Maroc Telecom
113,900,183 Ordinary Shares
This is an initial offering of the ordinary shares of Maroc Telecom, a Moroccan société anonyme. This international offering of ordinary shares to institutional investors is part of the global offering by the Kingdom of Morocco of 113,900,183 ordinary shares of Maroc Telecom, representing 13.0% of the capital stock in Maroc Telecom. The global offering also includes a public offering in Morocco of 74,729,050 ordinary shares, including to retail investors. The Moroccan public offering also includes an offering by the Kingdom of Morocco of 4,256,822 ordinary shares to certain current and former employees of Maroc Telecom. Maroc Telecom will not receive any of the proceeds from the ordinary shares sold by the Kingdom of Morocco.
There is currently no market for the ordinary shares. The ordinary shares have been approved for listing on the Casablanca Stock Exchange and on the Premier Marché of Euronext Paris S.A.
Investing in our ordinary shares involves risks. See “Risk factors” beginning on page 9.
Offering Price MAD 68.25 (€6.16) per ordinary share
The offering price in euro has been determined using the dirham / euro exchange rate published by Bank Al Maghrib on December 10, 2004 (MAD 11.0848 per 1 euro).
The Kingdom of Morocco has granted the stabilisation manager for the Joint Global Coordinators an option to purchase up to 17,085,023 additional ordinary shares at the initial offering price for purposes of covering short positions arising from stabilization transactions, including any over-allotments of ordinary shares in the global offering.
The ordinary shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and are being offered only (i) in the United States to qualified institutional buyers under Rule 144A under the Securities Act and (ii) outside the United States in compliance with Regulation S under the Securities Act. Prospective purchasers are hereby notified that sellers of the ordinary shares may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of certain restrictions on resale or transfer of the ordinary shares in certain countries, see “Transfer restrictions” beginning on page 150.
The ordinary shares are expected to be delivered to purchasers on or about December 16, 2004 through the facilities of Maroclear and Euroclear France S.A.
Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers
BNP PARIBAS Merrill Lynch International Attijari Finances
Offering Memorandum dated December 10, 2004
TABLE OF CONTENTS
Summary of the Offering Memorandum ...... 4 The Global Offering ...... 6 Summary Financial Data ...... 8 Risk Factors ...... 9 Dividends and Dividend Policy ...... 15 Capitalization ...... 16 Management’s Discussion and Analysis of Financial Condition and Results of Operations ...... 17 Business ...... 46 Outlook and Recent Developments ...... 85 Regulation ...... 90 Management ...... 99 Related-Party Transactions ...... 110 Description of Shares and Corporate Structure ...... 111 Principal and Selling Shareholders ...... 130 Kingdom of Morocco ...... 138 Taxation ...... 142 Plan of Distribution ...... 148 Transfer Restrictions ...... 150 Legal Matters ...... 153 Independent Auditors ...... 153 Limitation of Enforcement of Civil Liabilities ...... 153 Index to Financial Information ...... F-1 [THIS PAGE INTENTIONALLY LEFT BLANK] IMPORTANT INFORMATION ABOUT THIS OFFERING MEMORANDUM
This offering memorandum has been prepared by Maroc Telecom solely for use in connection with the proposed offering of the ordinary shares described in this offering memorandum. This offering memorandum is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the shares.
Distribution of this offering memorandum to any person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized, and any disclosure of any of its contents, without the prior consent of Maroc Telecom, is prohibited. Each prospective investor, by accepting delivery of this offering memorandum, agrees to the foregoing and agrees to make no photocopies of this offering memorandum or any documents referred to in this offering memorandum.
Notwithstanding anything in this offering memorandum to the contrary, each prospective investor (and each employee, representative or other agent of the prospective investor) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of any offering and all materials of any kind (including opinions or other tax analyses) that are provided to the prospective investor relating to such U.S. tax treatment and U.S. tax structure, other than any information for which non-disclosure is reasonably necessary in order to comply with applicable securities laws.
The Joint Global Coordinators make no representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this offering memorandum. Nothing contained in this offering memorandum is, or shall be relied upon as, a promise or representation by the Joint Global Coordinators as to past or future events.
The distribution of this offering memorandum and the offering and sale of the shares in certain jurisdictions may be restricted by law. Maroc Telecom and the Joint Global Coordinators require persons into whose possession this offering memorandum comes to inform themselves about and to observe any such restrictions. For a description of certain restrictions on the offering and sale of the shares, see “Transfer restrictions”. This offering memorandum does not constitute an offer of, or an invitation to purchase, any of the ordinary shares in any jurisdiction in which such offer or invitation would be unlawful.
In making an investment decision, prospective investors must rely on their own examination of Maroc Telecom and the terms of the offering, including the merits and risks involved. Prospective investors should not construe any information in this offering memorandum as legal, business or tax advice. Each prospective investor should consult its own advisors as needed to make its investment decision and to determine whether it is legally permitted to purchase the shares under applicable legal investment or similar laws or regulations.
You should rely only on the information contained in this offering memorandum. Maroc Telecom has not, and the initial purchasers have not, authorized any person to provide you with additional or different information except as contemplated in the preceding paragraph. If anyone provides you with additional, different of inconsistent information, you should not rely on it. You should not assume that the information contained in this offering memorandum is accurate as of any date other than the date on the front cover of this offering memorandum.
In connection with the global offering, Merrill Lynch International (or persons acting on its behalf) may over-allot ordinary shares (up to the maximum amount permitted by Commission Regulation (EC) No. 2273/2003 implementing Directive 2003/6/EC of the European Parliament and the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments) or effect transactions with a view to supporting the price of the ordinary shares at a level higher than that which might otherwise prevail. However, there is no assurance that Merrill Lynch International, acting as stabilisation manager (or persons acting on its behalf), will undertake any stabilisation action. Any stabilisation action may begin at any time after the commencement of trading in the ordinary shares on Euronext Paris S.A. and, if begun, may be ended at any time, but it must end no later than 30 calendar days thereafter.
1 INFORMATION FOR PROSPECTIVE INVESTORS IN THE UNITED STATES
The ordinary shares offered hereby have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or with any securities regulatory authority of any state or other jurisdiction in the United States, and may not be offered, sold, pledged or otherwise transferred except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state securities laws. Any representation to the contrary is a criminal offense in the United States. The shares are being offered (a) in the United States only to qualified institutional buyers, in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A under the Securities Act and (b) outside the United States only in “offshore transactions” as defined in, and in accordance with, Regulation S under the Securities Act. See “Plan of distribution”.
INFORMATION FOR PROSPECTIVE INSTITUTIONAL INVESTORS IN FRANCE
No offering memorandum (including this offering memorandum or any amendment, supplement or replacement thereto) subject to the approval (visa) of the French Autorité des marchés financiers has been prepared in connection with the offering. The ordinary shares may not be offered or sold to the public in France and neither this offering memorandum, nor any other offering material or information contained therein relating to the ordinary shares may be released, issued or distributed or caused to be released, issued or distributed to the public in France, or used in connection with any offering in respect of the ordinary shares to the public in France. The offering shall be made in France only to qualified investors (investisseurs qualifiés) (as defined in article L. 411-2 of the French Code Monétaire et Financier and Décret no. 98-880 dated October 1, 1998) acting for their own account. The direct or indirect resale to the public in France of any ordinary shares acquired by such qualified investors may be made only as provided by articles L. 412-1 and L. 621-8 of the French Code Monétaire et Financier and applicable regulations thereunder. Persons into whose possession this offering memorandum or any amendment, supplement or replacement thereto comes must inform themselves about and observe any such restrictions. The offering does not constitute a solicitation by anyone not authorized to so act and the offering memorandum may not be used for or in connection with the offering to solicit anyone to whom it is unlawful to make the offering.
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM
This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom; (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (the “Order”); or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2) of the Order (all such persons together being referred to as “relevant persons”). The ordinary shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such ordinary shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE IMPLIES THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT ANY EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
2 AVAILABLE INFORMATION
As of the date hereof, Maroc Telecom is neither subject to Section 13 or 15(d) of U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act. For so long as this remains the case, Maroc Telecom will furnish, upon written request, to any shareholder, any owner of any beneficial interest in any ordinary share or any prospective purchaser designated by a shareholder or such an owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this offering memorandum are not historical facts but rather are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Such forward- looking statements include, without limitation, certain statements made in the section hereof entitled “Summary of the offering memorandum”, “Risk factors”, “Management’s discussion and analysis of financial condition and results of operations”, “Business” and “Outlook and recent developments”. Forward-looking statements are subject to uncertainty due to, among other factors: — The evolution of the Moroccan economy and, in particular, the evolution of telecommunications spending by Moroccan customers and international telephone traffic to and from Morocco; — Competition with existing operators or with new entrants in the Moroccan telecommunications market; — Developments in the regulation of the Moroccan telecommunications market; — The anticipated liberalization of the fixed-line market and the possible award of additional mobile telephony licenses; — The policy of the Moroccan telecommunications regulator with respect to fixed-line and mobile interconnection charges; — Changes in technologies; — Variations in exchange rates, in particular a rise in the rate of the euro to the dirham and a fall in the rate of the U.S. dollar to the dirham; and — Other factors described in this offering memorandum.
Maroc Telecom cautions that these statements are further qualified by the risks described under “Risk factors” herein that could cause actual results to differ materially from those in the forward-looking statements. Maroc Telecom undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
INDUSTRY AND MARKET DATA
Market and economic data and certain industry forecasts used throughout this offering memorandum were obtained from internal surveys, reports and studies, where appropriate, as well as from market research and publicly available information, including from the Ministry of Finance and Privatization of Morocco, the Directorate of Statistics of Morocco, the Moroccan National Telecommunications Regulatory Agency (ANRT), the World Bank, and public filings of our competitors and industry publications. All references to information from any such sources in this offering memorandum refer to such surveys, reports, studies, filings or information. Certain publications generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information are not guaranteed. Similarly, internal surveys, estimates and market research, while believed to be reliable, have not been independently verified, and neither Maroc Telecom, the Kingdom of Morocco nor any of the Joint Global Coordinators makes any representation as to the accuracy of such information.
3 SUMMARY OF THE OFFERING MEMORANDUM
This summary highlights information contained elsewhere in this offering memorandum. Because it is a summary, it is not complete and does not contain all the information that you should consider before investing in the ordinary shares of Maroc Telecom. Prospective investors should read this entire offering memorandum carefully, including the information discussed under “Risk factors” beginning on page 9 and the financial statements beginning on page F-1.
Certain amounts and percentages have been rounded and, accordingly, may not total.
MAROC TELECOM Maroc Telecom (or the “Company”) is the incumbent telecommunications operator in the Kingdom of Morocco. The Company owns and operates fixed-line and mobile telecommunications networks. It is the national leader in mobile telecommunications and currently the only fixed-line telecommunications operator in Morocco.
Maroc Telecom is organized around two business segments: — The Mobile segment provides mobile telecommunication services (subscriptions, rate plans, pre-paid cards and handsets) to individuals and businesses in Morocco. Maroc Telecom had 5.52 million mobile customers as of June 30, 2004, and operates a GSM network that covers almost the entire population through more than 3,500 base stations. According to the ANRT, as of June 30, 2003, Maroc Telecom was the leading provider of mobile telecommunications services in Morocco with a market share of 70.3% in terms of the number of mobile customers. — The Fixed-line and Internet segment provides fixed-line telecommunications services, Internet services and data connectivity services for residential, professional and business customers in Morocco. It also offers public telephony services through its own network of public phones, and through an independent network of telestores. Maroc Telecom provides interconnection services to other national and international telecommunications operators. Maroc Telecom had 1.3 million customers in this segment as of June 30, 2004. Its network, entirely digitized for switching, consists of over 6,500 kilometers of intercity fiber optic cable and over 3,200 kilometers of urban fiber optic cable.
In 2003, Maroc Telecom recorded revenue of MAD 15,894 million, operating income of MAD 6,949 million and net income MAD 5,085 million. The Fixed-line and Internet segment has traditionally been and remains the group’s principal activity in terms of revenue. Since 2000, rapid development of the Mobile segment’s business has provided it with a growing share of Maroc Telecom’s revenues, rising from 34% of consolidated revenue in 2001 to over 40% in 2003.
Strategy Against the background of a growing telecommunications market, supported by demand resulting mainly from favorable economic and demographic conditions, Maroc Telecom’s goal is to retain leadership on all its market segments (mobile, fixed-line and Internet), and to retain its position as the preferred telecommunications services provider in Morocco, while maintaining its profitability.
Since its creation in 1998, and despite the sector’s opening to competition, Maroc Telecom has succeeded in maintaining its leadership on each segment of the telecommunications market, relying in particular on: — a segmented and competitive offer, suited to consumers’ expectations; — a localized distribution network, the densest in the country, with almost 28,000 direct and indirect sales points licensed by Maroc Telecom; — a modern network infrastructure, offering the country’s best mobile coverage; and — strong brands enjoying high recognition.
Maroc Telecom’s strategy is accordingly organized along the following main lines: — Stimulating growth in the mobile market through the development of penetration and usage of mobile telecommunications services;
4 — Reinforcing its competitiveness on fixed-line services with a view to the forthcoming opening of this segment to competition; — Remaining the main engine for and player in the development of the Internet in Morocco; — Capitalizing on its brands and making Maroc Telecom into the reference in terms of customer service in Morocco; — Relying on a network infrastructure that complies with the most recent technological standards; and — Maintaining rigorous financial management and a sound financial structure.
5 THE GLOBAL OFFERING
The Global Offering ...... This global offering comprises: • a Moroccan public offering known as an offre à prix ouvert, including to retail investors in Morocco; • an offering to certain current and former employees of Maroc Telecom; and • an offering to institutional investors (i) outside the United States in reliance on Regulation S under the Securities Act, and (ii) to qualified institutional buyers in reliance on Rule 144A under the Securities Act.
Shares Offered ...... 113,900,183 ordinary shares, representing 13.0% of all outstanding ordinary shares (or 130,985,206 ordinary shares, representing 14.9% of all outstanding shares, assuming full exercise of the Over- Allotment Option referred to below).
Selling Shareholder ...... The ordinary shares are being offered by the Kingdom of Morocco, which currently owns ordinary shares representing 65% of the share capital of Maroc Telecom. Following the offering, the Kingdom of Morocco will own 457,511,737 ordinary shares, representing 52.0% of all outstanding ordinary shares, assuming no exercise of the Over- Allotment Option (or 440,426,714 ordinary shares, representing 50.1% of all outstanding ordinary shares, assuming full exercise of the Over-Allotment Option). The Kingdom of Morocco has agreed to sell ordinary shares representing 16% of Maroc Telecom’s share capital to Vivendi Universal in a separate transaction. See “Principal and selling shareholders”. Upon completion of this transaction, which is expected to occur on January 4, 2005, the Kingdom of Morocco will hold ordinary shares representing 34.1% of Maroc Telecom’s share capital (assuming full exercise of the Over-Allotment Option).
Moroccan Public Offering ...... The Kingdom of Morocco will sell 74,729,050 ordinary shares in the Moroccan public offering.
Offering Price ...... The price for the ordinary shares sold in this global offering is MAD 68.25 (€6.16) per ordinary share. The offering price in euro has been determined using the dirham / euro exchange rate published by Bank Al Maghrib on December 10, 2004 (MAD 11.0848 per 1 euro).
Over-Allotment Option ...... The Kingdom of Morocco has granted Merrill Lynch International, acting as stabilisation manager, an option to purchase up to 17,085,023 additional ordinary shares to cover short positions arising from stabilization transactions, including any over-allotments of ordinary shares in the global offering. The Over-Allotment Option is exercisable at any time, from time to time, until the 30th day following the date on which the ordinary shares commence trading on Euronext Paris S.A. See “Plan of distribution”.
The Employee Offering ...... As part of the Moroccan public offering, the Kingdom of Morocco will sell 4,256,822 ordinary shares to certain current and former employees of Maroc Telecom at a discount of 15% to the offering price in the Moroccan public offering and the international institutional offering.
6 Use of Proceeds ...... Maroc Telecom will not receive any proceeds from the ordinary shares sold by the Kingdom of Morocco.
Lock-up Agreements ...... Maroc Telecom, the Kingdom of Morocco and Vivendi Universal have agreed that, subject to certain exceptions, for a period ending nine months after the closing date they will not, without the prior written consent of the Joint Global Coordinators, announce, conduct or undertake to conduct an issuance, offering, sale or promise of sale, pledge of any kind, whether direct or indirect, or dispose of ordinary shares of Maroc Telecom or other securities giving the right or capable of giving the right, immediately or eventually, to a share of Maroc Telecom’s capital, nor enter into or undertake to enter into any option or derivative transaction intended to have the effect or which would be likely to have the effect of resulting in a transfer of ordinary shares, nor carry out any other transaction which would have an equivalent economic effect. See “Plan of distribution”.
Transfer Restrictions ...... The ordinary shares are subject to restrictions on transfer in the United States and certain other countries. See “Transfer restrictions”.
Voting Rights ...... Each ordinary share represents the right to cast one vote at a general shareholders’ meeting.
Dividends ...... Pursuant to its by-laws, Maroc Telecom is required to distribute annually at least half of its distributable profits, unless the Supervisory Board decides otherwise by a qualified majority of three quarters of those members present or represented.
Moroccan Withholding Tax ...... Dividends distributed by Maroc Telecom are generally subject to a withholding tax imposed by the Kingdom of Morocco. See “Taxation”.
Risk Factors ...... Prior to making an investment decision to purchase ordinary shares in this offering, you should carefully review and consider the information discussed under “Risk factors”.
Payment and Delivery ...... Delivery of the ordinary shares to purchasers is expected to take place on or about December 16, 2004, through the facilities of Maroclear and Euroclear France S.A. The costs of settling the purchase of the ordinary shares, including stock exchange dues and brokers’ commissions, may vary depending on where the purchaser chooses to take delivery.
The ordinary shares will be eligible for clearance through Maroclear, the Euroclear System and Clearstream Banking S.A.
Listing and Trading ...... There is currently no market for the ordinary shares. Maroc Telecom has applied to list the ordinary shares on the Casablanca Stock Exchange under the symbol “IAM” and on the Premier Marché of Euronext Paris S.A. under the symbol “IAM”.
Security Code ...... Euroclear System, Clearstream Banking S.A. and Maroclear ISIN Code: MA 000 001137 1
7 SUMMARY FINANCIAL DATA
The consolidated financial data summarized below is derived from the audited consolidated financial statements for the fiscal years ended December 31, 2001, 2002 and 2003 and the unaudited consolidated financial statements for the periods ended June 30, 2003 and 2004, contained elsewhere in this offering memorandum. This summary should be read together with the section entitled “Management’s discussion and analysis of financial condition and results of operations” and such financial statements, the related notes thereto and the other financial information included elsewhere in this offering memorandum.
At and for the At and for the year ended six-month period December 31, ended June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Summary statement of income data Consolidated revenue ...... 14,268 15,411 15,894 7,676 8,464 Operating expenses ...... (10,563) (9,604) (9,064) (4,548) (4,892) Operating income ...... 3,770 5,922 6,949 3,167 3,633 Ordinary income ...... 3,461 6,029 6,995 3,138 3,722 Net income before minority interests ...... 1,134 3,242 5,092 2,288 2,478 Net income ...... 1,134 3,232 5,085 2,285 2,472 Earnings per share (in MAD)(1) ...... 13 37 58 26 28 Summary balance sheet data Assets Property, plant and equipment ...... 13,113 12,421 11,963 — 11,872 Current assets ...... 7,509 11,877 13,548 — 11,482 of which cash and cash equivalents ...... 1,555 6,116 7,700 — 4,967 Liabilities Shareholders’ equity (group share) ...... 12,726 15,189 17,737 — 15,090 of which share capital ...... 8,791 8,791 8,791 — 8,791 Loans and long-term debt ...... 3,277 2,602 1,607 — 1,515 Total shareholders’ equity and liabilities ...... 21,846 25,513 26,705 — 24,636
(1) In November 2004, the par value of the ordinary shares was reduced to MAD 10 from MAD 100. As a result, the number of outstanding shares increased from 87,909,534 to 879,095,340 ordinary shares. Earnings per share are computed without giving effect to this change in par value.
8 RISK FACTORS
In addition to the other information contained in this offering memorandum, prospective investors should carefully consider the risks described below before deciding to invest in the Company’s shares. If one or more of such risks were to occur, the activities, financial position, earnings and development of the Company could be affected. The risks and uncertainties described below do not, however, represent a comprehensive statement of the risks affecting Maroc Telecom. Other risks and uncertainties, not yet identified by the Company or deemed not to be significant, could also have a material effect on its operations.
RISKS RELATING TO THE COMPANY’SBUSINESS Maroc Telecom’s revenues and earnings are dependent to a significant extent on changes in the Moroccan economy Maroc Telecom’s main activity is the provision of telecommunications services in Morocco, including the provision of international telecommunications services to and from Morocco. Accordingly, Maroc Telecom’s revenues and profitability depend to a significant extent on the evolution of telecommunications spending by Moroccan customers and international telephone traffic to and from Morocco. The evolution of usage of telecommunications services in Morocco reflects, in part, the evolution of the country’s economic position, and more specifically, the population’s disposable income and its businesses’ economic activity. A shrinkage or slower-than-expected growth of the Moroccan economy could have a negative impact on the development of the customer base and the usage rate of fixed-line and mobile telecommunications services in Morocco, which could have a material effect on the growth and profitability of Maroc Telecom’s activities, and possibly entail a decline in its revenues and earnings.
In this context, the perception of possible acts of terrorism, whether committed in Morocco or abroad, could significantly affect the Moroccan economy in general (in particular through a decrease in tourist activity). As regards this risk, which is not specific to Morocco, Maroc Telecom cannot forecast the consequences of the perception, informed or otherwise, of such possible acts of terrorism.
Maroc Telecom faces an intensification of competition in the Moroccan market for telecommunications, which could cause a loss of market share and a reduction in Maroc Telecom’s revenues Two licensed operators are currently present in the Moroccan market for mobile telecommunications: Maroc Telecom and Méditel. Over the past three years, Maroc Telecom’s market share has diminished to approximately 70% as of June 30, 2004 (Source: ANRT). Over the same period, the Company cut its prices and set up promotional offers (including through the grant of customer subsidies) to anticipate and respond to the competition. Maroc Telecom may be required to carry out further price cuts and promotions to maintain its position in the market. In addition, increased liberalization implemented by the regulator could further increase competition in the market (see generally “—Risks relating to the regulatory environment” below). The intensification of competition among the existing operators or with new entrants could result in a continued reduction in Maroc Telecom’s market share, and in increased costs for the acquisition and retention of customers, which could lead to a reduction in Maroc Telecom’s revenues and earnings (see “Management’s discussion and analysis of financial condition and results of operations—Market trends and other factors affecting earnings —Mobile segment”).
Maroc Telecom is dependent on the reliability of its information systems; damage to or loss of all or part of its systems could result in a loss of customers and a fall in revenues Maroc Telecom can be paid for its services only insofar as it uses reliable information systems (including collection and invoicing systems), and succeeds in protecting and securing the continuity of such systems’ operation. Maroc Telecom has established a security policy for its information systems allowing it to deal with ordinary disturbances in computer operations (unauthorized access, power cuts, theft, hardware crash, etc.) and to secure uninterrupted service. Nevertheless, Maroc Telecom does not currently have a back-up center for its information systems. An event entailing a destruction of all or part of its systems (such as an act of God, a fire or an act of vandalism) would have a material effect on the Company’s ability to invoice and collect from its customers and therefore on its revenues and operating income. Such a situation would also have a material effect in terms of image and reputation for the Company, which could lead, in particular, to a loss of customers.
9 Maroc Telecom is dependent on the reliability of its telecommunications networks, and a disturbance of such networks could result in a loss of customers and a fall in revenues
Maroc Telecom is able to provide services only insofar as it is able to protect its telecommunications networks from damage caused by disturbances, power cuts, computer viruses, acts of God and unauthorized access. Any disturbance of the system, accident or breach of security measures causing interruption in the Company’s operations could affect its ability to provide services to its customers and have a material effect on its revenues and operating income. Such disturbances would also have a material effect in terms of image and reputation for the Company, which could lead, in particular, to a loss of customers. In addition, the Company could be required to bear additional costs in order to repair the damage caused by such disturbances.
Maroc Telecom’s indirect distribution network could be weakened if Maroc Telecom does not succeed in maintaining it
Maroc Telecom has an extensive distribution network, consisting of a direct network of branches, an indirect network consisting of telestores, retailers and partners, and an independent network (see “Business—Distribution”). If Maroc Telecom were unable to maintain close relations or to renew its distribution agreements with the components of its indirect network, if its indirect distribution network were to be jeopardized for other reasons, in particular the actions of competitors, or if the managers of telestores failed to comply with the exclusive agreements made with Maroc Telecom by distributing products competing with those of Maroc Telecom, the distribution network could be weakened and the Company’s business and earnings could be affected significantly.
Continued and rapid changes in technology could intensify competition or require Maroc Telecom to make significant additional investments
Many services offered by Maroc Telecom involve intensive use of technology. The development of new technologies could cause some services of the Company to cease to be competitive. Maroc Telecom could fail to identify new opportunities in due time, and be required to make significant additional investments, in particular for the development of new products and services, or to obtain a new license (for instance for UMTS), or for the installation of infrastructure required to enable it to remain competitive. The new technologies in which the Company may choose to invest may affect its ability to achieve its strategic targets. Maroc Telecom could then lose customers, fail to succeed in attracting new customers, or be required to bear significant costs in order to maintain its customer base, which would have a negative effect on its business, revenue and earnings.
Alternative means of communication could result in a reduction of the usefulness or even in the obsolescence of the fixed-line network, which could lead to the loss of a competitive advantage and reduce the Company’s revenues significantly
The Company has already had to deal with the substitution of fixed-line customers by mobile customers, which has been heightened by the use of alternative technologies. As an illustration, GSM gateway services are beginning to compete with Maroc Telecom’s fixed-line voice services (see “Business—Competition”). The Company’s fixed-line telecommunications activities could be affected by the development of such gateways or other alternative means of communication. Such alternative technologies could jeopardize the usefulness of Maroc Telecom’s infrastructure and fixed-line network, by enabling competitors to use mobile telecommunications services to compete with Maroc Telecom without having a fixed-line network. Maroc Telecom’s infrastructure and extensive network would then become less useful or even obsolete, which would lead to the loss of a competitive advantage and could affect significantly the Company’s revenues and earnings.
Health risks, whether real or perceived, or other problems connected with mobile devices or their base stations, could result in less intensive use of mobile communications
Certain studies of mobile technology claim that the electromagnetic signals emitted by mobile devices and base stations involve health risks. Such risks, whether real or perceived, and the publicity they receive, together with any resulting legislation or litigation, could reduce the Company’s base of mobile customers, make the establishment of new base stations and the maintenance of existing base stations more difficult, or incite customers to reduce their use of mobile telephones.
10 Fraudulent diversion of traffic could limit the Company’s revenues and affect its earnings The Company first experienced a fraudulent diversion of its traffic in 2001. In response, Maroc Telecom has established a plan to combat that fraud. Maroc Telecom cannot forecast, however, whether new means of fraud will develop, the sectors that potential offenders will attack, nor the effects that any such fraud could have. If Maroc Telecom fails to prevent these fraudulent activities, it could see a reduction in its traffic in the sector affected by the fraud, and its revenues and earnings could thereby be affected.
Maroc Telecom may carry out acquisitions of telecommunications companies or licenses In order to extend its geographical presence, Maroc Telecom could acquire telecommunications companies or licenses in other countries. Such transactions necessarily involve risks. If Maroc Telecom does not achieve the results expected from such transactions, its business and earnings could be affected. In particular, Maroc Telecom could: — carry out acquisitions on financial or commercial terms that were subsequently found to be unfavorable; — incur difficulties in integrating the companies acquired, or their networks, products or services; — fail to retain the key employees of the companies acquired or to recruit skilled personnel as may be required; — fail to achieve the expected synergies or economies of scale; — make investments in countries where the political, economic or legal situation involves particular risks, such as civil or military unrest, the absence of effective or comprehensive protection of shareholders’ rights, or disagreements with other major shareholders, including public authorities, relating to the management of the companies acquired; or — fail to adapt to the specific features of the countries in which any such companies would be acquired.
Maroc Telecom could fail to retain its key employees or to hire highly skilled personnel, which could affect significantly the Company’s activities and its ability to adapt to its environment Maroc Telecom’s performance is dependent to a significant extent on the abilities and services provided by its management team. The management team has significant experience and knowledge of the telecommunications industry. The loss of key members of management could have a significant adverse impact on Maroc Telecom’s ability to implement its strategy.
Maroc Telecom and its performance are also dependent on skilled personnel having the experience and technical or commercial abilities required for the development of its business. Maroc Telecom’s ability to adapt its services, products and commercial offers, whether in the area of fixed-line or mobile telecommunications, is highly dependent on the presence of competent and skilled teams in its various markets.
Failure by Maroc Telecom to retain its key personnel, whether its management team or its commercial and technical executives, could affect the Company’s activity and its operating income could diminish substantially.
RISKS RELATING TO THE REGULATORY ENVIRONMENT The interpretation of existing legislation and the adoption of new statutory rules could affect Maroc Telecom’s activities significantly Legislation relating to the telecommunications industry in Morocco is currently evolving. Act 55-01, dated November 2004, could be interpreted in a manner that could affect Maroc Telecom’s activity significantly, and result in a reduction in its revenue and earnings. In addition, the introduction of (i) carrier pre-selection, (ii) unbundling, and (iii) the portability of numbers will necessarily favor the competition to Maroc Telecom’s detriment.
As regards the universal service obligations imposed on Maroc Telecom, an unfavorable interpretation of the nature of such obligations by the supervisory authorities, affecting either the calculation of the provisions established by Maroc Telecom prior to the adoption of Act 55-01 or the Company’s evaluation of its investment expenses that may be offset with the universal service obligations under the new statute, could have a material impact on the Company’s earnings (see “Management’s discussion and analysis of financial condition and results of operations—Significant accounting policies and estimates—Contribution to universal service”).
11 The award of a third mobile license could weaken Maroc Telecom’s position on the market for mobile telecommunications services The ANRT has stated that a third GSM license could be awarded in the near future. It is possible, however, that the regulator’s stance will change. The Company cannot forecast whether this process of liberalization of the mobile sector will evolve in a favorable manner. If such liberalization were to entail heightened competition on the market for mobile telecommunications in Morocco, Maroc Telecom could see its market share diminish and its costs for acquisition and retention of its customers increase, which could result in a reduction in its revenues and earnings.
Liberalization of the fixed-line market could restrict Maroc Telecom’s market share and affect its profitability Maroc Telecom operates in a market for fixed-line telecommunications that is currently being liberalized. In this respect, the ANRT has recently announced its intention to award two new fixed-line telecommunications licenses in the first quarter of 2005 in each of the national, international and local loop sectors.
Liberalization of the fixed-line market could reduce the base of existing or potential customers for Maroc Telecom, who may be attracted by the competition. In addition, the entry of new operators through the award of international licenses will entail heightened competition, which could result in a decrease in international rates. Accordingly, the liberalization of these markets may affect Maroc Telecom’s revenue and earnings.
The ANRT could permit other operators to enter the telecommunications market on terms less onerous than those applicable to Maroc Telecom, or could grant them favorable terms of access to Maroc Telecom’s network, thereby enabling them to target highly profitable markets, to the detriment of Maroc Telecom Maroc Telecom could be affected by regulatory decisions enabling other operators to enter the telecommunications market on terms less onerous than those imposed on Maroc Telecom, and to have access to Maroc Telecom’s network on favorable terms. An operator could provide telecommunications services without having to bear the same obligations as Maroc Telecom, while enjoying the benefit of the latter’s infrastructure, thereby enabling it to target highly profitable markets, to the detriment of Maroc Telecom.
As a dominant operator on the fixed-line, voice and data networks, the Company is bound under Act 55-01 to permit access to its network, which will enable competitors to provide their own services through the use of Maroc Telecom’s network. Such operators may thereby target markets with comparatively high profitabilities, such as the businesses market, the urban areas or the international market, which could restrict the opportunities for Maroc Telecom to extend the number of its large-use customers, or divert its existing customers in such markets.
Maroc Telecom could be affected by the ANRT’s application of the legislation relating to competition Under Act 55-01, the ANRT’s duties will henceforth also include monitoring and ensuring the observance of fair competition among operators with regard to Act 6-99 relating to freedom of pricing and competition. The ANRT could accordingly rule on matters relating to the competitive environment of the telecommunications market. Maroc Telecom cannot forecast to what extent the ANRT’s rulings in this area might affect its operations.
Favorable interconnection costs for other operators could significantly affect the Company’s future earnings In order to provide services to its customers, Maroc Telecom is required to connect its network to that of any other operator holding a national license, and vice versa. The interconnection charges are approved by the ANRT. The Company cannot forecast whether the ANRT’s policy with respect to the fixed-line and mobile interconnection charges will be favorable to it.
TAX RISK Maroc Telecom could be unable to deduct certain allowances for doubtful accounts The amount of bad debt for which Maroc Telecom has made a provision is deductible from its taxable base, subject to the presentation of evidence of legal action taken against the debtors. Maroc Telecom has not initiated such legal action against all the debtors for whom it has made a provision. If the deductibility of such provisions for receivables in an amount below a certain threshold were to be challenged, the Company’s earnings and profit could be adversely affected.
12 RISKS RELATING TO THE INTERESTS HELD BY MAJOR SHAREHOLDERS IN MAROC TELECOM The Company could be influenced by Vivendi Universal, whose interests may not always be consistent with those of the Company’s other shareholders The Kingdom of Morocco and Vivendi Universal hold and will continue to hold after the offering a majority of the stock and voting rights in the Company. Vivendi Universal and the Kingdom of Morocco have entered into a Shareholders’ Agreement relating to Maroc Telecom’s shares, pursuant to which, as amended, (i) the Kingdom of Morocco has authority to appoint a majority of the members of the Supervisory Board; (ii) Vivendi Universal has a simple majority of votes on the Supervisory Board and at the meeting of shareholders; and (iii) Vivendi Universal has authority to appoint a majority of members of the Management Board. These rights will remain in effect until the transfer by the Kingdom of Morocco to Vivendi Universal of a further 16% interest in the Company, raising Vivendi Universal’s interest to 51% of Maroc Telecom’s shares and voting rights. The agreement relating to this sale provides that the transfer will close on January 4, 2005 (see “Principal and selling shareholders—Shareholders’ agreements—Shareholders’ agreement concerning the shares of Maroc Telecom”).
Accordingly, Vivendi Universal will retain control over the decisions requiring adoption by the shareholders acting by a simple majority of votes. The interests of Vivendi Universal with respect to such matters and the factors that it will take into account when exercising its voting rights may not be consistent with those of the Company’s other shareholders, including investors that purchase shares in this offering.
Commitments made by Vivendi Universal pursuant to its bank borrowing or bond issues could have an effect on the Company’s operations and/or dividend policy In its reports to market authorities, Vivendi Universal discloses that some of its bond issues and/or bank borrowings contain customary terms whereby Vivendi Universal agrees to ensure that its subsidiaries, including the Company, comply with certain restrictions on investments, acquisitions or sales of assets, and on the making of loans outside the Vivendi Universal group or the granting of security interests relating to their assets in excess of certain amounts. The thresholds under which such transactions would be permitted are frequently defined on a comprehensive basis for all of Vivendi Universal’s subsidiaries, and the Company may be unable to obtain the full benefit thereof insofar as other subsidiaries of Vivendi Universal had already been granted the benefit of such exclusions.
In addition, such debt issues and loans contain financial ratios that Vivendi Universal has agreed to observe, such as a maximum ratio of financial indebtedness to operating income before deprecation, a minimum ratio of operating income before depreciation to net financing costs, and a maximum percentage of net financial debt assumed by its subsidiaries to the consolidated net financial indebtedness of the group as a whole. Such ratios are determined on a consolidated basis and take into account the indebtedness, financial position and earnings of Vivendi Universal’s subsidiaries, including the Company.
Accordingly, Vivendi Universal could exercise its control over the Company in order to prevent it from performing certain transactions insofar as such transactions are not consistent with the commitments made by Vivendi Universal pursuant to its bond issues or borrowings, or would result in Vivendi Universal’s failure to comply with its financial ratio covenants (see “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources”). As it is not a party to such debt issues and borrowings, the Company is unable to evaluate the precise extent and nature of the restrictions or terms contained therein, except in respect of those documents which have been disclosed to the public.
MARKET RISKS For market risks (foreign exchange risks, interest rate risks, stock valuation risks and liquidity risks), see “Management’s discussion and analysis of financial condition and results of operations—Disclosure of qualitative and quantitative information about market risks”.
RISK RELATED TO THE OFFERING The future sale of a substantial number of the Company’s shares could negatively affect the market price of the shares. Following the global offering of Maroc Telecom and subject to the lock-up agreements described under “Plan of distribution” and the restrictions on transfer described under “Principal and selling shareholders—
13 Shareholders’ agreements—Shareholders’ agreement concerning the shares of Maroc Telecom—Conditions for transfers of shares and rights of the parties”, a significant number of ordinary shares could be sold by the Kingdom of Morocco or by Vivendi Universal. The market price of the ordinary shares could be adversely affected as a result of these sales in the public market following the global offering, or the public perception that sales could occur.
Investor’s rights as shareholders will be governed by Moroccan law and differ in some respects from the rights of shareholders under the laws of other countries. Maroc Telecom is a corporation (société anonyme) governed by Moroccan law. The rights of holders of the Company’s ordinary shares are governed by the Company’s by-laws and by Moroccan law. These rights may differ in some respects from the rights of shareholders in corporations governed by laws other than Moroccan law. In addition, it may be difficult for investors to prevail in a claim against the Company under, or to enforce liabilities predicated upon, the securities laws of jurisdictions outside of Morocco.
The trading price of the ordinary shares may be volatile. The trading price of the ordinary shares could fluctuate significantly in response to many factors, including variations in the Company’s operating results, market conditions in its sector, announcements of technological developments, the launch of new products or improvements in existing products by Maroc Telecom or its competitors. In addition, the stock markets have experienced significant price fluctuations over the past few years and these fluctuations were not necessarily connected with the results of the companies whose shares are traded thereon. Market fluctuations and the overall economic outlook may affect the trading price of the ordinary shares.
The trading price of the ordinary shares could also be affected by the economic and market conditions of other countries and political developments in other countries, particularly North African and Middle Eastern countries. Although the economic and political situation of these countries may substantially differ from the economic and political situation of the Kingdom of Morocco, investors’ reactions to developments in one of these countries may have an adverse effect on the trading price of shares of Moroccan companies. The trading price of the ordinary shares could therefore be adversely affected by events which take place abroad, in particular in emerging economies.
14 DIVIDENDS AND DIVIDEND POLICY
DIVIDENDS PAID IN RESPECT OF THE PAST FIVE FISCAL YEARS The table below sets out the amount of dividends (in millions of Moroccan dirhams) paid by the Company in respect of fiscal years 1999 to 2004.
Fiscal year Payment date Dividends 1999 ...... 2000 1,000 2000 ...... 2001 824 2001 ...... 2002 730 2002 ...... 2003 2,500 2003 ...... 2004 2,750 Exceptional dividend ...... 2004 2,374
As of June 30, 2004, the Company’s reserves amounted to MAD 5,168 million (including earnings of the first half of 2004), including MAD 2,246 million of unavailable reserves.
DIVIDEND POLICY Maroc Telecom aims to demonstrate its concern for satisfactory compensation to its shareholders while securing the resources needed for the Company’s development. Accordingly, Maroc Telecom intends to establish, starting in 2005 (payment of dividends for the fiscal year ended December 31, 2004), a policy of regular and significant dividend payment, according to the economic environment and the Company’s profits and funding requirements.
However, the total amount of dividends that will be paid shall be determined taking into account the Company’s funding requirements, the return on capital and the Company’s current and future profitability. The Company cannot guarantee to shareholders such a payment level every year. This target is accordingly not a covenant by the Company.
In addition, the final provisions of Article 331 of Act 17-95 provide that “a fixed dividend may not be covenanted in favor of shareholders; any clause to the contrary shall be null and void, unless the State warrants the shares a minimum dividend.”
Moroccan company law requires all sociétés anonymes, including Maroc Telecom, to fund their statutory reserve with 5% of annual profits until the reserve amounts to 10% of the share capital. In 2003, Maroc Telecom had a statutory reserve close to the maximum, and may accordingly, starting with fiscal year 2005, pay out its entire distributable profit, if this is considered to be desirable.
The by-laws (article 16) adopted by the shareholders’ general meeting on October 28, 2004 contain an obligation to distribute annually at least half of the Company’s distributable profit, unless exempted by the Supervisory Board voting by a qualified majority of three quarters of those members present or represented. These provisions of the by-laws form the sole framework within which the Company’s dividend policy will be decided.
15 CAPITALIZATION
The following table sets forth, as at June 30, 2004, current and non-current loans and other borrowings, shareholders’ equity and total capitalization derived from the financial statements. This table should be read in conjunction with the financial statements and the notes thereto included elsewhere in this offering memorandum. Because Maroc Telecom will not be issuing shares or receiving proceeds in the global offering, our capitalization table is not adjusted to reflect the global offering.
At June 30, 2004 MAD €(1) (In thousands) Loans and other borrowings (current) ...... 216 20 Loans and other borrowings (non-current) ...... 1,299 118 Shareholders’ equity: Capital ...... 8,791 801 Retained earnings ...... 2,472 225 Reserves ...... 3,827 349 Total shareholders’ equity ...... 15,090 1,375 Total capitalization(2) ...... 16,605 1,513
(1) Translated into euro at the balance sheet closing rate used for purposes of the consolidation of the Company’s balance sheet by Vivendi Universal for the six-month period ended June 30, 2004 (1 euro = MAD 10.97637). (2) Sum of current and non-current portion of loans and other borrowings, short-term debt (less than one year) and shareholders’ equity.
16 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below are to be read together with this offering memorandum as a whole, including, in particular, the risk factors discussed in “Risk factors”, the information contained in “Outlook and recent developments”, the audited, consolidated financial statements of Maroc Telecom for the fiscal years ended December 31, 2001, 2002 and 2003, and the consolidated financial statements at and for the period ended June 30, 2004.
EXCHANGE RATES The company maintains its accounting records and prepares its financial statements in Moroccan dirhams.
The table below sets out certain consolidated financial data for the Maroc Telecom group in euro at the exchange rates used for purposes of consolidation of the financial position and earnings of Vivendi Universal for the fiscal years ended December 31, 2001, 2002 and 2003, and the six-month periods ended June 30, 2003 and 2004.
Fiscal years ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of euro) Selected statement of income data Consolidated revenue ...... 1,418 1,487 1,471 714 770 Operating expenses ...... (1,050) (927) (839) (423) (445) Operating income ...... 375 571 643 295 330 Ordinary income ...... 344 582 648 292 338 Net income before minority interests ...... 113 313 471 213 225 Net income (group share) ...... 113 312 471 213 225 Net income per share (in euro) ...... 145 2 3
Dividend per share (in euro) ...... 135—— Selected balance sheet data Assets Fixed assets ...... 1,405 1,283 1,193 — 1,198 Current assets ...... 736 1,117 1,227 — 1,046 Liabilities Shareholders’ equity (group share) ...... 1,247 1,429 1,607 — 1,375 Share capital ...... 862 827 796 — 801 Loans and long term debt ...... 321 245 146 — 138 Total shareholders’ equity and liabilities ...... 2,141 2,400 2,420 — 2,244
The table below sets out the MAD/EUR exchange rates used for purposes of consolidation of the Company’s financial position and results of operations by Vivendi Universal for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Dec 2001 Dec 2002 Dec 2003 June 2003 June 2004 Per 1 euro Balance sheet closing rate ...... 10.20313 10.62862 11.03721 10.86742 10.97637 Statement of income average rate ...... 10.06399 10.36558 10.80293 10.74544 11.00111 (Source : Vivendi Universal)
The exchange rates above are provided for convenience only. The group does not represent that the amounts denominated in MAD were, could have been or could be converted into EUR at such exchange rates or any other rate. For information relating to the effect of foreign currency variations on the group’s earnings, see “—Market trends and other factors affecting earnings—Foreign exchange gains and losses” and “—Disclosure of qualitative and quantitative information about market risks”.
GENERAL PRESENTATION Maroc Telecom is the incumbent telecommunications operator in the Kingdom of Morocco. The Company owns and operates fixed-line and mobile telecommunications networks. It is the national leader in mobile
17 telecommunications and currently the only fixed-line telecommunications operator in Morocco. Maroc Telecom is organized around two business segments: — The Mobile segment provides mobile telecommunication services (subscriptions, rate plans, pre-paid cards and handsets) for individuals and businesses in Morocco (see “Business—Mobile segment”). — The Fixed-line and Internet segment manages the offer of fixed-line telecommunications services, Internet services and data connectivity services for residential, professional and business customers in Morocco. It also offers public telephone services through its own network of public phones, and through an independent network of telestores. Its services also include interconnection services with other national and international telecommunications operators (see “Business—Fixed-line and Internet segment”). The Fixed-line and Internet segment remains the group’s principal business in terms of revenue. Since 2000, rapid development of the Mobile segment’s business has provided it with a growing share of Maroc Telecom’s revenue, rising from 34% of consolidated revenue in 2001 to over 40% in 2003.
In addition, through its investment in the incumbent telecommunications operator in Mauritania, Mauritel S.A., Maroc Telecom offers telecommunications services in Mauritania. However, detailed financial data regarding the business of this operator are not included in Maroc Telecom’s consolidated financial statements, as it is accounted for by the equity method. Such financial data are not considered material to the results of operations of the Maroc Telecom group. See note 5 to the consolidated financial statements.
MARKET TRENDS AND OTHER FACTORS AFFECTING EARNINGS As Maroc Telecom is a provider of telecommunications services in Morocco, including the provision of international telecommunications services to and from Morocco, the revenue and earnings of Maroc Telecom are dependent to a significant extent on Moroccan consumers’ average telecommunications spending and, to a lesser extent, on the evolution of international telephone traffic to Morocco. The evolution of consumption of telecommunications services in Morocco needs to be considered against a backdrop of the evolution of the country’s economy, and more specifically, of the Moroccan population’s disposable income. From this point of view, the growth in Morocco’s gross domestic product since 2001 should be noted (6.3% in 2001, 3.2% in 2002 and 5.2% in 2003; estimate of 3% for 2004) (Source: Directorate of Statistics of Morocco).
Main factors determining revenues Maroc Telecom’s revenues arise primarily from sales of telecommunications services by the Mobile segment and by the Fixed-line and Internet segment, and, to a lesser extent, from sales of products associated with those services, consisting mainly of handsets used by customers (mobile and fixed telephones and multimedia devices).
Mobile segment The Mobile segment combines mobile telecommunications services (voice, data and roaming) and sales of mobile handsets.
The revenues generated by the mobile telecommunications sector vary mainly according to the evolution of the number of customers and the average revenue per user (ARPU). The evolution of those two factors has been affected to a significant extent by the introduction of pre-paid offers in 1999 and the effective liberalization of the market in 2000 with the award of a second license (see “Regulation”).
In terms of Mobile segment customers, Maroc Telecom has benefited from the expansion of the market, reflected in a significant increase in the penetration rate. The penetration rate measures the ratio of users of mobile telecommunications services to Morocco’s total population. It has grown rapidly over the past five years, from 1.3% as of December 31, 1999 to 24.9% as of December 31, 2003 and 26.5% at the end of June 2004 (Source: ANRT). The number of mobile users increased from 364,000 at the end of 1999 to almost 7.9 million at the end of June 2004 (Source: ANRT). The growth in the penetration rate has been boosted in particular by the launch of pre-paid offers in 1999, allowing users to control their spending.
With 5.519 million mobile customers as of June 30, 2004, Maroc Telecom has a 70.3% share of the Moroccan mobile market (Source: ANRT), with pre-paid customers accounting for almost 96% of Maroc Telecom’s mobile customers as of June 30, 2004.
18 ARPU per Mobile customer consists of the revenues generated by incoming and outgoing calls and the consumption of value-added services over a particular period, excluding roaming in revenues, divided by the average customer base over the same period, on a monthly basis. The average customer base in a given period is the average of each month’s customer base over such period. The ARPU is influenced by several factors, including in particular the prices and the volume of traffic connected with the use of mobile telecommunications services (voice in, voice out and value-added services).
Tariffs Tariffs include access charges (subscription, pre-paid cards, installation charges and the price of handsets) and usage charges. Since the arrival of the second mobile operator, the market for mobile telecommunications has been characterized by continued pressure on pricing, causing the operators to adapt their product range. They initiate frequent promotional offers, relating to both subsidized handsets and usage charges. Maroc Telecom seeks to offset the negative impact on ARPU of these price cuts through the growth of its customer base and by boosting its customers’ usage.
Traffic Incoming and outgoing mobile traffic has seen rapid development since 2001, owing to an increase in the number of pre-paid and post-paid customers, and the increased average usage by post-paid subscribers (outgoing traffic), which amounted to 332 minutes per subscriber per month over the first half of 2004, and by pre-paid customers, which amounted to 18 minutes per customer per month over the same period.
Morocco’s tourism industry also plays a part in this development, generating a large flow of visitors (including Moroccans resident abroad), and providing an important potential revenue stream from roaming in services. Over the past three years, roaming in revenues accounted for approximately 4% of Mobile revenues. In order to capture most of this traffic, Maroc Telecom has entered into alliances with most foreign operators, and has entered into preferential agreements with the largest among them. Accordingly, as of June 30, 2004, Maroc Telecom had entered into 260 roaming agreements with associated operators in 156 countries.
ARPU ARPU has fallen during the past three fiscal years, from MAD 146 to 129 to 122 as of December 31, 2001, 2002 and 2003, respectively. It amounted to MAD 123 as of June 30, 2004.
Pre-paid ARPU diminished during the past three fiscal years, from MAD 110 to 100 to 93 as of December 31, 2001, 2002 and 2003, respectively, as a result of the continued broadening of the customer base (resulting in a decrease in average incoming traffic per user) and the decrease in revenue per minute as a result of more frequent promotional efforts. As of June 30, 2004, pre-paid ARPU amounted to MAD 94.
Post-paid ARPU increased rapidly between 2001 and 2002, from MAD 612 to 837. This growth between 2001 and 2002 is due mainly to a purge of the post-paid customer base carried out at the end of 2001. Post-paid ARPU fell between 2002 and 2003, from MAD 837 to 824, as result of the acquisition of lower-consuming subscribers and the introduction of limited-rate plans. Post-paid ARPU amounted to MAD 794 as of June 30, 2004. Maroc Telecom is implementing a strategy intended to encourage migration of its pre-paid high-use customers to post-paid offers in order to increase revenues and build loyalty. Maroc Telecom is also seeking to increase ARPU through increased usage of its mobile services by its pre-paid and post-paid customers, in particular through value-added services (SMS, MMS, GPRS and other).
Fixed-line and Internet segment The Fixed-line and Internet segment combines fixed-line telecommunications services and Internet services (intended for residential, professional and business customers), data connectivity services (offered mainly to businesses) and interconnection services (intended for national and international operators).
As for Mobile segment revenues, revenues of the Fixed-line segment vary according to the evolution of the customer base, the pricing policy and the usage rate of each of the services. Revenues generated by international interconnection services are determined by the volumes of incoming traffic on the fixed-line network and by the evolution of interconnection charges, which are subject to renegotiation from time to time. Revenues generated by national interconnection services are determined by the requirement that Maroc Telecom offer interconnection services at prices compensating the actual cost of the use of the network and related costs.
19 Since 2001, overall revenues of the Fixed-line and Internet segment have remained fairly stable. Voice services account for 62% of the Fixed-line and Internet segment’s revenues (first half 2004). Revenues of Maroc Telecom’s Internet Service Provider, Menara, even though growing rapidly, still account for only 3% of the revenues of the Fixed-line and Internet segment as of June 30, 2004. Fixed-line telecommunications services Historically, the penetration rate of fixed-line telecommunications services, which include public telephone lines, has been fairly low, owing in particular to the large number of people per household and the high usage rate of public telephones, which hinders the development of residential fixed-line telecommunications. The fall in the penetration rate from 5.1% in 2000 to 3.9% in 2002 primarily resulted from the shift of fixed-line customers to mobile. Through a policy of development of new products and services, such as packages and limited rate plans (El Manzil), pre-paid cards and the extension of public telephony coverage, Maroc Telecom has seen this rate rebound since 2003, reaching 4.3% as of June 30, 2004. Maroc Telecom is proceeding with a policy of price restructuring initiated by the ONPT, characterized by cuts in call prices and a gradual increase in subscription charges. The pricing changes are intended to develop the market while complying with the legislation’s requirements and preparing for the arrival of competition (see “Business—Fixed-line and Internet segment—Telecommunications services—Pricing” and “Regulation”). Data connectivity services Maroc Telecom also provides data connectivity services to businesses by offering a wide range of products and services (ISDN, X25, leased lines, VPN IP), and a reliable and high-quality network. This business is dependent on the development of the Moroccan economic base and on economic growth. Liberalization of the data connectivity market, initiated with the award of VSAT satellite telecommunications licenses in 2001, has not to date had a significant impact on the revenue generated by this business for Maroc Telecom. Internet services Maroc Telecom markets Internet services under its “Menara” brand. With the development of new offers (dial-up access, rate plans, ADSL) and price cuts, the market has seen rapid growth since the beginning of 2004: the number of customers accessing the Internet through Maroc Telecom rose 67% between June 30, 2003 and June 30, 2004. The growth in the first half of 2004 was boosted in particular by the competitive position the Company has developed on ADSL. The main competitor on the Internet services sector is Maroc Connect, present on the consumer and business markets, with an overall market share estimated at 13% at the end of April 2004 (exclusive of dial-up access) (Source: ANRT). Interconnection services Revenues generated by interconnection consist mainly of incoming international traffic, namely, interconnection with international operators (exclusive of revenues generated by outgoing calls which are included in revenues from fixed-line telecommunications), and interconnection with Méditel. The evolution of revenues generated by incoming international interconnection depends on the volume and allocations negotiated with international operators. The growth in traffic was affected by the increase in fraudulent diversion of traffic between 2001 and 2003. Despite this, traffic posted significant growth (+25% between 2001 and 2003), in connection with the development of the international interconnection business. Notwithstanding Méditel’s decision in 2003 to cease carrying its incoming international traffic through Maroc Telecom, this trend accelerated over the June 2003-June 2004 period, with an annual growth of 13%, as a result of Maroc Telecom’s establishment of a plan to fight the fraudulent diversion of traffic (see “Business—Fixed- line and Internet segment—Interconnection services—International interconnection”). The effect of the growth in traffic on the revenues of international interconnection services was limited by a fall in the prices for termination over the same period, as a result of pressure from foreign operators to cut these prices, and of the efforts initiated by the group to stimulate outgoing international traffic by reducing the imbalance between the prices for incoming and outgoing traffic.
Seasonality The summer months, with the return of Moroccans resident abroad, and the fortnight preceding the ‘Id al-Adha holiday (February 2 in 2004) traditionally see sustained business (primarily mobile and fixed-line public telephony), while the month of Ramadan (mid-October to mid-November in 2004) is a low point of consumption for both the fixed-line and mobile businesses.
20 Main cost factors Operating expenses consist mainly of: — purchases, consisting mainly of the costs of purchases of handsets and interconnection; — payroll costs; and — other operating expenses, including, in particular, taxes and duty (including the fees determined by Maroc Telecom’s contract specifications), commissions and subsidies (primarily representing costs for acquisition and loyalty-building of customers and subscribers), and the costs of network maintenance.
Other cost factors consist in particular of the cost of investments in fixed-line and mobile through depreciation and amortization allowances.
Operating expenses have fallen over the three years from 2001 to 2003. This decrease is due mainly to the fall in the price of certain costs (handsets, interconnection) and a revision of contributions under the contract specifications.
Foreign exchange gains and losses Foreign exchange gains and losses are related to the group’s revenues, expenses and loans denominated in foreign currencies (see “Disclosure of qualitative and quantitative information about market risks”).
SCOPE OF CONSOLIDATION Mauritel S.A. Maroc Telecom holds 51% of the voting rights in Mauritel S.A., the Mauritanian incumbent operator, which operates a fixed-line telecommunications network. Mauritel S.A. itself holds 100% of Mauritel Mobiles, which operates under a mobile telecommunications license. This segment is held by the holding company Compagnie Mauritanienne de Communications (CMC), of which Maroc Telecom holds 80%, so that Maroc Telecom holds a 40.8% interest in the Mauritanian incumbent operator. Through CMC, Maroc Telecom accounts for the Mauritel group by the equity method, despite its ability to control it (see the notes to the consolidated financial statements contained elsewhere in this offering memorandum). Mauritel S.A.’s contribution to the earnings of the Maroc Telecom group, after amortization of goodwill and minority interests, amounted to MAD 15 million in 2001, MAD 37 million in 2002 and MAD 36 million in 2003. The contribution for the first half of 2004 is MAD 24 million.
Since July 1, 2004, the date that the Mauritel shareholders’ agreement provided for the expiration of the Mauritanian State’s right to veto significant transactions (see “Principal and selling shareholders—Shareholders’ agreement concerning the shares of Mauritel S.A.”), Mauritel S.A. has been fully consolidated in Maroc Telecom’s financial statements. This consolidation has been made possible by completion of the work relating to the group’s compliance with accounting standards. For information purposes, the Mauritel group’s consolidated revenue reached MAD 557 million in 2003 (or 3.5% of Maroc Telecom’s revenues) for operating income of MAD 152 million (or 2.18% of Maroc Telecom’s operating income). Its fixed assets amounted to MAD 815 million (or 6.1% of Maroc Telecom’s assets) out of a balance-sheet total of MAD 1,242 million. Long-term debt amounted to MAD 223 million (or 13.9% of Maroc Telecom’s long-term debt), with cash and cash equivalents of MAD 168 million. Maroc Telecom accounted for its interest in Mauritel S.A. under the equity method in 2003 on the basis of its 40.8% participation (see notes to the consolidated financial statements contained elsewhere in this offering memorandum).
GSM Al Maghrib On July 8, 2003, Maroc Telecom acquired 35% of the share capital of GSM Al Maghrib, an exclusive distributor of Maroc Telecom products and services managing approximately 285 retail outlets. GSM Al Maghrib has been accounted for by the equity method since July 1, 2003. GSM Al Maghrib’s contribution to Maroc Telecom’s net income was not significant in fiscal year 2003.
Other investments Maroc Telecom’s other investments include, apart from Casanet, a 50% interest in Matelca, currently in liquidation, and other minority interests. This explains the exclusion of these companies from consolidation.
21 As regards Casanet, a wholly owned Maroc Telecom subsidiary in charge of the maintenance of Maroc Telecom’s “Menara” Internet portal, most of its transactions (sales of approximately MAD 20 million) are with Maroc Telecom, so that its contribution to group earnings is not significant. Accordingly, Casanet is not consolidated.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
In connection with the preparation of its financial statements, Maroc Telecom must make certain estimates and use certain assumptions. Maroc Telecom’s management bases its estimates on its past experience and on various other assumptions that it deems reasonable under the circumstances. These estimates permit an evaluation of the appropriateness of book value. Figures derived from such estimates and assumptions could differ if other estimates or assumptions had been used. The main items calculated on the basis of estimates are the universal service contribution, provisions for litigation and allowances for doubtful accounts.
Contribution to universal service Until December 31, 2002, Maroc Telecom was bound, in accordance with its contract specifications, to allocate to its universal service obligation 4% of its annual Mobile segment revenues, excluding revenues from sales of handsets, interconnection and value-added services. Since January 2003, the universal service contribution has been calculated on the basis of total annual Mobile segment revenue. Act 55-01 reduces the rate of the universal service contribution to 2% of Maroc Telecom’s aggregate revenues, and allows Maroc Telecom to offset this contribution with its own costs of implementing universal service (fixed-line business), thereby establishing the principle of “pay or play”. Maroc Telecom does not record this cost, considering that the costs borne as a universal service provider exceed its contribution.
Provisions for litigation Maroc Telecom records provisions for litigation, within “Provisions for commitments and contingencies” in the balance sheet, and evaluates on a case-by-case basis the risks of an unfavorable outcome of a court case or administrative procedure. Such evaluation may include a probability factor. The cost relating to such provisions is recorded in the item “net depreciation, amortization and provisions”.
Disputes that are provisioned for include, in particular, court cases and those relating to transactions with certain third parties and employees and more particularly the Company’s relations with its main competitor, Méditel. Maroc Telecom’s largest provision for litigation is based on a dispute regarding the method for measuring and invoicing interconnection traffic. This dispute was referred to arbitration to the ANRT’s executive committee, which ruled in 2002 in favor of invoicing by the second, thereby determining the issue in Maroc Telecom’s favor. Méditel, which wanted to invoice by the minute, then brought a challenge for annulment of the ANRT’s ruling (See “Outlook and recent developments”). The Casablanca Administrative Court dismissed the claim by Méditel, which may appeal against that ruling. Maroc Telecom has recorded a provision corresponding to the portion of the possible total costs of the dispute, evaluated on the basis of interconnection traffic. This provision takes account in particular of the possible consequences of the retroactivity of the court ruling.
Accounts receivable Accounts receivable consist of a very large number of debtors due to the broad subscriber base and the low amount of each invoice. To mitigate the risk of failure to collect, Maroc Telecom records allowances for doubtful accounts determined according to the nature of rights identified by the type of receivable (claims on private or public customers), the age of the receivable and an analysis of the customary collection period for its receivables. Such allowances are recorded for receivables not collected after 30 days.
In 2001, a purge of its customer base, conducted in response to difficulties encountered in the process of contract termination and invoicing in 2000, led Maroc Telecom to record a significant provision of MAD 1,258 million for fiscal year 2001, compared to a provision of MAD 528 million in 2000.
Allowances for doubtful accounts are recorded within “net depreciation, amortization and provisions”.
Tangible and intangible assets With the arrival of Vivendi Universal as a shareholder, Maroc Telecom initiated a reassessment of its fixed- line and mobile network assets. As a result of the reassessment, exceptional depreciation and amortization charges and provisions were recorded within “Exceptional income and expenses”. They include the effects of the
22 harmonization of the expected life of the assets with those of Vivendi Universal, the effect of malfunctions in the installation and use of fixed assets, and the results of inventory reviews conducted at that date on the fixed-line and mobile network assets, which highlighted obsolescence risks. This project, initiated in 2001, was completed in the first half of 2002 In the 2001 financial statements, the exceptional depreciation and amortization charges and provisions amounted to MAD 1,635 million. These items rely on new estimates based on the application of the Vivendi Universal group’s standards, and a detailed review of the assets. They had a significant effect on 2001 net income.
Segment Information In its consolidated financial statements, Maroc Telecom presents certain financial information by operating segment, including operating income and investments. Operating income by segments is determined by allocating costs directly to each segment or, alternatively, by using cost allocation ratios based on economic criteria. Investments are allocated directly to each segment. However, because of the nature of Maroc Telecom’s cost accounting system over the periods under review, the allocation of costs and investments between Maroc Telecom’s operating segments for such periods are based on management estimate (see note 1 and note 24 of the annual consolidated financial statements).
IFRS standards In accordance with the IFRS 1 standard “First-time adoption of international financial reporting standards”, Maroc Telecom’s consolidated financial statements will be prepared, starting on January 1, 2005, according to the international financial reporting standards (IFRS) in force as of December 31, 2005. In order to publish comparative information, Maroc Telecom will be required to draw up an opening balance sheet as of January 1, 2004, the date of change-over to the IFRS standards, the starting point for application of such standards and the date on which the effects relating to the change-over are to be recorded, mainly as to shareholders’ equity. The proposed conversion to IFRS initiated in the fourth quarter of 2003 involves the following key stages: — a first “kick-off” stage, which allowed a modelling of the implementation of the project, the allocation of related resources, and the building of awareness among and training of the main parties involved; — a second diagnostic stage, which allowed identification of the main differences between the accounting methods applied by Maroc Telecom (French accounting standards) and the international financial reporting standards (IFRS); — a third stage of evaluation of the impact of change-over to the IFRS standards, which is currently being finalized; — a final stage of implementation of the changes resulting from the switch in standards, which will concern in particular the preparation of an opening balance sheet as of January 1, 2004, and the establishment of a procedure for the production on a regular basis of IFRS accounts in 2005, with comparisons to 2004. Certain significant standards and interpretations, which will be in force as of December 31, 2005, have either been published in final versions by the IASB later than initially planned (the IASB had initially agreed to publish the latest rules applicable in 2005 no later than March 31, 2004), and, in some cases, have not yet been published. Given the recent issuance of certain IFRS standards and interpretations, their low level of implementation in practice and the limited number of interpretations, certain transactions are still undergoing analysis. The statement of the impact of the change-over to IFRS standards is accordingly not yet comprehensive and other effects, currently being analyzed, may arise out of the application of the new standards. The main differences identified to date may be summarized as follows: — elimination of goodwill amortization and implementation of impairment tests according to IFRS 3, and IAS 36 and IAS 38; — differences in revenue recognition and accounting for customer acquisition costs, in particular according to IAS 2 and IAS 18; specifically, netting subscriber subsidies against “sales of equipment” for an amount equal to the corresponding gross margin, with the remainder expensed in the period; — rules of presentation and valuation of tangible and intangible assets and inventories according to the provisions of IAS 2, 16, 36 and 38; — restated breakdown of exceptional income into operating and financial income; and — balance-sheet classification of financial assets and liabilities, and valuation at fair value or at amortized cost, as the case may be.
