Mobile TeleSystems PJSC (MBT) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 2006 financial results conference call on Tuesday, the 9th of September, 2006. [OPERATOR INSTRUCTIONS] I will now hand the conference over to Mr. Andrei Terebenin. Please go ahead, sir.

Good day, ladies and gentlemen, and welcome to MTS's conference call to discuss the company's second quarter 2006 financial operating results.

Before beginning our discussion I would like to remind everyone that except for historical information comments made during this call may constitute forward-looking statements which may involve certain risks.

These statements may relate to one of the following issues -- the strategic development of MTS business activities both in Russia and abroad; revenue and/or subscriber growth; syndicated loan facilities and their usage; legal actions or proceedings directed at the company or its representatives; regulatory changes and the impact of the company's operation in the markets in which we operate; financial indicators such as operating income before depreciation and amortization, average revenue per user, cash flow projections and/or return on invested capital; capital expenditures and operating expenses.

Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These statements may include company press releases, earnings presentation, MTS, and all reports and Form 20-F as well as other public filings made by the company with the United States Securities and Exchange Commission all of which are available on the company website at www1.MTSGSM.com or that of the U.S. Securities and Exchange Commission and www.SAC.gov.

MTS disavows any obligation to update any previously made forward-looking statements made on this conference call or make any adjustments to previously made statements to reflect changes and risks. All the presentations and materials used and referenced in this conference call are available on our company website.

Participating on the call today are Leonid Melamed, the President and CEO; Vsevolod Rozanov, Vice President Finance and Investing, Chief Financial Officer; and Mark Burton, Finance Director of UMC, our Ukrainian subsidiary. And Now Leonid Melamed, President and Chief Executive Officer will take you through the quarter.

Good day, ladies and gentlemen. As I mentioned during our last call, we have undertaken a number of initiatives aimed at enhancing shareholder value, increasing the benefits for our customers, and motivate our team of managers and employees at MTS.

The first step was the June approval of our 3+1 strategy. In essence, we first affirm our goal of market and revenue leadership in Russia. Second, increase our network coverage and achieve revenue leadership in markets throughout the CIS. And the third to build up our international organization and headquarters to create value in new markets. In addition, [regard] 3+1, our aim is to take advantage of opportunities to integrate vertically or horizontally to bring great value to our customers and shareholders.

To achieve these goals, how well have we needed a management structure? Two, develop competitive advantages in our markets of operations, better manage our costs, and make people more accountable for their performance. At the same time we realize the need to promote efficiencies and ensure that our record for transparency and good governance remains unblemished.

As a result, the board of directors voted to approve a change in the organization of our operations. On 14th of August, we officially reorganized the company into entire group. Each of our markets of operations now constitutes of its own business unit responsible for the P&L performance to the group headquarters. Indeed, at the heart of entire group is the corporate center, which will be responsible for, in general, developing group strategy and investment policy, managing the brand, determining operational and functional procedures, as well as benchmarks and PPIs for each business unit and allocating shared functional resources throughout the group. The headquarters will be also responsible for M&A activity of the group.

The benefits of this sort of structure will enable us to take further advantage of economies of scale, realize competitive advantages for operational synergies, and allow knowledge and skill transfers within the group.

[indiscernible] certain functions improves operational efficiencies while planning for the group as opposed to individual markets, it allows us to realize scale benefits ranging from equipment procurement to media services. Generally, linkages throughout the organization open up many possibilities to develop competitive advantages for all of our markets, which may range from bringing products to markets faster to optimizing networks.

In the short term, the move allows us to trim our corporate center staff as we optimize certain functions. As we announced recently, we reduced our personnel at the group level by nearly 800 people. By the end of the year, our goal is to reduce personnel to 19,700 people in Russia, by outsourcing and outstaffing certain functions, and automating, to a degree, personnel in terms of processes.

Over the long term, the structure will allow us to be more competitive in both our existing and prospective markets, attract business partners, and develop a world-class [cadre] of personnel. The purpose is simple. Entire group should be more valuable than the sum of its parts (indiscernible) [pass] to the group in our markets.

For the second quarter, the planned revenue growth for the group increased 20.7% year-on-year, or 16% q-on-q. OIBDA increased 22% q-on-q giving us an OIBDA margin of 48.9%. Net income increased 60% q-on-q. The management of MTS understands the issue of bottom-line growth, which, year-on-year, was down 11%. We are sensitive to our bottom line performance and are working to restore our margins through further cost reductions, the result of which will be seen toward the end of the year.

As for our markets, subscriber growth was robust over the course of Q2. We added 3.05 million subscribers for the period out of which 2.21 million subscribers in Russia, 660,000 subscribers in Ukraine, and over 180,000, in total, for Uzbekistan and Turkmenistan. According to third-party sources, we have also led in subscriber additions in Russia for the past two months as well.

Let me pass to Russia. For the second quarter, top-line revenue growth for Russia increased 17%, both q-on-q and year-on-year. This improvement was funded largely by increased seasonal traffic, new tariff policies including the introduction of new products and services. OIBDA increased 18% q-on-q giving us an OIBDA margin for Russia of 47.2%. And this is an improvement of [half of 1% point] from Q1.

Net income in Russia increased 60% q-on-q to U.S.$193.6 million. A return to business as usual -- we show a return to business as usual as we no longer saw the one-time events charged in the first quarter. In Russia, nominal penetration reached over 97% in second quarter. Estimates of real penetration ranged from 60 to 80%. Our market share was 34%. With the market becoming saturated, new subscribers will be harder to come by. Stimulating our existing base and attracting new subscribers from other networks will be key to our future growth. To do so we introduced a new brand in the middle of Q2, and we also introduced the first of many products and services to support the brand.

First of all, let me mention the tariff plan Pervyi, or "The First" in English. A national tariff plan launched in early June that attracted 1.4 million new subscribers within the first month of eligibility. Most importantly, while the tariff plan is proving successful at extracting more value from our customers, average MOU for Pervyi subscribers was 193, while the average revenue per user was $8.7. This was one factor that drove ARPU higher for our Russian subscribers to $7.5 inclusive of interconnect revenues.

The Pervyi plan features free incoming calls, feature-friendly to the introduction of the calling party pays principle, or CPP, which was introduced on the 1st of July. Given our past experience in Ukraine when CPP was introduced in 2003, we anticipated increased usage but the challenge remained as to whether or not we could extract additional value from our users to compensate for the loss of revenue from incoming calls. Now we feel it is too early to draw any conclusions about our customers' behavior as a result of the CPP introduction. The dynamics of our Pervyi tariff plan subscribers spread through Russia is an encouraging sign.

