15th Mar 2006 07:02
Telecom Egypt S.A.E15 March 2006 Telecom Egypt Announces Full Year Results 2005 Cairo, 15 March, 2005: Telecom Egypt (TE) (Ticker: ETEL.CA; TEEG.LN), todayannounced its financial results for the year ended 31 December, 2005. FinancialStatements have been prepared in accordance with Egyptian Accounting Standards. Full year 2005 highlights include: • Total number of fixed-line subscribers up 10 percent on 2004 to 10.4 million • Teledensity reached 14.6 percent in December 2005 compared to 13.6 percent in 2004 • Revenues reached EGP 8.4 billion, an increase of 8 percent on 2004 • EBITDA reached EGP 4.7 billion, up from EGP 4.4 billion in 2004 • EBITDA margin in 2005 was 55.8 percent • Net Profit before Tax up 60 percent to EGP 2.7 billion • Net Profit after Tax up from EGP 1.0 billion in 2004 to EGP 1.8 billion in 2005 • Earnings per Share (EPS)1 increased by 82 percent to reach EGP 1.03 vs. EGP 0.48 in 2004 • Monthly ARPU2 was EGP 70.2, down from EGP 71 in the same period in 2005 1EPS calculated after deduction of employees' share in dividends and board ofdirectors' bonus subject to the approval of the annual general assembly meeting 2ARPU is calculates as total revenue divided by average number of subscribersduring the year Chairman's statement Commenting on the full year results, Mr Akil Beshir, Chairman of Telecom Egypt,said: "2005 was a busy and successful year for Telecom Egypt. Operationally we havecontinued to deliver strong results in our home market, with subscriber numbersin Egypt growing by almost one million, taking total subscribers to close to10.4 million by year end. This is the largest number of fixed line subscribersin the Arab World, Middle East and Africa. "Financially, too, the company performed well. We have now delivered fourconsecutive years of underlying revenue growth, reaching EGP 8.4 billion in2005, while at the same time our EBITDA margins, at 55.8, continue to be amongstthe highest in the sector. "While our operational and financial performance in 2005 is reflective of ourown efforts, the buoyant Egyptian economy has contributed positively to consumerspending, service penetration levels in both voice telephony and Internet andincreased levels of service usage. "Our large and well established fixed-line subscriber base continues to grow andhas risen 10 percent in the course of 2005. Since 2002, we have focused ourefforts on increasing coverage and reducing waiting lists. "Good progress has also been made towards our strategy to look both within, andoutside, of Egypt for further growth prospects. Our regional expansionstrategy took its first steps with moves into Algeria and Jordan. Meanwhile,our Internet business, TE Data, performed exceptionally well in a rapidlygrowing sector, trebling the number of ADSL subscribers during the course of2005. We fully expect the market for Internet, and particularly for ADSLservices, to continue to grow strongly and intend to be one of the broadbandmarket leaders in Egypt. "2005 has also been a year to prepare for change. In particular, we havefocused on ensuring that we are well positioned to manage the impact ofinternational liberalization. We have worked hard to ensure it is economicallyattractive for local and international operators to continue to use TE'sinternational telecommunications gateway. "Given our profitability, the strength of our customer base and network and newgrowth opportunities in broadband services and internationally, TE is wellpositioned to deliver sustained growth in the future. I am particularly pleasedto announce a full year proposed dividend, subject to the approval of the annualgeneral assembly, of EGP 0.41 per share, which is 83 percent higher than lastyear. This shows our continued commitment to improving shareholder returnswhilst building for the future." Summary TE benefits from a unique position at the heart of the telecommunications marketin Egypt. Although the fixed-line voice segment has been open to competitionsince 1998, and the international access segment of the market was opened tocompetition on 1 January, 2006, TE remains Egypt's sole full service fixed-linetelecommunications provider. TE provides retail telecommunication services including access, local, longdistance and international voice, Internet and data, and other services. Thecompany also provides wholesale services including broadband capacity leasing toISPs, and national and international interconnection services. TE participates in the mobile segment in Egypt by providing mobileinterconnectivity and though its current 25.5 percent holding in Vodafone Egypt,one of the two Egyptian mobile operators. Furthermore, Internet and data services are well positioned to be one of thefastest growing businesses segments within TE, driven by the attractivedemographics of the Egyptian market, the proliferation of personal computers andthe increasing sophistication of consumer needs. Telecom Egypt's retail Internetand data services include Internet broadband and dial-up services, datatransmission services, and leased lines provided through its 95 percent ownedsubsidiary, TE Data. In December 2005, 20 percent of the company's shares were sold by the Egyptiangovernment, represented by the Ministry of Communications and InformationTechnology, to retail investors in Egypt and to institutional investors acrossEgypt, the Middle East and internationally. The offering, which is the biggestinternational offering out of the Middle East and North Africa region to date,expanded TE's shareholder base to include over 250,000 investors across Egypt,the Middle East, Europe and the US. Financial Review Revenues Fixed Line Overall revenues increased by 8 percent, to EGP 8.4 billion for the year ended31 December 2005, from EGP 7.7 billion for the same period in 2004. Newconnections and the resulting increased call usage levels, subscription fees,incoming international calls and fixed-to-international traffic have beendrivers of TE's revenue growth. Revenues derived from retail telecommunication services, including access,local, long distance and international voice, Internet and data, and otherservices, during the year ended 31 December 2005 accounted for 73 percent oftotal revenues. Meanwhile, wholesale revenues derived from other operatorsusing TE's extensive infrastructure accounted for 27 percent of total revenues. In line with our strategy, the net growth in the number of subscribers and usersof value-added services has meant that revenues from subscription based servicesincreased by 22 percent to EGP 1.4 billion in 2005. Mobile The increase in mobile penetration in Egypt resulted in an increase of 11percent in TE's revenues from fixed-to-mobile calls to EGP 1 billion in 2005from EGP 0.9 billion in 2004, and to a rise in wholesale revenues frommobile-to-fixed call interconnection by 9 percent to EGP 208 million for thetwelve months ended 31 December 2005, from EGP 191 million in 2004. Internet The Government-sponsored programme to provide personal computers at affordableprices and flexible payment terms to the public, initiated in 2004, hascontinued to have a highly positive impact on access to the Internet in Egypt.By the year ended 31 December 2005, TE Data, TE's wholly-owned subsidiary,established a 30 percent retail ADSL market share, having trebled its ADSLsubscriber base to 27,343. TE Data revenues for the full year 2005 grew 53% toEGP 121.6 million. EBITDA/EBIT TE remains focused on financial discipline and while we continue to demonstratesuperior revenue and subscriber growth, we are careful not to do this at theexpense of profitability. EBITDA reached EGP 4.7 billion compared with EGP 4.4billion in 2004, a rise of 6 percent. Tight cost controls and a rigorouslypre-qualified investment programme have enabled the company to sustain EBITDAmargins of above 50 percent for the last three years, among the industry'shighest margins. At 31 December, 2005, TE's EBITDA margin was 55.8 percent. EBIT for the year ended 31 December was positively impacted by twonon-operational items and ended the year up 44 percent on 2004 at EGP 2.6billion. Firstly, the strength of the Egyptian pound resulted in foreignexchange gains of EGP 335 million, compared to foreign exchange