Improving Business Growth Through Investment

Afsane Jetha

COO, TLG Capital

July 2011

Executive Summary

FirmOverview

Investment Philosophy

TLG Capital (“TLG”) is a Frontier Markets investment company. Set up in September2009, TLG:

o Focuses on Growth Capital investments with an emphasis on Africa

o Invests across the capital structure to optimise returns and minimise risk

o Focuses on sectors that cater to consumers and so leverage the rise of theconsumer class in the markets in which it operates

TLG’s investment philosophy is driven by two key themes:

o Growth capital in the “missing middle space” – In sub-Saharan Africa,businesses without collateral have limited access to funding from banks.Micro-finance organisations are too small to facilitate their needs. TLGoperates in this vacant middle space, where investing in transactions lessthan US$15m

o Transmigration of technology to sub-Saharan Africa – Particularly fromIndia, a market that has thrived despite being beset by similar issues interms of governance, infrastructure, bureaucracy and income inequality

2

Executive Summary (Cont’d)

3

Past Investments Include

Africa Investments

o Quality Chemicals Industries Ltd - East Africa’s first pharmaceuticalcompany. It manufactures life-saving anti-malarial and AIDS generic drugs,based in Uganda

o Sweden Ghana Medical Centre - West Africa’s first European-standardcancer treatment facility

o Vero Food Industries Limited - Uganda rice and mineral water plant, set tobecome one of the premier factories with the capability to produce 42,000bottles of mineral water a day and has capacity to produce 2,500 tonnes ofmilled rice per hour

o The Snapper Hill Clinic - based in Monrovia it is one of the only medicalfacilities that survived the Liberian civil wars and is one of only five familymedicine practices in a city of 4 million

o Iroko Financial Products Limited - a financial services institution, acting as aDebt Capital Markets agent for sub-Saharan African companies seeking debtfinance and providing a link to international investors

Ex-Africa Investments

o Compagnie Fluviale du Mekong – The oldest luxury river cruising companyin Cambodia

o Re-feel –India’s largest and fastest growing printer cartridge refilling chain.The company is now leveraging its network of over 150 outlets across 80cities to expand into the laptop aftermarket and repair industry

Differentiated Investment Strategy

Investment Themes

Growth capital investments in African businesses capitalising on the rising consumer class

Investments in joint ventures with international firms that can “migrate” profitably to Africa

Investments that contribute to the economic development of countries in which TLG invests

Investment Criteria

Geographies with favourable political, macro-economic and currency trends:

o Ghana, Uganda, Rwanda, Kenya, Nigeria, Tanzania, Liberia and selected others

o TLG has the right of first refusal to potential new equity deals sourced via Iroko

Cash-flow generative businesses with potential for both capital appreciation and income yield

Focus on sectors that are relatively under-served and do not require high capital expenditure, such as

healthcare, services, IT, media, retail, and hospitality, rather than telecoms and infrastructure

Focus on mid-sized firms (no investments > US$15m), which are relatively starved for financing

Work with best-in-class local and international partners to reduce risk

Use capital structure to optimise risk-reward trade-off

o Debt element to provide security and yield, and to incentivise disciplined management

o Convertible or equity component to capture potential upside

o Avoid outright majority stakes to ensure management is sufficiently motivated

Protect investment through negative control and board representation

Consider broader Environmental and Social Governance criteria for all investments

4

The Africa Story and Opportunity

5

Why are foreign companies interested in investing in African SMEs?

The land size of Africa is larger than the USA,

China, India, Japan and all of Europe combined

More than 1 billion people live in Africa making it

the second most populated continent in the world

Africa contains 99% of the world’s chrome

resources, 85% of platinum, 70% of tantalum, and

54% of the world’s gold

At present Africa holds 3% of the world’s GDP; it is

expected to jump to 15% within the next few years

and is predicted to grow by 63% between 2008

and 2020

Africa now boasts more than 100 domestic

companies with revenue greater than US$1bn.

Capital flows to the continent increased from just

US$15bn in 2000 to US$87bn in 2007: Africa

offers the highest rate of return on investment of

any region in the world.

