28th Apr 2006 07:02
Telecom Egypt S.A.E28 April 2006 AUDITOR'S REPORT TO THE SHAREHOLDERS' OF TELECOM EGYPT COMPANY We have audited the accompanying consolidated financial statements of TelecomEgypt Company (An Egyptian Joint Stock Company) and its subsidiaries,represented in the consolidated balance sheet as of December 31, 2005 and therelated consolidated statements of income, cash flows and changes in equity forthe year then ended. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on thesefinancial statements based on our audit. We conducted our audit in accordance with Egyptian Standards on Auditing and inthe light of provisions of applicable Egyptian laws and regulations. Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatements. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementspresentation. We have obtained the information and explanations, which we deemednecessary for our audit. We believe that our audit provides a reasonable basisfor our opinion. In our opinion, the consolidated financial statements referred to above togetherwith the notes attached thereto present fairly, in all material respects, theconsolidated financial position of the company as of December 31, 2005 and theresults of its operations and its cash flows for the year then ended, inaccordance with Egyptian Accounting Standards, and comply with applicableEgyptian laws and regulations. KPMG Hazem Hassan Public Accountants & Consultants Cairo, March 15, 2006 Translation from Arabic Telecom Egypt Company (An Egyptian Joint Stock Company) Consolidated Balance Sheet As of December 31, 2005 Note 31/12/2005 31/12/2004 No. LE(000) LE(000)Long-Term AssetsFixed assets (net) (4) 21 833 589 23 585 692Projects in progress (5) 1 146 797 1 314 883Investments in affiliates (3-6),(6-1) 1 301 785 633 471Available for sale investments (3-7),(6-2) 95 197 147 519Long-term receivables (7) 1 396 773 1 600 000Other assets (net) (3-9),(8) 126 769 149 652 ---------- ----------Total Long Term Assets 25 900 910 27 431 217 ---------- ---------- Current AssetsInventories (9) 494 776 416 021Trade and notes receivable (10) 2 559 673 2 617 099Debtors and other debit accounts (11) 2 276 863 1 852 092Cash at banks and on hand (12) 768 016 1 156 526 ---------- ----------Total Current Assets 6 099 328 6 041 738 ---------- ---------- Current LiabilitiesLoan instalments and facilities due within one year (13) 476 487 1 009 650Banks - credit accounts 419 061 1 468 254Banks overdraft 158 474 51 966Suppliers & notes payable (14) 103 768 68 286Creditors and other credit accounts (15-1) 2 963 170 2 647 092Provisions (16) 1 255 653 1 508 475 ---------- ----------Total Current Liabilities 5 376 613 6 753 723 ---------- ----------Excess (deficit) of current assets over current liabilities 722 715 (711 985) ---------- ----------Total investments 26 623 625 26 719 232 ==========Financed as follows:-EquityPaid up capital (17) 17 070 716 17 112 149Reserves (18) 3 416 774 4 647 252Retained earnings 403 611 415 281Translation difference adjustments (78) (34)Net profit for the year 1 858 019 1 025 167 ---------- ----------Total equity attributable to equity holders of the parent 22 749 042 23 199 815Minority Interest 22 031 17 940 ---------- ----------Total Equity 22 771 073 23 217 755 ---------- ----------Long-Term LiabilitiesLoans and credit facilities (13) 1 734 821 3 445 986Bonds loan (33) 2 000 000Creditors and other credit balances (15-2) 56 459 55 491Deferred tax liabilities (3-21) , (19) 61 272 ---------- ----------Total Long Term Liabilities 3 852 552 3 501 477 ---------- ----------Total Equity and Long-Term Liabilities 26 623 625 26 719 232 ========== The accompanying notes from No. (1) to No. (37) form an integral part of these financial statements Chairman Deputy chairman for Head of the Financial & Commercial financial sector Affairs Eng./Akil Beshir Acc./Ali Salama Acc./Ali Barakat Date: March 15, 2006 Auditor's Report "Attached" Telecom Egypt Company (An Egyptian Joint Stock Company) Consolidated Income Statement For The Financial Year Ended December 31, 2005 Note 2005 2004 No. LE(000) LE(000) -------- ---------- ----------Operating RevenuesSales of services (20) 8 353 316 7 620 453Sales of telephone sets & directories 168 009 166 289Other operating revenues 26 389 71 126 ---------- ---------- 8 547 714 7 857 868 ---------- ----------Operating ExpensesInterconnection fees (21) 1 290 023 1 210 255Fuel 62 301 58 052Spare parts 82 487 57 586Maintenance 125 297 102 452Satellite subscriptions 29 012 22 365Depreciation (4) 2 514 777 2 409 351Amortization (8) 28 133 27 057Cost of telephone sets & directories sold 145 820 153 397Other operating costs (22) 1 148 584 874 078 ---------- ---------- 5 426 434 4 914 593 ---------- ----------Gross Operating Profit 3 121 280 2 943 275 ---------- ----------Administrative expensesGeneral & administrative expenses (23) 998 061 657 957Selling & distribution expenses (24) 200 220 116 502Impairment loss on fixed assets 1 733Impairment loss on other assets (8) 17 006 13 323Provisions (16) 50 235 98 210Write-down of inventory 1 453Impairment loss on trade and other receivables (16) 73 237 125 334 ---------- ---------- 1 338 759 1 014 512 ---------- ----------Net Operating Profit 1 782 521 1 928 763 ---------- ---------- Other Income / (Expenses)Interest income 27 980 9 954Income from investments 147 611 41 488Interest expenses (381 388) (409 389)Other revenues (25) 111 162 23 047Impairment loss on long-term investments (3 213)Gain on sale on long-term investments 37 626 (5 871)Release of unused provision 260 490Reversal of write-down of inventory 2 711(Loss) gain on sale of fixed assets (24 138) 13Foreign exchange gain (loss) 332 235 (149 648) ---------- ---------- 511 076 (490 406) ---------- ---------- Net profit for the year before tax & minority interest 2 293 597 1 438 357 Less:Current tax expense 371 552 410 496Deferred tax expense 61 272 ---------- ----------Net profit before minority interest 1 860 773 1 027 861Less:Minority interest 2 754 2 694 ---------- ----------Net profit for the year after tax & minority interest 1 858 019 1 025 167 ---------- ----------Earnings per share (LE/Share) (28) 1.03 0.49 ========== ========== The accompanying notes from No. (1) to No. (37) form an integral part of these financial statements. Telecom Egypt