losses of EGP149 million in 2004. In addition, dividends received from TE's increasedholding in Vodafone Egypt rose from EGP 27 million to EGP 133 million. Theresult translates to an EBIT margin of 31.5 percent up from 23.6 percent in2004. Share of profit of associates TE recognises that mobile telephony is expected to be one of the fastest growingsegments of the telecommunications market in Egypt. In 2005, TE increased itsholding in Vodafone Egypt, one of the two licensed Egyptian mobile operators, to25.5 percent from the 8.6 percent held in 2004. The share of profit ofassociates resulting from this investment increased to EGP 133 million for thetwelve months ended 31 December 2005, from EGP 27 for the full year 2004. Net profit Net profit increased by 82 percent to EGP 1.8 billion for the twelve monthsended 31 December 2005 from EGP 1 billion for the full year 2004. The increasewas primarily the result of the 5 percent increase in gross profit; the increasein income from investments resulting from net gains on the disposal ofinvestments and the EGP 106 million increase in dividends received from VodafoneEgypt; as well as an increase foreign exchange gains and release of unusedprovisions. Investments in infrastructure TE's existing digital fixed-line network is extensive, with more than 22,000kilometres of fibre optic cables covering ninety-five percent of populated areasin Egypt. During 2005 TE invested heavily in its network to expand coverage and switchingcapacity as it worked to grow its subscriber base to 10.4 million. Also in2005, TE continued to make technical enhancements to its network to address thegrowing demand for high bandwidth, value-added services. Capex-related cashoutflows reached EGP 3 billion, in line with management assumptions. Managementexpects this figure to fall slightly to EGP 2.9 billion in 2006 as the networkbuild out and enhancement is completed with a sharper decline in capex figureexpected in 2007. Debt In February 2005, TE completed an EGP 2 billion bond issue consisting of 20million negotiable, callable bonds (not convertible into shares) at a par valueof EGP 100 each. The bond is rated "AA" (national scale rating) by Meris, thelocal affiliate of Moody's, and is currently one of the largest and highestrated corporate bonds in the market. Proceeds of the bond offering were used torefinance more expensive outstanding debts existing prior to the bond issuance. TE's management maintains a conservative approach to leverage, reducing net debtby EGP 0.8 billion to EGP 4.1 billion at the end of 2005, compared to EGP 4.9billion in 2004. Outlook With the ongoing liberalization of the telecommunications market, TE has begunthe implementation of a cost-based tariff rebalancing in order to enable it tocompete more effectively in an open and fully liberalized market. This processin well underway and TE will continue to update the market on its progressduring 2006 The telecommunications market in Egypt is developing rapidly, and 2005 was animportant stage in positioning TE financially, with its bond issue and publicoffering, for the next phase of growth. The company's strategic focus for 2006is to further increase penetration and to enable the expansion of new servicesexpected in 2007. While TE anticipates a continued growth in its fixed-line subscriber base in2006, and has a target of 11.4 million subscribers, from 2007 onwards its focuswill shift to higher spending customer segments. TE Data is working hard in the development of the broadband segment in Egypt andis already one of the leading access providers in a highly competitive market.By the year end December 2005, TE Data had trebled its subscriber base comparedto 2004. The demand for data services is growing strongly, and TE Data'stailored solutions, delivering choice in multiple access technologies, isproving exceptionally popular. While TE's commitment to developing the Egyptian telecommunications market isunwavering, in the future it will continue to pursue selective opportunities toexpand its footprint in the Middle East and North African region. Our 50percent participation in Consortium Algerien De Telecommunications (CAT), thealternative fixed line network in Algeria, evidences our ability to transplantoperational experience overseas. Algeria represents an attractive marketopportunity and voice and data services have just been launched in Algiers. Anupdate on the progress of this operation will follow later in 2006. Telecom Egypt Financial Statements Balance Sheet - as of December 31, 2005 Note 31/12/2005 31/12/2004 No. LE(000) LE(000)Long Term Assets Fixed assets (net) (4) 21 763 811 23 534 178Projects in progress (5) 1 139 739 1 314 014Investments in Subsidiaries & affiliates (6-1) 1 429 494 708 237Investments available for sale (6-2) 95 197 147 519Other debit balances - long term (7) 1 396 773 1 600 000Other assets (8) 99 799 131 610 ------------ ------------Total Long Term Assets 25 924 813 27 435 558 ------------ ------------ Current Assets Inventories (9) 486 523 410 819Trade receivables (net) (10) 2 521 199 2 600 848Debtors and other debit accounts (net) (11) 2 265 248 1 865 171Cash at banks and on hand (12) 698 463 1 093 073 ------------ ------------Total Current Assets 5 971 433 5 969 911 ------------ ------------ Current Liabilities Loans installments and facilities due within one year (13) 476 487 1 009 650Banks - credit accounts 419 061 1 468 254Banks overdraft 157 349 51 966Suppliers (14) 94 287 57 393Creditors and other credit accounts (15) 2 936 691 2 629 845Provisions (16) 1 255 074 1 507 828Total Current Liabilities 5 338 949 6 724 936Excess (deficit) of current assets over current liabilities 632 484 ( 755 025) ------------ ------------Total investments 26 557 297 26 680 533 ============ ============ Financed as follows:- Shareholders' EquityPaid up capital (17) 17 070 716 17 112 149Reserves (18) 3 415 291 4 646 755Retained earnings 384 638 412 276Net profit for the year 1 835 871 1 008 663 ------------ ------------Total Shareholders' Equity 22 706 516 23 179 843 ------------ ------------ Long Term Liabilities Loans and credit facilities (13) 1 734 821 3 445 986Bonds loan (33) 2 000 000Creditors and other credit balances (15) 54 704 54 704Deferred tax liabilities (3-21) , (19) 61 256Total Long Term Liabilities 3 850 781 3 500 690 ------------ ------------Total Shareholders' Equity and Long Term Liabilities 26 557 297 26 680 533 ============ ============ Income Statement - for the financial year ended December 31, 2005 Note 2005 2004Operating Revenues LE(000) LE(000) Sales of services (20) 8 164 025 7 539 683Sales of telephone sets & directories 168 009 132 905Other operating revenues 31 439 65 983 ------------ ------------ 8 363 473 7 738 571 ------------ ------------ Operating Expenses Interconnection fees (21) 1 299 247 1 219 488Fuel 62 301 58 052Spare parts 80 555 57 586Maintenance 123 811 101 881Satellite subscriptions 29 012 22 365Depreciation & Amortization 2 523 105 2 421 903Cost of telephone sets & directories sold 145 820 123 589Other operating costs (22) 1 039 780 842 125 ------------ ------------ 5 303 631 4 846 989 ------------ ------------Gross Operating Profit 3 059 842 2 891 582 ------------ ------------ Other Operating ExpensesGeneral & administrative expenses (23) 1 009 527 665 386Selling & distribution expenses (24) 170 880 102 006Provisions (16) 50 120 99 233Impairment loss on trade and other receivables (16) 72 377 124 921 ------------ ------------ 1 302 904 991 546 ------------ ------------Net Operating Profit 1 756 938 1 900 036 ------------ ------------ Other Income / (Expenses)Interest income 24 926 8 906Income from investments 148 397 41 488Interest expenses (381 388) (409 389)Other revenues (25) 111 088 33 248Impairment loss on long-term investments (3 213) (5 871)Gain on sale on long-term investments 37 626 421Release of unused provision 260 333Reversal of write-down of inventory 2 796Loss on sale of fixed assets (24 138) (408)Foreign exchange profit ( loss) 335 096 (149 272) ------------ ------------ 511 523 (480 877) ------------ ------------Net profit for the year before tax 2 268 461 1 419 159Current tax expense 371 334 410 496Deferred tax expense 61 256 ------------ ------------Net