Efg-hold.gdr S Regulatory News (EFGD)

15 Aug 2006 17:31

EFG-Hermes Holdings SAE15 August 2006 EFG-Hermes Investor Relations Operating Revenues up 103% to EGP487 million in 1H06 from EGP240 million in 1H05 Net Operating Profit up 118% to EGP340 million from EGP156 million Net Operating Margin up to 70% from 65% Net Income up almost four folds to EGP358 million up from EGP92 million STRATEGIC PLAN - ON TRACK... "To become the leading Investment Bank in the Middle East as measured by profitsand revenue quality, ranking as one of the 10 most profitable FinancialInstitutions in the region" is our mission. Several key events took place duringthe previous quarter to date that were in line with the implementation of ourstrategic plan. 1. EFG-Hermes was granted the Saudi License: The Capital Market Authority of theKingdom of Saudi Arabia granted EFG-Hermes Saudi Arabia a full fledgedinvestment banking license on the 15th of May 2006. The Saudi market is by far, the largest financial market in the regionrepresenting around 70% of Egypt, Levant and GCC region's Investment Banking feewallet (including brokerage and asset management). Through our successfulbusinesses in Egypt and the UAE, we currently address around 16% of the region'sfee wallet and the addition of Saudi Arabia will increase our footprint to over85%. The roll out plan for our operations in the Kingdom is now in the executionphase. We expect a soft launch of our brokerage operations in the Saudi market duringthe last quarter of 2006. However, on the investment banking side, our team hasalready managed to land two large M&A mandates. 2. Organizational Restructure: In a step to support our regional expansions andmaintain a tight grip over operations, EFG-Hermes has undertaken the followingorganizational restructure: i) Saudi Operation: Ramsay Zaki, EFG-Hermes Holding's CFO,was relocated to Saudi Arabia to lead the establishment of our newest operation.His focus is to build the core infrastructure and oversee the early stages ofthe operation. Ramsay's appointment to this role underlines the importance weplace on this new operation which we believe will be a significant revenuegenerator for us in the future. ii) UAE Operation: Hassan Heikal, EFG-Hermes Holding'sCo-Chairman & CEO will assume the role of Acting CEO for UAE and will dedicatemore of his time to assist the team in building the business further. iii) Support Functions: Shayne Elliott was recently appointed asthe Chief Operating Officer of the group allowing EFG-Hermes to streamline thesupport functions. Audit and Compliance, Legal, Human Resources, Marketing,Technology, Investor Relations and Risk Unit will all be centralized under theCOO office. 3. New Services: The call center is a new service that is introduced by ourbrokerage divisions both in Egypt and the UAE and soon in Saudi Arabia, whilethe online trading is a service that is introduced in the UAE and soon to belaunched in Egypt and Saudi Arabia. These two services will support our effortsin maintaining and even expanding our brokerage market share by facilitatingaccess to retail investors without stretching our human resources and at thesame time by allowing us to offer a higher quality service to our retailclients. i) UAE: The call center was introduced early this year to ourclients in UAE, while online trading was soft launched in June. Around 7% of ourtrading volumes are currently executed online and the number is expected to growfurther as soon as we launch our marketing campaign for the service. ii) Egypt: The call center was introduced during the thirdquarter through an intense marketing campaign and the service proved to be agreat success with number of calls mounting on a daily basis. Online trading isready for soft launch pending the finalization of the license which should takeplace within the coming few weeks. Our client base is mainly comprised ofcorporate accounts and retail investors are not a major contributor to our dailytrading activity. The online trading and call center are retail-focused servicesand will massively support our efforts to further penetrate the retail investorsmarket which comprises more than 70% of the daily trading volumes, thusincreasing our brokerage market share. It is worth mentioning that theintroduction of the call center in Egypt came at a minimal marginal cost sincewe used the same technology that was already used by our UAE brokerage arm inaddition to the availability of human resources at a relatively cheap cost. BUSINESS HIGHLIGHTS Abraaj Capital Offers to Inject USD500 million Fresh Funds in EFG-Hermes Abraaj Capital is a premiere investment firm that specializes in private equityinvestments in the Middle East, North Africa and South Asia region with AssetsUnder Management exceeding USD1.5 billion. Abraaj offered to inject EGP2.9billion through subscribing to a capital increase in EFG-Hermes Holding byissuing an additional 97,074,010 ordinary shares at EGP30 per share, to own 25%of EFG-Hermes Holding after the capital increase. The proceeds of this capitalincrease should be mainly invested in our regional expansion initiatives in thefinancial services sector. One of the merits of this investment is having a 25%of the company in the hands of an anchor investor which should offer morestability to our shareholder base by decreasing the free float as a percentageof the total capital. EFG-Hermes Holding's board of directors has approved the offer during itsmeeting that was held on June 29th, 2006. The approval of Abraaj's offer ispending the approval of EFG-Hermes' general assembly and the relevant regulatoryauthorities. Investment in Bank Audi The war on Lebanon has definitely affected our investment in Bank Audi. However,a UN brokered cease fire took effect on Monday, 14th of August 2006. According to Bank Audi's management, out of 78 operational branches only eightwere closed. Domestic conversions from Lebanese Pounds to foreign currencies andthe net transfers of deposits abroad were not large and were containable. Thebank published its first half results where profits surged 91% to USD86 millionup from USD45 million in 1H05. Management also assured that activity progressesas usual in Syria and Jordan. In Egypt the constitution of the management teamwas finalized and quick growth is expected in activities. In Saudi Arabia, workis underway for the launching of activities prior to year-end. In addition,acquisition of the majority of the National Bank of Sudan was finalized,providing the bank with a presence in a high value added market. Theseinitiatives consolidate the bank's regional presence within the context of amore balanced activity between Lebanon and the region. From an economic point of view, JP Morgan has published some views on theeconomic situation in Lebanon of which we quote the following: "Lebanon: Foreign Exchange Risk is Minimal The Central Bank of Lebanon (BDL) has released bi-monthly data showing the lossin reserves since the crisis began at approximately US$1.38 billion, startingfrom a reserve position of US$12.0 billion at the onset of the crisis on July12. Five-year deposits made by the Saudi and Kuwaiti governments at the BDLamounting to US$1.5 billion bring total reserves to US$12.2 billion. These samegovernments also deposited grant funds at the BDL intended for humanitarian andreconstruction efforts, and amounting to US$1.1 billion. Given that such fundstake time to disburse, total foreign exchange reserves at the BDL are currentlyabout US$13.22 billion (plus US$6 billion in gold). Total LBP deposits in theLebanese banking system amounted to US$16.5 billion at the end of June. If theamount of US$1.35 already converted is subtracted, the system now containsUS$15.15 billion in LBP deposits, meaning that even if gold reserves are leftout of the calculation the BDL is capable of covering almost all LBP to US$conversions if that were required. The BDL is likely to receive further depositsfrom GCC countries if this crisis is extended." We also quote JP Morgan on: "Lebanon: The financial sector will weather the storm • The impact on of the crisis on the financial sector to date is 50% of theimpact subsequent to the death of Hariri, and pressure on the system has noweased by 70%.• The dollarization ratio has risen to 74% from 72% before the crisis, comparedwith 80% arrived at in the 2 weeks subsequent to the death of Hariri.