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2006/Q12007Earnings Conference Call with Analysts and Investors

I. Preamble

John Rose

Good afternoon and welcome to our conference call to discuss our un-audited financial results for the twelve months ending 31 December 2006 and three months ending 31 March 2007 as disclosed in a press announcement distributed yesterday.

On hand to answer your questions today are CEO, Alexei Gurin, as well as other members of the Executive team. Copies of yesterdays announcement are available at our website, www.amtel vredestein.com and a transcript of this conference call will also be posted to the website in a few days.

Before I introduce our CEO, Alexei Gurin, I would like to add two disclaimers:

First, I am required to mention that the results disclosed yesterday are un-audited and we are must caution you that certain non-cash adjustments to our 2006 financial statements are still possible as we complete a lengthy audit which is comprised of significant and complex transactions last year including the acquisition of the Moscow Tyre Plant, the sale of our Amtel-Kuzbass chemical fiber plant in Kemerovo, and acquisitions of numerous Retail tyre centers throughout Russia.

The second disclaimer is our standard note regarding our use of 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 is 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.

Now I'll turn the call over to Alexei, who will say a few words before we take your questions.

II. Results for 2006

Alexei Gurin

Thank you, John. And Good Afternoon everyone. Im delighted to finally report our results for 2006 as well as for the first quarter of 2007.

We are extremely pleased with our 2006 un-audited results which significantly exceed the estimates we made last November for sales, Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and net result.

Despite disposals in 2005 of our Krasnoyarsk tyre factory and our carbon black facility in Volgograd, sales were up 23% to $823 million in 2006 (versus $800 million projected), EBITDA grew to $110 million (versus $100 million projected) and our net loss was just $7 million though we had projected a loss as high as $15 million. Contributing to this negative net result were losses at our retail division AV-TO and high interest expenses. All our production units, including their overheads, were profitable on a standalone basis excluding Moscow Tyre Plant, which showed a small loss (which in itself is remarkable considering we assumed control of the factory only in the second half of 2006).

Much of our success in 2006 can be attributed to our first full year in which we incorporated our Vredestein Banden acquisition. We can also credit a particularly strong fourth quarter in which sales grew 30% over the same period in the previous year.

Contributing to this strong annual sales growth were significantly higher sales in our core passenger car tyre business which were up 47.5%, as well as results from our AV-TO retail and distribution subsidiary -- which consolidated our acquisitions of Pigma and Megashina in the fourth quarter.

Our strategy to evolve our product mix to an increased percentage of premium, higher quality, higher price tyres is clearly working as evidenced by improved profit margin -- which has grown from 21% in 2005 to 22.8% in 2006 despite significant and unpredicted increases in raw materials costs during the year.

III. Results for the 1Q 2007

We are perhaps even more enthusiastic about our first quarter 2007 results. These are again un-audited. But we are very confident in these numbers -- which demonstrate that our investment program is beginning to pay dividends.

Net sales in the first quarter were up 30% to $212 million in Q1 2007. Passenger Car Tyres sales continued its dramatic rise up 35.2% to $128.7 million versus the same period in 2006. In fact, we sold approximately 1,5 million more passenger car tyres in Q1 2007 than we did in Q1 2006. And Gross Profit Margin increased to 25.2% from 22.1% in Q1 2006.

The Companys Net debt position in 2006 increased by 62.6% to $678 million, from $417 million in the previous period. This was mostly due to the significant investments made within the year. Additionally, a $50 million (12%) growth of Net Debt position resulted from US Dollar depreciation against the ruble and the euro. And, of course, the resulting interest expense deflated our bottom line results.

However, this was the price we have paid to achieve sustainable earnings and future growth of the company.

III. Outlook

We have a positive outlook for 2007 and we believe that sales to grow at a faster rate than in 2006 primarily in our key passenger car tyre business, but also in our new retail and distribution business.

Based on current sales trends and increases in production output, we project sales of between $1 billion and $1.1 Billion in 2007. We also anticipate improvements in Gross Profit Margin consistent with previous years. We expect EBITDA to exceed $120 million and it could even rise to as high as $130 million.

The Company expects to sell over 16 million tyres in 2007, including 14.5 million passenger car tyres (PCT). Thats 1.5 million more passenger car tyres than we sold in 2006.

We have also renewed our commitment to the original equipment (OE) supply business now that there is stronger demand by automobile manufacturers in Russia for higher quality tyres.

The Company has announced it is winning contracts, like our agreement to produce tyres for the Renault Logan. And we expect that this part of our business will grow by around 9% in 2007. OE as a percentage of total sales may grow to as high as 25% of tyre sales in 2007/2008.

AV-TO, the companys retail and distribution subsidiary is expected approach its breakeven point in 2007 when we complete our first full year of consolidated results for all our stores and the distribution businesses we acquired in 2006.

Raw materials costs are expected to continue to climb, though not as steeply as in previous years. The cost increase for the total basket of raw materials is anticipated to rise no more than 11% in 2007. At the same time, continued improvements in the product mix are expected to reduce the cost of raw materials as a percentage of cost of goods sold.

Expenses are expected to reduce as a percentage of sales as the company lowers its overhead through consolidation and continued cost-cutting.

