Investment Opportunities in Russia

1. Investment Opportunities in Russia Jan Dewijngaert, Gimv March 2009 Good company for companies

2. Serious deterioration expected this year: Source: Economist Intelligence Unit Russia: Economic and Business Outlook Good company for companies

3. Russia: Economic and Business Outlook • To put things into perspective: • The situation in the rest of the world is not any better • The outlook in CEE has sharply deteriorated in recent weeks • Rouble and oil prices seem to stabilise • Russia could quickly rebound (cfr. also 1998 crisis) Good company for companies

4. Russia: Economic and Business Outlook • Why the recession in Russia could be over shortly: • Oil price may rise to 45-55 $/barrel in 2009 • No Rouble crash expected • Lower Rouble will improve competitive position of local procedures • Increased public spending supported by high reserves • Low level of household and government debt Good company for companies

5. Russia vs. USA Source: Troika Dialogue, Jan 2009 Good company for companies

6. Current vs. ’98 crisis • There are striking similarities… • Stock market crash • Flight of foreign capital • Devaluation of the rouble • Lack of bank finance • Budget and current account deficits • Negative GDP growth • Economy still heavily dependent on oil/gas and minerals Good company for companies

7. RTSI vs. DJ EURO STOXX 50 Good company for companies

8. Current vs. ’98 crisis • … but also important differences Good company for companies

9. Deals in Russia (July 2007 – August 2008) Source: Deloitte Good company for companies

10. Deals in Russia vs. CEE (July 2007 – August 2008) Energy Manufacturing Construction materials Food & drinks Horeca ICT Financial services Retail & distribution Transportation Real estate & development % Services (other) 0 5 10 15 20 25 30 CEE Russia Source: Deloitte Good company for companies

11. Private Equity in Russia • Historically, PE returns in Russia have been very high • The period directly following the ’98 crisis has proven to be fantastic from a PE perspective (*) Net returns for EBRD’s portfolio of funds Good company for companies

12. Type of investment: Russia vs. CEE Source: RVCA (2006), EVCA (2007) Good company for companies

13. Type of exits: Russia vs. CEE Source: RVCA (2006), EVCA (2007) Good company for companies

14. Private Equity in Russia • New opportunities are arising… • Downturn in the business cycle • Marginally feasible businesses will disappear • Best performers stay in business and find great expansion opportunities… • …via organic growth and M&A • While at the same time: • Less competition from oligarchs, bank captives, global PE houses and hedge funds • Valuations are becoming more attractive • The number of leads is rising • This should result in attractive returns Good company for companies

15. Valuation Multiples (EV/EBITDA) Source: AntantaCapital Good company for companies

16. Deal flow in Russia Good company for companies

17. ERF portfolio: Strata Partners • Company Background: • 3rd largest & fastest growing fitness clubs operator in Russia; • 2 brands, 33clubs as of 1Q09, good locations; • Target customer groups by monthly income per person: $2,000+ for Orange Fitness, $1,000+ for City Fitness; • Company historically has a low bank leverage Strata Partners Sector: Fitness Investment date: Feb 2007 Transaction type: expansion Investment Rationale: Developments since investment • Rapidly growing industry, but penetration still low: years of high growth ahead; • Business idea: develop 2 strong brands in top & medium segments, create strong base in Moscow and expand in regions, with 50 clubs by 2010; • Strong, highly motivated and experienced management; • Exit strategy: trade sale • Strategy adopted to focus on own clubs and only use franchise at remote locations • Launched 19 new clubs after investment, approaching 2 top players in Russia. • Corporate governance and financial reporting were improved. • ERF bought out the third shareholder together with management. • Exit discussions advanced, but unclear if realized given financial crisis. Good company for companies

18. ERF portfolio: BASK Company Background: • BASK Group is the leading local player in the Russian outdoor wear and equipment market. • The Group manages the clothing and accessories brand BASK. In addition, well reputed international brands are distributed. • The Group has its own retail chain with 6 stores operating in Moscow, which sell proprietary brands, international brands distributed by the Group and other outdoor merchandise. BASK Sector: Outdoor wear Investment date: Oct 2007 Transaction type: expansion Investment Rationale: Developments since investment • Both the sporting goods and outdoor markets have shown impressive growth in recent years and similar performance is expected in the coming 5 years. • The two founders have a long-term experience in the industry. • The objective is to make the Group the undisputed №1 local player in the Russian outdoor clothing and equipment market. • The main exit strategy is a trade sale. • Introduction to Western outdoor retailers to advice on the Group’s retail activities sourcing & overall strategy. • Three new retail outlets opened: Moscow, Nizhniy Novgorod & a web-store.Most likely a store will be opened in St Petersburg shortly. • Corporate governance and financial reporting system have been improved. • External consultants from the field attracted. • Company should be able to weather the storm even with little or no bank finance available Good company for companies

19. ERF portfolio: PTI Company Background: • PTI is the leading Russian producer and distributor of soy products, spices and flavourings, which are sold to food processors in Russia and the CIS. • The Company has 20 distribution centres in Russia and the CIS and sells both its own brands and imported ingredients. • The Company has a customer base of more than 2000 clients in the meat, dairy, softdrinks and confectionery industries . PTI Sector: Ingredients Investment date: Oct 2008 Transaction type: expansion Investment Rationale: Developments since investment • The food & beverages sector in Russia has shown rapid growth recently and is expected to continue growing the coming 5 years • End-consumers are expected to get more quality & health conscious, whereas increased competition forces producers to pay more attention to product appearance, taste, etc. while keeping costs low. • The Company has the potential to become the undisputed №1 in the industry in Russia and the CIS. • Exit strategy: trade sale or IPO. • Legal restructuring has been completed & the investment was executed recently. • Started working on corporate governance and financial reporting • Implemented a “cash quality of earnings” policy, which should make it possible for the company to execute its investment plan with little to no bank finance Good company for companies