23 To date, decisions concerning the choice of options at the date of change-over to IFRS standards (IFRS 1 standard) have not yet been formalized. However, at the date of change-over to IFRS standards, Maroc Telecom is likely to elect not to value its fixed assets at fair value.
RESULTS OF OPERATIONS The table below sets out data regarding Maroc Telecom’s consolidated statements of income for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Consolidated revenue ...... 14,268 15,411 15,894 7,676 8,464 Other operating income ...... 65 115 119 39 61 Operating expenses ...... (10,563) (9,604) (9,064) (4,548) (4,892) Operating income ...... 3,770 5,922 6,949 3,167 3,633 Financial income and expenses ...... (309) 107 46 (29) 89 Ordinary income ...... 3,461 6,029 6,995 3,138 3,722 Exceptional gains and losses ...... (2,035) (1,194) 91 — — Income taxes ...... (307) (1,640) (2,036) (863) (1,275) Net income before minority and equity interests and goodwill amortization ...... 1,119 3,195 5,050 2,275 2,447 Equity in earnings of unconsolidated entities ...... 20 51 47 15 34 Goodwill amortization ...... (5) (4) (5) (2) (3) Net income before minority interests ...... 1,134 3,242 5,092 2,288 2,478 Minority interests ...... — (10) (7) (3) (6) Net income (group share) ...... 1,134 3,232 5,085 2,285 2,472 Earnings per share (MAD) ...... 13 37 58 26 28
Revenue The table below breaks down revenue for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Mobile revenue ...... 6,760 7,734 8,388 3,981 4,707 Fixed-line and Internet revenue ...... 10,417 11,054 11,210 5,492 5,377 Gross revenue ...... 17,177 18,788 19,598 9,473 10,084 Cancellation of intersegment transactions ...... (2,909) (3,377) (3,704) (1,797) (1,620) Consolidated revenue ...... 14,268 15,411 15,894 7,676 8,464
Gross revenue includes: — income from services provided by the Fixed-line and Internet and Mobile segments, before adjusting for retailers’ commission and handsets subsidies; and — the amount of intersegment transactions between the Fixed-line and Internet segment and the Mobile segment. These amounts concern mainly the interconnection services relating to the flows of traffic between the fixed-line and mobile networks and the provision to the Mobile segment of leased lines by the Fixed-line and Internet segment.
Consolidated revenue consists of gross revenue as adjusted for the elimination of intersegment transactions.
Consolidated revenue increased significantly between 2001 and 2003, as a result of the expansion of the mobile business and growth, although less pronounced, in the fixed-line business.
Accordingly, consolidated revenues rose 8% between 2001 and 2002, 3% between 2002 and 2003 and 10% in the first half of 2004 compared to the first half of 2003. The relative size of the Fixed-line and Internet segment, with lower growth, mitigates the overall growth in Maroc Telecom’s revenues.
24 Analysis of Mobile revenue and evolution The figures for the Mobile segment may be summarized as follows:
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Mobile revenue ...... 6,760 7,734 8,388 3,981 4,707 Mobile communications services ...... 3,701 4,629 5,454 2,555 3,057 Handsets ...... 1,113 1,000 855 418 533 Intersegment transactions ...... 1,946 2,105 2,079 1,008 1,117
Mobile revenue consists mainly of revenue generated by the sale of communication services (voice in, voice out and value-added services). It includes, to a lesser extent, revenue from the sale of mobile handsets, which are sold at the time of subscription or subscription renewal or with the purchase of pre-paid packages.
In general, gross Mobile revenues have risen significantly over the period 2001-2003, up more than 14% between 2001 and 2002 and over 8% between 2002 and 2003. This trend has been confirmed in the first half of 2004 with an 18% rise as compared to the first half of 2003.
Comparison between first half 2003 and first half 2004 Revenue from Mobile telecommunications services rose 20% in the first half of 2004 compared to the first half of 2003, owing mainly to the 13% increase in the customer base, combined with increases of 24% in outgoing traffic and 10% in incoming traffic. The increase is also a result of the 20% rise in the number of tourists in Morocco in the first half of 2004 compared to the first half of 2003.
Revenue from handsets was up 28% in the first half of 2004 compared to the first half of 2003, from MAD 418 million to MAD 533 million, as a result of the customer acquisition and loyalty-building campaigns conducted in the first half of 2004.
Intersegment transactions increased 11% in the first half of 2004 compared to the first half of 2003, from MAD 1,008 million to MAD 1,117 million, due to the increase in incoming traffic (mainly international) to the mobile network.
Comparison between 2002 and 2003 In 2003, the Mobile segment’s gross revenue reached MAD 8,388 million, an increase of 8% from 2002.
Revenue from Mobile telecommunications services in fiscal year 2003 were up 18% as compared to fiscal year 2002, from MAD 4,629 million in 2002 to MAD 5,454 million in 2003, primarily as a result of a 13% increase in the customer base in relation to 2002 with a larger increase in numbers of post-paid (+24%) than pre-paid (+13%). This effect was offset to some extent by a decline in ARPU (-1.5% for post-paid, -7% for pre- paid) despite a 12% rise in the revenue from roaming in reflecting a 6% rise of the number of foreign visitors to Morocco. Accordingly, the growth in income from telecommunications services during the period reflects more particularly the growth in post-paid revenue, even though the overall contribution by pre-paid to the Mobile segment’s revenues remained higher than the post-paid’s.
Revenue from handsets diminished 14%, from MAD 1,000 million to MAD 855 million, owing to the 15% fall in the number of handsets sold between 2002 and 2003.
Intersegment transactions remained relatively stable, decreasing from MAD 2,105 million in 2002, to MAD 2,079 million in 2003.
Comparison between 2001 and 2002 Between 2001 and 2002, revenue from Mobile communication services increased 25%, from MAD 3,701 million to MAD 4,629 million, as a result of a 25% rise in the customer base. This growth in the number of subscribers and customers reflects the increase of pre-paid (up 26% in relation to 2001) while the post-paid base grew more slowly (7%) as a result of the establishment of stricter acquisition procedures. In terms of revenues,
25 most of the increase comes from the development of the pre-paid business. This growth is also due, to a lesser extent, to a 17% rise in revenue from roaming in. ARPU fell 9%, with pre-paid ARPU down 10% and post-paid ARPU up 37%. This substantial increase in post-paid ARPU is due to the purge of the post-paid customer base, carried out mainly in 2001.
Revenue from handsets was down 10%, from MAD 1,113 million in 2001 to MAD 1,000 million in 2002, owing to a reduction in the number of new customers, mitigated by the rise in the unit sales price of handsets due to quality improvements.
Intersegment transactions increased from MAD 1,946 million in 2001 to MAD 2,105 million in 2002, the 8% change reflecting an increase in international calls to Maroc Telecom mobiles.
Analysis of Fixed-line and Internet revenue and evolution The figures for the Fixed-line and Internet segment may be summarized as follows:
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Fixed-line and Internet revenue ...... 10,417 11,054 11,210 5,492 5,377 Voice ...... 6,563 6,681 6,573 3,174 3,332 Interconnection* ...... 2,295 2,410 2,210 1,139 1,142 Data ...... 455 482 523 261 226 Internet ...... 97 139 241 109 155 Other** ...... 45 70 38 20 19 Intersegment transactions ...... 962 1,272 1,625 789 503 * Interconnection revenue mainly represents revenue from international interconnection (regardless of fixed or mobile destination), plus national interconnection revenues. ** Includes the maritime radio-communication service, leasing of repeaters, directory services and other international services.
Fixed-line and Internet gross revenue increased slightly between 2001 and 2003, despite the effect of the shift of fixed-line customers and usage to mobile. Thus, a 6% increase was recorded between 2001 and 2002, and a 1% increase between 2002 and 2003. Fixed-line and Internet gross revenues fell 2% in the first half of 2004 compared to the first half of 2003 as a result of the reduction in prices for leased lines as of January 1, 2004. Excluding the leased lines price reduction, revenues would have risen 3%.
Comparison between first half 2003 and first half 2004 The 2% decrease in Fixed-line and Internet gross revenue in the first half of 2004 compared to the first half of 2003, from MAD 5,492 million to MAD 5,377 million, may be analyzed as follows: — MAD 3,332 million generated by voice traffic in the first half of 2004, compared to MAD 3,174 million in the first half of 2003. This 5% increase was due to continued growth in the customer base, including public telephony (telestores and pay phones), offset by the fall in average usage due to the growing share of limited-rate plans; — MAD 1,142 million from interconnection services for the first half of 2004, as compared to MAD 1,139 million in the first half of 2003. Over this period, the rise in incoming international traffic was offset by the reduction in the average price per incoming minute by international operators; — MAD 226 million generated by revenue from data services in the first half of 2004, as compared to MAD 261 million in the first half of 2003, a 13% decrease due mainly to the reduction in prices; — MAD 155 million from Internet revenues in the first half of 2004, as compared to MAD 109 million in the first half of 2003 (42% growth). This strong performance reflects the launch of ADSL in November 2003 and the further launch of unlimited access plans for ADSL in February 2004, which led to growth in the ADSL customer base to 26,000 customers at June 30, 2004 compared to 2,500 at the end of December 2003; and — MAD 19 million from other revenues, unchanged from June 30, 2003 at MAD 20 million.
26 Intersegment transactions fell from MAD 789 million in the first half of 2003 to MAD 503 million in the first half of 2004, a 36% decrease, resulting from the reduction of the international outgoing transit charge paid by the Mobile segment to Fixed-line and Internet segment (reduction in the portion of outgoing international) and the decrease in revenues from operator-leased lines.
Comparison between 2002 and 2003 In 2003, Fixed-line and Internet gross revenue reached MAD 11,210 million as compared to MAD 11,054 for the previous fiscal year. This 1% increase may be analyzed as follows: — MAD 6,573 million generated by voice traffic in 2003, as compared to MAD 6,681 million in 2002, despite the increase in the customer base. This 2% decrease is due to the erosion in average invoice amounts for residential customers and average invoice amounts for telestores resulting from the overall trend of replacement of fixed-line services by mobile services; — MAD 2,210 million from interconnection services in 2003, as compared to MAD 2,410 million in 2002, a decline of 8%, primarily reflecting the second mobile operator’s decision to carry all its international traffic through alternate means, combined with the decrease in interconnection charges to international operators and fraudulent diversion of traffic (see “Business—Fixed-lined and Internet segment—International interconnection”); — MAD 523 million generated by revenues from data services in 2003, as compared to MAD 482 million in 2002, a 9% increase reflecting sustained demand from business customers; — MAD 241 million from Internet revenues in 2003, as compared to MAD 139 million in 2002, a 73% increase resulting primarily from an increase in the number of customers and the sale of multimedia PCs; — MAD 38 million from other revenue in 2003, as compared to MAD 70 million in 2002.
Intersegment transactions rose from MAD 1,272 million in 2002 to MAD 1,625 million in 2003. The 28% increase was the result of growth in outgoing international Mobile traffic and a rise in revenues from leased lines.
Comparison between 2001 and 2002 In 2002, gross revenues amounted to MAD 11,054 for Fixed-line and Internet, an increase of 6% from 2001. These revenues break down as follows: — MAD 6,681 million generated by voice traffic in 2002, as compared to MAD 6,563 million in 2001, a 2% increase resulting mainly from the good performance of public telephony; — MAD 2,410 million from interconnection services in 2002, as compared to MAD 2,295 million in 2001, a 5% increase due to an increase in incoming international traffic; — MAD 482 million generated by revenues from data services in 2002, as compared to MAD 455 million in 2001, a 6% increase resulting from the development of new specific offers; — MAD 139 million from Internet revenues in 2002, as compared to MAD 97 million in 2001, a 43% increase reflecting the expansion of the Internet market; — MAD 70 million from other revenues in 2002, as compared to MAD 45 million in 2001.
Intersegment transactions rose from MAD 962 million in 2001 to MAD 1,272 million in 2002, a 32% increase, due to the development of outgoing mobile international traffic transiting through fixed-lines and a rise in revenues from leased lines.
Other operating income Other operating income consists mainly of penalties applied to suppliers for late performance of contracts, proceeds from the sale of transportation equipment, and miscellaneous proceeds (sale of cable scraps, reimbursements relating to damaged lines, etc.).
27 Operating expenses Operating expenses include purchases, payroll costs, other operating expenses and net depreciation, amortization and provisions. The table below details Maroc Telecom’s operating expenses for the fiscal years ended as of December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Net revenue ...... 14,268 15,411 15,894 7,676 8,464 Purchases ...... 2,562 2,793 2,792 1,448 1,533 % ...... 18 18 18 19 18 Payroll and payroll-related costs ...... 1,626 1,469 1,550 812 827 % ...... 11 10 10 11 10 Other operating expenses ...... 2,862 2,854 2,434 1,099 1,292 % ...... 20 19 15 14 15 Net depreciation, amortization and provisions ...... 3,513 2,488 2,288 1,189 1,240 % ...... 25 16 14 15 15 Total operating expenses ...... 10,563 9,604 9,064 4,548 4,892 % ...... 74 63 57 59 58
Purchases Purchases include the cost of handsets, expenses relating to interconnection with national and international operators, and other purchases (power, refill cards, SIM cards, supplies and consumables), and break down as follows:
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Cost of handsets ...... 1,113 1,085 958 624 638 National and international interconnection costs ...... 1,028 1,304 1,339 640 678 Other purchases ...... 421 404 495 184 217 Total ...... 2,562 2,793 2,792 1,448 1,533
Between the first half of 2003 and the first half of 2004, total purchases increased 6%, reaching MAD 1,533 million in the first half of 2004 as compared to MAD 1,448 million in the first half of 2003. This increase was mainly due to the increase in national interconnection costs related to increases in traffic and other purchases.
Purchases in 2003 remained unchanged from their 2002 levels (MAD 2,792 million). This control of purchases was achieved through a reduction in handset costs, in parallel with the decrease in sales described above. These factors were offset by a 23% increase in other purchases over the same period, principally due to an increase in the number of Base Transciever Stations (BTSs) and to the growth in purchases of refill cards for the Mobile and Fixed-line segments. The reduction in the cost of handsets was the result of a decrease in the number of handsets sold and the reduction in the unit purchase price as a result of a greater share of low-end handsets.
Between 2001 and 2002, purchases rose 9%, from MAD 2,562 million in 2001 to MAD 2,793 million in 2002. This increase was mainly due to the increase in interconnection costs as a result of strong growth in national and international traffic. This change is correlated with the evolution of fixed-line and mobile interconnection revenue over the same period.
Payroll costs Payroll costs consist of wages, salaries and payroll taxes.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Salaries ...... 1,473 1,321 1,368 723 736 Payroll taxes ...... 153 148 182 89 91 Total ...... 1,626 1,469 1,550 812 827 Headcount ...... 14,681 13,444 12,170 12,181 12,213
28 In 2001 the group implemented two restructuring plans based on incentives for voluntary departures, involving 1,246 employees for the first plan and 1,121 for the second plan. These plans enabled the group to improve its operational efficiency and to lower the average age of its staff.
For the first half of 2004, payroll costs rose 2%, reaching MAD 827 million, compared to MAD 812 million for the first half of 2003. This slight increase is due to customary increases in staff compensation.
In 2003, despite the effects of the second restructuring plan carried out in 2002 (resulting in a savings of MAD 109 million on the total payroll estimated by the Company on the basis of the compensation for 2002), payroll costs (salaries and other compensation and payroll taxes) rose 6% from 2002 levels. The increase in salaries and compensation (+4% at MAD 1,368 million as compared to MAD 1,321 million in 2002) principally reflects the introduction in 2003 of a new salary scale. The increase in payroll taxes (+23% at MAD 182 million for 2003 as compared to MAD 148 million for 2002) mainly resulted from the establishment of a new supplementary pension scheme (MAD 17 million) and supplementary health insurance scheme (MAD 2 million). (See “Business—Human resources—Internal regulations”).
In 2002, salaries and compensation fell 10% to MAD 1,321 million as compared to MAD 1,473 million in 2001, as a result of the effect in 2002 of the first voluntary departure plan carried out in 2001 (resulting in a savings of MAD 127 million on the total payroll estimated by the Company on the basis of the compensation for 2001) and the award in 2001 of an exceptional bonus to the staff for the positive performance in fiscal year 2000 (MAD 86 million).
Other operating expenses Other operating expenses consist of taxes, duties and fees, commissions and subsidies, advertising, marketing and other promotional costs and other expenses (consisting of network maintenance costs, audit and advisory fees, postage and the costs of leasing transportation equipment, land and buildings).
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Advertising, marketing and other promotional costs ...... 166 247 271 102 170 Taxes, duties and fees* ...... 1,169 947 450 248 167 Commissions and subsidies comprising: ...... 747 660 733 320 495 Mobile ...... 747 633 623 274 421 Fixed-line ...... — 27 110 46 74 Other comprising: ...... 780 1,000 980 429 460 Leasing costs ...... 184 196 216 88 97 Maintenance and repairs ...... 98 171 320 104 172 Audit and advisory fees ...... 172 308 174 108 61 Postage ...... 104 86 83 45 43 Other ...... 222 239 187 84 87 Total ...... 2,862 2,854 2,434 1,099 1,292
* Includes local taxes, ANRT fees and the financial offset (monopoly fee eliminated in January 2003).
Advertising, marketing and other promotional costs are incurred to enhance Maroc Telecom’s market reach and recognition.
Other operating expenses amounted to MAD 1,292 million for the first half of 2004 compared to MAD 1,099 for the first half of 2003, up 18%.
The increase was a result of: — an increase in communication costs, commissions paid to distributors and costs of loyalty-building and network maintenance; — a reduction in tax, duties and fees as a result of revision of the base for computation of ANRT fees (see “—Significant accounting policies and estimates—the Contribution to universal service”);
29 — a rise in commissions and subsidies for Mobile resulting from the increase in sales, the revision of commission rates, and the rise in subsidies for handsets. In the Fixed-line and Internet segment, commissions and subsidies increased as a result of the launch of promotional campaigns (and in particular the “El Manzil” MAD 0 package) in early 2004; and — an increase in maintenance costs reflecting Maroc Telecom’s implementation of new maintenance contracts in response to the gradual expiration of existing maintenance contracts granted pursuant to the reduction in the number of equipment acquisition contracts.
For fiscal year 2003, other operating expenses decreased 15% to MAD 2,434 million from MAD 2,854 million for fiscal year 2002.
This decrease was due mainly to a reduction in taxes, duties and fees (2002 being the last year for the payment of the monopoly fee), partially offset by an 11% increase in commissions and subsidies (MAD 733 million in 2003) relating to the launch of new offers subsidizing the acquisition of terminals (including in particular the “El Manzil” MAD 0 package) as part of the effort to boost the fixed-line business. Other expenses remained stable as a result of the cost reductions connected with the services agreement with Vivendi Universal (see “Related-party transactions”). The services agreement led to a 44% reduction in the costs of surveys and fees. These savings were offset by significant increases in the cost of network maintenance as a result of expiration of the supplier warranties and increased lease costs.
Between 2001 and 2002, other operating expenses decreased by 0.3% from MAD 2,862 million for fiscal year 2001 to MAD 2,854 million for fiscal year 2002. The reduction in tax and duties (decrease in the rate of the monopoly fee from 4% to 2% of revenues) and the fall in subsidies (fall in sales of packages) were offset by increases in communication costs, maintenance costs (as a result of the expiration of builders’ warranties) and the cost of surveys and fees connected with the services agreement with Vivendi Universal.
Net depreciation, amortization and provisions Net depreciation, amortization and provisions include depreciation, amortization and provisions for fixed assets, allowances for doubtful accounts, provisions for obsolescence and excess inventory and provisions for commitments and contingencies. The table below sets out the evolution of this item for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Depreciation, amortization and provisions relating to fixed assets ...... 2,067 2,244 2,169 1,111 1,184 Allowance for doubtful accounts ...... 1,258 159 51 (3) 58 Provisions, inventories ...... 26 (10) 1 (21) (40) Provisions, commitments and contingencies ...... 162 95 67 102 38 Total ...... 3,513 2,488 2,288 1,189 1,240
Depreciation, amortization and provisions The depreciation and amortization of tangible and intangible assets is computed on a straight-line basis over their respective expected useful lives. Depreciation or amortization is computed when the fixed asset is brought into use.
The table below sets out Maroc Telecom’s depreciation, amortization and provisions for fixed assets for the fiscal years ended as of December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Intangible assets ...... 42 193 208 87 122 Buildings and civil engineering ...... 136 241 248 123 125 Technical plant ...... 1,734 1,571 1,409 759 814 Other tangible fixed assets ...... 155 239 304 142 123 Total ...... 2,067 2,244 2,169 1,111 1,184
30 Net depreciation, amortization and provisions relating to fixed assets increased 7% from MAD 1,111 million for the six-month period ended June 30, 2003 to MAD 1,184 million for the six-month period ended June 30, 2004. This was due to higher amortization of intangible assets as a result of the acquisition of software to support new services, and higher depreciation of technical plant. During the same period, depreciation on property plant and equipment decreased as transportation equipment was fully depreciated.
Between 2002 and 2003, depreciation, amortization and provisions relating to fixed assets decreased by 3%, to MAD 2,169 million from MAD 2,244. This decrease was due to the implementation of the plan for depreciation of technical facilities, which more than offset the increased depreciation of office equipment and computer hardware in the item “other tangible fixed assets”.
Between 2001 and 2002, depreciation, amortization and provisions relating to fixed assets increased by 9%, to MAD 2,244 million from MAD 2,067 million. This change reflects the evolution of the fixed assets (including in particular acquisitions of software for certain technical facilities and the out-lays for the development of commercial branches), and depreciation plans. The depreciation of technical plant decreased as a result of adjustments made pursuant to the overhaul of accounting policies relating to fixed assets, which generated exceptional depreciation charges in 2001, affecting the level of net annual funding relating to such assets (after the reversal of provisions established in 2001).
Depreciation and provisions relating to fixed assets allowances by segment may be analyzed as follows:
Fiscal year ended Six months December 31, ended June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Mobile ...... 691 735 878 398 540 Fixed-line and Internet ...... 1,376 1,509 1,291 713 644 Total ...... 2,067 2,244 2,169 1,111 1,184
Changes in provisions and allowances The table below sets out the changes in provisions by the Maroc Telecom group for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months December 31, ended June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Accounts receivable and related accounts ...... 1,258 159 51 (3) 58 Inventories ...... 26 (10) 1 (21) (40) Commitments and contingencies ...... 162 95 67 102 38 Total ...... 1,446 244 119 78 56
The net funding of provisions decreased by 28% in the first half of 2004 compared to the first half of 2003, to MAD 56 million from MAD 78 million. This decrease was mainly due to the reduction in provisions for commitments and contingencies, taking into account developments in the dispute with Méditel on the basis of the 2004 volume of traffic, as well as a dispute with a third party. The decrease also reflects a lower funding of annuities in 2004, as they were created during the first half of 2003.
Between 2002 and 2003, net funding of provisions fell 51% to MAD 119 million from MAD 244, as a result of the decrease in the funding of provisions for bad debt connected with the continuation of the collection effort initiated in 2001, and the reappraisal of provisions for commitments and contingencies (a dispute with Méditel relating to the volumes of traffic concerned and other third parties on the basis of the latest available estimates). From this point of view, this funding accounts for the effect of Maroc Telecom’s commitments to pay an annuity to its disabled employees or former employees.
Between 2001 and 2002, the net funding of provisions fell 83%, from MAD 1,446 million to MAD 244 million. This significant decrease reflects the low level of allowances for doubtful accounts booked in 2002, at MAD 159 million, as compared to allowances for doubtful accounts of MAD 1,258 million in 2001 relating to the purge of bad debt following the difficulties encountered in the invoicing and termination processes in 2000.
31 Operating income The table below sets out Maroc Telecom’s operating income for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months December 31, ended June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Operating income ...... 3,770 5,922 6,949 3,167 3,633
Comparison between first half 2003 and first half 2004 Operating income increased by 15% in the first half of 2004 to MAD 3,633 million, from MAD 3,167 million in the first half of 2003. This increase reflected the substantial rise in revenues (+10%), the control of costs and the recording of certain non-recurring items.
Comparison between 2002 and 2003 Operating income increased by 17% in fiscal year 2003, to MAD 6,949 million, from MAD 5,922 million in fiscal year 2002. Operating income increased faster than revenues, owing to the control and rationalization of costs.
Comparison between 2001 and 2002 Operating income increased by 57% from MAD 3,770 million in fiscal year 2001 to MAD 5,922 million in fiscal year 2002, primarily as a result of improved revenues, control of operating expenses and the funding in 2001 of allowances for doubtful accounts relating to the purge of the customer base.
Operating income by segment The table below sets out the operating income of the Mobile segment and the Fixed-line and Internet segment of Maroc Telecom for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Mobile operating income ...... 1,058 2,347 2,676 1,248 1,790 Contribution to consolidated operating income (%) ...... 28 40 39 39 49 Fixed-line and Internet operating income ...... 2,712 3,575 4,273 1,919 1,843 Contribution to consolidated operating income (%) ...... 72 60 61 61 51
Comparison between first half 2003 and first half 2004 Mobile operating income rose 43%, to MAD 1,790 million in the first half of 2004 as compared to MAD 1,248 million in the first half of 2003, representing an increase of the Mobile segment’s contribution to Maroc Telecom’s operating income from 39% in the first half of 2003 to 49%. This improvement is due to the evolution of Mobile revenues over the period concerned, and the fall in the cost of leased lines that offset the increase in the other operating expenses.
Fixed-line and Internet operating income decreased by 4%, to MAD 1,843 million for the first half of 2004 from MAD 1,919 million for the first half of 2003. This decrease is due to the reduction in revenues from leased lines for Mobile (intersegment transactions), despite the maintenance of operating expenses at the same level as the first half of 2003. As a result of the decrease in earnings from Fixed-line and Internet and the strong growth in earnings from Mobile, the Fixed-line and Internet segment’s contribution to consolidated operating income fell from 61% to 51%.
Comparison between 2002 and 2003 The Mobile segment’s operating income improved 14% to reach MAD 2,676 million in 2003 as compared to MAD 2,347 million in 2002. This increase was due to the combination of an increase in revenues (+8%) with a
32 lesser increase in expenses (+6%). The evolution of expenses reflected the elimination of the monopoly fee (2% of revenues in 2002 and none in 2003), and the change in the cost of leased lines from the Fixed-line and Internet segment (a customer base effect).
The Fixed-line and Internet segment’s operating income increased by 20% to MAD 4,273 million in 2003 from MAD 3,575 million in 2002, with 2003 revenues increasing 1% in relation to 2002 as a result of the increase in revenues from lines leased to the Mobile segment (intersegment transactions) and the decrease in operating expenses of 6% over the period through a reduction in depreciation and amortization allowances.
Comparison between 2001 and 2002 The Mobile segment’s operating income increased by 122% to MAD 2,347 million in 2002 from MAD 1,058 million in 2001. The strong growth resulted from a 14% increase in revenues combined with a 5% reduction in costs (reflecting the assumption in 2001 of provisions for the write-down of accounts receivable for MAD 896 million).
The Fixed-line and Internet segment’s operating income rose 32% to MAD 3,575 million in 2002 from MAD 2,712 million in 2001, with a 6% increase in revenues and a 2% decrease in costs as a result of the restructuring plan carried out in 2001 on the total payroll for 2002 and the assumption of a provision for write- down of accounts receivable in an amount of MAD 362 million.
Financial income and expenses Financial income and expenses include investment proceeds, interest expense on loans, foreign exchange gains and losses and other financial income and expenses, the latter consisting primarily, over the periods concerned, of interest on staff loans and the costs of early loan repayment.
The table below sets forth the group’s financial income and expenses for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months December 31, ended June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Income from investment ...... 36 148 198 69 102 Interest expense ...... (159) (104) (53) (37) (14) Foreign exchange gains and losses ...... (203) 51 (20) 20 (2) Other ...... 17 12 (79) (81) 3 Total ...... (309) 107 46 (29) 89
Foreign-exchange gains and losses reflect the fact that Maroc Telecom generates revenues, bears expenses and has taken out loans in foreign currencies (see “Management’s discussion and analysis of financial condition and results of operations—Disclosure of qualitative and quantitative information about market risks”).
Maroc Telecom’s cash assets generate income from banks or the Treasury, either as interest-bearing sight deposits, or as term deposits not exceeding three months. Generally, Maroc Telecom makes no high-risk investments (investment funds, shares, bonds or derivatives). However, during fiscal year 2001, Maroc Telecom invested MAD 322 million in investment funds.
Comparison between first half 2003 and first half 2004 Financial earnings increased from a loss of MAD 29 million in the first half of 2003 to a gain of MAD 89 million in the first half of 2004. This change was primarily due to the increase in investment income, connected with the increase in medium-term excess cash investments, the decrease in interest costs as a result of early repayment of the loan from the European Investment Bank (EIB), and non-recurring costs booked in 2003 (costs connected with the prepayment).
The foreign exchange result as of June 30, 2004 was a loss of MAD 2 million, as compared to a gain of MAD 20 million in the first half of 2003. This decrease resulted from the neutralization of variations in the rate of the Moroccan dirham against the U.S. dollar and the euro.
33 Comparison between 2002 and 2003 Financial earnings decreased by 57%, from a gain of MAD 107 million at the end of 2002 to a gain of MAD 46 million at the end of 2003. This decrease in financial earnings primarily reflects charges related to the early repayment of the EIB loan.
Investment income rose from MAD 148 million in 2002 to MAD 198 million in 2003 as a result of increased surplus cash, which increased from MAD 6,116 million as of December 31, 2002 to MAD 7,700 million as of December 31, 2003. Interest costs decreased 49% over the same period, from MAD 104 million to 53 million, as a result of Maroc Telecom’s continued policy of indebtedness reduction. Foreign exchange losses of MAD 20 million were recorded in 2003, due to a foreign exchange loss offset in part by foreign exchange gains, pursuant to fluctuations of the U.S. dollar and euro. In 2002, foreign exchange earnings amounted to MAD 51 million, mainly due to the positive impact of exchange rate variations during fiscal year 2002 on outstanding foreign currency debt. The other elements of financial earnings relate mainly to the costs for repayment of loans and the interest on staff loans. The increase in these other financial costs was mainly due to the early repayment of a loan taken out with the EIB for MAD 86 million.
Comparison between 2001 and 2002 Financial earnings improved from a loss of MAD 309 million in 2001 to a gain of MAD 107 million in 2002. This change was primarily the result of: — exchange rate variations. Maroc Telecom recognized a consolidated foreign exchange gain of MAD 51 million in 2002, as compared to a foreign exchange loss of MAD 203 million in 2001, due in particular to the dirham’s devaluation in 2001, and — increased investment income, increasing from MAD 36 million to MAD 148 million, as a result of increased surplus cash (MAD 1,877 million at the end of 2001 to MAD 6,116 at the end of 2002).
In addition, interest costs relating to loans fell from MAD 159 million in 2001 to MAD 104 million in 2002. This change resulted from implementation of the policy of indebtedness reduction conducted by Maroc Telecom, which was reflected in repayment of MAD 966 million (including 501 million prepaid) in 2001.
The other elements of financial earnings relate mainly to interest on staff loans.
Ordinary income Exceptional items Exceptional items include restructuring provisions, net exceptional depreciation, amortization and provisions, and other items (write-offs for obsolesence and proceeds of sales of investments).
The table below sets forth the group’s exceptional earnings for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Restructuring provisions ...... (400) (480) 91 — — Exceptional depreciation, amortization and provisions ...... (1,635) (520) — — — Other ...... — (194) — — — Total ...... (2,035) (1,194) 91 — —
In 2003, Maroc Telecom reversed the balance of the restructuring provisions relating to the voluntary departure plans for MAD 91 million.
Exceptional earnings for fiscal year 2002 of MAD 720 million are due to the final cost of upgrading fixed assets initiated in 2001. This action corresponds to depreciation adjustments for MAD 453 million, the outcome of value tests on real assets for MAD 67 million, and to the write-offs for obsolesence of cables pending deployment for MAD 200 million. In addition, in 2002, Maroc Telecom launched a second voluntary departure plan on the same basis as during the previous fiscal year, the savings of which were estimated at MAD 480 million at the end of 2002. Maroc Telecom also booked a capital gain of MAD 6 million in respect of the sale of 20% of its participating interest in CMC.
34 Exceptional earnings for 2001 were the result of the funding of provisions and depreciation of fixed assets connected with the change in the depreciation plan for civil engineering (change from 30 to 15 years), late start- ups, obsolescence and adjustments and reclassification (see “—Significant accounting policies and estimates”), and the funding of a restructuring provision of MAD 400 million based on incentives as part of a voluntary departure plan.
Income tax Maroc Telecom is subject to the taxation of income like any other Moroccan société anonyme. The fixed rate of corporation tax is 35%.
The income tax line item consists of corporate income tax and deferred taxation. Deferred taxation is based on temporary discrepancies between the book and taxable values of assets or liabilities. The table below describes the breakdown of tax between corporate income tax paid by Maroc Telecom and deferred taxation for the fiscal years ended December 31, 2001, 2002 and 2003, and for the six-month periods ended June 30, 2003 and 2004.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Current income taxes ...... (729) (1,623) (2,021) (841) (1,284) Deferred taxes ...... 422 (17) (15) (22) 9 Income taxes ...... (307) (1,640) (2,036) (863) (1,275) Consolidated rate of taxation observed (%)* ...... 22 34 29 28 34
* Taxation of income/pre-tax income.
In 2001, 2002 and 2003, the corporation tax increased in step with the increase in net income of the companies consolidated after deduction of exceptional items.
Over the first half of 2004, tax expense amounted to MAD 1,275 million. The increased rate of taxation between the first half of 2003 (28%) and the first half of 2004 (34%) primarily reflects the absence of tax provisions for investments in 2004.
Over fiscal year 2003, tax expense amounted to MAD 2,036 million. Over fiscal year 2002, tax expense amounted to MAD 1,640 million. The decrease in the tax rate between 2002 (34%) and 2003 (29%) was the result of the funding of a tax provision for investments of MAD 950 million in 2003, whereas no tax provision had been recorded in 2002.
In 2001, Maroc Telecom funded depreciation, amortization and provisions for MAD 1,213 million representing in particular the portion of exceptional depreciation of MAD 1,635 million eligible for claw-back. (See “Notes to the consolidated financial statements at December 31, 2001, 2002 and 2003—Comparability.”) This funding was clawed back for tax purposes in 2001 for the computation of corporation tax (at the rate in force of 35%), or MAD 422 million. The eligibility of such funding for tax deduction is deferred to the end of the expected normal life of the related fixed assets.
In addition, the rate of taxation observed in 2001 (22%) is due to the funding of a tax provision for investments of MAD 417 million.
Net income before minority interests and goodwill amortization Equity in earnings of companies accounted for by the equity method The companies accounted for using the equity method are Mauritel S.A. and GSM Al Maghrib (since July 1, 2003).
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Mauritel S.A...... 20 51 46 15 33 GSM Al Maghrib ...... —— 1 — 1 Total* ...... 20 51 47 15 34 * Amounts before goodwill amortization.
35 Comparison between the first half 2003 and first half 2004 Interest in the earnings of companies accounted for using the equity method rose 127%, to MAD 34 million for the first half of 2004 as compared to MAD 15 million for the first half of 2003. This increase was mainly due to improved earnings by Mauritel S.A., most of which came from the mobile business, despite a flagging fixed- line business.
Comparison between 2002 and 2003 Interest in the earnings of companies accounted for by the equity method fell 8% to MAD 47 million for fiscal year 2003 as compared to MAD 51 million for fiscal year 2002. This decrease was mainly due to a slow-down in the fixed-line business in Mauritania, caused by the replacement trend from fixed-line services to mobile services.
Comparison between 2001 and 2002 Interest in the earnings of companies accounted for by the equity method amounted to MAD 51 million for fiscal year 2002, an increase of 155% from MAD 20 million for fiscal year 2001. The increase primarily resulted from the good performance of the mobile market in Mauritania.
Goodwill amortization Goodwill is amortized over a period of 40 years for Mauritel S.A. and over a three-year period for GSM Al Maghrib.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Goodwill amortization ...... (5) (4) (5) (2) (3)
In 2001, Maroc Telecom valued the goodwill relating to Mauritel S.A. at MAD 191 million. In 2002, the sale of 20% of CMC, Mauritel S.A.’s holding company, reduced the related goodwill to MAD 149 million. In 2003, the goodwill was further reduced to MAD 138 million as a result of the sale to employees of 3% of Mauritel S.A.’s share capital.
The goodwill relating to GSM Al Maghrib amounted to MAD 6 million as of December 31, 2003.
Net income before minority interests Net income increased from MAD 1,134 million in 2001 to MAD 3,242 million in 2002, and reached MAD 5,092 million in 2003.
Minority interests The minority interests amounted to MAD 10 million in 2002 and MAD 7 million in 2003, reflecting the interests of shareholders other than Maroc Telecom in CMC’s earnings. Minority interests amounted to MAD 6 million as of June 30, 2004.
Net income (group share) Net income (group share) amounted to MAD 2,472 million for the first half of 2004. It amounted to MAD 5,085 million for fiscal year 2003, MAD 3,232 million for fiscal year 2002 and MAD 1,134 million for fiscal year 2001.
Net earnings per share Net earnings per share amounted to MAD 13 for fiscal year 2001, MAD 37 for fiscal year 2002 and MAD 58 for fiscal year 2003. Net earnings per share increased 346% between 2001 and 2003.
LIQUIDITY AND CAPITAL RESOURCES Liquidity Over the past three fiscal years, the Company’s main source of liquidity has consisted of cash generated by its operating activities. Maroc Telecom covers all its investment costs with its operating cash flow.
36 Cash flows The table below contains information relating to Maroc Telecom’s consolidated cash flows for the periods considered.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Net operating cash flow* ...... 6,679 8,093 6,724 2,441 3,675 Net cash used in investing activities ...... (3,361) (2,609) (1,776) (544) (1,167) Net cash used in financing activities ...... (1,479) (1,245) (3,364) (2,929) (5,241) Net increase (reduction) in cash and cash equivalents ...... 1,839 4,239 1,584 (1,032) (2,733) Cash and cash equivalents at beginning of period ...... 38 1,877 6,116 6,116 7,700 Cash and cash equivalents at end of period ...... 1,877 6,116 7,700 5,084 4,967 * Including change in receivables and payables.
Analysis of net operating cash flow Net operating cash flow corresponds to the cash flow plus or minus the group’s working capital requirements.
Over the first half of 2004, net operating cash flow amounted to MAD 3,675 million, an increase of MAD 1,234 million from first half of 2003. This increase was mainly due to the increase in cash flow caused by improved net earnings and the reduction in working capital requirements, which was primarily the result of the increase in trade payables (investments greater than in the first half of 2003).
Between 2002 and 2003, net operating cash flow fell from MAD 8,093 million to MAD 6,724 million. This decrease was the result of a slight increase in working capital requirements in 2003 (+ MAD 37 million) compared to a significant reduction of working capital in 2002 (- MAD 1,489 million).
Between 2001 and 2002, net operating cash flow rose from MAD 6,679 million to MAD 8,093 million. This improvement was mainly due to improved cash flow (+ MAD 1,517 million) and increased trade payables (+ MAD 219 million) and other operating liabilities (+ MAD 1,416 million), most of which were connected with the increase in corporate income tax between 2001 and 2002 (+ MAD 1,333 million).
In 2001, net operating cash flow amounted to MAD 6,679 million, reflecting: — cash flow of MAD 5,087 million; and — a change in working capital requirements of MAD 1,592 million, most of which was the result of : — a reduction of MAD 860 million in accounts receivable pursuant to the funding of provisions in 2001 carried out during the purge of the customer base; and — the reduction in inventories of MAD 392 million at the end of 2001 in relation to the situation at the end of 2000.
The balance of operating resources for fiscal year 2001 reflects the net change in operating receivables and debt after restatement of the effect of deferred taxation for the period included in the cash flow (+ MAD 422 million for 2001).
Analysis of net cash used in investing activities Net cash used in investing activities corresponds to the difference between acquisitions of fixed assets and sales of tangible, intangible and financial assets, and the net cash flow on long-term loans.
Over the first half of 2004, net cash used in investing activities amounted to MAD 1,167 million as compared to MAD 544 million for the first half of 2003. This change was mainly due to the completion of the investment program in the first half of 2004, initially scheduled to be completed in 2003 and postponed in part to 2004.
In 2003, net cash used in investing activities amounted to MAD 1,776 million, as compared to MAD 2,609 million in 2002. This decrease reflects the postponement of certain investments scheduled for 2003 and deferred to 2004, as well as the outsourcing to banks of employee loans.
37 In 2002, net cash used in investing activities amounted to MAD 2,609 million, as compared to MAD 3,361 million in 2001. This decrease was primarily the result of the sale of part of the shares of Mauritel S.A. held by the Company for MAD 113 million in 2002. Maroc Telecom acquired its interest in Mauritel S.A. for MAD 526 million in 2001.
The investments are analyzed in detail by segment below.
Analysis of net cash used in financing activities Net cash used in financing activities consists mainly of repayments of financing debts and payment of dividends.
Over the first half of 2004, net cash used in financing activities amounted to MAD 5,241 million, reflecting primarily the payment of an ordinary dividend in respect of fiscal year 2003 (MAD 2,750 million) and an exceptional dividend (MAD 2,374 million).
In 2003, net cash used in financing activities amounted to MAD 3,364 million, as compared to MAD 1,245 million in 2002, reflecting primarily a higher dividend payment for fiscal year 2002 (MAD 2,500 million as compared to MAD 730 million in respect of fiscal year 2001) and the early repayment in 2002 of the loan from the EIB for MAD 608 million.
In 2002, net cash used in financing activities amounted to MAD 1,245 million, as compared to MAD 1,479 million in 2001. This decrease primarily reflects the effect of the early repayment of a loan from the World Bank in 2001.
In 2001, net cash used in financing activities amounted to MAD 1,479 million, including the repayment of loans for MAD 901 million and the payment of dividends for MAD 824 million.
Capital expenditure The table below sets out Maroc Telecom’s capital investments by segment since 2001.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Mobile segment ...... 1,769 1,543 1,141 370 692 Fixed-line and Internet segment ...... 1,039 1,201 763 281 500 Total ...... 2,808 2,744 1,904 651 1,192
Preliminary note The difference between tangible and intangible capital investments and net cash used in investing activities is due to the latter taking into account financial investments, sales of fixed assets and the repayment of long-term loans.
Accordingly, in 2003, the difference between net cash used in investing activities and tangible and intangible investments was mainly the result of net cash flow of long-term loans of MAD 115 million relating to a local bank’s repurchase, at face value, of the employee loans.
In 2002, the difference between net cash used in investing activities and tangible and intangible investments was mainly the result of the assignment of financial fixed assets (the sale of 20% of the share capital of CMC, the holding company of Mauritel S.A.) for MAD 113 million.
In 2001, the difference between net cash used in investing activities and tangible and intangible investments was mainly the result of the acquisition of financial fixed assets for a total of MAD 532 million (acquisition of Mauritel S.A. for MAD 526 million and of Casanet for MAD 6 million).
In the first half of 2004, capital investments amounted to MAD 1,192 million with the completion of the projected investment plan. These investments related to the development and construction of the network and infrastructure, and, in particular, implementation of a network monitoring center allowing remote inspection and supervision of all the parts of the network (fixed-line, mobile and company networks together).
38 Analysis of investments relating to the Mobile segment In the first half of 2004, investments related to development and construction of the network and infrastructure, and, in particular, the implementation of a network monitoring center allowing remote inspection and supervision of all parts of the network (fixed-line, mobile and company networks together).
In 2003, investments made related to upgrading the network infrastructure and platforms through the roll- out of new software and hardware.
In 2002, investments related mainly to the optimization, restructuring and reinforcement of GSM network capacity and to the introduction of service stages and platforms.
In 2001, a program for extension of GSM coverage was implemented.
Between 2002 and 2003, the decrease in investments by the Mobile segment was a result of the reduction in the number of radio locations to be installed and the deferral of certain investments scheduled for 2003 to 2004.
Analysis of investments relating to the Fixed-line and Internet segment Investments in the first half of 2004 related mainly to the optimization of the switching network and extension of ADSL capacities.
In 2003, investments related to the extension of the capacity of the network and facilities, the establishment of ADSL access and the renewal of public phones.
In 2002, investments related to the extension of the international transmission network, the roll-out of a new smart network platform (relating to the “El Manzil” rate plans), the reinforcement of capacity for switching and transit centers and the establishment of a voice-mail service for fixed-line subscribers.
In 2001, investments related to an increase in switching capacity, the establishment of a new smart network platform and extension and modernization of the transmission networks.
The decrease in capital investments by the Fixed-line and Internet segment between 2002 and 2003 is due to the optimization of existing investments and to the partial deferral of certain investments, such as the Nationwide Monitoring Center, to fiscal year 2004.
Investments in information systems Maroc Telecom’s policy for investment in information systems aims to: — industrialize the processes of planning, administration and management of the Maroc Telecom network; and — optimize, integrate and increase the reliability of the Company’s technical, commercial, human resource, administrative and financial processes.
Over the period 2001 to June 30, 2004, the principal investments in information systems (IS) related to: — 2004 (first half): implementation of the first section of the Finance IS (roll-out of a first version of an integrated management software package scheduled for January 2005), overhaul of the Fixed-line IS (roll- out scheduled for early 2005), optimization of data storage solutions; — 2003: reinforcement of the human resources and payroll management IS, establishment of the purchasing IS, implementation of the IS for commercial management of Internet and mobile activities; — 2002: establishment of the fixed-line collection IS, overhaul of the regional bases of the fixed-line commercial IS, establishment of the Maroc Telecom intranet; and — 2001: replacement of the servers of the fixed-line commercial IS, stabilization of the new mobile IS (rolled- out in 2000).
Financial investments As of June 30, 2004, financial investments included investments accounted for using the equity method in an amount of MAD 373 million (which included Mauritel S.A. for MAD 367 million and GSM Al Maghrib for MAD 6 million), and unconsolidated companies for MAD 43 million. Other financial investments consisted mainly of loans to employees for MAD 101 million.
39 In addition to such financial investments, Maroc Telecom recorded goodwill at the time of its acquisition of interests in the companies consolidated by the equity method. As of June 30, 2004, such goodwill amounted to MAD 140 million (MAD 137 million in respect of Mauritel S.A. and MAD 3 million in respect of GSM Al Maghrib).
The various financial investments and divestments performed by the group over the past three fiscal years may be summarized as follows: — In 2001, Maroc Telecom acquired a 54% interest in Mauritel S.A. for USD 48 million, generating initial goodwill of MAD 196 million. — In 2002, Maroc Telecom transferred its Mauritel S.A. shares, acquired in 2001, to a holding company organized under Mauritanian law and fully owned by Maroc Telecom, Compagnie Mauritanienne de Communications (CMC), and sold 20% of CMC to a group of Mauritanian investors for USD 10.3 million. A capital gain of MAD 6 million was recorded in the consolidated financial statements. — In 2003, financial investments consisted mainly of the acquisition of a 35% interest in GSM Al Maghrib, an exclusive distributor of Maroc Telecom’s telecommunications services, by means of a capital increase for an amount of MAD 11 million. The transaction generated goodwill of MAD 6 million, to be amortized over three years. Maroc Telecom sold 3% of the Mauritel S.A. shares, through CMC, in accordance with the covenants made at the time of acquisition of an interest in that company in 2001. The resulting capital loss was included as goodwill at the time of determination of the goodwill. Accordingly, this sale did not affect Maroc Telecom’s consolidated financial statements for 2003.
Capital resources To date, Maroc Telecom has funded its activities mainly through its cash surplus. Accordingly, Maroc Telecom has not taken out any loans since 1996 and has established a policy of early repayment of its outstanding debt. It retains only loans bearing interest at rates less than the yield of its cash assets (approximately 3%).
In line with these policies, Maroc Telecom prepaid almost MAD 1.1 billion of debt between 2001 and 2003. After obtaining permission from the Minister of Finance and Privatization, Maroc Telecom intends to prepay by the end of 2004 the loan granted by the Agence Française de Développement (AFD) in an amount of MAD 600 million.
This policy of prepayment has allowed Maroc Telecom to reduce its exposure to foreign-exchange risks. As of December 31, 2003, the outstanding balance of unpaid loans was MAD 1,499 million, 51% of which is denominated in U.S. dollars and 49% is denominated in EUR.
As of December 31, 2004, this amount is expected to be reduced to MAD 755 million, and consist mainly of an interest-free U.S. dollar-denominated loan taken out with Export Development Canada (EDC), for an amount equivalent to MAD 692 million (at the USD/MAD rate in force as of June 30, 2004), and various loans in euro and U.S. dollars with maturities not exceeding three years.
The table below breaks down the outstanding debt (exclusive of accrued interest) by currency for the periods indicated.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Euro ...... 1,132 1,058 736 760 695 U.S. dollar ...... 1,608 1,176 763 911 707 Other currencies* ...... 266249000 Dirham ...... 246 104 102 401 101 Outstanding principal ...... 3,252 2,587 1,601 2,072 1,503 Interest accrued ...... 25 15 6 17 12 Total financial debt ...... 3,277 2,602 1,607 2,089 1,515
* Japanese yen and Swiss franc.
40 With its net operating cash flow, the Company has generated net positive cash assets since 2002, broken down as follows:
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Outstanding debt and accrued interest (a) ...... 3,277 2,602 1,607 2,089 1,515 Cash assets (b) ...... 1,555 6,116 7,700 5,084 4,967 Investment securities* (c) ...... 322———— Net cash assets (b) + (c) - (a) ...... (1,400) 3,514 6,093 2,995 3,452 * Investment securities are treated as cash equivalents if maturity does not exceed three months.
In its reports to the market authorities, Vivendi Universal represents that certain of its bank loans and/or bond issues contain standard provisions under which Vivendi Universal undertakes to procure that its subsidiaries, including the Company, respect certain undertakings such as not to make any investments, acquisitions or sales of assets without respecting certain conditions or, furthermore, not enter into loans with companies outside the Vivendi Universal group nor to grant any security over assets in excess of certain defined amounts. The thresholds under which these operations are permitted are often determined on a global basis for all subsidiaries of the Vivendi Universal group, and the Company could not fully benefit in the event that other subsidiaries of Vivendi Universal have already taken advantage of these exclusions.
In addition, Vivendi Universal loans contain financial ratios that it has undertaken to respect, such as the maximum ratio of net financial debt on the results of operating expenses before amortization, a minimum ratio of the results of operating expenses before amortization on the net financial costs and a maximum percentage of net financial debt subscribed by its subsidiaries compared to the consolidated net financial debt of the whole group. These ratios are determined on a consolidated basis and take into account the indebtedness, the financial situation and the results of the subsidiaries of Vivendi Universal, including the Company.
Consequently, Vivendi Universal may exercise its power of control over the Company to prevent it from realizing certain operations on the basis that such operations would not comply with the undertakings given by Vivendi Universal with regard to its loans or would result in the breach by Vivendi Universal of its financial ratio covenants.
Not being a party to these loans or undertakings, the Company is not capable of estimating the nature or the exact meaning of these restrictions or terms which are contained within the documents, other than those documents that are publicly available. Maroc Telecom cannot guarantee that other undertakings at the Vivendi Universal level that may have an impact on the activities of the Company and its financial resources have not been taken (see “Risk factors”).
Off-balance sheet commitments Maroc Telecom’s off-balance sheet commitments include the balance of contracts made with suppliers and unrealized documentary credits opened with banks. These commitments, in an amount of MAD 1,218 million as of December 31, 2003, are related to the ordinary business operations of a telecommunications operator. Maroc Telecom also has endorsements for an amount of MAD 67 million enabling it to take delivery of goods in bond prior to payment of the import duty.
The table below sets out the off-balance sheet commitments of Maroc Telecom:
December 31, June 30, 2001 2002 2003 2004 (In millions of MAD) Guarantees, security and warranties given ...... 140 82 67 65 Other commitments* ...... 2,103 711 1,218 1,350 Total ...... 2,243 793 1,285 1,415
* Balances of executory contracts and outstanding letters of credit.
41 The table below breaks down the commitments received by Maroc Telecom:
December 31, June 30, 2001 2002 2003 2004 Mortgages ...... 227 216 112 100 Warranties ...... 644 667 515 480 Total ...... 871 883 627 580
In addition, Maroc Telecom has agreed to make investments pursuant to the funding of a tax-exempt provision for investments. Accordingly, in order to retain the related tax benefit, the Company is obliged to invest within three years after the funding thereof an amount of approximately three times the provision funded. As of June 30, 2004, this commitment amounted to MAD 3.2 billion by the end of 2006, it being specified that at such date, Maroc Telecom had invested an amount of MAD 1,192 million over the half year.
All of Maroc Telecom’s loans are guaranteed by the Kingdom of Morocco.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS Contractual obligations The table below sets forth the contractual obligations assumed by Maroc Telecom as of June 30, 2004 by maturity.
Less than Total 1 year 1 to 5 years Over 5 years (In millions of MAD) Long-term debt ...... 1,515 216 202 1,097 Capital lease obligations ...... —— — — Operating leases* ...... 219 79 140 Irrevocable purchase obligations ...... Other long-term commitments ...... Total ...... 1,734 295 342 1,097 * Long-term vehicle lease.
Maroc Telecom has no lines of credit, letters of credit, warranties or buy-back obligations in place.
Maroc Telecom entered into an investment agreement with the public authorities of the Kingdom of Morocco in January 2003, whereby Maroc Telecom agreed (i) to carry out an investment program over three years for an amount of MAD 7,079 million and (ii) to create 300 new jobs by January 2006. In return, the public authorities agreed to exempt Maroc Telecom from customs duty for all capital goods imported. This program allows Maroc Telecom to save approximately MAD 60 million in customs duties per year. If Maroc Telecom does not make such investments, it will be required to pay the unpaid customs duties plus penalties for late payment. Given the decline in purchase prices of capital goods, Maroc Telecom is contemplating reducing the amount of investments to be made, with the authorities’ consent, as it considers that it will carry out the investment program provided for under the investment agreement at a lower cost.
Pursuant to that investment agreement, as of June 30, 2004, Maroc Telecom had made investments in a total amount of MAD 3,183 million. It is therefore still bound to make investments in an amount of MAD 3,896 million by January 2006. In addition, as of June 30, 2004, Maroc Telecom had already created 198 new jobs.
DISCLOSURE OF QUALITATIVE AND QUANTITATIVE INFORMATION ABOUT MARKET RISKS The group is exposed to various market risks connected with its business.
Foreign exchange risk Maroc Telecom is exposed to variations in exchange rates insofar as the breakdown of its collections in foreign currencies differs from the breakdown of its disbursements in foreign currencies. Collections and disbursements in foreign currency account for a significant portion of its revenues.
Maroc Telecom makes collections in foreign currencies relating to revenue from international operations and makes disbursements in foreign currencies relating to the servicing of debt, payment to suppliers (in
42 particular payment of investment disbursements and acquisition of handsets) and payment for interconnection with foreign operators. These disbursements are mainly denominated in euro. The portion of foreign currency disbursements denominated in euro as of December 31, 2003 accounted for 64% of foreign currency disbursements out of a total of MAD 2,991 million. These foreign currency disbursements may exceed the amount of collections in foreign currency (MAD 2,255 million in 2003), as was the case for the past three fiscal years. As a result, a rise in the rate of the euro to the dirham and a fall in the rate of the U.S. dollar to the dirham have an unfavorable impact on the Company’s earnings.
In addition, Maroc Telecom had a debt of MAD 1.5 billion as of June 30, 2004, denominated in U.S. dollar and in euro (see “Liquidity and capital resources—Capital resources”).
Maroc Telecom cannot offset its foreign currency disbursements and collections, as Moroccan law permits it to retain only 20% of its international receipts in a foreign currency account; the remaining 80% are automatically converted into dirham. Consequently, Maroc Telecom’s earnings may be affected by fluctuations in exchange rates, in particular fluctuations in the dirham against the U.S. dollar or euro.
Finally, Maroc Telecom could be exposed to risks connected with the conversion into dirham of the earnings and assets and liabilities of its non-Moroccan subsidiaries in the event that they should become significant for Maroc Telecom.
Over the past three years, the euro rose 12.2% in relation to the dirham (from MAD 9.867 as of January 1, 2001 to MAD 11.055 as of December 31, 2003). Over the same period, the U.S. dollar fell 17.6%, from MAD 10.616 to MAD 8.750. Over the same period, the aggregate foreign exchange gains and losses resulted in a loss of MAD 172 million.
The table below sets out the Company’s net positions in the principal foreign currencies, and aggregated for the others, as of June 30, 2004.
U.S. Other currencies Euro dollar (Euro equivalent)* (In millions) Assets denominated in foreign currencies ...... 45 29 1 Liabilities denominated in foreign currencies ...... (131) (93) (16) Net assets (liabilities) ...... (86) (64) (15) Off-balance sheet items ...... (40) (16) (6) Total assets (liabilities) denominated in foreign currencies ...... (126) (81) (21)
* Assuming EUR 1 = MAD 10.97. Note: the other currencies are mainly the Japanese yen and Swiss franc.
The Company has made the following estimations: — The exchange rate in euro and in U.S. dollars is calculated by applying to the receivables and the debts in Special Drawing Rights (SDR) of foreign operators as of June 30, 2004 the proportion per currency of collections and disbursements made during the first half of 2004.
— As regards the balance of commitments relating to current agreements, the breakdown by currency is based on that observed as of June 30, 2004 for the portion of such contracts that have already been performed.
The group does not use foreign currency hedging instruments.
The assets denominated in foreign currencies consist mainly of receivables from foreign operators.
The liabilities denominated in foreign currencies consist of debts to foreign operators and suppliers and borrowings denominated in foreign currency.
The off-balance sheet items consist of Maroc Telecom’s commitments to foreign suppliers.
Maroc Telecom is short on the two main currencies, the euro and U.S. dollar. Since the net position in euro is very important, Maroc Telecom is more exposed to the fluctuation of the euro relative to the dirham.
43 A 1% rise in the euro and U.S. dollar in relation to the dirham would have an impact as of June 30, 2004 of: — + MAD 8 million for assets denominated in foreign currencies; — - MAD 26 million for liabilities denominated in foreign currencies; — - MAD 18 million on net assets (liabilities); — - MAD 8 million on the off-balance sheet items; and — - MAD 26 million on the total assets liabilities denominated in foreign currencies.
Conversely, a 1% decrease in the euro and U.S. dollar in relation to the dirham would have an impact as of June 30, 2004 of: — - MAD 7 million for assets denominated in foreign currencies; — + MAD 23 million for liabilities denominated in foreign currencies; — + MAD 16 million on the net assets (liabilities); — + MAD 5 million on the off-balance sheet items; and — + MAD 21 million on the total assets (liabilities) denominated in foreign currencies.
Liquidity risk As regards the various loans taken out by the Company, it is not exposed to risks arising from terms for prepayment, as a result of the application of covenants or otherwise. In addition, the various loans taken out by the Company are secured by the Moroccan State. Finally, the Company has not securitized any of its accounts receivable.
Interest rate risk The table below sets out the outstanding debt by currency (in thousands of currency units) as of June 30, 2004:
Fixed or Hedged or Currency Creditor Interest rate variable rate Maturity Dec 31, 2003 June 30, 2004 not EUR ...... ABCI 6.73% Fixed 02/18/2005 2,075 1,384 No 7.41% Fixed 03/28/2007 1,865 1,550 No AFD 2.50% Fixed 31/12/2024 1,367 1,367 No 31/12/2027 53,127 53,127 No CCF 6.50% Fixed 03/18/2005 1,686 1,124 No 7.34% Fixed 07/11/2005 2,106 1,579 No K.F.W 5.60% Fixed 01/31/2004 217 2,758 No 8.07% Fixed 04/09/2006 3,533 0 No Natexis Bank 6.70% Fixed 06/03/2005 412 275 No Total EUR ..... 66,388 63,163 U.S.D ...... EDC 0.00% Fixed 01/11/2038 59,515 58,652 No 07/10/2040 19,176 18,917 No 8.75% Fixed 01/12/2004 5,471 0 No 9.00% Fixed 01/12/2004 1,452 0 No SVENSKA 0.00% Fixed 04/05/2005 1,331 550 No Total U.S.D .... 86,945 78,119
The table below sets out the outstanding net debt by term:
Due within 1 year 1 to 5 years Due after 5 years (In millions of MAD) Loans and long-term debt ...... (216) (202) (1,097) Cash and cash equivalents and investments ...... 4,782 51 34 Net ...... 4,566 (151) (1,063)
44 Maroc Telecom has two principal fixed-rate loans, one at a rate of 2.5% which should be fully repaid in advance by the end of the year and the other zero-rated. Consequently Maroc Telecom is not susceptible in any material way to favorable or unfavorable changes in interest rates.
Any excess of cash flow is invested at market rates. The variation of creditors’ interest rates therefore has a significant impact on investment income: — Based on the average cashflow of the first half of 2004, a 1% increase in the interest rate would lead to additional income of MAD 35 million over a six-month investment period; — Conversely, based on the average cashflow of the first half of 2004, a 1% decrease in the interest rate would lead to a loss of income of MAD 35 million over a six-month investment period.
Equity risk As the group does not have a portfolio of securities in a significant amount, there is no risk relating to a variation in the price for such securities or interests (See “—Results of operations—Operating income— Financial income and expenses”).
45 BUSINESS
HISTORY AND CORPORATE ORGANIZATION Maroc Telecom was created on February 25, 1998 as a result of a split of the Office National des Postes et Télécommunications pursuant to the enactment of Act 24-96 and the implementing decrees relating to telecommunications. Maroc Telecom, the incumbent telecommunications operator in the Kingdom of Morocco, is organized around two business segments: the Mobile segment and the Fixed-line and Internet segment. A mobile telephone service was introduced in Morocco in 1987, using analog technology. As soon as the GSM digital standard was adopted, Maroc Telecom, as the incumbent operator, expanded its mobile telephone services and was the first operator in Africa and the second in the MENA (Middle East North Africa) region to operate a GSM network (since on April 1, 1994). Maroc Telecom soon developed coverage for the country’s main economic and political centers. In January 1995, Maroc Telecom signed its first international roaming agreement. In order to prepare for the arrival of a new competitor on the market and to increase its penetration, Maroc Telecom introduced pre-paid plans and GSM packages in 1999, and launched rate plans in 2000. Currently, there are two mobile operators in Morocco, of which Maroc Telecom is one (see “—Competition”). There has been a fixed-line telephone service in Morocco since the first half of the twentieth century and Maroc Telecom is to date the only operator with a fixed-line telecommunications license in Morocco. The Company has extended the range of fixed-line telecommunications services it provides with the launch of narrowband Internet since 1995 and broadband ADSL in 2003, together with dedicated data connectivity service products for professionals using the newest technology available on the market. On February 20, 2001, Vivendi Universal acquired a 35% interest in the Company pursuant to an invitation to tender organized by the Moroccan government for the selection of a strategic partner. Vivendi Universal was granted certain rights relating to the Company’s management and operation. Maroc Telecom, along with the SFR-Cegetel group, is now affiliated with the Telecommunications Division of the Vivendi Universal group. Pursuant to an agreement dated November 18, 2004, the Moroccan government and Vivendi Universal have agreed to the assignment of the Kingdom of Morocco of ordinary shares representing 16% of Maroc Telecom’s share capital. The agreement provides that this transaction will close on January 4, 2005. The group’s simplified legal structure (Vivendi Universal holds its indirect participating interest through its subsidiary Vivendi Telecom International) as of June 30, 2004 was as follows:
Casanet manages the Company’s Menara Internet portal. As Casanet’s contribution to Maroc Telecom’s consolidated revenues is not material, Casanet is not consolidated by the Company (see “Management’s discussion and analysis of financial condition and results of operations—Scope of consolidation”).
46 Mauritel S.A., acquired on April 12, 2001 by Maroc Telecom, is the incumbent telecommunications operator in Mauritania. GSM Al Maghrib is a distributor of Maroc Telecom’s mobile, fixed-line and Internet products and services.
