Apax Global Alpha Regulatory News (APAX)

Apax Global Alpha Limited

Annual Report and Accounts 2017

Apax Global Alpha Limited Annual Report and Accounts 2017

Introduction

Apax Global Alpha Limited offers its shareholders exclusive exposure to both Apax Partners' Private Equity funds and a tailored mix of Derived Investments.

STRATEGIC REPORT

Overview

Highlights 2017

Total NAV Return1

Dividend per ordinary share in respect of 2017

Adjusted NAV2

Adjusted NAV2 per share

Market capitalization

Percentage of funds invested

 1. Total NAV Return for the Company reflects the percentage movement in the period between the closing euro Adjusted NAV (dividend added back) relative to the opening Adjusted NAV

2. Adjusted NAV is calculated by deducting the estimated performance fee reserve from period-end NAV. For details of calculations used please see the glossary on page 100

Company overview

AGA is a closed-ended investment company that invests in a diversified portfolio of Private Equity funds and Derived Investments identified as a result of the private equity activities of Apax Partners.

Structure

The CompanyApax Global Alpha Limited

About AGA

Apax Global Alpha Limited ("AGA") is a closed-ended investment company that invests in a diversified portfolio of Private Equity investments and Derived Investments in debt and equities. The Company was admitted to trading on the Main Market of the London Stock Exchange on 15 June 2015. On 18 September 2017, AGA became part of the FTSE All Share and Small Cap Indices. Ticker: APAX

What AGA does

● Sets business objectives and investment strategy

● Governance and risk management

● Appointment and oversight of Investment Manager and other service providers

The Investment ManagerApax Guernsey Managers Limited

About AGML

AGA has appointed Apax Guernsey Managers Limited ("AGML" or the "Investment Manager") as its discretionary Investment Manager. AGML is managed by a board of experienced investment professionals and operational private equity executives.

What AGML does

● Discretionary portfolio management

● Investment and divestment decisions

● Portfolio performance analysis and risk management

The Investment AdviserApax Partners LLP

About Apax Partners

Apax Partners LLP ("Apax Partners", "Apax", or "Investment Adviser") is a leading global private equity advisory firm and acts as Investment Adviser to AGML. It operates globally and has more than 30 years of investing experience. Apax Partners has raised and advised funds that total over €42bn in aggregate at 31 December 2017.

What Apax Partners do

● Identification and due diligence of investment opportunities

● Recommendation of potential investments and divestments to AGML for consideration

Objective

The Company's investment objective is to provide shareholders with capital appreciation from its investment portfolio and regular dividends.

The Company is targeting an annualised Total Net Asset Value ("NAV") Return across economic cycles of 12-15% net of fees and expenses.

The Company aims to pay an annualised dividend yield of 5% of NAV per annum.

Expertise

Apax Partners advises on investments globally in companies across four sectors: Tech & Telco, Services, Healthcare and Consumer. Underpinning these four vertical sectors is a horizontal specialism in digital. This includes investments the Apax Funds make in digital businesses as well as operational capabilities focused around helping portfolio companies embrace the full digital potential of their business.

Portfolio

Asset Type

Sector

Geography

1. Excludes cash and cash equivalents and net current assets

2. Total Return calculated by taking total gains or losses, divided by the sum of Adjusted NAV at the beginning of the period and the time weighted net invested capital. The time weighted net invested capital is the sum of investments made during the period less realised proceeds received during the period, both weighted by the number of days the capital was at work in the portfolio. Please see page 100 of the glossary for further details

Strategic report

Chairman's statement

AGA's investment portfolio performed strongly in 2017, however reported returns were depressed by the strengthening of the euro, notably against the US dollar.

AGA's portfolio has strong fundamental characteristics that puts it in good stead to realise more value in the future.

Tim Breedon CBE

Chairman

Overview

I am pleased to report that Apax Global Alpha made encouraging progress in 2017. In Private Equity, through its holdings in a range of Apax Funds, AGA invested in a number of attractive and well-priced companies. Derived Equity exposure was increased at the expense of Derived Debt in response to the frothiness of debt markets. This proved to be a successful approach with very strong returns being achieved from the Derived Equity portfolio during the year. The Derived Debt portfolio remained a stable contributor to the performance and income of AGA, although its substantial weighting in securities denominated in US dollars had a negative impact on returns.

The Investment Manager's Report provides a comprehensive analysis of the performance of the portfolio as well as a commentary on the current state of investment markets.

Read more on PG10

Results

On a constant currency basis, the Company delivered a Total NAV Return of 10.2% for the year. However, currency effects reduced the return to 2.2% when reported in euro terms. AGA does not hedge currency movements, and the weakness of the US dollar relative to the euro, against which it fell by 12% in the year, had a substantial impact on the reported value of the portfolio. Adjusted NAV per share decreased from €1.91 to €1.86 over the past twelve months, as solid gains across the portfolio were offset by adverse currency movements and two dividend payments of 4.13p and 4.24p made in March and August 2017, respectively.

On a constant currency basis, the Investment Portfolio of AGA contributed 12.5% to Total NAV Return, with Private Equity delivering a Total Return of 10.0%, Derived Debt 9.8%, and Derived Equity 35.7%.

Total NAV Return

2017: 2.2% / 10.2%1

2016: 6.6% / 3.9%1

1. On a constant currency basis

Adjusted NAV

2017: €912.4m

2016: €938.7m

Adjusted NAV per share

2017: €1.86

2016: €1.91

Portfolio summary

AGA was 98% invested as at 31 December 2017 and the portfolio was split 65% Private Equity and 35% in Derived Investments. Whilst AGA strives to maintain a balance in its exposure to Private Equity and Derived Investments, shareholders should continue to expect the share of investments in Private Equity and Derived Investments to fluctuate. In 2017 in particular, AGA funded a number of new investments in the Private Equity portfolio towards the year-end, increasing the Private Equity proportion in the portfolio. To fund these investments, Derived Investments were realised in line with AGA's portfolio management strategy.

The Private Equity portfolio's constant currency return of 10.0% was largely attributable to the profitable growth achieved by the majority of portfolio companies. Over 80% of portfolio companies grew their earnings during the year, with average revenue and EBITDA up 12.8% and 17.9% respectively over the last twelve months.

The Derived Investments portfolio generated a Total Return of 17.5% on a constant currency basis. The higher weighting in Derived Equity supported returns during the year. Derived Debt investments produced resilient investment returns with 27 out of the 30 investments made or held in the portfolio during 2017 contributing positively to performance before currency effects.

Investment activity

2017 saw a high level of investment activity in the portfolio. In total, €429.3m of capital was deployed over the twelve months to 31 December 2017, €150.8m in Private Equity and €278.5m in Derived Investments. Realisations totalled €451.1m, with €74.5m from Private Equity and €376.6m from Derived Investments.

Market environment

Global equity and debt markets continued to reach new highs in 2017. Private equity valuations also surpassed their 2007 peaks, even though leverage levels were more moderate and interest rates lower. Although there is no immediate reason for concern regarding an economic slowdown in the US and Europe, rising interest rates combined with the continued phasing out of quantitative easing policies may cause some volatility in markets. In the current market environment, a continued focus on appropriate entry pricing and leverage levels will remain important disciplines in the management of AGA's portfolio.

