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In retrospect - Investment Proposal

Reference Material
Author

Johan Werbrouck: Managing Partner
Steinberg Capital Management S.A.
Steinberg Capital SICAR S.C.A.




                                      SC_MASTER_GALT&TAGGART   1
AGENDA
Steinberg Capital’s SICAR S.C.A. and its Management Company Steinberg Capital
Management S.A. wish to engage in a strategic Partnership Agreement.




     A. The decision about opening a SICAR for Ukraine was taken due to five preconditions

     B. Executive Summary Steinberg Capital SICAR SCA

     C. Development perspectives of Ukrainian economy – between European Union and Russia




                                                                            SC_MASTER_GALT&TAGGART   2
A.   The decision about opening a SICAR for Ukraine was taken due to five
     preconditions




                                                               SC_MASTER_GALT&TAGGART   3
The decision about opening a SICAR for Ukraine was taken due to
five preconditions
Preconditions for launching a SICAR for Ukraine


 1 Ukraine is one of the largest European countries with the huge
   potential


 2 Stability of macroeconomic situation


                                                                    Launch of Steinberg
 3 Economical growth and positive development forecast
                                                                    Capital SICAR S.C.A.
                                                                    in July 2007.
 4 Flow-in of foreign investments into national economics



 5 Inefficiencies available for high IRR’s


                                                                         SC_MASTER_GALT&TAGGART   4
1
     ONE OF THE BIGGEST EUROPEAN COUNTRIES



Ukraine is one of the biggest European countries with the huge
development potential
Ukraine within the European context

Top-10 European countries,                                                  GDP1) in 2006 [bn USD] and forecast of GDP
area [thousand km2]                                 Population [m people]   annual growth for 2007-2011

 Russia                                              Russia                 Germany                                  1,9%

 Ukraine                                             Germany                Great Britain                            2,3%
 France                                              France                 France                                   2,0%
 Spain                                               England                Italy                                    1,4%
 Sweden                                              Italy                  Russia                                   4,8%

 Germany                                             Ukraine                Spain                                    2,3%

 Finland                                             Spain                  Poland                                   4,3%
 Norway                                              Poland                 Netherlands                              2,8%

 Poland                                              Romania                Ukraine                                  6,0%

 Italy                                               Netherlands            Belgium                                  2,1%


 1) GDP is calculated according to purchase capability
 Source: CIA                                                                                      SC_MASTER_GALT&TAGGART    5
2   ECONOMICAL STABILIZATION



Improvement of all the major macroeconomic indicators, and GDP
tripled in 7 years

Ukrainian economics – major indicators, from 2000 till 2006/2007(forecast)1)
                                                                               2000                   Δ 6 years   2006              2007


Nominal GDP [bn USD]                                                             31                      x 3,2    >100              106

Inflation rate                                                                25,8%                      x 2,2    11,6%            10,7%

Budget balance
                                                                              +0,6%                      -2,4%    -1,8%            -2,0%
[% from GDP]
Foreign-exchange
reserves [bn USD]                                                               1,5                      x 15     22,2              25,0

Foreign trade [bn USD]                                                         30,4                       x3      81,4              90,0

Direct foreign investments [bn
                                                                                0,6                      x 7,5     4,5              5,2
USD]
Direct foreign investments [ %
                                                                               1,9%                       x2      4,5%              4,9%
from GDP]
 1) Some data from 2006 are preliminary, the data for 2007 forecasted

 Sources: EIU, National Bank of Ukraine,State committee of statistics of Ukraine, Steinberg Capital                       SC_MASTER_GALT&TAGGART   6
3   POSITIVE DEVELOPMENT FORECAST




According to forecasts, high growth speed of economics will be
preserved

Маcroeconomics: dynamics and forecast

Annual GDP growth, 2000-2011 (forecast) [%]                                                           •  Financial and budget
                                                                                                         discipline

                                                                                                      •  Growth of Ukrainian
                                                                                                         economics and
                                                                                                         demand


Inflation, 2000-2011 (forecast) [%]                                                                   •  Increasing income
                                                                                                         from the tax charges
                                                                                                         to the budgets

                                                                                                      •  Growth of investment
                                                                                                         activity


 Sources: EIU, National Bank of Ukraine,State committee of statistics of Ukraine, Steinberg Capital    SC_MASTER_GALT&TAGGART   7
4    FOREIGN INVESTMENT FLOW-IN



Starting from 2004 – intensive flow-in of foreign investments into the
economics of the state

Overview of investment activity

 Growth of investments in Ukraine, [bn USD]                                Foreign investments growth in 5 largest regions, 2005 [%]

                                 CAGR1): 32%                                        Kyiv region 4%
                                                            х 2,3                                     Kyiv 22%

                                                                    20,6

                    Orange Revolution                       16,4
                                                                                                            Kyiv
                                                                                                                                  Kharkov


                                                     9,0
                                                                                                                 Dnepropetrovsk
                                         6,8                                                                                        Donetsk
                             5,5
                  4,6                                                                                        Odessa
      3,9                                                                          Odessa region 4%
                                                                                                                                    Donetsk region 4%



                                                                                       Dnepropetrovsk region 10,5%

 1) Cumulative annual growth
 Source: State committee of statistics, Steinberg Capital                                                                SC_MASTER_GALT&TAGGART         8
5   Inefficiencies present




Three inefficiencies are going to be present for the next 5-7 years.

Triple Inefficiencies in Ukraine – Private Equity



     •  riple effect possible: Triple inefficiency play
      T

            o Market inefficiency: Low acquisition multiples (1-4)

            o Business inefficiency: Easy to add value (Full Potential Plans)

            o Economy inefficiency: Ride the wave of macroeconomic expansion,
              which will aid both business expansion and exit multiples (7-9)




                                                                                SC_MASTER_GALT&TAGGART   9
Opportunities.

Sub-prime Crisis is Opportunity

  •  urrent market crisis is an opportunity for PE in Ukraine, not a threat
   C

   -Current turmoil on financial markets is induced by increasing defaults of sub-prime mortgage loans in
     USA and, consequently, a re-pricing of risk across the board
    -Victims of volatility are:
     >hedge funds and bank conduits as they deprived of their short-terrm financing and forced to fire-sell
      high quality paper at heavily discounted prices
     >private equity operating in mature markets as easy and agressive financing will be very hard to obtain
      in the short term
    >some merchant banks engaged in agressive buy-out operations which will be unable to syndicate their
     debt underwritings
  - This crisis is, as a matter of fact, good news for Steinberg Capital's investors
     >there is no economic link with the crisis "originator" (sub-prime)
     >our buy-out activity will not suffer as limited leverage is expected to be used
     >no liquidity crisis to be expected as western banks are still in a buying spreee in Ukraine
     >equity multiples are expected to go down, at least on the short term
     >investors could benefit from a strong diversification opportunity in a low-debt environment




                                                                                         SC_MASTER_GALT&TAGGART   10
B.   Executive Summary Investment Proposal of the SICAR towards Limited
     Partners




                                                            SC_MASTER_GALT&TAGGART   11
Executive Summary.
Steinberg Capital’s SICAR S.C.A. Investment proposal in Ukraine ambitions for its
investors a 30-35% net IRR%/year.

 • Steinberg Capital targets 35%/year whilst leveraging three inefficiencies present in Ukraine, unexisting elsewhere in Europe and US
   - Market inefficiency: Low acquisition multiples (1-4 X EBITDA entry multiples – proprietary dealflow)
   - Business inefficiency: Easy to add value (organisational, financial, operational, strategic)
   - Economy inefficiency: Ride the wave of macroeconomic expansion (7-9% GDP growth), which will aid both
     business expansion and exit multiples (6-8)
 • 150-200 Mio $ will be invested in Ukraine for the next 2,5 years in 7-9 mid sized companies and prepared for exit to strategic investors
 • The Track record of Steinberg Capital combines the strength of western professionals with a local partner
    - Western professionals: BC partners, Industrikapital, 3i, BAIN & Co, McKinsey, GE Capital, BASF, GE, E-on
      Fortis Private Equity, Roland Berger, AT Kearny, Deloitte
 • Strong Governance mechanisms and deep due dilligence lowers risks for investors
   - Luxemburg registered SICAR: Only SICAR for Ukraine, authorised by the Luxemburg authorities
   - majority Control Share blocks are transformed into Special Purpose Vehicals and fall under Luxemburg law
   - Investee companies are bought with controlling ownership and a controlling seat in the board (general partner role)
   - The investment thesis, due dilligence and exit are supported by an active and captive advisory board with strong track record
   - Due Dilligence is contracted with local advisors
   - Sal. Oppenheim is the custodian and administratorof the accounts in Luxemburg
   - Arendt&Medernach is the law firm contracted by Steinberg Capital for the legal and fiscal part
 •  Existing Dealflow supports the underlying fundamentals in terms of disciplined investment process
 • 18 Mio $ commitment with signed contracts on the Sal. Oppenheim held share register
 • First Engagement letters(LOI) are signed with 4 belgian groups: in the area of OTC, agrobusiness (2) as potential co-investors




                                                                                                          SC_MASTER_GALT&TAGGART       12
In the next 10 years, Emerging Markets Private Equity will provide
a unique opportunity to achieve superior returns
Why Ukraine


    rolonged period of significant economic recovery and growth expected
   P
    cquisition multiples of 1-4 times EBITDA are possible in the region
   A
    xit multiples in 5 years should approach current Western European
   E
   multiples of 6-10 times EBITDA
    ragmented industries with abundance of complementary acquisition
   F
   opportunities
    perating improvements can have high leverage in increasing company
   O
   value
    he Ukraine is exhibiting exceptionally high growth year to year
   T
    onstantly improving legal and business environment
   C
    rrival of Western and Russian strategic investors is expected to accelerate
   A
   post WTO accession increasing exit opportunities for the Fund.




