NORUM PRIVATE EQUITY ADVISORS LTD Private Equity Opportunities in the Russian Regions Presentation a

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NORUM PRIVATE EQUITY ADVISORS LTDPrivate
Equity Opportunities in the Russian
RegionsPresentation at the Russian and CIS
Private Equity and Venture Capital Seminar,
Moscow 14th of May, 2008
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Short Input on Norum

• PE manager in Russia since 1996
• Main investors are EBRD, IFC, FMO, DnB NOR Bank
  ASA, Sitra, FINNFUND
• 175 MUSD under management (3 funds)
• Norum I 63 MUSD (vintage 1996)
• Norum II 25 MUSD (vintage 2002)
• Norum III 87 MUSD (vintage 2007)
• 80 MUSD disbursed to 24 companies from Norum I
  and Norum II
• Focus on regional SMEs within consumer goods,
  services, light manufacturing
• Several exits have already returned invested
  capital and hurdle in both Norum I and Norum II

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Short Input on Norum (cont.)

• Remaining portfolio of 6 companies expected to
  give good upside, among them 2 companies with
  MUSD 100 turnover (among market leaders)
• Expected 2,3x Norum I and 4,5x Norum II, IRR 24
  overall return
• Strong regional focus
• Team in St. Petersburg and Moscow
• Still fundraising Norum III with the target of
  MEUR 150.

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EXITS
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REMAINING PORTFOLIO
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What is region in Russia?

• The locals saying
• ?????? ?? ???? ??????.(Russia is not only Moscow)
• The facts (PE investments in the 7 FAO in Russia
  according to RAVI, 2005)

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How Norum established regional networks
Former/current Norum office
Former/current Norum portfolio company
Murmansk
Medvezhegorsk
Petrozavodsk
Severodvinsk
St.Petersburg
Novgorod
Arkhangelsk
Velikie Luki
Kaliningrad
Tver
Moscow
Vologda
Kaluga
Nizhnij Novgorod
Ekaterinburg
Omsk
Novosibirsk
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Resulting in strong regional Dealflow

• Wide proprietary deal flow originated from
• Established regional networks of former partner
  entrepreneurs and contacts with local financial
  institutions
• Supplemented by investment opportunities
  introduced by intermediaries
• Most of the potential investment opportunities
  located in regions

Deal flow by location
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Statistics

• A lot of ratings, statistics being made on
  regional opportunities, based on risk evaluation
  (political, crime, environmental) vs potential
  (production capacity, natural resources,
  infrastructure, human resources)
• Are they useful tools?
• No Not showing the picture as oil, gas,
  metals/minerals sectors are biasing the results.
  Not showing the potential in the growing SME
  markets
• Yes Can provide some comfort showing moderate
  risk/high investment potential ratings for the
  specific region
• Results are typically showing Moscow, Moscow
  Oblast, St. Petersburg and oil-rich regions on
  top.
• Similar tendencies within actual Private Equity
  deals (according to RAVI)
• 74 of PE deals (based on size) are in Central
  Federal Okrug, despite 26 of the population
• 86 of PE deals (based on size) are in Central
  and NW Federal Okrug.
• Instead, find specific statistics that show how
  Russian regions are lagging behind Moscow to
  understand the potential (e.g. office space per
  capita, retail space per capita)

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Any correlation between investments and
macroeconomic indicators? Source Interfax and
Rosstat
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Office space in regions capitals, square meters
per 1000 inhabitants - 2007Source Knight Frank
Research 2008
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Alternative Approach - How to define Attractive
Regions

• Focus on Regions with
• A city with gt 0.5m population, or better gt 1m
• 11 cities with more than 1 m population
• 34 cities with more than 0,5m population
• 203 cities with more than 0,1m population
• Diversified Industry, no Dependence on single
  industries
• Existing industries in good shape and growing
• Good geographical location with well-developed
  infrastructure
• Unique resources (material or human)
• Specific entrepreneurial/industry culture

