SEE Regional Investment Climate

1. SEE Regional Investment Climate Dr. Edilberto Segura Director and Chief Economist SigmaBleyzer/The Bleyzer Foundation

2. Recent developments in the SEE region with a significant impact on investment climate • Improving prospects of closer association or EU membership for several countries in the region. • Good progress in fighting corruption and accelerated modernization of judiciary - two reform areas which were identified as the most urgent issues for improvement in Bulgaria and Romania to ensure EU membership. • Liberalization of business regulations and cross-boarder capital movements. • Reduced tax burden (i.e., downward revisions of the corporate profit tax and personal income tax in Bulgaria and Romania). • Significant decrease in the level of political risks and improving image of the region. • Investment ratings of many countries have been recently upgraded.

3. PE Fundraising for Emerging Markets 2003-2005, USD billions Source: Emerging Markets Private Equity Association

4. PE Investments in Selected Countries(EUR million) Source: EVCA

5. PE Investments as a Percentage of GDP Source: EVCA • Central and Eastern Europe private equity investments make up only a fraction of their GDP compared to the West

6. Performance of Global Market for Private Equity, MSCI Standard Index (January 2000 = 100%) • Eastern European markets have considerably outperformed developed countries in the last five years

7. Cambridge Associates’ Emerging Markets Private Equity Index, December 2005 1-, 3-, 5- and 10-year returns Emerging Markets PE Index Returns Evolution in 2003-2005 • Returns on Private Equity in Emerging Markets have been steadily increasing • Eastern European markets show the highest returns for the Emerging Economies Return horizons PE – Private Equity, VC – Venture Capital Source: Emerging Markets Private Equity Association

8. INVESTMENT DRIVERS IN SEE • Three main drivers of value creation in South Eastern Europe: • Macroeconomic expansion (5% to 10% annual GDP growth) – top line business expansion; • Inefficiently run Eastern European companies provide significant opportunity for value creation through improved operations, marketing, finances, customer and quality focus – bottom line growth; • Valuations expected to rise when Bulgaria and Romania join EU in 2007 – multiples expansion.

9. 6.8% 5.9% 5.2% 4.4% 3.0% 3.0% 2.8% 1.8% 1.7% Average Real GDP Growth in 2000-2005 by Selected Countries Russia SigmaBleyzer’s countries of operation Ukraine 7.4% Bulgaria 5.0% Romania 5.1% Other developed countries New EU countries Estonia 7.65% Latvia 8.13% Lithuania 7.12% Poland 3.17% Slovak Republic 4.4% Slovenia 3.5% Hungary 4.2% Czech Republic 3.7% Canada USA EU 15 EU new frontier countries Albania 5.7% Bosnia and Herzegovina 5.1% Croatia 4.1% FYR Macedonia 1.9% Serbia and Montenegro 5.1% Japan Source: IMF

10. SEE is one of the fastest growing regions in Europe Real GDP growth, % year-over-year SigmaBleyzer’s countries of operation New EU countries EU new frontier countries * IMF projectionsSource: IMF, National Statistical Offices

11. SEE - one of the most attractive regions in the Eastern Europe • Well educated labor force (i.e., university enrolment ratio is around 50%, which is good comparable with Western European countries); • Low level of wages compared with Western European countries (around EUR 200 per month) • Political risks have been notably reduced and local governments’ commitment to market-oriented reforms has been significantly strengthened. • Prolonged period of significant economic recovery and growth is expected. • Acquisition multiples of 1–4 times EBITDA are possible in the region • Exit multiples in 5 years should approach current Western European multiples of 6–10 times EBITDA • The path is more important than destination

12. Low Labor Costs in Eastern Europe Create Investment Opportunities for Europe Hourly labor costs in 2004, € Source: Eurostat, ILO, National Statistical Offices

13. SBF IV – SigmaBleyzer Southeast European Fund IV • Fund IV in a family of funds • Regional fund • Focusing on Bulgaria, Romania, Ukraine • Other Balkan countries (exceptional opportunities only) • Based on proven business model of investing in emerging markets • Successful track record of creating value • Regional fund taking advantage of regional synergies and country diversification • Opportunities in new EC Frontier countries • Target size: €200 million • Focus: Private Equity Transactions (control or near control)

14. Adding Value to PE Investments • Double inefficiency play: • Macro-economic inefficiency • Micro (Market and Business) inefficiency • Must have: • Improving business environment • The right team of local and western professionals In the next 10 years EM PE will provide a unique opportunity to achieve superior returns while making socially responsible investments