• Economic damage from the crisis is estimated at US$2 billion to infrastructureto date, and the opportunity cost of the aborted tourism season plus stalledindustrial output at another US$2 billion.• The Saudi US$1.5 billion transfer of funds to the Central Bank (US$1 billionin deposits and US$500 million in reconstruction/humanitarian assistance), havehelped relieve pressure off the currency and banking system. The Central Bankexpects more such transfers could be forthcoming if necessary." Stock Market Performance in Egypt and the UAE The Egyptian market's performance during the first quarter of 2006 wasrelatively strong with the HFI index initially going up to reach its peak inFebruary with daily traded values exceeding the EGP1.5 billion mark. However,starting mid March and into the second quarter, the Egyptian market witnessed awave of decline with the HFI index slashing 25% of its value and daily tradingvalues drying up to break the EGP0.5 billion downwards. This made it difficultfor our operations in the Egyptian market, namely brokerage and investmentbanking to maintain their strong performance of the first quarter. Despiteincreasing our brokerage market share (net of special transactions) from 15.7%in 1Q06 to 23.2% in 2Q06, our brokerage revenues declined during the quarter. The UAE market witnessed even more difficult times where Abu Dhabi indexdeclined 14% during the first quarter and 21% during the second quarter. On theother hand daily turnover dropped from an average of AED310 million during thefirst quarter to below the AED190 million mark during the second quarter.Dubai's stock market also suffered with the index dropping 32% during 1Q06 andanother 38% during 2Q06 with daily turnover slashing from AED1.5 billion to lessthan AED0.5 billion during the second quarter. Despite the difficult conditions,our UAE brokerage team managed to increase our overall market share from 2.2% in1Q06 to 2.4% in 2Q06 resulting in a 29% increase in revenues over the sameperiod. Financial Highlights Revenues from Operations Revenues from operations witnessed an impressive increase of more than 100% toreach EGP487 million during the first half of 2006 compared to EGP240 millionduring the same period of last year. This increase is due to the growth inbusiness volumes almost across all divisions. It is worth noting that ourinvestment banking team based in the UAE has recorded its first revenue streamduring the second half of the year to reach EGP23 million. In addition, our UAEbrokerage arm has also shown notable growth of 68% in revenues to reach EGP27million during the first half of 2006 compared to the same period of last year.Thus, a full 10% of revenues are currently generated from operations outside ourbase country, Egypt. This supports the success of our strategy that is aiming at generating more than50% of revenues from the region in two years time. Revenue diversificationhelped buffer our performance from the decline in the Egyptian market that tookplace during the second quarter of 2006. Accordingly, revenues generated fromthe Egyptian operation witnessed a steep decline of 50% in 2Q06 while revenuesfrom operations, including regional arms, dropped by a milder 40% in 2Q06 toreach EGP183 million down from EGP303 million in 1Q06. The inauguration of the Saudi operation, though not expected to generatesignificant revenues during 2006, will also help in diversifying our revenuestream going forward, especially when taking into consideration the materialsize of the Saudi market compared to our current markets. Figure 1: Contribution of Respective Divisions to Total Operating Revenues Division Revenues (EGP m) 1H 2006* Rev. Contrib. 1H 2005 Rev. YoY Growth Contrib.Brokerage - Egypt 193 40% 89 37% 116%Brokerage - UAE 27 5% 16 7% 68%Asset Management - Local 36 7% 32 13% 12%IB - Egypt 169 35% 59 24% 189%IB - UAE 23 5% 0 na naPrivate Equity 37 8% 44 18% -16%Total Operating Revenues 485 100% 240 100% 102% *Excluding EGP2.7 million HC revenues Figure 2: Breakdown of Quarterly Operating Revenue by Division in 2Q2006 andPrevious Quarters Please refer to the following link to view the figure http://www.rns-pdf.londonstockexchange.com/rns/6984h_-2006-8-15.pdf *Excluding EGP120 million asset management incentive fees unrealized during thefirst three quarters of 2005 and realized in 4Q05 Source: EFG-Hermes Other Revenues - Equity Consolidation of Bank Audi Bank Audi's contribution of EGP103 million reached 17% of total revenues in thefirst half of 2006; EGP41 million in 1Q06 rising 48% to EGP62 million in 2Q06,mainly generated from the growth in the bank's operations. This is another taxfree addition to our revenue stream from outside our Egypt based operation. Profitability EFG-Hermes reported EGP358 million in profits in 1H06, 290% up when compared tothe same period of last year and exceeds the EGP350 million profits realizedduring the full year of 2005. However, when compared to the first quarter of2006, profits declined 27.5% to EGP150.7 million down from EGP208 million. Thisdecline is mainly due to the slowdown that took place in the Egyptian market,resulting in much lower average daily traded values thus decreasing revenuesgenerated from brokerage and increased difficulty in closing investment bankingdeals. On the other hand, NOP margin increased from 65% during the first half of2005 to 70% during the same period of 2006, with NOP up 118% to reach EGP340million in 1H06 up from EGP156 in 1H05. This is mainly induced by the fastergrowth in revenues when compared to expenses. Operating Expenses Operating expenses declined as a percent of revenues from 35% in the first halfof 2005 to 30% in the first half of 2006. In absolute terms, however, expensessurged 74% compared to 1H05 to record EGP148 million. However, when compared to2H05 where operating expenses recorded EGP137 million (excluding EGP50 million,the one-off employee-related expense booked in 4Q05), the sequential growthrecords only 8%. The increase in 1H06 operating costs is due to several factors; the mostprominent is related to adding new employees in line with the expansion of ouroperations in the region. This added 48% to our overall employee costs in thefirst half of 2006 as opposed to the same half of 2005. In addition, consultantand service fees more than doubled to reach EGP14 million in 1H06 as opposed to1H05 which was mainly due to the higher deal flow executed during 2006 and thebooking of the legal advisory and due diligence costs related to the acquisitionof Bank Audi and our capital increase. Another factor was the increase inadvertising and promotional expenses which surged by more than 250% to reachEGP11 million in 1H06 as opposed to EGP3 million in 1H05 due to the increasedspending on this item in both UAE and Egypt. Another very important contributorto our increased operational expenses are the costs related to setting up theoperation in KSA that involves plenty of legal and advisory costs. Financing Expenses Net interest expense for the period stood at EGP7.5 million; it is worth notingthat the net cost of acquiring our stake in Bank Audi is EGP13.3 millionattributable to the bridge financing we resorted to in order to meet ourdeadline requirement to acquire the 20% stake of the bank until the proceeds ofthe capital increase were collected to finance our obligations. This leaves uswith EGP5.8 million net interest income generated from managing our cashbalances. Taxes The company is subject to 20% tax rate under the new tax law. The law exemptsconsolidated offshore subsidiaries (whether full or proportionate consolidation)from taxes; however, it is worth noting that dividends paid by thosesubsidiaries are still subject to tax. Accordingly, our effective tax ratestands at 14% after adjusting for the EGP8 million that were deducted from ourtax bill for the FY 2005 and were added to our net profit during 1Q06. PERFORMANCE OF BUSINESS DIVISIONS BROKERAGE Egypt The first half of 2006 witnessed a surge of more than 140% in total markettrading values to reach EGP293 billion compared to EGP120 billion for the sameperiod of last year. EFG-Hermes maintained its market share at 21% and grew itstrading values in line with the growth in the market to record EGP62 billion intrading volumes, up 147% when compared to the first half of 2005. Revenues onthe other hand witnessed a rise of 116% in 1H2006 to reach EGP193 millioncompared to EGP89 million during the same period of last year. The Egyptian market suffered from a very difficult 2Q06 which resulted in