2007

Program for capitalization growth

Dmitry ShtykovThe Institute of professional directors

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

High potential ofprofitability growth

Market position

Financial reputation

Experiencedmanagement

Transparent structureof ownership and

management

Investor relations

Management should regularly show:technical, financial, marketing and strategic experienceadherence to company’s strategycommitment to company’s value growth

financial reports according to ISFR for at least three yearsaudit by an internationally recognized auditorclear cost structure

lack of technical barriers for free-floatproper structure of the object of investmentclear decision-making process

full disclosure of informationefficient board of directorscorporate governance ratingsefficient IR service

comparability with competitorscomparability with companies from other regions of the worldsignificant market sharefavorable business climate

potential of demand growthpotential of profitability growthhighly efficient investment programentering new markets

Investors’ expectations

SIGNIFICANT

NON-SIGNIFICANT

VALUE OF THE FACTOR:

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Factors of capitalization:opinion of RAO UES’ investors

Market liberalization Division of RAO UES Improvements inoperations efficiency

Improvements incorporate governance

Higher transparency

Market liberalization Division of RAO UES Improvements inoperations efficiency

Improvements incorporate governance

Higher transparency

Portfolio investors

Strategic investors

Factors of capitalization:opinion of RAO UES’ investors

Market liberalization

Reform

Improvement ofoperations efficiency

Transparent structureof ownership

and management

Investor relations andcorporate governance

Cost managementIncreasing market share of companies of the HoldingDividend and investment policyHR management and motivationAsset managementInvestment project management

consolidation of HYDROOGKConversion of regional network companies to a single shareFormation of a more «flat» system of ownershipClear scheme of the decision-making process

Full disclosure of informationEfficient board of directorsInner regulation of corporate governanceHigh dividendsLimitations to the use of insider informationBroader list of transactions to be approved by the board of directorsEfficient IR service

Division of RAO UESPrivatization of energy assets

Change of the principle of establishing tariffs (for the transition period)Introduction of wholesale and retail energy markets

Non

-man

agea

ble

fact

ors

Man

agea

ble

fact

ors

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Re-orientation of the strategy towards indices which influence the value of the company the most, in investors’ eyes;

working out an appropriate program of financial and economic development;

working out and implementing schemes of motivating management towards achieving results which correspond with shareholders’ interests (including option schemes)

Growth factors

Implementation of development program aimed at

growth of price of shares

Formation of a transparent ownership and management

structure

Improving the system of corporate governance,

relations with investors and shareholders

transformation of the ownership structure;

improvement of day-to-day management;

financial restructuring;

introduction of ISFR, consolidation of financial reports within the group of companies

improving the organization of functioning of board of directors and its committees;

working out a Code of corporate conductand other inner regulations fixing the high standards of corporate governance;

improving the information policy;

efficient functioning of the IR service;

working out a balanced dividend policy

Possible components of a program for boosting capitalization

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

How to make management interested in company’s value growth?

SIGNIFICANT

NON-SIGNIFICANT

VALUE OF THE FACTOR:

OPTIONS P/CF, EV/S S, TATR, NPROTA, ROE Individual KPIsOPTIONS P/CF, EV/S S, TATR, NPROTA, ROE Individual KPIs

CEO

Top management

Heads of business units

Heads of departments

Employees

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Companies implementing option schemes and their analogues

Programs which are analogous to the classic ones, but with some special features:• Option contracts are signed a year before IPO• Term of execution of the option – 2-3 years after IPO• Price of share/option is estimated by expert or calculated by appraisers and then fixed at the moment of giving the share/option to the manager• Disclosure of information about implemented option programs in the mass media• Issuing virtual options, phantom shares with further compensation of the price differential in case of capitalization growth

Companies preparing for IPO

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

After-M&A situaton

Interim structure

Management company

Creation of an investment-attractive asset

restructuring (merger, acquisition, spin-off, carve-out)

spin-off of non-core assets

financial restructuring

consolidation of financial statements within a group of companies

managerial transformation

Potentially investment-attractivebusiness units

Non-attractive, non-corebusiness units

Transformation of ownershipand management structure

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Transformation of ownership and management structure: examples

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Making investor relations efficient

Broadening the competencies of the Board of directors

Increasing transparency

Increasing the number of independent directors, and their more active workMandatory approval of strategy and of business plansMandatory approval of budgets and reports once per quarterBroadening the list of transactions to be approved by the Board Mandatory approval of transaction with assets by the Board

