Alfa-Bank - Alfa Group

US $2.6 billion – three times higherthan in 2003.During 2006 A1 established a jointventure with Diageo, the world’slargest alcoholic drinks maker toact as exclusive distributor ofDiageo spirit brands as well as A1’sSmirnov vodka brand in Russia andalso concluded a number of smalleropportunistic transactions.Also, Russian Technologies, whichfocuses on the commercial exploita-has a long history of co-operationwith foreign investors – both portfolioand strategic. We have appreciatedfor a long time that onlywell-managed, progressive companieswhich are committed to thehighest levels of transparency andgovernance principles will be fullyvalued and will manage to attractforeign investment. As theinevitable foreign participation inRussia continues to increase, and aswe look to make new investmentand partially or completely exit cer-Early indications suggest that 2007promises to be another excellentyear for the Group. As we movebeyond 2007, we are making extensivepreparations to secure an evenmore successful future for theGroup as we consider new investmenthorizons.On behalf of the Supervisory Boardof Directors, I wish to thank all ofour clients and business partnersfor their unwavering trust, supportand loyalty. I would also like toSupervisoryBoard of Directors“We are not bankers, nor are we oil or telecommunications or retail experts.We are investors. We do not have a business which we have been involved in allof our lives. We are people who are able to assess and anticipate certain markettrends, understand which businesses will develop faster and which businesseswill stagnate or decline…and based on these speculations, we makecompetent investments. At the same time, we are not “silent” investors — wework hard on the companies we have invested in and we attract professionalmanagers who we can trust. We know that someday we will leave these businessesand make other investments when we consider the price, time and placeare right.”tion of promising technologies,continued to make and manage anumber of small-scale, but interestinginvestments in 2006 both individuallyand jointly with foreignstrategic partners.As has been the case in prior years,we continue to re-invest substantiallyall of the Group's net profitsinto our existing businesses andmake new investments on our beliefthat this is the best and highest useof our capital. In the eight-yearperiod ended 31 December 2006we re-invested US $8.55 billion ofour US $8.96 billion in net profits -a 95.4% re-investment rate.As investors, we view co-operationwith foreign investors as critical tothe development of our companiesand also as a logical and attractivemeans of exiting our investments.It is not accidental that our Grouptain of our investments, we are confidentthat we are well positionedto benefit from co-operation withforeign investors.For the past two years Russian companiesacross practically all industrysegments have engaged in a predictablepattern of consolidatingtheir market segment inside ofRussia as well as expanding, bothorganically and through acquisition,beyond Russia into the mostattractive CIS and other emergingmarkets. Having anticipated thesetrends, it has been clear to us forsome time that focused investmentin developing markets outside ofRussia would play an increasinglyimportant role in the future developmentof the Group. A meaningfuldiversification will provide alarger pool of attractive opportunitiesand will increase stability inearnings for the Group.express my appreciation to AlfaGroup’s management and employeesfor their superb and continuingcontributions.Mikhail Fridman24 September 2007Mikhail FridmanThe Supervisory Board of Directors of Alfa Group is the Group’ssupreme consultative and oversight body that sets the generaldirection for the strategic development of the Group as a wholeas well as of its individual companies. The Supervisory Boardcomprises 12 members who represent the main companies of theGroup. Supervisory Board meetings are held once every twoweeks, and serve as a forum to exchange ideas and opinions aboutthe current developments in the world economic and politicalarenas. The Supervisory Board also considers key strategic issuesfor the Group, including the review of major financial andinvestment transactions, the critical evaluation of companyperformance, and the development of strong corporate governanceand control mechanisms.The Annual Meeting of the Group is held each April at which timethe Supervisory Board reviews the results of the yearlyperformance, approves performance-related compensation for topexecutives, ratifies forward-looking budgets, and agrees on theoverall strategy for each of the Group’s companies.The authority and activity of the Supervisory Board as well as ofour individual companies’ Boards is regulated by the Group Statuteand corporate regulations, which are periodically reviewed andappended.8 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 9