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Amtel-Vredestein NV Retail Strategy Conference Call for Analysts and Investors 18 April 2006

Opening Remarks

John Rose, Investor Relations Consultant, Amtel-Vredestein NV 

I. Forward-Looking Statement

Good afternoon. Thank you for joining the Amtel-Vredestein Retail Strategy Conference Call for Analysts and Investors. Before we begin, we are required to read our disclaimer regarding forward looking statements. This Retail Strategy Conference Call for Analysts and Investors may contain forward looking statements regarding future events or the future financial performance of Amtel-Vredestein NV and its subsidiaries. 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 NV does not intend to update these statements to reflect actual results.

II. Agenda

I would now like to turn the call over to Amtel-Vredestein CEO, Alexei Gurin, to summarise our retail business, the expanding tyre market, the opportunities for Amtel-Vredestein, our strategy for capitalising on these opportunities, our goals and the investment required to achieve these goals, and our projections for financial results.

Retail Strategy

Alexei Gurin, Chief Executive Officer, Amtel Vredestein NV 

I. A Significant Milestone

Thank you, John. Hello, ladies and gentlemen. As most of you will know, Amtel Vredestein has announced that its new AV TO retail subsidiary has delivered on its promise to expand its network of retail service centres to 100 stores by the first quarter of 2006. In fact, with 104 stores our retail network AV TO is now the number one multi brand tyre service centre chain in Russia. This is a very significant milestone. It is management?s opinion that our current momentum, together with our strategy, will virtually ensure our position as a dominant force in the tyre reseller and auto supplier service space.

II. The Russian Retail Sector

1. Overview

Before we speak specifically about our business, allow me to say a few words about the Russian retail sector in general and the automotive market in particular. The retail industry is one of the fastest growing sectors in the Russian economy. Retail growth has surpassed Russia?s GDP growth and forecasts indicate that this trend will continue. Experts estimate that the Russian retail market has grown to $193 billion in 2004. Retail turnover in Moscow alone is approaching $50 billion. Russia's retail sector is considered the most attractive market for retail development in the world. AT Kearney, the management consulting company, ranked Russia number one in its 2004 Global Retail Development Index among the top 30 emerging markets worldwide. AT Kearney pointed to its 142 million people, its estimated $280 billion in annual consumer spending and tremendous growth trends as justifications for this ranking.

2. Automotive Market

Russia is the largest car market in Central and Eastern Europe and is experiencing rapid growth in automotive sales. In recent years, foreign brands have been increasing their share of overall sales in Russia, with a 61% increase in sales in 2005 to 567,000 units. Foreign brands? share of sales is forecasted to increase from 38% of the total new car market in 2005 to over 50%, with estimated sales of around 900,000 units, by 2010.

3. Tyre Retail Segment

High quality, more expensive cars translate into higher quality, more expensive tyres and other aftermarket sales and services. These are our customers. The tyre retail segment is primarily comprised of single unit resellers and small chains. Many operate as part of franchise systems by major tyre companies, including Bridgestone, Michelin, Pirelli, Conti, Goodyear and others. Overall, it is a fast growing but highly fragmented market that is certainly ripe for consolidation. This is an outstanding opportunity for Amtel Vredestein.

III. Strategic Rationale

Amtel Vredestein's rationale for entering the retail business is twofold. First, it is a business with tremendous upside for a first mover who consolidates the market and wins substantial market share in the fast growing segments. Ultimately, this business could be spun off and/or floated on the public markets.

Second, it provides many synergies with our core tyre manufacturing and distribution business. It provides direct access to consumers at a critical point of sale, where most tyre purchase decisions are made. While the AV TO units are all multi brand stores, selling tyres from all major manufacturers, the stores will showcase Amtel Vredestein brands through product displays, point of sale merchandising and salesperson training. Overall, the business has higher margins than the tyre business and offsets the seasonality of our core business.

IV. Our Strategy

1. Rebranding

Now that we have reached the first level of consolidation, our next step will be to rebrand our stores. Our strategy is to develop two tiers: premium and value for money. In Moscow and St Petersburg, the mix of premium to value segment will be 60:40. In the regions, the mix will be 20:80. We plan to expand across Russia, Ukraine, Kazakhstan and possibly the Baltic countries. To date, we have acquired stores in Moscow, St Petersburg, Perm, Nizhny Novgorod, Kaluga, Volgograd, Samara, Rostov and Ivanovo.