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Reasons to go into Regions

• GDP growth has been severely lagging behind
  Moscow during last 15 years
• Moscow shows signs of saturation, and some
  regions now grow quicker.
• Expected to continue higher-than-Moscow growth
  for several years to close the gap.
• Shift of focus in domestic investor preferences
  from Moscow to the regions, due to
• Extremely high office rents in Moscow vs regions
• Salaries requirements are extremely high in
  Moscow
• Lack of cheap industrial sites.
• Infrastructure in Moscow is over-utilized
  (electricity, roads) makes it difficult to start
  manufacturing.
• More reasonable expectations on business
  valuations among regional entrepreneurs.
• Still lower costs at the first stages of business
  growth
• There are still entrepreneurs not spoiled by
  availability of easy money from national programs
  and other state coffers.

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Strong Regions most evident examples
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Examples of some regional players who became
federal leaders
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Inmarko A Case Study of a Successful Regional
Investment
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The Inmarko Brand
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Why Inmarko in 2002?

• Young entrepreneurial shareholders and managers
• Ice-cream market was fragmented, no clear market
  leader, many small producers
• Organic Growth and MA possibilities
• The Strategic Titans (Unilever and Nestle) still
  passive
• IPO opportunities for PE investor, alternatively
  Trade Sale to Strategic Investor

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Inmarko History

• The Company was founded in 1992 by two
  individuals, as a distributor of ice cream
  (retail and wholesale).
• In early 1997 Inmarko started to produce
  ice-cream in a newly built facility in
  Novosibirsk.
• In 1998 it acquired a much larger factory in Omsk
  and thoroughly revamped it in 2000-01 installing
  state of the art machinery (ISO 90012000)
• As independently confirmed by different sources
  of market surveys, in 2001 the Company was the
  Russian largest producer of ice cream by volume
  (21,400 tons).
• In 2003, Norum/EBRD acquired a 29 stake (fully
  converted)

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Investment Proceeds

• The investment proceeds together with the
  Companys own profit and debt financing have been
  used, during the period from 2003 to 2005, mainly
  to implement the following
• New factory in Omsk
• New branches in Irkutsk and Krasnojarsk
• New cold stores in Omsk
• Distribution system (displays).
• During 2003-2006, the Company has spent over US
  58 million for developing own distribution network

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How Inmarko developed
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Norums Value Added

• Brought in leading Scandinavian ice-cream experts
  to advise on capex and technology
• New ownership structure, with offshore holding
• IAS and full transparency
• Better credit terms
• Issued 1 bill RUR of Corporate Bonds in Russia
• Improved management team, and entrepreneurs
  gradually stepping back from daily management

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Geography
High Market Share
Small Market Share
Not present
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Inmarko Today

• Inmarkos principal assets include
• 3 ice cream production facilities (Novosibirsk,
  Omsk, Tula)
• 4 own low-temperature warehouses (Omsk,
  Novosibirsk and Krasnoyarsk), leasing storage
• 12 exclusive and 9 non-exclusive distributors
• 500 retail kiosks
• 48,000 ice cream chests installed in food stores,
  and
• largest in Russia fleet of own refrigerator
  automobiles which deliver the Companys products
  to points of sale.

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Maximizing Shareholders Value

• The Company pursued the following strategic
  targets
• Higher of branded, higher margin products
• Maintain market leadership to be the most
  interesting MA target
• Significantly increase market share in the
  European part of Russia including Moscow
• Exit
• IPO (Russia or abroad) proved difficult due to
  lower liquidity in stock markets
• April 2008 Successfully closed a deal with
  Unilever plc, whereby 100 of the company was
  sold
• Unilever became market leader for Ice-cream in
  Russia

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CONTACTS (RUSSIA)

• Hans Christian Dall Nygard
• Norum Private Equity Advisors Ltd
• Osennij Blvd. 23, Business Center Krylatskij
• 121609 Moscow, Russia
• Tel. [phone]
• Fax [phone]
• Mob 7 921 913 78 34
• E-mail hcdn_at_norum.ru