Company (An Egyptian Joint Stock Company) Consolidated Statement of Cash Flows For The Financial Year Ended December 31, 2005 Note 2005 2004 No. LE(000) LE(000) --------- ---------- ----------Cash flows from operating activitiesCash receipts from trade receivables 7 068 735 6 287 487Sales 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 (203 830) (334 700)Cash paid to employees (1 018 539) (917 224)Cash paid on behalf of employees (291 892) (249 611)Dividends paid to shareholders & employees (723 507) (689 637) ---------- ----------Net cash from operating activities 5 425 945 4 526 294 Interest paid (404 916) (380 437)Payments to Tax Authority (349 548) (178 382)Payments to Sales Tax Authority (689 071) (498 622)Other proceeds /(payments) net (340 546) (122 849) ---------- ----------Net cash provided by operating activities 3 641 864 3 346 004 ---------- ----------Cash flows from investing activitiesPayment for purchase of property, plant and equipment (2 485 621) (2 052 265) and projects in progressProceeds from sale of fixed assets and other assets 16 870 6 456Payments for purchase of investments (670 311) (3 850)Proceeds from sale of investments 88 294Interest received 20 307 8 420Dividends received 140 396 38 278 ---------- ----------Net cash used in investing activities (2 890 065) (2 002 961) ---------- ----------Cash flows from financing activitiesPayments by minority for capital increase in 3 256 5 subsidiary companies Repayment of borrowings & facilities relating to (630 323) (1 007 683) acquisition of property, plant and equipment and intangible assets. Repayment of other borrowings & facilities (1 570 938) (208 137)Proceeds from long - term loans 29 531 37 109Repayment of financial lease obligations (28 905) (20 413)Proceeds from long - term bonds issued 2 000 000Change in banks credit accounts (1 049 193) 785 657Payments of long-term obligations (250) (355) ---------- ----------Net cash used in financing activities (1 246 822) (413 817) Translation difference adjustments 5 (22) Net (Decrease) Increase in cash and cash equivalents during the year (495 018) 929 204Cash and cash equivalents at the beginning of the year 1 104 560 175 356 ---------- ----------Cash and cash equivalents at the end of the year (29) 609 547 1 104 538 ========== ========== The accompanying notes from No.(1) to No. (37) form an integral part of these financial statements. Telecom Egypt Company (An Egyptian Joint Stock Company) Consolidated Statement Of Changes In Equity For The Financial Year Ended December 31, 2005 Share Legal Other Revalution Retained Trans- Net Total Minority Total capital reserve reserve reserve earnings lation profit equity interest equity diffe- attri- rence butable adjust- to ments equity holders of the parent LE(000) LE(000) LE(000) 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 19 081 214 880 1 095 922 22 843 876 16 604 22 860 480 Transferred to reserves 54 862 218 571 (273 433) Reducing other reserves according to theExtra-ordinaryGeneralAssemblyresolutionon 29/3/2005 (44 844) (44 844) (44 844) Adjustments to revaluationsurplusof soldinvestments (2 262) 2 262 Dividends for the year 2003 (624 350) (624 350) (1 358) (625 708) Transferred to retained earnings 198 139 (198 139) Translation differenceadjustments (34) (34) (34) Net profit for the year 2004 1 025 167 1 025 167 2 694 1 027 861------------------------------------------------------------------------------------------------------------------------ Balance as of 31/12/2004 17 112 149 322 347 4 308 086 16 819 415 281 (34)1 025 167 23 199 815 17 940 23 217 755 Adjustments toretained earnings (11 742) (11 742) (11 742) Minority interest'sshare incapitalincrease 2 661 2 661 Transferred to reserves 51 390 410 014 (461 404) Dividends for the year 2004 (25 901) (548 312) (574 213) (834) (575 047)Adjustment to revaluationsurplusof soldinvestments (10 005) 10 005 Reducing of other reserves againstdecreasein the land &other assets accordingto theExtra-ordinaryGeneralAssembly resolution on21/9/2005 (1 723 339) (1 723 339) (1 723 339) Reducing the share capital according totheExtra-ordinaryGeneralAssemblyresolution on21/9/2005 (41 433) 41 333 Transferred from minorityinterest dueto thechange incapitalshareholdingpercentage 29 455 484 (484) Transferred to retained earnings 15 504 (53) (15 451) Translation differenceadjustments 9 9 18 (6) 12 Net profit for the year 1 858 019 1 858 019 2 754 1 860 773 ------------------------------------------------------------------------------------------------------------------------ Balance as of 31/12/2005 17 070 716 373 766 3 036 194 6 814 403 611 (78) 1 858 019 22 749 042 22 771 031 ======================================================================================================================== The accompanying notes from No. (1) to No. (37) form anintegral part of these financial statements. Telecom Egypt Company (An Egyptian Joint Stock Company) Notes to the Consolidated 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: "realestate investment for serving its purposes, and executing its projects and inorder for the company to achieve its purposes, it is entitled to establish orparticipate in establishing new companies or existing companies operating in thesame, complementary or related activities. Annotation to this effect was made inthe commercial registry on 16/1/2006. 2. SCOPE OF THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements include the parent company andsubsidiaries under its control as it holds more than 50% of their capitals. The following listing of subsidiaries is included in the consolidated financialstatements: Subsidiaries name Percentages share % TE Data - S.A.E. 93.33 %TE Information Technology - S.A.E. 97.66 %Middle East Radio Communication ( MERC) - S.A.E. 51.00 %Centra Technologies - S.A.E. 55.02 % The consolidated financial statements did not include the financial informationrelated to the following companies: - Wataneya for Telecommunication The activity did not start yet- Consortium Algerien de Telecommunications (CAT) Established during May 2005- International Telecommunication Consortium Limited Established at 23/3/2005 and the (ITCL) activity did not start yet 3. SIGNIFICANT ACCOUNTING POLICIES APPLIED 3-1 Basis of preparing the consolidated financial statements 3-1-1 The financial statements are prepared in accordance with theEgyptian Accounting Standards and in the light of the provisions of applicableEgyptian laws and regulations. 