August 2011

SUGAR INDUSTRY OVERVIEW

Key market highlights, 2010 General description of the sector Granulated sugar production, thou t 816 PRODUCTION Granulated sugar retail turnover , thou t 165 Average annual per capita sugar consumption, 41,4 ¾ In 2010 the total production of sugar in the Republic of kg amounted to 816 thousand tons, that is by 7.5% higher than in previous year. On average, over the past three years the production of sugar has Sugar export, thou t 493,4 increased by 5.6% and reached the level of 2006. Sugar and raw sugar import, thou t 407

¾In the Republic of Belarus there are four sugar mills producing sugar : ¾JSC «Gorodeya Sugar Refinery»(230.2 thousand tons in 2010), Granulated sugar production in the Republic of ¾JSC «Zhabinka Sugar Plant»(197.3 thousand tons in 2010.) Belarus, thou t ¾JSC «Skidelsky Sugar Refinery» (166.7 thousand tons in 2010), 1000 814,1 758,9 816 ¾JSC « Sugar Plant» (221.8 thousand tons in 2010). 656,6 707,8

¾About 50% of sugar is produced from sugar beets, 50% - from 500 imported raw cane sugar. The sugar produced from raw cane is supplied to the domestic market and exported to the countries of Central Asia. In 0 2010 the sugar refineries produced 412 thousand tons of sugar from 2006 2007 2008 2009 2010 sugar beets. The need for this type of raw material is completely Source: National Statistics Committee of the Republic of Belarus satisfied by the domestic market. However, during recent years the total The structure of granulated sugar yield of sugar beet in the Republic of Belarus has decreased and in 2010 production in the Republic of Belarus, 2010 amounted to 3770 tons. Gorodeya Sugar Refinery 21% 28% Slutsk Sugar Plant 24% Zhabinka Sugar Plant 27% Skidelsky Sugar Refinery

Source: UNITER DOMESTIC CONSUMPTION Average sugar consumption per capita, kg

¾ Despite a 3% drop in retail sales of sugar in the Republic of Belarus 60 50 over the past 3 years the average annual per capita consumption has 50 39,7 40,7 41,4 been increasing. Moreover, the retail sales of sugar, which in 2010 40 30 amounted to 165 thousand tons, accounts for only 20% of the volume of 20 production, the rests are wholesales for industrial consumption and 10 export. 0 2008 2009 2010 2011 e

¾ As a consequence of excessive demand for sugar from the population, Source: National Statistics Committee of the Republic of Belarus that emerged in the first half of 2011, the retail sales of sugar, according Sugar retail in Belarus, thou t to the results of 2011 and “Belgospischeprom’s” valuation, will increase 300 265 by about 60%. The average annual per capita consumption will increase 250 by approximately 20% to not less than 50 kg (compared with 36 kg in 200 170 175 165 European countries). The increase in supply to the domestic market also 150 had a negative impact on the export position of the Belarusian sugar 100 50 producers in the 1st half of 2011. 0 2008 2009 2010 2011 e Source: National Statistics Committee of the Republic of Belarus

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External trade Sugar export in the Republic of Belarus, thou t

EXPORT 600 493,4 500 CAGR = 16% 439,8 323,5 400 272,1 ¾ Currently, sugar exports from the Republic of Belarus are 300 200 implemented by sugar refineries. Over the past 4 years the volume of 100 exports has annually increased on average by 16% and in 2010 was 0 made up 493.4 thousand tons, accounting for 60% of the total 2007 2008 2009 2010 production. Source: National Statistics Committee of the Republic of Belarus Geography structure of sugar export, 2010 ¾The Belarusian sugar is mainly exported to the CIS countries. The significant foreign consumer of Belarusian sugar is Russia. It has a 38% Other countries share in the Belarusian export structure of sugar, or 189.5 tons. 10% Although a few years ago the share accounted to 95%. The volume of Kazakhstan Georgia 13% foreign trade between Belarus and Russia is specified in the 4% Kyrgyzstan intergovernmental agreement. According to it, in 2011 the sugar export 9% to Russia will reach 200 thousand tons. The Belarusian sugar produced Ukraine from imported raw cane will mainly export to the countries of Central 19% Asia: Kazakhstan (62 , 4 tons), Kyrgyzstan (41.7 tons), Uzbekistan (35.4 Russia tons), etc. 38% Uzbekistan 7% Source: National Statistics Committee of the Republic of Belarus Sugar and raw sugar import in the Republic of Belarus, thou t

