28th Apr 2006 07:01
Telecom Egypt S.A.E28 April 2006 Auditor's report To The Board of Directors of Telecom Egypt We have audited the accompanying consolidated balance sheets of Telecom Egypt asof 31 December, 2005 and the related consolidated statements of income, changesin the shareholders' equity and cash flows for the year then ended. Thesefinancial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audit. We conducted our audit in accordance with International Standards on Auditing.Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the consolidated financial statements. An auditalso includes assessing the accounting principles used and significant estimatesmade by management as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for ouropinion. In our opinion, the consolidated financial statements present fairly, in allmaterial respects, the consolidated financial position of Telecom Egypt as of 31December, 2005, and the consolidated results of its operations and itsconsolidated cash flows for the year then ended in accordance with InternationalFinancial Reporting Standards. KPMG Hazem Hassan Cairo, Egypt 9 April 2006 Telecom Egypt Consolidated balance sheets As at 31 December 2005 In thousands of Egyptian Pound Note 31/12/2005 31/12/2004 Assets Property, plant and equipment (13) 22 344 238 22 490 022 Intangible assets (14) 126 769 143 243 Investment in associates (15) 1 540 721 12 669 Available for sale investments (16) 88 382 1 239 578 Long-term receivable (17) 1 525 773 1 517 000 Deferred tax assets (18) 109 130 117 652Total non-current assets 25 735 013 25 520 164 Inventories (19) 494 776 416 021 Trade and other receivables (20) 4 164 708 3 855 989 Cash and cash equivalents (21) 768 016 1 156 526Total current assets 5 427 500 5 428 536Total assets 31 162 513 30 948 700 Equity Issued capital (22) 17 070 716 17 112 149 Reserves (22) 3 409 882 3 316 941 Retained earnings 1 666 803 578 801Total equity attributable to equity holders of the parent 22 147 401 21 007 891 Minority interest 22 031 17 940 Total equity 22 169 432 21 025 831 Liabilities Interest-bearing loans and borrowings (24) 1 786 167 3 491 936 Bonds payable (25) 2 000 000 - Deferred income 266 254 301 962 Other payables 56 459 55 491 Deferred tax liabilities (18) 170 402 99 662Total non-current liabilities 4 279 282 3 949 051 Bank overdraft (21) 158 474 51 968 Interest-bearing loans and borrowings (24) 919 473 2 494 638 Trade and other payables (26) 2 900 489 2 676 771 Provisions (27) 735 363 750 441Total current liabilities 4 713 799 5 973 818Total liabilities 8 993 081 9 922 869Total equity and liabilities 31 162 513 30 948 700 Chairman Deputy Chairman for Head of the Financial & Commercial Financial Sector Eng. / Akil Beshir Acc./ Ali Salama Acc./ Ali Barakat Auditor's Report "attached" Telecom Egypt Consolidated income statements For the financial year ended 31 December 2005 In thousands of Egyptian Pound Note 2005 2004 Revenue (3) 8 550 009 7 802 223Operating expenses (4) (5 404 254) (4 937 625)Gross profit 3 145 755 2 864 598 Other income (5) 90 655 248 405Selling and distribution expenses (6) (202 433) (117 077)Administrative expenses (7) (1 013 269) (765 702)Other expenses (8) (173 521) (359 746)Operating profit before financing costs 1 847 187 1 870 478 Financial income (10) 680 871 291 367Financial expenses (10) (390 878) (566 602)Net financing income (costs) (10) 289 993 (275 235) Share of profit (loss) of associates 346 035 (1 576)Profit before tax 2 483 215 1 593 667 Income tax expense (11) (550 476) (292 844) Profit for the year 1 932 739 1 300 823 Attributable to: Equity holders of the parent 1 929 985 1 298 129 Minority interest 2 754 2 694Profit for the year 1 932 739 1 300 823 Earnings per share (LE) (23) 1.13 0.76 Telecom Egypt Consolidated statement of cash flows For the financial year ended 31 December 2005 In thousands of Egyptian Pound Note 2005 2004 Cash flows from operating activitiesCash receipts from customers 7 663 713 6 287 487Cash paid to suppliers (220 596) (334 700)Cash paid to employees (1 654 123) (1 060 109)Cash paid in operations (net) (1 203 331) (638 369)Interest paid (404 916) (380 437)Income taxes paid (158 321) (19 002)Net cash from operating activities 4 022 426 3 854 870 Cash flows from investing activities Proceeds from sale of property, plant and 16 870 6 456 equipment assetsand intangibleProceeds from sale of investments 88 294 22 747Interest received 21 273 8 420Dividends received 140 396 38 278Acquisition of property, plant and equipment (2 485 621) (2 052 265)and intangible assetsAcquisition of investments (670 311) (3 850)Net cash (used in) investing activities (2 889 099) (1 980 214) Cash flows from financing activities Repayment of borrowings & facilities (630 323) (1 007 683) relating to acquisition of property, plant and equipment and intangible assets Repayment of borrowings & facilities relating to others (1 570 938) (208 137) Repayment of borrowings & bank facilities (1 049 193) -Proceeds from bonds 2 000 000 -Proceeds from loans 29 531 -Proceeds from borrowings & facilities - 849 078 Proceeds from issuance of capital-subscribed 3 256 5 into by minorityRepayment of financial lease obligations (29 433) (20 413)Dividends paid (381 000) (480 000)Repayment of long-term liabilities (250) -Net cash (used in) financing activities (1 628 350) (867 150) Net movement in cash and cash equivalents (495 023) 1 007 506Cash and cash equivalents at 1 January 1 104 558 97 074Translation difference adjustments 7 (22)Cash and cash equivalents at 31 December (21) 609 542 1 104 558 Telecom Egypt Consolidated statement of changes in equity For the financial year ended 31 December 2005 Total equity attributable Share Statutory Translation Fair Retained to equity Minority Total reserve value holders of Note capital reserve Other reserve earnings the parent interest equity No reserveIn thousands ofEgyptian PoundBalance at 1 January 17 112 149 267 485 2 422 256 - 132 530 35 531 19 969 951 16 605 19 986 5562004 Net profit for the - - - - - 1 298 129 1 298 129 2 694 1 300 823yearTransfer to reserves - 54 862 218 571 - - (273 433) - - -Reversal of reserve - - (44 844) - - - (44 844) - (44 844)Exchange differences - - - (34) - - (34) - (34)arising ontranslationof foreign operationChange in fair value - - - - 266 115 - 266 115 - 266 115of available for saleinvestmentAdjustments - - - - - (1 426) (1 426) - (1 426)Dividends to - - - - - (480 000) (480 000) - (480 000)shareholdersMinority interest - - - - - - - (1 359) (1 359)Balance at 31 17 112 149 322 347 2 595 983 (34) 398 645 578 801 21 007 891 17 940 21 025 831December 2004 Net profit for the - - - - - 1 929 985 1 929 985 2 754 1 932 739yearTransfer to reserves - 51 390 410 014 - - (461 404) - - -Reversal of reserve - - - - (398 645) - (398 645) - (398 645)Effect of theresolution of theExtraordinary general (22) (41 433) - 30 197 - - - (11 236) - (11 236)assembly held onSeptember 21, 2005Exchange differences - - - (44) - 62 18 (6) 12arising