Al Ezz Gds Regs Regulatory News (AEZD)

3 May 2006 07:00

Al EZZ Steel Rebars S.A.E.02 May 2006 Translation Al Ezz Steel Rebars Company (An Egyptian Joint Stock Company) Consolidated Financial Statements and Auditor's Report for the year ended 31 December 2005 Translation Auditor's Report To The Shareholders of AL EZZ STEEL REBARS Company "An Egyptian Joint Stock Company" We have audited the consolidated Financial statements of AL EZZ STEEL REBARScompany (An Egyptian Joint Stock Company) representing the consolidated balancesheet as of 31 December 2005, and the related consolidated Statements of Income,changes in shareholders' equity and Cash Flows for the year then ended. Theseconsolidated financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit. We did not audit the financial statements of AL EZZ Steel Mills company - thesubsidiary -, which statements reflect total assets constituting 9 % and totalrevenues constituting 25 % of the related consolidated totals. Those statementswere audited by another auditor whose report has been furnished to us, and ouropinion, insofar as it relates to the amounts included for AL EZZ Steel Millscompany is based solely on the report of the other auditor. We conducted our audit in accordance with Egyptian Auditing Standards. Thosestandards 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 test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statements presentation.We have obtained from management the information and explanation, which wedeemed necessary for our audit. We believe that our audit provides a reasonablebasis for our opinion. In our opinion, the consolidated financial statements referred to above togetherwith the notes attached thereto present fairly, in all material respects, thefinancial position of the company as of 31 December 2005, and the results of itsoperations, changes in shareholders' equity and its consolidated cash flow forthe year then ended in conformity with Egyptian Accounting Standards and complywith applicable Egyptian laws and regulations. The company keeps proper accounting records which include all that is requiredby law and the statutes of the company, and the financial statements are inagreement therewith. The company also maintains proper cost accounting sheetsthat meet the purposes thereof. The inventory count was performed by theCompany's management in accordance with methods in practice. (KPMG Hazem Hassan) Cairo, 7 March 2006 Translation ------------- Al Ezz Steel Rebars Company ----------------------------- (An Egyptian Joint Stock Company) ----------------------------------- Consolidated Balance Sheet ---------------------------- As of 31 December 2005 ------------------------ Notes 31/12/2005 31/12/2004 ------- ------------ ------------ No. LE LE ----- ---- ----Long Term Assets------------------Fixed assets (net) (3-2),(3) 912 399 418 974 776 190Projects in progress (4-2),(4) 743 189 743 189Investments in associates (5-2),(5) 944 071 485 800 132 833Investments available for sale (6-2),(6) 66 700 66 700Other assets (7-2) 1 018 512 2 116 838 ---------- ----------Total long term assets 1 858 299 304 1 777 835 750 ---------- ----------Current Assets----------------Inventory (8-2),(7) 454 199 169 153 274 595Accounts and notes receivable (net) (9-2),(8) 187 211 238 93 211 694Accrued from related parties (16-2),(1-19) 52 218 554 28 009 042Suppliers - debit balances (net) 101 629 131 96 784 283Debtors and other debit balances (net) (9) 40 886 456 28 065 344Cash at banks and on hand (10) 19 986 432 74 516 742 ---------- ----------Total current assets 856 130 980 473 861 700 ---------- ----------Current Liabilities---------------------Banks - credit balances 11 128 666 4 066 344Banks- credit facilities (13) 338 802 156 202 380 959Suppliers and notes payable (10-2),(14) 102 942 531 125 137 800Accrued for related parties (16-2),(2-19) 8 567 159 65 114Creditors and other credit balances (10-2),(15) 174 369 246 156 777 858Bonds loan (21-2),(16) 194 752 688 -Loan installments due within one year (19-2),(17) 136 063 766 132 739 106 ---------- ----------Total current liabilities 966 626 212 621 167 181 ---------- ----------Working capital /(deficit) (110 495 232) (147 305 481) ---------- ----------Total investment 1 747 804 072 1 630 530 269 ========== ==========Financed as follows:Shareholders' Equity----------------------Paid in capital (21) 430 000 000 430 000 000Reserves (18-2) 18 597 606 8 575 203Retained earnings/(Losses) carried over 35 520 742 (155 256 689) ---------- ----------Total shareholders' equity 484 118 348 283 318 514Less : Treasury stocks (22) (35 883 741) ( 35 883 741)------------------------ ---------- ----------Net shareholders' equity 448 234 607 247 434 773Net profit for the year 450 340 983 200 448 051 ---------- ----------Net shareholders' equity including net profit for the year 898 575 590 447 882 824 ---------- ----------Minority interest 1 640 510 479 678 ---------- ---------- Long Term Liabilities-----------------------Long term loans (19-2),(17) 816 993 646 968 603 018Bonds loan (21-2),(16) - 206 149 843Other long term liabilities (18) 1 779 701 7 414 906 ---------- ----------Total long term liabilities 818 773 347 1 182 167 767 ---------- ----------Deffered tax liabilities (17-2),(20) 28 814 625 - ---------- ----------Total shareholders' equity andlong term liabilities 1 747 804 072 1 630 530 269 ========== ========== The accompanying notes from No. (1) to No. (30) are an integral part of thesefinancial statements and should be read therewith. Chairman Eng. Ahmed Abdel Aziz Ezz Translation -------------- Al Ezz Steel Rebars Company ----------------------------- (An Egyptian Joint Stock Company) ----------------------------------- Consolidated Income Statement ------------------------------- For the yead ended 31 December 2005 ------------------------------------- Notes 2005 2004 ------- ------ ------ No. LE LE ----- ---- ---- Net sales (2-11) 3 123 165 443 2 230 491 195 (23)Less :--------Cost of sales 2 915 620 818 1 985 120 360 ---------- ----------Gross profit 207 544 625 245 370 835 (Less)/ Add :---------------General and administrativeexpenses (30 366 214) (31 923 284)Administrative depreciation (839 631) (1 843 641)Amortization of other long term assets (1 098 326) (1 662 337)Interest and financing charges (2-12) (226 985 902) (227 000 847)Provisions (12) (5 000 000) (19 345 614)Investments income (2-11) 497 565 145 269 136 279Revenue from sale of investments - 9 538 376Interest income 166 222 956 233Other revenues 8 527 035 4 607 428Capital gain 33 002 38 220Foreign currency exchangedifferences gains/ (losses) 30 734 542 (47 127 504) ---------- ----------Net profit for the yearbefore minority interest 480 280 498 200 744 144Deferred taxes (28 814 625) - ---------- ---------- 451 465 873 200 744 144Less:-------Minority