Organized into General, Central and Regional Directorates based on its businesses and services, Maroc Telecom combines Mobile, Fixed-line and Internet operations with Support, Networks & Services and Administrative & Finance functions. This structure is supplemented by two Central Directorates, in charge of Compliance and Communication, and Human Resources, respectively.
DESCRIPTION OF OPERATIONS General presentation Maroc Telecom is organized around two business segments: The Mobile segment provides mobile-telecommunications services. It had 5.52 million customers as of June 30, 2004. It operates using a GSM network covering almost the entire population through more than 3,500 base stations.
The Fixed-line and Internet segment provides fixed-line telephone services including public telephony, Internet services and data connectivity services. The Fixed-line and Internet segment had 1.3 million customers as of June 30, 2004. As of the same date, its network, entirely digitized for switching, consisted of over 6,500 kilometers of intercity fiber optic cable and over 3,200 kilometers of urban fiber optic cable.
Maroc Telecom’s products and services are marketed through a distribution network consisting of owned branches covering the entire territory of Morocco and through independent distribution channels (see “—Distribution”).
The table below describes the development of Maroc Telecom’s customer base during the past three fiscal years and as of June 30, 2004:
As of As of December 31, June 30, 2001 2002 2003 2004 (In thousands) Mobile customers* ...... 3,663 4,597 5,214 5,519 Fixed-lined customers ...... 1,140 1,127 1,219 1,312 Internet customers** ...... 27 34 47 79 * Mobile customers includes customers with pre-paid cards and post-paid subscribers. ** Internet customers concerns IP accounts opened with Maroc Telecom (subscribers and pay-as-you-go customers).
The telecommunications sector accounted for 4.5% of Morocco’s GDP as of June 30, 2004. This sector is growing rapidly, from MAD 7.4264 billion in 1998 to MAD 18.883 billion in 2003.
As of December 31, 1998 1999 2000 2001 2002 2003 (In millions) Value of telecoms market ...... 7,426 8,505 12,422 15,202 17,048 18,883 Source : ANRT
The table below describes the breakdown of revenues for the fiscal years ending on December 31, 2001, 2002 and 2003, and for the first half of 2003 and 2004:
Six months ended Year ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Gross revenue Mobile ...... 6,760 7,734 8,388 3,981 4,707 Gross revenue Fixed-line and Internet ...... 10,417 11,054 11,210 5,492 5,377 Total gross consolidated revenue ...... 17,177 18,788 19,598 9,473 10,084 Equalization intersegment transactions ...... (2,909) (3,377) (3,704) (1,797) (1,620) Total consolidated net revenue ...... 14,268 15,411 15,894 7,676 8,464
47 Gross revenue includes flows of business between the Mobile segment and the Fixed-line and Internet segment. Intersegment transactions relate mainly to the following services: — interconnection services relating to the flows of traffic between Maroc Telecom’s fixed-line and mobile networks, and — lines leased by the Fixed-line and Internet segment to the Mobile segment.
These flows are eliminated in the “consolidated revenues” line item.
Maroc Telecom’s strategy Against the background of a growing telecommunications market, supported by demand connected mainly with favorable economic and demographic conditions, Maroc Telecom’s goal is to retain leadership in all its market segments (mobile, fixed-line and Internet), and to retain its position as the preferred telecommunications- services provider in Morocco, while maintaining its profitability.
Since its creation in 1998, and despite the sector’s opening to competition, Maroc Telecom has succeeded in maintaining its leadership in each segment of the market, relying in particular on: — a segmented and competitive offer, suited to consumers’ expectations; — a dense distribution network, the tightest in the country, with almost 28,000 direct and indirect sales points licensed by Maroc Telecom; — a modern network infrastructure, offering the country’s best mobile coverage; and — strong brands enjoying high recognition.
Maroc Telecom’s strategy is accordingly organized along the following main lines. — Stimulating growth in the mobile market through the development of penetration and the stimulation of usage of mobile telecommunications services With an active customer recruitment and communication policy, Maroc Telecom intends to continue to develop the penetration of mobile services in Morocco, extend its customer base and develop customer loyalty. In addition, Maroc Telecom seeks to stimulate usage by pre-paid customers, through promotions on air time and a marketing effort for refills, and by encouraging its pre-paid customers to migrate to post-paid formulas with attractive pricing. Finally, Maroc Telecom’s launch of new services (SMS, MMS, GPRS) is intended to improve its product range and to increase average revenue per user. Growth of the customer base remains a priority, though with an objective of controlling acquisition and loyalty-building costs for customers. With a penetration rate of almost 27% as of June 30, 2004 (Source: ANRT), the Moroccan market still has substantial potential for growth, with a 40% penetration rate likely in the medium term (Source: research conducted at Maroc Telecom’s request by independent experts). — Reinforcing its competitiveness in fixed-line services with a view to the forthcoming opening of this segment to competition The ANRT has stated that a new invitation to tender for fixed-line telephony licenses is to be issued by the end of 2004, with a view to awarding new fixed-line licenses in 2005 for national, international and local loop services. With a long-standing effort to restructure prices, Maroc Telecom believes it is now ready for the liberalization of this market. The Company intends to proceed with its price restructuring policy, in particular by continuing to cut international rates. Maroc Telecom also intends to continue to develop the market and to build customer loyalty through segmented, competitive and innovative Business and Consumer offers. In the data connectivity sector, Maroc Telecom is currently in a leading position, that it works to improve through price cuts and new services, in particular with the introduction of IP/MPLS-protocol virtual private network solutions. — Remaining the principal driver and participant in the development of the Internet in Morocco Maroc Telecom has chosen a determined strategy of rapidly developing the Internet market in Morocco. The great success of the new unlimited ADSL Internet access plan, launched in early 2004, bears witness to this market’s growth potential. Maroc Telecom intends to focus its efforts on broadband, with a commercial policy organized around gradual price cuts and an increase in available flow rates. Maroc Telecom also intends to develop the number of initiatives designed to increase the penetration of personal computers, in particular in schools, to develop specific plans for professionals, and to assist in the development of content and use of the Internet.
48 — Capitalizing on its brands and making Maroc Telecom a reference in terms of customer service in Morocco
Maroc Telecom enjoys strong public recognition and an excellent image with its product brands, such as Jawal (pre-paid mobile telephony), El Manzil (residential and professional fixed-line telephony) and Menara (Internet access). The Company’s goal is to further extend the recognition of the Maroc Telecom brand by continuing to market its name and brands. The Company also proposes to make Maroc Telecom the reference in customer service in Morocco by continuing to improve presentation, signage and customer interface at the point of sale, and continuing to improve customer services (technical start-up, after-sales service, commercial administration, call centers) which have already enabled it to face the competition successfully, in particular in the areas of mobile telephony and the Internet.
— Relying on network infrastructure complying with the most recent technological standards
Maroc Telecom has the most extensive and technologically advanced network infrastructure in Morocco. With its modern high-performance network, based on a fully meshed and secured fiber optic backbone, Maroc Telecom offers a wide range of high-quality telecommunications services (fixed line, mobile, data and broadband Internet). In order to maintain a reliable leading-edge network, providing innovative new services to its customers, Maroc Telecom intends to proceed with its policy of investment in its network, prioritizing the development of capacity and coverage, the introduction of new mobile and fixed-line technologies, the optimization and restructuring of the networks (consolidation of switching centers, centralized monitoring) and reinforcement of the national and international interconnection networks.
— Maintaining rigorous financial management and a sound financial structure
Maroc Telecom will seek to maintain its level of profitability by proceeding with a policy of regular and dynamic commercial development, while continuing to conduct a policy of controlled costs and investments. Its large capacity for the generation of cash-flow should enable it to maintain a sound financial structure while possibly paying out dividends to its shareholders. In addition, Maroc Telecom may seize acquisition opportunities that would enable it to create shareholder value, while observing strict and selective investment criteria.
MOBILE SEGMENT
General presentation
Maroc Telecom is the leader in the Moroccan market for mobile communications. With the advent of competition, the Company’s market share has fallen from 76.7% in 2001 to 70.3% as of June 30, 2004 (Source: ANRT). This market has posted strong growth since 2000, with the number of mobile customers (all operators aggregated) rising from 364,000 in 1999 to almost 7.9 million as of June 30, 2004, after successive levels of 2.851 million in 2000, 4.775 million in 2001, 6.197 million in 2002 and 7.332 million in 2003 (Source: ANRT). Over the same period, the rate of market penetration rose from 1.3% to almost 27% (Source: ANRT). This growth was made possible in particular by the introduction of pre-paid services in October 1999, particularly well-suited to the population’s consumption habits, and by the arrival of a second operator on the mobile market in March 2000.
The mobile market is mainly a pre-paid market. In 2002, the pre-paid customer base in Morocco amounted to 5.91 million customers, as compared to approximately 280,000 post-paid subscribers (i.e., 4.6% of the market consisted of post-paid customers). As of June 30, 2004, the pre-paid customer base in Morocco amounted to 7.42 million customers as compared to approximately 430,000 post-paid subscribers (i.e., 5.5% of the market consisted of post-paid customers) (Source: ANRT). Maroc Telecom offers pre-paid services (the Jawal card) and a range of post-paid offers.
Maroc Telecom provides extensive coverage in terms of both infrastructure and commercial presence. Its network covers almost the entire population of Morocco (Maroc Telecom estimate). Internationally, with over 260 roaming agreements, Maroc Telecom’s customers have access to service in over 150 countries. The extent of the commercial presence has been achieved through a direct and indirect distribution network of approximately 28,000 sales points licensed by Maroc Telecom (see “—Distribution”).
49 The following table breaks down Maroc Telecom’s mobile revenues for the past three years and the first half of 2003 and 2004:
As of December 31, As of June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Gross Mobile Revenue (before discounts) : ...... 6,760 7,734 8,388 3,981 4,707 Revenue for Mobile communication services ...... 3,701 4,629 5,454 2,555 3,057 Terminal revenue ...... 1,113 1,000 855 418 533 Intersegment transactions ...... 1,946 2,105 2,079 1,008 1,117
Evolution of customer base The Moroccan market for mobile communications has seen rapid growth with the introduction of pre-paid plans in 1999. This pre-payment system meets customers’ need to manage communication costs and to avoid exceeding rate plan limits. This formula is particularly well-suited to the Moroccan market, owing in particular to the youth of the local population, with half the population aged under 25.
The following table sets out the main data relating to pre-paid and post-paid services offered for the past three years and the first half of 2003 and 2004. Maroc Telecom defines the churn rate as the ratio of cards disconnected or contracts terminated to the average customer base during a given period. For pre-paid customers, Maroc Telecom defines the period of validity of a pre-paid card as an initial six-month period corresponding to the duration of the card’s credit, followed by a second six-month period during which the customer, while having the option of refilling the card, continues to receive calls.
The ANRT defines a mobile subscriber as any possessor of a post-paid mobile subscription not having been terminated, or a possessor of a pre-paid card having at least made or received one call (charged or free) within the past three months.
As of December 31, As of June 30, 2001 2002 2003 2003 2004 Number of mobile customers * (thousands) ...... 3,663 4,597 5,214 4,865 5,519 Pre-paid ...... 3,505 4,428 5,005 4,674 5,283 Post-paid ...... 158 169 209 191 236 Churn rate (%) Pre-paid ...... 11 12 12 12 12 Post-paid ...... 34** 22 20 19 16 Average churn rate (%) ...... 14 12 12 12 12 ARPU (MAD/subscriber/month) Pre-paid ...... 110 100 93 92 94 Post-paid ...... 612 837 824 819 794
ARPU (MAD/subscriber/month) ...... 146 129 122 120 123 * Post-paid subscriptions and pre-paid cards. ** Maroc Telecom estimate.
Pre-paid services have seen sustained growth since their launch, in particular through the launch of subsidized packages including a GSM hand set at fairly low prices, and Maroc Telecom’s many promotions for refills, which stimulated growth and developed the loyalty of the expanded customer base.
Post-payment covers mainly a high-consumption customer base (with 25% of those business customers) generating substantially higher ARPU than pre-paid customers.
For the last three fiscal years, and despite the intense competition in the market, Maroc Telecom has succeeded in stabilizing its churn rate owing to its efforts to build customer loyalty while maintaining an acquisition policy in order to extend its base (see “—Mobile communications services—Pre-paid—Offers”). Accordingly, the loyalty program offered to pre-paid customers since mid-2002 has been improved through the launch of a point-based Fidelio loyalty scheme.
50 Pricing In April 2002, the pricing of Maroc Telecom’s mobile telecommunications services changed to time-based charges from unit charges (this computation system was based on a rate of 24 to 48 seconds according to destination and times). This change improved the customers’ perception of the pricing system. Calls are charged by the second after the indivisible first minute for traditional subscribers and by 20-second increments for post- paid rate plans and pre-paid calls.
This pricing overhaul was accompanied by price cuts in order: — to encourage the use of rate plans for post-paid subscribers, by offering them a wider range of rate plans and prices that are reduced along with the rate plan’s duration; — to provide pre-paid customers with substantial cuts according to the amount of refills bought; and — to develop usage by changing over to an indivisible minute.
The table below sets out the change in average charges per minute, pre-paid and post-paid, in MAD (excluding tax) for mobile services as of December 31 of each year concerned.
As of As of December 31, June 30, 2001 2002 2003 2004 (In millions of MAD) Access costs Pre-paid* ...... 208 208 208 83/208** Post-paid ...... 100 100 100 100 Subscription Post-paid*** ...... 125 125 125 125 Mobile Price per minute (excluding tax) **** : To Maroc Telecom Mobile ...... Pre-paid***** ...... 4.13 3.00 3.00 3.00 Post-paid*** ...... 1.50 1.50 1.50 1.50 To Maroc Telecom Fixed-line ...... Pre-paid***** ...... 4.94 3.00 3.00 3.00 Post-paid*** ...... 1.80 1.50 1.50 1.50 To other mobiles ...... Pre-paid***** ...... 5.50 4.00 4.00 4.00 Post-paid*** ...... 2.00 2.00 2.00 2.00 * Including initial call credit. ** Two rates apply, as there are two different offers. *** Traditional subscription formula; peak times. **** Indivisible first minute; increments of one second for post-paid and 20 seconds for pre-paid. ***** Classic Jawal formula; peak times in 2001 and all times starting in 2002.
Since November 1, 2003, Maroc Telecom has provided its customers with a further cut in price for mobile calls abroad. This price cut was also accompanied by a harmonization of charges. The new international pricing policy is in line with the general trend of new offers, in which the “price” variable is reflected in attractive and competitive charge scales.
Mobile communications services Pre-paid As of June 30, 2004, the pre-paid customer base consisted of 5.283 million customers, or almost 96% of the mobile customer base. The slight increase in revenue per pre-paid user (ARPU) booked in the first half of 2004 is due in particular to an extension of the range of refill options (e.g., the introduction of a MAD 20 refill on January 1, 2004). Maroc Telecom is seeking to maintain ARPU by boosting usage (e.g., by marketing of a wide range of refills) and developing the use of value-added data services (such as SMS and MMS). Maroc Telecom also offers many promotions for refills in order to build loyalty among existing customers and to boost consumption.
51 Offers Maroc Telecom offers its pre-paid services under the “Jawal” brand. The pre-paid services are aimed primarily at the consumer market, which requires an extended range of access offers and a wide scale of prices.
Maroc Telecom’s pre-paid plans are marketed as packages (including a handset and a SIM card) and wrappers (including a SIM card only), according to the following formulas: — the Jawal Classique formula, which allows the customer to make and receive national and international calls; the day/night rate is the same; — the Jawal Jeunes formula, with special rates in the evenings, on weekends and on public holidays.
These two formulas are valid initially for six-months, corresponding to the duration of the card’s credit, and then a further six-month period during which the customer may refill the card and receive calls. Maroc Telecom offers two access charges of MAD 100 and 250, inclusive of all taxes (including the activation charge and the initial credit). Finally, promotions on wrappers consist of doubling the initial credit.
In order to develop the use of pre-paid services, Maroc Telecom markets a range of refills from MAD 20 to MAD 1,200, with automatic bonuses for the purchase of a MAD 50 refill and upwards.
Promotions are organized for the range of refill rates and are part of a policy of building customer loyalty, increasing usage and developing the customer base.
The available refilling resources are also diversified, with a dual goal of reducing distribution costs and facilitating refills for the customer. Thus, in addition to PVC scratch card refills, Maroc Telecom offers electronic refills and refills through bank cash dispensers. Finally, Maroc Telecom permits refills of Jawal cards using Visa-affiliated bank cards. These resources relieve Maroc Telecom of the cards’ manufacturing and logistical costs.
Pricing plans relating to pre-paid services The following table sets out Maroc Telecom’s prices, excluding tax (except for 20% VAT) for pre-paid services as of September 1, 2004. Jawal Classique Jawal Jeune (In millions of MAD*) First minute to a Maroc Telecom mobile number ...... Peak times** 6.00 3.00 Off-peak times** 1.83 First minute to Maroc Telecom fixed-line number ...... Peak times 6.00 3.00 Off-peak times 1.83 First minute to another Moroccan mobile network ...... Peak times 7.00 4.00 Off-peak times 1.83 * These prices do not take account of bonuses granted (from 10% for the MAD 50 card to 108% for the MAD 1,200 card) and do not include promotional offers. ** Peak times: Monday to Friday, 8 a.m. to 8 p.m. Off-peak times: Monday to Friday, 8 p.m. to 8 a.m., week- ends and public holidays (24/24).
SMS/MMS services Price (In MAD) Per SMS message ...... 0.80 Per SMS message to a foreign country ...... 3.00 to 5.00, according to destination Per MMS message ...... 0.80
The pricing of international calls varies according to the country of the call’s destination and is the same for both subscription formulas. Area Pre-paid (Jawal) (In MAD)* Zone 1 (Maghreb, Western Europe, USA and Canada) ...... 9.60 Zone 2 (Eastern Europe and Middle East) ...... 12.90 Zone 3 (Australia, South America, Africa and Far East) ...... 19.20 Zone 4 (Rest of the world) ...... 24.00 * Per minute, excluding tax, as of September 1, 2004.
52 Migration of pre-paid customers to post-paid In order to build its customer loyalty and to develop ARPU, Maroc Telecom is implementing a strategy intended to migrate high-user pre-paid customers to post-paid offers, a strategy consisting of two parts. First, the Jawal services include an option for customers to migrate their pre-paid accounts free of charge to a post-paid rate plan or subscription while retaining their call numbers. Second, Maroc Telecom offers capped post-paid rate plans, which are a basic product attractive to pre-paid customers wishing to migrate to post-paid while retaining control over their communication costs. This strategy, which relies on frequent promotional campaigns to incite migration, aims at developing the Company’s combined ARPU.
Post-paid As of June 30, 2004, the post-paid customer base consisted of 236,300 subscribers. The post-paid customers are mainly large users.
The slight fall in post-paid ARPU is due to an overall trend of new customers’ consumption, a phenomenon common to most operators, and to the introduction of new rate plans.
Maroc Telecom is seeking to increase ARPU by stimulating subscribers’ usage of its services and usage of new and existing voice and data services (SMS, MMS and GPRS).
Post-paid is marketed mainly through the branches of Maroc Telecom’s distribution network, 21 of which are dedicated to mobile services. In addition, 17 branches are specially dedicated to businesses and major accounts. Post-paid is also distributed through the GSM Al Maghrib network (see “—Distribution”).
The post-paid offers are addressed at the entire consumer and business market. The business market comprises small and medium-sized enterprises and industries, local government and major public and private accounts.
Consumer plans Maroc Telecom offers three plans to consumers: — the traditional subscription, a monthly subscription offering invoicing for consumption varying according to peak and off-peak times; — rate plans, which offer ten formulas based on communication time and a single count for calls regardless of destination and times. They allow a development of usage by encouraging greater consumption; and — controlled rate plans, which allow control of communication expenses by blocking outgoing calls when the rate plan has been exhausted. In order to make additional calls, the customer may refill the account with Jawal refill cards. This rate plan has been introduced in order to build customer loyalty and to encourage migration towards post-paid plans.
The rate plan offers, with ten formulas ranging from 1 to 15 hours, provide a charging of calls by 20-second increments after the first minute, and a single rate for any domestic call. These offers include a doubling of the call time for calls to Maroc Telecom numbers, automatic carry-over of unused time and free SMS, MMS and GPRS service.
Business plans Given the potential and strategic importance of business customers, Maroc Telecom has established a specific policy for this sector, organized around a dedicated range of offers and services and a dedicated distribution network. In addition, for major accounts, Maroc Telecom is implementing customized service solutions meeting its customers’ specific requirements, in particular in terms of control over their staff and management of their costs.
In addition to the consumer rate plans detailed above, also open to businesses, Maroc Telecom launched the following “Mobile Solutions for Business” in 2002: — Intenso: a suitable formula when GSM calls are made mainly internally, Intenso offers ten hours of calls free per month and per line for all communications within the business;
53 — Extenso: a suitable formula when GSM calls are made mainly to outside contacts, Extenso offers competitively priced subscription and outside call charges; and — Extenso +: Extenso +, launched in May 2004, combines the two foregoing offers and as such demonstrates the flexibility offered by Maroc Telecom to its business customers.
Finally, in order to enable businesses to control the calls of their staff, Maroc Telecom offers the Mouzdaouij plan, which provides two call numbers for a single SIM card in order to distinguish business and personal calls, and Staff, which provides two invoices, one for the business and the other for the employee.
Loyalty-building policy Building loyalty among customers has been a key strategy for Maroc Telecom since 2000 and has prepared Maroc Telecom for the arrival of competition. The loyalty offers set up as early as January 2000 consist of offering handsets at preferential prices.
The Gold project for large-usage customers was launched in 2001. These customers are provided with a dedicated call center (a toll-free number), VIP after-sales service, privileged access to commercial branches, a points bonus and a Gold loyalty card.
Fidelio is the first point-based loyalty scheme introduced in Morocco. It is reserved for post-paid customers and was launched on June 1, 2002. This scheme allows points to be aggregated on the basis of invoicing, and provides advantages in the form of free or cut-price handsets, and free calls and SMS messages. Since April 2003, Maroc Telecom has set up the Fidelio 24-month offer. In 2003, 50,000 customers signed up again for 12 or 24 months through the Fidelio scheme.
Pricing plans relating to post-paid services The table below sets out Maroc Telecom’s mobile prices for post-paid services as of September 1, 2004 in MAD, excluding tax (except for 20% VAT): Intenso* Extenso* Traditional Controlled rate 4to10 11 lines 4to10 11 lines subscription* Rate plans* plans* lines or more lines or more Extenso +* Flat-rate activation charge (for one SIM card)* 100 100 100 100 100 100 100 100 Monthly subscription RP 1H : 150 RP 1H : 195 charge 125 275 245 110 95 195 RP 2H : 210 RP 2H : 255 First Peak 1.50 RP 3H : 265 RP 3H : 305 minute to times** a Maroc RP 4H : 305 RP 4H : 345 Telecom Off-peak mobile 1.00 RP 5H : 335 RP 5H : 375 0*** 0 .90 times** 0.49 in-house number in-house in-house RP 6H : 375 RP 6H : 415 and 1.20 and and 1.20 First Peak external 1.50 RP 8H : 455 RP 8H : 495 1.20 external external minute to times a Maroc RP 10H : 535 RP 10H : 575 Telecom Off-peak RP 12H : 595 RP 12H : 655 fixed-line 1.00 times number RP 15H : 725 RP 15H : 785
First Peak 2.00 minute to times another 1.60 1.60 1.60 Moroccan Off-peak mobile 1.00 network times
* Subscription: charges per second after the indivisible first minute. Other formulas: charges by 20-second increments after the indivisible first minute. ** Peak times: Monday to Friday, 8:00 a.m. to 8:00 p.m. Off-peak times: Monday to Friday, 8:00 p.m. to 8:00 a.m., weekends and public holidays (24/24). *** MAD 0 dirham excluding tax, at all times up to ten free hours; in excess, each minute is charged at MAD 0.90 per minute. Note: Rate plans carry the allocation of free SMS, MMS and GPRS according to a rule of 5 SMS and 2 MMS per hour.
54 The table below sets out Maroc Telecom’s data connectivity prices as of September 1, 2004 in MAD, excluding tax (except for 20% VAT):
Service Price Per SMS message ...... 0.80 Per SMS message to a foreign country ...... 3.00 to 5.00 according to destination Per MMS message ...... 0.80 GPRS ...... Rate plans: 1Mb at MAD 40, 10Mb at MAD 200, 20Mb at MAD 350 and 60Mb at MAD 800, then MAD 0.05 /Kb in excess
The table below sets out Maroc Telecom’s international prices per minute (by region of destination) as of September 1, 2004 in MAD, excluding tax (except for 20% VAT):
Price Area (Subscription or rate plan) Zone 1 (Maghreb, Western Europe, USA and Canada) ...... 5.55 Zone 2 (Eastern Europe and Middle East) ...... 8.40 Zone 3 (Australia, South America, Africa and Far East) ...... 15.00 Zone 4 (Rest of the world) ...... 21.00
The rates for international calls vary according to the country of the call’s destination and the subscription formula.
Additional services (Preference Service, “Preferred Numbers” service for businesses, Family and Friends, capping offers for businesses, cut prices for international calls for businesses) allow a reduction in call costs.
Supplementary services provided with the pre-paid and post-paid offers Pre-paid supplementary services Many supplementary services are included automatically in the Jawal plan, including in particular caller ID, call waiting, dual call service and the “Family & Friends” service, all offered free of charge. Voicemail and all the services based on SMS and MMS are also included in any plan.
Finally, since 2003, via the introduction of the Camel technology, pre-paid customers may use international roaming for their voice services.
Post-paid supplementary services The post-paid offer includes the pre-paid supplementary services mentioned above. It also automatically includes detailed invoicing, conference calls, CLIR and call transfer, all offered free of charge.
Finally, Maroc Telecom’s post-paid subscribers are provided with international roaming for voice and SMS services, as well as for data services (MMS and GPRS).
Value-added services As of June 30, 2004, value-added services contributed 3.4% (excluding VMS) to total revenue. The contribution of VMS to total revenue, as of the same date, was 2.5%. Maroc Telecom takes special care to develop value-added services, in particular with the introduction of the latest technological innovations to the Moroccan market on an exclusive basis (WAP as early as 2000, GPRS in 2002, MMS in 2003). These services are in addition offered to users visiting Morocco using the Maroc Telecom network.
VMS The VMS (Voice Mail System) was introduced in 1998 for post-paid customers and extended to the pre-paid customer base in 2003. It is included automatically in all the pre-paid and post-paid plans. As of June 30, 2004, there were 4.580 million voicemail boxes in operation, representing 83% of the total mobile customer base.
55 SMS SMS has been offered since April 2000. The service has been regularly enhanced with the launch of SMS Info in 2001 (SMS messages containing information of local interest such as TV programs, pharmacies on duty, train schedules, etc.) and SMS Chat in 2002 (a community service aimed mainly at young customers), and the first pilots of kiosk-type services in 2003 (SMS messages offering content or remote voting services suited to radio or TV programs).
During the first half of 2004, almost 200 million SMS messages were billed, as compared to 177 million for the first half of 2003.
GPRS GPRS (General Packet Radio Service) was launched in October 2002 for business customers, and was extended to all post-paid customers starting on March 1, 2003. GPRS is offered in the form of four rate plans (from 1 to 60 MB) and charged by volume (the user pays only for the quantity of data actually exchanged, and not the duration of consultation). GPRS facilitates the use of data for those who are traveling, such as optimized Internet/intranet connections, sending and reception of e-mail, WAP-mode browsing and file transfer.
During June 2004, more than 1% of post-paid customers, or a total of over 2,600 customers, used this service.
MMS MMS (Multimedia Messaging System) was launched in June 2003 for post-paid customers and extended to pre-paid customers in July 2004. It allows the exchange of text, images and sound.
In the first half of 2004, post-paid subscribers exchanged over 110,000 MMS messages, and the number of customers able to use the MMS service reached approximately 67,000. This figure has risen significantly since the extension of this service to pre-paid customers. Since July 1, 2004, promotions organized in connection with extension of the service to pre-paid customers have stimulated the use of the MMS, increasing the number of MMS messages exchanged over July 2004 to approximately 250,000. As of August 31, 2004, the number of customers registered for MMS service reached almost 112,000 (including approximately 19,000 actual users) and the number of messages exchanged amounted to almost 600,000.
Sale of handsets Pre-paid The range of Jawal pre-paid packages is also diversified in terms of models and prices. In this respect, Maroc Telecom places particular emphasis on the renewal of handsets and the latest associated functionalities. Prices begin at MAD 390 (with a credit of MAD 50, including VAT). This loss leader allows Maroc Telecom to reach the entire consumer market.
Post-paid The actions taken to develop post-paid focus on acquisition, customer loyalty and development of the service offered. The policy of acquisition of post-paid customers is organized around the attractiveness of the offer, the richness of the associated products and services, and the range of handsets offered. Maroc Telecom offers a diversified range of packages contingent upon a minimum commitment duration (12 or 24 months). Since 2003, Maroc Telecom has also stressed loyalty building, as described above.
Customer service In order to accompany the deployment of these offers, Maroc Telecom has set up a customer relations policy, with an approach organized along several lines: information, recruitment and reminders (with a goal of customer retention). This customer service policy also responds to the needs of both consumers and businesses.
56 Pursuant to its overall quality policy for its operations, Maroc Telecom was awarded ISO 9001 version 2000 certification in 2003 for the invoicing of mobile customers and its mobile call centers.
Mobile call centers In order to develop customer relationships and improve satisfaction rates, Maroc Telecom’s call center is organized to respond, through six customer service numbers, to the various segments of the customer base: pre- paid, post-paid, Gold customers, roamers in, prospective customers and Fidelio members. In 2003, over 5 million calls were handled by this center, which has a staff of more than 260.
Since March 2000, the call center has provided customers with information regarding Maroc Telecom products and services, requests for activation and parameterization of a service, information regarding offer and pricing plan changes, a service for checking remaining balances and Fidelio program benefits, and a complaints service. Information of local interest in several languages (Arabic, French, English) is also offered to roamers.
In addition, Maroc Telecom conducts customer satisfaction surveys monthly in order to measure the quality of the service provided by the commercial branches.
Maroc Telecom monitors the quality of service offered through statistical indicators. For the first half of 2004, the average response time after the greeting message was 38 seconds, down 50 seconds from the second half of 2003, owing to efforts made to improve response time.
Finally, Maroc Telecom makes the public aware of new offers through a special number that existing and potential customers may call for information on such offers.
Business customer service Maroc Telecom makes available directly to its business customers dedicated services through its www.mobileiam.ma portal, which displays, in parallel with descriptions of the offers, several on-line services.
Business customers can accordingly handle their fleets remotely through the Self Care service, by changing offers or activating supplementary services.
In addition, business customers may easily monitor their mobile telecommunications budgets through the EasyFact service. This allows the receipt of invoices connected with the GSM subscriptions on CD-ROM for more detailed and easily accessible consultation.
After-sales service The diversity of handsets on offer has led Maroc Telecom to set up an after-sales service provided by its direct distribution network. This service is offered free of charge during the warranty period. In addition, the Gold after-sales service provides its dedicated customers with immediate replacement of a handset, by home delivery.
Portals Maroc Telecom has set up two portals: — www.mobileiam.ma describes the services and commercial deals offered and enables businesses to access the Self Care service; and — the WAP Maroc Telecom portal, in addition to theme-based information, offers access to the yellow pages.
International roaming Roaming is a service offered by telecommunications operators enabling mobile telephone users to call and be called in a foreign country. For this purpose, the operators in various countries enter into roaming agreements, allowing their customers’ telephones to be easily connectable to a foreign network if necessary.
Maroc Telecom entered into its first roaming agreement with SFR in January 1995. This roaming arrangement is carried out in the ordinary course of business. As of June 30, 2004, Maroc Telecom had entered
57 into 290 roaming agreements (over 260 of which are operational) with associated operators in 156 countries, including in 15 countries through agreements with operators of the GMPCS systems (Thuraya and Globalstar).
Morocco’s tourism industry generates a large flow of visitors, providing large potential for roaming revenues. In order to catch most of this traffic, Maroc Telecom has developed a customer acquisition policy through associations with foreign operators, and has entered into preferential agreements with the largest among them.
GPRS and MMS services have been offered on a roaming basis since the end of 2003.
Infrastructure Maroc Telecom’s mobile network is based on the GSM technology, deployed throughout almost the entire territory of Morocco. It is characterized by well-developed infrastructure, high international connectivity and a quality of service similar to that of international operators. This network consists of two parts, the NSS network and service platforms, and the BSS network.
The NSS network and service platforms The NSS network combines the switching equipment and service platforms. The switching network, consisting of 25 MSC centers, is organized around six TMSC transit centers. In order to secure the sharing and support of traffic, all MSCs are connected to at least two TMSCs.
Signal traffic is separated from voice traffic through the use of an SS7 network consisting of four STP systems.
The IN platforms Maroc Telecom has developed an Intelligent Network (IN) for Jawal pre-paid customers. The IN platforms are used mainly for real-time management of the pre-paid customers’ credits and also manage the implementation of value-added services such as invoices or capped-rate plans.
SMS platforms The mobile network includes four SMSC servers, which store and deliver short messages (SMS).
VMS platforms The VMS service supplements the basic call service. It allows the recording of voice messages in the event that the correspondent is busy or cannot be reached.
Maroc Telecom currently has two VMS platforms (based in Rabat and Casablanca).
The MMS platform Maroc Telecom has one MMS-C platform. This platform, connected with the SMS center, the WAP Gateway platform and the GPRS network, allows the offer of advanced multimedia services such as the sending of photographs, image transfer, consultation of an image bank and transfer of multimedia messages (text, audio and photo).
GPRS platforms Maroc Telecom has developed the use of packet-switched networks and, in particular, the Internet. The GPRS service is a packet-switched network architecture with roaming management and radio access. Maroc Telecom currently has two GPRS platforms.
BSS network The network allows almost the entire population to be covered through over 3,500 radio base stations located throughout the Moroccan territory.
58 The deployment plan for fiscal year 2004 provides for the establishment of 425 GSM sites. A plan for the redeployment and extension of TRXs (radio cells), initiated in 2002 and continued in 2003 and 2004, has allowed optimized use of the radio access equipment (TRX).
Quality and capacity In order to allow an extension of capacity without adding further centers, and in order to add new services (MMS, GPRS, roaming, pre-paid, refill pre-paid by SMS or at the bank cash dispenser), the infrastructures of the mobile services’ networks and platforms have been upgraded using recent software releases for the latest- generation equipment (SSNC and Power CP).
The improvement in quality of service indicators for the mobile network is a priority for Maroc Telecom. Accordingly, the rate of successful dial-up at the end of June 2004 exceeded 97.5%, the cut-off rate remained below 1.5% and the rate of successful SMS delivery amounted to 98%. This improvement was achieved through a major program of radio optimization and preventive maintenance.
With a concern for the health of the population, Maroc Telecom launched a survey to measure the density of electro-magnetic fields in the vicinity of GSM sites. The findings from that survey, conducted by Bureau Veritas, confirmed the Maroc Telecom GSM sites’ compliance with European standards.
FIXED-LINE AND INTERNET SEGMENT General presentation Maroc Telecom is the only holder of a fixed-line telecommunications license and the main provider of data connectivity services in Morocco. In November 2002, no bid was entered pursuant to the ANRT’s invitation to tender for the award of new licenses for the operation of a fixed-line telecommunications network. The process for opening up the fixed-line market was resumed in the spring of 2004 (see “Regulation”). Maroc Telecom is also the main provider of Internet services, a market open to competition.
The main fixed-line telecommunications services provided by Maroc Telecom are: — telecommunications services; — interconnection services with national and international operators; — data connectivity services for the professional market and Internet service providers, and other telecoms operators; and — Internet services, which include Internet service provision and services connected with the Internet, such as hosting.
The table below breaks down the revenues of the Fixed-line and Internet segment for the fiscal years concerned.
Fiscal year ended Six months ended December 31, June 30, 2001 2002 2003 2003 2004 (In millions of MAD) Fixed-line and Internet Gross revenue: ...... 10,417 11,054 11,210 5,492 5,377 Voice ...... 6,563 6,681 6,573 3,174 3,332 Interconnection* ...... 2,295 2,410 2,210 1,139 1,142 Data ...... 455 482 523 261 226 Internet ...... 97 139 241 109 155 Other** ...... 45 70 38 20 19 Intersegment transactions ...... 962 1,272 1,625 789 503 * Interconnection revenue consists mainly of revenue from international interconnection, regardless of destination (fixed-line or mobile), plus national interconnection revenue. ** Includes maritime radio-communications services, leasing of repeaters, directory activities and other international services.
59 Telecommunications services The table below sets out the evolution of the penetration rate of fixed-line telecommunications in Morocco as of December 31 of each year concerned, and as of June 30, 2004.
1999 2000 2001 2002 2003 June 30, 2004 5.2% 5.1% 3.9% 3.9% 4.1% 4.3% Source: ANRT
The penetration of fixed-line telephony in Morocco is defined as the ratio of the number of lines (including public telephony) to the total Moroccan population, which amounted to approximately 30 million as of December 31, 2003 (Source: World Bank). As of June 30, 2004, the penetration rate was 4.3%.
This fairly low penetration rate is to be viewed in light of the large number of people per average household in Morocco. Accordingly, the penetration rate to the total number of households is in the order of 15% of residential homes.
In addition, the roughly 100,000 public telephony lines do not accurately reflect the real number of users of Maroc Telecom call boxes and telestores (see “—Public telephony”).
The table below describes the development of the fleet of telephone lines by segment.
As of December 31, As of June 30, 2001 2002 2003 2004 Residential ...... 842,265 800,890 871,366 950,499 Public telephony* ...... 61,000 77,813 91,514 97,470 Corporate ...... 236,703 248,744 256,333 264,507 Customer base** ...... 1,139,968 1,127,447 1,219,213 1,312,476
* Combines the lines of Maroc Telecom telestores and public call boxes. ** The customer base includes all subscriptions for a fixed-line telephone regardless of technology used (STN or ISDN). It does not include Maroc Telecom’s in-house base.
The fall in the rate of fixed-line penetration between 1999 and 2002 (loss of approximately 330,000 customers) is due mainly to the migration of existing customers from fixed-line to mobile, as a result in particular of competition from pre-paid mobile offers for the residential segment.
The Company has implemented since 2002 a policy designed to boost its operation in the area of fixed-line telecommunications by: — developing an active marketing and commercial policy suited to the customers’ expectations and requirements, in particular with creation of the “El Manzil” brand for fixed-line offers for the residential segment; — offering new services. Maroc Telecom has accordingly set up a consistent range of offers and in particular launched a capped offer enabling households to control their consumption. This policy has mitigated the substitution of fixed-line by mobile and boosted the growth in fixed lines. Its emphasis has been on residential subscribers; — proceeding with the development of its fleet of public call boxes, initiated in 2001, and continuing its investments in this area; — paying particular attention to the business market; Maroc Telecom has accordingly launched specific offers and prices targeting that customer base; and — deploying substantial efforts to provide the Moroccan population with access to the Internet. One illustration is the offer combining the supply of a computer with an Internet subscription (the “PC Menara” package).
The fixed-line customer base has progressed with a growth rate of 7.6% during the first half of 2004, thanks to a significant number of promotional sales between March and June, raising the overall base to 1.312 million lines (exclusive of Maroc Telecom’s in-house base). However, the end of these promotional sales and the foreseeable increase of the churn relating to these new offers may result in a shrinkage of the customer base in the coming months (See “Outlook and recent developments”).
60 The Consumer market The consumer market includes residential subscribers, small businesses consisting in particular of craftsmen, tradesmen and the professions, and public telephony.
As of December 31, 2003, Maroc Telecom provided fixed-line telecommunications services to approximately 15% of Moroccan households.
Consumer offers Maroc Telecom’s consumer offers of fixed-line telecommunications have been marketed, since March 2002, under the brand “El Manzil”. With the “El Manzil” range of products and services, the Company provides capped and unlimited access offers.
The capped rate plan offers combine calls and subscriptions with various pricing formulas and meet customers’ demand by enabling them to control their consumption. These bulk packages have boosted fixed-line telecommunications on the residential market.
Unlimited offers are based on Maroc Telecom’s traditional subscription, enhanced with various options such as the “My Unlimited Numbers” offer, which allows unlimited calls in the evenings and on weekends to three preferred numbers (May 2003), or the new “El Manzil” rate plans (January 2004).
Maroc Telecom also offers “El Manzil” packages combining a fixed-line telecommunications service or subscription with the supply of a partially subsidized terminal and activation of the line. Maroc Telecom, with 16 different models of terminal and fax machines, has considerably extended its range of products over the past three years. In order to stimulate demand, Maroc Telecom also regularly organizes promotional campaigns, in particular through the “0 dirham package”, which consists of paying for the access charges and terminal for subscribers.
The range of “El Manzil” offers is also regularly enhanced with new offers, such as the “Master Package”, which includes a year’s subscription payable in advance.
Consumer value-added services Maroc Telecom offers valued-added services to consumers such as voice mail, detailed invoices in Arabic or in French, caller ID display, call-waiting notification and line transfer.
These services also include an option for subscribers using capped rate plans to refill their accounts remotely, by simply placing a telephone call.
Loyalty-building programs Maroc Telecom has developed targeted loyalty-building programs, which have led the operator to set up loyalty clubs (“El Manzil” Classic, Silver and Platinum clubs, offering price cuts on packages, free months of subscription and cut-price offers with “El Manzil” partners), the circulation of a magazine (Génération “El Manzil”) to members, and distribution free of charge of a monthly newsletter enclosed with the invoice to all customers.
Public telephony Maroc Telecom also provides a public telephony service with its own call boxes and the call boxes operated by third parties, or “telestores”. As in other countries at similar stages of development, public telephony remains the preferred means of communication for a large part of the population with lower incomes.
The public telephone lines managed by Maroc Telecom, directly or by telestore operators with whom the Company has entered into operation agreements, amounted to over 97,000 lines as of June 30, 2004. With sustained growth of almost 6,000 lines installed during the first half of 2004 (Source: ANRT), the strong growth in public telephony is linked to the growth in mobile pre-paid formulas, insofar as a large portion of calls are directed at pre-paid mobile numbers.
61 Public call boxes Maroc Telecom emphasizes the development of its public call boxes, and for this purpose, has entirely renewed and extended its fleet in recent years in order to have secure boxes operated with smart cards. These call boxes are remotely monitored by a nationwide supervision system.
Telestores During the past five years, the network of telestores has seen substantial growth. As of June 30, 2004, it included over 20,000 telestores throughout the country. A telestore has four telephone lines on average. Almost all telestore operators are bound to Maroc Telecom by exclusive agreements. The telestore operators are not free to set their retail prices, which are determined by Maroc Telecom. They make a profit based on the difference between the retail price and the preferential price charged to them by Maroc Telecom. In October 2004, against a background of heightened competition (see “—Competition—Fixed-line telecommunications—Market for public telephony”), the regulation setting the minimum distance between two telestores at 200 meters was repealed in order to allow a denser network of telestores. The repeal of that rule has been disputed by certain existing telestore operators and certain associations representing them (see also “—Extraordinary events and litigation”).
Pre-paid card Maroc Telecom has a pre-paid offer called Kalimat, a telephone card usable from any telephone terminal (private fixed-line terminal or public call box). These cards are marketed without subscription or commitment. A “Kalimat International” formula, specially dedicated to international calls, is also offered.
The business market This market, which covers SMEs, SMIs, local government and public and private major accounts, is a key sector for Maroc Telecom, as it includes high-use customers. Maroc Telecom is seeking to develop this sector and has adopted a dedicated organization and strategy (see “—Customer services—Relations with Businesses”).
As of June 30, 2004, Maroc Telecom had 140,000 PSTN and ISDN Business lines, or 10.7% of the total customer base.
Offers to the business market In addition to the basic offer, Maroc Telecom offers businesses all the functionalities of digital telecommunications through the ISDN offer marketed under the Marnis brand. This solution enables businesses to use an end-to-end digital network carrying the data flow for multimedia applications (voice, data and images) by means of either a basic access, with two communication channels, or a primary access with 30 communication channels.
Maroc Telecom has set up, since October 2002, a range of pricing options for businesses that it markets under the name of “Tarifs Préférence Entreprises” (see “—Pricing”).
Since October 2003, Maroc Telecom has offered a “Wellcom Pack PABX”, a turnkey offer of a switchboard including installation, hardware maintenance and upgrading of the switchboard according to the customer’s requirements.
Business value-added services With a view to cost management, Maroc Telecom offers businesses an electronic invoicing system called Smart Fact. Maroc Telecom provides on a monthly basis a CD-ROM with details of the calls and an analysis of consumption by product.
Maroc Telecom has set up a range of “welcome numbers”, toll-free number, Eco numbers and Direct numbers, accessible throughout Morocco at a single rate, facilitating customers’ access to their business and allowing a suitable response.
Maroc Telecom also offers high-charge numbers such as “audiotext” with charge back to the service provider.
For Moroccan call centers, Maroc Telecom has offered since 2003 a virtual call center solution, CAIR (Centre d’Appel Intelligent Réseau or network smart call center), consisting of the creation within Maroc Telecom’s network of the functionalities of call centers, such as voice servers, and the routing of calls according
62 to the availability of call center operators. This solution enables businesses to set up customer-response solutions with minimum investment.
Pricing For several years, the ONPT, and later Maroc Telecom, have conducted a constant policy of price rebalancing characterized by cuts in call rates and gradual increases in subscription charges. The resulting pricing changes have been designed to develop the market while complying with regulatory requirements and preparing for the arrival of competition. This policy has continued in 2004 in particular with new cuts in international rates in mid-June 2004, and an increase in subscription charges as of August 1, 2004.
In addition, since the second half of 2002, invoicing terms have been changed from a confusing unit-based billing to time-based billing, with the introduction of on indivisible first minute, and the price scale has been simplified with four charge levels: local, national, mobile and international.
Access charges The table below sets out the evolution of the price in MAD (excluding tax) of the standard monthly subscription from 1994 to 2004. Only periods during which a rate change occurred are mentioned:
1994 1995 Jan 98 Jan 99 Nov 99 Jan 00 Jan 01 Aug 04 Residential subscription ...... 32.5 52.5 60 65 65 70 70 80 Corporate subscription* ...... 32.5 52.5 70 80 90 90 100 110
* Subscription applicable to corporate and professional customers.
In 1998, Maroc Telecom introduced a range of different prices applicable to residential and professional subscribers.
The table below sets out the evolution of the charges in MAD (excluding tax) for access to a standard telephone line from 1992 to 2004.
1992 1998 Nov 99 Jun 04 Residential access charge ...... 340 500 500 500 Professional access charge * ...... 340 700 1,000 1,000 * Access charges applicable to corporate customers.
In order to boost the growth of its customer base, Maroc Telecom has, since May 2002, periodically launched promotions for access, including free installation.
Call prices Domestic calls The orientation of prices towards the cost of calls has reduced prices for domestic calls and, correspondingly, increased prices for local calls. The prices for fixed-line to mobile calls are closely related to the changes in interconnection prices.
The table below sets out the evolution of the average price in MAD (excluding tax) per minute of a three- minute domestic call at peak times from a fixed-line terminal:
Jul 94 Jun 95 Jan 97 Jul 97 Feb 98 Jun 99 Nov 99 Jan 01 Jul 02 Fixed-line Local ...... 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.46 Fixed-line < 35 km ...... 0.53 0.53 0.53 0.53 0.53 0.53 0.53 0.53 0.46 Fixed-line 35-100 km ...... 1.87 1.87 1.87 1.87 1.87 1.87 1.60 1.33 1.00 Fixed-line 100-200 km ...... 2.67 2.67 2.67 2.67 2.67 1.87 1.60 1.33 1.00 Fixed-line > 200 km ...... 4.00 4.00 4.00 3.20 2.67 1.87 1.60 1.33 1.00 Fixed-line to Mobile ...... 5.33 4.00 3.20 3.20 3.20 2.67 2.13 2.13 2.00 Note: call charges applicable from a private line for a traditional subscription, exclusive of special pricing offers.
As of June 30, 2004, the prices were the same as those applied in July 2002.
63 Calls from telestores and Maroc Telecom public call boxes are still priced by charging unit. The retail prices for public telephones are substantially higher than those from a private terminal.
The table below compares the prices for calls from a traditional fixed line and from a telestore or Maroc Telecom call box (average price per minute of a three-minute call at peak times as of June 30, 2004), in MAD (excluding tax) per minute:
Traditional Call boxes* Telestore subscription Fixed-line local ...... 0.38 0.42 0.46 Fixed-line < 35 km (regional) ...... 0.77 0.83 0.46 Fixed-line > 35 km (domestic) ...... 1.92 2.08 1.00 Fixed-line to Mobile ...... 3.07 3.33 2.00 * Averages prices for call boxes. Prices vary according to the type of card used.
International calls Maroc Telecom has regularly made significant cuts in the prices for international calls. The table below contains examples of the average prices per minute of a three-minute call at peak times from a fixed-line terminal to another fixed-line terminal since 1994 in MAD (excluding tax), to certain destinations. Only years during which a price change was made are mentioned:
1994 1995 1997 1998 1999 2000 2002 2004 Tunisia ...... 8.3 6.1 6.1 5.1 5.1 4.5 4.0 3.5 France ...... 12.0 12.0 9.1 6.0 5.1 4.5 3.5 2.75 Saudi Arabia ...... 18.4 18.4 16.0 14.0 12.0 9.1 7.0 6.0 USA ...... 27.4 20.0 14.1 12.0 9.1 7.2 5.0 4.17
This price scale is standardized and applicable to residential and professional subscribers, exclusive of special pricing offers involving cuts in the price of calls; differentiated charges are applicable for public telephony and for pre-paid cards.
The international price scale was simplified in June 2004 and is now organized into eight geographical areas:
Area To fixed-line* To mobile* (In MAD) Zone 1 : Europe North West ...... 4.00 5.42 Zone 2 : Europe South West ...... 2.75 4.50 Zone 3 : North Africa ...... 3.50 3.50 Zone 4 : Canada & USA ...... 4.17 4.17 Zone 5 : Middle East ...... 6.00 6.00 Zone 6 : Eastern Europe ...... 7.00 7.00 Zone 7 : Rest of America, Africa, Asia and Pacific ...... 13.33 13.33 Zone 8 : Rest of the World ...... 16.67 16.67 * Per-minute peak times, as of June 30, 2004.
Unlike prices for calls from Maroc Telecom mobiles, the prices for calls from fixed-line handsets are differentiated according to the termination of the call on a fixed-line or mobile network.
With an ongoing goal of adapting to its customers’ requirements, Maroc Telecom has also set up a targeted pricing policy in the form of specific pricing options or rate plans.
Maroc Telecom accordingly offers a “Tarifs Préférence Entreprises” range enabling business customers to enjoy a reduction in the cost of domestic calls through three pricing options: “Tarif Préférence Groupe”, “Tarif Préférence Volume” and “Tarif Préférence Mobile”. This range of services also includes a “Tarif Préférence International” offer which provides a reduction in the rate for international calls.
The consumer customer base is also provided with targeted pricing offers. The “El Manzil” capped rate plan was developed in response to strong demand from the market for budget control, and contributed to a resumed growth of the customer base.
64 Interconnection services Interconnection services include interconnection with national and international operators.
Domestic interconnection Domestic interconnection is regulated by the ANRT. In this respect, Maroc Telecom is bound to comply with interconnection requests, taking account of the reasonable requirements and capacities of other operators.
The interconnection charge serves as compensation for the actual use of the network and the related costs (see “Regulation—The legal environment with respect to telecommunications in Morocco—Interconnection— Pricing”). Interconnection with domestic mobile operators is a major cost item for fixed-line telecommunications, as the costs of traffic termination on mobile networks are far higher than the interconnection income generated by traffic entering the fixed-line network.
Domestic interconnection pricing The table below sets out domestic interconnection pricing to fixed-line and mobile, in MAD (excluding tax) per minute as of June 30, 2004:
Local Calls to fixed-line (Intra CAA) Single transit Double transit Full price ...... 0.13 0.4047 0.5865 Reduced price ...... 0.0651 0.2023 0.2932
Calls to mobile Mobile termination Full price ...... 1.4311 Reduced price ...... 0.7156
International interconnection Maroc Telecom has very strong international connectivity, with 230 foreign destinations.
Evolution of the market. Incoming international traffic terminating in Morocco, whether on fixed-line or mobile networks, accounts for a volume in excess of a billion minutes per year, and is growing regularly. In 2003, the volume of international traffic coming in to Morocco was approximately four times larger than the volume of traffic leaving Morocco (Maroc Telecom estimate).
The strong presence of the Moroccan community abroad, together with the growth in fixed-line and mobile customer bases, price cuts and the imbalance of purchasing power between Morocco and the main “caller” countries (mainly Western Europe) are the main structural features of the Moroccan market, explaining the size of the incoming international traffic and the imbalance between the volume of incoming traffic and outgoing traffic. The liberalization of European markets has also favored the development of the volume of this traffic.
In the international market, foreign operators negotiate bulk prices for termination on fixed-line and mobile numbers in Morocco. These foreign operators route their traffic according to the termination rates applied by the various operators. In order to adapt to the conditions on this international market, Maroc Telecom has been conducting for several years a policy of price cuts for incoming international traffic (average cut of 7% in 2002, 13% in 2003 and 7% in the first half of 2004). It has also differentiated prices according to termination (fixed- line or mobile) in order to adapt the prices to costs.
It should be noted that Maroc Telecom no longer handles Méditel’s incoming international traffic, since August 1, 2003, as a result of Méditel’s decision to discontinue interconnection for the termination of this incoming traffic directed at its customers.
On October 25, 2004, the Executive Committee of the ANRT delivered its ruling relating to the dispute over the decision to discontinue international interconnection with Méditel. The Executive Committee has given both operators 15 days to negotiate a new price for the termination of incoming international traffic directed at Méditel via Maroc Telecom’s network and to re-establish the interconnection. Failing this, the ANRT will unilaterally fix the price. In addition, the ruling of the Executive Committee states that while the international
65 traffic to Morocco will be subject to substantial competition, the applicable termination price will be the national termination price.
It is still too early at this stage to measure the impact of this ruling. The final ruling by the Executive Committee of the ANRT will resolve the matter conclusively (see “Outlook and recent developments” and “—Extraordinary events and litigation”).
Fighting fraud The international traffic carried by Maroc Telecom has seen slower growth than expected in recent years, due to the diversion of traffic by fraudulent means. Initially, fraud developed at a significant level on incoming international calls in 2001, mainly on fixed-line termination, then on mobile termination starting in 2003. A specific action plan to fight fraud on incoming international traffic was set up in liaison with the ANRT. It included in particular the creation of a dedicated department, provided with detection equipment, and awareness- building among the technical and commercial teams. As a result of this action, 20 cases have been referred to the ANRT as of December 31, 2003. Legal proceedings have been initiated in 17 cases up to the end of fiscal year 2003. The Company believes that fraud on incoming international traffic is now under control.
Outgoing international For outgoing traffic, Maroc Telecom negotiates with most foreign operators in order to terminate its traffic abroad at the lowest possible cost and to be able to offer the most attractive price to the end consumer. Renegotiation is carried out half-yearly, or even more frequently depending on the need for price adjustments. This policy enables Maroc Telecom to make regular cuts in retail prices in order to stimulate the market (see “—Telecommunication services—Pricing”).
Data services Data services for Corporate Maroc Telecom offers its customers (mainly business customers) a complete range of data connectivity services meeting the most recent technological standards. Historically, the first data services launched on the market were leased analog lines, then digital lines, then packet technology (X25 network in 1991), and, recently, Frame Relay (in 2001) and VPN IP solutions (launched at the end of 2003).
The table below sets out the evolution of the breakdown of the data connectivity base (exclusive of Maroc Telecom’s in-house base) over the periods concerned (Source: Maroc Telecom).
Number of lines 2001 2002 2003 June 30, 2004 Domestic leased lines* ...... 6,241 6,292 6,292 6,333 International leased lines* ...... 156 165 148 145 Maghripac ...... 1,748 1,741 1,537 1,508 Frame Relay ...... 99 530 859 964 VPN IP ...... 000 39 * Customer leased lines, except lines to customer operators.
The range of products and services dedicated to Maroc Telecom’s network solutions consists of the following offers: — Leased lines: Maroc Telecom offers domestic and international leased-line services, including the physical chain, modems and monitoring of the leased lines. In order to meet the demand for the establishment of call centers in Morocco, Maroc Telecom offers special prices for call centers together with one-stop shopping for end-to-end leased lines with France, which simplifies operational management; — Maghripac: the Maghripac network is a solution based on the X25 packet data transmission technology, specially suited to interactive computer applications. Maroc Telecom offers two kinds of access to the Maghripac network: direct access through leased lines and indirect access through the STN; — Frame Relay: this service allows businesses to carry multimedia flows (voice, data and image) within their networks at flow rates up to 2 Mbps. The Frame Relay offer provides a high level of performance with a warranted minimum flow rate associated with each permanent virtual circuit defined between the call’s end- points; and
66 — VPN IP MPLS: Maroc Telecom offers a virtual private network solution (interconnection of sites using a common infrastructure), developed on the IP/MPLS protocols and marketed as the “IP Connexion” range. This service is accessible through the leased lines, Marnis and ADSL. Maroc Telecom also offers secure roaming Internet access.
Maroc Telecom has adapted its ranges of products and services to the business market in particular in terms of a guaranteed quality of service. At present, Maroc Telecom agrees by contract with its customers to maintain a high level of quality of service. In particular, Maroc Telecom measures the rate of availability for the network and complies with international standards as regards that availability (see also “—Infrastructure”).
Data services to Internet service providers Data services are an area regulated by the ANRT in order to allow equal competition on these services. In this respect, Maroc Telecom, as the incumbent operator, is bound to provide interested Internet service providers (ISPs) with non-discriminatory technical and pricing solutions enabling the ISPs to make competitive offers to their customers and allowing fair competition in relation to the same Internet services that Maroc Telecom provides to its own end customers under the “Menara” brand (see “—Internet”).
Accordingly, the following offers, the contents and prices of which are approved by the ANRT, allow ISPs to market Internet access offers through various forms of access: — Transit IP offer, for Maroc Telecom international Internet bandwidth; — offer of free PSTN collection for the caller, allowing ISPs to offer rate plans; — offer of PSTN collection with repayment to ISPs, charged to the caller, enabling the ISPs to market Internet access offers without subscriptions; — bulk ADSL offers allowing ISPs to market packaged ADSL offers, including the access and Internet components; and — “ISP special” offer for the provision of Internet service over leased lines.
Data pricing Maroc Telecom has regularly cut its prices for leased lines and for other related data services. These cuts reflect technological changes and the related reductions in costs. The current prices are in line with the prices applied by international operators.
The table below sets out, as an illustration, the cuts in the price of a domestic 2 Mbps leased digital line for the periods concerned:
As from Monthly subscription Apr 01 Feb 02 Nov 03 Apr 04 (In MAD, excluding tax) Local 2 Mbps ...... 33,348 25,000 17,500 9,000
Likewise, the table below sets out the cuts in prices for international one-way leased lines to France (price applicable to call centers):
Before As from Monthly subscription Nov 00 Nov 00 Sep 03 Apr 04 May 04 (In MAD, excluding tax) 64 Kbps ...... 20,250 14,700 14,700 10,500 7,088 2 Mbps ...... 405,000 147,015 110,261 110,261 99,235
Internet The first Internet connection was established in Morocco by Maroc Telecom in 1995. Between 1997 and 2000, Morocco has seen the creation of many ISPs which have subsequently consolidated around two major players (Maroc Telecom and Maroc Connect). The Internet market nevertheless grew slowly until the end of 2003. The pace of development of that market has increased significantly since the first half of 2004.
67 The slow development of the Internet market before 2004 was due to the combination of three factors: the low rate of computer ownership, which to date includes only 5% of urban households (Source: ANRT), the relatively high cost of the Internet for users (access and call costs), and fairly limited local content.
This slow development is to be viewed in light of the number of Internet users who access the Internet from the 2,500 cybercafes in Morocco, who are not counted in such statistics (Source: Maroc Telecom).
Maroc Telecom has made substantial efforts to provide the Moroccan population with access to the Internet and provides suitable solutions both for access and use (such as the PC Menara package). Examples include offers combining the supply of a computer with a subscription, pay-as-you-go Internet access offers (Libre Accès) and Maroc Telecom’s competitive pricing policy.
As of June 30, 2004, Maroc Telecom had 79,083 Internet customers, accounting for 6% of fixed lines. The share of ADSL lines out of the total number of fixed lines was 2% as of June 30, 2004, which bears witness to the strong potential for development in this area.
The table below sets out the number of Menara Internet customers (the Menara customer base represents customers of the Internet access plans marketed by Maroc Telecom, exclusive of access for Maroc Telecom’s in-house use).
Fiscal years ended as of December 31, First half ended as of June 30, 2002 2003 2004 Narrowband:* ...... Number of active customers 32,171 42,509 50,847 Libre Accès** ...... Number of active customers** 0 0 10,240 Subscription ...... 32,171 42,509 40,607 Broadband*** ...... Number of active customers 1,613 4,649 28,236 ADSL ...... 0 2,572 26,567 Leased lines ...... 1,613 2,077 1,669 * The narrowband line includes the Menara Classic, Menara Toucompri and Menara Libre Accès (pay-as- you-go) Internet service offers. ** The Libre Accès base (pay-as-you-go offer) includes only active accounts (i.e., those accounts which have logged on to the Internet at least once within the past six months). *** The broadband line includes Menara Internet consultations through leased lines, Menara ADSL Internet consultations starting in 2003.
The growth of the customer base in the first half of 2004 was far higher than that observed for 2003 as a whole. ADSL, launched in November 2003, has attracted new subscribers directly and favored a migration from narrowband to broadband with a good fit to the demand for higher bandwidth relative to the offered price. As of June 30, 2004, Maroc Telecom had a market share of approximately 95% in terms of the number of Internet consultations (Maroc Telecom estimate).
As of June 30, 2004, ADSL accounted for one third of all the modes of access used by Menara subscribers to connect to the Internet.
The Internet offers Maroc Telecom’s Internet access offers are marketed under the Menara brand.
The Consumer market For narrowband, Maroc Telecom markets: — Menara Classic: an Internet subscription offer not including a call rate plan. The “Toucompri” rate plan offers are beginning to replace the Menara Classic offer; — Menara libre@ccess: dial-up offers without subscription with time-based charging included in the telephone invoice for the line used; and — Menara Toucompri Internet rate plan: comprehensive offers including a subscription and a connection time based on the volume of use.
68 These offers include services for the hosting of personal webpages, e-mail services and options such as time carry-over, an evening and weekends package, or usage limits.
Maroc Telecom markets ADSL offers packaged with Internet access flow rates from 128 to 1024 Kbps, while allowing simultaneous use of a fixed-line telephone. This offer has been very successful since the launch of the Unlimited ADSL offer.
As mentioned above, and in order to encourage Internet use, Maroc Telecom has offered since May 2003 a “PC Menara” offer, in association with a lending institution and with Microsoft. That offer combines the supply of a computer subsidized by Maroc Telecom with a broadband or narrowband Internet subscription. Since July 2004, the basic “PC Menara” package is marketed starting at MAD 2,500 including VAT, which makes the Internet at home accessible to households with limited incomes.
The Business market For businesses, broadband was first provided by means of Internet leased lines, but Maroc Telecom now offers a range of Menara ADSL Pro products and services which include in particular the provision of secure e-mail, a domain name with shareable links and a contact web page.
Maroc Telecom also hosts businesses’ web sites, with two kinds of solutions: mutualized hosting (on a Maroc Telecom platform) or dedicated hosting (joint leasing of a server), providing businesses with visibility on the Internet while minimizing the cost.
Internet pricing Over the past two years, Maroc Telecom has conducted a policy of price cuts for all its ranges of products. The table below presents the main Internet prices in force in MAD (including VAT).
Plan June 30, 2004 (In MAD, including VAT) Unlimited ADSL at 128 kbps ...... 299 per month Toucompri rate plan* ...... 79 per month Libre Accès (pay as you go) ...... 0.20 per minute PC Menara ...... from 2,500 * Evenings and week-ends, ten hours’ connection.
Other products and services In accordance with its contract specifications, Maroc Telecom is bound to provide the following services (without limitation): — a free maritime radio-communication service to broadcast maritime safety notices; — a two-way telecommunications service for the exchange of messages between ships at sea and any termination point of the public networks; — a telegraph and telex service (Maroc Telecom has applied to the ANRT for permission to discontinue the telex service since the terminal equipment is no longer being manufactured); — a telephone enquiries service (call number 160), provided through dedicated information centers; — the routing of calls to emergency numbers; and — an Arabic-language telephone directory. Maroc Telecom also publishes a professional “yellow pages” directory. This activity is not significant in terms of income.
