Запись телеконференции: Компания «Амтел-Фредештайн» намерена приобрести Московский Шинный Завод

Opening Comments

John Rose

Head of Investor Relations, Amtel Vredestein  N. V.

I. Preamble

Good day everyone, and welcome to our conference call to discuss our intention to acquire the Moscow Tyre Plant. On hand to answer your questions today are CEO Alexei Gurin, CFO Ton Tholens and myself, John Rose, Head of Investor Relations.

Information about our proposed acquisition is available on our website: www.amtel-vredestein.com. It includes the announcement, a Q and A, and a map of the tyre facility. You may wish to refer to this as we answer your questions.

Before I introduce Alexei, please bear with me while I read our disclaimer regarding forward looking statements.

This conference call may contain forward looking statements regarding future events or the future financial performance of Amtel Vredestein  N. V. These statements are not guarantees of future performance which are subject to risks, uncertainties and assumptions that cannot be predicted with certainty. Accordingly, actual outcomes and results may differ materially from those expressed in the forward looking statements. Amtel Vredestein  N. V does not intend to update these statements to reflect actual results. I will now turn the call over to Alexei Gurin, who will make a brief statement before we take your questions.

Chairman's Comments

Alexei Gurin

Chairman of Executive Board, CEO, Amtel Vredestein  N. V.

I. Production

Thank you John. Welcome everyone. It is my pleasure to be with you once again, especially after these really exciting announcements about our acquisition of Moscow Tyre Plant. The ultimate reason for acquiring the Moscow Tyre Plant is to satisfy a growing demand for our tyres, in the first place Amtel branded tyres in the Russian market.

Due to capacity constraints, they are currently in short supply. Since some of you have speculated to the contrary, I would like to emphasise that we were at the maximum usable capacity for A and B segment passenger car tyres at all of our plants in 2005, and remain at the maximum capacity at all of our plants today.

On a pro forma basis, we have produced and sold approximately 11 million passenger car tyres in 2005. We will produce and sell approximately 1 million additional passenger car tyres in 2006. We are confident that we will be able to sell all of these tyres, and they will be produced at the Moscow Tyre Plant. We are equally confident that we will be able to sell all of the tyres that we produce at our Voronezh II facility, when it comes into play in the middle of next year.

I realise that many of you are relying on old production capacity figures that detail the maximum outputs of equipment installed in our factories. It is important to understand that capacity figures are variable based on many factors, including product makes, equipment limitations, plant configurations, and operational efficiency. The factory producing fewer specifications and sizes, for example, can produce more tyres than a factory producing many specifications and sizes.

Another fallacy I would like to dispel is that we can simply convert C segment production to B or A segment production. It is not that simple, and would require a significant amount of investment to accomplish. In our experience, it is much less costly to build or buy a new factory than it is to convert an existing one. This is why we disposed of our Krasnoyarsk facility and purchased the Moscow Tyre Plant.

To evaluate our business, it is far more prudent to focus on market demand, rather than simply production capacity. The fundamental difference between Amtel Vredestein and other Russian manufacturers is that we are market focused as opposed to manufacturing focused. Instead of producing as many tyres as possible — and then trying to sell them — we let the market determine how many tyres it needs. We then set out to produce them — either through our own factories or through alternative arrangements.

We are far more interested in how many tyres we can sell, rather than how many we can manufacture. We actually sell more tyres than we produce.

Today, we have ample demand for our Amtel brand in Russia, our Maloya brand in Europe, and our Vredestein brand in Europe and Russia.

II. Acquisition Details

1. Terms of the Deal

The final terms of the deal are still under negotiation. The acquisition will be primarily based on the assumption of the debt of the Moscow Tyre Plant. We have negotiated the sum to within an acceptable range — prior to our announcement — and the final figure can only be disclosed once the deal is complete.

Since the acquisition will be primarily through the assumption of debt, there will be no need to raise substantial capital to finance the acquisition. It is also anticipated that a significant increase in output and sales will be more than sufficient to service this debt. We will continue to comply with the borrowing restrictions we have established with our banks and note holders.

No further substantial investment beyond the purchase price is anticipated at this time. More importantly, some equipment at the Moscow Tyre Plant will be utilised at other factories in our group. This will reduce investment at those facilities, and offset any further investment at the Moscow Tyre Plant.

