VODAFONE EGYPT TELECOMMUNICATIONS COMPANY (S.A.E.) CONSOLIDATED FINANCIAL STATEMENTS TOGETHER WITH AUDITORS REPORT AS OF SEPTEMBER 30, 2006

Transcription

1 VODAFONE EGYPT TELECOMMUNICATIONS COMPANY (S.A.E.) CONSOLIDATED FINANCIAL STATEMENTS TOGETHER WITH AUDITORS REPORT AS OF SEPTEMBER 30,

2 2

3 VODAFONE EGYPT TELECOMMUNICATIONS COMPANY S.A.E. CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2006 (Amounts expressed in million Egyptian pound) Note September 30, 2006 March 31, 2006 Assets Long term assets Fixed assets, net 1e,1j,2 3,271 3,236 Construction in progress, net 3 1, Intangible assets, net 1h,1j,4,17 1,432 1,697 Goodwill 1c, 1j 71 - Total long term assets 5,886 5,734 Current assets Inventories, net 1g Trade receivables, net 1i, Other debit balances Due from affiliates Cash current accounts and time deposits at banks 1, Cash at banks (earmarked for Tax Authority) 15a Total current assets 1,990 1,974 Current liabilities Provisions 1i, ,260 Accounts payable and accrued fixed assets suppliers 1i 1,205 1,190 Due to affiliates Other credit balances Accrued expenses Loan - short term portion 1i, Employee profit share payable Total current liabilities 3,413 3,883 Working capital (1,423) (1,909) Total investments 4,463 3,825 Shareholders' equity Issued and paid up capital 9 1,200 1,200 Legal reserve Retained earnings 1, Net profit for the period/year 1,289 1,705 Total shareholders' equity before minority interest 3,834 3,345 Minority Interest 1c, Total equity 3,870 3,345 Long term liabilities Loan - long term portion 1i, NTRA - long term portion 17b Deferred tax liabilities 1L, Total long term liabilities Total finance of working capital and long term assets 4,463 3,825 - The accompanying notes form an integral part of the financial statements. Chief Financial Officer Martin Moorhouse - Auditors' report attached. Kamel Magdy Saleh - ACA F.E.S.A.A. (R.A.A. 8510) Chief Executive Officer Ian Gray Chairman Mohamed Mahmoud Nosseir 3

4 VODAFONE EGYPT TELECOMMUNICATIONS COMPANY S.A.E. CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED SEPTEMBER 30, 2006 (Amounts expressed in million Egyptian pound) Note 6 months period ended September 30, months period ended September 30, 2005 Service revenue 3,607 2,589 Customer acquisition revenue and handsets Other revenues 7 8 Net operating revenue 1f 3,839 2,836 Cost of sales (1,459) (1,093) Gross profit 2,380 1,743 Less: General and administrative expenses (439) (329) Depreciation and amortization (203) (268) Provisions 7 (102) (64) Profit from operating activities 1,636 1,082 Interest expense (45) (79) Foreign exchange gain/(loss) 11 (14) Interest income 1f Net profit for the period before legal provision and deferred tax and after minority interest 1,629 1,017 Legal provision 7 (314) (196) Deferred tax 1L,18 (26) (18) Net profit for the period after legal provision, deferred tax and minority interest 1c,11 1, Earnings per share in EGP (before deducting employees' profit share) The accompanying notes form an integral part of the financial statements. 4

5 VODAFONE EGYPT TELECOMMUNICATIONS COMPANY S.A.E. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED SEPTEMBER 30, 2006 (Amounts expressed in million Egyptian pound) 6 months period ended September 30, months period ended September 30, 2005 Cash flows from operating activities Net profit for the period before legal provision and deferred tax 1,629 1,017 Adjustments to reconcile net profit with cash flows from operating activities Depreciation and amortization Provisions Interest expense Interest income (27) (28) Operating profit before working capital changes 2,222 1,590 Decrease in inventories 10 2 (Increase) in trade receivables (146) (75) (Increase) in other debit balances (62) (23) (Increase) decrease in due from affiliates (6) 4 Increase (decrease) in accounts payable 45 (107) (Decrease) in other credit balances and provisions (877) (50) Increase in due to affiliates Increase in accrued expenses Interest received Net cash flows from operating activities 1,382 1,559 Cash flows from investing activities Payments for purchase of fixed assets and construction in progress (752) (421) Intangible assets (site acquisition costs and computer software) (18) (12) Cash acquired from investment in subsidiary 4 - Net cash flows used in investing activities (766) (433) Cash flows from financing activities Settlement of loan (250) (300) Proceeds from facility Dividends and employees' profit share paid (801) (467) Interest paid (21) (41) Net cash flows used in financing activities (822) (808) Net change in cash and cash equivalents during the period (206) 318 Cash and cash equivalents at beginning of the period 1, Cash and cash equivalents at end of the period 1, The accompanying notes form an integral part of the financial statements. 5