interest (1 124 890) ( 296 093) ---------- ----------Net profit for the periodafter minority interest 450 340 983 200 448 051 ========== ==========Earning per share (27) 5,44 2,44 ========== ========== The accompanying notes from No. (1) to No. (30) are an integral part of thesefinancial statements and should be read therewith. Translation ------------- Al Ezz Steel Rebars Company ----------------------------- (An Egyptian Joint Stock Company) ----------------------------------- Consolidated Cash Flow Statement ----------------------------------- For the year ended 31 December 2005 ------------------------------------- Notes 2005 2004 ------- ------ ------ No. LE LE ----- ---- ----Cash Flows From Operating Activities :------------------------------------------ Net profit for the year afterminority interest 450 340 983 200 448 051Adjustments to reconcile net profit to----------------------------------------- net cash provided by operating activities------------------------------------------- Adjustments of non cash items------------------------------- Depreciation of fixed assets 72 332 503 69 288 747Amortization of other assets 1 098 326 1 662 337Losses on sale of investments - (9 538 376)Investments income (497 565 145) (269 136 279)Deferred taxes 28 814 625 -Capital gains (33 002) (38 220)Fixed assets impairment - 4 061 903Changes in minority interest 1 160 832 296 093Foreign currency exchangedifferences (28) (29 462 430) (3 910 116)Retained earnings adjustments 351 783 -Amortization of bonds issuancediscount 347 524 370 523Provisions 5 000 000 19 345 614 ---------- ---------- 32 385 999 12 850 277Changes in working capital---------------------------- (Increase) in inventory (300 924 574) (24 723 937)(Increase)/decrease in accounts andnotes receivable (93 999 544) 86 924 976(Increase) in suppliers - debit balances (9 844 848) (2 140 660)(Increase)/decrease in accrued from related parties (24 209 512) 8 230 509(Increase) in debtors and other debit balances (12 821 112) (258 125)(Decrease)/increase in suppliers and notes payable (22 195 269) 17 002 335Increase in Accrued for related parties 8 502 045 65 114Increase in creditors and other credit balances (28) 20 431 237 20 571 968 ---------- ----------Net cash(used in) / provided by operating activities (402 675 578) 118 522 457 ---------- ----------Cash Flows from Investing Activities-------------------------------------- Proceeds from selling of fixed assets 358 005 38 220Payments for purchase of fixed assets (10 280 732) (5 359 007)Payments for purchase of investement (46 040 000) -Proceeds from Investments income 399 666 495 114 192 480Payments for fixed assets creditors (28) (1 311 365) (367 918)Payments of sales tax installmentson machinery and equipments (6 602 679) (7 412 236) ---------- ----------Net cash provided by investing activities 335 789 724 101 091 539 ---------- ----------Cash Flows from Financing Activities-------------------------------------- Increase/(decrease) in credit facilities 136 435 938 (100 991 985)Payments of loans (28) (131 127 978) (81 668 175)Payments for bondholders - (514 286) ---------- ----------Net cash provided by/ (used in) financing activities 5 307 960 (183 174 446) ---------- ----------Net (decrease)/increase in cash and cash equivalents (61 577 894) 36 439 550Cash and cash equivalents at the beginning of the year 68 460 644 32 021 094 ---------- ----------Cash and cash equivalents at the end of the year (14-2) 6 882 750 68 460 644 (11) ========== ========== The accompanying notes from No. (1) to No. (30) are an integral part of these financialstatements and should be read therewith. Al Ezz Steel Rebars Company ----------------------------- (An Egyptian Joint Stock Company) ----------------------------------- Consolidated Statement Of Changes In Shareholders' Equity ----------------------------------------------------------- For the year ended 31 December 2005 ------------------------------------- Share Reserves Retained Treasury Net profit for ------- ---------- ---------- ---------- ----------------- Capital Earnings/(Losses) Stocks the Year Total --------- ------------------- -------- ----------- ------- Carried over -------------- --- LE LE LE LE LE LE ---- ---- ---- ---- ---- ---- Balance as of 31/12/1999 430 000 000 1 830 683 34 782 983 (41 377 539) 119 175 562 425 236 127Adjustment to R/ E opening balance by the increase in 1999 depriciation for the capitalized currency differences - - (2 276 517) - - (2 276 517) Dividends adjustment - - - - ( 743 986) --------- -------- ----------- --------- ---------- --------- 430 000 000 1 830 683 32 506 466 (41 377 539) 118 431 576 422 959 610 Year 1999 dividends - - - - (55 900 000) Transferred to legal reserve - 5 921 579 - - (5 921 579) - Transferred to retained earnings - - 56 609 997 - (56 609 997) - Net profit (2000) - - - - 16 458 818 Balance as of 31 Dec. 2001 430 000 000 8 575 203 104 752 340 (41 377 539) (40 288 617) 501 950 004 Decreasing retained earnings by net (loss) of 2001 - - (40 288 617) - 40 288 617 - Net (loss) 2002 - - - - (124 918 363) Balance as of 31 December 2003 430 000 000 8 575 203 (101 011 224) (41 377 539) (51 213 291) 244 973 149 Adjusting (losses) carried over by net (losses) of 2003 - - (51 213 291) - 51 213 291 - Treasury stocks sold - - (3 032 174) 5 493 798 - 2 461 624 Net profit for the year - - - - 200 448 051 200 448 051 --------- -------- ----------- --------- ---------- --------- Balance as of 31 December 2004 430 000 000 8 575 203 (155 256 689) (35 883 741) 200 448 051 447 882 824 Adjusting(losses) carried over by adversing over-accrued expenses for Al-Ezz Steel Mills - - 351 783 - - 351 783 --------- -------- ----------- --------- ---------- --------- Adjusted balance 430 000 000 8 575 203 (154 904 906) (35 883 741) 200 448 051 448 234 607 Transferred to legal reserve - 10 022 403 - - (10 022 403) - Adjusting (losses) carried over by net profit of 2004 - - 190 425 648 - (190 425 648) - Net profit for the year - - - - 450 340 983 450 340 983 --------- -------- ----------- --------- ---------- --------- Balance as of 31 December 2005 430 000 000 18 597 606 35 520 742 (35 883 741) 450 340 983 898 575 590 ========= ======== =========== ========= ========== ========= The accompanying notes from No. (1) to No. (30) are an integral part of these financial statements and should be read therewith. Al Ezz Steel Rebars Company ----------------------------- Notes to the consolidated financial statement Translation ----------------------------------------------- ----------- As of 31 December 2005 ------------------------ 3. Fixed assets------------------- Furniture & ----------- Description Buildings & Machinery & Office Tools & ------------- ------------ ------ --------- Land constructions equipment Vehicles equipment appliances Total ---- -------------- ------------ -------- --------- ---------- ----- LE LE LE LE LE LE LE ---- ---- ---- ---- ---- ---- ---- Cost as of 1 January 2005 26 886 190 180 374 543 1 225 832 061 7 793 051 22 661 324 4 569 507 1 468 116 676 Additions during the year - - 9 589 140 78 940 495 256 117 396 10 280 732 Disposals during the year - - ( 439 503) - ( 115 720) - ( 555 223) --------- ---------- ---------- ---------- --------- --------- --------- --------- Cost as of 31 December 2005 26 886 190 180 374 543 1 234 981 698 7 871 991 23 040 860 4 686 903 1 477 842 185 --------- ---------- ---------- ---------- --------- --------- --------- --------- Accumulated depreciation as of 1 January 2005 - 33 354 978 431 323 648 7 596 752 17 745 724 3 319 385 493 340 487 Depreciation for the year - 4 407 851 65 456 569 117 057 1 958 668 392 358 72 332 503 Accumulated depreciation of disposals - - ( 114 503) - ( 115 720) - ( 230 223) --------- ---------- ---------- ---------- --------- --------- --------- --------- Accumulated depreciation as of 31 December 2005 - 37 762 829 496 665 714 7 713 809 19 588 672 3 711 743 565 442 767 --------- ---------- ---------- ---------- --------- --------- --------- --------- Net book value as of 31 December 2005 26 886 190 142 611 714 738 315 984 158 182 3 452 188 975 160 912 399 418 ========= ========== ========== ========== ========= ========= ========= ========= Net book value as of 31 December 2004 26 886 190 147 019 565 794 508 414 196 299 4 915 600 1 250 122 974 776 190 ========= ========== ========== ========== ========= ========= ========= ========= The company acquired its land by virtue of a temporary handing over report. The procedures of registering the land in the company's name, according to the conditions of the new Urban Cities- Sadat, are still in progress. Al Ezz Steel Rebars Company ----------------------------- Notes To The Consolidated Financial Statements ------------------------------------------------ As of 31 December 2005 17-Loans The company with its subsidiary were granted loans from a number of local banks. The total amount of loans classified in consolidated financial statements as of 31 Decmber 2005 as long and short term liabilities are as follows::- Borrowing Loans purpose Interest Payment Term Date Total Long term Short term Collateralcompany rate LE LE LE Al Ezz Steel Rebars Co Loans - local Finance part of 12% 30 Quarterly 31 March 639 569 220 551 581 220 87 988 000 Real currency the importing installments 2004 estate cost of until 30 mortgage machinery, June 2011 on the equipment, and company's the land and Loans - foreign construction 1% Over 30 Quarterly 31 March 192 276 094 164 634 828 27 641 266 buildings currency work on the the installments 2004 as well as production lending until 30 a lines in interest June 2011 commercial addition to rate of pledge on financing part the all of its National tangible investment bank of and Egypt intangible assets. Al Ezz Steel Mills Loans - local 12% 30 Quarterly 31 March 56 035 008 46 535 008 9 500 000 First currency installments 2004 degree until 30 mortgage June 2011 on the Loans - foreign 1% Over 30 Quarterly 31 March 65 177 090 54 242 590 10 934 500 land, currency the installments 2004 buildings, lending until 30 machinery interest June 2011 and rate of equipments the in favor National of the bank of bank. Egypt Balance as of 31 December 2005 953 057 412 816 993 646 136 063 766 Balance as of 31 December 2004 1 101 342 124 968 603 018 132 739 106 Translation Al Ezz Steel Rebars Company (An Egyptian Joint Stock Company) Notes To The Consolidated Financial Statements As of 31 December 2005 1. General 1.1 Company's background - Al Ezz Steel Rebars Company, an Egyptian Joint Stock Company, wasestablished under the provisions of Law No. 159 of 1981, and was registered in the Commercial Register in Menofia Governorate, under No. 472 on 2 April1994. The Company is located in Sadat City. The preliminary establishmentcontract and the Company's statute were published in the Companies's Gazette, issue No. 231 of April 1994. - The Company is established for the purpose of manufacturing, trading,distributing building materials, manufacturing all kind of steel, manufacturingceramics, sanitary ware, pipes, water mixers and taps, as well as performingrelated contracting works and all necessary services as preparation andtransportation for the Company and for others. The Company also engages in theimportation of raw material, machinery & equipment, spare parts, which arerequired for the Company's purpose. Moreover, the Company can perform importing,exporting and commercial agency activities within the scope of its purpose. - Al Ezz Steel Mills Company, an Egyptian Joint Stock Company was establishedon 10 March 1986 under Law No. 43 of 1974, which was amended by Law No. 230 of1989- and Law No. 95 of 1992 and its executive regulation. The Company wasregistered in the Commercial Register in Giza under No. 77038 on 28 November1987. The purpose of the Company is to manufacture steel structure, rolls andbars. 2. Significant accounting policies 2.1 Basis for preparing consolidated financial statements - The consolidated financial statements are prepared in accordance with theEgyptian Accounting Standards and relevant Egyptian laws and regulations underthe historical cost convention. - Consolidated financial statements of the Company include the financialstatements of Al Ezz Steel Rebars Company and its subsidiary Company Al EzzSteel Mills Company - All inter Company balances and transactions were eliminated. - Consolidated balance sheet includes minority interest which represent minorityshare in net assets of the subsidiary Company- Al Ezz Steel Mills amounts to(9.27%) - which is included in a separate line item in the consolidatedfinancial statements. Minority share in profit and losses of the subsidiaryCompany is included in a separate line item in the income statement. - The difference between the acquisition cost of buying the shares of Al EzzSteel Mills Company by Al Ezz Steel Rebars Company and the book value of theseshares, which amounts to LE 955 912 is disclosed in Accounts receivable writedown item, which the parent Company found it important to be formed at purchase. - The effect of the capitalization of foreign currency exchange differencesmounted on the fixed assets item was eliminated from the financial statements ofAl Ezz Steel Mills Company for the purpose of preparing the consolidatedfinancial statements as shown in note no (3-1) . 