driedup volumes. Accordingly, total market executions (net of special transactions)were slashed by more than 50% to EGP80 billion as opposed to the first quarterof 2006 which recorded EGP178 billion in executions. EFG-Hermes total executions (net of special transactions) dropped by a lesspronounced percentage of 33% to record EGP18.7 billion in 2Q06 down from EGP28billion in 1Q06. The disproportionate decrease in our executions resulted in anincrease in market share to 23.2% in 2Q06 up from 15.7% in 1Q06. This is mainlydue to the fact that the very small retail investors, who are not a majorcontributor to our client base (prior to the introduction of the call centre),have exited the market due to its poor performance. Accordingly, the largerinvestors, who constitute the majority of our client base, were the main marketparticipants during the quarter, leading us to control a bigger portion of themarket. The introduction of the call centre during the third quarter has helpedus access the small investors market which should result in maintaining ourmarket share when the smaller investors come back to the market. The call centre and the online trading services should help the company infurther increasing its market share through giving more emphasis on the dominantretail investor base of the market. The call centre is already a great successserving a large portion of our retail client base. We expect the online tradinglicense to be finalized during the coming few weeks after which our clients willhave direct access to execute trades on the exchange for their own accounts.This will alleviate the pressure on our human resources and help us serve alarger client base at a higher quality of service. Figure 3: EFG-Hermes Executions and Market Share of Total Market Executions Please refer to the following link to view the figure http://www.rns-pdf.londonstockexchange.com/rns/6984h_-2006-8-15.pdf UAE EFG-Hermes overall market share in Dubai and Abu Dhabi more than doubled from 1%of the total market executions during the first half of 2005 to 2.3% during thesame period of 2006. It is worth noting that in our previous earnings releaseswe used to report market shares as a percentage of daily traded values. Startingthis release we are reporting market shares as a percentage of total marketexecutions. On the other hand, our executions climbed from USD1.1 billion in1H05 to USD3.3 billion in 1H06 while the overall market in Dubai and Abu Dhabigrew from USD109 billion to USD147 billion over the same period. Accordingly,UAE brokerage revenues surged 68% from EGP16 million during the first half of2005 to EGP27 million during the same period of 2006. Overall market share inDubai and Abu Dhabi also increased on a quarterly basis from 2.2% in 1Q06 to2.4% in 2Q06 with revenues growing 29% to reach EGP15 million in 2Q06 comparedto EGP12 million in 1Q06. The call centre and online trading are already up and running in our UAEbrokerage arm and around 7% of our trading volumes are currently executed onlineafter less than three months of soft launching the service. Figure 4: UAE Brokerage Market Shares on DFM and ADSM Please refer to the following link to view the figure http://www.rns-pdf.londonstockexchange.com/rns/6984h_-2006-8-15.pdf When comparing market shares in individual markets, EFG-Hermes' market share inDubai increased 25% to 2.5% in 2Q06 up from 2% during the previous quarter,while our market share in Abu Dhabi declined to 1.9% in 2Q06 from 3.4% in 1Q06.This is mainly due to the concentration of trading in one share, Abu DhabiIslamic Bank, and the fact that the majority of our client base are corporateclients whose activity is concentrated on the more liquid market of Dubai ratherthan Abu Dhabi. INVESTMENT BANKING Egypt Investment banking revenues generated by our Egypt based team surged 190% toEGP169 million during the first half of 2006 compared to the same period of lastyear. Almost 70% of these revenues were generated during the first quarter whilethe second quarter was less active and recorded EGP52.7 million in revenuescompared to EGP 117 in 1Q06. Deals closed during the second quarter were SewedyCables (IPO), Suez Cement (rights issue) and OCI (rights issue). Our investmentbanking team in Egypt has a backlog of around USD7 billion, the majority ofwhich are M&As and private placements rather than IPOs due to the difficulty ofclosing IPOs during the phase financial markets are currently going through. UAE Our regional investment banking team in Dubai closed two very high profiledeals, du, the second telecom operator in the UAE and Al Thuraya, the first Arabsatellite telecom company, with a combined amount of USD950 million during thefirst quarter of 2006. Al Thuraya deal was a private placement of USD300 millionwhile du was a USD650 million IPO that was 167x oversubscribed. Revenuesgenerated from the two deals were booked during the second quarter and amountedto EGP23 million. The team still has a pipeline of USD1.6 billion. Despite the fact that our operations in Saudi Arabia are not yet up and running,our investment banking team managed to land two large M&A mandates from SaudiArabia bringing our total investment banking backlog to over USD10 billion, upfrom USD4.5 billion at the end of 1Q06. ASSET MANAGEMENT Asset management revenues witnessed an increase of 12% to reach EGP36 million inthe first half of 2006 compared to EGP32 million during the same period of lastyear. EGP8.2 million of the EGP36 million were realized incentive fees comparedto EGP15 million during the same period of last year. Unrealized incentive feesfor the first half of 2006 stand at a trivial amount of EGP0.2 million due tothe weak performance of financial markets during the second quarter of 2006.When compared to 1Q06, asset management revenues witnessed an increase of 26% toEGP20 million during 2Q06 compared to EGP16 million in the previous quarter. During the second quarter of 2006 to date four funds were closed: 1. Bank of Alexandria money market fund for an amount of EGP200 million. 2. Egyptian Saudi Finance Bank Islamic Fund for EGP75 million. 3. Saudi Faransi Bank Islamic Fund - Al-Danah for SAR90 million. 4. Al Watany Bank of Egypt capital guaranteed fund for EGP135 million(closed during the third quarter), the first capital guaranteed fund in Egyptthat involves no recourse on EFG-Hermes. AUM witnessed a 7% decline to reach EGP8.4 billion by the end of 2Q06 down fromEGP9 billion by the end of the previous quarter. Net cash injections during thequarter amounted to EGP636 million while performance related decline amounted toEGP1.27 billion and was mainly responsible for the decline our asset base. Figure 5: End of Period Assets Under Management Please refer to the following link to view the figure http://www.rns-pdf.londonstockexchange.com/rns/6984h_-2006-8-15.pdf PRIVATE EQUITY Revenues from private equity witnessed a 16% decline to EGP37 million during thefirst half of 2006 compared to EGP44 million during the same period of lastyear. This mainly arises from the nature of the private equity business whererevenues fluctuate in accordance with the realization of success fees bookedupon the sale of profitable investments. Total private equity assets under management are currently stable at aroundUSD500 million. Several deals are currently being negotiated to raise morefunds, thus increasing our asset base and further stabilizing our revenue streamgenerated from management fees. The second issue of the Technology DevelopmentFund is expected to be launched during the last quarter of 2006 with a totalsize ranging between EGP150-200 million which is three to four times as big asthe first issue of the fund of EFG50 million. EFG - Hermes Holding Company (Egyptian Joint Stock Company) Consolidated Financial Statements For the period ended June 30, 2006 & Review Report Thereon REVIEW REPORT To The Board of Directors of The EFG - Hermes Holding Company We have reviewed the accompanying consolidated statement of financial positionof EFG - Hermes Holding Company and Subsidiaries as of June 30, 2006, and therelated consolidated statements of income, changes in equity and cash flows forthe six months then ended. These financial statements are the responsibility ofthe Company's management. Our responsibility is to issue a report on thesefinancial statements based on our review. we conducted our review in accordance with the Egyptian Standard on Auditingapplicable to review