3-1-2 Consolidation basis - Consolidated financial statements were prepared by combining similar items of assets, liabilities, equity, revenues and expenses stated in the financial statements of parent company and its subsidiaries. - The carrying amount of the parent company's investment in each subsidiary and the parent company's portion in the equity of each subsidiary are eliminated. - All inter-group balances and transactions, and any material unrealized gains arising are eliminated. - Minority interests in the net equity and net profits of subsidiaries controlled by the parent company was included in a separate item in the equity caption in the consolidated balance sheet, and it was calculated at the equivalent of the carrying amounts of their portion in the net assets of subsidiaries on the consolidated balance sheet date. 3-2 Foreign currency translation The company and some of its subsidiaries maintain its books of accounts inEgyptian Pound. Transactions denominated in foreign currencies are recorded atthe declared exchange rates at the date of transactions. At the consolidatedbalance sheet date, monetary assets and liabilities denominated in foreigncurrencies are retranslated at the exchange rates declared by the banks dealingwith the company and its subsidiaries. The exchange differences are recorded inthe consolidated income statement for the year. 3-3 Financial statements translation for foreign operations TE Data Jordan, wholly owned by TE Data Egypt - a subsidiary company - keeps itsaccounting records in Jordanian Dinar. Assets and liabilities are translated toEgyptian Pound at the foreign exchange rate in effect at the date of the balancesheet date. Revenues and expenses are translated to Egyptian Pound at ratesapproximating to the foreign exchange rate ruling at the date of transactions.The share of the parent company in cumulative translation adjustments isrecorded in a separate item under the caption of equity in the consolidatedbalance sheet. 3-4 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 YearsMachinery & equipment 6 - 20 YearsMeans of transportation 5 - 10 YearsTools and supplies 1 - 8 YearsOffice furniture, fixtures and 3 - 16.67 YearsInformation systems devicesDecoration & fixtures 5 Years 3-5 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. 3-6 Investments in affiliates Investments in affiliates are stated at cost. In case of the existenceof impairment in the carrying amounts of these investments, the relatedinvestment is reduced by this impairment loss, and charged to the incomestatement for the year. 3-7 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 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. 3-8 Held for trading investments Financial investments classified as held for trading are recordedinitially at cost. At the end of each financial year, these investments arere-measured at their fair value (Market value). Gain or loss arising from a change in the fair value should be included in the net profit orloss for the period in which it arises. 3-9 Other assets and amortization Other assets are non monetary assets that can be reliably estimatedand from which future economic benefits are expected to flow to the company andare represented in:- - Right of way, right of using of international circuits services and cables. - Internet services license - TE Data. These intangible assets are stated at cost less accumulated amortization and impairment losses and are amortized over (10-20) years provided that their useful lives should be within the term of concession and usufructrights. The board of directors of T.E Data, a subsidiary company, in itsmeeting held at 21/2/2006 decided decreasing the value of the first and thesecond circuits due to the sever decline in the value of these circuits andrelated effect on the future economic benefits of these assets and the behaviorof the current probable competitors, accordingly, impairment loss on the firstand second circuits resulted LE 17 006 k and was charged to the income statementfor the year. 3-10 Inventories Inventories of goods purchased for resale are valued at the lower ofcost or net realizable value. Inventories of spare parts and materials arevalued at cost. Obsolete or slow moving items are written-down to theirreplacement value. Cost is determined using the weighted average method. - Work in progress is valued at cost at the latest production process reached. - Finished goods are valued at the manufacturing cost or net selling value. 3-11 Accounts, notes receivable, debtors & other debit accounts Receivables, debtors & other debit accounts are stated at nominalvalue less impairment loss for any amounts expected to be irrecoverable, andthey are classified as current assets, however, amounts that are expected to becollected after more than one year are classified as long-term assets. 3-12 Impairment of assets The carrying amounts of the Company's assets, other than inventory, note No.(3-10) and deferred tax assets note No.(3-23) are reviewed at each balance sheetdate to determine whether there is any indication of impairment. If any suchindication exists, the necessary studies are prepared to estimate the asset'sprospective recoverable amount. 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. 3-13 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. 3-14 Borrowing cost The borrowing costs are recognized in the income statement as an expense asincurred. 3-15 Grants Grants are recorded as deferred revenues and should be recognized asincome over the periods necessary to match them with the related costs, on asystemic basis. 3-16 Trade & Other Payables Trade and other payables are stated at cost. 3-17 Revenue recognition - Revenues from sales of services are recognized when services are rendered to the customers. - Revenues from telephone sets & directories sales are recognized when goods are delivered to customers and invoices are issued. - Income from investments is recognized when dividends of investees are declared by the General Assembly resolutions. 3-18 Expenses All operating expenses recorded including general & administraive expenses arerecognized in the income statement in the financial period when incurred. 