profit for the year 1 835 871 1 008 663 ------------ ------------Earnings per share (LE/Share) (28) 1.03 0.48 ============ ============ Statement of Cash Flows - for the financial year ended December 31, 2005 Note 2005 2004Cash flows from operating activities LE(000) LE(000) Cash receipts from trade receivables 6 886 131 6 180 026Sales tax collected from receivables 449 225 341 464Stamp tax and fees collected (from third party) 94 472 74 211Deposits received from receivables 51 281 14 304Cash paid to suppliers (172 640) ( 324 107)Cash paid to employees (973 739) ( 892 116)Cash paid on behalf of employees (290 142) ( 248 411)Dividends paid to shareholders & employees (722 512) ( 687 879) ------------ ------------Cash generated from operating activities 5 322 076 4 457 492 Interest paid (404 916) (380 437)Payments to Tax Authority (341 227) (173 624)Payments to sales Tax Authority (682 125) (491 709)Other proceeds /(payments) net (267 948) (124 051) ------------ ------------Net cash provided by operating activities 3 625 860 3 287 671 ------------ ------------ Cash flows from investing activitiesPayment for purchase of property, plant and equipment (2 418 162) (2 030 599) and projects in progressProceeds from sale of fixed assets and other assets 16 870 7 054Payments for purchase of investments (722 653) (3 850)Proceeds from sale of investments 88 294Interest received 18 220 6 915Dividends received 141 406 39 514 ------------ ------------Net cash used in investing activities (2 876 025) (1 980 966) ------------ ------------ Cash flows from financing activitiesRepayment of borrowings & facilities relating to (630 323) (1 007 683) acquisition of property, plant and equipment and intangible assets.Repayment of borrowings & facilities relating to others (1 570 938) ( 208 137)Proceeds from long - term loans 29 531 37 109Proceeds from long - term bonds issued 2 000 000Change in banks credit accounts (1 049 193) 785 657Payment of financial lease obligations (28 905) (20 413) ------------ ------------Net cash used in financing activities (1 249 828) (413 467) ------------ ------------ Net (Decrease) Increase in cash and cash equivalent (499 993) 893 238Cash and cash equivalent at the beginning of the year 1 041 107 147 869 ------------ ------------Cash and cash equivalent at the end of the year (29) 541 114 1 041 107 ============ ============ The accompanying notes from No. (1) to No. (37) form an integral part of thesefinancial statements. Statement Of Changes In Shareholders' Equity - For The Financial Year Ended December 31, 2005 Share Legal Other Revaluation Retained Net Total Capital Reserve Reserves Reserve Earnings Profit LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) Balance as of 1/1/2004 17 112 149 267 485 4 134 359 19 081 218 571 1 087 305 22 838 950Transferred to 54 365 218 571 (272 936)reserves Reducing other (44 844) (44 844)reserves according tothe Extra-ordinary General Assemblyresolution on 29/3/2005 Adjustment of (2 262) 2 262revaluation surplusof soldinvestments Dividends for the year (622 926) (622 926)2003 Transferred to 191 443 (191 443)retained earnings Net profit for the 1 008 663 1 008 663year 2004 --------- -------- -------- --------- -------- --------- ---------Balance as of 17 112 149 321 850 4 308 086 16 819 412 276 1 008 663 23 179 84331/12/2004Adjustment on retained (11742) (11 742)earningsTransferred to 50 433 410 014 (460 447)reserves Dividends for the year (25 901) (548 216) ( 574 117)2004 Adjustment of (10 005) 10 005revaluation surplusof sold investmentsReducing of other (1 723 339) (1 723 339)reserves against decrease the land &other assetsaccording to theExtra-ordinary GeneralAssembly resolutionon 21/9/2005Reducing the share (41 433) 41 433capital according tothe Extra-ordinaryGeneral Assemblyresolution on 21/9/2005Net profit for the year 1 835 871 1 835 871 --------- -------- -------- --------- -------- --------- ---------Balance as of 17 070 716 372 283 3 036 194 6 814 384 638 1 835 871 22 706 51631/12/2005 ========= ======== ======== ========= ======== ========= ========= Notes to the Financial Statements for the Financial Year Ended December 31, 2005 1. BACKGROUND - Establishment of the company Arab Republic of Egypt National Telecommunication Organization (ARENTO) wasestablished pursuant to Law No.153 of 1980. Effective from 27/3/1998 andpursuant to law No.19 of 1998, the legal form of (ARENTO) was amended after therevaluation of its assets on 26/3/1998 to become an Egyptian Joint Stock companyunder the name of Telecom Egypt Company (TE) subject to the provisions of theCompany Law No. 159 of 1981 and Capital Market law No. 95 of 1992. Purpose of the company The main purpose of the company includes: Establishing telecommunications networks. Providing telecommunications services. Operating and maintaining the networks, equipment and machinery necessary to provide the services. Executing projects necessary to accomplish its purposes. Cooperating with international companies and organizations to connect the Arab Republic of Egypt with the world. By virtue of the approval of the company's Extra-Ordinary General Assembly heldon 6/12/2005, the following activities were added to its objectives "Real estateinvestment for serving its purposes, and executing its projects and in order forthe company to achieve its purposes, it is entitled to establish or participatein establishing new companies or existing companies operating in the same,complementary or related activities. Annotation to this effect was made in thecommercial registry on 16/1/2006. 2. BASIS FOR THE PREPARATION OF THE FINANCIAL STATEMENTS The financial statements are prepared in accordance with the Egyptian AccountingStandards and in the light of the provisions of applicable Egyptian laws andregulations. 3. SIGNIFICANT ACCOUNTING POLICIES APPLIED 3-1 Foreign currency translation The company maintains its books of accounts in Egyptian pound. Transactionsdenominated in foreign currencies are recorded at the declared exchange rates atthe date of transactions. At the balance sheet date, monetary assets andliabilities denominated in foreign currencies are retranslated at the exchangerates declared by the banks dealing with the company at that date. The exchangedifferences are recorded in the income statement. 3-2 Fixed assets and depreciation Fixed assets are carried at cost less accumulated depreciation and anyaccumulated impairment losses and are depreciated using the straight-line methodover the estimated useful lives of each type of assets as follows: - Description Estimated Useful life Buildings & constructions 10 - 50 Years Machinery & equipment 6 - 20 Years Means of transportation 5 - 10 Years Tools and supplies 1 - 8 Years Office furniture and fixtures 3 - 10 Years 3.3 Projects in Progress This item represents the amounts incurred for projects in progress till beingready for the intended use in operations. Then, they are transferred to fixedassets. 3.4 Investments in Subsidiaries and affiliates Investments in subsidiaries and affiliates are stated at cost. In case of theexistence of impairment in the carrying amounts of these investments, therelated investment is reduced by this impairment loss, and charged to the incomestatement for the year. 3.5 Available-for-Sale Investments Available-for-sale investments are recorded at cost and re-measured as follows: The listed investments in the stock exchange are re-measured at the end of each financial period at fair value (market value). Investments that are not listed in the stock exchange are re-measured at cost or computed value, calculated in the light of an objective study of the company's recently approved financial statements by the companies issuing such notes. Any losses resulting from the decline in the market value or computed value of the investments compared with the cost are charged to the income statement for the year. The inactive investments (do not have listed price in an active market, or their fair value can not be reliably measured) are recorded at their acquisition cost. In the case of impairment in the carrying amounts of these investments, the related investment is reduced by the impairment loss and charged to the income statement for the year for each investment. 