Customer services The customer relationship is at the core of Maroc Telecom’s business. Accordingly, and again towards the goal of meeting its customers’ expectations and requirements, Maroc Telecom has developed an active customer relations management policy.
69 Invoicing and collection Since 2002, Maroc Telecom has upgraded its invoicing tools and processes for both fixed-line and the Internet, in particular through the: — establishment of a system of automated collection of charging data in June 2002; — changeover from per-unit to per-minute billing in July 2002 (except for public telephony, which remains charged per unit); — generalization of detailed invoicing; — clearer presentation of the Fixed-line and Internet invoices in order to improve their legibility; — establishment of an interactive voice system enabling subscribers for fixed-line telephones to be informed of the current bill in real time; and — establishment in 2003 of a dedicated invoicing system for all the Internet offers.
As for collection procedures, Maroc Telecom set up in early 2003 a dedicated organization consisting of 27 collection departments and seven customer management departments.
Through these actions, Maroc Telecom expects to obtain ISO 9001 version 2000 certification in 2004 for all its fixed-line invoicing and collection services.
Call centers The call center dedicated to fixed-line customers handles requests for information regarding Maroc Telecom’s products, customer complaints and the sale of products and services. Preferred access has been set up for businesses with the creation of a Business Call Center, accessible through a dedicated number.
In addition, Maroc Telecom has provided Menara Internet subscribers with a separate call center dedicated to the Internet.
The customer relations operators at the Fixed-line and Internet call centers are trained to handle incoming calls and to recruit customers or carry out direct marketing through campaigns of outgoing calls. The quality of service offered in the various call centers is monitored through statistical indicators. At the end of June 2004, the Fixed-line and Internet call centers employed some 270 customer relations operators (not including the enquiries center).
The call center dedicated to fixed-line customers achieved ISO 9001 version 2000 certification in June 2003.
Relations with Businesses Over the past two years, Maroc Telecom has emphasized the reinforcement of its relationship with businesses. This is evidenced by the creation at the end of 2001 of a Business Directorate, and, within the Business Directorate, of a Major Accounts Directorate. The latter acts as a one-stop shop for the largest public or private customers: the major accounts sales engineers handle the entire commercial relationship with their customers for all of Maroc Telecom’s products and services on a nationwide basis. Business branches within each regional directorate also act as relays for the Business Directorate as regards SME-SMI customers (see “—Distribution”).
Subscriber portals Maroc Telecom has developed direct relationships with its fixed-line and Internet customers through its various portals (www.elmanzil.ma for consumer Fixed-line and Internet subscribers, and www.Menara.ma for Internet subscribers). In addition to important information relating to the products and services marketed, functionalities such as on-line subscription for services (Self Care) or the consultation of bills are also accessible there.
Infrastructure Maroc Telecom has developed a fully digitized, modern network, at the leading edge of available technology, allowing a wide range of services to be offered. This network consists of a transmission backbone, switching centers, service platforms and an access network.
70 Nationwide transmission backbone Maroc Telecom’s transmission network consists mainly of fiber optic systems using the SDH technology with multiple flow rates of 2.5 G bits/s.
With almost 10,000 kilometers of fiber optic cable, Maroc Telecom’s transmission backbone is able to handle any kind of fixed-line, data and mobile traffic. It consists of: — 6,500 kilometers of intercity fiber optic cable; — 3,200 kilometers of urban fiber optic cable; and — the related SDH n x 2.5 Gb/s equipment.
Switching and service platforms The switching exchanges have a capacity of approximately 1,840,000 subscriber lines. The network consists of 106 switching exchanges and 14 transit centers with capacity of 6,700 PCM.
A smart network platform for value-added services allows Maroc Telecom to offer various services, such as pre-paid cards, pre-paid lines, toll-free numbers and kiosk service.
Access network With almost 8 million kilometers of copper wire, Maroc Telecom’s access networks cover almost the entire territory of Morocco. The ADSL network established in 2003 allows broadband Internet access with flow rates up to 2 Mbps for most Moroccan towns.
In addition, the quality of service has seen a substantial improvement. Accordingly, the rate of reported malfunctions at the end of August 2004 was 11.4%, and over 97% of malfunctions noted were corrected within less than 24 hours.
International network With 230 relationships with foreign operators, Maroc Telecom secures Morocco’s connectivity to all countries worldwide through two international transit centers (Casablanca and Rabat) and three fiber optic submarine cables (SMW3, Tétouan-Estepona and Eurafrica), in addition to satellite connections via Intelsat, Arabsat and Eutelsat.
Data networks Maroc Telecom offers a wide range of data connectivity services through its Maghripac network, a Frame Relay network, an ATM routing network, a VPN IP network and an access network consisting of 990 multiplexers, 650 cross-connect multiplexers and optical local loops for the connection of multiservice customers.
Currently, the monthly malfunction reporting rate (all data products aggregated) is less than 2% and the repair rate for malfunctions (all data products aggregated) is 87% in less than four hours and 99% in less than 24 hours.
The Internet Maroc Telecom also put in place as of June 30, 2004 a domestic Internet network and redundant international Internet bandwidth of 775 Mbps. A large-scale program has been initiated to improve the performance of the Internet infrastructure and to improve the quality of service, as regards both installation with the customer and after-sales service. Auditing, reliability assessment, enhancement and optimization have been carried out throughout the access chain, providing an improvement in the malfunction reporting rate.
Network monitoring center A network monitoring center is currently being deployed to monitor all the elements of the network, thereby covering all the Fixed-line and Internet, Mobile and Business network infrastructure. It is due to be completed in 2006.
71 At the end of the first half of 2004, Maroc Telecom had enabled its customers to make over 7.6 million calls per day on average over the fixed-line network, including 1.6 million by businesses alone, and almost 8 million calls per day on average over the mobile network (Maroc Telecom estimate). It also enabled them to send a daily average of almost 66,000 e-mails from their Menara service for June 2004 alone (Maroc Telecom estimate).
DISTRIBUTION General organization and strategy of Maroc Telecom’s distribution network Organization Maroc Telecom has an extensive direct and indirect distribution network, consisting of almost 28,000 sales points licensed by Maroc Telecom subject to distribution agreements with local retailers or nationwide distributors.
As of December 31, 2003, the various distribution channels were as follows: — a direct network comprising 269 branches; — the local indirect network, made up of small independent tradesmen bound by exclusive agreements and each managed by the closest Maroc Telecom commercial branch. A large proportion of these retailers also engage in a telestore business approved by Maroc Telecom; — an independent convenience store network dedicated mainly to Mobile, managed by the company GSM Al Maghrib in which Maroc Telecom has held a 35% participating interest since July 2003; and — distributors structured on a nationwide basis, and for which telecommunications are not the major business, such as large-scale retailers (Marjane), press distributors (Sapress), the Régie des Tabacs (the tobacconist agency) or the post offices of Barid Al Maghrib.
Distribution strategy The extent and organization of Maroc Telecom’s distribution network are major strategic strengths for the Company. The Company’s distribution strategy is organized mainly along the following lines: — maintaining the central role of the direct network, in particular for high-value-added services; — developing the indirect networks’ local reach in order to increase proximity to customers; — reinforcing the role of telestores in the distribution of pre-paid products and the marketing of fixed lines; and — taking advantage of synergies between the direct and indirect distribution channels.
Direct distribution network Maroc Telecom’s direct commercial network consists of 269 branches organized and structured to meet the local needs of the various customer segments.
Consistent coverage With knowledge of regional and local specific features, Maroc Telecom’s own commercial network provides coverage suited to the entire domestic territory. In addition, almost all the branches market the entire range of products and services (Fixed-line, Mobile and Internet).
Suitability to the needs of the various types of customers The branches are divided into four classes according to the type of customers concerned. The network has four major accounts branches (with nationwide coverage); 13 business branches; 28 retailer branches and 224 consumer branches (located in most urban areas in order to provide optimal convenience for customers). Among the consumer branches are 21 branches dedicated to mobile, located mainly in shopping malls and high-potential areas.
72 Indirect distribution network Regional indirect network The network of telestores, the main business of which is the operation of a public telephony service approved by Maroc Telecom, also distributes pre-paid fixed-line and mobile cards, and subscriptions for fixed- line telecommunications.
The network of retailers consists mainly of tobacconists, convenience stores, bookstores and other promoters of telecom and electronic products that have entered into agreements for the marketing of Maroc Telecom products and services.
The indirect network reached almost 13,000 sales points licensed by Maroc Telecom in 2004. Agreements are made with each telestore which permits a diffuse distribution network and allows distribution on a local level on a local basis. Compensation to telestore owners consists of commissions on the products and services sold.
Nationwide indirect network The diversification of distribution channels has been consolidated by the execution of association agreements on a nationwide basis with organized channels such as Sapress (the nationwide leader in the distribution of the press and books), Barid Al Maghrib (Morocco’s post office, which provides subscription, sale and invoice collection services), the Régie des Tabacs and the “Marjane” and “Aswak Assalam”, both large-scale retailers. Maroc Telecom accordingly has a nationwide indirect distribution network accounting for almost 15,000 additional sales points licensed by Maroc Telecom.
Independent network The acquisition in July 2003 of an interest in the distributor GSM Al Maghrib enabled Maroc Telecom to obtain an independent local network. GSM Al Maghrib is the only entity other than Maroc Telecom authorized to distribute mobile post-paid products in Morocco.
Distribution agreements As of June 30, 2004, Maroc Telecom had in place distribution agreements with the following companies:
Date of the association Company Nature of the business agreement Maroc Telecom products distributed GSM Al Maghrib ...... Distribution of telecom 11/2003 - Pre-paid mobile and fixed- products line cards - Mobile, fixed-line and Internet subscription - Electronic refill Barid Al Maghrib ...... Morocco’s post office 06/2003 - Pre-paid mobile and fixed- line cards - Fixed-line subscription Cofarma ...... Marjane hypermarkets and 10/2002 - Pre-paid mobile and fixed- Acima supermarkets line cards - Fixed-line subscription Mahatta (Total Maroc group) .... Gas stations 07/2002 - Pre-paid fixed-line and mobile cards Régie des Tabacs ...... Manufacturer and distributor 11/2003 - Pre-paid fixed-line and of tobacco products in mobile cards Morocco Promo Presse (Sapress group) ... Press distributor 03/2003 - Pre-paid fixed-line and mobile cards ICA Data Systems ...... Distributor of computer and 11/2002 - Fixed-line and mobile telecoms products electronic refills Canal Market ...... Monetics; distributor of 11/2002 - Fixed-line and mobile electronic refills electronic refills Aswak Assalam ...... Supermarkets 05/2003 - Mobile packages, wrappers and pre-paid refill cards
73 MARKETING, COMMUNICATION AND SPONSORSHIP Maroc Telecom is the largest advertiser in Morocco. The Company applies a large budget to its marketing expenses for its Mobile and Fixed-line and Internet segments, and to in-house and institutional communication.
A central communication directorate organizes in-house and institutional communication, manages sponsorships and brand policy and ensures the consistency of communication strategies for all of the Company’s activities (Fixed-line, Mobile, Internet and Business).
Maroc Telecom’s brand enjoys very strong recognition among the public. The priority of the Company’s communication policy is now to improve the relative ranking of the various product brands in association with the overall “Maroc Telecom” brand, in particular by enhancing the latter’s visibility.
Maroc Telecom is also involved in co-branding operations, whereby it conducts communication operations jointly with the suppliers of handsets, promoting their brands alongside Maroc Telecom’s.
Communication campaigns are conducted by means of advertising campaigns on television and radio, in the press and by billboards in urban areas. They ensure a constant presence in terms of the brand’s visibility.
In addition, the Company engages in institutional communication, in particular with significant support for sports (such as support for the Royal Moroccan Football Federation, a contribution to the training of Moroccan athletes and involvement in preparation for the 2004 Olympic Games, and for golf), culture (including sponsorship of many festivals such as the Mawazine Rythmes du Monde Festival in Rabat, the Festival of Religious Music in Fès and the Marrakesh International Film Festival), the environment (such as the “Clean Beaches” operation in liaison with the Mohammed VI Foundation for Environmental Protection, and the rehabilitation of a public park in Marrakesh), and community-action sponsorship (such as associations with the Mohammed V Foundation for Solidarity, the National Monitoring Committee on Children’s Rights, the Association against AIDS and various other charitable institutions).
Finally, the Company is involved in a policy of direct communication with its customers through clubs (such as the “El Manzil” club), the publication of newsletters and magazines (for example, Génération “El Manzil” and Mobimag), and the establishment of Internet portals (www.iam.ma, www.elmanzil.ma, www.mobileiam.ma and www.Menara.ma).
COMPETITION As of June 30, 2004, 12 licenses for telecommunications operators had been awarded in Morocco: one license for the operator of a public fixed-line telecommunications network (Maroc Telecom), two GSM licenses (Maroc Telecom and Méditel), four licenses for operators of GMPCS-type satellite telecommunications networks, three licenses for operators of VSAT-type satellite telecommunications networks, and two licenses for operators of shared radio-electronic networks (3RP).
Act 55-01 allows a continuation of liberalization of the telecommunications sector in Morocco. The process of opening up this sector to competition should receive a new boost, in particular in fixed-line operations, with the establishment of unbundling, the revision of the concept of universal service, and the right for businesses such as the Office National de l’Electricité and the Office National des Chemins de Fer (railroads) to grant access to their infrastructure to telecommunications operators, which will thereby be able to create backbones competing with Maroc Telecom’s (see “Regulation” and “Outlook and recent developments”).
After an unsuccessful invitation to tender for the award of a second fixed-line license in 2002, the ANRT has stated that it plans to issue a further invitation to tender by the end of 2004 for the award of new fixed-line licenses in 2005 for domestic, international and local-loop operation. The ANRT has stated that the award of a third GSM license is not currently being proposed.
Mobile telecommunications In the mobile sector, Maroc Telecom has a direct competitor in the operator Médi Télécom (“Méditel”), the holder of a mobile license since August 1999. The majority of Méditel’s stock is held by the Telefonica and Portugal Telecom groups (32.18% each). The minority interests are held by the BMCE Bank group, the Holdco group and Caisse des Dépôts et de Gestion, with interests of 18.06%, 9.93% and 7.66% of the stock, respectively (Source: Médi Telecom).
74 The Moroccan market for mobile telecommunications had 7.853 million GSM customers as of June 30, 2004. This market is dominated by the pre-paid customer base, with more than 94.5% pre-paid customers. In terms of market share, Maroc Telecom had at that date 70.3% of the overall market as compared to 29.7% for Méditel (or approximately 2.3 million customers for Méditel) (Source: ANRT).
Market shares (as % of number of customers, as of Market Status June 30, 2004) Mobile pre-paid ...... Liberalized market Maroc Telecom: 71% Méditel: 29% Mobile post-paid ...... Liberalized market Maroc Telecom: 55% Méditel: 45% Total Mobile ...... Maroc Telecom : 70% Méditel : 30% (Source: ANRT)
This market is characterized by very strong seasonality during the summer period, which sees a significant increase in operation, due mainly to the return of large numbers of Moroccans resident abroad for vacations.
In the market for pre-paid services, the mobile operators organize frequent promotions, which has led to a fall in the prices in this sector. In parallel, they have granted a high level of subsidies for handsets, contributing to sustained growth of the market.
In the market for post-paid services, the operators distinguish themselves on prices and the specific features of their offers. Maroc Telecom is distinguished by a broad range of rate plans suited to the customer’s needs, whether individual or business customers.
Maroc Telecom has a brand with very high recognition, for post-paid as well as for pre-paid services (Jawal). Maroc Telecom is also known for its expertise thanks to the performance and quality of its network (Source: survey conducted by Sofres).
Maroc Telecom has the following competitive strengths: — Maroc Telecom covers almost the entire Moroccan population (Maroc Telecom estimate). Méditel’s coverage is estimated at 80% (Source: Méditel/Interview VP Méditel, Aujourd’hui Le Maroc dated September 27, 2004); — Maroc Telecom relies on a dense and localized distribution network of almost 28,000 licensed sales points; — As early as January 2000, Maroc Telecom instituted loyalty-building offers. Starting in April 2002, Maroc Telecom innovated on the market with a points-based loyalty system, “Fidelio”; — The two operators are distinguished by their methods of compensating resellers: Maroc Telecom compensates resellers for sales, Méditel also compensates for calls (air time).
Accordingly, in order to enable its customers to enjoy the most recent innovations, Maroc Telecom acts as a pioneer by regularly introducing as a preview the latest technologies, such as WAP in 2000 or GPRS in 2002.
The table below lists the years of launch of mobile technologies on the market by the two operators:
Maroc Telecom Méditel WAP ...... 2000 2004 SMS Info ...... 2001 2003 GPRS ...... 2003 2004 MMS ...... 2003 2004 Roaming MMS and GPRS ...... 2004 —
Méditel is developing a competitive policy on the business market through an offer of GSM gateways known as “Lo-Boxes”. That offer indirectly creates competition for Maroc Telecom’s customers not only for mobiles but also for fixed-line services. The ANRT has permitted marketing of the Lo-Boxes while nonetheless prohibiting operators from subsidizing them or from establishing specific offers connected with their use (ruling ANRT/DG/N.01/04 dated January 22, 2004 relating to the use of GSM gateways). Maroc Telecom believes that
75 this phenomenon affects 10% of the fixed-line-to-mobile traffic of its business customer base. Méditel is conducting an aggressive policy with respect to subsidies for new customers and applies a large budget to marketing and communication.
Fixed-line telecommunications Maroc Telecom has a monopoly on the market for fixed-line telecommunications except for the market segment of public telephony (where there is competition from operators using GSM or satellite technologies for fixed-line purposes) and the business segment (where the competition is carried on through the use of GSM gateways).
Market for public telephony The market for public telephony is estimated by Maroc Telecom at over MAD 3.7 billion annually (base 2004). Until 2003, Maroc Telecom had a monopoly in this market. Competition started to develop in 2004 with two newcomers to the market: Méditel, which, since the spring of 2004, has deployed fixed telestores using a GSM technology, and Globalstar, deploying fixed telestores using a satellite technology.
The Thuraya operator also announced in September 2004 its forthcoming entry into the public telephony market in Morocco pursuant to the execution of an association agreement with the Moroccan company Quickphone. Thuraya will, like Globalstar, offer public telephony based on satellite technology.
In September 2004, Maroc Telecom’s share of the public telephony market was estimated at 94% as a percentage of the number of lines.
Market for business fixed-line telecommunications Méditel, by installing “Lo-Box” GSM gateways, has entered the market for Business fixed-line telecommunications. Installation of this hardware at the PABX outlet allows conversion of the fixed-line-to- mobile traffic into mobile-to-mobile traffic without going through Maroc Telecom’s fixed-line network (also see the discussion of the ruling ANRT/DG/N.01/04 above).
Interconnection of incoming international traffic The market for the interconnection of incoming international traffic is made up of two segments: — interconnection of incoming international traffic destined for Maroc Telecom’s network (fixed-line or mobile), and — interconnection of incoming international traffic destined for the networks of other operators.
Maroc Telecom, pursuant to its license, is entitled to offer international operators termination of their traffic to Morocco, regardless of the end destination of the calls (Maroc Telecom fixed-line, Maroc Telecom mobile or Méditel mobile). This right is exclusive as regards traffic destined for its own subscribers. As of June 30, 2004, Maroc Telecom accordingly maintained a monopoly on the markets for interconnection of incoming international traffic destined for Maroc Telecom’s Fixed-line and Mobile networks.
Méditel, pursuant to its license, has a non-exclusive right to carry incoming international traffic destined for its own subscribers. However, since August 1, 2003, Méditel has technically prevented Maroc Telecom from routing incoming international traffic to Méditel’s customers. Maroc Telecom has challenged this action before the ANRT and this challenge is currently being reviewed (see “—Extraordinary events and litigation”).
Data As of June 30, 2004, competition on data was fairly limited. It consisted of the following four forms: — competition from ISPs with VPN IP services, such as those offered by Maroc Connect. The service offered is VPN IP-based on the ISP IP network for interconnection of sites on a national and international basis; — operators exploiting VSAT satellite telecommunications networks, such as Space Com S.A., Gulfsat Maghreb and Cimecom S.A. On the national market, the service is suited to remote locations where Maroc Telecom is not present. Maroc Telecom may, however, meet its customers’ requirements by means of customized offers such as wireless service. These operators do not have significant market shares;
76 — the international operator Equant, which provides international connectivity services to a few major account customers. Maroc Telecom considers that Equant offers services to approximately 20 airlines formerly customers of the SITA network, and to approximately 25 businesses. This competition remains highly limited since the entire traffic of Equant’s customers is carried through a leased line with a total capacity of 2 Mbps; and — the independent networks deployed by certain major account customers, which have opted to build their own data networks and use radio solutions in particular. This competition is not significant.
The table below summarizes the market situation as of June 30, 2004:
Maroc Telecom Service Market situation market share Domestic data connectivity services ...... Competition from: Not available - Maroc Connect, with services based on VPN IP; - VSAT operators for connection of remote locations; - private networks (radio solutions) International data connectivity services ...... Competition from: > 90%* - Equant - VSAT operators * In terms of revenue, as of June 30, 2004.
Internet The main competitor on the market for Internet access services is Maroc Connect, present on the consumer and business markets, with an overall market share of 13% as of April 30, 2004 (Source: ANRT).
Maroc Telecom has a very strong position on the ADSL market, a market segment which is growing rapidly, with a market share of 94% (Source: ANRT).
The following table sets out the market situation as of April 30, 2004 according to the ANRT:
Market shares Market Status of the market (% of number of consultations) Internet access, all forms of Maroc Telecom: 83% access aggregated ...... Liberalized market Maroc Connect: 13% Other ISPs: 4% Internet access via ADSL ...... Liberalized market Maroc Telecom: 94% Maroc Connect: 5% Other ISPs: < 1%
HUMAN RESOURCES Modernization of human resources management Considering that the richness of its staff’s talents will enable it to sustain the pace of its growth, Maroc Telecom initiated in 2001 a plan for the modernization of its human resources.
The establishment of a new set of management rules, based on the recognition of good performance and the development of skills, will enable Maroc Telecom to make full use of its human resources in order to succeed in its aims.
Pursuant to this modernization plan, Maroc Telecom now has a new human resources information system and internal regulations established in 2003. These have introduced new management tools, such as a job classifications, a system for annual evaluation (the annual progress interview), a new mobility policy and a new compensation structure.
77 Staff 60% of Maroc Telecom’s staff is under the age of 40, which contributes to the Company’s internal vitality. Maroc Telecom, which calls upon varied skills at a high level (engineers, sales staff, marketing staff, financiers, etc.), is one of the companies hiring the largest number of new graduates in Morocco.
Maroc Telecom’s staff currently consists of two categories: — employees hired by Maroc Telecom after the company’s creation in 1998, who are employed under private law, governed by the internal regulations implemented as of October 1, 2003 and the Labor Code enacted in June 2004; — staff from the former Office National des Postes et Télécommunications (ONPT, created in 1984), transferred to Maroc Telecom in 1998. The staff from the ONPT that have changed to the internal regulations naturally enjoy the benefit of the provisions applicable to employees hired by Maroc Telecom.
Staff turnover The rate of staff turnover (i.e., the ratio of staff having left at year-end to the staff at the beginning of the fiscal year) was 1.40% in 2003 as compared to 2.50% in 2002 and 2.38% in 2001.
History of staff size The table below sets out the evolution of staff size at Maroc Telecom for the past three fiscal years ending on December 31, 2001, 2002 and 2003:
2001 2002 2003 Staff ...... 14,681* 13,444** 12,170 * Including 1,246 people covered by the first voluntary departure plan in 2000. ** Including 1,121 people covered by the second voluntary departure plan in 2001.
In order to improve its operational efficiency and face the competitive environment in which it operates, Maroc Telecom launched two incentive-based voluntary departure plans in 2000 and 2001. Overall, 2,367 people were granted a leave package, set at two months’ salary per year of service and capped at 48 months. That action’s impact was in the order of MAD 790 million. Seventy-eight percent of the departures involved administrative staff with an average length of service of 27 years with the Company. Those employees who left pursuant to the voluntary departure plans on the basis of incentives for resignation also retained the benefit of early retirement and healthcare coverage (subject to contributions), in accordance with the relevant legislation in force.
Staff of the Vivendi Universal group The staff numbers mentioned in the table above also include the expatriate staff of the Vivendi Universal group operating with Maroc Telecom pursuant to a service contract and on fixed-term contracts. The number of expatriate staff was 35 in 2001, 39 in 2002 and 32 in 2003.
The service contract enables the Vivendi Universal group to provide the Company with technical assistance services (see “Related-party transactions”).
Internal regulations The internal regulations are the basis for Maroc Telecom’s new human resources policy. Maroc Telecom has developed a new legal arrangement to permit: — recognition of employment management skills and performance; — the acquisition and development of new skills; — professional development, with respect to both the employees’ wishes and abilities and the Company’s requirements; and — the managers’ involvement in the development of the workers they supervise.
78 The internal regulations have also introduced new modern management tools, including in particular: — a classification of positions, listing almost 136 positions, divided into seven classes and six areas of operation. This new classification has allowed the definition of new rules for mobility and career development, based on skills acquired; — a new compensation policy, based on mastery of skills and the recognition of performance; — a new evaluation system (an annual progress interview) allowing a review of the past year and setting targets for each employee for the coming year. It was extended to all the staff in 2003, and evolved in 2004 to follow the employees’ professional development; — a training policy, centered on the development of skills favoring the improvement of performance and employment management.
As of July 31, 2004, 4,898 employees were subject to the internal regulations, i.e., 40% of the staff.
Collective bargaining agreement An agreement concluded in January 2004 between the Company and labor unions provides for the evolution of the internal regulations towards a collective bargaining agreement. Negotiations started in February 2004 with the two most representative labor unions, leading to the signing of a collective bargaining agreement on November 17, 2004 (see “Outlook and recent developments—Human resources”).
Training Training is considered as an essential investment in Maroc Telecom’s future. It is part of an overall effort to develop and adapt the Company’s human resources to its requirements. This is reflected in: — 35,000 days of training provided to 5,600 employees; — training of 1,240 managers and intermediary managers to perform the annual progress interviews of their workers (interview, evaluation and goal-setting techniques); and — the registration of 240 workers for 64 training seminars.
Evolution of the staff’s compensation The gross compensation granted to Maroc Telecom’s staff consists of both a fixed and a variable component. The amount of the variable component (performance bonus) is set individually according to each employee’s achievement of targets.
The evolution of payroll costs over the past three fiscal years is as follows:
2001 2002 2003 (In millions of MAD) Payroll costs ...... 1,626 1,469 1,550
Labor relations Employer-staff communication The telecommunications sector has been characterized by continuous communication between employers and labor unions. This dialogue has been enhanced by the presence of well-structured and representative labor unions.
In addition to the election of staff representatives, the management of Maroc Telecom has organized other elections in order to appoint the members of joint commissions. These commissions are involved in matters of discipline and promotion, in accordance with the staff rules of the ONPT.
In order to comply with the new provisions of the Labor Code, Maroc Telecom will set up other bodies to represent the staff (such as works council and a health and safety committee) in the near future.
Labor unions There are six labor unions within Maroc Telecom: — Syndicat National des Postes et Télécommunications (SNPT), affiliated with the Confédération Démocratique de Travail (CDT);
79 — Union Syndicale des Telecom (UST), affiliated to the Union Marocaine de Travail (UMT); — Syndicat Autonome des Telecom (SAT); — Syndicat National des Postes et Télécommunications (SNPT), affiliated with the Fédération Démocratique de Travail (FDT); — Fédération Nationale des Postes et Télécommunications, affiliated with the Union Marocaine de Travail (UMT); and — Fédération Marocaine des Postes et Télécommunications, affiliated with the Union Nationale de Travail au Maroc (UNTM).
It should be noted that the UST, SAT and FMPT were organized after the creation of Maroc Telecom.
Union representativeness The latest elections, organized in September 2003, in accordance with the labor legislation in force, allowed the election of employees’ representatives. The elected candidates were divided as follows:
SNPT (CDT): ...... 48.8% UST (UMT): ...... 38.1% Independents: ...... 7.1% FNPT (UMT): ...... 4.8% SAT: ...... 1.2% SNPT (FDT): ...... 0% (did not take part in the election of employees’ representatives) FMPT: ...... 0% (did not exist at the time of the elections).
In accordance with the provisions of the Labor Code, the leading two labor unions are the most representative unions within the Company.
The labor unions will be required promptly to appoint their union representatives in the various representative establishments (the labor constituencies within Maroc Telecom, after consultation of the unions, consist of eight representative establishments and three bodies of employees).
Professional elections have been held through two separate electoral processes and have resulted in the appointment, on the one hand, of staff appointees on the joint administrative commissions, and on the other hand, of staff representatives. Forty-seven percent of eligible voters took part in the election of staff appointees and 75% in the election of staff representatives. The results achieved show the dominance of the SNPT (affiliated to the CDT), followed by the UST (affiliated to the UMT) in the two aforementioned electoral processes.
Agreements and negotiations Four labor contracts have been concluded with the labor unions (October 1999, March 2001, December 2002 and January 2004).
The agreement concluded in December 2002 between the Company and labor unions already provided for the adoption as a first stage of internal regulations for the staff, and for a plan to move towards a collective bargaining agreement. That agreement also instituted a pay increase relating to several elements of compensation, and the establishment of a supplementary health care insurance program (for improved reimbursement of hospital and drug costs) and supplementary retirement scheme (for an improved pensions program).
The latest agreement made in January 2004 provides in particular for the initiation of negotiations to develop a collective bargaining agreement in order to provide a new set of management rules applicable to all the staff.
Employee benefits In addition to statutory welfare benefits (including in particular pension, mutual insurance, coverage for occupational hazards and occupational diseases), Maroc Telecom’s staff enjoys a number of welfare benefits, including in particular the benefits listed below:
80 Supplementary pension In addition to the basic scheme provided by the various agencies (CMR, RCAR and CNSS), the employees may join a supplementary pension scheme, taken out with the Caisse Interprofessionnelle Marocaine de Retraite (CIMR). The contributions amount to 7.50% of the salaries of those participating. Maroc Telecom contributes 50% of these payments. Approximately 6,540 employees have taken advantage of these supplementary pension benefits as of June 30, 2004. Supplementary healthcare insurance Employees may take out supplementary healthcare insurance providing 100% reimbursement of the medical expenses incurred for themselves and their dependents. The costs of membership of the supplementary healthcare insurance are assumed jointly by Maroc Telecom and the insured party, in equal shares. The premium rate amounts to 1.2%, excluding tax of the gross salary. Approximately 7,800 employees have applied for the supplementary insurance as of June 30, 2004. Life insurance Active employees and pensioners up to the age of 70 are provided with life insurance in an amount of MAD 100,000. An optional additional bracket potentially up to MAD 900,000 is open to those employees wishing to subscribe. The cost of that bracket is assumed by the employee entirely, and the amount of the contribution is computed in the basis of a levy of 0.35% of the insured capital. Property loans An employee in a permanent position is eligible for loans for the acquisition or construction of housing from banks that have entered into agreements with Maroc Telecom. The amount of the loan is set according to the employee’s ability to repay, provided that the loan period may not exceed 18 years. Summer vacation centers For their leisure, employees are eligible, at prices negotiated and subsidized by Maroc Telecom, to use the firm’s residential vacation centers. In order to strengthen the existing scheme and to expand the programs it can offer its employees while securing attractive value for money, Maroc Telecom enters into agreements with tourism promoters every year. Medical and community activities Employees and their families may obtain health care from a network of medical and community centers staffed by 18 contracted physicians, including three specialists. In 2003, 2,482 people were provided with medical treatment through these centers.
Pensions The pensions of the Company’s employees are maintained by three external pension funds, according to the origin of the employees: CMR for the staff from the Ministry of PTT, RCAR for the staff from the ONPT, and CNSS for the staff hired by Maroc Telecom. These pension funds provide payment of the employees’ pensions, in consideration of the contributions withheld (employer and employee’s share) and paid monthly by Maroc Telecom. All amounts due by Maroc Telecom in respect of pensions are either provided against or paid to the pension funds listed above.
REAL PROPERTY For the purposes of development of its networks and for its commercial, support and administrative functions, Maroc Telecom makes use of almost 4,500 sites (buildings, land, etc.), spread out over the entire territory of Morocco, including 3,350 leased locations and 1,150 owned for accounting purposes by Maroc Telecom. Most of the 1,150 sites were previously owned by the Kingdom of Morocco, and were transferred to Maroc Telecom automatically at the time of its incorporation in 1998 as a contribution in kind in accordance with Act 24-96; however, it should be noted that at that time, title deeds were not available owing to delays in proceedings for registration with the Land Registry. Maroc Telecom is currently in the process of regularizing the title deeds in order to gain formal legal title to these properties. All such administrative proceedings are expected to be completed by the end of the second half of 2005. This timetable is for information only, however, since the regularization of such locations is dependent in particular on the duration of governmental proceedings. It should be noted that there have been no difficulties with respect to the regularization of these titles to date, and that the costs connected with such actions (payment of registration duty) and/or possible financial risks arising out of challenges to such deeds are not deemed significant.
81 The Company’s auditors have noted this matter in their unqualified audit reports on the consolidated financial statements, and in the notes thereto (see note 4 to the consolidated financial statements).
For more information, see also “Principal and selling shareholders—Shareholders’ agreements— Shareholders’ agreement concerning the shares of Maroc Telecom—Real property”.
INTELLECTUAL PROPERTY As of December 31, 2003, Maroc Telecom owned some 269 trademarks and trade names (registered trademarks and trademark applications), two patents and one design model.
“Itissalat Al-Maghrib”, “Maroc Telecom”, “Jawal”, “El Manzil”, “Kalimat”, “Menara”, “Fidelio”, “les pages jaunes de Maroc Telecom”, “Maghribcom” and “Mouzdaouij” are among the main trademarks and trade names owned by the group in Morocco.
The first patent, registered in 1997, concerns the complete execution, with a prototype, of an NDT digital transmission terminal device. This device is used to connect customers to Maroc Telecom’s Marnis integrated service digital network, and was the method used to carry a digital connection to each customer.
The second patent, registered in 1999, concerns complete execution, with a prototype, of a remote display device through a radio paging network named RAKKAS. This wireless device allows the display of banking, stock exchange or other information at any location covered by the RAKKAS radio messaging network.
The design model registered in 2002 concerns the implementation of a new design for the shelters of call boxes to be installed in public locations. This design model was developed for the Moroccan market and takes account of, among other factors, mechanical, electrical, electromagnetic (electric sparking, radiation, storms) and sound constraints in order to provide the user with comfortable and entirely safe use of the public call box. This shelter has now been extensively deployed by Maroc Telecom.
The trademarks, trade names and patents currently owned by Maroc Telecom are protected throughout Morocco for a term of 20 years (renewable without limitation) from the date of their registration. That duration will be reduced to ten years (renewable without limitation) from December 17, 2004, the effective date of the new Act 17-97 on the protection of industrial and commercial property.
Maroc Telecom is careful to take any action either necessary or desirable in order to protect the trademarks, the patents and the design model that it has developed.
Maroc Telecom has a research and development department which works on the Company’s products. This research usually leads to the launch of new products and/or services or transformations or improvements of existing products, even though such work may not be considered as patentable inventions or processes. These improvements made to protected inventions may be registered for protection by means of an instrument known as an additional patent, the formalities for the registration of which are identical with those for the principal patent.
Maroc Telecom is currently launching among its employees an innovation contest intended to reward the best ideas or projects, with possible benefits for the Company in terms of the registration of patents, trademarks or design models.
The rights to use the trademarks and trade names granted to Maroc Telecom are described in the service agreements made with its contractors. Some contracts for the sale of services or products from Maroc Telecom’s Mobile segment and Fixed-line and Internet segment confer on retailers a right to exploit Maroc Telecom’s trademarks during the term of performance of the agreement, in accordance with the procedure agreed between the parties.
In addition, the Company has been informed that the Maroc Telecom trademark was registered in France by a third party in 1997 in order to designate telecommunications services, devices for the processing of data and computers. On November 25, 2004, Maroc Telecom purchased the “Maroc Telecom” trademark and domain names which had been filed in France by this third party (see also “Outlook and recent developments”).
82 INSURANCE Until 2000, Maroc Telecom was its own insurer, as it was under no statutory duty (except for the third-party liability insurance for its automotive fleet) to take out insurance policies with approved insurance companies covering, on the one hand its third-party and professional liability as provided for under its current contract specifications, and on the other hand, indemnities relating to compensation for occupational accidents.
Maroc Telecom had, however, taken out between October 1998 and October 2001: — one “fire & explosion” insurance policy; — one “import & export” insurance policy; — one “collective life” insurance policy; and — one “machine damage” insurance policy.
Starting in 2003, the Company started a policy of risk management intended to implement the following actions: — estimate and evaluate the risks incurred by the Company; — identify the risks that could affect the personnel, assets or earnings of the Company; — develop an improved risk coverage of its assets, evaluated and updated by insurance appraisers; — optimize the cost of coverage of the risks; — cover the residual risks through insurance policies; and — set up procedures for reporting, management and monitoring of casualty dossiers (and resources for prevention and protection against risks of fire and explosion) in order to secure optimized indemnification at fair value for the damaged assets.
Maroc Telecom accordingly took out, in May 2003, an insurance policy for its third-party and professional liability, as a result of personal injury, property damage and intangible damage caused to third parties in the course of its operation.
In June 2003, it also took out an insurance policy securing the indemnification relating to compensation for occupational accidents and diseases.
Maroc Telecom has supplemented and reinforced this system by taking out an insurance policy for “property damage and operating losses” commencing on July 1, 2004. In addition to extending the limits of coverage to risks of operating losses and the value of the property secured, the policy has also raised the contractual indemnification limits in order to secure continued operation and to avoid any material loss.
Maroc Telecom’s insurance costs amounted to MAD 17.2 million in 2003, MAD 14.8 million in 2002 and MAD 15.5 million in 2001. The main insurance policies to date are the following: — Property damage and operating losses: the coverage afforded to the company is capped at MAD 200 million per casualty, whether relating to damage or to operating losses. — Third-party liability (operation and after delivery): the coverage cap ranges from MAD 5 million to MAD 7 million, according to the nature of the casualty.
Maroc Telecom is currently working to mitigate the risks to which it is exposed by setting up a system to protect its assets against the risks of fire and explosion, in accordance with customary and preventive maintenance standards.
As regards the security of data and uninterrupted data processing operations, Maroc Telecom currently does not have a back-up computer center. However, a plan for a back-up system was initiated in 2004; the initial study phase has been completed. This plan will be implemented in early 2005.
83 EXTRAORDINARY EVENTS AND LITIGATION To the best of the Company’s knowledge, there is at present no dispute, arbitration or extraordinary event that could have or has had in the recent past a significant impact on the operations, earnings, financial position or assets of the Company or the group, other than the following disputes:
Since August 1, 2003, Méditel has discontinued the interconnection for termination of the incoming international traffic destined for its customers, thereby compelling foreign operators sending such traffic to go through Méditel’s commercial partners. Maroc Telecom is thereby being prevented from routing a substantial portion of incoming international traffic. Maroc telecom has entered a challenge before the ANRT regarding this action (see also “—Competition”).
Maroc Telecom has also entered a challenge before the ANRT in order to obtain a downward adjustment of the price for termination between the two Mobile operators. This price, set by regulation, has remained unchanged since March 2000 whereas the two operators have seen very rapid growth in their subscriber bases and accordingly achieved large economies of scale.
To reinforce its competitive position, in October 2004 Maroc Telecom abandoned the “distance” rule setting a minimum distance between two telestores to 200 meters. In November 2004, the national federation of telestore owners’ associations requested, from the Judge of summary hearings with the Commercial Court of Rabat, an injunction ordering Maroc Telecom to stay the grant of operating authorizations for telestores that did not comply with the 200 meter “distance” rule. The court hearing has been postponed until December 13, 2004. This same federation also brought a claim before the Commercial Court of Rabat (which has not yet been served on Maroc Telecom) seeking the withdrawal of all the authorizations issued by Maroc Telecom to new telestore operators that do not comply with the “distance” rule. The Company has no intention of changing its current policy of issuing authorizations for the opening of new telestores because of the federation’s claims, considering that these claims are unfounded and that the new authorizations are valid. However, in the event a decision in favour of the federation is rendered, Maroc Telecom cannot predict the possible effect on its financial position and business of the closure of the telestores that do not comply with the “distance” rule.
Finally, in March 2002, Méditel entered a challenge for annulment before the Administrative Court of Casablanca against the ruling by the Executive Committee of the ANRT approving the pricing of interconnection traffic by the second (and not by the minute, as Méditel preferred). This challenge was dismissed in the first instance by the Administrative Court (see “Outlook and recent developments”).
84 OUTLOOK AND RECENT DEVELOPMENTS
MARKET PROSPECTS The discussion herein relating to market prospects contains forward-looking statements, and information relating to the Company’s expectations. Such forward-looking statements involve risks and uncertainties inherent in any forecast, and are based solely on evaluations made as of the date on which such statements are made. The Company cautions investors that a significant number of factors could result in the actual results differing materially from those expected, including the factors listed in the “Risk factors” section of this offering memorandum.
The telecommunications market in Morocco offers large potential for growth, owing to the following economic and social factors, which favor the further penetration of new information and telecommunications technologies: — the population’s overall youth (41% aged under twenty)*; — population growth of 1.6% per year; — the fact that the population is increasingly living in urban areas (with the rate of urbanization rising from 43% in 1982 to 57% in 2002)*; — sustained growth in GDP (3.4% annual average growth between 1985 and 2002)*; — completion in the medium term of programs for the development of road and tourist infrastructure, and electrification of rural areas; and — the establishment of free-trade agreements with the European Union, the United States and Arab countries. * Source: Le Maroc en Chiffres 2003/ Directorate of Statistics and World Bank. In the Mobile segment, growth in revenue is expected to derive mainly from the increase in the penetration rate of mobile telecommunications in Morocco. On the basis of research conducted for Maroc Telecom by independent experts, the rate of mobile penetration in Morocco could reach approximately 40% of the Moroccan population in the medium term. In addition, the Company hopes to benefit from the growth in usage, owing mainly to a migration of pre-paid customers to post-paid subscriptions and the increased use of data services in the medium term. As regards its competitive position in this market, Maroc Telecom is cognizant that a new operator, holding a new license as a network operator or through other means, may enter the market in the near future.
In the Fixed-line and Internet segment, Maroc Telecom intends to continue its efforts, initiated in 2002, to grow its fixed-line business, and expects moderate growth in the number of fixed lines in Morocco. As regards the Internet, the strong growth posted since the beginning of 2004 is expected to continue in coming years, as a result in particular of the development of broadband. The Company also expects the market to be opened to competition in the near future. This could result in the Company losing market share in the short term. However, the fixed-line market might benefit from this liberalization and from the arrival of new competitors, as has been seen in other countries that have liberalized their telecommunications sector.
RECENT DEVELOPEMENTS Intelsat Maroc Telecom has been a shareholder of Intelsat since 1985, and holds 271,200 Intelsat shares, or 0.162% of the company’s share capital. On August 5, 2004, the Management Board of Intelsat granted its consent to sell the business to Zeus, a holding company made up of four European investment funds, for a total amount of approximately $5 billion. At the Intelsat shareholders’ meeting in Paris on October 10, 2004, Intelsat’s shareholders approved this transaction. Maroc Telecom will sell its participating interest within the framework of this agreed sale. New Skies Satellites Maroc Telecom has held a participating interest in New Skies Satellite since its incorporation in 1998, following the transfer to New Skies Satellites of 20% of the assets of Intelsat, in which Maroc Telecom was a shareholder. The extraordinary general assembly of New Skies Satellite, which was held in The Hague on July 19, 2004, approved the draft resolution relating to sale of the company to an investment fund by a 92.4% majority. As this resolution is binding on Maroc Telecom, the Company’s New Skies Satellite shares are to be sold.
85 Finally, the Company has launched a general analysis of its participating interests, and is considering the possibility of divesting its minority participating interest in GSM Al Maghrib. Such divestment should not have any significant operating or financial impact on the Company.
Principal figures at September 30, 2004 January 1 – September 30, 2004 (In MAD millions) Financial Data* Consolidated revenue ...... 13,304 Consolidated operating income ...... 5,843**
At September 30, 2004 Operating Data (unconsolidated) Mobile Number of customers*** (thousands) ...... 6,034 Prepaid ...... 5,790 Post-paid ...... 244 Prepaid ARPU (dirhams) ...... 97 Postpaid ARPU (dirhams) ...... 800 ARPU (dirhams) ...... 126
At September 30, 2004 Fixed-line and Internet (thousands) (Maroc Telecom data (excluding Mauritel S.A.)) Number of Fixed-line subscribers ...... 1,299 Number of Internet customers**** ...... 93 Including ADSL ...... 42 Employees ...... 12,227 * Including the Mauritel Group as from July 1, 2004. ** For purposes of comparison, the consolidated operating result of €514 million (MAD 5,651 million) of Maroc Telecom that Vivendi Universal reports takes into account Vivendi Universal’s own consolidation restatements (amortization amounts allocated to intangible rights). *** The term “Mobile customers” includes clients holding a prepaid card and post-paid subscribers. ****The term “Internet customers” corresponds to the IP accounts opened with Maroc Telecom (subscribers and Libre Accès customers).
Revenue for the third quarter 2004 Maroc Telecom’s consolidated revenue for the third quarter of 2004 amounted to MAD 4,828 million, an increase of 15% (+12% on a comparable basis) as compared to the same period in 2003. The comparable basis shows the effects of the consolidation by the global integration of Mauritel S.A. as if had been effective on January 1, 2003. Gross revenue for the Mobile segment (including intersegment transactions) increased significantly, with a growth of 23% (+19% on a comparable basis) as compared to the same period in 2003, reflecting the results of efforts to increase the customer base (+9%) and the stability of prepaid ARPU. Gross revenue for the Fixed-line and Internet segment (including inter segment transactions) increased by 1% (-2% on a comparable basis), resulting from the reduction, retroactive to January 1, 2004, of leased line operators, which affected the level of services invoiced by the Fixed-line and Internet segment to the Mobile segment. Apart from the impact of this price reduction, revenue increased by 5% with a larger customer base than last year and a rise in the price of monthly subscriptions beginning on August 1, 2004, which offset the reduction in each subscriber’s average monthly traffic.
Operating result for the third quarter of 2004 Maroc Telecom’s consolidated operating income for the third quarter of 2004 increased by 14% compared with September 2003 (+11% on a comparable basis), due to the growth in revenue during the third quarter.
Revenue for the first nine months of 2004 Maroc Telecom’s consolidated revenue for the first nine months of 2004 increased by 12% (+12% on a comparable basis) to MAD 13,304 million.
86 Revenue for the Mobile segment increased by 20% (+19% on a comparable basis). This increase is due to the continued growth of the customer base (+19%), which reached 6 million customers, and the positive performance of the prepaid ARPU which was up by 1% (representing 96% of the customer base). Revenue was also supported by the sale of handsets linked to the acquisition of new customers, an increase in roaming in, as a result of a good tourist season, and the rise in incoming international calls.
Revenue for the Fixed-line and Internet segment fell by 1% (-2% on a comparable basis). Apart from the decrease in prices for leased lines referred to above, revenue increased by 4% due to (i) an expanded customer base relative to the previous year (1.3 million subscribers), (ii) an increase in incoming international traffic and (iii) the continued success of the relaunch of the ADSL services, despite the reduction in the average traffic per subscriber.
Operating income for the first nine months of 2004 Maroc Telecom’s consolidated operating income at the end of September 2004, calculated on a comparable basis, represented an increase of 14% as compared to September 30, 2003. The growth in operating income results in part from increased revenue (+12%), and from the recording of positive non-recurring items of MAD 225 million, offset by an increase in the cost of acquiring new customers.
Regulation The National Telecommunication Regulatory Agency (ANRT) published on November 12, 2004 a note setting out general guidelines for the liberalization of the telecommunications sector over the period 2004-2008.
This note, which includes the resolution from the ANRT’s Board of Directors’ meeting held on November 8, 2004, is intended to specify the conditions under which this liberalization will occur over the coming years and, in particular (i) the specific actions which will have to be undertaken in matters of regulation and (ii) the liberalization strategy which, in the long term, aims to establish competition between three operators (including those operators already in place) in all segments of the fixed-line and mobile markets.
Specific actions From a regulatory point of view, the reform initiated with the adoption of Act 55-01 will also be completed by the Moroccan government’s commitment to implement specific regulations which may have a significant influence on the business plans of telecommunication operators in Morocco.
Therefore the ANRT intends to implement the following actions (the periods below start to run from the date of notification of a license for future land line services): — To allow for pre-selection, within a 12-month period (pre-selecting being defined as giving an operator’s subscribers the option to choose another operator to transit their long distance and international communications); — To implement unbundling in two phases (unbundling being defined as a service offered by a public telecommunications network operator to allow another public telecommunications network operator to access all the elements in the first operator’s local loop to directly serve its subscribers): — First phase: implement a partial unbundling within 18 months; — Second phase: implement a total unbundling within 36 months; and — Calculate, as from 2006, the interconnection costs of the fixed-line network of the historical operator by the method based on CMILT (long term incremental average cost).
Liberalization strategy The ANRT specified that the next phase of liberalization would give priority to the development of competition in fixed-line telephony, and would consist of a progressive opening, providing for limits on the number of new entrants, a competitive framework for the transit of incoming international traffic and reasonable time limits before expanding access to mobility. This approach integrates a two-fold convergence (fixed-line/mobile and voice/data), noted at an international level, and ensures technological neutrality to allow investors freedom of choice as to which technology to apply.
87 This liberalization will entail the allocation of fixed-line, mobile and satellite network licenses.
Fixed-line licenses The following guidelines will serve as a basis for the allocation of these licenses: — For each (local, interurban, international) sector, to ensure effective competition conditions by assigning two licenses per sector in the first quarter of 2005. — Promote a “made to measure” approach where each operator may solicit different lots: — Regional lots for the local loop, including restricted mobility if the operator so wishes, allowing tendering parties to choose the region where they wish to be installed; — A national lot for the inter-urban network; and — A lot for the international gateway; this lot will only be granted to one of the holders of one of the two previous lots. — Opt for a technologically neutral approach which will not close off any option whether fixed, radio or satellite telephony. — Attribute radioelectric frequency bands to the successful bidder by a transparent “beauty contest”.
Mobile licenses The ANRT recommends the following scheme for the continued and harmonious development of mobile telephony services: — Launch 3G licenses in 2005, after carrying out a study and rearranging the spectrum to allow for the provision of such services; and — Consider offering a third mobile license in 2007, to commence operations in 2008.
Satellite network licenses The ANRT will seek to conform the terms in the contract specifications of the former and new operators, in particular, through the enlargement of the services they offer.
For each category, these licenses shall be subject to the payment of a financial consideration indexed to the least expensive license currently in operation.
The possible launch of a tender process for GMPCS or VSAT network licenses shall be made upon receipt of duly justified claims on the basis of standard specifications. New developments It should be noted that there could be new developments regarding certain regulatory matters over the next few weeks: — Following the decision from the Executive Committee of the ANRT, discussions are currently taking place between Maroc Telecom and Méditel on the negotiation of new termination tariff for incoming international traffic towards Méditel via the Maroc Telecom network and to re-establish interconnection. At the date hereof, there have been no new developments and the Company cannot, at this stage, foresee the final decision of the ANRT. — The period during which Méditel can appeal the decision of the Administrative Court against the ruling by the Executive Committee of the ANRT approving in principle the pricing of interconnection traffic by the second has expired. Maroc Telecom has been informed by the ANRT that Méditel does not intend to appeal the first instance ruling.
Human resources Following negotiations with the main labour unions, a collective bargaining agreement has been entered into on November 17, 2004. This new framework, complying with Moroccan labor law, will apply to all employees of Maroc Telecom, enabling a unified and modern management of the Company’s human resources. This agreement is based on the following main elements: recognition of a mastery in employment and performance, the acquisition and development of new skills, when they are necessary to the mastery in employment, professional development with respect to both the employees’ wishes and ability and the Company’s
88 requirements, and the managers’ involvement in the development of the workers they supervise. This agreement includes salary amendments with retroactive effect, the impact of which has already been taken into account in the 2003 and 2004 financial statements.
Intellectual property On November 25, 2004, Maroc Telecom purchased the “Maroc Telecom” trademark and domain names which had been filed in France by a third party. Such trademark and domain names were recorded with the relevant authorities on December 2, 2004. (See also “Business—Intellectual property”).
Other The fixed-line customer base increased by 7.6% during the first half of the year 2004, after successful promotional sales carried out from March to June, which brought the overall customer base to 1,312,000 lines.
The end of these promotions and the increase in terminations related in particular to these new sales nevertheless entailed a reduction of 1% in the fixed-line customer base, which amounted to 1,299,000 lines at the end of September 2004. This trend appears to have continued during the month of October.
See “Principal and selling shareholders” for recent developments in the ownership of Maroc Telecom’s ordinary shares.
OBJECTIVES This section contains information regarding the Company’s objectives for the fiscal year 2004. The Company warns potential investors that these forward-looking statements are dependent on circumstances and events which are expected to occur in the future. These statements do not reflect historical data and are not to be interpreted as warranties that the facts and data mentioned will occur or that the targets will be achieved. By their nature, these are targets and it is therefore possible that they may not be achieved, and the assumptions on which they are based may be found to be erroneous. Investors are invited to take into consideration the fact that some of the risks described in “Risk factors” herein may affect the Company’s operations and its ability to achieve its targets.
The Company’s targets for the fiscal year 2004 are as follows: — Revenue growth from 8% to 10% compared to fiscal year 2003; — EBITDA growth from 8% to 10% compared to fiscal year 2003; — Operating income growth from 8% to 10% compared to fiscal year 2003; — Stability of operating cash flow (operating income before amortization, less investments and less the change in working capital requirements) compared to fiscal year 2003.
The information regarding the management’s financial objectives included in this offering memorandum has been prepared by, and is the responsibility of, the Company’s management. The Company’s independent auditors have neither examined nor compiled this information and, accordingly, the Company’s independent auditors do not express any opinion and provide no form of assurance with respect to this information. The independent auditors’ reports contained elsewhere in this offering memorandum relate to historical information; the related financial statements do not contain any information regarding the Company’s objectives and should not be read to contain such information. The financial information in this objectives section was not prepared with a view towards compliance with the rules of the U.S. Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants for the preparation and presentation of prospective financial information. As such, a U.S. investor should not rely on the prospective financial information contained herein.
89 REGULATION
LEGISLATION This description of the legislation applicable to Maroc Telecom takes account of the provisions of the act approved by Parliament on July 13, 2004 (Act 55-01), enacted on November 4, 2004 with Decree n°1-04-154 and published in the Bulletin Officiel n°5263 dated November 8, 2004.
This chapter summarizes the legal environment with respect to the telecommunications business in Morocco and does not describe it in a comprehensive manner. It cannot be determined with certainty whether recent and future changes in statutes and regulations will have material adverse effects upon Maroc Telecom. It is also impossible to determine with certainty whether domestic or international regulatory agencies or third parties will challenge Maroc Telecom’s compliance with the statutes and regulations in force in a way that would have a material adverse affect on the Company.
THE LEGAL ENVIRONMENT WITH RESPECT TO TELECOMMUNICATIONS IN MOROCCO General presentation The Moroccan telecommunications statute stresses the strategic nature, in both economic and social terms, of this sector. The objectives of this statute are to favor the development of telecommunications infrastructure in order to secure a high-quality service for the entire population throughout the country, and to favor the development of new information technology. For the economy of Morocco, the objective is to offer businesses telecommunications services which will allow them to increase their competitiveness and will strengthen the role of Morocco as a regional platform in the area of telecommunications.
The reform of the Moroccan telecommunications sector was initiated by Act 24-96, dated August 7, 1997 (Act 24-96), which dissolved the Office National des Postes et Télécommunications (ONPT) and laid down the conditions for liberalization of the telecommunications sector.
Prior to Act 24-96, the Moroccan government had already liberalized the market for Internet access, allowing the development of ISPs.
The dissolution of the ONPT led to the creation of three separate legal entities: Itissalat Al-Maghrib (Maroc Telecom), a corporation organized under private law (société anonyme); Barid Al Maghrib (the post office, or BAM), a public agency organized as a financially independent legal entity; and the Agence Nationale de Réglementation des Télécommunications (ANRT), the principal mission of which is regulation of the telecommunications sector. Most of the powers previously reserved for the minister in charge of telecommunications were accordingly transferred to the ANRT.
The liberalization process continued with the adoption of a series of implementing decrees concerning mainly the operation of the ANRT, the terms applicable to an open telecommunications network, the list of value-added services which operators may provide, interconnection, and the general terms of operation of the public telephony networks. In 2001, Decree 1-01-123 determined the conditions of the State’s supervision of the ANRT’s accounts and created a panel of expert advisers for such purpose.
Finally, Act 55-01 completed the liberalization process initiated in 1997, in particular through clarification of the existing statutory rules. The operators’ contribution to universal service and to local development was reduced from 6% to 2% of revenues, excluding tax and net of interconnection costs. Act 55-01 also allowed for access to alternative infrastructure (motorways, railroads, etc.) and permitted sharing of existing telecommunications infrastructure (see “—Rights of way”). Finally, the ANRT’s powers were strengthened (see “—The Autorité Nationale de Réglementation des Télécommunications (National Telecommunications Regulatory Agency)—Mission of the ANRT”). Pursuant to the enactment of Act 55-01, certain existing decrees are expected to be revised and new decrees, relating in particular to the ANRT’s new powers of monitoring compliance with the law on the freedom of pricing and competition, are expected to be adopted.
Finally, the statutory rules are supplemented by many rulings from the ANRT, whether general or individual in scope, intended to regulate the sector or to resolve disputes between operators.
90 Rules applicable to the establishment and operation of telecommunications networks and services in Morocco Act 24-96, as supplemented by Act 55-01, implements different rules according to the nature of the telecommunications networks and services provided.
Networks and services subject to a license The establishment and operation of any public telephony networks using the public domain or using the spectrum of radioelectric frequencies requires a license.
A license may be issued only in response to an invitation to tender. Invitations to tender are issued by the ANRT. Contract specifications define, among other items: — the conditions for the establishment of the network; — the conditions for the provision of the service; — the area of coverage of that service and the schedule for completion; — the radioelectric frequencies and the numbering blocks allocated; — the terms of payment of the license fee; — the duration of the license’s validity and the conditions of its renewal; and — the terms of payment of the consideration.
The conditions for access and interconnection with public telephony networks and, if applicable, the conditions for leasing of the elements of that network, are specified in the documents accompanying the invitation to tender. The applicant whose bid is deemed to be the most favorable, as indicated by an opinion issued by the ANRT, is awarded the contract. The award is entered in a public report. Notice of the issuance of a license is by decree of the Prime Minister provided within no more than two months, and grounds are to be stated for any refusal of a license. Licenses awarded are personal and may be assigned to a third party only pursuant to a decree.
In addition to complying with the contract specifications, the holder of the license is also required to comply with all applicable statutory and regulatory rules in force, including in particular: (i) the general conditions of operation, (ii) the conditions of provision of an open telecommunications network and (iii) the conditions of interconnection among networks.
The general conditions of operation of public telephony networks are defined by Decree 2-97-1026, dated February 25, 1998. That decree establishes certain obligations, relating in particular to competition (the principle of fair competition), pricing (the principle of equal treatment among users, non-discrimination, compliance with maximum charges and the method of invoicing), cost accounting, confidentiality and neutrality of service.
In addition, the operators are bound to contribute to certain general needs of the State. In particular, they are bound to contribute to local development, environmental protection, research and training in the area of telecommunications and the requirements and burdens of universal service (see “—Universal service”).
The conditions of interconnection and the supply of leased lines are defined by Decrees 2-97-1025 and 2- 97-1027, dated February 25, 1998 (see “—Interconnection—General background”).
As regards radioelectric frequencies, Decree 2-98-157, dated February 25, 1998, delegating authority with respect to the determination of fees for the allocation of radioelectric frequencies, provides that the fees are to be set by an order of the minister in charge of telecommunications after obtaining an opinion from the minister of finance. Order 310-98, dated February 25, 1998, as amended by Order 606-03, dated February 4, 2004, provides that three fees are payable: the charge for monitoring radio-communication stations, the fee for the allocation of radioelectric frequencies and the duty for the inspection of operators of radio-communication stations.
Legal status of Maroc Telecom Pursuant to Act 24-96, the telecommunications networks and services previously operated by the ONPT, namely fixed-line telecommunications network and services, mobile telecommunications network and services
91 and the right to use the radioelectric frequencies allocated or assigned to the ONPT, were transferred to Maroc Telecom.
Because of its position as the incumbent operator, Maroc Telecom is subject to specific contract specifications approved by Decree 2-00-1333, dated October 9, 2000, which define the conditions for the operation of all the networks and services initially operated by the ONPT.
These contract specifications specify the conditions in accordance with which Maroc Telecom is to establish and operate, for an unlimited duration: — fixed landline telecommunications services (including data connectivity services, leased lines and the integrated services digital network), on a local and nationwide basis; — telegraph services; — telex services; — maritime radiocommunications services; — mobile telecommunications services using the GSM standard; — mobile telecommunications services using the NMT standard; — radio paging services; and — international telecommunications services.
As Act 55-01 has been enacted, the ANRT will now adapt the contract specifications accordingly. Thus, for instance, the provisions relating to periods of exclusivity are expected to be removed, while those relating to universal service and local development are expected to be modified.
It should be noted that mobile telecommunications services using the NMT standard were discontinued after the grant of permission by the ANRT, and that Maroc Telecom has applied to the latter for permission to discontinue the provision of telex services, for which handsets are no longer manufactured.
Maroc Telecom’s services are to be provided on a permanent and continuous basis, in an objective, transparent and non-discriminatory manner. The Company is accordingly required to avoid any price discrimination based on geographical location. Maroc Telecom agrees to use its best efforts to achieve levels of quality of service in line with international standards. In this respect, the ANRT may perform inspections of Maroc Telecom, and the Company is required to provide an annual report relating to the quality of its services.
Until 2002, Maroc Telecom was required to pay financial consideration (the “monopoly fee”) to the State, which was set at 6% of the revenues for 2000, 4% for 2001 and 2% for 2002.
Until December 31, 2002, Maroc Telecom was bound under its contract specifications to reserve in respect of universal service an amount of 4% of Mobile revenues (excluding revenues relating to handsets, interconnection and value-added services). Since January 2003, the contribution to universal service has been based on all revenues. Maroc Telecom does not record this expense, as it considers that the costs borne in its capacity as a player in the provision of universal service make it eligible for an offset at that date. Act 55-01 reduces the rate of the contribution to universal service to 2% of total revenues, enabling Maroc Telecom to offset these amounts with its own universal service activities (Fixed-line business), thereby generalizing the principle of “pay or play” (see “Risk factors”).
It should be noted that Maroc Telecom provides telephone services throughout the entire territory of Morocco, including in unprofitable areas and to unprofitable customers.
The Finance Act 2005 has provided for the creation of a special fund to which the contributions to universal service are to be paid (see “Management’s discussion and analysis of financial condition and results of operations—Significant accounting policies and estimates—Contribution to universal service”). That proposal, however, has not yet been examined by the Chamber of Representatives.
As regards local development, up to now, Maroc Telecom has not paid the related 2% financial contribution insofar as it contributes to the local development obligation by means of investments in projects to service rural areas.
92 By the terms of Act 55-01, the parameters of the universal service requirement will encompass the local development obligations and the amount of the overall contribution is set at a maximum of 2% of pre-tax revenues, and net of interconnection costs. Maroc Telecom’s contract specifications are therefore expected to be revised accordingly (see “—Universal service”).
Maroc Telecom pays a fee to the ANRT for use of the spectrum of radioelectric frequencies, in an amount set by regulation.
Other licenses awarded Maroc Telecom’s contract specifications provided for a period of exclusivity until December 31, 2002 for the exploitation of a fixed-line network and a public network of international telecommunications. Likewise, they provided that no license for operation of the land-based cell telecommunications network using the GSM network could be awarded before August 5, 2003 (other than the license already granted to Méditel).
As regards mobile telecommunications, pursuant to an invitation to tender issued by the ANRT, a GSM-type license was awarded on August 2, 1999 to Méditel for a term of 15 years, subject to extension.
In 1999 and late 2002, ten licenses for the establishment and operation of telecommunications networks were awarded in Morocco. Apart from the license awarded to Méditel, four licenses were issued to operators to operate GMPCS satellite telecommunications networks, three licenses were issued to operators to operate VSAT satellite telecommunications networks, and two licenses were issued to operators to operate trunked radioelectric networks (3RP) in Morocco.