500 407 400 CAGR = 22% 300 IMPORT 221 213,2 200 ¾ Sugar imports to the Republic of Belarus are generally the supplies of 100 raw cane sugar from Latin America for further processing by Belarusian 0 sugar refineries. Thus, over the past 3 years, the sugar imports to 2008 2009 2010 Belarus have increased from 221 tons to 407 tons. It is noteworthy, that Source: National Statistics Committee of the Republic of Belarus in 2007 the foreign supplies of sugar were negligible. Geography import structure, 2010 ¾The main suppliers of raw cane sugar are Brazil, which accounts for more than half of Belarusian imports, Argentina and Costa Rica. Other countries 9% Argentina 27% Costa Rica 10%

Brazil 54%

Source: National Statistics Committee of the Republic of Belarus

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Average prices (rubles) and prices index for Price review sugar (%) in the Republic of Belarus 3000 150 ¾ Retail prices on sugar without any additives are established by the 2000 100 Ministry of Economy (as of 08/11/2011 the price for 1 kg of sugar was 1000 50 4600 rubles for packing at least 50 kg and 5,000 rubles for 1 kg packing). It is noteworthy that in 2011 the state prices regulation for 0 0 molded and coarse-granulated sugar, enriched sugar with additives, 2006 2007 2008 2009 2010 sugar in small packing by 5-10 g, as well as weight sugar, which is supplied by sugar refineries to the domestic market for industrial Average retail prices, rubles use. Over the past 5 years the price of sugar has increased by 90% with Sugar price indexes, % the average annual growth rate of 13.7%. Source: National Statistics Committee of the Republic of Belarus Average prices (rubles) and price index (%) of ¾ The purchase prices for sugar beets (the basic raw material for sugar beet producers’ in Belarus domestic production of sugar) are also set by the state. In order to 250 200 stimulate agricultural organizations that supply sugar beet in the early 150 stages, and to compensate the low sugar content at beets’ harvesting, 100 the up-lift to the purchase price was set. 50 0 ¾The increase in the supply of beet during 1-10 September will make up 2006 2007 2008 2009 2010 2011 ̨

20%, from 11 to 20 September - 10%, from 21 to 30 September - 5%. Sugar beet average pries, thou rubles for t The growth rate of producer’s average price of sugar beet falls behind Prices indexes for sugar beet, % the growth rate of retail prices for sugar and for the last 5 years has Source: National Statistics Committee of the Republic of Belarus, Belgospischeprom been amounted to 43% with the average annual growth rate of 7.4%. According to preliminary information, in order to eliminate the Sugar export average prices (rubles) and price imbalance and support for farmers, the prices paid for sugar beets will index (%) increase by 234 thousand rubles per ton 800 140 600 90 ¾In 2010 in the Republic of Belarus there was the significant jump in 400 40 export sugar prices due to the situation on the world sugar market, 200 which has developed as a result of failure of sugar cane crop in Brazil 0 -10 (the largest sugar producer in the world), as well as substantial losses of 2006 2007 2008 2009 2010 sugar cane and sugar beet harvest in other countries, in particular, China, Pakistan and Russia. It is noteworthy, that till 2009 the producers’ Average export prices, USD per t average price for sugar exports were higher, then starting from 2009 Average prices index of sugar export, % there was the reverse situation. So, as of August 2011, a ton of sugar in Average producers' prices, USD per t Belarus is by $ 300 cheaper than in Russia, however, it is likely that in Source: National Statistics Committee of the Republic of Belarus Russia the price will fall. In 2011, in particular, there is expected a Raw sugar import average prices (USD per t) bumper crop of sugar beet, what could bring down prices. and prices index in Belarus 800 200 ¾The average import prices for raw sugar for the Republic 600 150 of Belarus are highly subjected to fluctuations on world markets. On 400 100 average, over 5 years, the index of average import prices of raw sugar 200 50 composed 20%. In general, over recent years the import prices have 0 0 exceeded export ones by 25-30%. 2006 2007 2008 2009 2010

