets Index. £406m of profits were realised on exits from investments (2006: £67m), while the value of CDC's portfolio investments increased by £59m in the year (£270m increase in 2006). The company's net worth increased by 33% to £2.7bn at the end of 2007. CDC mobilised $653m (£329m) of third party capital in the year (2006: $259m).

These achievements were driven by successful exits from CDC's portfolio of legacy assets, notably the sale of the majority of the assets of Globeleq, CDC's power subsidiary, and valuation gains thanks to favourable market conditions in the developing world in 2007. CDC's net cash position grew by £634m to £1.4bn, although this was balanced by CDC's fund commitments at year end of £1.6bn (an over-commitment of 14%). CDC's cash will be recycled into new investments as these commitments are drawn down. CDC achieved this strong performance while staying within DfID's portfolio requirements.

In accordance with its mandate to encourage private-sector equity investments in the developing world, CDC has engaged with a further 20 funds managed by third party fund managers in 2007. CDC has been strengthening processes around its core business principles and the measurement of the development impact of its investment programme: a manager for socially responsible investment has been appointed.

Looking forward CDC will be implementing a new investment policy to focus still further on poorer countries, in line with DfID's strategic priorities.