Maroc Telecom, to date, remains the sole operator of a fixed-line telecommunications network in Morocco, as the first invitation to tender in 2002 for the allocation of a second license did not succeed. Fifteen companies obtained the application documents, but no bid was filed by the deadline of November 5, 2002. According to the ANRT, the main reasons for that failure were (i) an unstable legal environment, (ii) an unfavorable international economic environment in the telecommunications market, (iii) the minimum requirements of geographical coverage set in the contract specifications of the future operator (which would have required coverage of all seven of Morocco’s major cities from the initiation of the service) and (iv) the problems connected with updating Maroc Telecom’s technical and pricing terms for interconnection.
After the adoption of Act 55-01, the ANRT intended to resume the liberalization process with the issuance of an invitation to tender for fixed-line telecommunications licenses. According to the ANRT, the object of that invitation to tender will be the award of international licenses, backbone licenses and local-loop licenses. For the international licenses, several conditions are expected to be imposed, including in particular the requirement that the operator also have a domestic operation. In addition, the ANRT has stated that it proposes to issue an invitation to tender for the award of UMTS licenses in 2006, the terms of which would be set in 2005. The award of a third GSM license will not be proposed before 2007, according to the ANRT.
Networks and services requiring permits The establishment and operation of any independent network, other than an internal network, requires a permit. Independent networks are telecommunications networks without commercial purposes, reserved solely for private use (i.e., where use is reserved for the party establishing it) or shared use (i.e., where use is reserved for the exchange of internal communications among a single group of companies). The permit is issued by the ANRT and is subject to the payment of license fees. Notice of the allocation of any permit is provided within no more than two months, and grounds are to be stated for any denial of a permit. One of the requirements for issuance of the permit is that the network not interfere with the operation of existing networks. In addition, the ANRT sets the terms on which independent networks may be connected to a public telephony network, without in any event allowing the exchange of communications among parties other than those for whom use of the network is reserved.
Services subject to reporting The provision of value-added services is unrestricted, subject to the provision of prior notice to the ANRT. The list of value-added services is determined by regulations adopted by the ANRT. Decree 2-97-1024, dated February 25, 1998, defines the following as value-added services: electronic messaging, voice mail, audiotext, electronic data interchange, enhanced fax, on-line information, access to data (including data processing and
93 searches), file transfer, conversion of protocols and coding and the provision of Internet service. This list may be amended or supplemented by an order of the minister in charge of telecommunications at the ANRT’s discretion.
The ANRT acknowledges receipt of the notice if the proposed services comply with the legislation in force. If, pursuant to provision of the service, it appears that the latter has a material adverse effect on public security or order, or is in breach of public morality, the competent authorities may cancel their permission immediately. Providers of value-added services are required to obtain a license to use the connection capacities of one or more public telephony networks, unless the value-added service provider is itself the holder of a license. Act 55-01 provides that such capacity is to be used solely to link customers to a point of presence and between the point of presence and the network of the public telephony network operator, subject the ANRT’s grant of special permission to a value-added service provider to use any other technical means.
Unrestricted networks and facilities The ANRT permits the establishment of internal networks and radioelectric facilities consisting solely of low-powered and short-range devices without restriction. However, such networks and radioelectric facilities are subject to the same requirements applicable to the approval of devices (regarding the protection of the safety of users and operating staff, compatibility, etc.). The ANRT also determines the technical conditions of use of such networks and facilities. The establishment of a telecommunications network by a commercial concern consisting of several legal entities is also unrestricted, provided that all such entities are located within the territory of Morocco. If not, the permit procedure needs to be observed. The use of the network is to be reserved for the concern’s own purposes, and the network’s infrastructure must be entirely leased from one or more licensed operators of a public telephony network.
Legislation with respect to pricing Telecommunications operators are in principle free to set their prices; however, in practice, two imperative concerns have led the authorities to regulate such prices more strictly. First, owing to the strategic nature of telecommunications for the economic development of Morocco, and more particularly the development of underprivileged areas, the ANRT proposes maximum prices for the services provided as part of operators’ universal service obligations. Second, in order to ensure the actual development of competition, the prices for interconnection and leased lines applied by the operators, and Maroc Telecom in particular, are regulated by the ANRT.
Interconnection General background Interconnection is governed by the telecommunications statute and more specifically by Decree 2-97-1025, dated February 25, 1998, which defines the technical and pricing conditions that operators of public telephony networks are required to offer for interconnection to their own networks.
Any operator of a public telephony network is required to grant requests for interconnection made by a holder of a license to operate a public telephony network with reasonable regard to the requirements of the applicant and the operator’s capacities. The interconnection is to be subject to a contract between the operators, intended to determine the technical, administrative and financial terms of the interconnection, in compliance with the principles of objectivity, full disclosure and non-discrimination. If a disagreement occurs between the parties at the time of negotiation of the agreement, either party may refer the matter to the ANRT.
Dominant operators The law imposes special interconnection obligations upon so-called “dominant” operators. An operator is characterized as being dominant if it holds a market share in excess of 20% for a specific telecommunications service. Maroc Telecom is accordingly a dominant operator as regards fixed-line telecommunications services. The ANRT has not yet declared Maroc Telecom or Méditel to be dominant operators in the market for mobile telecommunications.
Under Decree 2-97-1025, dated February 25, 1998, dominant operators are required to publish technical and pricing terms for interconnection, once they have been approved by the ANRT. The pricing terms must cover only the actual costs of use of the network and related costs.
94 For such purpose, the presentation of pricing terms must be sufficiently detailed to allow a precise determination of the relevant costs, and the ANRT is in charge of determining the appropriate accounting methods.
Maroc Telecom is accordingly required to offer pricing terms that comply with the principles of objectivity, full disclosure and non-discrimination, and which approximate its costs.
A May 14, 2004 ruling by the ANRT established a schedule of costs for operators of fixed-line networks for the purpose of computing interconnection prices for telecommunications networks in 2005. In addition, Ruling 06/04, dated May 24, 2004, specified the procedure for approval of the technical and pricing terms for interconnection. The operator is required to forward to the ANRT, on or before October 1 of each year, a schedule of interconnection pricing terms valid from January 1 to December 31 of the following year. After a consultation procedure, the ANRT may request that the operator revise its pricing terms to satisfy the principles of objectivity, full disclosure, non-discrimination and cost-based pricing. The operator is bound to comply with the ANRT’s request. In the event of disagreement, the ANRT’s director settles the matter, provided that in all cases, the terms are to be approved by the ANRT on or before December 20 of each year.
On February 6, 2004, the ANRT approved Maroc Telecom’s technical and pricing terms for 2004.
Leased lines Decree 2-97-1027, dated February 25, 1998, relating to the conditions for the provision of an open telecommunications network sets the pricing and technical conditions for the provision of leased lines as well as quality (i.e., the time for provision of service and time for repair after a failure has been reported). The ANRT regulates leased lines, which operators of public telecommunications networks are required to provide. This list may be supplemented, after consultation with the operator concerned, by a mandate that further services be provided. Each operator offering leased lines is required to publish the technical terms of provision in its price catalog, including in particular the “principles and terms of indemnification.” The price catalog is to be determined on the basis of an operator’s costs. The determination of relevant costs is carried out by the operator and monitored by the ANRT. Maroc Telecom is under an obligation to comply with requests for leased lines and is bound to offer an equivalent alternative solution if it is unable to comply with the request. Maroc Telecom has a right to lease transmission capacity of its fixed-line network to other operators offering capacity-leasing services.
Pricing Decree 2-97-1026, dated February 25, 1998, provides that the prices for connection, subscription and calls comply with the principle of equal treatment among users and be determined so as to avoid discrimination based on geographic location. In the latter respect, it is only in the event of exceptional difficulty in installing a line that operators are permitted to provide special prices and terms for lines in their catalogs. As regards pricing, the decree provides only that the services are to be provided “on the best economic terms”, and that the coverage of losses recorded on certain types of services using the profits obtained from other services is to be gradually eliminated, such that the prices for each network or service will cover the costs.
Maroc Telecom’s contract specifications confirm that it maintains this pricing discretion for all the services offered to its subscribers. Maroc Telecom may grant cuts according to volume and establish its own marketing policy. Maroc Telecom is bound to publish its prices and the general terms of its offers for each service. Any price change is to be notified to the ANRT, which may object if the change does not comply with the rules of fair competition or the principles of uniform domestic pricing. Finally, users’ invoices must provide them with full disclosure.
One exception from the principle of freedom of pricing is that the prices applicable to services included in the operator’s provision of universal service may not become effective without the ANRT’s consent. In addition, Maroc Telecom’s prices for maritime radio-communication services are to be cost-based (and free for safety messages, such as distress and emergency calls).
Universal service One of the goals of Act 24-96 was to provide “a public service throughout the Kingdom and to all strata of the population, pursuant to the plan for economic and community development.” Act 24-96 was substantially
95 amended by Act 55-01 as regards the definition of universal service. With the enactment of the statute, universal service obligations now cover telecommunications services including: a telephone service of a specified quality at an affordable price; value-added services, the contents and performance standards of which are set in the contract specifications of operators of public telephony networks (including services allowing access to the Internet); the routing of emergency calls, and the provision of an enquiries service and a telephone directory, in printed or electronic form.
Act 55-01 lays down the principle of “pay or play” and sets at 2% of revenues, excluding tax and net of interconnection costs, the contribution by operators of public telephony networks to their universal service obligations. The operators may accordingly either perform the universal service duties themselves, or pay a contribution into a special allocation fund. Only the routing of emergency calls and the provision of an enquiries service and a telephone directory, in printed or electronic form, are services to be performed by the operators on a mandatory basis. The terms of performance of the universal service duties are set, for each operator, in special specifications approved by decree.
Particular licenses may be issued, after invitations to tender, for the performance of universal service duties. Special contract specifications will be approved by decree and will set the terms of implementation of the universal service function and of certain value-added services. If an invitation to tender for the award of such a license is unsuccessful, the State will appoint an operator of a public telephony network, holding a market share of 20% or more of a particular telecommunications service, to perform the universal service function concerned.
According to its current contract specifications, Maroc Telecom is required to provide a service of emergency calls allowing transmission of a telephone call to a public emergency service agency free of charge. It must also provide a telephone directory of its subscribers to each of them, free of charge.
Installation, operation and maintenance of call boxes on the public highway must also be provided. Any removal of a call box requires consent from the ANRT.
A free service of maritime radio-communications must be offered to carry safety messages at sea. A two- way service of telecommunications for messages between ships at sea and any termination point of the public networks is also to be provided. These services are to be charged at the lowest possible cost and subject to a specified quality standard. Maroc Telecom may discontinue the operation of that service on more flexible terms than for the call box service. A telegraph and telex service is also to be provided.
Contribution to research, training and standardization in telecommunications Before the enactment of Act 55-01, Maroc Telecom’s annual contribution to research, training and standardization amounted to 1% of its revenues excluding tax. Act 55-01 sets the required contribution from operators of public telephony networks in respect of training and standardization at 0.75% of revenues excluding tax, net of the costs of interconnection, of the telecommunications activities covered by their licenses. This amount is paid to the ANRT. The contribution in respect of research is set at 0.25% of the same revenues. This amount is to be paid into a special fund allocated to research. Operators carrying out research programs pursuant to agreements made with research agencies listed by the regulation in an equivalent amount are exempt from the payment requirement.
Rights of way Act 55-01 introduces a provision whereby legal entities organized under public law, public contractors and the other operators of public telephony networks must make their property (e.g., easements, major roads, conduits, high points, etc.) available to operators so requesting for the purpose of the installation and operation of transmission equipment. Compliance is mandatory only if the installation does not interfere with the existing public use. It is to be provided on acceptable, objective and non-discriminatory regulatory, technical and financial terms, securing an environment of fair competition. The purpose of this provision is to allow operators to make use of the infrastructure currently at the disposal of entities such as the Office National de l’Electricité, the Office National des Chemins de Fer (railroads), Autoroutes du Maroc (highways) or other operators of public infrastructure networks. The contracts must be forwarded to the ANRT for its information and the latter may resolve any related disputes.
In addition, the operators of alternative infrastructure networks (public or private entities) may lease or assign to an operator the excess capacity at their disposal and/or rights of way over the public domain. The
96 leasing agreement must be forwarded to the ANRT for its information, and may not interfere with the rights of way that other operators are entitled to obtain.
Numbering and portability of numbers The ANRT allocates numbers, blocks of numbers and prefixes to the operators of public telephony networks on terms which must be objective, transparent and non-discriminatory. These numbers, blocks of numbers and prefixes may not be transferred without express prior consent from the ANRT. Act 55-01 provides that the conditions for portability of numbers are to be set by the ANRT.
Pre-selection Pre-selection of the carrier (i.e., of the operator carrying the call on the domestic and international network, as opposed to the local loop network), is scheduled to be in operation 12 months after the award of licenses, according to the ANRT.
Unbundling of the local loop Act 55-01 does not specify the terms for unbundling of the local loop. Under the current schedule, partial unbundling is expected to be implemented in 18 months, followed by complete unbundling three years after the award of licenses, according to the ANRT.
Accounting separation Pursuant to Decrees 2-97-1026 and 2-97-1025, dated February 25, 1998, operators are required to keep cost accounts allowing a determination of their costs, proceeds and earnings connected with each network they operate or service they offer.
Maroc Telecom’s contract specifications require that it distinguish in separate sets of accounts for the following activities: interconnection, fixed-line telecommunications, telegraph, telex, maritime radio- communications, Internet access, GSM, NMT, RM, and international telecommunications. The annual financial statements are to be submitted for auditing to an entity designated by the ANRT.
THE AUTORITÉ NATIONALE DE RÉGLEMENTATION DES TÉLÉCOMMUNICATIONS (NATIONAL TELECOMMUNICATIONS REGULATORY AGENCY) Act 24-96 created the ANRT as a public agency subject to the authority of the Prime Minister. It is a separate legal entity that is financially independent and subject to the State’s financial supervision and direction.
Agencies of the ANRT Decrees 2-97-813 and 2-98-158, dated February 25, 1998, specified the membership of the ANRT’s Board of Governors and its powers. The governing bodies of the ANRT are the Board of Governors, the Executive Committee and the Director. The Board of Governors consists, in addition to its Chairman, of seven representatives of the State having ministerial rank and five individuals appointed by decree for terms of five years. It is chaired by the Prime Minister and sets the ANRT’s general policies and its annual agenda. An Executive Committee assists the Board of Governors, and is in charge in particular of resolving disputes relating to interconnection. The Director of the ANRT is its executive agency. Challenges on the basis of misuse of powers against the ANRT’s rulings are referred to the Rabat Administrative Court.
Mission of the ANRT The mission of the ANRT, the regulatory agency for the telecommunications sector, is to develop the legal environment for the telecommunications sector, to monitor and secure compliance with the legislation relating to fair competition among the operators, and to resolve certain disputes.
The ANRT drafts proposals for the development of legal, economic and safety rules relating to telecommunications activities. Towards this end, it prepares legislative bills, draft decrees and draft ministerial orders.
The ANRT prepares and updates the contract specifications for operators of public telephony networks.
97 The ANRT processes applications for licenses and establishes maximum charges for services relating to universal service needs.
The ANRT sets the technical and administrative specifications for the approval of terminal equipment and radioelectric facilities, and the technical rules applicable to telecommunications networks and services generally.
The ANRT manages and monitors the spectrum of radioelectric frequencies, and allocates these frequencies.
Pursuant to its responsibility to monitor compliance with relevant legislation, the ANRT has expansive rights to obtain information, as well as disciplinary powers. The ANRT may conduct enquiries relating to telecommunications operators in order to ascertain whether they comply with their obligations. The information in the ANRT’s possession is forwarded to the appropriate government authority and may be publicly disclosed, unless it is considered to be confidential or commercially sensitive. If such information is not provided or is provided late, Act 55-01 enables the ANRT’s Director to impose fines (the scale of penalties ranges from MAD 20,000 to MAD 100,000, according to the information withheld).
Any operator failing to comply with the requirements laid down by statute, regulation or contract specifications incurs certain penalties. First, the ANRT’s Director issues a warning. Second, the operator incurs a fine not exceeding 1% of its revenue, excluding tax and net of interconnection costs, as reported the previous year. In such cases, the ANRT’s Director refers the matter to the King’s Prosecutor at the Rabat Court of First Instance in order to initiate criminal proceedings, and may bring a related civil action. Such fine is doubled if the operator is a repeat offender (i.e., it has been convicted within the previous five years by an irrevocable decision for the same offense). Third, the ANRT may suspend all or part of the operator’s license for a term not exceeding 30 days, temporarily suspend the license or reduce its duration by up to one year, or revoke the license. Suspension of the license is ordered by the appropriate governmental agency upon a proposal from the ANRT’s Director, and revocation is ordered by decree upon a proposal from the ANRT’s Director. Finally, in the event of offenses against national defense or public safety, the ANRT’s Director may, by a reasoned ruling and after informing the appropriate governmental agency, promptly suspend the license, permit or operation of value- added services. In addition, the equipment covered by the license, permit or operation may be impounded immediately.
Furthermore, parties who, among other offenses, establish or provide a telecommunications service without a license or in breach of a suspension or revocation may be punished by penalties of imprisonment and fines. Such criminal penalties, however, are outside the scope of the ANRT’s powers.
The ANRT’s remit includes the resolution of disputes occurring among operators, or between an operator and a user, as well as the resolutions of problems connected with the general operating conditions of a license. The executive committee has authority to resolve disputes with respect to interconnection and other matters for which it has received a delegation of authority from the Board of Governors. It should be noted that Act 55-01 has extended the scope of the ANRT’s powers with respect to litigation to cover compliance with the provisions relating to competition contained in Act 6-99 regarding freedom of pricing and competition.
The ANRT prepares the procedures for the award of licenses by invitation to tender, processes license applications and receives prior notifications for activities subject to the reporting system. It issues permits and prepares the related licenses and contract specifications. It also monitors the operators’ compliance with the terms of their licenses.
98 MANAGEMENT
MANAGEMENT AND SUPERVISORY BODIES The Management Board
Expiration of term of Name (Age) Current office and main duties Date of appointment office Abdeslam Ahizoune Chairman First appointed February 20, 2001 2005 (49) Reappointed on March 25, 2003 Larbi Guedira Managing Director, First appointed February 20, 2001 2005 (49) Mobile Segment Reappointed on March 25, 2003 François Lucas Managing Director, First appointed October 9, 2001 2005 (47) Fixed-line and Internet Reappointed on March 25, 2003 Segment Mohammed Hmadou Managing Director, First appointed February 20, 2001 2005 (51) Network and Services Reappointed on March 25, 2003 Mikael Tiano Managing Director, Appointed by the Supervisory 2005 (49) Administration and Finance Board on December 3, 2003, effective February 15, 2004
Biographies and duties of the members of the Management Board Abdeslam Ahizoune Abdeslam Ahizoune has served as Chairman of the Management Board of Maroc Telecom since February 2001. He also has been a member of the Board of Directors of the Mohammed V Solidarity Foundation (Fondation Mohammed V pour la Solidarité) (since April 2004), a member of the Executive Committee of the Chambre de Commerce Internationale de Paris (since February 2004), a member of the Board of Directors of Al Akhawayne University (since November 2003), a member of the Support Committee (Comité de Soutien)ofthe Mohammed V Solidarity Foundation (Fondation Mohammed V pour la Solidarité) (since 2001), and a member of the Board of Directors for the Mohammed VI Foundation for the Environment) (Fondation Mohammed VI pour l’Environnement) (since June 2001). In addition, Abdeslam Ahizoune has a part-time employment agreement with Vivendi Universal, pursuant to which he is involved in the elaboration of strategies for the development of Vivendi Universal’s telecoms and audiovisual operations.
Mr. Ahizoune has successively served as Chairman and Chief Executive Officer of Maroc Telecom (between February 1998 and 2000), Minister of Telecommunications and Managing Director of the Office National des Postes et Télécommunications (“ONPT”) (between August 1997 and 1998), Managing Director of the ONPT (between February 1995 and August 1997), Minister of Posts and Telecommunications and Managing Director of the ONPT (between August 1992 and February 1995), and Director of Telecommunications for the Ministry of Posts and Telecommunications (between 1983 and 1992). Mr. Ahizoune holds an engineering degree (Diplôme d’Ingénieur) from the Ecole Nationale Supérieure des Télécommunications in Paris (1977).
Larbi Guedira Larbi Guedira is Managing Director of Maroc Telecom’s Mobile Segment, and served previously as Central Director of the Commercial Center, Central Director of Telecommunications and Chief Financial Officer and Regional Director for Casablanca. In addition, Mr. Guedira serves as Administrator of CMC, of Mauritel S.A., of Mauritel Mobiles and of Matelca. He also served as President of the National Association of Telecommunications Engineers (Association Nationale des Ingénieurs des Télécommunications) between 2000 and 2002. Mr. Guedira holds a Diplôme d’Etudes Supérieures Spécialisées (DESS) in Management from the Université de Lille, and he is an alumnus of the Ecole Nationale Supérieure des Télécommunications in Paris, having received his Master’s Degree in Mathematics from Paris XI (Orsay).
François Lucas François Lucas is the Managing Director of Maroc Telecom’s Fixed-line and Internet segment. In addition, Mr. Lucas serves as a Director (administrateur) of GSM Al Maghrib and of Casanet. Previously, he served in
99 various management positions within the Bolloré group, where he served as Chief Financial Officer of the Organization and Transportation Division and Chairman and Chief Executive Officer of Tous Transports Aériens SA, having previously filled the positions of Chief Financial Officer, Deputy Chief Financial Officer and Deputy Managing Director of Development for the Tobacco Division of the same group, and more recently, Administrator and Managing Director of Geodis Overseas France (part of the Geodis group). Mr. Lucas holds an engineering degree from the Ecole Centrale in Paris and a Master’s Degree in Management from Stanford University.
Mohammed Hmadou Mohammed Hmadou is Managing Director, Network and Services, of Maroc Telecom. He previously served as Director of Subsidiaries and Interests, Director of Operations and Central Director of Infrastructure until 2001. In addition, he serves as a Director (administrateur) at CMC, Mauritel S.A., Mauritel Mobiles, Casanet, and Matelca. Previously, Mr. Hmadou served as Managing Director of the National Society of Telecommunications (Société Nationale des Télécommunications). Mr. Hmadou is an engineer with an engineering degree from the Ecole Nationale Supérieure des Télécommunications in Paris.
Mikael Tiano Mikael Tiano has served as Managing Director, Administration and Finance, of Maroc Telecom since April 2004. Before joining Maroc Telecom, Mr. Tiano served as Chief Financial Officer of the Systems and Networks Branch of the SFR Cegetel group. Mr. Tiano was previously installed within the SEB group, where he filled the role of Group Chief Financial Officer. He also served as Director of the Finance Division of Ernst & Young Conseil, after serving as International Treasurer and Director of Market Operations within the Danone group. He also served as managing Director of Alfabanque. Mr. Tiano began his professional career at Banque Nationale de Paris, first in France and then in Australia. In addition, he serves as an Administrator at GSM Al Maghrib, as a representative of Maroc Telecom. Mr. Tiano holds a degree from the Institut d’Etudes Politiques of Paris, as well as a Master’s of Economic Sciences from the Université de Paris.
Duties and responsibilities of the Management Board The Management Board is responsible for managing and conducting the operations of the Company, under the supervision of the Supervisory Board.
The Board is composed of five members who collectively manage the Company’s operations. The Board members may divide management tasks among them, subject to the approval of the Supervisory Board. Its decisions are taken by a majority of the votes of its members that are present or represented. Messrs. Larbi Guedira and Mohammed Hmadou represent the interests of the Moroccan government, while Messrs. Abdeslam Ahizoune, François Lucas and Mikael Tiano represent the interests of Vivendi Universal.
Within a period of three months following the close of the fiscal year, the Management Board must prepare the financial statements and deliver them to the Supervisory Board, so that the latter may conduct its audit procedure.
Likewise, the Management Board must provide a management report to the Supervisory Board before presenting the same to the ordinary general assembly of shareholders, so that the Supervisory Board may first provide its comments, if any, on the report.
Rights and obligations of the members of the Management Board In accordance with Moroccan law, the Management Board is vested with the most comprehensive powers to act in all circumstances on behalf of the Company; the Board exercises these powers within the limits of the Company’s corporate purpose and subject to those powers that are expressly provided by law to the Supervisory Board and to the shareholders’ assemblies.
With respect to its relationships with third parties, the Company remains bound by the actions of the Management Board that do not diverge from the Company’s corporate purpose, unless the Company can prove that the third party knew that such action was outside such purpose or, taking the circumstances into account, it could not have been aware of the same; the publication of the by-laws alone is sufficient to constitute such proof.
100 The provisions of the Company’s by-laws limiting the powers of its Management Board are void as against third parties.
Except with the special dispensation of the Supervisory Board, the members of the Management Board are required to be employees of the Company and present in Morocco for more than 183 days each year.
Composition and roles of the Supervisory Board Composition of the Supervisory Board
Current Date of Expiration of Principal employment Name (Age) office appointment term of office or occupation Fathallah Chairman General Assembly Ordinary General Minister of Finance and Oualalou of Shareholders of Assembly of Privatization (62) February 20, 2001 Shareholders called to decide on the financial statements for 2006 Jean-Bernard Vice Supervisory Board Ordinary General Deputy Managing Lévy Chairman Meeting of Assembly of Director of Vivendi (49) December 17, 2002 Shareholders called to Universal decide on the financial statements for 2006 El Mustapha Member Supervisory Board Ordinary General Minister of the Interior Sahel Meeting of Assembly of (58) December 17, 2002 Shareholders called to decide on the financial statements for 2006 Rachid Member Supervisory Board Ordinary General Minister to the Prime Talbi El Alami Meeting of Assembly of Minister for General and (46) December 17, 2002 Shareholders called to Economic Affairs decide on the financial (Affaires Economiques et statements for 2006 Générales) Jacques Member Supervisory Board Ordinary General Deputy Managing Espinasse Meeting of Assembly of Director and Chief (61) December 17, 2002 Shareholders called to Financial Officer of decide on the financial Vivendi Universal statements for 2006 Robert de Metz Member Supervisory Board Ordinary General Deputy Managing (52) Meeting of Assembly of Director for divestitures, December 17, 2002 Shareholders called to mergers, and acquisitions decide on the financial of Vivendi Universal statements for 2006 Abderazzak El Member General Assembly Ordinary General Senior official of the Mossadeq of Shareholders Assembly of State (56) Meeting of Shareholders called to February 20, 2001 decide on the financial statements for 2006 Rachid Member General Assembly Ordinary General President of Al Belmokhtar of Shareholders Assembly of Akhawayn University Benabdellah Meeting of Shareholders called to (62) February 20, 2001 decide on the financial statements for 2006 Françoise Member General Assembly Ordinary General Retired Colloc’h of Shareholders Assembly of Meeting of Shareholders called to March 1, 2004 decide on the financial statements for 2006
101 Biographies and duties of the members of the Supervisory Board Fathallah Oualalou Fathallah Oualalou has served as Minister of Finance and Privatization since 2002. Mr. Oualalou was Minister of Economics and Finance from 1998 to 2002. He also heads the parliamentary group of the Socialist Union of Popular Forces (Union Socialiste des Forces Populaire) (“USFP”) in the Chamber of Representatives. Mr. Oualalou has been a member of the political bureau of the USFP since 1989, and he was elected several times as a city councilman of Rabat and a deputy in the Chamber of Representatives.
Mr. Oualalou joined the teaching staff of the law school of Rabat, of the law school of Casablanca, and of the Ecole Nationale d’Administration (“ENA”), after having defended his thesis for a Doctorate in Economics in Paris in 1968. Before then, Mr. Oualalou received his Diplôme d’Etudes Supérieures (DES) in Economics in 1966 in Paris and a Licence (License) in Economic Sciences from the law school of Rabat in 1964. He obtained his Bachelor Degree (Baccalauréat) in Philosophy in 1961.
Jean-Bernard Lévy Jean-Bernard Lévy is Deputy Managing Director of the Vivendi Universal group. Before filling this post, he served as Chairman and Chief Executive Officer of Matra Communication and as Managing Partner of the Oddo Pinatton group. Mr. Lévy also served as Chief of Staff (Chef du Cabinet) to Gerard Longuet, Minister of Industry, Posts, Telecommunications and Foreign Trade in 1993 and in 1994.
Mr. Lévy holds degrees from the Ecole Polytechnique and from the Ecole Nationale Supérieure des Télécommunications.
El Mustapha Sahel El Mustapha Sahel was appointed as Minister of the Interior by His Majesty King Mohammed VI in 2002 and also appointed as a wali of the region of Rabat Salé Zemmour Zaër on July 27, 2001. Mr. Sahel has served as Commissaire du Gouvernement to Bank Al Maghrib and as a member of the Board of Directors of the Arab Fund for Economic and Social Development (Fonds Arabe pour le Développement Economique et Social). In 1995, Mr. Sahel was appointed Minister of Marine Fisheries and the Merchant Marines (Pêches Maritimes et de la Marine Marchande). He has occupied several other administrative positions, including Financial Controller, Head of the Capital Budget Division, Budget Director, Chargé to the General Secretariat of the Ministry of Finances and Managing Director of the Communal Equipment Fund (Fonds d’Equipement Communal).
Mr. Sahel holds a Licence (License) and a Diplôme d’Etudes Supérieures (DES) in Public Law.
Rachid Talbi El Alami Rachid Talbi El Alami was appointed by His Majesty King Mohammed VI in 2004 as Minister to the Prime Minister in charge of General and Economic Affairs (Affaires Economiques et Générales). Between 2002 and 2004, Mr. El Alami was Minister of Industry, Commerce and Telecommunications. Since 1996, Mr. El Alami has occupied the post of Party Coordinator in the Tétouan province. As a member of the International Association of Strategic Planning to Fight Against Poverty in Urban Sectors (Association Internationale de la Planification Stratégique pour la Lutte Contre la Pauvreté dans le Secteur Urbain), Mr. El Alami was elected during the third national congress of the National Gathering of Independents (Rassemblement National des Indépendants (RNI)), held in 2001, as a member of the central commission of the party. Since 1997, Mr. El Alami has also been a member of the provincial assembly for Tétouan, as well as a member of the chamber of commerce, industry and services for Tétouan since 1992. In 1992, Mr. El Alami was also elected, first as a member and then as vice president, of the urban community of Sid El Mandri of Tétouan. An international expert on decentralization and local finance for donor agencies and banks, Mr. El Alami has established and managed investment companies in Casablanca and in Tétouan.
Mr. El Alami has a Doctorate Degree in Management and Finance (with a specialization in local finance) from New York University in the United States, having completed his graduate studies earlier at Mohammed V University in Rabat.
102 Jacques Espinasse Since August 2002, Jacques Espinasse has been Deputy Managing Director and Chief Financial Officer for the Vivendi Universal group. In January 1999, Mr. Espinasse joined the company TPS as Managing Director, and in August 2001, he was appointed as a Director (administrateur) of TPS. In January 1994, Mr. Espinasse created J.E.D. Conseil, and served as its President until 1999. From 1985 to 1993, Mr. Espinasse served as Deputy Managing Director and Chief Financial Officer of the Havas group.
Mr. Espinasse holds a Master’s of Business Administration from the University of Michigan.
Robert de Metz Robert de Metz has been Deputy Managing Director for divestitures, mergers, and acquisitions of the Vivendi Universal group since September 2002. He was previously involved in the management of private funds. Mr. de Metz was also a member of the Management Board of Paribas 1997-2000.
Mr. de Metz holds degrees from the Institut d’Etudes Politiques in Paris and from the Ecole Nationale d’Administration (ENA). He is also a former Finance Inspector.
Abderazzak El Mossadeq Since November 2002, Abderazzak El Mossadeq has held the positions of Minister to the Prime Minister for General and Economic Affairs and for Upgrading of the Economy (Affaires Economiques et Générales et de la Mise à Niveau de l’Economie) and Managing Director of the Administration of Customs and Excise Taxes (Administration des Douanes et Impôts Indirects). Before then, Mr. El Mossadeq served as Secretary of State to the Minister of Finance for Commerce, Industry and Handicrafts, as well as Secretary General to the Ministry of Commerce and Industry and a Director (administrateur) of Bank Al Maghrib, Banque Nationale pour le Développement Economique, Banque Central Populaire, and several other commercial and industrial companies.
Mr. El Mossadeq holds a degree from the Ecole Nationale de la Statistique et de l’Administration Economique (ENSAE) in Paris, from the School of Sciences in Grenoble, and from the School of Sciences in Rabat.
Rachid Belmokhtar Benabdellah Rachid Belmokhtar Benabdellah is President of Al Akhawayn University, appointed by King Hassan II in 1998. Mr. Belmokhtar Benabdellah is also a member of the Board of Directors of Holcim Maroc and President of the Moroccan Foundation for Nature and Mankind (Fondation Marocaine pour la Nature et l’Homme). He holds the presidency of the scientific commission charged by His Majesty King Mohammed VI with the fiftieth anniversary report on Human Development in Morocco. Mr. Belmokhtar Benabdellah is also a member of the United Nations Committee of Experts on Governance, and he participated in the first report of the United Nations Development Programme (UNDP) on Human Development in the Arab world.
Mr. Belmokhtar Benabdellah began his professional career at IBM-France in 1967, leaving in 1973 to create, along with other engineers, Informatique et Méthodes de Gestion (IMEG). In 1978, he was appointed Managing Director of the Moroccan subsidiary of Parsons Brinckerhoff. Mr. Belmokhtar Benabdellah also worked for The Club of Rome, on education matters. In 1995, Mr. Belmokhtar Benabdellah was named to the post of Minister of National Education by King Hassan II, a post he occupied until 1998.
Mr. Belmokhtar Benabdellah holds degrees from the Ecole Nationale Supérieure d’Ingénieurs des Constructions Aéronautiques in France and the International Institute for Management Development (IMD) in Switzerland.
Françoise Colloc’h Until May 2003, Françoise Colloc’h served as a Member of the Management Board of the AXA group and as Managing Director of Human Resources at Marque et Communication, part of the AXA group. Ms. Colloc’h was Managing Director of the AXA group in 1996, and before that, in 1984, she was Director of the AXA group and in 1981, Chief of Staff (Chef du Cabinet) to the Chairman and Chief Executive Officer of Mutuelles Unies (which later became the AXA group). Previously, Mrs. Colloc’h served in several positions, including
103 Communications Manager at Slater Walker Finance (1974-1981). In addition, Mrs. Colloc’h serves as Chair of the Board of Directors of AXA Millésimes, a holding company combining the wine-growing operations of the AXA group in Bordelais with AXA Œuvres d’Art.
Mrs. Colloc’h holds a Master’s Degree in Economics from the Université Dauphine.
Duties and responsibilities of the Supervisory Board Pursuant to statute, the Supervisory Board may be composed of a minimum of eight members and a maximum of 12 members. This number may be increased to 15, upon the listing of shares of the Company.
Among its members, the Board elects a Chair and a Vice Chair, who are charged with convening the Board and leading its discussions. Upon the vote of a plurality of its members, the Supervisory Board appoints the members of the Management Board for a renewable period of two years, and the Supervisory Board confers the office of Chair upon one member of the Management Board.
Depending upon the subject, decisions of the Supervisory Board are taken upon the vote of a simple majority or, subject to the terms of the Shareholders’ Agreement and of the Protocol Agreement, upon the vote of a qualified majority of three-fourths of its members.
The Supervisory Board exercises permanent control of the Company’s management by the Management Board. (For information on the composition of the Supervisory Board, the periods of service and the duties of its members, and the decision-making process, see “Description of shares and corporate structure—General information regarding the Company—Administration of the Company—Supervisory Board”.)
In 2003, the Supervisory Board met on three occasions to approve the Company’s performance as well as its perspectives on medium- and long-term growth.
Five members of the Supervisory Board—Messrs. Oualalou, Sahel, Talbi El Alami, El Mossadeq, and Belmokhtar Benabdellah—were appointed by the Moroccan government and four members—Messrs. Lévy, Espinasse and de Metz and Ms. Colloc’h—were appointed by Vivendi Universal.
Two members of the Supervisory Board may be deemed as independent, pursuant to the French Bouton report (the recommendations of the report on French Corporate governance prepared by a blue ribbon panel led by Mr. Daniel Bouton in 2002): Ms. Colloc’h and Mr. Belmokhtar Benabdellah.
Each member of the Supervisory Board must be the holder of at least one share, which share must be in registered form.
The members of the Supervisory Board whose appointments have been submitted to the General Assembly for ratification are the following: — Jean-Bernard Lévy — Jacques Espinasse — Robert de Metz — El Mustapha Sahel — Rachid Talbi El Alami
With the exceptions of Ms. Colloc’h and Messrs. Oualalou, Benmokhtar Benabdellah and El Mossadeq, all of whom were appointed by the General Assembly, all of the members of the Supervisory Board were chosen during a meeting of the Supervisory Board that took place on December 17, 2002.
Rights and obligations of the members of the Supervisory Board In accordance with Moroccan law, the Supervisory Board exercises permanent control over the management of the Company by the Management Board.
The Company’s by-laws may require the prior approval of the Supervisory Board for carrying out certain types of actions. When an operation requires approval from the Supervisory Board and the Board refuses to grant such approval, the Management Board may submit the disagreement to the general assembly of shareholders for the latter to decide.
104 The transfer of buildings (immeubles par nature), the transfer in whole or in part of beneficial interests, the making of sureties, bonds, endorsements and guarantees, except with respect to companies operating a bank or financing establishment, are subject to the Supervisory Board’s approval. The Board determines the amount for each transaction. Nevertheless, the Management Board may approve of providing bonds, endorsements and guaranties to customs and tax authorities, without any limit on the amount.
Whenever a transaction surpasses the amount determined as mentioned above, the approval of the Supervisory Board is required. The Management Board may delegate the power that it has received pursuant to the preceding paragraphs. The absence of approval is void as against third parties, unless the Company proves that such parties had knowledge or such knowledge could not have been disregarded.
Throughout the year, the Supervisory Board carries out the verifications and monitoring that it deems appropriate, and it may require that the documents that it deems useful in accomplishing its mission be provided. The members of the Supervisory Board may take note of all information and inquiries relating to the Company’s existence. At least once each quarter, the Management Board provides a report to the Supervisory Board. Within three months following the close of each fiscal year, the Management Board provides the documents covered under the Law 17-95 concerning corporations (sociétés anonymes) to the Supervisory Board, for the purpose of verification and review.
The Supervisory Board provides to the general assembly of shareholders its comments on the report from the Management Board, as well as its comments on the financial statements for the fiscal year.
The members of the Supervisory Board are not bound to the Company by any employment contract.
CORPORATE GOVERNANCE Audit Committee Maroc Telecom has enhanced its corporate governance by creating an Audit Committee, which is charged in particular with making recommendations and/or giving advice on accounting procedures governing the operations of the group.
Composition The Audit Committee is composed of the following members:
Current Date of Name (Age) office appointment Principal employment or occupation Jacques Espinasse Chairman 2003 Deputy Managing Director and Chief (61) Financial Officer of Vivendi Universal Nour-Eddine Boutayeb Member 2003 Director of Rural Affairs to the Ministry of (47) Interior Bousselham Hilia Member 2003 Secretary General of the Ministry of (45) Industry, Commerce and the Upgrading of the Economy (Ministère de l’Industrie, du Commerce et de la mise à niveau de l’Economie) Abdelaziz Talbi Member 2003 Director of Public Construction and of (54) Privatization to the Ministry of Finance (Etablissements Publics et de la Privatisation au Ministère des Finances) Secretary General of the National Accounting Council (Conseil National de la Comptabilité) Robert de Metz Member 2003 Deputy Managing Director for divestitures, (52) mergers, and acquisitions of Vivendi Universal Pierre Trotot Member 2003 Managing Director Delegate, (50) Chief Financial Officer of the SFR Cegetel group
105 Biographies and duties of the members of the Audit Committee Nour-Eddine Boutayeb Nour-Eddine Boutayeb was appointed as Director of Rural Affairs to the Ministry of the Interior in 2003. Mr. Boutayeb is also a member of the Supervisory Board of Crédit Agricole. Previously, Mr. Boutayeb served as Deputy Managing Director of Maghrebi Consulting Engineers (Société Maghrébine d’Ingéniere (INGEMA SA)), following his service in posts as an Engineer in the Ministry of Equipment (Ministère de l’Equipement) and in the Bureau d’Ingénieurs Conseils in Paris.
Mr. Boutayeb holds a degree from the Ecole Centrale in Paris. In addition, he holds a Master’s of Business Administration and an engineering degree from the Ecole Nationale des Ponts et Chaussées. Finally, Mr. Boutayeb has earned a Diplôme d’Etudes Approfondies (DEA) in Soil Mechanics.
Bousselham Hilia Bousselham Hilia is Secretary General of the Ministry of Industry, Commerce and Telecommunications. He is also a member of the boards of directors of several public and para-governmental companies. Previously, Mr. Hilia served as Head of the division on electrical and electronics industries, Director of Domestic Trade, and Director of General Affairs.
Mr. Hilia holds a degree from the Mohammadia School of Engineering.
Abdelaziz Talbi Abdelaziz Talbi was appointed as Director of the Management of Public Enterprises and Privatization (Direction des Entreprises Publiques et de la Privatisation (DEPP)) in 2004. Before serving as Assistant Director of the DEPP, Mr. Talbi occupied various posts within the Ministry of Finances, supervising the department on accounting review, followed by the division of audit and of accounting standardization. Finally, Mr. Talbi served as Administrative and Finance Director. While working within the DEPP, Mr. Talbi is currently Secretary General of the National Accounting Council (Conseil National de la Comptabilité).
Mr. Talbi is a certified public accountant, with a university degree in the Management of Public Enterprises and Collective Organizations from Nancy.
Pierre Trotot Pierre Trotot is the Managing Director Delegate, Chief Financial Officer of the SFR Cegetel group. Previously, Mr. Trotot served as Chargé de Mission, then Director of Financial Management in Compagnie Générale des Eau, after having been Chargé de Mission to the President in Compagnie de Navigation Mixte (1982-1988). Before then, Mr. Trotot was a Chargé de Mission at Arthur Andersen Audit (1978-1982).
Mr. Trotot holds a degree from Hautes Etudes Commerciales (HEC) in Paris.
Operations of the Audit Committee Created by the Supervisory Board in 2003, the Audit Committee responds to the will of the shareholders to adopt international standards for the corporate governance and internal controls of Maroc Telecom.
The Audit Committee is composed of a Chair and five permanent members, with three representatives for the State and three for Vivendi Universal, including the Chair. The Audit Committee met for the first time in May 2004, and the Committee held its most recent meeting on October 18, 2004. The Committee’s role consists of expressing recommendations and delivering opinions to the Supervisory Board in particular on the following matters: — the management financial statements and consolidated financial statements, before these statements are presented to the Supervisory Board; — the consistency and efficacy of the Company’s internal audit system; — review of the work programs of internal and external auditors and the examination of the results of their audits;
106 — accounting principles and methods, as well as the parameters of consolidation; — the Company’s off-balance sheet risks and commitments; — establishing procedures for selecting statutory auditors, reviewing the amounts of the fees solicited for the performance of their audit duties, and monitoring compliance with the rules guaranteeing auditor independence; and — considering all issues that, in its judgment, present risks for the Company or could result in the malfunction of auditing procedures.
Internal Audit The internal audit procedures in effect within the Maroc Telecom group have the following objectives: — on the one hand, to ensure that the actions of management and the execution of operations, as well as the conduct of personnel, are within the framework defined by guidelines for corporate business operations by the corporate bodies and applicable laws and regulations; and — on the other hand, to check that the accounting, financial and management information provided to the corporate bodies for the Company accurately reflect the Company’s operations and status.
The objectives of the system for internal audit are to avoid and control risks arising from corporate undertakings, error and fraud, in particular in the financial and accounting areas. As is the case for all audit systems, however, one cannot provide an absolute guarantee that these risks will be completely eliminated.
In order to carry out its task of assessing and validating Company internal audits, the Audit Committee relies on the Internal Audit and Inspection departments. The audit committee defines the Internal Audit and Inspection departments’ mandates and analyzes their findings.
The average attendance rate of the members of the Audit Committee for the meetings held in 2004 exceeds 80%.
Internal Audit and review Internal Audit The Internal Audit department of Maroc Telecom is an independent function that has direct access to the Audit Committee. Its functions are governed by a charter approved by the Audit Committee.
The Internal Audit department’s role is to see that the Company has control over its operations and to monitor the quality of internal control at each level of the Company’s organization. The Internal Audit department assists the Company in reaching its objectives by assessing its risk management procedures, verification and corporate governance.
The efficacy of the internal audit process is assessed by the Internal Audit department, according to an annual audit plan approved by the Audit Committee. Synopses of the comments and recommendations formulated by the Internal Audit department are provided to the Audit Committee so that the latter can assure its compliance and guarantee its execution.
The audit plan is defined according to an analysis of company risks, which covers both financial risks and risks with respect to data processing, as well as risks particular to the operational units of the Company.
For the purpose of meeting this double objective, the Internal Audit department is composed of two centers which have the following as complementary missions: — a financial audit (ten auditors, as of June 30, 2004) linked to the General Directorate for Administration and Finance for matters having an accounting and financial impact, and — an operational audit (six auditors, as of June 30, 2004) linked to the General Control Directorate (Presidency) that takes place in the operational units (agencies and regions). This audit proceeds with a review of the procedures for managing resources, networks and customer services.
107 The annual audit plan is enunciated in a program of missions, the execution of which is entrusted to the Internal Audit department. The missions have the following as their main objectives: — ascertaining the existence and adequacy of controls in the areas of finance, data processing and operations, in assuring that the main risks are identified and suitably covered; — reviewing the integrity of the financial information, including the controls relating to security of communicating, recording and safeguarding information; — reviewing the operational units and systems for assuring adequacy with respect to policies, procedures and legislative and regulatory requirements; — reviewing the means of safeguarding assets and advising management as to the efficiency and effectiveness of its use of resources; and — assuring that recommendations are carried out within the framework of follow-up tasks.
Finally, the Internal Audit department communicates and coordinates with the Company’s external auditors, so as to maximize the effectiveness of the scope of the audit’s coverage.
Review Together with the Internal Audit department, the Review department (six inspectors, as of June 30, 2004) likewise takes part in the assessment and the approval of Company internal controls. The department reports to the General Control Directorate (Presidency) and to the Audit Committee.
At the request of these authorities or upon its own initiative, the Review department conducts regular audits, specific and unannounced, for the following purposes: — to protect the assets, property, resources and means used; — to see that management procedures, instructions, policies and rules are observed; — to assure the quality, sufficiency and reliability of data and optimization in the allocation of resources; and — to demonstrate and determine the possible liabilities in the event the Company would become aware of malfunctions, irregularities or fraud.
The Review department may be called upon to reinforce the Internal Audit department in the implementation of occasional specific missions, to constitute a program of study and analysis, and to provide proposals on the Company’s operations.
INTERESTS OF THE CORPORATE EXECUTIVES Compensation of the Management and Supervisory Boards The Supervisory Board sets, as part of its appointment decisions, the forms and the amounts of compensation for each member of the Management Board, which information is transcribed again in the employment contract of the respective member. A compensation committee comprised of the Chair and the Vice Chair of the Supervisory Board meets each year to examine the total compensation of the members of the Management Board, including any variable portion, and submits its determination to the Supervisory Board.
The total gross compensation paid by the Company, its subsidiaries and all controlling companies to the members of the Management Board for the fiscal year 2003 amounted to approximately MAD 17.9 million, of which 28% represented variable compensation. Some companies of the Vivendi group pay a certain part of these sums to certain members of the Management Board. In addition, certain members of the Management Board are eligible to participate in the Vivendi Universal stock option plan. On the basis of the members’ compensation for 2003, the minimum amount payable by the Company in the event of breach with respect to the employment contracts of the members of the Management Board would amount to approximately MAD 26.8 million in total.
The members of the Supervisory Board are currently not compensated for their duties in the form of attendance fees. However, a proposal on the allocation of attendance fees to members of the Board is slated to be considered at the shareholders’ meeting, in accordance with conditions set forth by the members of the Supervisory Board.
108 Interests of corporate executives in significant customers and suppliers of the Company None.
Stock options None.
Loans and guaranties granted to corporate executives None.
109 RELATED-PARTY TRANSACTIONS
Maroc Telecom is a company governed by Moroccan law. Under articles 95, et seq., of Moroccan law No. 17-95 concerning corporations (sociétés anonymes), all agreements, directly or through an intervening person, between the Company and a member of the Management Board or of the Supervisory Board are subject to the prior approval of the Supervisory Board. Such approval is also required for any agreement between the Company and another company if one of the members of the Management Board or of the Supervisory Board is the owner, a partner that is indefinitely accountable, a manager, an administrator, a managing director or a member of the Management Board or of the Supervisory Board of that company.
In compliance with the Company’s by-laws, each member of the Supervisory Board is the owner of one share of the Company.
In June 2001, Maroc Telecom entered into an agreement for the engagement of services with Vivendi Universal, under which agreement the latter, through its subsidiary Vivendi Telecom International (VTI), as an intermediary, would supply technical assistance to Maroc Telecom in the following areas: strategy and organization, development, marketing and sales, finances, purchasing, human resources, information systems, regulations and interconnections, and infrastructures and networks. These services may be provided by expatriate personnel.
Under this agreement, the amount of fees (exclusive of taxes) paid by Maroc Telecom to VTI amounted to approximately MAD 141 million and approximately MAD 88 million for fiscal years 2002 and 2003, respectively.
Maroc Telecom sells, as it does to all of its other customers, products and services to governmental agencies and collective groups within the framework of business dealings carried out under normal market conditions.
110 DESCRIPTION OF SHARES AND CORPORATE STRUCTURE
GENERAL INFORMATION REGARDING THE COMPANY Corporate name The Company’s corporate name is: “Itissalat Al-Maghrib”. It also operates under the trade names “IAM” and “Maroc Telecom”.
Instruments and documents issued by the Company and intended for third parties, including without limitation letters, invoices, advertisements and miscellaneous notices, shall specify the corporate name, preceded or followed immediately and in legible fashion by the statement “société anonyme à directoire et conseil de surveillance” (corporation with a Management Board and Supervisory Board), or the acronym “S.A.”, and a statement of the amount of share capital and the registered office, and its registration number with the Registry of Commerce.
Registered office The Company’s registered office is located at avenue Annakhil (Hay Riad), Rabat.
Branches, offices and subsidiaries of the Company may be created in any country by an ordinary resolution of the Management Board, subject, if applicable, to consent from the Supervisory Board in accordance with Article 10.5 of the by-laws.
Legal form Maroc Telecom is a société anonyme (corporation) with a Management Board and Supervisory Board, governed in particular by Chapter II of Act 17-95 relating to sociétés anonymes.
Governing legislation The Company is governed by Moroccan law, including in particular Act 17-95 relating to sociétés anonymes, and by its by-laws. The French law governing commercial companies is not applicable to it.
As the Company intends to apply for admission and listing of its shares on a regulated market in Morocco, the provisions of various Moroccan statutes, regulations, orders, decrees and circulars will be applicable, including in particular: — The statutory Decree 1-93-211, dated September 21, 1993, relating to the Securities Exchange, as amended and extended by Acts 34-96, 29-00 and 52-01; — The General Regulations of the Stock Exchange approved by Order of the Minister of the Economy and Finance 499-98, dated July 27, 1998, and amended by Order of the Minister of the Economy, Finance, Privatization and Tourism 1960-01 dated October 30, 2001. The latter has been amended by a new General Regulation of the Stock Exchange, which is due to be implemented shortly; — The statutory Decree 1-93-212, dated September 21, 1993, relating to the Ethics Council for Securities (CDVM) and the information required of legal entities issuing securities to the public, as amended and extended by Act 23-01; — The statutory Decree 35-96 relating to creation of the central depositary and establishment of a general system of book entry for certain securities; — The General Regulations of the central depositary approved by Order of the Minister of the Economy and Finance 932-98, dated April 16, 1998, and amended by Order of the Minister of the Economy, Finance, Privatization and Tourism 1961-01, dated October 30, 2001; — The statutory Decree 24-96 relating to the Postal Service and Telecommunications, dated August 7, 1997, as amended by Act 79-99, dated June 22, 2001, and by Act 55-01, dated November 2004; — The Decree 1-04-21, dated April 21, 2004, enacting Act 26-03 relating to public offers on the Moroccan stock market; — The Circular issued by the Ethics Council for Securities (CDVM) 01/04, dated June 8, 2004, relating to the thresholds for ownership of shares or voting rights of listed companies; and
111 — The Decree 1-03-195, dated 16 Ramadan 1424 (or November 11, 2003), enacting Act 69-00 relating to the State’s financial supervision of public entities and other agencies.
Moroccan law previously did not allow a Moroccan company to apply to list its shares on a stock market other than a Moroccan stock market. Act 31-04, supplementing Act 39-89 relating to the transfer of State-owned undertakings to the private sector, has been passed by Parliament. This Act has been enacted and now allows the Government, after obtaining an opinion from the transfer panel, to permit the sale of the shares on a stock market other than a Moroccan stock market, and to perform subsequent transactions in such a market.
Incorporation Registration The Company was founded in Rabat by a deed dated February 3, 1998.
The Company was registered with the Rabat Registry of Commerce on February 10, 1998, under number 48 947.
Pursuant to the provisions of article 57 of the French decree dated May 30, 1984, the by-laws of the Company have been filed with the registry of commerce and companies of Paris on December 6, 2004.
Term The term of the Company is 99 years from the date of its registration with the Registry of Commerce, subject to early dissolution or extension as provided for by law or the by-laws.
Corporate purpose The Company’s purpose, in accordance with its contract specifications as an operator and pursuant to the statutory and regulatory rules in force, is: — to provide universal service, in the manner provided for under the statutory and regulatory rules in force; and — to establish and/or operate telecommunications infrastructure, networks and services of any kind.
For the purposes of the activities so defined, it may: — acquire, own and operate any real or personal property that is necessary or appropriate for its operations, including in particular property the grant of which is provided for by statute; — to market and, on an accessory basis, to assemble and manufacture, any telecommunications devices, products and items; — to create, acquire, license and make use of any patents, processes or trade names; — to take part in any financial syndicate, concern or company, existing or currently being created, having a purpose similar or related to its own, by any lawful means; and — more generally, to carry out any transactions of a commercial, financial or, if necessary, industrial nature relating to real or personal property directly related to any part of the Company’s purpose and which could advance its growth and development.
Inspection of legal documents The corporate, accounting and legal documents required to be disclosed by law or the by-laws to the shareholders and third parties may be inspected at the Company’s registered office, at avenue Annakhil (Hay Riad), Rabat, Morocco.
Fiscal year The fiscal year begins on January 1 and ends on December 31.
Allocation of profits under the by-laws At the close of each fiscal year, the Management Board draws up a statement of the various corporate assets and liabilities in existence as of such date and draws up the annual financial statements and the annual report to be submitted to the shareholders’ meeting, in accordance with applicable law.
112 The net profit generated by the Company, after deduction of any earlier net losses, shall be subject to a withholding of 5% to fund the statutory reserve; such withholding shall no longer be required once the amount of the statutory reserve exceeds one tenth of the share capital.
The distributable profit shall consist of the net profit for the fiscal year, after funding of the statutory reserve and allocation of earlier net profits or losses carried forward.
Against such profit, the shareholders’ meeting may charge such amounts as it shall see fit in order to fund any optional, ordinary or exceptional reserve funds, or to carry forward, to the extent of a maximum aggregate amount of half the distributable profit, subject to an exception granted by a three-fourths’ majority of the members of the Supervisory Board present or represented.
The balance shall be paid out to the shareholders by way of dividend, the aggregate amount of which shall not be less than half the distributable profit, subject to an exception granted by a three-fourths’ majority of the members of the Supervisory Board present or represented.
Within the limits set forth by law, the shareholders’ meeting may resolve, on an exceptional basis, to pay out amounts charged against the optional reserves at its disposal (see also “Dividends and dividend policy”).
Payment of dividends The ordinary shareholders’ meeting shall determine the terms of payment of the dividends voted.
Such payment shall be made within nine months after the close of the fiscal year, subject to extension of that period by an order of the President of the Court, acting in summary proceedings upon a petition from the Supervisory Board.
If the Company holds shares of its own stock, the related dividend entitlement shall be cancelled.
Dividends not collected within five years after the date of payment thereof shall be forfeited to the Company.
Amounts not collected and not forfeited shall constitute a claim of the owners against the Company, not bearing interest, unless they are converted into loans on mutually agreed terms.
If the shares are subject to a life interest, the dividends shall be payable to the life tenant. The proceeds of the distribution of reserves, other than the carry-forward, shall, however, be allocated to the bare owner.
General meetings Shareholders’ meeting The shareholders’ collective resolutions shall be made at meetings, which shall be ordinary or extraordinary according to the nature of the decisions that they are called upon to make.
A duly convened general meeting shall be deemed to represent all the shareholders; its decisions shall be binding on all, including those who are absent, not sui juris, dissenting or deprived of voting rights.
Calling of meetings Meetings shall be called by the Supervisory Board.
An ordinary shareholders’ meeting may also be called: — by the statutory auditor or auditors, who may do so only after requesting the Supervisory Board to call it if the Supervisory Board fails to do so; — by an agent appointed by a Court order, upon the application of any interested party in an emergency or of one or more shareholders holding at least one tenth of the share capital; or
113 — by the liquidator or liquidators in the event of the Company’s dissolution, during the liquidation period.
Shareholders’ meetings shall be called and carried out in the manner provided for by law.
The Company shall, at least 30 days before the shareholders’ meeting is convened, publish in a newspaper among those contained in the list determined by the Minister of Finance and in the Official Bulletin, a notice containing the information required by law, and the draft resolutions to be submitted to the meeting by the Management Board.
The Company shall be required to publish, in a newspaper authorized to carry legal advertisements and in the Official Bulletin, at the same time as the notice of the annual ordinary shareholders’ meeting, the summary statements relating to the previous fiscal year, drawn up in accordance with applicable law (which shall include the balance sheet, statement of income, statement of cash flows and financing table), and the report from the statutory auditor(s) relating to such statements.
Any amendment of such documents shall be published by the Company in a newspaper authorized to carry legal advertisements within 20 days after the holding of the annual ordinary shareholders’ meeting.
Meetings shall be held at the registered office or at any other location specified in the notice.
Agenda The agenda of a shareholders’ meeting shall be determined by the author of the notice.
One or several shareholders holding at least 5% of the share capital may, however, call for one or several draft resolutions to be entered in the agenda.
Regardless of the number of shares held, any shareholder shall be entitled, upon providing evidence of identity, to take part in shareholders’ meetings subject: — for holders of registered shares, to an entry by name in the Company’s records; and — for holders of bearer shares, to deposit, at the locations mentioned in the notice, of the bearer shares or of a certificate of deposit issued by the establishment having custody of such shares, and if applicable, to provide to the Company, in accordance with applicable law, of any evidence allowing his or her identification.
Such formalities shall be completed no later than five days before the date of the meeting, subject to any shorter period provided for in the notice or mandatory statutory rules reducing such period.
Membership The shareholders’ meeting shall consist of all shareholders, regardless of the number of shares they hold.
Corporate shareholders shall be represented by a specially appointed agent, who need not personally be a shareholder.
A shareholder may be represented by another shareholder, or by his or her guardian, spouse or an ascendant or descendant, who need not be shareholders in his or her personal capacities.
Multiple holders of undivided interests in shares shall be represented at shareholders’ meetings by one of them or by a single agent.
A shareholder having pledged his or her shares shall retain the right to attend shareholders’ meetings.
Shareholders may attend the meeting upon providing evidence of their identity, provided that they have been entered in the corporate records at least five days prior to the meeting.
114 Officers The shareholders’ meeting shall be chaired by the Chairman of the Supervisory Board or the Vice Chairman of the Supervisory Board. Failing this, the meeting shall appoint its own Chairman.
The Chairman of the meeting shall be assisted by the holders of the two largest interests, either personally or as agents, present and accepting such office, who shall serve as scribes.
The officers so appointed shall appoint the Secretary, who need not be a shareholder.
Attendance sheet An attendance sheet shall be kept at each meeting, specifying the names and residences of the shareholders, and, if applicable, those of their proxies, and the numbers of shares and voting rights they hold.
Such attendance sheet shall be signed by all shareholders present and by the proxies of absent shareholders; it shall then be certified by the officers of the meeting.
Voting Each member of the meeting shall have as many voting rights as he or she owns or represents, in particular as a result of voting proxies or other powers of attorney.
The voting rights attached to a share shall belong to the life tenant at ordinary shareholders’ meetings and to the bare owner at extraordinary shareholders’ meetings.
If the shares are pledged, the voting rights shall be exercised by the owner.
The Company may not vote shares that it has acquired or accepted as security.
For a description of the shareholders’ agreements, see “Principal and selling shareholders—Shareholders’ agreements—Shareholders’ agreement concerning the shares of Maroc Telecom”.
Voting rights of persons holding their shares through the intermediary of Euroclear France Persons holding shares via Euroclear France who wish to attend the general shareholders’ meeting will receive a proxy from Euroclear France by filling in the form which will be sent to them, on demand, by their financial intermediary.
Persons holding their shares via Euroclear France who want Euroclear France to vote on their behalf must forward to the latter their voting instructions and must for this purpose fill in the form which will be sent to them, on demand, by their financial intermediary.
Persons holding their shares via Euroclear France who wish to attend the general shareholders’ meeting in connection with the procedure as described above may cast in person at the general meeting the number of votes corresponding to the number of shares declared for this purpose.
Persons holding their shares via Euroclear France who wish to attend the general meeting or wish to give voting instructions to Euroclear France must complete and sign the corresponding forms and return them to their financial intermediary within the time allowed.
Entitlement to dividends For a description of the procedure for approving and distributing dividends, see “Dividends and dividend policy”.
Dividends attached to the Company’s shares will be paid to the persons in whose name the shares are registered. Dividends paid to Euroclear France in its capacity as a shareholder entered in the Company’s register will be paid to persons whose shares are registered in the name of Euroclear France by the intermediary of their
115 account holders. Consequently, as long as a shareholder holds his shares in the Company through the intermediary of Euroclear France, he will receive his dividends and will exercise all other shareholder rights through the intermediary of his account holder.
Rights to dividends in case of liquidation If the Company is liquidated, the remaining assets after payment of the totality of the debts (including the debts relating to the liquidation) are allocated between the shareholders in proportion of their participation in the share capital of the Company and pursuant to the applicable provisions of Moroccan law.
Minutes The minutes of meetings shall be entered in a special register kept at the registered office, the pages of which shall be numbered and initialed by the Registrar of the Court at the location of the Company’s registered office.
Copies of or extracts from the minutes shall be certified by the Chairman of the Supervisory Board alone, or by the Vice Chairman of the Supervisory Board signing jointly with the Secretary.
Ordinary shareholders’ meeting Powers The ordinary shareholders’ meeting shall act upon all matters of an administrative nature exceeding the powers of the Supervisory Board and Management Board, and which are not reserved for the extraordinary shareholders’ meeting.
An ordinary shareholders’ meeting shall be held each year, within the first six months after the end of the company’s fiscal year.
Such meeting shall hear in particular the report from the governing body and the report from the statutory auditor or auditors; it shall consider, amend and approve or refuse the financial statements; and it shall apportion and allocate profits.
It shall appoint members of the Supervisory Board and it shall appoint the statutory auditor(s).
Quorum and majority The ordinary shareholders’ meeting shall be duly convened and may validly act only if the shareholders present or represented hold at least one fourth of the voting rights, exclusive of shares acquired or accepted as security by the Company; if such quorum is not satisfied, a further meeting shall be called, for which no quorum shall be required.
At an ordinary shareholders’ meeting, resolutions shall be passed by a majority of votes of the shareholders present or represented.
Extraordinary shareholders’ meeting Powers The extraordinary shareholders’ meeting shall have sole authority to amend any provision of the by-laws.
It may dismiss the members of the Supervisory Board.
It may not, however, change the Company’s nationality or increase the shareholders’ liabilities.
It may decide upon the conversion of the Company into a company in any other form, subject to compliance with the applicable statutory rules.
Quorum and majority The extraordinary shareholders’ meeting shall be duly convened and may act validly only if the shareholders present or represented hold at least, upon a first call, half, and upon a second call, one fourth, of the voting rights, exclusive of shares acquired or accepted as security by the Company.
116 If the one-fourth quorum is not satisfied, such second meeting may be postponed to a date no later than two months after the date for which it had been called, and may be validly held with the presence or representation of shareholders holding at least one fourth of the share capital.
At an extraordinary shareholders’ meeting, resolutions shall be passed by a two-thirds’ majority of votes of the shareholders present or represented.
Administration of the Company Management Board Membership The Management Board shall administer and manage the Company, under the supervision of a Supervisory Board. The Management Board shall consist of five members.
The members of the Management Board must be individuals. All members of the Management Board shall be employees of the Company or present in Morocco more than 183 days per year, subject to exceptions granted by the Supervisory Board acting by a majority of the members present or represented.