Our net debt is expected to rise somewhat in 2007 as we complete our new factory at our Voronezh tyre plant. But we believe that our borrowings will reach their inflection point during this year and reduce relative to equity in 2008.

And we believe the Company will be profitable in 2007.

Thank you for listening and Im now ready to take any questions you may have.

Questions and Answers

Edward Faritov, Renaissance Capital

From the document that is on your website for this conference call I understand that Russian sales in 2006 grew by only 6%, from $459 million to $487 million. Is there any particular reason why the growth rate is so small? I looked at the top line of the profit and loss (P and L) for the year and while the overall revenue growth is 23%, most of that actually comes from the full year consolidation of Vredestein Banden. If you take that out, the remaining sales growth is only 6%, which I understand to be Russian domestic sales growth. Why is this?

Alexei Gurin

I see. Your question is clear. The explanation is very simple, because we need to compare apples with apples. When we compare statutory results and Russian sales in 2006 to results and sales in 2005, we are comparing the sales of lesser units in Russia. In 2005, we used to have the Krasnoyarsk tyre manufacturing facility, which contributed approximately $60 million to sales. We also used the Volgograd carbon black facility, which contributed in the range of $30 40 million. Additionally, in 2005 we had a contribution to the top line from truck manufacturing at Voronezh, which we closed in the second half of 2005. Overall, therefore, if you take those sales out and compare Russian sales in 2006 with sales in 2005 on a comparable basis, the growth would be even higher than average growth for the company.

Edward Faritov

That is clear. Thank you.

Elena Sakhnova, Deutsche Bank

I have a couple of questions. Firstly, I would like to ask about profitability. As far as I can understand, you expect gross margin to improve. However, if we look at your EBITDA forecast, we can see that the EBITDA margin will decrease. Can you therefore please explain what will happen between growth and EBITDA to force the EBITDA margin to fall?

Alexei Gurin

That is a very good question and I think that we owe you an explanation, because if you look at our normalised EBITDA in 2006 you will see that it is $95 million, if you take out one off gains and one off losses. You should also not forget that in the EBITDA calculation and the net result for 2006 we have also included foreign exchange (Forex) gains that we have experienced in the year. Overall, therefore, if you take everything out and compare these numbers to our projections, EBITDA as a percentage of sales will go up and not down. We cannot forecast the kind of Forex gain or loss we will have this year and we certainly do not know if there will be any kind of one off gains or losses for this year either. Therefore, where we say that EBITDA will be in the range of $120 130 million, we are talking about pure EBITDA from operations.

Elena Sakhnova

My second question relates to your CAPEX. Could you please provide the figure that you spent in 2006 and the forecast for 2007, as well perhaps as some indication for the future few years?

Alexei Gurin

Are you talking about investments?

Juliana Sachnova

Could you please give the figure for CAPEX for 2006 and an indication for 2007 and, if possible, for the future few years as well?

Alexei Gurin

Certainly. In 2007, we have budgeted an investment of $130 million. In 2006, investments were in the ballpark of $120 million.

Elena Sakhnova

Could you please explain the $130 million? Roughly, what is the breakdown?

Alexei Gurin

For 2007, most of our investments are in the Voronezh II facility, at about $70 million. There is then a $20 million investment in the Enschede facility, with the rest spread evenly between the Kirov and Moscow tyre factories.

Elena Sakhnova

What was the second investment?

Alexei Gurin

Enschede, our Dutch factory. We are continuing to build up Ultra High Performance capacity in Holland and the building up of that Ultra High Performance manufacturing capacity in Holland requires certain investments in the upgrade of the equipment.

Elena Sakhnova

My last question relates to the retail side. Could you please provide some guidance for your retail operations? Do you still have a target to achieve 500 outlets by 2008 or has the plan changed vis à vis your position with Pigma and Megashina?

Alexei Gurin

We have already announced and explained at the end of last year, I believe that our strategy in this respect has changed. We are no longer looking at the number of stores, but are focusing on achieving the profitability and operational effectiveness of this business. You are absolutely right that after the acquisitions of Pigma and Megashina, we have a much wider reach of retail distribution. For example, Pigma supplies auto parts and tyres to more than 1,200 retail outlets. Basically, therefore, we are currently reaching almost 1,500 retail outlets across the Russian Federation.

Elena Sakhnova

I have one very final and very specific question that you might not have an answer for at the moment, although perhaps I could get it after the call. I am interested in the average price that you have paid per square metre of outlets acquired, taking into account the accepted debt. Could you please give me a rough estimation of that?

Alexei Gurin

Do you want to know the average price that we paid for outlets?

Elena Sakhnova

No. The price per square meter of the outlets.

Alexei Gurin

I think that it would be difficult to answer that question right now for a number of reasons. It is a bit like asking for the average temperature across a hospital. However, we will provide everyone with this number as soon as we can get it, which I hope will be by the end of today or tomorrow.

As there are no further questions, I would just like to end the call by reiterating the statement that I made in yesterdays press release. Several years ago, we began to articulate our modernisation acquisition programme to the market, including our goal of transforming the company into a leading premium European passenger car tyre producer. Our year end 2006 results and the positive momentum demonstrated by our financial performance in the last two quarters is very good evidence that we have been on the right track. By investing in sustainable growth over these past years, the company may now prosper for many years to come. Thank you all for listening and goodbye.

23.05.2007
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