Now I pass to Ukraine. For the second quarter, top-line revenue growth for Ukraine increased 13% q-on-q and 23% year-on-year. For increased traffic due to efforts to stimulate [on traffic traffic], rising usage, particularly in the postpaid segment increasing distribution. OIBDA increased 29% q-on-q, giving us an OIBDA margin for Ukraine of 51.7%. This is due to increase in traffic revenue, cost-cutting activities including renegotiation of support contracts, decrease in advertising and marketing expenses such as sponsorship of the Winter Olympics left in Q1.

Net income in Ukraine increased 41% q-on-q. The Ukraine, we see the market with nominal penetration exceeding 76%. In real terms, we estimate this may be in the range of 50 to 60%. Our market share was 42%. In Q2 we also refreshed our JEANS brand, our successful youth-focused product and a driver of our prepaid subscriber and revenue growth. We also increased our distribution network, which now exceeds 35,000 points of sale.

Other markets -- in Uzbekistan and Turkmenistan, revenues grew, and we continued to build upon our leadership in this early-stages market. Penetration was -- Uzbekistan, 6%; Turkmenistan, 2%. Our market shares were Uzbekistan, 55%; Turkmenistan, 80%. In both markets we continue to roll out our networks and increase our coverage. Our Uzbek operation, Uzudunrobita, introduced our new brand in June 2006, while in Turkmenistan we will launch the new brand in late September.

In Belarus, where operations are not consolidated, our market share remains stable at 52%.

Let me take this opportunity, as well, to reiterate our intention on gaining control of what we legally acquired in [Kilgerstan]. We will contest any attempt to obtain assets owned by Bitel, and we will continue our efforts in gaining operational control of the company to the fullest extent of the law.

Let me announce some additional significant events. This past Friday, our board of directors approved a share repurchase program whereby MTS and/or MTS Bermuda, our recently established wholly owned subsidiary can buy up to 10% outstanding ADRs that provide voting rights to up to 10% of outstanding MTS shares over a period of 12 months. The repurchases will be made through the open market or private transactions in full compliance with SEC norms and regulations.

Our management came to MTS with the task of enhancing shareholder value. In our view, MTS is both underrated and underleveraged, and the board of directors shared this idea with the management, and we undertake the initiative and in undertaking initiative will provide our shareholders a reasonable return and allow the company to better take advantages on future business opportunities. Our strong capital structure and ability to generate cash flows allows us to take this step now. We are fully capable of funding our capex, and I am certain that the leadership [indiscernible] has shown will [regrettably] finance and control of MTS will ensure that the remains -- that this remains the case.

In addition, acting upon my proposal, the board has also proposed amending our charter to create a management board, which will provide strategic counsel to the company's management. It is my hope that shareholders will approve this measure at our next shareholder meeting.

In sum, we have created a new valuable position for our customers, adopted new structures and policies to build morale and motive our team, and enhance shareholder value. On this note, Sergey Schebetov and Vladimir Lagutin were re-appointed to the positions of Chairman and Deputy Chairman of the board of directors. We are particularly grateful to the responsiveness and guidance shown by our board of directors during this period, and the input of our main shareholder, AFK Sistema.

Our next challenge is executing. Applying ourselves to the task at hand and achieving the operational goals we have targeted. I am pleased with how far we have come, but I also must acknowledge there is still much to be done ahead.

And now let me pass the word to Vsevolod Rozanov, our Chief Financial Officer, and he will talk more about our financial performance. Thank you.

Thank you, Leonid. Good day, ladies and gentlemen. First of all, I would like to say a few words about capital expenditures of the group. But the group will spend nearly $411 million on the acquisition of property, plant and equipment as well as other intangibles related to our group capex program. As a percentage of sales, this is a slight increase -- roughly 1.5% from Q1 driven largely by the network buildouts in our non-Russian business units.

In Russia, capex as a percentage of sales declined for the quarter by 2.5% and remains in line with the budgeted $1,155,000,000 for the year.

As we have stated previously, we continue to invest considerably more in our networks, and our networks capacity compared to the coverage. This is a logical progression of our network expansion plan and reflection of our strategy to grow value added component to our revenue.

Overall, for year 2006 in Russia, almost 50% of our total capex spending will be capacity-related with the remainder squeezed between the coverage, which will account for approximately 35% and other.

In Ukraine, which is the further significant development in our network coverage built in an excess of 1,100 base stations and continued to work on improvements in our network quality. Our network coverage now reaches in excess of 95% of the country.

On the marketing front, quality is becoming more of a differentiator among all operators in the market. All these initiatives are part of our strategy to capture the largest share of the market during the final period of significant market growth in Ukraine.

At the end of Q2, cash and cash equivalents totaled 536 million providing us with adequate levels of free cash for corporate and operating purposes. Our free cash flow in Q2 amounted to $139 million. We expect to remain free cash flow positive for the year.

MTS groups net debt to OIBDA ratio at the end of Q2 fell [slightly] to 1.0. In addition, as we discussed in Q1, we closed our $1,330,000,000 syndicated loan facility with a number of leading international financial institutions. As a sign of confidence in not only MTS but the market, at the general syndication stage the loan was [oversubscribed] by almost 50%.

We are using the loan to refinance existing debt at the lower interest rate as well as for other corporate purposes. I also would like to point out that our effective interest rate remains stable compared to Q1.

As we have previously stated, we launched our opex review program at the beginning of this year with the target to achieve 1 to 2% OIBDA improvement over one year starting from the time we implement our initiatives. Those second quarter OIBDA improved on the back of seasonal revenue increase, we should begin to see much (indiscernible) result linked to our cost-cutting initiatives.

In addition to the things Leonid mentioned, such as labor cost reduction and some economy of scale effects coming through this utilization of call centers, we anticipate further optimization through the following initiatives -- technical maintenance costs as a result of better pricing and upgrade of network with more advanced software and hardware that effectively requires less frequent maintenance; revising and optimizing our marketing costs via consolidating some of the programs with larger vendors and thus negotiating on better discounts as well as better [planning] process; dealing down on handset subsidies in the Ukraine; decreased cost of purchase SIM cards and cost of prepaid [indiscernible] cards manufacturing, we are negotiating more favorable terms with vendors.