                                                                         SC_MASTER_GALT&TAGGART   13
In the next 10 years, Emerging Markets Private Equity will provide
a unique opportunity to achieve superior returns

Triple Inefficiencies in Ukraine – Private Equity



     •  riple effect possible: Triple inefficiency play
      T

          o Market inefficiency: Low acquisition multiples (1-4)

          o Business inefficiency: Easy to add value (Full Potential Plans)

          o Economy inefficiency: Ride the wave of macroeconomic expansion,
            which will aid both business expansion and exit multiples (7-9)




                                                                              SC_MASTER_GALT&TAGGART   14
Fund Thesis: Positioning
                                                                                    Inside Ukraine
Sweet Spot:
•  Controlling
   Ownership                             Buyout
•  High end Mid                          Control
   Cap                                   (> 51%)
•  Strong
   Management
•  Criticall mass
•  Exit options                          Buyout
•  Value Creation                        Minority
   opportunity        Ownership          Co-
                      Model              Investment
                                         Majority
                                         (< 51%)




                                         Growth
                                         Financing                 Small to medium cap                Medium to large cap



    Sweetspot Steinberg Capital                                   1-5 Mio $              5-15 Mio $             15-30 Mio $
    No particular focus, Captive Funds, US government focus, No exit enforcement     Equity Value
                                                                                                        SC_MASTER_GALT&TAGGART   15
•  …                                           •  …                                      •  …
As a Buyout Fund, Steinberg Capital is modelled after Bain Capital,
with emphasis on due dilligence and active value creation

       Controlling                                        Investment           Due              Value
       Ownership                                            Thesis          Dilligence         Creation

                                                          • Insight in      • Commercial    • A superior
                                                            end game        • Legal           insight in
                                   Steinberg                analysis and    • Financial       profit and
           • Financial
             Engineering         Capital clearly            “Industry       • Shareholder     value drivers
                                  positioned                Concept”          structure       for the investee
           • Fiscal                                       • Leverage of                       companies
             Engineering           as active                Advisory                        • Mix of former
                                 Buyout Fund                Board,                            partners private
                                                            Investing                         equity and
                                                            Chairmen                          international
                                                          • Activation of                     directors at
                                                            locally based                     blue chip
                                                            advisors                          companies
                                                             - BAIN & Co                    • Big picture and
             Not sustainable                              •  Full                             strategic value
             as differentiator     No exit
                                 enforcement                 Potential                        insights
                in market                                    Driven                         • Local Partner:
                                                                                              Millennium
                                                                                              Capital
                                               Value
                                               Creation

                                                                                 SC_MASTER_GALT&TAGGART      16
Total Size of committed capital is set at 150-200 Mio $ till end of year in two more
closings. Up till now 20 Mio $ has been confirmed and signed as for the first
closing.                                     Segments

                  HNWI’s, UHNWI’s,                   Omnibus Seggregated   NGO’s: EBRD     Institutionals: Hedge
                  Single & Multiple family Offices   Accounts              OPIC, IFC       Funds, FoF, Holdings
  [Mio. $]
        150-200

        20-50
                                                                           • EIB
                        FOR DISCUSSION

        55-75

                                                                           • EBRD

                                                     FOR DISCUSSION
         55

                                                                           • IFC
                                                                           • OPIC

100%    18-20                                                                               FOR DISCUSSION




       Match:

                                                                                         SC_MASTER_GALT&TAGGART    17
The initial closing is executed at end of August and has 20 Mio $
commitments as to date from partners, family offices and HNWI’s.
                                                                  Status

[Mio. $]        Detail / Names / Origin                Level of committment2)   Closure      Segment
       20-25

                                                                                               •  Industrial Holding
       3-7      •  N.A.                                                         75%            •  Belgium
                                                                                               •  RE exp. CEE
        1       •  Additional Eur. Private investors                            100%

                •  Industrials – Flanders                                                       •  Investing chairmen
        2                                                                       100%
                •  Family Offices                                                               •  Family Offices

        2       •  Steinberg Capital Partners1)                                 100%            •  Founder & partners

                                                                                                •  HNWI’s
                                                                                                •  "Investors of the first
                                                                                100%               hour„
        15                                                                                      •  Entrepreneurs/cashed
                                                                                                   in (BBoom G.)/Sell.M


Remarks:        Campaign towards First Closing is lined up (Family offices US/EU), Omnibus Seggregated Accounts, UHNWI
Success rate:   70%; driver is pre-qualification and introductions of first investors to personal contacts
Ø ticket:       1,3 Mio. $


                                                                                          SC_MASTER_GALT&TAGGART        18
Investment Proposal
Steinberg Capital SICAR ambitions for its investors a yearly 35% IRR with a fiscal
neutral basis. The team tilts the risk/reward curve towards the lower risk zone


Risk                                               Key Drivers in optimising Risk/ Return
  High
                                                      A. Legal Structure: SICAR & SPV’s - Luxemburg
                                                      B. Governance Structures
                                                            o Controlling Ownership: enforce exit
                                                            o Controlling Seat in the Board/target Company
Medium                                                      o Management Buy In & Alignment:
                                                               - Envy ratio
                                                               - Variable Compensation Plan
                                                      C. Investment Process:
                                                            o Western Discipline/IC/FIM/PIM
                                                            o Advisory Board
   Low                                                      o Local Advisors: Deep Due Dilligence
                                                      D. Active Value Creation: Full Potential Plan
                                                      E. Exit thesis based on Industry Concepts
                                                      F. Co-Investors/Western Origin
                   15%     25%     35%
                                         Return (increased by working with three inefficiencies)
                                                                                   SC_MASTER_GALT&TAGGART   19
The Legal Structures are designed by Luxemburg based Arendt &
Medernach. Sal. Oppenheim is Custodian, E&Y Auditor.
                                          Advisory Company Luxemburg
                                  2

         Oppenheim Pramerica                1          General Partner             20-30 Limited partners

                   Domicile
                                                                   Steinberg Sicar Luxemburg
         Central Administration
                Registrar                   5
                                                 SPV                     SPV
               4              6
                                                Invested Invested Invested Invested Invested Invested
             Sal. Oppenheim                     Company Company Company Company Company Company

                   Custody                  7

                                                               3
  1    Instruction on drawdowns
  2    Sending out of drawdown notices
  3    Collection of monies under the respect of AML en KYC rules
  4    Notification & reconciliation of the Sicar's investments
  5    Investment decision on transmission of documents on SVP's and properties
  6    Notification & reconciliation of the Sicar's investments
  7    Check on duty acquisitions & payments

                                                                                         SC_MASTER_GALT&TAGGART   20
The Investment process

 1   Business       2   Partner          3   Weekly          4   PIM (1)    5 Investment            6 FIM        7   IC II        8 IC III
     Proposals          Screening:           Partner                          Committe I
                        J.W.                 Meeting                          (IC)

                                                                           Budget Approval          Pre due      Full due     Conditions
                  1 Pager             Decision Allocation:                                                                    to be
                  •  Company          •  Expenses> $5000                                            dilligence   dilligence
                                                                           Investment Criteria:                               renegotiated:
                  •  Business         •  Work > 5 days                                                                        • Valuation
                  •  Financials                                            •  arket Attract.
                                                                            M                                    Decision:
                                                                           •  ompany Attract.
                                                                            C                                    Go/No Go     • Terms
                  •  Valuation
                                                                           •  eal Structure Attr.
                                                                            D
                                                                           •  alue Add Potential
                                                                            V                                                 Iterative Process


                  Pre Selection
                  •  Input Advisory
                     Board/Experts



                                                                           Activation of Consultants
                                                                           •  BAIN & Co
                                                                           •  E&Y
                                                                           •  Boutique Experts




(1) PIM: Private Investment Memorandum
(2) FIM: Final Investment Memorandum                                                                             SC_MASTER_GALT&TAGGART       21
Steinberg Capital is focussing on a limited number of industries
for creating value.
Industry              Selected Targeted         Key-Investment
                      Sub-Sectors               Considerations
Food Processing and   •    Farming              •    Rising disposal income
Agri-culture          •    Meat processing      •    Low investment in sector to date
                      •    Milk processing      •    Generally under-managed businesses
                      •    Food ingredients     •    Low valuations
                      •    Bakery               •    Strong interest for restructured and well-capitalized businesses from
                                                     strategy players in Europe
Basic industries      •  Light manufacturing    •    Long term growth in real estate and construction
                      •  Building materials     •    Market fragmentation
                         and aggregates         •    Opportunities for import substitution
                      •  Power equipment        •    Outsourcing of manufacturing processes from Europe
Financial Services    •  Insurance              •  Consumers demand broader product offering
                      •  Consumer Credit        •  Unexploited market niches
                      •  Leasing                •  Limited access to capital for local companies creates an opportunity
                                                   for leasing services
                                                •  Strong interest from potential strategic investors
Technology, media     •  Publishing             •  Well-managed middle-market targets
and telecommuni-      •  Mass media             •  Fragmented markets
cations
Consumer products     •  Fastfood restaurants   •  Regional niches
and services          •  Retail                 •  Consolidation opportunities
                                                •  Significant value creation potential through expanding product
                                                   offering and distribution
                                                                                               SC_MASTER_GALT&TAGGART        22
Critical Success Factor:
Investment Thesis & Control Management
                                 Investment Thesis & Commercial Due Dilligence

       Analysis Industry concept/ End Game

  Is the Market attractive?    Is the Company attractive?   Is the Deal Structure attractive?   Can we add susbstantial Value?


                                                                                                                          GO



                  NO GO                       NO GO                            NO GO                               NO GO


Industry Selection             Exit Thesis:                 IRR: >35%                           Full Potential Plan
•  Size                        •  Criticall mass            Co-Investors                        •  Advisory Board
•  Segments                    •  Consolidation             Mezzanine Finance                   •  External Advisors
•  Growth & Growth drivers     •  Management/Scalability    Legal                               •  > Strategic Full Potential
•  Value Chain Integration     •  Stable Free Cash Flow                                         •  > Financial Full Potential
•  Key Success Factors         •  Controlling Ownership                                         •  > Operational Full Potential
•  Profit Drivers (Rev/Cost)                                                                    •  > Organisational Full Potential
•  End Game Analysis


                                                                                                       SC_MASTER_GALT&TAGGART        23
The current dealflow is multi-sourced (open architecture) and
flanked by advisors and industry experts.
                                                                                             Post Acquisition
   Deal Sourcing                  Due Dilligence               Deal Structuring                                                  Exit
                                                                                             Value Improvement
                                         Entry                                                Value Creation


Key sources                      Key success factors               Name                        Sector                  Size [Mio. $]2) Fit1)
•  Third party advisors          •    Arm's length                 •    Fast food systems      Franchise Food             N.A.
   –  Legal advisors             •    Patronage deals              •    UPG                    Food Processing
   –  Management                 •    Comission based deals        •    Univest Print          Printing
      consultants                •    Exclusivity                  •    Energy (Co/            Renewable Energy
      -  BAIN & Co.                                                     Morgan Stanley)
      -  Roland Berger                                             •    OTC:
      -  PWC/E&Y                                                   •    Retail                 OTC: pot. Co-Inv
      -  Deloitte                                                  •    Financial Services     Retail
   –  Banks                                                        •    Juices/Drinks          Financial Services
      -  Credit Suisse           •    Investment Criteria          •    Intercable             Consumer Goods
         First Boston            •    Sweetspot debriefing                                     Construction
      -  Dragon Capital          •    Exit Focus                                               Materials
      -  Forum                   •    Investment Thesis
                                 •    Valuation