6 VODAFONE EGYPT TELECOMMUNICATIONS COMPANY S.A.E. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE PERIOD ENDED SEPTEMBER 30, 2006 (Amounts expressed in million Egyptian pound) Description Share capital Legal reserve Retained earnings Profit for the year/period Balance Shareholders' equity as of March 31, , ,049 2,773 Transfer of the profits for the year ended March 31, 2005 to retained earnings ,049 (1,049) - Legal reserve for the year ended March 31, (52) -- - Amounts appropriated for year 2005 dividends distribution (467) -- (467) Amounts distributed during the year ending March 31, 2006 from retained earnings (666) -- (666) Net profit for the year ended March 31, ,705 1,705 Shareholders' equity as of March 31, , ,705 3,345 Transfer of the profits for the year ended March 31, 2006 to retained earnings ,705 (1,705) - Legal reserve for the year ended March 31, (75) -- - Amounts appropriated for year 2006 dividends distribution (800) -- (800) Net profit for the period ended September 30, ,289 1,289 Shareholders' equity as of September 30, , ,105 1,289 3,834 - The accompanying notes form an integral part of the financial statements. 6

7 General VODAFONE EGYPT TELECOMMUNICATIONS COMPANY S.A.E. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2006 The group comprises Vodafone Egypt Telecommunications Company, S.A.E., Misrfone Trading Company, LLC, Vodafone Egypt Technologies, LLC, and Raya for Telecommunications, S.A.E. Vodafone Egypt Telecommunications S.A.E was incorporated on May 26, 1998 as an Egyptian joint stock company under the provisions of the Investment Guarantees and Incentives Law no. 8 of 1997 and its executive regulations, and the Capital Market Law no. 95 for 1992 and its executive regulations. The objective of the company is to design, construct, develop, own and operate GSM mobile telecommunication facilities, and to provide and sell GSM services and GSM terminal equipment as well as to provide and sell other telecommunication equipment and services in Egypt, in addition to any related equipment or services. Misrfone Trading Company, LLC was incorporated on August 29, 1998 under the provisions of the Companies Law no.159 for the year 1981 and its executive regulations for the purpose of importing, trading, distributing and maintenance of equipment and telecommunications equipment and its accessories associated with establishing and operating GSM mobile telecommunication facilities. Vodafone Egypt Technologies, LLC was incorporated under the provisions of the Investment Guarantees and Incentives Law no. 8 of 1997 and its executive regulations, for the purpose of designing and developing programs, operating systems, integrated systems, data input on computers with technological methods, constructing data base, electronic information system and producing electronic content with its various forms regarding voice, image and data. On September 30, 2006 Vodafone Egypt Telecommunication Company acquired 51% of Raya for Telecommunication S.A.E (Raya Telecom) for EGP 104 Million. Raya for Telecommunications S.A.E (Raya Telecom) was incorporated on August 24, 1999 as an Egyptian joint stock company (under the name ICO Egypt for Communication) under the provisions of the Investment Guarantees and Incentives Law no. 8 of 1997 and its executive regulations, for the purpose of data operation and internet service. Raya for Telecommunications S.A.E owns % in Star-Net an Egyptian LLC. According to the shareholder s agreement dated September 30, 2006, Vodafone granted to Raya Holding for Technology and Telecommunications the option "Put Option" to require Vodafone to purchase all of the Raya Holding for Technology and Telecommunications Shares in Raya for Telecommunications. This purchase will take place in the event that Raya Holding decides to use this right and delivers a put notice during the put exercise period to Vodafone. The put option is exercisable during the period ending on the second anniversary of the agreement. 7

