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Investment opportunity

FADIP, Bečej

INVESTMENT

OPPORTUNITY

Prospective investors are being presented with an opportunity to acquire a majority stake of company FADIP, Factory of car and tractor parts and equipment, located in Bečej, Serbia. Sales process will be conducted through a public tender.

This information Brief has been prepared by Deloitte on behalf of the Privatization Agency, Republic of Serbia (the Agency).

Deloitte has prepared this document for the purpose of offering initial information on this investment opportunity to potential investors.

No warranty or representation by Deloitte or the Agency is made as to the accuracy or completeness of the information contained herein. Prospective investors must rely solely on their own investigation, financial projections and conclusions.

INVESTMENT HIGHLIGHTS

� FADIP Koncern is comprised of six independent production units: IFC – industry of flexible hoses, HKC – industry of hydraulic brake hoses, IBP – industry of bumpers and equipment, MT – measurement tools, “Alatnica” – tool factory and “Galvanic Equipment”. From 2006 IFC, along with non production company “Standard”, is part of FADIP Koncern, while other five production units are independent companies in 100% ownership of FADIP Koncern.

� Main products include: rubber flexible hose assemblies for low, medium and high pressure, hydraulic brake hoses, accessories for automobile industry, tools and accessories for machine industry, pressure gauges, galvanization equipment, and other.

� IFC – source of 60% of Company’s revenues possesses ISO 9001 and ISO 9002, and its dedication to quality is further proven with its export orientation to demanding markets of EU, Eastern Europe and Asia.

� HKC, which accounts for additional 30% of FADIP’s revenues also has ISO 9001 and ISO 9002 certificates as proof of high quality standards achieved. HKC is also export oriented, mainly towards the market of Russia.

� FADIP has dedicated, experienced, technically competent, inexpensive staff.

� Strategic location in Southeastern Europe provides easy access to countries in the region and the international highway “corridor 10” connecting Salzburg to Thessalonica.

� FADIP has preferential treatment for its products on the markets of Southeastern Europe and Russia.

� Serbia has the lowest European corporate profit tax rate of only 10%.

Investment Opportunity FADIP

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ORGANIZATION

FADIP went through organizational change during 2005 and 2006. IFC, largest production company, and Standard, non-production company were integrated into the parent company to form FADIP Koncern. After restructuring FADIP is comprised of a parent company and five dependent production companies:

FADIP KONCERN

HKC IBP

Galvanic equipment Measurement tools

Tool factory

FADIP KONCERN

HKC IBP

Galvanic equipment Measurement tools

Tool factory

HISTORY & LOCATION

FADIP, Bečej was founded on October 10th, 1959 uniting three workshops. Since its establishment FADIP has been dedicated to production of parts and supplies to meet the needs of motor and car industries. At the core of its development were the following groups of products: flexible rubber hoses, bumpers, car accessories and supply for vehicles.

Throughout its history FADIP proved itself as an internationally recognized company. Best example of that reputation is joint venture with Dunlop that was active from 1971 until 1990 and political events that stopped much of Serbian economy. At its peak FADIP had revenues of over USD 55 million and net profit margin of 20%, while employing more than 1,800 people. Over 70% of the realization was exported, mainly to the markets of former Eastern Bloc.

Bečej is situated in the geographical center of Vojvodina on the right bank of the river Tisa. It is the center of the municipality which covers a surface of 487 km2, with 45,000 inhabitants 27,000 of which live in the town Bečej. By railway, roads and water traffic the community is well connected with the entire country.

Investment Opportunity FADIP

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PRODUCTION OVERVIEW

FADIP IFC FADIP-IFC (now part of FADIP Koncern) is a product of joint investment of capital and technology by Dunlop, FADIP, Jugohemija and IICY formed in 1971. Main products are flexible hoses for fluid conveyance of low, medium and high pressure for hydraulics and pneumatics and fittings. Products are made under various standards (SAE, DIN, BS, NCB, SNO, JUS, UIC) or to the specific requirements of customers. IFC also provides services of installation of flexible hoses on specific equipment.

Annual production capacities are:

o Rubber hose production – 3.5 million meters of steel wire braided hose

o Fitting production – 10 million pieces

Assembly production – 1.3 million assemblies.

During 2006 IFC was added to FADIP Koncern.

FADIP HKC

FADIP - HKC is the factory for production of hydraulic brake hoses, metal fittings for brake hoses and assembling of hoses. HKC is the first firm in former Yugoslavia which obtained ISO 9002 standard in 1993. HKC is also producing brake hoses according to customers’ requirements (e.g. for increased resistance on low temperature, decreased cubical dilatation, resistance on tropical conditions etc).