3-19 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). 3-20 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. 3-21 Accounting estimates The preparation of the financial statements according to the Egyptian Accounting Standards require that the management use estimates andassumptions that affect the values of the assets and liabilities and therevenues and expenses during the financial periods and years. The actual resultsmay be different from those estimates. 3-22 Reserveses - Legal Reserve According to the company's Article of Associations, 5% of the net profit is setaside to form a legal reserve . The transfer to legal reserve cease once thereserve reach 50% of the company's paid in capital, however, if the reservefalls below the defined level (50% of the company's paid in capital), then thecompany is required to resume setting aside 5% of the net profit. - Other reserves The General Assembly may, upon the suggestion of the Board of Directors, formother reserves. 3-23 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. 3-24 Cash flow statement Cash flow statement is prepared according to the direct method. Cash & cashequivalents comprise cash balances, time deposits which do not exceed threemonthes and bank overdrafts that are repayable on demand and form an integralpart of the company's cash management and they are included as a component ofcash equivalents for the purpose of the statement of cash flows. Telecom Egypt CompanyNotes to the consolidated financial statementsFor the financial year ended December31, 2005 Translation from Arabic4- FIXED ASSETS Buildings Machinery Office Decoration & & Means of Tools & furniture & & Land constructions equipment transportation supplies fixtures fixtures Total LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000)------------------------------------------------------------------------------------------------------------------------CostBalance as at 1/1/2005 4 038 768 15 944 807 15 234 009 101 631 50 862 403 885 250 35 774 212Adjustments (2 600) (2 600)Additions for the year 52 289 597 219 1 666 131 1 962 9 890 332 109 203 2 659 803Disposals for the year (1 754 766) (141) (254 321) (2 308) (1) (2 011 537)Translation differences (20) (21) (4) (45)------------------------------------------------------------------------------------------------------------------------Balance as at 31/12/2005 2 336 291 16 541 885 16 643 199 101 285 60 752 735 972 449 36 419 833------------------------------------------------------------------------------------------------------------------------Depreciation & ImpairmentAccumulated depreciation as at 1/1/2005 4 663 577 7 243 531 67 411 28 836 185 098 67 12 188 520Adjustments (2 600) (2 600)Depreciation for the year 889 873 1 636 406 13 701 4 687 86 272 58 2 630 997Accumulated depreciation disposals (34) (228 819) (1 816) (230 669)Translation difference adjustments (2) (2) (4) Balance of accumulated depreciation as at 31/12/2005 5 553 416 8 648 516 79 296 33 523 271 368 125 14 586 244------------------------------------------------------------------------------------------------------------------------Carrying amounts as at 31/12/2005 2 336 291 10 988 469 7 994 683 21 989 27 229 464 604 324 21 833 589======================================================================================================================== Carrying amounts as at 31/ 12/2004 4 038 768 11 281 230 7 990 478 34 220 22 026 218 787 183 23 585 692======================================================================================================================== - Cost of fixed assets includes an amount of LE 977 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 , LE 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 expenses 2 514 777General & administrative expenses 115 103Selling & distribution expenses 1 117 ----------- 2 630 997 =========== 5. PROJECTS IN PROGRESS 31/12/2005 31/12/2004 LE (000) LE (000) ---------- ----------Telecom Egypt - ParentLand 6 528 3 993Buildings and constructions 124 819 187 673Machinery 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 ---------- ---------- 1 139 092 1 313 367T.E Data - a subsidiarycompanyAdvance payments 7 705 1 516 ---------- ---------- 1 146 797 1 314 883 ========== ========== 6. LONG TERM INVESTMENTS Share capital 31/12/2005 31/12/2004 Participation LE (000) LE (000) % -- ---------- ----------6-1 Investments in affiliates - 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 33.00 133 - (CAT)- International Telecommunication Consortium 50.00 54 - Limited. (ITCL)- Egypt Trust 25.00 1 000 - ---------- ---------- 1 301 785 633 471 ========== ========== * Market value of investments in Vodafone Egypt according to the Egyptian Stock Exchange prices on December 31, 2005 amounts to LE 6 179 976 K 6-2 Investments avaible for sale - Participations in foreign Satellite companies 25 245 77 366 & organizations- Investments in other companies 69 952 70 153 -------- -------- 95 197 147 519 ======== ======== INVESTMENT IN VODAFONE - EGYPT The investment in Vodafone Egypt represents 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 1 600 000 1 975 000 Authority for the license fees paid to the said Authority for the third operator after waiver of this license by the third operator. (Note No. 27). Less:- The current portion to be collected during next year which was 520 000 375 000 recorded under "debtors and other debit accounts" (Note No. 11). 1 080 000 1 600 000 ========== ==========- Payments made on behalf of Consortium Algerian de 221 585 - Telecommunication to finance the license concession and finance the operating expenses of Consortium Company in Algeria. - Amounts due from the employees in consideration of the 201 987 - company's shares 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 as 106 799 - recorded under "debtors and other debit accounts" (Note No. 11). 