•  Company Dealflow              •  Roadshow regions
                                 •  Holding contacts
1) Subject to investment committee, advisory board, due dilligence process (market, company, deal attractiveness)
2) Subject to further due dilligence                                                                                SC_MASTER_GALT&TAGGART     24
1     2      3




Transaction Focus: Investee Company Selection Criteria



      •  Experienced, committed management team with proven track record in its sector
      •  Evidence of company’s potential to become a market leader
      •  Growth dynamics and strong potential for expansion
      •  Privately owned and unlisted
      •  Cash positive or break-even, with clear revenue models
      •  Clear exit strategy within 3-5 years
      •  Committed to financial transparency
      •  Low political risk and no affiliation with shadowy business structures
      •  Average equity investment required: $15-25m
      •  Geographical location: Ukraine
      •  Cut-off project IRR level – 35%




Source: Johan Werbrouck, Chairman Steinberg Capital                        SC_MASTER_GALT&TAGGART   25
Exits can be multiple

Exit Routes


   • Strategic Investors: Multinational companies from Western Europe, USA, Asia
     and Latin America
   • Russian and former Soviet block businesses, which are expanding in the region
   • Local business people
   • Management buyouts
   • Secondary Buyouts
   • IPO’s in the West or in the region
   • Additional factors aiding exits in the next 5 years:
        o  ocal pension fund industry is developing fast
          L
        o  ocal mutual fund industry is being born
          L
        o  everaged buyouts will be coming
          L




Source: UNECE, Economic Survey of Europe, 2005; CIA World Factbook 2005   SC_MASTER_GALT&TAGGART   26
Steinberg Capital - Appendix – Key Persons involved
Investment Committee members, Partners & Advsiory Board
CV – Partners Steinberg Capital
Werner Claes

  Mr. Claes was the former Executive Director Global Private Equity Fortis Bank with
  the following responsibilities:

  - Mezzanine Finance
  - Private Equity in Central and Eastern Europe
  - Membership of all important investment committees of Fortis Bank
  - Director of various investee companies.

  Prior to this role he was Director Central Risk Management, Fortis Group, and Director
  International Credits.
  Other responsibilities included:
  -  resident of Credit Council of ALCO-FUIB (First Ukrainian International Bank)
   P
  -  oard Member of Fortis Bank Polska
   B
  -Board member of Czech Ventures
  -Due Diligence Team leader in all emerging market exercises Fortis Bank.
  Werner has university degrees in interpreting Dutch-French-Russian, has a Post-
  Universitary Degree in Business Economics (Vlekho), and two Masters in Financial
  Management and Accountancy.

                                                                             SC_MASTER_GALT&TAGGART   28
CV – Partners Steinberg Capital
Hans M.C. Vanoorbeek

  Mr. Vanoorbeek has more than 10 years in the private equity industry and a strong
  direct track record in private equity and buyouts as former Partner at Industrikapital
  Ltd and BC partners since 1995.

  At Industri Kapital Ltd he established a large network of investment bankers, M&A
  intermediaries, accountants, consultants and lawyers in London and the Benelux. This
  combined with an already existing network has ledto the generation of a proprietary
  deal flow (approximately generated 35 proprietary deals in the Benelux and eight outside
  the Benelux). He participated in approximately 50 auctions (whereof approx. 25 second
  rounds) and 12 exclusive deals (whereof 6 very intensive). Prior working experience can be
  found at Goldman Sachs and KPMG.

  He is co-investor and entrepreneur in two companies in Belgium.

  Mr. Vanoorbeek is a MBA graduate of Harvard Business School, and has earned a
  masters in law and economics of the Catholic University of Leuven.



                                                                                SC_MASTER_GALT&TAGGART   29
CV – Partners Steinberg Capital
Johan J.G. Werbrouck: Founder & Managing Partner

 Mr. Werbrouck started his corporate career at BASF AG and rotated into international business development and
 corporate development functions in Germany (HQ), France and Belgium. Afterwards he joined Roland Berger in
 Duesseldorf and advised german clients out of the Group Wide Chemical Competence Center

 He joined BAIN&Company to work on private equity related advisory and bancinsurance related strategic
 assignments. Overall, he worked mainly in the areas of commercial due Diligence, valuation and full potential plans.

 Afterwards he joined GE in Italy at Executive level to spearhead the European Services Council. This was done
 through selection of best practices across the 12 industrial business units of GE, both in long and short cycle
 businesses. He rotated as Vice President Europe to GE Capital Commercial Finance (Asset Based Lending) out of
 the UK, where he headed a pan-European team of 8 professionals in 6 countries

 From 2001 to 2003 he was a Group Director at Viterra Energy Services, a division of E-On AG, and was responsible
 for the restructuring of the Six Sigma program in 28 countries, whilst trimming the company and designing the growth
 story with the Board to a successful exit at the end of 2003 to CVC Germany. The division was sold at a 10 X EBITDA
 multiple for 1 Billion Euro.

 In the beginning of 2004 he created Mercurius Group Ltd as platform to position Steinberg Capital and was the only
 financier in setting up the operations of Steinberg Capital. He is trained as Commercial Engineer at the Catholic
 University Leuven and has obtained a MBA at the Vlerick School for Management in 1991-1992.

                                                                                          SC_MASTER_GALT&TAGGART   30
The Investment process/Post Acquisition Value add
Full Potential Program
     Financial Full Potential                  Operational Potential                 Organizational Full Potential                   Strategic Full Potential

• Manage Balance Sheet                  • Manage Assets                              • Build processes                              • Define visions and missions
    - Sell non-required assets              - Utilize capacities                          - Identify core processes                 • Inject growth initiatives
    - Use off-balance sheet financing       - Focus/consolidate operations                - Define process owner                         - Core (products, regions,
                                                                                                                                           channels, Customers)
                                            - Outsource non-core activities               - Redesign processes
                                                                                                                                         - adjacencies
• Optimize financial structure
    - Find the optimal mix              • Manage Costs                               • Build structure
      debt/mezzanine/equity                                                                                                         • Make add-on acquisitions
                                            - Optimize purchasing                         - Form homogenous operating units
      short-/long-term
                                                                                                                                         - screening
                                            - Increase effiency of direct labor           - Define corporate center and corporate
    - Reduce working capital
                                                                                            services                                     - Evaluation of targets
                                            - Optimize sales force efficieny and
    - Optimize cash management
                                              G&A efficiency                                                                             - Transaction support
                                            - Streamline/consolidate R&D             • Build systems
• Review tax/legal strucure
                                                                                          - Integrate planning, reporting           • Build exit story
                                        • Manage Sales                                    - Develop new incentive schemes                - Develop and communicate
                                                                                                                                           „success story“
                                            - Identify areas of under-penetration,        - Establish performance standards
                                              cross selling opportunities                                                                - Prepare business plan
                                                                                          - Compare internally, external
                                            - Conduct sales emergency programm
                                            - Perform sales enhencement
                                                                                     • Build Management Team
                                              programs
                                                                                          - Shared vision, values of core
                                                                                            management
                                                                                          - Develop high potentials

                                                                                                                                                                    31
Additional PE track record


Introduction to the Advisory Board

  The management team’s expertise will be further supported by an active, fi rst class
  Advisory Board created within Steinberg Capital Management, whose members have
  significant experience in building shareholder value in both Ukrainian and interna-
  tional companies.

  In addition, each international Board member has a first-hand experience in the private
  equity field. Board members are asked to contribute actively across the
  Steinberg Capital value chain, utilizing their core strengths and in-depth
  knowledge to help the Company realize successful investments. The Advisory Board
  meets formally 4 times per year and will be contacted on an ad-hoc basis deal-by-
  deal.

  The following individuals have agreed and already participate on the Advisory Board:




                                                                          SC_MASTER_GALT&TAGGART   32
1    2   3



Investment Process: Role Advisory Board


             Advisory Board:
             • Industry Know How     Pre-Investment Check-     Due DilligenceReport
                                                                Due Dilligence
             • Networks              list & Risk ratings       Report
             • Business Judgment



                Deal Origination         Initial Screening
                                                                   Detailed Due             Investment
               Deal Origination           Pre-Investment
                                                                    Dilligence           Committee Approval
                                            Committee



                                           Investment
                                                                   Execution of
                                         Reallisation and
                                                                   Transaction
                                          Management




                     Exit
                     Exit


The Advisory Board meets formally 4 times per year. In addition, on a ad-hoc basis, they are send an investment
summary of the deals at the pre-Investment committee stage. Leveraging networks, industry know how and/or deal
attractiveness judgment are part of their role.
                                                                                         SC_MASTER_GALT&TAGGART   33
CV – Advisory Board Partners
Jean Cristophe Laloux: Luxemburg


 Mr. Laloux is a Director of Private Equity for Southeast Europe at European Investment Bank, based in
 Luxemburg. Prior to this responsibility, he was the direct advisor of the EIB President, Mr. Maystadt.

 He was a former Boston Consulting Group consultant.

 His contribution to Steinberg Capital is defined at fund level where corporate governance best
 practices will be exchanged.

 At present, his director assignment at the European investment Bank, based out of Luxemburg brings
 him in the Board Seat positions of EIB backed private equity funds.

 Mr. Laloux has obtained his MBA at Kellog/Chicago. Prior to this, he earned a masters degree in
 Commercial engineering at the Catholic University Leuven and a postgraduate management at the
 Vlerick School of Management.




                                                                               SC_MASTER_GALT&TAGGART   34
Steinberg Capital in Ukraine: constant presence and international
structure of investment teams



                                  The only private equity fund solely focussed among the
                                  current players on buyouts



                                  Team of partners with a local operational
                                  experience, contacts and infrastructure



                                  A team of international partners with top track record
                                  In private equity and active value creation for
                                  investee companies and portfolio management


                                  Target net IRR per year of 30-35% for investors.




                                                                 SC_MASTER_GALT&TAGGART    35
Private Equity - Appendix –

   - Market Size in Ukraine: Private Equity Committed Capital
   - Multiples versus Local Multiples (proprietary dealflow SC)
   - Best performing Asset Class
Private Equity Landscape in Ukraine
In the course of the next years, private equity will increase its total committed
capital. Current committed capital as % of GDP is still in the initial stage as opposed
to CEE.