6Source: The True Size of Africa: Kai Krause, McKinsey Global Institute, Foreign Policy Magazine December 2010

Africa: A Continent of Growth & Opportunity

For many Africa represents the ‘final

frontier’ in investment;, yet much Africa also

represents one of the most dynamic growth

Since 2000 African economies have grown

healthier as governments lowered inflation,

trimmed foreign debt, & shrunk budget

deficits

FDI in Africa has increased to US$62bn in

2008, mainly from China, large multinationals

(Bharti) and private equity. The rate of return

on FDIs in Africa is higher than any other

region (i.e., CDC – 12%)

Though risks remain there is a trend towards

increasing economic liberalisation and

integration into the global economy, as well

as improving economic capabilities

McKinsey Global Institute Africa Report

predicts the continent’s collective GDP to

grow by 63% from 2008 to US$2.6tr by 2020

22.0%

8.0%

0%

5%

10%

15%

20%

25%

1990s 2000s

Inflation, % per annum

81.9%

59.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

1990s 2000s

Government Debt, % GDP

-4.6%

-1.8%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%Budget Balance, % GDP

1990s 2000s

Africa in the Global Picture

8.3%

5.2%

4.9%

4.8%

4.0%

3.0%

0.00% 5.00% 10.00%

Asia…

ME…

Africa

CEE

LatA…

World

500700900

1,1001,3001,5001,700

19

80

s

19

90

s

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

African Annual Real GDP in US$bn

FDI Annual Rate of Return, %

Source: McKinsey Global Institute, World Bank, African Development Bank, International Monetary Fund7

Stronger Fundamentals

Compound Annual real GDP growth 2000-2008

0%

5%

10%

15%

20%

95 96 97 98 99 00 01 02 03 04 05 06 07

Africa

Asia

LatAM

MENA

Africa: A Continent of Growth and Opportunity

Source: IMF World Economic Outlook Database, April 2010, McKinsey GlobalInstitute, World Bank Global Economic Prospects, June 2010, Note: GDP measuredin constant 2005 USD. Growth rates over intervals are compound average,UNSTAD

Investment and Growth

8

FDI in Africa has increased from US$9bn to US$62bn in 2008,

mainly from Chinese investments, large multinationals (such as

Bharti) and private equity investments. The rate of return on

FDIs in Africa is higher than any other developing region

Growth rates across sub-Saharan Africa were gathering

momentum as the global financial crisis struck. However, as of

Q4 2010 growth has largely returned, and economies such as

those belonging to Ghana, Angola and the Democratic Republic

of the Congo are predicted to be among the fastest-growing in

the world

0

1

2

3

4

5

1990s 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Foreign Direct Investment, net inflows (% of GDP)

Preconceived notions about the African economic landscape and

its viability as an investment destination are actually some of the

biggest obstructions to a healthy investment environment

Across African markets and political spheres there is a great deal

of variety, highlighting the need for a similar philosophy in

terms of investment: with diversity through sectors and regions

minimising the scale of risk involved

Perception versus Reality

2008 2009

Botswana 36 37

Mauritius 41 42

South Africa 54 55

Ghana 67 69

Brazil 80 75

China 72 79

India 85 84

Sub-Saharan Africa 117 116

Nigeria 121 130

Sierra Leone 158 146

Kenya 147 146

Russia 147 146

Angola 158 162

Global Corruption Perception Index (CPI) Ranking, Sub-Saharan Africa and BRICS, 2008-2009

Rise of the African Consumer

9

The Rise of the African Consumer and Middle Class

Source: Source: McKinsey Global Institute, World Bank, Boston Consulting Group, Fitch Ratings, African Development Bank

Many sectors targeted through private equity in 2009 and 2010

are closely linked to the rise of the middle class. These are areas

such as hospitality/retail, healthcare, industrials/manufacturing,

services, financial services and media/telecoms. The combined

total investment for these sectors totalled US$839m between

January 2009 and July 2010. In comparison, Africa’s traditional

magnet for foreign investment, natural resources, accounted for

US$137m for the same time period

The gradual urbanisation of Africa is tied with rising income. In2008, roughly 85m African households earned US$5k or more,spending half their income on items other than food.Households with discretionary income spending are expected toincrease by 50% over next decade, reaching 128m

Food and beverage spending is projected to increase more thanany other consumer category

Shifting Consumer Trends

10

Rising Consumer Spending

35%25% 18%

29%32%

29%

18%21%

24%

12% 14%17%

6% 8% 12%

2000 2008 2020

Global (>US$20k)

Consuming Mid Class (US$10-20k)Emerging Consumers(US$5-10k)

Basic Consumer Needs (US$2-5k)

Destitute (<US$2k)

Increasing Affluent African Population, 2000-2008

$662bn

$451bn

$274bn

$247bn

$222bn

China

Russia

Africa

Brazil

India

Private Consumption Growth, 2000-08 (US$)