engagements. This standard requires that we plan andperform the review to obtain moderate assurance as to whether the consolidatedfinancial statements are free of material misstatement. A review is limitedprimarily to inquiries of Company's personnel and analytical procedures appliedto financial data, and thus provides less assurance than an audit. We have notperformed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believethat the accompanying consolidated financial statements do not give a true andfair view in accordance with the Egyptian Accounting Standards. KPMG Hazem Hassan Cairo, 30 July ,2006 EFG - Hermes Holding Company (Egyptian Joint Stock Company) Consolidated Statement of Financial Position As of June 30,2006 Note No. 30/6/2006 31/12/2005 LE. LE.Current AssetsCash on hand and with banksCash on hand 561 158 1 053 267Cheques under collection 1 143 034 7 830 516Banks - current accounts (5) 460 637 563 892 181 590Banks - time deposits 57 139 441 11 639 509Saving certificates 4 800 000 4 800 000 ___________ ___________Total cash on hand and with banks 524 281 196 917 504 882Treasury Bills and other bills eligible for (6) 289 052 543 59 057 199rediscountingTrading investments 170 968 098 18 878 888Accounts receivable (net of accumulated impairment) (10) 662 283 685 641 672 937EFG- Hermes Employee Trust (current tranche) 23 831 090 23 831 090Other debit balances (7,10) 83 593 334 66 398 785 ___________ ___________Total current assets 1 754 009 946 1 727 343 781 ___________ ___________Non - Current Assets Fixed assets (net) (11) 46 728 372 28 983 463Available -for- sale investments (12) 142 540 332 123 703 401Investment in subsidiaries & associates (13) 2 806 002 435 15 289 500Property Investment (14) 139 973 492 139 973 492Settlement Guarantee Fund (15) 22 646 516 8 346 578EFG- Hermes Employee Trust (non-current tranche) 99 912 096 67 503 694Goodwill (net) 67 012 832 69 365 547Deferred tax assets (23) 2 548 987 2 771 186 ___________ ___________Total non - current assets 3 327 365 062 455 936 861Total assets 5 081 375 008 2 183 280 642 ___________ ___________Current LiabilitiesAccounts receivable - credit balances 743 646 252 1 166 563 804Creditors and other credit balances (9) 161 960 417 243 903 626Provisions (10) 60 913 358 53 972 847Other brokerage companies 3 879 232 (225 820 716) ___________ ___________Total current liabilities 970 399 259 1 238 619 561 ___________ ___________Shareholders' equityIssued & paid - in capital (17) 1 456 110 150 405 370 050Legal reserve 245 208 522 108 978 135General reserve 158 271 158 271Special reserve 1 633 936 456 20 391 205Retained earnings 363 477 990 24 576 713 ___________ ___________Total shareholders' equity 3 698 891 389 559 474 374Deduct: Treasury shares (18) (27 501 538) (60 944 470) ___________ ___________ 3 671 389 851 498 529 904Net profit for the period/year 358 754 499 350 139 955 ___________ ___________Total shareholders' equity including net profit 4 030 144 350 848 669 859Minority interest 34 635 259 35 538 938 ___________ ___________Total shareholders' equity and minority interest 4 064 779 609 884 208 797 ___________ ___________Non - Current LiabilitiesLong term loans (19) 45 250 000 59 511 072Other liabilities 946 140 941 212 ___________ ___________Total non - current liabilities 46 196 140 60 452 284 ___________ ___________Total shareholders' equity and liabilities 5 081 375 008 2 183 280 642 =========== =========== The accompanying notes from No. (1) to No. (24) form an integral part of the financial statements and are to be readtherewith . Review Report "Attached" Yasser El Mallawany Hassan Heikal Chairman & CEO Co- Chairman & CEO EFG - Hermes Holding Company (Egyptian Joint Stock Company) Consolidated Income Statement for the period ended June 30, 2006 For the For the Note period ended period ended No. 30/6/2006 30/6/2005 L.E. L.E.Income from fees, commission & management of investments 487 597 657 240 214 717Share of profit of associates (Bank Audi) 103 371 508 -Interest income 27 072 689 2 371 015Dividend income 1 729 680 1 428 321Other income 1 767 817 1 303 008 ___________ ___________Total revenues 621 539 351 245 317 061 ___________ ___________Deduct:General administrative expenses 147 936 038 84 505 006Interest expense 34 613 815 7 287 179Provisions (10) 7 052 399 13 475 808Fixed assets depreciation (11) 3 933 948 2 003 937Unrealized loss (gain) on trading investments 1 231 012 (3 690 386)Goodwill impairment 2 352 717 2 352 717Deferred expenditure amortization - 873 632Impairment of assets (21) 229 958 12 534 796loss arising from sale of investments 3 081 169 616 347Foreign currency differences 1 077 708 ( 962 174)Loss arising from sale of fixed assets 18 000 51 619 ___________ ___________Total expenses 201 526 764 119 048 481 ___________ ___________Net profit before income tax 420 012 587 126 268 580Deduct:Current income tax 50 903 104 21 461 311Deferred income tax (23) 222 199 - ___________ ___________Net profit for the period 368 887 284 104 807 269 =========== ===========Attributable to:Equity holders of the parent 358 754 499 91 996 134Minority interest 10 132 785 12 811 135 368 887 284 104 807 269 The accompanying notes from No. (1) to No. (24) form an integral part of the financial statements and are to be readtherewith . EFG - Hermes Holding Company (Egyptian Joint Stock Company) Consolidated Statement of Changes in Equity For the period ended June 30,2006 Issued and Legal General Special reserve _________________________________ Paid - in Reserve Reserve Share Revaluation valuation Issuance difference of Capital Premium Differences available- for-sale investments L.E. L.E. L.E. L.E. L.E. L.E. Balance as at 31/12/2004 405 370 050 103 764 279 158 271 4 755 384 ( 761 762) ( 677 689) Purchasing of treasury shares - - - - - - Selling of treasury shares - 4 090 345 - 7 717 108 - - Special reserve - revaluationdifferences - - - - ( 536 271) - Valuation differences ofavailable-for-saleinvestments - credit - - - - - 9 894 435 Transfer to reserves &retained earnings - 1 123 511 - - - - ______________________________________________________________________________________ Balance as at31/12/2005 405 370 050 108 978 135 158 271 12 472 492 ( 1 298 033) 9 216 746 Increase in capital 1 050 740 100 129 574 400 - 1 628 609 600 - - Purchasing of treasury shares - - - - - - Selling of treasury shares - 4 815 050 - - - - Special reserve- revaluationdifferences - - - - 1 000 715 - Valuation differences ofavailable -for-saleinvestments - debit - - - - - ( 16 065 064) Transfer to reserves &retained earnings - 1 840 937 - - - - ______________________________________________________________________________________Balance as at30/6/2006 1 456 110 150 245 208 522 158 271 1 641 082 092 ( 297 318) ( 6 848 318) ======================================================================================= Retained Treasury Total (Losses) Shares Earnings L.E. L.E. L.E. Balance as at 31/12/2004 ( 25 978 635) ( 46 232 310) 440 397 588 Purchasing of treasury shares - ( 109 069 996) ( 109 069 996) Selling of treasury shares - 94 357 836 106 165 289 Special reserve - revaluationdifferences - - ( 536 271) Valuation differences ofavailable -for-saleinvestments - credit - - 9 894 435 Transfer to reserves &retained earnings 50 555 348 - 51 678 859 ___________________________________________________ Balance as at 31/12/2005 24 576 713 ( 60 944 470) 498 529 904 Increase in capital - - 2 808 924 100 Purchasing of treasury shares - ( 14 682 594) ( 14 682 594) Selling of treasury shares - 48 125 526 52 940 576 Special reserve- revaluationdifferences - - 1 000 715 Valuation differences ofavailable -for-saleinvestments - debit - - ( 16 065 064) Transfer to reserves &retained earnings 338 901 277 - 340 742 214 ___________________________________________________Balance as at 30/6/2006 363 477 990 ( 27 501 538) 3 671 389 851 =================================================== The accompanying notes from No. (1) to No. (24) form an integral part of the financial statements and are to be read therewith. EFG - Hermes Holding Company (Egyptian Joint Stock Company) Consolidated Cash Flow Statement For the period ended June 30, 2006 For the For the period ended period ended 30/6/2006 30/6/2005 L.E. L.E.Cash Flows from Operating ActivitiesNet profit before income tax 420 012 587 126 268 580Adjustments to reconcile net profit to netcash provided by operating activitiesFixed assets depreciation 3 933 948 2 003 937Provisions 