Read more on PG10

Second lock-up release and FTSE Indices inclusion

The second anniversary of AGA's IPO took place on 15 June 2017 which resulted in an additional 7.5% of AGA's ordinary shares being released from lock-up. As with the initial lock-up release, the Company and its broker offered a tender process for share placements in the market. However, no shares were tendered on this occasion. This illustrates that AGA continues to be regarded as an attractive value proposition by its pre-IPO shareholders.

Following the second lock up release, AGA's free float increased to more than 50% which led to the Company being included for the first time in the FTSE All Share and FTSE Small-Cap Indices on 18 September 2017.

Dividend

Following the first interim dividend of 4.24 pence paid in August 2017, the Board has declared a final dividend in respect of the financial period to 31 December 2017 of 4.17 pence per share. This dividend is equivalent to 2.5% of AGA's euro NAV at 31 December 2017 and thus continues the policy of distributing 5% of AGA's NAV per annum. The dividend will be paid on 4 April 2018 to shareholders on the register of members on 16 March 2018. The shares will trade ex-dividend on 15 March 2018.

www.apaxglobalalpha.com/ investors/share-price-dividends/ share-price-and-dividends

Funding and commitments

In May 2017, AGA committed $50m to the Apax Digital Fund, a new tech-focused growth fund advised by Apax Partners. The Apax Digital Fund, which had its final close in December 2017, successfully raised its maximum target of $1bn following significant investor demand. It aims to make minority and buyout investments in high-growth enterprise technology and consumer internet companies globally. The $50m commitment enabled AGA to continue its strategy of providing shareholders with access to Private Equity funds. AGA now has exposure to six Apax Funds spanning vintages from 2005 - 2017 and with a total commitment of €805.5m. €589.5m of commitments have already been funded by AGA.

Discontinuation vote

As AGA has no fixed life, the Company's articles require a resolution to be put to shareholders on a periodic basis regarding the continuation of the Company. Accordingly, a "Discontinuation Resolution" will be put forward at the 2018 Annual General Meeting (and if not passed, every three years thereafter) which will enable shareholders to vote on whether to instruct the Directors to bring forward proposals to wind up, liquidate, unitise or restructure the Company.

The Board of Directors unanimously recommends that all shareholders vote "Against" the Discontinuation Resolution in order to ensure the Company continues in its current form and that the considerable costs and uncertainties of a liquidation process are avoided. AGA has to date provided shareholders with a consistent dividend stream and its portfolio has strong fundamental characteristics that puts it in good stead to realise more value in the future.

Board changes

Sarah Evans resigned as a Non-Executive Director in January 2018 due to ill-health. Sarah was appointed as a Director in July 2016 and the Board would like to thank her for her valuable contribution to the Company.

Outlook

AGA is fortunate to have a portfolio that is well diversified by asset classes and geographies. Together with a flexible investment strategy that deploys the insights gained from the Private Equity investment process of Apax Partners, this provides a strong basis for continued value creation in future years.

Tim Breedon CBE

Chairman

5 March 2018

Our strategic objectives

AGA's investment objective is to provide shareholders with capital appreciation from its Investment Portfolio and regular dividends. The Company is targeting an annualised Total NAV Return across economic cycles of 12-15%, net of fees and expenses as well as to pay an annualised dividend yield of 5% of NAV per annum.

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1 These risks are not exhaustive and should not be considered to be a definitive list. For more information please see page 40

Investment Manager's report | Market overview

In 2017 equity and debt markets continued to rally around the globe. Macro remains strong, but geopolitical risks lie ahead.

2017 market review

2017 was a year of global asset price appreciation, most pronounced in equities. The US markets were the standout performer in the developed world, driven by the "Trump trade", betting on tax reform and robust growth. In Europe, the economic rebound continued and its momentum improved. In addition to a solid macroeconomic climate, European elections generally had benign outcomes from an economic perspective, for example in the Netherlands, France and arguably also Germany. China had its own macroeconomic boost in the second half of the year which re-ignited equity markets that were lacklustre for the better part of the past two years. The Emerging Markets more generally, while being heterogeneous, widely benefited from increasing demand from the West and China as well as a commodity price rebound.

Stock markets made new highs, partly driven by improving corporate profits globally (Fig.1). The average 2017 net earnings change in the S&P 500, the euro STOXX and the MSCI Emerging Markets are expected to be 10%, 14% and 22%, respectively. The fact that bottom lines generally grew more slowly than stock prices implies that price to earnings ("P/E") multiples are exceeding previous years' levels. Fig.2 shows NTM P/E multiples in most markets are significantly higher than they were at any point since the financial crisis.

Credit markets generally moved in line with equities, and yields declined for most ratings levels and geographies. Further, the spread between more junior instruments and investment grade debt has narrowed substantially, showing increasing risk appetite or perhaps even risk ignorance in the hunt for yield. At these levels credit is arguably higher valued on a relative basis than equities, in particular in Europe (Fig.3, Fig.4).

With strong public equity markets, the private equity markets have also benefited and today valuations are at all-time highs for buyouts in the developed world as Fig.5 summarises.

Whilst today's valuation levels are exceeding those of 2006/7 we note that both leverage levels and interest rates are lower. As a consequence, private equity investments carry a lower interest burden now than a decade ago (Fig.6).

2018 outlook

The macroeconomic picture around the globe is solid and likely to improve further in 2018 as highlighted by major analysts in their updates for 2018 growth expectations (Fig.7).

In the US, low unemployment as well as positive effects from the tax overhaul are key factors underlying their growth acceleration. In Europe, there is a continuing rebound from a long recession between 2008 and 2013 as well as better economic policies, in particular in the Mediterranean countries and most notably France. China remains on an upward trajectory, fuelled by additional indebtedness of the corporate sector. We view the ever-increasing debt levels in China as a potential de-stabilising factor in the long term, but it is hard to say when and how a correction will happen (Fig.8).

Whereas the economic environment generally looks very favourable, we believe there are somewhat heightened risks from armed conflicts in the Far and Middle East. First, the tensions between North Korea and the US could come to a head in 2018 and unfortunately, war between nuclear powers as one possible scenario cannot be excluded. Second, tensions between Iran and the US, Israel and/or Sunni states, in particular Saudi Arabia, could turn into armed conflict with a variety of imaginable coalitions. Given the importance of the region for oil supply globally, even a regional conflict could have economic repercussions elsewhere.

Setting these geopolitical risks aside, the world actually looks quite investable, with one notable question mark in relation to the UK. Brexit will be progressing into a decisive phase in 2018. Depending on the turn of events, the UK's trade relations and its economic environment could take very different directions in the years to come. Despite implicit or explicit deadlines looming for decision making on what the relationship between the UK and the EU should be, the UK's position and/or its practicality remain opaque. There is a risk that by default a hard Brexit scenario is the eventual outcome, which in our view could have substantially negative implications for the UK as a whole.

In 2018, we expect base rates to rise in both the US and Europe. We believe that in the US, the central bank and the markets will adjust inflation expectations upwards, based on the fiscal stimulus hitting an economy already close to full capacity utilisation and record low unemployment. In Europe, the ECB is probably less prone to react quickly, but there will be some, possibly lagged, reaction as well. We do not think that the rise in interest rates should have a meaningfully negative effect on the real economy in the US, but there will likely be an effect on capital markets. As discussed, both equity and credit markets are very highly valued and are "waiting" for a reason to correct. While we believe that such a correction will likely happen in 2018, we do not see basic trends reversing in the mid to long term. In Europe, the picture is more complex, as rising interest rates could put some stress on the financial systems of a few countries. However, we also expect the ECB to be cautious and thus believe that any negative impacts will be diligently managed.