Higher standards of disclosureFull disclosure of financial informationTransparency of costs

Increasing dividend paymentsIssuing ADR / GDRAttracting market makersAttracting “status” investors

Increasing liquidity of shares

Interesting web site with much contentConstant monitoring of company news with appropriate commentsReputation and personal PR of managers

Proactive investor relations

More active work of inspection commissionsSetting up internal control services which report to the Board (Auditing commission)Monthly check of contracts registerRegular monitoring of transactions with property

Stronger control

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Improving the functioning ofthe board of directors

RBC (IPO in 2002)invited three independent directorsHans Jörg Rudolf (Chairman of the Management Board, Barclays Capital)Michael Hammond (Partner of City Capital Corporation Limited)Neil Osborn (Euromoney Publisher and Managing Director)

Evraz Group (IPO in 2005) invited three independent directorsJames Campbelllord Peter DairsburyTerry Robinson

Cherkizovo Group (IPO in 2006) invited two independent directorsEsben Juhl (specialist in pig-breeding)Samuel B. Lipman (US specialist in poultry farming investments)

OGK-5 (IPO in 2006) invited four independent directorsValery Nepsha (Institut of professional directors)Denis Kulikov (Investors Protection Association)David Hern (director «Halcyon Advisors»)Evgeny Byhanov (Institut of professional directors)

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

NLMK (IPO in 2005) established 3 committees a few months before IPO:Committee for strategy and planningAudit committeeRemuneration Committee

SeverStal Auto (IPO in 2005) established three committees:Committee for strategyAudit committeeCommittee for human resources and remuneration

Rosbank (planning IPO in 2006) established three committees:Committee for strategyAudit committeeCommittee for human resources and remuneration

Euroservice Group (planning IPO in 2007) established three committeesCommittee for strategy, finance and investmentsAudit committeeCommittee for human resources and remuneration

Establishing committees

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Improving transparency: NOVATEC

Tools / audiences

Investors Society Partners Staff Authorities

Reports according to ISFR

* *

Analysis of activity * *

Yearly report * * * *

Social report * * * *

Internal communications

* * *

Quarterly briefings *

Press releases * * * * * *

Web site * * * * * *

Exhibitions * * *

PR * * * * * *

*

*

Clients

Conferences * * * *

Road show *

Corporate brochure * * * *

Source: company’s presentation

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Source: Presentations of MDM Investment Bank

Proactive investor relations: «Irkut»

Capitalization growth of IRKUT corporation in the off-exchange market during the IPO preparation

+80%

250

350

450

550

650

750

окт 03 ноя 03 дек 03 дек 03 янв 04 фев 04

Announcement of IPO plans. Start of work with

investment analysts

Yukos case

Start of active PR-campaign of IPO

in the media, press-tour to

Irkutsk

Start of pre-marketing, news about promotion

of aircraft Be-200

Growth of demand for

shares, speculations before IPO

* Based on the off-market quotations before IPO which do not show the real value but reflect the positive dynamics of company’s perception by investors

Start of active work with

investment community. Investment

analysts visit the company

IPO

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Corporate governance: WBD Foods

● Full disclosure of information prior to IPO● Creation of Investor Relations Department for

communicating with investors and analysts● 7 out of 11 directors are independent, including

industrial and financial experts● Mark Mobius, Managing Director of Templeton

Investments, and E. Linwood Tipton, President and CEO of International Dairy Foods Association, were elected to the Board of directors in May 2002

● Setting up the investment committee for considering key investment decisions

● KPIs and compensation packages for managers tied to KPIs

Source: company’s presentations

CONTENTS:

Investors’expectations

Growth factors

Motivation

Transformation of structure of ownership and management

Investor relations

Source: company’s presentations

Improving corporate governance standards: LUKOIL

Contacts

119571, Moscow, Akademika Anohina st., bldg. 9, office 10Tel. : +7 495 771-6046 Fax : + 7 495 937-5110

info@fipd.ruwww.fipd.ru

г. Москва, ул. Академика Анохина, дом 9, офис 10

тел.: +7 095 771-6046факс: + 7 095 937-5110

info@fipd.ruwww.fipd.ru

Contacts

119571, Moscow,Akademika Anohina st.,

bldg. 9, office 10Tel. : +7 495 771-6046

Fax : + 7 495 937-5110info@fipd.ruwww.fipd.ru