                                                                                  [Mio $]




                                                                        SC_MASTER_GALT&TAGGART   37
U.S. buy-out industry

Increasing amount of                                                       ... chasing fewer deals...                                          ... means higher purchase
investment capital ...                                                                                                                         multiples

LBO Dollars Raised                                                         Number of LBO/Merchant Bank                                         Purchase Multiples
                                                                           Deals

                                                                $28,987M




                                                                                                                                   277
$30,000                                                                                             300                                                         10.0




                                                                                                                                         275
                                                                                                           270
                                                     $22,600M




                                                                                                                       255
                                                                                                                                                                                                     8.6




                                                                                                                             248
                                                                                                                 245
$25,000                                                                                             250
                                          $18,431M




                                                                                                                                                                 8.0
                                                                                                                                                                                     7.0     7.1
                                                                           Number of Deals Closed



                                                                                                                                                                               6.5
$20,000                                                                                             200




                                                                                                                                               EBIT Multiples
                                                                                                                                                                 6.0    5.4
                               $11,612M




$15,000                                                                                             150

                                                                                                                                                                 4.0
                     $5,905M
           $5,174M




$10,000                                                                                             100


                                                                                                                                                                 2.0
 $5,000                                                                                              50


     $0                                                                                               0                                                          0.0
         1992 1993 1994 1995 1996 1997                                                                    1992 1993 1994 1995 1996 1997                                1993   '2/95 '2/96   '2/97   2/98
Sources: BUYOUTS Newsletter; 1997 Buyouts Yearbook
                                                                                                                                                                              SC_MASTER_GALT&TAGGART       38
Industries with high growth rates (e.g. telecom) will command
higher purchase multiples relative to mature or volatile industries

Purchase Multiples by Industry (1997)

Buyout Purchase EBITDA Multiples (1997)
                           13
                                                                                                                    10.9


                           10

                                                                                 8.1
                                                                  7.4                     7.5
                                                                                                            7.1
   Buyout Purchase Price




                            8                   7.0   6.9               7.0                        6.8
     (EBITDA Multiples)




                                                                                                                             6.5
                                         5.9                6.0
                                 5.4

                            5



                            3



                            0
                                Auto-  Chemi-
                                 Tech- Food & Forest          General Health-   Home     Publi- Retailing Services Telecom Textiles
                                motive cals
                                 nology Beverage Products Indus- care           Furni-   shing
                                                              tries             shing
Sources: BancAmerica Robertson Stephens, Portfolio Management Data LLC
                                                                                                          SC_MASTER_GALT&TAGGART      39
Private Equity at 14% of total portfolio among UHNWI and
HNWI’s (Source Merrill Lynch)




                                                 SC_MASTER_GALT&TAGGART   40
C.   Development perspectives of Ukrainian economy – between European Union
     and Russia




                                                           SC_MASTER_GALT&TAGGART   41
Economy of the country attracts investors, but a range of measures on
macro- and micro- levels is necessary

Attractiveness of Ukraine for investors: brief overview
• 
1    Ukraine – economics with investment        2•  A rangeof economical industries will attract
     potential for EU and Russia:                 particular attention of the investors:
     -    High speed of economical growth            -  Ferrous metallurgy
     -    Capacious internal market                  -  Banking sector
     -    Position between EU and Russia             -  Retail
     -    Low production costs



• 
3    For increasing the attractiveness of the   4•  For
                                                      increasing attractiveness of business, a
     country, a range of state measures is        range of measures in the 5 key spheres is
     necessary in the 5 key spheres:              necessary:
     -    Power sector                               -    Transparency
     -    Liberalization                             -    Clear development strategy
     -    Taxation                                   -    Investments
     -    External-economic policy                   -    Personnel
     -    Privatization                              -    Innovations




 Source: Steinberg Capital                                                       SC_MASTER_GALT&TAGGART   42
1    INVESTMENT POTENTIAL




Ukraine offers a range of advantages to the investors – speedy
growth, capacious market, low costs, etc.

Ukrainian GDP pro capita in the context of developing countries
Forecast of average annual GDP growth for 2007-2011 for some growing
economies [%]                                                          Comments


                                                                       •  Ukraine has one of the quickest
 China                                                                    growing economies in the world, and
 Ukraine                                                                  is one of the largest countries in
                                                                          Europe. This combination tells about
 Тurkey                                                                   economical potential
                                                                       •  Capacious internal market for ЕU
 Russia                                                                   and Russia
                                                                       •  Advantageous capacities for locating
 Romania                                                                  a range of industries (raw materials,
 Тhailand                                                                 low costs)

 Mexico
 Brasil

  Sources:: EIU, Steinberg Capital                                                        SC_MASTER_GALT&TAGGART   43
1   INVESTMENT POTENTIAL



Ukrainian economics will be particularly attractive for the investors
from EU and Russia

Ukraine: location between Russia and European Union


Attractiveness for EU                                 Attractiveness for Russia

 •  Capacious sales market,                           •  Capacious sales market,
    geographic nearness                                  geographic nearness
 •  Comparatively stable                              •  Historical and cultural
    macroeconomic                          Russia        closeness
    development                                       •  Existing links between
 •  Low costs of inputs (e.g.                            capital and external
                                EU
    raw materials, personnel)                            relations
 •  Political course oriented                         •  Relative confidence in
    for European Union                                   political system




 Source: Roland Berger                                               SC_MASTER_GALT&TAGGART   44
EUROPEAN UNION



Membership in the EU – priorities in external politics. The EU is still the
major economical partner


Relationship EU-Ukraine

Major tendencies                                                                                Trade ЕU-Ukraine, 2005

 1       High probability of achieving the Free Trade Agreement after Ukraine joins                            USD 13,2 bn     USD 10,2 bn
         WTO
 2       High probability of improving visa regime for the Ukrainians                           Other goods
                                                                                                                                             Other goods
 3       Ukrainian lobby in the EU (Poland, Sweden, Great Britain)
                                                                                                                       Investments
         Plans of accepting the EU standards and laws in Ukraine                                Paper
 4                                                                                                                                           Textiles
                                                                                                Services
                                                                                                                                             Transportation
                                                                                                Autos                                        services
Share in FDI 1)                 47%              50%             43%       52%    54%    72%    Products of
                                                                                                chemical industry                            Minerals

                                                                                                                     Raw materials
                                                                                                Machines and
The EU                                                                                          facilities                                   Metals
investments in
Ukraine
[bn USD]                                                                                                        Import into    Export to
                                2000             2001            2002      2003   2004   2005                  Ukraine from   Ukraine from
                                                                                                                  the EU         the ЕU
     1) Direct foreign investments
     Source: State committee of statistics of Ukraine, Steinberg Capital                                                 SC_MASTER_GALT&TAGGART            45
RUSSIA



Russia is the largest sales market for Ukrainian goods and also a
considerable investor


Relations Ukraine-Russia
% from the total                                                                                                Tendencies
                            24% 42%                  19% 38%               18% 42%                22% 36%
amount
                                                                                                                • Decrease in the share of the Russian capital in FDI
                                                                                                                • Legal obstacles for some Ukrainian goods exported
                                                                                                                   to Russia force the Ukrainians to search for new
                                                                                                                   sales markets
                                                                                                                • Tensions in relations (e.g. gas crisis in 2005)
Ukrainian-
Russian trade
[bn USD]

     - Import of Russian goods and services                   - Export of Ukrainian goods and services


                                                                                                                Comments
Share in FDI                 7%               7%             6%             6%              8%           5%
                                                                                                                • Russian businessmen have been recently exploring
                                                                                                                   the following industries in Ukraine:
                                                                                                                   - consumer goods
Russian                                                                                                            - trade
investments in                                                                                                     - banking
Ukraine,                                                                                                           - non-ferrous metallurgy
2000-2005
[bn USD]
                            2000              2001           2002          2003            2004          2005

  Source: State committee of statistics, Steinberg Capital                                                                                SC_MASTER_GALT&TAGGART        46
2    ATTRACTIVE INDUSTRIES



Investments from the EU come to the consumer goods industry and services,
from Russia – to the heavy industry

Overview of the shares of foreign investors in the industries of Ukraine1)

                                                                                                    Investments from the EU:
     The EU investors control over 80%
                                                                                                    • Consumer goods – know-how of work with the consumer
• Tabacco industry                          • Household chemicals and cosmetics
                                                                                                    • Industries with the high penetration rate – resources
• Beer manufacture

                                                                                                                                               Investments from Russia:
     The EU investors control from 20% to 80%                                                         Russia and the EU control                • Heavy industry – the investors are
• Ferrous metallurgy          • Construction materials         • Oil manufacture                      from 20% to 80%:                             the leaders of the world market
• Fertilizers industry            production                   • Fixed telephony                                                               • Communications – work experience
                              • Banking sector                                                       • Dairy products
• Retail                                                                                                                                           within the industry in Russia
                              • Automotive                                                           • Engineered products
                              • Building



     Control over Ukrainian capital more than 80%                                                     Investors from Russia control              Russian investors control over
                                                                                                      from 20% to 80%                            80%
State property                Private property
• Power production            • Ironstone extraction           • Grains                               • TV and the press                         • non-ferrous metallurgy
• Coal extraction             • Pharmaceutics                  • Confectionary industry                                                          • Petroleum refining
• Oil and gas extraction      • Sugar industry                 • Мeat industry                                                                   • Mobile telephony
• Post                        • Paper industry                 • Industry alcoholic products
• Railway



 1) Based on the costs of the produced goods, or on the market share of the services of the company with the foreign investments more than 50% from the capital
 Source: Steinberg Capital                                                                                                                      SC_MASTER_GALT&TAGGART            47
2   ATTRACTIVE INDUSTRIES



          Investors are mostly interested in the industries with the highest market
          capacity and growth
          Growth speed and market capacities of the industries of Ukraine

Market capacity
in 2006                                                                          Ferrous metallurgy                   Retail
                    from 10, very 




[USD bn]                                                                         (Power industry)1)                   Banking sector
                      attractive




                                      Grains                                     Construction, Pharmaceutics          Engineered goods
                                      Dairy industry                             Мeat industry                        Automotive
                                      Fertilizers industry                       Railway transportations              Sugar manufacture
                    from 1 to 10,
                      attractive




                                      Fixed communication                        Ore, oil, and gas extraction         Industry of alcoholic products
                                      Confectionary industry                     Construction material                Oils manufacture
                                      Coil extraction                            Paper industry
                    Non-attractive




                                      Textile industry                           Juices manufacture                   Cable TV
                      Before 1,




                                                                                                                                                       Market turnover
                                      Bun goods manufacture                      Woodwork industry                    Internet-providers                  growth in
                                      Post                                                                                                                2006 [%]


                                         Up to 5%, non-attractive                         from 5 tо 20%, attractive            from 20%, very attractive

           1) Current state monopoly, privatization is possible in the medium term perspective
           Source: State committee of statistics of Ukraine, Steinberg Capital                                                             SC_MASTER_GALT&TAGGART        48
2    ATTRACTIVE INDUSTRIES



