Russian management's approach to motivation.

Nowadays, top managers at Russian companies don't pay much attention to the employee motivation. Not only is it the result of the long communist background of the country, but it also is somewhat affected by the national traditions, customs and mentality.

Many of the recently "commercialized" enterprises believe that employees are to be satisfied with their salary only, and a pay-for-performance system is, therefore, of no need. However, the failure to observe the different motivation factors, such as money, respect, promotion and others, can lead to a worsening performance and, as a result, to a lower efficiency organization wide.

On the other hand, money is not considered to be the most influencing motivation factor by the employees themselves. Though it may be a more vital need of most Russian workers in comparison with their Western colleagues, at the same time they put more value on the cooperative atmosphere in the organization, rather than on the money side. And, thus, it is reasonable for the management to base the performance incentive system on some other factors, such as work security, pension etc. It's hard to predict the situation in the long run, however one can expect that the value put on money as a performance motivation factor will rise.

YUKOS Chairman Is Upbeat About The Future

YUKOS is the second largest oil company in Russia. Last year the company produced 49,5 million tons of crude oil and refound 26,7 million tons at its refineries. We have reserves, as audited by Miller & Lents, of 12,2 billion barrels. YUKOS operates both in Central Russia and east of the Urals in Siberia.

Modernization drive yields impressive financial results

If we compare YUKOS' 2000 financial results with 1999, we can see that the Company's modernization drive has yielded some impressive results, in terms of both finances and production. Revenues have more than doubled. While 40% of this growth can be accounted for by the rise in oil prices during this period, the majority is nevertheless due to the Company's own efforts -increases in production and sales.

On the downside, export duties, which form a large part of our overall tax burden, have increased considerably, as have our operating expenses. This is because the Russian oil industry, including YUKOS, has to deal with a pipeline transportation monopoly. Transneft, and therefore has no control over transportation tariffs. Transportation costs were the largest component in YUKOS' cost increases between 1999 and 2000. Despite this, there are a number of areas which are under YUKOS' direct control where we can and will reduce production costs. This is one of the key challenges for the Company this year.

Good corporate governance is not just a fancy phrase

Our main concern in 2000 was to improve corporate governance. Several months ago, we had an expanded Board meeting with 250 of our managers from all over Russia. The question we discussed was if the good operations were enough for the overall success of the Company. We used to think it was, but now we all realize that more is required. For a company to be truly successful, it also needs to address a whole range of issues that goes by the name of "corporate governance".

YUKOS accomplished a great deal in this area last year. We now have a truly international and independent Board of Directors: fully a third of the 15 members are non-Russians, and only one comes from the YUKOS management team. We have also introduced US GAAP accounting, at first on annual basis, and this year - quarterly. We are committed to publishing our 2001 first quarter GAAP report by the end of July.

To protect minority shareholders, we have eliminated the concept of authorized non-issued shares: from now on, any new equity issues will require of 75% of all shareholders - and no single shareholder or group of shareholders holds this large a block of the Company. We have also supported our shareholders desire to issue Level 1 ADRs.

YUKOS has also introduced performance related pay for key managers. This year, for the first time, part of their remuneration was paid out in stock options. And finally, we have begun paying dividends twice a year on a regular basis, and have committed ourselves to doing so in the future as well.

A global focus

YUKOS intent to become more transparent and efficient does not end at this. We recognize that oil and gas is truly a global industry, and that if we want to find top people for our Company, we cannot limit ourselves to only one country. YUKOS now has a large number of expatriates occupying key positions. The Company's transparency and openness to international expertise helps these managers to become part of the YUKOS team very quickly, and the Company benefits greatly from their knowledge and skills. For example, both our CFO and Senior Vice President in charge of Production are highly qualified American specialists.

YUKOS has also established a large number of long term partnerships with foreign companies. This include our strategic partner Schlumberger, and Pricewaterhouse Coopers, both of which have provided us with a great deal of support over the years. We are working with Microsoft on IT. And this year, we have established close relationships with Kvaerner, UOP, and Technip, all well-known companies in the oil industry. This sort of subcontracting is very typical of large international oil companies, and YUKOS is not exception.

Production on the rise

I mentioned earlier that YUKOS made great strides in 2000 in all of its operations. We have already discussed financial results. Now let's look at what the company have achieved in production. YUKOS has the fastest rates of growth of production of any oil company in Russia - 16,7% so far this year, compared with an industry average of 16,4%. This continues a trend that goes back to 2000 and earlier. We have set ourselves an ambitious production increase objective for 2001, and so far, we are right on target - even slightly ahead. Indeed, the only thing holding us back from expanding production even faster is the market for our oil, where the opportunities for expansion are limited.

YUKOS' leadership is not confined to the upstream end of the oil business. We also happen to be the largest producer of motor fuels in Russia, accounting for 18% of all the gasoline and diesel fuel produced in the country.

Pepsi Bottling Group

Who and What is PBG?

The Pepsi Bottling Group (PBG) is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages – some of the world's most recognized consumer brands. PBG became a publicly traded company in March 1999 through one of the largest initial public offerings in the history of the New York Stock Exchange.

PBG generates nearly $8 billion in annual sales. It operates in the United States, Canada, Spain, Greece and Russia, accounting for more than one half of the Pepsi-Cola beverages sold in North America, and about one third of the Pepsi-Cola system volume worldwide.

PBG and PepsiCo

PBG became an independent public company, separate from parent company PepsiCo, in March 1999. PepsiCo retains an equity interest in PBG of about 40 percent.

As an independent entity, PBG benefits from a much sharper definition of its role and is able to execute its business strategy more effectively on a local market level. PepsiCo's focus is on what it does best, which is developing its powerful brands and the world-class marketing programs to support them. And,

as PepsiCo's biggest bottler, we at PBG can do what we do best – making, selling and delivering more of those brands, more profitably than ever before.

We Sell Soda

The PBG sales force of more than 20,000 customer representatives sells and delivers more than 100 million eight-ounce servings of Pepsi-Cola beverages per day.

PBG's focus is on superior sales execution, customer service, merchandising and operating excellence.

While PBG's mission states, "We Sell Soda," the company also sells a line of alternative beverages, including Pepsi's water brand, Aquafina, and several PepsiCo joint venture products such as Upton's Iced Tea and Starbucks Frappuccino. In terms of volume, our three largest brands in the U.S. are Pepsi-Cola, Diet Pepsi and Mountain Dew. The complete brand lineup also includes brands licensed from other companies.

In addition, PBG's operations in Russia, Spain and Greece also bottle and sell regional products and brands, including the Mirinda flavors line.

Our Customers

Most of PBG's volume is sold in supermarkets and other retail outlets. The balance of volume is sold in mass merchandising outlets, restaurants and other fountain accounts.

Our sales people interact directly with most customers to sell and promote Pepsi products ("direct to store delivery"). Internationally, PBG goes to market with a combination of direct delivery and third-party distributors.

Among the services we provide to our accounts are proven methods to grow not only Pepsi brand sales, but the overall beverage category. Ultimately, our goal is to help our customers grow their beverage business by making our strong product line-up readily available to consumers at every shopping occasion.