7 052 399 13 475 808Amount used from provisions (113 004) (2 300 000)Deferred expenditures amortization - 873 632Goodwill impairment 2 352 717 2 352 717Loss arising from sale of fixed assets 18 000 51 619Loss arising from sale of available -for- sale investments 591 210 2 400 446Unrealized loss (gain) on trading investments 1 231 012 (3 690 386)Impairment of assets 229 958 12 534 796Foreign currency translation differences 1 147 923 1 104 158Share of profit of associates (Bank Audi) ( 103 371 508) -Income tax paid ( 79 577 060) ( 4 667 848) _______________ ____________ Operating profit before changes in working capital 253 508 182 150 407 459Increase in other debit balances ( 29 104 042) ( 20 508 089)(Decrease) increase in creditors and other credit balances ( 49 079 046) 20 160 219Increase in accounts receivable -(debit balances) ( 20 170 429) ( 541 787 317)(Decrease) increase in accounts receivable - (credit balances) ( 423 578 599) 251 862 238Increase in affiliated companies (debit balances) ( 442 241 567) ( 265 387 841)Increase in affiliated companies (credit balances) 453 247 967 265 310 249Increase in trading investments ( 194 230 276) ( 18 684 702)Increase in EFG- Hermes Employee Trust (current tranche) - ( 180 995)(Increase) decrease in EFG- Hermes Employee Trust (non current tranche) ( 32 408 402) 6 595 000Increase in other brokerage companies 230 754 539 318 210 286 _______________ ____________Net cash (used in) provided from operating activities ( 253 301 673) 165 996 507 _______________ ____________Cash Flows from Investing ActivitiesPayments to purchases of fixed assets ( 21 835 199) ( 5 057 303)Proceeds from sale of fixed assets 32 245 28 083Proceeds from redemption of treasury bills 56 952 555 5 129 134Payments to purchase of available -for- sale investments ( 139 378 633) ( 24 352 075)Payments to purchase of investments in subsidiaries and associates (2 608 420 546) ( 151 461)Proceeds from sale of available -for- sale investments 48 356 721 20 197 506Payments to increase company's share in Settlement Guarantee Fund ( 14 263 766) ( 1 174 538)Payments to purchase of property investment - ( 1 950 000) _______________ ____________Net cash used in investing activities (2 678 556 623) ( 7 330 654) _______________ ____________Cash Flows from Financing ActivitiesIncrease in paid - in capital 1 073 720 100 7 850 000Payments to purchase treasury shares ( 14 682 594) ( 108 471 220)Proceeds from sale of treasury shares 52 940 576 53 949 418Paid dividends ( 24 259 816) ( 6 262 595)Decrease in banks - overdraft - ( 19 042 554)Decrease in long term loans ( 14 261 072) ( 32 812 770)Increase in other liabilities 4 928 -Increase in reserves 1 752 120 387 - _______________ ____________Net cash provided from (used in) financing activities 2 825 582 509 ( 104 789 721) _______________ ____________Net change during the period ( 106 275 787) 53 876 132Cash and cash equivalent at the beginning of the period 917 504 882 133 095 279 _______________ ____________Cash and cash equivalent at the end of the period 811 229 095 186 971 411 =============== ============Cash & Cash Equivalent are represented in:Cash on hand 561 158 1 579 337Cheques under collection 1 143 034 9 217 137Banks- current account 460 637 563 166 609 286Banks- time deposits 57 139 441 4 765 651Saving certificates 4 800 000 4 800 000Treasury bills and other bills eligible for rediscounting 289 052 543 -Treasury bills and other bills eligible for rediscounting (more than 3 months) ( 2 104 644) - _______________ ____________ 811 229 095 186 971 411 =============== ============ The accompanying notes from No. (1) to No. (24) form an integral part of the financial statements and are to be readtherewith . EFG - Hermes Holding Company (Egyptian Joint Stock Company) Notes to the Consolidated Financial Statements for the period ended June 30, 2006 1. Purpose of Preparation The consolidated financial statements and accompanying notes wereprepared for the purpose of submitting them to the Egyptian Stock Exchange andLondon Stock Exchange as one of the requirements of local laws and GlobalDepositary shares (GDS). 2. General - EFG - Hermes Holding Company -Egyptian Joint Stock Company- was foundedin pursuance of decree No. 106 of 1984. - The company's extraordinary general meeting held on July 22, 1997resolved to adjust the company's status and convert it in pursuance to theprovisions of law No. 95/1992 and its executive regulation and amend thecompany's purpose to become participation in the companies' establishment whichissue securities or in increasing their share capitals. - The company's extraordinary meeting held on March 14,2004 decided toadd the Custody Activity to the purpose of the company. - EFG- Hermes holding company, the parent company, owns the followingsubsidiaries: Direct ownership Indirect ownership % % Financial Brokerage Group (FBG) 99.76 0.04 Egyptian Fund Management Group (EFMG) 88.51 11.49 Egyptian Portfolio Management Group (EPMG) 66.33 33.67 Hermes Securities Brokerage 97.58 2.42 Hermes Fund Management 89.95 10.05 Hermes Corporate Finance 99.37 0.53 EFG - Hermes Advisory Inc. 100 -- EFG- Hermes Financial Management Ltd. 100 -- EFG - Hermes for Promoting & Underwriting 99.88 -- Bayonne Enterprises Ltd. -- 100 EFG- Hermes Fixed Income 99 1 EFG- Hermes Private Equity (Egypt) 96.3 3.7 EFG- Hermes Private Equity (BVI) 65 -- EFG- Hermes Brokerage - UAE Ltd. -- 90 Flemming CIIC Holdings 100 -- Flemming Mansour Securities -- 99.33 Flemming CIIC Securities -- 96 Flemming Corporate Finance -- 74.92 EFG- Hermes UAE Ltd. 100 -- EFG- Hermes Lebanon 100 -- 3 . Significant Accounting Policies Applied The significant accounting policies adopted in the preparation ofthese consolidated financial statements are set out below: 3-1 Basis of Preparation of Financial Statements The financial statements were prepared in accordance with EgyptianAccounting Standards, and applicable local laws and regulations. 3-2 Basis of Consolidation The consolidated financial statements include all subsidiaries that arecontrolled by the parent company. Basis of the consolidation are as follows: - All intragroup balances and transactions are eliminated. - Minority interest, in the equity and results of the entities that arecontrolled by the parent company , is shown as a separate item in theconsolidated financial statements . - The cost of acquisition is allocated as follows: a) The fair value of the assets and liabilities acquired as of the date ofthe exchange to the extent of the parent's interest obtained in the exchange,and b) The minority's proportion of the pre-acquisition carrying amounts of theassets and liabilities of the subsidiary. c) Goodwill represents amounts arising on acquisition of subsidiaries andrepresents the difference between the cost of acquisition and the fair value ofthe net identifiable assets acquired. Goodwill is stated at cost lessaccumulated impairment losses. 3-3 Foreign Currencies Transactions - The company maintains its accounts in Egyptian Pounds. Transactionsdenominated in foreign currencies are recorded at the prevailing exchange rateat the dates of transactions. Balances of monetary assets and liabilitiesdenominated in foreign currency at the financial position date are translated atthe prevailing exchange rates. The exchange differences are recorded in theincome statement. - Assets and liabilities of financial statements for foreign companieswere translated using the prevailing exchange rates at the financial positiondate, shareholders' equity items are translated using historical rates, whilerevenues and expenses were translated using an average of the prevailing ratesduring the financial year. The resulted translation differences are includedwithin the shareholders' equity in the financial position as a special reserve-foreign currency translation differences. 3-4 Revenues Recognition - Gains (losses) resulted from sale of investments are recognized ontransaction date and measured by the difference between cost and selling priceless selling commission and expenses. - Dividend income is recognized when declared. - Deposits and bonds interest are recognized on accrual basis. - Brokerage commission resulting from purchase of and sale of securitiesoperations in favor of clients are recorded according to the accrual basis (whenthe invoice is issued). - Management fee is calculated as determined by the management contract ofeach investment fund & portfolio and recorded on accrual basis. - Incentive fee is calculated based on certain percentages of the annualreturn realized by the fund and portfolio, however these incentive fee will notbe recognized until revenue realization conditions are satisfied and there isadequate assurance of collection. 