3.6 Held for trading investments Financial investments classified as held for trading are recorded initially atcost. At the end of each financial year, these investments are re-measured attheir fair value (Market value). Gain or loss arising from a change in the fairvalue should be included in the net profit or loss for the period in which itarises. 3.7 Amortization of other assets This item represents the usufruct of cables circuits. These other assets areamortized over (10-20) years provided that their useful lives do not exceed theperiod of the usufructs. 3.8 Inventories Inventories of goods purchased for resale are valued at the lower of cost or netrealizable value. Inventories of spare parts and materials are valued at cost.Obsolete or slow moving items are written down to their replacement value. Costis determined using the weighted average method. 3.9 Accounts, notes receivable, debtors & other debit accounts Receivables, debtors & other debit accounts are stated at nominal value lessimpairment loss for any amounts expected to be irrecoverable, and they areclassified as current assets, however, amounts that are expected to be collectedafter more than one year are classified as long-term assets. 3.10 Impairment of assets The carrying amounts of the Company's assets, other than inventory, note no.(3-8) and deferred tax assets note no.(3-21) are reviewed at each balance sheetdate to determine whether there is any indication of impairment. If any suchindication exists, the asset's recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognized in the income statement. An impairment loss is reversed only to the extent that the asset's carryingamount does not exceed the carrying amount that would have been determined, netof depreciation or amortization, if no impairment loss had been recognized. 3.11 Provisions Provisions are recognized when the company has a legal or constructiveobligation as a result of a past event, and it is probable that an outflow ofeconomic benefits will be required to settle the obligation, and the obligationcan be reasonably estimated. Provisions are reviewed at the balance sheet dateand amended when necessary to reflect the best current estimate. 3.12 Borrowing cost The borrowing costs are recognized in the income statement as an expense asincurred. 3.13 Grants Grants are recorded as deferred revenues and should be recognized as income overthe periods necessary to match them with the related costs, on a systemic basis. 3.14 Trade & Other Payables Trade and other payables are stated at cost and liabilities and are stated atfuture values from goods and services actually received. 3.15 Revenue recognition Revenues from sales of services are recognized when services are rendered to thecustomers. Income from investments is recognized when dividends of investees are declaredby the general assembly resolutions. 3.16 Expenses All operating expenses recorded including general & administrative expenses arerecognized in the income statement in the financial period when incurred. 3.17 End of service indemnity The company contributes to Social Insurance Authority for the benefit of itspersonnel in pursuance to the Social Insurance Authority law No. 79 of 1975 andits amendments. These contributions are recorded in the "Wages and Salariesaccount" in addition to the early retirement scheme applied from 1/9/2001 (NoteNo. 26). 3.18 Capital lease agreements The accrued lease payments, repair and maintenance expenses of leased assetsunder the capital leasing agreements are recognized as an expense in the incomestatement for the year. At the end of the lease agreement if the companyexercised its rights to purchase the leased assets. These assets are recorded asfixed assets and their costs are determined at the amount of the purchasebargain option stated in the lease agreement and depreciated over the remainingestimated useful lives. 3.19 Accounting estimates The preparation of the financial statements according to the Egyptian AccountingStandards require that the management use estimates and assumptions that affectthe values of the assets and liabilities and the revenues and expenses duringthe financial periods and years. The actual results may be different from thoseestimates. 3.20 Reserves Legal Reserve According to the company's Article of Association requirements, 5% of the netprofit is set aside to form a legal reserve . The transfer to legal reservecease once the reserve reach 50% of the company's paid in capital, however, ifthe reserve falls below the defined level (50% of the company's paid incapital), then the company is required to resume setting aside 5% of the netprofit. Other reserves The Generally Assembly may, upon the suggestion of the Board of Directors, formother reserves. 3.21 Income tax Income tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognized in the income statement except to the extent thatit relates to items recognized directly in equity, in which case it isrecognized in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted at the balance sheet date, and any adjustment to taxpayable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Theamount of deferred tax provided is measured using tax rates enacted orsubstantively enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilized. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realized. 3.22 Cash flow statement Cash flow statement is prepared according to the direct method. Cash & cashequivalents comprise cash balances, time deposits and bank overdrafts that arerepayable on demand and form an integral part of the company's cash managementare included as a component of cash equivalents for the purpose of the statementof cash flows. 4. FIXED ASSETS (NET) Office Buildings & Machinery & Means of Tools & furniture & Land constructions equipment transportation supplies fixtures Total LE LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) (000) Cost Balance at 1 4 038 768 15 944 807 15 188 430 100 087 50 711 377 983 35 700 786 /1/2005 Additions 52 289 597 219 1 633 135 1 756 9 890 327 679 2 621 968 for the year Disposals (1 754 766) ( 141) ( 254 321) ( 2 308) (2 011 536) for the year Balance at 2 336 291 16 541 885 16 567 244 99 535 60 601 705 662 36 311 218 31/12/2005 Depreciation & Impairment Balance at 1 4 663 577 7 226 950 66 900 28 785 180 396 12 166 608 /1/2005 Depreciation 889 873 1 622 784 13 378 4 653 80 780 2 611 468 charge for the year Disposals ( 34) ( 228 819) ( 1 816) ( 230 669) Balance at 5 553 416 8 620 915 78 462 33 438 261 176 14 547 407 31/12/2005 Carrying 2 336 291 10 988 469 7 946 329 21 073 27 163 444 486 21 763 811 amounts at 31/12/2005 Carrying 4 038 768 11 281 230 7 961 480 33 187 21 926 197 587 23 534 178 amounts at 31/12/2004 Cost of fixed assets includes an amount of LE 974 million relating to fully depreciated assets still in use. Additions and disposals of the land for the year include an amount of LE 48 696 K , L.E.1 754 766 K against the reduction of the General reserve by a net amount of LE 1 706 070 K pursuant to the Extra- Ordinary General Assembly resolution on September 21, 2005. Depreciation for the year are charged as follows:- LE(000) Operating 2 497 740 expenses General & 112 944 administrative expenses Selling & 784 distribution expenses -------- 2 611 468 ======== 5. PROJECTS IN PROGRESS 31/12/2005 31/12/2004 LE (000) LE (000) Land 6 528 3 993Buildings and construction 125 466 188 320Machinery and equipment 442 967 635 572Means of transportation 387 278Tools and supplies 115 4 680Office furniture and fixtures 39 441 153 422Advance payments 495 523 305 550Letters of credit 29 312 22 199 -------- -------- 1 139 739 1 314 014 ======== ======== 6. LONG TERM INVESTMENTS Participation 31/12/2005 31/12/2004 % LE (000) LE (000)6.1 Investments in subsidiaries & affiliates Middle East Radio Communication (MERC ) 51.00 3 825 3 825 T. E. Information Technology 97.66 31 250 9 250 T. E. Data 93.33 84 000 55 500 Centra Technologies 55.02 8 634 6 191 Vodafone Egypt 25.50 1 287 805 619 227 Nile On Line (NOL) 27.27 12 668 14 244 Wataneya for Telecommunication 50.00 125 Consortium Algerien de Tele -communications (CAT) 33.00 133 International Telecommunication Consortium Limited. 