As for additional corporate news, this past June our shareholders voted to pay annual dividends of 7.6 rubles per ordinary share, or roughly $1.40 per ADR for the year 2005, which represents roughly $562 million, or 50% of our year 2005 net income. Dividends will be paid in four installments until the end of year 2006.

Now I would like to pass the word to Andrei Terebenin.

Thank you, Vsevolod. And now we will open the call to questions.

Vladimir Postolovsky.

Good afternoon, gentlemen, congratulations on the fantastic results. A couple of questions -- the first one is on your ADR, on buyback program -- why -- you decided to repurchase ADRs, local shares are trading at a discount to them. I'm just curious. And the other question on that -- in your press release you are saying that you repurchased them for corporate needs. It doesn't sound like you will definitely cancel them from this point. How long can you keep them for and -- under Russian legislation -- and what else can you do with the shares after you repurchase the ADRs? That's on ADRs.

Looking at your ARPU dynamics, which was obviously very impressive quarter-on-quarter. I'm just wondering what impact there might have been from discontinuance of discount packages? I mean, the question would be when did you discontinue your discount packages and when your last three minutes lapsed, if you wish? Was it in Q1 or in Q2?

And, finally, it would be great if you could provide us the overall amount of interconnect revenues in Russia in Q2 and compare it to number for Q1 as well. Thanks very much.

Thank you for your questions, this is Leonid Melamed. To answer your first question about our ADRs buyback, I would like to state that the main goal of our shareholders who have approved this plan on their latest board of directors, was the idea that the ADRs of the company saying that the shares of the company are undervalued and the company, in general, is underleveraged. That is why it's -- from the viewpoint of our shareholders, it's [indiscernible] to buy the shares of the company, the ADRs -- for example, the ADRS whenever they are traded now because it's still financially profitable and reasonable for the company. Secondly, the ADR, as an instrument, is a very useful facility, and we really can use it for much more tasks than we can use the shares from the local market. So there are different possibilities how we can use in the future those ADRs that we plan to buy back from the market, and there are no concrete plans right now about that, but it's easy to imagine that we can use them. For example, to attract additional financing for the group by issuing the convertible obligations or by using them in some [M&A futures] for the group of companies. It's not something that is on the agenda right now, but these are the opportunities that will be, from the viewpoint of the shareholders of the company, the management, easy to implement once we repurchased our ADRs from the market.

By answering this, I have also perhaps answered the question what do we mean by business opportunities. These are actually two -- for example, these are two business opportunities that could be used by the repurchased ADRs from the stock market.

Regarding interconnect rate, I'll pass the word to Vsevolod Rozanov.

Thank you, Leonid. We usually do not disclose the numbers related to interconnect. I can mention one thing is that in the Q2 we didn't see significant growth of the [indiscernible] there. It was approximately 10% growth lower than the overall revenue growth in Russia.

You did disclose them in Q1, you said it was about 24 million, and [indiscernible] mentioned that they increased substantially, because in Q1 they all interconnected with you, and in Q2 they are interconnecting with other operators. So you are saying for you it was different, right, that interconnect grew only by 10%. If it was 24, then it would have been with 27 in Q2 only?

Yeah, I think that's correct.

And on discount packages?

If you don't mind, I'll pass the word to Mr. Mikhail Shamolin, who just joined us. He is the Vice President of the company and the newly adopted -- the head of the business unit Russia, and as far as I understand your question is linked with Russia. That's why he is the right person to answer. Misha, please.

Yes, as far as discount packages go, you recall the first quarter of 2005 and the first quarter of 2006. In the first quarter of 2005 we launched a New Year promotion with the heavy discounted on-net calls, and this allowed us to generate significant amount of new subscribers in November and December. We have been coming out of this promotion during January and February. We have finished coming out of this by the beginning of March, and this large amount of customers that we have been able to pick up during this promotion we have been able to retain most of them, and we have grown the ARPU and MOU on those customers, which also positively impacted the results of the second quarter, as you can see.

And then there was nothing since, because I remember there were some tariff plans that when you offered some additional minutes for up-front payment of $10 or $20, and I thought that those minutes might have lasted through May. Is that true or not?

That was a promotion, but it was negligible on the back of our overall sales and financial results. It was not a massive action, and it did not draw a lot of subscribers.

Sergei Arsenyev.

A couple of questions, please. Firstly, I was wondering whether you are still keeping with your full-year EBITDA margin target of 50% given that the first half EBITDA margin was around 48%, right? So do you still believe that you can compensate for this in the second half of the year? And, you know, a related question to that, presumably, you are putting something in for the employee reduction. So related to that, when do you expect the timing of the employee reduction to start coming through? And also if you can give a little bit more detail on that? You know, what is the level of severance that you are expecting, what is the accounting treatment is going to be, and et cetera. And, finally, if you could also say what was the impact of rebranding, if you can quantify that? The impact of rebranding or the overall cost of rebranding in the second quarter? Thank you very much.

Regarding the OIBDA margin, yes, we understand that having achieved 48.9% OIBDA margin in the Q2, we have very serious task to achieve 50% of the margin on an annual basis through significant improvement of our bottom line numbers in the second half of the year, but we'll still keep this indication until the end of the year. We have revised the budget for the business plans of our business units for the second half of this year based on the trends and shipments in Q2, and we have indications from our business units that this task is still fulfillable. That's why we keep on this indication of 50% OIBDA margin until the end of the year.

Regarding the reduction of employees and the severances to be paid out of that same as the other ways we use to reduce our opex expenses, I'll pass the word to Vsevolod Rozanov.

Thank you. Speaking about severance packages, we plan to be in line with the overall practice in Russia, which usually is the -- in a majority of cases, this is a two-month salary for the employee which is being laid off. As for the accounting for the employee reduction, as soon as we formalize this plan, we will start accruing the costs, but they will be allocated -- because this plan is not realized at once, I don't think that we will see any negative one-time effect on this related to the employee reduction program.

And the last question was --

On the cost of rebranding?

On costs of rebranding -- okay, so the cost of rebranding, as it was announced, it was the -- the branding itself was approximately $4 million. As we said in Q1, we delayed or postponed significant number of the market initiatives, specifically those related to our image-building, and they moved to the Q2. We didn't see too much of the image advertising, anyway, in the Q2, and a majority of the advertising expenses were related to tariff plan Pervyi, which was discussed by Leonid.

