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The 2002 Report for Shareholders

For 2002 “KAMAZ Inc.” has set the following main financial, economical and production objects:

• to ensure capitalization growth of the Company up to USD 300 million (30% growth)
• to gain profitability growth from the main operations up to 10 % .

In 2002 “KAMAZ Inc.” earned 1,868,9 million Rubles from its operations. Group of KAMAZ Inc. Companies gained 78,7 million Rubles. Besides, last year, since the beginning of 2002, accounts receivable of Group of KAMAZ Inc. Companies have decreased by 562,9 million Rubles and as for December 31st, 2002 made 3,419,7 million Rubles. The main cause for reduction of accounts receivable of Group of KAMAZ Inc. Companies was that there were effected payments for earlier exported spare parts, which amounted to 566,1 million Rubles.

The primary production targets were as follows:

• launch of production of trucks with up to 13 ton axial load (“KamAZ -6520” and “KamAZ -6540” models)
• production of bus chassis for high capacity buses
• production of trucks powered with engines that comply to Euro-2 emissions level
• production of a family of engines ordered by other OEM.

In line with the above mentioned objects, Company managers, experts, site personnel and monitoring bodies have developed and implemented a number of organizational, economical, technical, financial and industrial actions that ensured achievement of the best possible results.

There were marketed 20,089 trucks last year, it is by 2,337 units less than in 2001. But production of export trucks has increased. If in 2001 there were exported about 3,000 trucks (14% from the total output), in 2002 export volume exceeded 6,000 units and grew up to 30 % from January 1. For the third time in row, Ministry of Commerce of Russia has declared “KAMAZ Inc.” to be the best Russian exporter among vehicle manufacturers.

KAMAZ has several possibilities to increase export volumes, one of them is production of new heavy-duty trucks of “KamAZ -6520” family, the others are manufacture of all-wheel drive trucks and new types of superstructures based on KAMAZ chassis. Market demand for dump trucks and special body trucks is higher than KAMAZ can currently cope with. Their supply to export and domestic markets will significantly increase after launch of new European class equipment acquired by the Company under EximBank credit.

By the end of the year under report “KAMAZ Inc.” OJSC obtained certificates for 58 models of vehicle and chassis, as well as for the total range of spare parts that needed certification to meet Russian standards. At the same time, more than 60 trucks and chassis were certified in accordance with 8 main International Rules of ECE UN. That created conditions for KamAZ trucks promotion to the countries of former USSR and foreign countres. That made it possible to increase last year’s export volume up to 30 % from the total sales volumes in 2002.

KamAZ trucks have started winning back Russian market from second-hand western manufactured vehicles. In accordance with results of the year 2002 share of “KAMAZ Inc.” on the market of trucks with total weight exceeding 15 ton was equal to 28,0 %. That is by 13,7% less than in 2001, and is 17,9 % decrease vs. 2000 level. By the 1st Q of 2003, “KAMAZ Inc.” has already won 39% of the Russian market. That mainly resulted from the fact, that Russian Goverment banned import of vehicles with Euro-0 engine into Russia from December 1, 2002.

One of the important aspects for “KAMAZ Inc.” in 2002 was further development and refining of the system of a three months budget and finance planning and reporting. There was accomplished standardization of functions and organizational structures of economic and finance departments.

Improvement of budgeting system has made it possible to use more rationally financial resources, arrange control, analysis and balanced management of profits and losses, allocate investments for modernization of fixed assets and products at deficit of current assets.

In 2002 there were activated current payments to decrease accrued tax. Ahead of time there were completely settled 49,8 million Rubles of deferred tax liabilities. There were paid in time current charges that helped to reduce penalty fees for taxes paid into the federal budget.

Last year KAMAZ started to revive cooperation with its dealers. This year clear rules were presented to the dealers. They need to sell 25 trucks per month, each dealer was made responsible for a certain region. Another condition was that the prices were fixed, i.e. there will be no more competition between them, no possibility to trade at dumping price. Additionally, each dealer should generate a permanent stock of spare parts and units for KAMAZ truck repair.

Last year was the start of realization of major long-term development programs. Among them there are two primary federal programs, adopted by Russian Government till the year 2010, which determine economic status of the country. This is the program of modernization of haulage system and concept of development of automobile industry in Russia. Participation of KAMAZ, one of the 18 strategically important enterprises of Russia, seems to be a must to meet these programs and it will be governing factor for development of the Company.