crosby - arizona presentation.ppt

Agribusiness Management Company Agribusiness Management Company

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CIS and Eastern Europe Business Forum

November 3, 2006

Private Equity Investments in the CIS

November 2006


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Fund investment manager with offices in Omaha, Moscow and Almaty

Investment team has worked together for over nine years

Business areas include:

1. Private equity investment funds

2. Real estate development and investment

3. Commodities trading to assist NGO’s

Active hands-on approach of involvement with portfolio company management teams

Provides hands-on financial guidance, business discipline/control, and strategic planning assistance for portfolio companies

Deal flow, monitoring, and exit opportunities enhanced by extensive industry contacts, both international and local



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Investment ProjectsInvestment Projects

Poultry Processing

Champagne Bottling Benefits of Commodity Trading

Packaging Dairy Products

Kazakh Real Estate

Glass Bottle Manufacturing


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Investment fund is set up as limited partnership Specific contractual terms and investment focus General Partner and Fund Manager (usually related) Limited Partners (the investors) have limited Liability Investments are made in private, non-public companies Fund Manager assists portfolio company management in

developing the business Limited life of 8-10 years; 4 year investment period Target investment projects with potential for high returns and

cash multiples Annual management fee, declining in later years, plus a

percentage of the long-term profits (carried interest)

Characteristics of a Private Equity Fund Characteristics of a Private Equity Fund


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Investment TeamInvestment Team

The first ingredient in establishing a successful private equity fund is the investment team.

Significant experience – investment, financial and business Locals involved on the investment team Strong education backgrounds In-country office locations Investment/business track record


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Sector: Food, agribusiness and related consumer products investments, which includes

sectors such as food and beverage processing, packaging, distribution and storage

Emphasis: Early-stage growth and expansion capital for established businesses

Instruments: Equity and equity-like securities

Structure: Majority ownership or control positions

Investment Size: $5-$20 million

Target Countries: Former Soviet Union, primarily Russia, Ukraine and Kazakhstan.

Diversification: Diversified by region, country, and sector

Investment StrategyInvestment Strategy

A coherent and consistent investment strategy is a second necessary ingredient in establishing a private equity fund


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Investments have been made in five different countries of the former Soviet Union

The largest concentration of investment is in Russia

5%

7%

75%

4% 9%

RussiaUkraineKazakhstanMoldovaGeorgia

API Portfolio Investments by Country (% of Investment)

API Portfolio Investments by Country (% of Investment)


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Investment team has invested in eight companies since 1997 Investments have been made in several important food and

agribusiness sectors

7%

15%8% 20%

21%

29%

Bottles

Dairy

Poultry

Packaging

Beverages

Wine

API Portfolio Investments by Sector (% of Investment)

API Portfolio Investments by Sector (% of Investment)


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Investment ClimateInvestment Climate

Political stability

Good macro economic performance

Growth in consumer incomes and rising consumer confidence

Structural reform in key areas, e.g., taxes, shareholder rights and currency policy

Industry sector with solid growth as well as good prospects for the future

Investment climate in the region is important to the success of the investment program (i.e. the “wind” at your back)


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Food Sector OpportunityFood Sector Opportunity

Excellent business growth and efficiency improvement opportunities are available to those with sector expertise and investment capital

Significant improvement in consumer purchasing power

Food processing one of the fastest growing sectors

Critical capital shortage in the food sector

Assets often available at low valuations

Strong demand for quality local food products

Consumers want modern and convenient food products

Economic growth extending beyond Moscow and St. Petersburg


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Growth in Large-Scale Grocery Retail Growth in Large-Scale Grocery Retail

Consumers are significantly increasing food purchases at large-scale stores

Declining sales and fewer locations for open air markets and kiosks; 34% decrease in grocery outlets since 2000

Large food retailers are expanding to regional cities

Large-Scale Retail Food Sales GrowthRussia

0102030405060708090

100110120130140

2003 2004 2005 2006E

%

Large-Scale Retail

Real Disposable Income


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No shortage of investment opportunities in the region – the issue is to identify growth sectors and excellent management

Maintain a high profile in the region and the industry

Proactively work with sources to develop investment projects

Strong deal flow from various proprietary and other sources (more than 600 projects reviewed for API):

Existing portfolio company management teams Strategic agribusiness companies Local business contacts and entrepreneurs Accounting and law firms Investment and commercial bankers Multi-lateral financial institutions

Deal FlowDeal Flow


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Due DiligenceDue Diligence

Backgrounds of owners/managers of potential investments

Market sector study and analysis of competition

Current and prospective financial condition of the business

Legal status of assets, government relations and business contracts

On-site review of plant, equipment and other facilities

Extensive business review and analysis

Financial projections and assumptions

Exit possibilities

Analysis of key business, financial and legal points to determine if a potential deal meets all investment criteria