15. Adding Value at the Macro Level Where Opportunities Emerge

16. The Bleyzer Foundation Investment Drivers • Macroeconomic Stability • Liberalization and Deregulation of Business Activities • Stable and Predictable Legal Environment • Privatization, Public Administration reform and Corporate Governance • Removal of International Capital & Foreign Trade Restrictions • Facilitation of Business Financing by the Financial Sector • Reducing Corruption levels • Minimization of Political Risks • Improving Country Promotion and Image

17. Country Ratings: Macroeconomic stability Recent Developments:▪Strong economic growth ▪ Stable national currencies and low inflation▪ Strengthened fiscal discipline ▪ Declining public debt and prudent debt service

18. Country Ratings: Business Liberalization and Deregulation Recent Developments:▪Liberalized business regulations ▪ Enhanced bankruptcy procedures▪ Reduced tax burden

19. Country Ratings: Stability and Predictability of Legal Environment Recent Developments:▪Accelerated judicial reforms ▪ Deeper integration of EU laws into national legislation of accessing countries▪ Lower corruption in courts

20. Country Ratings: Corporate and Public Governance Recent Developments:▪Improved regulation and supervision of public companies ▪ Better disclosure procedures▪ Deeper public administration reforms and better privatization practices

21. Country Ratings: Liberalization of Foreign Trade and Capital Movements Recent Developments:▪Liberalization of foreign trade regulations and enhanced efficiency of customs administrations ▪ More flexible foreign exchange markets▪ Accelerated liberalization of capital accounts

22. Country Ratings: Financial Sector Development Recent Developments:▪Fast expansion of the banking sector with increasing foreign participation ▪ Improved efficiency of local Stock Exchanges▪ Rapidly growing capitalization of the listed companies

23. Country Ratings: Corruption Level Recent Developments:▪Significantly lower corruption levels in the region ▪ Improved capacity of authorities to fight high-level corruption▪ Better transparency of government’s activities

24. Country Ratings: Political Risk Recent Developments:▪Lower political instability ▪ Strengthened commitment of national authorities to advance with market oriented reforms that improve investment climate and establish business-friendly environment

25. Country Ratings: Country Promotion and Image Recent Developments:▪Improved investment ratings of the countries ▪ Many countries were granted a status of market economy by US Senate and EU▪ Higher prospects of EU accession

26. SigmaBleyzer's Aggregate Investment Climate Index – Country Ratings

27. Adding Value at the Micro Level Where Opportunities Emerge

28. Micro-Level Risks • Company-Specific Deterrents • Waste of resources and inefficiencies • Mentality of management and employees • Lack of transparent information, inadequate accounting • Broken supply chains • Illiquid markets – difficult exits

29. Transaction Examples (1) • Sevastopol Shipyard (SSY) • Largest Naval Yard in Ukraine with over 18,000 employees in late 80s; 15,000 by late 90s • UGF acquires 50.4% for $2M in multiple transactions • Local press, local authorities, management, employees react with a lot of concern about the future of SSY • Company restructured into five profit centers from 39 companies, streamlining intracompany business flows • Shift in focus from naval to commercial ship repair • Payroll reduced to 3,600 • Annual revenues up over 100% • From 4 ships repaired in one year to 60 ships! • Multiple smaller enterprises created around SSY • Exit for $6.8M; All funds combined: 230% gain; 34% IRR (5.7x cash and 45% IRR for UGFIII)

30. Transaction Examples (2) • Poltava Confectionery • Initial investment of $1.1 million by UGF III to buy control, followed by second round investment of $4 million to build new factory • Annual sales up 300% since 1999 from $12 million to over $50 million, EBITDA up 500% to $6.1 million • Production volumes up more than five times since 1997 • Valuation up over 500% • Softline (Software Developer) • Annual sales up 500% since 2000 • 75 programmers to 450+ programmers • Successful outsourcing business development in US • Valuation up 300% • Leading Ukrainian systems developer

31. Transaction Examples (3) • Volia Cable • Largest cable operator in Ukraine • Over 80% of the cable market in Kiev • 850,000+ homes passed / 560,000+ subscribers • Company created through the consolidation of several separate buyouts and additional investment in network build-out • First cable operator in FSU to offer digital cable, PPV, VOD, and Broadband Internet • Value Added • Management Replaced • New fiber optic network built / Call Center constructed • Huge cost reductions (through consolidation) • Network consolidated around a single digital head-end, improving operational efficiency • Tariff methodology developed and government approved - now utilized by the entire Ukrainian cable industry • Increased revenue by over 3 times • Valuation up 300% and expectations are for even more growth

32. SEE Regional Investment Climate more information on www.sigmableyzer.com Where Opportunities Emerge