95 188 - --------- --------- 1 396 773 1 600 000 ========= ========= Telecom Egypt Company Notes to the financial statements For the consolidated financial year ended December 31, 2005 Translation from Arabic8- OTHER ASSETS Right of Right of Right Usufruct Right of Right way way of way for land way of (Flag occupied (SMW2, using Internet Note (BRITAR) (ALITAR) cable) by TE SMW3) (ROU) license Total No. LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000)------------------------------------------------------------------------------------------------------------------CostCost as at 1/1/2005 1 720 48 815 95 910 18 838 131 566 20 196 20 197 337 242Adjustments (18 838) (18 838)Additions for the year 1 28 710 28 711Disposals for the year (60) (60)Translation differences (8) (8)------------------------------------------------------------------------------------------------------------------Balance as at 31/12/2005 1 720 48 755 95 910 1 131 566 48 906 20 189 347 047------------------------------------------------------------------------------------------------------------------ Accumulated amortization & impairment losses Balance as at 1/1/2005 559 18 937 50 764 12 427 82 552 2 356 19 995 187 590 Adjustments (8) (12 427) (12 435) Amortization during the year 172 2 438 9 599 13 156 2 747 21 28 133Impairment losses (3-9) 17 006 17 006Accumulated amortization disposals (16) (16)----------------------------------------------------------------------------------------------------------------- 31/12/2005 731 21 351 60 363 95 708 22 109 20 016 220 278----------------------------------------------------------------------------------------------------------------- Carrying amounts asat 31/12/2005 989 27 404 35 547 1 35 858 26 797 173 126 769================================================================================================================= Carrying amounts as at 31/12/2004 1 161 29 878 45 146 6 411 49 014 17 840 202 149 652================================================================================================================= 9. INVENTORIES 31/12/2005 31/12/2004 LE (000) LE (000) ---------- -----------Spare parts 158 774 142 835Materials supplies 356 295Computers & Pc's components 7 838 1 927Others - project cables and supplies 277 737 225 883Finished goods 149 339Work in progress - 504Telephone sets and directories 42 154 36 760Consignment goods 878 1 609 ---------- ----------- 487 886 410 152Add:Letters of credit 6 890 5 869 ---------- ----------- 494 776 416 021 ========== =========== 10. TRADE RECEIVABLES & NOTES RECEIVABLE 31/12/2005 31/12/2004 LE (000) LE (000) ----------- -----------Governmental sector 294 679 308 813Private sector 2 529 850 2 649 426Foreign telecommunication companies and organizations 902 257 800 335 ----------- ----------- 3 726 786 3 758 574 Less:Impairment loss on trade receivables 1 168 062 1 141 475 ----------- ----------- 2 558 724 2 617 099Notes receivable 949 - ----------- ----------- 2 559 673 2 617 099 =========== =========== 11. DEBTORS & OTHER DEBIT ACCOUNTS 31/12/2005 31/12/2004 LE (000) LE (000) ----------- -----------Suppliers - debit balances 56 716 55 760Deposits with others 6 957 4 858Employees' loans 1 335 1 356Customs Authority - deposits 3 047 2 999Accrued revenues 8 665 9 901Tax Authority 110 089 67 569Employees loyalty grant (Note No. 26) 33 078 39 642Other debit accounts* 2 211 529 1 782 240 2 431 416 1 964 325Less:Impairment loss on debtors & other debit accounts balances 154 553 112 233 ----------- ----------- 2 276 863 1 852 092 =========== =========== • 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 520 000 375 000 National 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 - 41 035 for Telecommunication (Building, designs and engineering company services). - The current portion to be collected during next year for the 106 799 - balances due from the employees for the company's shares distributed to them (Note No. 7) - Amounts due from the main shareholders of the company 15 345 - (Ministry of Finance) 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 31/12/2004 LE (000) LE (000)' ----------- -----------Banks- time deposits 668 147 1 031 242Banks -current accounts 66 858 113 484Cash on hand 33 011 11 800 ----------- ----------- 768 016 1 156 526 =========== =========== Time deposits at 31/12/2005 include the following:- - An amount of LE 9 565 K blocked in favor of some banks as a guarantee for the letters of credit granted to the company (against LE 8 586 K at 31/12/2004). - An amount of LE 300 K deposits blocked against visa cards in favor of American Express Bank. Telecom Egypt Company Notes to the financial statements for the consolidated financial year ended December 31, 2005 Translation from Arabic 13- LOANS AND FACILITIES Loan Long term Long term Balance Balance Annual loan loan as as Interest Description Currency Instalments Instalments of of due due 31/12/2005 31/12/2004 Rate Repayment schedule within within more one than one year year _________ LE(000) LE(000) LE(000) LE(000) % Local banks loans L.E. 12 581 8 919 21 500 1 283 469 Caibor + Semi-annual 2.55 % instalments ending on 24/9/2007 Local banks loans U.S.$ 125 197 2.5%+ Paid in full - medium term Libor Total local loans 12 581 8 919 21 500 1 408 666 Governmental L.E. 22 22 202 8% Annual instalments Loans ending on 9/4/2006 Governmental U.S.$ 116 206 680 751 796 957 756 274 4 - 16% Semi annual / annual Loans instalments ending on 24/1/2014 Governmental SK 2 055 1 286 3 341 22 632 0.15% + Semi annual Loans instalments ending on 31/12/2007 agency commission Governmental EURO 6 330 27 177 33 507 53 878 4 - 6.37% Semi annual Loans instalments ending on 29/12/2012 Total 124 613 709 214 833 827 832 986 Governmental loans Foreign loans J.Y 24 397 78 380 102 777 153 548 3 -3.5% Semi annual instalments ending on 20/3/2012 Foreign loans EURO 135 517 866 093 1 001 610 1 375 646 0.75 - Semi annual 8.2% instalments ending on 30/6/2036 Foreign loans L.D 10 171 10 171 10 171 3.5% Total foreign 159 914 954 644 1 114 558 1 539 365 loans Foreign L.E. 427 427 13 317 3% Semi annual suppliers' instalments ending facilities - on 5/3/2006 local Foreign EURO 122 916 21 188 144 104 421 358 3.18 - Semi annual / annual suppliers' 5.50% instalments ending facilities - on 1/12/2008 foreign Foreign J.Y 56 036 40 856 96 892 195 680 2.5 - Semi annual suppliers' 2.75% instalments ending facilities - on 14/12/2007 foreign Foreign U.S.