3-5 Fixed Assets Depreciation Fixed assets are recorded at the historical cost and are depreciated bythe straight line method over the estimated productive life for each type ofasset as the following: Estimated Useful Life - Buildings 33.3 Years - Office furniture, equipment & electrical appliances 2-16.67 Years - Computer equipment 3.33 - 5 Years - Transportation Means 3.33 - 4 Years 3-6 Amortization of deferred expenditure The cost of obtaining long term loans is capitalized and amortized overthe loan year (Note No. 19). 3-7 Treasury Bills Treasury bills are recorded at nominal value, and the issuance discount isrecorded under the item of "credit balances and other liabilities". Treasurybills are presented on the financial position net of the issuance discount 3-8 Trading Investments Trading investments are valued on the basis of prevailing market value at thefinancial position date and the revaluation differences are recorded in theincome statement. 3-9 Investments in Subsidiaries Investments in subsidiaries are recorded at cost. However, when there is animpairment in the market or computed value of the investments compared to bookvalue, the book value should be adjusted with the impairment value and chargethe impairment to the income statement. 3-10 Investment in Associates Investments in associates are accounted for using equity method. Under theequity method, the investment in an associate is initially recognized at costand the carrying amount is increased or decreased to recognize the company'sshare of the profit or loss of the associate after the date of acquisition. Thecompany's share of the profit or loss of the associate is recognized in thecompany's income statement. The company computes its share of profits or losses after adjusting for thedividends of preferred shares whether or not the dividends have been declared. 3-11 Available -for- sale Investments - Available -for- sale investments are recorded at cost. Quoted investmentsare revalued at fair value (market value) and non quoted investments arerevalued at computed value of the investments (based on latest certifiedfinancial statements) and the valuation differences will be recorded as aspecial reserve revaluation difference of available-for- sale investments in theshareholder's equity. When selling the investments, its interest in the specialreserve will be added to the income statement. - Concerning the non active available -for- sale securities (have no marketvalue in an active market) and the fair value of which can not be determinedreliably, such investments are recognized at cost, the book value of theseinvestments is to be amended by any impairment concerning the value of theseinvestments and the impairment value is to be charged to income statement forevery investment individually. 3-12 Property Investment Property investment is recorded at cost. Any decline in the fair value(impairment) is charged to income statement. 3-13 Impairment of Assets At the financial position date, the company reviews the value of its assets todetermine if there are any indication of impairment in the values of suchassets. In case of any asset impairment indicators, the company determines thenet realizable value of such asset. When the net realizable value is less thanthe carrying amount of such asset, the reduction in the asset's value is chargedto the income statement. 3-14 Treasury Shares Treasury shares are recorded at its acquisition cost and deducted from the totalshareholders' equity in the statement of financial position. 3-15 Income Tax - Income tax on the profit or loss for the year comprises current anddeferred tax. Income tax is recognized in the income statement except to theextent that it relates to items recognized directly in equity, in which case itis recognized in equity. - Current tax is the expected tax payable on the taxable income for theyear, using tax rates enacted or substantially enacted at the financial positiondate, and any adjustment to tax payable in respect of previous years. - Deferred tax is provided using the financial position liability method,providing for temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for taxationpurposes. The amount of deferred tax provided is based on the expected manner ofrealisation or settlement of the carrying amount of assets and liabilities,using tax rates enacted or substantively enacted at the financial position date. - A deferred tax asset is recognized only to the extent that it is probablethat future taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. 3-16 Cash Flow Statement For the purpose of preparing the Cash Flow Statement, cash and cashequivalent are represented in the cash on hand, cheques under collection,current accounts, time deposits with banks, saving certificates, margin ofletters of guarantee and treasury bills and other bills eligible forrediscounting maturing within 3 months or less from its acquisition date. 4. Financial Instruments and management of related risks: The Company's financial instruments are represented in the financialassets and liabilities. Financial assets include cash balances with banks,investments and debtors while financial liabilities include banks - overdraftand creditors. Note (No. 3) of notes to financial statements includessignificant accounting policies applied regarding basis of recognition andmeasurement of the important financial instruments and related revenues andexpenses by the company to minimize the consequences of such risks. 4/1 Market Risk: Market risk is represented in the factors which affect values, earnings andprofits of all securities negotiated in stock exchange or affect the value,earning and profit of a particular security. According to the company's investment policy, the following procedures areundertaken to reduce the effect of this risk. - Performing the necessary studies before investment decision in order toverify that investment is made in potential securities. - Diversification of investments in different sectors and industries. - Performing continuous studies required to follow up the company'sinvestments and their development. 4/2 Foreign currencies risk - The foreign currencies exchange risk represents the risk of fluctuationin exchange rates, which in turn affects the company's cash inflows and outflowsas well as the value of its assets and liabilities in foreign currencies. As atthe financial position date, the company has assets and liabilities in foreigncurrencies equivalent to LE. 1 508 111 146 and LE. 1 419 270 511 respectively.The company's net exposures in foreign currencies are as follows: Surplus/ (Deficit) LE.U.S. Dollar 87 205 593Euro 391 787GBP 6 903UAE Derham 1 213 729BHD (10 197)KWD 32 820 - As disclosed in note 3-3, the company has used the prevailing exchangerates to revaluate monetary assets and liabilities at the financial positiondate. - As disclosed in note no. (20) the company has executed Currency SWAPagreements to cover its deficit and required needs of foreign currencies andmeet the risks of exchange and interest rates related thereto. 4/3 Financial Instruments' Fair Value The financial instruments' fair value do not substantially deviatedfrom their book value at the financial position date. According to thevaluation basis applied, in accounting policies to the assets and liabilities,which included in the notes to the financial statements, note No. (12, 13) ofthe notes to financial statements disclose the fair values of investments, whichare reported at cost. 5. Banks - Current Accounts The banks - current accounts item stated in the financial positionincludes blocked amount of LE. 10 million in the name of the subsidiaries,Financial Brokerage Group company and Hermes Securities Brokerage companyrepresents the value of the deposit of One Day Operations settlement which takesplace in the Egyptian Stock Exchange (LE. 5 million each). Both companies arenot entitled to use this amount without prior approval from Misr ClearanceCompany. 