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Maroc Telecom – Itissalat Al Maghrib -Société Anonyme à Directoire et Conseil de surveillance with a share capital of MAD5,274,572,040 - Registred Office : Avenue Annakhil – Hay Riad Rabat – Morocco - RSC Rabat 48 947 Document deréférenceDocument English version 2006 5/09/07 10:21:20 Finale433x297GB.indd 2 5/09/07 10:21:29 1DocGB.qxd:DocReferenceMTv5.qxd 5/09/07 10:59 Page 1
MAROC TELECOM Société Anonyme de droit marocain au capital de 8 790 953 400 dirhams Head Office: Avenue Annakhil – Hay Riad – Rabat – Morocco RCS Rabat 48947
2006 REGISTRATION DOCUMENT
This Registration Document in English is a translation of the French « Document de référence » for information purposes. This translation is qualified in its entirety by reference to the « Document de référence ».
Pursuant to Article 212-13, of the Financial Market Authority’s Regulation this Registration Document was filed on May 9, 2007 under No. R 07-058. It may not be used in support of a financial transaction unless it is accompanied by a transaction note endorsed by the Financial Market Authority. This Registration Document was drawn up by the issuer and engages the responsibility of its signatories. This registration in compliance with Article L621-8-1-I of the Monetary and Financial Code, was carried out after examination of the relevance and consistency on the information provided on the company’s situation and does not imply authentication by the AMF of the accounting and financial elements presented.
In application of Article 28 of European Commission Regulation 809/2004/EC, the following information is included by reference in this Registration Document: • the 2004 Consolidated financial statements and the corresponding Statutory Auditors’ report are presented on pages 83 and following and page 105 of the Registration Document filed with the AMF on March 30, 2005 under No. R.05-038; • the 2004 Company financial statements and the corresponding Statutory Auditors’ reports on pages 106 and following and page 116 of the Registration Document registered with the AMF on March 30, 2005 under No. R.05-038; • the 2005 Consolidated financial statements and the corresponding Statutory Auditors’ report are presented on pages 88 and following and page 160 of the Registration Document filed with the AMF on March 23, 2006 under No. R.06-031; • the 2005 Company financial statements and the corresponding Statutory Auditors’ reports on pages 129 and following and page 159 of the Registration Document filed with the AMF on March 23, 2006 under No. R.06-031.
Des exemplaires du présent document sont disponibles sans frais auprès de Maroc Telecom, Avenue Annakhil - Hay Riad - Rabat, Maroc sur le site Internet de Maroc Telecom : www.iam.ma et sur le site Internet de l’Autorité des Marchés Financiers www.amf-france.org 1DocGB.qxd:DocReferenceMTv5.qxd 5/09/07 10:59 Page 2
TAbLE OF CONTENTS
2006 HIGHLIGHTS 4 3.3 Trading of the company’s shares 31 3.3.1 Places of listing 31 KEY FIGURES 6 3.3.2 Maroc Telecom share price 31 3.4 Dividends and dividend policy 33 1 PERSONS RESPONSAbLE FOR 3.4.1 Dividend paid out over the past five fiscal years 33 THE REGISTRATION DOCUMENT 3.4.2 Dividend policy 33 AND AUDIT OF THE FINANCIAL STATEMENTS 8 3.4.3 Tax treatment relating to dividends 34 1.1 Person responsible for the Registration 3.5 Breakdown of share capital and voting rights 36 Document 8 3.5.1 Ownership of share capital and voting rights 1.2 Certification of the Registration Document 8 in the Company 36 1.3 Persons responsible for the audit 3.5.2 Authorized share capital 36 of the financial statements 8 3.5.3 Changes in the shareholding structure of 1.3.1 Statutory auditor 8 the Company over last three fiscal years 36 1.4 Information policy 9 3.5.4 Employee stock ownership 37 1.4.1 Person responsible for the information 9 3.5.5 Shareholders’ Agreement 37 1.4.2 Financial communication calendar 9 3.6 Asset pledges 41 1.4.3 Shareholders’ information 9
4 INFORMATION CONCERNING COMPANY 2 INFORMATION RELATING TO THE TRANSACTION 10 bUSINESS ACTIVITIES 42 3 GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL 12 4.1 History 42 4.2 General presentation 43 3.1 General information 12 4.2.1 Organization 43 3.1.1 Corporate name 12 4.2.2 Description of operations 44 3.1.2 Head Office 12 4.2.3 ISO Certification 46 3.1.3 Legal form 12 4.3 Maroc Telecom’s business strategy 47 3.1.4 Legislation 12 4.4 Business activities 49 3.1.5 Commitments of the Company to the market 4.4.1 Mobile business 49 authorities in France 13 4.4.2 Fixed-line and Internet business 60 3.1.6 Registration 14 3.1.7 Duration of the Company 14 4.4.3 Shareholdings 71 3.1.8 Corporate purpose 15 4.4.4 Distribution 73 3.1.9 Legal documents available for viewing 15 4.4.5 Marketing, communication and sponsorship 76 3.1.10 Fiscal year 15 4.5 Competition 78 3.1.11 Allocation of profits 15 4.5.1 Mobile telecommunications 78 3.1.12 General shareholders’ meetings 16 4.5.2 Fixed-line telecommunications 79 3.1.13 Management of the Company 18 4.5.3 Data transmission 80 3.1.14 Statutory auditors 22 4.5.4 Internet 80 3.1.15 Trading of shares 23 4.6 Research and development 81 3.1.16 Statutory thresholds 23 4.7 Seasonality 82 3.1.17 Public bids 24 4.8 Regulatory environment and possible 3.2 General information relating to the company’s dependencies 83 share capital 28 3.2.1 Share capital 28 4.8.1 General presentation of the legal environment 3.2.2 Form of shares 28 with respect to telecommunications in Morocco 83 3.2.3 Rights and duties attached to shares 28 4.8.2 The legal environment with respect to 3.2.4 Acquisition by the Company of its own shares 29 telecommunications in Morocco 83 3.2.5 Changes in the Company’s share capital since 4.8.3 Dispute settlement 91 its incorporation 30 4.8.4 Dependencies 91
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TABLE OF CONTENTS
4.9 Human resources 92 6 CORPORATE GOVERNANCE 208 4.9.1 Modernization of human resources management 92 4.9.2 Staff 92 6.1 Management and supervisory boards 208 4.9.3 Staff turnover rate 93 6.1.1 Composition and functioning of the Management board 208 4.9.4 Changes in the number of employees 93 6.1.2 Composition and roles of the Supervisory board 210 4.9.5 Staff of the Vivendi group 93 6.2 Corporate governance 215 4.9.6 Training 93 6.2.1 Audit Committee 215 4.9.7 Evolution of staff compensation 93 6.2.2 Code of Ethics 217 4.9.8 Labor relations 94 6.3 Interests of the corporate executives 218 4.9.9 Agreements and negotiations 94 6.3.1 Compensation of the Management 4.9.10 Employee benefits 95 and Supervisory boards 218 4.10 Real property 96 6.3.2 Participation of Management structures and 4.11 Intellectual property 97 Supervisory board in the Company’s share capital 218 4.12 Insurance 98 6.3.3 Conflict of interests 219 4.13 Legal and arbitration proceedings 99 6.3.4 Interests of corporate executives in significant 4.14 Risk factors 100 customers and suppliers of the Company 219 4.14.1 Risks relating to the company’s business 100 6.3.5 Service contracts 219 4.14.2 Risks relating to the regulatory environment 103 6.3.6 Stock options 219 4.14.3 Tax risk 104 6.3.7 Loans and guarantees granted 4.14.4 Risks relating to the interests held by major to corporate executives 219 shareholders in Maroc Telecom 104 6.4 Related party transactions 220 4.14.5 Market risks 105 6.4.1 Management Services’ Agreement 220 6.4.2 Management Services Agreement with Mauritel 220 5 FINANCIAL REPORT 106 6.4.3 Agreement with Casanet 220 6.4.4. Agreement with GSM Al-Maghrib (GAM) 220 6.4.5 Costs relating to stock options and restricted 5.1 Consolidated financial data for years ended stock 221 December 31, 2004, 2005 and 2006 106 6.4.6 Sale of property to a member of 5.1.1 Financial data in Moroccan dirhams 106 the Management board 221 5.1.2 Financial data in euros 107 6.4.7 Agreement with Al Akhawayn University 221 5.2 General overview 109 6.4.8 Contract with Media Overseas 221 5.2.1 General presentation 109 6.4.9 Medi-1-Sat current account advance 221 5.2.2 Market trends and other factors affecting 6.4.10 Mobisud current account advance 221 earnings 109 5.2.3 Scope of consolidation 112 7 RECENT DEVELOPMENTS AND OUTLOOK 222 5.2.4 Significant accounting policies and estimates 113 5.3 Consolidated income statement 118 7.1 Recent developments 222 5.3.1 Comparison of 2006, 2005 and 2004 119 7.1.1 Shareholders’ Meeting held April 12, 2007 7.1.2 Acquisition of Gabon Telecom 5.3.2 Comparison of business segment results 123 7.1.3 Phony 5.3.3 Cash and cash equivalents 127 7.2 Market outlook 223 5.3.4 Contractual obligations and commercial 7.3 Objectives 224 commitments 131 5.3.5 Disclosure of qualitative and quantitative TAbLE OF CONCORDANCE 226 information about market risks 131 2006 ANNUAL INFORMATION DOCUMENT 228 5.3.6 Transition from individual financial statements STATUTORY AUDITORS FEES 229 to consolidated financial statements 134 APPENDICES 230 5.4 Consolidated financial statements 135 Maroc Telecom’s ordinary general meeting, 5.5 Individual financial statements 176 april 12, 2007 230 5.6 Report of the Management Board 201 Glossary 233
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2006 HIGHLIGHTS
January
• Maroc Telecom adopted a new visual identity increasing visibility and simplicity.
February 2006
• The CMC holding company, which is 80% owned by Maroc Telecom, acquired an additional 0.527% of the shares in Mauritel SA.
March
• Maroc Telecom implemented the new fixed-line numbering plan, simplifying it to two zones instead of four. • Maroc Telecom disposed of its 35% stake in GSM Al-Maghrib. • Maroc Telecom reduced its VPN and secure optical access tariffs.
April
• Maroc Telecom’s Supervisory board appointed Mr. Arnaud Castille as member of the Management board, replacing Mr Mikael Tiano. • The Company paid out an ordinary dividend of MAD6.96 per share, representing a total payout of MAD6,119 million. • Maroc Telecom participated in Medi-1-Sat’s capital increase of MAD10 million, increasing its stake from 24.7% to 26.8%.
May
• The ANRT launched an invitation to tender to grant three 3G mobile licenses. • Maroc Telecom reduced its tariffs for several services including Menara, ADSL and international leased lines for call centers.
June
• Maroc Telecom launched television via ADSL. This is the first time this service has been made available in Morocco, Africa and the Arabic world. • Maroc Telecom started laying a fiber optic submarine cable between Morocco (Asilah) and France (Marseille) called Atlas Offshore, in an aim to meet international capacity requirements for offshoring activities in Morocco and Internet driven by ADSL broadband access. • The ANRT set the agenda for implementing number portability at December 31, 2006 for Mobiles and March 31, 2007 for Fixed-lines. • Maroc Telecom offered football fans a unique occasion to watch all the 2006 World Cup matches for free, setting up more than forty large screens connected to TV via ADSL in public places in the Kingdom’s main cities. • Maroc Telecom cut its international leased line tariffs and introduced 155 Mbps bandwidth. • Maroc Telecom launched a new voluntary redundancy plan to be completed in 2007 for a total cost of MAD300 million. Restructuring costs at Mauritel SA totalled MAD29 million and concerned 192 employees. • Maroc Telecom reduced its share capital by MAD3,516 million and paid shareholders MAD4 per share in cash.
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2006 HIGHLIGHTS
July
• Maroc Telecom’s Supervisory board appointed Mrs. Janie Letrot as member of the Management board, replacing Mr. François Lucas. • Maroc Telecom modified its internal organisation to be able to seize the opportunities made available by convergence and to be in a position to propose global offers at the best prices while maintaining high quality service. Fixed-line & Internet and Mobile segments were grouped together in a single department called Services. Regional sales teams have been set up to strengthen links with Maroc Telecom’s clients and partners at both provincial and prefectoral levels. • The ANRT granted three 3G licenses in July to Maroc Telecom, Medi Telecom and Maroc Connect for MAD360 million (incl. VAT) per license. • Maroc Telecom belgium was created with share capital of 62,000, wholly-owned by Maroc Telecom.
August
• The Maroc Telecom foundation rewarded the Kingdom’s best students.
September
• Maroc Telecom continued to break new ground on the market with its new services Internet Mobile email (“Mobimail”) and push-to-talk (“Mobitalkie”). • To build customer loyalty and attract new customers, Maroc Telecom launched a series of unlimited fixed-line offers called “Phony”, allowing customers to make unlimited fixed-line local and national calls to all Maroc Telecom numbers.
November
• Maroc Telecom purchased a 66% stake in SFR6 for MAD74 million. The other shareholders in this is company, which has been renamed Mobisud, are SAHAM (18%) and SFR (16%).
December
• Maroc Telecom launched Mobisud, a new operator on the French Mobile market. • Maroc Telecom belgium carried out a share capital increase of MAD16.8 million. • Maroc Telecom signed an investment agreement with the Moroccan government. • After privatization by means of an international invitation to tender, Maroc Telecom acquired 51% of Onatel, Office National des Telecommunications, burkina Faso’s incumbent operator. • Maroc Telecom introduced ADSL+ with bandwidth of up to 20 Mo and reduced ADSL 4 Mo tariffs, and tariffs for international leased lines.
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KEY FIGURES
2004 2005 2006 Var 2005-2006 Number of employees* 12,204 11,178 11,212 0.3%
Fixed-line customers* (in thousands) 1,309 1,341 1,266 (5.6%)
Mobile customers* (in thousands) 6,361 8,237 10,707 30.0%
Internet customers* (in thousands) 105 252 391 55.2%
IFRS (in millions MAD)
Consolidated revenues 17,408 20,542 22,615 10.1% . Mobile 9,684 12,772 14,684 15.0% . Fixed-line and Internet 11,133 11,949 12,613 5.6%
EBITDA 10,451 11,664 13,152 12.8% . Mobile 5,099 6,808 8,439 24.0% . Fixed-line and Internet 5,352 4,856 4,713 (2.9%)
Operating income (EFO) 7,597 8,678 10,043 15.7% . Mobile** 3,806 5,394 6,904 28.0% . Fixed-line and Internet 3,791 3,284 3,139 (4.4%)
Consolidated net income (group share) 5,171 5,809 6,739 16.0%
Capital expenditure 2,488 3,210 3,978 23.9% . Mobile** 1,122 1,771 2,445 38.1% . Fixed-line and Internet 1,366 1,439 1,533 6.5%
* Excluding Mauritel ** Including Mobisud in 2006
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KEY FIGURES
Quartely data
2004 2005 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 in thousands
Number of Fixed-lines 1,254 1,312 1,299 1,309 1,335 1,349 1,345 1,341 1,336 1,310 1,267 1,266
Internet Access 60 79 92 105 122 159 196 252 306 332 348 391
ADSL 9 27 42 60 91 135 179 242 296 325 342 384
Number of Mobile customers 5,353 5,519 6,034 6,361 6,709 7,188 8,041 8,237 8,576 8,924 10,496 10,707
Prepaid 5,129 5,283 5,790 6,105 6,428 6,875 7,717 7,908 8,228 8,553 10,108 10,297
Postpaid 224 236 244 256 281 313 324 329 348 371 388 410
IFRS (in millions MAD)
Consolidated revenues 4,068 4,164 4,697 4,479 4,712 5,039 5,527 5,264 5,276 5,612 6,195 5,532
Mobile (gross) 2,213 2,295 2,709 2,467 2,839 3,139 3,553 3,241 3,279 3,678 4,164 3,563
Maroc Telecom 2,213 2,295 2,591 2,351 2,709 2,999 3,403 3,088 3,118 3,507 3,991 3,381
Mauritel --118 116 130 140 150 153 161 171 173 182
Fixed-line and Internet (gross) 2,660 2,682 2,904 2,887 2,860 2,925 3,073 3,091 3,084 3,060 3,270 3,198
Maroc Telecom 2,660 2,682 2,827 2,780 2,779 2,843 2,991 3,003 3,004 2,981 3,196 3,121
Mauritel --77 107 81 82 82 88 80 79 74 77
Elimination of inter-segment transactions (805) (813) (916) (875) (987) (1,025) (1,099) (1,068) (1,087) (1,126) (1,239) (1,229)
Consolidated operating income 1,786 1,729 2,209 1,873 2,073 1,844 2,537 2,224 2,326 2,165 3,106 2,446
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1 PERSONS RESPONSIbLE FOR THE REGISTRATION DOCUMENT AND FOR THE AUDIT OF THE FINANCIAL STATEMENTS
In this Registration Document, "Maroc Telecom" or “the Company” refers to the company Itissalat Al-Maghrib, and “the group” refers to the group constituted by the Company and all direct and indirect subsidiaries, as described in Chapter 5.
1.1 PERSON RESPONSIbLE FOR THE REGISTRATION DOCUMENT
Mr. Abdeslam Ahizoune Chairman of the Management board
1.2 CERTIFICATION OF THE REGISTRATION DOCUMENT
I attest, after having taken all reasonable steps for this purpose, that the information contained in this Registration Document is, to my knowledge, in conformity with reality and does not comprise any omission likely to deteriorate its range. I obtained a letter of work-end from statutory auditors, in which they indicate that they have verified the information related to the financial standing and the accounts given in this Registration Document and the overall reading of the Registration Document. Historical financial information presented in the Registration Document was the subject of Statutory Auditors’ reports, which appear on pages 175 and 198 of the present Registration Document , pages 167 and 197 of the 2005 Registration Document filed with the French Autorité des Marchés Financiers (AMF) on April 11, 2006 under the number R 06-031, on pages 157 and 186 of the 2004 Registration Document filed with the French Autorité des Marchés Financiers (AMF) on April 8, 2005 under the number R 05-038, and on page 292 and 330 of Document de base filed with French Autorité des Marchés Financiers (AMF) on November 8, 2004 under the number I 04-198, which contain observations.
Rabat, May 4, 2007
Mr. Abdeslam Ahizoune Chairman of the Management board
1.3 PERSONS RESPONSIbLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS
1.3.1 Statutory Auditors Mr. Samir Agoumi Mr. Abdelaziz Almechatt Representative of Salustro Reydel in Morocco Representative of Coopers & Lybrand in Morocco 100 boulevard Abdelmoumen 101 boulevard Massira Al Khadra 20000 Casablanca, Morocco 20100 Casablanca, Morocco First appointed in 2001 for a three fiscal year term by the general First appointed in 1998 by statutes, the current mandate, of a shareholders’ meeting. This mandate will expire at the end of the three fiscal year term, was renewed by the shareholders’ general shareholders’ meeting held to approve the financial meeting held April 8, 2005 and will expire at the end of the statements for the fiscal year ended December 31, 2006. shareholders’ meeting held to approve the financial statements The renewal of this mandate has not been included in the agenda for the fiscal year ended December 31, 2007. of the general shareholders’ meeting on April 12, 2007. The appointment of KPMG representing Mr Fouad Lahgazi will be proposed to the shareholders at the general meeting.
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1.PERSONS RESPONSIBLE FOR THE REGISTRATION DOCUMENT AND FOR THE AUDIT OF THE FINANCIAL STATEMENTS INFORMATION POLICY
1.4 INFORMATION POLICY
1.4.1 Person responsible for information Mr. Arnaud Castille Chief Financial Officer Maroc Telecom Avenue Annakhil Hay Riad Rabat, Morocco Telephone: 00 212 (0) 37 71 67 67 E mail: [email protected]
1.4.2 Financial communication calendar
All the financial information issued by Maroc Telecom (press releases, presentations, annual reports) is available on its website www.iam.ma. The following is an indicative calendar of Maroc Telecom’s financial communication for 2007:
Date* Event Format
Monday January 22, 2007 Q4-2006 and 2006 revenues Press release
Friday March 2, 2007 Q4-2006 and 2006 results Press release
Press conference
Analysts and Investors conference
Thursday April 12, 2007 Shareholders’ Meeting
Friday May 11, 2007 Q1 2007 - revenues and results Press release
Monday July 23, 2007 Q2 and H1 2007 - revenues Press release
Thursday August 30, 2007 Q2 and H1 2007 – revenues Press release
Press conference
Analysts and Investors conference
Monday November 5, 2007 Q3 2007- revenues and results Press release
* before the market
1.4.3 Shareholders’ information
The social, accounting and legal documents, whose Company, as well as the various press releases are available communication is ruled by the Moroccan and French laws and on Maroc Telecom’s website: www.iam.ma. the statutes in favour of the shareholders and third parties can In accordance with the provisions of the Transparency Directive, be consulted at the head office of the Company. which has been applicable since January 20, 2007, all regulated Registration Documents, updating of Registration Documents information is available and stored on Maroc Telecom’s website: filed with the Autorité des marchés financiers (AMF), www.iam.ma/information-reglementee.aspx. presentations for investors and financial analysts made by the
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2 INFORMATION RELATING TO THE TRANSACTION
NOT APPLICAbLE
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3 GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL
The significant information for investors, relating to the document subject to the specific provisions of the Shareholders’ Company and its share capital have been set forth in the Agreement (See section 3.5.5 "Shareholders’ Agreement"). Articles of Association effective on the date of the present
3.1 GENERAL INFORMATION
3.1.1 Corporate name
The Company’s corporate name is: “Itissalat Al-Maghrib”. It also operates under the trade names “IAM” and “Maroc Telecom”.
3.1.2 Head Office
The Company’s Head office is located on Avenue Annakhil (Hay Riad), Rabat, Morocco. Telephone: +212 37 71 21 21
3.1.3 Legal form
Maroc Telecom is a Moroccan corporation with a Management board and Supervisory board, governed by Chapter II of Act 17- 95 relating to corporations.
3.1.4 Legislation
The Company is governed by Moroccan law, including in Privatization dated November 22, 2004; particular Act 17-95 relating to corporations, and by its • The Decree 1-93-212, dated September 21, 1993, relating to Articles of Association. The French law governing commercial the Ethics Council for Securities (CDVM) and the information companies is not applicable to it. required of legal entities issuing securities to the public, as As the Company is listed on a regulated market in Morocco, the amended and extended by Act 23-01; provisions of various Moroccan rules, regulations, orders, • The Decree 35-96 relating to the creation of the central decrees and circulars will be applicable, including in particular: depositary and establishment of a general accounting • The Decree 1-93-211, dated September 21, 1993, relating to system for certain securities as amended and extended by the Securities Exchange, as amended and extended by Acts Act 43-02; 34-96, 29-00 and 52-01; • The General Regulation of the central depositary approved • The General Regulation of the Stock Exchange approved by Order 932-98 of the Minister of the Economy and by Order 499-98 of the Minister of the Economy and Finance, dated April 16, 1998, and amended by Order 1961- Finance, dated July 27, 1998, and amended by Order 01of the Minister of the Economy, Finance, Privatization and 1960-01 of the Minister of the Economy, Finance, Tourism, dated October 30, 2001; Privatization and Tourism dated October 30, 2001 and • The Decree 24-96 relating to the Postal Service and by Order 1994-04 of the Minister of Finance and Telecommunications, dated August 7, 1997, as amended by
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
Act 79-99, dated June 22, 2001, and by Act 55-01, dated • The Circular 05-05 of the Ethics Council for Securities November 4, 2004; (CDVM), dated October 3, 2005, relating to publication of important information by legal entities issuing securities to • The Decree 1-04-21, dated April 21, 2004, enacting Act 26- 03 relating to public offers on the Moroccan stock market; the public; and • The Circular 06-05 of the Ethics Council for Securities • The Circular 01-04 of the Ethics Council for Securities (CDVM), dated June 8, 2004, relating to the thresholds for (CDVM), dated October 13, 2005, relating to publication and ownership of shares or voting rights of listed companies; distribution of financial information by legal entities issuing securities to the public. • The Circular 01-05 of the Ethics Council for Securities (CDVM), dated March 18, 2005, relating to the ethical frame information within listed companies;
3.1.5 Commitments of the Company to the market authorities in France
As the Company is also listed on the primary market of within four months of the end of the fiscal year; Euronext Paris, some provisions of French stock law are • publish quarterly statements including net revenues by applicable to it. Indeed, under the current legislation, rules business segment for the past quarter, a general concerning foreign issuers provided by AMF Regulation are description of the Company’s results and financial position applicable to the Company. In addition, organization and and that of companies it controls, and the significant general rules of Euronext Paris are applicable to the transactions and events which occurred during the quarter Company. and their impact on the Company’s financial position, AMF rules may also apply to public bids for the shares of the within 45 days from the end of the first and the third Company, except provisions concerning Compulsory quarters; standing offer procedure, the mandatory submission of a • publish a press release specifying the fees paid to the public tender offer and compulsory buyout. Statutory Auditors, to be presented on the AMF and Maroc Other rules of French stock exchange law do not apply to the Telecom websites within four months of the end of the Company. This is the case of threshold rules. fiscal year;
With regards to French law, a foreign issuer has to take the • publish monthly statements on the total number of voting necessary steps to allow the shareholders to manage their rights and shares comprising the Company’s share investments, and implement their rights. capital;
Since Company securities are listed in the primary market of • publish, as early as possible, any information on new facts Euronext Paris, and pursuant to AMF Regulation and in that may significantly affect the share price and inform the compliance with provisions of the European Transparency AMF; Directive transposed by the Monetary and Financial Code • inform the French public about changes in the business of and applicable since January 20, 2007, the Company is the Company or its management; required to: • make the necessary provisions for allowing the persons who • inform the AMF of any changes in its share capital compared hold their securities through Euroclear France to exercise with previously disclosed information, particularly the crossing their rights, particularly by informing them about any annual of thresholds which Maroc Telecom would have received; ordinary shareholders’ meeting and by allowing them to • publish interim financial reports including condensed exercise their voting rights; financial statements, an interim management report, the • inform the persons who hold their securities through Statutory Auditors’ reports on the limited review of the above Euroclear France about dividend payments, new share mentioned financial statements and a statement from the issues, allocation, subscription, renunciation and conversion; persons responsible for the half-yearly financial report within two months of the end of the first half of the Company’s • update names and details of the person in charge of the fiscal year; issuer information in France;
• publish an annual financial report including the accounts, • provide the AMF with any information it may require in a management report, the Statutory Auditors’ report and a accordance with its mission and the laws and regulations statement from the persons responsible for the report applicable to the Company;
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• comply with AMF Regulation relating to the obligation to to the issuer (shareholding structure, activities, management, inform the public; financial information) without containing however any
• comply with the provisions of the AMF’s General Regulation information relating to an issue of specific shares. on disclosures; In practice, the annual report of the Company can be used • make all regulated information available on Maroc Telecom’s as the Registration Document, to the condition that it website and store such information for at least five years; contains all the required information.
• inform the AMF about any draft amendment of its bylaws. The Registration Document will then have to be filed with the The Company will have to inform the AMF about any general AMF and distributed to the public once registered. shareholders’ meeting resolution authorizing the Company The annual and the interim reports in French will be available to trade in its own shares and send the AMF periodic reports for public in France at the office of the financial intermediary of purchases or sales of shares made by the Company by in charge of financial service in France (currently: CACEIS). virtue of the authorization. In addition, the Company has the intention to lead an active The Company will have to ensure in France, in a policy towards all shareholders, including those holding their simultaneous way, identical information to the one that it will shares through Euroclear France, doing the best to allow give abroad, particularly in Morocco. them to participate to any public offer which would, if Any publication and information to the public related to in applicable, be made on the international markets. this chapter will be made by any mean particularly by a However, because of the constraints related to operations on notice or press release inserted in a national financial daily international markets and in order to be able to benefit from newspaper distributed in France. the best existing conditions on these markets, in the interest The information intended for the public in France is written in of the Company and of all its shareholders, the Company French. cannot guarantee to the persons holding their shares The Company establishes, like French issuers, a Registration through Euroclear France such a participation in all Document, supplying legal and financial information relating operations which would, if applicable, be made.
3.1.6 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.
3.1.7 Duration of the Company
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 Articles of Association.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
3.1.8 Corporate purpose
The Company’s corporate purpose, in accordance with its • market and, on an accessory basis, assemble and contract specifications as an operator and pursuant to the manufacture, any telecommunications devices, products statutory and regulatory rules in force, is: and items;
• to provide universal service, in the manner provided for • create, acquire, license and make use of any patents, under the statutory and regulatory rules in force; and; processes or trade names;
• to establish and/or operate telecommunication infrastructure, • take part in any financial syndicate, concern or company, networks and services of any kind; existing or currently being created, having a purpose similar For the purposes of the activities so defined, it may: or related to its own, by any lawful means; • and more generally, carry out any transactions of a • acquire, own and operate any real or personal property that is necessary or appropriate for its operations, in particularly commercial, financial or, if necessary, industrial nature those whose transfer or availability in its favour is provided relating to real or personal property directly related to any for by the applicable law; part of the Company’s corporate purpose and which could advance its growth and development.
3.1.9 Legal documents available for viewing
The corporate, accounting and legal documents required to be disclosed by law or the bylaws to the shareholders and third parties may be viewed at the Company’s Head Office in avenue Annakhil (Hay Riad), Rabat, Morocco.
3.1.10 Fiscal year
The Company’s fiscal year begins on January 1 and ends on December 31.
3.1.11 Allocation of profits
At the close of each fiscal year, the Management board draws Against such profit, the shareholders’ meeting may charge up a statement of the various corporate assets and liabilities such amounts as it shall see fit in order to fund any optional, as of such date and draws up the annual financial statements ordinary or exceptional reserve funds, or to carry forward, to and the annual report to be submitted to the shareholders’ the extent of a maximum aggregate amount of half the meeting, in accordance with applicable law. distributable profit, subject to an exception granted by a 75 percent majority of the members of the Supervisory board The net profit generated by the Company, after deduction of present or represented. any earlier net loss, shall be subject to a withholding of 5% to The balance shall be paid out to the shareholders by way of a fund the statutory reserve; such withholding shall no longer be dividend, the aggregate amount of which shall not be less required once the amount of the statutory reserve exceeds than half the distributable profit, subject to an exception one tenth of the share capital. granted by a 75 percent majority of the members of the The distributable profit shall consist of the net profit for the Supervisory board present or represented. fiscal year, after funding the statutory reserve and allocation of Within the limits set forth by law, the shareholders’ meeting earlier net profit or loss carried forward. may resolve, on an exceptional basis, to pay out amounts
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charged against the optional reserves at its disposal (see also If the Company holds shares of its own stock, the related section 3.4 “Dividends and dividend policy”). dividend entitlement shall be cancelled. Dividends not collected within five years after the date of Dividend payments payment thereof shall be forfeited to the Company. Amounts not collected and not forfeited shall constitute a The ordinary shareholders’ meeting, or absent an agreement, claim of the owners against the Company, not bearing the Management board, shall determine the terms of payment interest, unless they are converted into loans on mutually of the dividends voted. agreed terms. Such payment shall be made within nine months after the If the shares are subject to a life interest, the dividends shall close of the fiscal year, subject to extension of that period by be payable to the life tenant. The proceeds of the distribution an order of the President of the Court, acting in summary of reserves, other than the carry-forward, shall, however, be proceedings upon a petition from the Supervisory board. allocated to the bare owner.
3.1.12 General shareholders’ meetings
Shareholders’ meetings The shareholders’ collective resolutions shall be made at submitted to the meeting by the Management board. meetings, which shall be ordinary or extraordinary according The Company shall be required to publish, in a newspaper to the nature of the decisions that they are called upon to authorized to carry legal advertisements and in the Official make. Journal, at the same time as the notice of the annual A duly convened general meeting shall be deemed to ordinary shareholders’ meeting, the summary financial represent all the shareholders; its decisions shall be binding statements relating to the previous fiscal year, drawn up in on all, including those who are absent, not sui juris, dissenting accordance with applicable law (which shall include the or deprived of voting rights. balance sheet, statement of income, statement of cash flows and Statement of changes in financial position), and the report of the Statutory Auditor(s) relating to such Calling of meetings financial statements. Meetings shall be called by the Supervisory board. Any amendment to such documents shall be published by the An ordinary shareholders’ meeting may also be called: Company in a newspaper authorized to carry legal advertisements within 20 days after the annual ordinary shareholders’ meeting. • by the Statutory Auditor or Auditors, who may do so only after requesting the Supervisory board to call it and the Meetings shall be held at the registered office or at any other Supervisory board fails to do so; location specified in the notice.
