Финансовые результаты. Телеконференция для аналитиков и инвесторов

Introduction

John Rose

Amtel Vredestein NV  I. Preamble

Preliminary 2005 and Q1 2006 update earnings results were disclosed earlier today in a stock exchange announcement available on our website. The summary of results we disclosed today are still subject to a report from our outside auditors and acceptance by the Amtel-Vredestein supervisory board. A full audited annual report will be released by 31st May 2006, by which date we will release our first full quarter statements.

II. Forward Looking Statements

This conference call may contain forward looking statements regarding future events or the future financial performance of Amtel-Vredestein NV. 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 forward looking statements. Amtel-Vredestein NV does not intend to update these statements to reflect actual results.

For the purposes of today’s discussion, «pro forma» refers to continued operations, including the consolidation of our company in Kirov, Voronezh, Kemerovo, Moscow and the Vredestein organisation for the full year 2005, but without our retail operations. Continued operation excludes results from the Amtel Sibir Tire Complex and Amtel Carbon, which the company sold at the end of 2005, as well as discontinued production of trucks and agricultural tyres at the company’s Voronezh tyre factory.

Before we discuss our earnings, I would like to turn the call over to our CEO, Alexei Gurin, who will provide some perspecti5ve and address the state of our business.

Financial Results Summary for 2005 and Q1 2006

Alexei Gurin

CEO, Amtel Vredestein  I. Preamble

It is a pleasure to present our first annual results as a public company. 2005 was a landmark year for the company. Much has been accomplished — far more than we can report in a single conference call. However, I would like to share a few key events from the year with you.

II. Key Events

1. Business Transformation

The most important is that our strategy to working and our business is growing. We sold every tyre we manufactured in 2005, and we will continue to do so in 2006. Through the acquisition of Vredestein Banden and the successful launch of the Amtel brand, we have made the transition from a manufacturer of unbranded or C-segment tyres to becoming a market leader of higher margin, premium A and value for money B segment tyres. As a result, sales of branded passenger cars more than tripled in 2005. We have also transformed our business into a pan European enterprise with over 40% of our revenues now coming from outside of Russia.

Consistent with our strategy, we have disposed of our Krasnoyarsk tyre factory and our Volgograd facility in 2005. We also discontinued production of truck and bicycle tyres at our Voronezh facility. These disposals produced write offs that resulted in a consolidated net loss for the year. However, these facilities were loss producing assets, inconsistent with our objectives. This was essential to lay the foundation for future growth. Without these write offs, net income was positive in 2005, versus a net loss in 2004. These write offs should not mar the significant progress we have made in the year.

2. Cost Cutting

We have started a cost cutting programme in 2005 that, including the disposal just mentioned, reduced our headcount by over 7,000 people in 2005 alone, with no impact on earnings or production. In fact, we have become more efficient, and we will continue to reduce headcount in 2006 in an orderly and considered manner.

Results would have been even better for the year if they were not offset by rising administrative costs, which are inevitable when merging the organisation of a company of our type, but we have committed ourselves to a plan of reducing overheads, the first phase of which has been realised and is reflected in our results for Q1 2006. We will also reduce administrative costs across the board as we continue to streamline our business as we further integrate Vredestein Banden and identify opportunities for greater efficiency. This will probably result in some additional restructuring charges, but they will be minimal relative to write offs in 2005 and will create long term benefit for the organisation.

3. Retail

We began our retail business in 2005, and we discussed our progress in conference calls devoted to the subject last month. Although its contribution to sales was negligible in the first few months of operation, our retail business will ensure greater penetration and accelerated expansion of our brand this year.

4. Voronezh Expansion

The project to expand capacity at our Voronezh facility began in earnest in 2005 and benefited greatly from the input of our new colleagues from Vredestein, whose engineers have taken over supervision of what we call Voronezh

II. This will result in an additional capacity in 2007/2008 of approximately 2.5 million Vredestein and Maloya tyres. Expendable will be up to over 4 million additional tyres, with minimal additional investment. This will ultimately bring the capacity of the Voronezh factory up to 7 million tyres annually, and complete our plans for reorganisation of our Russian facilities, making Amtel-Vredestein amongst the most technologically advanced tyre producers in Europe.

We began our import of ultra high performance Vredestein tyres from Enschede, but we produced, unfortunately, fewer Vredestein tyres at our Kirov facility, while we perfected the harmonisation of production necessary to produce these tyres to the same specification as those produced at our Enschede factory. We avoided any significant impact on our earnings by shifting production to Amtel tyres until we achieved the high level of quality we demand; we have resolved this and are now back on track for the whole year of 2006.