8 The consolidated financial statements incorporate the financial statements of Vodafone Egypt Telecommunications Company S.A.E. (Parent Company), Misrfone Trading Company LLC (Subsidiary), Vodafone Egypt Technologies LLC (Subsidiary), and the consolidated financial statement of Raya for Telecommunications S.A.E (Subsidiary). Vodafone Egypt Telecommunications Company S.A.E. owns and controls 99% of Misrfone Trading Company LLC, and 99.99% of Vodafone Egypt Technologies LLC, and 51% of Raya for Telecommunications S.A.E. The fiscal year of Raya for Telecommunications Company begins on January 1 and ends on December 31 of each year. 1 - Significant accounting policies a Basis of preparing the financial statements The financial statements have been prepared according to Egyptian Accounting Standards, and in the light of the Egyptian related laws and regulations. The preparation of financial statements in conformity with Egyptian Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates and underlying assumptions are reviewed on an ongoing basis. b- Accounting convention The financial statements are prepared under the historical cost convention. c- Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company. Control is achieved where the company has the power to govern the financial and reporting policies of an entity. The consolidation is prepared according to the purchase method. The cost of acquisition is measured at the aggregate fair value of assets given and liabilities assumed of the acquiree at the date of acquisition. The excess of the cost of the acquisition over the fair value of assets and liabilities is recorded as goodwill. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority s share of changes in equity since the date of the combination. 8

9 d- Foreign currency transactions The company s functional and reporting currency is the Egyptian pound. Transactions denominated in foreign currencies are translated to Egyptian pounds during the year at the rates prevailing at the date of the transactions. On the balance sheet date, monetary assets and liabilities denominated in other currencies are translated to Egyptian pounds at exchange rates prevailing on the financial statements date. Any resulting difference is taken to the income statement. e- Fixed assets Fixed assets are stated at historical cost and are depreciated over their estimated useful lives on straight line basis, as follows: Buildings Network infrastructure (switches, base stations and towers) Leasehold improvements Tools and testing equipment Motor vehicles Computers and networks software Office furniture, machinery and building equipment 50 years 5-8 years 2 years -Estimated useful life or the contract period (which ever is less) 3-10 years 4 years 3-5 years 5-10 years f- Revenue recognition Revenue is measured at the fair value of consideration received and is recognized upon the rendering of service and delivery of goods on accrual basis, net of discounts and sales tax. Interest income is accrued on timely basis by reference to the principal outstanding and the effective interest rate applicable. g- Inventories Inventories are stated at the lower of cost and estimated net realizable value (estimated selling price less estimated cost of completion and costs to be incurred in selling and distribution). The cost is determined using the weighted average method. h- Intangible assets Intangible assets are stated at cost and are amortized as follows: 9

10 License fees and Right of Use (ROUs) Network license fees and ROUs are amortized on a straight-line basis over their economic useful lives, as follows: (Note 17) - Original license fees (900 MHz) are amortized over 14.5 years representing the period from commencement of service of the network until the end of the license period. (Note 17a) - New license fees (1800 MHz) are amortized on a straight-line basis over the remaining useful life of the original license (8 years and 4 months) on the date of acquisition. The component of the license cost relating to additional economic benefits will be amortized over a period from the acquisition date up to November 30, (Note 17b) - ROUs are amortized over 15 years. (Note 17c) Syndicated facility fees The syndicated facility fees are amortized over the facility period. (Note 10) Sites' acquisition costs Sites acquisition costs are amortized on a straight-line basis over eight years. All sites agreements are based on lease contracts. Computer software systems The cost of computer software is amortized on a straight-line basis over 3 years. i - Financial instruments A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. Financial assets and financial liabilities are recognized on the company s balance sheet when the company becomes a party to the contractual rights and obligations of the financial instrument. 1- Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate allowance for estimated irrecoverable amounts. 2- Bank borrowings Interest bearing bank loans are recorded at the proceeds received and interest due on bank loans is recognized as incurred. Finance charges are accounted for on an accrual basis to the income statement. Bank borrowing costs are recognized as an expense in the income statement in the period in which they are incurred. 10

11 3- Trade payables Trade payables are stated at their nominal value. 4- Provisions Provisions are recognized when the company has legal or constructive obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. j Impairment of tangible and intangible assets At each balance sheet date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss, If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. This loss, if any, is recognized as an expense immediately in the income statement. The company reviews the book value of goodwill, when the book value of the goodwill exceeds the value which had been specified in the study of the goodwill, the goodwill impairment shall be recorded in income statement. When an impairment loss subsequently reverses, a reversal of an impairment loss is recognized as income immediately in the income statement, only to the extent that the assets carrying amount does not exceed the net carrying amount that would have been determined, if no impairment loss had been recognized. k Cash flow statement The cash flow statement is prepared using the indirect method. l Deferred Tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of the assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporarily differences and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporarily differences can be utilized. Deferred tax is calculated at the rates that are expected to apply in the period when the liability is settled or the asset is utilized. Deferred tax is charged to the income statement. 11