• by an agent appointed by a Court order, upon the application of any interested party in an emergency or of one or more Agenda shareholders holding at least one tenth of the share capital; or The agenda of a shareholders’ meeting shall be determined by the author of the notice. • by the liquidator or liquidators in the event of the Company’s dissolution, during the liquidation period. One or several shareholders holding at least 2% of the share capital may, however, call for one or several draft resolutions Shareholders’ meetings shall be called and carried out in the to be tabled on the agenda. manner provided for by law. Regardless of the number of shares held, all shareholders The Company shall, at least 30 days before the shareholders’ shall be entitled, upon providing evidence of identity, to take meeting is convened, publish in a newspaper chosen among part in shareholders’ meetings subject: those contained in the list determined by the Minister of Finance and in the Official Journal, a notice containing the • for holders of registered shares, to an entry by name in the information required by law and the draft resolutions to be Company’s records;
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
• for holders of bearer shares, to deposit, at the locations Voting rights mentioned in the notice, of the bearer shares or of a certificate of deposit issued by the establishment having Each member of the meeting shall have as many voting rights custody of such shares; as he or she owns or represents, in particular as a result of voting proxies or other powers of attorney. • and if applicable, to provide to the Company, in accordance The voting rights attached to a share shall belong to the life with applicable law, of any evidence allowing his or her tenant at ordinary shareholders’ meetings and to the bare identification. owner at extraordinary shareholders’ meetings. Such formalities shall be completed no later than five days If the shares are pledged, the voting rights shall be exercised before the date of the meeting, subject to any shorter period by the owner. provided for in the notice or mandatory statutory rules reducing such period. The Company may not vote shares that it has acquired or accepted as security.
Participation in meetings Minutes The shareholders’ meeting concern all shareholders, regardless The minutes of meetings shall be entered in a special register of the number of shares they hold. kept at the Head Office, the pages of which shall be numbered Corporate shareholders shall be represented by a specially and initialed by the Registrar of the Court at the location of the appointed agent, who need not personally to be a shareholder. Company’s registered office. A shareholder may be represented by another shareholder, or Copies of/or extracts from the minutes shall be certified by the by his or her guardian, spouse or an ascendant or Chairman of the Supervisory board alone, or by the Vice descendant, who need not to be a shareholder in his or her Chairman of the Supervisory board signing jointly with the personal capacities. Secretary. Multiple holders of undivided interests in shares shall be represented at shareholders’ meetings by one of them or by a Ordinary shareholders’ meetings single agent. Powers A shareholder having pledged his or her shares shall retain the right to attend shareholders’ meetings. 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 Officers - Attendance sheet not reserved for the extraordinary shareholders’ meeting. Officers An ordinary shareholders’ meeting shall be held each year, within the first six months after the end of the company’s fiscal year. The shareholders’ meeting shall be chaired by the Chairman Such meeting shall hear in particular the report from the of the Supervisory board or the Vice Chairman of the governing body and the report from the Statutory Auditor or Supervisory board. Failing this, the meeting shall appoint its Auditors; it shall consider, amend and approve or refuse the own Chairman. financial statements; and it shall apportion and allocate profit. The Chairman of the meeting shall be assisted by the holders It shall appoint members of the Supervisory board and it shall of the two largest interests, either personally or as agents, appoint the Statutory Auditor(s). present and accepting such office, who shall serve as scribes. The officers so appointed shall appoint the Secretary, who Quorum and majority need not be a shareholder. The ordinary shareholders’ meeting shall be duly convened and may validly act only if the shareholders present or Attendance sheet represented hold at least 25 percent of the voting rights, exclusive of shares acquired or accepted as security by the An attendance sheet shall be kept at each meeting, specifying Company; if such quorum is not obtained, a further meeting the names and addresses of the shareholders, and, if shall be called, for which no quorum shall be required. applicable, those of their proxies, and the numbers of shares and voting rights they hold. At an ordinary shareholders’ meeting, resolutions shall be passed by a majority of votes of the shareholders present or Such attendance sheet shall be signed by all shareholders represented. present and by the proxies of absent shareholders; it shall then be certified by the officers of the meeting.
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Extraordinary shareholders’ meetings Powers Extraordinary shareholders’ meetings shall have sole authority represented hold at least, upon a first call, half, and upon a to amend any provisions of the bylaws. second call, 25 percent, of the voting rights, exclusive of They may dismiss the members of the Supervisory board. shares acquired or accepted as security by the Company. They may not, however, change the Company’s nationality or If the 25 percent quorum is not satisfied, such second meeting increase the shareholders’ liabilities. may be postponed to a date no later than two months after the They may decide upon the conversion of the Company into a date for which it had been called, and may be validly held with company in any other form, subject to compliance with the the presence or representation of shareholders holding at applicable statutory rules. least 25 percent of the share capital. At an extraordinary shareholders’ meeting, resolutions shall be Quorum and majority passed by a two-third majority of votes of the shareholders Extraordinary shareholders’ meetings shall be duly convened present or represented. and may act validly only if the shareholders present or
3.1.13 Management of the Company
Management board Termination of office on the Management board shall not entail termination of the contract of employment between the Membership person concerned and the Company. The Management board shall administer and manage the Company, under the supervision of a Supervisory board. The Management board shall consist of five members. Term of office The members of the Management board must be individuals. The members of the Management board shall be appointed All members of the Management board shall be employees of for terms of two years, subject to extension. the Company and/or present in Morocco more than 183 days In the event of termination of office of a member of the per year, subject to exceptions granted by the Supervisory Management board during its term, his or her substitute shall board acting by a 75 percent majority of the members present be appointed for the remaining duration of such term until the or represented. renewal of Management board. In the event of termination of the office of a member of the All members of the Management board shall be eligible for Management board during its term, the board shall appoint further office. his or her substitute in the manner provided for by law and the Company’s bylaws. Operation Appointment and dismissal of members of the The Management board shall manage the Company Management board collectively. The members of the Management board may, subject to the The members of the Management board are appointed by the Supervisory board’s consent, allocate among themselves the Supervisory board, acting by a majority of the members tasks of management. Such allocation may in no event, present or represented. The Supervisory board shall appoint however, deprive the Management board of its collegiate one of them to act as Chairman. character as the Company’s management body. They may be dismissed only by the ordinary meeting of Meetings of the Management board may be held outside the shareholders, upon the motion of the Supervisory board acting by a 75 percent qualified majority. If the dismissal is principal office. decided upon without due cause, it may give rise to liability in Resolutions shall be passed by a majority of members present damages. or represented in office, each of whom shall have one vote.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
Minutes of resolutions of the Management board, if any are At least once a quarter, the Management board shall submit drawn up, shall be entered in a special register and signed by to the Supervisory board a report on the Company’s the Chairman of the Management board and another member. operations. Copies of or extracts from such minutes shall be certified by Within three months after the close of each fiscal year, the the Chairman of the Management board or by a General Management board shall draw up the Company’s annual Manager. 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. Powers The Management board shall also provide the Supervisory The Management board shall have full powers to act in all board with the report to be submitted to the ordinary meeting circumstances in the name of the Company, within the of shareholders called to act upon the financial statements for limitations of the corporate purpose and subject to those powers the previous fiscal year. expressly conferred by law and the Company’s bylaws on the Supervisory board under Articles 10.5.3 to 10.5.5 of the bylaws. Compensation In relation to third parties, the Company shall be bound even The Supervisory board shall determine, in the appointing by an action of the Management board that is not consistent resolution, the nature and amount of compensation paid to with the corporate purpose and bylaws, unless it proves that each member of the Management board. the third party was aware that the action exceeded such purpose and/or the bylaws, or could not be unaware thereof in Liability the circumstances. The provisions of the bylaws restricting the Management Without prejudice to any specific liability arising out of the board’s powers shall not be binding on third parties. Company’s receivership or bankruptcy proceedings, the members of the Management board shall be liable, personally The Chairman of the Management board shall represent the or jointly as the case may be, to the Company and to third Company in its dealings with third parties. The Management parties, for offenses against the statutory or regulatory rules board may, however, confer the same representation power applicable to corporations, for breaches of the bylaws, or for on one or more members of the Management board, who misconduct in their management. shall have the title of Executive officer. The provisions of the Articles of Association restricting the Chairman’s, or, if applicable, the General Managers’ powers to Supervisory board represent the Company shall not be binding on third parties. Membership The Chairman of the Management board and the Executive The Supervisory board shall consist of not less than eight and officer may grant powers of attorney to third parties. The not more than 12 members, which may be increased to 15 powers thereby concerned shall, however, be limited and relate members if the Company’s shares are admitted to listing on to one or more specific purpose or purposes. the Casablanca stock exchange. In relation to third parties, any action binding the Company Each member of the Supervisory board shall hold at least one shall be validly taken by the Chairman of the Management share of the Company throughout the term of office. board or any other member appointed by the Management board as an Executive Officer. 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 Disclosure duties Supervisory board does not hold at least one share of the The Supervisory board may require the Management board to Company or, during his or her term of office, ceases to hold at submit a report relating to its management and to current least one share, he or she shall be deemed to have resigned if transactions at any time. Such report may be supplemented, the situation is not fixed within three months. at the Supervisory board’s request, by a provisional Such shares shall be assigned in undivided manner to the accounting statement for the Company. potential liability of members of the Supervisory board, To the extent necessary, the Management board shall forward collectively or individually, in connection with management of to the Supervisory board a report detailing the application or the Company, or of their personal action. implementation, if applicable, of the points to be adopted by Such qualifying shares must be registered shares; they may the Supervisory board in accordance with Articles 10.5.3 to not be transferred. Such restriction shall be recorded in the 10.5.5 of the bylaws. Company’s transfer register.
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A member of the Supervisory board who no longer holds Temporary appointments by the Supervisory board shall be office, or his or her heirs or assigns, shall recover unrestricted subject to ratification by the next subsequent ordinary disposal of the qualifying shares as a result only of approval shareholders’ meetings; the member appointed to replace by the ordinary shareholders’ meeting of the financial another shall remain in office only for the remaining duration of statements for the last fiscal year relating to his or her office. his or her predecessor’s term. The statutory auditor(s) shall, under his/their sole Even it the temporary appointments are not approved, the responsibility, secure compliance with the provisions of Article resolutions made and actions taken previously by the 10.1 of the bylaws, and shall report any breach thereof in their Supervisory board shall remain valid. report to the annual shareholders’ meeting. If the number of members of the Supervisory board falls below three, the Management board shall be required to call, Term of office within 30 days after the date of the vacancy, an ordinary shareholders’ meeting to supplement the Supervisory board’s The members of the Supervisory board shall be appointed for membership. a six-year term. The office of a member of the Supervisory board shall Chairman terminate upon adjournment of the ordinary shareholders’ meeting that has acted upon the financial statements for the The Supervisory board shall appoint from among its members previous fiscal year and was held during the year of expiry of a Chairman and Vice Chairman who shall call meetings of the the office of such member. Supervisory board and direct its proceedings, and who shall hold office during the term of office of the Supervisory board. They shall always be eligible for further office. The Chairman and Vice Chairman must be individuals. They may be dismissed at any time by the extraordinary shareholders’ meeting. The Supervisory board may appoint a Secretary for each meeting, who could not be a member of the board. 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 Notice of meeting and proceedings as member of the Supervisory board shall terminate upon his The Supervisory board shall meet, upon a notice given by its or her assumption of office. Chairman or Vice Chairman, as frequently as required by the A legal entity may be appointed to the Supervisory board. At Company’s interests, at the Head Office or any other location the time of appointment, it shall be required to appoint a specified in the notice. Such notice may be given by electronic permanent representative who shall be subject to the same message or by fax, in both cases followed by confirmation by conditions and obligations, and shall incur the same civil and ordinary mail, or by registered mail return receipt requested, or criminal liability, as a member of the Supervisory board in a by letter delivered personally against a receipt, 15 days before personal capacity, without prejudice to the joint liability of the the date of the meeting, unless such period is reduced upon legal entity that he or she represents. the consent of all the members of the Supervisory board. When the legal entity dismisses its representative, it shall be The Supervisory board shall act validly only if at least half the required to appoint a substitute concomitantly. It shall members of the Supervisory board are present. immediately notify its decisions to the Company. It shall act Subject to the provisions of Articles 10.5.4 to 10.5.5 of the likewise in the event of the permanent representative’s death bylaws described below, resolutions of the Supervisory board or resignation. are passed in accordance with the Moroccan law relating to corporations (as amended or extended), by a majority. Vacancy and appointment In addition to transactions subject by law to the Supervisory In the event of vacancy, as a result of death or resignation or board’s consent pursuant to article 10.5.3 of the bylaws, the any other inability to act, of the holder of one or several seats following resolutions require prior consent from the on the Supervisory board, the Supervisory board may, Supervisory board acting by a majority of members present or between two shareholders’ meetings, make temporary represented : appointments. • Review, approval and revision of the business Plan, drawn If the number of members of the Supervisory board falls up according to the same strategic criteria and requirements below eight, the Supervisory board shall be bound to make in terms of productivity, profitability and competitiveness as temporary appointments to restore its membership within the best international operators; three months of the date of vacancy. • Review and approval of the budget drawn up, according to
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
the same criteria and strategic, productivity, profitability and more generally all businesses connected to or arising from competitive requirements as the best international the Company’s corporate purpose); operators; • Any decision related to the exemption of the obligation for a • Policy with respect to labour, compensation, training and member of the Management board to be an employee of the management of human resources and creation of profit Company and/or to be present for more than 183 days a year sharing schemes for the Company’s managers or employees; in Morocco;
• Appointment of members of the Management board; and • Investments or divestments and borrowings and loans exceeding more than 30% of the corresponding amounts • Approval of the draft resolutions to be submitted to the general shown in the budget; meeting of the Company’s shareholders with respect to the allocation of the earnings of the Company and its subsidiaries • Any creation of a subsidiary with an initial share capital or (pay-out of dividends, reserves, etc.) in the manner provided for shareholders’ equity of more than MAD100 million, and any under Articles 16 and 10.5.4(x) of the bylaws. takeover(s) or assignment(s) of a holding or interest in any group or entity exceeding 20% of the Company’s net assets; However, by way of exception from the provisions of Article 10.5.3 of the bylaws described above and in accordance with • Any resolution relating to a proposed merger, spin-off, Article 10.5.4 of the bylaws, the following resolutions shall be contribution of assets or management lease relating to all or matters for the Supervisory board and require approval by a part of the business of the Company or one of its majority of at least 75 percent of the members of the subsidiaries, and any resolution relating to dissolution, Supervisory board present or represented: liquidation or discontinuation of any substantial operation of the Company or one of its subsidiaries; • Any significant change in accounting methods; • Any exceptions from the obligation provided for under Article • Repeal, abandon, transfer of licenses or concession of major 16 of the bylaws to pay out dividends of at least half the operating facilities not provided for under the annual budget; distributable profit; and • Any decision related to the implementation or initiation of • Amendment of the internal regulations of the Company’s judicial, administrative or arbitral actions or proceedings audit committee. involving the Company or its subsidiaries, for which the amount of the claim in principal against or at the initiative of In addition, in accordance with the provisions of Article 10.5.5 the Company or its subsidiaries, whether this concerns an of the bylaws described below, the Supervisory board may initial claim or a counter-claim, for each of these actions or not submit the following resolutions to the meeting of proceedings, amounts to a unitary amount of more than shareholders unless they have been made by at least MAD100 million or requires judicial enforcement by the 75 percent of the members of the Supervisory board present Company or its subsidiaries, as well as any decisions with of represented: the aim of obliging the Company and/or its subsidiaries to • A motion for amendment of the Company’s bylaws (including reach a settlement for such actions or proceedings involving in particular a reduction or increase in the Company’s share amounts owed or due to the Company for an amount of capital or changes in the fiscal year); more than MAD25 million; • A motion for issuance of new securities of the Company or • Any decision concerning the conclusion, amendment and/or its subsidiaries; a motion for amendment of the corporate termination of any service provision agreement or any other purpose and/or principal business of the Company or its agreement—other than the agreements concerning day-to- subsidiaries; day transactions entered into under normal conditions — • A motion for amendment of the rights and duties relating to between the Company and (i) any shareholder holding more shares of the Company or its subsidiaries; than 30% of the capital and/or voting rights of the Company and/or (ii) the subsidiaries whatsoever of such shareholder, • A motion for amendment of the first or last day of the fiscal for which the management and/or direction are effectively year of the Company or its subsidiaries; directly or indirectly controlled by the latter or by its parent • A motion for the choice of the statutory auditors of the company, whether through a holding in the share capital, Company and its subsidiaries; through contractual agreements or in concert with a third party (hereinafter the “Reference Shareholder”); • A motion for the nomination of one or more members of the Supervisory board; • Any decision related to a merger, under any form whatsoever, between the business of the Company and any businesses • A motion for dismissal of the members of the Management over which the Reference Shareholder has control which are board; and in competition with the Company over the sectors of Fixed, • A settlement of differences between the Management board Mobile, Internet and Data exchange telecommunications (and and the Supervisory board.
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Assignment and powers of the Supervisory board The members of committees shall be appointed by the Supervisory board. Unless otherwise resolved by the The Supervisory board shall exercise permanent supervision Supervisory board, the duration of committee members’ over the Company’s management by the Management terms of office shall be that of their terms as members of the board. At any time, it shall perform such inspections as it Supervisory board. shall see fit, and may obtain disclosure of such documents as it considers being appropriate for the performance of its Each committee shall draw up its own internal regulations, assignment. The members of the Supervisory board may which shall require approval by the Supervisory board. obtain disclosure of any information or data relating to the Company’s operation. Compensation The Supervisory board may, within the limits that it shall The shareholders’ meeting may allocate to the members of determine and subject to the provisions of Article 10.5 of the the Supervisory board, as compensation for their duties, a bylaws, allow the Management board to sell real estate fixed annual amount in attendance fees. The Supervisory assets, sell all or part of investments, and issue warranties, board may also allocate exceptional compensation with endorsements or security in the name of the Company. respect to assignments or duties entrusted to its members. It shall submit to the annual shareholders’ meeting its Liability observations on the report from the Management board and on the financial statements for the fiscal year. Members of the Supervisory board shall be liable, personally The Supervisory board may create from among its members, or jointly as the case may be, to the Company and to third and if it so deems necessary, with the assistance of third parties, for offences against the statutory or regulatory rules relating to corporations, for breaches of the bylaws or for parties who need not be shareholders, technical committees misconduct in their management. in charge of reviewing matters that it shall submit to them for an opinion. Such committees shall have advisory powers and If several members of the Supervisory board have cooperated act subject to the authority of the Supervisory board, of which in the same action, the Court shall apportion liability among they are agencies and to which they shall report. them in terms of payment of damages.
3.1.14 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 barred from office, and apply for appointment of one or be appointed for three fiscal years by the ordinary shareholders’ more auditors to perform their offices in their stead. meeting. Under penalty of inadmissibility, the referral to the president of The Statutory Auditors’ offices shall expire upon adjournment the commercial court shall be entered by a reasoned of the ordinary shareholders’ meeting acting upon the financial application made within 30 days after the challenged statements for the third fiscal year. The Statutory Auditors appointment. shall be eligible for further office. If the application is granted, the Statutory Auditor or Auditors A Statutory Auditor appointed by the shareholders’ meeting to appointed by the president of the commercial court shall replace another shall remain in office only for the remaining remain in office until appointment of the new Statutory Auditor duration of his or her predecessor’s term. or auditors by the meeting of shareholders. If, upon expiry of a Statutory Auditor’s term of office, a motion If it becomes necessary to appoint one or more statutory is submitted to the shareholders’ meeting against extension of auditors and the meeting of shareholders fails to do so, any his or her term, the Statutory Auditors may address the shareholder may apply to the president of the commercial meeting, if he or she so requests. court, acting in summary proceedings, for appointment of a One or more shareholders holding at least one tenth of the statutory auditor. share capital may apply to the president of the commercial The Statutory Auditor(s) appointed by the president of the court acting in summary proceedings for one or more court shall remain in office until appointment of the new Statutory Auditors appointed by the shareholders’ meeting to Statutory Auditor or Auditors by the shareholders’ meeting.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
The appointments of Statutory Auditors shall comply with the The Statutory Auditor(s) shall ensure that equal treatment rules relating to incompatibility of offices laid down by law. 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 Duties of the Statutory Auditors the previous fiscal year, and all shareholders’ meetings. At any time of the year, the Statutory Auditor(s) shall perform The Statutory Auditor(s) shall have a permanent assignment, exclusive of any interference in the management of the such inspections as they shall consider being desirable, and Company, of inspecting the Company’s assets, books and may obtain disclosure on the spot of any document they accounting documents, and ascertaining the compliance of its consider necessary for the performance of their assignment, financial statements with applicable rules. They shall also including without limitation any contracts, records, accounting review the fairness and consistency relative to the summary documents and minute books. statements of the information provided in the annual report The Management board’s annual report and summary from the Management board and in the documents sent to the statements shall be made available to the Statutory Auditor(s) shareholders with respect to the Company’s assets and at least 60 days before notice of the annual shareholders’ liabilities, its financial position and its earnings. meeting is given
3.1.15 Trading of shares
Sales of shares shall be carried out in the manner provided for by law.
3.1.16 Statutory thresholds
Any individual or legal entity, acting alone or in concert with number of shares or voting rights that he, she or it holds, others, that becomes the owner, directly or indirectly, of a within five trading days after the date of acquisition. number of shares representing more than one twentieth The notice above is also to be given if the interest in the capital (5%), one tenth (10%), one fifth (20%), one third (33.33%), falls below the thresholds provided for above. half (50%) or two thirds (66.66%) of the Company’s share capital or voting rights must notify the Company, the CDVM In each aforementioned report, the reporting party shall certify (Moroccan securities regulator) and the Casablanca Stock that the report includes all shares or voting rights held or Exchange, within five working days of the date it crosses owned. The reporting party shall also specify the date or dates such threshold of the total number of the Company’s shares of acquisition or sale of his, her or its shares. that he, she or it holds, and of the related number of voting Any individual or legal entity, acting alone or in concert with rights. another, that becomes the owner, directly or indirectly, of a The date of crossing of the threshold shall be the date of number of shares representing more than one tenth (10%) or execution of the reporting party’s order on the exchange. one fifth (20%) of the Company’s share capital or voting rights In the event of failure to comply with the reporting obligation must notify the Company, the CDVM and the Casablanca above, the shares in excess of the portion that ought to have Stock Exchange, within five working days from the time when been reported shall be deprived of voting rights at any any such threshold is crossed, of his, her or its intended meeting of shareholders until the end of a two-year period objectives within the 12 months after such threshold is following the breach. crossed, specifying whether he, she or it is acting alone or in concert with another, whether he, she or it intends to In addition to the statutory obligation mentioned above to discontinue or proceed with acquisition and his, her or its inform the Company of the crossing of thresholds, any intention to submit the appointment of members of the individual or legal entity, acting alone or in concert with corporate governing bodies and to acquire control over the another, that becomes the owner directly or indirectly of a Company or not. 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 date of crossing of the threshold referred in the previous the share capital or voting rights of the Company, must notify paragraph shall be the date of execution of the reporting the Company, by registered mail with return receipt the total party’s order on the exchange.
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Without prejudice to and within the limits of mandatory enacting Act 26-03 relating to public bids on the stock market statutory rules, in the event of failure to comply with the dated April 21, 2004, and Circular 01/04, dated June 8, 2004, reporting obligations above, the shares in excess of the relating to the crossing of thresholds of interest in the share portion that ought to have been reported shall be deprived of capital or votes of listed companies. voting rights at any shareholders’ meeting held until expiry of two-year period after the date of the breach. Holders of shares or other securities of the Company are Holders of shares may also be subject to the reporting advised to consult their legal counsel in order to ascertain obligations provided for under statutory Decree 1-04-21 whether the reporting obligations are applicable to them.
3.1.17 Public bids
Under Moroccan law, public bids are governed by Act 26-03, proposed bid shall be warranted by the bidder, and if dated April 21, 2004, which became effective on May 6, 2004. applicable, by any person acting as guarantor. The proposed A public bid is defined as the procedure whereby an individual public bid filed with the CDVM shall be accompanied by the or legal entity, acting alone or in concerted fashion (the prior permit or permits from the competent authorities. Absent “bidder”), discloses publicly an intention to acquire, exchange such permit, the proposed bid is not admissible. or sell all or part of the securities entailing access to the share Upon filing of the proposed public bid, the CDVM shall issue capital or votes of a listed company. a notice of filing of the proposed public bid in a newspaper As in French law, public bids can be voluntary or obligatory authorized to carry legal advertisements, which shall report when certain conditions are met. the main provisions of such proposal. That publication shall be the starting point for the bid period.
Voluntary public bids The CDVM shall forward the main features of the proposed public bid to the public authorities, which shall be allowed two Any individual or legal entity, acting alone or in concerted working days from the date of such transmission to rule upon fashion and wishing to report publicly that he, she or it wishes admissibility of the proposal having regard to national to acquire or sell shares listed on the securities exchange, strategic interests. If no decision is taken within two working may file a proposed public bid for acquisition or sale of the days, the authorities shall be deemed not to wish to comment. shares. As soon as the proposed public bid has been filed, the CDVM Unlike the French law which provides the intervention of shall request the company managing the stock market to presenters’ establishments, under Moroccan law, a public bid suspend the listing of the shares of the company to which the is to be filed by the bidder with the Moroccan securities public bid relates. The suspension notice shall be published. regulator (CDVM), and must include: The CDVM shall be allowed a period of ten working days from • the bidder’s objectives and intentions; the publication, to review the proposed bid’s admissibility and may require the bidder to provide any evidence or information • the number and nature of the company’s securities; required for its evaluation. Under the French legislation, it is a • the date and terms on which the purchase thereof has been period of five trading days following the publication of the or may be made; deposit of the bid project. • the price or exchange ratio at which the bidder is offering to As in French law, the bidder is required to modify the proposal acquire or sell the securities, the information on which these in order to comply with the CDVM’s recommendations if the are based and the terms of payment, settlement or exchange latter considers that the proposal is inconsistent with the planned; principles of equal treatment among shareholders, full • the number of shares to which the proposed public bid disclosure, integrity of the market or fairness of transactions relates; and and competition. In all cases, the CDVM also has authority to require from the bidder any additional warranties and to • if applicable, the percentage of votes below which the bidder demand the deposit of security in cash or in securities. reserves the option not to carry out the bid. Grounds shall be stated for any ruling denying admissibility. The proposed public bid must be accompanied by an If a public bid is ruled to be admissible, the CDVM shall notify information document. its ruling to the bidder and publish a notice of admissibility in The contents and performance of the offers contained in the a newspaper authorized to carry legal advertisements.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
Concurrently, the CDVM requests the company managing the individual or legal entity, acting alone or in concerted fashion, securities exchange to resume listing. holds, directly or indirectly, a forthy percent of votes in a Any proposed public bid shall be accompanied by the company listed on the Securities Exchange. information documents which may be drafted jointly by the An order of the Minister of Finance and Privatization n°1874- bidder and the target company if the latter concurs in the 04 dated Ramadan 11, 1425 (October 25, 2004) has fixed at bidder’s objectives and intentions. If not, the target 40% the percentage of voting rights imposing on his holder to company may draft separately and file with the CDVM its proceed in cash take-over bid. own information document within five trading days after Any individual or legal entity is required, within three working approval of the bidder’s information document. In such days after the 40% voting rights threshold is crossed, to file case, the bidder is bound to file a copy of his, her or its with the CDVM any proposed take-over bid. Failing this, such information document and proposed public bid with the person and those acting in concert shall lose the voting and target company on the day of filing of his, her or its bid financial rights attached to their capacity as shareholders. proposal with the CDVM. Such rights shall be recovered only after a proposed cash The contents of the information document(s) shall be take-over bid is filed. determined by the CDVM, which shall be allowed a maximum The CDVM may grant an exception from the filing of a period of 25 working days to approve the information compulsory cash take-over bid when: document(s) after the date of filing thereof. Such period may be extended by ten working days, if the CDVM considers that • crossing of the threshold of 40% does not affect control over additional evidence or information is required. Upon expiry of the relevant company concerned, in particular as a result of such period, the CDVM shall grant or deny approval, and shall a capital reduction or transfer of shares among companies provide a justification for any denial. affiliated to the same group; In French law, the AMF has a period of five trading days • the voting rights arise out of a direct transfer, an following the filing of the information notice to deliver its visa. apportionment of assets by a legal entity in proportion of During this period, the AMF can ask for any explanations or for shareholders’ rights as a result of a merger or contribution of justifications necessary for instruction of information notice’s assets, or a subscription to a capital increase in a company project. The period is then suspended until reception of the in financial difficulties. required elements. If the information notice fills the required The application for an exception shall be filed with the CDVM conditions, the AMF affixes its visa that can be matched with within three working days after the voting rights threshold of a warning. When the information notice is established by the 40% is crossed. It shall include covenants by that party to the targeted company, the AMF shall deliver its visa within three CDVM not to initiate any action intended to obtain control over trading days following the filing. such company during a specific period, or to implement a plan The bidder and, if applicable, the targeted company, have to for recovery of the company concerned when it is in financial each publish, what concerns him, her or it, the information difficulties. documents in a newspaper authorized to carry legal If the CDVM grants the exception applied for, its ruling advertisements within a maximal period of five workdays after shall be published in a newspaper authorized to carry legal obtaining the visa. Under French law, the information notice advertisements. must be published in a daily newspaper with a national distribution, notified free of charge to the public by the bidder or the targeted company and published as a summary or a Compulsory buy-out bids press release. The publication has to occur before the offer’s opening and at latest the second trading day following the According to the article 20 of Moroccan law 26-03 relating to AMF’s visa. public bids, the filing of a compulsory buy-out bid is mandatory when one or more individual or corporate The managing company shall centralize the acquisition, sale shareholders of a listed company hold, alone or in concert, a or exchange orders and notify the results to the CDVM, which specific percentage of voting rights in such company. shall issue a notice relating to the outcome of the bid in a newspaper authorized to carry legal advertisements. An Order of the Minister of Finance and Privatization n°1875- 04 dated Ramadan 11, 1425 (October 25, 2004) has fixed at 95% the percentage of voting rights imposing on his holder to Compulsory public bids proceed in a compulsory buy-out bid. Cash take-over bids The parties entering such bid are required, within three working days after the percentage of 95% threshold is Under Article 18 of Moroccan Act 26-03 relating to public crossed, to file with the CDVM a proposed compulsory buy- bids, the filing of a cash take-over bid is compulsory when an out bid. Failing this, they shall automatically forfeit all the
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voting rights. Such voting rights shall be recovered only after Under French law, the price of a competing bid or an improved the filing of a proposed compulsory buyout bid. public bid must be at least 2% above the price stipulated in Filing of a proposed compulsory buy-out bid may also be the initial bid. It can also be declared compliant if it contains a required by the CDVM of the individual or individuals, or legal significant improvement of the terms conditions proposed to entity or entities, holding, alone or in concert, a majority of the securities holders. Finally, it can also be declared compliant if, share capital listed on the securities exchange, when certain without modifying the terms stipulated in the previous bid, it requirements are met, including the requirement of holding withdraws the threshold below which the initiator would not 66% of the votes concurrently (Order of the Minister of Finance have followed up with the bid. and privatisation n°1873-04 dated Ramadan, 11, 1425). Rules relating to target companies and public bidders Standing offer procedure During the term of a public bid, the bidder and the parties with Under French law, when an individual or legal entity, acting which he, she or it is acting in concert may not, in the case of alone or in concert, acquires or has agreed to acquire a block a mixed public bid, trade in the securities of the target of shares conferring on him, her or it, the majority, with regard company or the shares of the company, the shares of which to the shares or voting rights which he, she or it already holds, are tendered in exchange. that party is required to file an offer for a compulsory buy-out In the event of a voluntary take over bid, the bidder may and to agree to acquire on the market, during a minimum of withdraw the bid within five trading days after publication of ten trading days, all securities tendered for sale at the price at the notice of admissibility of a competing or improved bid. The which the securities have been or are to be sold. bidder shall inform the CDVM of the decision to withdraw, Such a procedure does not exist under Moroccan law. which shall be published by the latter in a newspaper authorized to carry legal advertisements. This option is also permitted under French law. Competing bids and improved public bids During the term of the public bid, the target company and One or more competing public bids, or improved public bids, parties acting in concert with it, if applicable, may not may be launched. intervene directly or indirectly on the shares of the target company. If payment for the public bid is to be made solely in A competing public bid is a procedure whereby any cash, the target company may, however, proceed with individual or legal entity, acting alone or in concert, may, performance of a share buy-back program if the resolution of from the time of initiation of a public bid, and no later than the meeting of shareholders having permitted such program five trading days before its closing date, file with the CDVM has expressly so provided. a competing bid relating to shares of the company to which the initial bid refers. During the term of the public bid, the target company and the bidder, individuals or legal entities holding directly or Improved bidding is a procedure whereby the bidder under indirectly at least 5% of the share capital or voting rights of the initial public bid improves the terms of the initial bid, either the target company, and any other individuals or legal at their own initiative or after a competing public bid, by entities acting in concerted fashion with the foregoing, are modifying the price or the nature or quantity of securities or required to report to the CDVM after each trading day the the terms of payment. A bidder wishing to improve the bid purchases and sales that they have carried out with respect files with the CDVM the changes made to the initial public bid to the shares concerned by the bid, and any transaction no later than five trading days before the date of close of the resulting in an immediate or future transfer of title to the initial bid. The CDVM shall determine whether the improved shares or votes of the target company. bid is admissible within five trading days after the filing of such proposal. The bidder shall draw up and submit to the CDVM a Any delegation of authority to increase the share capital supplementary information document. granted by the target company’s extraordinary shareholders’ meeting shall be held in abeyance during the term of the cash When more than ten weeks have elapsed since the or stock take over bid relating to such company’s shares, and publication of an initiation of a public bid, the CDVM may, in the target company may not increase its holdings of its own order to expedite the competition between bids, set a stock. deadline for the filing of successive improved bids or competing public bids. During the term of the bid, the appropriate agencies of the target company shall give the CDVM prior notice of any In the event of a competing bid, the initial or earlier bidder proposed resolution within their powers that would prevent must, within ten days before the close of such bid, inform the performance of the public bid or of a competing bid. CDVM of his, her or its intentions. His bid may be maintained, withdrawn or modified by an improved bid. Under French law, the initiator of a public bid and parties
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY
acting in concert with him, her or it, can, subject to CDVM’s supervision and penalties exceptions, purchase the securities of the target company, according to price’s conditions. Those rules are also Public bidders, target companies and parties acting in concert applicable to any agent or advisor acting on its behalf or on with them are subject to the supervision of the CDVM, which behalf of the initiator or of the target company. shall ensure that such bids are carried out in orderly fashion in AMF regulations also impose disclosure obligations on the investors’ and market’s interests. The CDVM may impose civil purchases and sales with respect to the shares concerned by and criminal penalties. the bid.