Average import prices, USD per t

Average prices index of sugar import, %

Source: National Statistics Committee of the Republic of Belarus CJSC UNITER Investment Company © 3 August 2011

SUGAR INDUSTRY OVERVIEW

«Gorodeya Sugar Refinery»

Granulated sugar production, thou tons

250 240,7 240 Location:Zavodskaya str., 2, Gorodeya 228,9 230,2 230,2 230 Nesvizh district, region 220 220 In 1996 the state enterprise "Gorodeya Sugar Refinery" was reorganized into Open Joint 210 202,3 Stock Company "Gorodeya Sugar Refinery" with the registered fund amounted to 59,9 200 million Belarusian rubles (570 130 registered shares of common stock). 190 Due to technical upgrade and reequipment of the enterprise which was going on from 1997 to 2000, as well as large-scale modernization of production in 2002-2004, the sugar 180 beet processing reached the level of 6 000 tons per day and sugar production (from 2005 2006 2007 2008 2009 2010 sugar beet) - 800 tons per day. Source: Gorodeya Sugar Refinery In 2010 the production capacity was increased up to 8 000 tons of sugar beet per day or 1000 – 1200 tons of raw sugar per day, and the daily production volume of sugar amounted to 1000 tons from sugar beet and 1000 – 1180 tons from raw sugar. Economic indicators JSC “Gorodeya Sugar Refinery” is included into the State Register of the legal entities which have the dominating position on the goods markets of the Republic of Belarus. 2008 2009 2010 Product range: Sugar production, thou tons 220 230,2 230,2 1. Granulated sugar; Raw sugar processing, thou tons 84,9 91,3 111,9 2. Pressed granulated sugar "Gorodejski": in form of cubes and "bridge" (shaped as Sugar beet processing, thou tons 980,6 1008,2 998,2 card suits); Average daily raw sugar processing, 834 908 944 3. Pressed granulated sugar "Gorodejski" with cinnamon: in form of cubes and tons/day “bridge”; Average daily sugar beet processing, 7018 7225 7879 4. Pressed sugar enriched with vitamin C: in form of cubes and “bridge”; tons/day 5. Refined granulated sugar; 6. Fruit production; Source: Gorodeya Sugar Refinery 7. Molasses; 8. Beet pulp. Financials

JSC “Gorodeya Sugar Refinery” is the leader on the sugar market of the republic. Its 2007 2008 2009 2010 share among all produced and saleable granulated sugar of the Belarusian enterprises Sales, mn USD 101,42 101,40 138,99 183,43 amounts to 29% (in 2010 – 28%). Net profit, mn USD 0,57 0,57 6,59 20,08 JSC “Gorodeya Sugar Refinery” is one of the founding shareholders of the following companies: Stolbtsy Brick Factory, Belarusian-American Joint Venture CJSC “Evrotareks”, Net profit margin, % 0,6% 0,6% 4,7% 10,9% CJSC “Hockey Club “Dinamo-Minsk”, LLC “Belarusian Sugar Company” (Moscow, Russia), LLC “Belarusian Sugar Company” (Bishkek, Kyrgyzstan), LLC “Belarusian Agrarian Source: The Ministry of Finance of the Republic of Belarus Company” (Kiev, Ukraine), LLC “Belarusian-Georgian Agrarian Company” Tbilisi, Georgia, LLC “Belarusian Agrarian Company” (Kazakhstan).

In the domestic market goods are sold through major retailers, such as "Belbakaleya", the Belarusian Republican Union of Consumer Societies, as well as it is sold to major food companies for industrial processing.

Number of employees (2010) – 960. Company’s shareholders are the State Property Committee and the Minsk city executive committee.

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Slutsk Sugar Plant

Granulated sugar production, thou tons

300 238,4 228,5 Location:Golovaschenko str., 6. Slutsk, 250 208,9 221,8 199,6 200 170,6

150 JSC “Slutsk Sugar Plant” is located 100 km from Minsk (south direction) near the highway Minsk-Soligorsk and railroad Osipovichi-Baranovichi. Connection with the railroad is 100 carried out through separate 4 km line to the Slutsk station. 50

The plant was commissioned in 1965. In 1996 the state enterprise “Slutsk Sugar Plant” was 0 transformed into Open Joint Stock Company. 2005 2006 2007 2008 2009 2010