12 2- Fixed assets (net) The net book value of fixed assets amounted to EGP million as of September 30, 2006, and is analyzed as follows: (Amounts in million EGP) Description Land Buildings and building equipment Network infrastructure, tools and testing equipment Leasehold improvements Computer and network software Others Total Cost as of March 31, Additions Cost as of September 30, Accumulated depreciation as of March 31, Depreciation for the period Accumulated depreciation as of September 30, Net book value as of September 30, Net book value as of March 31,

13 3- Construction in progress, net September 30, 2006 EGP M March 31, 2006 EGP M Buildings Network infrastructure Others Provision for slow moving items (Note 7) (43) (37) Intangible assets, net (Amounts in million EGP) Description License fees and Rights of Use Loan arrangement fees Sites acquisition cost Computer software systems Total Cost as of March 31, Additions Disposals (256) (256) Cost as of September 30, Accumulated amortization as of March 31, Amortization for the period Accumulated amortization of disposals Accumulated amortization as of September 30, 2006 Net book value as of September 30, 2006 Net book value as of March 31, 2006 (21) (21)

14 5- Trade receivables, net September 30, 2006 EGP M March 31, 2006 EGP M Trade debtors Roaming receivables Other receivables 9 5 Allowance for doubtful debts (Note 7) (278) (254) Other debit balances September 30,2006 EGP M March 31,2006 EGP M Advance payments to suppliers Cheques under collection 17 8 Prepaid expenses Others Provisions (Amounts in million EGP) Description March 31, 2006 Formed Utilized September 30, 2006 Legal provision (992) 374 Other provisions (25) 255 Provision for slow moving items (Note 3) Allowance for doubtful debts (Note 5) (1 017) 14

15 8- Other credit balances September 30, 2006 EGP M March 31, 2006 EGP M Deferred revenues Sales tax NTRA - short term portion (Note 17b) Raya Holding for Technology and Telecommunications Others Capital The authorized capital amounts to EGP 2 billion and the issued and fully paid up capital amounts to EGP 1.2 billion, distributed among 240 million nominal shares of EGP 5 par value each. All being cash shares. 10- Syndicated facility agreement The following is an analysis of loan/facility as of September 30, 2006: Vodafone Syndicated Loan (fully paid) Vodafone Syndicated Facility * Raya Credit loan ** Raya Credit loan *** Original facility Balance as of March 31, 2006 Resulting from Raya Acquisition Utilized amount during the period Settlement during the period (Amounts in million EGP) Balance as of September 30, 2006 Short Term portion Long Term portion Unutilized amount as of September 30, (250) (250)

16 * On May 18, 2006, Vodafone Egypt signed a syndicated facility agreement with Banque Misr acting as agent and mandated lead arranger. CIB, NSGB, and HSBC acting as Senior Underwriters for a total amount of EGP 1.6 billion with a maximum tenor of 7 years and has a final maturity date of May 17, The proceeds of the facility shall be used by the company to finance its general corporate purposes. Syndicated loan (term loan granted in 1998) has been fully paid in June The company shall pay a floating interest rate of six months (interest period) as follows: 0.7* (Average six months corporate time deposits rate at banks/ [1-Centeral Bank of Egypt reserve requirements]) plus 1.2 per annum) Plus 0.3* (Central Bank of Egypt discount rate plus 0.7% per annum) ** Raya for Telecommunications obtained a loan amounting to EGP 15 million from Citibank on June 25, 2002 for the purpose of financing the switches obtained under a USAID projects for 54 months. The loan facility to be paid in 11 quarterly installments after a grace period of 18 months. The first installment amounting to EGP 1 million was paid on June 30, The loan facility is guaranteed by promissory notes from subsidiaries and Raya Holding, interest rate for local purchases is 13.75% and for imported purchases through USAID project is 13%. Loan balance as of September 30, 2006 is EGP 2.7 Million. *** Raya for Telecommunications obtained a loan amounting to EGP 25 million from MIBank on July 1, 2003 for the purpose of purchasing the using right of (ROU-an international circuit with 155 Mega/second) international flag line in New York at United States of America for 5 years with grace period ended on May 29, The loan facility to be paid in 20 equally quarterly installments with an amount of EGP 1 million for each installment, the first installment was paid on June 30, 2004 and Last installment will be paid at March 31, 2009 with interest rate 13% in addition to commission 0.001% for the highest debit balance and to be added to the principal loan monthly and payment due every 3 months, loan balance as of September 30, 2006 is EGP Million. Raya for Telecommunications should not distribute any dividends unless after payment of financial liabilities due to MIBank. The loan is guaranteed by promissory notes from Raya Holding and subsidiaries. 11- Minority interest The minority interest represents the minority s proportionate share (1%) in the net assets of Misrfone Trading Company LLC (subsidiary), (0.01%) in the net assets of Vodafone Egypt Technologies LLC (subsidiary), and (49%) in the net assets of Raya for Telecommunications S.A.E (subsidiary). 16