In the event of termination of the office of a member of the Management Board during its term, the Board shall appoint his or her substitute in the manner provided for by law and the Company’s by-laws.
Appointment and dismissal of members of the Management Board The members of the Management Board are currently appointed by the Supervisory Board, acting by a majority of the members present or represented. The Supervisory Board shall appoint one of them to act as Chairman.
They may be dismissed only by the ordinary meeting of shareholders, upon the motion of the Supervisory Board acting by a three-fourths’ majority. If the dismissal is decided upon without due cause, it may give rise to liability in damages.
Termination of office on the Management Board shall not entail termination of any contract of employment between the person concerned and the Company.
Term of office The members of the Management Board shall be appointed for terms of two years, subject to extension.
In the event of termination of office of a member of the Management Board during its term, his or her substitute shall be appointed for the remaining duration of such term.
All members of the Management Board shall be eligible for further office.
Operation The Management Board shall manage the Company collectively.
The members of the Management Board may, subject to the Supervisory Board’s consent, allocate among themselves the tasks of management. Such allocation may in no event, however, deprive the Management Board of its collegiate character as the Company’s management body.
Meetings of the Management Board may be held outside the principal office.
Resolutions shall be passed by a majority of members present or represented in office, each of whom shall have one vote.
Minutes of resolutions of the Management Board, if any are drawn up, shall be entered in a special register and signed by the Chairman of the Management Board and another member. Copies of or extracts from such minutes shall be validly certified by the Chairman of the Management Board or by a General Manager.
117 Powers The Management Board shall have full powers to act in all circumstances in the name of the Company, within the limitations of the corporate purpose and subject to those powers expressly conferred by law and the Company’s by-laws on the Supervisory Board under Articles 10.5.3 to 10.5.6 of the by-laws.
In relation to third parties, the Company shall be bound even by an action of the Management Board that is not consistent with the corporate purpose and by-laws, unless it proves that the third party was aware that the action exceeded such purpose and/or the by-laws, or could not be unaware thereof in the circumstances.
The provisions of the by-laws restricting the Management Board’s powers shall not be binding on third parties.
The Chairman of the Management Board shall represent the Company in its dealings with third parties. The Management Board may, however, confer the same representation power on one or more members of the Management Board, who shall have the title of General Managers.
The provisions of the by-laws restricting the Chairman’s, or, if applicable, the General Managers’, powers to represent the Company shall not be binding on third parties.
The Chairman of the Management Board and the General Manager or Managers may validly grant powers of attorney to third parties. The powers thereby concerned shall, however, be limited and relate to one or more specific purpose or purposes.
In relation to third parties, any action binding the Company shall be validly taken by the Chairman of the Management Board or any other member appointed by the Management Board as a General Manager.
Disclosure duties The Supervisory Board may require the Management Board to submit a report relating to its management and to current transactions at any time. Such report may be supplemented, at the Supervisory Board’s request, by a provisional accounting statement for the Company.
To the extent necessary, the Management Board shall forward to the Supervisory Board a report detailing the application or implementation, if applicable, of the points to be adopted by the Supervisory Board in accordance with Articles 10.5.3 to 10.5.6 of the by-laws.
At least once a quarter, the Management Board shall submit to the Supervisory Board a report on the Company’s operation.
Within three months after the close of each fiscal year, the Management Board shall draw up the Company’s annual financial statements (balance sheet, statement of income and notes) and provide them to the Supervisory Board, in order to enable it to perform its supervisory function.
The Management Board shall also provide the Supervisory Board with the report to be submitted to the ordinary meeting of shareholders called to act upon the financial statements for the previous fiscal year.
Compensation The Supervisory Board shall determine, in the appointing resolution, the manner and amount of compensation paid to each member of the Management Board.
Liability Without prejudice to any specific liability arising out of the Company’s receivership or bankruptcy proceedings, the members of the Management Board shall be liable, personally or jointly as the case may be, to the Company and to third parties, for offenses against the statutory or regulatory rules applicable to sociétés anonymes, for breaches of the by-laws, or for misconduct in their management.
118 Supervisory Board Membership The Supervisory Board shall consist of no fewer than eight and no more than 12 members, which may be increased to 15 members if the Company’s shares are admitted to listing on the securities exchange.
Each member of the Supervisory Board shall hold at least one share of the Company throughout the term of office.
The members of the Supervisory Board shall be appointed by the ordinary shareholders’ meeting.
If, on the date of his or her appointment, a member of the Supervisory Board does not hold at least one share of the Company or, during his or her term of office, ceases to hold at least one share, he or she shall be deemed to have resigned if the situation is not remedied within three months.
Such shares shall be assigned in undivided manner to the potential liability of members of the Supervisory Board, collectively or individually, in connection with management of the Company, or of their personal action.
Such qualifying shares must be registered shares; they may not be transferred. Such restriction shall be recorded in the Company’s transfer register.
A member of the Supervisory Board who no longer holds office, or his or her heirs or assigns, shall recover unrestricted disposal of the qualifying shares as a result only of approval by the ordinary shareholders’ meeting of the financial statements for the last fiscal year relating to his or her office.
The statutory auditor(s) shall, under their sole responsibility, secure compliance with the provisions of Article 10.1 of the by-laws, and shall report any breach thereof in their report to the annual shareholders’ meeting.
Term of office The members of the Supervisory Board shall be appointed for a six-year term.
The office of a member of the Supervisory Board shall terminate upon adjournment of the ordinary shareholders’ meeting that has acted upon the financial statements for the previous fiscal year and was held during the year of expiry of the office of such member.
They shall always be eligible for further office.
They may be dismissed at any time by the extraordinary shareholders’ meeting.
No member of the Supervisory Board may be a member of the Management Board. If a member of the Supervisory Board is appointed to the Management Board, his or her term of office as member of the Supervisory Board shall terminate upon his or her assumption of office.
A legal entity may be appointed to the Supervisory Board. At the time of appointment, it shall be required to appoint a permanent representative who shall be subject to the same conditions and obligations, and shall incur the same civil and criminal liability, as a member of the Supervisory Board in a personal capacity, without prejudice to the joint liability of the legal entity that he or she represents.
When the legal entity dismisses its representative, it shall be required to appoint a substitute concurrently. It shall immediately notify its decisions to the Company. It shall act likewise in the event of the permanent representative’s death or resignation.
Vacancies and appointment In the event of vacancy, as a result of death or resignation or any other inability to act, of the holder of one or several seats on the Supervisory Board, the Supervisory Board may, between two shareholders’ meetings, make temporary appointments.
119 If the number of members of the Supervisory Board falls below eight, the Supervisory Board shall be bound to make temporary appointments to restore its membership within three months of the date of vacancy.
Temporary appointments by the Supervisory Board shall be subject to ratification by the next subsequent ordinary shareholders’ meetings; the member appointed to replace another shall remain in office only for the remaining duration of his or her predecessor’s term.
Absent ratification of the temporary appointments, the resolutions made and actions taken previously by the Supervisory Board shall nevertheless remain valid.
If the number of members of the Supervisory Board falls below three, the Management Board shall be required to call, within 30 days after the date of the vacancy, an ordinary shareholders’ meeting to supplement the Supervisory Board’s membership.
Chairmanship and Vice Chairmanship The Supervisory Board shall appoint from among its members a Chairman and Vice Chairman who shall call meetings of the Supervisory Board and direct its proceedings, and who shall hold office during the term of office of the Supervisory Board. The Chairman and Vice Chairman must be individuals.
The Supervisory Board may appoint a Secretary for each meeting, who need not be a shareholder.
Notice of meetings and proceedings The Supervisory Board shall convene, upon a notice given by its Chairman or Vice Chairman, as frequently as required by the Company’s interests, at the registered office or any other location specified in the notice. Such notice may be given by electronic message or by fax, in both cases followed by confirmation by ordinary mail, or by registered mail return receipt requested, or by letter delivered personally against a receipt, 15 days before the date of the meeting, unless such period is reduced upon the consent of all the members of the Supervisory Board.
The Supervisory Board shall act validly only if at least half the members of the Supervisory Board are actually present.
Subject to the provisions of Articles 10.5.4 to 10.5.6 of the by-laws described below, resolutions of the Supervisory Board shall be passed, in accordance with the Moroccan law relating to sociétés anonymes (as amended or extended), by a majority.
In addition to transactions by law subject to the Supervisory Board’s consent, the following resolutions shall require prior consent from the Supervisory Board acting by a majority of members present or represented, under Article 10.5.3 of the by-laws: (i) Review, approval and revision of the Business Plan, drawn up according to the same criteria and strategic, productivity, profitability and competitive demands as the best international operators; (ii) Review and approval of the Budget, according to the same criteria and strategic, productivity, profitability and competitive demands as the best international operators; (iii) Policy with respect to labor, remuneration, training and management of human resources and creation of profit sharing schemes for the Company’s managers or employees; (iv) Appointment of members of the Management Board; and (v) Approval of the draft resolutions to be submitted to the general meeting of the Company’s shareholders with respect to the allocation of the earnings of the Company and its subsidiaries (pay-out of dividends, reserves, etc.) in the manner provided for under Articles 16 and 10.5.4(x) of the by-laws.
However, by way of exception from the provisions of Article 10.5.3 of the by-laws described above and subject to the provisions of Article 10.5.6 of the by-laws described below, the following resolutions shall be matters for the Supervisory Board and shall, in accordance with Article 10.5.4 of the by-laws described below, require approval by a majority of at least three fourths of the members of the Supervisory Board present or represented: (i) Any significant change in accounting methods;
120 (ii) Repeal, abandonment, transfer of licenses or concession of major operating facilities not provided for under the annual Budget; (iii) Any decision related to the implementation or initiation of judicial, administrative or arbitral actions or proceedings involving the Company or its subsidiaries, for which the amount of the claim in principal against or at the initiative of the Company or its subsidiaries, whether this concerns an initial claim or a counter-claim, for each of these actions or proceedings, amounts to a unitary amount of more than MAD 100 million or requires judicial enforcement by the Company or its subsidiaries, as well as any decisions with the aim of obliging the Company and/or its subsidiaries to reach a settlement for such actions or proceedings involving amounts owed or due to the Company for an amount of more than MAD 25 million; (iv) Any decision concerning the conclusion, amendment and/or termination of any service provision agreement or any other agreement—other than the agreements concerning day-to-day transactions entered into under normal conditions—between the Company and (i) any shareholder holding more than 30% of the capital and/or voting rights of the Company and/or (ii) the subsidiaries whatsoever of such shareholder, for which the management and/or direction are effectively directly or indirectly controlled by the latter or by its parent company, whether through a holding in the share capital, through contractual agreements or in concert with a third party (hereinafter the “Reference Shareholder”). (v) Any decision related to a merger, under any form whatsoever, between the business of the Company and any businesses over which the Reference Shareholder has control which are in competition with the Company over the sectors of fixed, mobile, Internet and data exchange telecommunications (and more generally all businesses connected to or arising from the Company’s corporate purpose); (vi) Any decision related to the exemption of the obligation for a member of the Management Board to be an employee of the Company and/or to be present for more than 183 days a year in Morocco; (vii) Investments or divestments and borrowings and loans exceeding more than 30% of the corresponding amounts shown in the Budget; (viii) Any creation of a subsidiary with an initial share capital or shareholders’ equity of more than MAD 100 million, and any takeover(s) or assignment(s) of a holding or interest in any group or entity exceeding 20% of the Company’s net assets; (ix) Any resolution relating to a proposed merger, spin-off, contribution of assets or management lease relating to all or part of the business of the Company or one of its subsidiaries, and any resolution relating to dissolution, liquidation or discontinuation of any substantial operation of the Company or one of its subsidiaries; (x) Any exceptions from the obligation provided for under Article 16 of the by-laws to pay out dividends of at least half the distributable profit; and (xi) Amendment of the internal regulations of the Company’s audit committee.
In addition, in accordance with the provisions of Article 10.5.5 of the by-laws described below, the Supervisory Board may not submit the following resolutions to the meeting of shareholders unless they have been made by at least three fourths of the members of the Supervisory Board present of represented: (i) A motion for amendment of the Company’s by-laws (including in particular a reduction or increase in the Company’s share capital or changes in the fiscal year); (ii) A motion for issuance of new securities of the Company or its subsidiaries; a motion for amendment of the corporate purpose and/or principal business of the Company or its subsidiaries; (iii) A motion for amendment of the rights and duties attaching to shares of the Company or its subsidiaries; (iv) A motion for amendment of the first or last day of the fiscal year for the Company or its subsidiaries; (v) A motion for the choice of the statutory auditors of the Company and its subsidiaries; (vi) A motion for the nomination of one or more members of the Supervisory Board; (vii) A motion for dismissal of the members of the Management Board; and (viii) A settlement of differences between the Management Board and the Supervisory Board.
121 Assignment and powers of the Supervisory Board The Supervisory Board shall exercise permanent supervision over the Company’s management by the Management Board. At any time, it shall perform such inspections as it shall see fit, and may obtain disclosure of such documents as it considers to be appropriate for the performance of its assignment. The members of the Supervisory Board may obtain disclosure of any information or data relating to the Company’s operation.
The Supervisory Board may, within the limits that it shall determine and subject to the provisions of Article 10.5 of the by-laws, permit the Management Board to sell real estate assets, sell all or part of participating interests, create security interests and issue warranties, endorsements or security in the name of the Company.
It shall submit to the annual shareholders’ meeting its observations on the report from the Management Board, and on the financial statements for the fiscal year.
The Supervisory Board may create from among its members, and if it so deems necessary, with the assistance of third parties who need not be shareholders, technical committees in charge of reviewing matters that it shall submit to them for an opinion. The activity of such committees and the opinions or recommendations issued shall be reported to meetings of the Supervisory Board.
Such committees shall have advisory powers and act subject to the authority of the Supervisory Board, of which they are agencies and to which they shall report.
The members of committees shall be appointed by the Supervisory Board. Unless otherwise resolved by the Supervisory Board, the duration of committee members’ terms of office shall be that of their terms as members of the Supervisory Board.
Each committee shall draw up its own internal regulations, which shall require approval by the Supervisory Board.
Compensation The shareholders’ meeting may allocate to the members of the Supervisory Board, as compensation for their duties, a fixed annual amount in attendance fees. The Supervisory Board may also allocate exceptional compensation with respect to assignments or duties entrusted to its members.
Liability Members of the Supervisory Board shall be liable, personally or jointly as the case may be, to the Company and to third parties, for offenses against the statutory or regulatory rules relating to sociétés anonymes, for breaches of the by-laws or for misconduct in their management.
If several members of the Supervisory Board have cooperated in the same action, the Court shall apportion liability among them in terms of payment of damages.
Statutory auditors The Company shall be audited by at least two statutory auditors, who shall be appointed and shall perform their duties in accordance with the law.
Appointment, removal from office and incompatibility of offices During the term of the Company, the statutory auditors shall be appointed for three fiscal years by the ordinary shareholders’ meeting.
The statutory auditors’ offices shall expire upon adjournment of the ordinary shareholders’ meeting acting upon the financial statements for the third fiscal year. The statutory auditors shall be eligible for further office.
A statutory auditor appointed by the shareholders’ meeting to replace another shall remain in office only for the remaining duration of his or her predecessor’s term.
If, upon expiry of a statutory auditor’s term of office, a motion is submitted to the shareholders’ meeting against extension of his or her term, the statutory auditor may address the meeting, if he or she so requests.
122 One or more shareholders holding at least one tenth of the share capital may apply to the President of the Court acting in summary proceedings for one or more statutory auditors appointed by the shareholders’ meeting to be barred from office, and apply for appointment of one or more auditors to perform their offices in their stead.
Under penalty of inadmissibility, the referral to the President shall be entered by a reasoned application made within 30 days after the challenged appointment.
If the application is granted, the statutory auditor or auditors appointed by the President of the Court shall remain in office until appointment of the new statutory auditor or auditors by the meeting of shareholders.
If it becomes necessary to appoint one or more statutory auditors and the meeting of shareholders fails to do so, any shareholder may apply to the President of the Court, acting in summary proceedings, for appointment of a statutory auditor.
The statutory auditor(s) appointed by the President of the Court shall remain in office until appointment of the new statutory auditor or auditors by the shareholders’ meeting.
The appointments of statutory auditors shall comply with the rules relating to incompatibility of offices laid down by law.
Duties of the statutory auditors The statutory auditor(s) shall have a permanent assignment, exclusive of any interference in the management of the Company, of inspecting the Company’s assets, books and accounting documents, and ascertaining the compliance of its financial statements with applicable rules. They shall also review the fairness and consistency relative to the summary statements of the information provided in the annual report from the Management Board and in the documents sent to the shareholders with respect to the Company’s assets and liabilities, its financial position and its earnings.
The statutory auditor(s) shall ensure that equal treatment among the shareholders has been observed.
The statutory auditor(s) shall be invited to attend the meeting of the Management Board closing the financial statements for the previous fiscal year, and all shareholders’ meetings.
At any time of the year, the statutory auditor(s) shall perform such inspections as they shall consider to be desirable, and may obtain disclosure on the spot of any document they consider necessary for the performance of their assignment, including without limitation any contracts, records, accounting documents and minute books.
The Management Board’s annual report and summary statements shall be made available to the statutory auditor(s) at least 60 days before notice of the annual shareholders’ meeting is given.
Sale of shares Sales of shares shall be carried out in the manner provided for by law.
Crossing of thresholds Any individual or legal entity, acting alone or in concert with others, that becomes the owner, directly or indirectly, of a number of shares representing more than one twentieth (5%), one tenth (10%), one fifth (20%), one third (33.33%), half (50%) or two thirds (66.66%) of the Company’s share capital or voting rights must notify the Company, the CDVM (Moroccan securities regulator) and the BVC (Casablanca securities exchange), within five working days of the date it crosses such threshold of the total number of the Company’s shares that he, she or it holds, and of the related number of voting rights.
The date of crossing of the threshold shall be the date of execution of the reporting party’s order on the exchange.
In the event of failure to comply with the reporting obligation above, the shares in excess of the portion that ought to have been reported shall be deprived of voting rights at any meeting of shareholders until the end of a two-year period following the breach.
123 In addition to the statutory obligation mentioned above to inform the Company of the crossing of thresholds, any individual or legal entity, acting alone or in concert with another, that becomes the owner directly or indirectly of a number of shares representing more than 3%, 5%, 8%, 10%, or any threshold that is a multiple of 5% in excess of 10%, of the share capital or voting rights of the Company, must notify the Company, by registered mail with return receipt the total number of shares or voting rights that he, she or it holds, within five trading days after the date of acquisition.
The notice above is also to be given if the interest in the capital falls below the thresholds provided for above.
In each aforementioned report, the reporting party shall certify that the report includes all shares or voting rights held or owned. The reporting party shall also specify the date or dates of acquisition or sale of his, her or its shares.
Any individual or legal entity, acting alone or in concert with another, that becomes the owner, directly or indirectly, of a number of shares representing more than one tenth (10%) or one fifth (20%) of the Company’s share capital or voting rights must notify the Company, the CDVM and the BVC, within five working days from the time when any such threshold of is crossed, of his, her or its intended objectives within the 12 months after such threshold is crossed, specifying whether he, she or it is acting alone or in concert with another, whether he, she or it intends to discontinue or proceed with acquisition and his, her or its intention to submit the appointment of members of the corporate governing bodies and to acquire control over the Company or not.
The date of crossing of the threshold referred to under the foregoing paragraph shall be the date of execution of the reporting party’s order on the exchange.
Without prejudice to and within the limits of mandatory statutory rules, in the event of failure to comply with the reporting obligations above, the shares in excess of the portion that ought to have been reported shall be deprived of votes at any shareholders’ meeting held until expiry of two-year period after the date of the breach.
Holders of shares may also be subject to the reporting obligations provided for under statutory Decree 1-04-21 enacting Act 26-03 relating to public bids on the stock market dated April 21, 2004, and Circular 01/04, dated June 8, 2004, relating to the crossing of thresholds of interest in the share capital or votes of listed companies.
Holders of shares or other securities of the Company are advised to consult their legal counsel in order to ascertain whether the reporting obligations are applicable to them.
Public bids Under Moroccan law, public bids are governed by Act 26-03, dated April 21, 2004, which became effective on May 6, 2004. A public bid is defined as the procedure whereby an individual or legal entity, acting alone or in concerted fashion (the “bidder”), discloses publicly an intention to acquire, exchange or sell all or part of the securities entailing access to the share capital or votes of a listed company.
Voluntary public bids Any individual or legal entity, acting alone or in concerted fashion and wishing to report publicly that he, she or it wishes to acquire or sell shares listed on the securities exchange, may file a proposed public bid for acquisition or sale of the shares.
Under Moroccan law, a public bid is to be filed by the bidder with the Moroccan securities regulator (CDVM), and must include: — the bidder’s objectives and intentions; — the number and nature of the company’s securities; — the date and terms on which the purchase thereof has been or may be made; — the price or exchange ratio at which the bidder is offering to acquire or sell the securities, the information on which these are based and the terms of payment, settlement or exchange planned;
124 — the number of shares to which the proposed public bid relates; and — if applicable, the percentage of votes below which the bidder reserves the option not to carry out the bid.
The proposed public bid must be accompanied by an information document.
The contents and performance of the offers contained in the proposed bid shall be warranted by the bidder, and if applicable, by any person acting as surety. The proposed public bid filed with the CDVM shall be accompanied by the prior permit or permits from the competent authorities. Absent such permit, the proposed bid is not admissable.
Upon filing of the proposed public bid, the CDVM shall issue a notice of filing of the proposed public bid in a newspaper authorized to carry legal advertisements, which shall report the main provisions of such proposal. That publication shall be the starting point for the bid period.
The CDVM shall forward the main features of the proposed public bid to the public authorities, which shall be allowed two working days from the date of such transmission to rule upon admissibility of the proposal having regard to national strategic interests. If no decision is taken within two working days, the authorities shall be deemed not to wish to comment.
As soon as the proposed public bid has been filed, the CDVM shall request the company managing the stock market to suspend the listing of the shares in the company to which the public bid relates. The suspension notice shall be published.
The CDVM shall be allowed a period of ten working days from the publication, to review the proposed bid’s admissibility and may require the bidder to provide any evidence or information required for its evaluation.
The bidder is required to modify the proposal in order to comply with the CDVM’s recommendations if the latter considers that the proposal is inconsistent with the principles of equal treatment among shareholders, full disclosure, integrity of the market or fairness of transactions and competition. In all cases, the CDVM also has authority to require from the bidder any additional warranties and to demand the deposit of security in cash or in securities. Grounds shall be stated for any ruling denying admissibility.
If a public bid is ruled to be admissible, the CDVM shall notify its ruling to the bidder and publish a notice of admissibility in a newspaper authorized to carry legal advertisements. Concurrently, the CDVM requests the company managing the securities exchange to resume listing.
Any proposed public bid shall be accompanied by the information documents which may be drafted jointly by the bidder and the target company if the latter concurs in the bidder’s objectives and intentions. If not, the target company may draft separately and file with the CDVM its own information document within five trading days after approval of the bidder’s information document. In such case, the bidder is bound to file a copy of his, her or its information document and proposed public bid with the target company on the day of filing of his, her or its bid proposal with the CDVM.
The contents of the information document(s) shall be determined by the CDVM, which shall be allowed a maximum period of 25 working days to approve the information document(s) after the date of filing thereof. Such period may be extended by ten working days, if the CDVM considers that additional evidence or information is required. Upon expiry of such period, the CDVM shall grant or deny approval, and shall provide a justification for any denial.
The managing company shall centralize the acquisition, sale or exchange orders and notify the results to the CDVM, which shall issue a notice relating to the outcome of the bid in a newspaper authorized to carry legal advertisements.
Compulsory public bids Cash take-over bid Under Article 18 of Moroccan Act 26-03 relating to public bids, the filing of a cash take-over bid is compulsory when an individual or legal entity, acting alone or in concerted fashion, obtains, directly or indirectly, a specific percentage of votes in a company listed on the Securities Exchange.
125 The percentage of votes shall be determined by the public authorities, upon a proposal from the CDVM, and may not be less than one third of the votes of the target company (the percentage has not been determined to date).
Any individual or legal entity is required, sua sponte and within three working days after the voting rights threshold is crossed, to file with the CDVM any proposed take-over bid. Failing this, such person and those acting in concert shall lose the voting and financial rights attached to their capacity as shareholders. Such rights shall be recovered only after a proposed cash take-over bid is filed.
The CDVM may grant an exception from the filing of a compulsory cash take-over bid when: — crossing of the threshold does not affect control over the relevant company concerned, in particular as a result of a capital reduction or transfer of shares among companies affiliated to the same group; — the voting rights arise out of a direct transfer, an apportionment of assets by a legal entity in proportion of shareholders’ rights as a result of a merger or contribution of assets, or a subscription for a capital increase in a company in financial difficulties.
The application for an exception shall be filed with the CDVM within three working days after the voting rights threshold is crossed. It shall include covenants by that party to the CDVM not to initiate any action intended to obtain control over such company during a specific period, or to implement a plan for recovery of the company concerned when it is in financial difficulties.
If the CDVM grants the exception applied for, its ruling shall be published in a newspaper authorized to carry legal advertisements.
Compulsory buy-out bid Under Moroccan law, the filing of a compulsory buy-out bid is mandatory when one or more individual or corporate shareholders of a listed company hold, alone or in concert, a specific percentage of voting rights in such company. Such percentage shall be determined by the public authorities upon a proposal from the CDVM, provided that it may not be less than 90% of the voting rights.
The parties entering such bid are required, sua sponte and within three working days after the voting rights threshold is crossed, to file with the CDVM a proposed compulsory buy-out bid. Failing this, they shall automatically forfeit all the voting rights. Such voting rights shall be recovered only after the filing of a proposed compulsory buy-out bid.
Filing of a proposed compulsory buy-out bid may also be required by the CDVM of the individual or individuals, or legal entity or entities, holding, alone or in concert, a majority of the share capital listed on the securities exchange, when certain requirements are met, including the requirement of holding 65% of the votes concurrently.
Compulsory acquisition procedure Under Moroccan law, when an individual or legal entity, acting alone or in concert, acquires or has agreed to acquire a block of shares representing 40% or more of the share capital or votes of a company, having regard to the number of securities or votes already held, that party is required to file an offer for a compulsory buy-out and to agree to acquire on the market all securities tendered for sale at the price at which the securities have been or are to be sold.
Competing bids and improved public bids One or more competing public bids, or improved public bids, may be entered.
A competing public bid is a procedure whereby any individual or legal entity, acting alone or in concert, may, from the time of initiation of a public bid, and no later than five trading days before its closing date, file with the CDVM a competing bid relating to shares of the company to which the initial bid refers.
Improved bidding is a procedure whereby the bidder under the initial public bid improves the terms of the initial bid, either sua sponte or after a competing public bid, by modifying the price or the nature or quantity of
126 securities or the terms of payment. A bidder wishing to improve the bid is bound to file with the CDVM the changes made to the initial public bid no later than five trading days before the date of close of the initial bid. The CDVM shall determine whether the improved bid is admissible within five trading days after the filing of such proposal. The bidder shall draw up and submit to the CDVM a supplementary information document.
When more than ten weeks have elapsed since the publication of an initiation of a public bid, the CDVM may, in order to expedite the competition between bids, set a deadline for the filing of successive improved bids or competing public bids.
In the event of a competing bid, the initial or earlier bidder must, within ten days before the close of such bid, inform the CDVM of his, her or its intentions. The bid may be maintained, withdrawn or modified by an improved bid.
Rules relating to target companies and public bidders During the term of a public bid, the bidder and the parties with which he, she or it is acting in concert may not, in the case of a mixed public bid, intervene on the market for securities of the target company or on the market for shares of the company, the shares of which are tendered in exchange.
In the event of a voluntary take-over bid, the bidder may withdraw the bid within five trading days after publication of the notice of admissibility of a competing or improved bid. The bidder shall inform the CDVM of the decision to withdraw, which shall be published by the latter in a newspaper authorized to carry legal advertisements. This option is also permitted under French law.
During the term of the public bid, the target company and parties acting in concert with it, if applicable, may not intervene directly or indirectly on the shares of the target company. If payment for the public bid is to be made solely in cash, the target company may, however, proceed with performance of a share buy-back program if the resolution of the meeting of shareholders having permitted such program has expressly so provided.
During the term of the public bid, the target company and the bidder, individuals or legal entities holding directly or indirectly at least 5% of the share capital or voting rights of the target company, and any other individuals or legal entities acting in concerted fashion with the foregoing, are required to report to the CDVM after each trading day the purchases and sales that they have carried out with respect to the shares concerned by the bid, and any transaction resulting in an immediate or future transfer of title to the shares or votes of the target company.
Any delegation of authority to increase the share capital granted by the target company’s extraordinary shareholders’ meeting shall be held in abeyance during the term of the cash or stock take-over bid relating to such company’s shares, and the target company may not increase its holdings of its own stock.
During the term of the bid, the appropriate agencies of the target company shall give the CDVM prior notice of any proposed resolution within their powers that would prevent performance of the public bid or of a competing bid.
CDVM’s supervision and penalties Public bidders, target companies and parties acting in concert with them are subject to the supervision of the CDVM, which shall ensure that such bids are carried out in orderly fashion to the best of investors’ and the market’s interests. The CDVM may impose civil and criminal penalties.
GENERAL INFORMATION RELATING TO THE COMPANY’S SHARE CAPITAL Share capital The share capital of Itissalat Al-Maghrib is MAD 8,790,953,400, divided into 879,095,340 shares with a par value of MAD 10 each, in a single class and fully paid in.
The shares’ par value may be increased or decreased as provided by applicable law.
The share capital may be increased, decreased or redeemed by a resolution of the appropriate assembly of shareholders, in the manner provided for by the applicable law.
127 Form of shares Subject to the listing of Maroc Telecom shares on a regulated market, the shares shall be in registered or bearer form at the shareholder’s option.
The Company shall keep at the registered office a register known as the “transfer register” in which are recorded, in chronological order, subscriptions for and transfers of registered shares. The pages of such register are to be numbered and it shall be initialed by the President of the Court. Any holder of a registered share issued by the Company is entitled to obtain a copy thereof certified as true by the Chairman of the Management Board. If the register is lost, copies shall constitute conclusive evidence.
The Company may decide not to issue shares in physical form. In accordance with the statutory rules relating to the book entries of securities, the Company’s shares must be evidenced by book entries with the central depositary.
Negotiability of shares No provision of the by-laws restricts the trading of the Company’s shares.
Indivisibility of shares Shares shall be indivisible in relation to the Company, which shall recognize only one owner for each share.
Joint holders of undivided interests shall be bound to appoint a joint representative in respect of their relations with the Company in order to exercise their rights as shareholders; absent an agreement, the agent shall be appointed by the President of the Court, acting in summary proceedings upon a petition from any of the holders of undivided interests.
The right to obtain disclosure of the documents provided for by law shall nonetheless be held by each of the holders of interests in undivided shares, and by each life tenant and bare owner.
Rights and duties attaching to shares Each share shall carry a right, proportional to the portion of the share capital that it represents, in the profits or corporate assets, at the time of distribution thereof during the term of the Company or upon its liquidation.
Any shareholder shall be entitled to information relating to the Company’s operation and to obtain disclosure of certain corporate documents at the times and in the manner provided for by law and the by-laws.
Shareholders shall be liable for corporate debts only to the extent of the par value of the shares that they own; no additional assessment shall be permitted.
The rights and duties attached to a share shall be transferred to any owner thereof.
Title to a share shall entail, as of right, acceptance of the Company’s by-laws and resolutions of general assemblies and of the Supervisory Board and Management Board acting upon delegations of authority from the assemblies.
Heirs, creditors, assigns or other representatives of a shareholder may not, on any grounds whatsoever, call for the affixing of seals on the assets and valuables of the Company, or call for a division or sale by auction thereof, or interfere in any manner whatsoever in the actions of its administration; for the exercise of their rights, they shall be bound by the statements of corporate assets and liabilities and resolutions of the general assembly.
Whenever it shall be necessary to hold several shares in order to exercise any right, the owners of single shares or shares in lesser numbers than that required shall be personally responsible for combining or acquiring or selling the requisite number of shares or rights.
Acquisition by the Company of its own shares Moroccan legislation In accordance with Moroccan legislation and its by-laws, the Company may acquire those of its own shares which are fully paid, up to 10% of the total of its own shares and/or of a specific class.
128 Pursuant to the CDVM’s circular 02/03, dated May 23, 2003, implementing Decree 2-02-556, dated February 24, 2003, any corporation (société anonyme), the shares of which are listed on the Securities Exchange and wishing to acquire its own shares in order to adjust the share price, shall be required to issue an information notice, which shall require approval from the CDVM prior to the holding of the assembly of shareholders called to consider the action.
The Company’s interventions relating to its own shares in order to adjust the price shall not interfere with the proper operation of the market.
A Company intervening with respect to its own shares shall inform the CDVM, no later than the fifth working day after the close of the relevant month, of the number of shares acquired and shares sold, if applicable. If the Company does not intervene with respect to its own shares during a particular month, it shall so inform the CDVM within the same period.
During the buy-back program, any change relating to the number of shares to be acquired, the maximum purchase price and minimum selling price, or the period during which the acquisition is to be performed shall be promptly notified to the public by means of a notice published in one of the newspapers authorized to carry legal advertisements, as listed by the Order of the Minister for Finance and Investments 2893-94, dated October 24, 1994, as amended, implementing Article 39 of the statutory Decree 1-93-212, dated September 21, 1993, relating to the CDVM and the information required of legal entities issuing securities to the public. Such changes shall remain within the bounds of the permission granted by the general assembly of shareholders.
French legislation From the listing of its shares on a regulated market in France, the Company shall be subject to the legislation summarized below.
Pursuant to COB Regulation 98-02 (as amended by Regulations 2000-06, 2003-02 and 2003-06), a company’s acquisition of its own shares shall be contingent, in principle, upon the filing of an information notice subject to approval by the Autorité des marchés financiers.
Pursuant to COB Regulation 90-04 (as amended by Regulations 98-03 and 2000-06), a company may not carry out transactions relating to its own shares in order to manipulate the market.
After buying back its own shares, a company must publish the details of its transactions by the end of the seventh trading day after their date of execution, and to file with the Autorité des marchés financiers monthly reports containing specific information relating to the transactions performed.
As of the date of registration of this reference document, Maroc Telecom holds none of its own shares and has not been permitted by the general assembly of shareholders to initiate a share buy-back program. It reserves the right, however, to implement such a program in compliance with applicable laws.
Changes in the Company’s share capital since its incorporation The table below sets out the main actions the Company has taken with respect to its share capital since its incorporation in 1998.
Number of Total number Par value Share capital Date Action Amount Premium shares created of shares (MAD) (MAD) 25/02/1998 .... Incorporation 100,000,000 — 1,000,000 1,000,000 100 100,000,000 25/03/1999 .... Capital increase 8,765,953,400 — 87,659,534 88,659,534 100 8,865,953,400 04/06/1999 .... Capital reduction* 75,000,000 — -750,000 87,909,534 100 8,790,953,400 08/11/2004** . Change in par value — — — 879,095,340 10 8,790,953,400
* At the time of incorporation, only one quarter of the initial share capital was paid in. As a result of this capital reduction, the share capital was fully paid in. **This change in par value was authorized by an extraordinary shareholders’ meeting held on October 28, 2004, subject to the passing of a law permitting such action, which was adopted on November 8, 2004.
Evolution or modification of ownership of the Company’s share capital over the past three fiscal years The Vivendi Universal group’s entire participating interest in Maroc Telecom was transferred to Vivendi Telecom International on December 29, 2003 as part of an internal reclassification.
129 PRINCIPAL AND SELLING SHAREHOLDERS
OWNERSHIP OF SHARE CAPITAL AND VOTING RIGHTS IN THE COMPANY As of the date hereof, the share capital and voting rights in the Company are held as follows:
%of Shares voting Shareholder Number % rights Kingdom of Morocco ...... 571,411,920 65 49.99*
Vivendi Telecom International (fully owned subsidiary of Vivendi Universal) .... 307,683,330 35** 50.01* Fathallah Oualalou ...... 10 Jean-Bernard Lévy ...... 10 El Mustapha Sahel ...... 10 Abderazak El Mossadeq ...... 10 Rachid Talbi El Alami ...... 10 Rachid Belmokhtar Benabdellah ...... 10 Jacques Espinasse ...... 10 Robert de Metz ...... 10 Françoise Colloc’h ...... 10 Total ...... 879,095,340 100 100
* Pursuant to the shareholders’ agreement, as amended, among the Moroccan government and Vivendi Universal, the Moroccan government has agreed to ensure Vivendi Universal is able to cast a majority of votes at ordinary shareholders’ meetings until the closing date of the purchase by Vivendi Universal of an additional 16% of Maroc Telecom’s shares pursuant to the assignment agreement between the Moroccan government and Vivendi Universal dated November 18, 2004. ** Pursuant to the shareholders’ agreement, as amended among the Moroccan government and Vivendi Universal, Vivendi Universal signed a pledge agreement under which it committed itself to pledge its 35% participating interest in Maroc Telecom in favor of the Kingdom of Morocco, as security for compliance with its payment obligations in connection with the purchase of an additional 16% of Maroc Telecom’s share capital pursuant to the assignment agreement between the Moroccan government and Vivendi Universal dated November 18, 2004.
AUTHORIZED CAPITAL As of the date of this offering memorandum, the Company has no other security than the shares of common stock carrying a right, directly or indirectly, at present or in the future, to the Company’s share capital. Likewise, no stock option or subscription plan has been established in favor of the staff. The Company reserves the right, however, to apply to its shareholders for permission to perform such issues or to set up such programs, in compliance with the applicable rules.
PRESENTATION OF THE MAJORITY SHAREHOLDERS At the time of its incorporation in 1998, 100% of Maroc Telecom was held by the Kingdom of Morocco. The acquisition by Vivendi Universal of 35% of Maroc Telecom’s share capital, was carried out by means of an international call for tenders launched by the Kingdom of Morocco in 2000. On this occasion, Vivendi Universal was selected as being the best among the operators who responded to the precise and non-negotiable bidding document. Vivendi Universal was therefore selected by the Kingdom of Morocco as strategic partner of Maroc Telecom and carried out the acquisition, finalized in April 2001, of 35% of the share capital of the Company for MAD 23.4 billion (€2.4 billion), the company being valued in total MAD 66.8 billion. It is important to note, however, that, as at the date of the purchase, the values of telecommunications operators were much higher than the actual value in the market. As an example, the Stoxx Telecom Index (SXKP) went from 485.49 on January 2, 2001 to 251.04 on December 31, 2003 (252.10 on September 30, 2004).
By an agreement dated November 18, 2004 (the “Agreement of Assignment of 16%”), the Moroccan government and Vivendi Universal have agreed to the sale by the Kingdom of Morocco to Vivendi Universal of a number of ordinary shares representing 16% of the capital and voting rights of Maroc Telecom for a price of MAD 12.4 billion. The assignment agreement provides that the sale will close on January 4, 2005.
Pursuant to two decisions dated November 17 and 18, 2004, the Moroccan securities regulator, the CDVM, first confirmed to Vivendi Universal that this would not have the effect of imposing any legal obligation on Vivendi Universal to file a public takeover bid over Maroc Telecom shares. Additionally, the Minister for Finance
130 and Privatizations, informed by the CDVM of the situation arising from this acquisition, informed the CDVM that, in this matter, a public takeover bid by Vivendi Universal over Maroc Telecom’s shares would be declared as inadmissible with regard to national strategic economic interests.
Furthermore, Vivendi Universal has agreed to extend, until the completion date of the acquisition, the existing pledge in favor of the Moroccan government concerning the 35% stake it indirectly holds in the share capital of the Company as security for the payment of the price of the acquisition of the 16% stake in Maroc Telecom pursuant to the Agreement of Assignment of 16%.
Vivendi Universal Vivendi Universal is a leading player in media and telecommunications, present in television and cinema (Canal+ group), music (Universal Music group), video games (Vivendi Universal Games) and fixed-line and mobile telecommunications (in France with the SFR-Cegetel group and in Morocco with Maroc Telecom). Vivendi Universal also has a long-standing and active involvement in NBC Universal of 18.5%.
Vivendi Universal is present in Europe and the United States, with an additional presence in Africa, Latin America and the Asia-Pacific region. Vivendi Universal is listed in Paris (code ISIN FR 0000 12771) and New York (Symbol V).
The Kingdom of Morocco Morocco is a constitutional monarchy, headed since July 23, 1999 by His Majesty King Mohammed VI. The King is the head of State, Commander in Chief and Commander of the Faithful.
Moroccan political life is characterized by a multiparty system, dominated by the parties of the Constitutional Union, the Popular Movement and the National Union of Independents on the center-right, and the Socialist Union of Popular Forces, the Istiqlal Party and the Progress and Socialism Party on the center-left. The general elections in November 1997 and September 2002 brought to power a broad-based coalition, confirming the choice of democratization made in Morocco, pursuant to approval of a new constitution by referendum in 1996.
The 1996 Constitution established a bicameral system. The Parliament consists of the Chamber of Representatives (elected for five years by direct universal suffrage) and the Chamber of Councilors (elected for nine years by indirect suffrage).
Arabic is the official language, and many Moroccans also speak French and Spanish.
After a 38-year reign, King Hassan II bequeathed to his successor His Majesty King Mohammed VI a stable country with all the structures of government necessary for a modern State. (See also “Kingdom of Morocco”).
SHAREHOLDERS’ AGREEMENTS Shareholders’ agreement concerning the shares of Maroc Telecom General Context At the time of the Vivendi Universal group’s acquisition of 35% of Maroc Telecom shares, the Moroccan government and Vivendi Universal entered into several agreements for the purpose of devising common strategic guides, as well as for establishing the methods of organization, operations and management of the Company.
In addition to the assignment agreement, dated December 20, 2000, under which Vivendi Universal acquired a beneficial interest in the Company as of February 20, 2001, the shareholders of Maroc Telecom entered into a shareholders’ agreement, dated December 19, 2000 (the “Shareholders’ Agreement”), and a protocol agreement, dated March 4, 2002. Further to a supplemental agreement to the Shareholders’ Agreement dated November 18, 2004 (the “Supplemental Agreement”), the Moroccan government and Vivendi Universal decided to terminate the protocol agreement dated March 4, 2002, so that their relationship as shareholders of the Company would be governed solely by the Shareholders’ Agreement, as amended by the Supplemental Agreement, and by the new by-laws of the Company adopted by the extraordinary general meeting held on November 18, 2004. In the event of a contradiction between the amended Shareholders’ Agreement and the
131 Company’s by-laws, the parties have agreed that the provisions of the amended Shareholders’ Agreement will prevail in relations between the Moroccan government and Vivendi Universal.
Under the terms of the amended Shareholders’ Agreement, Vivendi Universal, is entitled to nominate a majority of the members of the Management Board of Maroc Telecom and to cast a majority of votes on the Supervisory Board in ordinary general shareholders’ meetings.
The main terms and conditions governing the relationship between, and the respective rights of, Vivendi Universal and the Moroccan government with respect to the Company’s share capital are summarized as follows:
Organization of the powers within the management structures of Maroc Telecom Maroc Telecom is a corporation (société anonyme) governed by Moroccan law, with a Management Board and a Supervisory Board. The Supervisory Board is charged with exercising permanent control of the Company’s management, which is conducted by the Management Board. (For a detailed description of the Company’s corporate structures and their respective roles, see “Description of shares and corporate structure—General information regarding the Company”.)
Supervisory Board The amended Shareholders’ Agreement provides that the Supervisory Board, in principal, is to be composed of eight members, and that a change in the apportionment of seats on the Supervisory Board is contingent upon a change in the respective beneficial interests of Vivendi Universal and the Moroccan government in the Company’s share capital, as follows: If the pro rata share of the total voting rights held by the Moroccan government jointly with Vivendi Universal becomes: — greater than or equal to 50% but less than or equal to 65%, then five members will be appointed by the Moroccan government versus three members appointed by Vivendi Universal; — greater than or equal to 40% but less than 50%, then three members will be appointed by the Moroccan government versus five members appointed by Vivendi Universal; — greater than or equal to 30% but less than 40%, then two members will be appointed by the Moroccan government versus six members appointed by Vivendi Universal; — greater than or equal to 20% but less than 30%, then one member will be appointed by the Moroccan government versus seven members appointed by Vivendi Universal; — greater than or equal to 70% but less than 80%, then seven members will be appointed by the Moroccan government versus one member appointed by Vivendi Universal; and — greater than 65% but less than 70%, then six members will be appointed by the Moroccan government versus two members appointed by Vivendi Universal.
Pursuant to the Supplemental Agreement, the following rules will apply to the extent that the application of such rules would result in the Moroccan government nominating a number of members of the Supervisory Board greater than the number resulting from the application of the rules described above: (i) if the shareholding of the Moroccan government is more than or equal to 22% of the share capital and voting rights of the Company, three members of the Supervisory Board will be appointed by the Moroccan government and five members of the Supervisory board will be appointed by Vivendi Universal; (ii) if the shareholding of the Moroccan government is less than 22% and more than or equal to 9% of the share capital and voting rights of the Company, two members of the Supervisory Board will be appointed by the Moroccan government and six members of the Supervisory Board will be appointed by Vivendi Universal; and (iii) if the shareholding of the Moroccan government is less than 9% or more than or equal to 5% of the share capital and voting rights of the Company, one of the members of the Supervisory Board will be appointed by the Moroccan government and seven members of the Supervisory Board will be appointed by Vivendi Universal, and the Moroccan government shall be entitled to appoint a Representative of the State who shall have the right to attend the Supervisory Board without being able to vote.
132 These rules governing the allocation of the seats on the Supervisory Board shall remain applicable as long as the Moroccan government holds at least 5% of the share capital and voting rights of the Company.
Following the closing of the sale to Vivendi Universal by the Kingdom of Morocco of 16% of the shares of Maroc Telecom (scheduled to occur on January 4, 2005), three members of the Supervisory Board shall be nominated by the Moroccan government and five members of the Supervisory Board shall be nominated by Vivendi Universal. As a result, two of the members of the Supervisory Board nominated by the Moroccan government shall resign with effect from January 4, 2005 and Vivendi Universal shall nominate two new members to replace the two resigning members.
Pursuant to the above-mentioned provisions of the Shareholders’ Agreement, the Supervisory Board was initially composed of eight members, three of which represented Vivendi Universal and five of which represented the Moroccan government.
The Shareholders’ Agreement also provides that the appointment of additional members may be decided jointly by Vivendi Universal and the Moroccan government, however, in no event may such appointment upset the balance between the two in a way that would affect their respective rights under the majority rules. Pursuant to these provisions, Mrs. Françoise Colloc’h was appointed as a member of the Supervisory Board during the ordinary general assembly of shareholders which took place on March 1, 2004, thereby bringing the total number of members of the Supervisory Board to nine.
Until the transfer of ownership of the ordinary shares that are the subject of the Agreement of Assignment of 16% (scheduled to occur on January 4, 2005) in favor of Vivendi Universal, the Moroccan government has undertaken to ensure that Vivendi Universal has a majority on the Supervisory Board of the Company.
Pursuant to Moroccan law on corporations (sociétés anonymes), the decisions of the Supervisory Board are approved by a simple majority. Consequently, pursuant to the agreements entered into between these parties, Vivendi Universal has the power by contract to control the decisions taken by the Supervisory Board, with the exception of those that require a qualified majority of three fourths of the members of the Supervisory Board pursuant to the by-laws, which presently require the approval of the Moroccan government. See “Description of shares and corporate structure—Administration of the Company—Supervisory Board—Notice of meetings and proceedings”. In addition, the Supplemental Agreement also provides any decision relating to an exception to the undertaking by Vivendi Universal to nominate at least one Moroccan national to the Management Board will require the approval by three fourths of the members of the Supervisory Board and any decision related to the non-compete clause in the MENA area provided for in the Shareholders’ Agreement will require the approval of a simple majority of the Supervisory Board.
In addition, the Moroccan government holds certain, specific veto rights, independent of the percentage of its beneficial interest, that are applicable until the earlier of (i) February 20, 2014 and (ii) the date on which the Moroccan government’s stake in the Company becomes less than 14% of the share capital or voting rights in certain cases, for the duration of the Company’s existence. A description of these specific rights is provided below under “—Specific rights of the Moroccan government”.
Finally, the chairman of the Supervisory Board is appointed by the Board on the proposal of the Moroccan government, as long as the latter holds at least two seats on the Board.
Management Board The Management Board is composed of five members appointed by the Supervisory Board, of which, presently, three members were nominated by Vivendi Universal and two members were nominated by the Moroccan government. The amended Shareholders’ Agreement provides that a change in the apportionment of seats on the Management Board is contingent upon a change in the respective beneficial interests of Vivendi Universal and the Moroccan government in the Company’s share capital, as described below.
133 If the pro rata share of the Moroccan government of the total amount of voting rights held jointly by it with Vivendi Universal becomes:
— greater than or equal to 20% but less than 40%, then one member will be nominated by the Moroccan government versus four members nominated by Vivendi Universal;
— greater than or equal to 40% but less than or equal to 65%, then two members will be nominated by the Moroccan government versus three members nominated by Vivendi Universal;
— greater than 65% but less than or equal to 70%, then three members will be nominated by the Moroccan government versus two members by Vivendi Universal; and
— greater than 70% but less than or equal to 80%, then four members will be nominated by the Moroccan government versus one member nominated by Vivendi Universal.
In addition, as long as the Moroccan government holds at least 9% of the share capital and voting rights of the Company, one member of the Management Board will be appointed by the Moroccan government and four members of the Management Board will be nominated by Vivendi Universal.
These provisions will become automatically null and void in the event that the Moroccan government holds less than 9% of the share capital and voting rights of the Company.
The completion on January 4, 2005 of the assignment by the Moroccan government to Vivendi Universal of a shareholding representing 16% of the share capital and voting rights of the Company shall not entail any changes in the composition of the Management Board and the allocation of seats in the Management Board described above.
General shareholders’ meetings
Until the transfer of ownership of the shares that are the subject of the Agreement of Assignment of 16% (scheduled to occur on January 4, 2005) in favor of Vivendi Universal, the Moroccan government has undertaken to ensure that Vivendi Universal holds a simple majority of votes at ordinary general meetings.
Audit Committee
As long as the Moroccan government holds at least 5% of the share capital and voting rights of the Company, at least two members of the Audit Committee of Maroc Telecom will be appointed by the Moroccan government and this committee’s internal regulations shall provide for the possibility for any member of the Audit Committee to ask the Audit Committee to carry out an audit of the Company and the obligation for the Audit Committee to rule on any formal request submitted by at least two members of the Audit Committee to carry out such an audit.
Specific rights of the Moroccan government
The Moroccan government also holds a right of veto with respect to certain matters concerning the Company, including specifically:
— the right to veto a plan of merger, divestment or partial contribution of assets that is likely to substantially modify the scope of the Company’s business activities or substantially modify the Company’s corporate purpose, unless Vivendi Universal demonstrates to the Moroccan government on objective and reasonable grounds a strategic purpose for the Company for such a plan. This right is valid until the earliest of the two following dates: (i) the date on which the Moroccan government ceases to hold at least 14% of the share capital and voting rights of the Company or (ii) February 20, 2014; and
— the right to veto a transfer of Maroc Telecom shares by Vivendi Universal to any entity, including to a subsidiary, that might affect the national interests of the Kingdom of Morocco (mainly for reasons related to public order, public security, national defense or the delivery of telecommunications services within the Moroccan territory). This right is valid throughout the duration of the Company’s existence.
134 Conditions for transfers of shares and rights of the parties — “Standstill” obligation of Vivendi Universal So long as at least 30% of the share capital and of the voting rights of the Company is not traded on a stock market, during the period expiring on February 20, 2006, Vivendi Universal is forbidden from buying shares, directly or through an affiliate or entity acting in concert with Vivendi Universal or with its affiliates, unless the beneficial interest of a third party surpasses a threshold of 10%. In this latter event, Vivendi Universal will have the right to increase its beneficial interest in the Company; however, Vivendi Universal’s beneficial interest thus increased may not exceed 40% of the Company’s share capital. In such a case, the Shareholders’ Agreement further provides for a ceiling of 40% of the voting rights. After February 20, 2006, the parties will exercise their best efforts to cause the number of shares of the Company traded on the stock market to increase to at least 15% of the share capital and/or the voting rights of the Company. — Right of priority (Droit de priorité) of Vivendi Universal If the beneficial interest of the Moroccan government falls below the threshold of 30%, Vivendi Universal may exercise a right of priority on 16/30ths of all transfers of shares made by the Moroccan government below this 30% threshold until Vivendi Universal shall hold shares representing more than 50% of the share capital and/or the voting rights of the Company. In addition, notwithstanding the “stand-still” commitment by Vivendi Universal described above, Vivendi Universal shall benefit from a right of pre-emption in the event of an assignment by the Moroccan government of all or part of its shares until February 20, 2010 (inclusive). — Call option of the Moroccan government Vivendi Universal would be obligated to transfer to the Moroccan government its beneficial interest in the Company, held directly or through its subsidiaries, in the event of a change in the control of Vivendi Universal where such change would impact competition in the market (situation concurrentielle)in Morocco, which translates into an obligation of Vivendi Universal, imposed by the Moroccan competition authorities, to transfer all or a portion of its beneficial interest in the Company and/or a transfer by the Company of one of its business activities representing at least 25% of its revenues. This provision will remain in effect as long as the Moroccan government holds at least 20% of the total amount of voting rights held jointly with Vivendi Universal. — Pro rata tag-along right of the Moroccan government In the event of a transfer of shares by Vivendi Universal between February 21, 2008 and February 20, 2010 (inclusive) that does not trigger a mandatory public tender offer, the Moroccan government shall benefit from a pro rata tag-along right. However, this tag-along right shall not apply in the event of a transfer between companies within the Vivendi Universal group (i.e., between Vivendi Universal and/or any company/companies in which Vivendi Universal holds at least two thirds of the share capital and voting rights). — Restrictions on Transfer by Vivendi Universal Vivendi Universal has undertaken to the Moroccan government to refrain from transferring, directly or indirectly, or pledging, its shares of the Company before February 20, 2008, without the prior written consent of the Moroccan Minister of Finance and Privatization. Vivendi Universal may nonetheless transfer all or a portion of its shares for the benefit of a subsidiary in which it holds more than a two-thirds interest, on the condition that Vivendi Universal repurchase the beneficial interest of this subsidiary in the Company if Vivendi Universal’s beneficial interest in the share capital of this subsidiary fell below the threshold of two thirds. In the event of this transfer taking place, the said subsidiary will be obligated to adhere to the terms of the Shareholders’ Agreement. — Restrictions on Transfer by the Moroccan government The Moroccan government is obligated to refrain from transferring shares of the Company to another telecommunications operator or to a subsidiary of such operator off the market (hors marché). Moreover, in the event of a transfer of shares off the market (hors marché) to a transferee that is not a telecommunications operator, the Moroccan government is obligated (i) to refrain from transferring more than 15% of the share capital and/or the voting rights of the Company as a unit and (ii) to insure that the transferee does not hold, directly or indirectly, more than 18% of the share capital and/or the voting rights of the Company in total. This provision is stipulated for a period of five years from the date of Vivendi Universal’s initial acquisition of the share capital of Maroc Telecom (i.e., until February 20, 2006).
135 In addition to these restrictions on the ability of the Moroccan government to transfer shares in the Company, applicable until February 20, 2006, the Moroccan government has undertaken, for so long as Vivendi Universal controls the Company (within the meaning of the provisions of Article 144 of Moroccan Law n° 17-95 on sociétés anonymes) not to assign any shares in the Company either (i) to a telecommunications operator or (ii) to a direct competitor of Vivendi Universal as of November 17, 2004, except with the consent, in each case, of Vivendi Universal.
Real property In connection with any transfer of ownership of real or personal property allocated to charitable works falling within the private domain of the State to the Company which should be made in the form of a remunerated contribution through an increase in the share capital in favor of the Moroccan government, the latter has undertaken to reconvey to Vivendi Universal, simultaneously with the increase in capital and at no cost, a percentage of the shares issued at the time of this increase in capital equal to the percentage of the capital of the Company held by Vivendi Universal prior to the realization of these assets, it being specified that for the requirements of this article, Vivendi Universal is deemed to have held the shares being subject of the Assignment Agreement of 16% since November 18, 2004.
Shareholders’ agreement concerning the shares of Mauritel S.A. On April 12, 2001, Maroc Telecom acquired 54% of the share capital of the historical Mauritanian operator, Mauritel S.A. At the time of this acquisition, the Islamic Republic of Mauritania and Maroc Telecom entered into a shareholders’ agreement, under the terms of which Maroc Telecom obtained the right to appoint members of the Board of Directors of Mauritel S.A. in proportion to the beneficial interest that it holds (four members out of seven, as long as it holds more than 50% of the share capital). Until June 30, 2004, the Mauritanian state benefited from a right of veto with respect to significant operations (including, in particular, modification of the legal structure of Mauritel S.A., approval of the budget and of the business plan, fixing the annual dividend, and the conclusion of financial assistance (concours financier)). The agreement provides for a payment of dividends at the level of 30% of the consolidated results of the Mauritel group, insomuch as such a distribution is legally possible and would not compromise the fulfillment of objectives set in the business plan or upset a sound financial equilibrium. In addition, Maroc Telecom is obligated to refrain from transferring shares of Mauritel S.A. before June 30, 2004, except for a transfer within the group or a transfer of 3% of the share capital to the employees of the Mauritanian operator.
On June 6, 2002, Maroc Telecom transferred its beneficial interest of 54% in Mauritel S.A. to the controlling holding company Compagnie Mauritanienne de Communications (CMC), and then transferred 20% of the share capital of CMC to Mauritanian investors. At the time of this transfer, Maroc Telecom and the Mauritanian investors entered into a shareholders’ agreement under which each shareholder holds management rights with respect to CMC in proportion to the levels of its beneficial interest. In reference to this transfer, CMC replaced Maroc Telecom in the shareholders’ agreement. Finally, under the terms of the shareholders’ agreement, CMC transferred 3% of the share capital of Mauritel S.A. to the employees of the Mauritanian operator, thus bringing its beneficial interest to 51% of the share capital of Mauritel S.A.
Each of the parties holds a right of pre-emption with respect to the beneficial interest of the other party. All transfers are subject to approval by the board of directors of Mauritel S.A. The agreement also contains a drag right (droit de suite) allowing the State to sell to the acquirer of the beneficial interest in Maroc Telecom the same percentage of shares acquired from Maroc Telecom.
Shareholders’ Agreement concerning the shares of GSM Al Maghrib On July 8, 2003, Maroc Telecom acquired 35% of the share capital of the distributor GSM Al Maghrib. At the time of this acquisition, the Amrouni family (holder of 25%), Air Time (holder of 40%), and Maroc Telecom (holder of 35%) entered into a shareholders’ agreement governing the relationship among the shareholders. The agreement provides for a promise to sell (promesse de vente) by the Amrouni family in favor of Maroc Telecom with respect to 16% of the share capital of GSM Al Maghrib, which would allow Maroc Telecom to hold 51% of the share capital. This promise (promesse) is valid until December 31, 2005. The transfer price of this 16% will be fixed on the basis of a valuation of the business activity established by the reports of two independent experts, each appointed by one of the parties, and in the case of disagreement among the two experts, by the determination of one expert appointed by the two independent experts. All transfers of shares to a third party not a shareholder are forbidden before this date. All transfers among shareholders until this date are subject to a right
136 of pre-emption benefiting the other shareholders. The agreement also governs the management of the company and in particular, the appointments of its directors (four appointed by Maroc Telecom, four appointed by Air Time, and two appointed by the Amrouni family). Upon Maroc Telecom’s acquisition of the majority of the share capital, the board of directors, composed of nine directors, will be allocated among five members proposed by Maroc Telecom and four members proposed by Air Time. The decisions by the board of directors are taken by a two-thirds majority of the members for a term equal to twice the term elapsed between the date of the acquisition of 35% of the share capital by Maroc Telecom and the date of the increase to 51% of the share capital of GSM Al Maghrib.
137 KINGDOM OF MOROCCO
The presentation of the Kingdom of Morocco has been prepared by the Ministry of Finance and Privatization on the basis of various sources which have not been subject to an independent review by the Company.
KEY GEOGRAPHIC AND DEMOGRAPHIC DATA IN THE KINGDOM OF MOROCCO Morocco has a total surface area of 710,850 km², and total population of 30.088 million, with a population density of 42.3/km². The urban population accounts for 57.3% of the total population. 30.2% of the population is under the age of 15, 62.2% between the ages of 15 and 59, and 7.6% aged 60 or older (Source: Senior Planning Commissariat—Directorate of Statistics, populations projections as of July 1, 2003).
THE POLITICAL ENVIRONMENT IN THE KINGDOM OF MOROCCO The political environment The process of democratization and increased political transparency in Morocco, initiated in recent years, continues apace. This commitment to democratization and political transparency, which improves year after year, results from a series of political and institutional reforms guided by the intent to establish a balanced system of powers, to consolidate the rule of law, and to protect and promote human rights.
This has been the impetus for the creation of various agencies in recent years, such as the Advisory Panel on Human Rights, the Administrative Courts and Diwan Al Madalim, whose duties are similar to those of an ombudsman in charge of ensuring compliance with the rule of law and remedying any injustice committed by the public authorities, and, more recently, the Senior Authority on Audiovisual Communication, which is in charge of securing the implementation and observance of the principles of freedom of speech, pluralism and neutrality by the operators of audiovisual communication.
Morocco has also enacted major electoral reforms, which have had the effect of allowing the electorate to choose candidates on the basis of the programs of their political parties. Accordingly, as in general elections, all political parties participated in the local election held on September 12, 2003, which was judged by the national and international observers to be free and fair. It was carried out according to the provisions of the Communal Charter, which is designed to ensure that decentralization and local democracy are built upon a solid foundation, in particular through the principle of choice of the unity of cities.
The advancement of women is also considered as one of the mainstays of democracy and modernity in the country. The Family Code recently adopted unanimously by both Chambers of Parliament, which enshrines the equality of both spouses in their rights and duties, corroborates the importance granted to this aspect of the democratic process in Morocco.
Moreover, the recently passed Labor Code ensures that Morocco’s labor regulations are consistent with the needs of employers.
The government’s objectives In his statement on July 10, 2003, the Prime Minister presented to the Chamber of Representatives the Government’s overall economic and social strategy, which is in line with the Royal Directives and consists in reinforcing the foundations for a modern and effective economy and a cohesive and caring society. This strategy is based notably on the following objectives: — controlling the balance and stability of the macroeconomy as a factor in improving medium- and long-term stability for participants in the economy and society more broadly, reinforcing partners’ confidence in the Government’s policies and enhancing the country’s credibility and attractiveness to investors and the international capital markets; — accelerating the establishment of a diversified and high-qualify network of infrastructure, and supporting the modernization of production facilities with a view to improving their effectiveness and competitiveness in order to meet the challenges of opening up to international competition; — improving the country’s competitiveness and attractiveness through the establishment of a series of reforms redefining the State’s role with respect to production activities, ensuring the Moroccan economy’s
138 integration into the global economic system, revamping of the public sector and adapting public authorities and public management to the requirements of the economy and economic efficiency; — creating a labor relations environment suitable for production, productivity and creativity through dialog and consultation with and among the various parties, and establishing a new, modern legal basis for labor law, the right to strike and welfare coverage; — developing education and training systems, and intensifying the struggle against illiteracy; and — implementing a community policy to assist the suburban and rural populations, with emphasis in particular on housing, health and the reduction of social and regional discrepancies in wealth. Likewise, the Government will take specific action to aid the welfare of those classes of the population suffering from poverty and marginalization, particularly women and children in need.
PRESENTATION OF THE MACROECONOMIC SITUATION OF THE KINGDOM OF MOROCCO Economic growth The Moroccan economy grew of 5.2% in 2003, raising the average annual growth rate for the period 2001- 2003 to approximately 5% (Source: Ministry of Finance and Privatization). This performance is the result of a substantial improvement in non-farm production, in particular within the building and public works sector, the manufacturing sector, the transportation sector, the communications sector, and trade.
This expansion of economic activity is also reflected in other indicators such as the growth in consumer lending, in particular for the acquisition of durable goods and real estate, which rose approximately 13.5% and 12%, respectively, relative to 2002 (Source: Ministry of Finance and Privatization).
In addition, the pace of growth is expected to accelerate in coming years, thanks in particular to the effects of the economic and social reforms initiated which are beginning to bear fruit, and to the various investment incentive and assistance measures (regional investment centers, more flexible governmental procedures, development of industrial and tourist estates, establishment of financing mechanisms that meet businesses’ requirements, etc.).
