EU Ukraine Moldova Russia
Horizon Capital An Investor’s Perspective March 2016
Horizon Capital - 20 years of mid-cap PE investing in Ukraine & Region
Operating in Ukraine since 1995
Managing over $600m in 3 funds
39 Ukrainian investee companies
> $365m invested in Ukraine
Leading institutional investors backing us The Church Pension Fund
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A ground-floor investment opportunity at the EU’s frontier “…Next door to Russia there is a complicated place, but also more attractive – it has a much better Finance Minister than anyone you can find in that part of the world… Ukraine is an extremely attractive place to invest and I would look at that place as a place if you want to take some risk and you are investing in dollars, but there aren’t that many people investing in Ukraine, so you’re probably going to buy some things that are going to be relatively inexpensive” - David M. Rubenstein, Carlyle Group
"I stand ready. There are concrete investment ideas, for example in agriculture and infrastructure projects. I would put in $1 billion” - George Soros, Soros Fund Management
"I am extremely encouraged by the progress that has been achieved in the past few months. In a difficult environment, macroeconomic stabilization is taking hold and the economy shows signs of turning the corner. This achievement is a tribute to the courageous work of the Ukrainian authorities.” - Christine Lagarde, International Monetary Fund
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Per capita GDP growth per annum during period*
Reforms: Proven to turn laggards into leaders Pre-reform govt Slovakia
17% 8% 1990-2000
Georgia
1990-2004
-6%
Philippines
Post-reform govt
1990-2001
-1%
Colombia
14%
• Zero to highest automotive output per capita in a few years • Exports drove growth, from $19bn in 2000 to $66bn in 2013 • Fastest growing economy in Europe through 2008
• Endemic corruption • Crippling energy blackouts • Economy in shambles
• From #98 to #8 in Ease of Doing Business by 2014 • One of the fastest growing economies in the world
2004-2014
9% 2001-2014
6% 2004-2014
Outcomes
• Black sheep of Europe • Missing EU accession opportunity • Limited growth
2000-2014
13%
1990-2004
Starting point
• • • •
Ruinous Asian crisis Sluggish economy President impeached Separatist war in the South
• Sound national security • Real GDP CAGR of 5.4% during 2002-2014 • BPO crucial catalyst, built on young, cost-competitive Englishspeaking generation
• • • •
Failed state Recession Weak institutions War vs. guerillas
• • • •
Sources: 1)World Bank 2)The Economist * Note: Based on growth of nominal GDP per capita in USD
National security key priority GDP CAGR 4-5% thru 2014 FDI <$2bn to >$16bn in 2013 Exports up 4.3x to $67bn
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Ukraine = grains too 5
b Ukraine = grains too 6
Top math and science education, starting with primary school Results at the International Math Olympiad, global rank US
1
China
2
Ukraine
11
Romania
13
France
Share of math, science and computing graduates, % 10%
9.9%
9.8%
8% 6.8% 6%
14
Germany
27
India
37
Netherlands
43
Czech Republic
45
Belgium
56
4%
6.3% 5.1%
4.9%
4.4%
3.9%
2%
0%
Netherlands Ukraine Poland Hungary Lithuania Latvia Romania Bulgaria
Source: International Mathematical Olympiad, Eurostat, OECD, Ukrstat 2014
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Strong technical education ensures high quality of studentsâ&#x20AC;Ś Good Country Index: Science and Technology parameters reported to GDP, rank
Universitas 21, university research quality, rank
United Kingdom
1
US
1
Hungary
9
Netherlands
7
Germany
11
Germany
14
France
12
France
17
Ukraine
13
Hungary
30
Netherlands
18
Poland
32
United States
26
Ukraine
41
Poland
32
Romania
42
Romania
48
Turkey
49
Philippines
115
India
50
Source: goodcountry.org, Universitas 21
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…and feeds abundant technical talent into the market Engineering graduates per annum in European countries, thousand students 140
130
120 105 100 80
93 75
71
66 56
60
48
40 20
13
0
Ukraine France Germany Turkey
UK
Poland
Spain
Italy Netherlands
Source: World Economic Forum, Forbes, 2014, IVC, www.business-standard.com
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Programmer salaries among the most competitive in the world Average salary among developers with +5 years experience, thousand USD per annum 120
-69% 106
100 80
80
77
76
74
60
70 55
55
40
54 33
20 0
United States
Australia
Ireland
UK
Israel
Canada Netherlands China
Germany Ukraine
Source: Stackoverflow Developer Survey 2016
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Largest IT outsourcing force in CEE & among top ones globally Top CEE countries by IT freelance outsourcing, % Other Moldova 7% Croatia 2% Macedonia 3% 3% Bulgaria 4% Belarus 4%