ontranslationof foreign operationTransfer from - 29 - - - 455 484 (484) -minority interestMinority interest - - - - - - - 2 661 2 661share in capitalDividends to - - - - - (381 000) (381 000) - (381 000)shareholdersEmployees & members - - - - - (96) (96) (92) (188)Board bonus insubsidiariesMinority interest - - - - - - - (742) (742)Balance at 31 17 070 716 373 766 3 036 194 (78) - 1 666 803 22 147 401 22 031 22 169 432December 2005 Telecom Egypt Notes to the consolidated financial statements For the financial year ended 31 December 2005 1. Background and activities Telecom Egypt (the "Company") is an Egyptian Joint Stock Companyregistered in the Arab Republic of Egypt and is engaged in the provision ofpublic communications and associated products and services. The consolidatedfinancial statements of the Company for the two years ended 31 December 2005comprise the Company and its subsidiaries (together referred to as the "Group")and the Group's interest in associates and jointly controlled entities. The registered office of the Company is 26 Ramses Street, Cairo,Egypt. Mr Akil Bashir is the Company's Chairman. The financial statements were authorized for issue by the Board ofDirectors of the company on March 15, 2006 2. Significant accounting policies (a) Statement of compliance The consolidated financial statements have been prepared in accordancewith International Financial Reporting Standards ( " IFRSs") and itsinterpretations adopted by the International Accounting Standards Board ("IASB")with due acknowledgement of the interpretation of the International FinancialReporting Interpretation Committee ("IFRIC"). In compliance with the Egyptian Companies Law, the Group prepares anotherset of consolidated financial statements in accordance with Egyptian AccountingStandards ("EAS"). The primary differences between IFRS and EAS include, but notlimited to the following: - Recognition of certain finance leases arrangements;- Recognition of employees' share in dividends; and- Capitalization of certain foreign exchange losses as part of asset cost. (b) Basis of preparation The financial statements are presented in Egyptian Pound referred to as"Egyptian Pound" or "LE" rounded to the nearest thousand. They are prepared onthe historical cost basis except that the following assets and liabilities arestated at their fair value; financial instruments that are classified asavailable-for-sale and fixed assets that were valued in 1998. The preparation of financial statements in conformity with IFRSs requiresmanagement to make judgments, estimates and assumptions that affect theapplication of policies and reported amount of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgmentsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoingbasis. Revisions to accounting estimates are recognized in the period in whichthe estimate is revised if the revision affects only that period or in theperiod of the revision and future periods if the revision affects both currentand future periods. The accounting policies set out below have been applied consistently toall periods presented in these consolidated financial statements. (c) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists whenthe Company has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Inassessing control, potential voting rights that presently are exercisable orconvertible are taken into account. The financial statements of subsidiaries areincluded in the consolidated financial statements from the date that controlcommences until the date that control ceases. (ii) Associates Associates are those entities in which the Group has significantinfluence, but not control, over the financial and operating policies. Theconsolidated financial statements include the Group's share of the totalrecognized gains and losses of associates on an equity accounted basis, from thedate that significant influence commences until the date that significantinfluence ceases. When the Group's share of losses exceeds its interest in anassociate, the Group's carrying amount is reduced to nil and recognition offurther losses is discontinued except to the extent that the Group has incurredlegal or constructive obligations or made payments on behalf of an associate. (iii) Transactions eliminated on consolidation Intragroup balances and any unrealized gains and losses or income andexpenses arising from intragroup transactions, are eliminated in preparing theconsolidated financial statements. Unrealized gains arising from transactions with associates and jointlycontrolled entities are eliminated to the extent of the Group's interest in theentity. Unrealized losses are eliminated in the same way as unrealized gains,but only to the extent that there is no evidence of impairment. (d) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated at the foreignexchange rate ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies at the balance sheet date aretranslated to Egyptian Pound at the foreign exchange rate ruling at that date.Foreign exchange differences arising on translation are recognized in the incomestatement. Non-monetary assets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rate atthe date of the transaction. (ii) Financial statements of foreign operations The assets and liabilities of foreign operations are translated toEgyptian Pound at foreign exchange rates ruling at the balance sheet date. Therevenues and expenses of foreign operations are translated to Egyptian Pound atrates approximating to the foreign exchange rates ruling at the dates of thetransactions. (iii) Net investment in foreign operations Exchange differences arising from the translation of the net investmentin foreign operations are taken to translation reserve. They are released intothe income statement upon disposal. (e) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost as deemed costless accumulated depreciation (see below) and impairment losses (see accountingpolicy k). Certain items of property, plant and equipment that had been revalued tofair value in 1998 are measured on the basis of deemed cost, being the revaluedamount at the date of that revaluation. Where parts of an item of property, plant and equipment have differentuseful lives, they are accounted for as separate items of property, plant andequipment. (ii) Leased assets Leases in terms of which the Group assumes substantially all the risksand rewards of ownership are classified as finance leases and are stated at anamount equal to the lower of its fair value and the present value of the minimumlease payments at inception of the lease, less accumulated depreciation (seebelow) and impairment losses (see accounting policy k). (iii) Subsequent costs The Group recognizes in the carrying amount of an item of property,plant and equipment the cost of replacing part of such an item when that cost isincurred if it is probable that the future economic benefits embodied with theitem will flow to the Group and the cost of the item can be