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3.2 GENERAL INFORMATION RELATING TO THE COMPANY’S SHARE CAPITAL
3.2.1 Share capital
The share capital of Itissalat Al-Maghrib is MAD5,274,572,040 provided by the applicable law. divided into 879,095,340 shares with a par value of MAD6 The share capital may be increased, decreased or redeemed each, in a single class and fully paid in. by a resolution of the appropriate shareholders’ meeting in the The shares’ par value may be increased or decreased as manner provided for by the applicable law.
3.2.2 Form of shares
The shares shall be in registered or bearer form at the Indivisibility of shares shareholders’ option. Shares shall be indivisible in relation to the Company, which The Company shall keep at the registered office a register shall recognize only one owner for each share. known as the “transfer register” in which are recorded, in chronological order, subscriptions for and transfers of Joint holders of undivided interests shall be bound to appoint registered shares. The pages of such register are to be a joint representative in respect of their relations with the numbered and it shall be initialed by the President of the Company in order to exercise their rights as shareholders; Court. Any holder of a registered share issued by the absent an agreement, the agent shall be appointed by the Company is entitled to obtain a copy thereof certified as true President of the Court, acting in summary proceedings upon by the Chairman of the Management board. If the register is a petition from any of the holders of undivided interests. lost, copies shall constitute conclusive evidence. The right to obtain disclosure of the documents provided for The Company may decide not to issue shares in physical by law shall nonetheless be held by each of the holders of form. In accordance with the statutory rules relating to the interests in undivided shares, and by each life tenant and bare book entries of securities, the Company’s shares must be owner. evidenced by book entries with the central depositary.
3.2.3 Rights and duties attached to shares
Each share shall carry a right, proportional to the portion of the and of the Supervisory board and Management board acting share capital that it represents, in the profits or corporate upon delegations of authority from the shareholders’ assets, at the time of distribution thereof during the term of the meetings. Company or upon its liquidation. Heirs, creditors, assigns or other representatives of a Any shareholder shall be entitled to information relating to the shareholder may not, on any grounds whatsoever, call for the Company’s operation and to obtain disclosure of certain affixing of seals on the assets and valuables of the Company, corporate documents at the times and in the manner provided or call for a division or sale by auction thereof, or interfere in for by law and the bylaws. any manner whatsoever in the actions of its administration; for the exercise of their rights, they shall be bound by the Shareholders shall be liable for corporate debts only to the statements of corporate assets and liabilities and resolutions extent of the par value of the shares that they own; no of the shareholders’ meetings. additional assessment shall be permitted. Whenever it is necessary to hold a given number of shares in The rights and duties attached to a share shall be transferred order to exercise any right, shareholders who do not hold the to any owner thereof. required number of shares must make their own arrangements Title to a share shall entail, as of right, acceptance of the to form a group or to purchase or sell the requisite number of Company’s bylaws and resolutions of shareholders’ meetings shares.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION RELATING TO THE COMPANY’S SHARE CAPITAL
3.2.4 Acquisition by the Company of its own shares
Moroccan legislation French legislation In accordance with Moroccan legislation and its bylaws, the From the listing of its shares on a regulated market in France, Company may acquire its own shares which are fully paid in, the Company shall be subject to the legislation summarized up to 10% of the total of its own shares and/or of a specific below. class. Pursuant to AMF Regulation, a company’s acquisition of its Pursuant to the CDVM’s circular 02/03, dated May 23, 2003, own shares shall be contingent, in principle, upon the filing of implementing Decree 2-02-556, dated February 24, 2003, any an information notice subject to approval by the Autorité des corporation (société anonyme), the shares of which are listed marchés financiers. on the Securities Exchange and wishing to acquire its own shares in order to adjust the share price, shall be required to Pursuant to AMF Regulation and European Commission issue an information notice, which shall require approval from regulation n°2273/2003 of December 22, 2003 a company the CDVM prior to the holding of the shareholders’ meeting may not carry out transactions relating to its own shares in called to consider the action. order to manipulate the market. The Company’s purchases of its own shares in order to adjust After buying back its own shares, a company must publish the the price shall not interfere with the proper operation of the details of its transactions by the end of the seventh trading market. day after their date of execution, and to file with the Autorité A Company trading its own shares shall inform the CDVM, no des marchés financiers monthly reports containing specific later than the fifth working day after the close of the relevant information relating to the transactions performed. month, of the number of shares acquired and shares sold, if As of the date of registration of this Registration Document, applicable. If the Company does not trade its own shares Maroc Telecom holds none of its own shares. However, in the during a particular month, it shall so inform the CDVM within eighth resolution of the extraordinary and ordinary the same period. shareholders’ meeting on March 30, 2006 the shareholders’ During the buy-back program, any change relating to the meeting authorized the company to initiate a share buy-back number of shares to be acquired, the maximum purchase program. The Company reserves the right to implement such price and minimum selling price, or the period during which a program in compliance with applicable laws. 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. Such changes shall remain within the bounds of the authorization granted by the shareholders’ meeting.
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3.2.5 Changes in the Company’s share capital since incorporation
The table below sets out the main actions the Company has taken with respect to its share capital since its incorporation in 1998:
Date Actions Amount Premium Number Total Par value Share of shares number (in MAD) capital issued of shares (in 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
4/06/1999 Capital reduction* 75,000,000 - (750,000) 87,909,534 100 8,790,953,400
28/10/2004 Change in par value** --791,185,806 879,095,340 10 8,790,953,400
12/06/2006 Capital reduction by par value reduction *** 3,516,381,360 --879,095,340 6 5,274,572,040
* 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. ** by compulsory exchange of 10 new share with a 10 dirhams par value against one former share with a 100 dirhams par value. *** The extraordinary and ordinary shareholders’ meeting on March 30, 2006 authorized Maroc Telecom’s reduction in capital, not justified by losses, by reducing the par value of each share from MAD10 to MAD6.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL TRADING OF THE COMPANY’S SHARES
3.3 TRADING OF THE COMPANY’S SHARES
3.3.1 Places of listing
Since December 13, 2004, Maroc Telecom has been listed on both the Casablanca Stock Exchange and Euronext.
3.3.2 Maroc Telecom share price
Casablanca Stock Exchange Main market, Code 8001. (in MAD) Average Price* High Low Transactions ** number of shares Trade value (in thousands) (in millions MAD) January 2006 111.04 115.45 100.00 6,009.2 667.2 February 2006 128.18 136.00 114.50 8,484.4 1,087.6 March 2006 132.39 137.20 126.00 5,951.6 787.9 April 2006 142.67 146.50 134.00 3,952.2 563.8 May 2006 124.51 146.00 117.55 9,920.2 1,235.2 June 2006 114.35 122.90 106.00 8,682.4 992.8 July 2006 115.56 121.80 110.05 5,991.0 692.3 August 2006 119.93 135.00 113.00 6,139.0 736.2 September 2006 137.90 143.00 127.15 9,353.6 1,289.8 October 2006 124.86 134.10 116.10 4,335.5 541.3 November 2006 132.69 138.00 125.50 6,946.6 921.8 December 2006 129.25 132.00 125.90 4,972.1 642.6 January 2007 132.73 134.95 128.55 4,907.6 651.4 February 2007 131.50 134.00 129.00 2,859.1 376.1
* The average price is calculated by dividing trade value by number of shares. ** Not including block market transactions. Source: Casablanca Stock Exchange.
Changes in Maroc Telecom’s share price on the Casablanca Stock Exchange since December 2004
180 I AM-Casablanca ( dirham) VS MASI 170 IAM 160
150
140
130
120 MASI 110
100
90
80
70 Dec/04 March/05 June/05 Sept/05 Dec/05 March/06 June/06 Sept/06 Dec/06 In May 2006, 70% of free float was traded on the Casablanca Stock Exchange.
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Euronext Paris Eurolist-Foreign securities, Code MA0000011488, Eligible to SRD
(in Euro) Average Price* High Low Transactions ** number of shares Trade value (in thousands) (in millions Euro) January 2006 9.74 9.86 8.66 5,005.2 48.8 February 2006 11.39 11.85 9.67 5,330.3 60.7 March 2006 11.67 12.19 10.83 3,966.0 46.3 April 2006 12.60 12.77 11.42 2,264.4 28.5 May 2006 11.55 12.58 9.73 3,317.3 38.3 June 2006 10.07 10.49 9.12 1,577.3 15.9 July 2006 10.43 10.88 10.02 1,535.9 16.0 August 2006 11.04 12.21 10.15 1,772.2 19.6 September 2006 12.20 12.69 11.52 2,157.5 26.3 October 2006 11.09 12.15 10.58 3,127.5 34.7 November 2006 11.90 12.35 11.05 2,783.8 33.1 December 2006 11.69 12 11.13 1,860.2 21.7 January 2007 11.92 12.4 11.61 2,625.3 31.3 February 2007 11.38 12.12 11.35 2,302.1 26.1
* The average price is calculated by dividing trade value by number of shares ** Not including off-system transactions Source: Euronext Paris
Changes in Maroc Telecom’s share price on Euronext since December 2004.
13,5 IAM-Paris (euro)VS Euronext 100 13,0 IAM 12,5 12,0 11,5 11,0 10,5 10,0 9,5 9,0 8,5 Euronext 100 8,0 7,5 7,0 Dec./04 March/05 June/05 Sept/05 Dec/05 March/06 June/06 Sept/06 Dec/06 In May 2006, 30% of free float was traded on Euronext Paris.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL DIVIDENDS AND DIVIDEND POLICY
3.4 DIVIDENDS AND DIVIDEND POLICY
3.4.1 Dividend paid out over 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 2001 to 2006.
Fiscal year Payment year Dividends 2001 2002 730
2002 2003 2,500
2003 2004 2,750
Exceptional dividend 2004 2,374
2004 2005 4,395
2005 2006 6,119
Exceptional distribution 2006 3,516
2006 2007 6,927*
* Amount proposed at the general shareholders’ meeting of April 12, 2007.
As of December 31, 2006, the Company’s reserves amounted to MAD4,247 million (excluding results at the end of December 2006), out of which MAD971,371 are available reserves. (See section 5.2.4 “Significant accounting policies and estimates”).
3.4.2 Dividend policy
Maroc Telecom aims to demonstrate its concern for Company’s distributable profit, unless exempted by the satisfactory compensation to its shareholders while Supervisory board by a 75 percent majority. securing the resources needed for the Company’s In addition, the final provisions of Article 331 of Act 17-95 development. Accordingly, Maroc Telecom intends to provide that “a fixed dividend may not be covenanted in establish a policy of regular and significant dividend favor of the shareholders; any clause to the contrary shall payment, according to the economic environment and the be null and void, unless the State warrants the shares a Company’s profits and funding requirements. minimum dividend.” The total amount of dividends paid shall be determined Moroccan company law requires all corporations, including taking into account the Company’s funding requirements, Maroc Telecom, to fund their statutory reserve with 5% of return on capital and the Company’s current and future annual profits until the reserve amounts to 10% of the share profitability. The Company cannot guarantee shareholders capital. In 2004, Maroc Telecom had reached the statutory an identical payment every year. This target is accordingly reserve, and may accordingly, since fiscal year 2005, pay not a commitment of the Company. out its entire distributable profit, if this is considered The bylaws (article 16) contain an obligation to distribute desirable. annually, in the form of dividend, at least half of the
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3.4.3 Tax treatment relating to dividends
Moroccan tax treatment Investors should be aware that the summary of tax rules proceeds shall be responsible for payment of the withholding applicable in Morocco set out below is for illustrative purposes tax to the Treasury. only and does not constitute a complete discussion of all Companies having their registered offices in Morocco are potential tax situations applicable to each investor. exempt from this withholding tax, provided that they deliver to Accordingly, investors should obtain advice from their usual the paying agent attestations of title to the shares, including tax advisors as to the tax treatment applicable to their specific the reference of the tax applicable in Morocco. situation and in particular the consequences of the It should be noted that dividends paid to residents of acquisition, holding or transfer of ordinary shares. countries with which Morocco has entered into tax treaties The tax rules applicable in Morocco with respect to dividend can benefit from a rate of less than 10% if these treaties pay-outs are governed by Act no. 24-86 on corporate income provide for such a rate. Further, such persons are usually tax for companies and Act no. 17-89 on the General Income entitled to credit the tax paid in Morocco with the tax Tax for individuals. authorities in their own countries according to the procedures The proceeds of shares (dividends) collected by individuals or eliminating double taxation. companies resident in Morocco or not, are subject to a 10% Moroccan exchange control legislation permits foreign withholding tax. Companies involved in the payment of such shareholders to transfer dividends abroad.
French tax treatment Investors should note that the French tax treatment be taken into account to determine the taxpayer’s overall presented below is provided for information only, and does income in the class of proceeds from securities and shall be not constitute a complete discussion of all the tax situations subject to income tax on a progressive scale, to which are that may apply to each investor. Accordingly, investors added the dividends collected on or after January 1, 2004. should obtain advice from their usual tax advisers regarding However, dividends paid out by the Company pursuant to a the tax treatment applicable to their specific situation and in valid resolution of the Company and collected on or after particular to the acquisition, holding or transfer of shares of January 1, 2005 shall be taken into account for the purposes the Company. 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 Individuals holding shares as part of their personal assets partners taxed jointly starting with the taxation of income for and not performing stock exchange transactions on a the year of the third anniversary of registration of a PACS regular basis agreement defined under Article 515-1 of the French Civil Dividends paid out by the Company are subject to income tax Code, and of €1,220 for taxpayers who are single, widowed, at progressive rates in France. divorced or married and taxed separately. The 50% allowance shall apply before the allowance of €1,220 or €2,440. Shareholders are allowed a tax credit (which, unlike the avoir fiscal eliminated as of January 1, 2005, will continue to apply) In addition, taxpayers resident in France for tax purposes, as chargeable against the amount of French income tax relating to defined under Article 4 b of the French Tax Code, may be such income, in accordance with Article 25-2 of the eligible in respect of such dividends for a tax credit of 50% of Convention signed on May 29, 1970 between the French the amount of taxable dividends before the allowance. Republic and the Kingdom of Morocco (the “Convention”). The Such credit shall be allowed to the extent of €230 annually for tax credit amount is set by Article 25-3 of the Convention at married couples taxed jointly and for partners taxed jointly 25% of the amount of dividends paid out. According to starting with the taxation of income for the year of the third information from the Director of Tax Legislation, the tax credit anniversary of registration of a PACS agreement defined under amounted to 33.33% of the net amount of dividends collected Article 515-1 of the French Civil Code, and of €115 for (after deduction of the withholding tax charged in Morocco). taxpayers who are single, widowed, divorced or married and The net dividends collected, plus the attached tax credit, shall taxed separately.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL DIVIDENDS AND DIVIDEND POLICY
Investors should note that dividends denominated in been held uninterruptedly for the duration of the fiscal year Moroccan dirhams shall be converted, for the purposes of concerned to the extent of 75% at least by individuals or by taxation in France, into euros by applying the exchange rate in a company meeting all such requirements, the rate of Paris on the date of collection of such dividends. If there is no corporate income tax is set, to the extent of €38,120 of listing on that day, the average trading price applied at a taxable profit per 12-month period, at 15%. Such companies sufficiently close date is to be used. are in addition exempt from the 3.3% welfare contribution mentioned above.
Companies liable to pay corporate income tax Companies eligible for parent companies exemption The dividends paid out by the Company shall be subject to corporate income tax in France. regimes In accordance with Article 25-2 of the Convention, the Companies meeting the requirements of Articles 145 and 216 shareholder is granted a tax credit chargeable against French of the French Tax Code are, if they chose to, eligible to an corporate income tax. The tax credit amount is set by Article exemption for dividends collected pursuant to the parent 25-3 of the Convention at 25% of the dividends paid out. company exemption regime. Article 216 I of the French Tax Code, however, provides for the taxation in the taxable According to information from the Director of Tax Legislation, income of the legal entity receiving the dividends, of a portion the amount of such tax credit equals 33.33% of the net of costs and expenses set at a fixed rate of 5% of the amount amount of dividends collected (after deduction of the of dividends collected, including the traditional tax credit withholding tax charged in Morocco). Such tax credit may not, granted under a tax treaty. For each taxable period, however, however, exceed the amount of French corporate income tax such portion may not exceed the total amount of costs and relating to such dividends. No surplus tax credit may be used expenses of all kinds incurred by the company collecting the against the French taxes payable in respect of other sources dividends during the same period. of income, or be refunded or carried forward. Pursuant to the parent company exemption regime, the The dividends collected, plus the related tax credit, shall be traditional tax credit attached to the dividends collected may included in the income subject to corporate income tax at a not be used against the amount of corporate income tax. rate of 33.33%. Investors should note that dividends denominated in An additional contribution of 3% of the gross amount of Moroccan dirhams shall be converted, for the purposes of corporate income tax and a welfare contribution of 3.3% of taxation in France, into euros by applying the exchange rate the gross amount of corporate income tax in excess of in Paris on the date of collection of such dividends. If there is €763,000 per 12-month period, shall be added thereto. no listing on that day, the average trading price applied at a However, for companies with revenues of less than sufficiently close date is to be used. €7,630,000 and the share capital of which, fully paid in, has
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3.5 bREAKDOWN OF SHARE CAPITAL AND VOTING RIGHTS
3.5.1 Ownership of share capital and voting rights in the Company
As of December 31, 2006, the share capital and voting rights of the Company were held as follows:
Shareholders Number of shares % of capital / voting rights
Vivendi Group* 448,338,570 51.00%
Kingdom of Morocco 298,892,389 34.00%
Members of Supervisory and Management Board 157,980 0.02%
Employees 1,590,776 0.18%
Public 130,115,625 14.80%
Total 879,095,340 100%
* Through its 100% subsidiary (Société de Participation dans les Télécommunications)
3.5.2 Authorized share capital
As of the date of this Registration Document, the Company had However the general shareholders’ meeting of March 30, 2006 not issued any securities other than the ordinary shares carrying authorized the Management board to set up stock option and direct or indirect rights, at present or in the future, to the subscription plans in compliance with applicable laws. This Company’s share capital. Likewise, no stock option or authorization is valid for 36 months from the date of the subscription plan has been established in favor of the abovementioned general shareholders’ meeting, and may be employees. used once or several times. At present it has not yet been used.
3.5.3 Changes in the shareholding structure of the Company over last three fiscal years
Since December 13, 2004, Maroc Telecom share is listed agreement allowed Vivendi to increase its stake from 35% to simultaneously in Casablanca Stock Exchange and Paris 51% by the acquisition of 140,655,260 Maroc Telecom shares. Stock Exchange after transfer by public bid for sale of 14.9% During 2006, the Moroccan State disposed of 0.10% of Maroc of Maroc Telecom share capital by Kingdom of Morocco. Telecom’s share capital, reducing its stake to 34%. On November 18, 2004 the Kingdom of Morocco and Vivendi The share capital and voting rights of the Company for the last concluded an agreement regarding the acquisition by Vivendi of 3 years were held as follows: 16% of Maroc Telecom’s share capital. On January 4, 2005, this
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL bREAKDOWN OF SHARE CAPITAL AND VOTING RIGHTS
December 31, 2006 December 31, 2005 December 31, 2004 Shareholders Number % of capital/ Number % of capital/ Number % of capital/ of shares voting rights of shares voting rights of shares voting rights
Kingdom of Morocco 298,892,389 34.00% 299,771,480 34.10% 440,426,710 50.10%
Vivendi Group* 448,338,570 51.00% 448,338,570 51.00% 307,683,330 35.00%
Members of Supervisory and Management Boards 157,980 0.02% 161,850 0.02% 90 0.00%
Employees 1,590,776 0.18% 2,084,200 0.24% 4,250,961 0.48%
Public 130,115,625 14.80% 128,739,240 14.64% 126,734,249 14.42%
Total 879,095,340 100% 879,095,340 100.00% 879,095,340 100.00%
* Through its 100% subsidiary (Vivendi Telecom International at December 31, 2004 ; Société de Participation dans les Télécommunications at December 31, 2005 and 2006)
3.5.4 Employee stock ownership
Maroc Telecom allowed its employees to take part in the Initial At December 31, 2006, the shares held by employees Public Offering with privileged conditions namely a 15% discount amounted to 0.18% of the authorized capital and the voting on the subscription price, provided that they kept the shares rights. acquired for 3 years, that is to say until December 3, 2007.
3.5.5 Shareholders’ Agreement
The amended Shareholders’ Agreement between the Kingdom of Morocco and Vivendi by an amendment dated November 18, 2004 Vivendi and the Supervisory board is contingent upon a change in the the Government of the Kingdom of Morocco modified the respective beneficial interests of Vivendi and the Government amended shareholders’ agreement. In accordance with this of the Kingdom of Morocco in the Company’s share capital, as amendment, principal provisions governing relations follows. between the Kingdom of Morocco and Vivendi are as If the stake of the Government of the Kingdom of Morocco in follows: the total voting rights held jointly with Vivendi becomes:
• greater than or equal to 50% but less than or equal to Organization of powers within Maroc Telecom’s 65%, then five members will be appointed by the management bodies Government of the Kingdom of Morocco and three Supervisory Board members by Vivendi; • The amended Shareholders’ Agreement provides that the • greater than or equal to 40% but less than 50%, then three Supervisory board, in theory, is to be composed of eight members will be appointed by the Government of the members, and that a change in the apportionment of seats on Kingdom of Morocco versus five members by Vivendi;
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• greater than or equal to 30% but less than 40%, then two Kingdom of Morocco holds at least 5% of the share capital members will be appointed by the Government of the and voting rights of the Company. Kingdom of Morocco versus six members by Vivendi; Consequently, since January 4, 2005, three members of the • greater than or equal to 20% but less than 30%, then one Supervisory board have been appointed by the Kingdom of member will be appointed by the Government of the Morocco and five members of the Supervisory board by Kingdom of Morocco versus seven members by Vivendi; Vivendi. • The rules of majority applicable to the Supervisory board • greater than or equal to 70% but less than 80%, then seven members will be appointed by the Government of previously set out by the Shareholders’ Agreement, the the Kingdom of Morocco versus one member by Vivendi ; Protocol of March 4, 2002 and the bylaws adopted on and October 28, 2004 were replaced by new rules of majority, set forth in the amended Shareholders’ Agreement and • greater than 65% but less than 70%, then six members reproduced identically and in full in the bylaws. The only will be appointed by the Government of the Kingdom of decisions subject to the approval of the Supervisory board Morocco versus two members by Vivendi. in the Amendment which are not reproduced in the bylaws In addition, if the Kingdom of Morocco holds less than 5% of are related to: the capital and at least 2 shares of the Company, it will be • (i) the agreement of the parties to require the Supervisory entitled to appoint 2 representatives of the Government of board’s preliminary approval, by a majority, of any the Kingdom of Morocco who will attend the Supervisory exceptions in the commitment of Vivendi to propose the board without being able to vote. appointment to the Management board of at least one Moroccan member and • In order to preserve the power to appoint the Chairman of Supervisory board, the number of seats which the Kingdom • (ii) the agreement of the parties to require the preliminary of Morocco has to have was lowered from three to two seats. approval of the Supervisory board, by a majority, any decision relative to a project recovering from the clause • Pursuant to the Amended Shareholders’ Agreement, the following rules will apply to the extent that the application of non-competition in the zone MENA provided by the of such rules would result in the Kingdom of Morocco Amended Shareholders’ Agreement. appointing a number of members of the Supervisory board greater than the number resulting from the application of the rules described above: Management Board
• if the shareholding of the Government of the Kingdom of The Amended Shareholders’ Agreement provides that a Morocco is more than or equal to 22% of the share change in the apportionment of seats on the Management capital and voting rights of the Company, three members board is contingent upon a change in the respective of the Supervisory board will be appointed by the beneficial interests of Vivendi and the Government of the Kingdom of Morocco and five members of the Kingdom of Morocco in the Company’s share capital, as Supervisory board by Vivendi; described below. • if the shareholding of the Kingdom of Morocco is less If the pro rata share of the Government of the Kingdom of than 22% and more than or equal to 9% of the share Morocco of the total amount of voting rights held jointly by it capital and voting rights of the Company, two members with Vivendi becomes: of the Supervisory board will be appointed by the Kingdom of Morocco and six members of the • greater than or equal to 40% but less than or equal to 65%, Supervisory board by Vivendi ; and; then two members will be appointed by the Government of the Kingdom of Morocco versus three members by Vivendi; • if the shareholding of the Kingdom of Morocco is less than 9% or more than or equal to 5% of the share capital • greater than or equal to 20% but less than 40%, then one and voting rights of the Company, one of the members member will be appointed by the Government of the of the Supervisory board will be appointed by the Kingdom of Morocco versus four members by Vivendi; Kingdom of Morocco and seven members of the Supervisory board will be appointed by Vivendi, and the • greater than 70% but less than or equal to 80%, then four Kingdom of Morocco shall be entitled to appoint one members will be appointed by the Government of the Representative who shall have the right to attend the Kingdom of Morocco versus one member by Vivendi ; and Supervisory board without being able to vote. • greater than 65% but less than or equal to 70%, then three These rules governing the allocation of the seats on the members will be appointed by the Government of the Supervisory board shall remain applicable as long as the Kingdom of Morocco versus two members by Vivendi.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL bREAKDOWN OF SHARE CAPITAL AND VOTING RIGHTS
In addition, as long as the Government of the Kingdom of Conditions for transfers of shares and rights of the parties Morocco holds at least 9% of the share capital and voting • Call option of the Government of the Kingdom of Morocco rights of the Company, one member of the Management board will be appointed by the Government of the Kingdom of Vivendi would have to transfer to the Government of the Morocco and four members of the Management board will be Kingdom of Morocco its beneficial interest in the Company, nominated by Vivendi notwithstanding any less favorable held directly or through its subsidiaries, in the event of a stipulation of the Amended Shareholders’ Agreement. change in the control of Vivendi having such a impact on competition on the Moroccan market, that it will incur an These provisions will become automatically null and void in obligation for Vivendi, imposed by the Moroccan competition the event that the Government of the Kingdom of Morocco authorities, to transfer all or a portion of its beneficial interest holds less than 9% of the share capital and voting rights of the in the Company and/or a transfer by the Company of one of Company. its business activities representing at least 25% of its The completion on January 4, 2005 of the assignment by the revenues. Government of the Kingdom of Morocco to Vivendi of a This provision will remain in force as long as the Government shareholding representing 16% of the share capital and voting of the Kingdom of Morocco holds at least 20% of the total rights of the Company shall not entail any changes in the amount of voting rights held jointly with Vivendi. composition of the Management board and the allocation of seats in the Management board remained the same: two • “Standstill” obligation of Vivendi members of the Management board appointed upon the The Amended Shareholders’ Agreement provided that, so motion of the Kingdom of Morocco and three members long as at least 30% of the share capital and of the voting appointed upon the motion of the Supervisory board. rights of the Company is not traded on a stock market, during the period expiring on February 20, 2006, Vivendi is forbidden from buying shares, directly or through an affiliate or entity General shareholders’ meetings acting in concert with Vivendi or with its affiliates, unless the Vivendi holds the majority of votes at ordinary general meetings. beneficial interest of a third party surpasses a threshold of 10%. In application of the amendment, the period during which Audit Committee Vivendi is forbidden to transfer Company shares without As long as the Government of the Kingdom of Morocco holds preliminary agreement of Moroccan Minister of Finance and at least 5% of the share capital and voting rights of the Privatisation, is extended to February 20, 2008. Company, at least two members of the Audit Committee of • Pro rata tag-along right of the Kingdom of Morocco Maroc Telecom will be appointed by the Government of the In the event of a transfer of shares by Vivendi between Kingdom of Morocco and this committee’s internal regulations February 21, 2008 and February 20, 2010 (inclusive) that does shall provide for the possibility for any member of the Audit not trigger a mandatory public tender offer, the Government of Committee to ask the Audit Committee to carry out an audit of the Kingdom of Morocco shall benefit from a pro rata tag- the Company and the obligation for the Audit Committee to along right. However, this tag-along right shall not apply in the rule on any formal request submitted by at least two members event of a transfer between companies within the Vivendi of the Audit Committee to carry out such an audit. group (i.e., between Vivendi and/or any company/companies in which Vivendi holds at least two thirds of the share capital Specifics rights of the Moroccan Government and voting rights). The Government of the Kingdom of Morocco also holds a right • Transfer by the Kingdom of Morocco to veto a plan of merger, divestment or partial contribution of Without prejudice of restrictions on the ability of the Kingdom assets that is likely to substantially modify the scope of the of Morocco to transfer shares in the Company applicable until Company’s business activities or substantially modify the February 20, 2006, as described in the offering memorandum of Company’s corporate purpose, unless Vivendi demonstrates the Company registered November 8, 2004 by AMF under the to the Government of the Kingdom of Morocco, on objective number I.04-198, the Kingdom of Morocco has undertaken, for and reasonable ground, a strategic purpose for the Company so long as Vivendi controls the Company (with the meaning of for such a plan. This right is valid notwithstanding any the provision of Article 144 of Moroccan Law on corporations) discrepancy with the Initial Shareholders’ Agreement, until the not to assign any share of Company either (i) to a earliest of the two following dates: (i) the date on which the telecommunications operator or (ii) to a direct competitor of Government of the Kingdom of Morocco ceases to hold at Vivendi as of November 17, 2004, except with the consent, in least 14% of the share capital and voting rights of the each case, of Vivendi. Company or (ii) February 20, 2014.
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• Vivendi’s right of pre-emption shareholders’ agreement under which each shareholder holds management rights with respect to CMC in proportion to the In addition, notwithstanding the “stand-still” commitment by levels of its beneficial interest. In reference to this transfer, CMC Vivendi described above, Vivendi shall benefit from a right of was substituted to Maroc Telecom in the Shareholders’ pre-emption in the event of an assignment by the Government Agreement. Finally, under the terms of the shareholders’ of the Kingdom of Morocco of all or part of its shares until agreement, CMC transferred 3% of the share capital of Mauritel February 20, 2010 (inclusive). SA to the employees of the Mauritanian operator, thus bringing its beneficial interest to 51% of the share capital of Mauritel SA. Mauritel SA Shareholders’ agreement Each of the parties holds a right of pre-emption with respect to the beneficial interest of the other party. All transfers are subject On April 12, 2001, Maroc Telecom acquired 54% of the share to approval by the board of directors of Mauritel SA. The capital of the incumbent Mauritanian operator, Mauritel SA. At agreement also contains a tag along right (droit de suite) the time of this acquisition, the Islamic Republic of Mauritania allowing the Government to sell to the acquirer of the beneficial and Maroc Telecom entered into a shareholders’ agreement, interest in Mauritel SA the same percentage of shares acquired under the terms of which Maroc Telecom obtained the right to from Maroc Telecom. appoint members of the board of Directors of Mauritel SA 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 GSM Al-Maghrib Shareholders’ agreement from a right of veto with respect to significant operations Maroc Telecom disposed of its stake in GSM Al-Maghrib on (including, in particular, modification of the legal structure of March 28, 2006. Mauritel SA, approval of the budget and business plan, fixing the annual dividend, and the conclusion of any financing. The agreement provides for a payment of dividends at the level of Medi-1-Sat Shareholders’ agreement 30% of the consolidated profits of the Mauritel group, as long as such a distribution is legally possible and would not Pursuant to the shareholders’ agreement signed with the other compromise the fulfillment of objectives set out in the business shareholders (CDG, 28% via its subsidiary FIPAR-Holding, RMI plan or a healthy financial position. In addition, Maroc Telecom 14% and CIRT, 30%), Maroc Telecom, which owns 28% of the was not entitled to transfer shares of Mauritel SA before June share capital, received and/or granted certain rights (right of first 30, 2004, except for a transfer within the group or a transfer of refusal etc.) enabling it to protect its shareholder rights. 3% of the share capital to the employees of the Mauritanian operator. Mobisud France Shareholders’ agreement On June 6, 2002, Maroc Telecom transferred its beneficial interest of 54% in Mauritel SA to the controlling holding Pursuant to the shareholders’ agreement signed with the other company Compagnie Mauritanienne de Communications shareholders (SFR, 16% and Saham Group, 18%), Maroc (CMC), and then transferred 20% of the share capital of CMC to Telecom, which owns 66% of the share capital, received and/or Mauritanian investors. At the time of this transfer, Maroc granted certain rights (right of first refusal etc.) enabling it to Telecom and the Mauritanian investors entered into a protect its shareholder rights.
