Private Equity

May 30, 2006

Zindel Investment Partners

Emerging Markets Private Equity Conference

Alexander Abolmasov

www.zindelfund.com

Private Equity Problems and Opportunities in Russia

22

Investments in USA and EU Private Equity Funds are growing, returns – decreasing

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

€ m

BuyoutVenture Capital

Funds invested in European Private Equity Funds

Average yield among European PEF

Source: EVCA, SRC, PWC

4,20%

0,56%0,32%

0,10% 0,006%

USA UK Europe CEE Russia

Private Equity Investments as a percentage of GDP for Europe, CEE (2004)

-5

0

5

10

15

20

25

30

35

1986 1988 1990 1992 1994 1996 1998 2000 2002

IRR

(5

years

),%

Venture fundsBuy-out funds

33

Food& beverages

Leisure&hotels, restaurants

Telecommunication services

Chemicals

Electronic&electrical equipment Financial Services

General retail

ITMedia&Entertainment

Support services

Construction

Engineering&machinery

HealthBiotechnology

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-30% -20% -10% 0% 10% 20% 30%

Investments delta

Number of projects delta

Comparing of investment structure in UK and Russia

Investments in small projects areaUnderinvested area

(Russia vs. UK)

Overinvested area

(Russia vs. UK)Size of bubble – Share of investments in Russia:

% equal to difference in shares of investment in a certain industry in Russia and UK

Size of bubble – Share of investments in Russia:

% equal to difference in shares of investment in a certain industry in Russia and UK

44Source: Neva-film, In-Chart Research Group

100 000

150 000

200 000

250 000

300 000

350 000

Box office structure, Russia (th, USD)

34 50050 000

111 700

190 000

268 000

349 000

0

50 000

2000 2001 2002 2003 2004 2005

0%

5%

10%

15%

20%

25%

Total box office Share of Russian films

Cinema market is surging by 40-50% annually (it’s increased by ten fold from 2000 to 2005).

In the course of time profitability of Russian movies is growing (average

budget in 2006 is about 25% of box office vs. 40% in 2005).

Average budget vs box office per top five Russian films, mln.USD

Investment directions: Cinema

0,48 0,98 1,29

5,72

9,17

17,7

0

2

4

6

8

10

12

14

16

18

20

2001 2002 2003 2004 2005 20060%

100%

200%

300%

400%

500%

Average box office per movie Budget as a share of box office

55Source: Cinema d’Europa Media Salles, Neva-film; MPAA; Federal state statistic service

Value Drivers: The number of theaters and screens

600544472400343

62 105150

250

0200

400600800

100012001400

1999 2000 2001 2002 2003 2004 2005* 2006* 2007*

screens modern theaters

SpainRussia HungaryPoland Czechia Italy Germany UK France

0,21 0,25 0,280,48

0,66

1,191,34

1,71 1,8

2,82 2,92

3,31

20

00 2

001

20

02

2003

Eastern and Central Europe

Western Europe

Modern theaters construction is rising by 30-33% annually.

Most of the theaters are 4-7 screen multiplexes

Frequency per capita keeps climbing rapidly (in 2004 – 71%) in Russia.

Frequency per capita, Eastern and Central Europe

The number of modern theatres and screens, forecast

66

Value Drivers: Film quality

213

172

152

68

46

20 13

3423 21

39 42

75

100

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

1,85

3,6 3,74,36

2,35

1,4

2001 2002 2003 2004 2005 2006

Source: Company data, ZIP Estimates, open sources

Private investments enhance Russian film production to soar 30-35% per annum.

Some Russian commercial movies outperformed Hollywood films in Russian release (top 3 in box office – Russian ones).

The movie quality is improving today, the average budget per film (top five) has increased (by 2,5 times for the last 5 years).

Films produced, Russia (titles)

Average budget per movie, Russia (mln. USD)

$34,7m.

$25,6m.