measured reliably.All other costs are recognized in the income statement as an expense asincurred. (iv) Depreciation Depreciation is charged to the income statement on a straight-line basisover the estimated useful lives of each part of an item of property, plant andequipment. Land is not depreciated. The estimated useful lives are as follows: • Buildings 10 - 50 years• Machinery and equipment 6 - 20 years• Vehicles 5 - 10 years• Tools and other equipment 1 - 8 years• Office furniture and fixtures 3 - 16.67 years (f) Intangible assets (i) Measurement Intangible assets that are acquired by the Group are stated at cost lessaccumulated amortization (see below) and impairment losses (see accountingpolicy k). (ii) Subsequent expenditure Subsequent expenditure on capitalized intangible assets is capitalizedonly when it increases the future economic benefits embodied in the specificasset to which it relates. All other expenditure is expensed as incurred. (iii) Amortization Amortization is charged to the income statement on a straight-line basisover the estimated useful lives of intangible assets unless such lives areindefinite. Intangible assets with an indefinite useful life are systematicallytested for impairment at each balance sheet date. Intangible assets areamortized from the date they are available for use. The estimated useful livesrange between 10 to 20 years. (g) Investments in equity securities - available for sale Financial instruments held by the Group that are classified as beingavailable-for-sale are stated at fair value, with any resultant gain or lossbeing recognized directly in equity, except for impairment losses. When theseinvestments are derecognized, the cumulative gain or loss previously recognizeddirectly in equity is recognized in income statement. The fair value of financial instruments classified as available-for-saleis their quoted bid price at the balance sheet date. Financial instruments classified as available-for-sale investments arerecognized / derecognized by the Group on the date it commits to purchase / sellthe investments. (h) Receivables Trade and other receivables are stated at their cost less impairmentlosses (see accounting policy k). Long-term receivables are initially recognizedat fair value and subsequently measured at amortized cost using the effectiveinterest rate method. (i) Inventories Inventories are stated at the lower of cost and net realizable value.Net realizable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average principle andincludes expenditure incurred in acquiring the inventories and bringing them totheir existing location and condition. (j) Cash and cash equivalents Cash and cash equivalents comprise cash balances and time deposits. Bankoverdrafts that are repayable on demand and form an integral part of the Group'scash management are included as a component of cash and cash equivalents for thepurpose of the statement of cash flows. (k) Impairment The carrying amounts of the Group's assets, other than inventories (seeaccounting policy i) and deferred tax assets (see accountingpolicy s), are reviewed at each balance sheet date to determine whether there isany indication of impairment. If any such indication exists, the asset'srecoverable amount is estimated (see accounting policy k (i)). An impairment loss is recognized whenever the carrying amount of an assetor its cash-generating unit exceeds its recoverable amount. Impairment lossesare recognized in the income statement. When a decline in the fair value of an available-for-sale financial assethas been recognized directly in equity and there is objective evidence that theasset is impaired, the cumulative loss that had been recognized directly inequity is recognized in profit or loss even though the financial asset has notbeen derecognized. The amount of the cumulative loss that is recognized inincome statement is the difference between the acquisition cost and current fairvalue, less any impairment loss on that financial asset previously recognized inincome statement. (i) Calculation of recoverable amount The recoverable amount of the Group's receivables carried at amortizedcost is calculated as the present value of estimated future cash flows,discounted at the original effective interest rate (i.e., the effective interestrate computed at initial recognition of these financial assets). Receivableswith a short duration are not discounted. The recoverable amount of other assets is the greater of their netselling price and value in use. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and therisks specific to the asset. For an asset that does not generate largelyindependent cash inflows, the recoverable amount is determined for thecash-generating unit to which the asset belongs. (ii) Reversals of impairment An impairment loss in respect of a receivable carried at amortized costis reversed if the subsequent increase in recoverable amount can be relatedobjectively to an event occurring after the impairment loss was recognized. An impairment loss in respect of an investment in an equity instrumentclassified as available for sale is not reversed through income statement. In respect of other assets, an impairment loss is reversed if there hasbeen a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset'scarrying amount does not exceed the carrying amount that would have beendetermined, net of depreciation or amortization, if no impairment loss had beenrecognized. (l) Interest-bearing borrowings Interest-bearing borrowings are recognized initially at fair value lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortized cost with any differencebetween cost and redemption value being recognized in the income statement overthe period of the borrowings on an effective interest basis. (m) Employee benefits (i) Pension The Group contributes to the government social insurance system for thebenefits of its personnel in accordance with the social insurance law. Underthis law the employees and the employers contribute into the system on a fixedpercentage - of - salaries basis. The Group's liability is confined to theamount of its contribution. Contributions are charged to income statement usingaccrual basis of accounting. (n) Provisions A provision is recognized in the balance sheet when the Group has apresent legal or constructive obligation as a result of a past event, and it isprobable that an outflow of economic benefits will be required to settle theobligation. If the effect is material, provisions are determined by discountingthe expected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and, where appropriate, the risksspecific to the liability. (o) Trade and other payables Trade and other payables are stated at cost. (p) Revenue Revenue represents the value of services provided and equipment sold. Itincludes revenue received and receivable from revenue sharing agreements enteredinto with national and international telecommunication operators in respect oftraffic exchange. Revenue is