2. Building a Network

We have a comprehensive plan for integrating these stores into a cohesive business network with new corporate standards, systems and accountability. We will focus on our main retail activities and outsource logistics, including warehousing and distribution. We have assembled a strong team of experienced retail professionals who operate AV TO business as a fully owned subsidiary in a separate administrative facility.

3. Objectives

Our goals will continue to be aggressive. Our first goal was to exceed 100 stores, the size at which we believe critical mass is achieved. It is very important to understand that this has already been accomplished, as promised, in the first quarter. It is our intention to reach 200 outlets by the end of 2006 or early 2007, primarily through acquisition. In 2007 08, we will grow primarily through construction of new stores and ultimately by franchising, once the brands have been established. We plan to dominate this market and achieve an average market share of 30%, with market share in the premium segment of 40%. We will introduce a variety of complementary products and services to our stores, including a full range of accessories, replacement parts, fluids and so on, as well as service and maintenance of exhaust systems, brakes, oil changes and so on.

4. Investment

Clearly, this strategy requires significant investment. We have invested $68.7 million to date, of which approximately $20 million is invested in real estate. We plan to spend $50 60 million in the second half of 2006, early 2007, to acquire and rebrand an additional 100 outlets. We plan a new CLN this year to finance this expansion, as well as a reduced cost of current debt. We are weighing other options to reduce the amount of debt required for our growth, including a possible sale and leaseback of real estate we have acquired. Another option is a real estate investment trust, which would free up additional working capital. We might also consider equity participation by a partner in the AV TO business. All of these options would require the approval of our supervisory board and no final decision has been reached.

V. Financial Projections

It is important to note that through our consolidation of these retail outlets we have already built a business that has a net present value which is significantly higher than the cost of acquisition and integration of the underlying assets. Our projections for the financial results in 2006 and beyond continue to be revised and will be reported with our first quarter results. The exact timing of closing future outlet purchases and construction schedules for new outlets are difficult to accurately predict at this time. However, based on our business model, we project sales on a pro forma basis of $70 100 million in 2006, with average gross margins of 25 29%. We also project average annual sales per square metre of approximately RUR 80,000 120,000. To date, we have acquired approximately 32,000 square metres. These figures should give our shareholders considerable comfort as we move forward with our expansion programme. Thank you very much for listening. We are ready to respond to your questions.

Questions and Answers

Bob Kommers, UBS

Good afternoon, gentlemen. You mentioned that you expect retail sales of around $70 100 million in 2006. I was just wondering how that translates in terms of average sales per store.

Alexei Gurin

The question was clear, but I would like to remind you that the sales of $70 100 million are on a pro forma basis. Dividing this figure by 104 stores, the average sales per store is between $800,000 and $1 million. Before acquisitions, the combined sales of all stores were $83 million.

Bob Kommers

That is clear. Also, did you say that you expect a gross margin in the retail activities of 25 29%?

Alexei Gurin

Yes, that is correct. The margins are 32 34% in Moscow, around 30% in St Petersburg and 25 26% in the regions. We expect the margins in the regions to increase, based on the synergy effects we are achieving through our consolidated sourcing and logistics.

Greg Rybalov, Smith Management

Hello, gentlemen. Could you give some revenue and EBITDA guidance for the near future? Also, what were the figures for the past year?

Alexei Gurin

Do you mean for the whole company or the retail business?

Greg Rybalov

For the whole company.

Alexei Gurin

We have not yet published the numbers. We intend to publish our results on 28 April*, as required by the London Stock Exchange. At that time, you will have your answer.

Greg Rybalov

Can you give us the margin expectations for the overall business?

Alexei Gurin

First of all, our gross margins have increased significantly since we disposed of Krasnoyarsk in Volgograd. On a pro forma basis, the increase in gross margins of continuing operations is around 20% compared to the overall operations last year, including discontinued operations.

Greg Rybalov

Is it the same for EBITDA margins?

Alexei Gurin

It is pretty much the same, but do not forget that we shut down truck tyre manufacturing in Voronezh. We only started to reduce overheads after we closed truck tyre manufacturing. We cannot cut all overhead costs at once. It is a process that takes time. The results will be reflected in charges that we take in 2005 and the first half of 2006. The process is ongoing. Also, with the new Voronezh II project coming in next year, overall overheads and overhead allocations in Voronezh will be exactly in line with other manufacturing facilities within the Group. At the moment, overheads at Voronezh are higher than the average overheads in our manufacturing facilities elsewhere. That is why the results are slightly less compatible.