50.00 54 (ITCL) Egypt Trust 25.00 1 000 --------- -------- 1 429 494 708 237 ========= ======== 6.2 Investments available for sale Participations in foreign Satellite companies & 25 245 77 366 organizations Investments in other local companies 69 952 70 153 INVESTMENT IN VODAFONE - EGYPT The investment in Vodafone Egypt represent the ownership of 61 200 000 shareswhich represent 25.5% of Vodafone Egypt shares. The company is currently in theprocess to transferring the ownership of its shares in Vodafone to Wataneya forTelecommunication Company, which was established on January 27, 2005 withparticipation percentage of 50% by telecom Egypt. 7. OTHER DEBIT BALANCES - LONG TERM These balances are represented in the following: 31/12/2005 31/12/2004 LE (000) LE (000) The amounts due from National-Telecommunication Regulatory Authority for the 1 600 000 1 975 000 license fees paid to the said Authority for the third operator after waiver of this license by the third operator after warier of this license (Note No. 27). Less: The current portion to be collected during next year which was recorded 520 000 375 000 under "debtors and other debit accounts" (Note No. 11). -------- -------- 1 080 000 1 600 000 -------- -------- Payments made on behalf of consortium Algerian de Telecommunication to 221 585 finance the license concession and finance the operating expenses of consortium company in Algeria. -------- -------- Amounts due from the employees in consideration of the company's shares 201 987 floated in public offering and purchased and distributed by the company to its employees. The value of these purchased shares shall be paid by employees over 24-months starting from 1/1/2006, and these shares are subject to a 6 month ban period starting from the date of closing subscription. Less: The current portion to be collected during next year which was recorded 106 799 under "debtors and other debit accounts" (Note No. 11). -------- -------- 95 188 -------- -------- 1 396 773 1 600 000 ======== ======== 8 OTHER ASSETS Right of Right of Right of Usufruct Right of way way way for land way (BRITAR) (ALITAR) (Flag occupied (SMW2, Total cable) by TE SMW3) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) Cost Cost at 1/1/2005 1 720 48 815 95 910 18 838 131 566 296 849 Adjustments on the beginning (18 838) (18 838) balance Additions for the year 1 1 Disposals for the year (60) (60) -------- -------- -------- -------- -------- -------- Balance at 31/12/2005 1 720 48 755 95 910 1 131 566 277 952 -------- -------- -------- -------- -------- -------- Accumulated amortization Balance at 1/1/2005 559 18 937 50 764 12 427 82 552 165 239 Adjustments on the beginning ( 8) ( 12 427) ( 12 435) balance Amortization during the year 172 2 438 9 599 13 156 25 365 Disposals ( 16) ( 16) -------- -------- -------- -------- -------- -------- Balance at 31/12/2005 731 21 351 60 363 95 708 178 153 -------- -------- -------- -------- -------- -------- Carrying amounts at 31/12/ 989 27 404 35 547 1 35 858 99 799 2005 ======== ======== ======== ======== ======== ======== Carrying amounts at 31/12/ 1 161 29 878 45 146 6 411 49 014 131 610 2004 ======== ======== ======== ======== ======== ======== 9. INVENTORIES 31/12/2005 31/12/2004 LE (000) LE (000) Spare parts 158 774 142 835 Materials supplies 356 295Telephone sets and directories 42 154 35 526Others - project cables and supplies 278 349 226 294 -------- -------- 479 633 404 950Add:Letters of credit 6 890 5 869 -------- -------- 486 523 410 819 ======== ======== 10. TRADE RECEIVABLES (NET) 31/12/2005 31/12/2004 LE (000) LE (000) Governmental sector 294 679 308 813 Private sector 2 490 142 2 631 852Foreign telecommunication 902 257 800 335companies and organizations 3 687 078 3 741 000 Less:Impairment loss on trade receivables 1 165 879 1 140 152 -------- -------- 2 521 199 2 600 848 ======= ======= 11. DEBTORS & OTHER DEBIT ACCOUNTS 31/12/2005 31/12/2004 LE (000) LE (000) Suppliers - debit balances 54 045 55 675Deposits with others 4 623 3 906 Employees' loans 1 264 1 348Customs Authority - deposits 3 047 2 999Accrued revenues 7 941 8 470Tax Authority - with holding tax 108 985 66 806Employees loyalty grant (Note No. 23) 33 078 39 527Other debit accounts* 2 206 818 1 798 673 -------- -------- 2 419 801 1 977 404Less:Impairment loss on debtors & other debit accounts balances 154 553 112 233 -------- -------- 2 265 248 1 865 171 ======== ======== • Other debit accounts include the following amounts: - 31/12/2005 31/12/2004 LE (000) LE (000) The current portion to be collected within one year from the National 520 000 375 000 Telecommunication Regulatory Authority for the license fees of Wataneya for Telecommunication (Note No. 7). Payment of 10% for the capital participations in Wataneya for 9 800 Telecommunication - under establishment - Telecom Egypt owns 98% of the share capital. Advances for the new building paid on behalf of the Wataneya for 41 035 Telecommunication (Building, designs and engineering company services). The current portion to be collected during next year for the balances due 106 799 from the employees for the company's shares distributed to them (Note No. 7) Amounts due from the main shareholders of the company (Ministry of Finance) 15 345 for payment of public offering expenses on behalf of the seller (Ministry of Finance). Payments on the account of corporate tax. 1 002 089 1 002 089 -------- -------- 1 644 233 1 427 924 ======== ======== 12. CASH ON HAND AND AT BANKS 31/12/2005 LE (000) 31/12/2004 LE (000)' Banks- time deposits 605 669 989 70Banks - current accounts 60 243 91 626Cash on hand 32 551 11 740 -------- -------- 698 463 1 093 073 ======= ======= Time deposits at 31/12/2005 include an amount of L.E. 6 460 K blocked in favourof some banks as a guarantee for the letters of credit granted to the company(against L.E. 8 586 K at 31/12/2004). 13. LOANS AND FACILITIES Loan Installments Installments Balance Balance Interest Repayment due due scheduleDescription Currency within one within more as of as of Rate year than one year 31/12/2005 31/12/2004 LE(000) LE(000) LE(000) LE(000) % Semi-annual installments ending on 24/9 /2007 Paid in fullLocal banks L.E. 12 581 8 919 21 500 1 283 469 Cibor +loans 2.55 % Local banks U.S.$ 125 197 2.5%+ Liborloans - mediumterm -------- -------- -------- --------Total local 12 581 8 919 21 500 1 408 666 Annualloans -------- -------- -------- -------- installements ending on 9/4/ 2006 Semi annual / annual installements ending on 24/1 /2014 Governmental L.E. 22 22 202 8% Semi annualLoans installements ending on 31/ 12/2007Governmental U.S.$ 116 206 680 751 796 957 756 274 4 - 16%Loans Governmental SK 2 055 1 286 3 341 22 632 0.15% + Semi annualLoans installements ending on 29/ 12/2012 agency commission Governmental EURO 6 330 27 177 33 507 53 878 4 - 6.37%Loans -------- -------- -------- -------- -------- Total 124 613 709 214 833 827 832 986 Semi annualGovernmental -------- -------- -------- -------- installementsloans ending on 20/3 /2012 Semi annual installements ending on 30/6 /2036Foreign loans J.Y 24 397 78 380 102 777 153 548 3 -3.5%Foreign loans EURO 135 517 866 093 1 001 610 1 375 646 0.75 - 8.2%Loans -------- -------- -------- -------- -------- Foreign loans L.D 10 171 10 171 10 171 3.5%Total foreign 159 914 954 644 1 114 558 1 539 365 Semi annualloans -------- -------- -------- -------- installements ending on 5/3/ 2006 Semi annual / annual installements ending on 1/12 /2008Foreign L.E. 427 427 13 317 3% Semi annualsuppliers' installementsfacilities - ending on 14/local 12/2007Foreign EURO 122 916 21 188 144 104 421 358 3.18 - Paid in fullsuppliers' 5.50%facilities -foreignForeign J.Y 56 036 40 856 96 892 195 680 2.5 - 2.75%suppliers'facilities -foreignForeign U.S.$ 44 264 3%suppliers' -------- -------- -------- --------facilities -foreignTotal foreign 179 379 62 044 241 423 674 619 Repaymentsuppliers' -------- -------- -------- -------- schedulefacilities 476 487 1 734 821 2 211 308 4 455 636 ======== ======== ======== ======== Foreign suppliers' facilities in Euro include L.E. 4 953 K equivalent to Euro720 K against letters of guarantee issued by National Bank of Egypt in favour ofSiemens as a guarantee for this facility settlement. 