$ 44 264 3% Paid in full suppliers' facilities - foreign Total foreign 179 379 62 044 241 423 674 619 suppliers' facilities 476 487 1 734 821 2 211 308 4 455 636 Foreign suppliers' facilities in Euro include LE 4 953 K equivalent to Euro 720 K against letters of guarantee issued byNational Bank of Egypt in favour of Siemens as a guarantee for this 14. SUPPLIERS & NOTES PAYABLE 31/12/2005 31/12/2004 LE (000) LE (000) ----------- -----------Suppliers - local 93 127 67 032Suppliers - foreign 7 504 1 254Notes payable 3 137 - ----------- ----------- 103 768 68 286 =========== =========== 15. CREDITORS AND OTHER CREDIT ACCOUNTS 15-1 Creditors and other credit accounts (current) Note No. 31/12/2005 31/12/2004 LE (000) LE (000) ----- ----------- -----------Tax Authority 80 566 82 169Deposits from others 605 848 553 874Fixed assets creditors 389 652 481 082Accrued interest 73 931 112 433Accrued expenses 216 128 79 746Social Insurance Authority 18 987 18 847Clients - credit balances 215 372 255 290Dividends payable 36 593 176 745Credit balance for social, cultural and sportive 119 214 77 988activitiesDeferred revenues* 266 254 301 962Other credit accounts 363 275 151 164Tax Authority - income tax 260 720 410 496Current income tax for the year 371 334 - ----------- ----------- 3 017 874 2 701 796Less: Tax payments due after one year (15-2) 54 704 54 704 ----------- ----------- 2 963 170 2 647 092 =========== =========== * 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 as at 31/12/2005. 15-2 Creditors and other credit accounts (long-term) Creditors and other long-term accounts represent:- Note No. 31/12/2005 31/12/2004 L.E (000) L.E (000) ----- ----------- -----------Telecom Egypt - parent company Tax payment due after one year (15-1) 54 704 54 704 T.E Information Technology - a subsidiary Company The additional retirement compensations due to the company'semployees 1 755 787 ----------- ----------- 56 459 55 491 =========== =========== Telecom Egypt CompanyNotes to the Consolidated financial statementsfor The consolidated Financial Year EndedDecember 31, 2005 Translation from Arabic 16- PROVISIONS Balance Charged to Used Reclassification Release of Reversal of Balance as of the income during unused write-down as of 1/1/2005 statement the year provisions in 31/12/2005 for the inventory year LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) LE(000) Provision for contingent liabilities, claims and others Tax provision 1 426 940 14 120 ( 65 129) ( 260 333) 1 115 598Claims provision 42 123 36 115 ( 26) 62 000 ( 157) 140 055Other provision 39 412 ( 12) ( 39 400) 1 508 475 50 235 ( 65 167) 22 600 ( 260 490) 1 255 653 Impairment loss on Trade receivables 1 141 475 30 917 ( 4 330) 1 168 062Debtors and other debit accounts 112 233 42 320 154 553balances 1 253 708 73 237 ( 4 330) 1 322 615Write-down in inventory * 19 751 ( 2 711) 17 040 * Write-down in inventory balances is 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 Krepresenting the value of lands transferred to Ministry of Communication &Information Technology by L.E. 71 250 K and the value of land reverted to forT.E as a result of the amendment of the total land area near the satellitestation 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 and fully paid capital has become LE 17 070 716 K represented in 1 707 071 600 shares at a par value of LE 10 each and annotation was made to this effect in the Commercial Register on24/11/2005. Thus, Egyptian Government owned 80% after floating 20% of company's shares inpublic offering in December 2005. 18. RESERVES 31/12/2005 31/12/2004 LE (000) LE (000) ----------- -----------Legal reserve 373 766 322 347Revaluation reserve of available for sale 6 814 16 819investmentsGeneral reserve 3 024 034 4 295 926Capital reserve 12 160 12 160 ----------- ----------- 3 416 774 4 647 252 =========== =========== Legal reserve amounting to LE 3 024 034 at 31/12/2005 represents the dividendstransferred to the general reserve for years 99/2000 till 2004 after thedecreases decided by the Extra-ordinary General Assembly Meetings 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 LE (000) LE (000) ----------- -----------Fixed assets - 170 402Inventory 3 391 -Trade and other receivables 25 793 -Provisions 50 101 -Accrual (liabilities) 29 845 - ----------- -----------Total deferred tax assets (liability) 109 130 170 402 ----------- -----------Net deferred tax liability - 61 272 =========== ========== 19-2 Unrecognized deferred tax assets 31/12/2005 31/12/2004 LE (000) LE (000) ----------- -----------Deductible temporary differences - 18 030 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 LE (000) LE (000) ----------- -----------Domestic call revenuesLocal calls 1 591 518 1 537 086Long distance calls (excluding Mobile revenues) 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 1 479 163 1 194 210Leased lines 120 422 100 587Others 784 750 790 479 ----------- -----------Total other revenues 2 735 169 2 450 734 ----------- ----------- International revenuesInternational calls (excluding mobile to international) 405 685 355 752Revenue from incoming international operators 1 284 333 1 117 487Mobile international revenues 648 371 559 013International telegram and telex 3 715 3 176 ----------- -----------Total international calls revenues 2 342 104 2 035 428 ----------- -----------Total revenues from sales of services 8 353 316 7 620 453 =========== =========== 21. INTERCONNECTION FEES 2005 2004 LE (000) LE (000) ----------- -----------Fixed to mobile interconnection fees 779 851 666 770Fixed calls for internet & audio text companies fees 232 995 248 822Dues against outgoing international calls 276 454 293 386Dues against outgoing international telegram & telex 723 1 277 ----------- ----------- 1 290 023 1 210 255 =========== =========== 22. OTHER OPERATING COSTS 2005 2004 LE (000) LE (000) ----------- -----------Salaries 751 639 640 187Compulsory social security contributions 104 210 92 154Employees' vacations 88 239 -Electricity & water 11 825 10 689Stationary & printed materials 67 462 77 576Transportation cost 17 960 11 391Business telephone cost 25 455 21 700Rentals 3 407 3 661Others 78 287 16 720 ----------- ----------- 1 148 484 874 078 =========== =========== 23. GENERAL & ADMINISTRATIVE EXPENSES 2005 2004 LE (000) LE (000) ----------- -----------Salaries 466 508 342 797Compulsory social security contributions 35 908 50 358End of service compensation-Early retirement program 8 607 10 243Employees' vacations 49 979 -Depreciation 115 103 56 630Training 34 496 49 254Bad