1,380

540 500

200

2,620

520

110 220 130

980

0

500

1,000

1,500

2,000

2,500

3,000

Consumer Resources Agri Infrastructure Total

Estimated Annual Rev, 2020

Growth, 2008-20

US$bn African Sectors’ Revenues Forecasts

Africa’s consumer facing sectors (consumer goods, telecoms,

banking, etc) are already growing 2-3x faster than OECD

countries. African households spent US$860m in 2008, more

than Russian or Indian households

Financing Options Available

11

Risk/Return Landscape of Private Capital in sub-Saharan Africa

12

Risk

BanksLarge-Cap

Private Equity

Growth Capital

Microfinance institutions

Return

US$10k US$100 million+

Bubble Size

Microfinance & Bank Loans

Microfinance – Able to offer financing to small businesses but amounts are low (up to a maximum of US$10,000)

and currently exist in a competitive market with a large number of small business vying for capital

Banks

Pluses & Minuses:

Bank loans are relatively fluid for SMEs with collateral; timelines are generally a few weeks to a few months

Value-add can be significant, but depends on the bank (i.e., are they helping you in non-financial ways?)

― Collateral needed & high cash interest rates

― Capacity to bear risk (size taps out at US$5-10m for SMEs)

― Covenants and fixed terms do not allow for much flexibility for capital intensive or growing businesses

13

96.7

88.4

92.6

86.1

78.8

Rwanda

Uganda

Tanzania

Kenya

Nigeria

Loans Requirng Collateral (%)

168.4

173

124.1

120.8

138.8

Rwanda

Uganda

Tanzania

Kenya

Nigeria

Value of Collateral needed for Loan (%)

74.1

78

84.6

78.3

92.8

18.2

12.7

7.8

12.7

1.3

0

0.4

0.2

0.4

0.1

Rwanda

Uganda

Tanzania

Kenya

Nigeria

Source of Finances

Availability of Loans within the African Market, 2009

Source: World Economic Forum; The Africa Competitiveness Report

Private equity/growth equity – ranging from small minority to majority stakes in private companies

Convertible bonds – a hybrid of debt and equity. Often initially cash interest bearing with potential to

convert to equity if business performs

Pluses & Minuses

Potentially much higher value-added; often investors will place a resource with the company and assist with

financing, reporting; will also leverage off investors network of banks and other companies

Capital is relatively flexible (often no traditional covenants)

Collateral is not always required

Cash interest will be lower than traditional bank financing

Lower refinancing risk as bond converts to equity after a period if business meeting plan

Speed of deployment can be a few weeks to a few months

― Sometimes hard to come by growth equity firms (not that many around)

― Due diligence can be more onerous than bank loans, especially when there is no collateral

― Ongoing reporting requirements can be arduous (but potentially worth while if the eventual view is to list or

be sold to large-cap private equity)

Growth Capital – What exactly is it?

Growth Capital – Recent Convertible Bond Transactions

Country Company Year Type Amount Purpose

South Africa Aquarius Platinum underwritten and managed by Rand Merchant Bank

2009 Convertible Bond n/a n/a

South Africa Emerging Capital Partners into Blue Financial Services

2010 Convertible and Common shares

US$15 m Growth Capital

South Africa Steinhoff Finance Holding (with Standard Bank)

2010 Convertible Bond EUR 390 m n/a

Kenya Emerging Capital Partners into Wananchi Group

2009 49% Equity Stake US$25m n/a

Nigeria SeaTrucks Bond Issue 2011 Convertible Bond US$200 m n/a

Convertible bonds were the most common issue type in sub-Saharan Africa in 2009, with convertible bond issues of US$1.4 billion accounting for over 70 percent of the capital market activity.

Source: Thomson Reuters

At least five US$150m+ funds competing for deals in this space; a few US$500m+ firms emerging as well

(Carlyle)

Increasingly prevalent in sub-Saharan Africa:

– Essar Telecom in Kenya - US$94m (06/09)

– Rift Valley Railways in Uganda and Kenya (12/09)

– China-focused investor, Hony Capital – investment in Wisco in Madagascar US$100m (02/11)

– Helios invested in InterSwitch in Nigeria - US$110m (01/11)

Pluses & Minuses:

Significant value-add from hands-on management (fine line between management and control)

Several firms vying deploy capital - the likelihood of a competitive auction is high (you get a good deal!)

― You need to be an established player (track-record, cash flow positive, several years of audited accounts)

― Size & scalability (minimum ticket size usually +US$20m)

― Increasingly competitive space (good for you if you have a large business to sell!)