5. Growth Plan

We have a sound growth plan. Growth in 2004 resulted from investment in Kirov and Voronezh,. Growth in 2005 came from Vredestein acquisition, brand support, capacity organisation, price increases and a change in the product mix. Growth in 2006 will come from retail, continued brand support, further improvement in product mix, capacity utilisation and traditional price increases. Growth in 2007 and 2008 will come from the Voronezh II project, retail expansion, new products and product mix. Further acquisitions are also possible.

III. Q1 2006

We are particularly pleased with our result for Q1 2006, since this is a seasonally low period for sales, which is even more pronounced because of the expanded January Russian holiday. Quarter over quarter growth has been somewhat thinned by losses at our Kemerovo chemical fibre plant, which showed quite positive results in Q1 2004. The company plans to sell this plant as the last of our significant non core assets which are be disposed. Raw material cost continues to climb, though this certainly had an effect on sales; our change in product mix has insulated us somewhat from the full impact of the entire cost, as raw materials now represent a lower cost of goods sold.

Price increases throughout the year will further offset these cost increases. Voronezh I project achieved record output in the Q1, exceeding 200,000 Amtel branded tyres in one month, allowing us to meet the increased demand for our Amtel summer tyres. In fact, Voronezh is now at approximately 2.5 million capacity, up from regional 2.2 million, without additional investment, through improvements in internal logistics such as improving curing times. We have already reached 7,100 units in a single day at Voronezh I project, indicating that there is even more capacity to be realised from this particular project.

We also opened a new Vredestein sales office in Hungary during the quarter. This will be a new spreading point for sales into Eastern Europe. To mark the 60th anniversary of Vredestein Banden, the company designed Ultrac Sessanta, at the top of the range, ultra high performance tyre with unique, asymmetrical, non directional [inaudible], in cooperation with Giugiaro Design, for speeds of up to 300km/h.

With this I would like to turn the call over to our newly installed but very experienced Group CFO, Ton Tholens, who will comment on our specific results before we take questions.

Detailed Financial Figures

Ton Tholens

CFO, Amtel Vredestein  I. Full Year

1. Sales

Net sales increased by 40% to $671 million. On a pro forma basis, this is a 60.8% increase and $681 million. I would like to remind you of the $764 million sales figure in the press release. In former presentations, we promised you a sales level of over $700 million. When we add to the $671 million sales to the sales figure of Vredestein for the first months of 2005 we reach $764 million.

The sales of branded car tyres more than tripled to 7.4 million units versus 1.9 million units in 2004. On a pro forma basis, this means an increase from 6.3 million units to 8.7 million units. Net revenue from passenger car tyres grew by 98% to $340 million, meaning on a pro forma basis, 30% and $388 million. The biggest part of the increase comes from the passenger car tyres.

2. Profit

Through an important improvement in product mix, profit margin increased from 14.3% to 21% in 2005, and on a pro forma basis to 23.5%. As a result, profits from operations doubled to $38 million without impairment costs. On a pro forma basis, this is an increase of 2% and $54 million.

3. Income

Net income before write offs grew exponentially to $5 million in 2005, versus a net loss of $1 million in 2004. Again, on a pro forma basis, this means $16 million in 2005.

II. Q1

In Q1 2006, we saw an increase of net sales of 3.3% compared with Q1 of the previous year, which was $57.4 million in value. Net revenue from passenger car tyres grew by 9% to $95.2 million. The gross profit margin is 22.6%, just above the 2005 level. It is important to note that when you compare this figure with the annual figure for 2005 it is somewhat lower, but this relates to selling off the Simit[?] tyres in the Q1.

Profit from operations grew to $1.3 million -a 6.7% increase from 2005. The company became operating cash flow positive for the first time in the Q1; operating cash flow means the net result with depreciation.

Finally, sales of capacity car tyres grew 21% to 2.7 million units. On a pro forma basis, EBITDA was $106 million, versus $99 million in 2004.

Questions and Answers

What were the EBITDA margin or depreciation DD expenses for the Q1 this year

Ton Tholens

We did not give you any figure; I can give it to you later. Svetlana Sukhanova

May I also ask about your pro forma growth in Q1 this year compared to Q1 last year to get an idea of growth of continued operations?

Ton Tholens

It is 3.3%.