17 12- Related party transactions In addition to the requirements of the Egyptian Accounting Standard no. (15), the company defines related party transactions as transactions with a shareholder or Board member as well as with a known related party of a shareholder that can influence a shareholding of 5% or more in Vodafone Egypt Telecommunications. All transactions with any company with which directors themselves are related parties, are also regarded as related party transactions. Following is an analysis of significant related party transactions that occurred during the period ended September 30, 2006: Company Balance as of September 30, 2006 EGP Million Value of transactions during the period ended September 30, 2006 EGP Million Nature of transactions Alan for Antenna Support (4 Credit) (22) - Construction work Alkan Group of Companies (3 Credit) (57) Telecom Egypt Banque du Caire 13 Debit 154 Debit 250 (261) (58) - (7) - 2 Vodafone Group (53 Credit) (73) Vodafone operating companies - Construction work and site maintenance - Interconnect revenues - Interconnect cost - Leased links, site rentals and Utilities - Current accounts and time deposits. - Share in debit interest for the period. - Credit interest on time deposits and current accounts. - Net cost of participation in various service arrangements and secondees labor and services. 16 Debit Visitor revenues. (16) - Roaming Cost. 17

18 13- Capital commitments - The company has entered into construction contracts, software license contracts, hardware supplies contracts, supplies of network infrastructure and vehicles purchase contracts. The outstanding balance amounted to 198 million representing the contractual amounts that were not yet executed as of September 30, (EGP 161 million as of March 31, 2006). - Vodafone Telecommunication Company and Raya Holding Company agree to finance Raya for Telecommunication (RT) by subscribing, on a pro rata basis and without prejudice to the rights of the minority shareholders of RT under Egyptian Law, to an increase of the issued capital of RT up to an amount of EGP 50 million to be effected within a maximum period of 12 weeks from the date of agreement (September 30, 2006) for EGP per share unless the parties otherwise agree in writing. 14- Financial instruments The financial instruments are represented in assets balances (cash in hand and at banks, debtors and other debit balances), and the liabilities balances (loans, creditors and other credit balances). Fair value of financial instruments The carrying amounts of these financial instruments represent a reasonable estimate for their fair values as of the balance sheet date. a- Foreign currency risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The risk is represented in fluctuations affecting the company s assets and liabilities denominated in foreign currencies. b- Credit risk Credit risk is mainly represented in the customer s failure to pay according to the terms of the contract. Disconnecting the service in case of non-payment mitigates the risk. 15- Tax position The company presents its tax returns in accordance with the tax laws. a- Corporate tax The Company management and its advisors believe that the Company is entitled to a 10-year tax holiday ending March 31, 2010 (arising from its decision to locate its main operations in the 6 th of October City). The Company s claim for a full 10-year tax holiday has been challenged by the Tax Authority which, to date, has only approved a 5 years tax holiday period ending March 31, 2004 on its tax card. The Company believes that the 10 years tax holiday should have been automatically granted in accordance with Investment Guarantees and Incentives law no. 8 of 1997 as all the requirements have been met. 18