77

Case study: Moscow doesn’t believe in tears 2

PRODUCING COMPANY

POST- PRODUCTION

DISTRIBUTION PRODUCTION

Recognized brand Producing company was established on the basis of 'Film studio 'Slovo'. Which means support from Federal Culture and Cinematography Agency, 'Mosfilm studio'.

Recognized brand Producing company was established on the basis of 'Film studio 'Slovo'. Which means support from Federal Culture and Cinematography Agency, 'Mosfilm studio'.

Eliminates shortage of adequate scenarios and producing of low-quality films.

Controls film budget and film-making process.

Offers high-standard services, using modern digital equipment and latest technologies.

Creates promotion opportunities and increase cash flows from films.

Strong management team. Experienced professionals: Raymond J. Markovichr Esq developer of Kodak Kinomir, founder of Cascade Film; Chernikh Valentin - famous Russian producer and scriptwriter, a winner of Oscar Award (film ‘Moscow does not believe in tears’); his works include more than 30 scripts. And new creative team: Dmitriy Dobujinskiy, Peter Anurov.

Strong management team. Experienced professionals: Raymond J. Markovichr Esq developer of Kodak Kinomir, founder of Cascade Film; Chernikh Valentin - famous Russian producer and scriptwriter, a winner of Oscar Award (film ‘Moscow does not believe in tears’); his works include more than 30 scripts. And new creative team: Dmitriy Dobujinskiy, Peter Anurov.

Project pipeline contains 15 films and 7 serials till 2010. Thus, the company plans active expansion, projects to acquire 17% of Russian film market by 2010.

Project pipeline contains 15 films and 7 serials till 2010. Thus, the company plans active expansion, projects to acquire 17% of Russian film market by 2010.

Park Film Group is an Integrated film holding :

88

Oil companiesWestern Siberia

GazpromWestern SiberiaПГ

НГК

Surgutsky Pl-t

Tobolsky PCP

Astrahangazprom

Orenburgazprom

Severgazprom

Astrahansky GPP

Orenburgsky GPP

Sosnogorsky GPP

НГК

НГК

НГК

Uralorgsintez Permsky GPP

Novokuybishevsky PCP

ПГ

Tomsky PCP

ШФЛУ, ГБ

Кстовский НХЗ

GPP SIBUR-Tumen

ШФЛУ, ГБШФЛУ, ГБ

Neftegorsky GPP,Otradnensky GPP

Nignekamsneftehim

ШФЛУШФЛУ,СНГ

Smarneftegaz

Samarskiy OPP

Н

ГБToliati SK

СНГ

Noyabrsneftegaz

Omsky OPP

Н

ГБ

Tatneft

Minibaevsky GPP

Н

ШФЛУ,СНГ,ГБ

СНГ

Omskauchuk

ГБ

бутадиен изобутан

этилен пропилен

Basic organic synthesis

изопрен МТБЭ бутадиен

Stirol (Perm)

СНГ

бензол

стирол МТБЭ

Etanol

этан

СНГ

Tomskneft

Angarskaya PCP

этилен,пропилен бутадиен,стирол окись этилена этиленгликоли, бензол

Н

этилен пропилен стирол

Kazan NOS

СНГбензол


Salavat NOS

Nignevolgskneft

VolgorodNP

Н

Stavrolen Korobovsky OPP

ГБПГ


СНГ

бензол

Permneft

PermNOS

Н

бензол

Chemicals blockbuster: Empire strikes back (Sibur campaign)

99

Oil companiesWestern Siberia ПГ

НГК

Tobolsky PCP

НГК

НГК

НГК

Uralorgsintez Permsky GPP


ПГ

Tomsky PCP

ШФЛУ, ГБ

Kostovsky PCP

GPP SIBUR-Tumen




Н

ГБToliati SK

СНГ

Н

ГБ

Н


СНГ

ГБ





Stirol (Perm)