Alexei Gurin

When comparing the Q1 of this year with the Q1 of the last year, we must keep in mind that on the Russian side we were not working for the first two weeks of the year. Last year, we had manufactured and sold tyres but manufactured them in the first place. On the same basis, the costs for January 2006 versus 2005 are somewhat higher because of fixed costs, but overall the margins and the growth are as explained.

Ton Tholens

The EBITDA figure for Q1 was $11.9 million last year and $50.3 million this year.

Svetlana Sukhanova

What were the retail revenues which you consolidated in the Q1 results this year?

Svetlana Sukhanova, Alfa Bank

I would like to congratulate you on great results. My first question is that I missed the EBITDA for the Q1.

Ton Tholens

I did not give you that figure for the Q1.

Svetlana Sukhanova

Alexei Gurin

We have decided not to discuss our retail operations at this time of the year because we operated our retail division with only 41 stores and it was a low season. However, I can tell you that in April alone, our sales were the same as for Q1 2006. The figure was $9 million for the last two months of 2005.

Bob Kommers, UBS

I have a few questions. Firstly, you report total sales of $132 million for the B segment in Russia for the full year 2005, and in the first half you reported $69 million, which means that the second half was below the first half. Could you comment on the underlying reasons?

Alexei Gurin

We are not ready to answer your question because we have not done that kind of analysis and I am not sure that the numbers are right. Let us check your question and we will provide you with an answer. However, in general, in May and June we pre sold quite a few tyres from our winter programme for the placement market, and that may skew the split between the first half and the second half.

Bob Kommers

Regarding B segment Russia, you reported a 24% market share in 2005. What is your target for 2006? Does that still stand at 32%?

Alexei Gurin

Firstly, 24% means an average for the full year, because in the last couple of months we achieved a much larger market share of around 28%. Our target for this year is 32%, and we think it is achievable because we see higher demand for our Amtel branded tyres in Russia than our budgeted production. During Q1, we twice increased our production plan for February and March, manufacturing between 50,000 to 60,000 Amtel branded tyres more than planned.

Bob Kommers

I also have a question regarding your Q1 2006 results. You report a profit from operations of USD1.3 million. That is an EBIT, correct

Ton Tholens

Yes.

Bob Kommers

Does that include any restructuring charges in the Q1?

Alexei Gurin

It includes a restructuring charge of about $1.2 million. When comparing Q1 of this year to that of last year, according to auditors? advice, we did some FRS adjustment to our accounts receivable and another couple of adjustments that we did not do for Q1 of last year. This change took place because by mid 2005 we had almost completely restructured our distribution. We introduced a two tier system with a summer/winter programme, pre sales and so on. Our payment terms became different in the first half of 2005. That is a reason why the working capital went up in the first half of 2005. We discussed this in our prospectus and in our IPO roadshow.

In the second half of 2005, working capital was basically flat; that was the same in 2006. I cannot tell you the exact numbers of the difference of adjustments for the Q1 of 2006 compared to 2005, but we will be able to do it after auditors have filed our financial statements on 30th May.

Bob Kommers

Can I ask a question about your balance sheet? You reported a net debt of $470 million for the end of 2005. What are your debt covenants? Are you still within your bank covenants, or are you in breach?

Alexei Gurin

We are definitely fine. We used to have a debt covenant of below $400 million for this year, according to the first CLN issue, but we removed this covenant in May. It was nonsense, in my opinion, because we spent $47 million last year acquiring a retail outlet. Without that debt that we incurred in order to expand our business — and we had not planned to do this when we issued the first CLN — our debt level would be around $370 million. We would be comfortably below the first CLN covenant.

Bob Kommers

What is your new bank covenant?

Alexei Gurin

We have 70% of sales. It is not a bank covenant; it is a CLN covenant for our debt.

Bob Kommers

You have ambitious investment plans for 2006, both in retail and in capacity expansion. Do you expect the net debt at the end of 2006 to be below the level of year end 2005?

Alexei Gurin

Good question. This is a forward looking statement, but considering the fact that we have already announced and incurred certain debts associated with the Voronezh II project, I doubt that our debt level at the end of 2006 will be lower than at the end of 2005, unless we decide to do some sales of parts of business, such as retail. We have no such plans.

Bob Kommers

What is the book value of the Kemerovo factory?

Alexei Gurin

Book value is between $16 million and $17 million. We feel that the real estate value of that property — and we own the land — is higher than the book value of the business.

Bob Kommers

As I understand it, the Kemerovo factory is now up for sale?

Alexei Gurin

Yes. We have officially retained Alfa Bank as our advisor in this transaction and we are working on it.