6. Treasury Bills and other bills eligible for rediscounting 30/6/2006 31/12/2005 LE. LE.Treasury bills purchased with commitment to resale 265 087 076 --Treasury bills 182 days maturity -- 57 800 000Treasury bills 364 days maturity 2 125 000 2 825 000Central bank of Egypt Notes 22 000 000 -- _________ __________ 289 212 076 60 625 000Less: Unearned income (159 533) (1 567 801) _________ __________Net 289 052 543 59 057 199 ======== ======== 7. Other Debit Balances 30/6/2006 31/12/2005 LE. L.E Deposits with others 1 986 633 1 037 058 Downpayments to suppliers 15 878 283 23 500 Prepaid expenses 12 059 111 5 111 344 Employees advances 1 873 685 1 537 913 Accrued revenues 15 965 263 2 341 781 Taxes withheld by others 28 382 193 20 670 474 Commercial International Investment Company (CIIC) 43 760 1 204 652 Payment under purchasing investments * 47 200 12 152 880 Unrealized SWAP Losses (gains) 468 850 (416 252) Sundry debtors 8 041 406 23 888 485 __________ _________ 84 746 384 67 551 835 Less: impairment of other debit balance (1 153 050) (1 153 050) __________ _________ Net 83 593 334 66 398 785 ========= ======== * The balance represents the amount paid under the capital increase of AlAhly for Development and Investment Company. 8. Short Term Loans - On January 3, 2006 a loan agreement has been signed with CitiBank whereby, the company is entitled to obtain short term loan with an amount of USD 150million (the equivalent of LE. 859 Million). The purpose of the loan is topartially finance the acquisition of a stake in the share capital of Audi Bank -Lebanon. The loan was due on April 12,2006 with monthly interest rate ofLibor+2. The loan has been paid on May 12,2006. 9. Creditors and Other Credit Balances 30/6/2006 31/12/2005 LE. L.E Tax Authority 1 739 453 103 096 753 Social Insurance Association 191 397 189 058 Unearned revenues 5 962 333 7 854 875 Interest & commission payable 468 844 1 698 905 Suppliers 1 360 000 1 360 000 Accrued expenses 77 431 754 72 754 380 Dividend payable 601 510 601 510 Clients' coupons- Custody Activity 19 620 439 7 123 277 Credit Suisse Securities (Europe) Limited -- 31 156 933 Industries modernization Centre 35 143 765 -- Sundry creditors 19 440 922 18 067 935 __________ __________ 161 960 417 243 903 626 ========= ========= 10. Provisions * Accumulated Contingent Impairment of Liabilities Severance Total accounts receivable provision pay provision And other debit balance L.E L.E L.E L.E Balance as at 1/1/2006 65 951 885 53 747 564 225 283 119 924 732 Formed during the period -- 7 052 399 -- 7 052 399 Amounts used during the period -- (60 785) (52 219) (113 004) Foreign currency differences -- -- 1 116 1 116 ------------- --------------- ------------- -------------- Balance as at 30/6/2006 65 951 885 60 739 178 174 180 126 865 243 ======== ========= ======== ========= * It is deducted from accounts receivable item and other debit accounts inthe statement of financial position. 11 . Fixed Assets Office Furniture, equipment & Lease Hold Electrical Computer Transportation Particulars Land Buildings Improvements Appliances Equipment Means Total LE. LE. LE. LE. LE. LE. LE. Balance as of 1/1/2006 5 360 000 13 685 823 1 698 820 18 728 069 12 539 757 4 708 229 56 720 698 Additions during the period -- -- 276 129 13 963 728 4 597 362 2 997 980 21 835 199 Disposals during the period -- -- -- (119 755) -- (6 713) (126 468) ________ _________ _________ __________ _________ _________ _________ Total cost as of 30/6/2006 5 360 000 13 685 823 1 974 949 32 572 042 17 137 119 7 699 496 78 429 429 ________ _________ _________ __________ _________ _________ _________ Accumulated depreciation At the beginning of the period -- 2 751 494 1 540 909 13 080 514 7 889 694 2 580 721 27 843 332 Depreciation during the period -- 205 287 61 456 2 041 128 947 245 678 832 3 933 948 Disposals' accumulated Depreciation -- -- -- (69 510) -- (6 713) (76 223) ________ _________ _________ __________ _________ _________ _________ Accumulated depreciation asof 30/6/2006 -- 2 956 781 1 602 365 15 052 132 8 836 939 3 252 840 31 701 057 ________ _________ _________ __________ _________ _________ _________ Net cost as of 30/6/2006 5 360 000 10 729 042 372 584 17 519 910 8 300 180 4 446 656 46 728 372 ======== ========= ========= ========== ========= ========= ========= Net cost as of 31/12/2005 5 360 000 10 934 329 237 050 5 674 514 4650 063 2 127 507 28 983 463 ======== ========= ========= ========== ========= ========= ========= 12. Available - for- sale investments 30/6/2006 31/12/2005 LE. LE. Quoted investments 42 465 354 12 117 704 Non - quoted investments 100 074 978 111 585 697 __________ __________ 142 540 332 123 703 401 ========= ========= 13. Investments in subsidiaries & Associates Ownership 30/6/2006 31/12/2005 % LE. LE. Arab Visual Company * 74.99 3 749 500 3 749 500 EFG-Hermes UAE Ltd. 100 -- 11 540 000 Bank Audi Sal (Lebanon Bank)** 23.866 2 802 099 222 -- EFG- Hermes Holding Lebanon * 100 153 713 -- ____________ ___________ 2 806 002 435 15 289 500 =========== ======== * The investee companies have not started its activities and no financialstatements have been issued. ** The ownership percentage is computed based on the voting ordinaryshares. 14- Property Investment - The balance of property investment stated in the financial position asat June 30,2006 with an amount of LE. 139 973 492 represents the value of 9318.57 square meters of the building owned by Nile City Investment Company. - The market value of this property investment amounted LE. 141 497 826as of June 30,2006. 15- Settlement Guarantee Fund The Settlement Guarantee Fund balance stated in the statement of financialposition amounting LE. 22 646 516 represents the Brokerage Companies' shares inthe Settlement Guarantee Fund. 16- European Investment Bank Contract: According to the contract signed between EFG- Hermes - Holding Company and theEuropean Investment Bank dated March 1, 2001, EFG- Hermes Holding Companypurchases investments in its name in favor of the bank in a range of 5 MillionEuro for each investment individually. The total amount of these investments islimited to 25 Million Euro and the participation of European Investment Bank islimited to 50% of total investment. This contract is valid until August 30,2013. The European Investment Bank pays the value of these investments. Theproceeds are reported as a liability on the company versus the investmentsreported as an asset. An off-setting is made between the asset and liability atthe financial position date. The company has sold the total amount of bank'sinvestments during the period: Company's Name Balance as of 30/6/2006 31/12/2005 LE. LE. Gas & Energy Group Limited -- 8 104 041 EFG- Hermes Holding Company -- 13 028 400 __________ _________ -- 21 132 441 ========= ======== 17. Capital - The company's authorized capital amounts LE. 700 million and issued andpaid in capital amounts LE. 405 370 050 distributed on 81 074 010 shares of parvalue LE. 5 per share. - On February 2,2006 the Company's Extraordinary General Assemblyapproved the following decisions: - Increasing the issued capital of the Company from LE. 405 370 050 toLE. 485 370 050 through a First Tranche by issuing 16 million shares at the fairvalue of LE. 115 approved by the Company's Board of Directors and validated bythe Company's auditor. This increase will be allocated to purchase a percentagein the share capital of Audi Bank - Lebanon. - Offering the First Tranche of the capital increase to qualifiedinvestors in a private placement at the fair value (to be paid in USD + $1 pershare as placement fee). This will include the waiving of the pre-emptiverights of the current shareholders in subscribing to the First Tranche. Theminimum subscription was set at $10 million; - Inviting existing shareholders to participate in the private placementeach according to his percentage of ownership according to the rules of privateplacement while waiving the minimum requirements of $10 million subscription; The capital increase has been fully paid. - Increasing the Company's authorized capital from LE. 700 million to LE.3 200 million and the issued capital from LE.485370050 to LE. 1 456 110 150through a second trnache by issuing 194 148 020 shares at the par value of theshare (LE. 5) through a 1:2 right issue. The mentioned increase in the issued capital has been fully paid andaccordingly, the company's issued and paid in capital amounted to LE. 1 456 110150 distributed on 291 222 030 shares with par value of LE.5 each.On May 14,2006, the increase has been registered in the CommercialRegister. 