Therefore, the investments in the following industries are the most
probable

The most attractive industries for FDI1)


                                              Very attractive industries
Investors                                    •  Ferrous
                                             I                               •  Banking sector
                                                                             II                                  III Retail
                                                                                                                  •                                  Investors
                                                metallurgy
  from EU                                                                                                                                              from
                                                                                                                                                       Russia
                                             Attractive industries
Industries with the                          •  Power production                            •  Sugar manufacture                                      Industries with the high
high participation level                                                                                                                              participation level of
of European investors
                                             •  Аutomotive                                  •  Oil manufacture                                        Russian investors
                                             •  Engineered products


• Household chemicals and                                                                                                                            • Non-ferrous metallurgy
    cosmetics                                                                                                                                        • Petroleum refining
• Тobacco industry                                                                                                                                   • Mobile telephony




  1) Alcohol beverages production is not considered due to the strong position of Ukrainian producers, including Russian and world markets. These companies invest into business already now.
  Source: Roland Berger                                                                                                                           SC_MASTER_GALT&TAGGART                  49
2   ATTRACTIVE INDUSTRIES: II. BANKING SECTOR



    Banks are rapidly growing. High fragmentation level serves as a
    precondition for consolidation processes in the future


    Major actors of the banking sector
     General cost of the bank assets [USD bn]                                  Assets of the Top-10 banks, 2006(3 Q) [USD bn]

                                                                                                                           Assets share
Bank assets as      25%              30%      46%    34%   45%          77%.
% of GDP                                                                                                                          10%
                   CEE1) Ø                           78%   79%
                                                                                                                                  9%
                                                                                                                                  6%
      CAGR                                    +31%               +26%
                                                                                                                                  6%
                                                                        130
                                                                                                                                  6%
                                                                                                                                  5%
                                                                                                                                  3%
                                                           42                                                                     3%
                                               23    21                                                                           3%
                        14               16
                                                                                                                                  2%
                                                                                                                                  46%
                                                                  Forecast                  - banks with Ukrainian capital
     1) Central and Eastern Europe                                                          - banks with the share of foreign capital
      Source: National Bank of Ukraine                                                                      SC_MASTER_GALT&TAGGART        50
2     ATTRACTIVE INDUSTRIES: III. RETAIL



   Sales networks demonstrate quick growth; 2 Western networks on the
   market; new actors are expected

   The rating of the retail networks in Ukraine and the possible new actors
                                                                                                                      The networks, entering the
                                                                                                                      market

Growth       71%             75%             78%             45%            106%   50%   54%   38%     48%   50%
speed,
2005-20
06. [%]


                                                                                                                      Networks considering
                                                                                                                      entering the market




                                         Metro C&C                                             BILLA

             2005                  2006

         Metro C&C
                   - Networks with the foreign capital
         BILLA
     Source: the press, companies’ information, estimations by Steinberg Capital                               SC_MASTER_GALT&TAGGART        51
3    MEASURES ON STATE LEVEL



To improve investment attractiveness of the country the government should
work in the following 5 spheres

Major aspects on macro level (state)
Attention focus                     Directions


                                    Power saving, exploration of the alternative power sources, search
 1     Power policy
                                    for alternative power suppliers

                                    Cutting-off bureaucracy, simplifying the relationship processes with
 2     Liberalization               business, removing contradictions in the laws

                                    Stimulation of the internal investments, solving the problems with
 3     Taxation
                                    VAT compensations, decreasing taxes

                                    Solving the problems with the quotes and antidumping, getting closer
 4     External economical policy
                                    to the European markets

                                    Preparation of the enterprises to privatization (restructuring, etc.),
 5     Privatization                transparency of the tenders, fulfilling plans by the investors




 Source: Steinberg Capital                                                          SC_MASTER_GALT&TAGGART   52
4    MEASURES ON THE BUSINESS LEVEL



The enterprises aiming at attracting the investors should be prepared to the
changes

Major aspects on micro-level (enterprises)
Attention focus                       Directions


                                      Ownership structure, organizational structure, reporting procedure
 1     Transparency
                                      and the system of informing the management

                                      Clear strategy of business development, implementation of the
 2     Development strategy           modern management methods


 3     Investments                    Readiness to invest own assets into business development


                                      Development of the employees motivation methods, development and
 4     Personnel
                                      learning, options of carrer growth

                                      Openness to innovations, orientation to the consumer, development
 5     Innovations                    of new products, entering the new markets




 Source: Steinberg Capital                                                        SC_MASTER_GALT&TAGGART   53
SC_MASTER_GALT&TAGGART   54