recognized as set below: • Voice services: revenues are measured in terms of traffic minutesprocessed or transmission capacity provided and are recognized in the period inwhich the connection is provided. • Value added services: these services include call waiting and divert,callers ID and hotline are recognized in the period in which the service isprovided. • Data services: revenue from the provision of managed bandwidth tobusiness customers is recognized over the period in which the bandwidth isprovided. • Other services: revenue from web hosting and internet access isrecognized over the life of the contract and over the period that the service isprovided respectively. • Sale of goods: revenue from sale of telephone sets and directories isrecognized in the income statement when the significant risks and rewards ofownership have been transferred to the buyer. (q) Grants Grants are recognized in the balance sheet initially as deferred incomewhen there is reasonable assurance that it will be received and that the Groupwill comply with the conditions attaching to it. Grants that compensate theGroup for expenses incurred are recognized as revenue in the income statement ona systematic basis in the same periods in which the expenses are incurred.Grants that compensate the Group for the cost of an asset are recognized in theincome statement as other operating income on a systematic basis over the usefullife of the asset. (r) Expenses (i) Operating lease payments Payments made under operating leases are recognized in the incomestatement on a straight-line basis over the term of the lease. (ii) Finance lease payments Minimum lease payments are apportioned between the finance charge andthe reduction of the outstanding liability. The finance charge is allocated toeach period during the lease term so as to produce a constant periodic rate ofinterest on the remaining balance of the liability. (ii) Net financing costs Net financing costs comprise interest payable on borrowings calculatedusing the effective interest rate method, interest receivable on funds invested,dividend income, and foreign exchange gains and losses. Interest income is recognized in the income statement as it accrues,using the effective interest method. Dividend income is recognized in the incomestatement on the date the entity's right to receive payments is established. Theinterest expense component of finance lease payments is recognized in the incomestatement using the effective interest rate method. (s) Income tax Income tax on the profit or loss for the year comprises current anddeferred tax. Income tax is recognized in the income statement except to theextent that it relates to items recognized directly in equity, in which case itis recognized in equity. Current tax is the expected tax payable on the taxable income for theyear, using tax rates enacted or substantially enacted at the balance sheetdate, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet asset & liabilitymethod, providing for temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and the amounts used fortaxation purposes. The amount of deferred tax provided is based on the expectedmanner of realization or settlement of the carrying amounts of assets andliabilities, using tax rates enacted or substantively enacted at the balancesheet date. A deferred tax asset is recognized only to the extent that it is probablethat future 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. Revenue The Group's operations are considered to fall into one broad class of business,telecommunication and information services and hence, segmental analysis ofassets and liabilities is not considered meaningful. Revenue can be analyzed asfollows: 2005 2004In thousands of Egyptian PoundRetail Services: Access:Connections 350 834 365 458Subscriptions 1 356 758 1 157 866 1 707 592 1 523 324Voice:Local * 1 588 530 1 527 148Long distance 413 806 442 548Fixed to international 406 889 405 860Fixed to mobile interconnection 1 049 454 949 222 3 458 679 3 324 778 Internet & Data 92 070 79 520 Others 1 031 070 878 672 Total Retail 6 289 411 5 806 294 Wholesale: Domestic:Mobile to fixed interconnection 208 369 190 807Others 113 973 128 622 322 342 319 429International:Mobile to international 648 371 559 013Incoming international call 1 289 885 1 117 487 1 938 256 1 676 500Total wholesale 2 260 598 1 995 929Total revenues 8 550 009 7 802 223 * include dial up revenue 4. Operating expenses 2005 2004In thousands of Egyptian PoundInterconnection fees 1 300 320 1 210 255Fuel 62 301 58 052Spare parts 82 487 57 586Maintenance 125 297 102 452Satellite subscriptions 29 012 22 365Depreciation 2 467 735 2 358 859Amortization 28 133 24 967Cost of telephone sets & directories 145 820 112 671Salaries & wages 798 753 645 941Compulsory social security contributions 104 210 92 154Employees' share in dividends 55 690 114 370Other operating costs 204 496 137 953 5 404 254 4 937 625 5. Other income 2005 2004In thousands of Egyptian PoundRelease of unused provisions 157 105 232Grant 35 708 53 561Gains and losses on disposal of property, plant and equipment - 13Reversal of decline in inventory 2 711 -Rental income 2 191 1 619Others 49 888 87 980 90 655 248 405 During 2003, the Group obtained a grant from the USAID to finance certainassets; the grant amounted to US$ 54 950 k. The grant had been recognized asdeferred income and is being amortized over the useful lives of the relatedassets. 6. Selling and distribution expenses 2005 2004In thousands of Egyptian PoundSalaries & wages 112 314 84 251Compulsory social security contributions 13 748 12 323Fixed assets depreciation 1 117 1 394Employees' share in dividends 7 513 -Sales commissions & others 67 741 19 109 202 433 117 077 7. Administrative expenses 2005 2004In thousands of Egyptian PoundSalaries & wages 495 010 346 058Compulsory social security contributions 35 908 50 358Early retirement compensations 8 607 10 243Employees' share in dividends 32 623 76 247Fixed assets depreciation 115 103 56 630Board of directors' bonus 2 891 2 500Taxes & customs fees 77 578 30 291Training & development services 45 654 49 254Advertising 35 432 33 333Others 164 463 110 788 1 013 269 765 702 8. Other expenses 2005 2004In thousands of Egyptian PoundIncrease in provisions 50 235 182 474Impairment loss on trade and other receivables 73 237 146 302Impairment loss on long-term investments 1 637 5 871Net loss on disposal of property, plant and equipment 24 138 -Impairment loss on property, plant and equipment - 1 733Impairment loss on intangible assets 17 006 13 323Others 7 268 10 043 173 521 359 746 9. Personnel expenses 2005 2004In thousands of Egyptian PoundSalaries & wages:Operating expenses 798 753 645 941Selling & distribution expenses 112 314 84 251Administrative expenses 495 010 346 058 1 406 077 1 076 250Compulsory social security contributions 153 866 154 835Early retirement compensations 8 607 10 243Employees' share in dividends 95 826 193 117 1 664 376 1 434 445 On May 9, 2001 