Chairman's letters

01 December 2007

2007 Annual Review Letter

Dear All,

Welcome to the first Annual Review of Terra Firma and its portfolio businesses. At Terra Firma, we have always strived to be open, honest and transparent with our investors and I am delighted that this Review allows us to develop this principle and share information with our stakeholders generally. The activities of firms like Terra Firma touch many people and it is only right that those with an interest have the opportunity to understand our intentions, plans and results.

Some might be surprised that we have chosen to release such comprehensive information to the world at large. In doing so, we have gone further than the increased levels of disclosure espoused by many and as far as any private equity firm in Europe. The simple truth is we have nothing to hide. Private equity should not be clouded in secrecy, but explained. Its success is due to its ability to guide portfolio businesses more decisively and effectively than the public markets. Historically, however, private equity firms have been poor at communicating this.

In my view, private equity is unquestionably a force for good. Everyone benefits when efficient and well-run businesses are invested in and supported. At Terra Firma, we go one step further by taking ownership of businesses which are out of favour and which need new strategic thinking. We seek businesses which require operational change to improve how they serve their customers and thus how they will perform. Such restructuring is often not painless (and, in the short run, can produce unattractive headlines), but the alternative of allowing continued under performance is, in the long run, much more painful and destructive. This role as a catalyst for change is private equity’s most useful economic and social function. We believe that only when private equity firms become open and transparent will people appreciate this.

In restructuring and reorganising businesses, Terra Firma does, of course, also seek to make a return for its investors. However, it is often misunderstood exactly who gains from such investment performance. At Terra Firma, our largest group of investors are pension funds, both public and private, and the ultimate beneficiaries of strong investment performance are the members of those schemes. I hope that this report will give them a better idea about how their money is being put to work and will provide all Terra Firma’s stakeholders with a better understanding of our business.

Best wishes

Guy Hands

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