Okay, can I just follow up on the accounting for the employee reduction? If I understood correctly, this is going to be the -- the severance payment is going to be a part of the personnel cost rather than a one-off, and you would not take a provision against it and the fourth quarter, for example.

That's correct.

Alex Kuzensopf.

Good afternoon, it is Alex Kuzensopf from Bear Stearns. It appears that revenue increased much more significantly than according to your guidance both in the first quarter and in the second quarter. So it appears that the revenue growth in the first half of this year was about 21.5% compared with the previous year. Do you expect that you might exceed your revenue targets for the entire year? And a second question is about CPP. Since CPP was introduced a couple of months ago, I'd like to inquire if you can share with us your outlook on the impact on your financials?

We are facing the first quarter of promising growth in our revenues -- this is the Q2 -- and we would like to be conservative with our forecast for the year-end regarding the growth in revenues. That is why we would give the former indicator, the one we have offered the end of Q1; that is, to the growth from 10 to 15% until the year-end. We would like to be sure that the trends we face now would become the fundamental direction of the development both for the market and of the operations of our company, in particular.

Regarding CPP, I would say that the introduction CPP, let me be also quite conservative here. We'll just say, like, introduction CPP does not change our indications for the year-end. We still need some more time to check the results of the CPP introduction. Also because, in accordance to the international experience of introduction of CPP that we have started, there are certain changes in the behavior of the customers of the mobile operators through [munsis], and after the introduction of CPP, and we need to get a look at the more long period to give you some serious and fundamental answers to this question.

To come back to our forecasts and our indications, I would like to say that we now see the developments in accordance with what have been anticipated by MTS management and that allows us to keep our indications for the year-end for the group, in general and, in Russia particular, stable.

Sean Gardiner.

Just two questions -- first, a quick one on the buyback. Are there any limitations as to when you can start the buyback or could it start theoretically tomorrow? And then, secondly, on the cost savings, you talk about 1 to 2 percentage points EBITDA margin improvement over a year. That seems to be roughly $60 million to $120 million in cost savings. Can you help us understand how much of that comes from your employee reductions and then how much is coming from the items you mentioned, which are things like your technical maintenance cost savings and optimizing your marketing costs, and also whether there is room to go further than $120 million, which will be a top end of your range.

Regarding the buyback -- we have to state that this operation of ours is something -- is the action subject to approval of [Federal and Telephone Service of Russian Federation]. We, in accordance to the law, after the decision of the board of directors, will, in the next coming couple of days, apply for the permission and hope we'll receive it in the next coming months. Hopefully, in a more short period of time but the official timing for this type of permissions. Once we have it, this permission, we will be able to start executing of this program.

Just on that -- you're referring to the law, which has recently changed, which allows majority shareholders to increase their stakes to certain percentage thresholds without getting permission. Is it from that Sistema needs to get permission to increase its stake? Is that what's holding you back?

No, if I understand your question correctly, this necessity to receive permission is not linked with the special growth of one of the shareholders' share in the capital of the company. It just links to the current legislation, and we have to follow-up it.

And to answer the second question, I would like to mention that material cost savings from the personnel reduction are unlikely to be seen during this calendar year as the majority of the cases will materialize closer to the end of the year. And we estimate the other measures, which were discussed earlier in the speech, at approximately the same level that you mentioned.

Excuse me, let me add to what Vsevolod has said, and let me make it clear, it has never been the idea of the management that the reduction of the personnel would lead us to serious cost reductions. We are not talking in general terms of the reduction of the personnel, we are talking about optimizing the headcounting, and the structure of the operations of the company in order to make them more efficient. And we understand that -- we look at the benchmarks of the best companies in Europe, we look at the benchmarks -- at the amount of subscribers per employee in the Eastern Europe and CIS, and we understand what is the best practice that the companies have in the market.

But it is not a direct link between optimizing our headcount and decreasing of our opex. There is a certain link there, but the main task for us to improve the quality of our operations and to make the company more manageable.

Just to sum up -- your total cost savings, you think you can get, going forward, is roughly 2% at the top end. Is that roughly 2% of your sales? Or do you think you can go further than that in 2007?

In 2007, yes, we now are developing a program of further improving the efficiency, and as we said, we expect to get approximately 1% to 2% of the margin cost savings, a reimplementation of the existing plans, and now, while we are starting budgeting for year 2007, we are also looking at new ways to further improve the efficiency.

And the last question, I promise -- in the second quarter, I think you suggested you didn't have any cost savings under your current plan, is that right? So everything starts from the third and fourth quarter of this year?

No, that's not right. Of course, there are already certain initiatives started in the Ukraine, and Mark can elaborate further on that. There already are certain programs started in the Russian business and in Uzbekistan business as well. Mark, if you would like to, it's yours.

This is Mark Burton. Basically, what we're working on is a number of initiatives. One, to encourage on-net traffic so that the balance of our Internet cost reduces as a percentage of our revenue. As you are aware, we continue to build out fiber-optic network, which is generally also having a positive effect in improving our gross margin. And we have certain other initiatives dealing with maintenance costs where we've already started that work a few months ago, and we are also looking at handset subsidies, as I mentioned on the call for Q1, and that is now being implemented -- that change is now being implemented. So a number of initiatives have started during Q2.

Will [Numar].

I'm just looking at your Russian pricing and usage trends, I'm trying to understand those a bit better. It looks like in Q2, you are able to turn quarterly price declines into a sequential price increase and increase usage significantly. So my question is really what drove this and is it an exceptional quarter possibly linked with the introduction of CPP, or do you see prices increasing in the next few quarters. So that's my first question.

Secondly, can you give us an update on your full year 2006 capex guidance and, thirdly, can you update on your long-term leverage targets since you say you're under-leveraged in relation to the share buyback program you've announced today?

Regarding the pricing policy in Russia in Q2, we have to say that we tried to keep our APPM stable, and we don't show no decrease, no significant increase, of APPM in Russia in the Q2, but we've been quite successful in stimulating of usage, and having stable APPM and increase of MOU, we have gained high ARPU, and that is the -- actually, totally in accordance with the strategy 3+1 that we have adopted a quarter ago and we have presented to the investors already where we said that the markets with high penetration such as Russia, we would like to concentrate our marketing efforts in stimulating of the usage.