the Board of Directors of Telecom Egypt approved an earlyretirement scheme; under this scheme employees' loyalty program was established,the program was financed by a loan obtained by Telecom Egypt and repayable bythe program whilst the related interest is borne by Telecom Egypt. Under theloyalty program the employee who early retired received compensations related tonumber of years of service. The first phase of the early retirement scheme wascompleted on August 31, 2002. During 2002, the Board of Directors approved theallocation of LE 100 million to the loyalty program to finance early retirementcompensations, funds granted by Telecom Egypt to the employees' loyalty programare to be repaid on the original date of retirement of the employees. During2003 Telecom Egypt contributed to the loyalty program LE 55 million and becamecommitted to increase such contribution by a compound 10% annually. Early 2004, the employees loyalty program was retroactively registered asseparate private social insurance fund effective January 2003. In accordance with Egyptian Law, employees receive 10% of dividendsdistributed to shareholders with a maximum of one year salary. 10. Net financing income (costs) 2005 2004In thousands of Egyptian PoundInterest income 31 345 13 775Unwind of discount & accretion of interest relating to long-term 217 000 225 000receivableIncome from investments - dividend 44 005 39 515Net gain of disposal of investments 56 286 13 077Net foreign exchange gain 332 235 -Financial income 680 871 291 367 Interest expense ( 390 878 ) (416 954)Net foreign exchange loss - (149 648)Financial expenses ( 390 878 ) (566 602)Net financing income (costs) 289 993 (275 235) 11. Income tax expense Recognized in the income statement 2005 2004In thousands of Egyptian PoundCurrent tax expenseCurrent year 371 552 410 496 Deferred tax expense *Origination and reversal of temporary differences 178 924 (117 652)Total income tax expense in income statement 550 476 292 844 * Deferred tax expense for the year 2004 are shown net of an amount ofLE129 417 k relating to the reduction of the applicable tax rate. 12. Current tax assets and liabilities The current tax asset of LE 109 130 k, (2004: 117 652) represents theamount of income taxes recoverable in respect of current and prior periods thatexceed payments. The current tax liability of LE 170 402 k (2004:99 662 k)represents the amount of income taxes for items taxable in future periods inrespect of accelerated deprecation and fair value reserve of available for salesecurities. 13. Property, plant and equipment Land Machinery & Vehicles Office Tools & Under equipment furniture construction & & fixtures other equipment Total buildings ________ ________ ________ ________ ________ ________ ________In thousands of Egyptian PoundCostBalance at 1 January 2005 18 060 027 14 793 260 102 067 492 410 50 862 1 069 741 34 568 367Adjustment - (2 600) - - - - (2 600)Reclassification - 945 - (945) - - -Acquisitions 649 503 1 659 827 16 065 350 737 9 890 3 550 840 6 236 862Disposals (60 072) (254 321) (2 308) (1) - (3 712 617) (4 029 319)Effect of movements in foreign - (20) - (25) - - (45)exchangeBalance at 31 December 2005 18 649 458 16 197 091 115 824 842 176 60 752 907 964 36 773 265 Depreciation & impairment lossesBalance at 1 January 2005 4 639 914 7 127 022 67 589 214 984 28 836 - 12 078 345Adjustment - (2 600) - - - - (2 600)Reclassification - 78 - (78) - - -Depreciation charge for the year 878 051 1 579 831 33 931 87 455 4 687 - 2 583 955Disposals (34) (228 819) (1 816) - - - (230 669)Effect of movements in foreign - (2) - (2) - - (4)exchangeBalance at 31 December 2005 5 517 931 8 475 510 99 704 302 359 33 523 - 14 429 027Carrying amountsAt 31 December 2004 13 420 113 7 666 238 34 478 277 426 22 026 1 069 741 22 490 022At 31 December 2005 13 131 527 7 721 581 16 120 539 817 27 229 907 964 22 344 238 Fully depreciated assets Property, plant and equipment cost includes LE 977 million relating tofully depreciated assets. Leased equipment and vehicles The Group leases equipment and vehicles under a number of finance leaseagreements. At the end of each of the leases the Group has the option topurchase the equipment and vehicles at a beneficial price. At 31 December 2005,the net carrying amount of leased equipment and vehicles was LE 69 021k (2004:LE 57 847 k). Depreciation The depreciation charge is recognized in the following line items in the incomestatement: 2005 2004In thousands of Egyptian PoundOperating expenses 2 467 735 2 358 859Selling & distribution expenses 1 117 1 394General & Administrative expenses 115 103 56 630 2 583 955 2 416 883 14. Intangible assets Right of Internet Right of Land way service using ROU usufruct license Total ______ ______ ______ ______ ______In thousands of Egyptian Pound CostBalance at 1 January 2005 1 278 011 20 197 20 196 318 405Acquisitions - - - 28 710 28 710Disposals - (60) - - (60)Effect of movements in foreign exchange - - (8) - (8) Balance at 31 December 2005 1 277 951 20 189 48 906 347 047 Amortization Balance at 1 January 2005 - 152 811 19 995 2 356 175 162Amortization for the year - 25 365 21 2747 28 133Impairment losses - - - 17 006 17 006Prior year adjustment - (8) - - (8)Disposals - (15) - - (15)Balance at 31 December 2005 - 178 153 20 016 22 109 220 278 Carrying amountsAt 31 December 2004 1 125 200 202 17 840 143 243At 31 December 2005 1 99 798 173 26 797 126 769 Land usufruct The company has indefinite rights to use 826 plots of land; these plots of landwere designated to the company, by presidential and ministerial decrees, for usein specific purposes. These rights were valued at notional amount of LE 1 perplot of land. Amortization charge The amortization and impairment charge is recognized in the following line itemsin the income statement: In thousands of Egyptian Pound 2005 2004 Operating expenses 28 133 24 967Other operating expenses* 17 006 13 323 45 139 38 290 * During 2005, the Board of Directors of a subsidiary decided towrite-down the carrying amount of the Rou by an amount of LE 17 006 k due to thesever decline in the value of these circuits and related effect on the futureeconomic benefits. (2004: 13 323 k - write-down of an internet service license). 