14. SUPPLIERS 31/12/2005 31/12/2004 LE (000) LE (000) Local - suppliers 91 855 56 139Foreign - suppliers 2 432 1 254 -------- -------- 94 287 57 393 ======== ======== 15. CREDITORS AND OTHER CREDIT ACCOUNTS 31/12/2005 31/12/2004 LE (000) LE (000) Tax Authority - (withholding tax) 75 741 77 821Deposits from others 602 813 547 777Fixed assets creditors 389 652 479 976Accrued interest 73 931 112 433Accrued expenses 208 750 75 025Social Insurance Authority 18 501 18 354Clients - credit balances 215 593 255 979Dividends payable 36 586 176 738Credit balance for social, cultural and sportive 119 214 77 988activitiesOther credit accounts 352 525 150 000Deferred revenues* 266 254 301 962Tax Authority - income tax 260 502 410 496Current tax for the year 371 334 -------- -------- 2 991 395 2 684 549Less: Tax payments due after one year 54 704 54 704 -------- -------- 2 936 691 2 629 845 ======== ======== *Deferred revenues are represented in the value of the grant presented by theUSAID to finance some of the company's projects after deducting the accumulatedamortization at 31/12/2005. 16. PROVISIONS Balance Charged Used Reclassification Release of Reversal of Balance as of to during unused write-down as of 1/1/2005 income the year provisions in inventory 31/12/2005 statement LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) Provision for contingentliabilities, claims andothersTax provision 1 426 940 14 120 ( 65 129) ( 260 333) 1 115 598Claims provision 41 476 36 000 62 000 139 476Other provision - Usufruct 39 412 ( 12) ( 39 400)for land occupied by TE ---------- --------- --------- --------- ---------- --------- --------- 1 507 828 50 120 ( 65 141) 22 600 ( 260 333) 1 255 074 ---------- --------- --------- --------- ---------- --------- ---------Impairment lossOn trade receivables 1 140 152 30 057 ( 4 330) 1 165 879On debtors and other debit 112 233 42 320 154 553accounts balances ---------- --------- --------- --------- ---------- --------- --------- 1 252 385 72 377 ( 4 330) 1 320 432 ---------- --------- --------- --------- ---------- --------- ---------Write-down in inventory 19 751 ( 2 796) 16 955(obsolete & slow movingitems) ---------- --------- --------- --------- ---------- --------- --------- Write-down in inventory balances are netted against their related type of inventory balances. 17. CAPITAL The company's authorized, issued and paid in full capital is L.E. 17 112 149 K,represented in 171 121 490 shares at a par value of L.E. 100 each. All sharesare fully owned by the Egyptian government. On September 21, 2005, the Extra-ordinary General Meeting resolved thefollowing:- Decrease of issued capital by a net amount of L.E. 41 433 K representing thevalue of lands transferred to Ministry of Communication & Information Technology by L.E. 71 250 K and thevalue of land reverted to for T.E as a result of the amendment of the total landarea near the satellite station in Maadi amounting to L.E. 29 817 K. Decrease of the par value per share from L.E. 100 to L.E. 10. Accordingly, the company's issued capital has become L.E. 17 070 716 Krepresented in 1 707 071 600 shares at a par value of L.E. 10 each andannotation was made to this effect in the Commercial register on 24/11/2005. Thus, Egyptian Government owned 80% after floating 20% of company's shares inpublic offering in December 2005. 18. RESERVES 2005 2004 L.E. (000) L.E. (000) Legal reserve 372 283 321 850Fair value reserve 6 814 16 819General reserve 3 024 034 4 295 926Capital reserve 12 160 12 160 -------- -------- 3 415 291 4 646 755 ======== ======== Legal reserve amounted to L.E. 3 024 034 at 31/12/2005 representing thedividends transferred to the general reserve for years 99/2000 till 2004 afterthe decreases decided by the Extra-ordinary General Assembly Meeting held on 29/3/2005 & 21/9/2005. 19. DEFERRED TAX 19.1 Deferred Tax Assets and Liabilities Assets Liabilities 31/12/2005 31/12/2005 L.E. L.E. Fixed assets 170 380Inventory 3 391 Trade receivables 25 793 Provisions 50 095 Accrual (liabilities) 29 845 -------- --------Total deferred tax assets (liability) 109 124 170 380 -------- --------Net deferred tax assets (liability) 61 256 ======== ======== 19.2 Unrecognized deferred tax assets 31/12/2005 31/12/2004 L.E. L.E. Deductible temporary differences 17 990 Deferred tax assets for the year 2004 have not been recognized in respect ofthis item for lack of reasonable assurance that future benefits shall berealized from these deferred tax assets in the subsequent periods. 20. SALES OF SERVICES 2005 2004 L.E. (000) L.E. (000) Domestic call revenuesLocal calls 1 591 518 1 537 086Long distance calls (excluding Mobile revenue) 413 806 442 548Local telegram and telex 12 897 14 628 --------- ---------Total domestic call revenues 2 018 221 1 994 262 --------- --------- Mobile domestic revenuesFixed to mobile revenue 1 049 454 949 222Mobile to fixed interconnection revenue 208 368 190 807 -------- --------Total mobile revenues 1 257 822 1 140 029 -------- --------Other local revenuesConnection fees 350 834 365 458Subscription fees 1 437 718 1 181 042Leased lines 59 176 42 996Others 698 150 780 469 -------- --------Total other revenues 2 545 878 2 369 965 -------- -------- International revenuesInternational calls (excluding mobile to international) 405 685 355 752Revenue from international operators 1 284 333 1 117 487Mobile international revenues 648 371 559 013International telegram and telex 3 715 3 175 -------- --------Total international revenues 2 342 104 2 035 427 -------- --------Total revenues from sales of services 8 164 025 7 539 683 ======== ======== 21. INTERCONNECTION FEES 2005 2004 L.E. (000) L.E. (000)Fixed to mobile interconnection fees 779 851 666 770Fixed calls for internet & audio text companies fees 242 219 258 055Dues against outgoing international calls 276 454 293 386Dues against outgoing international telegram & telex 723 1 277 -------- -------- 1 299 247 1 219 488 ======== ======== 22. OTHER OPERATING COSTS 2005 2004 L.E. (000) L.E. (000) Salaries 729 737 621 558 Compulsory social security contributions 102 174 96 351Employees' vacations 88 059 Electricity & water 11 134 10 624Stationary & printed materials 67 322 77 429Transportation cost 17 660 14 463Business telephone cost 23 694 21 700 -------- -------- 1 039 780 842 125 ======== ======== 23. GENERAL & ADMINISTRATIVE EXPENSES 2005 2004 L.E. (000) L.E. (000) Salaries 451 597 333 931 Compulsory social security contributions 35 200 48 144Employees' vacations 49 758 End of service compensation-Early retirement program 8 607 10 242Depreciation 112 944 54 789Bad debts 245 263Tax and customs duty 76 179 17 347Bank charges & commissions 11 202 8 191Others 263 765 192 479 -------- -------- 1 009 527 665 386 ======= ======= 24. SELLING & DISTRIBUTION EXPENSES 2005 2004 L.E. (000) L.E. (000)Salaries 95 112 82 778 Compulsory social security contributions 13 136 13 221Employees' vacations 11 411 Depreciation 784 1 392Tax and customs duty 4 203 2 296Others 46 234 2 319 -------- -------- 170 880 102 006 ======== ======== 25. OTHER (EXPENSES) / INCOME 2005 2004 L.E. (000) L.E. (000) Donations (7 268) (8 590) Sundry revenues 180 551 121 105 Prior years' (expenses) / income (net) (62 195) (79 267) -------- -------- 111 088 33 248 ======== ======== 26. EARLY RETIREMENT SCHEME The company's board of directors approved in its meeting dated May9, 2001 an early retirement scheme for its employees. The scheme was implementedduring the twelve months ended 31/8/2002 (First phase). The cost of thesecompensations is financed by a Bank loan granted to the company. The principalloan will be repaid from employees' Loyalty Fund and the interest will becharged as expenses when incurred. The company's board of directors approved in its meetings dated March 20, 2002 and December 30, 2002 to finance an amount of L.E 65000 K and L.E 35000 K respectively for the employees' Loyalty Fund to facilitate financing the retired employees' compensations (the second and thirdphases), provided that these amounts should be refunded from employees LoyaltyFund upon their legal early retirements. The amount of L.E. 66 922 K wasrefunded as of December 31, 2005. On January 15, 2004 the employees' Loyalty Fund was registered in the Register of the Egyptian Private Social Insurance Funds and the grant accounts was transferred to the account of Loyalty Fund which will pay these balances to the company on the dates of the legal early retirement of the employees. The actual compensations charged to the income statement and paid to the early retired employees' for the year amounted to L.E. 8 607 K representing the amounts due on the remaining period till the legal age of retirement and the vacations balance with a maximum limit of 9 months. The amounts to be refunded during a year (current portion) amounted to L.E. 6 950 K and the amounts to be refunded starting from January 2006 and up to the year 2011 (the long term portion) is L.E. 26 128 K. (Note No. 11). 