FADIP IBP

FADIP – IBP is engaged in production of accessories for automobile industry. Main products include metal bumpers, locks, pumps, etc.

FADIP Galvanic Equipment

FADIP - Galvanic equipment is engaged in engineering, producing and installing equipment and devices of different dimensions, technological purpose and level of complexity for chemical and electrochemical treatment of metal and plastic objects.

FADIP Measurement Tools

FADIP Measurement Tools primarily produces pressure gauges. Its products are intended for needs of processing industries such as petrochemical, food and other.

FADIP Tool Factory

Tool Factory is engaged in production of tools and accessories for machine industry. Main products include: packaging equipment, tools for presses, drilling tools, etc.

Investment Opportunity FADIP

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EMPLOYEES As of December 31st, 2005 the Company had 719 employees. Breakdown per unit is given in the following picture (Head office, IFC and Standard are shown jointly as FADIP Koncern):

HKC

21.6%

IBP

12.5%

Tools Factory

2.8%

Galvanic Equipment

1.7%

FADIP Koncern

56.9%

Measurement Tools

4.6%

The Company has skilled and well trained workers that are inexpensive. Educational structure of workforce is as follows:

High school

degree

25.6%

Highly skilled

workers

1.1%

Skilled workers

32.4%

Semi-skilled

workers

3.3%

Non-qualified

26.8%

College degree

5.7%

University degree

5.0%

SALES

Total operating revenues of FADIP in 2005 amounted to EUR 6.8 million. Operating revenues have experienced stable growth over the past two years, 4.0% in 2004 and 13.9% over the previous year.

5,726 5,954

6,778

-

2,000

4,000

6,000

8,000

2003 2004 2005

000

EU

R

Source: Management accounts

Breakdown of operating revenues per production unit is given in the following figure:

IFC

59.1% IBP

6.0%

HKC

29.6%Measurement

tools

2.8%

Tools Factory

1.4%

Galvanic

Equipment

1.3%

Source: Management accounts

Investment Opportunity FADIP

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SELECTED FINANCIAL HIGHLIGHTS

Source: Balance sheet as of December 31st 2005 and December 31st 2004

In order to assist privatization of the Company, state and public companies will write-off all of its receivables due on December 31st 2004., in case of successful tender. As a result, FADIP will experience debt relief in excess of 45 million dinars.

Source: Income statement for 2005 and 2004

OWNERSHIP STRUCTURE

Source: Central securities depository and clearing house

Prospective investors will be offered to acquire state and minority shareholders’ stakes.

MAIN ASSETS FADIP has usage rights for the land with total surface of 10ha 32a 35sqm. The land is city construction land, part of which is located in the city center while other parts are situated in locations in industrial zone next to the regional transit road. All production facilities are equipped with industrial infrastructure. Main facilities of FADIP are shown next:

Source: Legal documentation and management

Investment Opportunity FADIP

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ADVANTAGES OF INVESTING IN SERBIA

� Stable and growing economy based on prudent policies in line with the IMF agreement

� Negotiations with the EU towards a stabilization and association agreement

� Lowest European corporate profit tax rate of only 10%

� Low labor costs compared to Western and Central Europe

� Unique access to the market of 150m people in Russia via free trade agreement

� Access to the rapidly developing market of the South East European free trade area of nine countries and 55m people

� Ideally located export hub in proximity to both Western and Central Europe

AREA OF PREFERENTIAL EXPORT

The free trade agreements signed between Serbia and numerous countries

in Southeastern and Eastern Europe enable FADIP to export to these markets at preferential terms. Signatories of the free trade agreements with Serbia include: Russia, Moldova, Hungary, Croatia, Bosnia and Herzegovina, Bulgaria, Romania, FYR of Macedonia and Albania.

Investment Opportunity FADIP

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INTERESTED

PARTIES

Interested parties should submit a formal Letter of Interest to the Advisor. The Letter of Interest should contain the following items:

� A brief description of rationale for the expressed interest;

� Interested company’s description of the business including its last audited figures and shareholders’ structure (Annual Report).

Following the receipt of a formal expression of interest, the Advisor will provide details indicating the time schedule of the sale process.

CONTACT INFORMATION

If you are interested in this investment opportunity or have any additional questions, please contact one of the following persons:

Nebojša Ćirić

Financial Advisory

Deloitte

Kralja Milana 16

11000 Belgrade

Serbia

Tel: +381 (0) 11 361 34 59

Fax: +381 (0) 11 361 35 63

E-mail: nciric@deloittece.com

Maja Mijović

Financial Advisory

Deloitte

Kralja Milana 16

11000 Belgrade

Serbia

Tel: +381 (0) 11 361 34 59

Fax: +381 (0) 11 361 35 63

E-mail: mmijovic@deloittece.com

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