RB nr 11/2008

Legal basis: § 5 subpar. 1 pt. 25 of RO

In connection with the typo in the current report no. 11/2008 from February 21, 2008 the Management Board of MCI Management SA hereby presents the correct content of the communication.

According to preliminary results MCI Management S.A. (“MCI”) reached the unit net profit of PLN 78.6 million and the consolidated net result of PLN 78.0 million in 2007. Complete results will be published in the quarterly report on February 29, 2008.

Results of the Fund and assets’ valuation for 2007.

The consolidated net profit grew by 208% compared to 2006 (PLN 25.5 million) and the unit net profit by as much as 166% (in 2006: PLN 29.3 million) which enabled the company to realize the forecasts in over 100%. The results of MCI were caused by 6 transactions of sale of stocks and shares of the portfolio companies (One-2-One, S4E, ITG, Hoopla.pl, Telecom Media, Clix), the contribution of assets to the subfunds managed by MCI Capital TFI SA – MCI.TechVentures 1.0 and MCI.EuroVentures 1.0 made on December 2007 as well as an update of the valuations of MCI assets at the end of the year. In August last year, two portfolio companies of MCI: S4E SA and Digital Avenue SA highly successfully debuted on the first day of quotations of the new alternative market NewConnect.

The directors’ valuation of MCI assets at the end of 2007 finally reached PLN 530.6 million, which in almost 88% fulfilled the forecast announced by the fund (PLN 604.1 million.) The formal book valuation of assets applied e.g. to calculate the net value of assets in subfunds (based on EVCA guidelines) reached PLN 269.6 million.

Strategic growth and reorganization of the Fund’s structure

The new strategy of growth assumed at the beginning of 2007 based on diversifying the investment policy and geographical expansion resulted in a dynamic organizational growth of the Company. Investment teams dedicated specifically to individual categories of assets were set up within separated Funds managed by MCI focusing on executing assumed investment strategies.

Last year MCI.TechVentures 1.0 grew and expanded and two new funds managed by MCI started their operations: MCI.BioVentures, investing in companies at their early stage of growth in the sector of biotechnology and healthcare services, and MCI.EuroVentures 1.0, investing in mature and developed companies from the sectors of TMT, financial and medical services. Furthermore, MCI continues its activities connected with the creation of HelixVentures fund co-subsidized from the National Capital Fund investing in high-tech sectors (Internet, software, mobile, electronics, nanotechnologies) in micro-enterprises at their earliest stage of growth. As a result of the activities above MCI team grew to 27 persons and became one of the biggest investment teams operating in the sector of Venture Capital and Private Equity in Central and Eastern Europe.

In July 2007, MCI Capital Towarzystwo Funduszy Inwestycyjnych SA (a company in 100% owned by MCI Management SA) obtained the consent from the Financial Supervision Commission to commence its operations and create the first two subfunds: MCI.TechVentures 1.0 and MCI.EuroVentures 1.0. They are assets non-public funds, which means that at least 80% of their funds are invested in shares or stocks of the companies unlisted on stock exchanges. In the middle of December 2007, MCI completed the first stage of asset transfer (stocks/shares of portfolio companies) to the subfunds mentioned above.

The objective of MCI’s evolution from a venture capital fund in the direction of a company managing diversified portfolios of alternative assets is to transform the MCI capital group into a structure which is safer for investors and formally more transparent operating under supervision of the Financial Supervision Commission. Already in H2 2008 practically all financial results of MCI shall be the effect of an increase or decrease of the value of the investment certificates it holds (to be published at least once a quarter.) Furthermore, an additional stream of profits from the management fee shall appear in the structure of profits of the MCI investment group as a result of the operations of MCI Capital TFI SA, which in the future, apart from income directly from sale/redemption of investment certificates, shall be a significant position in the P&L Account of MCI group.

By creating next new funds MCI wants to offer the investors a highly profitable product alternative to investments in stocks quoted on the stock exchange or investments in traditional opened-end investment funds.

Growth of the investment portfolio, new investments and exits in 2007.

In 2007, MCI began 6 new investment projects: on the Czech Republic (Geewa s.r.o.,) one in Bulgaria (Nexcom Bulgaria), four in Poland – NetPress Digital Sp. z o.o., Finepharm Sp. z o.o., Intymna.pl Sp. z o.o. and first LBO – ABC Data. The total value of new investments in 2007 exceeded PLN 62 million, and taking into account the next investment round it reached over PLN 81 million.

An LBO of ABC Data Holding, which included a buyout of three companies from three countries generating annually over PLN 2.5 billion in profits from sales of computer hardware and software, was of great significance for the continuation of the dynamic growth of MCI. The total value of the transaction was over PLN 212 million and it was financed among others with convertible bonds.