Currently the capacities of sugar beet processing amount to 8 tons. Source: UNITER, National Statistics Committee of the Republic of Belarus

Product range: 9 Granulated sugar Historical milestones of the company 9 Refined sugar 9 Beet pulp development 9 Molasses Tons/ 9 Defecation mud Year Event day

Sugar is stored in two warehouses (silos) with the capacity of 15,000 and 20,000 tons of 1965 Commissioning 3000 sugar. Bulk load is carried out in railroad hopper cars and bulk sugar trucks for further industrial processing. The beginning of fundamental Among consumers of the Plant - JSC "Kommunarka", JV JSC "Spartak", JSC “Slodych”,JSC 1992 reconstruction. Production capacity of sugar beet 3300 processing was increased "Belbakaleya", LLC "Traipl", UE "Vitba", JSC "Gormolzavod ζ1", JV "Ivkon", JSC "Olivaria Brewery","Coca-Cola Beverages Belorussia", etc. The state enterprise "Slutsk Sugar Plant" was 1996 3300 Raw materials zone of JSC "Slutsk Sugar Plant" includes: transformed into Open Joint Stock Company , Kopyl, Soligorsk, , Slutsk, Borisov, Glusk, Bobruisk, Kirovsk, Osipovichi, 1999 Higher capacity of sugar beet processing 4000 Liahovichy, Oshmyany, Ostrovets. 2004 Higher capacity of sugar beet processing 6500 2009 Higher capacity of sugar beet processing 8000 Number of employees (2010) - 735. Source: Slutsk Sugar Plant

Financials

2007 2008 2009 2010 Sales, mn USD 107,02 119,17 132,05 174,91 Net profit, mn USD 2,48 13,01 17,21 26,06 Net profit margin, % 2,3% 10,9% 13,0% 14,9%

Source: The Ministry of Finance of the Republic of Belarus

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Zhabinka Sugar Plant

Granulated sugar production, thou tons

250 197,3 180,6 185,1 174,4 200 160,6 165,7 Location:Kalinina str., 1. Zhabinka, Brest region 150

100

50 The plant was put into operation in 1963. In 1995 Zhabinka Sugar Plant was transformed into Open Joint Stock Company " Zhabinka 0 Sugar Plant". Company’s founder is the Ministry for State Property Management and 2005 2006 2007 2008 2009 2010 Privatization of the Republic of Belarus (Order ζ 139 - 30/12/1995 - of Brest Property Management Department). Source: National Statistics Committee of the Republic of Belarus

Currently, the plant has reached the design capacity of 7 000 tons of sugar beet processing per day. Economic indicators The plant produces 24% of the total sugar output in the country. Measure 2007 2008 2009 2010 Product range: unit Sugar production 9 Granulated sugar tons 118 516 122 106 120 593 102 124 9 Gelatinizing sugar packed in 1 kilo paper bags from beets Sugar production 9 Beet pulp tons 42 034 52 279 45 058 95 148 from raw sugar 9 Beet molasses (treacle) Sugar tons 160 550 174 385 165 651 197 272 9 Defecation mud production, total Average daily raw Tons/ 979,24 980,94 983,68 927,43 Consumers of Zhabinka Sugar Plant goods - all regional "Belbakaleya" bases, district bases sugar processing day of the Belarusian Republican Union of Consumer Societies, JV JSC "Spartak", JSC Average daily beet Tons/ 7 464, 7 044,9 7 570,3 7 635,5 "Kommunarka", JSC "Slodych", JSC "Rogachev milk canning plant", JSC "Glubokskiy dairy processing day 6 plant". Thou 87 576 78 810 82 714 157 465 Foreign trade volume USD Partners in the CIS – LLC "Belarusian Sugar Company", Moscow, LLC "Belarusian Agrarian Average number of 807 810 857 908 Company", Kiev, LLC "Belarusian Sugar Company", Bishkek, LLC "The Belarusian-Georgian employees Agrarian Company" Tbilisi, LLC "The Belarusian Agrarian Company“ Almaty. In 2010 foreign trade volume totaled 157,5 mn USD. Source: Zhabinka Sugar Plant