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Sc Master Retrospect

  • 1. In retrospect - Investment Proposal Reference Material Author Johan Werbrouck: Managing Partner Steinberg Capital Management S.A. Steinberg Capital SICAR S.C.A. SC_MASTER_GALT&TAGGART 1
  • 2. AGENDA Steinberg Capital’s SICAR S.C.A. and its Management Company Steinberg Capital Management S.A. wish to engage in a strategic Partnership Agreement. A. The decision about opening a SICAR for Ukraine was taken due to five preconditions B. Executive Summary Steinberg Capital SICAR SCA C. Development perspectives of Ukrainian economy – between European Union and Russia SC_MASTER_GALT&TAGGART 2
  • 3. A. The decision about opening a SICAR for Ukraine was taken due to five preconditions SC_MASTER_GALT&TAGGART 3
  • 4. The decision about opening a SICAR for Ukraine was taken due to five preconditions Preconditions for launching a SICAR for Ukraine 1 Ukraine is one of the largest European countries with the huge potential 2 Stability of macroeconomic situation Launch of Steinberg 3 Economical growth and positive development forecast Capital SICAR S.C.A. in July 2007. 4 Flow-in of foreign investments into national economics 5 Inefficiencies available for high IRR’s SC_MASTER_GALT&TAGGART 4
  • 5. 1 ONE OF THE BIGGEST EUROPEAN COUNTRIES Ukraine is one of the biggest European countries with the huge development potential Ukraine within the European context Top-10 European countries, GDP1) in 2006 [bn USD] and forecast of GDP area [thousand km2] Population [m people] annual growth for 2007-2011 Russia Russia Germany 1,9% Ukraine Germany Great Britain 2,3% France France France 2,0% Spain England Italy 1,4% Sweden Italy Russia 4,8% Germany Ukraine Spain 2,3% Finland Spain Poland 4,3% Norway Poland Netherlands 2,8% Poland Romania Ukraine 6,0% Italy Netherlands Belgium 2,1% 1) GDP is calculated according to purchase capability Source: CIA SC_MASTER_GALT&TAGGART 5
  • 6. 2 ECONOMICAL STABILIZATION Improvement of all the major macroeconomic indicators, and GDP tripled in 7 years Ukrainian economics – major indicators, from 2000 till 2006/2007(forecast)1) 2000 Δ 6 years 2006 2007 Nominal GDP [bn USD] 31 x 3,2 >100 106 Inflation rate 25,8% x 2,2 11,6% 10,7% Budget balance +0,6% -2,4% -1,8% -2,0% [% from GDP] Foreign-exchange reserves [bn USD] 1,5 x 15 22,2 25,0 Foreign trade [bn USD] 30,4 x3 81,4 90,0 Direct foreign investments [bn 0,6 x 7,5 4,5 5,2 USD] Direct foreign investments [ % 1,9% x2 4,5% 4,9% from GDP] 1) Some data from 2006 are preliminary, the data for 2007 forecasted Sources: EIU, National Bank of Ukraine,State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 6
  • 7. 3 POSITIVE DEVELOPMENT FORECAST According to forecasts, high growth speed of economics will be preserved Маcroeconomics: dynamics and forecast Annual GDP growth, 2000-2011 (forecast) [%] •  Financial and budget discipline •  Growth of Ukrainian economics and demand Inflation, 2000-2011 (forecast) [%] •  Increasing income from the tax charges to the budgets •  Growth of investment activity Sources: EIU, National Bank of Ukraine,State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 7
  • 8. 4 FOREIGN INVESTMENT FLOW-IN Starting from 2004 – intensive flow-in of foreign investments into the economics of the state Overview of investment activity Growth of investments in Ukraine, [bn USD] Foreign investments growth in 5 largest regions, 2005 [%] CAGR1): 32% Kyiv region 4% х 2,3 Kyiv 22% 20,6 Orange Revolution 16,4 Kyiv Kharkov 9,0 Dnepropetrovsk 6,8 Donetsk 5,5 4,6 Odessa 3,9 Odessa region 4% Donetsk region 4% Dnepropetrovsk region 10,5% 1) Cumulative annual growth Source: State committee of statistics, Steinberg Capital SC_MASTER_GALT&TAGGART 8
  • 9. 5 Inefficiencies present Three inefficiencies are going to be present for the next 5-7 years. Triple Inefficiencies in Ukraine – Private Equity •  riple effect possible: Triple inefficiency play T o Market inefficiency: Low acquisition multiples (1-4) o Business inefficiency: Easy to add value (Full Potential Plans) o Economy inefficiency: Ride the wave of macroeconomic expansion, which will aid both business expansion and exit multiples (7-9) SC_MASTER_GALT&TAGGART 9
  • 10. Opportunities. Sub-prime Crisis is Opportunity •  urrent market crisis is an opportunity for PE in Ukraine, not a threat C -Current turmoil on financial markets is induced by increasing defaults of sub-prime mortgage loans in USA and, consequently, a re-pricing of risk across the board -Victims of volatility are: >hedge funds and bank conduits as they deprived of their short-terrm financing and forced to fire-sell high quality paper at heavily discounted prices >private equity operating in mature markets as easy and agressive financing will be very hard to obtain in the short term >some merchant banks engaged in agressive buy-out operations which will be unable to syndicate their debt underwritings - This crisis is, as a matter of fact, good news for Steinberg Capital's investors >there is no economic link with the crisis "originator" (sub-prime) >our buy-out activity will not suffer as limited leverage is expected to be used >no liquidity crisis to be expected as western banks are still in a buying spreee in Ukraine >equity multiples are expected to go down, at least on the short term >investors could benefit from a strong diversification opportunity in a low-debt environment SC_MASTER_GALT&TAGGART 10
  • 11. B. Executive Summary Investment Proposal of the SICAR towards Limited Partners SC_MASTER_GALT&TAGGART 11
  • 12. Executive Summary. Steinberg Capital’s SICAR S.C.A. Investment proposal in Ukraine ambitions for its investors a 30-35% net IRR%/year. • Steinberg Capital targets 35%/year whilst leveraging three inefficiencies present in Ukraine, unexisting elsewhere in Europe and US - Market inefficiency: Low acquisition multiples (1-4 X EBITDA entry multiples – proprietary dealflow) - Business inefficiency: Easy to add value (organisational, financial, operational, strategic) - Economy inefficiency: Ride the wave of macroeconomic expansion (7-9% GDP growth), which will aid both business expansion and exit multiples (6-8) • 150-200 Mio $ will be invested in Ukraine for the next 2,5 years in 7-9 mid sized companies and prepared for exit to strategic investors • The Track record of Steinberg Capital combines the strength of western professionals with a local partner - Western professionals: BC partners, Industrikapital, 3i, BAIN & Co, McKinsey, GE Capital, BASF, GE, E-on Fortis Private Equity, Roland Berger, AT Kearny, Deloitte • Strong Governance mechanisms and deep due dilligence lowers risks for investors - Luxemburg registered SICAR: Only SICAR for Ukraine, authorised by the Luxemburg authorities - majority Control Share blocks are transformed into Special Purpose Vehicals and fall under Luxemburg law - Investee companies are bought with controlling ownership and a controlling seat in the board (general partner role) - The investment thesis, due dilligence and exit are supported by an active and captive advisory board with strong track record - Due Dilligence is contracted with local advisors - Sal. Oppenheim is the custodian and administratorof the accounts in Luxemburg - Arendt&Medernach is the law firm contracted by Steinberg Capital for the legal and fiscal part •  Existing Dealflow supports the underlying fundamentals in terms of disciplined investment process • 18 Mio $ commitment with signed contracts on the Sal. Oppenheim held share register • First Engagement letters(LOI) are signed with 4 belgian groups: in the area of OTC, agrobusiness (2) as potential co-investors SC_MASTER_GALT&TAGGART 12
  • 13. In the next 10 years, Emerging Markets Private Equity will provide a unique opportunity to achieve superior returns Why Ukraine   rolonged period of significant economic recovery and growth expected P   cquisition multiples of 1-4 times EBITDA are possible in the region A   xit multiples in 5 years should approach current Western European E multiples of 6-10 times EBITDA   ragmented industries with abundance of complementary acquisition F opportunities   perating improvements can have high leverage in increasing company O value   he Ukraine is exhibiting exceptionally high growth year to year T   onstantly improving legal and business environment C   rrival of Western and Russian strategic investors is expected to accelerate A post WTO accession increasing exit opportunities for the Fund. SC_MASTER_GALT&TAGGART 13
  • 14. In the next 10 years, Emerging Markets Private Equity will provide a unique opportunity to achieve superior returns Triple Inefficiencies in Ukraine – Private Equity •  riple effect possible: Triple inefficiency play T o Market inefficiency: Low acquisition multiples (1-4) o Business inefficiency: Easy to add value (Full Potential Plans) o Economy inefficiency: Ride the wave of macroeconomic expansion, which will aid both business expansion and exit multiples (7-9) SC_MASTER_GALT&TAGGART 14
  • 15. Fund Thesis: Positioning Inside Ukraine Sweet Spot: •  Controlling Ownership Buyout •  High end Mid Control Cap (> 51%) •  Strong Management •  Criticall mass •  Exit options Buyout •  Value Creation Minority opportunity Ownership Co- Model Investment Majority (< 51%) Growth Financing Small to medium cap Medium to large cap Sweetspot Steinberg Capital 1-5 Mio $ 5-15 Mio $ 15-30 Mio $ No particular focus, Captive Funds, US government focus, No exit enforcement Equity Value SC_MASTER_GALT&TAGGART 15 •  … •  … •  …
  • 16. As a Buyout Fund, Steinberg Capital is modelled after Bain Capital, with emphasis on due dilligence and active value creation Controlling Investment Due Value Ownership Thesis Dilligence Creation • Insight in • Commercial • A superior end game • Legal insight in Steinberg analysis and • Financial profit and • Financial Engineering Capital clearly “Industry • Shareholder value drivers positioned Concept” structure for the investee • Fiscal • Leverage of companies Engineering as active Advisory • Mix of former Buyout Fund Board, partners private Investing equity and Chairmen international • Activation of directors at locally based blue chip advisors companies - BAIN & Co • Big picture and Not sustainable •  Full strategic value as differentiator No exit enforcement Potential insights in market Driven • Local Partner: Millennium Capital Value Creation SC_MASTER_GALT&TAGGART 16
  • 17. Total Size of committed capital is set at 150-200 Mio $ till end of year in two more closings. Up till now 20 Mio $ has been confirmed and signed as for the first closing. Segments HNWI’s, UHNWI’s, Omnibus Seggregated NGO’s: EBRD Institutionals: Hedge Single & Multiple family Offices Accounts OPIC, IFC Funds, FoF, Holdings [Mio. $] 150-200 20-50 • EIB FOR DISCUSSION 55-75 • EBRD FOR DISCUSSION 55 • IFC • OPIC 100% 18-20 FOR DISCUSSION Match: SC_MASTER_GALT&TAGGART 17
  • 18. The initial closing is executed at end of August and has 20 Mio $ commitments as to date from partners, family offices and HNWI’s. Status [Mio. $] Detail / Names / Origin Level of committment2) Closure Segment 20-25 •  Industrial Holding 3-7 •  N.A. 75% •  Belgium •  RE exp. CEE 1 •  Additional Eur. Private investors 100% •  Industrials – Flanders •  Investing chairmen 2 100% •  Family Offices •  Family Offices 2 •  Steinberg Capital Partners1) 100% •  Founder & partners •  HNWI’s •  "Investors of the first 100% hour„ 15 •  Entrepreneurs/cashed in (BBoom G.)/Sell.M Remarks: Campaign towards First Closing is lined up (Family offices US/EU), Omnibus Seggregated Accounts, UHNWI Success rate: 70%; driver is pre-qualification and introductions of first investors to personal contacts Ø ticket: 1,3 Mio. $ SC_MASTER_GALT&TAGGART 18
  • 19. Investment Proposal Steinberg Capital SICAR ambitions for its investors a yearly 35% IRR with a fiscal neutral basis. The team tilts the risk/reward curve towards the lower risk zone Risk Key Drivers in optimising Risk/ Return High A. Legal Structure: SICAR & SPV’s - Luxemburg B. Governance Structures o Controlling Ownership: enforce exit o Controlling Seat in the Board/target Company Medium o Management Buy In & Alignment: - Envy ratio - Variable Compensation Plan C. Investment Process: o Western Discipline/IC/FIM/PIM o Advisory Board Low o Local Advisors: Deep Due Dilligence D. Active Value Creation: Full Potential Plan E. Exit thesis based on Industry Concepts F. Co-Investors/Western Origin 15% 25% 35% Return (increased by working with three inefficiencies) SC_MASTER_GALT&TAGGART 19
  • 20. The Legal Structures are designed by Luxemburg based Arendt & Medernach. Sal. Oppenheim is Custodian, E&Y Auditor. Advisory Company Luxemburg 2 Oppenheim Pramerica 1 General Partner 20-30 Limited partners Domicile Steinberg Sicar Luxemburg Central Administration Registrar 5 SPV SPV 4 6 Invested Invested Invested Invested Invested Invested Sal. Oppenheim Company Company Company Company Company Company Custody 7 3 1  Instruction on drawdowns 2  Sending out of drawdown notices 3  Collection of monies under the respect of AML en KYC rules 4  Notification & reconciliation of the Sicar's investments 5  Investment decision on transmission of documents on SVP's and properties 6  Notification & reconciliation of the Sicar's investments 7  Check on duty acquisitions & payments SC_MASTER_GALT&TAGGART 20