What does this all mean for investment in 2018?

Geographies

Fig.9 highlights countries in which the Apax Funds and AGA typically invest, as positioned in a macro-growth and public valuation plane. Clearly, excluding all other factors, the further to the right and bottom a country is positioned, the more attractive it should be for investments.

To pick an example, Israel continues to offer good value. Consequently, the Apax Funds were very active in Israel during 2017. AGA, through the Apax IX and AMI funds, invested in four deals with a total invested capital of €15.6m. The country, in our view, remains attractive for new investments also in 2018, but any new investment needs to take into account the possibility of disruptive developments in the region as touched upon above.

Amongst the larger geographies, the US remains more expensive compared to Europe, where economic growth is improving. The tax reform in the US will, however, create a growth kicker, and the lower corporate tax rate is likely to accelerate corporate reorganisations and the disposal of divisions. As such, the private equity market could become more transactable leading to an increase in deal volumes. However, the tax reform is a double-edged sword from a private equity perspective. On the positive side, there are likely to be more deals, and profit-making portfolio companies are likely to benefit from the reduction in tax rates. On the negative side, limits to the tax deductibility of interest are imposing a burden on more highly levered and less profitable businesses. With regards to the net effect on AGA's Private Equity portfolio, simulations suggest a net positive effect on future returns.

In Europe, positive macro trends are becoming ubiquitous and valuation levels on a relative basis remain decent. Seven out of 16 investments of the Apax Funds in 2017 were made in Europe and Israel. Our expectation is that there will be a greater focus on Europe and Israel in 2018. The UK remains a possible exception, for the reasons discussed earlier.

The other market that stands out in Fig.9 is China, with high growth rates and relatively low valuation levels. However, we remain somewhat cautious when investing in this market. Valuations in China have increased over the year and growth remains fuelled by increasing public and private debt. A reversal of debt trends will have to happen eventually and may cause frictions that lead to market corrections. At the same time, we note that the online economy in China is booming. Valuation levels for digital companies are sometimes at discounts to their Western counterparts, despite more attractive industry fundamentals.

Fig.9 also reflects that India and Brazil are at different points. India, on the one hand, is a large economy with the highest growth globally. While valuations are high, the market is liquid and we believe that temporary market corrections and niches could offer interesting acquisition targets. Brazil, on the other hand, could have troughed. The market does not offer many private equity opportunities but 2018 could mark an interesting entry point.

Asset classes

From an asset class perspective, we continue to find overall credit risk-reward profiles difficult relative to opportunities that AGA can access in the equity markets. Low spreads in the overall market suggests that there is more downside than upside. Thus, our focus continues to be on identifying micro situations in which we believe AGA can generate an outsized risk-adjusted return driven by a differentiated insight into the credit quality of the business. Apax Partners is well positioned to identify these opportunities, given its global flexibility and sector-focused platform.

Despite high valuations, both private equity and public equity can benefit from the upside of a strong macroeconomic environment and improving corporate profits. On the margin, private equity appears more attractive, as transformational ownership of companies should allow for valuation growth more easily.

Sectors

In a world of fiscal impulse, more cyclical assets should provide opportunity in the short to mid-term and thus for Derived Investments in general and Derived Equity in particular. In Private Equity, with investment horizons of four to seven years, the holding periods will likely include macro slowdowns and thus stability is at a premium. For our focus sectors of Tech & Telco, Services, Healthcare and Consumer, this suggests areas of particular interest for the next 12-18 months.

Overarching sector themes are an accelerated trend towards digitisation and online use of both consumers and businesses. While valuations generally already reflect this trend, there have been and likely will be niches of value to be found in the digital space.

Most of the market themes discussed in this report are policy and macro-oriented. However, the investment strategies of the Apax Funds and AGA are micro-oriented. In particular, the Apax Funds are selecting investments with the following orientation:

● Focus on early value creation by finding and improving undermanaged businesses, consolidating fragmented markets or digitally transforming businesses;

● Relentlessly looking for decent entry multiple and "buying right" opportunities, consciously avoiding the temptation of cheap and high levels of debt; and

● A belief that sector focus and geographic flexibility allows these opportunities to be found more easily than a country-oriented perspective would.

In Derived Investments, we will continue with our strategy to leverage the expertise and private equity insight of Apax Partners and focus on opportunities where AGA will have a differentiated view from the general market perspective, allowing for the creation of "Alpha". The graphic below illustrates a few such examples of potentially interesting investment areas.

Consumer

Private Equity:

Retailers with distinct, "un-amazonable" value propositions, eg. luxury, discount, high emotion

Derived Investments:

Digital models

Tech & Telco

Private Equity:

Revisit telecoms, digital services

Derived Investments:

Systems, software and IT services

Healthcare

Private Equity:

Services and med-tech deals

Derived Investments:

Consumer discretion; undervalued segments such as pharmaceuticals

Services

Private Equity:

Recurring revenue business models and "buy and build" opportunities

Derived Investments:

Consumer and industrial exposures, financial services (specifically in India)

Investment Manager's report | Portfolio overview

Apax Partners' ability to identify investments off-the-beaten-track has resulted in AGA's portfolio being positioned to deliver sustainable returns.

Portfolio split by asset type

Portfolio split by sector

Portfolio split by geography

Portfolio overview

AGA had an active year in both Private Equity and Derived Investments. In Private Equity, 16 new investments were made during 2017. Eleven of these investments were funded by Apax IX, which is the current global Apax buyout fund being invested. Three investments were made in mid-market buyouts in Israel through the AMI Opportunities Fund ("AMI"). We are also pleased to report that the new Apax Digital Fund ("ADF"), which closed in December 2017, made two growth investments in digital companies before year end.

We made 27 new investments in Derived Investments and divested 25 positions by year-end. Divestments towards the second half of the year were largely driven by a need to fund the new Private Equity investments. As a result, AGA's portfolio mix increased in Private Equity by 15% with an exposure of 65% at year-end. We consider this a normal fluctuation in the context of the long term objective to maintain a balanced portfolio. Shifts in the portfolio split will continue to occur over time due to market conditions, differing attractiveness or performance of the asset classes in which AGA invests as well as the investment and disposal rate of the Apax Funds. In making investments, we will prioritise AGA's ability to generate attractive risk-adjusted returns for shareholders over actively managing the portfolio to an equal split between Private Equity and Derived Investments in the short term. Investors are therefore reminded that they should continue to expect movements in the portfolio split, and that the ratio will continue to fluctuate around AGA's longer term objective to keep Private Equity and Derived Investments in balance.

At year end, AGA had exposure to 48 Private Equity investments and 30 Derived Investments. Nine investments in the Derived Investments portfolio overlapped with the Apax Funds' portfolio companies, either because AGA took a minority investment in the debt issued by these portfolio companies, or has also invested in listed companies in which the Apax Funds have a holding (three investments).

The sector split remained largely stable across our four focus sectors with the geographic exposure shifting slightly towards Europe.