Moreover, the Moroccan government’s efforts in the area of infrastructure, aimed mainly at the tourist sector, the housing sector, the motorways program and harbor facilities, should enable Morocco to take a stride forward in the quantity and quality of its growth in coming years.
Finally, the improved atmosphere of labor relations in the country, through a program of institutionalized social dialog, should allow the achievement of improved economic performance, both microeconomic and macroeconomic.
The adoption of the Labor Code is the result of improved labor relations and itself reinforces the stability of relations within companies. As an illustration, the number of strikes observed during 2003 amounted to 149, as compared to 439 in 2002, a 66% decline (Source: Ministry of Finance and Privatization).
Balance of payments The current account of the balance of payments recorded a surplus of almost 3.6% of GDP in 2003 and 4.2% of GDP on average over the period 2001-2003 (Source: Ministry of Finance and Privatization).
Tourist receipts rose 5.5% to MAD 30.8 billion in 2003, confirming foreign tourists’ confidence in Morocco as a destination despite the events of March 16, 2003 and tensions connected in particular with the war in Iraq. In relation to average receipts for the years 1998 to 2002, receipts from tourism were up 32.8% (Source: Ministry of Finance and Privatization).
Remittances from Moroccans resident abroad also rose by approximately 9.5% to MAD 34.7 billion in 2003. In relation to the average for the years 1998 to 2002, these receipts increased by 33.8% (Source: Ministry of Finance and Privatization).
Foreign investment and private loans more than tripled compared to 2002, reaching 23.6 billion in 2003 (Source: Ministry of Finance and Privatization).
139 Accordingly, and as a result of these changes, Morocco’s foreign reserves have strengthened further. At the end of December 2003, the net foreign holdings of Bank Al Maghrib amounted to almost USD 14 billion, covering almost 100% of the outstanding public foreign debt (direct and secured). These foreign holdings represent almost ten months of imports of goods and non-factor services (Source: Ministry of Finance and Privatization).
Monetary situation and inflation At the end of 2003, the money supply in the broad sense (M3) saw a rise of 8.8% including: — an increase in lending to the economy, since bank lending to the economy rose by 8.7% in relation to 2002 and 80.2% was destined for businesses and individuals; and — a substantial rise in net foreign holdings, of 15.1%.
On the other hand, claims on the Treasury fell 2.7%.
The rate of inflation, measured by the retail price index, came to 1.2% in 2003, as compared to 2.8% in 2002. This evolution is due to the cautious monetary policy carried out by public authorities and to slower growth in the price of food products in relation to 2002. In fact, the average annual rate of inflation recorded since 1998 has remained below 2% (Source: Ministry of Finance and Privatization).
Public finance Partially as a result of the implementation of the Finance Act 2003, the overall fiscal deficit fell to 3.6% of GDP, as compared to 4.3% in 2002. This reduction in the level of the fiscal deficit was due to the faster increase in ordinary income, despite the removal of tariffs, compared with overall expenditure.
The Government’s goal was indeed to be able to reduce the fiscal deficit substantially as early as fiscal year 2003. However, the events of May 16, 2003 made emergency action in the following areas essential: — reinforcing the country’s security in order to avoid the repetition of such events; — consolidating the stability of social relations in the country, in particular through the implementation of actions deemed necessary as part of establishing social dialog; and — refocusing the Government’s priorities in order to establish closer relations between the public authorities and the underprivileged social classes, in particular through the accelerated implementation of public housing programs (over 4,000 hectares of land in the public domain have already been mobilized for this purpose in 2003), electrification and the provision of drinking water in rural and suburban areas.
This action did have a fiscal cost, but, importantly, it also allowed the events of May 16, 2003 to be quickly relegated to the past. This fact is demonstrated by the substantial increase in national and foreign private investment, the continued process of privatization, Morocco’s bond issue on good terms on the international financial market barely two months after the events of May 16, 2003, resumed economic growth and the adoption of far-reaching reforms (the Labor Code, the Family Code) which should have the effect of improved prospects for the evolution of the country’s economy and society towards progress and modernity.
With this difficult period now past, the fiscal policy initiated by the Government will focus particularly on continued control of public spending in order to maintain the fiscal deficit at a sustainable level.
Control of public spending will be achieved in particular through a reduction in public payroll costs, a rationalization of public spending, continued active management of debt and an optimization of tax receipts (Source: Ministry of Finance and Privatization).
Public debt The total public debt, over 100% of GDP in 1995, fell to under 84% of GDP in 2002 and amounted to 79% of GDP in 2003.
The outstanding public foreign debt has fallen from almost USD 22.6 billion in 1995 to USD 14.3 billion in 2003, a fall of almost 38% between 1995 and 2003. In parallel with this improvement in debt indicators, the structure of the portfolio of foreign public debt has also improved.
140 As for the stock of the Treasury’s national debt, it amounted to MAD 211.6 billion, an increase of almost 10.5%. This increase is due to arbitrage in favor of national finance, based in particular on the following factors: — more favorable financing terms: the weighted average rate for Treasury financing on the national tender market amounted to 4.3% in 2003; — the absence of foreign exchange risk; and — the need for the Treasury to secure a permanent presence on the tender market in order to stimulate it, even when there are sufficient cash assets.
It is also important to stress that, despite this upward trend in outstanding Treasury foreign debt, the ratio of the total Treasury debt (national and foreign) to GDP continued to improve at 68.1% in 2003 as compared to 71.4% in 2002 and 79.1% in 1997 (Source: Ministry of Finance and Privatization).
Continued reform in the banking and financial sectors Morocco is pursuing its policy of implementing structural and sectorial reforms. These reforms should contribute to a large extent to an improved economic and social environment in the country, and create favorable conditions for sustainable growth.
As regards the financial sector more specifically, and after the reforms initiated in the early 1990s, Morocco initiated in 2003 a new generation of reforms, designed to: — reinforce the prudential rules applicable to lending institutions, in order to align them with the international best practice; — restructure and consolidate public financial institutions; — reinforce the Bank Al Maghrib’s supervisory powers over banking operations and reinforce its independence from the public authorities in the conduct of monetary policy through the adoption of the act amending its by-laws and the adoption of the “Banking Act”; these two bills are currently under discussion in Parliament; and — bolster the development of the capital markets through the adoption of several statutes. This legislation, enacted in April 2004, relates to the Securities Exchange, undertakings for collective investment in transferable securities, public offers on the stock exchange, repos, the CDVM and the central depositary.
These reforms, among others, are aimed at making the Moroccan economy competitive and integrating it into the global economy, as well as permitting the economy to respond to far-reaching changes in the international environment.
141 TAXATION
MAROCCAN AND FRENCH TAX CONSIDERATIONS Moroccan tax treatment Investors should beware that the summary of tax rules applicable in Morocco set out below is for illustrative purposes only and does not constitute an exhaustive discussion of all potential tax situations applicable to each investor. Accordingly, each investor should obtain advice from its usual tax advisor as to the tax treatment applicable to its specific situation, and in particular the consequences of the acquisition, holding or transfer of the ordinary shares.
The tax rules applicable in Morocco with respect to dividend pay-outs are governed by Act no. 24-86 on corporate income tax for companies (IS) and Act no. 17-89 on the General Income Tax (IGR) for individuals.
The proceeds of shares (dividends) collected by individuals or companies resident in Morocco or not, are subject to a 10% withholding tax. Companies involved in the payment of such proceeds shall be responsible for payment of the withholding tax to the Treasury.
Companies having their registered offices in Morocco are exempt from this withholding tax, provided that they deliver to the paying agent attestations of title to the shares, including the number of the article of their IS imposition in Morocco.
It should be noted that dividends paid to residents of countries with which Morocco has entered into tax treaties can benefit from a rate of less than 10% if these treaties provide for such a rate. Further, such persons are usually entitled to credit the tax paid in Morocco with the tax authorities in their own countries according to the procedures eliminating double taxation.
Moroccan exchange control legislation permits foreign shareholders to transfer dividends abroad.
French tax treatment Investors should note that the French tax treatment presented below is provided for information only, and does not constitute an exhaustive discussion of all the tax situations that may apply to each investor. Accordingly, each investor should obtain advice from their usual tax advisers regarding the tax treatment applicable to their specific situation and in particular to the acquisition, holding or transfer of shares of the Company.
Individuals holding shares as part of their personal assets and not performing stock exchange transactions on a regular basis Dividends Dividends paid out by the Company are subject to income tax at progressive rates in France.
The shareholder is allowed a tax credit (which, unlike the avoir fiscal eliminated as of January 1, 2005, will continue to apply) chargeable against the amount of French income tax relating to such income, in accordance with Article 25-2 of the Convention signed on May 29, 1970 between the French Republic and the Kingdom of Morocco (the “Convention”). According to information from the Director of Tax Legislation, the amount of such tax credit amounts to 33 1⁄3% of the net amount of dividends collected (after deduction of the withholding tax charged in Morocco).
The net dividends collected, plus the attached tax credit, shall be taken into account to determine the taxpayer’s overall income in the class of proceeds from securities and shall be subject to income tax at a progressive scale, to which are added, for dividends collected on or after January 1, 2004: — the Contribution Sociale Généralisée of 8.2%, 5.1% of which is deductible from the overall taxable income; — the 2.0% Prélèvement social; — the 0.3% Contribution additionnelle au Prélèvement social of 2.0%; and — the Contribution pour le remboursement de la Dette sociale at the rate of 0.5%. The dividends paid out by the Company are not eligible for imputation tax credit.
142 However, dividends paid out by the Company pursuant to a valid resolution of the Company and collected on or after January 1, 2005 shall be taken into account, for the purposes of computation of income tax, to the extent of 50% of their amount. In addition, they shall be eligible for an annual allowance of €2,440 for married couples taxed jointly and for partners taxed jointly starting with the taxation of income for the year of the third anniversary of registration of a PACS agreement defined under Article 515-1 of the French Civil Code, and of €1,220 for taxpayers who are single, widowed, divorced or married and taxed separately. The 50% allowance shall apply before the allowance of €1,220 or €2,440.
In addition, taxpayers resident in France for tax purposes as defined under Article 4 B of the French Tax Code (CGI) may be eligible in respect of such dividends for a tax credit of 50% of the amount of taxable dividends before the allowance.
Pursuant to the draft French Finance Bill for year 2005 currently under discussion before the French Parliament, the tax regime applicable to individuals having entered into a PACS agreement would be identical to the one applicable to married couples.
Such credit shall be allowed to the extent of €230 annually for married couples taxed jointly and for partners taxed jointly starting with the taxation of income for the year of the third anniversary of registration of a PACS agreement defined under Article 515-1 of the French Civil Code, and of €115 for taxpayers who are single, widowed, divorced or married and taxed separately.
Investors should note that dividends denominated in Moroccan dirhams shall be converted, for the purposes of taxation in France, into euro by applying the exchange rate in Paris on the date of collection of such dividends. If there is no listing on that day, the average trading price applied at a sufficiently close date is to be used.
Capital gains Pursuant to Article 150-0 A of the French Tax Code, capital gains realized by individuals are subject, from the first euro, to income tax at the 16% proportional rate if the global amount of the sales of securities and other rights or stock referred to in Article 150-0 A of the French Tax Code (outside of exempted sales of securities held in the context of an equity savings plan) realized during the calendar year exceeds, per tax home, a threshold currently set at €15,000.
Under the same condition for the annual amount of sale of securities, the capital gain is also subject to: — Contribution Sociale Généralisée at the rate of 8.2%, not deductible from the basis of the income tax; — the 2.0% social withholding, not deductible from the basis of the income tax; — the additional contribution to the social withholding at the rate of 0.3%; and — Contribution pour le remboursement de la Dette sociale at the rate of 0.5%, not deductible from the basis of the income tax.
Possible capital losses may offset gains of the same type realized during the year of sale or the following ten years (for losses incurred from January 1, 2002), provided that the sale threshold referred to above was exceeded during the year that the capital loss was realized.
Companies liable to pay corporate income tax Dividends The dividends paid out by the Company shall be subject to corporate income tax in France.
In accordance with Article 25-2 of the Convention, the shareholder is granted a tax credit chargeable against the amount of French corporate income tax. According to information from the Director of Tax Legislation, the amount of such tax credit equals 33 1⁄3% of the net amount of dividends collected (after deduction of the withholding tax charged in Morocco). Such tax credit may not, however, exceed the amount of French corporate income tax relating to such dividends. No surplus tax credit may be used against the French taxes payable in respect of other sources of income, or be refunded or carried forward.
The dividends collected, plus the related tax credit, shall be included in the income subject to corporate income tax at a rate of 33 1⁄3%.
An additional contribution of 3% of the gross amount of corporate income tax and a welfare contribution of 3.3% of the gross amount of corporate income tax in excess of €763,000 per 12-month period, shall be added thereto.
143 Pursuant to the draft French Finance Bill for year 2005 currently under discussion before the French Parliament, the 3% corporate income tax surcharge would be reduced to 1.5% for fiscal years closed as from January 1, 2005 and to zero for those closed as from January 1, 2006.
However, for companies with revenues of less than €7,630,000 and the share capital of which, fully paid in, has been held uninterruptedly for the duration of the fiscal year concerned to the extent of 75% at least by individuals or by a company meeting all such requirements, the rate of corporate income tax is set, to the extent of €38,120 of taxable profit per 12-month period, at 15%. Such companies are in addition exempt from the 3.3% welfare contribution mentioned above.
Companies eligible for participation exemption treatment Companies meeting the requirements of Articles 145 and 216 of the CGI are eligible to elect an exemption for dividends collected pursuant to the parent company exemption regime. Article 216 I of the CGI, however, provides for the taxation in the taxable income of the legal entity receiving the dividends, of a portion of costs and expenses set at a fixed rate of 5% of the amount of dividends collected, including the traditional tax credit granted under a tax treaty. For each taxable period, however, such portion may not exceed the total amount of costs and expenses of all kinds incurred by the company collecting the dividends during the same period.
Pursuant to parent company exemption regime, the traditional tax credit attached to the dividends collected may not be used against the amount of corporation tax.
Investors should note that dividends denominated in Moroccan dirhams shall be converted, for the purposes of taxation in France, into euro by applying the exchange rate in Paris on the date of collection of such dividends. If there is no listing on that day, the average trading price applied at a sufficiently close date shall be used.
Capital gains Capital gains realized and capital losses incurred during the disposal of shares other than equity participation (titres de participation) are included in the profits subject to corporate income tax at the normal rate (i.e., in principle at the current rate of corporate income tax of 33 1⁄3%, increased with the additional 3% contribution (Article 235 ter ZA of the French Tax Code)) and the social contribution on profits, if any, of 3.3% computed on the amount of the corporate income tax reduced by an amount that cannot exceed €763,000 per 12-month period (Article 235 ter ZC of the French General Tax Code).
The Finance Bill for 2005 is expected to reduce the additional contribution rate from 3% to 1.5% for the fiscal year ending after January 1, 2005 and to fully eliminate the contribution for the fiscal years ending after January 1, 2006.
Nonetheless, in accordance with the provisions of Article 219-I-a ter of the French Tax Code, the net gains realized with respect to the sale of shares held for more than two years and considered titres de participations for accounting purposes, or assimilated from a tax standpoint to titres de participations, are eligible for the long-term capital gains regime.
Those shares that are titres de participations for accounting purposes and those shares eligible for the parent company exemption regime provided for in Articles 145 and 216 of the French General Tax Code or shares whose acquisition price is at least equal to €22,800,000, provided that they are reported as titres de participations or in a special sub-account, shall in particular constitute titres de participations, as well as shares acquired in a take-over bid or an exchange offer by the company initiating it.
Such gains are subject to corporate income tax at the reduced rate currently set at 19%, increased by the aforementioned additional 3% contribution and the social contribution on profits, if any, of 3.3%, provided that the condition to book and maintain the special reserve on long-term capital gains is met.
Capital losses subject to the long-term regime may be off-set against capital gains of the same nature for the fiscal year during which they are claimed or, in case of a net long-term capital loss for such fiscal year, of any of the following ten fiscal years. Such capital losses are in principle not deductible from the taxable earnings at the normal rate of corporate income tax.
Some legal entities may, under the conditions of Articles 219-I-b and 235 ter ZC of the French Tax Code, benefit from a decreased rate of corporate income tax of 15% up to a total of €38,120 per 12-month period and an exemption from the 3.3% social contribution.
144 U.S. FEDERAL INCOME TAX CONSIDERATIONS The following summary is a general discussion of certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of ordinary shares by a U.S. Holder (as defined below). It is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the U.S. Treasury Regulations promulgated thereunder (the “Regulations”), published rulings by the U.S. Internal Revenue Service (the “IRS”) and court decisions, all in effect as of the date hereof, all of which authorities are subject to change or differing interpretations, which changes or differing interpretations could apply retroactively. The discussion below does not purport to deal with the U.S. federal income tax consequences applicable to all categories of investors and is directed solely to U.S. Holders that hold such ordinary shares as capital assets. This discussion does not address every aspect of U.S. federal income tax law that may be relevant to a holder of ordinary shares in light of its particular investment circumstances or to certain types of holders of ordinary shares that are subject to special treatment under U.S. federal income tax law (including, but not limited, to banks, insurance companies, financial institutions, tax-exempt organizations, regulated investment companies, dealers or traders in securities or currencies, holders of 10% or more (directly, indirectly or constructively) of the voting stock of the Company or its affiliates, non-United States persons, persons utilizing mark-to-market tax accounting, persons holding ordinary shares as a hedge against currency risks or as a position in a “straddle”, “conversion transaction” or “constructive sale” transaction for U.S. federal income tax purposes, persons subject to alternative minimum tax, certain United States expatriates, persons whose functional currency is not the U.S. dollar and persons that hold ordinary shares through partnerships or other pass-through entities).
This summary does not discuss the tax consequences of the purchase, ownership or disposition of ordinary shares under the tax laws of any state, locality or foreign jurisdiction. Investors considering an investment in ordinary shares should consult their own tax advisors in determining the U.S. federal, state, local and foreign and any other tax consequences to them of an investment in ordinary shares and the purchase, ownership and disposition thereof.
As used in this section, the term “U.S. Holder” means a beneficial owner of the ordinary shares that is, for U.S. federal income tax purposes (i) a citizen or individual resident of the United States; (ii) a corporation, or other entity treated as a corporation, created or organized in, or under the laws of, the United States, any state thereof or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined under the Code) have the authority to control all substantial decisions of the trust or a trust that has made a valid election under applicable Regulations to be treated as a domestic trust. If an entity treated as a partnership holds ordinary shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A partner in a partnership holding ordinary shares should consult its own tax advisor.
Taxation of distributions on the ordinary shares Distributions made by the Company with respect to the ordinary shares, other than certain pro rata distributions of ordinary shares or rights to acquire ordinary shares, will generally constitute ordinary dividend income for U.S. federal income tax purposes to the extent such distributions are made from the Company’s current or accumulated earnings and profits as determined in accordance with U.S. federal income tax principles. To the extent that a distribution exceeds the Company’s current and accumulated earnings and profits, it will be treated as a non-taxable return of basis to the extent thereof, and thereafter as capital gain from the sale of ordinary shares. U.S. Holders will not be entitled to claim a dividends received deduction otherwise available to corporations with respect to dividends distributed by the Company.
The Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will generally be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as a capital gain under the rules described above.
Generally, a U.S. individual who owns stock in a foreign corporation would be eligible for a reduced tax rate (generally 15%) with respect to dividends received from the foreign corporation on or before December 31, 2008, provided that (1) the foreign corporation is eligible for the benefits of a comprehensive income tax treaty with the United States, (2) the foreign corporation is not a “passive foreign investment company,” and (3) the
145 holder meets certain holding period requirements with respect to the stock. The Company believes that it is eligible for the benefits of a comprehensive income tax treaty with the United States and that it is not a “passive foreign investment company” (see “—Passive foreign investment company considerations”) and, therefore, that U.S. Holders who are individuals and who meet the applicable holding period requirements will be eligible for the reduced tax rate. There can be no assurance, however, that all the requirements for the reduced tax rate will be met in the current or any future taxable year. Prospective holders should consult their own tax advisors regarding the availability of the reduced tax rate on dividends.
Dividends paid in foreign currency will be included in income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received regardless of whether the foreign currency is converted into U.S. dollars at that time. If dividends received in foreign currency are converted into U.S. dollars on the day they are received, the U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income.
A distribution of additional shares to U.S. Holders with respect to their ordinary shares that is made part of a pro rata distribution to all shareholders generally will not be subject to U.S. federal income tax unless shareholders can elect that the distribution be payable in either additional shares or cash.
For purposes of calculating the foreign tax credit, dividends paid on the ordinary shares will be treated as income from sources outside the United States and will generally constitute “passive income” and, for taxable years beginning after December 31, 2006, “passive category income.” In addition, any Moroccan tax withheld on such dividends, subject to limitations and conditions and at the election of the U.S. Holder, generally would be eligible for credit against such holder’s U.S. federal income tax liability or a deduction in computing taxable income, to the extent such tax is not otherwise refundable. Prospective holders are urged to consult with their own tax advisors regarding the creditability, deductibility or refundability of any withholding taxes and the availability of the foreign tax credit under their particular circumstances.
Taxation on disposition of ordinary shares
A U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes on the sale or other disposition of ordinary shares in an amount equal to the difference between the amount realized on the sale or other disposition and such U.S. Holder’s tax basis in the ordinary shares. Gain or loss recognized by a U.S. Holder on such sale or other disposition generally will be long-term capital gain or loss if, at the time of sale or other disposition, the ordinary shares have been held for more than one year. The deductibility of capital losses is subject to significant limitations. Any gain or loss will generally be U.S. source.
A U.S. Holder that receives foreign currency on the sale or other disposition of the ordinary shares will realize an amount equal to the U.S. dollar value of the foreign currency on the date of sale or other disposition (or in the case of cash basis and electing accrual basis taxpayers, the settlement date). A U.S. Holder’s tax basis in the ordinary shares generally will be the U.S. dollar value of the purchase price on the date of the purchase or in the case of ordinary shares traded on an established securities market, as defined in the application Regulations, that are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), on the settlement date for the purchase. Gain or loss, if any, recognized by a U.S. Holder on the sale of ordinary shares that is attributable to changes in exchange rates generally will be treated as U.S. source ordinary income or loss. However, such exchange gain or loss will be taken into account only to the extent of total gain or loss realized on the sale.
Exchange of foreign currency
A U.S. Holder will have a tax basis in foreign currency received as a distribution under or on the sale or other disposition of the ordinary shares equal to the U.S. dollar value of such foreign currency, determined at the time the distribution is received or at the time of the sale or other disposition or, in the case of ordinary shares traded on a established securities market, as defined in the applicable Regulations, sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), on the settlement date for the sale or other disposition. Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. Any gain or loss realized by a U.S. Holder on a sale or disposition of foreign currency generally will be treated as U.S. source ordinary income or loss.
146 Passive foreign investment company considerations Based upon an analysis of its current assets and income and the manner in which it intends to operate its business in future years, the Company does not believe that it will be treated as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes. Whether the Company is a PFIC is a factual determination made annually at the end of the taxable year, and there can be no assurance as to whether the Company will be considered a PFIC for any future taxable year.
A corporation organized outside the United States generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which either: (a) at least 75% of its gross income is “passive income”, or (b) on average at least 50% of the gross value of its assets is attributable to assets that produce “passive income” or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions.
If the Company is a PFIC in any year, there may be materially adverse tax consequences for U.S. Holders, including a special interest charge on any gain from the sale or other disposition of the ordinary shares. In addition, if the Company is treated as a PFIC, each U.S. Holder of the ordinary shares will be required to include certain information relating to the Company on the U.S. Holder’s annual U.S. federal income tax returns. Prospective investors are urged to consult their own tax advisors regarding whether an investment in the ordinary shares will be treated as an investment in PFIC stock and the consequences of an investment in a PFIC, including the availability of certain elections.
Information reporting and backup withholding A U.S. Holder may be subject to information reporting with respect to payments of dividends and the proceeds of the sale or other disposition of ordinary shares by a U.S. paying agent or other U.S. intermediary, and, if so, a backup withholding tax may apply to such amounts unless such U.S. Holder is a corporation or comes within certain other exempt categories, and, when required, demonstrates this fact; or provides a correct taxpayer identification number, certifies that it is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Backup withholding is not an additional tax, and the amount of any backup withholding from a payment to a U.S. Holder will generally be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the IRS in a timely manner. Holders should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption, if applicable.
147 PLAN OF DISTRIBUTION
Maroc Telecom, the Kingdom of Morocco, as selling shareholder, and the institutions named below have entered into a placement agreement (the “Placement Agreement”) with respect to the ordinary shares being offered in the global offering. BNP Paribas, Merrill Lynch International and Attijari Finances Corp. are acting as Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers for the global offering. Under the terms and subject to the conditions contained in the Placement Agreement, the Kingdom of Morocco will sell 113,900,183 ordinary shares to institutional investors procured by the Joint Global Coordinators.
The global offering includes a Moroccan public offering, an international offering to institutional investors and an employee offering. The Moroccan public offering is being made by means of an open price offering (offre à prix ouvert) pursuant to a separate offering document in the French language. The Kingdom of Morocco will sell 74,729,050 ordinary shares offered in the Moroccan public offering. As part of the Moroccan public offering, the Kingdom of Morocco will sell 4,256,822 ordinary shares to certain current and former employees of Maroc Telecom at a discount of 15% to the initial offering price in the Moroccan public offering.
The international offering includes an offering to institutional investors outside the United States in reliance on Regulation S of the U.S. Securities Act of 1933, as amended (the “Securities Act”), and in the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act. The offering price for the international offering is the same as that for the Moroccan public offering.
Pursuant to the Placement Agreement, each of the Joint Global Coordinators will use its best efforts to procure purchasers for one third of the ordinary shares offered in the global offering. Each Joint Global Coordinator will have no obligation to purchase any ordinary shares that are not purchased by investors in the global offering and will not be required to use its best efforts to procure purchasers for any ordinary shares in excess of one third of the ordinary shares offered in the global offering. Under the terms of the Placement Agreement, the obligations of the Joint Global Coordinators to use best efforts to procure purchasers for the ordinary shares are subject to the approval of certain legal matters by the Joint Global Coordinator’s counsel and certain other customary conditions. In addition, the Placement Agreement may be terminated under certain circumstances.
The Kingdom of Morocco has granted an option (the “Over-Allotment Option”), exercisable by Merrill Lynch International until the 30th calendar day after the date on which the ordinary shares commence trading on Euronext Paris S.A., for the purchase by the Joint Global Coordinators, on a pro-rata basis, of up to 17,085,023 additional ordinary shares. The Over-Allotment Option may be exercised at any time, and from time to time, in whole or in part, to cover short positions arising from stabilization transactions, including any over-allotments of ordinary shares in the global offering.
The Kingdom of Morocco, as selling shareholder, has agreed in the Placement Agreement to pay the Joint Global Coordinators (i) 0.45% of the offer price for every ordinary share placed with investors in Morocco and (ii) 1.50% of the offer price for every ordinary share placed with institutional investors outside of Morocco. The Kingdom of Morocco has agreed in the Placement Agreement to pay the Joint Global Coordinators these same commissions, as applicable, for every ordinary share purchased pursuant to the Over-Allotment Option.
Maroc Telecom has agreed, for a period ending nine months after the closing date, that it will not, without the prior written consent of the Joint Global Coordinators, announce, conduct or undertake to conduct an issuance, offering, sale or promise of sale, pledge of any kind, whether direct or indirect, or dispose of its ordinary shares or other securities giving the right or capable of giving the right, immediately or eventually, to a share of its capital, nor enter into or undertake to enter into any option or derivative transaction intended to have the effect or which would be likely to have the effect of resulting in a transfer of its ordinary shares, nor carry out any other transaction which would have an equivalent economic effect.
148 Each of the Kingdom of Morocco and Vivendi Universal has agreed, for a period ending nine months after the closing date, that it will not, without the prior written consent of the Joint Global Coordinators, (i) announce, conduct or undertake to conduct an offering, sale or promise of sale, pledge of any kind, whether direct or indirect, or dispose of ordinary shares of Maroc Telecom or other securities giving the right or capable of giving the right, immediately or eventually, to a share of Maroc Telecom’s capital, nor enter into or undertake to enter into any option or derivative transaction intended to have the effect or which would be likely to have the effect of resulting in a transfer of Maroc Telecom’s ordinary shares, nor carry out any other transaction which would have an equivalent economic effect, or (ii) vote, in its capacity as a shareholder of Maroc Telecom, in favor of the issuance of warrants or subscription rights for the purchase of ordinary shares of Maroc Telecom, or permit any affiliate of Maroc Telecom to carry out an issuance, offer or sale, whether directly or indirectly, of ordinary shares of Maroc Telecom or other securities giving access or capable of giving access, immediately or eventually, to a share of Maroc Telecom’s capital. This agreement will not apply to the sale of ordinary shares representing 16% of Maroc Telecom’s capital by the Kingdom of Morocco to Vivendi Universal pursuant to the agreement between those two parties dated November 18, 2004, nor to the transfer of any shares of the Company to members of the Vivendi Universal group in connection with an internal reorganization of Vivendi Universal (see “Principal and selling shareholders”).
Prior to this offering, there has been no public offering for the shares of Maroc Telecom. The offering price for the ordinary shares was jointly determined by the Joint Global Coordinators and the Kingdom of Morocco, as selling shareholder. Among the factors considered in determining the offering price were the prevailing economic and market conditions, indications of interest from potential investors in the ordinary shares being offered, the financial position and results of operations of Maroc Telecom, market valuations of other companies engaged in activities similar to Maroc Telecom’s activities, Maroc Telecom’s future prospects, Maroc Telecom’s management and other relevant factors. Maroc Telecom cannot assure you, however, that the prices at which its ordinary shares will sell in the public market after this offering will not be lower than the offering price in the global offering or that an active trading market in the ordinary shares will develop and continue after this offering.
The ordinary shares have been approved for listing on the Casablanca Stock Exchange and on the Premier Marché of Euronext Paris S.A.
In connection with the global offering, Merrill Lynch International (or persons acting on its behalf) may overallot ordinary shares (up to the maximum amount permitted by Commission Regulation (EC) No. 2273/2003 implementing Directive 2003/6/EC of the European Parliament and the Council as regards exemptions for buy- back programmes and stabilisation of financial instruments) or effect transactions with a view to supporting the price of the ordinary shares at a level higher than that which might otherwise prevail. However, there is no assurance that Merrill Lynch International (or persons acting on its behalf) will undertake any stabilization action. Any stabilization action may begin at any time after the commencement of trading in the ordinary shares on Euronext Paris S.A. and, if begun, may be ended at any time, but it must end no later than the earlier of 30 calendar days thereafter.
Certain of the Joint Global Coordinators have, directly or through affiliates, from time to time performed services for and engaged in investment and commercial banking transactions with Maroc Telecom or the Kingdom of Morocco, and may perform such services or engage in such transactions in the future, in the ordinary course of their business.
Maroc Telecom and the Kingdom of Morocco have agreed in the Placement Agreement to indemnify the Joint Global Coordinators against certain liabilities in certain circumstances, including liabilities under the Securities Act.
149 TRANSFER RESTRICTIONS
Except for the public offering of the ordinary shares in Morocco, no action has been taken or will be taken in any country or jurisdiction by Maroc Telecom, the Kingdom of Morocco or the Joint Global Coordinators that would or would be intended to permit a public offering of the ordinary shares or the possession, circulation or distribution of this offering memorandum or any other offering material relating to Maroc Telecom or the ordinary shares offered hereby in any jurisdiction where any actions for such purpose would be required. Accordingly, the ordinary shares offered hereby may not be offered or sold, directly or indirectly, and neither this offering memorandum nor any other offering material or advertisements in connection with the ordinary shares offered hereby may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
France No offering memorandum (including this offering memorandum or any amendment, supplement or replacement hereto) subject to the approval (visa) of the French Autorité des marchés financiers has been prepared in connection with the offering. The ordinary shares may not be offered or sold to the public in France and neither this offering memorandum, nor any other offering material or information contained herein relating to the ordinary shares may be released, issued or distributed or caused to be released, issued or distributed to the public in France, or used in connection with any offering in respect of the ordinary shares to the public in France. The offering shall be made in France only to qualified investors (investisseurs qualifiés) (as defined in article L. 411-2 of the French Code Monétaire et Financier and Décret no. 98-880 dated October 1, 1998) acting for their own account. The direct or indirect resale to the public in France of any ordinary shares acquired by such qualified investors may be made only as provided by articles L. 412-1 and L. 621-8 of the French Code Monétaire et Financier and applicable regulations thereunder. Persons into whose possession this offering memorandum or any amendment, supplement or replacement hereto comes must inform themselves about and observe any such restrictions. The offering does not constitute a solicitation by anyone not authorized to so act and the offering memorandum may not be used for or in connection with the offering to solicit anyone to whom it is unlawful to make the offering.
United States The ordinary shares offered hereby have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act.
The Joint Global Coordinators have not offered or sold, and have undertaken not to offer or sell, the ordinary shares except in conformity with the provisions of Rule 903 of Regulation S under the Securities Act (“Regulation S”). Neither the Joint Global Coordinators nor their affiliates (as such term is defined in Rule 501(b) of the Securities Act), nor anyone acting on their or their affiliates’ behalf has carried out, and such parties have agreed not to carry out, any directed selling efforts (as such term is defined in Regulation S) regarding the ordinary shares.
The Joint Global Coordinators have further agreed that neither they nor their affiliates (as such term is defined in Rule 501(b) of the Securities Act), nor any person acting on their or their affiliates’ behalf, has carried out, and such parties agree not to carry out, any general solicitation or general advertising (within the meaning of Rule 501(c) of the Securities Act) relative to the global offer or to any sale of ordinary shares in the United States.
The Joint Global Coordinators may offer and sell shares in the United States as long as such offers and sales are carried out in reliance upon Rule 144A under the Securities Act (“Rule 144A”), and as long as such offers and sales are made to persons that the Joint Global Coordinators reasonably determine meet the criteria necessary to be a qualified institutional buyer pursuant to Rule 144A, and that these purchasers are purchasing for their own account or for the account of another qualified institutional buyer.
United Kingdom Each Joint Global Coordinator has agreed that: (i) it has not offered or sold and, prior to the expiry of a period of six months from the closing date of the global offering, will not offer or sell any ordinary shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding,
150 managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances that have not resulted and will not result in an offer to the public of the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has only communicated and caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (FSMA)) received by it in connection with the issue or sale of any ordinary shares in circumstances in which section 21(1) of the FSMA would not apply if Maroc Telecom was not an authorized person, to Maroc Telecom; and (iii) it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the ordinary shares offered hereby in, from or otherwise involving the United Kingdom.
Japan
The ordinary shares have not been and will not be registered under the Securities and Exchange Law of Japan (the “Securities and Exchange Law”) and each Joint Global Coordinator has represented and agreed that it has not and will not offer or sell any ordinary shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to other for re-offering or resale, directly or indirectly, in Japan or to any resident of Japan except in compliance with the Securities and Exchange Law and any other applicable laws and regulations of Japan.
Canada
Each Joint Global Coordinator has represented and agreed that any ordinary shares offered or sold in Canada, directly or indirectly, will be offered or sold in compliance with applicable Canadian securities laws and, accordingly, any sales of ordinary shares will be made (i) through an appropriately registered securities dealer or in accordance with an available exemption from the registered securities dealer requirements of applicable Canadian securities laws and (ii) pursuant to an exemption from the prospectus requirements of such laws.
Australia
No prospectus or other disclosure document in relation to the ordinary shares has been or will be lodged with the Australian Securities and Investments Commission (ASIC). Each Joint Global Coordinator has represented and agreed that it:
— has not made or invited, and will not make or invite, an offer of the ordinary shares, for issue or sale in Australia (including an offer or invitation which is received by a person in Australia); and
— has not distributed or published, and will not distribute or publish, this offering memorandum or any other offering material or advertisement relating to the ordinary shares in Australia; unless:
— the aggregate consideration payable on acceptance of the offer by each offeree is at least A$500,000 (or its equivalent in another currency, in either case disregarding moneys lent by the offeror or its associates) or the offer or invitation otherwise does not constitute an offer or invitation for which disclosure is required to be made under Part 6D.2 of the Corporations Act 2001 of Australia; and
— such action complies with all applicable laws, regulations and directives and does not require any document to be lodged with ASIC.
Italy
The ordinary shares will be not offered, sold or delivered, nor will copies of this offering memorandum or any other document relating to the ordinary shares be distributed, in Italy other than to professional investors (operatori qualificati) as defined in Article 31, paragraph 2 of CONSOB Regulation No. 11522 of July 1, 1998, as amended (“Regulation No. 11522”) who will be allowed to participate in the global offering exclusively on
151 their own account or on the account of other persons who qualify as professional investors. Further, any such permitted offer, sale or delivery of ordinary shares or distribution of copies of this offering memorandum or any other document relating to the offered shares offered in Italy shall be: — made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of September 1, 1993, Legislative Decree No. 58 of February 24, 1998, Regulation No. 11522, and any other applicable laws and regulations; and — made in accordance with Italian securities, tax and exchange control laws and regulations, and in compliance with any other applicable notification requirement or limitation which may be imposed upon the offer of the ordinary shares in Italy by CONSOB or the Bank of Italy.
Any investor purchasing ordinary shares in the global offering is solely responsible for ensuring that any offer or resale of the ordinary shares it purchased occurs in compliance with applicable laws and regulations.
The offering documents and the information contained herein are intended only for the use of their recipient and are not to be distributed to any third party resident or located in Italy for any reason. No person resident or located in Italy other than the original recipient of this document may rely on it or its content.
152 LEGAL MATTERS
The validity of the ordinary shares will be passed upon by Kettani Law Firm, Moroccan counsel to the Joint Global Coordinators. Certain other matters will be passed upon by Clifford Chance, French and U.S. counsel to the Company, and by Cleary, Gottlieb, Steen & Hamilton, French and U.S. counsel to the Joint Global Coordinators.
INDEPENDENT AUDITORS
The consolidated financial statements of Maroc Telecom for the fiscal years ended December 31, 2003, 2002 and 2001 have been audited, and the unaudited consolidated financial statements for the six-month period ended as of June 30, 2004 have been reviewed by Mr. Samir Agoumi (Moroccan correspondent of audit firm Salustro Reydel), 100, boulevard Abdel Moumen, 20000 Casablanca, Morocco, and Mr. Abdelaziz Almechatt representative of audit firm Coopers & Lybrand Maroc S.A. (Members of Pricewaterhouse Coopers network), 100 boulevard Massira Al Khadra, 20100 Casablanca, Morocco, each an independent auditor, as stated in their reports appearing herein.
LIMITATION OF ENFORCEMENT OF CIVIL LIABILITIES
Maroc Telecom is incorporated under the laws of the Kingdom of Morocco. All of the Company’s directors and executive officers and all or a substantial portion of their and its assets are located outside the United States, principally in Morocco. As a result, investors in the ordinary shares may not be able to effect service of process within the United States upon Maroc Telecom or its directors and executive officers or to enforce in U.S. courts judgments obtained against Maroc Telecom or its directors and executive officers in jurisdictions outside the United States, including actions under the civil liability provisions of U.S. securities laws. In addition, it may be difficult for investors in the ordinary shares to enforce, in original actions brought in courts in jurisdictions outside the United States, liabilities predicated upon U.S. securities laws.
153 [THIS PAGE INTENTIONALLY LEFT BLANK] INDEX TO FINANCIAL INFORMATION
Page Reports of the independent statutory auditors ...... F-2 Consolidated financial statements and notes at December 31, 2003 and June 30, 2004 ...... F-6 Consolidated balance sheets as of December 31, 2003 and June 30, 2004 ...... F-6 Consolidated statements of income for the six months ended June 30, 2004 ...... F-7 Consolidated statements of cash flows for the year ended December 31, 2003 and the six months ended June 30, 2004 ...... F-8 Notes to the consolidated financial statements at December 31, 2003 and June 30, 2004 ...... F-9
Consolidated financial statements and notes at December 31, 2001, 2002 and 2003 ...... F-23 Consolidated balance sheets as of December 31, 2001, 2002 and 2003 ...... F-23 Consolidated statements of income for the years ended December 31, 2001, 2002 and 2003 ...... F-24 Consolidated statements of cash flows for the years ended December 31, 2001, 2002 and 2003 ...... F-25 Notes to the consolidated financial statements at December 31, 2001, 2002 and 2003 ...... F-26
F-1 REPORTS OF STATUTORY AUDITORS CONSOLIDATED ACCOUNTS (TRANSLATED FROM FRENCH INTO ENGLISH)
These are free translations into English of the auditors’ reports to the consolidated financial statements issued in the French language and are provided solely for the convenience of English speaking readers. The auditors’ reports to the consolidated financial statements include information specifically required by French law in all audit reports, whether qualified or not, and this is presented below in the opinion on the consolidated financial statements. This information includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters.
These assessments were considered for the purpose of issuing an audit opinion and review report on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account line items or on information taken outside of the consolidated financial statements.
These reports should be read in conjunction with, and construed in accordance with, French law and international professional auditing standards. The management report of the group referred to in the final paragraph of the auditors’ reports to the consolidated financial statements is not included in this offering memorandum.
SIX MONTH PERIOD ENDED JUNE 30, 2004
To the Shareholders, In compliance with the assignment entrusted to us, as Itissalat Al-Maghrib’s (IAM) statutory auditors, we carried out a limited review of the interim consolidated financial statements of the group Itissalat Al-Magrhib SA for the six month period ended June 30, 2004. These interim consolidated financial statements have been prepared under the responsibility of the Management Board.
Our role is to express our findings on these interim consolidated financial statements based on our limited review.
We conducted this review in accordance with international generally accepted auditing standards. Those standards require us to perform limited diligence to obtain an assurance, though more limited than an audit, about whether the interim consolidated financial statements are free of material misstatements. A limited review does not require us to perform audit tests and procedures, but is limited to analytical procedures and obtaining all information that we have deemed necessary from management and any other person as appropriate.
Based on our limited review, we are not aware of any material misstatements which might undermine, in accordance with accounting principles generally accepted in France, the true and fair presentation of the interim financial position and of the results of its operations for the six-month period ended June 30, 2004.
Without prejudice to the opinion above, we draw your attention to the items concerning land and buildings in note 4 of the notes to the consolidated financial statements, entitled “Property, plant and equipment”. Although the process has been initiated, some of the land and buildings have not yet been registered with the property office. The clearing of this situation would permit to IAM to obtain the corresponding property titles.
Casablanca, October 29, 2004
Statutory auditors
Abdelaziz ALMECHATT Samir AGOUMI
F-2 YEAR ENDED DECEMBER 31, 2003
To the Shareholders, In compliance with the assignment entrusted to us by your shareholders’ meetings, we have audited the consolidated financial statements of the Group Itissalat Al-Maghrib SA (IAM), for the fiscal year ended December 31, 2003. These consolidated financial statements have been approved by the Management Board.
Our role is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with international generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements’ presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, in accordance with accounting principles generally accepted in France, give a true and fair view of the group’s financial position and its assets and liabilities as of December 31, 2003, and of the results of its operations for the year 2003.
Without prejudice to the opinion above, we draw your attention to the items concerning land and buildings in note 4 of the notes to the consolidated financial statements, entitled “Property, plant and equipment”. Although the process has been initiated, some of the land and buildings have not yet been registered with the property office. The clearing of this situation would permit to IAM to obtain the corresponding property titles.
We have also carried out the verification of the information given on the management report of the group. We have no comment to make as to its fair presentation and its conformity with the consolidated financial statements.
Casablanca, October 29, 2004
Statutory auditors
Abdelaziz ALMECHATT Samir AGOUMI
F-3 YEAR ENDED DECEMBER 31, 2002
To the Shareholders,
In compliance with the assignment entrusted to us by your shareholders’ meetings, we have audited the consolidated financial statements of the group Itissalat Al-Maghrib SA (IAM) for the year ended December 31, 2002, as attached to the present report.
These consolidated financial statements have been approved by the Management board. Our role is to express an opinion on these consolidated financial statements, based on our audit.
We conducted our audit in accordance with international generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and any significant estimates made by management, as well as evaluating the overall financial statements’ presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, in accordance with accounting principles generally accepted in France, give a true and fair view of the group’s financial position and its assets and liabilities as of December 31, 2002 and of the results of its operations for the year 2002.
Without prejudice to the opinion above, we draw you attention to the following, which have been described in notes 1, 4 and 25 of the notes to the consolidated financial statements: — The first (note 1 §1-2) relates to the comparability of the 2001 and 2002 consolidated financial statements and mentions the effect of finalizing certain conversions begun in 2001 regarding the policy for accounting for capitalized asset accounts; — The second (note 1 §1-2, §2-3-16 and note 24) relates to segment information for the 2001 period, which, it shall be recalled, was determined on the basis of estimates; and — The third (note 4) relates to the heading “Tangible Assets” under the line items “Land” and “Buildings.” Although the process has been initiated, some of the land and buildings have not yet been registered with the property office. The clearing of this situation would permit to IAM to obtain the corresponding property titles.
In addition, we have also carried out the verification of the information given in the management report of the group. We have no comment to make as to its fair presentation and its conformity with the consolidated financial statements.
Casablanca, the October 29, 2004
Statutory Auditors
Abdelaziz ALMECHATT Samir AGOUMI
F-4 YEAR ENDED DECEMBER 31, 2001
To the Shareholders,
In compliance with the assignment entrusted to us by your shareholders’ meetings, we have audited the consolidated financial statements of the group Itissalat Al-Maghrib SA (IAM) for the year ended December 31, 2001, as attached to the present report.
These consolidated financial statements have been approved by the Management board. Our role is to express an opinion on these consolidated financial statements, based on our audit.
It should be noted that the accounts for the year ended December 31, 2000 were audited by Mr. Abdelaziz Almechatt and as representative of Coopers & Lybrand (Maroc) SA and Mr. Samir Agoumi, Moroccan correspondent for RSM Salustro Reydel, only after their appointment as statutory auditors for your company beginning with the 2001 fiscal year.
We conducted our audit in accordance with international generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and any significant estimates made by management, as well as evaluating the overall financial statements’ presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, in accordance with accounting principles generally accepted in France, give a true and fair view of the group’s financial position and its assets and liabilities as of December 31, 2001, and of the results of its operations for the year 2001.
Without prejudice to the opinion above, we draw you attention to the following, which have been described in notes 1, 4 and 25 of the notes to the consolidated financial statements:
— The first (note 1 §1-2) relates to the comparability of the 2000 and 2001 consolidated financial statements and mentions the effect of finalizing certain conversions begun in 2001 regarding the policy for accounting for capitalized asset accounts;
— The second (note 1 §2-3-17) relates to segment information for the 2001 period, established on the basis of estimates. It should be noted that no segment data was mentioned for the 2000 fiscal year; and
— The third (note 4) relates to the heading “Tangible Assets” under the line items “Land” and “Buildings.” Although the process has been initiated, some of the land and buildings have not yet been registered with the property office. The clearing of this situation would permit to IAM to obtain the corresponding property titles.
In addition, we have also carried out the verification of the information given in the management report of the group. We have no comment to make as to its fair presentation and its conformity with the consolidated financial statements.
Casablanca, October 29, 2004
Statutory Auditors
Abdelaziz ALMECHATT Samir AGOUMI
F-5 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES AT JUNE 30, 2004 CONSOLIDATED BALANCE SHEETS
December 31, June 30, Note 2003 2004 (In millions of MAD) Non-current assets ...... 13,157 13,154 Goodwill ...... 2 143 140 Intangible assets ...... 3 553 625 Property, plant and equipment ...... 4 11,963 11,872 Financial assets ...... 5 166 144 Equity method investments ...... 6 332 373 Current assets ...... 13,548 11,482 Inventories and work-in-progress ...... 7 365 588 Accounts receivable ...... 8 4,432 4,518 Other receivables and prepaid expenses ...... 9 1,051 1,409 Marketable securities ...... — Cash and cash equivalents ...... 10 7,700 4,967 Total assets ...... 26,705 24,636
December 31, June 30, Note 2003 2004 (In millions of MAD) Shareholders’ equity, group share ...... 11 17,737 15,090 Share capital ...... 8,791 8,791 Retained earnings and net income ...... 8,946 6,299 Minority interests ...... 11 67 75 Provisions for commitments and contingencies ...... 12 379 416 Liabilities ...... 8,522 9,055 Loans and long term debt ...... 13 1,607 1,515 Accounts payable ...... 3,066 3,660 Accrued expenses and other liabilities ...... 14 3,849 3,880 Total liabilities and shareholders’ equity ...... 26,705 24,636
F-6 CONSOLIDATED STATEMENTS OF INCOME
June 30, June 30, Note 2003 2004 (In millions of MAD) Revenue ...... 15 7,676 8,464 Other operating income ...... 39 61 Purchases ...... 16 (1,448) (1,533) Payroll and payroll-related costs ...... 17 (812) (827) Other operating expenses ...... 18 (1,099) (1,292) Depreciation, amortization and provisions, net ...... 19 (1,189) (1,240) Operating income ...... 3,167 3,633 Financial income (expenses) ...... 20 (29) 89 Ordinary income ...... 3,138 3,722 Exceptional income (expenses) ...... —— Income taxes ...... 21 (863) (1,275) Net income before minority and equity interests and goodwill amortization ...... 2,275 2,447 Equity in earnings of unconsolidated entities ...... 15 34 Goodwill amortization ...... (2) (3) Net income before minority interests ...... 2,288 2,478 Minority interests ...... (3) (6) Net income, group share ...... 2,285 2,472 Earnings per share (in Moroccan dirhams) ...... 26 28 Diluted earnings per share (in Moroccan dirhams) ...... 26 28
F-7 CONSOLIDATED STATEMENTS OF CASH FLOWS (Negative= Use; Positive = Resource)
December 31, June 30, 2003 2004 (In millions of MAD) Operating activities Net income before minority and equity interests and goodwill amortization (1) ...... 5,050 2,447 Depreciation, amortization and provisions, net ...... 1,751 1,226 Other adjustments to reconcile net income to net cash provided by operating activities (2) ...... (52) 52 Gains (losses) on asset disposals (3) ...... (3) (9) Deferred taxes ...... 15 (9) Cash earnings ...... 6,761 3,707 Increase (decrease) in inventories ...... 18 (223) Increase (decrease) in trade receivables ...... (109) (424) Increase (decrease) in trade payables ...... 54 615 Decrease in working capital ...... (37) (32) Net cash provided by operating activities ...... 6,724 3,675 Investing activities ...... Purchase of property, plant and equipment ...... (1,908) (1,192) Changes in consolidation scope ...... (11) — Proceeds from sales of property, plant and equipment ...... 10 9 Proceeds from sales of investments ...... 18 — Proceeds from long term debt ...... 115 16 Net cash used in investing activities ...... (1,776) (1,167) Financing activities ...... Principal payments on long term debt ...... (864) (117) Net increase in financial debt ...... 00 Dividends paid ...... (2,500) (5,124) Net cash used in financing activities ...... (3,364) (5,241) Increase (decrease) in cash and cash equivalents ...... 1,584 (2,733) Cash and cash equivalents, beginning of period ...... 6,116 7,700 Increase (decrease) in cash and cash equivalents ...... 1,584 (2,733) Cash and cash equivalents, end of period ...... 7,700 4,967 (1) Goodwill amortization of consolidated investments. (2) Including foreign currency translation adjustments. (3) Gains or losses arising from the difference between the proceeds from the sale of assets and their net book value.
F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 1—SIGNIFICANT EVENTS Introductory note Maroc Telecom was formed by the contribution of assets from the Moroccan National Posts and Telecommunications Office (ONPT). Some personal and real property held by the ONPT or assigned by the Moroccan government to the private domain for social purposes was not included in the contribution, as it did not meet certain legal requirements. Once the legal requirements have been met, the Government will be able to transfer the assets, as initially planned.
In 2004, Maroc Telecom group paid out dividends of 5,124 million dirhams, including an exceptional dividend of 2,374 million dirhams.
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND VALUATION METHODS 2-1 ACCOUNTING PRINCIPLES The consolidated financial statements of Maroc Telecom group (“the Group”) have been prepared in accordance with accounting principles generally accepted in France, and in conformity with the provisions of regulation n° 99-02 of the Comité de Réglementation Comptable.
The consolidated financial statements have been prepared in millions of dirhams.
2-2 CONSOLIDATION PRINCIPLES The consolidated financial statements include the financial statements of companies which have material business activities. The subsidiaries’ individual financial statements may be adjusted, when appropriate, to ensure consistent application of significant group accounting policies.
The main adjustments made for consolidation purposes were as follows:
Presentation of the financial statements The consolidated financial statements are derived from the individual financial statements of Maroc Telecom and its subsidiaries, as prepared under Moroccan and Mauritian generally accepted accounting principles. A number of adjustments were made to bring the individual financial statements into compliance with the format required by CRC regulation 99-02.
The main adjustments to the income statement were: — the recognition in consolidated operating expenses of retailers’ commissions and subsidies on mobile phones, granted in connection with customer capture and loyalty campaigns. These costs were initially netted against revenue in the individual financial statements. — the reclassification of items excluded from ordinary income in operating income, with the exception of operations regarding redundancy plans and changes in the value of fixed assets, — the reclassification under financial income of items of a financial nature, previously excluded from ordinary income in the individual financial statements.
The main adjustments to the balance sheet presentation relate to current assets and trade payables. — for current assets, the main adjustment was the reclassification of cables, which were initially recorded in inventories, as these assets are mainly dedicated to network rollout; — for trade payables, adjustments were made to conform to the presentation initially used in the individual financial statements for the period from 2001 to 2004, which entailed recording certain payables as provisions for commitments.
The changes in presentation did not effect group net income.
Other consolidation adjustments: Other consolidation adjustments include the elimination of statutory provisions, the determination of deferred taxes, and consolidation entries (such as the elimination of investments).
F-9 2-2-1 CONSOLIDATION METHODS The principal consolidation methods applied are as follows: — all subsidiaries over which Maroc Telecom group has direct or indirect exclusive control are fully consolidated; — the entities over which Maroc Telecom group exercises joint control, together with a limited number of shareholders, are consolidated proportionally; — entities not controlled by Maroc Telecom but over which it exercises significant influence are accounted for by the equity method; — material intercompany transactions and balances are eliminated.
Notwithstanding the above-mentioned principles, entities may be excluded from the consolidated financial statements if their business activities are not material, or for other specific reasons. When excluded, the reasons are provided in the financial statements, along with detailed financial data on the unconsolidated entities.
2-2-2 ACCOUNTING FOR ACQUISITIONS AND GOODWILL Goodwill represents the difference between the cost of the investments and the total value of the assets acquired and liabilities assumed at the acquisition date or as of the date of the most recent financial statements of the subsidiary, if pre-acquisition earnings are not significant.
Goodwill is amortized over a 3 to 40 year period, depending on the company’s business and strategic role. The 40 year period applies to telecommunications companies considered as global operators.
2-2-3 TRANSLATION OF FOREIGN SUBSIDIARIES’ FINANCIAL STATEMENTS With the exception of the entities operating in highly inflationary economies, the balance sheets and statements of income and cash flows of subsidiaries whose functional currency is different from the Group’s reporting currency (Moroccan dirhams), are translated into the reporting currency as follows: — balance sheet items are translated at the closing period-end rate; — income statement items are translated at the annual average rate; — foreign currency translation gains and losses resulting from the application of these different rates are recorded as a separate line item within shareholders’ equity.
2-2-4 DATE OF THE FINANCIAL STATEMENTS The companies are consolidated on the basis of their financial statements as of and for the six month period ended June 30, 2004.
2-3 VALUATION PRINCIPLES 2-3-1 Property, plant and equipment, and intangible assets The assets transferred by the Moroccan government on February 26, 1998, to set up Maroc Telecom as a public operator, were recorded as a net amount in the opening balance sheet, which was approved by: — the Postal Services and Information Technology Act N° 24-96, — the joint order n° 341-98 of the Telecommunications Minister and Minister of Finance, Commerce and Industry, approving the inventory of assets transferred to Maroc Telecom group.
Assets acquired subsequently have been recorded at their acquisition or production cost, which for networks essentially comprises, design and planning costs, construction costs, site development costs, network rollout costs, and customs duties.
Assets which have not yet been brought into service are recorded as work-in-progress.
Financial expenses corresponding to interest payments on loans to finance the acquisition of property, plant and equipment are not included in the cost of those assets.
F-10 Repairs and maintenance costs are expensed as incurred, except if they enhance productivity or extend the useful life of the asset.
Assets are depreciated in a consistent way according to their nature (intangible vs tangible) and their use (e.g. transmission, network equipment). Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which are as follows:
Intangible assets ...... 4 to 5 years Property, plant and equipment: — Buildings ...... 20 years — Civil engineering ...... 15 years — Network equipment : • Radio ...... 10 years • Switching ...... 8 years • Transmission ...... 10 years — Other plant and equipment — Furniture and fittings ...... 10 years — Computer equipment ...... 5 years — Office equipment ...... 10 years — Transportation equipment ...... 5 years
An additional provision is recorded for technical obsolescence, reduction in the estimated useful life or impairment of the asset.
2-3-2 FINANCIAL ASSETS Unconsolidated investments are reported at their acquisition value. A provision for impairment is recorded whenever the carrying value is higher than the value in use. The provision is determined based on the Group’s proportionate share in the equity of the unconsolidated investment, as adjusted, where appropriate, to account for the companies’ profitability outlook.
Other financial assets, which include receivables, loans and deposits, are recorded on the basis of their nominal value, with provisions recorded, where appropriate, for collection risk.
2-3-3 INVENTORIES AND WORK-IN-PROGRESS Inventories and work-in-progress comprise: — goods held for sale to end customers upon line activation, which comprise fixed and mobile telephones and accessories. Inventories are accounted for using the first-in, first-out method, and a provision is recorded to account for both the risk of obsolescence and excess inventory. — equipment and supplies corresponding to spare parts and other technical equipment required for network roll-out and maintenance, excluding cables which are accounted for as fixed assets. These inventories are valued at their average acquisition cost and are depreciated based on their value in use or obsolescence.
2-3-4 ACCOUNTS RECEIVABLE Accounts receivable are reported at nominal value and are essentially current. Allowances are recorded for doubtful accounts, and collection risk is estimated on a case-by-case basis, or based on statistical information.
Trade receivables These are receivables held against individuals, businesses and international operators. An allowance is recorded to cover the collection risk, which is estimated based on the aging structure of the receivables.
Government receivables These are receivables held against local authorities and the Moroccan government. An allowance is recorded to cover the risk of the Moroccan government not recognizing these receivables.
Other receivables Where appropriate, other receivables are reserved for, on a case by case basis, in line with estimated collection risk.
F-11 2-3-5 CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and demand deposits and short-term highly liquid investments.
2-3-6 PROVISIONS FOR COMMITMENTS AND CONTINGENCIES Provisions are recorded when, at the end of the period, the Group has a commitment to a third party and it is probable or certain that there will be an outflow of resources to the third party, without any consideration expected from the latter.
The commitment may be legal, regulatory or contractual.
The estimate of the amount recorded in provisions corresponds to the probable outflow of resources that the Group will bear to settle the commitment.
No provision for pensions and post-retirement benefits has been recorded in the consolidated financial statements as pension expenses are covered by statutory pension plans set up for employees in Morocco.
2-3-7 DEFERRED INCOME This item mainly corresponds to prepaid subscriptions and unused prepaid minutes sold.
2-3-8 REVENUE Maroc Telecom group generates revenue from fixed and mobile telecommunications services, internet services, and the sale of products, which essentially comprises mobile, fixed and multimedia terminal equipment.
Revenue is recorded based on subscriber and customer calls at the end of the period.
Revenue from fixed and mobile services comprises: — income from national and international outgoing and incoming calls, which is recorded when generated; — income from subscriptions ; — income from prepaid services, which is recognized as calls are made; — income from advertising in printed and electronic directories, which is recognized when the directories are published; — income from the sale of terminal equipment, which is recognized upon delivery to the customer or retailer, or, where appropriate, when the line is activated.
2-3-9 COMMISSIONS AND SUBSIDIES Retailers’ commissions and customers’ subsidies are expensed when the services are rendered, products delivered or lines renewed.
2-3-10 ADVERTISING AND RELATED COSTS Advertising, communication and sponsorship costs are fully expensed as incurred.
2-3-11 RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred.
2-3-12 OPERATING EXPENSES Operating expenses include purchases, payroll and related costs, other external expenses and depreciation, amortization and provisions, which are recognized based on the matching principle.
2-3-13 DEFERRED TAXES Maroc Telecom group recognizes deferred taxes for temporary differences between the book values and tax bases of assets and liabilities, and loss carryforwards. Valuation allowances are recorded based on the probability of the taxes being recovered.
F-12 Maroc Telecom uses the liability method whereby deferred taxes are calculated using the tax rate which will be effective as of the end of the reporting period in which the differences reverse.
In accordance with International Financial Reporting Standards (IFRS), and contrary to the recommendations of regulation 99-02, it was decided not to discount the non-current deferred tax balances.
2-3-14 FINANCIAL INSTRUMENTS The Group does not use financial instruments or currency hedges.
2-3-15 CASH FLOW STATEMENT The cash flow statement is presented in conformity with the recommendations of regulation CRC 99-02.
Accounts payable are not separated into fixed asset payables and trade payables. The majority of trade payables relates to both investing and maintenance activities, as well as stock purchases, making it impossible to identify payables for fixed asset additions and trade payables separately.
Consequently, it was decided to present the change in payables as a single item under cash flow from operating activities.
2-3-16 SEGMENT INFORMATION The revenue from each business segment includes income from telephone services provided to customers and subscribers as well as the reciprocal services rendered between the segments. Intersegment services are recorded based on the prices most recently available from third party transactions.
Operating results reflect the difference between operating income and expense. Costs are allocated directly or alternatively by using cost allocation ratios based on economic criteria.
Capital expenditure is directly allocated to the respective segments. Fixed assets used by several segments are allocated proportionately to the segment-specific assets.
3—CONSOLIDATION SCOPE Maroc Telecom group comprises 5 consolidated companies, two of which are fully consolidated and three of which are accounted for by the equity method.
PORTION LEGAL GROUP % OF CAPITAL CONSOLIDATION NAME ADDRESS FORM INTEREST HELD METHOD MAROC TELECOM ...... Avenue Annakhil Hay SA 100% 100% FC Riad Rabat Morocco CMC ...... Avenue Roi Fayçal SA 80% 80% FC Nouakchott Mauritius MAURITEL SA ...... Avenue Roi Fayçal SA 40.8% 51% EM 7000 Nouakchott Mauritius MAURITEL MOBILES .... Avenue Roi Fayçal SA 40.8% 51% EM 5920 Nouakchott Mauritius GSM AL MAGHRIB ...... 17, Immeuble la SA 35% 35% EM Régence, Lotissement la Colline II, sidi Maârouf 20190 Casablanca Morocco
F-13 Maroc Telecom acquired Mauritel S.A. and its subsidiary, Mauritel Mobiles SA, in April 2001, through a shareholders’ agreement conferring participating veto rights to the Mauritian State. Those veto rights are effective through June 30, 2004, and restrict Maroc Telecom’s influence to joint control. This situation should have led to the Mauritel S.A. group being proportionally consolidated in the financial statements of Maroc Telecom.
However, due to Mauritel S.A.’s current reporting system, it is unable to provide complete financial information to the Group in a timely manner, as required for consolidation purposes.
As these financial statements do not have a significant effect (see financial data hereafter) on the consolidated financial statements of Maroc Telecom, it was decided to opt for the possibility provided by CRC 99-02 to exclude Mauritel S.A. group from the consolidation scope and to account for this investment under the equity method.
This accounting policy has been adopted temporarily, until the company is able to meet the Group’s reporting requirements.
NOTE 2 GOODWILL Gross Accumulated Net goodwill amortization goodwill (In millions of MAD) Balance at December 31, 2003 ...... 157 (14) 143 Amortization ...... (3) Balance at June 30, 2004 ...... 157 (17) 140
NOTE 3 INTANGIBLE ASSETS Balance at December 31, Disposals & June 30, 2003 Additions other changes 2004 (In millions of MAD) Gross ...... 1,079 205 3 1,287 Patents, trademarks, and similar rights ...... 257 69 326 Goodwill of acquired businesses ...... 19 0 19 Other intangible assets (mobile and fixed equipment software) ...... 803 205 (66) 942 Amortization and provisions ...... (526) (136) (662) Patents, trademarks, and similar rights ...... (92) (28) (120) Goodwill of acquired businesses ...... (7) (2) (9) Other intangible assets (mobile and fixed equipment software) ...... (427) (106) (533) Total ...... 553 69 3 625
NOTE 4 PROPERTY, PLANT AND EQUIPMENT Balance at Disposals Dec 31, and other June 30, 2003 Additions changes 2004 (In millions of MAD) Gross ...... 26,073 987 (48) 27,012 Land ...... 886 12 898 Buildings ...... 3,543 38 3,581 Technical plant, machinery and tooling ...... 17,494 4 605 18,103 Transportation equipment ...... 116 (15) 101 Furniture, office equipment and various fittings ...... 1,764 78 1,842 Other property, plant and equipment ...... 11 11 Work-in-progress ...... 2,259 983 (766) 2,476 Depreciation, amortization and provisions ...... (14,110) (1,294) 264 (15,140) Land ...... Buildings ...... (1,708) (126) (1,834) Technical plant, machinery and tooling ...... (11,124) (790) 27 (11,887) Transportation equipment ...... (99) (5) 15 (89) Furniture, office equipment and various fittings ...... (957) (123) (1,080) Other property, plant and equipment ...... Work-in-progress ...... (222) (250) 222 (250) Total ...... 11,963 (307) 216 11,872
F-14 Land and buildings Property comprising “land” and “buildings” is derived in part from the contribution in kind granted in 1998 by the Moroccan government in connection with the transfer of the ONPT to Maroc Telecom, when the latter was formed.