15. Investments in associates The Group has the following investment in associate: Ownership Carrying amountIn thousands of Egyptian Pound 2005 2004 2005 2004 Vodafone Egypt. (SAE) 25.50% 8.60% 1 526 740 -Nile on line. (SAE) 27.27 % 27.27% 12 669 12 669Wataneya 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 -Total 1 540 721 12 669 During January 2005, Telecom Egypt has increased its shareholding stakein Vodafone Egypt by 16.9% to reach 25.5%. Effective of that date the investmentwas reclassified from available-for-sale investment, valued at fair value, toinvestment in associate accounted for in accordance with equity method ofaccounting. Telecom Egypt is committed, by virtue of a joint venture agreement, toswap its direct investment in Vodafone Egypt with 50% of the share capital ofWatanenya for Telecommunication, the remaining 50% of Wataneya share capitalshall be owned by Vodafone International Co. (PLC), Watanenya shall own 51% ofVodafone Egypt share capital. Summary financial information on associates - 100 percent: In thousands of Egyptian Pound Assets Liabilities Equity Revenues (loss)/ profit 31-12 2004:Nile on line 82 337 35 887 46 450 27 948 (5 779) 31-12-2005:Nile on line 80 738 34 216 46 522 31 685 72*Vodafone Egypt 7 635 000 4 127 000 3 508 000 4 325 000 1 202 000** Wataneya for Telecommunication - - - - -** Consortium Algerien de Tele -communications - - - - -(CAT)** International Telecommunication Consortium - - - - -Limited. (ITCL)** Egypt Trust - - - - - 7 715 738 4 161 216 3 554 522 4 356 685 1 202 072 * Reported figures for Vodafone Egypt relating to revenues and profitfor the nine months period ended 31 December, 2005. ** The financial information of these associates were not presentedbecause it's financial statements are not prepared. 16. Available for sale investments In thousands of Egyptian Pound 2005 2004 Equity securities available for sale - Foreign 18 430 70 553Equity securities available for sale - Local 69 952 70 152Investment in Vodafone - 1 098 873 88 382 1 239 578 17. Long-term receivable In thousands of Egyptian Pound 2005 2004 National Telecommunication Regulatory Authority (NTRA) 1 600 000 1 975 000Accretion of interest / (Discount) 76 000 (141 000)Amortized cost 1 676 000 1 834 000 Current portion ( 467 000 ) (317 000) 1 209 000 1 517 000Payments made on behalf of consortium Algerian de 221 585 -Telecommunication to finance the license concession and financethe 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 anddistributed by the company to its employees. The value of thesepurchased shares shall be paid by employees over 24-monthsstarting from 1/1/2006, and these shares are subject to a 6month ban period starting from the date of closingsubscription. Less:Current portion (106 799) - 95 188 - 1 525 773 1 517 000 During 2002, Telecom Egypt acquired a license for establishing andoperating the third mobile network in Egypt for an amount of LE 1 975 millionsettled to the National Telecommunication Regulatory Authority (NTRA),subsequently and due to market condition management decided to waive its rightto the license and refund the amount paid. On 20th December 2003 Telecom Egypt,Vodafone Egypt and The Egyptian Company for Mobile Services signed a memorandumof understanding, based on this memorandum Telecom Egypt waived its right to thefrequency band 1800 MHTZ to Vodafone Egypt and The Egyptian Company for MobileServices (mobile operators), and in return the mobile operators were obliged tosettle cash installments to NTRA for using the frequency band 1800 MHTZ. TelecomEgypt required NTRA to transfer cash collected from the mobile operators to oneof its lending banks. On 27th January 2005 Telecom Egypt concluded an agreement with NTRAwhereby Telecom Egypt undertook not to bid for a license to establish andoperate a G.S.M mobile network within the frequency band 1800 MHTZ in the ArabRepublic of Egypt until 30th November 2007, and in return Telecom Egypt shallreceive LE 1 975 million, previously settled by Telecom Egypt, in addition to LE480 million on installments throughout 2006 to 2009. The remaining installmentspayment schedule is as follow: In thousands of Egyptian Pound 2006 2007 2008 2009 520 000 520 000 520 000 520 000 The undertaking signed by Telecom Egypt is limited to the frequencyband 1800 MHTZ and does not affect TE's ability to obtain a license for thethird generation mobile (G3). In line with the accounting policy (2.h) the long-term receivable wasdiscounted to its present value, the discount and unwind of discount weretreated as financial expense and financial income see note (10 &28). 18. Deferred tax assets and liabilities Recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets LiabilitiesIn thousands of Egyptian Pound 2005 2004 2005 2004 Property, plant and equipment & intangible assets - - 170 402 -Inventories 3 391 - -Trade & other receivables 25 793 - - -Available for sale investments - - - 99 662Provisions 50 101 117 652 - -Accrued liabilities 29 845 - - -Total deferred tax assets / liabilities 109 130 117 652 170 402 99 662 19. Inventories In thousands of Egyptian Pound 2005 2004 Spare parts, supplies and cables 452 622 378 941Telephone sets and directories 42 154 37 080 494 776 416 021 20. Trade and other receivables In thousands of Egyptian Pound 2005 2004 Trade receivables due from associate 6 200 23 733Other trade and notes receivable:Governmental sector 229 127 212 072Private sector 1 791 279 1 917 666Foreign telecommunication operators 532 118 422 665Others - 17 469Notes receivables 949 105 2 559 673 2 593 710 Other receivables and pre-payments:Advance payments to suppliers 56 716 55 760Deposits with others 6 957 4 858Long-term receivable - current portion 573 799 317 000Payments on the account of corporate tax 481 799 481 799Other receivables 485 764 402 862 4 164 708 3 855 989 Trade and other receivables (excluding long-term receivable - current portion)are non-interest bearing and are shown net of allowance for impairment.Management determines the adequacy of the allowance based upon reviews ofindividual customer, current economic conditions, past experience and otherpertinent factors. 21. Cash and cash equivalentsIn thousands of Egyptian Pound 2005 2004 Bank balances 66 859 111 803Time deposits 668 147 1 031 242Cash on hand 33 010 13 481 768 016 1 156 526Bank overdrafts (158 474) (51 968)Cash and cash equivalents in the statement of cash flows 609 542 1 104 558 Time deposits at 31 December 2005 included an amount of LE 9 565 k blockedin favor of banks as guarantee for letters of credits (2004: LE 8 586 k). 22. Capital and reserves Share capital The authorized share capital comprised 171 121 490 ordinary shares, ordinaryshares have a par value of LE 100. The share capital had been settled by in kindcontribution by the Egyptian Government, the sole owner of the shares. On September 21, 2005 the extraordinary meeting of the shareholders resolvedthe decrease of the issued share capital by a net amount of LE 41 433 krepresenting the value of lands transferred to Ministry of Communication &Information Technology by LE 71 250 k and the value of new land entitlement forTE as a result of the amendment of the total land area near the SatelliteStation in Maadi amounting to LE 29 817 k. The extraordinary meeting of the shareholders also resolved to decrease thepar value per share from LE 100 to LE 10. Accordingly, the company's issuedcapital become LE 17 070 716 k represented in 1707071600 shares of par valueLE 10 each and annotation was made to this effect in the Commercialregister on 24/11/2005. The Egyptian Government owned 80% after floating 20% of company's shares inpublic offering in December 2005. The holder of ordinary shares is entitled to receive dividends as declaredfrom