NAV development and portfolio performance

At the end of 2017, Adjusted NAV was €912.4m, down from €938.7m at 31 December 2016 (Fig.1 and 3). A substantial part of this movement was due to the depreciation relative to the US dollar to the euro during the reporting period, a negative impact of €77.2m. €42.9m of realised gains increased Adjusted NAV on the back of profitable realisations. €50.8m of unrealised gains underline the quality of the portfolio at 31 December 2017. Additionally, there was an increase of €12.8m in the performance fee reserve, largely reflecting the increased number of profitable divestments driven by the need to fund Private Equity calls ahead of year end. Two semi-annual dividends totalling €46.4m were paid to shareholders, in line with AGA's objective to distribute 5% of NAV per annum. This amount includes the final dividend for 2016 and the first semi-annual dividend for 2017. The final dividend for 2017 is expected to be paid on 4 April 2018.

All three asset classes in which AGA invests in - Private Equity, Derived Debt, and Derived Equity - provided positive return contributions during the year in constant currency terms (Fig.2).

Private Equity's Total Return on a constant currency basis was 10.0%, and contributed 4.9% to Total NAV Return.

Derived Equity delivered a particularly strong result with a constant currency Total Return of 35.7% and contributing 5.5% to Total NAV Return. Derived Debt, improved its performance during the year and delivered a very solid constant currency Total Return of 9.8% and a Total NAV Return contribution of 2.1% in 2017.

Fig.1: Adjusted NAV development and performance (€m)

1. Expenses and other consists of: expenses and accruals of €10.8m; performance fee of €12.8m; and FX losses on cash of €4.5m

2. Total value movement calculated by taking unrealised and realised movements, FX and income earned during the period. Total value gains show the positive contributors and total value losses show the negative contributors 

Fig.2: Performance (%)

1. Performance fee adjustment accounting for the movement in the estimated performance fee reserve at 31 December 2017

Fig.3: Adjusted NAV development (€m)

1. Included in investments, divestments and realised gains are movements related to the restructuring of Answers and Rue21. AGA received equity, warrants and new second lien debt in lieu of first and second lien debt held in Answers and it received equity in lieu of first lien debt held in Rue21

Investment Manager's report | Private Equity

Private Equity delivered a Total Return of 10% on a constant currency basis in 2017. FX in the period materially impacted valuations, with the strengthening of the euro against the US dollar reducing the value of US denominated investments.

Portfolio split by fund exposure

 Portfolio split by sector

 Portfolio split by geography

 Highlights

Private Equity delivered a constant currency Total Return of 10.0% in 2017. The overall portfolio is performing well, and both organic and inorganic earnings growth in the portfolio were the main drivers of value creation. However, FX negatively impacted performance as the US dollar weakened relative to the euro, and as such the Total Return for the year was 3.3%.

NAV development

The Adjusted NAV of the Private Equity portfolio increased from €494.1m to €586.1m in the year, a rise of 18.6%. AGA invested €150.8m in its Private Equity portfolio and €74.5m was realised. Unrealised gains at 31 December 2017 amounted to €47.3m. FX negatively impacted the Private Equity Adjusted NAV by €32.2m (Fig.1).

Investment performance

AGA's €586.1m Private Equity portfolio consists of commitments to six Apax Funds and delivered a Total Return of 3.3% (Fig.2). Organic and acquisitive growth were the main drivers of returns during the period, with earnings growth in the portfolio contributing 12.9% to returns. An increase in total net debt across the Private Equity holdings had a negative impact on returns of 4.0%. Portfolio companies often use additional debt to fund accretive acquisitions. It is important to note that despite the additional debt raised by the portfolio companies, leverage levels declined throughout the year, thanks to EBITDA growth during the year and lower leverage of additions in the year. The movement in valuation multiples had an impact of 7.0% on Total Return. This reflects the increase in public equity market valuations serving as valuation benchmarks for the portfolio. As 44% of the portfolio was in US dollar denominated investments, and with the US dollar weakening relative to the euro by 12% during the year, currency fluctuations had a materially negative impact on returns of 6.7%. Fees, costs, expenses and other items had a further impact of negative 4.6%.

A number of portfolio companies outperformed during the reporting period (Fig.3). The two largest positive valuation movers were Azelis and Engineering, increasing AGA's indirect holding value by €15.2m and €11.8m, respectively. Both companies delivered strong organic growth alongside accretive M&A. Assured Partners, the third largest valuation driver in the Private Equity portfolio at €11.2m, continued to successfully execute its M&A strategy making 17 acquisitions. Further, portfolio companies also took advantage of favourable debt markets to pursue their M&A strategies, amongst them Unilabs which acquired a record €72.8m of EBITDA1 during the year through ten M&A transactions in the nine months to 30 September 2017.

The largest valuation declines in the portfolio came from One Call (€13.5m), FullBeauty (€12.9m)2 and EVRY (a reduction of €9.2m). The key reason for EVRY's valuation decline was the lower than anticipated valuation achieved at IPO, and FX headwinds despite strong operational performance. One Call continued to perform below expectations as a result of ongoing integration issues following the merger with Align Networks. As One Call continues to address these challenges, the business has recently experienced more positive momentum. The trading environment at FullBeauty remains challenging and has caused a decline in EBITDA during the year. In November 2017, FullBeauty appointed a new CEO.

1. Pro-forma for expected synergies

2. FullBeauty is not a top 30 exposure, hence it is not reflected in Fig.3

Total Return

2017: 3.3% / 10.0%1

2016: 6.4% / 4.3%1

1. On a constant currency basis

Adjusted NAV

2017: €586.1m

2016: €494.1m

Portfolio split by currency

 Vintage

The Private Equity portfolio also delivered a number of strong full and partial exits as the Apax Funds continued to monetise their portfolios. Distributions from the Apax Funds to AGA totalled €74.5m. There were a number of strong full exits, notably Bankrate, Chola and Garda, as well as partial exits, such as GlobalLogic, EVRY and Sophos. In addition, nine portfolio companies were refinanced, capitalising on favourable debt markets.

Investment activity

The rate of new investments was high with 16 new additions to the Private Equity portfolio during the year. These investments reflect the wide geographic aperture of the Private Equity strategy as well as the operational skills and sub-sector knowledge of Apax Partners, all of which allow Apax to tackle more value-added deals and off-the-beaten-path opportunities. We believe that this approach remains critical to finding good relative value in a market of record private equity valuations.

The portfolio additions in Private Equity are balanced between high growth businesses bought at reasonable relative multiples, such as MATCHESFASHION.COM, a global luxury e-commerce player in which AGA indirectly invested €15.7m, alongside more value-added acquisitions which were bought at attractive absolute multiples. Examples include Attenti, a provider of electronic people-monitoring technologies (AGA indirect investment of € 7.1m), ECi Software Solutions ("ECi"), a provider of enterprise resource planning software solutions (AGA indirect investment of €9.5m) and Tosca, a leading provider of supply chain solutions and reusable packaging to the perishable food market (AGA indirect investment of €6.6m). Three mid-market buyouts in the Israeli market (Ten Petroleum, Max, Go Global Travel) provided an interesting diversification for AGA's Private Equity portfolio (total AGA indirect investment of €8.5m). We are also pleased to report that ADF has made its first two investments: Moda Operandi, a leading luxury e-commerce business, and SoYoung, China's leading digital marketplace for aesthetic medical treatments. Both investments have leveraged Apax's experience and track record, namely in online retailing and digital marketplaces.