― Long process (3mos – 12mos+) with extremely arduous diligence process

― Viewed as “expensive” in terms of the value you may be giving up (generally these firms take large majority

positions)

Large-cap Private Equity – Transactions Above US$20m

Sector Opportunities

17

Sector Opportunities – Consumer Retail and Agri-Business

Source: McKinsey Global Institute, UN Conference on Trade and Development, International Finance Corporation, World Bank/Food Africa Organisation: Awakening Africa’s sleeping giant

Despite Africa holding 60% of the world’s uncultivated arable

the agriculture sector remains underdeveloped. While this

sector accounted for only US$65m in investments between

January 2009 and July 2010 and today there are more funds in

SSA focused on agri-business than any other sector

Within consumer markets spending patterns are shifting as more

households gain discretionary spending power. Food and

beverage consumption is projected to increase more in

absolute terms than any other category over the next decade,

rising by US$175bn to US$554bn in 2020

Real consumer spending has grown 3-5% annually since 2000

and 90% of households have at least some discretionary

income

Many consumers have moved from the destitute level of income(US$1k/year) to the basic-needs (US$1-5k) level. 221m basic-needs consumers will enter the market by 2015

In Nigeria, the collective buying power of households earningUS$1-5k a year doubled from 2000-07, reaching US$20bn,ensuring ample space for commercially-focused companieslooking to capitalise on this increased collective buying power

Africa has the potential to increase the value of its annualagricultural output from US$280bn to around US$500bn by2020 and to US$880bn by 2030. This would increase thedemand for upstream products such as fertilisers, seeds,pesticides, machinery, while spurring the growth of other typesof downstream activities such as food processing

Consumer Retail and Agri-business in Africa

18

369

144

97

51 46 28 26

101

175

10162

32 35 30 2160

050

100150200250300350400

Foo

d &

B

ever

ages

Ho

usi

ng

No

nfo

od

C

on

sum…

Hea

thca

re

Tele

com

Fin

anci

als

Edu

cati

on

Oth

er

Household Spending, 2008 in US$bn

Household Spending Growth, in US$bn, 2008-20

590

300

80

2163845495353

6672

753139

155

Others

Tanzania

Central …

Mozambi…

Zambia

Angola

DRC

Sudan

Others

Venezuela

Argentina

Brazil

Cropland defined as land producing output greater than 40% of maximum yield under rain-fed conditions, excluding forest areas

Additional available cropland, 2009Million Hectares

The Opportunity

Household Spending

Sector Opportunities – Healthcare

Source: McKinsey Global Institute, International Finance Corporation, Boston Consulting Group

Sub-Saharan Africa has of 11% of world’s population, bears24% of the global disease burden and accounts for < 1% ofhealth expenditure

This is slowly changing. There has been a recent rise inhealthcare sector deals across the continent. Hospitals, healthinsurance companies and pharmaceutical companies in Kenya,Nigeria, Uganda, Ghana and South Africa have all seen a steadysupport from Private Equity funds. This trend is remarkablysimilar to the growth in the middle class in other emergingmarkets (such as India) where healthcare has commanded asimilarly high level of a attention

The private health sector in sub-Saharan Africa is surprisingly large.

In 2005, total healthcare expenditure reached US$16.8bn of which

60% was financed by private parties

Improvements in Africa’s macroeconomic climate will create new

demand. Healthcare expenditures are expected to grow 108% from

2005 to 2016, by which time they will have reached US$35bn

Healthcare in Africa

19

Current consumer demand for healthcare services continues to

be unmet in most sub-Saharan African countries:

o In Nigeria, every year 18,500 residents travel abroad to

seek medical care, exporting US$1bn worth of revenues

o In Ethiopia, there is only one clinic for every 125,000

Key investment opportunities tied to reaching scale and

investing in quality certification:

o Growth of domestic generic pharmaceutical markets

o Expansion of product portfolios; large scale

manufacturers are more likely to obtain WHO pre-

qualification and produce drugs for treatment

o Aggregation of country markets into regional markets

that would create significant scale and replication- pan-

African scope for manufacturers

o Basic medical diagnostics and healthcare services

16.8

8.414.0

8.4

21.0

0

10

20

30

40

2005 2016E

Public Private

7.1%CAGR

Total Healthcare Expenditure in Africa, US$bn

35.0

16.8

50%

14%

14%

13%

9% Heathcare Provisioning

Distribution and Retail

Life Sciences

Risk pooling

Medical Education

Total Healthcare Expenditure Distribution in Africa, %

The Opportunity

Vero Food Industries Limited (VFL)