2. Acquired Assets

In terms of quantifying this number, US$15 million worth of equipment will be moved to other factories in our group. Amtel Vredestein will be acquiring Moscow Tyre Plant, and the portion of the plant that has recently been modernised will enter into a joint venture with Continental, along with all tyre production equipment — some of which has yet to be installed. These assets will be separated from the older section of the factory. The Moscow government will ultimately develop the older premises.

Through to the end of 2007 — as part of a separate management agreement — Amtel Vredestein will also coordinate the orderly closing of the older premises. Essentially, we have purchased some significant assets at a very favourable price. The Moscow Tyre Plant is a modern facility — comparable to our other Russian factories. It has a strong core production and engineering team. It is capable of producing tyres of up to 17 inches; a feat not yet been achieved at our other factories in Russia.

Amtel Vredestein has assumed operational control of the Moscow Tyre Plant as of 1 August 2006. The acquisition process will be finalised in full by the end of 2006. We are still in the final negotiation stages with the Moscow government and in discussions with our auditors to determine the timing and extent of the consolidation of the plant into Amtel Vredestein financial statements.

It is the company's intention to bring the facility up to full capacity — that is between 2.25 million and 2.5 million tyres per year — as soon as possible. At full capacity, the Moscow Tyre Factory is expected to deliver as much as US$66 million to US$82 million to our group in additional sales on an annual basis.

More importantly, the Moscow Tyre Plant is expected to deliver a higher percentage of EBITDA than our other Russian facilities. It should significantly contribute to our net results from next year.

To quantify this statement, I would say that the EBITDA received from the Moscow Tyre Plant sale almost equals gross margins from the factory.

3. Advantages

a. Expertise

Numerous advantages will result from this acquisition beyond the attractive purchase price. We have the expertise to manage the Moscow Tyre Plant operation more efficiently and profitably than the current management.

b. New technology

We can introduce new technology to Moscow Tyre Plant that will produce superior tyres. We have a brand that is in high demand, and sells at a significant premium above the current Moscow Tyre Plant brand. This means that the plant will be utilised to its full capacity, and margins will increase. At the moment, it is only running at 30% to 35% capacity.

We will reduce the overall footprint of the plant to retain the smaller, more modern facility; a significant cost saving measure that will optimise production and minimise cost for power, maintenance, and payroll etc.

c. Operating costs

We can further reduce the plant's operating costs substantially by incorporating the plant into our existing business. We can also reduce our administrative operating costs by relocating our Moscow head office to the plant. By moving our head office from its current location to the Moscow Tyre Plant, we estimate that the annual administrative cost savings will be between $2 million and $3 million.

The plant will benefit from economies of scale via our group?s purchasing power of raw material.

d. Environmental concerns

As we promised, environmental concerns will be removed when we shut down rubber mixing at the plant. Pre-mixed compound will be shipped to the plant from the company’s Voronezh tyre complex. The first truck load of compound will be shipped from Voronezh to the Moscow Tyre Plant on August 10th. We will shut down the Moscow Tyre Plant's compound mixing department on September 1st.

Thank you for listening. We are now ready to take your questions.

Questions and Answers

Ron Smith, Alfa Bank

You say that you are shutting down the compound mixing unit in Moscow. Will that be from December 1st, of September 1st?

Alexei Gurin

September 1st.

Ron Smith

Can you give us a little more detail on exactly where you are going to be selling the tyres that will be manufactured here in Moscow? For example, will you be making Vredestein here or Vredestein in Voronezh in place of something else? Can you give us a little more detail on how this is going to effect your operations, and where the extra million tyres are going to be sold? Are they Amtel, Vredestein, or Maloya etc?

Alexei Gurin

We have more or less already sold all additional tyres, including the regular tyres that we have manufactured — and will manufacture — this year. We have a pre season sales programme that helps us to secure our sales for the full year. We know an additional 1 million have already been sold.

Primarily, these additional sales are coming from Russia, although there are additional sales in Europe also. We are planning to ship around 350,000 tyres to Europe in the second half of this year. This is in addition to the 51,000 tyres that we already shipped to Europe from Russia in the first half of this year.