Apax Funds update

Apax IX, the current global buyout fund being invested held its final close in December 2016 and is deploying capital well. In light of the Fund's vintage, the portfolio is still very young. Apax VIII (2012 vintage) is now close to being fully invested. No new investments are expected and the remaining capital will likely be used to fund add-on acquisitions to existing portfolio companies. Across the Apax IX and Apax VIII portfolios the average age of current investments is 2.1 years. As a result of this relative immaturity, the majority of investments have yet to complete their value creation strategies which should bode well for further NAV expansion in the years ahead. Apax Europe VII and Apax Europe VI are fund vintages 2007 and 2005, respectively. The three mid-market buyouts in the Israeli market were through AMI, the Israeli mid-market fund with a 2015 vintage. ADF, to which AGA made a commitment of $50m in the year, raised $1bn hard cap and held a final close in December 2017, to pursue tech-focused growth opportunities globally, and has already made two investments.

The Private Equity portfolio saw good momentum, delivering impressive EBITDA growth during the year. Capital was deployed into 16 attractive opportunities and the year saw a number of strong exits.

Fig.1: NAV development chart (%)

 Fig.2: Private Equity performance (%)

Operational metrics

AGA's underlying portfolio companies in Private Equity demonstrated good operational momentum with Last Twelve Months ("LTM") revenue and EBITDA growth of 12.8% and 17.9% respectively compared to 6.1% and 9.8% at the same time last year. Growth accelerated due to new faster growing portfolio additions and also M&A.

The weighted average valuation multiple of the portfolio increased from 12.9x to 13.8x LTM EBITDA at 31 December 2017. The movement largely reflects improving public market multiples in the sectors in which the Apax Funds invest.

The weighted average leverage level of portfolio companies decreased from 4.4x to 4.3x LTM EBITDA over the period. This is due to EBITDA growth outpacing increases in absolute net debt.

Market outlook

A number of "drag factors" in the Private Equity portfolio have been worked through or reflected in 2017's valuations. The remaining assets are showing strong performance which should increase the momentum of value creation in the foreseeable future.

Portfolio year-over-year LTM revenue growth1:Dec-17: 12.8% vs Dec-16: 6.1%

Enteprise Value/EBITDA valuation multiple1Dec-17: 13.8x vs Dec-16: 12.9x

Investment activity2: Number of positions in the last 12 months

Portfolio year-over-year LTM EBITDA growth1:Dec-17: 17.9% vs Dec-16: 9.8%

Net debt/EBITDA multiple1:Dec-17: 4.3x vs Dec-16: 4.4x

1. Gross Asset Value weighted average of the respective metric across the portfolio. At December 2017 and December 2016 eight and four investments were respectively excluded as these are large positive outliers, financial services companies often valued on book value or for which clean earnings financials are not available e.g. complex carve-outs or recent acquisitions. The increase was due to new portfolio additions and one financial services company newly excluded

2. Please refer to pages 22 and 24of Annual Report for a list of acquisitions and divestments

3. Includes AGA's exposure to AEVII as a limited partner, valued at €32.9m, and through its carried interest holdings, valued at €19.4m. The carried interest holdings were acquired through a €10.5m investments in 2015

Acquisitions

1. Unilabs closed in February 2017, Ten Petroleum closed in March 2017, Guotai Junan Securities closed in April 2017, Kepro closed in May 2017, Syneron Candela, Safetykleen and Max closed in July 2017. Go Global Travel and Manappuram Finance closed in August 2017. ECi closed in September 2017. ThoughtWorks, Attenti, Tosca and MATCHESFASHION.COM closed in October 2017. Moda Operandi and SoYoung closed in December 2017

2. Cost is AGA's indirect exposure to the underlying portfolio companies held by the Apax Funds. Costs may change following final close of the deal or the completion of a syndication post closing

3. The above is in reference to AIX's acquisition of a majority position in Unilabs. AEVI will retain its existing minority stake which it initially acquired in 2007

ThoughtWorks

Investment details

ThoughtWorks is a global software development and digital transformation consulting company. The company was incorporated in 1993 and is headquartered in Chicago, USA. The company has grown from a small group to over 4,500 employees spread across 42 offices in 15 countries. A pioneer in agile software development, ThoughtWorks has been at the forefront of software design and delivery since its inception.

Apax Funds acquired ThoughtWorks in October 2017 from its founder. Having tracked the business for a number of years, the Investment Adviser was attracted to the company's differentiated, market-leading position in the growing digital transformation market thanks to its well-respected brand, history as an innovative thought leader, and talent. The investment thesis is to back a business at the forefront of digital transformation and both accelerate growth and improve margins.

Since acquisition, the Investment Adviser has been driving sales growth by focusing on account management practices and further investing in new technology capabilities to ensure ThoughtWorks remains the leader in digital innovation. In addition, there is a project underway to ensure greater general-and-administrative-expenses efficiency and improve margins whilst ensuring the strong culture remains intact.

Divestments

1. Chola final sale closed January 2017, Capio final sale closed February 2017, Ascential final sale closed March 2017, Garda World final sale closed May 2017, Bankrate closed in November 2017 and Paradigm closed in December 2017. Answers and Rue21 restructured in April 2017 and September 2017 respectively

2. Gross MOICs and Gross IRRs represent return to the Apax Funds as at 31 December 2017, including unrealised value and total realised proceeds. Calculated since the initial purchase date of the investment. AVIII and AIX represent the euro tranches returns

3. Disclosure restricted

4. Not meaningful

Bankrate

Investment details

Bankrate today is a network of leading internet consumer banking, personal finance, and senior living websites in the USA.

Apax Funds acquired Bankrate in 2009, the peak of the global financial crisis, in a "take private" as the firm delisted from the Nasdaq Stock Market. The Investment Adviser had identified an opportunity to purchase a market-leading personal finance website near the bottom of the cycle. The investment thesis was to capitalise on the secular trend for consumers to research and purchase financial products online and to use Bankrate's attractive platform to consolidate competitors at accretive multiples.

During Apax Funds' ownership, the company strengthened management and accelerated EBITDA growth through optimising operations and executing M&A (most notably the acquisition of Creditcards.com).

In 2011 Bankrate underwent an IPO which realised an uplift in multiple, following a strategic repositioning and cyclical timing. Apax Funds retained a 70% ownership post-IPO, but exited additional stakes between 2011-2014. In November 2017 the remaining shares were sold to Red Ventures.

Top 30 Private Equity investments

AGA's indirect exposure at 31 December 2017

*AGA also holds these companies in the Derived Investments portfolio

www.apaxglobalalpha.com/investment-portfolio/top-holdings/private-equity-funds

Apax Digital Fund

In May 2017, AGA made a commitment of $50m to the Apax Digital Fund ("ADF") to continue its strategy of providing shareholders with access to Private Equity investments advised by Apax Partners.

ADF is a $1bn fund raised in 2017 to focus on minority and buyout investments in high-growth enterprise technology and consumer internet companies globally.

ADF's investments are concentrated in subsectors where Apax Partners has expertise, namely vertical software, data and analytics, tech-enabled services, marketplaces, digital media, and disruptive e-commerce. Its strategy is to target individual equity investments of $30 - $150 million, with the ability to complete larger investments alongside its Limited Partners.

With a dedicated team based in New York and London, ADF benefits from the resources of Apax's global platform, both in terms of deal sourcing as well as the use of the Operational Excellence Practice to identify value creation opportunities.

In December 2017 ADF made its first two investments: Moda Operandi, a leading luxury e-commerce business offering the world's top designer brands; and SoYoung, China's leading digital marketplace for aesthetic medical treatments.