Answering to your second question regarding the capex guidance for year 2006 -- we do not change our guidance. It remains at the level of $1.8 billion with Russia, as we said, approximately [$1,135,000,000], another approximately $600 million in the Ukraine, and the remaining in Uzbekistan and Turkmenistan. And would you be so kind as to repeat your third question, please.

Yeah, the third question was can you give an update on how you see your long-term leverage target business in terms of net debt to EBITDA since you claim that the business is underleveraged with relation to the share buyback program you've announced?

We will be watching very carefully how the situation develops, and we definitely are keen to remain at this very conservative side. In terms of management, our debt and in terms of policy related to our leverage, and we do not expect to overcome the ratio of net debt to OIBDA more than two at any institution.

Sorry, I didn't catch the last bit -- did you say --

Net-debt to OIBDA ratio will unlikely be higher than 2.

Nadejda Golubeva.

Hello, this is Nadejda Golubeva from Aton Capital. Congratulations on good results. So my first question is about Ukraine. Your [rate of growth] quarter-on-quarter, there is not very impressive, in fact, both in absolute terms and compared to [Nakistar]. Could you give a little bit of color on what's going on there and how you see the competitive landscape. Do you feel significant pressure [indiscernible] did something change since second quarter? And also if possibly you are planning some additional advertising expenses in Ukraine for third quarter so probably [indiscernible] in order to maintain your revenue share and subscriber share so this will be very helpful. And also I see your margin on equipment sales deteriorated in second quarter compared to the first quarter so could you explain whether this is because of Ukraine and so could you comment on this, please, as well? And, finally, a follow-up on the previous asked question -- your margin guidance about 50%, so I guess this is without the impact of CPP because after CPP introduction we can assume additional -- in addition to [running on course], which was just technical would reduce the margin so am I correct that your 50% EBITDA margin guidance, this is without CPP?

This is Mark. Thank you for your questions, Nadejda. In terms of competitive pressure, certainly, there is competitive pressure. Beeline entered the market in Q2 and came in with interesting offers. Concerning [Astalet], they continue to find a place for themselves in the market although they're struggling to find a full place in the market. And [Kiastar] continues rollout and pressure. That is why we have a number of actions that we're taking. The encouragement and stimulation of our own on-net traffic, attention to quality, continued significant rollout to ensure coverage in all key areas of Ukraine, and focusing on distribution points as we want to be much closer to the customer than we have been in the past. And we're starting to see improvements that lead through and is fed through to our increase in our revenue, increase in usage, yet holding up in terms of APPN.

Clearly, there will be cost pressure, although the actions that we have taken -- started taking in Q2, we continue with -- expect to see continuing to give us benefits in Q3, and whilst we will obviously defend our position, we feel that there is -- the moves we have started will bring us additional benefits in Q3 and through to the end of the year.

In terms of margins on handsets, you'll find that Q2 was a quarter in which we adjusted our strategies, so therefore you have a sort of a blended impact, going forward. Going forward, we will move away from handset subsidies except for contract clients, and this is mainly as a tool for customer retention and defending what we have as a very strong position in that segment of the market. Thank you.

Excuse me, can you clarify -- should we expect some additional advertising expenses in Ukraine in third quarter compared to revenue or do you think that you will be able to defend your market share with same level of advertising as.percentage of revenue?

Basically, we would expect that there may be a slight uplift in Q3 and Q4, given our programs. As you are aware, we had a very strong program in Q1, which we had a follow-on effect in Q2. So Q2 is a lower percentage of revenue. We would expect that to pick up a little bit towards the -- in Q3 and Q4 but still bringing additional benefits in terms of our EBITDA margin overall.

Thank you very much, and could you comment on the margin and CPP?

I'm sorry, this is Vsevolod. Can you please repeat your question?

So my question was your 50% EBITDA margin -- is it without the impact from CPP, because after CPP is introduced we'll see in addition to revenue in quarter, which will put pressure on EBITDA margin like even in case EBITDA remains same in absolute terms. So are your guidances -- do your guidance -- do they include CPP impact or this is net of CPP impact -- the 50%?

This is including CPP effect.

So the net?

(multiple speakers) is for actual results of the MTS for the year 2006 including all possible effects at this stage.

Olga Bistrova.

Good evening, congratulations on the great results. My first question is related to advertising expenses in Russia. Obviously, in the second quarter there was a jump in, let's say, advertising and marketing component of subscriber acquisition costs, and you mentioned that you were bringing some cost savings on this item as well. So could you give us some guidance where we should look at this item for the full year?

My second question is regarding Uzbekistan margins. You mentioned that there were some initiative costs, initiatives introduced in Uzbekistan in the second quarter. However, if I understand correctly, there was some reduction in margins in this country in the second quarter versus previous quarters. So can you explain what is going on there basically?

The third question is value-added services ARPU declined in absolute and relative terms as percent of ARPU, over ARPU. Could you also sort of comment on what were the reasons and how should we think about this item, going forward, in your view?

And, finally, July subscriber statistics -- could you maybe provide us some guidance from what was the gross additions at MTS in July?

Thank you very much and thank you for your congratulations. Regarding SAC, the acquisition costs, as a part of our cost efficiency solutions, there is a solution of optimizing of our marketing expenses. We are planning to pay the dues and commissions in accordance to the market and that is not a subject of big influence from our side, this is more a subject of the market trends.

On the advertisement costs and the amount of advertising took place, we have implemented a new way of estimation of our necessities, and that allowed us to make a significant decrease in compared with our initial plan of our advertising expenses for the second half of this year. That is why we anticipate some reduction in acquisition costs indicator, but I would avoid giving concrete indication on this parameter right now.

Regarding the Uzbekistan affairs, I will pass the word to Vsevolod.

First of all, I would like to mention that the margins in Uzbekistan are extremely healthy, and we expect them to continue to be so. In the second quarter, we introduced certain measures, which will increase on that traffic, thus to reduce interconnect costs, which actually led to significant increase in the cost over last few quarters, and also -- we also saw some initiatives related to maintenance reduction there, which didn't materialize to that extent in the second quarter. So, hence, the results are not -- hence, you can't see the results on the second quarter numbers.

Okay, thank you, can I just clarify -- but still there was -- I understand and realize that the margins are higher, but I was just wondering, was there anything in the second quarter in this country that basically caused the reduction in margins quarter-on-quarter?

Well, the key reason for margin reduction quarter-on-quarter is the significant capex program, which was launched in the end of 2004 and beginning of 2005, and thus there was a significant increase in depreciation and amortization.