When these assets were transferred, the property titles could not be registered with the property office, which led the auditors to qualify their opinion on the individual financial statements in light of the contingency.
This situation was still unresolved as of the end of June 2004, and while this uncertainty remains the Moroccan government has guaranteed that Maroc Telecom can use the property transferred.
Work-in-progress Provisions for work-in-progress comprise unrecorded depreciation resulting from timing differences in service activation recognition between the technical and accounting departments. These provisions mainly cover the risk of fixed network obsolescence.
NOTE 5 FINANCIAL ASSETS
December 31, June 30, 2003 2004 (In millions of MAD) Unconsolidated investments ...... 53 43 Other financial assets ...... 113 101 Total net ...... 166 144
Other financial assets mainly include the loans granted to employees.
The maturities of other financial assets as of June 30, 2004 amounted to 15 million dirhams for loans due within one year, 52 million dirhams for loans due between 1 and 5 years and 34 million dirhams for those after 5 years.
The breakdown of unconsolidated investments was as follows: (1) Casanet’s business activity relates to the maintenance of Maroc Telecom’s internet portal (Menara). Casanet invoices the related costs to Maroc Telecom. As there are reciprocal business activities between Casanet and Maroc Telecom, Casanet has not been consolidated even though the Group exercises exclusive control over its operations, and also as the company does not have any significant financial commitments outside the Group. (2) Matelca was not included in the consolidation scope as it is in liquidation.
December 31, 2003 Provision for Shareholders’ % interest Gross impairment Net Net income equity (In millions of MAD) Casanet (1) ...... 100% 18 18 0 5 6 Matelca (2) ...... 50% NS NS 0 ND ND Arabsat ...... 1% 6 0 6 ND ND Intelsat ...... 0.16% 22 0 22 ND ND New skies satellite ...... 0.16% 5 0 5 ND ND Autoroute du Maroc ...... NS 21 12 9 56 1472 Thuraya ...... 0.20% 10 0 10 ND ND Sindibad social fund ...... 10% 1 0 1 ND ND TOTAL ...... 83 30 53
NM : not significant—ND : not determined
F-15 June 30, 2004 Provision for Net Shareholders’ % Interest Gross impairment Net income equity (In millions of MAD) Casanet (1) ...... 100% 18 18 0 ND ND Matelca (2) ...... 50% NS NS NS ND ND Arabsat ...... 1% 6 0 6 ND ND Intelsat ...... 0.16% 22 0 22 ND ND New skies satellite ...... 0.16% 5 0 5 ND ND Autoroute du Maroc ...... NS 21 21 0 ND ND Thuraya ...... 0.20% 10 0 10 ND ND Sindibad social fund ...... 10% 1 1 0 ND ND TOTAL ...... 83 40 43
NS: not significant—ND : not determined
NOTE 6 EQUITY METHOD INVESTMENTS
December 31, June 30, 2003 2004 (In millions of MAD) Mauritel S.A. group ...... 327 367 GSM al Maghrib ...... 56 TOTAL, NET ...... 332 373
The Group’s share in Mauritel S.A.’s earnings for the six month period ended June 30, 2004 was 24 million dirhams (after goodwill amortization).
The Group’s share in GSM al Maghrib’s earnings for the six month period ended June 30 2004 was nil (after goodwill amortization).
The following consolidated data for Mauritel S.A. group’s business is based on Maroc Telecom’s 40.8% interest in these operations (in millions of dirhams) :
Revenue for the six months ended June 30, 2004: ...... 126 Operating income for the six months ended June 30, 2004: ...... 40
Mauritel S.A.’s fixed assets represented 341 million dirhams and financial debt amounted to 73 million dirhams.
NOTE 7 INVENTORIES AND WORK-IN-PROGRESS
December 31, June 30, 2003 2004 (In millions of MAD) Goods ...... 207 394 Less provisions ...... (26) (47) Net value ...... 181 347 Equipment and supplies ...... 268 263 Less provisions ...... (84) (22) Net value ...... 184 241 TOTAL, NET ...... 365 588
Inventories essentially comprise mobile phones.
F-16 NOTE 8 ACCOUNTS RECEIVABLE
December 31, June 30, 2003 2004 (In millions of MAD) Gross amount ...... 7,830 7,974 Commercial customers ...... 6,690 7,182 Government agencies ...... 1,140 792 Allowance for doubtful accounts ...... (3,398) (3,456) Commercial customers ...... 3,300 3,422 Government agencies ...... 98 34 Total, net ...... 4,432 4,518
The majority of accounts receivable are due within one year.
NOTE 9 OTHER RECEIVABLES AND PREPAID EXPENSES
December 31, June 30, 2003 2004 (In millions of MAD) Trade payables, advances and downpayments ...... 96 199 Employees ...... 11 5 Government ...... 281 367 Other payables ...... 368 Deferred taxes ...... 412 432 Prepayments ...... 248 338 Total, net ...... 1,051 1,409
Advances, downpayments, trade payables, receivables from employees, government receivables and other receivables are due within one year.
Employee accounts comprise advances granted to employees, net of provisions (4 million dirhams).
Government receivables mainly comprise VAT items.
In order to comply with IFRS, deferred taxes resulting from a deferral of the tax deductibility of amortization and provisions on fixed assets to the end of the asset depreciation plan, were not discounted. If such balances had been discounted, the related deferred tax assets would have been lower by 50 million dirhams.
Prepayments essentially comprise prepaid expenses.
NOTE 10 CASH AND CASH EQUIVALENTS Cash and cash equivalents comprises deposits due within three months.
NOTE 11 SHAREHOLDERS’ EQUITY, GROUP SHARE
Share Additional paid- Retained Shareholders’ 2003 Capital in capital earnings equity (In millions of MAD) Amount at January 1, 2003 ...... 8,791 6,398 15,189 Capital increase ...... Dividends paid ...... (2,500) (2,500) Foreign currency translation adjustments 2003 ...... (37) (37) 2003 net income ...... 5,085 5,085 Amount at December 31, 2003 ...... 8,791 0 8,946* 17,737 * including statutory provisions of 2,046 million dirhams
F-17 Share Additional paid- Retained Shareholders’ Period ended June 30, 2004 Capital in capital earnings Equity (In millions of MAD) Amount at January 1, 2004 ...... 8,791 0 8,946 17,737 Capital increase ...... Dividends paid ...... (5,124) (5,124) Foreign currency translation adjustments 2004 ...... 55 2004 net income ...... 2,472 2,472 Amount at June 30, 2004 ...... 8,791 0 6,299 15,090 * including statutory provisions of 2,246 million dirhams
CHANGE IN MINORITY INTERESTS
Amount at January 1, 2003 ...... 69 Foreign currency translation adjustments 2003 ...... (9) 2003 net income ...... 7 Amount at December 31, 2003 ...... 67 Amount at January 1, 2004 ...... 67 Foreign currency translation adjustments 2004 ...... 1 2004 net income ...... 7 Amount at June 30, 2004 ...... 75
The share capital of the consolidating company consists of 87,909,534 shares with a par value of 100 dirhams.
NOTE 12 PROVISIONS FOR COMMITMENTS AND CONTINGENCIES Provisions for contingencies mainly relate to disputes with employees and third parties.
They are evaluated on a case-by-case basis.
Provisions for disputes of a lesser magnitude (for both employee and third party issues) but which are numerous, are presented as an aggregate, based on a global risk assessment. Material provision reversals and increases are presented separately. Provisions for commitments and contingencies are analyzed as follows:
December 31, Increases for June 30, 2003 the period Use Reversals 2004 Provisions for contingencies ...... 316 41 (6) — 351 Disputes with employees ...... 20 (6) 14 Disputes with third parties ...... 286 41 327 Other ...... 10 0 10 Provisions for commitments ...... 63 2 — — 65 Provision for employees ...... 63 2 65 Total ...... 379 43 (6) — 416
Disputes with third parties mainly relate to an interconnection tariff issue with the operator, Méditel, and a dispute with a supplier. The provision recorded in 2004 for the latter was calculated based on developments in the legal proceedings.
The provision for commitments relating to employees corresponds to Maroc Telecom’s commitment to pay life annuities to its current and former employees for work-related accidents, and various other expenses.
NOTE 13 LOANS AND LONG-TERM DEBT
December 31, June 30, 2003 2004 (In millions of MAD) Due within one year ...... 180 216 Due between 1 and 5 years ...... 311 202 Due after 5 years ...... 1,116 1,097 Total ...... 1,607 1,515
F-18 Non-interest bearing loans amounted to 707 million dirhams as of June 30, 2004.
All other loans are at a fixed rate and are denominated in foreign currencies, principally in dollars and euro.
NOTE 14 ACCRUED EXPENSES AND OTHER LIABILITIES
December 31, June 30, 2003 2004 (In millions of MAD) Employee and social agencies ...... 458 375 Government and other creditors ...... 2,843 2,869 Deferred tax liabilities ...... 35 46 Other ...... 513 590 Total ...... 3,849 3,880
The majority of debt is due within one year.
The item “Government and other creditors” essentially comprises tax liabilities (VAT and income taxes). It also includes liabilities relative to commitments enshrined in Maroc Telecom’s terms of reference.
Other accruals mainly relate to deferred income (prepaid subscriptions and unused prepaid cards sold, whether activated or not).
NOTE 15 REVENUE
June 30, June 30, 2003 2004 (In millions of MAD) Mobile revenue ...... 3,981 4,707 Fixed and Internet revenue ...... 5,492 5,377 Elimination of intersegment transasctions (*) ...... (1,797) (1,620) Total, net ...... 7,676 8,464
Revenue corresponds to services provided to customers and subscribers, and is based on consumption and effective rates. It also includes reciprocal fixed/mobile services which can be analyzed as intersegment transactions that are eliminated for consolidation purposes. These transactions consist of: — services related to fixed and mobile traffic termination between two business segments, — use by the Mobile segment of lines leased from the fixed segment.
NOTE 16 PURCHASES
June 30, June 30, 2003 2004 Cost of terminal equipment ...... 624 638 National and international interconnection ...... 640 678 Other purchases ...... 184 217 Total ...... 1,448 1,533
The item “Other” mainly comprises energy purchases (fuel and electricity), phone card purchases and other purchases of consumables.
NOTE 17 PAYROLL AND PAYROLL-RELATED COSTS
June 30, June 30, 2003 2004 Total ...... 812 827 Wages and salaries ...... 723 736 Payroll taxes ...... 89 91 Payroll tax rate ...... 12% 12%
F-19 NOTE 18 OTHER OPERATING EXPENSES
June 30, June 30, 2003 2004 Advertizing, marketing and other promotional costs ...... 102 170 Taxes and duties ...... 248 167 Commissions and subsidies ...... 320 495 Other ...... 429 460 Total ...... 1,099 1,292
The item “other” mainly comprises costs relating to leases, maintenance, audit and advisory fees and postage .
Research costs as recorded are not material.
NOTE 19 DEPRECIATION, AMORTIZATION AND PROVISIONS, NET
June 30, June 30, 2003 2004 (In millions of MAD) Asset depreciation, amortization and provisions ...... 1,111 1,184 Allowances for doubtful accounts ...... (3) 58 Provisions for obsolescence and excess inventory ...... (21) (40) Provisions for commitments and contingencies ...... 102 38 Total ...... 1,189 1,240
NOTE 20 FINANCIAL INCOME (EXPENSE) The breakdown of financial income is as follows:
June 30, June 30, 2003 2004 (In millions of MAD) Income from investments ...... 69 102 Interest expense on loans ...... (37) (14) Foreign exchange gains (losses) ...... 20 (2) Other* ...... (81) 3 Total ...... (29) 89
* The significant change in the item « Other » between June 30, 2003 and June 30, 2004 is mainly due to an early payment penalty of 86 million dirhams on a loan during the first half of 2003.
NOTE 21 INCOME TAXES
June 30, June 30, 2003 2004 (In millions of MAD) Current income taxes ...... 841 1,284 Deferred taxes ...... 22 (9) Total, net ...... 863 1,275
RECONCILIATION BETWEEN THEORETICAL AND EFFECTIVE TAX EXPENSE
June 30, June 30, 2003 2004 (In millions of MAD) Net income (group share) ...... 2,285 2,472 Income taxes ...... (863) (1,275) Net income, before tax ...... 3,148 3,747 Statutory tax rate effective in Morocco ...... 35% 35% Theoretical tax ...... 1,102 1,311 Permanent differences ...... (241) (45) Other differences ...... 29 Effective tax expense ...... 863 1,275
F-20 Permanent differences mainly correspond to tax-free provisions for investments and non-national revenues not subject to income taxes in Morocco.
All deferred taxes are recognized. No valuation allowance has been recorded.
NOTE 22 OFF-BALANCE SHEET COMMITMENTS Commitments given Commitments given include: — guarantees on equipment sale contracts. At the end of June 2004, these commitments amounted to 196 million dirhams, compared with 191 million dirhams as of December 31, 2003, and are mostly of a current nature. — supplier orders, which amounted to 1,215 million dirhams at the end of June 2004, compared with 1,090 million dirhams at the end of 2003. — 4 million dirhams for the Sindibad social fund. — investment commitments resulting from tax provisions. At the end of June 2004 these commitments amounted to 1,974 million dirhams. They must be realized by the end of 2006.
Commitments received Commitments received include: — guarantees of 480 million dirhams at June 30, 2004, compared with 515 million dirhams at December 31, 2003. — mortgages amounting to 100 million dirhams at June 30, 2004, compared with 112 million dirhams at December 31, 2003.
The Moroccan government guarantee on Group loans amounted to 1,403 million dirhams at the end of June 2004, compared with 1,499 million dirhams at the end of 2003. This guarantee matures at the same time as the loans.
Maroc Telecom signed an investment agreement with the Moroccan government in January 2003, whereby it agreed to invest 7,079 million dirhams over a three year period, and to create 300 jobs before January 2006. In exchange, the Moroccan government agreed to exonerate Maroc Telecom from customs duties on all its capital good imports. If Maroc Telecom does not meet its investment commitments it will incur customs duties for such periods, along with penalties for late payment.
NOTE 23 NUMBER OF EMPLOYEES The number of people employed by consolidated companies of the Group at the end of the period was as follows:
June 30, June 30, 2003 2004 ...... 12,181 12,213
NOTE 24 SEGMENT INFORMATION Due to the lack of a stable cost accounting system, segment information other than revenue is based on management’s estimates.
Breakdown of revenue by segment
June 30, June 30, REVENUE 2003 2004 Fixed telecommunications ...... 4,703 4,874 Mobile telecommunications ...... 2,973 3,590 Total Maroc Telecom group ...... 7,676 8,464
F-21 Breakdown of operating income by segment
June 30, June 30, OPERATING INCOME 2003 2004 Fixed telecommunications ...... 1,919 1,843 Mobile telecommunications ...... 1,248 1,790 Total Maroc Telecom group ...... 3,167 3,633
Breakdown of capital expenditure by segment
June 30, June 30, INVESTMENTS 2003 2004 Fixed telecommunications ...... 281 500 Mobile telecommunications ...... 370 692 Total Maroc Telecom group ...... 651 1,192
Breakdown of assets employed by segment
June 30, December 31, 2004 2003 (In millions of MAD) Mobile telecommunications ...... 5,261 5,044 Fixed telecommunications ...... 7,376 7,615 Total ...... 12,637 12,659
Assets employed corresponds to property, plant and equipment, intangible assets and goodwill.
NOTE 25 RELATED PARTY TRANSACTIONS
June 30, 2004 (In millions of MAD, before tax) Revenue ...... — Expenses ...... 7 Receivables ...... — Payables ...... 1
Information on related parties does not include ordinary trading items, which mainly comprise interconnection transactions.
NOTE 26 SUBSEQUENT EVENTS In March 2002, Méditel filed a case with the Administrative Tribunal against the decision of the Executive Committee of the Moroccan telecoms regulatory authority (ANRT), setting forth the principle of billing interconnection traffic per second (and not per minute, as Méditel wished). However, their case was dismissed by the Administrative Tribunal in the first instance. Maroc Telecom is not party to this dispute. If Méditel appeals against the tribunal’s decision, the outcome could have a material effect on Maroc Telecom group net income.
NOTE 27 OTHER INFORMATION Maroc Telecom is fully consolidated in the financial statements of VIVENDI UNIVERSAL group.
F-22 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Consolidated balance sheets
at December 31 Note 2001 2002 2003 (In millions of MAD) Non-current assets ...... 14,337 13,636 13,157 Goodwill ...... 2 191 149 143 Intangible assets ...... 3 368 442 553 Property, plant and equipment ...... 4 13,113 12,421 11,963 Financial assets ...... 5 304 279 166 Equity method investments ...... 6 361 345 332 Current assets ...... 7,509 11,877 13,548 Inventories and work-in-progress ...... 7 369 382 365 Accounts receivable ...... 8 4,407 4,342 4,432 Other receivables and prepaid expenses ...... 9 856 1,037 1,051 Marketable securities ...... 10 322 — — Cash and cash equivalents ...... 10 1,555 6,116 7,700 Total assets ...... 21,846 25,513 26,705
at December 31 2001 2002 2003 (In millions of MAD) SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity, group share ...... 11 12,726 15,189 17,737 Share capital ...... 8,791 8,791 8,791 Retained earnings and net income ...... 3,935 6,398 8,946 Minority interests ...... —6967 Provisions for commitments and contingencies ...... 12 626 801 379 Liabilities ...... 8,494 9,454 8,522 Loans and long-term debt ...... 13 3,277 2,602 1,607 Accounts payable ...... 2,227 2,446 3,066 Accrued expenses and other liabilities ...... 14 2,990 4,406 3,849 Total liabilities and shareholders’ equity ...... 21,846 25,513 26,705
F-23 Consolidated statements of income
years ended December 31 Note 2001 2002 2003 (In millions of MAD) Revenue ...... 15 14,268 15,411 15,894 Other operating income ...... 65 115 119 Purchases ...... 16 (2,562) (2,793) (2,792) Payroll and payroll-related costs ...... 17 (1,626) (1,469) (1,550) Other operating expenses ...... 18 (2,862) (2,854) (2,434) Depreciation, amortization and provisions, net ...... 19 (3,513) (2,488) (2,288) Operating income ...... 3,770 5,922 6,949 Financial income (expenses) ...... 20 (309) 107 46 Ordinary income ...... 3,461 6,029 6,995 Exceptional income (expenses) ...... 21 (2,035) (1,194) 91 Income taxes ...... 22 (307) (1,640) (2,036) Net income before minority and equity interests and goodwill amortization ...... 1,119 3,195 5,050 Equity in earnings of unconsolidated entities ...... 20 51 47 Goodwill amortization ...... (5) (4) (5) Net income before minority interests ...... 1,134 3,242 5,092 Minority interests ...... — (10) (7) Net income, group share ...... 1,134 3,232 5,085
Earnings per share (in Moroccan dirhams) ...... 13 37 58
Diluted earnings per share (in Moroccan dirhams) ...... 13 37 58
F-24 Consolidated statements of cash flows
years ended December 31 (Negative Use ; Positive = Resource) 2001 2002 2003 (In millions of MAD) Operating activities Net income before minority and equity interests and goodwill amortization (1) ...... 1,119 3,195 5,050 Depreciation, amortization and provisions, net ...... 4,265 2,960 1,751 Other adjustments to reconcile net income to net cash provided by operating activities (2) ...... 129 447 (52) Gains (losses) on asset disposals (3) ...... (4) (15) (3) Deferred taxes ...... (422) 17 15 Cash earnings ...... 5,087 6,604 6,761 Increase (decrease) in inventories ...... 392 (14) 18 Increase (decrease) in trade accounts receivable ...... 1,043 (123) (109) Increase (decrease) in trade accounts payable ...... 157 1,626 54 Decrease in working capital ...... 1,592 1,489 (37) Net cash provided by operating activities ...... 6,679 8,093 6,724 Investing activities ...... Purchase of property, plant and equipment ...... (2,814) (2,745) (1,908) Changes in consolidation scope ...... (526) (11) Proceeds from sales of property, plant and equipment ...... 31210 Proceeds from sales of investments ...... 113 18 Proceeds from long-term debt ...... (24) 11 115 Net cash used in investing activities ...... (3,361) (2,609) (1,776) Financing activities ...... Principal payments on long-term debt ...... (901) (515) (864) Net increase in financial debt ...... 246 0 0 Dividends paid ...... (824) (730) (2,500) Net cash used in financing activities ...... (1,479) (1,245) (3,364) Increase in cash and cash equivalents ...... 1,839 4,239 1,584 Cash and cash equivalents, beginning of period ...... 38 1,877 6,116 Increase in cash and cash equivalents ...... 1,839 4,239 1,584 Cash and cash equivalents, end of period ...... 1,877 6,116 7,700 (1) Goodwill amortization of consolidated investments. (2) Including foreign currency transaction gains and losses. (3) Gains or losses arising from the difference between the proceeds from the sale of assets and their net book value.
F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 1—SIGNIFICANT EVENTS Introductory remark Maroc Telecom was formed by the contribution of assets from the Moroccan National Posts and Telecommunications Office (ONPT). Some personal and real property held by the ONPT or assigned by the Moroccan government to the private domain for social purposes was not included in the contribution, as it did not meet certain legal requirements. Once the legal requirements have been met, the Government will be able to transfer the assets, as initially planned.
1-1 INFORMATION ON THE ACCOUNTING PERIODS 2001 The most significant event of 2001 was Vivendi Universal’s acquisition of a stake in Maroc Telecom’s capital during the privatization by the Moroccan government.
Vivendi Universal thus became shareholder and strategic partner with a 35% stake in the company’s capital and 50.01% of the voting rights, giving it exclusive control.
In addition, Maroc Telecom took part in the privatization tender of Mauritel S.A., the historic telecoms operator of Mauritius, becoming its main shareholder with a 54% stake, in April 2001. Mauritel S.A. operates a fixed telephone network and owns 100% of Mauritel S.A. Mobiles, a mobile telephone network operator.
When Maroc Telecom first consolidated Mauritel S.A., goodwill recognized on the investment amounted to 196 million dirhams.
2002 In January 2002, Maroc Telecom group (“the Group”) set up Compagnie Mauritanienne de Communication, hereinafter referred to as CMC. The company was incorporated under Mauritian law with initial capital of 0.2 million dirhams. Maroc Telecom also contributed its shares in Mauritel S.A. during the first half of the year. After this contribution, Maroc Telecom sold 20% of CMC to Mauritian investors on June 6, 2002.
2003 Maroc Telecom acquired 35% of GSM Al Maghrib (GAM), a distributor of mobile telephone equipment in Morocco.
Upon acquisition, Maroc Telecom group consolidated GAM for the first time and recorded goodwill of 6 million dirhams.
In addition, during 2003, CMC sold 3% of Mauritel S.A. to its employees for 17 million dirhams, under the terms of the 2001 privatization plan.
1-2 COMPARABILITY 2001 Consolidated financial statements Maroc Telecom prepared consolidated financial statements for the first time in 2001, following its acquisition of Mauritel S.A.
For consolidation purposes, Maroc Telecom’s individual balance sheet and income statement, as of and for the year ended December 31, 2000, which were approved by its shareholders at that time, were restated to bring them into conformity with consolidation principles (see discussion of consolidation adjustments below) and to enable their use as a comparative basis for 2001.
Due to Vivendi Universal’s acquisition of a controlling interest in Maroc Telecom’s capital, certain accounting estimates previously used for the preparation of Maroc Telecom’s consolidated financial statements
F-26 had to be adjusted, to ensure the application of consistent accounting policies throughout the Group. The adjustments resulting from these changes in accounting estimates mainly affected fixed asset and current asset items.
The depreciation and amortization periods for fixed assets were revised and obsolescence provisions were recorded. In the aggregate, additional depreciation, amortization and provisions totaling 1,635 million dirhams were recorded as a separate exceptional item, to ensure operating income comparability with subsequent periods.
With respect to current assets, the main adjustments related to accounts receivable. Collection risk was reviewed, while the principles used to determine the allowance for doubtful accounts (aging and past record of collectibility) remained unchanged. These provisions were recorded in operating income as they relate to risks associated with ordinary company business.
The 2001 provision for doubtful accounts of 1,258 million dirhams, was charged against operating income. This provision amounted to 528 million dirhams in 2000.
2002 As a result of its accounting policy review, which was completed in 2002, Maroc Telecom group recorded exceptional fixed asset provisions and depreciation of 520 million dirhams.
Estimates 2001 The segment information presented below does not include financial data for 2000, as Maroc Telecom did not have a sufficiently reliable cost accounting system to produce information necessary for segment reporting. In 2001, initial steps were taken to allow for the collection of information for operating expense, capital expenditure and fixed assets, based on management assumptions and estimates. The preliminary data was further refined during 2002.
2002 The cost accounting system was set up in 2001, particularly for operating expense, capital expenditure and fixed assets, based on the assumption and estimates made during 2002.
2—ACCOUNTING PRINCIPLES AND VALUATION METHODS 2-1 ACCOUNTING PRINCIPLES The consolidated financial statements of Maroc Telecom group have been prepared in accordance with accounting principles generally accepted in France, and in conformity with the provisions of regulation n° 99-02 of the Comité de Réglementation Comptable.
The consolidated financial statements have been prepared in millions of dirhams.
2-2 CONSOLIDATION PRINCIPLES
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE FINANCIAL STATEMENTS OF COMPANIES WHICH HAVE MATERIAL BUSINESS ACTIVITIES.THE SUBSIDIARIES’ INDIVIDUAL FINANCIAL STATEMENTS MAY BE ADJUSTED, WHEN APPROPRIATE, TO ENSURE CONSISTENT APPLICATION OF SIGNIFICANT GROUP ACCOUNTING POLICIES.
The main adjustments made for consolidation purposes were as follows:
Presentation of the financial statements The consolidated financial statements are derived from the individual financial statements of Maroc Telecom and its subsidiaries, as prepared under Moroccan and Mauritian generally accepted accounting principles. A number of adjustments were made to bring the individual financial statements into compliance with the format required by CRC regulation 99-02.
F-27 The main adjustments to the income statement were: — the recognition in consolidated operating expenses of retailers’ commissions and subsidies on mobile phones, granted in connection with customer capture and loyalty campaigns. These costs were initially netted against revenue in the individual financial statements; — the reclassification of items excluded from ordinary income in operating income, with the exception of operations regarding redundancy plans and changes in the value of fixed assets; — the reclassification under financial income of items of a financial nature previously excluded from ordinary income in the individual financial statements.
The main adjustments to the balance sheet presentation relate to current assets and trade payables. — for current assets, the main adjustment was the reclassification of cables, which were initially recorded in inventories, as these assets are mainly dedicated to network rollout; — for trade payables, adjustments were made to conform to the presentation initially used in the individual financial statements for the period from 2001 to 2004, which entailed recording certain payables as provisions for commitments.
The changes in presentation did not effect group net income.
Other consolidation adjustments: Other consolidation adjustments include the elimination of statutory provisions, the determination of deferred taxes, and consolidation entries (such as the elimination of investments).
2-2-1 CONSOLIDATION METHODS The principal consolidation methods applied are as follows: — all subsidiaries over which Maroc Telecom group has direct or indirect exclusive control are fully consolidated; — the entities over which Maroc Telecom group exercises joint control, together with a limited number of shareholders, are consolidated proportionally; — entities not controlled by Maroc Telecom but over which it exercises significant influence are accounted by the equity method; — material intercompany transactions and balances are eliminated.
Notwithstanding the abovementioned principles, entities may be excluded from the consolidated financial statements if their business activities are not material, or for other specific reasons. When excluded, the reasons are provided in the notes to the consolidated financial statements, along with detailed financial data on the unconsolidated entities.
2-2-2 ACCOUNTING FOR ACQUISITIONS AND GOODWILL Goodwill represents the difference between the cost of the investments and the total value of the assets acquired and liabilities assumed at the acquisition date or as of the date of the most recent financial statements of the subsidiary, if pre-acquisition earnings are not significant.
Goodwill is amortized over a 3 to 40 year period, depending on the company’s business and strategic role. The 40 year period applies to telecommunications companies considered as global operators.
2-2-3 TRANSLATION OF FOREIGN SUBSIDIARIES’ FINANCIAL STATEMENTS With the exception of entities operating in highly-inflationary economies, the balance sheets and statements of income and cash flows of subsidiaries whose functional currency is different from the Group’s reporting currency (Moroccan dirhams), are translated into the reporting currency as follows: — balance sheet items are translated at the closing period-end rate; — income statement items are translated at the annual average rate;
F-28 — foreign currency translation adjustments resulting from the application of these different rates are recorded as a separate line item within shareholders’ equity.
2-2-4 DATE OF THE FINANCIAL STATEMENTS The entities within the scope have been consolidated on the basis of their individual financial statements prepared as of and for the years ended December 31, 2001, 2002 and 2003.
2-3 VALUATION PRINCIPLES
2-3-1 PROPERTY, PLANT AND EQUIPMENT, AND TANGIBLE ASSETS The assets transferred by the Moroccan government on February 26, 1998, to set up Maroc Telecom as a public operator, were recorded as a net amount in the opening balance sheet, which was approved by: — the Postal Services and Information Technology Act N° 24-96, — the joint order n° 341-98 of the Telecommunications Minister and Minister of Finance, Commerce and Industry, approving the inventory of assets transferred to Maroc Telecom group.
Assets acquired subsequently have been recorded at their acquisition or production cost, which for networks essentially comprises design and planning costs, construction costs, site development costs, network rollout costs, and customs duties.
Assets which have not yet been brought into service are recorded as work-in-progress.
Financial expenses corresponding to interest payments on loans to finance the acquisition of property, plant and equipment are not included in the cost of those assets.
Repairs and maintenance costs are expensed as incurred, except if they enhance productivity or extend the useful life of the asset.
Assets are depreciated in a consistent way according to their nature (intangible vs tangible) and their use (e.g. transmission, network equipment). Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which are as follows:
Intangible assets ...... 4 to 5 years Property, plant and equipment: • Buildings ...... 20 years • Civil engineering ...... 15 years • Network equipment : • Radio ...... 10 years • Switching ...... 8 years (except in 2001, 10 years) • Transmission ...... 10 years Other plant and equipment • Furniture and fittings ...... 10 years • Computer equipment ...... 5 years (except in 2001, 5 to 10 years) • Office equipment ...... 10 years • Transportation equipment ...... 5 years
Whenever necessary, an additional provision is recorded for technical obsolescence, reduction in the estimated useful life or impairment of the assets.
2-3-2 FINANCIAL ASSETS Unconsolidated investments are reported at their acquisition value. A provision for impairment is recorded whenever the carrying value is higher than the value in use. The provision is determined based on the Group’s proportionate share in the equity of the unconsolidated investment, which is adjusted, where appropriate, to account for the company’s profitability outlook.
Other financial assets, which include receivables, loans and deposits, are recorded on the basis of their nominal value, with provisions recorded, where appropriate, for collection risk.
F-29 2-3-3 INVENTORIES AND WORK-IN-PROGRESS Inventories and work-in-progress comprise: — goods held for sale to customers upon line activation, which comprise fixed and mobile telephones and accessories. Inventories are accounted for using the first-in, first-out method, and a provision for impairment is recorded for both the risk of obsolescence and excess inventory. — stocks of equipment and supplies corresponding to spare parts and other technical equipment required for network roll-out and maintenance, excluding cables which are accounted for as fixed assets. These inventories are measured at their average acquisition cost and are depreciated based on their value in use or obsolescence.
2-3-4 ACCOUNTS RECEIVABLE Accounts receivable are reported at nominal value and are essentially current. Allowances are recorded for doubtful accounts, and collection risk is estimated on a case-by-case basis or based on statistical information.
Trade receivables These are receivables held against individuals, businesses and international operators. An allowance is recorded to cover the collection risk, which is estimated based on the aging structure of the receivables.
Government receivables These are receivables held against local authorities and the Moroccan government. An allowance is recorded to cover the risk of the Moroccan government not recognizing these receivables.
Other receivables Where appropriate, other receivables are reserved for, on a case-by-case basis in line with estimated collection risk.
2-3-5 CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and demand deposits and short-term highly liquid investments.
2-3-6 PROVISIONS FOR COMMITMENTS AND CONTINGENCIES Provisions are recorded when, at the end of the period, the Group has a commitment to a third party and it is probable or certain that there will be an outflow of resources to the third party, without any consideration expected from the latter.
The commitment may be legal, regulatory or contractual.
The estimate of the amount recorded in provisions corresponds to the probable outflow of resources that the Group will bear to settle the commitment.
No provision for pensions and post-retirement benefits has been recorded in the consolidated financial statements insofar as pension expenses are covered by statutory pension plans set up for employees in Morocco.
2-3-7 DEFERRED INCOME This item mainly corresponds to prepaid subscriptions and unused prepaid minutes sold.
2-3-8 REVENUE Maroc Telecom group generates revenue from fixed and mobile telecommunications services, internet services, and the sale of products, which essentially comprise mobile, fixed and multimedia terminal equipment.
Revenue is recorded based on subscriber and customer calls at the end of the period.
F-30 Revenue from fixed and mobile services comprises: — income from national and international outgoing and incoming calls, which is recorded when generated; — income from subscriptions; — income from prepaid services, which is recognized as calls are made; — income from advertising in printed and electronic directories is recognized when the directories are published; — income from the sale of terminal equipment, which is recognized upon delivery to the customer or retailer, or, where appropriate, when the line is activated.
2-3-9 COMMISSIONS AND SUBSIDIES Retailers’ commissions and customers’ subsidies are expensed when services are rendered, products delivered or lines renewed.
2-3-10 ADVERTISING AND RELATED COSTS Advertising, communication and sponsorship costs are fully expensed as incurred.
2-3-11 RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred.
2-3-12 OPERATING EXPENSES Operating expenses include purchases, payroll and related costs, other external expenses and depreciation, amortization and provisions, which are recognized based on the matching principle.
2-3-13 DEFERRED TAXES Maroc Telecom group recognizes deferred taxes for temporary differences between the book values and tax bases of assets and liabilities, and for loss carry-forwards. Valuation allowances are recorded based on the probability of the taxes being recovered.
Maroc Telecom uses the liability method whereby deferred taxes are calculated using the tax rate which will be effective as of the end of the reporting period in which the differences reverse.
In accordance with IFRS, and contrary to the recommendations of regulation 99-02, it was decided not to discount non-current deferred tax balances.
2-3-14 FINANCIAL INSTRUMENTS The Group does not use financial instruments or currency hedges.
2-3-15 CASH FLOW STATEMENT The cash flow statement is presented in conformity with the recommendations of regulation CRC 99-02.
Accounts payable are not separated into fixed asset payables and trade payables. The majority of trade payables relates to both investing and maintenance activities, as well as stock purchases, making it impossible to identify payables for fixed asset additions and trade payables separately.
Consequently, it was decided to present the change in payables as a single item under cash flow from operating activities.
2-3-16 SEGMENT INFORMATION The revenue from each business segment includes income from telephone services provided to customers and subscribers as well as the reciprocal services rendered between the segments. Intersegment services are recorded based on the prices most recently available from third party transactions.
F-31 Operating results reflect the difference between operating income and expense. Costs are allocated directly to the segments or alternatively by using cost allocation ratios based on economic criteria.
Capital expenditure is directly allocated to the respective segments. Fixed assets used by several segments are allocated proportionately to the segment-specific assets.
3—CONSOLIDATION SCOPE Maroc Telecom group comprises 5 consolidated companies, two of which are fully consolidated and three of which are accounted for by the equity method.
Company name % Group Portion of Consolidation Address Legal form Interest capital held method MAROC TELECOM SA 100% 100% FC Avenue Annakhil Hay Riad Rabat—Morocco Compagnie Mauritanienne de Communication (CMC) SA 2003 ...... 80% 80% FC 2002 ...... 80% 80% FC Avenue Roi Fayçal Nouakchott—Mauritius MAURITEL SA SA 2003 ...... 40.8% 51% EM 2002 ...... 43.2% 54% EM 2001 ...... 54.-% 54% EM Avenue Roi Fayçal 7000 Nouakchott—Mauritius MAURITEL MOBILES SA 2003 ...... 40.8% 51% EM 2002 ...... 43.2% 54% EM Exercise 2001 ...... 54% 54% EM Avenue Roi Fayçal 5920 Nouakchott—Mauritius GSM Al Magrhib (GAM) SA 2003 ...... 35% 35% EM 17, Immeuble la Régence, Lotissement la Colline II, sidi Maârouf—20190 Casablanca—Morocco
Maroc Telecom acquired Mauritel S.A. and its subsidiary, Mauritel S.A. Mobiles SA, in April 2001, through a shareholders’ agreement conferring participating veto rights to the Mauritian State. Those veto rights are effective through June 30, 2004, and restrict Maroc Telecom’s influence to joint control. The Mauritel S.A. group should therefore have been proportionally consolidated in the financial statements of Maroc Telecom.
However, due to Mauritel S.A.’s current reporting system, it is unable to provide complete financial information to the Group, in a timely manner, as required for consolidation purposes.
As these financial statements do not have a significant effect (see financial data hereafter) on the consolidated financial statements of Maroc Telecom, it was decided to opt for the possibility provided by CRC 99-02 to exclude Mauritel S.A. group from the consolidation scope and to account for this investment under the equity method.
This accounting policy has been adopted temporarily, until the company is able to meet the Group’s reporting requirements.
F-32 NOTE 2 GOODWILL
Gross Accumulated Net goodwill amortization acquisition (In millions of MAD) Balance at December 31, 2000 ...... 00 0 Acquisition of 54% of Mauritel S.A. (*) ...... 196 Amortization ...... 5 Balance at December 31, 2001 ...... 196 5 191
(*) Goodwill recognized on the Mauritel S.A. transaction was determined on the basis of the most recent financial statements available as of December 31, 2000, because its to date pre-acquisition earnings were not significant.
GROSS Accumulated Net GOODWILL amortization acquisition (In millions of MAD) Balance at December 31, 2001 ...... 196 5 191 Disposal of 20% of CMC (**) ...... (38) Amortization ...... 4 Balance at December 31, 2002 ...... 158 9 149
(**) CMC was formed in 2002. The disposal was recognized on the basis of the company’s financial position at January 1, 2002, as no information was available at June 30, 2002. Gross Accumulated Net goodwill amortization goodwill (In millions of MAD) Balance at December 31, 2002 ...... 158 9 149 Disposal of 3% of Mauritel S.A. (***) ...... (7) Acquisition of 35% of GSM Al Maghrib ...... 6 Amortization ...... 5 Balance at December 31, 2003 ...... 157 14 143
(***) Amounts determined on the basis of the financial statements available at January 1, 2003.
Goodwill of the GAM transaction was determined on the basis of the financial statements at January 1, 2003 (no material effect).
NOTE 3 INTANGIBLE ASSETS
Disposals Acquisitions and other 2001 Additions changes 2002 (In millions of MAD) Gross ...... 478 272 (4) 746 Patents, trademarks and similar rights ...... 70 63 133 Goodwill of acquired businesses ...... 16 3 19 Other intangible assets (mobile and fixed equipment software) ...... 392 206 (4) 594 Amortization and provisions ...... (110) (194) (304) Patents, trademarks, and similar rights ...... (26) (17) (43) Goodwill of acquired businesses ...... (3) (3) Other intangible assets (mobile and fixed equipment software) ...... (84) (174) (258) Total ...... 368 78 (4) 442
Disposals Acquisitions and other 2002 Additions changes 2003 (In millions of MAD) Gross ...... 746 315 18 1,079 Patents, trademarks, and similar rights ...... 133 124 257 Goodwill of acquired businesses ...... 19 19 Other intangible assets (mobile and fixed equipment software) ...... 594 315 (106) 803 Amortization and provisions ...... (304) (222) (526) Patents, trademarks, and similar rights ...... (43) (49) (92) Goodwill of acquired businesses ...... (3) (4) (7) Other intangible assets (mobile and fixed equipment software) ...... (258) (169) (427) Total ...... 442 93 18 553
F-33 NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Disposals Acquisitions and other 2001 Additions changes 2002 (In millions of MAD) Gross ...... 22,735 2,472 (600) 24,607 Land ...... 871 7 878 Buildings ...... 3,180 2 251 3,433 Technical plant, machinery and tooling ...... 14,379 16 1,967 16,362 Transportation equipment ...... 132 (4) 128 Furniture, office equipment and various fittings ...... 932 641 1,573 Other property, plant and equipment ...... 11 () 11 Work-in-progress ...... 3,230 2,454 (3,462) 2,222 Depreciation, amortization and provisions ...... (9,622) (3,259) 694 (12,186) Land ...... Buildings ...... (1,128) (331) (1,459) Technical plant, machinery and tooling ...... (7,599) (2,414) 250 (9,763) Transportation equipment ...... (87) (16) 5 (98) Furniture, office equipment and various fittings ...... (368) (288) (656) Other property, plant and equipment ...... Work-in-progress ...... (440) (210) 440 (210) Total ...... 13,113 (786) 94 12,421
Disposals Acquisitions and other 2002 Additions changes 2003 (In millions of MAD) Gross ...... 24,607 1,590 (124) 26,073 Land ...... 878 8 886 Buildings ...... 3,433 2 108 3,543 Technical plant, machinery and tooling ...... 16,362 1,132 17,494 Transportation equipment ...... 128 (12) 116 Furniture, office equipment and various fittings ...... 1,573 191 1,764 Other property, plant and equipment ...... 11 0 11 Work-in-progress ...... 2,222 1,588 (1,551) 2,259 Depreciation, amortization and provisions ...... (12,186) (2,400) 477 (14,110) Land ...... Buildings ...... (1,459) (249) (1,708) Technical plant, machinery and tooling ...... (9,763) (1,665) 304 (11,124) Transportation equipment ...... (98) (13) 12 (99) Furniture, office equipment and various fittings ...... (656) (301) (957) Other property, plant and equipment ...... Work-in-progress ...... (210) (172) 161 (222) Total ...... 12,421 (811) 354 11,963
Land and buildings Property comprising “land” and “buildings” is derived in part from the contribution in kind granted in 1998 by the Moroccan government in connection with the transfer of the ONPT to Maroc Telecom, when the latter was formed.
When these assets were transferred, the property titles could not be registered with the property office, which led the auditors to qualify their opinion on the individual financial statements in light of this contingency.
This situation was still unresolved as of the end of December 2003, and while this uncertainty remains the Moroccan government has guaranteed that Maroc Telecom can use the property transferred.
Work-in-progress Provisions for work-in-progress comprise unrecorded depreciation resulting from timing differences in service activation recognition between the technical and accounting departments. These provisions mainly cover the risk of fixed network obsolescence.
F-34 NOTE 5 FINANCIAL ASSETS
2001 2002 2003 (In millions of MAD) Unconsolidated investments ...... 62 51 53 Other financial assets ...... 242 228 113 Total, net ...... 304 279 166
Other financial assets mainly include the loans granted to employees.
The term of financial assets is as follows:
Part 1 2001 2002 2003 (In millions of MAD) Due within one year ...... 22 115 14 Due between 1 and 5 years ...... 157 56 60 Due after 5 years ...... 63 57 39 Total, net ...... 242 228 113
The breakdown of unconsolidated investments was as follows: (1) Casanet’s business activity relates to the maintenance of Maroc Telecom’s internet portal (Menara). Casanet invoices the related costs to Maroc Telecom. As there are reciprocal business activities between Casanet and Maroc Telecom, Casanet has not been consolidated even though the Group exercises exclusive control over its operations. Additionally, the company does not have any significant financial commitments outside the Group. (2) Matelca was not included in the consolidation scope as it is in liquidation.
December 31, 2001 Provision % for Shareholders’ Interest Gross impairment Net Net income equity Casanet (1) ...... 80% 11 0 11 -6 6 Matelca (2) ...... 50% NS NS 0 ND ND Arabsat ...... 0.61% 6 0 6 ND ND Intelsat ...... 0.16% 22 0 22 ND ND New skies satellite ...... 0.16% 5 0 5 ND ND Autoroute du Maroc ...... NS 21 13 8 -340 123 Thuraya ...... 0.20% 10 0 10 ND ND Total ...... 75 13 62
NS: not significant—ND : not determined
December 31, 2002 Provision % for Shareholders’ Interest Gross impairment Net Net income equity Casanet (1) ...... 80% 16 16 0 -7 -1 Matelca (2) ...... 50% NS NS 0 ND ND Arabsat ...... 0.61% 6 0 6 ND ND New skies satellite ...... 0.16% 5 0 5 ND ND Intelsat ...... 0.16% 22 0 22 ND ND Autoroute du Maroc ...... NS 21 13 8 180 1416 Thuraya ...... 0.20% 10 0 10 ND ND Total ...... 80 29 51
NS: not significant—ND : not determined The increase in the number of Casanet shares was due to a capital increase.
F-35 December 31, 2003 Provision % for Shareholders’ Interest Gross impairment Net Net income equity Casanet (1) ...... 100% 18 18 0 5 6 Matelca (2) ...... 50% NS NS 0 ND ND Arabsat ...... 1% 6 0 6 ND ND Intelsat ...... 0.16% 22 0 22 ND ND New skies satellite ...... 0.16% 5 0 5 ND ND Autoroute du Maroc ...... NS 21 12 9 56 1472 Thuraya ...... 0.20% 10 0 10 ND ND Sindibad social fund ...... 10% 1 0 1 ND ND Total ...... 83 30 53
NS: not significant—ND: not determined The increase in Casanet shares follows the acquisition by Maroc Telecom group of an additional 20% stake.
NOTE 6 EQUITY METHOD INVESTMENTS
2001 2002 2003 (In millions of MAD) Mauritel S.A. group ...... 361 345 327 GSM al Maghrib (GAM) ...... 5 Total, net ...... 361 345 332
— The Group’s share in Mauritel S.A.’s earnings for the period ended December 31, 2003 was 36 million dirhams (after goodwill amortization). — The Group’s share in GSM al Maghrib’s earnings for the period ended December 31, 2003 was -1 million dirhams (after goodwill amortization). — The Group’s share in Mauritel S.A.’s earnings for the period ended December 31, 2002 was 37 million dirhams (after goodwill amortization). — The Group’s share in Mauritel S.A.’s earnings for the period ended December 31, 2001 was 15 million dirhams (after goodwill amortization).
The following consolidated data for Mauritel S.A. group’s business is based on Maroc Telecom’s interest in these operations (in millions of dirhams):
2001 2002 2003 in millions of dirhams Share in earnings ...... 54% 43.2% 40.8% Revenue ...... 218 223 227 Operating income ...... 43 66 62 Fixed assets ...... 381 341 333 Financial debt ...... 206 130 91
NOTE 7 INVENTORIES AND WORK-IN-PROGRESS
2001 2002 2003 (In millions of MAD) Goods ...... 251 264 207 Less provisions ...... (42) (54) (26) Net value ...... 209 210 181 Equipment and supplies ...... 234 226 268 Less provisions ...... (74) (54) (84) Net value ...... 160 172 184 Total, net ...... 369 382 365
Inventories essentially comprise mobile phones.
F-36 NOTE 8 ACCOUNTS RECEIVABLE
2001 2002 2003 (In millions of MAD) Gross amount ...... 7,596 7,690 7,830 Commercial customers ...... 6,837 6,764 6,690 Government agencies ...... 759 926 1,140 Allowance for doubtful accounts ...... (3,189) (3,348)(3,398) Commercial customers ...... 3,030 3,139 3,300 Government agencies ...... 159 209 98 Total, net ...... 4,407 4,342 4,432
The majority of accounts receivable are due within one year.
NOTE 9 OTHER RECEIVABLES AND PREPAID EXPENSES
2001 2002 2003 (In millions of MAD) Trade payables, advances and downpayments ...... 51 77 96 Employees ...... 91211 Government ...... 283 369 281 Other payables ...... 443 Deferred taxes ...... 424 417 412 Prepayments ...... 85 158 248 Total, net ...... 856 1,037 1,051
Advances, downpayments, trade payables, receivables from employees, government receivables and other receivables are due within one year.
Employee accounts comprise advances granted to employees, net of provisions.
Government receivables mainly comprise VAT items.
In order to comply with IFRS, deferred taxes resulting from a deferral of the tax deductibility of amortization and provisions on fixed assets to the end of the asset depreciation plan, were not discounted. If such balances had been discounted, the related deferred tax assets would have been lower by 50 million dirhams.
Prepayments essentially comprise prepaid expenses.
NOTE 10 MARKETABLE SECURITIES—CASH AND CASH EQUIVALENTS Marketable securities are mainly comprised of mutual fund investments (SICAV). As of December 31, 2001 they were recorded on the balance sheet at 322 million dirhams and their current value at the same date amounted to 329 million dirhams.
Cash and cash equivalents comprise deposits due within three months.
NOTE 11 SHAREHOLDERS’ EQUITY AND MINORITY INTERESTS CHANGE IN SHAREHOLDERS’ EQUITY
Shareholders’ Part 2 Additional Retained Shareholders’ 2001 equity paid-in capital earnings equity (In millions of MAD) Amount at December 31, 2000 ...... 8,791 3,624 12,415 Dividends paid ...... (824) (824) Net income appropriation N ...... 0 Other impact Mauritel ...... 0 Foreign currency translation adjustments 2001 ...... 11 2001 net income ...... 1,134 1,134 Balance at 31/12/2001 ...... 8,791 0 3,935* 12,726
* including statutory provisions of 1,029 million dirhams.
F-37 Share Additional Retained Shareholders’ 2002 capital paid-in capital earnings Equity (In millions of MAD) Balance at January 1, 2002 ...... 8,791 3,935 12,726 Dividend payment ...... (730) (730) Foreign currency translation adjustments 2002 ...... (39) (39) 2002 net income ...... 3,232 3,232 Balance at December 31, 2002 ...... 8,791 0 6,398* 15,189
* including statutory provisions of 1,445 million dirhams.
Share Additional Retained Shareholders’ 2003 capital paid-in capital earnings equity (In millions of MAD) Amount at January 1, 2003 ...... 8,791 6,398 15,189 Dividends paid ...... (2,500) (2,500) Foreign currency translation adjustments 2003 ...... (37) (37) 2003 net income ...... 5,085 5,085 Balance at 31/12/2003 ...... 8,791 0 8,946* 17,737
* including statutory provisions of 2,046 million dirhams.
The share capital of the consolidating company consists of 87,909,534 shares with a par value of 100 dirhams.
CHANGE IN MINORITY INTERESTS
2003 2002 Amount at January 1 ...... 69 0 Net income from minority interests ...... 69 2002 foreign currency translation adjustments ...... (9) (10) 2002 net income ...... 710 Amount at December 31 ...... 67 69
NOTE 12 PROVISIONS FOR COMMITMENTS AND CONTINGENCIES Provisions for contingencies mainly relate to disputes with employees and third parties.
They are evaluated on a case-by-case basis.
Provisions for disputes of a lesser magnitude (for both employee and third party issues), but which are numerous, are presented as an aggregate, based on a global risk assessment. Material provision reversals and increases are presented separately. Provisions for commitments and contingencies are analyzed as follows:
2001
2000 Increases Other Use Reversals 2001 Provisions for contingencies ...... 55 184 (22) 217 Disputes with employees ...... 38 (22) 16 Disputes with third parties ...... 17 184 201 Provisions for commitments ...... 400 9 409 Provision for restructuring ...... 400 400 Other ...... 9 9 Total ...... 55 584 9 (22) — 626
Disputes with third parties mainly relate to: — a dispute with a supplier, and — an interconnection tariff issue brought before the telecoms regulator, ANRT, by the operator, Méditel, which could result in an unfavorable tariff adjustment.
The provision for restructuring corresponds to the redundancy plan decided in 2000, announced in 2001 and implemented in 2002.
F-38 The other provisions for commitments of 9 million dirhams correspond to the losses expected due to the implementation of the commitment to sell 3% of Mauritel S.A.’s capital to its employees.
2002
Increases 2001 for the period Use Reversals 2002 Provisions for contingencies ...... 217 133 38 312 Disputes with employees ...... 16 29 45 Disputes with third parties ...... 201 101 38 264 Other ...... 03 3 Provisions for commitments ...... 409 480 400 — 489 Provision for restructuring ...... 400 480 400 480 Other ...... 99 Total ...... 626 613 400 38 801
The reversal of the provision for contingencies in 2002 was due to an adjustment to the valuation made in 2001 after taking into account the court’s conclusions. An appeal is pending.
The restructuring provision corresponds to the redundancy plan decided in 2002 and implemented in 2003.
2003
Increases 2002 for the period Use Reversals 2003 Provisions for contingencies ...... 312 49 (25) (20) 316 Disputes with employees ...... 45 (25) 20 Disputes with third parties ...... 264 42 (20) 286 Other ...... 37 10 Provisions for commitments ...... 489 63 (398) (91) 63 Provision for restructuring ...... 480 (389) (91) 0 Provision for employees ...... 063 63 Other ...... 9 0 (9) 0 Total ...... 801 112 (423) (111) 379
The provision reversal results from an adjustment of the valuation made in 2002 after taking into account the conclusions of the appeal.
The reversal of the provision for restructuring corresponds to the portion not used in the 2002 plan.
The provision for commitments relating to employees corresponds to Maroc Telecom’s commitment to pay life annuities to its current and former employees for work-related accidents. This provision was recorded for the first time this year, along with various other expenses.
The reversal of the provision results from the recognition of the losses on the sale of 3% of Mauritel S.A.’s capital to its employees in 2001.
NOTE 13 LOANS AND LONG-TERM DEBT
2001 2002 2003 (In millions of MAD) Due within one year ...... 537 315 180 Due between 1 and 5 years ...... 959 695 311 Due after 5 years ...... 1,781 1,592 1,116 Total ...... 3,277 2,602 1,607
Interest-free loans represented: — end 2001: 1,020 million dirhams — end 2002: 855 million dirhams — end 2003: 702 million dirhams
F-39 All other loans bear fixed interest and are denominated in foreign currencies, mainly dollars and euro.
NOTE 14 ACCRUED EXPENSES AND OTHER LIABILITIES
2001 2002 2003 (In millions of MAD) Employees and social agencies ...... 388 443 458 Government and other creditors ...... 2,193 3,472 2,843 Deferred tax liabilities ...... 16 26 35 Other ...... 393 465 513 Total ...... 2,990 4,406 3,849
The majority of debt is due within one year.
The item “Government and other creditors” essentially comprises tax liabilities (VAT and income taxes). It also includes liabilities relative to commitments enshrined in Maroc Telecom’s terms of reference.
Other accruals mainly relate to deferred income (prepaid subscriptions and unused prepaid cards sold, whether activated or not).
NOTE 15 REVENUE
2001 2002 2003 (In millions of MAD) Mobile revenue ...... 6,760 7,734 8,388 Fixed telecommunications and Internet revenue ...... 10,417 11,054 11,210 Elimination of intersegment transactions ...... (2,909) (3,377) (3,704) Total, net ...... 14,268 15,411 15,894
Revenue corresponds to services provided to customers and subscribers, and is based on consumption and effective rates. It also includes reciprocal fixed/mobile services which can be analyzed as intersegment transactions that are eliminated for consolidation purposes. These transactions consist of: — services related to fixed and mobile traffic termination between two business segments, — use by the Mobile segment of lines leased from the fixed segment.
NOTE 16 PURCHASES
2001 2002 2003 Cost of terminal equipment ...... 1,113 1,085 958 National and international interconnection ...... 1,028 1,304 1,339 Other purchases ...... 421 404 495 Total ...... 2,562 2,793 2,792
The item “Other” mainly comprises energy purchases (fuel and electricity), phone card purchases and other purchases of consumables.
NOTE 17 PAYROLL AND PAYROLL-RELATED COSTS
2001 2002 2003 Wages and salaries ...... 1,473 1,321 1,368 Payroll taxes ...... 153 148 182 Payroll tax rate ...... 10% 11% 13% Total ...... 1,626 1,469 1,550
This item includes the payroll costs for the period, excluding redundancy costs (2001 and 2002), which have been recognized as an exceptional expense.
F-40 NOTE 18 OTHER OPERATING EXPENSES
2001 2002 2003 Advertising, marketing and other promotional costs ...... 166 247 271 Taxes and duties ...... 1,169 947 450 Customer acquisition and loyalty schemes ...... 747 660 733 Other ...... 780 1,000 980 Total ...... 2,862 2,854 2,434
The item “other” mainly comprises costs relating to leases, maintenance, audit and advisory fees and postage.
As recorded, research costs are not material.
NOTE 19 DEPRECIATION, AMORTIZATION AND PROVISIONS, NET
2001 2002 2003 (In millions of MAD) Asset depreciation, amortization and provisions ...... 2,067 2,244 2,169 Allowances for doubtful accounts ...... 1,258 159 51 Provisions for obsolescence and excess inventory ...... 26 (10) 1 Provisions for commitments and contingencies ...... 162 95 67 Total ...... 3,513 2,488 2,288
NOTE 20 FINANCIAL INCOME (EXPENSE) The breakdown of financial income (expense) is as follows:
2001 2002 2003 (In millions of MAD) Income from investments ...... 36 148 198 Interest expense on loans ...... (159) (104) (53) Foreign exchange gains (losses) ...... (203) 51 (20) Other* ...... 17 12 (79) Total ...... (309) 107 46
* The significant change in the item “Other” between 2002 and 2003 was mainly due to an early payment penalty of 86 million dirhams on a loan during 2003.
NOTE 21 EXCEPTIONAL INCOME (EXPENSE)
2001 2002 2003 (In millions of MAD) Provision for restructuring ...... (400) (480) 91 Asset depreciation, amortization and provisions ...... (1,635) (520) 0 Other ...... (194) 0 Total, net ...... (2,035) (1,194) 91
NOTE 22 INCOME TAXES
2001 2002 2003 (In millions of MAD) Current income taxes ...... 729 1,623 2,021 Deferred taxes ...... (422) 17 15 Total, net ...... 307 1,640 2,036
F-41 RECONCILIATION BETWEEN THEORETICAL AND EFFECTIVE TAX EXPENSE
2001 2002 2003 (In millions of MAD) Net income (group share) ...... 1,134 3,232 5,085 Income taxes ...... (307) (1,640) (2,036) Net income, before tax ...... 1,441 4,872 7,121 Statutory tax rate effective in Morocco ...... 35% 35% 35% Theoretical tax ...... 504 1,705 2,492 Permanent differences ...... (198) (80) (458) Other differences ...... 1152 Effective tax expense ...... 307 1,640 2,036
Permanent differences mainly correspond to tax-free provisions for investments and non-national revenues which are not subject to income taxes in Morocco.
All deferred taxes are recognized. No valuation allowance has been recorded.
NOTE 23 OFF-BALANCE SHEET COMMITMENTS 2003—2002 Commitments given Commitments given include: — guarantees on equipment sale contracts. At the end of 2003, these commitments amounted to 191 million dirhams, compared with 285 million dirhams as of December 31, 2002, and are mostly of a current nature. — supplier orders, which amounted to 1,090 million dirhams at the end of 2003, compared with 508 million dirhams at the end of 2002. — 4 million dirhams for the Sindibad social fund at the end of 2003, compared with 0 at the end of 2002. — investment commitments resulting from tax provisions. At the end of 2003, these commitments amounted to 3,166 million dirhams. They must be realized by the end of 2006.
Commitments received Commitments received include: — guarantees of 515 million dirhams in 2003, compared with 667 million dirhams in 2002. — mortgages amounting to 112 million dirhams in 2003, compared with 216 million dirhams in 2002. — the Moroccan government guarantee on Group loans amounted to 1,499 million dirhams at the end of 2003, compared with 2,483 million dirhams at the end of 2002. This guarantee matures at the same time as the loans.
Maroc Telecom signed an investment agreement with the Moroccan government in January 2003, whereby it agreed to invest 7,079 million dirhams over a three year period, and to create 300 jobs before January 2006. In exchange, the Moroccan government agreed to exonerate Maroc Telecom from customs duties on all its capital good imports. If Maroc Telecom does not meet its investment commitments it will incur customs duties for such periods, along with penalties for late payment.
2002/2001 Commitments given — guarantees on equipment sale contracts. At the end of 2002, these commitments amounted to 285 million dirhams, compared with 554 million dirhams in 2001, and are mostly current. — supplier orders, which amounted to 508 million dirhams at the end of 2002, compared with 1,689 million dirhams at the end of 2001. — investment commitments resulting from tax provisions. At the end of 2001, these commitments amounted to 1,390 million dirhams, and must be realized by the end of 2004.
F-42 Commitments received Commitments received include: — guarantees of 667 million dirhams in 2002, compared with 644 million dirhams in 2001; — mortgages amounting to 216 million dirhams in 2002, compared with 227 million dirhams in 2001; — the Moroccan government guarantee on Group loans amounted to 2,483 million dirhams at the end of 2002, compared with 3,006 million dirhams at the end of 2001. This guarantee matures at the same time as the loans.
NOTE 24 NUMBER OF EMPLOYEES The number of people employed by unconsolidated companies of the Group at the end of the periods was as follows:
December 31, December 31, December 31, 2001 2002 2003 ...... 14,681 13,444 12,170
NOTE 25 SEGMENT INFORMATION Due to the lack of a stable cost accounting system, segment information other than revenue is based on management’s estimates.
Breakdown of revenue per segment
REVENUE 2001 2002 2003 Fixed telecommunications ...... 9,455 9,782 9,586 Mobile telecommunications ...... 4,813 5,629 6,308 Total Maroc Telecom Group ...... 14,268 15,411 15,894
Breakdown of operating income by segment
OPERATING INCOME 2001 2002 2003 Fixed telecommunications ...... 2,712 3,575 4,273 Mobile telecommunications ...... 1,058 2,347 2,676 Total Maroc Telecom Group ...... 3,770 5,922 6,949
Breakdown of capital expenditure by segment
INVESTMENTS 2001 2002 2003 Fixed telecommunications ...... 1,039 1,201 763 Mobile telecommunications ...... 1,769 1,543 1,141 Total Maroc Telecom Group ...... 2,808 2,744 1,904
Breakdown of assets employed per segment
2001 2002 2003 Net amount Net amount Net amount (In millions of MAD) Fixed telecommunications ...... 4,399 4,621 5,044 Mobile telecommunications ...... 9,273 8,391 7,615 Total Maroc Telecom group ...... 13,672 13,012 12,659
Assets employed corresponds to property, plant and equipment, intangible assets and goodwill.
F-43 NOTE 26 RELATED-PARTY TRANSACTIONS
2001 2002 2003 (In millions if MAD, before tax) Revenue ...... ——— Expenses ...... 137 128 100 Receivables ...... ——— Payables ...... 76 18 22
This information on related-parties excludes ordinary course commercial relationships mainly related to interconnexion services.
NOTE 27 COMPENSATION PAID TO MEMBERS OF THE MANAGEMENT BOARD Management board members received an aggregate 17.884 million dirhams in compensation in 2003, 14.211 million dirhams in 2002 and 10.058 million dirhams in 2001.
NOTE 28 OTHER INFORMATION Maroc Telecom is consolidated in the financial statements of VIVENDI UNIVERSAL group.
F-44 REGISTERED OFFICE OF THE COMPANY
Maroc Telecom Avenue Annakhil – Hay Riad Rabat Morocco
LEGAL ADVISORS
To the Company As to U.S. and French Law: Clifford Chance 112, avenue Kléber 75116 Paris France
To the Joint Global Coordinators
As to U.S. and French Law: As to Moroccan Law: Cleary, Gottlieb, Steen & Hamilton Kettani Law Firm 41, avenue de Friedland 23 rue El Amraoui Brahim 75008 Paris 20000 Casablanca France Morocco
STATUTORY AUDITORS OF THE COMPANY
Samir Agoumi Abdelaziz Almechatt Correspondent of Salustro Reydel in Morocco Coopers & Lybrand (Maroc) S.A. 100, boulevard Abdel Moumen 100 boulevard Massira Al Khadra 20000 Casablanca 20100 Casablanca Morocco Morocco Maroc Telecom