For further information please visit: www.apax.com/digital

Investment Manager's report | Derived Investments

The Derived Investments portfolio delivered a Total Return of 17.5% on a constant currency basis. The increased weighting in Derived Equity contributed strongly to returns.

Portfolio split by asset type

 Derived Investments by sector

 Derived Investments by geography

Highlights

The Total Return in euro terms for the Derived Investments portfolio was 6.9% in 2017. The return was impacted by a substantial weakening of the US dollar relative to the euro during the period. On a constant currency basis, Total Return was 17.5%, reflecting the strength of the underlying investments. We have put a greater emphasis on listed equities during 2017, and preferred loan investments over high yield bonds in our approach to Derived Debt investing.

NAV development

The Adjusted NAV of the Derived Investments portfolio reduction from €406.2m to €307.2m in the year, a decrease of 24.4%. The decline was due to more Derived Investments being sold than there were new purchases as AGA was required to fund capital calls from Apax IX and AMI.

AGA invested €278.5m and divested €376.6m in Derived Investments, generating net realised gains of €42.9m. Unrealised gains were €3.5m. FX negatively impacted AGA's Derived Investments by €40.5m in the year (Fig.1).

Investment performance

The Derived Investments portfolio generated an impressive Total Return of 17.5% on a constant currency basis. FX had a negative effect of 10.6% mostly from the depreciation of the US dollar versus the euro (Fig.2).

In the 2016 annual report to shareholders, we stated our intention to focus the Derived Investments portfolio towards listed equities. This proved to be very successful with Derived Equities contributing 11.8% to the performance of Derived Investments on a constant currency basis, compared with Derived Debt with 5.7% on a constant currency basis.

The top three contributors to Derived Investments' unrealised gains including income (Fig.3) were Sophos, Quality Distribution and Riemser. The Sophos share price continued to rise on the back of the strong operating performance of the company. Quality Distribution's performance was driven by organic growth, M&A activity and re-focusing the business on more attractive segments. We have acquired a position in Riemser's first lien debt, a German pharmaceutical company, during 2017. Our analysis suggested that the trading price of this credit did not reflect the underlying quality of the product portfolio and the significant equity cushion. This thesis started to materialise towards the end of the year.

The positions with the highest mark to market decreases in performance were FullBeauty, Rue21 and Strides Shasun. The difficult positions of Rue21 and FullBeauty dragged down Derived Debt in particular in the first half of the year. Both companies are active in the challenged US fashion retail sector. Rue21 completed its restructuring in September when AGA received equity in lieu of the debt that it had previously held. In addition, AGA participated in Rue21's debtor in possession facility as part of the restructuring. Rue21 is reflected as the fourth largest decrease, since Fig.3 excludes realised positions. Strides Shasun's valuation was impacted by the general market sentiment in Indian pharmaceuticals and price erosion in US markets, as well as the delay in key product approvals.

The most successful realisation during the year was the partial exit from AGA's equity position in Sophos. In addition, recovering the par value of AGA's holding in Paradigm's second lien boosted returns in the fourth quarter.

Total Return

2017: 6.9% / 17.5%1

2016: 8.7% / 5.7%1

Adjusted NAV

2017: €307.3m

2016: €406.2m

Derived Investments by currency

 Derived Debt by maturity

 Investment activity5

Derived Debt

In 2017, the investment approach continued to favour loans (ten new investments) whilst no investments were made in high yield notes and bonds. We believe that this remains the preferred positioning in a market characterised by rising interest rates and a pricing premium paid for more liquid bonds. Of the ten new debt investments, most were made in North America. In all of these situations, AGA took advantage of Apax's private equity insight. Examples include: a second lien position in Syncsort which was previously reviewed as a potential private equity investment and ECi, already an Apax Funds' Private Equity portfolio company. Similarly, PDC Brands and Legal Zoom had been closely followed by Apax's respective sector teams for many years.

The overlap between AGA's debt portfolio with Private Equity holdings of Apax Funds was reduced to six out of a total of 15 Derived Debt holdings in the course of the year.

AGA exited a total of 122 Derived Debt positions in 2017, generating €212.4m of proceeds. Some of those positions were sold to meet funding requirements for Private Equity investments. Gross IRR achieved on sold positions was 14.7%2, contributing €11.8m (inclusive of income) to Adjusted NAV. As many of these debt investments were US dollar denominated, the constant currency Gross IRR achieved on these sold positions was 16.3%3.

Derived Equity

Throughout the year, we successfully continued to focus on Derived Equity investments. In total twelve new Derived Equity investments and four add-on investments were made across all four Apax sectors, with an emphasis on Europe, China and India.

A good example of where Apax's insight was levered is Talend. It was identified as a result of the private equity diligence work done on the opportunity to combine Syncsort and Vision when they were merging their businesses. AGA invested in the second lien note of Syncsort but also recognised Talend as a Derived Equity opportunity during this process.

The overlap with the Private Equity portfolio at the end of the year consisted of three positions out of a total of 16 Derived Equity holdings.

The majority of the equity realisations occurred in the first half of the year. Over 90% of these investments had been purchased in the twelve months prior to the sale. The relatively short holding periods were driven by achieving investment objectives earlier than anticipated. The average Gross IRR on the sold positions was 62.8%, contributing €42.8m to Adjusted NAV. The constant currency Gross IRR achieved on these positions was 54.9%2.

The small number of challenged positions have been largely worked through and the conscious shift towards Derived Equity has contributed strongly to returns.

1. On a constant currency basis

2. Excludes 2 debt positions in Answers and 1 debt position in Rue21 that were restructured during the year

3. Constant currency Gross IRR calculated based on the aggregate cashflows of each position sold, converted to euro using the FX rate at the first date of purchase for each respective position. Excludes two positions in Answers and one position in Rue21 that have been restructured

Fig.1: NAV development chart (%)

 Fig.2: Derived Investments performance (%)

 Operational metrics

Operational performance in the Derived Debt portfolio measured by LTM EBITDA growth improved from 2.7% to 6.2% during the year, mainly due to the exit of one portfolio company (Paradigm) which had lower EBITDA growth.

Average LTM earnings growth in the Derived Equity portfolio has decreased from 32.0% to 12.0% due to the Derived Equity portfolio composition changing significantly in the period. 64% of the December 2017 portfolio was acquired during the year.

The average yield to maturity in the Debt portfolio remained largely unchanged at 11.6% despite portfolio turnover, with eight old positions and eight new positions changing the portfolio mix. 75% of Derived Debt positions were yielding 10% to maturity or higher.

The average price-to-earnings multiple for the Derived Equity portfolio increased to 29.0x, almost entirely thanks to Sophos as its share price increased substantially over the year. This was partially offset by the change in the portfolio composition where exited investments exhibited higher price-to-earnings multiples than those added to the portfolio during the course of the year.

Market outlook

Debt valuations continue to be characterised by difficult risk-reward profiles in comparison to equity. The level of market spreads suggests that there is more downside than upside in beta and thus debt investments need to be driven by micro situations. Given yield differentials between the US and Europe, attractive opportunities are more likely to be found in North America.

Acquisitions

1. AGA's debt holdings in Answers first and second lien debt and Rue21 first lien debt were restructured in April 2017 and September 2017 respectively. In lieu of these, AGA received new second lien debt, equity and warrants for Answers and equity for Rue21. These have been excluded from the above

2. Cost represents the cost acquired during 2017

3. Add-on position

Syncsort

Investment details

Syncsort is a leading infrastructure software provider for IBM Main Frame and Power Series. The company specialises in high speed data sorting, integration and high availability management serving 6,000+ customers in over 85 countries. Headquartered in Pearl River, New York, USA, the company was formed through a series of acquisitions, including the most recent combination with Vision Solution in in the second half of last year.