Greg Rybalov

I see. So you will take charges in the first half of this year regarding headcount reductions? How will that compare to last year?

Alexei Gurin

These charges will be more in 2005, but some of the charges — not a significant amount — will be in the first quarter of 2006. We will show those charges as a separate line item.

Greg Rybalov

Okay. Can you give us guidance on the expected EBITDA margins, excluding the charges, going forward? What sort of EBITDA do you expect for the whole company in 2006?

Alexei Gurin

Unfortunately, we cannot give you the projections. I can only tell you that the overall EBITDA margin will be higher than in 2005. Moreover, our cash flow is significantly better than our cash flow in 2005 — as you can imagine, given that we have sold our cash negative businesses.

Ron Smith, Alfa Bank

Good evening, gentlemen. Could you elaborate on the rebranding of your individual stores in terms of what it might cost per store and what is actually involved? How intensive is this process going to be?

Alexei Gurin

We do not expect rebranding costs to be a significant expense. First of all, rebranding costs are included in the $60 million investment in 2006 and early 2007 that I mentioned in my presentation. We estimate that it will be around $3 4 million.

Ron Smith

Is it just hanging a sign on the side of the building or is there something more involved? How does it fit with your advertising campaign?

Alexei Gurin

Something more is involved, definitely. It is not just changing signs; it is also changing how the stores are configured inside. We are currently in the process of completing our brand book. The brand book will be ready by the end of June. As soon as it is ready, we will start our rebranding process. It is much more than just signage.

Svegtlan Sukahanovs, Alfa Bank

Good evening, gentlemen. I have two follow up questions, if I may. The first question is on the current level of net debt. The second question is about brand recognition. You gave some very impressive figures in the conference call in November of last year and I wanted to see if you had any more recent figures; from March or April, for example.

Alexei Gurin

On net debt, we have not yet reported the figures. If you do not mind, let me get back to you with the figures. We estimate net debt to be in the ballpark of $450 460 million. I can provide you with the precise number in due course. Your second question was on brand recognition?

Svegtlan Sukahanovs

Yes. In the last conference call you gave some quite impressive figures: 70% brand recognition for the AMTEL brand in Moscow and 60% in the regions, and less impressive figures for VREDESTEIN. I just wondered if you had more recent figures on brand recognition.

Alexei Gurin

Unfortunately, we have not seen the most recent figures, simply because our summer promotion programme is ongoing. We are going to measure those results by the end of May. Apparently, we will get them by the end of June. In terms of the figures you quoted, we achieved 75% AMTEL brand recognition in Moscow, St Petersburg and other major cities, and 70% across the regions. The respective figures for the VREDESTEIN brand were 30% in Moscow and St Petersburg and practically zero in the regions, because we did not advertise in the regions as part of our winter programme. However, we are doing that at the moment. The numbers you are looking for will be ready by the end of June.

Veronika Lyssogorskaya, ING

Good evening, gentlemen. I just wanted to clarify: you said that you shut down the truck tyre production in Voronezh. Is that right?

Alexei Gurin

That is right. We did that in the second half of last year.

Veronika Lyssogorskaya

How many of your 104 stores are in Moscow?

Alexei Gurin


Veronika Lyssogorskaya

I also have a question regarding your marketing budget. What was your overall advertising budget in 2005?

Alexei Gurin

Our overall advertising budget in 2005 was $8 million in Russia and ˆ10 million in Europe. The ˆ10 million in Europe is the marketing budget to support the VREDESTEIN brand in Europe. The numbers are approximately the same or slightly higher for this year. I think it is $8.5 million. We are not only supporting the brand, we are also building the brand — including national television advertising.

Veronika Lyssogorskaya

How does that compare to the marketing budgets of your competitors, such as Michelin?

Alexei Gurin

Some of our competitors, Michelin and Goodyear, are spending a little bit more but we are in line. I think we are number three or number four in terms of international tyre manufacturers? spending on advertising and promotion in Russia.

John Rose

Thank you, everyone, for joining the Amtel-Vredestein Retail Strategy Conference Call. Thank you and goodnight.

*Amtel-Vredestein is planning to publish the financial results of FY 2005, 1Q06 on May 16, 2006 as it was previously announced in the press-release dated 30 January 2006. This Full Transcript was produced by Ubiqus Reporting (+44 (0) 20 7269 0370)

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