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3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL ASSET PLEDGES
3.6 ASSET PLEDGES
No pledge on assets of the Company has been granted. In addition, the shares in Maroc Telecom’s subsidiaries are not pledged for the benefit of third parties.
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4 INFORMATION CONCERNING COMPANY bUSINESS ACTIVITIES
4.1 HISTORY
Maroc Telecom was created as a result of a split of the Office and TV via ADSL in 2006, together with dedicated data National des Postes et Télécommunications pursuant to the transmission services for business users using state-of-the- enactment of Act 24-96 and the implementing decrees art technology. relating to telecommunications. Maroc Telecom, the On February 20, 2001, Vivendi acquired a 35% interest in the incumbent telecommunications operator in the Kingdom of Company pursuant to an invitation to tender organized by the Morocco, is organized around two business segments: the Government of the Kingdom of Morocco for the selection of a Mobile segment and the Fixed-line and Internet segment. strategic partner. Vivendi was granted certain rights relating to A mobile telephone service was introduced in Morocco in 1987, the Company’s management and operations (see section using analog technology. As soon as the GSM digital standard 3.5.5 “Shareholders’ Agreement). Maroc Telecom, along with was adopted, Maroc Telecom, as the incumbent operator, the SFR group, is now affiliated to the Telecommunications expanded its mobile telephone services and was the first Division of the Vivendi group. operator in Africa and the second in the MENA (Middle East Pursuant to an agreement dated November 18, 2004 between North Africa) region to operate a GSM network (since April 1, the Government of the Kingdom of Morocco and Vivendi, the 1994). Maroc Telecom soon extended coverage to the country’s Kingdom of Morocco transferred ordinary shares representing main economic and political centers. In January 1995, Maroc an additional 16% of Maroc Telecom’s share capital. Telecom signed its first international roaming agreement. In In 2006, the Government of the Kingdom of Morocco sold 0.1% order to prepare for the arrival of a new competitor on the of Maroc Telecom’s share capital, reducing its stake to 34%. market and to increase market penetration, Maroc Telecom In addition, in its budget for 2007, the Government announced introduced prepaid schemes and GSM packages in 1999, and additional income of MAD4 billion from the sale of a stake in launched rate plans in 2000. There are now two 2G mobile Maroc Telecom within the framework of its privatization operators, three 3G mobile operators in Morocco, including program. Maroc Telecom (see section 4.5 “Competition”). As of December 31, 2006, the breakdown of Maroc Telecom’s There has been a fixed-line telephone service in Morocco capital is as follows: since the first half of the twentieth century and Maroc Telecom was still the only operator with a fixed-line telecommu- nications license in Morocco in 2006 despite the fact that two Vivendi Group 51.0% licenses were attributed in 2005 (see section 4.5 Kingdom of Morocco 34.0% “Competition”). The Company extended the range of fixed- line telecommunications services it provides with the launch of Free float 15.0% narrowband Internet in 1995 and broadband ADSL in 2003
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES GENERAL PRESENTATION
4.2 GENERAL PRESENTATION
4.2.1 Organization
The group’s simplified legal structure as of February 12, 2007 was as follows:
Vivendi Kingdom of Morocco Market
51.0 %* 34.0 %* 15.0 %*
Maroc Telecom
80 %* 66 %* 51 %* 51 %*
CMC Mobisud Onatel Gabon Telecom Other
51,5 %
Mauritel SA
100 %*
Mauritel Mobiles
* the percentages represent voting right percentages
Since 2001, Maroc Telecom has been part of the Vivendi • Vivendi owns 20% of NbC Universal which is a major global group, a leading player in entertainment, with activities in player in media and communications with activities music, television, cinema, mobile telecommunications, encompassing the production of films and television shows, the Internet and games. All of Vivendi’s businesses, like Maroc broadcasting of TV networks and the operation of theme parks; Telecom, hold leading positions on their markets: Mauritel SA, which was acquired on April 12, 2001 by Maroc • Universal Music Group, a wholly-owned subsidiary of Vivendi, is the world leader in recorded music with one out of Telecom, is the incumbent telecommunications operator in every four CDs sold worldwide, and a leading position on the Mauritania. digital music market; Mobisud is an MVNO which was launched on December 1, • Canal+ Group, a wholly-owned subsidiary of Vivendi, is a key 2006 in France, using the SFR network. Its shareholders are player in theme and premium TV channels, pay-TV and a Maroc Telecom (66% stake), SFR (16%) and the Moroccan pioneer in new TV offers. Canal+ Group is also a leader in group Saham (18%). Mobisud is specifically targeted towards France and Europe in the funding, acquisition and individuals who live in France and have ties with Maghreb distribution of movies; countries (Morocco, Algeria, Tunisia). • SFR, in which Vivendi owns a 56% stake, is France’s number two mobile telecommunications operator. SFR also owns Onatel is burkina Faso’s incumbent operator in which Maroc 40.5% of Neuf Cegetel, France’s leading alternative fixed- Telecom acquired a 51% stake on December 29, 2006 by line telecommunications operator; means of an international invitation to tender.
• Vivendi Games a wholly-owned subsidiary of Vivendi is a In addition, Maroc Telecom acquired a 51% stake in Gabon global developer, publisher and distributor of multiplatform Telecom, Gabon’s incumbent operator, on February 9, 2007. interactive entertainment.
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On December 31, 2006, the functional organization chart of the Group is:
Abdeslam AHIZOUNE Chairman of the Management Board
Janie LETROT Larbi GUEDIRA Managing Director Managing Director Regulations, Communication and Services International Development
Mohammed HMADOU Arnaud CASTILLE Managing Director Managing Director Networks Administration & Finance
8 Regional Divisions
Organized into General and Regional Divisions based on its able to seize the opportunities made available by convergence businesses and services, Maroc Telecom combines Mobile, and to be in a position to propose global offers at the best prices Fixed-line and Internet operations in its Services department while maintaining a high quality service. and Support, Networks and Administrative & Finance functions. Accordingly, the Fixed-line & Internet and Mobile segments were Maroc Telecom is decentralized with eight Regional Divisions grouped together into a single department called Services, for arranging each of the operational structures and the appropriate which Mr. Larbi Guedira, member of the Management board is functions supports allowing them to be reactive and more responsible. Regional sales teams have been set up to autonomous on the field. strengthen links with Maroc Telecom’s clients and partners at In 2006, Maroc Telecom modified its internal organization to be both provincial and prefectoral levels.
4.2.2 Description of operations
The Mobile business provides mobile telecommunications for switching, consisted of 7,300 kilometers of intercity fiber services. It had 10.7 million customers as of December 31, optic cable and over 4,500 kilometers of urban fiber optic 2006 and operates a GSM network covering almost the entire cable. population through more than 4,600 base stations. Maroc Telecom’s products and services are marketed The Fixed-line and Internet business provides fixed-line through a distribution network consisting of owned branches telephone services including public telephony, Internet covering the entire territory of Morocco and through services and data transmission services. The Fixed-line and independent distribution channels (see section 4.4.4 Internet segment had 1.27 million customers as of December “Distribution”). 31, 2006. As of the same date, its network, entirely digitized
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES GENERAL PRESENTATION
The table below describes the development of Maroc Telecom’s customer base over the past three fiscal years (excluding Mauritel):
At December 31 - in thousands 2004 2005 2006
Mobile customers* 6,306 8,237 10,707
Fixed-line customers 1,309 1,341 1,266
Internet customers ** 105 252 391
* Mobile customers figures include prepaid and postpaid. 2004 and 2005 customer bases are restated. ** Internet customers concerns IP accounts opened with Maroc Telecom (subscribers and pay-as-you-go customers).
The telecommunications sector accounted for 5.2% of rapidly, from MAD8.5 billion in 1999 to MAD26.4 billion in Morocco’s GDP as of December 31, 2006. This sector grew 2006:
(in billions of Moroccan dirhams) 2004 2005* 2006*
Value of telecom market 21.4 24.6 26.4
Source : ANRT * Maroc Telecom estimations based on revenues published by telecom operators.
The table below describes the breakdown of revenues for the fiscal years ended December 31, 2004, 2005 and 2006:
(in millions of Moroccan dirhams) Change IFRS - at December 31 2004* 2005 2006 2005/2006
Gross revenues Mobile 9,684 12,772 14,684 +15.0%
Gross revenues Fixed-line and Internet 11,133 11,949 12,613 +5.6%
Intersegment transactions (3,409) (4,179) (4,682) +12.0%
Total consolidated revenues 17,408 20,542 22,615 +10.1%
* CMC-Mauritel group has been fully consolidated since July 1, 2004.
Gross revenue includes flows of business between the Mobile • lines leased by the Fixed-line and Internet to Mobile. business and the Fixed-line and Internet business. Intersegment These flows are eliminated in the “consolidated revenues” transactions relate mainly to the following services: line item. • interconnection services relating to the flows of traffic between Maroc Telecom’s fixed-line and mobile networks, and;
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4.2.3 ISO Certification
Within the framework of its overall policy of improving the This certification deals with the conception and the development quality of its business activities, Maroc Telecom obtained in of the offers, marketing, installation / deinstallation, activation/ 2003 the ISO 9001 version 2000 certification for certain deactivation, invoicing and collection, after-sales service, activities, such as the invoicing of Mobile services and the information and assistance for the following products and Mobile call centers and fixed-line services, invoicing and services: collection of the fixed-line revenues. • business products including specific offers; In December, 2004, Maroc Telecom was rewarded for the • Fixed-line products as well as the phone information quality of its products and services by obtaining the ISO 9001 business; version 2000 certification for all of its activities within the • Internet products; framework of a total quality method. • Mobile products.
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES MAROC TELECOM’S bUSINESS STRATEGY
4.3 MAROC TELECOM’S bUSINESS STRATEGY
Against the background of a growing telecommunications • a segmented and competitive offer, tailored to consumers’ market, supported by demand boosted by favorable expectations; economic and demographic conditions, Maroc Telecom’s • an extensive distribution network, the densest in the country, goal is to retain leadership in all its market segments with more than 41,000 direct and indirect retail outlets licensed by Maroc Telecom; (mobile, fixed-line and Internet), and to maintain profitability • modern network infrastructure, offering the country’s best levels. mobile coverage; and At the end of 2006, despite efforts made by competitors, • strong brands enjoying high customer recognition. Maroc Telecom succeeded in maintaining its leadership in Maroc Telecom’s strategy is accordingly organized along the each segment of the market, relying in particular on: following main lines:
Stimulating growth in the mobile market by increasing usage of mobile services and through innovation
Maroc Telecom stimulates prepaid customer usage, with launch the new 3G services in 2007. promotional offers on voice services (offers on top-up cards and Steady growth in the customer base while maintaining a firm other regular promotions) and on data services (reducing SMS grip on customer acquisition and customer loyalty costs, and MMS tariffs and promotions), while striving to expand its remains the Company’s priority. The mobile penetration rate customer base and increase customer loyalty. increased from 41.34% at December 31, 2005 to 53.54% at Maroc Telecom has introduced new value-added services December 31, 2006 (Source: ANRT), which confirms the based on SMS, MMS and GPRS, to enhance its range and market’s strong growth potential. In the medium term, the to increase ARPU. Maroc Telecom has always been a penetration rate is likely to reach more than 70% (Maroc forerunner in developing new technologies, and is due to Telecom estimates).
Reinforcing its competitiveness in fixed-line to deal with liberalization in this segment
The fixed-line telecommunications market has been • Add content to telecommunications offers, with the launch in completely liberalized since 2005 when two new licenses were 2006 of TV via ADSL and Double and Triple Play Internet granted to Meditel and Morocco Connect, which became offers, VOIP and Video on demand in 2007, which are Wana in 2006. enabled by IP technologies and high bandwidth. The aim is both new entrants are due to start marketing their new Fixed- to equip the Fixed-line segment with new growth drivers. line and Internet services in 2007. • Improve the quality of pre- and after-sales service, which has Maroc Telecom is actively prepared for the arrival of been rewarded by the quality certification obtained at the competition aiming to improve the competitiveness of its end of 2004. offering with particular attention paid to high quality service, • Strengthen customer loyalty programs, enabling customers together with a customer loyalty program and the launch of to earn various gifts and benefits. new innovative services. • Rapidly increase ADSL penetration which at the end of 2006 This strategy essentially aims to: had already reached 35% of Fixed-lines (excluding public • Steadily increase unlimited fixed-to-fixed rate plans (Phony telephony). range with very competitive tariffs) granting unlimited calls and call time to all fixed-lines.
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Remaining the principal engine of Internet development in Morocco
The great success of the new unlimited ADSL Internet access and high speed Internet access. Maroc Telecom also develops services, launched in early 2004, along with the reduction in a number of initiatives designed to increase the penetration of rates in March 2005 and May 2006 and promotional offers Internet, in particular in schools, to develop specific plans for launched throughout the year, is a sign of the market’s growth business users, and to assist in the development of content potential. Maroc Telecom focuses its efforts on broadband, and use of the Internet. with a commercial policy organized around gradual price cuts
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 make Maroc Telecom the reference in customer service in excellent image with its brands, such as Jawal (prepaid mobile Morocco by continuing to improve presentation, and customer telephony), El Manzil (fixed-line telephony for residential and interface at the point of sale, customer services (technical business users), Phony (unlimited fixed-to-fixed rate plans) start-up, after-sales service, commercial administration, call and Menara (Internet access). The Company also proposes to centers).
Relying on network infrastructure complying with the most recent technological standards
Maroc Telecom has the most extensive and technologically reliable leading-edge network, providing innovative new advanced network infrastructure in Morocco. With its modern services to its customers, Maroc Telecom intends to proceed high-performance network, based on a fully meshed and with its policy of investment in its network, aiming to develop secured fiber optic backbone, Maroc Telecom offers a wide capacity and coverage, introduce new mobile and fixed-line range of high-quality telecommunications services (Fixed-line, technologies, develop, build and strengthen domestic and mobile, data and broadband Internet). In order to maintain a international interconnections.
Maintaining rigorous financial management and a sound financial structure
Maroc Telecom has outstandingly shown over the past dividends to its shareholders on a regular basis. years that it is capable of maintaining its level of profitability In addition, Maroc Telecom intends to seize acquisition by continuing dynamic development, while keeping a tight opportunities that would create shareholder value, while hold on costs. Its large cash-flow generating ability enables observing strict investment criteria. it to maintain a sound financial structure while paying out
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES bUSINESS ACTIVITIES
4.4 bUSINESS ACTIVITIES
4.4.1 Mobile business
The information provided in this paragraph, except revenues, customers at the end of 2006. On the postpaid segment, the only concerns the Mobile business in Morocco. total number of customers increased 12.7% between the end of 2005 and 2006, to 690,000 customers. Maroc Telecom offers prepaid services (the Jawal card) and a General presentation range of postpaid offers. Maroc Telecom is the leader in the Moroccan market for Maroc Telecom provides extensive coverage both in terms of mobile communications. The Company’s market share infrastructure and commercial presence. Its network covers reached 66.90% as of December 31, 2006 (Source: almost the entire population of Morocco (Maroc Telecom ANRT). This market has expanded considerably since estimate). Internationally, with over 414 roaming agreements, 2000, with the number of mobile customers (all operators) rising from 2.851 million in 2000 to 16.005 million as of Maroc Telecom’s customers have access to services in over December 31, 2006 (Source: ANRT). Over the same 212 countries. This extensive commercial presence has been period, the market penetration rate rose from 1.3% to achieved through a direct and indirect distribution network of 53.54% (Source: ANRT). approximately 41,000 retail outlets licensed by Maroc Telecom (see section 4.4.4 “—Distribution”). The mobile market (all operators) is mainly a prepaid market. In 2006, the prepaid customer base in Morocco increased The following table breaks down Maroc Telecom’s mobile 30% from 11.781 million customers to 15.315 million revenues for the past three years:
in millions of Moroccan dirhams – IFRS December 31 2004* 2005 2006
Gross Mobile revenues 9,684 12,772 14,684
• Maroc Telecom 9,444 12,198 13,996 Revenues for Mobile communications services ** 8,882 11,284 13,026 Terminal equipment revenues 562 914 969
• Mauritel 239 574 688
• Intersegment transactions (2,287) (2,938) (3,349)
* excluding CMC-Mauritel group for the first six months of the year. ** including Management Services Agreement with Mauitel revenues of MAD6 million.
Change in customer base The Moroccan market for mobile communications Maroc Telecom defines the period of validity of a prepaid expanded rapidly with the introduction of prepaid plans in card as an initial six-month period for rechargeable cards 1999. This prepayment system meets customers’ need to costing from MAD50 and one month for rechargeable cards manage call costs and to avoid exceeding rate plan limits. costing MAD10 to 20, corresponding to the duration of the This formula is particularly well-tailored to the Moroccan card’s credit, followed by a second six-month period during market, owing in particular to the young population, with which the customer, while having the option of recharging half of it aged under 25. the phone card, continues to receive calls. The following table sets out the main data relating to The Autorité Nationale de Réglementation des Télécom- prepaid and postpaid services offered for the past three munications (ANRT) defines a mobile subscriber as a person years. Maroc Telecom defines the churn rate as the ratio of with a postpaid mobile subscription that is still activated, or a cards disconnected or contracts terminated to the average person with a prepaid card who has made or received at least customer base during a given period. For prepaid customers, one call (charged or free) within the past three months.
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As from January 1, 2006, Maroc Telecom uses the ANRT’s definition in its communications with a restated comparison of 2004 and 2005.
2004 2005 2006 Number of Mobile customers * (thousands) 6,306 8,237 10,707
• Prepaid 6,050 7,908 10,297 • Postpaid*** 256 329 410
Churn rate (%)**
• Prepaid 11.4% 12.1% 20.5% • Postpaid*** 15.6% 13.9% 13.4% blended churn rate 11.6% 12.2% 20.3%
ARPU (MAD/customer /month)
• Prepaid 96 97 87 • Postpaid*** 790 710 702 blended ARPU 125 123 111
Outgoing Usage (minutes/customer/month)
• Prepaid 20 20 21 • Postpaid*** 332 358 508 blended usage 33 34 40
* Postpaid subscribers and prepaid cards. ** See Glossary. *** Including 'Forfaits sans engagement' in 2005 and 2006.
Prepaid services have seen sustained growth since their base and the reduction in access costs, the churn rate launch, in particular through subsidized packages including a stabilized at 20.3%, up 8.1 points compared with 2005. GSM handset at fairly low prices, and Maroc Telecom’s many promotions for top-up phone cards and calls, which Pricing stimulated growth and developed the loyalty of the expanded customer base. Since 2002, Maroc Telecom has charged calls by the second after the indivisible first minute for traditional subscribers and by Post-payment covers mainly a high-consumption customer 20-second increments for postpaid rate plans and prepaid calls. base generating substantially higher ARPU than prepaid This pricing overhaul was accompanied by price cuts in order to: customers. • encourage the use of rate plans for postpaid subscribers, by Despite tough competition in the market, Maroc Telecom has offering them a wider range of rate plans and prices that are succeeded in maintaining its churn rate at a satisfactory level reduced along with the rate plan’s duration; owing to its efforts to build customer loyalty while maintaining an acquisition policy in order to extend its base (see “Offers”). • provide prepaid customers with substantial cuts according Accordingly, the loyalty program offered to prepaid customers to the amount of top-up phone cards bought; and since mid-2002 has been improved through the launch of a • develop usage by changing over to an indivisible minute. point-based Fidelio loyalty scheme. The customer can choose The table below sets out the change in average charges per from a variety of loyalty bonuses: additional time, SMS, or minute, prepaid and postpaid, in Moroccan dirhams (including GSM terminal. In 2006, with strong growth in the customer VAT) as of December 31 of each year.
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In Moroccan dirhams – As of December 31 2004 2005 2006 Access costs
(1) (4) 200/250 400/250 400/250 • Prepaid 50/100 150/100 150/100 20/50 20/50 10/30
• Postpaid 120 120 120
Subscription
• Postpaid (3) 150 150 150
Mobile price per minute (including taxes) (2)
To Mobile Maroc Telecom • Prepaid 3.60 3.60 3.60 • Postpaid (3) 1.80 1.80 1.80
To Maroc Telecom Fixed-line • Prepaid 3.60 3.60 3.60 • Postpaid (3) 1.80 1.80 1.80
To other mobiles • Prepaid 4.80 4.80 4.80 • Postpaid (3) 2.40 2.40 2.40
(1) including initial call credit. (2) Indivisible first minute; increments of one second for standard subscribers and 20 seconds for rate plans subscribers and prepaid; Standard subscription for postpaid and Jawal classique for prepaid at peak times. (3) Standard subscription formula. (4) Different costs according to credit including all taxes.
Maroc Telecom regularly grants its customers further price cuts offers, in which the “price” variable is reflected in attractive and for mobile calls abroad, and harmonizes call charges. The new competitive charge scales. international pricing policy is in line with the general trend of new
Mobile communication services Maroc Telecom offers prepaid and postpaid services for different terms for making calls outside the contract rate plan. consumer and business customers. These services comprise a The table below shows the range of Maroc Telecom’s Mobile wide range of offers with different levels of user commitment and offers:
Service Customers Commitment Calls outside Product
Prepaid Consumer No No Jawal Classique Jawal Jeunes Postpaid Consumer No No Liberté rate plan Liberté rate plan SMS/MMS Yes No Controlled rate plans Yes Yes Standard subscription Individual rate plan business Rate plan business Class Intenso/Extenso/Extenso+
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Prepaid Lastly in 2006, Maroc Telecom set up the Express recharge to eliminate card manufacturing and logistics costs. Other similar As of December 31, 2006, the prepaid customer base solutions are also being considered. consisted of 10.297 million customers, or almost 96% of the mobile customer base. Maroc Telecom aims to maintain ARPU by stimulating Pricing plans relating to prepaid services consumption (selling a wide range of top-ups) and by Maroc Telecom applies a differentiated pricing plan for developing the use of value added data services (SMS and prepaid customers according to the type of card Jawal MMS). The group has launched several promotional offers on (Classique or Jeune), the call destination, as well as according top-ups and calls to increase customer loyalty and to stimulate to schedules for the Jawal Jeune card: usage. The drop in ARPU in 2006 is mainly due to the strong increase in the customer base. • For a customer of Jawal Classique, prices are MAD3.60 including tax, whatever the time of the call, for calls towards a fixed or mobile Maroc Telecom number or any other fixed-line Offers Moroccan network, and MAD4.80 towards another Moroccan Maroc Telecom provides prepaid services under the “Jawal” mobile network; brand. The prepaid services are aimed primarily at residential • For a customer of Jawal Jeune, the price at peak time users, who demand a broad range of access and pricing offers. (Monday to Friday, from 8 am to 8 pm) to fixed or mobile Maroc Telecom’s prepaid plans are marketed as packages numbers for all operators is MAD6 including tax. In off-peak (handset and SIM card) and SIM card only deals, according to periods, the price drops from MAD2.40 including tax for the the following formulas: first minute to MAD1.70 including tax thereafter by 20 • Jawal Classique, which offers an undifferentiated day/night second increments for calls to Maroc Telecom numbers and tariff; other fixed-line operators and MAD2.40 including tax for calls to any other mobile network. • Jawal Jeunes, with special rates in the evenings, on weekends and on public holidays. SMS are charged MAD0.96 per message including tax. The SMS price range is between MAD3.60 and MAD6 including These two formulas are valid initially for six months, tax for sending SMS to foreign countries. corresponding to the duration of the card’s credit, and then a further six-month period during which the customer may Since October 2006, the price of MMS has been set based on recharge the phone card and receive calls. their size, from MAD0.96 including tax for MMS smaller than 3ko to MAD1.92 including tax for MMS larger than 3ko. In 2006, Maroc Telecom introduced a new access fee of MAD30 (including tax). In addition, sales promotions on these Pricing of international calls varies according to the country of deals are designed to stimulate sales. A selection of packs is call destination, and is the same for both formulae. The also marketed at MAD0 against payment of MAD1,200 countries of destination are classified in four areas and their including tax which will be credited to the customer’s Jawal rates vary from MAD11.52 to MAD28.80 including tax per account at a rate of MAD100 including tax per month. Finally, minute. Maroc Telecom proposes promotion on SIM card only deals In 2006, to boost consumption, Maroc Telecom continued its doubling the initial credit. promotional offers for prepaid clients giving unlimited calls to In order to develop the use of prepaid services, Maroc a chosen number at certain times at a special price. Telecom markets a range of top-up phone cards from MAD10 In addition, prepaid clients are compensated for incoming to MAD1200, with automatic bonuses linked to the purchase calls, by means of a call credit which is available on their next of a MAD50 top-up phone card. In 2006 the group introduced top-up. a 10+20 top-up card enabling customers to have two types of recharge for the same card depending on their needs. Promotions are implemented on voice and data services and Migration of prepaid customers to postpaid on the range of top-up phone cards and are part of a policy to In order to build customer loyalty and raise ARPU, Maroc build customer loyalty, increase usage and develop the Telecom is implementing a strategy intended to migrate customer base. high user prepaid customers to postpaid offers, a two-fold The available recharging resources are also diversified, with a strategy. First, the Jawal services include an option for dual goal of reducing distribution costs and facilitating customers to migrate their prepaid accounts free of charge recharging for the customer. Thus, in addition to PVC scratch to a postpaid rate plan or subscription while retaining their card recharging, Maroc Telecom offers electronic recharging call numbers. Second, Maroc Telecom offers capped and recharging through bank cash dispensers. postpaid rate plans, which are a basic product attractive to
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prepaid customers wishing to migrate to postpaid while The rate plan offers, with ten formulae ranging from 1 to 15 retaining control over their communication costs. This hours, provide a charging of calls by 20-second increments strategy, which relies on frequent promotional campaigns after the first minute, and a single rate for any domestic call. to boost migration, aims at raising aggregate ARPU. These offers include a doubling of the call time for calls to Maroc Telecom numbers, automatic carry-over of unused time In 2005, continuing this strategy, Maroc Telecom launched and free SMS, MMS and GPRS service. two new products: the Liberté and Liberté SMS/MMS rate plans. In 2005, to boost recruitment of new postpaid subscribers and encourage prepaid clients to migrate to postpaid, Maroc Postpaid Telecom launched “no commitment” offers which allow customers to return to their initial offer free of charge. There As of December 31, 2006, the postpaid customer base were two types of these offers: amounts to 410,000 subscribers. The postpaid customers are mainly high users. • Liberté rate plan: Maroc Telecom has developed a range of 3 controlled rate plans with no commitment for 45 The slight fall in postpaid ARPU is due to an overall trend of minutes, 90 minutes and 150 minutes for monthly new customers’ consumption, a phenomenon common to subscriptions starting at MAD118.80 (including tax).The most operators and to the introduction of new rate plans, customer gets a main rate plan, free off-peak calls for the namely unlimited numbers. same amount of time and a top-up account. In 2006, a Maroc Telecom is seeking to increase ARPU by stimulating reduction is offered for customers taking out a 6-month subscribers’ usage of its services and usage of new and minimum subscription. existing voice and data services (SMS, MMS and GPRS). • SMS/MMS Liberté rate plan: aimed at young people, Maroc Postpaid is marketed mainly through the branches of Maroc Telecom offers a range of two data rate plans with 100 and Telecom’s distribution network, 25 of which are dedicated to 300 SMS/MMS, a voice bonus and a top-up account with no mobile services. In addition, 17 branches are especially commitment starting at MAD89/month (including tax). dedicated to businesses and major accounts. Postpaid is Furthermore, to satisfy business needs, in 2005 Maroc also distributed through the GSM Al-Maghrib network (see Telecom launched a new range of rate plans grouped together “section 4.4.4 Distribution”). in the “business Class” offer. This offer comprises six types of The postpaid offers are addressed at the entire consumer and all-inclusive rate plans for domestic calls (inclusive minutes business market. The business market comprises small and ranging from 5h to 30h in 5h steps), certain international calls medium-sized enterprises and industries, local government and free SMS, MMS and GPRS. and major public and private accounts. Lastly, since the end of 2004, Maroc Telecom has marketed two special products: an SMS rate plan for the speech and hearing impaired and a pack including special software for the Subscriber plans visually impaired. Maroc Telecom offers three plans to consumers: Since January 1, 2006, customers with 1 to 4 hour individual rate plans and all controlled rate plans and Liberté rate plans • the traditional subscription, a monthly subscription offering invoicing for consumption varying according to peak and have been able to subscribe to an offer allowing them to make offpeak times (see paragraph “Pricing plans relating to unlimited calls to two numbers of their choice for MAD118.80 postpaid services”); including tax/month. Customers with 5 to 15 hour individual rate plans can subscribe to an offer allowing them to make • individual rate plans, which offer ten formulae based on unlimited calls to five numbers of their choice for MAD118.80 communication time and a single count for calls regardless including tax/month since April 1, 2005 and customers with of domestic destination and times. They allow a 15 hour individual rate plans can subscribe to an offer allowing development of usage by encouraging greater consumption them to make unlimited calls to seven numbers of their choice (see paragraph “Pricing plans relating to postpaid services”); for MAD238.80 including tax/month since May 1, 2005. and
• controlled rate plans, which allow control of communication expenses by blocking outgoing calls when the rate plan has Business users been used up. In order to make additional calls, the Given the potential and strategic importance of business customer may recharge the account with Jawal top-up customers, Maroc Telecom has established a specific policy phone cards. This rate plan was introduced in order to build for this segment, organized around a dedicated range of offers customer loyalty and encourage migration towards postpaid and services and a dedicated distribution network. In addition, plans. for major business customer, Maroc Telecom is implementing
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customized service solutions meeting its customers’ specific (a toll-free number 999) and a privileged welcome at requirements, in particular in terms of control over staff calls commercial agencies. Since July 2003, the Gold club has and management of costs. been integrated into the Fidelio program and the selection is In addition to the consumer rate plans detailed above, also made on a points basis. New advantages are granted to open to businesses, Maroc Telecom launched the following customers: a VIP after-sales service and bonus points. “Mobile Solutions for business” in 2002: Fidelio is the first point-based loyalty scheme introduced in • Intenso: a suitable formula when GSM calls are made mainly Morocco. It is reserved for postpaid customers and was internally, Intenso offers ten hours of calls free per month and launched on June 1, 2002. This scheme allows points to be per line for all communications within the business; aggregated on the basis of invoicing, and provides advantages in the form of free or cut-price handsets, and • Extenso: a suitable formula when GSM calls are made mainly free calls and SMS messages. Since April 2003, Maroc to outside contacts, Extenso offers competitively priced Telecom has set up the Fidelio 24-month offer. In 2005, subscription and outside call charges; and Maroc Telecom introduced bonuses on incoming calls, • Extenso +: launched in May 2004, it combines the two granting customers points for the calls that they receive. In previous offers and as such demonstrates the flexibility 2006 almost 83,000 customers renewed their subscriptions offered by Maroc Telecom to its business customers. thanks to Fidelio. In addition, Maroc Telecom has created various other services for business mobile voice services. These services meet companies’ needs in managing their mobile fleet and cost Pricing plan relating to postpaid services control, and include: Activation expenses for a SIM card are identical regardless of the • Mouzdaouij (possibility of having two numbers on the same type of subscription and are established at MAD120 including SIM card to differentiate between personal and professional tax. calls); The pricing for postpaid services differs depending on • capped invoices; whether it concerns a classic subscription, fixed price (package) or specific formula for businesses. • reduced call charges based on volumes; For a classic subscription, the subscription charge is MAD150 • exemption from subscription fees subject to certain including tax and the airtime price is MAD1.80 per minute for conditions; calls to Maroc Telecom fixed-line and mobile numbers and other fixed-line operators, or MAD2.40 (including tax) to other • reductions for certain international calls; mobile networks at peak time. At off-peak times a single tariff • EasyFact (CD-based invoicing service) and E-Management. of MAD1.20 including tax applies regardless of the domestic destination. Maroc Telecom enhanced its professional offers in the last quarter of 2006 with the launch of two new innovative services There were price cuts in 2005 for the 10 individual or perfectly suited to companies who are seeking to increase controlled rate plans. Tariffs now vary between MAD180 and productivity and reactivity: MAD870 (including tax) for individual rate plans and between MAD202.80 and MAD942 for controlled rate plans. These rate • « MobiMail » allows the user to receive and process emails plans include a predefined airtime of between 1h and 15h, free on his/her mobile in real time, off-peak calls for the same amount of time, and free SMS, • and “MobiTalkie”, which enables colleagues to communicate MMS and GPRS. via a voice message sent simultaneously to several other For no commitment rate plans, charges range from MAD118.80 colleagues and receive their reply in real time. to MAD274.80 (including tax) for the Liberté rate plans, and from MAD89 to MAD189 (including tax) for the Liberté SMS/MMS rate plans. Loyalty building policy For business customers, business Class rate plans range from building loyalty among customers has been a key strategy for MAD522 (including tax) for a 5h rate plan to MAD1,584 (including Maroc Telecom since 2000 and has prepared Maroc Telecom for tax) for 30h. the arrival of competition. The loyalty offers set up as early as For businesses, subscription and call pricing varies depending January 2000 consist of offering handsets at preferential prices. on the number of lines and whether they choose the Intenso or Extenso formula. In 2005, Maroc Telecom overhauled its The Gold project for high-volume users was launched in 2001. business tariffs. These customers are provided free of charge with a loyalty card, a top-of-the-range mobile phone, a dedicated call enter For the visually impaired, a handset and special software are
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offered at a competitive price, while an SMS rate plan for top-up their own account if they have a controlled rate plan, MAD150/month (including tax) is available for the speech-and Liberté rate plan or Liberté rate plan SMS/MMS or to top-up hearing-impaired. another person’s account “Top-up for my friend” if the friend SMS and MMS are charged MAD0.96 per message including is a customer with a controlled rate plan, Liberté rate plan, taxes and their price ranges between MAD3.60 and MAD6 Liberté rate plan SMS/MMS or Jawal account. including tax for SMS to foreign countries. GPRS is charged Moreover, Maroc Telecom’s postpaid subscribers are between MAD48 and MAD636 per month including tax provided with an international roaming facility for voice and depending on the chosen volume of data. Pay-as-you-use is SMS services, as well as for data services (MMS and GPRS). also available since September 2005 and is charged MAD0.29 including tax/ko. The pricing of international calls varies according to the Value added services country of call destination, whatever the formula of As of December 31, 2006, value-added services contributed subscription. The countries of destination are classified in four 5.4% (excluding VMS) to total revenue. The contribution of the areas and their rates vary from MAD6.66 to MAD25.20 per Voice Mail System (VMS) to total revenue, as of the same minute including tax. date, was 3.3%. 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 Supplementary services provided with prepaid and an exclusive basis (WAP as early as 2000, GPRS in 2002, and postpaid offers MMS in 2003). In addition these services are offered to roamers. Prepaid supplementary services • VMS Many supplementary services are included in the Jawal plan, including ID, call waiting, dual call service and the “Family & The VMS was introduced in 1998 for postpaid customers and Friends” service, all free of charge. Voicemail and all SMS and extended to the prepaid customer base in 2003. It is included MMS related services are also included in all plans. in all prepaid and postpaid plans. At the end of 2006, there were more than 8 million voicemail boxes in operation, In addition, since 2003, via the introduction of the Camel representing almost 75% of the active mobile customer base. technology (see glossary), prepaid customers may use international roaming for their voice services. This service was extended in 2005 with the introduction of two new functions: There are also supplementary services at an additional cost, such as the favorite number offer launched in 2005, which • Automatic call-back allows postpaid clients to call back the gives the client a reduction for calls made to the Maroc person who has left a message on their voicemail simply by Telecom mobile number of their choice. pressing a key. This service is offered at the standard cost of a call from a Maroc Telecom mobile;
• Straight to voicemail enables all Maroc Telecom Mobile Postpaid supplementary services customers to leave a message on the other person's The postpaid offer includes the prepaid supplementary voicemail without making the telephone ring. This service services mentioned above. It also includes detailed invoicing, reduces the intrusive nature of calls. conference calls, and CLIR and call transfer, all offered free of In 2006, two new advanced options were introduced: charge. • Maroc Telecom’s mobile customers can receive a free SMS Postpaid clients can get reductions through the Family & notifying them of their missed calls, the time of call and the Friends service and a reduction in call charges based on number of times their correspondent tried to contact them; volume. In addition the Mouzdaouij service allows users to • Maroc Telecom is the only operator which allows the have two numbers on the same SIM card. person leaving a message on an IAM voice mailbox to Services available at an additional cost are also marketed to modify or delete the message that they have just left via a satisfy the needs of customers who make calls outside their user-friendly voice menu. rate plan like "Offre Complice" and the SMS/MMS rate plans. • SMS Maroc Telecom has also introduced unlimited calls by offering SMS (Short Message Service) has been available since April optional extras for individual rate plans, which are charged at 2000. The service has been regularly enhanced with the an additional cost. launch of SMS Info in 2001 (SMS messages containing In 2006, Maroc Telecom launched a new recharging service. information of local interest such as TV programs, pharmacies “Top-up for me or my friend”, which enables customers to on duty, train schedules, etc.) and SMS Chat in 2002 (a
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community service aimed mainly at young customers), and • “MobiMail” Push Mail service the first pilots of kiosktype services in 2003 (SMS messages In February 2006, Maroc Telecom launched mobile pilot offering content or remote voting services suited to radio or project with a Push email service for businesses. This new TV programs), SMS International chat in 2005 (service service enables mobile customers to receive push emails on enabling Maroc Telecom mobile customers to chat via SMS their mobile and to access their diary and the company’s with French mobile customers). phonebook easily and immediately. In 2006, almost 1.4 billion SMS messages were billed, This service has been available since September 2006 and is representing 23% growth compared to 2005. charged MAD360 including tax for unlimited access and • GPRS MAD240 including tax for customers who already have a The General Packet Radio Service (GPRS) was launched in GPRS subscription. October 2002 for business customers, and was extended to • “Mobitalkie” Push To Talk service all postpaid customers starting on March 1, 2003. The In September 2006, Maroc Telecom launched the Mobitalkie GPRS is offered in the form of four rate plans (from 1 to 60 Push to Talk service for business clients. This service is like Mb) and charged by volume (the user pays only for the using a Talkie-walkie on mobile phones which are equipped quantity of data actually exchanged, and not the duration of with this option, and have both nationwide and international consultation). GPRS facilitates the use of data for those (roaming) coverage. Mobitalkie uses the GPRS network giving who are traveling, such as optimized Internet/intranet the same cover as the GSM network. connections, sending and receiving e-mails, WAP-mode browsing and file transfer. Maroc Telecom provides an Unlimited MobiTalkie rate plan for MAD360 including tax/month to allow customers to monitor Maroc Telecom’s GPRS offer has been enhanced by: their total calls. • GPRS ONLY which enables mobile customers to have a • Content services SIM card specifically for GPRS use. The GPRS customer can obtain a second SIM card for free to be used with the In addition to the SMS information service launched in GPRS rate plan. He/she can continue to use the first SIM 2001, the 500 service launched in 2002 (service for card for making or receiving calls or SMS/MMS; downloading ringtones and logos), and the SMS kiosk services launched in 2003, Maroc Telecom has offered a • A “GPRS Free Access” formula which grants access to all service for downloading content under its own “Mobile GPRS services, without a subscription or any commitment. Zone” brand since May 2005. This service enables In 2006, almost 5% of postpaid customers, compared with subscribers to download ringtones, screen savers, 1.5% in 2005, activated this service. In addition, Maroc animated pictures, games and videos onto compatible Telecom develops other specific GPRS solutions, to suit its handsets. Customers are provided with local, regional and business customers’ requirements. international value-added content. Exclusive content is • MMS available through partnerships with internationally renowned brands (Star Wars for cinema, the Spanish La The Multimedia Messaging System (MMS) was launched in Liga for football) and exclusive agreements with other June 2003 for postpaid customers and extended to prepaid suppliers of international content. customers in July 2004. It allows the exchange of text, images and sound. In December 2005, Maroc Telecom enhanced its content offer with the new “Al Jazeera and Maghreb Arabe Presse (MAP) At the end of 2006, the number of MMS subscribers rose to News bouquet” for postpaid customers. With this service almost 1.5 million. They exchanged 23.4 million MMS messages. customers can receive news of their choice via SMS on their The MMS was enriched at the end of 2004 with the launch of mobiles: politics, economics, sport… from Maghreb Arabe the Picture postcard by MMS. This novelty, exclusivity of Presse or Al Jazeera (the Arabic language news channel). Maroc Telecom, allows to send a text and a photograph from The customer can subscribe to one or more sections from a MMS mobile. The addressee receives the message in the MAP and/or Al Jazeera for between MAD18 and 30 including form of a real Picture postcard delivered by the Post Office. tax per section. In March 2006, the maximum size of an MMS via the Maroc Since May 2006, all of Maroc Telecom’s postpaid and prepaid Telecom network was increased from 50 to 100 Ko to enable customers have been able to customize their voicemail mobile customers to send MMS with high quality photos and message. This entertaining and practical service extends the pictures. range of available content services. Customers can choose In October 2006, MMS charges were changed. MMS Text are their very own message from a selection to suit all tastes: charged MAD0.96 including tax and MMS Photos are charged comical, imitations, classical music etc. All these messages MAD1.92 including tax. are available on Maroc Telecom’s portal www.mobilezone.ma.