2.2 Foreign currency translation - The Company maintains its books of accounts in Egyptian pounds. Transactionsdenominated in foreign currencies are recorded at the prevailing exchange ratesat the date of transactions. At balance sheet date, balances of monetary assetsand liabilities denominated in foreign currencies are retranslated at theprevailing exchange rates at that date thereof. The exchange differencesresulting from the value of transactions carried during the year and the valueof retranslation at the balance sheet date are recorded in the income statement. - Because of the severe devaluation of the Egyptian pound against otherforeign currencies in the previous years. The Company has applied thealternative allowable treatment according to paragraph (20) of the EgyptianAccounting Standard No. (13) which allows to capitalize foreign currency lossesresulting from a recent acquisition of an asset in foreign currency. Accordinglythe Company capitalized foreign exchange differences which amounts to LE 299.04million during the years 2000 to 2003 which represents revaluation differencesof the liabilities granted in foreign currencies on fixed assets with remaininguseful life greater than 50% of the estimated useful life and which is financedusing these liabilities. 2.3 Fixed assets and depreciation Fixed assets are stated at historical cost less accumulated depreciation andaccumulated impairment losses, as shown in note no.(3 ). Depreciation is charged to the income statement on straight-line basis over theestimated useful lives of assets. The estimated useful life for each item are asfollows: Al Ezz Steel Al Ezz Steel Rebars Mills --------------------- ------------------ Years Years ------- ------- - Buildings and constructions 40 40 - Other buildings 8 - - Central air conditioning and fixtures 8 - - Machinery and equipment 5-20 20 - Vehicles 4-5 5 - Furniture and office equipment 3-8 5 - Tools and appliances 5 5 - Rolling rings Actual use 5.5 2.4 Construction work in progress Costs relating to the acquisition and construction of fixed assetsare initially recorded in this caption. When the asset is completed and becomesready for use, it is transferred to fixed assets caption, construction work inprogress are recognized at cost further more no depreciation is handled forthose assets until it is transferred to fixed assets. 2.5 Investments in Associates - Investments in which the Company's interest exceeds 20%, and hassignificant influence over the investee's financial policies are recorded usingthe equity method. The investment is recorded at cost at the date ofacquisition. The investment balance is then amended by the Company's share innet assets of the associated companies. In case there is any indication ofimpairment in the investments redeemable value against the investment carryingamount. Impairment losses are recognized in the income statement resulting in adecrease in the investments carrying amount per each investment with suchlosses. Increase in the cost at the date of acquisition over the net book value isamortized over five years and this increase is included in cost of investments. Furthermore, the Company's share in profit and losses of the associates isrecognized in the income statement based on the recent approved financialstatements for those associates. - Investments in other companies in which the Company's interest is lessthan 20%, are recorded at acquisition cost. Revenue related to those investmentsare recognized using the cost method limited to the dividends declared for thoseinvestments after acquisition commencing from issuance of approved dividendsdeclaration resolution by investee's general assemblies. If the investmentredeemable value falls below its book value, the book value of such aninvestment is reduced by the value of the decline and is charged to the incomestatement. 2-6 Investments available for sale Investments available for sale are recorded at cost of acquisition, and arevalued as follows:- - Investments available for sale listed in the stock exchange are valued ateach financial position date at cost or fair value (market value) whichever islower. - Investments available for sale not listed in the Stock exchange are valuedat each financial position date at cost or calculated value- based on anobjective study for the recent approved financial statements of companiesissuing those securities- whichever is lower. The income statement is charged bythe value of decline of either market value or calculated value against carryingamount. 2-7 Other assets Other assets are carried at cost, less accumulated depreciation, less any recognized impairment loss. Other assets represent fixtures and improvements inleasehold occupied by the Company. These assets are depreciated using either thelease term or assets useful lives whichever is lower. 2.8 Inventory Inventories are valued at cost or net realizable value whichever is lower, costis determined as follows: Al Ezz Steel Rebars - Raw materials: is valued at its cost up to bringing them to warehouses,using the first in first out method . - Spare parts, materials, and supplies: are valued at cost up to bringingthem to warehouses, using the moving average method. - Work in process (Billet): according to the actual manufacturing costwhich includes direct materials and labor cost in addition to share of indirectmanufacturing cost incurred until the last production stage reached. - Finished products: are valued at cost according to the cost sheets. Al Ezz Steel Mills - Raw materials, spare parts and supplies: are valued at its cost up tobringing them to warehouses, using the moving average method. - Finished products: are valued at cost according to the cost sheets. 2.9 Accounts receivable, notes receivable, debtors and other debitbalances Accounts receivable, notes receivable, debtors and other debit balances arestated at their nominal value and are reduced by impairment loss resulting fromCompany's anticipation of non collectable balances. 2.10 Accounts payable and creditors and other credit balances Commercial creditors are stated at nominal value, while accruals are stated attheir future value that will be paid against commodities and services that hadbeen already received. 2.11 Revenue recognition Revenue is recognized as follows: - Sales are recognized when the client receives goods together with itsrelated risks and benefits and issuance of invoices to clients. - Interest income are stated on accrual basis. - Investments income for investments are as follows:- * Investments revenue from associates and available for sale securities (using the cost method) is limited to dividends declared for those investments which are recognized after the date of acquisition. 2.12 Borrowing costs Borrowing costs are charged directly to the income statement and are classifiedwithin interest and financing charges item. 2.13 Provisions Provisions are recognized when the Company has a legal or constructiveobligation as a result of a past event, it is probable that an outflow ofeconomic benefits will be required to settle the obligation and the obligationcan be reasonably estimated. If the effect of time value of money is material,provisions are determined by discounting the expected future cash flows usingdiscounting rate- before tax- in order to consider that effect. Provisions arereviewed at the balance sheet date and amended (when necessary) to reflect thebest current estimate. 