SUMMARY STATEMENT OF TOTAL RETURN (£ MILLION)
| |
2001 |
2000 |
1999 |
|
Revenue account return before tax |
50 |
72 |
85 |
|
Capital account return before tax |
(197) |
(133) |
(30) |
|
Tax |
(8) |
(10) |
(20) |
|
Total return after tax |
(156) |
(52) |
35 |
|
Portfolio performance before costs
(dividends/interest from investments
and valuation changes, as a
percentage of the portfolio
value)
|
10% |
0% |
8% |
Source: CDC's annual reports
Comparative returns
CDC is a unique institution and there is no single comparator against which our performance can be gauged:
— stock exchanges in developing countries are useful indicators, but list a different range of companies (typically larger) than those in which CDC invests;
— most private equity firms are private, so do not publish their results; 3i is a public company but operates predominantly in much more stable developed countries;
— most developing country indices are heavily weighted towards the less poor countries (for example, African indices are heavily weighted towards South Africa, and the global indices include "emerging markets" such as Turkey and South Korea in which CDC does not operate).
The following performance benchmarks attempt to put CDC's return into context. They show that CDC out-performed most stock exchange indices in 2001 and 2000, but trailed them in 1999—in part due to a cautious investment approach which led to a substantial short-term cash reserve.
|
Return % |
2001 |
2000 |
1999 |
|
South Africa stock
exchange *
|
-21% |
-21% |
50% |
|
India stock exchange * |
-26% |
-31% |
84% |
|
FTSE 100 share index * |
-18% |
-17% |
14% |
|
Latin America regional
index *
|
-6% |
-17% |
57% |
|
3i plc (year to
31 March
2002, 2001, 2000)
|
-19% |
-3% |
44% |
|
CDC |
-10% |
0% |
8% |
* Source: Standard & Poors Emerging Stock Markets Review
Investments and exits 1999-01
CDC's business cycle is to make new investments, manage them in order to add value, and to exit at an appropriate stage in the company's development.
|
£ million |
2001 |
2000 |
1999 |
|
New investments |
134 |
258 |
279 |
|
Proceeds from equity exits |
83 |
44 |
37 |
The level of new investments made in 2001 was below the trend, as we adopted a cautious approach in very difficult markets and turned down various opportunities which we considered over-priced. Our portfolio of equity investments is still relatively young, so the level of exits is low.
CDC: THE YEAR AHEAD
Against the backdrop of an extremely difficult 2001 in the emerging markets, the current year has opened slowly in terms of new investment volumes. Privatisations in CDC's markets are largely at a standstill, few new enterprises are being established and existing companies remain cautious about expansion until market conditions improve. Trading conditions in many CDC investee companies are still difficult. Nonetheless, we are beginning to see a number of interesting investment opportunities which are currently being appraised.
By contrast, the power sector, particularly electricity generation, is offering an unusually large number of investment opportunities across the poor countries in the wake of the collapse of Enron. As part of the Enron effect, many first world electricity companies which invested in the poor countries are seeking to reverse their strategy and dispose of their holdings. This phenomenon is very distressing for the countries in which these assets are located as, not only are generating systems for sale, but future greenfield investment plans are being abandoned. CDC is cautiously scrutinising a number of investments in the power sector in Latin America, Africa, South Asia and the Asia/Pacific regions, and the CDC Globeleq team hopes between now and year-end to make a portfolio acquisition.
In terms of new investment volumes, the year 2002 could produce approximately £200 million spread across CDC's geography. CDC is expected to generate £100 million through the repayment of outstanding loans. This should result in a positive cash balance at year end. At this stage of the year, it is not possible to predict the likely year-end valuation movement as the underlying markets and valuation benchmarks remain extremely volatile and uncertain.
In terms of the geography in which CDC operates, we will continue throughout 2002 to place a major emphasis on new investments in Sub-Saharan Africa and South Asia, in accordance with the priorities expressed in CDC's Investment Policy. Obviously the current political conditions prevailing between India and Pakistan are resulting in a relatively low level of activity in the region, compared to prior years. Beyond these core regions, CDC will continue to invest judiciously in Latin America and Asia/Pacific, with allocated amounts of capital being made available for the new initiatives in China, Malaysia and Mexico. With respect to sector focus, CDC will continue to seek investments in infrastructure development—especially airports, telecoms, healthcare, agribusiness, consumer goods, minerals, oil and gas, power and financial institutions.
While raising private capital for the emerging markets remains at a standstill, which obviously has an impact on the prospects for PPP, plans are under way for a new targeted fund-raising initiative for Africa as a successor to the Comafin Fund which is now fully invested. Aureos Capital is also in the advanced stage of rolling out a new US$35 million fund in Central America as a follow-on to CDC's CAIF Fund. Beyond 2002, assuming the electricity sector stabilises and receives more sympathetic interest from investors, we would seek to reactivate CDC Globeleq's fund-raising for the electricity industry, which was withdrawn from the market in 2001 as a consequence of the Enron crisis.
This approach, to offer investors the opportunity to subscribe to specific funds, would seem to offer the most appropriate way of mobilising private capital to work alongside CDC's government capital.
In terms of financial products, CDC will continue to operate within the definition of a "risk capital provider" with the emphasis on equity, quasi-equity and mezzanine debt. We will seek appropriate risk-adjusted rates of return, market by market and instrument by instrument.
CDC Capital Partners
17 June 2002
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