18. Treasury Shares The balance of Treasury Shares stated in the statement of financial positionrepresents a number of 1 553 827 shares of the company's shares which representsapproximately 0.53% of company's issued capital with total cost of LE.27 501 538. 19- Long term loans A- A loan contract has been signed on March 28,2001 between EFG- HermesHolding Company and International Finance Corporation (IFC), this contractprovides for that EFG- Hermes Holding borrows a long term loan amounting to USD30 Million for five years ending on May 15,2006 with two years as grace periodand annual floating interest rate over Libor based on the return rate on equity. This loan will be used in financing the company's expansions in the Middle Eastand North Africa besides new activities. According to the loan contract thecompany has received the first installment amounting to US$ 15 Million on May15, 2001. The loan principal is payable on 7 semi annual installments amountedto US$ 4 285 700 each starting from May 15,2003 and interest is due semiannually on May 15 and November 15, the first interest was due on November 15,2001. The loan contract stipulated to provide the following guarantees. - An irrevocable power of attorney from the Borrower and the borrower'ssubsidiaries to IFC enabling IFC to create at will (a) a first - ranking realestate mortgage over the land and the building owned by Financial BrokerageGroup S.A.E. (a subsidiary company 99.76 %) at 58 El Tahrir Street, Dokki -Giza, Arab Republic of Egypt and (b) a first - ranking commercial mortgage onthe tangible and intangible assets of the Borrower and Borrower's subsidiaries.Including such asset as may be acquired after the signature of this agreement. - An irrevocable and unconditional guarantee by the Egyptian guarantorsexcept Egyptian portfolio management group company in a form acceptable to IFCfor the benefit of IFC, payable on first demand by IFC to guarantee theBorrower's payment obligations to IFC under this agreement. - A pledge of the shares that the Borrower holds in Egyptian PortfolioManagement Group S.A.E. to IFC (with par value of LE. 1 990 000). - On March 13, 2002, the company paid an amount of US$ 4 144 630 to theIFC as a partial repayment of the loan. The company has paid an amount of US$ 1550 762 on May 15,2003, November 12,2003, May 13,2004, November 10,2004 and May12,2005 and November 14,2005. The company has paid an amount of US$ 1 550 798 onMay 10,2006 as a last installment of the loan. - On December 28,2005, a loan agreement has been signed withInternational Finance Corporation " IFC" where by the company is entitled toobtain long term loan with an amount of US$ 20 Million to Finance Regionalexpansion of the company. The loan will be repaid on 10 equal semi Annualinstallment with US$ 2 million for each installment and the first installmentwill due on May 15,2007 and the last installment will due on November 15,2011and the interest is due on May 15, and November 15 and the first interest willdue on May 15,2006. The loan agreement provides for that the company'ssubsidiaries will guarantee the loan repayment through an irrevocableunconditional guarantee and the company has not obtained any amounts from thisloan till financial position date. B- On January 4,2002, a loan contract has been signed with the Foundationof (DEG)- DEUTSCHE INVESTITIONS- UND ENTWICKLUNGSGESELLSCHAFT MBH. The saidcontract provides for that EFG- Hermes Holding Company borrows a long term loanwith amount of EURO 15 Million with an applied annual floating interest rate.The loan principal is to be repaid on 12 semi annual installments of 1.25million EURO each. The first installment was due on May 15, 2003 and the loaninterest is due semi annually on May 15, andNovember15, The Company is committed to render some guarantees to the lender asstipulated by the contract. On July 4, 2002 the company has received an amountof EURO 10 420 000 , and EURO 4 580 000 on December 24,2002 representing thefull amount of the mentioned loan. The company has paid an amount of EURO 1,25 million to DEG on May15,2003, and November 12,2003. The company has paid EURO 2 500 000 on May13,2004, EURO 1 250 000 on May 12,2005 and November 14,2005.The company has paid EURO 1.25 million on May 10,2006. Accordingly, the loanbalance as of June 30,2006 amounted EURO 6.25 million (Equivalent amount of LE.45 250 000). - On December 29,2005 a loan agreement has been signed with(DEG)- DEUTSCHE INVESTITIONS- UND ENTWICKLUNGSGESELLSCHAFT MBH whereby thecompany is entitled to obtain a long term loan with an amount of Euro 10 millionwith a variable annual interest rate. The loan's purpose is to finance theregional expansion of the company. The loan will be repaid on 10 equal semiannual installments with an amount of one million Euro per installment. Thefirst installment will due on may 15,2008 and the last installment will due onNovember 15, 2012 and the interest is due on May 15, November 15 each year. Thefirst interest will due with the first installment. The loan agreement provides for that the company's subsidiarieswill guarantee the loan repayment through an irrevocable unconditionalguarantee. According to the loan contract, the company is entitled to receivethe loan on two installments with an amount of EURO 5 million and the companyhas not obtained any amounts from this loan till financial position date. 20. Contingent Liabilities - The company undertakes its subsidiaries - Financial Brokerage Group,Hermes Securities Brokerage against the credit facilities granted from banks andEFG- Hermes Brokerage - UAE. against letters of guarantee amounting to AED 86Million (the equivalent amount of LE. 134 160 000) issued by banks upon therequest of Financial Brokerage Group Company (one of company's subsidiaries -99.76%) in favour of Dubai and Abo Dhabi Market Authorities to guarantee thebrokerage activity of the subsidiary EFG- Hermes Brokerage Company - UAE Ltd. - The company and its subsidiaries have executed SWAP contract with bankswhich will be settled according to specific rates for the foreign currenciesimplied in such contracts. The mentioned contracts are as follows. Transaction Transaction Amount currency Expiry Date operation Date 29/6/2006 Selling Euro 6 250 000 Buying USD 26/7/2006 28/6/2006 Selling EGP 262 421 250 Buying USD 12/7/2006 - Hermes Corporate Finance Company ( a subsidiary - 99.37%) issued througha bank a letter of guarantee in an amount of LE. 292 500 in favor of EgyptianElectricity Authority. The issuer bank has blocked the company's time depositwhich amounts LE. 486 779 on June 30,2006 as a margin for this letter ofguarantee. 21. Impairment Of Assets 30/6/2006 30/6/2005 LE. LE. Impairment of accounts receivable & debit accounts 2 436 8 719 983 Impairment of subsidiaries current accounts 105 022 -- Impairment of investment in subsidiaries 122 500 -- Impairment of available -for- sale investments -- 3 814 813 __________ _________ 229 958 12 534 796 ========= ======== 22. Incentive Fee Revenues Due to inadequate assurance concerning the revenue recognitionconditions and collections of the incentive fee on managing investment funds andportfolios, the assets management companies (subsidiaries) deferred therecognition of Incentive Fee with an amount of LE. 199 815 for the period endedJune 30,2006 versus LE. 82 904 298 for the same period last year as no revenues are recognized if there are any uncertainties regarding the recovery of the consideration due. Subsidiary's Name Amount LE. 30/6/2006 30/6/2005EFG- Hermes Financial Management (Egypt) Ltd. 637 23 874 997Egyptian Portfolio Management Group Company 199 178 32 919 146Hermes Fund Management Co. -- 26 110 155 _________ _________ 199 815 82 904 298 ======== ========= 23. Deferred Tax Assets And Liabilities Deferred tax assets and liabilities are attributable to the following: 30/6/2006 31/12/2005Deferred Tax Assets Liabilities Assets Liabilities LE. LE. LE. LE.Fixed assets' depreciation -- (701 321) -- (385 410)Capital losses 7 581 -- 3 982 --Provisions 3 242 727 -- 3 152 614 -- _________ _________ _________ __________Total deferred tax assets (liabilities) 3 250 308 (701 321) 3 156 596 (385 410) _________ _________ _________ _________Net deferred tax assets 2 548 987 -- 2 771 186 -- ======== ======== ======== ======== 24. Corresponding figures Certain corresponding figures have been reclassified to conform with the currentperiod classification. This information is provided by RNS The company news service from the London Stock Exchange