Regarding the share of [voice] in ARPU, in Russia we registered that 11% of our ARPU was driven by voice, in the second quarter that was -- so the gross was mainly driven by the voice services that we provided to our customers. And our future trend there is still, like -- we think that the share of voice will increase and keep more or less stable on the level of 13% of our total ARPU. That's what we anticipate.

And regarding the July subscribers, I'd like to pass the word to Mikhail Shamolin.

In July our total amount of gross additions was at the level of 1.9 million Russia, of which 800,000 customers have been churned from the previous periods, and therefore our total net additions in July were slightly above 1.1 million customers. This churn number of 800,000 is nothing unusual and not the lowest in the given period.

Stephen Pettyfer.

Hi, it's Stephen Pettyfer from Merrill Lynch. Four questions, if I may -- firstly, could I just -- the subject of the ADR buyback -- could I just clarify on that -- will you be actually canceling underlying shares, or will you be holding them in treasury for future purposes?

The second question relates, again, to your advertising expenditure in the second quarter. It looks to me as if it was something like a 70% sequential rise in your advertising -- the absolute advertising and marketing bill, and I just wondered in addition to the marketing, as they started rebranding costs, what went on there?

Thirdly, on the depreciation line, is this flat sequential rise something normal? And, finally, just to go back again to the 50% full-year EBITDA margin target -- given your comments that you're not really expecting much of the cost benefits to come through in the second half, I just wondered, again, if you could help me understand how you're going to achieve that target? Thanks.

Thank you, Stephen. To answer the question about the ADR buyback, we are going to stress that we are not going to cancel those shares, we are going to keep them as treasury shares on the company recently in Bermuda that is wholly owned by MTS.

The marketing expenses in Q2, I will ask Mr. Shimolan to comment.

Yes, actually, the sales and marketing expenses grew in absolute terms from about $128 million to about $152 million in Q2, and mainly due to the growth of advertising expenses in Russia related to the launch of new brand and heavy promotion of The First tariff plan. However, as the share of revenue, those sales and marketing expenses have remained stable at 10%, and given that we're not planning heavy and aggressive promotions in Q3, and given that we have adopted the program to increase the efficiency of our marketing communications, we expect this level to go down.

As for the third question -- this is Vsevolod -- we expect depreciation will go steadily up in the next quarters as we are implementing our capex program. And speaking about full-year EBITDA margin guidance, we believe that we will be able to realize those initiatives within the -- the effect of the realization of the initiatives I mentioned will come later in this year, so we believe that there is no necessity, or there is no -- any evidence that we have to change our guidance at this stage.

Yuri Poliakov.

Yuri Poliakov, Credit Suisse. I am on the fixed income side, so my questions relate to that, and I have three questions. My first question is could you please indicate what the proportion of security that is or was as a percentage of total debt at the end of the second quarter and how it compares to the level of debt at the end of the first quarter? If you don't have the answer to that question during the call, we would grateful if you could phone us subsequent to the call.

My second question is could you give any guidance on the company's total and net-debt levels expected by the end of the year?

And my third and final question is, could you elaborate a little bit more on your target leverage levels? You have mentioned a couple of times that the company is considered to be underleveraged by management and shareholders, and you flag that the maximum net-debt to EBITDA level would be in the region of 2.0. Could you indicate any timeframe, if any, within which you will get to that level?

Thank you. For the first question, the answer is zero, nil. There were not any secured debt at the company.

On the second question, we do not foresee any significant change in the balance sheet until the end of the year. Obviously, it depends on how our M&A program goes and other potential or other corporate events, but for business going as usual, we do not see any potential change in the position there.

And speaking about target leverage level, as I previously mentioned, the ratio of net-debt to OIBDA as to -- we believe that this is the level of indebtedness, which will not lead to any review of our credit rating. Thanks.

[Leila Gobi].

Yes, I have a couple of questions. The first one, just on real penetration at the beginning of the call, you mentioned estimates range between 60 and 80%. I'm just wondering if you think the addressable market is fully penetrated at this stage or if you do feel there is more growth to come? That's my first question.

The second question is just the general operating environment that you speak about, also focusing more on driving usage of your existing customers -- kind of a similar view to Vimplecom. I'm wondering if you think [Megafon] shares this similar view in terms of being more stabilization in pricing, you know, aggressive promotions, that kind of thing, but just the outlook, really, that you think they may be sharing for the rest of the year in order to keep the overall environment stable.

And the last question -- can you please just remind us how much of your revenues come from incoming calls before the introduction of CPP? Thank you.

Thank you. Regarding the market penetration, we anticipate that the growth will take place in Russia as well, but it will -- we don't anticipate a quick growth there. That is why we think that the stimulation of usage is a fundamental task for the company for the end of this year and the year 2007 and perhaps will stay as our main task regarding the revenue side of our balance sheet for the future years to come.

Still, there is -- the market is growing by -- if to believe the third parties' analysis published in press by something like 1.5 to 2% a month, and in the next coming, perhaps, quarter, I think this type of growth will stay stable.

Regarding the futures of our shareholders, our internal communication policy doesn't allow us to comment on the activities of the competitors. That's why I would rather not answer that, but I would definitely say that we anticipate that the activities of our main colleagues and competitors in the market would help all of us to keep the market, revenue-wise, grow, and it would help all of us to show better bottom-line results in the next coming future. So we suppose that pricing discipline would be the unified principle of marketing activity for the major players of the Russian market in the next coming periods.

And then just the last question about the incoming calls?

That depends on the quarter -- the cost should be approximately 8 to 10%.

Eight to 10%? So that's basically from incoming calls from fixed line?

Not from fixed line only, but all incoming calls.

Is the vast majority fixed line?

Yes.

Okay, so, therefore, since you had a small proportion coming from incoming mobile calls, I was just a little confused earlier when you mentioned international comparisons and the effect of introducing calling party pays to see what impact that has on usage. When we look at fixed-line -- incoming calls from fixed line with client party pays introduction, has there been much of an impact on usage in that respect or wasn't it more because of the incoming calls from mobile, where we saw more interesting data about the impact? Do you see what I mean? Basically, I'm asking you where is the upside? You mentioned international comparisons with the introduction of CPP, and what I don't understand is if most of your incoming calls before CPP was introduced was coming from fixed line and not really from mobile, why is it important to still monitor the behavior of your customers? Where could we see additional upside that we don't see at the moment in terms of your customer behavior? Why is it relevant to monitor a customer behavior?