СНГ

бензол


Etanol

этан

СНГ


Н


СНГбензол


Salavat NOS

НГБ

ПГ


бензол Н

бензол

Chemicals blockbuster: Empire strikes back (Sibneft campaign)

Noyabrsneftegaz

Omsky OPP

Omskauchuk

Smarneftegaz

Samarskiy OPP

GazpromWestern Siberia

Surgutsky Pl-t

Astrahangazprom

Orenburgazprom

Severgazprom

Astrahansky GPP

Orenburgsky GPP

Sosnogorsky GPP

Nignekamsneftehim

Tatneft

Minibaevsky GPPTomskneft

Angarskaya PCP

Kazan NOS

Nignevolgskneft

VolgorodNP


Permneft

PermNOS

1010


ПГ

НГК

НГК

НГК

НГК

ПГ

Tomsky PCP

ШФЛУ, ГБ



Н

ГБ

СНГ

Noyabrsneftegaz

Omsky OPP

Н

ГБ

Н


СНГ

Omskauchuk

ГБ





Стирол (Пермь)

СНГ

бензол


этан

СНГ


Н


СНГбензол


НГБ

ПГ


СНГ

Н

бензол

Chemicals blockbuster: Empire strikes back (Yukos and Tatneft?)

GazpromWestern Siberia

Surgutsky Pl-t

Astrahangazprom

Orenburgazprom

Severgazprom

Astrahansky GPP

Orenburgsky GPP

Sosnogorsky GPP

Nignekamsneftehim

Tatneft

Minibaevsky GPPTomskneft

Angarskaya PCP

Kazan NOS

Nignevolgskneft

VolgorodNP


Permneft

PermNOS


Etanol

Smarneftegaz

Samarskiy OPP

Oil companiesWestern Siberia

Tobolsky PCP Uralorgsintez Permsky GPP

Kostovsky PCP

GPP SIBUR-Tumen

Toliati SK

Stirol (Perm)

Salavat NOS

1111

• State companies expansion

• Monopolization of value chain

Waste Management Loops elimination

The Phantom Menace: Main Trends

Chemicals blockbuster: Empire strikes back

Value creation

Cost-effective innovative technology

Big stocks of cheap raw materials (150 m tons)

Quality and price advantages of final production

A New Hope: Main Opportunities

2003 Gazprom acquired Sibur

2005 Rosneft acquired Yukos

2005 Gazprom acquired Sibneft

2006 Rumors-Tatneft acquisition?

Production of MonoChloroacetic Acid

Value creation:

Added value through import substitution

Existing distribution control

Recycling of phosphogypsum in construction materials (cement industry)

1212

Opportunities:

• Asia demand drives prices up

• housing sector is growing

• Scandinavians are shutting the mills

• cost reduction – imported technologies

• “cheap” timber assets

Threats:

• nature & fires

• quality of labor forces

• hostile takeovers

Russian timber industry: opportunities outweighs threats

1313

(consumption - production) in Europe (m cub).

-20

-15

-10

-5

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5

10

15

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25

71 74 77 80 83 86 89 92 95 98 01 04

Overproduction in Europe has been pressing on prices deteriorating margins so far

USSR was filling the gap

Russia back into play

Collapse of USSR pushed Scandinavians to start new facilities

…but since last year European capacities are starting to decrease, while demand continue to increase

Russian timber companies: margins begin to improve

Stora Enso, UPM announce capacity reduction

1414

Description: Tsar Timber Group is a vertically integrated holding engaged in production of construction materials, consisting of:

• logging companies;• saw-mills;• distribution.

The holding’s assets are located in the UK, the Republic of Karelia, Krasnoyarsk and Irkutsk Region.

The company has been nominated for the Timber Trade Journal 2005 awards in the category: Softwood Trader of the Year in UK.

1515

Zindel Investment Partners

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Private Equity

Economy & Finance

Transcript of Private Equity