At the moment we have to complete a certain fixed regional equipment supply contract that Moscow Tyre Plant has. We need to ship around 200,000 tyres under the existing Taganka brand — or Moscow Tyre Plant brand — by the end of the year. Those tyres are being sold at 20% to 25% lower than Amtel branded tyres.

On the other hand, we are currently developing a manufacturing programme for the last four months of this year. This programme will be ready by the end of next week. The difference in output and product mix between the Moscow Tyre Plant and other factories in Russia is that our other factory here in Voronezh, i.e., Voronezh One, has been built, and is currently working as a mass manufacturing facility.

From the very beginning, Moscow Tyre Plant will start to operate as a small batch manufacturing facility. It will be manufacturing the maximum number of tyres that it can produce. I cannot tell you the capacity and output that we are in the process of finalizing, but I can provide you with more details in the next couple of years.

We are going to manufacture all brands, including Amtel, Maloya and Vredestein. When we finalise the output, it will be approximately half Amtel and half Vredestein.

Ron Smith

I appreciate that, it gives me a much better insight. You say you are going to run this as a small batch. I assume that this means you are going to be able to run a lot more sizes than you have so far.

Alexei Gurin

Absolutely; and in addition, it creates additional output for our Kirov facility. Since we have started manufacturing Vredestein branded tyres at Kirov facility this year, we have spent a lot of time on the reselling of the equipment. Despite the fact that this year, Kirov will manufacture at least 10% more tyres than last year, we expect it to manufacture an additional 500,000 tyres without additional investment in the capacity. We will reduce the number of sizes that the Kirov tyre factory manufactures at the moment, and move small batches to the Moscow Tyre Plant.

Ron Smith

That makes sense.

Nicholas Atonov, Energochemical Energy Company

I would like to know how Amtel Vredestein is going to pay off the Moscow Tyre Plant's debts to the Russian suppliers of raw materials, and in what period it intends to pay off those debts. Thank you.

Alexei Gurin

Thank you very much for the question. I understand that the question is from one of the suppliers. Please be sure that we will pay off all of the debt, if the debt has been created by the supplying of goods and services. We will definitely maintain all of the relationships created by the Moscow Tyre Plant in the past. We will do all that we can to deepen this relationship, including servicing and paying off the debt.

Sergey Bokhanov, our Chief Operating Officer, and Dmitry Kozhechkin, the Chief Financial Officer of our Russian operation are responsible for paying out the debt.

Nicholas Atonov

Will it be this year or next year?

Alexei Gurin

That is a technical question. I cannot say exactly when the accounts payable will be settled. I am not involved in it at the moment and we have not yet sorted out all of the debt. We will do it in the next 30 days.

Nicholas Atonov

Thank you.

Veronika Lyssogorskaya, ING

Can you provide the production numbers for the first half of the year?

Alexei Gurin

We have not announced the numbers for six months yet. We will do it in the middle of this month, on the 14th of August. Just bear with me for the next couple of weeks.

Veronika Lyssogorskaya

Along with the financial highlights you will also report on the operation date?

Alexei Gurin

Yes.

Veronika Lyssogorskaya

How much have tyre price increased in Russia compared to 2005?

Alexei Gurin

We do not compare prices on a year to year basis, but rather from season to season. Compared to last year's winter programme, this year's winter programme showed that average prices have increased by 15% to 17%. We will try to answer this question when we announce our six month results. Ton is sitting next to me, and he will address this issue. The summer programme showed a 12% increase. The exact numbers will be available on the 14th.

Veronika Lyssogorskaya

Do you have the latest data on the Vredestein's brand awareness?

Alexei Gurin

The last number we had was 30% in Moscow and [inaudible], and about 22% in the 13 cities of Russia. I have not seen any other figures yet.

Veronika Lyssogorskaya

Are these the numbers for June?

Alexei Gurin

These are the numbers for spring or June. I do not have any other figures or numbers.

Closing Comments

Alexei Gurin

Thank you very much once again for taking this conference call. This acquisition is a very good purchase for the Amtel Vredestein group. It fits perfectly into our strategy and creates an additional opportunity for us to focus on this year. We hope that this year, the Moscow Tyre Plant acquisition will be zero to net positive for the group, and will not create any kind of additional negative results in terms of our financial consolidation.

Thank you very much. We will talk again on August 14th.