YFM and Adex Bridge Investments Raising Finance in Challenging Times December 2010

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Our brief ♦The challenge of raising debt finance ♦The approach that banks take to managing their customer base ♦How private equity can play a major part in future growth strategies Today

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. YFM ♦YFM is a UK fund manager specialising in small businesses ♦Investing up to £8 million equity in rapidly growing companies ♦c.£321 million under management ♦Approaching 30 years of investment experience ♦Investment portfolio of c.250 companies ♦A range of investment funds ♦Investment team of 30 people ♦Principal offices in London, Leeds, Bristol and Manchester ♦Dedicated to working alongside management teams to create transformational growth For further information visit Introduction Leeds Manchester BristolLondon YFM Private Equity Limited [FSA number ] and YFM Venture Finance Limited [FSA number ] are authorised and regulated in the UK by the Financial Services Authority.

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Adex Bridge Investments ♦Joint Venture between YFM and Peter Bridge ♦Midlands Based ♦Led by Peter Bridge who has significant experience in value recovery and corporate restructuring for private equity and banks ♦Equity investment of £1m to £6m ♦Generalist investor with an opportunistic approach across all industry sectors ♦Fundamentally sound businesses that are too highly geared or cannot raise sufficient bank debt to finance growth ♦Underperforming businesses where the corporate, owner-manager or family owners are looking for an exit ♦Pre-packs and Post Receiverships Introduction

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Growth in the SME sector is key to the recovery ♦Current phase of the recessionary cycle – stabilising and growth ♦SMEs have traditionally led the UK out of recession ♦SMEs are responsible for c50% of the UK’s GDP ♦SMEs usually account for over 60% of employment growth, as we come out of recession ♦As SMEs are often more flexible and more agile than larger firms they are usually able to seize growth opportunities quickly Recovery … but clear challenges remain ♦The business climate generally will remain challenging for longer than previous recessions. ♦Those SMEs with a higher reliance upon the public sector will find recovery more difficult but those with a strong export focus should find growth sooner ♦Are the banks prepared to finance this growth?

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. What is the current banking climate? ♦Banking conditions remain challenging ♦Return of some liquidity albeit at significantly lower levels than pre “credit crunch” ♦Banks remains focused on high-grade businesses ♦Pricing and maturity has improved marginally, over the last 12 months, but remain less favourable than pre “credit crunch” ♦Banks are more supportive in this recession ♦Banks are taking more equity stakes than ever before ♦Banks now own large property portfolios ♦Banks are looking to reduce their exposure: Sector Avoidance Loan to Value requirements remain depressed Banking climate

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Conventional Debt Debt finance ♦Overdraft ♦Senior Loan/Cash Flow Loans ♦Loan Notes ♦Government Grant ♦Letters of Credit ♦Invoice Discounting or Factoring ♦HP & Leases ♦Mortgage Asset Based Lending Low Risk High Risk Sector Risk Level of Security Company Risk Management RISK

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. How to manage your bank? ♦Maintain channels of communications ♦Avoid getting entrenched ♦Be realistic ♦May need to reset expectations ♦Work on maintaining their confidence in: Your Management Team Your Advisors Your Business ♦Try to maintain more headroom than usual ♦Be transparent, realistic and pro-active Managing your bank

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Case study Case study - Gambler ♦Designer, importer and distributor of gaming products ♦Market Leader with strong brands ♦Customers include large retail multiplies, sports shops, pubs & clubs ♦MBO in 2005 ♦Revenues & Profits hit by  smoking ban in 2007  recession from 2008  stronger US$ in 2009  virtual collapse of large customer in 2009

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. How did we restructure the company? Case study

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. What is private equity? ♦A type of finance consisting of equity securities in operating companies that are not publicly traded ♦Most common investments: ♦Leveraged buyouts ♦Venture capital ♦Growth capital ♦Distressed investments ♦Mezzanine capital ♦Investors in private equity: ♦Institutions – banks, pension funds ♦Retail ♦Public funds Private equity

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Where does private equity fit in to the risk spectrum? ♦The spectrum of risk and reward ♦Challenging times - banks retrench Private equity ♦Lower risk ♦Lower return ♦Higher risk ♦Higher return ♦Different environment: ♦Shell shocked ♦Uncertainty ♦Nervous banks ♦Survival of the fittest ♦Growth sectors ♦Asset prices generally lower, but premium paid for strong assets ♦Funding is available - is now the time to invest?

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. What does YFM look for? ♦Businesses on the cusp of transformational growth ♦Ambitious management team ♦Strong brand, niche product or innovative approach to market ♦Scalability ♦Sensible entry price ♦Strategic value on exit Private equity How does YFM drive growth? ♦Support and close involvement ♦Experience ♦Focus and alignment ♦Access to further funding

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. President Engineering Group ♦MBO October 2010 backed by YFM ♦Manufacturer of specialist valves for the deep mining and industrial gas sectors ♦Primarily export, with significant opportunities in developing economies Case study ChallengesSolutions Bank nervousnessIntroduction of equity and vendor loan Uncertain growth prospects and exit routeLeveraged structure and early exit planning Capable but relatively inexperienced management team Introduction of serial NED Chairman

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Summary ♦Conditions remains challenging – have banks got the appetite to finance SME growth? ♦Banks are looking to reduce their exposure to risk ♦More important than ever to manage your bank relationship ♦The economic cycle is presenting growth opportunities ♦Private equity is a serious alternative to debt ♦Private equity works alongside management teams to deliver value Wrap up

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Contacts Peter Bridge: Adex Bridge Investments Ltd Office: Mobile: Ian Waterfield: YFM Private Equity Ltd Office: Mobile:

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Case study graph

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies. Case study graph