debts 245 263Tax and customs duty 76 291 21 181Bank charges & commissions 11 553 8 242Advertising 35 432 33 333Others 163 939 85 656 ----------- ----------- 998 061 657 957 =========== =========== 24. SELLING & DISTRIBUTION EXPENSES 2005 2004 LE (000) LE (000) ----------- -----------Salaries 105 952 83 676Compulsory social security contributions 13 748 12 323Employees' vacations 11 662 -Depreciation 1 117 1 394Others 67 741 19 109 ----------- ----------- 200 220 116 502 =========== =========== 25. OTHER (EXPENSES) / INCOME 2005 2004 LE (000) LE (000) ----------- -----------Compensation and penalties (net) (7 268) (8 590)Sundry revenues 180 625 110 904Prior years' (expenses) / income (62 195) (79 267) ----------- ----------- 111 162 23 047 =========== =========== 26. EARLY RETIREMENT SCHEME - The company's board of directors approved in its meeting dated May 9,2001 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 to the company as expenses when incurred. - The company's board of directors approved in its meetings datedMarch 20, 2002 and December 30, 2002 to finance an amount of L.E 65000 K and L.E35000 K respectively for the employees' Loyalty Fund to facilitate financing theretired employees' compensations (the second and third phases), provided thatthese amounts should be refunded from employees Loyalty Fund upon their legalearly retirements. The amount of L.E 66 922 K was refunded as of December 31,2005. - On January 15, 2004 the employees' Loyalty Fund was registered inthe Register of the Egyptian Private Social Insurance Funds and the grantaccounts was transferred to the account of Loyalty Fund which will pay thesebalances to the company on the dates of the legal early retirement of theemployees - The actual compensations charged to the income statement and paid tothe early retired employees' for the year amounted to L.E 8 607 K representingthe amounts due on the remaining period till the legal age of retirement and thevacations balance with a maximum limit of 9 months. - The amounts to be refunded during a year (current portion) amounted toL.E 6 950 K and the amount to be refunded starting from January 2007 and up tothe year 2011 (the long term portion) is L.E 26 128 K. (Note No. 11). 27. WAIVER OF THE LICENSE OF THE THIRD MOBILE OPERATOR - The company obtained a license to establish the third mobile phoneoperator against an amount of L.E. 1975 million paid to the NationalTelecommunication Regulatory Authority (NTRA). However, due to the currentrecession in the market, the company decided to waive its right in this licenseand recover the license fees paid to (NTRA). - Pursuant to the memorandum of understanding dated December 20, 2003concluded between Telecom Egypt and both Vodafone Egypt Co. and Mobinil, theparties agreed that the two mobile operators would pay to (NTRA) cashinstalments in order to obtain the frequency band 1800 MHTZ previously grantedto Telecom Egypt and waived to the two mobile operators. - The company requested (NTRA) to transfer its right in the cashinstalments paid by the two mobile operators within the agreed paymentconditions and time schedule to Misr Bank in its capacity as a lender and arepresentative of the lenders to the company to finance its acquisition of 25.5%of Vodafone Egypt Shares. The company obtained the approval from (NTRA)regarding this transfer of right on December 22, 2003. - On January 27, 2005 an agreement was made between Telecom Egypt andthe National Telecommunication Regulatory Authority (NTRA) whereby the companycommitted itself not to apply for obtaining a license to build and operate amobile phone network in Egypt using the (G.S.M) system with the frequency bandof 1 800 MHTZ till November 30, 2007 against the commitment of (NTRA) to payL.E. 1 975 million - previously paid by Telecom Egypt to (NTRA) - to Misr Banqueaccording to the terms of the transfer of right dated 22/12/2003, in addition tothe payment of L.E. 480 million to the company after the completion of thepayment of L.E. 1 975 million and L.E. 25 million due to (NTRA). - The restriction mentioned above does not prohibit or prejudice theright of the company to apply to (NTRA) for obtaining a licenses to providemobile telecommunication services of the third generation (G3) or any otherhigher or equal mobile telecommunication services or infra-structure whetherduring or after the restriction period. - On April 2005, The first installment due from the NationalTelecommunication Regulatory Authority (NTRA) amounting to LE 375 million wascollected and the balance due from the National Telecommunication RegulatoryAuthority (NTRA) amounted to LE 1 600 million plus the amount of LE 480 millionand the remaining amounts will be collected on four equal annual instalmentsamounting to LE 520 million each. The last installment shall fall due on March31, 2009. 28. EARNING PER SHARE 2005 2004 ----------- ----------- Net profit for the year after minority interest (LE 000) 1 858 019 1 025 167Less:Employees' share in profit (LE 000) 94 837 190 617Board of directors remunerations (LE 000) 2 500 2 500 ----------- ----------- 1 760 682 832 050Less:The parent company's share in employees & Board of directors' 2 062 97share of subsidiaries dividends ----------- -----------Basic share in profits (LE 000) 1 758 620 831 953Average number of outstanding shares during the year 1 710 075 492 1 711 214 900 ----------- -----------Earning per share for the year (LE / share) 1.03 0.49 =========== =========== Par value of share has been reduced from LE 100 to LE 10 according to theresolution of the Extra-Ordinary General Assembly Meeting dated September 21,2005 , thus the number of shares has become 1 707 071 600 shares and theprevious year's earning per share has been modified as a result of modifyingnumber of shares. 29. STATEMENT OF CASH FLOWS 31/12/2005 31/12/2004 LE (000) LE (000) ----------- -----------Cash and cash equivalents (as reported in the balance sheet) 768 016 1 156 526Less:Banks overdraft 158 474 51 966 ----------- -----------Cash and cash equivalents at the end of the year 609 542 1 104 560 =========== =========== 30 CAPITAL COMMITTMENTS The company's capital commitments for the unexecuted parts of contracts tillDecember 31, 2005 amounted to LE 29.695 million (LE 21.090 million at 31/12/2004). It is expected that these commitments shall be settled next year exceptfor payments of share capitals of investees, which shall be settled whenrequired by the Boards of Directors of these investees. 