time to time and is entitled to one vote per share at meetings of theCompany. All shares rank equally with regard to the Company's residual assets. Statutory Reserve The Egyptian Companies Law requires all companies incorporated in Egypt totransfer 5% of net profit for the year to statutory reserve, until it reaches aminimum of 50% of the issued share capital. The reserve is not available fordistribution; however, it may be used in share capital increase or offsettinglosses. Translation reserve The translation reserve comprises all foreign exchange differences arisingfrom the translation of the financial statements of foreign operations that arenot integral to the operations of the Company, as well as from the translationof liabilities that hedge the Company's net investment in a foreign subsidiary. Fair value reserve The fair value reserve includes the cumulative net change in the fair valueof available-for-sale investments until the investment is derecognized. Other reserve Other reserve represents profits set aside based on the resolutions ofthe general shareholders meeting, the reserve includes LE 18 110 k representingcapital gains realized on disposal of property, plant and equipment. Thereserve, excluding the capital gains, is distributable. Dividends After the balance sheet dates the following dividends were proposed by thedirectors. The dividends have not been provided for and there are no incometaxes consequences. In thousands of Egyptian Pound 2005 2004 LE 0.50 per qualifying ordinary share for 2005 (2004: LE 2.23 before the stock split) 853 536 381 000 853 536 381 000 23. Earnings per share Basic earnings per share The calculation of basic earnings per share at 31 December 2005 wasbased on the profit attributable to ordinary shareholders of LE 1 929 985 k,(2004: LE 1 298 129 k) and a weighted average number of ordinary sharesoutstanding during the year ended 31 December 2005 of 1 710 075 492 (2004:1 711214 900), calculated as follows: Profit attributable to ordinary shareholders In thousands of Egyptian Pound 2005 2004 Profit for the year 1 932 739 1 300 823Profit attributable to ordinary shareholders 1 929 985 1 298 129 Weighted average number of ordinary shares In thousands of Egyptian Pound 2005 2004 Issued ordinary shares at 1January * 1 711 215 1 711 215Effect of decrease of shares in September 2005 (1 140) -Average number of ordinary shares at 31 December 2005 1 710 075 1 711 215 * The outstanding shares numbers in comparative figures have been adjustedto reflect the effect of the stock split, as per the resolution of theextraordinary meeting of the shareholders held on September 21, 2005 see note22. 24. Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group'sinterest-bearing loans and borrowings. For more information about theGroup's exposure to interest rate and foreign currency risk, see note 28(iii). 2005 2004In thousands of Egyptian PoundNon-current liabilitiesSecured bank loans - 82 357 Unsecured bank loans:Local banks 8 919 1 046 228Governmental loans 709 214 675 043Foreign loans 954 644 1 340 753Finance lease liabilities 51 346 45 950Foreign suppliers facilities 62 044 301 605 1 786 167 3 491 936 Current liabilitiesShort-term borrowings 419 061 1 468 252Current portion of secured bank loans - 42 840Current portion of unsecured bank loans:Local banks 12 581 237 241Governmental loans 124 613 157 943Foreign loans 159 914 198 612Current portion of finance lease liabilities 23 925 16 736Foreign suppliers facilities 179 379 373 014 919 473 2 494 638 Security Foreign suppliers facilities include an amount of LE 10 952 k secured byletters of guarantee issued in favor of the suppliers. Repayment Loan Effective Interest 12 2-3 4-5 More months thanIn thousands of Egyptian Pound Currency Rate Total or less years years 5 years Local banks loans L.E. CAIBOR+2.55 % 21 500 12 581 8 919 - - Total local loans 21 500 12 581 8 919 - - Governmental Loans L.E. 8% 22 22 - - -Governmental Loans * U.S.$ 4 - 16% 796 957 116 206 175 739 190 079 314 933Governmental Loans SK Agency commition+0.15% 3 341 2 055 1 286 - -Governmental Loans EURO 4 - 6.37% 33 507 6 330 12 323 9 900 4 954Total Governmental loans 833 827 124 613 189 348 199 979 319 887 Foreign loans J.Y 3 - 3.5% 102 777 24 397 48 794 28 289 1 297Foreign loans EURO 0.75 -8.2% 1 001 610 135 517 251 506 174 391 440 196Foreign loans L.D 3.5% 10 171 - - - 10 171Total foreign loans 1 114 558 159 914 300 300 202 680 451 664 Foreign suppliers' facilities - local L.E. 3% 427 427 - -Foreign suppliers' facilities - EURO 3.18 - 5.5% 144 104 122 916 21 188 - -foreignForeign suppliers' facilities - J.Y 2.5 - 2.75% 96 892 56 036 40 856 - -foreignForeign suppliers' facilities - U.S.$ 3% - -foreignTotal foreign suppliers' facilities 241 423 179 379 62 044 - - 2 211 308 476 487 560 611 402 659 771 551 * Includes a loan of LE 46 056 bears interest ranged from 8% - 16% due inMarch 2006. Finance lease liabilities Finance lease liabilities are payable as follows: Minimum Minimum lease Interest Principal lease Interest Principal payments paymentsIn thousands of Egyptian Pound 31-12-2005 31-12-2005 31-12-2005 31-12-2004 31-12-2004 31-12-2004 Less than one year 32 165 8 240 23 925 23 823 7 087 16 736Between one and five years 60 851 9 505 51 346 54 395 8 445 45 950 93 016 17 745 75 271 78 218 15 532 62 686 Under the terms of the lease agreements, no contingent rentals are payable. 25. Bonds payable - In February 2005, the Company issued 20 million nominal marketablebonds not convertible into shares at a par value of L.E. 100 each for a periodof (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 10.95%to be paid quarterly. 2- The second tranche shall be the other 50% of the bonds at a variableannual interest equal 0.7% plus the discount rate of the Central Bank of Egyptto be paid quarterly. The purpose of issuing these bonds is partial settlement of long-term loans andbank overdraft accounts in local currency. 26. Trade and other payables 2005 2004In thousands of Egyptian PoundTrade payables:Local suppliers 93 127 67 032Foreign suppliers 7 504 1 254Notes payable 3 137 - 103 768 68 286Other payables:Income tax payable 632 054 410 496Amounts due to associate 314 4 058Deposits from others 605 848 553 874Fixed assets creditors 389 652 481 082Customers advances 215 058 251 232Accrued expenses 389 864 455 534Other credit balances 563 931 452 209 2 900 489 2 676 771 27. Provisions 2005 2004In thousands of Egyptian Pound Taxes Claims Total Taxes Claims Total Balance at 1 January 646 316 104 125 750 441 519 709 271 081 790 790Provision formed 14 120 36 115 50 235 166 732 15 742 182 474Provision used (65 128) (28) (65 156) (40 125) (77 466) (117 591)Provision reversed - (157) (157) - (105 232) (105 232)Balance at 31 December 2005 595 308 140 055 735 363 646 316 104 125 750 441 As at December 31, 2005 provisions are mainly related to taxes,lawsuits in respect of claims by a contractor for alleged losses and variousclaims for damages for breach of contract, and expected social insurance claimin respect of contracts concluded with suppliers. 