Shareholder Executive

CDC

Purpose

CDC‘s objective is to invest in the creation and growth of viable private businesses in poorer developing countries to contribute to economic growth for the benefit of the poor; and to mobilise private investment in these markets both directly and by demonstrating profitable investments as part of the mission of the Department for International Development (DFID) to fight world poverty.

Legal Status and Ownership

CDC Group plc (formerly called the Commonwealth Development Corporation) is a Government company, originally formed in 1948, wholly owned by the Secretary of State for International Development. CDC is now a fund-of-funds investment company, whose funds predominantly make equity investments in the poorer countries of the developing world.Two of CDC’s Non-Executive Directors are nominated by 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, was required by DFID during 2008 to:

• invest in private companies in countries with a per capita income below $9,075, 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 $1,750)
• invest its funds profitably within DFID’s policy framework
• mobilise third party capital.

The investment policy objectives changed from 1 January 2009, to require from new commitments more than 75% of new investment in countries with a per capita income below $905 and more than 50% of new investments in Sub-Saharan Africa. CDC is also allowed by DFID to make up to $125m investment in Small and Medium size Enterprise(SME) funds in other developing countries.

Financial Performance¹

£m	2008	2007	2006
Turnover	(425)	629	337
Operating Profit	(438)	621	331
Profit/(Loss) for the year	(359)	672	375
Net Cash flow	(137)	634	95
Net Operating Assets (valuation basis)	2,328	2,687	2,015
RONA	(18.8)%	23.1%	16.4%
Shareholders' Funds	2,328	2,687	2,015
Dividends	-	-	-

Dividend policy

To comply with its objectives of investing in emerging markets, particularly in poorer countries, any surplus is reinvested in funds in its target markets. CDC does not therefore currently pay dividends to HMG.

Performance targets

Targets are based on compliance with the Investment

Policy set by the shareholder, return on assets and compliance with the Investment Code, which defines CDC’s policies for sustainable and responsible investment.

Notes

¹ 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

The Shareholder Executive continued to advise, support and work closely with both shareholder and company during a year of considerable change for CDC, which saw significant instability in global financial markets, the agreement of a new Investment Policy, Investment Code and Remuneration Framework, an NAO review of DFID’s oversight of its CDC shareholding and a change of Chair.

During 2008, the economic context for emerging markets and for CDC changed considerably, and conditions were less benign than in the period 2004 to 2007. As a consequence, the company’s net worth fell by 13% to £2.3bn at the end of 2008, and the value of CDC’s portfolio investments also decreased by £256m in the year to £928m (2007: £59m increase). It should be stressed that this is primarily due to valuation losses, reflecting the difficult market conditions in 2008. CDC’s cash position at year end was £1.3bn, balanced by CDC’s fund commitments of £2.0bn. CDC continued to remain within DFID’s portfolio requirements and successfully mobilised $1.9bn of third party capital in the year (2007: $0.7bn).

In accordance with its mandate to encourage private sector equity investments in the developing world, CDC has engaged with a further 27 funds managed by third party fund managers in 2008. CDC has also continued to strengthen the measurement of the development impact of its investment programme, and measures to demonstrate compliance with the Investment Code.

During the year, Sir Malcolm Williamson stepped down as CDC Chair, and Richard Gillingwater joined the Board, initially as Chair-designate. He has now taken over as CDC Chair.

Looking forward, CDC will be implementing the new Investment Policy to focus still further on investing in the world’s poorest countries, in line with DFID’s strategic priorities, and is considering diversifying the range of instruments it uses to do so.