Key areas of review and investigation:


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Experience has shown Agribusiness Management that several key factors are important to consider when investing in the former Soviet Union:

Partner with trustworthy local management teams with a proven track record

Invest in established early-stage businesses in growth sectors

Gain majority control; alone or with other like-minded investors

Enter into well-defined shareholder legal documents

Attend to financial details, particularly GAAP financials

Minimize hard currency exposure Portfolio company management team has its own capital at risk

Use performance-based incentives for management

Potential to develop significant scale and market share

Investment Factors to ConsiderInvestment Factors to Consider


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Deal StructuringDeal Structuring

Majority ownership stakes or control positions

Control of key strategic, capital and Board decisions

Direct significant management decisions

Control the cash – Fund financial officers have signatory authority on bank accounts

Create transparent financial conditions

Application of performance benchmarks/hurdles

Equity participation for key management (in addition to their own capital at risk)


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Investment team actively participates on a “hands-on” basis:

Investment officers work closely with portfolio company management to develop and implement business strategy

Chief Financial Officer and Controller establish financial and accounting controls at portfolio companies

Investment officers implement a program of frequent contacts with company management to discuss business operations

Quarterly reviews held in Moscow with senior management

Quarterly or semi-annual reports to investors

Annual investor meeting; helpful to alternate locations

Investment MonitoringInvestment Monitoring


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Evaluate the ability to exit as part of the due diligence process

Plan to exit an investment in 3 to 7 years

Evaluate the viability of potential exits prior to investing

Sale to a Western strategic or financial investor Sale to a local or regional group Sale to the project’s management team IPO on either a local or a developed market

Exit StrategiesExit Strategies


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API Business LocationsAPI Business Locations



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Chicken KingdomChicken Kingdom

Summary Information: Industry Segment Poultry Initial Investment July 1997 Total Investment $22.5 m Fund Ownership 88.4%

Business Description: Producer of poultry meat products for the Russian market

Investment Rationale: Severe shortages – domestic production was down 75% since 1990 Substantial room for efficiency improvements Opportunity to acquire and consolidate businesses at attractive

valuations Low-cost supply of feed ingredients in Lipetsk vicinity Close proximity to the Moscow market


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Chicken Kingdom (continued)Chicken Kingdom (continued)

Current Status: Chicken Kingdom has become a strong

brand name in Moscow and other areas of European Russia

Renovation of production and processing facilities in Lipetsk complete

Lipetsk produces 750,000 birds per week using 14 grow-out locations

Acquired second location near Bryansk in 2004

First Bryansk live bird production in 2006; target capacity 500,000 birds per week in early 2007

Advanced production technologies and state-of-the-art equipment at all facilities

Superior bio-security procedures based on Western production model

Potential Exit Russian IPO or Sale to strategic investor

29.636.7

57.6

79.5

115.3

4.3

24.9

6.1 7.3 6.9

27.524.9

9.25.7

15.516.5

6.54.3

$0

$20

$40

$60

$80

$100

$120

2001 2002 2003 2004 2005 2006e

$ m

illi

on

Sales

EBITDA

Net Income


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Summary Information: Industry Segment Beverage Initial Investment February 1998Total Investment $9.8 mFund Ownership 72.3%

Business Description:Producer of soft drinks under license agreement from A.G.

Barr

Investment Rationale:Soft drink market growing fastFavorable taste tests in RussiaExclusive distribution rights for IRN-BRU

KLP Soft DrinksKLP Soft Drinks


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KLP Soft Drinks (continued)KLP Soft Drinks (continued)

Current Status: Business is closed

Prior to Closure: Award winning advertising

program created brand identity IRN-BRU sold at a premium Unit volume was less than plan

following 1998 economic crisis Ruble devaluation in 1998

hampered ability to meet hard currency costs

Prices negatively impacted by Coke and Pepsi discounts

Cash shortage in 2000 reduced production and sales

Major reduction in operating expenses did not produce profit

1.1

4.9 4.1

-4.0

-1.5-0.6

-4.3-2.5 -1.8

-$5

$0

$5

$10

$15

$20

$25

$30

1998 1999 2000$

mil

lion

Sales

EBITDA

Net Income


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Experienced investment team able to create operational improvements, profitable growth and increasing cash flow

Cohesive investment team; incentives and time together

Track record of growing and exiting businesses

Consistent investment strategy supported by internal processes

Maintain high profile in your sector and region to develop a strong proprietary deal flow

Economic and market conditions should favor investment in the targeted sector and region

Growth companies provide high future returns and cash multiples

ConclusionConclusion

Key Considerations in Developing a Private Equity Investment Fund

crosby - arizona presentation.ppt

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