28. Financial instruments The Group's principal financial instruments comprise bank loans, financelease and cash and short-term deposits. The main purpose of these financialinstruments is to raise finance for the Group's operations. The Group hasvarious other financial instruments such as trade receivables and tradecreditors which arise directly from operations. The Group does not enter into derivative transactions for the purpose oftrading or hedging exposure to fluctuations in the foreign exchange rates orinterest rates. The main risks arising from the Group's operations are interest rat risk,foreign currency risk and credit risk. (i) Credit risk Credit risk is the risk that one party to a financial instrument willfail to discharge an obligation and cause the other party to incur financialloss. The Group's financial assets, which include receivables from localcustomers and international telecommunication operators, investments bankbalances and time deposits, do not represent a significant concentration ofrisk. Trade receivables are widely spread among customer's segmentation, strictcredit control is maintained, and further appropriate level of impairmentallowance is made. The Group manages the credit risk on investments by ensuringthat investments are made only after careful credit evaluation of theseinvestments. The time deposits are placed with commercial banks after carefulcredit evaluation of those banks. (ii) Foreign currency risk Foreign currency risk is the risk that the value of a financialinstrument will fluctuate due to change in foreign exchange rates. The Group is exposed to foreign currency risk on purchases from foreignsuppliers and loans that are denominated in a currency other than the EgyptianPound. In addition, the Group deals with international telecommunicationoperators. The Group's currency risk is related to changes in exchange ratesapplicable to the settlement of foreign currencies. The currencies giving riseto this risk are primarily US Dollar, Euro and Japanese Yen. Certain loans and foreign suppliers payments are paid in Egyptian Poundbased on the prevailing foreign currency. As of 31 December 2005 the Group's assets and liabilities denominated inforeign currencies amounted to the equivalent of LE 1 754 640 k and LE 2 299 758k respectively. The Group's net foreign currencies exposure as of 31 December2005 was as follow: Foreign currency (Deficit ) / Surplus 2005 2004In thousands of Egyptian PoundUS Dollar 146 348 137 056Euro (170 998) (229 627)Sterling Pound 461 471Japanese Yen (4 092 891) (5 903 234)Swedish Krona (15 525) (25 249)Jordan Dinar (265) - (iii) Interest rate risk Interest rate risk is the risk that the value of financialinstrument will fluctuate due to changes in market interest rates. The Group is exposed to interest rate risk on its time deposit. Theseare short-term in nature and are denominated in US Dollar, Euro, Sterling Poundand Egyptian Pound. The average interest rate yield from short-term timedeposits was: 2005 2004US Dollar 3.39% 2.40 %Euro 2.24% 2.11 %Sterling Pound 4.35% 4.14 %Egyptian Pound 6.63% 7.75 % 29. Fair value of financial instruments The fair value is the amount for which an asset could be exchangedor a liability settled, between knowledgeable willing parties on an arm's lengthbasis. Except of the investments in Vodafone Egypt and Nile on Line which areaccounted for using the equity method of accounting, the carrying values of theGroup's other financial instruments approximate their Pfair values. Estimation of fair values The following summarizes the major methods and assumptions used inestimating the fair values of financial instruments reflected in the table. Securities Fair value is based on quoted market prices at the balance sheet date withoutany deduction for transaction costs except for investments in Vodafone Egypt andNile on Line which were accounted for using the equity method of accounting. Interest-bearing loans and borrowings Fair value is calculated based on discounted expected futureprincipal and interest cash flows. Finance lease liabilities The fair value is estimated as the present value of future cashflows, discounted at market interest rates for homogeneous lease agreements. Theestimated fair values reflect change in interest rates. Receivables / payables For receivables / payables with a remaining life of less than oneyear, the notional amount is deemed to reflect the fair value. All otherreceivables / payables are discounted to determine the fair value. Interest rates used for determining fair value. The entity uses the government yield curve as of 31 December 2005 plusan adequate constant credit spread to discount financial instruments. Thediscount rate for minimum lease liabilities and receivables is 14%. 30. Capital commitments The Group's capital commitments for unexecuted portions of contracts asof 31 December 2005 amounted to LE 29.695 million (31 December2004 LE 21.09 million).These commitments are expected to be settled in thefollowing financial year except uncalled installments of investees' sharecapital which will be settled when requested by the directors of the investees. 31. Contingencies 2005 2004 in thousands of Egyptian Pound Letters of guarantee issued by banks on behalf of the Group 8 270 28 801Letters of credit 452 998 197 222 32. Related parties Identity of related parties The Group has a relationship with its associate Nile on line, Vodafone Egypt,consortium Algerian Telecommunication and International Communication ConsortiumLTD. Transaction with Associates and unconsolidated subsidiaries During the year ended 31 December 2005, the Group rented services ofinternational circuits of STM 1 and DS-3 from an associate company, the rentalvalue was LE 2 749 k, (2004 : LE 40 022 k). During the year ended 31 December 2005, net mobile services betweenVodafone Egypt and the company amounted to LE 91 253 k in favor of VodafoneEgypt. During the year ended 31 December 2005, the company paid an amount of221 585 k on behalf of Consortium Algerian Telecommunication to finance thelicense fee and operating expenses of consortium company in Algeria. During the year ended 31 December 2005, the company paid an amount ofLE 68 k on behalf of International Communication Consortium LTD representing theparticipation of International communication Consortium LTD in the share capitalof Consortium Algerian Telecommunication Company. 33. Group entities Control of the Group The Group's ultimate parent company is Telecom Egypt. Subsidiaries Country of Ownership interest incorporation 2005 2004Middle East Radio Communication ( MERC ) Egypt 51.00 51.00T. E. Information Technology Egypt 97.66 92.50T. E. Data Egypt 93.33 92.50Centra Technologies Egypt 55.02 51.21Centra Industries - Indirect ownership Egypt 54.90 51.20T.E Data Jordan - Indirect ownership Jordan 93.33 92.50 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Telecom Egypt S