2.14 Cash flow statement The statement of cash flow is prepared using the indirect method, for thepurpose of preparing the cash flow statement; the Company identifies the cashand cash equivalent items as represented in cash on hand, checks undercollection, banks current account, time deposits with original maturities ofthree months or less, overdraft that are repayable on demand and form anintegral part of the Company's cash management. 2.15 Impairment of assets The carrying amounts of the Company's assets, (other than inventories), arereviewed at each balance sheet date. If there is any indication of a decline inthe net realizable value of these assets from their book value, the value ofthese assets is reduced to the net realizable value and the resulting amountreduced is charged to the income statement. In the next years the fixed assetsannual depreciation expense is calculated using the modified value at thebalance sheet date, the Company determines whether there is an indication ofdeclining in losses resulting from the impairment of assets from previous yearsand in case that such indications exist the impairment is revaluated and theamount previously reduced is added up as long as the book value of these assetsdid not exceed the original net book value before recognizing impairment losses. 2.16 Related parties transaction Related parties transaction which are carried out in the ordinary course ofbusiness are based on arm-length transaction stated by stipulations made by theboard of directors. 2.17 Deferred Tax Income tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognized in the income statement except to the extent thatit relates to items recognized directly in equity, in which case it isrecognized in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Theamount of deferred tax provided is based on the expected manner of realisationor settlement of the carrying amount of assets and liabilities, using tax ratesenacted or substantively enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. 2.18 Reserves Legal reserve: pursuant to the Company's article of incorporation at least 5% ofnet profit should be appropriated to form legal reserve, the Company will stopappropriation once the legal reserve balance reaches 50% of the Company issuedcapital, in case reserve balance is less than stated percentage, appropriationwill continue. Legal reserve: is used in virtue of general assembly resolution based on boardof directors recommendations in whatever benefit the Company in it's ordinarycourse of business. Other reserves: general assembly could forms other reserves based on Company'sboard of directors recommendation. 2.19 Interest bearing borrowing Interest- bearing borrowings are recognized initially at the proceeds receivedand the amounts that accrued within a year are classified as currentliabilities, unless the Company preserve the right to postponed the payment ofthe loans balances for period that exceeds 12 months after the balance sheetdate therefore the loan balance will be classified as long term liability. 2.20 Expenses All operating expenses including general and administration expense arerecognized and charged to the income statement in the period that the expense isincurred. 2.21 Bonds loan Bonds loan related to Al Ezz Steel Rebars Company is recorded at the face valueof the bonds after deducting the unamortized discount. The discount is amortizedusing the straight line method over the life of the bonds. 3.1 Capitalization of foreign currency exchange differences 3.1.A Al Ezz Steel Rebars The fixed assets include capitalized foreign exchange differences according tothe alternative allowable treatment according to paragraph (20) of the EgyptianAccounting Standards No. (13) which allows capitalizing foreign currency lossesresulting from a recent acquisition of an asset in foreign currency. Accordinglythe Company capitalized foreign currency exchange differences which amount to LE299.04 million during the years 2000 to 2003 which represents revaluationdifferences of the liabilities granted in foreign currencies on fixed assets ofremaining useful life greater than 50% of the estimated useful life and which isfinanced using these liabilities. 3.1.B Al Ezz Steel Mills The effect of capitalization of foreign currency exchange differences waseliminated from the financial statements of Al Ezz Steel Mills Company for thepurpose of preparing the consolidated financial statements as of 31 December2005, due to the noncompliance with accounting policy applied for thecapitalization of foreign currency exchange differences followed by Al Ezz SteelMills Company with the policy applied by Al Ezz Steel Rebars Company, asfollows:- Consolidated Elimination of Consolidated balance before capitalized balance elimination exchange after -------------------- differences elimination effect ----------------------- ------------------- LE LE LE ---- ---- ---- Financial position adjustments-------------------------------- - Fixed assets cost as of 31 December 2005 1 516 676 278 (38 834 093) 1 477 842 185 - Accumulated depreciation as of (575 789 399) 10 346 632 (565 442 767) 31 December2005 - Retained earnings as of 31 December 2005 (67 862 518) 32 341 776 (35 520 742) Income statement adjustments ------------------------------ - Depreciation of fixed assets 76 186 819 (3 854 316) 72 332 503 4. Projects in progress 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Buildings under construction 743 189 743 189 ---------- --------- 743 189 743 189 ========== ========= 5. Investments in associates Ownership Currency Par value Investment cost ------------- ---------- ----------- ----------------- % 31/12/2005 31/12/2004 ------------ ------------Investments LE LErecorded at --- --- equityAlexandriaNationalSteel 21.48 LE 293 633 700 725 791 005 627 892 355Company (ElDekhela)Investmentsrecorded atcostAl Ezz FlatSteel 18.78 USD 50 700 000 218 280 480 172 240 478Company ---------- ---------- 944 071 485 800 132 833 ========== ========== - The Company's share in the net equity of the non-traded companies in thesecurities exchange market is LE 306.684 million according to their latestfinancial statements, or data available, while the total value of traded shares,which have exchange prices in the securities exchange market on 31 December 2005is LE 3 870.797 million. - Applying the equity method for recording investments, as shown above, theCompany's share in the results of the investees operations amounting toLE 497 