This is Mikhail Shimolan speaking. First of all, the revenues that [indiscernible] pointed out was about 8 to 10%. Most of the -- a vast majority of the on-net incoming calls and incoming calls from competitors were free even before the introduction of CPP. So we're talking mostly fixed line incoming calls.

That's right.

The fact that we saw in Ukraine, and Mark Burton can come into that in more detail, has been the increase of incoming calls for which we now get interconnect revenues from fixed-line operators as well as the overall increasing traffic stimulated by the CPP introduction. So this is why we are monitoring our traffic development constantly. It is too early to tell exactly how the traffic will be developing because we only have two months of the CPP introduced in the market and typically it takes three to six months for actually changes to penetrate because people have to get their bills first, and then their speaking behavior changes.

I guess that's really my question -- your very last comment. Why would the speaking behavior change if, up until now, they were not really being charged for incoming mobile [indiscernible] calls?

I will pass that to Mark, because he has the practical Ukraine experience.

Okay.

Let me just talk you through the experience that we find. Basically, one, people keep their phones on. The habit in Ukraine, and I can only speak basically of Ukraine's experience, although we also look to international studies. Basically, people keep their handsets on, so they're more available for calls and take calls. They can control their bill. The second thing is, obviously, it depends on the level of interconnect that's set in the market and, secondly, the level of the price from the PSDN to mobile, and then the competitive dynamics between the operators in terms of will somebody move off of PSDN and move to make a mobile call.

Initially, we saw a very high level of PSDN to mobile, which has subsequently been competed away and moved on to mobile as the price of mobile-to-mobile calls, irrespective of network, has been more competitive than a PSDN-to-mobile call.

The other factor that you see here in Russia is the level of interconnect was set much lower than it was in Ukraine, so there will be a different dynamic as a result of that as well.

Okay, that's very helpful, thanks. Sorry, I just have one last follow-up -- sorry about this -- it's just actually on an earlier question regarding the margin guidance about the 50%, and you mentioned the cost-cutting we will see towards the end of the year, an impact from that, to help you with that 50% target. Just to clarify, are you then saying that there is incremental cost-cutting on top to see additional margin upside from 2007?

One concern that while we are implementing the existing program, which will help us to reach an additional 1 to 2% OIBDA margin improvement, we are currently trying to put together the program for efficiency improvement for year 2007.

Dalibor Vavruska.

Oh, hello, good evening. Just a quick question about the subscriber trends. I mean, we saw the numbers in July, which were quite encouraging for MTS in terms of net additions. Obviously, we don't know the numbers for August yet, but I am just wondering whether you can maybe give some light -- shed some light on the pricing policies in the market right now in the third quarter. How is the market developing? You said you expect rather stable pricing as opposed to an increase that we saw in the previous quarter. So I didn't know how much he can tell us about the most recent subscriber and pricing trends right now.

Yes, the pricing in the market -- this is Mikhail Shimolan speaking -- remained relatively stable, and as I was speaking earlier, we have come out of older promotions and discounted tariffs that we've had, which helped the revenue side. In the third quarter, we also do not see any aggressive pricing in the market. Moreover, after the introduction of CPP, we saw the introduction by almost all of the operators. The increase of the price of the first minute, which is the measure aimed at compensating the negative CPP effect because of the reduction in revenue from incoming calls. So shortly we do not see any aggression in pricing in third quarter and expect a reasonable pricing behavior from all the players.

Thank you, and can you maybe say on the market share side and, obviously, the July number was quite remarkable for MTS. Is it a -- do you see this as a new trend, or do you think there is some -- maybe one effects in July and the trend might be a bit different?

We would like to be conservative. We have implemented a number of measures that show their sudden effectiveness, but we have to live a longer period of time and observe the numbers to be absolutely sure that we are on the right track on increasing of our market share. So we are doing very concrete things in a very concrete direction, and we'd like to be conservative with forecasts.

And just last thing, if I can one, on the pricing in ARPU. Obviously, as the result of the CPP, the customer will stop paying for the incoming calls. Is there any specific marketing initiative aimed to make these customers to pay the same money to place the increase, their usage, in other ways to not to decrease the ARPU? Is there any specific campaigns or anything targeting on that?

Approximately half of the revenues that we will lose out of a decrease of the revenues from incoming calls will be compensated by the interconnect revenues that will grow in accordance with our forecast that we hope to grow in the second half of the year. The other part of the decrease in the revenues due to introduction of CPP should be subject to the tariff policy of the company, and the policy to stimulate usage also of the additional services, like [WATS] that we plan to do in the second half of this year. So stimulating the usage of the voice services and additional services is the key element to combat the negative efforts of the reduction of the revenues due to the introduction of CPP.

Anna Bossong.

I've just got three questions -- my first is just to absolutely clarify the cost-saving story. I'm sorry to go over this again, but I think what you're saying is you had a 49% EBITDA margin in the second quarter, and if everything stays the same with your cost savings, that should basically rise to 50 or 51%, let's say. And then in 2007 you're saying, on top of that, more cost savings. So potentially from 50, let's say, percent to 51, 52%, just to check if that's the correct way to understand the guidance we're getting.

Secondly, just on the churn -- you said that in July there was 800,000 churn and 1.9 million gross adds, which sounds to me like something like 30% -- oh, sorry, forget that question, sorry. My next question is on signing of fixed-line contracts. We've heard that Vimplecom is not getting the full progress in signing fixed-line operators to its new interconnection regime, and I'm just wondering if you're having similar problems and if you think maybe that will affect your third quarter results? That's all, thank you.

Okay, the first question -- we are not providing the guidance for year 2007 yet, and I only confirmed that, again, the guidance for year 2006 is 50%, and we expect it to reach the measures, which were discussed earlier, and the measures, which we are now developing for further efficiency improvement in the year 2007 will be evaluated, and we will be able to quantify them, I suppose, in the beginning of the year -- or announce them in the beginning of the year 2007, probably during the full-year results call.

Right, but your cost savings you're saying you're looking at 1 to 2% to margins by the end of this year, which I assume means in something like the fourth quarter and, secondly, you're saying there's more cost savings to come in 2007. That's more or less the correct interpretation?

Well, again, we -- the measures which we are undertaking are intended to optimize our OIBDA margin and also to mitigate the effect, as one of the participants was mentioning, mitigate the effect of the CPP introduction, and the measures, which are to be in effect in year 2007, new measures, are not quantified yet.

