Telecom Egypt announces Q1 2008 consolidated results

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

Highlights for the period include:

• Total consolidated revenues reached EGP2.4bn

• EBITDA Before Provisions were EGP1.2bn

• EBITDA Margin Before Provisions within management expectations at 51%

•Net Profit after Tax was EGP557m, translating to a net profit margin of 23.3%

• Earnings per share (EPS) were EGP0.33

• Capex related cash-flows within expectations at EGP232m

•Total fixed line subscribers reached 11.3 million, up 3% on the same period in 2007

• Share of the retail ADSL market is 53.8%, with 260 thousand subscribers representing a growth

•Positive contribution from Vodafone Egypt of EGP277m in March 2008, compared to EGP243m in March 2007.

Chairman's statement

Commenting on the company's results for the first quarter of 2008, Akil Beshir, Chairman and CEO of Telecom Egypt, said:

'There is little doubt that the emphasis of our business during the first three months of the year was on expanding wholesale services to capitalize on the growing demand for telecommunication services in the domestic market. Increased promotional activities by the mobile operators have rapidly accelerated the development of the mobile market in Egypt and heightened demand for access to our extensive, highly-modernized network. Total wholesale revenues have increased by 12% compared to the same period in 2007 and now comprise 40% of our total revenue base. This has offset the pressure we have experienced on voice revenues within our retail segment during the period.

'Our business is seasonal and this has a notable bearing on both retail voice traffic, particularly in respect of international calls, and on revenues derived from new connections. For this reason, comparisons with the fourth quarter of 2007 are misleading. Year-on-year comparisons show that, despite market pressures, total sales revenues were recorded at similar levels at EGP2.4bn.

'Discussions with the mobile operators and the NTRA in respect of addressing interconnection rates, that will allow us to compete on a more equal footing with promotions by the domestic mobile operators, are underway and an outcome is expected at the beginning of the third quarter this year.

'As a company, we have always been highly cost conscious and careful to protect margins. We are still on track with an EBITDA margin of 51%, despite the impact of annual salary increases. I view the question of total reward for our committed workforce as business critical as we seek to recruit and retain the highest caliber of telecommunications professional in an increasingly competitive market.

'In the first three months of the year, Net Profit after Tax reached EGP557m - translating to a net profit margin of 23.3%. I regard this as a considerable achievement.

'In Egypt, demand for Internet access and mobile telephony continue to grow, benefiting from robust demographics and a stable spend on telecommunications. Respectively, our investments in this area continue to execute against their strategic and financial objectives. TE Data, our Internet and data services subsidiary, now has a market share of almost 54% and an ADSL subscriber base of 260 thousand subscribers.

'Simultaneously, Vodafone Egypt (VE) now has a closing customer base of 14 million; recording total voice minutes of 22.7 billion. VE's sustained performance contributes directly to our bottom line, resulting in investment income of EGP277m for the first three months of 2008.'

Financial Review

Revenues

Total consolidated operating revenues for the first quarter of 2008 were EGP2.4bn, a similar level to the same period in 2007.

TE's revenue mix has evolved significantly since liberalization, with wholesale revenues now comprising 40% of our total revenue base.

Retail services

Total retail revenues for the quarter were EGP1.4bn compared with EGP1.5bn in the first quarter of 2007.

The decline was attributable to the fall in total voice revenues, from EGP837m in 2007 to EGP709m in 2008, as the short term effects of aggressive pricing campaigns by the mobile operators was felt. This pressure on retail revenues has been offset by the corresponding increase in wholesale revenues as third party operators direct increasing amounts of traffic over TE's state-of-the-art infrastructure as well as growth in Internet and Data services revenue.

Total access revenues, comprising both connections and subscriptions, recorded a minor increase on the first quarter of 2008 at EGP 459 million versus EGP458m. The first quarter of the year is notably slower in new connections. In 2007, more than half of TE's net subscriber additions came in the final quarter.

Revenues from Internet and Data grew substantially over the year, rising from EGP88m to EGP115m - a rise of more than 31%. In particular, TE Data, TE's 95 percent owned subsidiary, continues to grow as it capitalizes on the increased demand for internet access. In the first three months of the year, it added more than 37 thousand subscribers and now boasts a 54% market share of the Retail ADSL market. At the end of the first quarter 2008, in total, TE Data had 259,713 ADSL subscribers - more than double its position in the first quarter of 2007.

Wholesale services

Continued demand from other telecoms operators has again translated into double digit growth in TE's total wholesale revenues component, which rose 12% overall. Total wholesale revenues for the first quarter of 2008 were EGP952m, compared to EGP852m during the same period in 2007.

Total domestic wholesale revenues increased by 26% to EGP264m, as increased traffic from third party operators in Egypt was directed across TE's network. Within this, revenues from infrastructure leasing resulting from operators rose 29% year-on-year.

Total international wholesale revenues grew by 7% from EGP642m in the first quarter of 2007 to EGP688m in the first quarter of 2008. The first quarter, is typically a quieter period for international calls due to seasonality.

EBITDA/EBIT

Consolidated EBITDA before provisions for the first quarter 2008 reached EGP1.2bn, an 11.8% decrease on the same period in 2007 as employee costs rose to accommodate annual salary increases and bonuses. EBITDA margin before provisions for the first quarter of 2008 was 50.7%.

Meanwhile, EBIT for the first quarter of 2008 reached EGP743m a decline of 13.7% as increased foreign exchange losses of EGP50m also took effect.

Income from Investments

Total income from TE's investments for the period was EGP272m, including income from Vodafone Egypt of EGP277m versus EGP243m for the first quarter of 2007, a rise of 14%.

In full year ended March 20081, Vodafone Egypt continued to execute upon its strategic and financial objectives, increasing revenues by 28% year-on-year to EGP10.4bn. Full year net subscriber additions increased 46% to 4.4 million year-on-year. Total voice minutes for the year increased 60% on those achieved during the full year to 31 March 2007, reaching 22.7 billion.

Net profit

Consolidated Net Profit for the three months to end of March 2008 was EGP557m, a 4.8% decrease compared to 2007. This translates to EPS of EGP0.33.

Investments in infrastructure

Capex related cash flows remained on track during the first quarter, reaching EGP232m a reduction of 13% in comparison with 2007 as TE's fully digitalized state of the art network has capacity to accommodate the rising demand for wholesale services.

Debt

TE's total debt position as of 31 March 2008 was EGP 4.5 billion, compared to EGP5.0bn as at 31 December 2007. This represents a reduction of EGP0.5bn during the first three months of 2008.