Gairat Salimov, Troika Dialog

My first question is about the B and A class sales. Would you give us details of how much A- and B class sales were produced and sold in Russia and in Europe? I am particularly interested about the A- and B class tyres produced in Russia. I would also like to learn about the budget figures which you are budgeted to produce and sell of A- and B class passenger tyres in Russia and Europe.

Alexei Gurin

Most of the sales of A segment tyres occurred in Europe and worldwide. In Russia, our summer programme was 60,000 Vredestein tyres. The tyres that we plan to manufacture in Kirov under Vredestein and Malloya brand were targeted or planned for sale in Europe. Vredestein Banden has compensated these sales with sole manufacturing. In fact, we have planned and sold 60,000 Vredestein branded tyres in Russia in the summer programme, which somewhat overlaps the Q1. We are confident that we will sell what we have budgeted for in our summer programme.

Gairat Salimov

Could you give the figure that you have planned for the whole year?

Alexei Gurin

We have budgeted to sell around 160,000 Vredestein branded tyres in Russia.

Gairat Salimov

What about the products made in Russian plants and sold in Europe?

Alexei Gurin

We have already mentioned that we are lagging behind due to some quality and harmonisation problems, which have been resolved. We are lagging behind by over 100,000 Vredestein branded tyres to be manufactured and sold in Europe.

Gairat Salimov

What is the total budget for 2006?

Alexei Gurin

It was around 700,000 tyres. We think that we will be able to catch up most of the gap, but the whole picture will be clear by the end of the second quarter.

Gairat Salimov

Could I ask for some kind of table on your website with updated capacities and manufacturing data so that I can use it for my model

Alexei Gurin

Please request this in written form and we will provide it.

Overall, it is a good question, because we managed to increase our planned capacity, both in Kirov and Voronezh, in Voronezh I, Kirov I and Kirov II. Last year we manufactured about 6.5 million tyres at our Kirov facility. This year, we budgeted to manufacture 7.2 million tyres in Kirov, which is a figure of about 700,000 more than last year. This increase is based on better planning and capacity utilisation, and optimisation of the manufacturing process. This is one of the results that we have achieved through synergy and cooperation with Vredestein engineers.

Gairat Salimov

Regarding the gross margins per tyre classes, could you give the average approximate across margin that you earned on different tyre classes in Europe and Russia

Alexei Gurin

This is a very specific question. We will be happy to answer it directly later. It is quite confidential information and highly detailed.

Gairat Salimov

I have one more question regarding the Capex budget. Could you give us approximate Capex budget for 2006, in terms of how much you plan to spend for retail and finishing the tyre manufacturing projects?

Alexei Gurin

For Enschede, our Capex budget was €15 million. For the Russian operations, our Capex budget was $125 million, including Voronezh II. Some of these spendings might be shifted to 2007, depending on manufacturing and shipping of the equipment for Voronezh II project. These are the budgeted numbers from our December 2005 budget.

Gairat Salimov

Voronezh II is expected to be launched in the beginning of next year?

Alexei Gurin

It is expected to start operations in June 2007 and be fully operational in August 2007. There will be a learning curve, and we expect the manufacture to be somewhere between 200,000 and 250,000 Vredestein and Malloya tyres in 2007.

Gairat Salimov

Returning to my previous specific, detailed question, can I ask what will be the overall impact of the increase in the material cost on your growth margin in the Q1? Materials are inflating right now.

Alexei Gurin

Material cost increased by more than 10% in Europe and up to 10% in Russia. Sales prices have been pushed up to compensate for the increase in costs. It is not one hit for the bottom line; it is compensated by the sales prices and a shift to the A and B segment, which improves the margin again.

Gairat Salimov

Do you expect to compensate the pressure by the sales mix?

Ton Tholens

For the bigger party, you see that the margin improved in Q1 2006 — it was $20.6 million compared with $20.3 million. If you look at the 2005 figures, on a pro forma basis we are at a level of $23.5 million, which was far lower than in 2004. The improvement from 40% to 22% is important. It is all to do with compensation of raw materials by selling price and the shift in the mix.

Alexei Gurin

Last year we began manufacturing passenger car tyres with a ring diameter of 16in in Russia. It was the first time we had manufactured those tyres. The product mix in Russia has shifted quite substantially…

[Break in audio]

Gairat Salimov

We were talking about the gross margins. The next question I have regards distribution and administration expenses. They are around 15% in 2005. At the beginning of the call, you said that you are planning to cut administration and distribution expense. Could you elaborate on this?