The total value of generated cash inflows from divestments in 2007 reached PLN 49.6 million (including the transaction of sale of Technopolis for PLN 17.3 million.) MCI continued the strategy of partial exit from the portfolio of investments built in the years 2000-2004 by selling the minority stakes in One-2-One, S4E, ITG, Hoopla. Complete exits were executed with Clix Software and Comtica projects.

In 2007, preparations for the execution of next stages of exits from MCI investment portfolio connected with exit both through the capital market and to strategic investors were conducted.

Despite slumps in stock exchange markets at the end of 2007, MCI recorded an increase in directors’ valuation of its assets by 152% to PLN 530.6 million. That growth translated into both growth of the existing portfolio and new investments, including ABC Data.

Forecast for 2008

The Management Board of MCI Management SA presents the forecast for 2008:

2008 forecast
Unit net financial result PLN 79.6 million
Consolidated net financial result PLN 78.6 million*
Directors’ valuation of MCI assets PLN 707.5 million
* assuming non-consolidation of the results of ABC Data Sp. z o.o. group

Due to the instability of the capital markets in the world and its influence on the valuation of public and non-public companies, MCI forecasts conservatively the unit net result for 2008 at the level similar to that from last year. The Company is planning to complete the process of transfer of all assets to its investment funds by the end of H1 2008, which in turn shall cause the consolidated results in 2008 to be at the level similar to the unit results of the company.

The Management Board of MCI Management SA is planning a 33.3% increase of the value of assets by the end of 2008 in the wake of the growth of the portfolio of the companies managed by the fund.

Activities planned in 2008

The investment strategy of MCI for 2008 assumes making 8-12 new investments within the managed Funds of the total target value of engaged funds at the level of PLN 100 million. New investments will be made in Central and Eastern Europe but the Polish market shall still dominate in the structure and the volume of investments. In the opinion of the Management Board of the Company in 2008 MCI will be operating in a market environment more favorable for making attractive new investments to assure real valuations of the projects.

In the area of exits MCI is considering up to 5-10 transactions for the value of PLN 60-90 million. Making the transactions will be correlated with the implementation of approved operating and strategic plans of portfolio companies as well as with the general investment climate on capital markets.

In the scope of management of the portfolio growth a plan was developed with numerous variants which assumes:
– growth of the value of current investment portfolio based on organic growth, optimization of operations and increase of competitiveness of projects;
– sharp growth of the value of key projects in the portfolio supported by mergers and takeovers;
– preparation of selected projects for introduction to the regulated stock exchange market and NewConnect as well as presentation of offers;
– implementation of plans of exits from investments in selected projects with mature exposure of the Fund;
– finding new highly attractive projects through TechVentures, BioVentures and EuroVentures in Poland and in the Region of Central and Eastern Europe.

The activities described above shall provide for the growth of the value of the investment portfolio to over PLN 700 million.

MCI will continue the strategic growth which assumes work over new Funds managed by MCI:
 Building local funds investing in assets at an early stage based on local sources of capital (such as the National Fund Capital) in Poland, Czech Republic, Romania and the Ukraine, including the launch of Helix Ventures with the strategy investment of focused on investments in innovation technological projects in their early stages of growth in Poland.
 Growth of TechVentures 08 fund based on a traditional structure of raising capital as the venture capital leader in the region of Central and Eastern Europe building local and regional leaders and globally competitive projects.
 Growth of EuroVentures fund as the leader of “expansion capital” investments in the region of Central and Eastern Europe based on local sources of capital through TFI and focus on such sectors as TMT / Finances / Healthcare / Medicine / Media.
 Growth of BioVentures funds as the seed/venture capital leader in the area of biotechnology / lifescience / medical services in Poland and Central Europe based on the National Capital Fund and the European Investment Fund.
 Growth of EcoVentures fund as the seed/venture capital leader in the area of environmental protection, technological innovations, power engineering and chemicals in Poland and Central Europe.

Due to planned high value of new investments in 2008 and plans to launch next Funds, MCI expects an issue of new bonds convertible to shares (PLN 50 million) and public issue of MCI shares (PLN 50 million) by the end of 2008. The issue of bonds and new issue of shares shall be strictly correlated with MCI needs connected with the execution of new enterprises and the bonds convertible to shares shall be issued first.

As assumed the value of program of convertible bonds issue shall reach PLN 50 million. The securities shall have a 3-year maturity with the right to conversion to shares at PLN 25 per one share. The subscription of the bonds shall be offered to domestic or international investors in private offering.

In H2 2008, MCI may conduct an additional issue of shares of the value of up to PLN 50 million at the price close to the market price in public offering with the right of priority to subscribe the shares on the part of current shareholders of the company in proportion which does not exceed their shareholding in the capital.

The private equity sector remains highly lucrative in Central Europe as a result of a dynamic growth of Central Europe, prospects of growth of the private equity market and intensity of competition. MCI is planning further dynamic growth in its most attractive segments – venture capital, biotechnology, buy-outs, expansion capital and clean technologies.