wnisef experience in ukraine

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Pr iva t e Equ i t y i n Uk r a in e:

On e Ex p er ien ce

Nat a l ie Jar esko , Pr esid en t an d CEO

W est e rn N I S En t e rp r i se Fun d

MBI SeminarSeptember, 2004



WNISEFA Private Equity Fund

Private company managing $150m Established in 1995; First investment in 1996

Significant stakes in privately held SME’s

Ukraine & Moldova

$1-10 million per investment

Expansion capital for proven management teams

Selective early stage and buyout opportunities

$93.4 million to 28 companies since inception $53.6 million to 14 companies outstanding

$11.5 million in additional commitments to 3

companies



UkraineImpressive Economic Achievements

Monetary and Fiscal Stability

Growing Purchasing Power

Emerging Middle Class

Sources: International Center for Perspective Studies, Bank Austria CreditanstaltEconomic Research

4.5

25.6

4.35.37

6.1

9.1

2001

5.4

25.5

7.55.33

-0.6

4.8

2002

6.63.9FDI (USD Billion)

2237.9Foreign Debt, % of GDP

6.24.7Current Account Balance, % of GDP5.335.44Exchange Rate, USD

5.214.0Average Inflation, %

8.05.9Real GDP Growth, %

20032000



Attractive Investment Opportunity

Still Under-exploited P rivate Equity Opportunity

Weak private equity competition

Private Sector Lending/ GDP 2002 FDI per capita (annual)

Sources: EIU, World Bank

$ 5,321Germany

$1,800Hungary

$230Poland

$18Russia

$14Ukraine

FDI per capita

0% 50% 100% 150%

Netherlands

Germany

Portugal

Poland

Russia

Ukraine

Western NIS Enterprise Fund



Construction Materials 29.3%

Food Processing 9.6%

Non-Food FMCG 9.0% Retail/Distribution 19.4%

Financial (Banking)*

75.0%

*Change in net assets

Attractive Sectors of UkrainianEconomy growth rate in 2003



Foreign Investors Still FaceChallenges Operating in Ukraine

Predatory tax authorities & other controlling bodies

Lack of transparency in market

Shadow economy

Lack of level playing field

Selective enforcement of rules Special privileges

Government bureaucracies = corruption tax

Inconsistent application of rule of law Imperfect & contradictory legislation

No use of precedents

Lack of transparency in courts

Inability to enforce judgments



Private Equity Investing

Provide a superior return by: Selecting appropriate opportunities

Country / Region

Industry Company

Creating value post investment

Realizing that value at exit



WNISEF Investment Portfolioas of September 30, 2003

WNISEF Outstanding Portfolio Commitments by Sector

31%

27%

11%

10%

9%

8% 4%

Financial Services 31%

Food Processing 27%Construction Materials 11%

Agriculture 10%

Retail and Disctribution 9%

Packaging 8%

Light Industry 4%



Portfolio Results vs. Industry(2000-2003 Aggregate Growth Rates)


Growth Rates of Select WNISEF Portfolio Companies (2000-2003)

0%

50%

100%

150%

200%

250%

AVK ProCredit

Bank

SBK Troyanda Shvydko PKU-KVG MEC

Portfolio Company Revenue Grow th Related Industry Output Grow th



Creating Value

Choice of strategies Early stage investing in new/developing market

segments

Growth capital to proven management teams

Buyouts and reorganizations of mismanaged assets

Simple changes yield big results Training/upgrading management

Product quality

Customer service

Branding

Marketing

Distribution



Creating Value

Corporate governance (aligning interests,establishing priorities, demanding accountabilityand transparency, clear common incentives)

Proper measurement/control (supporting

decision making and measuring results by MISimplementation)

Regulatory environment (addressing

complexities with local expertise coupled with bestinternational practices)

Business/financial environment(identifying and managing strategic use of available sources of finance)




Creating Value - Corporate Governance

Focus on long-term financial returns to all

shareowners, using peer group performancebenchmarks

Disclose consolidated information, using IAS

accounting principles,verified by aninternational audit

Disclose ultimate ownership structure

All ordinary shares have one vote per sharewith shareowners’ voting rights ensured by thecorporation




Creating Value - Corporate Governance

The Board of Directors is elected by andaccountable to the shareowners andincludes independent non-executive

director Corporate remuneration policy is consistent

with shareowners’ interest

Corporations should adhere to all applicablelaws of the jurisdictions in which theyoperate




Contribution of Value Creation Strategiesat WNISEF Companies

Market Leadership

Impressive financial and operating results

Attraction of additional debt and equity

capital

Continuous expansion




WNISEF Results – Example

SBK - Facade Brick Manufacturer Early stage investment

Initial investment 1997; $5.5 million total

Value added activities Established new standard for product quality

Trained, supplemented management

Transformed into customer-driven organization

Maintained financial discipline

Exit – 2004; Buyer – financial investor

24% IRR; 2.6 × cash-on-cash return




Vitanta - Brewery (Moldova) Buyout (secondary purchase)


Value added activities Introduced transparency

Upgraded management; downsized organization

Improved product quality

Developed branding, marketing & distribution

Exit – 2004; Buyer – strategic investor

20% IRR; 2.2 × cash-on-cash return




AVK - Confectionery Expansion capital


History Led industry consolidation with revenues increasing

from $50 to $125 million

Consistently profitable (12% EBITDA; 6% NI )

Shifted to branded products as market growthslowed

Took first dividend in 2004

Reorganizing into business units

Potential for merger & IPO or trade sale



WNISEF Results-Example

Shvydko – Chain of fast foodrestaurants

Expansion capital

Initial investment 2003; $3 million total

Value-added activities Installation of company-wide MIS system

Extensive marketing and brand managementcampaigns - 60% of brand recognition

Extensive upgrade of Shvydko’s commissary



WNISEF Results-Example

Energy Alliance –Energy ServiceCompany

Initial investment 2003; $2 million total

Pilot project at Hostomel Glass Plant (HGP) reliable and alternative source of energy

10% reduction of HGP energy costs

57% coverage of HGP energy needs

WNISEF support secured Energy Alliance

$10 million credit from EBRD



WNISEF Investing in Ukraine

Attractive Market+

Value Added Activities+

Patience

=

Private Equity Investment Success



Natalie JareskoPresident and Chief Executive Officer

+380 (44) 490-5580

[email protected]

Oksana Rudiuk

External and Corporate Relations Manager

+380 (44) 490-5580

[email protected]

For additional information onWestern NIS Enterprise Fund

wnisef experience in ukraine

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