19 During September 2005 the company received a corporate tax claim from the Tax Authority for EGP 605 Million plus delay interest for the financial year The company has rejected this demand based on the following: 1- That the end date for an initial 5 years of tax holiday is not correctly calculated. 2- That the company is entitled to a full 10 years holiday by virtue of its establishment in an urban development zone. At a meeting on August 15, 2005, the Ministerial Committee for Investment Disputes found against the company s claim for the extra 5 years holiday, a decision that was approved by Cabinet on October 11, While the matter remains uncertain, the company will continue to provide for the potential loss of the dispute. The company is continuing to discuss the position with the relevant authorities; while the position remains unresolved the company had not made any payment related to the tax authority claim with respect to the corporate tax for the financial years ended March 31, 2005 and March 31, However the company paid an amount of EGP 605 million (cash earmarked for tax authority balance as of March 31, 2006) on May 25, 2006 and an amount of EGP 387 million on July 30, 2006 respectively pending resolution of the dispute. b- Others The group companies consistently and properly pays all due taxes. 16- Earnings per share Earnings per share are computed based on the weighted average number of nominal shares outstanding. September 30, 2006 EGP M September 30, 2005 EGP M Net profit for the period Divided by: Number of shares outstanding (in millions) Earnings per share before deducting employees' profit share EGP 5.37 EGP 3.35 (*) The company does not pay profit share to board members. The board members allowances, travel expenses and remunerations for the period amounted to EGP 0.3 million. (*) Earnings per share for the period ended September 30, 2005, is EGP 3.18 after deducting employees profit share for the period, amounting to EGP 40 million. 19

20 17- Licenses and Right of Uses a- Original license 900 MHz The company has signed a license contract to acquire 900 MHz spectrum with the Government represented by the National Telecom Regulatory Authority (NTRA), to establish and operate a GSM Digital Cellular Mobile Telephone Network within the Arab Republic of Egypt for a period of 15 years starting May 5, The company has paid the license fees amounting to EGP million for the licensed period, in addition to other annual charges paid by the company to National Telecoms Regulatory Authority (NTRA). b- New license 1800 MHz In January 2005, the company has completed an agreement with NTRA to acquire a future license covering the acquisition of 1800 MHz spectrum and other related economic benefits against payment of EGP million, of which EGP 200 million was paid upon signing the agreement, and the remaining amount to be paid over 4 years equally to the National Telecoms Regulatory Authority (NTRA). The cost of the new license is recognized at the present value of those 4 payments in addition to the advance payment. This license agreement fully incorporates all aspects of the Telecoms Act into license terms and conditions. According to the license agreement, the company shall be entitled to deduct the amount of EGP 100 million from each following payment due in the event that the Board of Directors of NTRA grants before November 30, 2007 any other entity a license to establish and operate a 2G network in Egypt or any part thereof. As NTRA granted a third operator license on August 2006, the company deducted the present value of the future installments amounting to EGP 300 Million since that date. Total amounts due to NTRA amounted to EGP 418 million as of September 30, 2006 (EGP 643 million as of March 31, 2006) of which an amount of EGP 145 million included in other credit balances account as short term portion. (Note 8) c- Raya Telecommunication Right of Uses (ROUs) - Telecom Egypt company signed a contract with Flag Telecom company to rent international circuits (ROU) owned by Flag Telecom. - Raya for Telecommunications signed a contract with Telecom Egypt to purchase the right of use (ROU) of the internet network of one international circuit (155 MB/sec.) through flag international line between Alexandria (through flag international station) and flag station in New York and Malaysia. 20

21 18- Deferred tax Deferred tax liability amounted to EGP 63 million as of September 30, Deferred tax liability does not represent current tax due for the year and is expected to be reversed after the tax holiday period ended March 31, This is analyzed as follows: (Amounts in million EGP) Assets/(Liabilities) September 30, 2006 Assets/(Liabilities) March 31, 2006 Fixed assets (72) (50) Licenses (8) (2) Provisions Net deferred tax liability (63) (37) 19- Contingent liabilities The company s philosophy is to assess all legal and tax claims against the company s understanding of the law; clear and reasonable claims are settled without question. Where the company continues to disagree with the other party the issue is referred either to arbitration or to court of law. The company s contingent liabilities are represented in the litigation claims and the uncovered portion of the letters of guarantees. As the company is involved in several court and arbitration cases, the management believes that the outcome of any individual case or total cases do not affect the financial results of the company. The uncovered portion of the letters of guarantees as of September 30, 2006 is EGP 16 million. 21

22 20- Comparative figures The comparative figures have been reclassified to comply with this period presentation. Chief Financial Officer Chief Executive Officer Chairman Martin Moorhouse Ian Gray Mohamed Mahmoud Nosseir 22