Alexei Gurin

Administrative expenses were significantly higher in 2005 than 2004, mainly because on the Russian side of operations, on a pro forma basis they rose to $33 million from $22 million in 2004. This year, we have already budgeted $3 million less administrative expenses. For Q1 of this year, we are running below the budget in these expenses. We will continue with our tight cost control in this area, as well as with distribution expenses.

Gairat Salimov

Distribution expenses rose due to introduction of the Vredestein brand in Russia. Would you expect this to have the same effect in 2006?

Alexei Gurin

It was not only due to this fact. The main reason behind rising administrative costs in 2004 was increased cost of labour for indirect workers and white collar employees. We have addressed this issue by starting our headcount reduction programme. We will continue this programme this year. In our press release published today, you will see the numbers for this.

Gairat Salimov

Regarding distribution expenses, were these pushed up by increased advertising of the Vredestein brand in Russia in 2005, and do you expect this to continue in 2006?

Alexei Gurin

We do not expect an increase in advertising expenses. They should remain stable at the 2005 level; there is some increase in related expenses, associated with investor relations and the public relations side of the business. This is linked to last year?s IPO. I mean such things as conferences and participation in different meetings, which we have not done in 2004. Also, there was a substantial increase in legal expenses, which should come down this year compared to 2005. The increase in advertising cost in 2005 has to do with the introduction.

Ton Tholens

The level of $7 million is from the end of April, which comes to $10 million in total in the text of the press release.

Gairat Salimov

I have no more questions, but I hope to get more information about the budgeted tyre sales for 2006 later.

Veronika Lyssogorskaya, ING

My question regards the further acquisitions you mentioned. Do you mean tyre plants in Russia or Europe? Could you please specify?

Alexei Gurin

The acquisitions I mentioned will be in the Russian side of the business. We are not looking for any further acquisitions in Europe.

Veronika Lyssogorskaya

These are tyre plants? You are not talking about the retail business?

Alexei Gurin

We are looking at all existing opportunities in the market, including retail operations and manufacturing facilities.

Veronika Lyssogorskaya

You would not exclude taking over some further tyre plants in Russia?

Alexei Gurin

Unfortunately I cannot comment on this.

Veronika Lyssogorskaya

You said that in the Q1 you managed to offset the rising cost of raw materials by a change in product mix. You expect that you will be able to do this throughout the year?

Alexei Gurin

Yes, we are confident that we will be able to achieve our targets on our growth margins.

Veronika Lyssogorskaya

I returned to this subject because Michelin commented last Friday that they expect it will be harder to achieve their targets. My last question is that you said you were mostly behind all of your write-offs in 2005, but you still expect some write offs in 2006?

Alexei Gurin

They will be minor. For example, for the Q1 a total restructuring charge is about $1.2 million, and that number should come down, because most of the charge is related to redundancy and our headcount reduction programmes.

Veronika Lyssogorskaya

I was sure that you shut down bicycle tyre production for some reason. Are you planning to shut it down this year?

Alexei Gurin

Firstly, we are following a trend that has already happened in the European side of operations. Four years ago, Vredestein shifted its bicycle tyre manufacturing to Thailand, because this type of manufacturing is associated with a lot of labour and manual work. With the cost of labour rising domestically in Russia in the last two or three years, the manufacturing of bicycle tyres has become unprofitable. Moreover, we reported a loss of more than $2 million in the second half of last year because of the sale of bicycle tyres that we manufactured in the first half of 2005. It is a general trend in the industry. Now, we as Amtel-Vredestein, manufacture all our bicycle tyres in Thailand and India for the European or North American market.

Veronika Lyssogorskaya

Could you please comment on the very confusing number on page three of your press release?

Ton Tholens

You mean 764?

Veronika Lyssogorskaya

Yes.

Ton Tholens

We did this for the following reason. In the past periods, we promised a sales figure of $700 million. That is also the reason why we added in the second period to the $671 million the first four months of Vredestein to get it on a full year pro forma basis in this total figure.

Alexei Gurin

To add to that, in the prospectus, we defined pro forma financial for 2005 as Russian operations that at that time included Volgograd, Krasnoyarsk and truck tyres manufacturing in Voronezh and full year Vredestein operations. Historical sales for 2005 were $671 million. If you add four months of sales for Vredestein, according to prospectus definitions, then we arrive at the $764 million figure, which by far exceeds the number we discussed during the IPO roadshow. After this, we decided to dispose of Volgograd and Krasnoyarsk, and shut down Voronezh truck tyres and bicycle operations, and have redefined «pro forma». «Pro forma» in our opinion means core or continued operations. That is why it is complicated. Did we answer your question?