The growing middle class in Uganda has led to higher

demand for such essentials as mineral water and rice,

especially given reports of rising levels of contamination

amongst fresh water supplies

This increased demand for rice in Uganda is estimated at a

210,000 tonnes per year: most of which is currently

imported from Asia. With an already evident market, rice

produced locally will not struggle to be sold

The expanding regional market for Uganda‘s food has

boosted agriculture, and paves the way for the expansion of

products produced in Uganda into East Africa

The creation of the East African Community could help

Uganda fill its description as a potential agricultural

“breadbasket” for the region; current growing agri-

businesses have the potential to be the foundations for this

prospective growth

The primary focus of the company is the production of mineral

water and rice

Operations started early 2011 and the company is set to be

amongst the largest producers of these products in the region

with the ability to produce over 42,000 bottles of mineral

water a day

The processing plant for rice uses Chinese technology and has

the capacity to produce 2,500 tonnes of milled rice per hour

The company intends to tap the increasing regional market for

agriculture with the aim to eventually export to the whole of

the Great Lake Regions

The industrial housing is composed of two adjacent structures

measuring 625m2 each. One of the structures currently

houses the rice processing plant and has adequate remaining

for packaging and storage of finished rice

20

Uganda

The Company Investment Thesis

The Deal

Entered October 2010 with board seat representation

Investment via equity and option to increase stake as the

business grows

Challenges the Company Faced

Start-up operations in “competitive” space

No access to growth capital

Vero Food Industries Limited (VFL) – Progress since investment and growth plans

Originally due to produce both water and rice once full scale

production began, management found that rice production

caused contamination to the water producing facility. The

decision was taken to launch the water bottling facility first

with the aim in mind to establish the rice facility at a

suitable location in late 2011/early 2012

In H1 2011 there was political unrest in Uganda, which led

to a heightened risk perception from investors; the

defensive nature of the investment (consumer staples) and

the real estate security gave investors confidence

In Uganda over 70% of the work force is employed in some

form of agricultural-based work, and indeed Uganda is often

seen as an agri-business “hotspot” thus VFL is operating in a

highly competitive space. However by employing a

proficient management team and deploying a competent

marketing strategy (thanks to the injection of Growth

Capital) they hoping that they will be able to stay ahead of

those competing in the same space

Synergies between portfolio companies; TLG has facilitated

sharing of best practices between its portfolio companies in

Uganda allowing for time to production to be expedited

Through the Growth Capital investment, the company was able

to scale up the project that was first trailed with water and rice

production in July 2010

VFL has several plans for growth and expansion :

Geographical Expansion: Newly independent South

Sudan looks set to provide a lucrative market for

Ugandan companies looking to expand. Provided the

company is able to move early VFL can capitalise on

serving this new market

Liquid Product Line: At present the company supplies

bottled water and is able to supply pre-formed water

bottles. Within the next year the management is hoping

to scale up production levels, as well as introduce new

water lines – e.g. Vitamin water

Rice production: Rice was always part of the original

plan when launching, and given Uganda’s already

present demand, rice presents an extremely viable

space for the company to move into as it ups its capacity

in the near future

21

Uganda

The Company – Growth Plans Threats & Mitigants

Dialysis Centre in Sierra Leone

The WHO Global Report states that there are nine reported cases

daily of kidney related deaths in Sierra Leone, it has also been

reported that 1 in 36 people have chronic kidney disease and that

over 150,000 people will develop some form of kidney disease

every year in Sierra Leone. In many cases the prevalence of

malaria contributes significantly to kidney disease – TLG Capital ‘s

investment into QCIL provides a platform for potential synergies

with drug distribution

Currently residents of Sierra Leone residents are forced to travel

abroad to seek costly treatment leaving a market opportunity in

the healthcare sector in Sierra Leone

The founder has the experience and in-depth country knowledge

to drive the project forward

Investment will provide the much needed capital to finance plans

for expansion and to ensure that the clinic is equipped with the

best modern equipment to service the needs of the clientele

The primary focus of the company is providing care for patients

effected by kidney disease and/or stroke, at present it is the only

clinic in the whole of Sierra Leone that is able to offer such

treatment

The clinic is run by an entrepreneur: an American-trained critical

care nurse with 13 years of training, who recently completed a

course as a dialysis nurse in preparation to run the clinic

The facility will run at international standards in all areas

Running the clinic alongside the entrepreneur is a nephrologist from

Egypt, one resident and one on-call physician, 3 State Registered

Nurses, 9 State Enrolled Community Health Nurses, 5 nurse

assistants and other support staff.

The clinic is located in Freetown, Sierra Leone

22

Sierra Leone

The Company Investment Thesis

The Deal

TLG Capital will provide growth capital with the view to create the

only dialysis, imaging and diagnostics company in West Africa

through a buy-and-build strategy

Challenges the Company Faced

Clinic ran out of funds after government funding fell through

No collateral against which to get a long-term bank loan beyond 1

year with reasonable interest rates (i.e., sub 25%)