  • 21. The Investment process 1 Business 2 Partner 3 Weekly 4 PIM (1) 5 Investment 6 FIM 7 IC II 8 IC III Proposals Screening: Partner Committe I J.W. Meeting (IC) Budget Approval Pre due Full due Conditions 1 Pager Decision Allocation: to be •  Company •  Expenses> $5000 dilligence dilligence Investment Criteria: renegotiated: •  Business •  Work > 5 days • Valuation •  Financials •  arket Attract. M Decision: •  ompany Attract. C Go/No Go • Terms •  Valuation •  eal Structure Attr. D •  alue Add Potential V Iterative Process Pre Selection •  Input Advisory Board/Experts Activation of Consultants •  BAIN & Co •  E&Y •  Boutique Experts (1) PIM: Private Investment Memorandum (2) FIM: Final Investment Memorandum SC_MASTER_GALT&TAGGART 21
  • 22. Steinberg Capital is focussing on a limited number of industries for creating value. Industry Selected Targeted Key-Investment Sub-Sectors Considerations Food Processing and •  Farming •  Rising disposal income Agri-culture •  Meat processing •  Low investment in sector to date •  Milk processing •  Generally under-managed businesses •  Food ingredients •  Low valuations •  Bakery •  Strong interest for restructured and well-capitalized businesses from strategy players in Europe Basic industries •  Light manufacturing •  Long term growth in real estate and construction •  Building materials •  Market fragmentation and aggregates •  Opportunities for import substitution •  Power equipment •  Outsourcing of manufacturing processes from Europe Financial Services •  Insurance •  Consumers demand broader product offering •  Consumer Credit •  Unexploited market niches •  Leasing •  Limited access to capital for local companies creates an opportunity for leasing services •  Strong interest from potential strategic investors Technology, media •  Publishing •  Well-managed middle-market targets and telecommuni- •  Mass media •  Fragmented markets cations Consumer products •  Fastfood restaurants •  Regional niches and services •  Retail •  Consolidation opportunities •  Significant value creation potential through expanding product offering and distribution SC_MASTER_GALT&TAGGART 22
  • 23. Critical Success Factor: Investment Thesis & Control Management Investment Thesis & Commercial Due Dilligence Analysis Industry concept/ End Game Is the Market attractive? Is the Company attractive? Is the Deal Structure attractive? Can we add susbstantial Value? GO NO GO NO GO NO GO NO GO Industry Selection Exit Thesis: IRR: >35% Full Potential Plan •  Size •  Criticall mass Co-Investors •  Advisory Board •  Segments •  Consolidation Mezzanine Finance •  External Advisors •  Growth & Growth drivers •  Management/Scalability Legal •  > Strategic Full Potential •  Value Chain Integration •  Stable Free Cash Flow •  > Financial Full Potential •  Key Success Factors •  Controlling Ownership •  > Operational Full Potential •  Profit Drivers (Rev/Cost) •  > Organisational Full Potential •  End Game Analysis SC_MASTER_GALT&TAGGART 23
  • 24. The current dealflow is multi-sourced (open architecture) and flanked by advisors and industry experts. Post Acquisition Deal Sourcing Due Dilligence Deal Structuring Exit Value Improvement Entry Value Creation Key sources Key success factors Name Sector Size [Mio. $]2) Fit1) •  Third party advisors •  Arm's length •  Fast food systems Franchise Food N.A. –  Legal advisors •  Patronage deals •  UPG Food Processing –  Management •  Comission based deals •  Univest Print Printing consultants •  Exclusivity •  Energy (Co/ Renewable Energy -  BAIN & Co. Morgan Stanley) -  Roland Berger •  OTC: -  PWC/E&Y •  Retail OTC: pot. Co-Inv -  Deloitte •  Financial Services Retail –  Banks •  Juices/Drinks Financial Services -  Credit Suisse •  Investment Criteria •  Intercable Consumer Goods First Boston •  Sweetspot debriefing Construction -  Dragon Capital •  Exit Focus Materials -  Forum •  Investment Thesis •  Valuation •  Company Dealflow •  Roadshow regions •  Holding contacts 1) Subject to investment committee, advisory board, due dilligence process (market, company, deal attractiveness) 2) Subject to further due dilligence SC_MASTER_GALT&TAGGART 24
  • 25. 1 2 3 Transaction Focus: Investee Company Selection Criteria •  Experienced, committed management team with proven track record in its sector •  Evidence of company’s potential to become a market leader •  Growth dynamics and strong potential for expansion •  Privately owned and unlisted •  Cash positive or break-even, with clear revenue models •  Clear exit strategy within 3-5 years •  Committed to financial transparency •  Low political risk and no affiliation with shadowy business structures •  Average equity investment required: $15-25m •  Geographical location: Ukraine •  Cut-off project IRR level – 35% Source: Johan Werbrouck, Chairman Steinberg Capital SC_MASTER_GALT&TAGGART 25
  • 26. Exits can be multiple Exit Routes • Strategic Investors: Multinational companies from Western Europe, USA, Asia and Latin America • Russian and former Soviet block businesses, which are expanding in the region • Local business people • Management buyouts • Secondary Buyouts • IPO’s in the West or in the region • Additional factors aiding exits in the next 5 years: o  ocal pension fund industry is developing fast L o  ocal mutual fund industry is being born L o  everaged buyouts will be coming L Source: UNECE, Economic Survey of Europe, 2005; CIA World Factbook 2005 SC_MASTER_GALT&TAGGART 26
  • 27. Steinberg Capital - Appendix – Key Persons involved Investment Committee members, Partners & Advsiory Board
  • 28. CV – Partners Steinberg Capital Werner Claes Mr. Claes was the former Executive Director Global Private Equity Fortis Bank with the following responsibilities: - Mezzanine Finance - Private Equity in Central and Eastern Europe - Membership of all important investment committees of Fortis Bank - Director of various investee companies. Prior to this role he was Director Central Risk Management, Fortis Group, and Director International Credits. Other responsibilities included: -  resident of Credit Council of ALCO-FUIB (First Ukrainian International Bank) P -  oard Member of Fortis Bank Polska B -Board member of Czech Ventures -Due Diligence Team leader in all emerging market exercises Fortis Bank. Werner has university degrees in interpreting Dutch-French-Russian, has a Post- Universitary Degree in Business Economics (Vlekho), and two Masters in Financial Management and Accountancy. SC_MASTER_GALT&TAGGART 28
  • 29. CV – Partners Steinberg Capital Hans M.C. Vanoorbeek Mr. Vanoorbeek has more than 10 years in the private equity industry and a strong direct track record in private equity and buyouts as former Partner at Industrikapital Ltd and BC partners since 1995. At Industri Kapital Ltd he established a large network of investment bankers, M&A intermediaries, accountants, consultants and lawyers in London and the Benelux. This combined with an already existing network has ledto the generation of a proprietary deal flow (approximately generated 35 proprietary deals in the Benelux and eight outside the Benelux). He participated in approximately 50 auctions (whereof approx. 25 second rounds) and 12 exclusive deals (whereof 6 very intensive). Prior working experience can be found at Goldman Sachs and KPMG. He is co-investor and entrepreneur in two companies in Belgium. Mr. Vanoorbeek is a MBA graduate of Harvard Business School, and has earned a masters in law and economics of the Catholic University of Leuven. SC_MASTER_GALT&TAGGART 29
  • 30. CV – Partners Steinberg Capital Johan J.G. Werbrouck: Founder & Managing Partner Mr. Werbrouck started his corporate career at BASF AG and rotated into international business development and corporate development functions in Germany (HQ), France and Belgium. Afterwards he joined Roland Berger in Duesseldorf and advised german clients out of the Group Wide Chemical Competence Center He joined BAIN&Company to work on private equity related advisory and bancinsurance related strategic assignments. Overall, he worked mainly in the areas of commercial due Diligence, valuation and full potential plans. Afterwards he joined GE in Italy at Executive level to spearhead the European Services Council. This was done through selection of best practices across the 12 industrial business units of GE, both in long and short cycle businesses. He rotated as Vice President Europe to GE Capital Commercial Finance (Asset Based Lending) out of the UK, where he headed a pan-European team of 8 professionals in 6 countries From 2001 to 2003 he was a Group Director at Viterra Energy Services, a division of E-On AG, and was responsible for the restructuring of the Six Sigma program in 28 countries, whilst trimming the company and designing the growth story with the Board to a successful exit at the end of 2003 to CVC Germany. The division was sold at a 10 X EBITDA multiple for 1 Billion Euro. In the beginning of 2004 he created Mercurius Group Ltd as platform to position Steinberg Capital and was the only financier in setting up the operations of Steinberg Capital. He is trained as Commercial Engineer at the Catholic University Leuven and has obtained a MBA at the Vlerick School for Management in 1991-1992. SC_MASTER_GALT&TAGGART 30
  • 31. The Investment process/Post Acquisition Value add Full Potential Program Financial Full Potential Operational Potential Organizational Full Potential Strategic Full Potential • Manage Balance Sheet • Manage Assets • Build processes • Define visions and missions - Sell non-required assets - Utilize capacities - Identify core processes • Inject growth initiatives - Use off-balance sheet financing - Focus/consolidate operations - Define process owner - Core (products, regions, channels, Customers) - Outsource non-core activities - Redesign processes - adjacencies • Optimize financial structure - Find the optimal mix • Manage Costs • Build structure debt/mezzanine/equity • Make add-on acquisitions - Optimize purchasing - Form homogenous operating units short-/long-term - screening - Increase effiency of direct labor - Define corporate center and corporate - Reduce working capital services - Evaluation of targets - Optimize sales force efficieny and - Optimize cash management G&A efficiency - Transaction support - Streamline/consolidate R&D • Build systems • Review tax/legal strucure - Integrate planning, reporting • Build exit story • Manage Sales - Develop new incentive schemes - Develop and communicate „success story“ - Identify areas of under-penetration, - Establish performance standards cross selling opportunities - Prepare business plan - Compare internally, external - Conduct sales emergency programm - Perform sales enhencement • Build Management Team programs - Shared vision, values of core management - Develop high potentials 31
  • 32. Additional PE track record Introduction to the Advisory Board The management team’s expertise will be further supported by an active, fi rst class Advisory Board created within Steinberg Capital Management, whose members have significant experience in building shareholder value in both Ukrainian and interna- tional companies. In addition, each international Board member has a first-hand experience in the private equity field. Board members are asked to contribute actively across the Steinberg Capital value chain, utilizing their core strengths and in-depth knowledge to help the Company realize successful investments. The Advisory Board meets formally 4 times per year and will be contacted on an ad-hoc basis deal-by- deal. The following individuals have agreed and already participate on the Advisory Board: SC_MASTER_GALT&TAGGART 32
  • 33. 1 2 3 Investment Process: Role Advisory Board Advisory Board: • Industry Know How Pre-Investment Check- Due DilligenceReport Due Dilligence • Networks list & Risk ratings Report • Business Judgment Deal Origination Initial Screening Detailed Due Investment Deal Origination Pre-Investment Dilligence Committee Approval Committee Investment Execution of Reallisation and Transaction Management Exit Exit The Advisory Board meets formally 4 times per year. In addition, on a ad-hoc basis, they are send an investment summary of the deals at the pre-Investment committee stage. Leveraging networks, industry know how and/or deal attractiveness judgment are part of their role. SC_MASTER_GALT&TAGGART 33
  • 34. CV – Advisory Board Partners Jean Cristophe Laloux: Luxemburg Mr. Laloux is a Director of Private Equity for Southeast Europe at European Investment Bank, based in Luxemburg. Prior to this responsibility, he was the direct advisor of the EIB President, Mr. Maystadt. He was a former Boston Consulting Group consultant. His contribution to Steinberg Capital is defined at fund level where corporate governance best practices will be exchanged. At present, his director assignment at the European investment Bank, based out of Luxemburg brings him in the Board Seat positions of EIB backed private equity funds. Mr. Laloux has obtained his MBA at Kellog/Chicago. Prior to this, he earned a masters degree in Commercial engineering at the Catholic University Leuven and a postgraduate management at the Vlerick School of Management. SC_MASTER_GALT&TAGGART 34