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 LE (000) LE (000) ----------- ----------- - Letters of guarantee issued by 8 270 29 662 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 ARENTO has been transformed intoTelecom Egypt. Tax inspection was made, and all disputes were settled except forcertain amounts for which related provisions were formed to meet the disputestax liabilities. Financial years from 27/3/1998 till 31/12/2002 - These financial years were inspected, and the dispute wastransferred to the Internal Committee then to the Appeal Committee for theperiod from 27/3/1998 till 31/12/2000, and all disputed items were resolvedexcept for the differences relating to the revaluation of the assets andliabilities of ARENTO at the time of transforming it into a joint stock company,however, this dispute was settled by virtue of an agreement between the companyand the Income Tax Authority on 26/9/2004, and the taxes due for these financialyears were resolved till 31/12/2002 according to the minutes of the committeeexecuting the agreement between the Tax Authority and the company. The companyhas formed a provision for the whole 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), and the company agreed on the taxable income and the provision wasformed including all 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 tax returns were submitted on due dates. The company formed a provision onan estimated basis to meet the liabilities that may result from the taxinspection. 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 alldue tax were settled. - Tax inspection for the period from 1/1/2001 till 31/12/2002 iscurrently being undertaken, and the company formed a provision on an estimatedbasis to meet the liabilities that may result from tax inspection. 33. BONDS LOAN - In February 2005, the Company issued 20 million nominal marketablebonds not convertible into shares at a par value of LE 100 each for a period of(5) years. These bonds were offered for public subscription and issued in twotranches as follows: 1- The first tranche shall be 50% of the bonds at a fixed annual interestequal to 10.95%to be paid quarterly. 2- The second tranche shall be the other 50% of the bonds at a variableannual interest equal to 0.7% plus the discount rate of the Central Bank ofEgypt to be paid quarterly. The purpose of issuing these bonds is partial settlement of long-term loans andbank overdraft accounts in local currency. Telecom Egypt CompanyNotes to the consolidated financial statementsFor the financial year ended December 31, 2005 Translation from Arabic 34- Related Party Transactions There are transactions between the company and its affiliates. The most important transactions during the year and related balances on the balance sheet date are stated as follows: Nature of Transaction volume Balance as of Balance as of transaction during the year 31/12/2005 31/12/2004 Debit Credit Debit Credit Debit Credit _________ LE 000 LE 000 LE 000 LE 000 LE 000 LE 000 Debit balances included in accounts receivable Nile On Line (NOL) International 126 17 659 6 200 23 733 leased lines Nile On Line (NOL) Local leased lines 2 623 2 623 2 749 20 282 6 200 23 733 Debit balances included in other debit balances - long term Consortium Algerien de Amounts paid on 221 585 221 585 Telecommunications (CAT) behalf of the affiliated company to finance the license and operating expenses Debit balances included in debtors and other debit accounts International Amounts paid on 68 68 Communication Consortium Limited behalf of the affiliated company on the account of company's share in Consortium Algerien de 221 653 221 653 Telecommunications Credit balances included in creditors and other credit accounts Nile On Line (NOL) Internet services 1 425 2 614 4 039Vodafone Egypt Mobile services 486 901 578 154 314 90 939 488 326 578 154 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 loans sincethe majority of these loans are preferred loans granted by the government orInternational Aid Organizations and Institutions. The book value of other financial instruments represents a reasonableassessment of their fair value. 36. MANAGEMENT OF FINANCIAL RISK 36.1 Interest risk Interest rate risk is represented in the changes in the interestrate computed on the company's debts such as loans, bonds, bank overdrafts andcredit facilities which amounted to LE 4 788 843 K as at December 31, 2005.(compared to LE 5 975 856 K as at December 31, 2004). Financing interests andexpenses related to these balances amounted to LE 381 388 K during the year(compared to LE 409 389 K during the previous year), while the balance of timedeposits amounted to LE 668 147 K as at December 31, 2005 (compared to LE 1 031242 K as at December 31, 2004), and the interest income on these depositsamounted to LE 27 980 K during the year (LE 9 954 K during the previous year).In order to minimize these risks, the company's management currently seeks toobtain the best possible terms and conditions from the banks as regards thebalances of credit facilities, overdrafts and loans, also, it reviews theprevailing interest rates declared by the banks on a regular basis, a matterwhich help mitigate the interest 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 LE 1 745 640 K and LE 2 299 758 K respectively. The company'snet exposure in foreign currencies at the balance sheet is as follows: - Foreign currencies (Deficit)/surplus (000) U.S. dollars 146 348Euro (170 998)Sterling Pound 461Japanese Yen (4 092 891)Swedish krona (15 525) Jordan Dinar (265) As disclosed in note (3-2) "Foreign Currency Translation" the company has usedthe exchange rates declared by the banks that the company deals with toretranslate monetary assets and liabilities at the balance sheet date. 37- COMPARATIVE FIGURES Comparative figures in the consolidated financial statements were reclassifiedto include the financial statements of TE Data Jordan Company and CentraElectronic Industries Company as at December 31, 2004 (these two companies are owned by two subsidiaries of the company ). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Telecom Egypt S