27. WAIVER OF THE LISENCE OF THE THIRD MOBILE OPERATOR The company obtained a license to establish the third mobile phone operatoragainst an amount of L.E. 1 975 million paid to the National TelecommunicationRegulatory Authority (NTRA). However, due to the current recession in themarket, the company decided to waive its right in this license and recover thelicense fees paid to (NTRA). Pursuant to the memorandum of understanding dated December 20, 2003 concludedbetween Telecom Egypt and both Vodafone Egypt Co. and Mobinil, the partiesagreed that the two mobiles operators would pay to (NTRA) cash instalments inorder to obtain the frequency band 1800 MHTZ previously granted to Telecom Egyptand waived to the two mobile operators. The company requested (NTRA) to transfer its right in the cash installments paidby the two mobiles operators within the agreed payment conditions and timeschedule to Misr Bank in its capacity as a lender and a representative of thelenders to the company to finance its acquisition of 25.5% of Vodafone EgyptShares. The company obtained the approval from (NTRA) regarding this transfer ofright on December 22, 2003. On January 27, 2005 an agreement was made between Telecom Egypt and the NationalTelecommunication Regulatory Authority (NTRA) whereby the company committeditself not to apply for obtaining a license to build and operate a mobile phonenetwork in Egypt using the (G.S.M) system with the frequency band of 1 800 MHTZtill November 30, 2007 against the commitment of (NTRA) to pay L.E. 1 975million - previously paid by Telecom Egypt to (NTRA) - to Misr Banque accordingto the terms of the transfer of right dated 22/12/2003, in addition to thepayment of L.E. 480 million to the company after the completion of the paymentof L.E. 1 975 million and L.E. 25 million due to (NTRA). The restriction mentioned above does not prohibit or prejudice the right of thecompany to apply to (NTRA) for obtaining a licenses to provide mobiletelecommunication services of the third generation (G3) or any other higher orequal mobile telecommunication services or infra-structure whether during orafter the restriction period. On April 2005, The first instalment due from the National TelecommunicationRegulatory Authority (NTRA) amounting to L.E. 375 million was collected andthe balance due from the National Telecommunication Regulatory Authority (NTRA)amounted to L.E. 1 600 million as of September 30, 2005 plus the amount of L.E.480 million and the remaining amounts will be collected on four equal annualinstalments amounting to L.E. 520 million each. The last instalment shall due onMarch 31, 2009. 28. EARNING PER SHARE 2005 2004 Net profit for the year (L.E.000) 1 835 871 1 008 663Less:Employees' share in profit (L.E.000) 77 517 190 617Board of directors remunerations (L.E.000) 2 500 2 500 -------- -------- 1 755 854 815 546Number of outstanding shares 1 710 075 492 1 711 214 900 -------- --------Earning per share for the year (L.E / share) 1.03 0.48 ======== ======== Par value of share has been reduced from L.E. 100 to L.E. 10 according toresolution of the Extra-Ordinary General Assembly Meeting dated September 21,2005, thus the number of shares has become 1 707 071 600 shares and the previousperiod earning per share has been modified as a result of modifying number ofshares. 29. STATEMENT OF CASH FLOWS 2005 2004 Cash and cash equivalents (as per balance sheet) 698 463 1 093 073Less:Banks overdraft 157 349 51 966 -------- --------Cash and cash equivalents at the end of the year 541 114 1 041 107 ======== ======== 30. CAPITAL COMMITMENTS The company's capital commitments for the unexecuted parts of contracts tillDecember 31, 2005 amounted to L.E. 92 million (L.E. 49 million at 31/12/2004).It is expected that these commitments shall be settled next year except forpayments of share capitals of investees, which shall be settled when required bythe Board of Directors. 31. CONTINGENT LIABILITIES In addition to the amounts included in the balance sheet, as of December 31,2005 the company had the following contingent liabilities:- 31/12/2005 31/12/2004 L.E.(000) L.E.(000) Letters of guarantee issued by 5 470 27 000 banks on behalf of the company Letters of credit 452 998 197 222 32. TAXATION 32.1 Corporate tax Years till 26/3/1998 This period covers all the years up till National Telecommunication Authority(NTA) has been transformed into Telecom Egypt. Tax inspection was made, and alldisputes were settled except for certain amounts for which related provisionswere formed to meet the disputes tax liabilities. Financial years from 27/3/1998 till 31/12/2002 These financial years were inspected, and the dispute was transferred to theInternal Committee then to the Appeal Committee for the period from 27/3/1998till 31/12/2000, and all disputed items were resolved except for the differencesrelating to the revaluation of the assets and liabilities of ARENTO at the timeof transforming it into a joint stock company, however, this dispute was settledby virtue of an agreement between the company and the Income Tax Authority on 26/9/2004, and the taxes due for these financial years were resolved till 31/12/2002 according to the minutes of the committee executing the agreement betweenthe Tax Authority and the company. The company has formed a provision for thewhole tax amount as agreed upon. Financial year from 1/1/2003 till 31/12/2003 Tax inspection was made and the company was notified by Tax Form No. (18), andthe company agreed on the taxable income and the provision was formed includingall the tax differences. Financial year from 1/1/2004 till 31/12/2004 Tax inspection has not been made by the competent tax inspectorate, and taxreturns were submitted on due dates. The company formed a provision on anestimated basis to meet the liabilities that may result from the tax inspection. 32.2 Sales Tax Tax inspection was made till 31/12/2004, and all due taxes were settled. 32.3 Salary Tax Tax inspection and assessment were made till 31/12/2000 and all due tax weresettled. Tax inspection for the period from 1/1/2001 till 31/12/2002 is currently beingundertaken, and the company formed a provision on an estimated basis to meet theliabilities that may result from tax inspection. 33. BONDS LOAN In February 2005, the Company issued 20 million nominal marketable bonds notconvertible into shares at a par value of L.E. 100 each for a period of 5 years.These bonds were offered for public subscription and issued in two tranches asfollows: 1- The first tranche shall be 50% of the bonds at a fixedannual interest equal 10.95%to be paid quarterly. 2- The second tranche shall be the other 50% of the bonds at avariable annual interest equal 0.7% plus the discount rate of the Central Bankof Egypt to be paid quarterly. The purpose of issuing these bonds is partial settlement of long-term loans andbank overdraft accounts in local currency. 