Veronika Lyssogorskaya

On the first page, you talked about operational profit in the Q1 of $1.3 million. Is this correct? It seems somewhat low, given that the annual operating profit…

Ton Tholens

You have to keep in mind that the margin, percentage wise, is also lower. Profitability in the first months is at a lower level than at the rest of the year. It grows during the second half of the year.

Veronika Lyssogorskaya

That is correct, but I thought that the sales of summer sales peak in March? They should probably be included.

Alexei Gurin

You start to sell summer tyres in November. That is what we did in Russia and a bit later in Holland. You sell summer tyres in winter and winter tyres in summer. We sell at the wholesale rate, so it has to go through the distribution system.

Veronika Lyssogorskaya

That is correct. So we should expect higher numbers in the second quarter?

Alexei Gurin

Yes. That is why we provide comparisons of sales and growth margins quarter over quarter.

Angelina Valavina

I have several questions. Firstly, could you provide some guidance regarding the profitability of the company in 2006 on EBITDA/EBIT level, as well as your forecast for revenue growth?

Ton Tholens

You are asking for a forward looking statement, and we are not doing this at the moment.

Alexei Gurin

We expect the growth for 2006 to be at the 2005 level.

Angelina Valavina

For top line revenues?

Alexei Gurin

Yes, for the top line.

Angelina Valavina

Do you expect any improvement in profitability compared to 2005 or for it to remain stable?

Alexei Gurin

You mean overall profitability or the margin?

Angelina Valavina

The margin.

Alexei Gurin

We expect improvement at the bottom line and at the margins in 2006 versus 2005. Moreover, for the Q1 of 2006 — and I think it was one of the most important achievements from our restructuring of the second half of 2005 — our cash flow from operations has improved dramatically. Overall, we have collected 300 million roubles more from our tyre sales alone compared to last year,, despite the fact that we worked 2 weeks fewer this year in Russia. Our operating cash flow is $30 million better in the Q1 of 2006 compared to the same period in 2005.

Angelina Valavina

What was your total tyre sales figure in 2005? Do you have a forecast for 2006?

Alexei Gurin

In units?

Angelina Valavina

Yes.

Alexei Gurin

In units, we sold over 15 million tyres, including our own manufacturing and uptake[?1:00:34]. This year, we plan to sell one million more tyres than we sold last year.

Veikko Balli, ABN Amro

Could you comment on how much of Q1 tyre sales were in winter tyres, and did I understand correctly from the working capital discussion that the payment terms for the pre sales are better this year than last year?

Alexei Gurin

Regarding payment terms, for this year we are selling many more tyres through our tax ring[?] programme. As a result, we have already sold the entire summer programme, before we have started the season. This means that we have signed sales and purchase agreements with our distributors. The same is true of our winter programme. We have already pre sold every single tyre we manufactured for our winter programme. We also expect demand to pick up during the season, and we cannot exclude that our manufacturing plan for winter tyres will go up as well, as happened with the summer tyres in February and March.

For Q1, we sell primarily summer tyres, as I mentioned already. We started those shipments in November of last year in Russia, and we started shipments of summer tyres in December in Russia and in February in Europe. There is definitely a difference between the European and Russian operations.

Bob Kommers

I have a question regarding your statement about not ruling out acquisitions of tyre plants in Russia. Why would you consider that? Are there any tyre plants with A and B production capacity available for sale in Russia?

Alexei Gurin

We have not commented or made any statement on acquisition of any Russian facilities. In terms of if there are any facilities available, I cannot answer that question at the moment, but I think it would be very hard to find any facilities that are capable of manufacturing A and B segment tyres now.

Bob Kommers

Regarding your revenue guidance for 2006, you are indicating that growth will be the same as 2005, which will put sales at $820 million in 2006. I presume that includes about $80 million or $90 million in retail sales, so that would leave an underlying sales growth of about 5% in 2006. How will that be possible when you also expect 35% in B segment sales in Russia and 700,000 exports from Russia into Europe, which is effectively 15 to 20% growth in Europe, so the two biggest parts of your business are growing by between 15 and 35%. How does that add up with the 5% underlying growth statement?

Alexei Gurin

There is a slight miscommunication. When I said the same growth that we saw last year over 2004, I meant growth in our core business, which is manufacturing and distribution of tyres. Our retail operation is extra.