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This service is available by calling 309 (MAD8.40 including with information regarding Maroc Telecom products and tax/minute plus the cost of call to a Maroc Telecom mobile) services, requests for activation and parameterization of any or by sending an SMS with the code corresponding to the given service, information regarding offer and pricing plan chosen message to 309 (MAD18 including tax/message). changes, a service for checking remaining balances and Fidelio program benefits, and a complaints service. Information of local interest in several languages (Arabic, Sale of handsets French, English) is also offered to roamers. Prepaid The Interactive Voice Service (IVS) set up in January 2005 handled more than 12 million calls for prepaid customers, The range of Jawal prepaid packages is also diversified in offering them access, 24 hours a day and 7 days a week, to terms of models and prices. In this respect, Maroc Telecom information on prepaid products and services. places particular emphasis on the renewal of handsets and In addition, Maroc Telecom conducts customer satisfaction the latest associated functionalities. surveys monthly in order to measure the quality of the service In 2006, Maroc Telecom reduced its prices further and prices provided by the commercial branches. Maroc Telecom monitors now start at MAD249 including tax (with a MAD10 credit). the quality of service offered through statistical indicators. Postpaid Maroc Telecom makes the public aware of new offers through a special number that present and potential customers may The actions taken to develop postpaid services focus on customer call for information on such offers. acquisition, loyalty and development of the service offered. For postpaid customers, the acquisition policy is based on providing an attractive offer, with a variety of associated business call centers products and services, and a large range of handsets. Offers Maroc Telecom makes available directly to its business of cobranding attract customers and ensure the successful customers dedicated services through its ww.mobileiam.ma launch and renewal of the handsets range, often launched at portal, which displays, several on-line services along with the same time as at the international level, and offering to the descriptions of the offers. local customers state-of-the-art design and technology. Maroc Telecom offers a wide range of packages with business customers can accordingly handle their fleets minimum commitment duration (12 or 24 months). remotely through the Self Care service, by changing offers or activating supplementary services. Since 2003, Maroc Telecom has also focused on loyalty building, as described above. In addition, business customers may easily monitor their mobile telecommunications budgets through the EasyFact service. This allows the receipt of invoices connected with the Customer services GSM subscriptions on CD-ROM for more detailed and easier access. In order to accompany the deployment of these offers, Maroc Telecom has set up a customer relations policy, with an approach built along several lines: information, recruitment After sales service and reminders (with a goal of customer retention). This customer service policy also responds to the needs of both The width of its handsets range has led Maroc Telecom to set consumers and businesses. up an after-sales service provided by its direct distribution network. This service is offered free of charge during the Pursuant to its overall quality policy for its operations, Maroc warranty period. In addition, the Gold after-sales service Telecom was awarded ISO 9001 version 2000 certification in 2003 for the invoicing of mobile customers and its mobile call center. provides its dedicated customers with immediate replacement of a handset, by home delivery.
Mobile call centers Portals In order to develop customer relationships and improve satisfaction rates, Maroc Telecom’s call center is organized to Maroc Telecom has set up three portals: respond, through six customer service numbers, to the • www.mobileiam.ma describes the services and commercial various segments of the customer base: prepaid, postpaid, deals offered and enables businesses to access the Self Gold customers, roamers, prospective customers and Fidelio Care service; members. • the WAP Maroc Telecom portal, in addition to theme based Since March 2000, the call center has provided customers information, offers access to the yellow pages;
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• the Mobile Zone portal, which allows customers to service platforms. The switching network, consisting of 30 download content. MSC centers, is built around 7 TMSC transit centers (including one with softswitch technology). In order to secure the sharing and support of traffic, all MSCs are connected to International roaming at least two TMSCs. Roaming is a service offered by telecommunications Signal traffic is separated from voice traffic through the use of operators enabling mobile telephone users to call and be an SS7 network with 4 STP systems. called in a foreign country. For this purpose, the operators in Maroc Telecom has several platforms enabling it to offer its various countries enter into roaming agreements, allowing customers high quality services: their customers’ telephones to be easily connectable to a foreign network if necessary. • IN platforms which are used mainly for real-time management of the prepaid customers’ credits and also Maroc Telecom entered into its first roaming agreement with manage the implementation of value added services such SFR in February 1995. This roaming arrangement is carried as invoices or capped-rate plans. out in the ordinary course of business. As of December 31, 2006, Maroc Telecom had entered into 414 roaming • SMS platforms, with 2 SMSC servers (large capacity 230 agreements with associated operators in 212 countries, SMS/S), which store and deliver short messages (SMS). including in 6 countries through agreements with operators of • VMS platforms which allow the recording of voice messages the GMPCS systems (Thuraya and Globalstar). in the event that the correspondent is busy or cannot be Morocco’s tourism industry generates a large inflow of reached. visitors, providing large potential for roaming revenues. In • GPRS platforms are based on a packet-switched network order to catch most of this traffic, Maroc Telecom has architecture with roaming management and radio access. developed a customer acquisition policy through associations with foreign operators, and has entered into preferential In 2006, to be able to provide its customers with new agreements with the largest among them. In 2006, to ensure services, Maroc Telecom extended its network with new constant Roaming revenue growth and increase platforms : competitiveness, Maroc Telecom has entered into • SMOLREV, for recharging prepaid accounts, managing agreements with its main partners granting discounts. retailer accounts (recharging, checking account balance, GPRS and MMS services have been offered on a roaming basis minimum, maximum level etc.), managing vouchers and since the end of 2003. At December 31, 2006, Maroc Telecom transferring postpaid to prepaid accounts; had signed agreements with 91 operators in 62 countries for • SMS broadcast, which sends predefined SMS messages to GPRS/MMS roaming for postpaid customers (60 of which are one or more lists of GSM customers; for roaming out) and with 76 operators in 48 countries for prepaid customers (32 of which are for roaming out). • RbT, which allows the customer to change the standard return call ringtone for a personalized ringtone, which can Maroc Telecom also offers an international SMS facility, and be a musical tune, a joke, a voice message, etc…; the use of short access numbers (333 for voicemail and 777 for customer services). At December 31, 2006, Maroc • Push to talk, enabling customers to communicate Talkie- Telecom had signed agreements with 258 operators in 143 walkie style with their friends and colleagues; countries for sending SMS abroad, and 90 operators in 53 • Geographic localization, which provides information on the countries for the use of short access numbers. area where the customer is located such as emergency services, news, tracking etc.; Infrastructure • Pay-as-you-use, which means postpaid and prepaid customers are charged based on different types of service Maroc Telecom’s mobile network is based on the GSM and charge types. technology, deployed throughout almost the entire territory of Morocco. It is characterized by a well-developed infrastructure, high international connectivity and a quality of bSS network service similar to that of international operators. The network allows almost the entire population to be This network is made of two parts, the NSS network and covered through over 4,600 radio base stations located service platforms, and the bSS network. throughout the Moroccan territory. NSS network and service platforms The deployment plan for fiscal year 2006 provides for the establishment of 424 GSM sites and 70 replacement bTS. A The NSS network combines the switching equipment and plan for the redeployment and extension of TRXs (radio cells),
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initiated in 2002 and continued since has allowed optimized The improvement in quality of service indicators for the mobile use of the radio access equipment (TRX). network is a priority for Maroc Telecom. Accordingly, the rate of successful dial-up in 2006 exceeded 98%, the cut-off rate Quality and capacity remained below 1% and the rate of successful SMS delivery amounted to 97% (excluding promotions free SMS). This In order to allow an extension of capacity without adding improvement was achieved through a major program of radio further centers, and in order to add new services (MMS, optimization and preventive maintenance. GPRS, roaming, prepaid, rechargeable phone cards prepaid With a concern for the health of the population, Maroc by SMS or at the bank cash dispenser), the infrastructures of Telecom launched a survey to measure the density of electro- the mobile services’ networks and platforms have been magnetic fields in the vicinity of GSM sites. The findings from upgraded using recent software releases for the latest that survey, conducted by bureau Veritas, confirmed the generation equipment (SSNC and Power CP). Maroc Telecom GSM sites’ compliance with European standards.
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4.4.2 Fixed-line and Internet business Information described in this paragraph is limited to the Fixed- The main fixed-line telecommunications services provided by line and Internet activities in Morocco. Maroc Telecom are:
• telecommunications services; • interconnection services with domestic and international General presentation operators; Maroc Telecom is the leading provider of fixed-line telephony, • data transmission services for business users, Internet Internet and data transmission services in Morocco. These service providers, and other telecoms operators; markets were all fully liberalized in 2005, with the granting of • Internet services, which include Internet service provision fixed-line telecommunications licenses to two new operators. and Internet-related services, such as hosting; and At December 31, 2005, these licenses had still not been used • TV via ADSL. (See section 4.8 “Regulatory environment and possible The table below shows the breakdown of revenues from dependencies”). Fixed-line and Internet services for the fiscal years presented.
In millions of Moroccan dirhams - IFRS - as of December 31 2004* 2005 2006
Fixed-line and Internet gross revenues 11,133 11,949 12,613
• Maroc Telecom 10,944 11,617 12,304 Voice 6,597 6,583 6,618 Interconnection** 2,760 3,145 3,294 Data 1,241 1,374 1,585 Internet 346 515 807
• Mauritel 189 332 309
• Intersegment transactions (1,122) (1,241) (1,333)
* excluding CMC-Mauritel group for the first six months of the year. ** Interconnection revenues are mainly revenues from international interconnection, regardless of destination (fixed-line or mobile), plus domestic interconnection revenues.
Telecommunication services The penetration of fixed-line telephony in Morocco was 4.2% and telestores (See paragraph "Public telephony " below). at December 31, 2006, compared with 4.5% in 2005 and The fixed-line penetration rate fell between 1999 and 2002 4.4% in 2004 (source ANRT). (loss of approximately 330,000 customers) due mainly to the The penetration of fixed-line telephony in Morocco is defined migration of existing customers from fixed-line to mobile, as a as the ratio of the number of lines (including public telephony) result of competition from prepaid mobile offers for the to the total Moroccan population, which amounted to residential segment. approximately 30 million as of December 31, 2005 (Source: Since 2002 the Company has implemented a policy designed to Census 2004 – Haut Commissariat au Plan). boost its operations in the area of fixed-line telecommunications by: This relatively weak penetration rate must be considered in • developing an active marketing and commercial policy light of the high number of persons by home which is 5.3 on tailored to the customers’ expectations and requirements, average (Source: Census 2004 -Haut Commissariat au Plan). in particular with creation of the “El Manzil” brand for fixed- So, the number of lines (except public telephony, business line offers for the residential segment; users and Companies’ lines) divided by the number of homes gives a penetration rate of almost 15% of residential homes. • introducing offers which increase the use of Fixed-lines, in besides, some 157,000 public telephony lines do not represent particular “Phony”, which offers residential and professional the real number of users of Maroc Telecom public call boxes consumers unlimited Fixed-to-Fixed calls;
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• taking major steps to give the entire Moroccan population boxes, initiated in 2001, and continuing its investments in access to Internet. Frequent promotional offers and the this area; move to ADSL have given a greater proportion of the • paying particular attention to the business market; Maroc population access to Internet; Telecom has accordingly launched specific offers and • offering new services which drive the move to content offers prices targeting that customer base. for fixed-lines. Maroc Telecom has launched TV via ADSL At December 31, 2006, the overall fixed-line customer base with the ambition of making this a mass market TV product totaled 1.266 million lines (excluding Maroc Telecom’ in- in Morocco; house base). The table below describes the development of • proceeding with the development of its fleet of public call the fleet of telephone lines by segment:
Number of lines as of December 31 2004 2005 2006
Residential 889,623 884,546 813,000
Public telephony* 135,760 164,091 157,357
Corporate 283,186 292,519 295,762
Customer base** 1,308,569 1,341,156 1,266,119
* Combines the lines of Maroc Telecom telestores and public booths. ** The customer base includes all subscriptions for a fixed-line telephone regardless of technology used (PSTN or ISDN). It does not include Maroc Telecom's in- house base.
Consumer market time with “Phony Evening and Week End” (EW) or at any The consumer market includes residential subscribers, small time with “Phony Anytime” (AT). The two “EW” or “AT” area price plans are available with a standard subscription or with businesses consisting of craftsmen, tradesmen and self- a “capped” subscription. If the customer chooses the latter employed professions, and public telephony. option, which offers both unlimited calls and capped credit, he/she has a capped call credit which allows him/her to make calls outside the unlimited range (with the possibility Consumer offers of recharging the account). “Liberté Phony” gives the Maroc Telecom’s consumer offers of fixed-line telecommu- customer a time credit at a reduced rate for calls to all nications have been marketed since March 2002 under the mobile numbers in Morocco. brand “El Manzil”. With the “El Manzil” range of products and Maroc Telecom also offers “El Manzil” packages which grant services, the Company provides capped and unlimited access free installation of a Fixed-line (for new customers) and a offers. partially subsidized terminal. El Manzil packages, which have “Phony”, a new fixed-line voice offer has extended the a wide choice of terminals and fax machines which is Group’s consumer range and has been available since constantly being extended, are available from MAD99 September 2006. “Phony” offers unlimited Fixed-to-Fixed including tax. Maroc Telecom also regularly organizes calls in Morocco with various price plans starting at MAD144 promotional campaigns to boost sales and animate the including tax/month (including subscription) while enabling market, in particular with the “0 dirham package” and free customers to keep a check on their communication costs. bonuses. These offers have been very successful and boosted the The range of “El Manzil” offers is also regularly enhanced with consumer Fixed-line segment in the 4th quarter. new offers, such as the “Master Package”, which includes a The “Phony” range was launched on September 1, 2006 and year’s subscription for capped rate plans payable in advance includes 3 price plans: “Classic Phony”; “Capped Phony” with an annual call credit. and “Liberté Phony”. Depending on the price plan the In June 2006, Maroc Telecom innovated on the Fixed-line customer can choose to make unlimited calls outside peak segment with its new TV via ADSL service, which is the first
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time this service has been made available in the African and Telestores. During the past five years, the network of Arab world. This service was launched in June 2006 and then telestores has seen substantial growth. As of December 31, enhanced in the November. It enables Fixed-line customers to 2006, it included over 44,000 telestores throughout the watch 60 digital quality national and international TV channels country. Almost all telestore operators are bound to Maroc via their telephone line using ADSL technology. The offer is Telecom by exclusive agreements. They make a profit based available via 4 channel bouquets (Access, Discovery, Prestige on the difference between the retail price and the preferential and Evasion) from MAD48 including tax / month. There is a price charged by Maroc Telecom. In October 2004, against a wide and varied choice of TV channels with something for all background of heightened competition (see section 4.5.2“— the family: all the national broadcast channels, general- Competition— Fixed-line telecommunications— Public interest French channels, news channels in three languages telephone market”), the regulation setting the minimum (Arabic, French, English), children’s channels, cinema and distance between two telestores at 200 meters was repealed entertainment channels, music, documentaries, cultural in order to allow a denser network of telestores. The repeal of programs. that rule (disputed by certain existing telestore operators and certain associations representing them) entailed a significant increase of new telestores’ openings during the last quarter Consumer value-added services 2004 and the first quarter of 2005. In addition, on November Maroc Telecom offers valued-added services to consumers 1, 2005, Maroc Telecom made significant changes to its price such as voice mail, detailed invoices in Arabic or French, list, in particular reducing the minimum call charge to MAD1 caller ID display, call-waiting notification and line transfer. for consumers. These services also include an option for subscribers using capped rate plans, and Phony capped rate plans to recharge their accounts remotely, by simply placing a telephone call. Prepaid phone cards On January 27, 2006 Maroc Telecom launched “New Loyalty-building programs Phonecard” a new prepaid card. This new phonecard which combines the concepts of a chip card and a prepaid account Maroc Telecom has created a loyalty building program for card, can be used in Maroc Telecom call boxes and private its top tier customers, based on El Manzil loyalty points Fixed-lines at home. This card is sold free of any subscription system. All standard Fixed-line and Phony customers or commitment. This new formula replaces two prepaid cards: (excluding capped rate plan customers) are automatically “Kalimat”, for use on private fixed-line phones and “Phonecard” enrolled in the Fixed-line loyalty program. They gain points for use only in call boxes. depending on the amount of their monthly invoice, which they can convert into gifts via their local Maroc Telecom This new concept makes it easier to use prepaid cards, agency by calling the Fixed-line customer services grouping together different cards into a single card, and has department. Every quarter Maroc Telecom updates the boosted the use of this type of card for public telephony. catalogue of gifts which is sent to all the customers in the program. Gifts include phone terminals, fax machines, free calls via telephone cards, ADSL modems, mobile phones business market and TV packages (router + STb). This market, which covers SMEs, SMIs, local government and public and private major business customers, is a key segment Public telephony for Maroc Telecom, as it includes high-volume telecommunications users. Maroc Telecom is seeking to develop this segment and Maroc Telecom also provides a public telephony service with has adopted a dedicated organization and strategy (see “ its own booths and call boxes operated by third parties, or Customer services-Relations with businesses”). “telestores”. As in other countries at a similar stage of development, public telephony remains the preferred means of communication for the lower income part of the population. Offers to the business market The public telephone lines managed by Maroc Telecom, In addition to the basic telephony offer, Maroc Telecom offers directly or by telestore operators with whom the Company has businesses all the functionalities of digital telecommunications entered into operation agreements, amounted to over through the ISDN offer marketed under the Marnis brand. This 157,357 lines as of December 31, 2006, down 4.1% solution enables businesses to use an end-to-end digital compared with December 2005. network carrying the data flow for multimedia applications Public booths. Maroc Telecom emphasizes the development (voice, data and images) by means of either a basic access, of its public call boxes, and for this purpose, has entirely with two communication channels, or a primary access with 30 renewed and extended its fleet in recent years in order to have communication channels. secure boxes operated with smart cards.
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Maroc Telecom has set up, since October 2002, a range of minute, and the price scale has been simplified with four pricing options for businesses that it markets under the name charge levels: local, domestic, mobile and international. of “Tarifs Préférence Entreprises” (see “Pricing”). Since October 2003, Maroc Telecom has offered a “Wellcom Pack PAbX”, a turnkey offer of a switchboard including Access charges installation, hardware maintenance and upgrading of the In 2006 subscription charges were not modified. Since switchboard according to the customer’s requirements. September 1, 2005, standard subscription charges are During 2005, Maroc Telecom launched its new “Multi-line rate MAD108 (including tax) for residential customers and plan” for businesses and major business customers. These MAD144 (including tax) for businesses. Service activation rate plans, which include call time of 15h to 600h, cover calls charges remained unchanged in 2006. For residential to local and domestic fixed-line numbers with a single price customers a standard charge of MAD600 (including tax) is per minute within the rate plan ranging from MAD0.36 to applied. MAD0.46 (including tax). Calls made outside the rate plan are businesses benefit from a promotional price of MAD600 for charged extra at standard rates. Subscribers are granted the the entire year (standard charge MAD1,200 including tax). option of grouping several dial-up or ISDN lines together in However, to boost the growth of the customer base, since the same rate plan. May 2002 Maroc Telecom has introduced the El Manzil packages including free installation and a highly competitive Business added-value services pricing policy as well as regular promotional offers: several promotions of this type were proposed in 2006, both to the With a view to cost management, Maroc Telecom offers residential and business users. 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 Call charges product. • Domestic calls Maroc Telecom has set up a range of “welcome numbers”, In 2006, call charges from fixed-lines remained unchanged. toll-free number (0800xxxxx), Eco numbers (0810xxxxx) and Fixed-line call charges were last changed on September 1, Direct numbers (0820xxxxx), accessible throughout Morocco 2005. Following the ANRT decision to reduce fixed-to-mobile at a single rate, facilitating customers’ access to their business and allowing a suitable response. interconnection charges Maroc Telecom reduced its fixed-to- mobile rates by 5% for its customers to benefit from this Maroc Telecom also offers high-charge numbers such as reduction in the costs of traffic termination on mobile “audiotext” with charge back to the service provider. networks For Moroccan call centers, Maroc Telecom has offered The table below sets out the evolution of the average price in since 2003 a virtual call center solution, CAIR (Centre Moroccan dirhams (including tax) per minute of a three minute d’Appel Intelligent Réseau or network smart call center), domestic call at peak times from a fixed-line terminal: consisting of the creation within Maroc Telecom’s network of the functionalities of call centers, such as voice In MAD - including tax 2006 servers, and the routing of calls according to the availability of call center operators. This solution enables Fixed-line Local 0.55 businesses to set up customer-response solutions with minimum cost. Fixed-line Domestic 1.20 Fixed-line to Mobile 2.28 Pricing For several years, the ONPT, and later Maroc Telecom, Calls from telestores and Maroc Telecom public call boxes are implemented a price rebalancing policy characterized by cuts still priced by charging units. The retail prices for public in call rates and gradual increases in subscription charges. telephones are substantially higher than those from a private The resulting pricing changes have been designed to grow the terminal. market while complying with regulatory requirements and In 2006, phone shop rates have not been changed, with a preparing for the arrival of competition. minimum call charge of MAD1 including tax and a tariff unit for In addition, since the second half of 2002, invoicing terms all destinations in stages from MAD1.50 to MAD1 including have been changed from a confusing unit-based billing to tax. time-based billing, with the introduction of an indivisible first
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• International calls The fixed-line price list is available on the “Grille tarifaire” The international price scale was simplified in June 2004 and section of the www.elmanzil.ma website. is now divided into eight geographical areas. The implementation of the new price scale was accompanied by a significant decline in call prices, in line with reductions Interconnection service implemented in previous years. Interconnection services include interconnection with Prices by zone in Moroccan dirhams domestic and international operators. including tax/minute peak time as of December 31, 2006 To fixed-line To mobile Domestic interconnection Zone 1 : North Europe 4.80 4.80 / 6.50 Domestic interconnection is regulated by the ANRT. In this Zone 2 : South Europe 3.30 3.30 / 5.40 respect, Maroc Telecom is bound to comply with interconnection requests, taking account of the reasonable requirements and Zone 3 : North Africa 4.20 4.20 capacities of other operators. Zone 4 : Canada & USA 5.00 5.00 The interconnection charge serves as compensation for the actual use of the network and the related costs (see section Zone 5 : Middle East 7.20 7.20 4.8 “Regulatory environment & possible dependencies”). Zone 6 : East Europe 8.40 8.40 Interconnection with domestic mobile operators is a major cost item for fixed-line telecommunications, as the costs of Zone 7 : Rest of America, Africa, traffic termination on mobile networks are far higher than the Asia and Pacific 16.00 16.00 interconnection income generated by traffic entering the Zone 8 : Rest of the world 20.00 20.00 fixed-line network. In 2006, with the arrival of two new operators on the Fixed-line In December 2005, to support the development of call centers market, new interconnection charges have been determined. in Morocco, Maroc Telecom launched a new offer with a single rate of MAD0.60/minute (including tax) for calls to • Domestic interconnection pricing France, belgium, Spain and Italy, on condition that volumes Domestic interconnection pricing for calls to Maroc Telecom’s exceed 200,000 minutes per quarter. fixed-line network is lower than in 2006. The table below indicates the domestic interconnection pricing applicable • Rate plans and other pricing options since January 1, 2007 (at peak time): Maroc Telecom has also implemented a targeted pricing policy involving specific rate plans or price options. Local Simple Double Maroc Telecom offers a range of “business Preferential (intra CAA) Transit Transit Tariffs”, which allow its business customers to benefit from Calls to Fixed-lines lower rates on domestic calls based on three price options: Tariffs (MAD excluding “Group Preferential Tariff”, “Volume Preferential Tariff” and Tax/min, peak times)* 0.1268 0.3617 0.4742 “Mobile Preferential Tariff”. The range of services also includes an “International Preferential Tariff” which includes * A reduction of 50% is applied on off-time. lower rates on international calls. Following the ANRT decision, termination charges to mobiles There are also targeted price offers for consumer customers. were reduced by 7% as of September 1, 2005. The table The “El Manzil” capped rate plan was introduced in response below shows current termination charges: to strong demand from consumers wanting to control spending and has driven renewed growth in the customer Mobile Termination base. Maroc Telecom regularly launches promotional offers on El Manzil top-up cards to stimulate use by capped rate plan Calls to Mobile clients. Tariffs (MAD excluding Tax/min, peak times)* 1.3309 The “Phony” offers (unlimited rate plans) which allow unlimited * A reduction of 50% is applied on off-time. calls to Maroc Telecom fixed-line numbers subject to a rate plan fee starting at MAD144 including tax (line subscription included), The ANRT approved Maroc Telecom’s partial unbundling offer. have extended the range enabling more customers to make The table below shows the main prices applicable as of 8 fixed-line calls at the best prices on the market. January 2007:
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Access costs In MAD excl. Tax lowest possible cost and to offer the most attractive price to the end consumer. This policy enables Maroc Telecom to . Expenses of order access make regular cuts in retail prices in order to stimulate the (per order received) 70 market (see “Telecommunication services—Pricing”).