34. RELATED PARTY TRANSACTIONS There are transactions between the Company and its subsidiaries and affiliates.The most important transactions during the year and related balances on thefinancial position date are stated as follows: 34.1 Related party transactions with subsidiaries Transaction Nature of volume Balance as of Balance as of transaction during the 31/12/2005 31/12/2004 year Debit Credit Debit Credit Debit Credit L.E. L.E. L.E. L.E. L.E. L.E. 000 000 000 000 000 000Debit balance included in account receivables Egyptian Lease of 5 050 5 050Telecommunication company Company Premises for Information SystemT.E Data Contribution 29 474 29 474 in Flag Cable revenue T.E Data Leased lines 19 873 19 873 ------- ------- ------- ------- ------- ------- 54 397 24 923 29 474 ======= ======= ======= ======= ======= ======= Debit balance included in debtors and other debit accounts T.E information Sale of 1 406 19 336 17 930technology fixed assets Middle East Radio Sale of 23 601 578Communication fixed assets(MERC) ------- ------- ------- ------- ------- ------- 1 429 19 937 18 508 ======= ======= ======= ======= ======= =======Credit balance included in suppliers accounts Egyptian Services 33 005 44 802 12 244 447Telecommunication render from ------- ------- ------- ------- ------- ------- Company subsidiary 33 005 44 802 12 244 447for Information company ======= ======= ======= ======= ======= ======= System Credit balance included increditors and other credit accounts T.E Data Internet 123 3 726 3 603 services Centra for Purchase of 1 589 1 749 160technology computers from subsidiary company ------- ------- ------- ------- ------- ------- 1 712 5 475 3 763 ======= ======= ======= ======= ======= ======= 34.2 Related party transactions with affiliates Transaction Nature of volume Balance as of Balance as of transaction during the 31/12/2005 31/12/2004 year Debit Credit Debit Credit Debit Credit L.E. L.E. L.E. L.E. L.E. L.E. 000 000 000 000 000 000 Debit balance included in account receivables Nile On Line (NOL) International 126 17 659 6 200 23 733 leased lines Nile On Line (NOL) Local leased 2 623 2 623 lines ------- ------- ------- ------- ------- ------- 2 749 20 282 6 200 23 733 ======= ======= ======= ======= ======= =======Debit balance included in other debit balances - long term Consortium Paid on 221 585 221 585Algerien de behalf of ------- ------- ------- ------- ------- -------Telecommun- subsidiary ications (CAT) on the account of the license and operating expenses Debit balance included in debtors and other debit accounts International Paid on 68 68Communication behalf ofConsortium subsidiary Limited on the account of company's share in Consortium Algerien de Telecommun- ications ------- ------- ------- ------- ------- ------- 221 653 221 653 ======= ======= ======= ======= ======= =======Credit balance included in creditors and other credit accounts Nile On Line (NOL) Internet 1 425 2 614 4 039 services Vodafone Egypt Mobile 486 901 578 154 314 90 939 services ------- ------- ------- ------- ------- ------- 488 326 578 154 2 928 90 939 4 039 ======= ======= ======= ======= ======= ======= 35. FINANCIAL INSTRUMENTS FAIR VALUE The financial instruments are represented in the balance of cash on hand and atbanks, debtors, creditors, investments and loans. The fair value of thelong-term loans cannot be determined, as there is no market for these loanssince the majority of these loans are preferred loans granted by the governmentor International Aid Organizations and Institutions. The book value of other financial instruments represents a reasonable assessmentof their fair value. 36. MANAGEMENT OF FINANCIAL RISK 36.1 Interest risk Interest rate risk is represented in the changes in the interest rate computedon the company's debts such as loans, bank overdrafts and credit facilitieswhich amounted to LE 2 787 718 K as at December 31, 2005. (compared to LE 5 975856 K as at December 31, 2004). Financing interests and expenses related tothese balances amounted to LE 381 388 K during the year (compared to LE 409 389K during the previous year), while the balance of time deposits amounted to LE 605 669 K as at December 31, 2005 (compared to LE 989 707 K as atDecember 31, 2004), and the interest income on these deposits amounted to LE 24926 K during the year (LE 8 906 K during the previous year). In order tominimize these risks, the company's management currently seeks to obtain thebest possible terms and conditions from the banks as regards the balances ofcredit facilities overdrafts and loans, also, it reviews the prevailing interestrates declared by the banks on a regular basis, a matter which help mitigate theinterest rate risk. 36.2 Credit risk This risk is represented in the clients and debtors' inability to pay theiroutstanding balances. In order to mitigate the said risk, the company suspendsservices for delinquent customers and impose fines on late payments followed bycutting off lines then contract termination. 36.3 Foreign currency risk The foreign currency exchange risk represents the risk of fluctuation inexchange rates, which in turn affects the company's cash inflows and outflows aswell as the value of its foreign currency assets and liabilities. As of the dateof the balance sheet the company has foreign currency assets and liabilitiesequivalent to L.E 1 696 846 K and L.E 2 285 646 K respectively. Thecompany's net exposure in foreign currencies is as follows: - Foreign currencies (Deficit)/surplus (000) U.S. dollars 141 782Euro (172 544)Sterling Pound 461Japanese Yen (4 092 891)Swedish krona (15 525) As disclosed in note (3-1) "Foreign Currency Translation" the company has usedthe declared exchange rates by the banks that the company deals with toretranslate monetary assets and liabilities at the balance sheet date. 37. COMPARATIVE FIGURES Certain comparative figures were reclassified to conform with the currentclassification of the financial statements. - Ends - For further information: Investor Relations Contacts Tarek Tantawy, CFADirector for Investment, Treasury & Investor RelationsTelephone: +202 5788826Fax: +202 5789314 Eman AnisAssistant Manager - Investor RelationsTelephone: +202 5788787Fax: +202 5789314 E-mail: [email protected] Notes to Editors: Within this statement, we may make forward-looking statements regarding futureevents or the future performance of the Company. By their very nature,forward-looking statements involve inherent risks and uncertainties, bothgeneral and specific, and risks exist that the predictions, forecasts,projections and other forward-looking statements will not be achieved. Youshould be aware that a number of important factors could cause actual results todiffer materially from the plans, objectives, expectations, estimates andintentions expressed in such forward-looking statements. When relying onforward-looking statements, you should carefully consider the political,economic, social and legal environment in which Telecom Egypt operates. Suchforward-looking statements speak only as of the time of this call today.Accordingly, Telecom Egypt does not undertake any obligation to update or reviseany of them, whether as a result of new information, future events or otherwiseother than as required by applicable laws, the Listing Rules or Prospectus Rulesof the United Kingdom Listing Authority, the Egyptian Capital Markets Authorityor the Cairo and Alexandria Stock Exchange. The documents filed from time totime with these authorities may identify important factors that could causeactual results to differ materially from those contained in any forward-lookingstatements. About Telecom Egypt Telecom Egypt (TE), Egypt's incumbent telecommunications operator, started itsoperations in 1854 with the first telegraph line in Egypt. Then it wascorporatized in 1998 to replace the former Arab Republic of Egypt NationalTelecommunication Organization (ARENTO). The Company is the largest provider offixed-line services in the Middle East and Africa with more than 10.4 millionsubscribers as at the end of December 2005 representing a teledensity of 14.6percent. TE provides retail telecommunication services including access, local, longdistance and international voice, Internet and data, and other services. Thecompany also provides wholesale services including bandwidth capacity leasing toISPs, and national and international interconnection services. Telecom Egypt'sservices also include the provision of narrowband and broadband internet accessthrough its subsidiary TE Data. TE Data has current operations in Egypt, Jordan,and Dubai and has ambitious plans in other parts of the MENA region. Telecom Egypt's shares and GDRs (Ticker: ETEL.CA; TEEG.LN) are traded on theCairo and Alexandria Stock Exchanges and the London Stock Exchange. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Telecom Egypt S