1. Pan-Baltic IT companies: the pain and joy of building an international IT group InfoBalt Investor’s League Conference Vilnius, Oct 22, 2002 Allan Martinson CEO MicroLink

2. MicroLink’ summary The largest Baltic IT group 60 m EUR in annual sales, 630 employees 5 divisions, 3 countries Business interests in System integration, software development, enterprise applications, training (ML Systems) Outsourced central systems and corporate data communications (ML Data) PC assembly and service (ML Computers and ServIT) New media (Delfi) Microwave radiolinks (SAF Tehnika)

3. MicroLink’s expansion story 1991: Foundation of MicroLink 1998: Sale of ML to CHS, creation of new ML 1998: Merger with Astrodata 1999: Acquisition of Parks, LvNet, Taide, SK, I-Net, VAR 1999: Launch of Delfi portal 2000: Merger with Fortech, ICS 1999-2002: Sale of ML Elektroonika, Linki, Kungla Dialoog, Columbus IT Partner, Taig, CHS Service, ADML, e-commerce ventures, e-consultancy, closure of retail outlets 2000-2002: restructuring >20 m EUR invested in 4 years 4 private equity placements, multiple bond issues

4. MicroLink in figures 1998-2002 YearFY97/98FY99/00FY 01/02 Sales12 m EUR46 m EUR60 m EUR Gross profit2.4 m EUR11 m EUR20 m EUR EBITDA0.5 m EUR-0.5 m EUR4.1 m EUR Net profit0.1 m EUR-2.8 m EUR0.2 m EUR No of employees 400750630 Active subsidiaries 92816

5. Changes in business and culture Software, services and R&D (radiolinks): from 8% in FY98 to 40% in FY02 Sales by geography: FY98: 100% Estonia FY02: 48% Estonia, 45% Latvia, 7% Lithuania Employees by country: FY98: 99% Estonia FY02: 40% Estonia, 50% Latvia, 10% Lithuania Share of employees who are with ML from 1998: 6% Original founders stake down from 100% to 15% But basic DNA is still the same

6. MicroLink’s slogans and strategies 1998-2002 1998/99: Within 3 years to establish itself in all 3 Baltic countries as leader in most IT markets (understood as PC & retailing & datacom). To invest 10 m EUR in 1-2 years 1999/00: Quick and dirty. Just do it. Doing right things is more important than doing things right. 2000/01: Streamline and simplify the group to become able to manage so many businesses in so many companies in so many markets 2001/02: Sales, sales, sales & cost control 2002/03: We are strong, established, profitable professional services and solutions company for large and medium accounts

7. Why did MicroLink expand? Rational explanation: IT companies have high and growing cost base Personnel costs form 2/3 of the cost base and are growing Revenue base on small markets is volatile High uncertainty does not support dangerously growing cost base and investments into future Necessity to lower risks by getting access to wider markets with less volatility Have lunch or be lunch: there is no escape in the long run Cultural explanation: Aggressiveness, internationalism, enterpreneurship and curiousity are parts of MicroLink’s DNA

8. Was it worth it? The fundamental question: did expansion add value for MicroLink and its clients? The answer is definite YES However, the first sources of added value were not where we initially expected them to be We expected the main benefits to be in higher efficiency and cross-border transfer of professional IT competences Instead, we benefitted from transfer of values, managerial competences and innovation

9. Role of corporate values is often underestimated Initially, we thought we can buy skills and teach them values Now we know we can buy values and teach them skills All acquisitions which turned problematic were with companies which carried different value sets All acquisitions which shared similar values were able to learn and turn the businesses around… and around In international expansion, you cannot buy market shares or businesses. You must buy right people: they will do the rest. But before you find people similar to you you must very well know who you actually are Mergers brought MicroLink (one of) the best management teams in Baltic IT industry

10. But consolidation also brings tangible benefits Lower costs through consolidation (cheaper financing, leasing, office space etc) Pan-Baltic vendor relationship (Sun, HP, Dell, SAP etc) Cross-border projects (some 20 Baltic projects fulfilled after mergers: Tallinn, Riga stock exchanges, Est/Lat finance ministries etc) Possibility to serve pan-Baltic service clients (Coca-Cola, Statoil, Kesko etc) Stronger managerial leverage (good managers get wider responsibilities) Better visibility for investors and creditors ML only starts to reap merger benefits

11. Do-nots of the expansion Never expand internationally If internationalism is not part of your DNA If your home is in disorder Unless you have excess managerial power Unless you are able to agree on simple rules and trust your new colleagues Unless you are sure you have enough money to survive through crisis It is always harder, costlier, slower than you ever think

12. Why consolidation will continue Personnel costs (incl salaries, taxes, training, HRM) grow faster than local IT markets Average labor cost in Baltic IT companies 1200 EUR/employee/month, added value 2500 EUR/m In CEE: LC 2000 EUR, added value 3500 EUR In Scandinavia LC 5000 EUR, added value 9000 EUR Competition increases with pan-Baltic integration and EU accession Required competences become more deep and diverse Obvious answer: Further consolidation and specialization of Baltic IT industry

14. Thank You! Ačiū! Paldies! Aitäh!