Telecom Egypt announces 9M 2006 consolidated results

Financial Statements have been prepared in accordance with Egyptian Accounting Standards.

Highlights for the first nine months of 2006 include:

- 10.7 million fixed-line subscribers, up 4.7% on 9M 2005

- Fixed line penetration reached 14.9%

- Substantial growth in number of ADSL subscribers - from 21.7k in Sept 2005 to 68.6k in Sept 2006

- Revenues up 7.9% on 9M 2005, reaching EGP 6.9 billion

- 54.5% EBITDA margin remains one of the industry's highest

- 9M 2006 EBIT decreased by 16.4% year-on-year to EGP 2.1 billion, as a result of several non-cash items

- Non-cash items impacted net profit before tax and minority interest - down 14.3% on 9M 2005 to EGP 1.9 billion

- Effect of non-cash items also causes net profit after tax to fall 17.2% in comparison with 2005 to EGP 1.5 billion

- Capex related cash flows1 reduced by 35.7% year-on-year to EGP 1.2 billion

- Earnings per share (EPS) decreased from EGP 1.07 for 9M 2005 to EGP 0.89 for 2006

- Monthly ARPU2 increased 4.6% year-on-year to EGP 57.7 for nine months ended September 2006

Chairman's statement

Commenting on Telecom Egypt's nine months 2006 results, Akil Beshir, Chairman of Telecom Egypt, said, 'Our fixed line customer base continues to be one of the largest and most stable in the region and for the first time the effects of tariff rebalancing are worthy of note, increasing subscription and local call revenues by 22% and 14% respectively versus the comparative period in 2005.

'The overall effect is a higher monthly ARPU, which we view as a very pleasing trend and one which is in line with the medium and long term objective of shifting our focus to subscriber segments where demand for additional telecommunications services is intensifying.

'These are the segments which we believe will ultimately be more profitable and where the technical scope of our infrastructure positions us well to embrace the growing demand among existing retail and wholesale customers for greater capacity and services.

'During the first nine months of 2006 we have, once again, delivered top line growth of 8% year-on-year while maintaining a very healthy EBITDA margin. In comparison with 2005, reported net profits have been negatively impacted by several non-cash items during the period under review, however, when one examines the underlying financial performance more closely, stripping out these items, this in fact masks a very positive underlying trend.

'Ultimately our focus for the future is on a greater range of telecommunications services which are, in reality, becoming increasingly convergent. Demand for internet access and services is already intensifying in Egypt and TE Data's ability to capture broadband market share shows no signs of slowing; rising to more than 41% by the end of September 2006. Even in the last quarter, ADSL subscribers grew by 44% and we fully expect a similar rate of organic growth to continue during the remainder of 2006.

'We have provided several recent updates to you in respect of our investment in Vodafone Egypt (VE), which continues to deliver a strong financial result for TE. Our increased stake in VE simply serves to underline the strategic importance of this initiative.

Following the successful outcome of TE's tender for VE shares, launched during the third quarter of 2006, we have further cemented our relationship with the overall Vodafone Group in entering into a strategic, co-operation agreement. I would echo the comments made by Vodafone Group, that this partnership holds great promise and allows both companies to benefit from one another's knowledge, reach and technical prowess.'

Financial Review

Revenues

Total consolidated operating revenues for the nine months ended 30 September, 2006 rose 7.9% to EGP 6.9 billion, compared to EGP 6.4 billion for the first nine months of 2005.

Retail Services

TE continues to derive the majority (69.9%) of its total operating revenues from retail services, consisting of access and voice. During the first nine months of 2006, access revenue increased year-on-year by 4.4%. This increase in access revenue was recorded, despite lower connection revenues, as a result of the notable increase in subscription revenues up 22.0%, which more than offset the decrease. Similarly, total voice revenue, made up of local, long distance, fixed to international and fixed to mobile interconnection, increased by 5.6% year-on-year to EGP 2.8 billion.

Local call revenues have increased 14.1% year-on-year to EGP 1.4 billion as a result of higher volumes of billable voice traffic and the net effects of tariff rebalancing.

Wholesale services

Compared with the same period in 2005, total wholesale services revenues, both domestic and international, increased 21.5% to EGP 2 billion during the first nine months of 2006. Similarly to the second quarter of 2006, total domestic wholesale revenues rose 26.2% year-on-year to reach EGP 341 million at the end of September 2006. However, the main boost to wholesale revenues came from the international segment (mobile to international and incoming international calls) which experienced growth of 20.6% year-on-year, rising to EGP 1.7 billion.

EBITDA/EBIT

Consolidated EBITDA for the first nine months of 2006 reached EGP 3.8 billion, a 2.1% decline on the same period in 2005. Meanwhile, EBIT for the nine months ended 30 September 2006 was 16.4% down on the previous year, reaching EGP 2.1 billion. This decline in EBITDA and EBIT was as a result of several non-cash items.

At the EBITDA level, provisions and impairments of EGP 205 million masked the company's solid financial performance during the period versus the nine months ended September 2005, which included a non-recurring positive effect as a result of the unused provisions for EGP 260 million. At the EBIT level the consolidated result was compounded by foreign exchange losses of EGP 97 million versus a gain of EGP 294 million in the first nine months of 2005.

Income from Investments

TE has made significant progress in further defining its mobile strategy; during the quarter TE announced the launch of a tender offer for an additional stake of up to 24.4% in Vodafone Egypt S.A.E, one of the two existing mobile operators. This transaction closed in October and it is important to note that today's report is based on the original 25.5% stake.

In presenting consolidated financial statements, and as detailed in the basis of preparation, TE has changed the way in which it reports the income from its investment in Vodafone Egypt, now accounted for using the equity method. This stake continues to deliver significant benefit to the company and leaves TE well positioned to capitalize on growth in the Egyptian mobile segment. For the nine months ended 30 September 2006, investment income from Vodafone Egypt reached EGP 450 million.

Net profit

Consolidated net profit decreased by 17.2% to EGP 1.5 billion for the nine months ended 30 September 2006, as the effect of the non-cash items described above was felt.

Investments in infrastructure

Having reduced its network investment during 2006, as its targets for coverage and network capacity are met, TE has substantially reduced capex related cash flows from EGP 1.8 billion in the first nine months of 2005 to EGP 1.2 billion for the same period in 2006.

It is important to note that TE's method of calculating capex has been amended and no longer includes repayment of old debts related to acquisition of property, plant and equipment.

Debt

Over the 12 months between 30 September 2005 and 30 September 2006, net debt has been reduced by EGP 1.2 billion, standing at EGP 2.8 billion at the end of the first nine months of 2006.