565 150 is recognized in the investments balance. - On 25 August 2003, the company buys 80 570 shares from Al Ezz Holdingcompany for industry and investment (Al Ezz Group) through a preliminarypurchase contract dated 25 August 2003, according to that the total shares of AlDekhela capital owned by the company become 2 936 337 shares representing 21.48%which require changing the policy of recording the investment from the costmethod to owners equity method during 2003. - According to the contract dated 29 December 2005 Al Ezz Flat Steel MillsCompany has purchased 800 000 (eight hundred thousand) share with a par value of10 Dollars per share which was owned by Al Ezz for Ceramic & Porcelain (GEMMA)Company in the capital of Al Ezz Flat Steel Mills Company. According the totalshares owned by the Company amounts to 5.070 million share that represents18.78% against 15.82% as at 31 December 2004. Alexandria National Steel Company (El Dekhela) Description LE LE ------------- --- --- ---- ----Investment balance at the beginning of January 2005 627 892 355 Included in the income statement Add: Company's share in profit for the year 510 430 295 Less: ------- Amortization of the increase in the investment acquisition value over its book value at the date of acquisition 532 536 ----------- 509 897 759Investment adjustment by the change in equity ( the investee Company) that is not included in the income statement--------------------------------------------------- Less: Proceeds from profit distribution during the year 399 666 495The Company's share in the approved profit share to employees and for the Board of Directors bonus byvirtue of the assembly meeting dated 25 August 2005 12 332 614 ========== Investment balance as of 31 December 2005 725 791 005 ========== 6. Investments available for sale Ownership Currency Par value Investment cost ----------- ---------- ----------- ----------------- % 31/12/2005 31/12/2004 --- --- --- ------------ --- ------------ LE LE --- ---TheEgyptianCompany for 25.65 LE 66 700 66 700 66 700Cleaning & --------- ----------SecurityServices 66 700 66 700 ========= ========== 7. Inventory 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Raw materials 137 978 622 37 105 814 - Work in process (billet) 9 715 498 2 411 359 - Finished products 169 036 438 30 751 676 - Spare parts and supplies 85 980 432 79 099 186 - Goods in transit 18 734 798 1 333 145 - Letters of credit for raw material purchase 32 753 381 2 573 415 ---------- ---------- 454 199 169 153 274 595 ========== ========== 8. Accounts and notes receivable (net) 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Accounts receivable 72 289 271 70 809 865 - Notes receivable 152 398 075 59 877 937 ---------- ---------- 224 687 346 130 687 802 Less ------ - Provision for accounts and notes receivable (37 476 108) (37 476 108) ---------- ---------- 187 211 238 93 211 694 ========== ========== 9. Debtors and other debit balances 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Tax Authority - Withholding Tax 15 552 054 11 388 066 - Sales Tax Authority 10 909 652 - - Prepaid expenses 2 046 206 1 214 343 - Letters of guarantee cash margins - 1 233 637 - Deposits with others 7 679 994 7 146 060 - Other debit balances 4 785 545 7 170 233 ---------- ---------- 40 973 451 28 152 339Less :-------- - Provision for debtors and other debit balances (86 995) (86 995) ---------- ---------- 40 886 456 28 065 344 ========== ========== 10. Cash at banks and on hand 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Deposits 1 975 000 1 975 000 - Banks - current accounts 6 594 146 41 018 992 - Cheques under collection 8 713 277 28 888 247 - Cash on hand 2 704 009 2 634 503 ---------- ---------- 19 986 432 74 516 742 ========== ========== 11. Cash and cash equivalent for cash flow purposes 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Banks - current accounts 6 594 146 41 018 992 - Cheques under collection 8 713 277 28 888 247 - Cash on hand 2 704 009 2 634 503 ---------- ---------- 18 011 432 72 541 742Less:-------Banks- credit balances 11 128 682 4 081 098 ---------- ---------- 6 882 750 68 460 644 ========== ========== 12. Provisions Balance as at Formed during Balance as at the year 31/12/2005 ------------------- ------------------ 1/1/2005 --- --- LE LE LE --- ---- ---- ---- Provision represented as contra accounts of their related assets:------------------------------------- - Decrease in accounts & notes 37 476 108 - 37 476 108 receivables - Decrease in debtors & other 86 995 - 86 995 debit balances - Advance payments to suppliers 4 266 679 5 000 000 9 266 679 ----------- ----------- ---------- 41 829 782 5 000 000 46 829 782 =========== =========== ========== 13. Banks - credit balances This item represents the amount of credit facilities - banks overdraft -obtained from a group of banks which the Company deals with in Egyptian poundand US dollars, with average interest rate amounts to 15 % for the Egyptianpound approximately and 6 % for the US Dollars approximately, balances areclassified within the current liabilities caption which amounts to LE 338 802156 as of 31/12/2005 against LE 202 380 959 as of 31/12/2004. 14. Suppliers and notes payable 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Suppliers 65 281 368 51 890 627 - Notes payable 37 661 163 73 247 173 ----------- --------- 102 942 531 125 137 800 =========== ========= 15. Creditors and other credit balances 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Salaries & wages tax/ mobile capital tax 12 121 942 13 115 406 - Sales tax installments (note 18) 5 467 375 6 434 849 - Accrued interest 3 146 208 5 909 434 - Accrued expenses 15 885 180 3 626 985 - Sales Tax Authority - 1 028 698 - Fixed assets creditors 9 290 977 11 163 352 - Dividends payable (board of directors & employees) 1 107 083 1 107 083 - Dividends payable 660 705 660 705 - Social Insurance Authority 343 417 199 355 - Tax authority - Withholding Tax 1 264 851 6 876 318 - Other credit balances 125 081 508 106 655 673 ----------- --------- 174 369 246 156 777 858 =========== ========= 16. Bonds loan The Extraordinary General Assembly Meeting held on 11 November 1999 decided toissue convertible bonds with a maturity period of four years, and having secondpriority for repayment after the medium and long term loans, which can be tradedor transferred into stocks amounting to USD 86.017 million of which USD 59million were underwritten in a non public offering and the rest through a publicoffering. These bonds were issued at a face value of USD 1,000 each, and issuedat a discount of 9.025%, in addition to bond issuance cost of USD 0.25 per bond,at an annual variable interest rate of 2.9% over libor of the US dollars (forthree months) to be paid every three months. The Company is obligated at the end of the second year from the closing date forthe bonds' subscription to open sinking fund account in favor of thebondholders, where amounts in US dollars are deposited. On 1 June 2003 the bondholder's assembly resolved the following:- *1- The early retirement of bonds amounting to USD 40 million at the due date ofcoupon no. (15) On 12 October 2003. *2- The maturity date of the remaining bonds amounting to USD 34.136 million -after the early retirement - is 31 December 2006. 