. Expenses of access to service • Fighting fraud (per provided access) 255 The international traffic carried by Maroc Telecom has seen . Expenses of cancellation (per removed access) 70 slower growth than expected in recent years, due to the diversion of traffic by fraudulent means. A specific action plan Monthly fees to fight fraud on incoming international traffic has been set up. It included the creation of a dedicated department, provided . Monthly subscription (use with detection equipment, and awareness building among the and maintenance / access) 50 technical and commercial teams. Since 2004, almost 50 cases have been referred to the ANRT and 9 judgments have been The Fixed-line interconnection for 2007 and the partial decided in Maroc Telecom’s favor by the Moroccan Courts, unbundling offer are available on IAM’s website (www.iam.ma), while 3 cases are still before the courts. Maroc Telecom in “Actualités” -> “Offres aux opérateurs”. constantly reinforces and modifies its antifraud measures and considers that fraud concerning international incoming calls is International interconnection currently under control. Maroc Telecom has very strong international connectivity, with 230 foreign destinations. Data services • Incoming international traffic Data services for Corporate clients Incoming international traffic terminating in Morocco, whether Maroc Telecom offers its customers (mainly business on fixed-line or mobile networks, accounts for a volume in customers) a complete range of data transmission services excess of a billion minutes per year, and is growing regularly. meeting the most recent technological standards. Historically, In 2006, the volume of incoming international traffic to the first data services launched on the market were leased Morocco was approximately 5 times larger than the volume of analog lines, then digital lines, then packet technology (X25 traffic leaving Morocco (Maroc Telecom estimate). network in 1991), and, recently, Frame Relay (in 2001) and The strong presence of the Moroccan community abroad, VPN IP solutions (launched at the end of 2003). together with the growth in fixed-line and mobile customer The table below sets out the evolution of the breakdown of the bases, price cuts and the imbalance of purchasing power data transmission base (exclusive of Maroc Telecom’s in- between Morocco and the main “caller” countries (mainly house base) over the periods concerned (Source: Maroc Western Europe) are the main structural features of the Telecom): 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 Number of lines 2004 2005 2006 European markets has also favored the development of the Domestic leased lines * 6,169 5,980 5,497 volume of this traffic. International leased lines * 166 209 246 In order to adapt itself to international market conditions, Maroc Maghripac 1,504 1,470 1,271 Telecom leads, for several years, a price reduction policy for incoming international traffic. The Company also differentiates Frame Relay 1,226 1,401 1,357 prices depending on whether the termination is fixed or mobile, VPN IP 80 1,214 2,095 so as to adapt rates to the costs. Incoming international traffic * Customer leased lines, except lines to customer operators. has increased 11% and a contained reduction in prices resulted in a 5% sales increase for fiscal year 2006. The range of products and services dedicated to Maroc Termination charges for incoming international traffic to Telecom’s network solutions consists of the following offers : operators present on the market vary depending on the operator and the termination network (See section 4.8 • Leased lines: Maroc Telecom offers domestic and “Regulatory Environment and Possible Dependencies” ). international leased-line services, including the physical chain, modems and monitoring of the leased lines. In order • Outgoing international traffic to meet the demand for the establishment of call centers in For outgoing traffic, Maroc Telecom negotiates with most Morocco, Maroc Telecom offers special prices for call foreign operators in order to terminate its traffic abroad at the centers together with one-stop shopping for end-to-end
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leased lines with France, which simplifies operational • offer of free PSTN collection for the caller, allowing ISPs to management; offer rate plans;
• Maghripac: the Maghripac network is a solution based on the • offer of PSTN collection with repayment to ISPs, charged to X25 packet data transmission technology, specially suited to the caller, enabling the ISPs to market Internet access offers interactive computer applications. Maroc Telecom offers two kinds of access to the Maghripac network: direct access without subscriptions; through leased lines and indirect access through the PSTN; • bulk ADSL offers allowing ISPs to market packaged ADSL • Frame Relay: this service allows businesses to carry offers, including the access and Internet components; and multimedia flows (voice, data and image) within their • “ISP special” offer for the provision of Internet service over networks at flow rates up to 34 Mbps. The Frame Relay offer provides a high level of performance with a warranted leased lines. minimum flow rate associated with each permanent virtual circuit defined between the call’s endpoints; and Data pricing • VPN IP MPLS: Maroc Telecom offers a virtual private network solution (interconnection of sites using a common Maroc Telecom has regularly cut its prices for leased lines and infrastructure), developed on the IP/MPLS protocols and for other related data services. These cuts reflect technological marketed as the “IP Connexion” range. This service is changes and the related reductions in costs. The current prices accessible through the leased lines, Marnis and ADSL. are in line with the prices applied by international operators. Maroc Telecom also offers secure roaming Internet access. In 2005, the range was rounded out with IP VPN ADSL The table below sets out, as an illustration, the cuts in the access with guaranteed bandwidth. price of a domestic 2 Mbps leased digital line which was Maroc Telecom has adapted its ranges of products and reduced in April 2004 (retail price) for the periods concerned: services to the business market in particular in terms of a guaranteed quality of service. At present, Maroc Telecom Monthly subscription As from agrees by contract with its customers to maintain a high level (MAD excluding tax) Apr 01 Feb 02 Nov 03 Apr 04 of quality of service. In particular, Maroc Telecom measures the rate of availability for the network and complies with 2 Mbps local 33,348 25,000 17,500 9,000 international standards as regards that availability (see also “Infrastructure”). Maroc Telecom has improved its international data offer by In 2004, Maroc Telecom revised its Operators’ leased lines signing 3 one stop shop agreements which increased higher offer, reserved for the Developers of Public Networks of bandwidth international leased lines sales and improved the Communication (DPNC): the pricing is made by class of quality of service for customers. Together with the reduction in distance, for the outputs until 155Mb/s. international leased line prices during the year, the number of orders for new installations and bandwidth upgrades rose in Finally, the following table shows the decrease in the tariff of 2006. international half-circuit leased lines to France (applicable rate for Call centers). Maroc Telecom is careful to remain Data transmission services to Internet providers competitive as the cost of international calls is decisive in setting up a delocalized call center. It cut tariffs twice in 2004 Data transmission services are regulated by the ANRT. In this and once in 2005: 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 Monthly subscription As from allowing fair competition in relation to the same Internet (MAD excluding tax) Sep 03 Apr 04 May 04 June 05 services that Maroc Telecom provides to its own end customers under the “Menara” brand (see “Internet”). 64 Kbps 14,700 10,500 7,088 6,143 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: 2 Mbps 110,261 110,261 99,235 86,004
• transit IP offer, for Maroc Telecom international Internet bandwidth;
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Internet
The first Internet connection was established in Morocco by Active customers Maroc Telecom in 1995. between 1997 and 2000, Morocco at December 31 2004 2005 2006 has seen the creation of many ISPs which have subsequently consolidated around two major players Narrowband 43,459 9,436 5,568 (Maroc Telecom and Maroc Connect). The Internet market nevertheless grew slowly until the end of 2003. The pace of • Libr@cces* 11,909 1,622 1,964 development of that market has increased significantly • Subscription 31,550 7,814 3,604 since the first half of 2004.
The slow development of the Internet market before 2004 Broadband 61,330 242,977 385,049 was due to the combination of three factors: the low rate of computer ownership, with only 11% of urban households • ADSL 60,064 242,129 384,309 (Source: ANRT, 2005), the relatively high cost of the Internet • Leased lines 1,266 848 740 for users (access and call costs), and fairly limited local content. Total 104,789 252,413 390,617 The estimated number of Internet users is currently 3.8
million, with a growing proportion of users (88.4%) * The Libr@cces (pay-per-use) customer base only includes accounts having connecting to the Internet in public places (source: ANRT, accessed the internet at least once over the past three months. The ANRT gave 2005). a new definition (Decision ANRT/DG/N01/05 dated March 9, 2005) of the terms 'internet users' and ‘internet subscribers'. This decision had an impact on the pay-per-use customer base and on Maroc Telecom’s total customer base, since Maroc Telecom has a determined policy to increase Internet only those clients having accessed the internet at least once over the past three access in Morocco and provides solutions both for access months can be counted, whilst Maroc Telecom previously used a six month and use. A clear example of this is the price cuts carried out period to calculate its number of internet users. On this basis, Maroc Telecom’s in March 2005 and May 2006 and frequent promotional pay-per-use customer base as of December 31, 2004 was 7,426 instead of 11,909 reported. offers (free modem, free months subscription, free bandwidth upgrade etc.). The customer base growth in 2005 and 2006 is mainly due to At December 31, 2006, Maroc Telecom had 390,617 ADSL, launched in 2003 and commercialized in an ‘unlimited’ Internet access contracts, which represents around 36% of formula since March 2004. At December 31, 2006, ADSL Fixed-lines (excluding public telephony). As of December represented more than 98% of all types of Internet access 31, 2006 ADSL lines accounted for around 35% of the total used by Menara customers. Maroc Telecom’s market share on number of Fixed-lines (excluding public telephony). this segment is 98% (Source: ANRT).
The table below sets out the number of Menara Internet customers (the Menara customer base represents Internet offers customers of the Internet access plans marketed by Maroc Maroc Telecom’s Internet access offers are marketed under Telecom, excluding access for Maroc Telecom’s in-house the Menara brand. use). The consumer market For narrowband, Maroc Telecom markets: • Menara libr@cces: 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. These offers include services for the hosting of personal webpages, e-mail services and options such as time carryover, an evening and weekends package, or usage limits.
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For broadband, Maroc Telecom offers ADSL contracts with Internet pricing bandwidth ranging from 128 Kbps to 4 Mbps (ADSL + at 8 Over the past two years, Maroc Telecom has cut prices of all – 20Mbps launched in November 2006), enabling users to its ranges of products. The table below presents the main use their fixed-line phone at the same time. These contracts Internet prices currently applicable: have met with a great success since the launch of Unlimited ADSL in March 2004, and the price cuts in March 2005 and May 2006. Tariffs in MAD (incl.tax/month) In 2006 there were several new products and promotional ADSL Unlimited - 128 kbps 149 offers which stimulated the market. ADSL Unlimited - 256 kbps 199 In response to the increasing customers’ requirements in terms of security and content control, in December 2004 ADSL Unlimited - 512 kbps 299 Maroc Telecom launched the “Pack Menara Sécurité” which ADSL Unlimited - 1 Mbps 399 offers protection solutions against viruses or not sought E- ADSL Unlimited - 2 Mbps 499 mail (spam) as well as tools of parental control. ADSL Unlimited - 4 Mbps 699
The business market ADSL Unlimited - 8 Mbps 899 For businesses, broadband is provided via ADSL or via ADSL Unlimited - 20 Mbps 999 leased Internet lines (with bandwidth up to 155 Mbps). At Toucompri rate plan* 79 present, the business customer base mainly uses ADSL. Libr@ccès 0.20 per minute The success of ADSL is not only due to the fact that it is * Evenings and week-ends, ten hours' connection. affordable but also because it meets a number of needs that were already satisfied by leased Internet lines (speed, unlimited and constant access). The ADSL Pro offer The main prices measures implemented in 2006 were: provides bandwidth ranging from 128Kbps to 20Mbps and • Price cuts for all ADSL bandwidths in May 2006 and free includes a wide range of services, in particular secure bandwidth upgrading for existing customers. 128 Kbps emails, a domain name, a web page for contacts etc.. was reduced from MAD199 to MAD149 including tax; Internet leased lines meet with success in large companies due to excellent performance (symmetrical and guaranteed • The 4 Mbps bandwidth subscription was reduced in very high bandwidth) and the end-to-end security offered. November 2006 from MAD799 to MAD699 including tax; Maroc Telecom also hosts businesses’ web sites, with two • ADSL+ was launched in November 2006 with 8 Mbps kinds of solutions: mutualized hosting (on a Maroc Telecom bandwidth at MAD899 including tax/month and 20 Mbps at platform) or dedicated hosting (purchase or joint leasing of MAD999 including tax/month. a server), providing businesses with visibility on the Internet while minimizing the cost. As well as Internet access and web hosting services for Other products and services businesses, Maroc Telecom also offers a complete range of In accordance with its contract specifications, Maroc optional extras, including an IP address, domestic and Telecom is bound to provide the following services (without international domain name and e-mail addresses. limitation): In the 2nd half of 2006, Maroc Telecom launched two new • a free maritime radio-communication service to broadcast Internet solutions for businesses with bandwidth via Wimax maritime safety notices; in 2 ranges, “best Effort” (Internet without any guarantee of bandwidth) and Guaranteed bandwidth. • 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;
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• the routing of calls to emergency numbers; and outstanding bills, telesales, telemarketing, checking customer data (billing addresses, direct debit, …); • an Arabic-language telephone directory. Maroc Telecom also publishes a professional “yellow pages” directory. This • Sala Jadida Internet call center (a single access number: business is not significant in terms of revenues. 115): dealing with general enquiries and assistance for Menara and TV via ADSL customers. Customer services Relations with businesses The customer relationship is at the core of Maroc Telecom’s business. Accordingly, and to meet its customers’ Over the past two years, Maroc Telecom has emphasized the expectations and requirements, Maroc Telecom has reinforcement of its relationship with businesses. This is developed an active customer relations management policy. evidenced by the creation at the end of 2001 of a business Sales Directorate, and, within the business Directorate, of a Major Accounts Directorate. The latter acts as a one-stop Invoicing and collection shop for the largest public or private customers: the major Since 2002, Maroc Telecom has upgraded its invoicing tools accounts sales engineers handle the entire commercial and processes for both fixed-line and the Internet, in relationship with their customers for all of Maroc Telecom’s particular through: products and services on a nationwide basis. business branches within each regional directorate also act as relays • establishment of a system of automated collection of for the business Sales Directorate as regards SME-SMI charging data; customers (see section 4.4.4“—Distribution”). To strengthen • changeover from per-unit to per-minute billing (except for its sales presence with businesses, Maroc Telecom has public telephony, which remains charged per unit); recruited regional distributors. • detailed invoicing; Subscribers portals • clearer presentation of the Fixed-line and Internet invoices Maroc Telecom has developed direct relationships with its in order to improve their legibility; fixed-line and Internet customers through its various portals • establishment of an interactive voice system enabling fixed- (www.elmanzil.ma for consumer Fixed-line and Internet line subscribers to be informed of the current bill in real time; subscribers, www.iamentreprises.ma for businesses, www.maroctelecomtv.ma for TV via ADSL customers and • establishment of a dedicated invoicing system for all the www.menara.ma for Internet subscribers). In addition to Internet offers; important information relating to the products and services • implementation of a new sales information system “WIAM” marketed, functionalities such as on-line subscription for which improves the billing process; and services or the consultation of bills are also accessible. • a bimonthly invoice for clients with low invoices, enabling Menara (www.menara.ma) has outstanding exposure as it has them to pay their invoices every two months. the largest number of visitors for any content and services site in Morocco and Maghreb countries (excluding As for collection procedures, Maroc Telecom set up in early international search engines and portals) with a strong brand 2003 a dedicated organization made of 27 collection image (more than 5 million visits and more than 3 million departments and seven customer management departments. visitors per day). Through these actions, Maroc Telecom obtained ISO 9001 version 2000 certification in 2004 for all its Fixed-line invoicing and collection services. Infrastructure Maroc Telecom has developed a fully digitized modern Call centers network at the leading edge of available technology, allowing Maroc Telecom’s call centers include the following centers: a wide range of services to be offered. This network is made of a transmission backbone, switching centers, service • Casablanca Fixed-line call center: handles incoming calls platforms and an access network. and makes outgoing calls. Domestic transmission network • Incoming calls (several access numbers including the main number 108): dealing with general enquiries and Maroc Telecom’s transmission network is fully meshed and assistance for Fixed-line customers, orders and made mainly of fiber optic systems using the SDH and WDM activating certain services; technologies with flow rates of up to 10 Gbps.
• Outgoing calls: debt collection from customers who have With almost 11,800 kilometers of fiber optic cable, Maroc
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Telecom’s transmission network is able to handle any kind of in 2004) and the repair rate for malfunctions repaired in less fixed-line voice, mobile voice, Internet and data traffic. It is than 4 hours (for all “data” products) is 82%. comprised of: The ADSL network set up in 2003 gives Internet access with • 7,300 kilometers of intercity fiber optic cable; bandwidth of up to 2 Mbps to most Moroccan towns. • 4,500 kilometers of urban fiber optic cable; and International network • the related SDH and WDM at n x 2.5 Gbps and n x 10 Gbps equipment. With nearly 230 relationships with foreign operators, Maroc Telecom secures Morocco’s connectivity to all countries Voice platforms worldwide through two international transit centers (Casablanca and Rabat) and three fiber optic submarine cables (SMW3, The switching exchanges have a capacity of more than 1.85 Tétouan-Estepona and Eurafrica), in addition to satellite million subscriber lines. The network is comprised of 13 connections via Intelsat, Arabsat and Eutelsat. A new fiber optic transit centers with capacity of 9,200 PCM, 58 CAA and 426 submarine cable is being laid between Asilah in Morocco and URAD. Marseille in France, with a capacity of 40 Gbps, extendable to A smart network platform for value-added services allows 320 Gbps, which should be available for use in 2007. Maroc Telecom to offer various services, such as prepaid cards, prepaid lines, toll-free numbers and kiosk service. Data networks A new generation network (NGN) is currently being deployed Maroc Telecom offers a wide range of data services through for gradual migration to IP. its Maghripac network, a Frame Relay network, an ATM routing network, a VPN IP network and an IP MPLS network. Wireline access network and businesses Internet With almost 8.7 million kilometers of copper wire and 36,000 Km of cable conduits, Maroc Telecom’s access networks cover Maroc Telecom also has a domestic Internet network and a almost the entire territory of Morocco and give access to Voice, redundant international bandwidth which increased from Data, and ADSL services with a higher quality service. The rate 1.4 Gbps in 2004 to 7.1 Gbps in 2005 and to 12.1Gbps at of reported malfunctions is now 7.8%, and over 98% of December 31, 2006. A large-scale program has been initiated malfunctions were fixed within less than 24 hours. to improve the performance of the Internet infrastructure and to improve the quality of service, as regards both installation In addition, 11 fiber optic local loops are being laid in with the customer and after-sales service. Auditing, reliability Casablanca, Rabat and Tangiers to connect key account assessment, enhancement and optimization have been customers with constantly improved service. carried out throughout the access chain, improving the quality The monthly rate of reported malfunctions for businesses (for of service, as shown by the malfunction reporting rate which all “data” products) is currently 1.6% (2.3% in 2005 and 2.6% dropped to 7% at the end of December 2006 (see Glossary).
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4.4.3 Shareholdings
Mauritel Mauritel group includes Mauritel SA and Mauritel Mobiles. telecommunications operator in Mauritania. In November Mauritel SA is the incumbent Mauritanian operator and was 2004, the Mauritanian Regulatory Authority (‘ARE’) launched a created in 1999, following its spin-off from the Office National call for interest to select consultants to assist it in granting des Postes et Telecommunications, the Mauritanian National licenses. In 2006 ARE granted fixed-line licenses to the new Postal and Telecommunications Office. In 2000, Mauritel SA operator. created Mauritel Mobiles, a wholly-owned subsidiary, which As at December 31, 2006, Mauritel’s total number of fixed- obtained the second license to operate a GSM Mobile lines amounted to almost 37,500, representing a 1.3% telecommunications network. penetration rate and covering the main Mauritanian towns. On April 12, 2001, in response to an international invitation to Other than residential clients and companies, more than 10% tender launched by the Mauritanian government, Maroc of the customer base comprises phone shop lines, enabling a Telecom acquired a 54% stake in Mauritel SA. greater proportion of the population to have access to telephone services. In January 2002, Maroc Telecom created the Compagnie Mauritanienne de Communication (CMC), to which it Mauritel also offers Internet access via the standard dial-up transferred the shares it held in Mauritel SA. On June 6, 2002 telephone network, ISDN lines, leased lines and ADSL Maroc Telecom sold a 20% stake in CMC to a group of launched in 2006. The Internet customer base reached almost Mauritanian investors. During 2003, CMC assigned 3% of the 4,200 accesses as of December 31, 2006. shares in Mauritel SA to the latter’s employees for MAD17 million in compliance with the commitments undertaken at the Mobile telecommunications time of the privatization in 2001. As of July 1, 2004, the Mauritanian government’s veto rights expired, giving Maroc Mauritel Mobiles, a wholly-owned subsidiary of Mauritel SA, Telecom exclusive control of this subsidiary which is fully provides prepaid and postpaid services and offers roaming consolidated in Maroc Telecom’s financial statements. In and SMS and specially adapted services for businesses, such 2006, CMC Group acquired 0.527% of Mauritel SA’s capital as closed user-groups. To boost consumption, Mauritel from Socipam, a non-trading company created by the staff of Mobiles offers volume reductions on call charges and special the Mauritanian subsidiaries. CMC now owns a 51.527% offers on top-ups. stake in Mauritel SA. It operates in a liberalized market alongside the Compagnie Mauritano-Tunisienne de Telecommunications (Mattel). In 2006, the ARE granted new licenses, including a 3G license Fixed-line telecommunications, Data and Internet for Mauritel and 2G and 3G licenses for a new operator. Mauritel provides both fixed-line telecommunications (voice With a customer base of more than 601,000, virtually all of and data) and Internet access services. which is prepaid, Mauritel Mobiles has an estimated market Although since 2004 Mauritel no longer has the monopoly of share of 70% (Source Mauritel). The mobile penetration rate in basic services (domestic fixed-line telecommunications, telex Mauritania is close to 30% (Maroc Telecom estimates). and telegraph) at the end of 2006 it was still the only fixed-line
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The following table summarizes Mauritel Group’s main operating and financial data:
As of December 31 2004 2005 2006 % Change 2006/2005
Mobile customer base 330,564 465,183 601,221 +29.2%
Number of fixed-lines 38,903 39,920 37,447 (6.2%)
Internet customer base 1,600 2,343 4,194 +79.0%
Contribution to Maroc Telecom's consolidated data (in millions of Moroccan dirhams) % Change IFRS 2004(*) 2005 2006 2006/2005
Consolidated revenues 719 826 910 +10.1%
• Fixed-line (gross) 354 332 309 (6.9%)
• Mobile (gross) 462 574 688 +19.9%
Operating income 222 267 295 +10.9%
• Fixed-line 43 18 (14) N.S
• Mobile 179 248 309 +24.6%
* Pro forma data include data for the 1st half of 2004.
Maroc Telecom’s representatives have seats on the boards of Medi-1-Sat CMC, Mauritel SA and Mauritel Mobiles and none of Maroc Telecom’s directors have any operational functions in any of In 2005, Maroc Telecom acquired a 24.7% stake in Medi-1-Sat these companies. which it increased to 26.8% in 2006. Medi-1-Sat is preparing a television channel in Tangier offering continuous news in The consolidation method of the Mauritel sub-group, and its Arabic and in French. contribution to Maroc Telecom’s results are summarized in Notes 1, 2, 23 and 28 of the Consolidated Financial This project is financed by Moroccan and French investors. In Statements. In addition, chapter “6.4 Related Parties the long term Maroc Telecom will own 28% of this project with Transactions” gives details of the financial flows and the a maximum investment of MAD4.2 million, alongside the other nature of such flows between Maroc Telecom and the Mauritel investors: Caisse de Dépôt et de Gestion (28%), Radio Méditerranée Internationale (14%) and the French sub-group. shareholder, Compagnie Internationale de Radio Television Casanet (30%). In participating in this project, Maroc Telecom intends to establish closer links with the media industry, and namely A wholly-owned subsidiary of Maroc Telecom, Casanet is one to accompany the development of the content of its ADSL of the leading Internet service providers in Morocco. It is “triple play” offer. focused on offers to business clients and the management of In December 2006, Medi-1-Sat started broadcasting its portals, including the Menara portal. programs from the Hotbird satellite and on TV via ADSL. In 2006, provisional revenues for Casanet amounted to MAD35 million, up 23% whilst provisional earnings reached Onatel* more than MAD6 million, up 21%. On December 28, 2006, Maroc Telecom acquired a 51% GSM Al-Maghrib stake in Onatel, Office National des Télécommunications, burkina Faso’s incumbent operator, by means of an On March 28, 2006 Maroc Telecom sold its minority stake in international invitation to tender. GSM Al-Maghrib. This disposal did not have a material impact on Maroc Telecom’s operations or financial position. The provisions of the invitation to tender state that 20% of shares will be listed on the Regional Securities Exchange in
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Abidjan and that 6% of Onatel’s share capital will be acquired In 2006, according to provisional accounts, Telmob’s revenues by its staff. The Government of burkina Faso will own 23% of totaled FCFA32 billion (€20m). the share capital at the end of 2007. (*) Source Onatel – data currently being audited. Onatel, which lost its monopoly at the end of 2005, offers fixed-line services (telephone and Internet). Onatel had Mobisud 100,000 lines at the end of 2006 representing a teledensity of around 0.75 %. On December 1, 2006 Maroc Telecom launched Mobisud, a In 2006, Onatel’s provisional revenues totaled FCFA46 billion new virtual operator (MVNO) on the French mobile market. (€72m). Mobisud is specifically targeted towards individuals who live The company is due to increase access to a larger proportion in France and have ties with Maghreb countries (Morocco, of the population in compliance with the company’s contract Algeria, Tunisia), to make their calls to friends and family specifications. easier, whether they are in France or in the Maghreb. Mobile penetration was estimated at 8% at the end of 2006, Mobisud creates its own offers and services, develops its own which offers very strong growth prospects. IT system, manages its own brands, its communication, its sales activities and its customers. It uses the radio network of The market is shared between 3 operators: Telmob, a wholly- the French mobile operator SFR. owned subsidiary of Onatel, Celtel, a Pan-African operator which is a subsidiary of the Kuwaiti MTC, and Telecel, It offers prepaid formulas and no-commitment subscriptions. subsidiary of Atlantique Telecom, which is 50% owned by Mobisud has 3 shareholders; Maroc Telecom (66% stake), SFR Etihad Etisalat (UAE). (16%) and the Moroccan group Saham (18%). At the end of 2005, Telmob had 243,000 customers, mainly At the end of 2006, after operations had been running for one prepaid; at the end of 2006, Telmob claimed to have almost month, Mobisud had a customer base of 12,000. 365,000 customers. In 2006, after operations had been running for one month, According to company estimates, Telmob and Celtel have a Mobisud recorded sales of MAD0.4 million and an operating 40% market share each and Telecel has the remaining 20%. loss of MAD-35 million.
4.4.4 Distribution
General organization and strategy of Maroc Telecom’s distribution network
Organization
Maroc Telecom has an extensive direct and indirect • an independent shop network comprised of national and distribution network, comprised of more than 41,000 retail regional distributors. In 2006, Maroc Telecom signed outlets, including 17,500 licensed by Maroc Telecom subject agreements with three new distributors; to distribution agreements with local retailers or nationwide • distributors structured on a nationwide basis, and for which distributors. telecommunications are not the major business, such as large-scale retailers, press distributors, the Régie des In 2006, the various distribution channels were as follows: Tabacs (the tobacconist agency) or the post offices of barid • a direct network comprising 287 branches; Al Maghrib;
• the local indirect network, made up of small independent • two new regional distributors operating in the telecoms tradesmen bound by exclusive agreements and each sector for business covering the regions of Rabat – Tangiers and Marrakech; managed by the closest Maroc Telecom commercial branch. A large proportion of these retailers also manage a • a national distributor which will cover all customer segments telestore business approved by Maroc Telecom; and all ranges of Maroc Telecom’s products and services.
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This partner, operating in more than 20 countries and with a 28 retailer branches and 242 consumer branches (located in strong distribution experience will be operational from most urban areas in order to provide optimal convenience for February 2007. For the two coming years this partner will customers). Among the consumer branches are 25 branches cover 15 towns throughout the Kingdom (15 own stores, 25 dedicated to mobile, located mainly in shopping malls and franchises, 175 specialized resellers and 600 convenience high-potential areas. stores) and will cover virtually the entire country for prepaid offers. Indirect distribution network
Distribution strategy Indirect regional network The extent and organization of Maroc Telecom’s distribution The network of telestores, the main business of which is the network are major strategic strengths for the Company. The operation of a public telephony service approved by Maroc Company’s distribution strategy is organized mainly along the Telecom, also distributes prepaid fixed-line and mobile cards, following lines: and subscriptions for Fixed-line telecommunications. The network of retailers consists mainly of tobacconists, • maintaining the central role of the direct network, in convenience stores, bookstores and other promoters of particular for high value-added services; telecom and electronic products that have entered into • developing the indirect networks’ local reach in order to agreements for the marketing of Maroc Telecom products and increase proximity to customers; services. • strengthening the role of telestores in the distribution of The indirect network reached more than 17,500 retail outlets prepaid products and the marketing of Fixed-lines; licensed by Maroc Telecom in 2006. Agreements are made with each telestore, which permits a wide-reaching distribution • taking advantage of synergies between the direct and network and allows distribution on a local level. Compensation indirect distribution channels; to telestore owners consists of commissions on the products • diversifying the types of distribution (electronic recharges, and services sold. GAb, express recharges, SMOLREV…etc.). Nationwide indirect network Direct distribution network The diversification of distribution channels has been completed by association agreements on a nationwide basis Maroc Telecom’s direct commercial network comprises with channels such as Sapress (the nationwide leader in the 287 branches organized and structured to meet the local distribution of press and books), barid Al-Maghrib (Morocco’s needs of the various customer segments. post office, which provides subscription, sale and invoice collection services), the Régie des Tabacs and the “Marjane” Consistent coverage and “Aswak Assalam”, both large-scale retailers. Maroc With knowledge of regional and local specific features, Maroc Telecom accordingly has a licensed nationwide indirect Telecom’s own commercial network provides coverage suited distribution network accounting for more than 23,500 to the entire domestic territory. In addition, almost all the additional retail outlets. branches market the entire range of products and services (Fixed-line, Mobile and Internet). Independent network In 2006, Maroc Telecom signed agreements with three new Suitability to the needs of the various types of customers distributors, in addition to GSM Al-Maghrib. The branches are divided into four classes according to the In March 2006, Maroc Telecom sold its 35% stake in the type of customers. The network has four major accounts distributor GSM Al-Maghrib, but is still linked to the company branches (with nationwide coverage); 13 business branches; by distribution agreements.
