Private Equity in Ukraine: One Experience

Natalie Jaresko, President and CEO Western NIS Enterprise Fund MBI Seminar September, 2004

WNISEF A Private Equity Fund

Private company managing $150m Established in 1995; First investment in 1996 Significant stakes in privately held SMEs
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

Ukraine

Impressive Economic Achievements

2000 Real GDP Growth, % Average Inflation, % Exchange Rate, USD Current Account Balance, % of GDP Foreign Debt, % of GDP FDI (USD Billion) 5.9 14.0 5.44 4.7 37.9 3.9 2001 9.1 6.1 5.37 4.3 25.6 4.5 2002 4.8 -0.6 5.33 7.5 25.5 5.4 2003 8.0 5.2 5.33 6.2 22 6.6

Monetary and Fiscal Stability Growing Purchasing Power Emerging Middle Class
Sources: International Center for Perspective Studies, Bank Austria Creditanstalt Economic Research

Attractive Investment Opportunity

Still Under-exploited Private Equity Opportunity
Weak private equity competition Private Sector Lending/GDP
Ukraine Russia Poland Portugal Germany

2002 FDI per capita (annual) FDI per capita Ukraine Russia Poland Hungary $14 $18 $230 $1,800 $ 5,321

Netherlands
0% 50% 100% 150%

Germany

Sources: EIU, World Bank

Western NIS Enterprise Fund

Attractive Sectors of Ukrainian Economy growth rate in 2003

Construction Materials Food Processing Non-Food FMCG Retail/Distribution Financial (Banking)*
*Change in net assets

29.3% 9.6% 9.0% 19.4% 75.0%

Foreign Investors Still Face Challenges 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 Portfolio

as of September 30, 2003

WNIS EF Outstanding Portfolio Commitments by S ector

Financial Services 31%

8% 9% 4% 31%

Food Processing 27% Construction Materials 11%

10% 11% 27%

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)
250% 200% 150% 100% 50% 0% AVK ProCredit Bank SBK Troyanda Shvydko PKU-KVG MEC

Portfolio Company Revenue Grow th

Related Industry Output Grow th

Western NIS Enterprise Fund

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
(aligning interests, establishing priorities, demanding accountability and transparency, clear common incentives)

Corporate governance

Proper measurement/control Regulatory environment

(supporting decision making and measuring results by MIS implementation)

(addressing complexities with local expertise coupled with best international practices)

Business/financial environment

(identifying and managing strategic use of available sources of finance)

Western NIS Enterprise Fund

Creating Value - Corporate Governance

Focus on long-term financial returns to all shareowners, using peer group performance benchmarks Disclose consolidated information, using IAS accounting principles,verified by an international audit Disclose ultimate ownership structure All ordinary shares have one vote per share with shareowners voting rights ensured by the corporation
Western NIS Enterprise Fund

Creating Value - Corporate Governance

The Board of Directors is elected by and accountable to the shareowners and includes independent non-executive director Corporate remuneration policy is consistent with shareowners interest Corporations should adhere to all applicable laws of the jurisdictions in which they operate
Western NIS Enterprise Fund

Contribution of Value Creation Strategies at WNISEF Companies

Market Leadership Impressive financial and operating results Attraction of additional debt and equity capital Continuous expansion
Western NIS Enterprise Fund

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

WNISEF Results Example

Vitanta - Brewery (Moldova)
Buyout (secondary purchase) Initial investment 1998; $4.8 million total 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

WNISEF Results Example AVK - Confectionery

Expansion capital Initial investment 1999; $8.7 million total History
Led industry consolidation with revenues increasing from $50 to $125 million Consistently profitable (12% EBITDA; 6% NI ) Shifted to branded products as market growth slowed Took first dividend in 2004 Reorganizing into business units

Potential for merger & IPO or trade sale

WNISEF Results-Example
Shvydko Chain of fast food restaurants
Expansion capital Initial investment 2003; $3 million total Value-added activities
Installation of company-wide MIS system Extensive marketing and brand management campaigns - 60% of brand recognition Extensive upgrade of Shvydkos commissary

WNISEF Results-Example
Energy Alliance Energy Service Company
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

For additional information on Western NIS Enterprise Fund

Natalie Jaresko President and Chief Executive Officer +380 (44) 490-5580 Njaresko@wnisefk.com Oksana Rudiuk External and Corporate Relations Manager +380 (44) 490-5580 Orudiuk@wnisefk.com