  • 35. Steinberg Capital in Ukraine: constant presence and international structure of investment teams The only private equity fund solely focussed among the current players on buyouts Team of partners with a local operational experience, contacts and infrastructure A team of international partners with top track record In private equity and active value creation for investee companies and portfolio management Target net IRR per year of 30-35% for investors. SC_MASTER_GALT&TAGGART 35
  • 36. Private Equity - Appendix – - Market Size in Ukraine: Private Equity Committed Capital - Multiples versus Local Multiples (proprietary dealflow SC) - Best performing Asset Class
  • 37. Private Equity Landscape in Ukraine In the course of the next years, private equity will increase its total committed capital. Current committed capital as % of GDP is still in the initial stage as opposed to CEE. [Mio $] SC_MASTER_GALT&TAGGART 37
  • 38. U.S. buy-out industry Increasing amount of ... chasing fewer deals... ... means higher purchase investment capital ... multiples LBO Dollars Raised Number of LBO/Merchant Bank Purchase Multiples Deals $28,987M 277 $30,000 300 10.0 275 270 $22,600M 255 8.6 248 245 $25,000 250 $18,431M 8.0 7.0 7.1 Number of Deals Closed 6.5 $20,000 200 EBIT Multiples 6.0 5.4 $11,612M $15,000 150 4.0 $5,905M $5,174M $10,000 100 2.0 $5,000 50 $0 0 0.0 1992 1993 1994 1995 1996 1997 1992 1993 1994 1995 1996 1997 1993 '2/95 '2/96 '2/97 2/98 Sources: BUYOUTS Newsletter; 1997 Buyouts Yearbook SC_MASTER_GALT&TAGGART 38
  • 39. Industries with high growth rates (e.g. telecom) will command higher purchase multiples relative to mature or volatile industries Purchase Multiples by Industry (1997) Buyout Purchase EBITDA Multiples (1997) 13 10.9 10 8.1 7.4 7.5 7.1 Buyout Purchase Price 8 7.0 6.9 7.0 6.8 (EBITDA Multiples) 6.5 5.9 6.0 5.4 5 3 0 Auto- Chemi- Tech- Food & Forest General Health- Home Publi- Retailing Services Telecom Textiles motive cals nology Beverage Products Indus- care Furni- shing tries shing Sources: BancAmerica Robertson Stephens, Portfolio Management Data LLC SC_MASTER_GALT&TAGGART 39
  • 40. Private Equity at 14% of total portfolio among UHNWI and HNWI’s (Source Merrill Lynch) SC_MASTER_GALT&TAGGART 40
  • 41. C. Development perspectives of Ukrainian economy – between European Union and Russia SC_MASTER_GALT&TAGGART 41
  • 42. Economy of the country attracts investors, but a range of measures on macro- and micro- levels is necessary Attractiveness of Ukraine for investors: brief overview •  1 Ukraine – economics with investment 2•  A rangeof economical industries will attract potential for EU and Russia: particular attention of the investors: -  High speed of economical growth -  Ferrous metallurgy -  Capacious internal market -  Banking sector -  Position between EU and Russia -  Retail -  Low production costs •  3 For increasing the attractiveness of the 4•  For increasing attractiveness of business, a country, a range of state measures is range of measures in the 5 key spheres is necessary in the 5 key spheres: necessary: -  Power sector -  Transparency -  Liberalization -  Clear development strategy -  Taxation -  Investments -  External-economic policy -  Personnel -  Privatization -  Innovations Source: Steinberg Capital SC_MASTER_GALT&TAGGART 42
  • 43. 1 INVESTMENT POTENTIAL Ukraine offers a range of advantages to the investors – speedy growth, capacious market, low costs, etc. Ukrainian GDP pro capita in the context of developing countries Forecast of average annual GDP growth for 2007-2011 for some growing economies [%] Comments •  Ukraine has one of the quickest China growing economies in the world, and Ukraine is one of the largest countries in Europe. This combination tells about Тurkey economical potential •  Capacious internal market for ЕU Russia and Russia •  Advantageous capacities for locating Romania a range of industries (raw materials, Тhailand low costs) Mexico Brasil Sources:: EIU, Steinberg Capital SC_MASTER_GALT&TAGGART 43
  • 44. 1 INVESTMENT POTENTIAL Ukrainian economics will be particularly attractive for the investors from EU and Russia Ukraine: location between Russia and European Union Attractiveness for EU Attractiveness for Russia •  Capacious sales market, •  Capacious sales market, geographic nearness geographic nearness •  Comparatively stable •  Historical and cultural macroeconomic Russia closeness development •  Existing links between •  Low costs of inputs (e.g. capital and external EU raw materials, personnel) relations •  Political course oriented •  Relative confidence in for European Union political system Source: Roland Berger SC_MASTER_GALT&TAGGART 44
  • 45. EUROPEAN UNION Membership in the EU – priorities in external politics. The EU is still the major economical partner Relationship EU-Ukraine Major tendencies Trade ЕU-Ukraine, 2005 1 High probability of achieving the Free Trade Agreement after Ukraine joins USD 13,2 bn USD 10,2 bn WTO 2 High probability of improving visa regime for the Ukrainians Other goods Other goods 3 Ukrainian lobby in the EU (Poland, Sweden, Great Britain) Investments Plans of accepting the EU standards and laws in Ukraine Paper 4 Textiles Services Transportation Autos services Share in FDI 1) 47% 50% 43% 52% 54% 72% Products of chemical industry Minerals Raw materials Machines and The EU facilities Metals investments in Ukraine [bn USD] Import into Export to 2000 2001 2002 2003 2004 2005 Ukraine from Ukraine from the EU the ЕU 1) Direct foreign investments Source: State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 45
  • 46. RUSSIA Russia is the largest sales market for Ukrainian goods and also a considerable investor Relations Ukraine-Russia % from the total Tendencies 24% 42% 19% 38% 18% 42% 22% 36% amount • Decrease in the share of the Russian capital in FDI • Legal obstacles for some Ukrainian goods exported to Russia force the Ukrainians to search for new sales markets • Tensions in relations (e.g. gas crisis in 2005) Ukrainian- Russian trade [bn USD] - Import of Russian goods and services - Export of Ukrainian goods and services Comments Share in FDI 7% 7% 6% 6% 8% 5% • Russian businessmen have been recently exploring the following industries in Ukraine: - consumer goods Russian - trade investments in - banking Ukraine, - non-ferrous metallurgy 2000-2005 [bn USD] 2000 2001 2002 2003 2004 2005 Source: State committee of statistics, Steinberg Capital SC_MASTER_GALT&TAGGART 46
  • 47. 2 ATTRACTIVE INDUSTRIES Investments from the EU come to the consumer goods industry and services, from Russia – to the heavy industry Overview of the shares of foreign investors in the industries of Ukraine1) Investments from the EU: The EU investors control over 80% • Consumer goods – know-how of work with the consumer • Tabacco industry • Household chemicals and cosmetics • Industries with the high penetration rate – resources • Beer manufacture Investments from Russia: The EU investors control from 20% to 80% Russia and the EU control • Heavy industry – the investors are • Ferrous metallurgy • Construction materials • Oil manufacture from 20% to 80%: the leaders of the world market • Fertilizers industry production • Fixed telephony • Communications – work experience • Banking sector • Dairy products • Retail within the industry in Russia • Automotive • Engineered products • Building Control over Ukrainian capital more than 80% Investors from Russia control Russian investors control over from 20% to 80% 80% State property Private property • Power production • Ironstone extraction • Grains • TV and the press • non-ferrous metallurgy • Coal extraction • Pharmaceutics • Confectionary industry • Petroleum refining • Oil and gas extraction • Sugar industry • Мeat industry • Mobile telephony • Post • Paper industry • Industry alcoholic products • Railway 1) Based on the costs of the produced goods, or on the market share of the services of the company with the foreign investments more than 50% from the capital Source: Steinberg Capital SC_MASTER_GALT&TAGGART 47
  • 48. 2 ATTRACTIVE INDUSTRIES Investors are mostly interested in the industries with the highest market capacity and growth Growth speed and market capacities of the industries of Ukraine Market capacity in 2006 Ferrous metallurgy Retail from 10, very [USD bn] (Power industry)1) Banking sector attractive Grains Construction, Pharmaceutics Engineered goods Dairy industry Мeat industry Automotive Fertilizers industry Railway transportations Sugar manufacture from 1 to 10, attractive Fixed communication Ore, oil, and gas extraction Industry of alcoholic products Confectionary industry Construction material Oils manufacture Coil extraction Paper industry Non-attractive Textile industry Juices manufacture Cable TV Before 1, Market turnover Bun goods manufacture Woodwork industry Internet-providers growth in Post 2006 [%] Up to 5%, non-attractive from 5 tо 20%, attractive from 20%, very attractive 1) Current state monopoly, privatization is possible in the medium term perspective Source: State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 48
  • 49. 2 ATTRACTIVE INDUSTRIES Therefore, the investments in the following industries are the most probable The most attractive industries for FDI1) Very attractive industries Investors •  Ferrous I •  Banking sector II III Retail •  Investors metallurgy from EU from Russia Attractive industries Industries with the •  Power production •  Sugar manufacture Industries with the high high participation level participation level of of European investors •  Аutomotive •  Oil manufacture Russian investors •  Engineered products • Household chemicals and • Non-ferrous metallurgy cosmetics • Petroleum refining • Тobacco industry • Mobile telephony 1) Alcohol beverages production is not considered due to the strong position of Ukrainian producers, including Russian and world markets. These companies invest into business already now. Source: Roland Berger SC_MASTER_GALT&TAGGART 49
  • 50. 2 ATTRACTIVE INDUSTRIES: II. BANKING SECTOR Banks are rapidly growing. High fragmentation level serves as a precondition for consolidation processes in the future Major actors of the banking sector General cost of the bank assets [USD bn] Assets of the Top-10 banks, 2006(3 Q) [USD bn] Assets share Bank assets as 25% 30% 46% 34% 45% 77%. % of GDP 10% CEE1) Ø 78% 79% 9% 6% CAGR +31% +26% 6% 130 6% 5% 3% 42 3% 23 21 3% 14 16 2% 46% Forecast - banks with Ukrainian capital 1) Central and Eastern Europe - banks with the share of foreign capital Source: National Bank of Ukraine SC_MASTER_GALT&TAGGART 50
  • 51. 2 ATTRACTIVE INDUSTRIES: III. RETAIL Sales networks demonstrate quick growth; 2 Western networks on the market; new actors are expected The rating of the retail networks in Ukraine and the possible new actors The networks, entering the market Growth 71% 75% 78% 45% 106% 50% 54% 38% 48% 50% speed, 2005-20 06. [%] Networks considering entering the market Metro C&C BILLA 2005 2006 Metro C&C - Networks with the foreign capital BILLA Source: the press, companies’ information, estimations by Steinberg Capital SC_MASTER_GALT&TAGGART 51
  • 52. 3 MEASURES ON STATE LEVEL To improve investment attractiveness of the country the government should work in the following 5 spheres Major aspects on macro level (state) Attention focus Directions Power saving, exploration of the alternative power sources, search 1 Power policy for alternative power suppliers Cutting-off bureaucracy, simplifying the relationship processes with 2 Liberalization business, removing contradictions in the laws Stimulation of the internal investments, solving the problems with 3 Taxation VAT compensations, decreasing taxes Solving the problems with the quotes and antidumping, getting closer 4 External economical policy to the European markets Preparation of the enterprises to privatization (restructuring, etc.), 5 Privatization transparency of the tenders, fulfilling plans by the investors Source: Steinberg Capital SC_MASTER_GALT&TAGGART 52
  • 53. 4 MEASURES ON THE BUSINESS LEVEL The enterprises aiming at attracting the investors should be prepared to the changes Major aspects on micro-level (enterprises) Attention focus Directions Ownership structure, organizational structure, reporting procedure 1 Transparency and the system of informing the management Clear strategy of business development, implementation of the 2 Development strategy modern management methods 3 Investments Readiness to invest own assets into business development Development of the employees motivation methods, development and 4 Personnel learning, options of carrer growth Openness to innovations, orientation to the consumer, development 5 Innovations of new products, entering the new markets Source: Steinberg Capital SC_MASTER_GALT&TAGGART 53