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Distribution agreements As of December 31, 2006, Maroc Telecom had signed distribution agreements with the following companies:
Company Nature of the business Date of the association Maroc Telecom products distributed agreement GSM Al-Maghrib Distribution of telecom products 11/2003 Prepaid mobile and fixed-line cards Mobile, fixed-line and internet subscriptions Electronic phone card recharging
Barid Al-Maghrib Morocco’s post office 06/2003 Prepaid mobile and fixed-line cards Fixed-line subscription
Cofarma Marjane hypermarkets 10/2002 Prepaid mobile and fixed-line cards and Acima supermarkets Fixed-line subscription
Mahatta Gas stations 07/2002 Prepaid fixed-line and mobile cards (Total Maroc group)
Régie des Tabacs Manufacturer and distributor of 11/2003 Prepaid fixed-line and mobile cards tobacco products in Morocco
Promo Presse Press distributor 03/2003 Prepaid fixed-line and mobile cards (Sapress group)
ICA Data Systems Distributor of computer 11/2002 Fixed-line and mobile electronic recharging and telecoms products
Canal Market Monetics; distributor of electronic 11/2002 Fixed-line and mobile electronic recharging recharging
Aswak Assalam Supermarkets 05/2003 Mobile packages, SIM card only deals and prepaid rechargeable phone cards
Sicotel Distribution of telecom products 11/2006 Prepaid mobile and fixed-line cards Mobile, Fixed-line and Internet subscriptions
Lineatec Distribution of telecom products 11/2006 Prepaid mobile and fixed-line cards Mobile, Fixed-line and Internet subscriptions
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4.4.5 Marketing, communication and sponsorship
As the largest advertiser in Morocco, Maroc Telecom has a 2006 saw the general acceptance of Internet at Maroc significant communication and marketing budget covering its Telecom, illustrated by the “Internet in the home” theme. As mobile, fixed-line, business and Internet services, and both the price is a key factor in convincing customers to subscribe internal and corporate communication. to Internet, communication was based around promotional offers and price-cutting campaigns. At the same time, several The reorganization of Maroc Telecom in 2006 also involved campaigns aimed at business customers focused on the the Group’s Communications department as new entities introduction of new bandwidths (2 and 4 Mb, 8 and 20 Mb) to were created responsible for communications regarding meet their requirements with an extended product range. products and services within the Consumer and business Finally, the “new Menara Sponsor offer” supported by a Marketing Departments, and a Corporate communication campaign demonstrated the company’s aim to build entity which reports to the Director of Regulations, customer loyalty. Communication and International Development. Maroc Telecom also uses direct marketing campaigns with The Products Communication entities are responsible for its clients via clubs (the “El Manzil” club), newsletters and communications for consumer products and services and magazines (Generation El Manzil and Mobimag, e-jawal, business customers. Mobinews) and Internet portals (www.elmanzil.ma, Corporate communication is responsible for communications www.iamentreprises.ma, www.mobileiam.ma and linked to Maroc Telecom’s corporate image, sponsorship ww.menara.ma). events, while guaranteeing the consistency of group’s Advertising aimed at businesses in 2006 used press and communication strategy, the group logo and visual brand billboard campaigns for the year’s main offers but direct identity. marketing was also a key communication tool (the Company’s Maroc Telecom also has a Financial Communication entity monthly newsletter) and other sales support material which is responsible for ensuring compliance with the group’s (brochures; animations, roadshows and customer seminars). financial communication policy as defined by Management, regulatory obligations in terms of financial disclosure in Morocco and France and to organize investor and financial Internal and corporate communication analyst events. Maroc Telecom benefits from excellent spontaneous brand awareness among the public. Positioning the Group’s product brands with respect to the “Maroc Telecom” parent brand was Products communication amongst the major tasks for 2005 in order to develop a Product communication involves advertising the launch of coherent brand structure with a real unity between the parent new offers by means of above- and below-the-line media brand and the product brands. advertising campaigns. Maroc Telecom launched its new visual identity on January Maroc Telecom uses “co-branding” operations with handset 16, 2006 with emphasis placed on simplicity and legibility and suppliers to promote both the latter's brands and the Maroc positioning the Maroc Telecom brand in its true place as an Telecom brand. umbrella brand grouping together all the activities while maintaining the specific universe for each product. During 2006, the main theme of Mobile communication was a series of new campaigns for prepaid offers using well The Maroc Telecom colors were kept but refined to give a known Moroccan actors, which strengthened cultural ties brighter image with greater impact. The rest of the logotype with our customers. A vast program of promotional offers for was simplified for better legibility: the parabola became an both prepaid (Unlimited Evenings, Week-ends, Daytime, …) arc, a symbol of movement, and momentum but also of and postpaid offers (cascade promotions, Fidelio, business proximity, the zelliges tiles were reduced, embracing the curve Class …), also supported the Mobile communication of the globe and representing international development. The campaigns. two languages, Arabic and French, were used in two separate versions. Fixed-line communication in 2006 was marked by the launch of TV via ADSL, a real event which makes Maroc Telecom a This new simpler brand architecture accompanies the new pioneer in Africa and throughout the Arabic world. The launch logo giving the parent brand its full strength by harmonizing all of the new unlimited Fixed-line formulas Phony (Evening and visual supports and using the new visual identity on buildings, Weekend or Anytime) was also a major event. at points of sale and on vehicles.
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Sponsorship Maroc Telecom is active in 4 domains: sport, environment, Maroc Telecom organizes concerts in partnership with culture and community action. equipment manufacturers (Elissa, Tina Arena, Natasha St Pier …) which are an opportunity to meet its Gold customers Sport: Maroc Telecom’s aim is to discover and train young and to communicate about the event with the targeted Moroccan talent both locally and nationally. Official partner of populations (Young people, VIPs …). the Fédération Royale Marocaine de Football and the Groupement National de Football and official partner of national athletics via the Fédération Royale Marocaine Internal communication d’Athlétisme, Maroc Telecom is also active in other sports (golf, horse riding, tennis, jet skiing…). In 2006 the 4th Hassan In 2006 internal communication was reorganized and II Golf Trophy was organized. transferred to Human Resources Department. Environment: Maroc Telecom is also strongly involved in The internal communication department organized Maroc protecting the environment with projects like “Clean beaches” Telecom’s 7th management convention and regularly issues carried out under the auspices of the Mohamed V Foundation internal communication tools (Hot news, Itissal and Wissal). for Environmental Protection. The Company helped clean 12 beaches in and around Tangiers, and was awarded the trophy It also accompanies projects launched by other departments for innovation for the original wooden equipment set up on the such as EAP, MassaRH, quality policy, information security. beach in Achakar. Thanks to Maroc Telecom, this beach was awarded the internationally renowned “blue Flag”. Financial communication Culture: Maroc Telecom is very involved in cultural events supporting festivals (Festival de la Culture Amazigh in In 2006, Maroc Telecom complied with all its financial Tangiers, Festival of Sacred Music in Fes, Raï Festival, disclosure obligations in Morocco and France, had several International Film Festival in Tangiers…). It also supports meetings with analysts and investors and organized national artists, particularly young artists, by organizing roadshows in Europe and in the US to present its annual and concerts during the summer and promoting their music. interim results. As regards community and humanitarian actions, Maroc Furthermore, Maroc Telecom’s financial communication was Telecom is active via the Maroc Telecom Association for rewarded along with five other companies listed on the Entrepreneurship which awards grants to young entrepreneurs Casablanca Stock Exchange in 2006 by the SMAF trophy and to students from modest backgrounds. Maroc Telecom (Moroccan Society of Financial Analysts) for Financial also supports foundations and charities such as the Mohamed Communication which is a tribute to the quality of Maroc V Foundation for Solidarity. Telecom’s financial communication.
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4.5 COMPETITION
As of December 31, 2006, 18 licenses for telecommunications • A fixed-line license including local loop (without restricted operators had been awarded in Morocco: three licenses for mobility) and national and international transmission was the operator of a public fixed-line telecommunications awarded to Meditel in July 2005. network (Maroc Telecom, Meditel and Maroc Connect), two • A fixed-line license including local loop (with restricted 2G mobile licenses (Maroc Telecom and Meditel), three 3G mobility) and national and international transmission was mobile licenses (Maroc Telecom, Meditel and Maroc awarded to Maroc Connect in September 2005. Connect), five licenses for operators of GMPCS-type satellite telecommunications networks, three licenses for operators of In July 2006, three mobile licenses for 3G (UMTS) networks VSAT-type satellite telecommunications networks, and two were awarded to Maroc Telecom, Maroc Connect and licenses for operators of shared radio-electronic networks Meditel. The ANRT stated that this process represented the (3RP). final stage in the liberalization of the telecommunications sector in Morocco as set out in by the Prime Minister in a note In 2005, the liberalization process for the fixed-line market setting out general guidelines for the period 2004-2008. continued and two fixed-line telecommunications licenses were awarded:
4.5.1 Mobile telecommunications In the mobile sector, Maroc Telecom has a direct competitor operation, due mainly to the arrival for vacations of large in Medi Telecom (“Meditel”), the holder of a mobile license numbers of Moroccans living abroad. since August 1999. The majority of Meditel’s stock is held by In the prepaid services market, mobile operators organize the Telefonica and Portugal Telecom groups (32.18% each). frequent promotions, which has led to a fall in the prices. In The minority interests are held by the bMCE bank group and parallel, they have granted a high level of subsidies for the Holdco group (which is more than 75%-owned by the handsets, contributing to sustained growth of the market. Caisse des Dépôts et de Gestion), with interests of 18.06% and 17.59% of the stock, respectively (Source: Medi Telecom In postpaid services market, the operators distinguish and CDG). themselves on prices and the specific features of their offers. Maroc Telecom has a broad range of rate plans tailored to the The Moroccan market for mobile telecommunications had customer’s needs, whether individual or business customers. more than 16 million GSM customers as of December 31, 2006. This market is mainly prepaid, with more than 95.68% Maroc Telecom’s brand enjoys a very high recognition, for prepaid customers. In terms of market share, Maroc Telecom postpaid as well as for prepaid services (Jawal). Maroc had at that date 66.9% of the overall market as compared to Telecom is also known for its expertise thanks to the 33.1% for Meditel (or 5.3 million customers) (Source: ANRT). performance and quality of its network (Source: survey conducted by Sofres).
As of Dec. 31, 2006 Status Market share Maroc Telecom has the following competitive strengths: (as % of number • Maroc Telecom covers almost the entire Moroccan of customers) population (Maroc Telecom estimate); Mobile prepaid Open competition Maroc Telecom : 67.2% • Maroc Telecom relies on a dense and localized distribution Meditel : 32.8% network of more than 41,000 licensed retail outlets; Mobile postpaid Open competition Maroc Telecom : 59.4% • As early as January 2000, Maroc Telecom launched loyalty Meditel : 40.6% building offers. Starting in April 2002, Maroc Telecom Total Mobile Maroc Telecom : 66.9% innovated on the market with a points-based loyalty Meditel : 33.1% system, “Fidelio”;
(Source : ANRT) • The two operators are distinguished by their methods of compensating resellers: Maroc Telecom compensates This market is characterized by very strong seasonality during resellers for sales, Meditel also compensates for calls (air the summer period, which sees a significant increase in time).
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Accordingly, in order to enable its customers to enjoy the Meditel is developing a competitive policy on the business most recent innovations, Maroc Telecom acts as a pioneer by market through an offer of GSM gateways known as “Lo- regularly introducing the latest technologies, such as WAP in box”. That offer indirectly creates competition for Maroc 2000 or GPRS in 2002. Telecom’s customers not only for mobiles but also for Fixed- line services. The ANRT has permitted marketing of the Lo- The table below lists the years mobile technologies were boxes while nonetheless prohibiting operators from launched on the market by the two operators: subsidizing them or from establishing specific offers connected with their use (ruling ANRT/DG/N.01/04 dated Maroc Telecom Meditel January 22, 2004 relating to the use of GSM gateways). Maroc WAP 2000 2004 Telecom believes that this phenomenon affected 10% of the SMS Info 2001 2003 fixed-line-to-mobile traffic of its business customer base in 2005. Meditel is acting aggressively with respect to subsidies GPRS 2002 2004 for new customers and spends heavily on marketing and MMS 2003 2004 communication. Roaming MMS & GPRS 2004 2006 In addition, in 2006 Meditel launched “Tilifoundialdar”, a Push mail 2006 2006 residential telephony offer operating on their GSM network. Push to talk 2006 - According to information published in the press, the customer base for this offer totaled 100,000 at the end of 2006.
4.5.2 Fixed-line telecommunications
Two new fixed-line telecommunications licenses were Installation of this hardware at the PAbX outlet allows awarded in July and September 2005. As of December 31, conversion of the fixed-line-to-mobile traffic into mobile-to- 2006, the recipients of these licenses had still not started mobile traffic without going through Maroc Telecom’s fixed-line operating fully. Operations are likely to start in 2007. network (also see the discussion of the ruling ANRT/DG/N.01/04 Maroc Telecom currently faces competition in the public above). telephony and business segments of the fixed-line In 2006, Méditel launched several offers and services for telecommunications market. businesses: • NéoFixe offering attractive prices for calls to domestic Public telephone market Fixed-line numbers and a flat price for calls to Meditel and The public telephone market is estimated by Maroc Telecom Maroc Telecom mobile numbers; at over MAD3.9 billion annually (base 2004). Until 2003, Maroc • a range of pricing options offering reduced price per minute Telecom had a monopoly. Competition started in 2004 with depending on the destination and the company’s usage two new entrants: Meditel, which, since spring of 2004, has profile (Shared rate plans, intra company Option deployed telestores using a GSM technology, and Globalstar, Advantages and Intra company+,…); deploying telestores using a satellite technology. • international minutes for off-shore call centers (various rate The Thuraya satellite operator also announced in September 2004 its forthcoming entry to the market pursuant to the plans depending on the call centers’ monthly consumption execution of an association agreement with the Moroccan of minutes). company Quickphone. Thuraya will, like Globalstar, offer At the end of 2006, Maroc Telecom considered that these public telephony based on satellite technology. Maroc offers only had a limited impact on its position on the market. Telecom currently has no information on the launch of a public telephone offer by these two operators. Interconnection of incoming international traffic In December 2006, Maroc Telecom’s share of the public telephony market was estimated at around 90% as a Since April 2006, when the decrees on the Fixed-line licenses percentage of the number of lines. granted to Medi Telecom and Wana were published, the three operators who were granted a Fixed-line license are entitled business fixed-line telephone market to offer international operators termination of their traffic to Morocco, regardless of the end destination of the calls. Meditel, by installing “Lo-box” GSM gateways, has entered the market for business fixed-line telecommunications.
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4.5.3 Data transmission
As of December 31, 2006, competition for data transmission • Meditel’s data transmission services, in particular the services remained fairly limited, despite the fact that the two international connectivity service, including a specially new fixed-line operators had launched products and services designed service aimed at call center customers, and a for businesses. It consisted of the following four forms: VPN IP service of up to 2Mega;
• competition from ISPs with VPN IP services, such as those • the independent networks deployed by certain major offered by Maroc Connect, which became Wana in 2006. customers, which have opted to build their own data The service offered is VPN IP based on the ISP IP network networks and use radio solutions in particular. This for interconnection of sites on a domestic and international competition is not significant. basis. At the end of 2006 Wana unveiled its data transmission services for businesses; The table below summarizes the market situation as of December 31, 2006: • operators of VSAT satellite telecommunications networks, such as Space Com S.A., Gulfsat Maghreb and Cimecom Status of the market Market shares S.A. On the domestic market, the service is suited to remote of Maroc Telecom locations where Maroc Telecom is not present. Maroc Domestic data Competition from : Telecom may, however, meet its customers’ requirements transmission services - VSAT operators Not available by means of customized offers such as wireless service. - Private networks (radio solutions) The VSAT operators provide the call centers with - Meditel international leased lines; - Wana
• the international operator Equant, which provides International data Competition from : > 90% international connectivity services to major customers. transmission services - Equant (value*) Maroc Telecom considers that Equant offers services to - VSAT operators approximately 20 airlines formerly customers of the SITA - Meditel network, and to approximately 25 businesses. This - Wana competition remains limited since the entire traffic of * in terms of revenues as of December 31, 2006 – Maroc Telecom' estimation. Equant’s customers is carried through a leased line with a total capacity of 2 Mbps;
4.5.4 Internet
The main competitor on the market for Internet access The following table sets out the market situation (Source: services is Wana, present on the consumer and business ANRT) as of December 31, 2006 excluding non-subscription markets, with an overall market share of less than 3% as of based offers: December 31, 2006 (Source: ANRT). Status of the market Market shares Maroc Telecom has a very strong position on the ADSL (in % of access market, a market segment which is growing rapidly, with a number) market share of more than 98% (Source: ANRT). Narrowband access Full competition Maroc Telecom : 72% (excluding "Accès libre") Other ISP : 28% Broadband access Full competition Maroc Telecom : 98% (ADSL and leased lines) Other ISP : 2%
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES RESEARCH AND DEVELOPMENT
4.6 RESEARCH AND DEVELOPMENT
Maroc Telecom has a research and development department even though such work may not be considered as patentable which works on the Company’s products. This research inventions or processes. usually leads to the launch of new products and/or services or Maroc Telecom research and development costs are not transformations and/or improvements of existing products, significant.
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4.7 SEASONALITY
The summer months, with the return of Moroccans living the month of Ramadan (from September 24 to October 24 abroad, and the fortnight preceding the ‘Id al-Adha holiday in 2006) is a low point of consumption for both the fixed- (January 12 in 2006) traditionally see sustained business line and mobile businesses. (primarily mobile and fixed-line public telephony), while
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES
4.8 REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES
4.8.1 General presentation of the legal environment with respect to telecommunications in Morocco
This chapter summarizes the legal environment with respect upon Maroc Telecom. It is also impossible to determine with to the telecommunications business in Morocco and does not certainty whether domestic or international regulatory describe it in a comprehensive manner. It cannot be agencies or third parties will challenge Maroc Telecom’s determined with certainty whether recent and future changes compliance with the legislation and regulations in force. in legislation and regulations will have material adverse effects
4.8.2 The legal environment with respect to telecommunications in Morocco
General presentation The Moroccan Telecommunications Act stresses the strategic In 2001, Decree 1-01-123 determined the conditions of the nature, in both economic and social terms, of this sector. The State’s supervision of the ANRT’s accounts and created a objectives of this Act are to favor the development of panel of expert advisers for such a purpose. telecommunications infrastructure in order to secure a high- In 2004, Act 24-96 amended and supplemented by Act 55-01 quality service for the entire population throughout the completed the liberalization process initiated in 1997, in country, and to favor the development of new information particular through the clarification of the existing statutory technology. For the economy of Morocco, the objective is to framework. The operators’ contribution to universal service offer businesses telecommunications services which will allow and to local development was reduced from 6% to 2% of them to increase their competitiveness and will strengthen the revenues, excluding tax and net of interconnection costs. Act role of Morocco as a regional platform in the area of 55-01 also allowed for access to alternative infrastructure telecommunications. (motorways, railroads, etc.) and permitted the sharing of The reform of the Moroccan telecommunications sector was existing telecommunications infrastructure (see “Universal initiated by Act 24-96, dated August 7, 1997 (Act 24-96), Service” and “Rights of way”). Finally, the ANRT’s powers which dissolved the Office National des Postes et were reinforced (see “Mission of ANRT”). Télécommunications (ONPT) and laid down the conditions for In 2004, the ANRT published general guidelines on the liberalization of the telecommunications sector. liberalization of the telecommunications sector over the period Prior to Act 24-96, the Government of the Kingdom of 2004-2008. Morocco had already liberalized the market for Internet These guidelines are intended to specify the conditions under access, allowing the development of ISPs. which liberalization will occur over the coming years and, in The dissolution of the ONPT led to the creation of three particular (i) the specific actions which will have to be separate legal entities: Itissalat Al-Maghrib (Maroc Telecom), undertaken in matters of regulation and (ii) the liberalization a corporation organized under private law (société strategy which, in the long term, aims to establish competition anonyme); barid Al Maghrib (the post office, or bAM), a between three operators (including those operators already in public agency organized as a financially independent legal place) in all segments of the fixed-line and mobile markets. entity; and the Moroccan telecommunications regulator In 2005, the decrees concerning interconnection and the (“ANRT”), the principal mission of which is regulation of the general terms of operation of the public telephony networks telecommunications sector. Most of the powers previously were amended and supplemented, respectively by Decree no. reserved for the minister in charge of telecommunications 2-05-770 and Decree no. 2-05-771 dated July 13, 2005. A were accordingly transferred to the ANRT. new Decree no. 2-05-772 dated July 13, 2005, relating to The liberalization process continued with the adoption of a ANRT’s new powers of monitoring compliance with the law on series of implementing decrees concerning mainly the the freedom of pricing and competition, was adopted. These operation of the ANRT, the terms applicable to an open three decrees were published in the Official Moroccan telecommunications network, the list of value-added services Gazette (bulletin Officiel) no.5336 dated July 21, 2005. which operators may provide, interconnection, and the On December 23, 2005 the ANRT’s board of Directors made general terms of operation of the public telephony networks. the following decisions:
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• to launch an invitation to tender to grant 3G mobile licenses The applicant whose bid is deemed to be the most favorable, on May 2, 2006; as indicated by an opinion issued by the ANRT, is awarded the contract. The award is entered in a public report. Notice of the • to implement regulatory controls according to the following timetable; issuance of a license is by decree of the Prime Minister provided within no more than two months, and grounds are to • Carrier pre-selection on July 8, 2006; be stated for any refusal of a license. Licenses awarded are • Partial local loop unbundling on January 8, 2007; personal and may be assigned to a third party only pursuant to a decree. • Full local loop unbundling: July 8, 2008. In addition to complying with the contract specifications, the In 2006, the ANRT set the agenda for the portability of holder of the license is also required to comply with all numbers as follows: applicable statutory and regulatory rules in force, including in • Portability of mobile numbers by January 1, 2007 at the particular: (i) the general conditions of operation, (ii) the latest; conditions of provision of an open telecommunications • Portability of fixed-line numbers by March 31, 2007 at the network and (iii) the conditions of interconnection among latest. networks. Lastly, the legal framework has also been supplemented by a The general conditions of operation of public telephony number of decisions made by ANRT, on both a general and an networks are defined by Decree 2-97-1026, as amended and individual basis, both for the purposes of regulating the sector supplemented by Decree no. 2-05-771 dated July 13, 2005. and for settling disputes between operators. That Decree establishes certain obligations, relating in particular to competition (the principle of fair competition), pricing (the principle of equal treatment among users, non- Rules applicable to the establishment and operation of discrimination, compliance with maximum charges and the telecommunications networks and services in Morocco method of invoicing), cost accounting, confidentiality and Act 24-96, as supplemented by Act 55-01, implements different neutrality of service. rules according to the nature of the telecommunications In addition, the operators are bound to contribute to certain networks and services provided. 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 Networks and services subject to a license the requirements and burdens of universal service (see “— Universal service”). General description The conditions of interconnection and the supply of The establishment and operation of public telephony networks using the public domain or using the radio frequency leased lines are defined by Decrees 2-97-1025 as spectrum requires a license. amended and supplemented by Decree no. 2-05-770 dated July 13, 2005 and 2-97-1027, dated February 25, A license may be issued only in response to an invitation to 1998 (see “ Interconnection-General background”). tender. Invitations to tender are issued by the ANRT. Contract specifications define, among other items: As regards radioelectric frequencies, Decree 2-98-157, dated February 25, 1998, delegating authority with respect • the conditions for the establishment of the network; to the determination of fees for the allocation of radioelectric • the conditions for the provision of the service; frequencies, provides that the fees are to be set by an order • the area of coverage of that service and the schedule for of the minister in charge of telecommunications after completion; obtaining an opinion from the minister of finance. Order 310- 98, dated February 25, 1998, as amended by Order 606-03, • the radioelectric frequencies and numbering blocks dated February 4, 2004, provides that three fees are payable: allocated; the charge for monitoring radio-communication stations, the • the terms of payment of the license fee; fee for the allocation of radioelectric frequencies and the • the duration of the license’s validity and the conditions of its duty for the inspection of operators of radio-communication renewal; and stations. • the terms of payment of the consideration. Decree no. 2-05-772 dated July 13, 2005 sets out the ANRT’s The conditions for access and interconnection with public monitoring procedure regarding disputes, anti-competitive telephony networks and, if applicable, the conditions for practices and economic concentration, taking into account in leasing elements of that network, are specified in the particular ANRT’s new powers of monitoring compliance with documents accompanying the invitation to tender. the law on the freedom of pricing and competition.
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Legal status of Maroc Telecom Maroc Telecom is allowed to offset these amounts with its own universal service costs (for the fixed-line business), thus Pursuant to Act 24-96, the telecommunications networks and generalizing the “pay or play” principle (see 4.14 Risk factors). services previously operated by the ONPT, namely fixed-line telecommunications network and services, mobile It should be noted that Maroc Telecom provides telephone telecommunications network and services and the right to use services throughout the entire territory of Morocco, including the radioelectric frequencies allocated or assigned to the in unprofitable areas and to unprofitable customers. ONPT, were transferred to Maroc Telecom. A special fund was created by the 2005 budget into which the because of its position as the incumbent operator, Maroc universal service contributions are paid (see section 5.2.4 Telecom is subject to specific contract specifications Significant accounting policies and estimates — Contribution approved by Decree 2-00-1333, dated October 9, 2000, which to universal service). define the conditions for the operation of all the networks and Pursuant to the terms of Act 55-01, the parameters of the services initially operated by the ONPT. universal service requirement will encompass the local These contract specifications specify the conditions in development obligations and the amount of the overall accordance with which Maroc Telecom is to establish and contribution is set at a maximum of 2% of pre-tax revenues, operate, for an unlimited duration: and net of interconnection costs. Maroc Telecom’s contract specifications have been revised accordingly (see “— a) fixed landline telecommunications services (including data Universal service”). transmission services, leased lines and the integrated services digital network), on a local and nationwide basis; Maroc Telecom pays a fee to the ANRT for use of the spectrum of radioelectric frequencies, in an amount set by regulation. b) telegraph services; c) telex services; d) maritime radiocommunications services; Other licenses awarded e) mobile telecommunications services using the GSM Maroc Telecom’s contract specifications provided for a period standard; of exclusivity until December 31, 2002 for the operation of a fixed-line network and a public network of international f) mobile telecommunications services using the NMT telecommunications. Likewise, they provided that no license for standard; operation of the land-based cellular telecommunications g) radio paging services; and network using the GSM network could be awarded before August 5, 2003 (other than the license already granted to h) international telecommunications services. Méditel). Since the promulgation of Act 55-01, Maroc Telecom’s contract As regards mobile telecommunications, pursuant to an specifications have now been adapted accordingly. Thus, for invitation to tender issued by the ANRT, a GSM-type license instance, the provisions relating to periods of exclusivity have was awarded on August 2, 1999 to Méditel for a term of 15 been removed, while those relating to universal service and years, subject to extension. Early 2005, the term of this license local development have been modified, and those regarding has been extended to 25 years. the sharing of infrastructures have been added. In 1999 and late 2002, ten licenses for the establishment and It should be noted that mobile telecommunications services operation of telecommunications networks were awarded in using the NMT standard were discontinued after the grant of Morocco. Apart from the license awarded to Méditel, five permission by the ANRT, and that Maroc Telecom has applied licenses were issued to operators to operate GMPCS satellite to the latter for permission to discontinue the provision of telex telecommunications networks, three licenses were issued to services, for which terminals are no longer manufactured. operators to operate VSAT satellite telecommunications Maroc Telecom’s services are to be provided on a permanent networks, and two licenses were issued to operators to and continuous basis, in an objective, transparent and operate trunked radioelectric networks (3RP) in Morocco. nondiscriminatory manner. The Company is accordingly required to avoid any price discrimination based on In 2005, two fixed-line telecommunications licenses were geographical location. Maroc Telecom agrees to use its best awarded: efforts to achieve levels of quality of service in line with • A fixed-line license including local loop (without restricted international standards. In this respect, the ANRT may perform mobility) and domestic and international transmission was inspections of Maroc Telecom, and the Company is required to granted, to Meditel in July 2005; provide an annual report relating to the quality of its services. • A fixed-line license including local loop (with restricted Since the promulgation of Act no. 55-01, the contribution to mobility) and domestic and international transmission was the universal service represents 2% of total revenues, and granted to Maroc Connect (ISP) in September 2005.
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In 2006, three 3G mobile licenses were awarded to the three of the public telephony network operator, subject the ANRT’s existing operators (Maroc Telecom, Meditel and Maroc Connect). grant of special permission to a value-added service provider Since the VSAT operators’ contract specifications have been to use any other technical means. modified, they may now provide telephony services in accordance with the conditions to be set out by the ANRT. The Unrestricted networks and facilities regulator has not yet determined the terms governing such services. 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 services requiring licenses networks and radioelectric facilities are subject to the same requirements applicable to the approval of devices (regarding The establishment and operation of any independent network, the protection of the safety of users and operating staff, other than an internal network, requires a license. Independent compatibility, etc.). The ANRT also determines the technical networks are telecommunications networks without commercial purposes, reserved solely for private use (i.e., conditions of use of such networks and facilities. The where use is reserved for the party establishing it) or shared establishment of a telecommunications network by a use (i.e., where use is reserved for the exchange of internal commercial concern consisting of several legal entities is also communications among a single group of companies). The unrestricted, provided that all such entities are located within license is issued by the ANRT and is subject to the payment the territory of Morocco. If not, the permit procedure needs to of fees. Notice of the allocation of a license is provided within be observed. The use of the network is to be reserved for the no more than two months, and grounds are to be stated for concern’s own purposes, and the network’s infrastructure any denial of a license. One of the requirements for issuance must be entirely leased from one or more licensed operators of the license is that the network does not interfere with the of a public telephony network. operation of existing networks. In addition, the ANRT sets the terms on which independent networks may be connected to a public telephone network, without in any event allowing the Legislation with respect to pricing exchange of communications among parties other than those Theoretically, telecom operators are free to set their own rates, for whom use of the network is reserved. with the exception of interconnection charges and leased line tariffs which are controlled by ANRT. Maroc Telecom offers Services subject to reporting interconnection and leased lines and as such its rates for these activities are controlled by the ANRT. 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 Interconnection ANRT. Decree 2-97-1024, dated February 25, 1998, defines the following as value-added services: electronic messaging, General background voice mail, audiotext, electronic data interchange, enhanced Interconnection is governed by the telecommunications fax, on-line information, access to data (including data statute and more specifically by Decree 2-97-1025, as processing and searches), file transfer, conversion of amended and supplemented by decree no. 2-05-770 dated protocols and coding and the provision of Internet service. July 13, 2005, which defines the technical and pricing This list may be amended or supplemented by an order of the conditions that operators of public telephony networks are minister in charge of telecommunications at the ANRT’s required to offer for interconnection to their own networks. discretion. The ANRT acknowledges receipt of the notice if the proposed Any operator of a public telephony network is required to services comply with the legislation in force. If, pursuant to grant requests for interconnection made by a holder of a provision of the service, it appears that the latter has a license to operate a public telephony network with reasonable material adverse effect on public security or order, or is in regard to the requirements of the applicant and the operator’s breach of public morality, the competent authorities may capacities. The interconnection is to be subject to a contract cancel their permission immediately. between the operators, intended to determine the technical, administrative and financial terms of the interconnection, in Providers of value-added services are required to obtain a compliance with the principles of objectivity, full disclosure license to use the connection capacities of one or more public and non-discrimination. If a disagreement occurs between the telephony networks, unless the value-added service provider parties at the time of negotiation of the agreement, either party is itself the holder of a license. Act 55-01 provides that such may refer the matter to the ANRT. capacity is to be used solely to link customers to a point of presence and between the point of presence and the network
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Dominant operators Specific interconnection obligations are imposed upon operator revise its pricing terms to satisfy the principles of operators designated by ANRT as exercising a significant objectivity, full disclosure, non-discrimination and cost- influence on a given market. An operator is considered to based pricing. The operator is bound to comply with the exercise a significant influence, if, either individually or in ANRT’s request. In the event of disagreement, the ANRT’s conjunction with another, it enjoys a dominant position director settles the matter, provided that in all cases, the enabling it to behave independently with respect to its terms are to be approved by the ANRT on or before competitors, clients and consumers. December 20 of each year. Under Decree no. 2-97-1025, as amended and supplemented Since January 1, 2007, the interconnection charges to the by decree no. 2-05-770 dated July 13, 2005, operators Mobile network are calculated based on historical costs, in exercising a significant influence on a given market are accordance with the ANRT decision of May 9, 2006 which required to publish technical and pricing terms for determined the list of mobile network operators’ charges for interconnection, once they have been approved by the ANRT. 2007. The pricing terms must cover only the actual costs of use of Maroc Telecom was designated (decision no.03/06 dated April the network and related costs. 17, 2006) as an operator exercising a significant influence on For such purpose, the presentation of pricing terms must be the following markets for 2007: sufficiently detailed to allow a precise determination of the relevant costs, and the ANRT is in charge of determining the • Fixed-line termination; appropriate accounting methods. • Mobile termination;
Maroc Telecom is accordingly required to offer pricing terms • Leased lines. that comply with the principles of objectivity, full disclosure Médi Telecom was designated in the same decision as an and non-discrimination, and which approximate its costs. operator exercising a significant influence on the mobile As of 2006, interconnection charges are to be calculated termination market for 2007. using the Long Run Average Incremental Costs method in compliance with an ANRT decision dated September 1, On January 29, 2007, the ANRT approved Maroc Telecom’s 2005 which defined the rules for adopting the Long Run technical and pricing terms for interconnection to Fixed-line Average Incremental Costs method to set interconnection networks for 2007. These offers take account of the fact that charges for 2006. In addition, Ruling 06/04, dated May 24, Maroc Telecom was designated as exercising a significant 2004, specified the procedure for approval of the technical influence on the above mentioned markets. and pricing terms for interconnection. The operator is required to forward to the ANRT, on or before October 1 of The table below sets out the operators’ domestic each year, a schedule of interconnection pricing terms valid interconnection charges to Fixed-line networks as applicable from January 1 to December 31 of the following year. After on January 1, 2007 (at peak time, whilst a 50% reduction is a consultation procedure, the ANRT may request that the applied off-peak):
In MAD (excluding tax)/minute Maroc Telecom Meditel Maroc Connect Fixed-line termination Local CAA : 0.1268 Single tariff : 0.4256 Single tariff : 0.4256 Single Transit : 0.3617 Double Transit : 0.4742 Limited mobility termination --0.9981 (Source : ANRT)
between Meditel and IAM the international interconnection charges have been fixed at:
• MAD1 excluding tax/min at anytime for termination charges to Fixed-lines (January 2006)
• MAD1.6289 excluding tax/min at anytime for termination charges to Mobiles (December 2004). For Maroc Connect, international interconnection charges are the same as domestic interconnection charges.