Raw materials zone of the company includes 13 districts of Brest region and 4 districts of region (Dyatlovo, Ivie, , Smorgon) (land area - 27 340 ha).Storage capacity of Financials raw materials - 848 thousand tons. 2007 2008 2009 2010 Number of employees (2010) - 908. Sales, mn USD 74,46 106,55 110,69 161,29 Net profit, mn USD -1,07 4,72 8,01 10,37

Net profit margin, % -1,4% 4,4% 7,2% 6,4%

Source: The Ministry of Finance of the Republic of Belarus

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Skidelsky Sugar Refinery

Granulated sugar production, thou tons

250 216,3

200 159,9 166,7 Location:Pervomayskaya str., 1. Skidel, 154,1 150 Grodno district, 123,1 113,8

100

In 1951 the State Commission put into operation the first Belarusian Sugar Refinery, later 50 renamed into “Skidelsky Sugar Refinery”. In 1997 the company was transformed into an open joint stock company. The controlling stake (69,88%) belongs to the State, 9,35% of shares – to individuals, 0 including 3,94% - to the personnel, 20,77% - to the partners - suppliers of raw materials 2005 2006 2007 2008 2009 2010 (the state-owned collective farms). Currently, the Sugar Refinery processes more than seven tons of sugar beets per day. Source: National Statistics Committee of the Republic of Belarus

Company structure: Sales structure 9 Workshop of sugar production; 9 Workshop of citric acid production; 9 Mechanization workshop; 9 Beet receiving station - 15 sections with daily capacity of 10 thousand tons of beets; 9 Heat and power plant-2; Domestic 9 Finished goods warehouse (15 thousand tons of simultaneous bulk storage); market 9 Automated defecosaturation station. 40% Export Product range: 60% 9 Granulated sugar 9 Sugar for production 9 Pressed sugar 9 Citric acid 9 Beet pulp Source: Skidelsky Sugar Refinery 9 Defecation mud

Partners in Belarus: "Belbakaleya", "Sahartorg" (Gomel), "Minbakaleyatorg", Financials "Kommunarka","Krasny Pischevik", "ABC“. Partners abroad: LLC "Belarusian Sugar Company", Moscow, Belarusian Agrarian 2007 2008 2009 2010 Company, Ukraine, «Coca-Cola», “Almaty Bottlers” (Kazakhstan), “Belarusian Sugar Company”, Kyrgyzstan. Sales, mn USD 68,15 74,34 94,53 142,25 Net profit, mn USD -8,36 0,66 -3,09 7,20 In 2010 the Sugar Refinery exported over 100 tons of sugar. In particular, the exports to Russia amounted to 37 thousand tons, 22 thousand tons - to Ukraine. Net profit margin, % -12,3% 0,9% -3,3% 5,1%

In respect to raw materials supply the Skidelsky Sugar Refinery is in the most favorable conditions. The raw materials zone consists of collective farms of Grodno region, which have the highest yields of sugar beets and totally supply raw materials for the Sugar Source: The Ministry of Finance of the Republic of Belarus Refinery.

Number of employees (2010) - 1127.

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Contact details

Andrey Dereh Managing Director [email protected] +375 29 6 76 30 97

Roman Osipov Maksim Kokhov CJSC «UNITER INVESTMENT COMPANY» Director Director Belarus, Minsk, Nezavisimosti, 117a, 12th floor, Investment banking Dept. Consulting and Research Dept. Business Center «Aleksandrov Passazh» [email protected] [email protected] Tel : (+375 17) 385 24 63 Fax : (+375 17) 385 24 64 +375 29 6 57 83 26 +375 29 6 29 14 65 email : [email protected]

Dmitriy Kirilenko Dina Krasnoborod Analyst Analyst [email protected] [email protected] +375 17 385 24 65 +375 17 385 24 65

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This report was prepared for informational purpose only and does not constitute an offer or solicitation of a strategic transaction. Points of view, forecasts and evaluations presented in this report reflect our opinion as of the publication date and may be changed without notice. Although the information contained herein has been obtained from sources we believe to be reliable and although we ensured their accuracy as of the publication date, we cannot guarantee, expressly or impliedly, practicality of this report regarding future events or current or future value evaluation. Any investment decision based on this report should be made only at the discretion of the investor and UNITER or its employees or any third party shall not be responsible in any form and in no circumstances for any action of any party taken on the basis of this report. Nor UNITER, nor any of its employees, nor any third party shall be responsible for losses that result from such actions.

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