33%
Poland 7%
Serbia
8% 9%
Romania
21% Russia
Ukraine
Top CEE cities by IT freelance outsourcing, % Kharkov
6.7%
Kyiv
6.6%
Lviv
3.4%
Zaporizhya
3.1%
Omsk
3.1%
Moscow
2.8%
Minsk
2.7%
Novosibirsk
2.6%
Bucharest
2.5%
Belgrade
2.3%
Ukraine is the #1 IT outsourcing country in CEE, by a wide margin; #3 by freelance outsourcing in the world after US, India Source: dou.ua, Elance
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As result, IT outsourcing grew at 30% annually for over 10 years Total size of the IT outsourcing market in Ukraine, USD million 2,500
2,379
2,500
2,000
2,000
+30% 1,400
1,500 1,100 1,000 500 0
110
165
250
2003
2004
2005
390
2006
544
530
2007
2008
697
2009
874
2010
2011
2012
2013
2014
Source: Ukrainian Hi-Tech Initiative, Symphony-solutions, Kyivpost
2015
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Beats growth in global IT outsourcing by a wide margin Growth in Ukrainian IT outsourcing sales vs. the global market, indexed (2007=100) 500
Ukrainian IT outsourcing Global IT outsourcing
437
400
368
300
257 202
200 111 100
128
161
97
107
112
121
123
2008
2009
2010
2011
2012
141
144
2013
2014
0 2007
Source: Ukrainian Hi-Tech Initiative, Symphony-solutions, Gartner
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Ciklum â&#x20AC;&#x201C; leading IT outsourcer [exited to Soros Fund] IT outsourcing market, $m
Ciklum performance 2,500 2,379
2,500
2,000
2,000
30%
1,500
40% CAGR 2007-2014 Over 200 global clients
1,400 1,100
1,000 500 110 165
0
Up from 1800 to 2700 people
874
2003
250
390
2005
544 530
Top 5 player in CIS
697
Gartner Cool Vendor
Revenue up 2x in 3 years 2007
2009
2011
2013
2015
Source: Ukrainian Hi-Tech Initiative, Symphony-solutions, Kyivpost
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Jooble â&#x20AC;&#x201C; top-5 global jobs search engine Average salary of IT specialists, $k per year 120
Jooble performance
-69%
106
Top-5 global job search engine
100
Serving 64 markets from UA 76
80 60
74 55
40
Selling in 24 languages 55
54 33
Low costs = high margins Unique R&D technology
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Revenue up 9x in 5 years
0 US
UK
Israel Netherlands China Germany Ukraine
Source: Stackoverflow Developer Survey 2016
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Rozetka – the “Amazon” of Ukraine Undisputable #1 in a high growth market
• Undisputed market leader of Ukrainian ecommerce, 8x site visits vs. #2 player; • Huge user base: 5m registered users, 660k YouTube subscribers, 20m monthly emails • Ukrainian e-commerce market has grown nearly 6x in 7 years in USD terms • Internet penetration is still only ~37%, 2-2.5x lower vs. EU countries • Only ~20% of Ukrainian internet users shop online, with share up 2x in 2 years
100%
% of internet users in total population
• Company’s monthly internet reach in Ukraine comparable to Wikipedia, Facebook
Netherlands
UK
France
Sweden
80%
Spain
Poland 60%
Italy Germany
40%
Ukraine
20% 0%
20%
40%
60%
80%
100%
% of internet users shopping online Source: retailresearch.org, postnord.com
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Ukraine has among the lowest living expenses in the world Cost of living, including rent, global ranking (lower = cheaper)
Prices of selected items in Kyiv, USD
India
122
One bedroom rent (centre), month
Pakistan
120
Intercity train Kyiv-Lviv (500km)
16
Ukraine
117
Two courses in fancy restaurant
15
Philippines
105
Romania
103
Dry-clean suit
10
Poland
90
Theater ticket
5
Hungary
80
Haircut
5
China
61
Taxi trip
3
Germany
29
A bowl of borscht
2
Netherlands
23
Tomatoes, 1kg
1
Bermuda
1
Milk, 1L
294
0.6
Source: numbeo.com, 2016
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The beer and burgers are the cheapest in the world too :) Average price of a 330ml beer, USD
Price of a Big Mac, USD
7,0
7,0 6,3
6,0
6,2
6,4
6,0 5,2
5,0
4,0 3,0 2,0
4,9
5,0
4,5
4,4 3,9
4,0
3,6
3,7
3,0
2,6 1,8
1,7
1,0
1,0
0,0
0,0 Geneva Hong New London Ams Berlin Dehli Kyiv Kong York terdam
1,9
2,0
Switzer.
US
France
1,5
Ger Nether India Ukraine many lands
Source: Wall Street Journal, The Economist Big Mac Index â&#x20AC;&#x201C; January 2016
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And all this in a progressive, cosmopolitan, European country
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Contacts Vasile Tofan Partner Horizon Capital Tel +380 44 490 5580 Mob +380 98 382 7989 vtofan@horizoncapital.com.ua
For More Information
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Ground floor opportunity July 2015
80+ slides on Ukraine: Ground-floor Opportunity
www.horizoncapital.com.ua/groundflooropportunity
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