The transaction was identified by the Investment Adviser given previous private equity analysis of the sector. This previous diligence concluded that Syncsort's business had strong defensibility, high recurring revenue and cash flow conversion, and better end market dynamics than was generally perceived by the market. As a result, the Investment Adviser recommended to invest at an attractive yield offered by Syncsort at the time of syndication.

Divestments1

1. Full exits only. Excludes 2 debt positions in Answers and one debt position in Rue 21, that were restructured during the year. Also excludes partial divestments

2. Gross IRR calculated since the initial purchase date of the investment

3. AGA initially purchased debt in Answers first lien debt in November 2014. In April 2017, the first lien debt was restructured and AGA received equity and new second lien debt. The new second lien debt received in April 2017 was subsequently sold in September 2017 and the Gross IRR represents the Gross IRR on the disposal of the new second lien debt only

4. Gross IRR calculated since the initial purchase date of the investments which was prior to AGA's IPO on 15 June 2015. Epicor was initially purchased in June 2015, Exact in February 2015, Paradigm in March 2014 and Chola in March 2014

Ellucian

Investment details

Ellucian is the world's leading provider of software and services designed for higher education. The company provides student information, finance, HR, analytics and other software solutions working with more than 2,500 institutions in c.50 countries. Headquartered near Washington, D.C., USA, the business was founded in 2012 from the merger of Datatel and SunGard Higher Education.

The transaction was identified by the Investment Adviser in a systematic screen of technology investment opportunities. Credit markets, and in particular pricing for tech credits, deteriorated in early 2016, which provided an interesting backdrop for the investment. Ellucian was well known to the Investment Adviser from previous private equity analysis of the sector. This generated a unique investment thesis centred around the high credit quality of the business and the expectation that reductions in short term growth expenditure would cause an inflated leverage level to decline over time.

AGA acquired Ellucian's senior unsecured notes in May 2016 to become one of the Derived Debt portfolio's largest holdings until its divestment in 2017. At that point yields on the notes had compressed and did not compensate any longer for the longer term risks from cloud-based products identified in due diligence.

Top 30 Derived Investments

AGA's exposure at 31 December 2017

* Investments also held by the Apax Funds

1. OTC = Over-the-counter

www.apaxglobalalpha.com/investment-portfolio/top-holdings/derived-investments

Investment Adviser's report | Responsible investing

Apax is committed to delivering returns ethically and responsibly. In this section, Apax summarises its approach to advising on responsible investing.

Apax remains focused on CSR issues and considers these as part of the overall investment thesis for every investment.

We believe that sustainable investing is not only the right thing to do, but also has a powerful and measurable business logic. As well as being integral to the investment process in respect of new investments, Corporate Social Responsibility ("CSR") considerations should also inform the day-to-day operations and core values of the companies in which we invest.

Our approach is to continually assess the possible impact of CSR issues, in order to help release the full potential of investments, while providing a net benefit for society.

From a practical perspective, our ability to assess and influence CSR matters in portfolio investments differs between Private Equity Investments and Derived Investments. This is because Private Equity Investments are characterised by longer hold periods and, often, controlling stakes, whereas Derived Investments tend to have shorter hold periods and usually involve non-control positions.

Whilst this can limit our ability to influence CSR initiatives within the Derived Investments, we remain focused on CSR issues and consider these as part of the overall investment thesis. Private Equity allows greater time and ability to influence an investment in order to create value via CSR initiatives. Details of the approach are outlined on the next page.

Driving measurable progress

Since our adoption of the Principles for Responsible Investment ("PRI") in 2011 we have developed a robust set of processes culminating in a comprehensive sustainability programme which is embedded in the lifecycle of businesses in which the Apax Funds invest. A distinctive feature of this programme is the annual collection of approximately 100 Environmental, Social and Governance ("ESG") related KPIs from the Apax Private Equity Funds' underlying portfolio companies. These KPIs are an invaluable tool in driving measurable progress in the overall ESG footprint of these funds and also in creating value through dedicated ESG programmes at the individual portfolio company level.

Modern slavery

Given the nature of our advisory business, we believe there is a very low risk of slavery or human trafficking in connection with our activities. We are committed to implementing and enforcing effective systems and controls to safeguard against slavery and human trafficking taking place in our business or supply chains.

Specifically, we look to ensure that our global team receives training to understand the risks of modern slavery and we intend to include anti-slavery and human trafficking measures in our Global Business Standards.

www.apax.com/media/620781/UK-Modern-Slavery-and-Human-Trafficking-Statement-approved-.pdf

A distinctive feature of our sustainability programme is the annual collection of around 100 ESG related KPIs from the Apax Funds' underlying portfolio companies.

Integration of the sustainability framework into the investment process

Active ownership

● Apax has a well-defined CSR policy which is guided by its fundamental values (integrity, stewardship, community, people and relationships)

● Apax coordinates its sustainability efforts through a Sustainability Committee which meet on a monthly basis

● Apax focuses on being active owners and incorporating ESG issues into its ownership policies and practices relating to the Apax Funds portfolio companies

Pre-investment

● Apax's teams undertake standard ESG due diligence for each new investment made by the Apax Funds

● The findings of the ESG due diligence process are reviewed by a member of Apax's Sustainability Committee and incorporated into the final Investment Committee documentation prior to each new commitment

● The objective is to create a high degree of awareness upfront with regard to potential ESG issues which can contribute to value creation at a very early stage

Post-investment

● Pre-investment due diligence is backed up post investment by an annual ESG KPI collection cycle

● Apax is able to capture the ESG footprint of the Apax Funds portfolio companies and establish possible areas of materiality where Apax's teams can create value

● The key goal for Apax Partners is to get a better understanding of the materiality of certain ESG KPIs to the overall operations of a portfolio company

For further details and the latest Sustainability report, please refer to: www.apax.com/media/630557/apax-partners-sustainability-report-5th-edition-final.pdf

Responsible investing | case study

Apax Funds completed their investment in EVRY in March 2015. Formed in 2010 by the merger of two Norwegian IT companies, EVRY is a leading IT services company in the Nordic region with over 40 offices across Norway and Sweden, and over 8,500 employees. EVRY has leading market positions in the mid-market segment in both Norway and Sweden.

Reporting emissions since 2011

After the merger, several of the company's major Nordic customers (such as Telenor) began to request carbon disclosure to dovetail with their own sustainability objectives such as climate change issues and an increased focus on the ESG footprint of their suppliers. As EVRY is a core supplier to a number of these major Nordic companies, it needed to be able to provide information about its emissions. In addition, a number of EVRY's large Nordic institutional investors were asking for increased transparency and reporting on ESG matters as an important component of their investment decision.

After considering the needs of these significant stakeholders and the benefits carbon footprint disclosure would bring for their customer alignment, EVRY decided to sign up to the Carbon Disclosure Project ("CDP") in 2011.

Impact of disclosure reducing emissions by 50% in five years

EVRY found that the process of responding to the CDP climate questionnaire delivered real changes in business practices, resulting in much lower energy usage. Management became focused on driving a large number of energy efficiency initiatives throughout its operations.