To answer your question regarding the interconnect relationships with the other operators, we have not yet changed the policy that we have introduced several weeks ago. The pricing policy, I mean, and, yes, we can confirm that we have some pressure from the anti-monopoly series of Russian Federation in this area, and we are currently looking at the situation, and we will liberate our solution whether it to be change of our policy, or we'll keep it stable in the next coming 10 days.

Vladimir Postolovsky.

I have two follow-up questions. One is on the effective tax rate, which was, again, very high in Q2. Could you explain why it's more like a trend now -- 36% in Q1 and now 31% in Q2? So could you comment on that, please, that would be great.

The second one, are you in a position to give us any indication of what direction would you -- well, hopefully give more than direction of what's going to happen with [indiscernible] in all seven? How significant do you expect the decline to be from 2006?

And, finally, could you remind me -- when did you launch your telephone first? I thought it was at beginning of June. If that's the case, it shouldn't have affected Q2 that much. Anyway, if you could remind me, that would be great.

Well, speaking about the effective tax rate, we -- the first question -- we believe that, first of all, the decrease in the Q2, although it still remains at the low 30s. The reason for increase of effective tax rate is the overall appreciation [indiscernible] switch, which affected, I suppose, all the companies whose revenues are [eliminated -- were nominated indoors]. And there are also certain tax effect on our debt and the interest expenses. So we obviously are focusing on the improvement in this area as it's one of the areas which might lead to increase of the net income and the net income margin, but overall, again, here, we remain quite conservative, and do not expect this number to dramatically decrease over the next quarters.

The second question regarding the guidance in 2007, currently all the [indiscernible] projects are being under review. The review is being finalized, and we only are finishing our strategic sessions, which will provide us with guidance for the capex 2007. Obviously, it will not be higher than this year, and we expect certain decrease, but the extent of this decrease is -- it is premature to announce yet as the project itself -- the investment project. We are not fully [imbued] yet.

Third question, the attack on [indiscernible] introduced in the beginning of June, you are absolutely correct, but the success rate was such that we knew that the effect was material.

How many such subscribers did you have at the end of quarter, please, roughly?

Almost 1 million subscribers on [indiscernible] until the end of the quarter.

Sergei Arsenyev.

Good afternoon, again. Just a couple of very quick follow-ups. On the employee reduction -- the [19.3 thousand] employees in Russia -- will you view this as the optimal level of employment or can there be further incremental cuts beyond that number? And just on the share buyback -- will the share buyback impact your dividend policy in 2006?

The optimization of the amount of employees, we understand that the best practices in Eastern Europe is at the level from 200, 500 -- from 2,500 to 3,000 subscribers per employee in the company. This is the industrial [indiscernible], and we plan to end up next year definitely in this area. But, as I already said, the main test for us is to identify what should -- what position should be reduced, what type of services we should outsource, and if we should do that hard to increase efficiency of our operations by outsourcing. So we understand that will optimize the headcounts of our company in 2007 in Russia, through all of its [indiscernible] in Russia, and we'll give you the indications of what will be the trend there in the end of 2006. But as a guidance, the industrial perspective benchmarks that we use.

Regarding our share buyback program, we cannot comment now on the dividend policy of the company because it's shareholders' affair, so we understand that the decisions of the shareholders would be driven by the interest of the shareholders themselves and the financials of the company would allow them to keep the dividend policy that they would actually prefer to have when they were going to make decisions on this topic. So introduction of the share buyback program will not create additional restrictions or limitations on the dividend policy of the company.

Alex Kuzensopf.

I have two more follow-up questions. First, do you have a long-term guidance of capex as a percentage of your service revenue? And, secondly, we have noticed that MTS ARPU according to the old definition, is lower than that of Vimplecom, while your minutes of use are higher. Are there any reasons for the lower effective tariff, apart from higher percentage of corporate customers?

[inaudible] We currently do not provide long-term guidance on capex as a part of our effort to increase the financial discipline in the company. We are reviewing all the programs now and, again, I suppose that when we are able to provide the guidance for year 2007, we will be able to provide certain guidance for a couple of more years after that when we really have the inventory of all the [indiscernible] and our satisfaction in terms of the requirements we apply for towards in MTS.

On the ARPU side, as you can see, our ARPU has been at the level of $7.5 in Q2 according to the same methodology that our competitors have been using, and I understand that the ARPU of Vimplecom is very similar to that number. So I don't think that we are lower in ARPU.

Oh, I see, so your old methodology was different from Vimplecom? I was under the impression that Vimplecom does include [indiscernible] our calculation. Maybe I was mistaken.

No, the roaming revenues are not included in the ARPU calculation, but the interconnect revenues are.

And also could you remind us of the current split between maintenance, capex, and expansion capex?

Sorry, could you repeat the question?

Could you provide us with the current split between maintenance and expansion capex? What percentage of your capex is spent maintaining current facilities?

Well, unfortunately, our information policy doesn't allow us to disclose the number. [inaudible] capex as to discuss.

And the last question, please?

Sean Gardiner.

Just a follow-up question from us as well. When do you expect to start to report active versus inactive subscribers on a regular basis? What don't you think those metrics are worthwhile for your business for the coming year or so?

And then, secondly, going back to this cost-cutting story -- could you just help us understand the size of some of the costs that you're targeting? The technical maintenance costs, which you highlighted -- can you give us an absolute number for 2005? What that cost line item was so we can understand the potential magnitude and maybe also for the SIM card and scratch card costs, other items, just help us with that, thanks.

Our trend policy is quite stable, and we keep on following this policy through the last several years, and it has not been actually a matter of change for the next coming period of time. If we understand the pressure of the markets to somehow change the [indiscernible] that we developed, deliver, then we'll have the discussion on this topic, and we'll come out with a solution here. Until now we keep on stable churn policy, and it is available on our Internet site.

As for the second question, I would mention that both items you mention are between 1 and 2% of our revenue. So it's quite big numbers.

Each item [indiscernible].

Yes.

Okay, thank you very much, ladies and gentlemen, for your interest. We welcome you at any time to contact our Investor Relations Department for further questions. A webcast of this discussion will be available on our website if you wish to replay the call. In the meantime, we appreciate your interest again and wish you a pleasant day. Thank you very much.

Ladies and gentlemen, this concludes the second quarter 2006 financial results conference call. Thank you for participating. You may now disconnect your telephone.