3- Canceling the condition of forming the sinking fund account for the remainingbonds. 4- The rest of the bonds issuance conditions remain without amendment. * The early retirement of bonds includes USD 179 000, the value of 179 bonds in favor of Al Ezz Steel Mills Company. The remaining bonds include USD 152 000, the value of 152 bonds in favor of Al Ezz Steel Mills Company, and for the purpose of the consolidation, this transaction was eliminated. In addition, the Company settled 84 bonds with total amount of USD 84 000 duringthe financial year ended 31 December 2004. These bonds represent therounding up of the amount paid for the early retirement. Accordingly, the number of bonds (after excluding the bonds of Al Ezz SteelMills Company) outstanding as of 31 December 2005 amounts to 33 900 bonds with atotal value of USD 33.900 million. The balance of the bonds loan outstanding at 31 December 2005 comprises thefollowing: LE ---- - Bonds par value 195 094 500 Less: ------- - Unamortized bond discount (341 812) ---------- Net book value 194 752 688 ========== 18. Other liabilities 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Accrued sales tax installments 1 779 701 7 414 906 ----------- --------- 1 779 701 7 414 906 =========== ========= - The balance is represented in sales tax installments in which the accrued installments during 2006 that amounts to LE 5 467 375 which are classified within "creditors & other credit balances" item in the current liabilities caption (Note No. 15). 19. Related parties transactions The Company is implementing some commercial transactions accordingto terms, which is approved by the board of directors with some related parties- associates - these transactions that occurred during the year are representedin the purchase of raw materials for production amounted to LE 98 933 418 &sales transactions of some products in favor of those companies amounted toLE 220 999 874. In addition to some mutual services which resulted in thefollowing balances: 19.1 Accrued from related parties 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Al Ezz Holding Company 52 218 554 22 842 090 - Al Ezz Flat Steel Mills Company - 556 347 - Al Ezz for Ceramic & Porcelain (GEMMA) - 4 610 605 ----------- --------- 52 218 554 28 009 042 =========== ========= 19.2 Accrued for related parties 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ---- - Al Ezz for Ceramic & Porcelain (GEMMA) 5 853 618 - - Alexandria National Steel Company 2 713 541 65 114(Al Dekhela) ----------- --------- 8 567 159 65 114 =========== ========= 20. Deferred tax assets & liabilities 31/12/2005 ------------ LE Deferred tax Assets Liabilities-------------- -------- --- -------------Fixed assets - (28 814 625) ----------- ---------Net deferred tax (liabilities) - (28 814 625) =========== ========= 21. Share - capital 21.1 Authorized share capital The Company's authorized share capital amounts to LE 2 billion (Two billion Egyptian ponds). 21.2 The issued and paid in capital The issued and paid in capital amounts to LE 430 000 000 ( Four hundred andthirty million Egyptian pounds) divided into 86 million shares (eighty sixmillion shares) each with a par value of LE 5 (Five Egyptian pounds) paid infull. 22. Treasury Stocks According to the Board of Directors resolution dated 25 October1999, the Company purchased 3 765 841 shares of its stock from the SecuritiesExchange Market in Cairo and London. The cost of the purchased shares amountedto LE 41 377 539. The Company contracted to sell these shares to Al Ezz Steel Company(subsidiary Company) on 19 December 2000 for an amount of LE 18 540 171. Thedeal was executed on 31 January 2001 resulting in a loss of LE 22 837 368 whichis deducted from the legal reserve then the retained earnings. On 20 December 2004, it was agreed to sell 500 000 shares from theabove mentioned shares from Al Ezz Steel Mills to Al Ezz Holding Company forIndustry and Investment with a total amount of LE 12 million as of 31 December2004 by virtue of a preliminary contract. It is not registered in the securitiesexchange market up till to date; accordingly: 31 December 2005 ------------------ - The number of shares owned by Al Ezz Steel Mills Company in Al Ezz Steel Rebars Company 3 265 841 shares - The cost of the shares LE 35 883 741 For the purpose of the consolidation this transaction was eliminated. 23. Net sales Represents sales occurred during the year ended as of 31 December 2005 asfollows: 2005 2004 --- ------ ------ LE LE --- ---- ---- Local sales 2 906 882 299 1 997 110 859 Export sales 216 283 144 233 380 336 ------------ ---------- 3 123 165 443 2 230 491 195 ============ ========== 24. Contingent liabilities In addition to the amounts which have been accounted for within thebalance sheet items, there are other contingent liabilities represents theamount of the letters of guarantee which haven't been covered that were issuedby the Company's bank in favor of others contingent liabilities are as follows: 31/12/2005 31/12/2004 ------------ ------------ LE LE ---- ----Letter of guarantee 2 015 464 2 015 464 ----------- --------- 2 015 464 2 015 464 =========== ========= 25. Taxation 25.1 Al Ezz Steel Rebars Corporate tax The Company's profits are subject to corporate income tax according to the lawNo.157 of 1981 (as amended). Since the Company has established its factory inSadat City (one of the new urban communities) and according to the provisions ofLaw No. 59 for 1979 related to development of the new urban communities, theCompany is granted a tax exemption for a period of ten years beginning from 1January 1997 ending 31 December 2006. Sales tax - The Company's products are subject to a 5% sales tax and the Company submitssales tax returns on a timely basis, and the tax authority inspects theCompany's books regularly and there are no tax disputes or outstanding duesuntil 31 December 2004. Payroll tax - The tax authority inspected the Company's books until 31 December 2002 andthere are no amounts due on the Company for this period. - The tax authority is almost finishing inspection for 2003/2004 years. Stamp tax - The tax authority inspected the Company and settlement was made until31 December 2003, inspection lasted till 31 August 2005 but wasn't settled tillcurrent date. 25.2 Al Ezz Steel MillsCorporate tax The Company's profits are subject to corporate income tax. Since the Company hasestablished its factory in the 10th of Ramadan City, the Company is tax exempteduntil 31 December 2003. The tax authority inspected the Company's books andsettlement was made until 2002. Sales tax The Company submits sales tax returns on a timely basis. The tax authorityinspected the Company's books until 2003 and settlement was made, and there areno tax disputes or outstanding dues. Payroll tax The tax authority inspected the Company's books and settlement was made until2002. No tax inspection took place since year 2002. Stamp tax The tax authority inspected the Company's books and settlement was made until2001 and no inspection took place since year 2001. 