The most significant of these measures is taking place during ownership by the Apax Funds, namely the consolidation of EVRY's datacentres. Across Norway and Sweden, EVRY will go from 15 data centres at the time of Apax's investment to six data centres in total. This consolidation is due to be concluded in 2019.

The results of these initiatives are outstanding: EVRY reduced its greenhouse gas emissions by 50% in a period of five years from 12,500 tons equivalent in 2012 to 6,000 in 2015. EVRY is in the top league globally for achieving real and lasting reductions in the emissions generated by its activities.

Only Norwegian company to achieve prestigious CDP A score in 2016

In 2016 EVRY made the Climate A list together with 192 other companies worldwide representing less than 10% of all respondents. Out of these, just 14 companies were from the Nordic region, of which EVRY was the only Norwegian company.

Future targets

Going forward, EVRY expects to see its CO² emissions decrease by a further 30% from their current level as a result of environmental measures it already has planned and the company is planning to become Climate Neutral in 2017.

The company started to increase its electronic waste reduction programme in 2017, and has reached an agreement with two recycling companies to increase the re-use and recycling of all electronic waste such as PCs, servers, light bulbs, mobile phones, cables etc. EVRY will provide a separate environmental report relating to the recycling programme once it is fully up and running.

As a result of these activities EVRY is in a very strong position to achieve even stronger alignment with its customer base on sustainability matters. The company is able to develop "green" solutions for its customers, to reinforce their own sustainability programmes and to help them reduce their energy footprint.

Risk management framework

The Board has developed a set of risk management policies, procedures and controls, and maintains oversight through regular reviews by the Board and the Audit Committee.

The Board and Audit Committee monitor the principal risks on a quarterly basis and a detailed review is undertaken on at least an annual basis.

The risk governance framework is designed to identify, evaluate and mitigate the risks identified by the Board as being of significant relevance to the Company in view of its risk profile and risk appetite. The underlying process aims to assist the Board to understand and mitigate, rather than eliminate these risks to the Company and, therefore, can only provide reasonable and not absolute assurance against loss.

The Board regularly reviews a register of principal risks and uncertainties (the "Risk Register") maintained on behalf of the Board by the Company Secretary. The Risk Register serves as a detailed assessment undertaken by the Board of the Company's exposure to risks based within three core categories: financial risks, strategic and business risks, and operating risks.

Ownership and governance

As a collective investment company with an investment portfolio comprising financial assets, the principal risks associated with the Company's business largely relate to market risk, portfolio risk, currency risk and liquidity risk.

While the Board remains ultimately responsible for the identification and assessment of risk, as well as implementing and monitoring procedures to control such risks, and reviewing these on a regular basis, the Board naturally places reliance on its key service providers, to whom it has delegated aspects of the day- to-day management of the Company. This includes the design and implementation of controls over specific risks including portfolio risk, currency and liquidity risk, as well as operating risk.

The Board undertakes an annual review of its risk appetite, considering recommendations from the Audit Committee and key service providers responsible for implementing the controls related to certain risks identified by the Board, as noted above. The Board considers strategic and business risk on a regular basis and at least annually during its strategy day.

Investment performance

In accordance with the Investment Management Agreement between the Company and the Investment Manager, responsibility for delivering investment performance in line with the Company's strategic and business objectives, as well as remaining within the parameters of its risk appetite, is delegated to the Investment Manager.

Specific investment decisions are taken by the Investment Manager within parameters of authority approved by the Board, while separate risk functions within the Investment Manager support and review decision-making.

Risk assessment

In assessing each category of risk, the Board considers systemic and non-systemic risks as well as the control framework established to reduce the likelihood and impact (together with the "residual risk rating") of individual inherent risks. The Board does not consider political risk in isolation, but incorporates it within its consideration of principal risks. The Board is not, practically, in a position to consider every risk. However, where possible, it identifies and assesses remote and emerging risks which may have a significant consequence and/or likelihood or may not be manageable within the current control environment.

In considering the framework around the policies and procedures adopted to reduce the potential impact of individual risks, the Board specifically considers the nature, scale and complexity of the Company, its investment objectives and strategy, and the role of the key service providers, such as the Investment Manager, Company Secretary and Registrar.

The wider control environment of the Company is maintained through the policies and procedures adopted by the Investment Manager, Company Secretary and Registrar. The Board considers these policies and procedures in its assessment of individual risks. The Board seeks periodic assurance from its main service providers on their control environments and, based on such assurances, will assess the suitability, adequacy and relevance of those policies and procedures. The Board and Audit Committee review the principal risks and uncertainties in relation to strategic and business risk, operating risk and financial risk on a quarterly basis and a detailed review is undertaken on at least an annual basis.

Individual risks are assessed based on the likelihood of occurrence and consequential impact. For avoidance of doubt, likelihood and consequence are assessed after taking into account the mitigating effect of the control framework. Risks are then ranked in order of residual risk rating likelihood and then consequence. Judgement is applied in determining which risks rank above the others where such risks have the same residual risk rating, likelihood and consequence.

The Board recognises that it has limited control over many of the risks it faces, such as macroeconomic events and the complex regulatory environment, and it periodically reviews the potential impact of such ongoing risks on the business and actively considers them in its decision-making.

Principal risks

The Board is ultimately accountable for effective risk management within the Company. The Audit Committee has undertaken an exercise to identify, assess and manage the risk within the Company. The principal risks identified have been assessed based on residual likelihood and consequence and are summarized on the heat map below:

Identifying risk

The Company's principal risks are split between three main risk categories: financial risks; strategic and business risks; and operating risks. Assessment of the key principal risks has been summarised in the adjacent table.

˄ Increase ˂ ˃ No change ˅ Decrease

Governance report

Our leadership and effectiveness

Leadership and effectiveness | AGA Board of Directors

Tim Breedon CBE

Chairman

Tenure: 2 years, 8 months

Tim Breedon joined the AGA Board on 28 April 2015.

He is a Non-Executive Director of Barclays plc.

Tim worked for the Legal & General Group plc for 25 years, most recently as Group Chief Executive between 2006 and 2012.

He was a Director of the Association of British Insurers ("ABI"), and also served as its Chairman between 2010 and 2012.

He served as Chairman of the UK government's non-bank lending task force, an industry-led task force that looked at the structural and behavioural barriers to the development of alternative debt markets in the UK. He was previously lead Non-Executive Director of the Ministry of Justice between 2012 and 2015.

Tim was formerly a Director of the Financial Reporting Council and was on the Board of the Investment Management Association.

He has over 25 years of experience in financial services and has extensive knowledge and experience of regulatory and government relationships. He brings to the Board experience in asset management and knowledge of leading a major financial services company.

Tim holds an MSc in Business Administration from the London Business School and is a graduate of Oxford University.

Susie Farnon

Non-Executive Director

Tenure: 2 years, 5 months

Susie Farnon joined the AGA Board on 22 July 2015 and was appointed as Chairman of its Audit Committee on 1 July 2016 and elected as Senior Independent Director on 18 November 2016.

Susie is currently a Non-Executive Director of Ravenscroft Limited, HICL Infrastructure Fund Limited, Standard Life Investments Property & Income Trust Limited, Breedon Group plc and Real Estate Credit Investments Ltd.

She served as President of the Guernsey Society of Chartered and Certified Accountants, as a member of The States of Guernsey Audit Commission and as a Commissioner of the Guernsey Financial Services Commission.