26. Financial instruments and risk management 26.1 Financial instruments The Company's financial instruments are represented in current accounts, cashbalances, debtors, investments, suppliers, notes receivable, creditors, loans,and banks credit balances. The significant accounting policies applied for the recognition andmeasurement of major financial instruments and the related income and expensesare disclosed in note (3) in the financial statements. * The book value of these financial instruments does not differ that much fromit is accurate value at the balance sheet date. 26.2 Interest rate risk - Interest rate risk represents the change on interest rate in Company'sdebit for the banks which represented in loans and credit facilities whichamounted to LE 1 291 859 586 as of 31/12/2005, LE 1 303 723 083 as of 31/12/2004. - Interest & financing charges related to that debit amounts to LE 174 314 629 during the year, LE 170 080 840 during the previous year, while the deposits balance as of 31/12/2005 amounts to LE 1 975 000, LE 1 975 000 as of 31/12/2004, the credit interest related to this deposits amounts to LE 154 764 during the year LE 809 589 during the previous year, and in order to mitigate this risk, they companies management is trying to obtain the best available term in the banking market related to the credit facilities balance, overdrafts and loans in addition to review interest rate prevailing in the banking market, periodically to decrease the volatility of interest rate risk. 26.3 Credit risk Credit risk is represented in the inability of credit clients to pay theirdues. To mitigate that risk the Company distributes the credit granted to theprivate sector companies and individuals on large number of clients with strongand stable financial position. 26.4 Foreign currency risk The foreign currency exchange risk represents the risk of fluctuation inexchange rates which in turn affects the Company's cash inflows and outflows inforeign currency as well as the value of its foreign currency assets andliabilities. As at the date of the financial position, the Company has foreigncurrency assets and liabilities equivalent to LE 110 043 920 and LE (502 478 133) respectively. The Company's net exposures in foreign currencies at the balances sheet date areas follows: (Short)/Long -------------- US Dollars (67 040 897) Euro 534 499 Swiss frank 913 Sterling pound (8 135) As shown in note (2.2) "Foreign currency translation", the assets andliabilities balances, in foreign currency, shown above were valuated using theprevailing exchange rate at the financial position date. 27. Share's profit (losses) for the year 2005 2004 --- ------ ------ LE LE --- ---- ---- Net profit for the year 450 340 983 200 448 051 Less: ------- Employee's share in earnings 82 734 159 82 275 825 ------------ ---------- Board of director's remuneration 5.44 2.44 ============ ========== The weighted average for number of shares for 2005: 86 000 000 *12/12 = 86 000 000 Less : The weighted average for treasury stock 3 265 841 *12/ 12 = 3 265 841 82 734 159 28. Note related to cash flow statement For the purpose of preparing the cash flows statement , the Company eliminatesthe effect of non - cash transactions that took place during the year, for theconsistency of the cash flows statement with the cash basis requirements onwhich it is prepared , which is shown as follows: Description Creditors and Fixed assets (Credit) Loans Bonds Loan ------------- other credit creditors foreign ------- ------------ balances currency ------------------ exchange differences ---------------- LE LE LE LE LE Change in balance sheet as of 17 591 388 (1 872 375) - (148 284 704) (11 397 170) 31/12/ 2005(Less)/Add non monetary transaction----------------------------------- Amortization of bonds discount - - - - (347 524) Credit foreign exchange differences - 561 010 (29 462 430) 17 156 726 11 744 694 (Less)/Add items included in investing activities----------------------------------- Fixed assets creditors 1 872 375 - - - - Sales tax installments (short term) 967 474 - - - - ---------- ----------- --------- --------- ---------- Change in items as stated in cash flow statement 20 431 237 (1 311 365) (29 462 430) (131 127 978) - ========== =========== ========= ========= ========== 29. Comparative figures Some comparative figures was restated to comply with financial statementspresentation for the current year. 30. Subsequent events According to the contract dated 12 February 2006 the company decided to soldback 80 570 shares of Dekhaila to Al Ezz Holding Company. The board of directors held on 16 February 2006 approved the conversion of 29009bonds from the bonds issued by the company to shares equivalent into 7 542 340shares and to increase the issued capital of the company from LE 430 000 000(only four hundred thirty million Egyptian pounds) to LE 467 711 700 (only fourhundred and sixty seven million and seven hundred and eleven thousand and sevenhundred Egyptian pounds). Subscription in this increase is limited to theconversion of the bonds owned by Al Ezz Holding Company for Industry andInvestment. (Ezz Industry Group). The extraordinary general assembly meeting dated 5 March 2006 decided to: - Increase the company's issued capital by 87 979 534 shares and thisincrease is allowed only for Al Ezz Holding Company for Industry and Investment(Ezz Industry Group) and its subsidiary companies in return to acquisition of 4 016 230 shares (only four million and sixteen thousands and two hundred andthirty shares) from the shares of Al Ezz Dekhela for mills- Alexandria and thatis owned to Al Ezz Holding company for Industry and Investment (Ezz IndustryGroup) and its subsidiary companies according to agreement upon swap coefficientamounted to 21.906 (Only twenty one shares and nine hundred and six from theshare) from the share of Al Ezz Steel Rebars company in return to every share ofAl Ezz- Dekhela mills- Alexandria. - Increase the authorized capital from 2 billion Egyptian pounds to 8billion Egyptian pounds. This information is provided by RNS The company news service from the London Stock Exchange