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Leased lines Universal Service Decree 2-97-1027, dated February 25, 1998, relating to the Universal service obligations cover telecommunications conditions for the provision of an open telecommunications services including: a telephone service of a specified quality at network sets the pricing and technical conditions for the an affordable price; value-added services, the contents and provision of leased lines as well as quality (i.e., the time for performance standards of which are set in the contract provision of service and time for repair after a failure has been specifications of operators of public telephony networks reported). The ANRT regulates leased lines, which operators (including services allowing access to the Internet); the routing of public telecommunications networks are required to of emergency calls, and the provision of an enquiries service provide. This list may be supplemented, after consultation and a telephone directory, in printed or electronic form. with the operator concerned, by a mandate that further Act no. 55-01 instituted the “pay or play” principle and set the services be provided. Each operator offering leased lines is contribution required of public telephony network operators required to publish the technical terms of provision in its price with respect to their universal service obligations at 2% of catalog, including in particular the “principles and terms of pretax revenues and net of interconnection charges, handset indemnification.” The price catalog is to be determined on the sales and income from value added services. The operators basis of an operator’s costs. The determination of relevant may accordingly either perform the universal service duties costs is carried out by the operator and monitored by the themselves, or pay a contribution into a special allocation ANRT. Maroc Telecom is under an obligation to comply with fund. Only the routing of emergency calls and the provision of requests for leased lines and is bound to offer an equivalent an enquiries service and a telephone directory, in printed or alternative solution if it is unable to comply with the request. electronic form, are services to be performed by the operators Maroc Telecom has a right to lease transmission capacity of on a mandatory basis. The terms of performance of the its fixed-line network to other operators offering capacity- universal service duties are set, for each operator, in special leasing services. specifications approved by decree. Particular licenses may be issued, after invitations to tender, Pricing for the performance of universal service duties. Special contract specifications will be approved by decree and will Decree 2-97-1026, as amended and supplemented by decree set the terms of implementation of the universal service no. 2-05-771 dated July 13, 2005, provides that the prices for function and of certain value-added services. If an invitation connection, subscription and calls comply with the principle of to tender for the award of such a license is unsuccessful, the equal treatment among users and be determined so as to State will appoint an operator of a public telephony network, avoid discrimination based on geographic location. In the holding a market share of 20% or more of a particular latter respect, it is only in the event of exceptional difficulty in telecommunications service, to perform the universal service installing a line that operators are permitted to provide special function concerned. prices and terms for lines in their catalogs. As regards pricing, the decree provides only that the services are to be provided According to its current contract specifications, Maroc “on the best economic terms”. Telecom is required to provide a service of emergency calls allowing transmission of a telephone call to a public Maroc Telecom’s contract specifications confirm that it emergency service agency free of charge. It must also provide maintains this pricing discretion for all the services offered to a telephone directory of its subscribers to each of them, free its subscribers. Maroc Telecom may grant cuts according to of charge. volume and establish its own marketing policy. Maroc Telecom is bound to publish its prices and the general terms Installation, operation and maintenance of call boxes on the of its offers for each service. Any price change is to be notified public highway must also be provided. Any removal of a call to the ANRT, which may object if the change does not comply box requires consent from the ANRT. with the rules of fair competition or the principles of uniform A free service of maritime radio-communications must be domestic pricing. Finally, users’ invoices must provide them offered to carry safety messages at sea. A two-way service of with full disclosure. telecommunications for messages between ships at sea and One exception from the principle of freedom of pricing is that any termination point of the public networks is also to be the prices applicable to services included in the operator’s provided. These services are to be charged at the lowest provision of universal service may not become effective possible cost and subject to a specified quality standard. without the ANRT’s consent. In addition, Maroc Telecom’s Maroc Telecom may discontinue the operation of that service prices for maritime radiocommunication services are to be on more flexible terms than for the call box service. A cost-based (and free for safety messages, such as distress telegraph and telex service is also to be provided. and emergency calls). For 2007, ANRT’s executive committee which is responsible for approving the universal service programs proposed by the
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operators in accordance with the applicable regulatory must be objective, transparent and non-discriminatory. These provisions (the “pay or play” principle), delivered its opinion on numbers, blocks of numbers and prefixes may not be November 22, 2006 on the universal service program transferred without express prior consent from the ANRT. Act proposed by Maroc Telecom. 55-01 provides that the conditions for portability of numbers The universal service executive committee only approved part are to be set by the ANRT. of Maroc Telecom’s universal service program for 2007 for Mobile and ADSL service, for the sum of MAD188 million. Preselection Pre-selection of the carrier (i.e., of the operator carrying the Contribution to research, training and standardization call on the domestic and international network, as opposed to in telecommunications the local loop network), is scheduled to be in operation 12 months after the award of licenses, according to the ANRT Act 55-01 sets the required contribution from operators of (see the note setting out general guidelines for the public telephony networks in respect of training and liberalization of the telecommunications sector over the period standardization at 0.75% of revenues excluding tax, net of the costs of interconnection, of the telecommunications activities 2004-2008, i.e. July 8, 2006). covered by their licenses. This amount is paid to the ANRT. The contribution in respect of research is set at 0.25% of the Unbundling of the local loop same revenues. This amount is to be paid into a special fund allocated to research. Operators carrying out research Act 55-01 does not specify the terms for unbundling of the programs pursuant to agreements made with research local loop. Under the current schedule, partial unbundling is agencies listed by the regulation in an equivalent amount are expected to be implemented in 18 months, followed by exempt from the payment requirement. complete unbundling three years after the award of licenses, according to the ANRT. Rights of way On January 17, 2007, the ANRT approved the technical aspects and pricing of the partial unbundling offer. 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 Accounting separation property (e.g., easements, major roads, conduits, high points, In accordance with decree no.2-97-1026 as amended and etc.) available to operators so requesting for the purpose of the supplemented by decree no. 2-05-771 dated July 13, 2005, installation and operation of transmission equipment. and with decree no.2-97-1025 as amended and supplemented Compliance is mandatory only if the installation does not interfere with the existing public use. It is to be provided on by decree no. 2-05-770 dated July 13, 2005, operators are acceptable, objective and nondiscriminatory regulatory, required to keep cost accounts allowing a determination of technical and financial terms, securing an environment of fair their costs, proceeds and earnings connected with each competition. The purpose of this provision is to allow operators network they operate or service they offer. to make use of the infrastructure currently at the disposal of Maroc Telecom’s contract specifications require that it entities such as the Office National de l’Electricité, the Office distinguish in separate sets of accounts for the following National des Chemins de Fer (railroads), Autoroutes du Maroc activities: interconnection, fixed-line telecommunications, (highways) or other operators of public infrastructure networks. telegraph, telex, maritime radio-communications, Internet The contracts must be forwarded to the ANRT for its access, GSM, NMT, RM, and international telecommunications. information and the latter may resolve any related disputes. The annual financial statements are to be submitted for In addition, the operators of alternative infrastructure networks auditing to an entity designated by the ANRT. (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 leasing agreement must be forwarded The Moroccan Telecommunications Regulatory to the ANRT for its information, and may not interfere with the Authority “Autorité Nationale de Réglementation des rights of way that other operators are entitled to obtain. Télécommunciations” (ANRT) Act 24-96 created the ANRT as a public agency subject to the Numbering and portability of numbers authority of the Prime Minister. It is a separate legal entity that is financially independent and subject to the State’s financial The ANRT allocates numbers, blocks of numbers and prefixes supervision and direction. to the operators of public telephone networks on terms which
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Agencies of the ANRT Decrees 2-97-813 and 2-98-158, dated February 25, 1998, Any operator failing to comply with the requirements laid specified the membership of the ANRT’s board of down by statute, regulation or contract specifications incurs Governors and its powers. The governing bodies of the certain penalties. First, the ANRT’s Director issues a warning. ANRT are the board of Governors, the Executive Committee Second, the operator incurs a fine not exceeding 1% of its and the Director. The board of Governors consists, in revenue, excluding tax and net of interconnection costs, as addition to its Chairman, of seven representatives of the reported the previous year. In such cases, the ANRT’s Director State having ministerial rank and five individuals appointed refers the matter to the King’s Prosecutor at the Rabat Court by decree for terms of five years. It is chaired by the Prime of First Instance in order to initiate criminal proceedings, and Minister and sets the ANRT’s general policies and its annual may bring a related civil action. Such fine is doubled if the agenda. An Executive Committee assists the board of operator is a repeat offender (i.e., it has been convicted within Governors, and is in charge in particular of resolving the previous five years by an irrevocable decision for the same disputes relating to interconnection. The Director of the offense). Third, the ANRT may suspend all or part of the ANRT is its executive agency. Challenges on the basis of operator’s license for a term not exceeding 30 days, misuse of powers against the ANRT’s rulings are referred to temporarily suspend the license or reduce its duration by up the Rabat Administrative Court. to one year, or revoke the license. Suspension of the license is Mission of the ANRT ordered by the appropriate governmental agency upon a proposal from the ANRT’s Director, and revocation is ordered The mission of the ANRT is to develop the legal environment by decree upon a proposal from the ANRT’s Director. Finally, for the telecommunications sector, to monitor and secure in the event of offenses against national defense or public compliance with the legislation relating to fair competition safety, the ANRT’s Director may, by a reasoned ruling and after among the operators, and to resolve certain disputes. informing the appropriate governmental agency, promptly The ANRT drafts proposals for the development of legal, suspend the license, permit or operation of value-added economic and safety rules relating to telecommunications services. In addition, the equipment covered by the license, activities. Towards this end, it prepares legislative bills, draft permit or operation may be impounded immediately. decrees and draft ministerial orders. Furthermore, parties who, among other offenses, establish or The ANRT prepares and updates the contract specifications provide a telecommunications service without a license or in for operators of public telephony networks. breach of a suspension or revocation may be punished by The ANRT processes applications for licenses and establishes penalties of imprisonment and fines. Such criminal penalties, maximum charges for services relating to universal service however, are outside the scope of the ANRT’s powers. needs. The ANRT’s remit includes the resolution of disputes occurring The ANRT sets the technical and administrative specifications among operators, or between an operator and a user, as well for the approval of terminal equipment and radioelectric as the resolutions of problems connected with the general facilities, and the technical rules applicable to operating conditions of a license. The executive committee telecommunications networks and services generally. has authority to resolve disputes with respect to The ANRT manages and monitors the spectrum of interconnection and other matters for which it has received a radioelectric frequencies, and allocates these frequencies. delegation of authority from the board of Governors. It should be noted that Act 55-01 has extended the scope of the Pursuant to its responsibility to monitor compliance with ANRT’s powers with respect to litigation to cover compliance relevant legislation, the ANRT has expansive rights to obtain with the provisions relating to competition contained in Act 6- information, as well as disciplinary powers. The ANRT may 99 regarding freedom of pricing and competition. conduct enquiries relating to telecommunications operators in order to ascertain whether they comply with their The ANRT prepares the procedures for the award of licenses obligations. The information in the ANRT’s possession is by invitation to tender, processes license applications and forwarded to the appropriate government authority and may receives prior notifications for activities subject to the be publicly disclosed, unless it is considered to be reporting system. It issues permits and prepares the related confidential or commercially sensitive. If such information is licenses and contract specifications. It also monitors the not provided or is provided late, Act 55-01 enables the operators’ compliance with the terms of their licenses. ANRT’s Director to impose fines (the scale of penalties ranges from MAD20.000 to MAD100.000, according to the information withheld).
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4.8.3 Dispute settlement
In 2006, the ANRT gave its judgment on a dispute between Maroc Telecom and Maroc Connect:
• Decision No.05/06 of ANRT’s Executive Committee (27/07/2006) relating to the dispute between Itissalat Al-Maghrib (IAM) and Maroc Connect regarding interconnection charges This decision is available on the ANRT website (www.anrt.net.ma).
4.8.4 Dependencies
As a service provider, Maroc Telecom is not directly involved in any industrial process. The elements of its network infrastructure, and the handsets and SIM cards that it sells to its clients, are purchased from different suppliers so as not to create any form of dependency.
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4.9 HUMAN RESOURCES
4.9.1 Modernization of human resources management
Considering that the richness of its staff’s talents will • A certification of the HR management process, which enable it to sustain the pace of its growth, Maroc Telecom confirms the implementation of programs and processes initiated in 2001 a plan for the modernization of its human aimed at constantly improving the quality of the company’s resources. services, in particular by using human resources to the best advantage of Maroc Telecom’s strategy. In order to pursue its development and to mobilize its human resources, Maroc Telecom has decided to promote a human • A new mobility policy to promote career advancement, resources policy based on performance recognition and the which takes into account both the employees’ desires and improvement of skills. The HR department has created skills and the Company’s requirements. At present, all innovative tools and programs enabling Maroc Telecom to employees are informed of job vacancies within the Group meet its challenges. and can apply for these jobs. A support program has been set up to encourage mobility and to help employees settle The main modernization initiatives have been as follows : into their new job. • A collective labor agreement, signed by Maroc Telecom and • A training policy tailored to the Company’s strategic needs, its labor unions on November 16, 2004. It sets out the focused on developing employee skills. In 2006, our training guidelines of an HR policy suited to the Company’s strategy sessions were systematically appraised and new learning and provides a single management framework for all of the methods were used to improve their efficiency. Company’s employees. Other projects: • A job classification system, which lists all the occupations within Maroc Telecom, and gives a description of each • Compensation policy. The Group has switched from a employee’s tasks and responsibilities. structured pay scale to a new system of individual compensation which aims to compensate employees for • A new appraisal system, based on an annual interview. their contribution to the Company’s success. Since 2003, each employee has an interview with his/her manager to assess the employee’s performance over the • In 2006, the Group took a closer look at its sales force past year and to determine the objectives for the coming aiming to increase professionalism to provide better customer service. More than half of sales staff underwent year, which the employee commits to. an individual evaluation carried out by an external • An efficient HR information system, which has made the consultant mainly assessing their professional and human resources management much more flexible, behavioral skills. This initiative helped optimize the provided a reliable information base and helped in defining redeployment of staff and training programs in order to and implementing HR development programs. meet Maroc Telecom’s sales requirements.
• A skills management tool that provides Maroc Telecom with • Management of key executives and high-potential a standard with which to appraise each employee’s skills individuals. Once again, this relies on assessing resources, and to set up personal development plans suited to the defining personal development programs and determining Company’s strategy. succession plans.
4.9.2 Staff
42% of Maroc Telecom’s staff is under the age of 40, which staff, marketing staff, financiers, etc.), is one of the companies contributes to the Company’s internal vitality. Maroc Telecom, hiring the largest number of new graduates in Morocco. which calls upon varied skills at a high level (engineers, sales
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4.9.3 Staff turnover rate
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 1.43% in 2006 compared with 8.4%* in 2005 and 0.75% in 2004. * The increase in staff turnover was due to the implementation of a new voluntary redundancy plan in 2005.
4.9.4 Changes in the number of employees
The table below shows the changes in the number of At the end of 2006, in an aim to constantly improve employees at Maroc Telecom for the past three fiscal years performance, Maroc Telecom launched a fourth incentive- ended December 31, 2004, 2005 and 2006: based voluntary departure plan with improved conditions compared with previous plans.
2004 2005 2006
Number of employees at the end of the period 12,204* 11,178 11,212
* See Note 19 of consolidated financial statements.
4.9.5 Staff of the Vivendi group
The staff numbers mentioned in the table above also include contracts. The number of expatriate staff was 27 in 2004, 26 the expatriate staff of the Vivendi group operating with Maroc in 2005 and 17 in 2006. Telecom pursuant to a service contract and on fixed-term
4.9.6 Training
Training is considered an essential investment in Maroc This is reflected in 35,149 days of training provided to 22,399 Telecom’s future. It is part of an overall effort to develop and participants, representing an average of nearly 3 days per adapt the Company’s human resources to its requirements. employee.
4.9.7 Evolution of staff compensation
The gross compensation granted to Maroc Telecom’s staff in millions of MAD 2004 2005 2006 consists of both a fixed and a variable component. The amount of the variable component (performance bonus) is set Payroll costs individually according to each employee’s achievement of Maroc Telecom 1,604 1,946 1,958 targets. The evolution of payroll costs over the past three fiscal years Payroll costs is as follows: Maroc Telecom Group 1,688 2,056 2,060
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4.9.8 Labor relations
Employer-staff communication Union representativeness The telecommunications sector has been characterized by The latest elections, organized in September 2003, in continuous communication between employers and labor accordance with the labor legislation in force, allowed the unions. This dialogue has been enhanced by the presence of election of employees’ representatives. The elected well-structured and representative labor unions. candidates were divided as follows:
In order to comply with the new provisions of the Labor Code, • SNPT (CDT) : 48.8% in 2006 Maroc Telecom held elections for employees’ • UST (UMT) : 38.1% representatives within the works council and regional health • Indépendants : 7.1% and safety committees. Elections were also held to set up the social welfare association. • FNPT (UMT) : 4.8% • SAT : 1.2% • SNPT (FDT) : 0% (did not take part in the election of Labor unions employees’ representatives) There are six labor unions within Maroc Telecom: • FMPT : 0% (did not exist at the time of the elections) • Syndicat National des Postes et Télécommunications In accordance with the provisions of the Labor Code, the (SNPT), affiliated with the Confédération Démocratique de leading two labor unions are the most representative unions Travail (CDT) within the Company. • Union Syndicale des Telecom (UST), affiliated to the Union The labor constituencies within Maroc Telecom, after Marocaine de Travail (UMT) consultation of the unions, consist of eight representative • Syndicat Autonome des Telecom (SAT) establishments and three bodies of employees. • Syndicat National des Postes et Télécommunications Professional elections have been held through two separate (SNPT), affiliated with the Fédération Démocratique de electoral processes and have resulted in the appointment, on Travail (FDT) the one hand, of staff appointees on the joint administrative • Fédération Nationale des Postes et Télécommunications, commissions, and on the other hand, of staff representatives. affiliated with the Union Marocaine de Travail (UMT) 47% of eligible voters took part in the election of staff appointees and 75% in the election of staff representatives. • Fédération Marocaine des Postes et Télécommunications, The results achieved show the dominance of the SNPT affiliated with the Union Nationale de Travail au Maroc (affiliated to the CDT), followed by the UST (affiliated to the (UNTM) UMT) in the two aforementioned electoral processes. It should be noted that the UST, SAT and FMPT were established after the creation of Maroc Telecom.
4.9.9 Agreements and negotiations
between 2004 and 2006 five company agreements were signed with the unions. The two agreements signed in July and December 2006 mainly cover the levels of certain employee benefits and other advantages, and salary increases.
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4.9.10 Employee benefits
In addition to statutory welfare benefits (including in particular • Transport allowance. To encourage employees to acquire pension, mutual insurance, coverage for occupational their own vehicle, an allowance of between MAD2,000 and hazards and occupational diseases), Maroc Telecom’s staff MAD5,000 is granted for employees who purchase a enjoys a number of welfare benefits, including in particular the motorbike or a car. benefits listed below: • Summer vacation centers. For their leisure, employees are • Supplementary pension. In addition to the basic scheme eligible, at prices negotiated and subsidized by Maroc provided by the various agencies (CMR, RCAR and CNSS), Telecom, to use the firm’s residential vacation centers. In the employees may join a supplementary pension scheme, order to strengthen the existing scheme and to expand the taken out with the Caisse Interprofessionnelle Marocaine de programs it can offer its employees while securing attractive Retraite (CIMR). The contributions amount to 7.50% of the value for money, Maroc Telecom enters into agreements salaries of those participating. Maroc Telecom contributes with tourism promoters every year. 50% of these payments. 7,179 employees have taken • Medical and community activities. Employees and their advantage of these supplementary pension benefits as of families may obtain health care from a network of medical December 31, 2006. and community centers staffed by 20 contracted • Supplementary healthcare insurance. Employees may take physicians, including three specialists. In 2006, 4,093 out supplementary healthcare insurance providing 100% people benefited from the medical services provided by reimbursement of the medical expenses incurred for these centers. themselves and their dependents. The costs of membership • Occupational health. In addition to medical treatment, of the supplementary healthcare insurance are assumed Maroc Telecom has also set up preventative health jointly by Maroc Telecom and the insured party, in equal measures which aim to prevent any deterioration in its shares. The premium rate amounts to 1.2%, excluding tax employees’ health due to their work. These measures of the gross salary. 8,422 employees have applied for the include: supplementary insurance as of December 31, 2006. • ensuring general hygiene in the workplace, • Life insurance. Active employees and pensioners up to the age of 70 are provided with life insurance in an amount of • protecting employees from the risk of occupational MAD100,000. An optional additional bracket potentially up hazards, to MAD900,000 is open to those employees wishing to • improving working conditions (ergonomic work techniques, subscribe. The cost of that bracket is assumed by the the elimination of hazardous products and the risk of employee entirely, and the amount of the contribution is contagion). computed in the basis of a levy of 0.35% of the insured • Pensions. The pensions of the Company’s employees are capital. maintained by three external pension funds, according to • Property loans. An employee in a permanent position is the origin of the employees: CMR for the staff from the eligible for loans for the acquisition or construction of Ministry of PTT, RCAR for the staff from the ONPT, and housing from banks that have entered into agreements with CNSS for the staff hired by Maroc Telecom. These pension Maroc Telecom. The amount of the loan is set according to funds provide payment of the employees’ pensions, in the employee’s ability to repay, provided that the loan consideration of the contributions withheld (employer and period may not exceed 18 years. employee’s share) and paid monthly by Maroc Telecom.
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4.10 REAL PROPERTY
For the purposes of development of its networks and for its subject to legal disputes. These sites include buildings that commercial, support and administrative functions, Maroc belong to several presumed owners and where ownership is Telecom makes use of more than 5,300 sites (buildings, land, contentious, certain pieces of land for which there is lack of etc.), spread out over the entire territory of Morocco, including evidence of ownership, land owned by local authorities and around 80% leased locations and 20% owned for accounting subject to several oppositions, and land subject to purposes by Maroc Telecom. compulsory purchase by Maroc Telecom. The sites owned by Maroc Telecom were historically owned The estimated costs linked to these procedures (payment of by the Kingdom of Morocco and were legally transferred to land registration fees) and/or the potential financial risks likely Maroc Telecom at the time of its incorporation in 1998, in to arise from any contentious issue over the legal title of compliance with Act no. 24-96 via a contribution in kind. ownership are deemed to be not significant. Maroc Telecom is currently in the process of obtaining formal The Company’s Statutory auditors have noted this matter in legal title to these sites. Administrative proceedings are their unqualified audit reports on the consolidated financial expected to be completed in 2007. This timetable is given as statements and in the notes thereto since 1998 reserving their an indication, since the length of administrative procedures opinion due to failure to inform shareholders mainly in the may vary. Additional Disclosures section. This reserve takes the form of As of December 31, 2005, the 1,150 sites owned by Maroc an observation in the certified Consolidated Financial Telecom can be broken down as follows: Statements as the notes to the Consolidated Financial Statements mention the situation (see note 4 on Property, • 42% of the sites are legally owned by Maroc Telecom, plant and equipment). which has legal title to them. In connection with any transfer of ownership of real or • 37% of sites are under requisition. Requisition is a claim to personal property allocated to charitable works falling within a property right. It is delivered by the land registrar once the the private domain of the State to the Company which should application for land registration has been made. It becomes be made in the form of a remunerated contribution through an a title deed once regulatory administrative formalities have increase in the share capital in favor of the Government of the been completed, i.e. publication of application for land Kingdom of Morocco , the latter has undertaken to reconvey registration, boundary marking, notification of requisition to Vivendi, simultaneously with the increase in capital and at and finally registration. This procedure is subject to no cost, a percentage of the shares issued at the time of this regulatory time limits. increase in capital equal to the percentage of the capital of the • 21% of sites are in the process of being formally registered, Company held by Vivendi prior to the realization of these around 17 of which are owned by the ONPT and 70 are assets.
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4.11 INTELLECTUAL PROPERTY
As of December 31, 2006, Maroc Telecom owned some 639 The brands and trade names currently owned by Maroc trademarks and trade names, 4 patents and one industrial Telecom, of which there are 639, are protected over the entire model and one industrial design registered with the Moroccan national territory. For the 284 trade names registered before Office for Industrial and Commercial Property (OMPIC). January 5, 2005, the protection period is 20 years (renewable indefinitely) from the date of their registration. in accordance “Itissalat Al-Maghrib”, “Maroc Telecom”, “Jawal”, “El with Act no.17-97 which came into force on that date, Manzil”, “Kalimat”, “Menara”, “Fidelio”, “Les pages jaunes concerning the protection of industrial and intellectual de Maroc Telecom”, “Maghribcom” and “Mouzdaouij” property rights. For the 355 registered subsequently, the “Solutionentreprises” and “Phony” are among the main protection period is 10 years. trademarks and trade names owned by the group in Morocco. In 2006, Maroc Telecom was awarded the national trophy by the OMPIC, for having registered the greatest number of The first patent, registered in 1997, is related to the complete national brands in 2005 (241 brands). execution, with a prototype, of an NDT (Digital Transmission Terminal device). This device is used to connect customers to Maroc Telecom is careful to take any action either necessary Maroc Telecom’s Marnis integrated service digital network, or desirable in order to protect the trademarks, the patents and was the method used to carry a digital connection to and the design model that it has developed. each customer. Maroc Telecom has a research and development department The second patent, registered in 1999, regards complete which works on the Company’s products. This research execution, with a prototype, of a remote display device usually leads to the launch of new products and/or services or through a radio paging network named RAKKAS. This transformations or improvements of existing products, even wireless device allows the display of banking, stock exchange though such work may not be considered as patentable inventions or processes. These improvements made to or other information at any location covered by the RAKKAS protected inventions may be registered for protection by radio messaging network. means of an instrument known as an additional patent, the The third patent, registered in 2006, covers an automatic formalities for the registration of which are identical to those cooling system which provides a back up system in the event for the principal patent. of a failure in the air conditioning system in the areas which Maroc Telecom has launched among its employees an house the energy and telecommunications equipment. innovation contest intended to reward the best ideas or The fourth patent, registered in 2006, covers an automatic line projects, with possible benefits for the Company in terms of identification system which automatically detects all the pair the registration of patents, trademarks or design models. cables connected to telecommunications access network The rights to use the trademarks and trade names granted to equipment. Maroc Telecom are described in the service agreements made The design model registered in 2002 mentions the with its contractors. Some contracts for the sale of services or implementation of a new design for the shelters of call boxes products from Maroc Telecom’s Mobile business and Fixed- to be installed in public locations. This design model was line and Internet business confer on retailers a right to use developed for the Moroccan market and takes account of, Maroc Telecom’s trademarks during the term of performance among other factors, mechanical, electrical, electromagnetic of the agreement, in accordance with the procedure agreed (electric sparking, radiation, storms) and sound constraints in between the parties. order to provide the user with comfortable and entirely safe On November 25, 2004, Maroc Telecom purchased the use of the public call box. This shelter has now been “Maroc Telecom” trademark and domain names which had extensively deployed by Maroc Telecom. been filed in France by a third party. The industrial design registered in 2006 covers the drawing of In 2006, Maroc Telecom extended the protection of 33 of its the person on the cover of the “Guidelines for the Security of brands abroad (France, benelux, Germany, Spain, Portugal, Information” manual. Italy, Algeria, European Union), including the Mobisud brand.
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4.12 INSURANCE
Over the past four years, Maroc Telecom has instituted a extending the limits of coverage to risks of operating losses, program to improve its risk management, including the the policy has also raised the contractual indemnification following measures: limits in order to secure continued operation and to avoid any material loss. • estimating and assessing potential risks; Maroc Telecom’s insurance costs amounted to MAD21.9 • identifying those risks likely to affect the Company’s million in 2006 compared with MAD31.5 million in 2005 and employees, property or its performance; MAD13.9 million in 2004. • determining a more suitable property risk coverage plan, Maroc Telecom’s main insurance policies to date are the which has been assessed and updated by insurance following : experts; • Property damage and business interruption: the coverage • optimizing the cost of cover for such risks; afforded to the company is capped at MAD200 million per • covering the remaining risks through insurance policies; casualty, whether relating to damage or to operating losses.
• setting up claims notification and claims management In 2005, to improve risk coverage, Maroc Telecom took out procedures; a new “All risks except” policy with Property Damage and business interruption with increased cover compared to • setting up prevention and protection measures against risks 2005. Maroc Telecom now has a total cumulative of fire and explosion for the largest sites. contractual loss limit of MAD850 million instead of MAD200 Maroc Telecom accordingly took out, in May 2003, a liability million in the previous policy.
insurance policy, to cover personal injury, property damage • Third-party liability (operation and after delivery) policy: and intangible damage caused to third parties in the course of cover is limited to between MAD5 million and MAD7 million its operation. depending on the nature of the loss. In June 2003, it also took out an insurance policy securing the In addition to this insurance policy, since 2005 Maroc Telecom indemnification relating to compensation for occupational has also initiated a program to improve protection against fire accidents and diseases. and explosion risks at the sites most at risk. Maroc Telecom has supplemented and reinforced this system As regards the security of data and uninterrupted data by taking out an insurance policy for “property damage and processing operations, Maroc Telecom currently has a back- operating losses” commencing on July 1, 2004. In addition to up computer center.
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4.13 LEGAL AND ARbITRATION PROCEEDINGS
To the Company’s knowledge, there are no pending or that did not comply with the chaining rule subject to a potential government, legal or arbitration proceedings, penalty of MAD500 /day for non-execution. including proceedings of which the Company has knowledge, The Company considers that the claims made by the that may have or have had in the past 12 months, a significant Federation are not legally founded, and appealed to the effect on the Company and on the group’s financial position, Maroc Telecom Supreme Court on July 21, 2006, seeking profits, business and property, with the exception of the the annulment of the Court of Appeal’s judgment. As the following litigation: Federation had also appealed to the Supreme Court, Maroc • In a ruling dated December 28, 2004, the Commercial Court Telecom applied for the two procedures to be joined of Rabat declared that the application of the National together. This application was considered by the Court at a Federation of Phone Shop Associations was not within its hearing on 14/02/2007 which referred the case to the Chief jurisdiction. The Federation then brought a writ before Court Clerk for further inquiry. This procedure is currently Commercial Court of Rabat, demanding the withdrawal of ongoing. all authorizations delivered by Maroc Telecom to new phone To date Maroc Telecom has received 50 individual shop operators that do not respect the chaining rule applications before the Commercial Court of Rabat from imposing a minimum distance of 200 meters between each phone shops who each claim MAD50,000 in interim phone shop. damages and a legal expertise to determine the final amount of damages. These applications are based on the The Court of First Instance, in a ruling dated April 6, 2005, above mentioned judgment and the Court of Appeal’s (non-enforceable) ordered Maroc Telecom to reverse its decision. During the first quarter of 2007, 28 of these cases decision to abandon the 200 meter chaining principle and to were dismissed and in another case the applicant withdrew withdraw the authorizations that had been granted that did the claim. The other cases are still before the court. not respect the chaining rule. This judgment was accompanied by a penalty of MAD500/day for non- The Company claims that the chaining rule is contrary to execution. competition rules as other operators are not subject to this rule. On June 27, 2005, Maroc Telecom appealed against this judgment before the Commercial Court of Appeal of The Company does not intend to revoke its decision to put Casablanca. In its ruling on May 9, 2006, the Court of an end to chaining, as it considers that the claims made by Appeal partly accepted Maroc Telecom’s applications, the Federation are not legally founded. annulling the first instance judgment as regards the order to • In October 2006, Meditel applied to the ANRT claiming that withdraw the authorizations but upheld the judgment as Maroc Telecom uses anti-competitive practices after Maroc regards the requirement for Maroc Telecom to reverse its Telecom introduced the unlimited Fixed-to-Fixed offers. On decision to abandon the 200 meter chaining principle and February 23, 2007, ANRT delivered its decision on this case ordered the company not to grant any new authorizations (see section 7.1.3 “Phony case”).
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4.14 RISK FACTORS
In addition to the other information contained in this Company’s shares. If one or more of such risks were to occur, Registration Document, investors should carefully consider the activities, financial position, earnings and development of the risks described below before deciding to invest in the the Company could be affected.
4.14.1 Risks relating to the company’s business
Maroc Telecom’s revenues and earnings are Maroc Telecom faces an intensification of competition dependent to a significant extent on the Moroccan on the Moroccan market for telecommunications, economy. which could lead to a loss of market share and a reduction in Maroc Telecom’s revenues. Maroc Telecom’s core business is the provision of telecommunications services in Morocco, the provision of Three licensed operators are currently present on the Moroccan international telecommunications services to and from Morocco. market for mobile and fixed-line telecommunications: Maroc Accordingly, Maroc Telecom’s revenues and profitability depend Telecom and Meditel and Wana (previously Maroc Connect). to a significant extent on telecommunications spending by On the mobile segment Maroc Telecom’s market share was Moroccan customers and international telephone traffic to and on a downward trend until 2005, and improved to 66.9% as from Morocco. The evolution of usage of telecommunications at December 31, 2006 (Source: ANRT). Over the same services in Morocco reflects, in part, the evolution of the period, the Company cut its prices and set up promotional country’s economic position, and more specifically, the offers (including customer subsidies) to anticipate and population’s disposable income and its businesses’ economic respond to competition. In 2006, ANRT granted 3G Mobile activity. A contraction or slower-than-expected growth of the licenses to the existing operators (Maroc Telecom, Meditel Moroccan economy could have a negative impact on the and Wana). In the future, Maroc Telecom may be required to development of the customer base and the usage rate of implement further price cuts and promotions to maintain its fixed-line and mobile telecommunications services in position on the market and anticipate competition on the 3G Morocco, which could have a material effect on the growth segment. and profitability of Maroc Telecom’s activities, and possibly entail a decline in its revenues and earnings. In addition, the granting of two new licenses on the fixed- line telecommunications market in 2005 could further In this context, the perception of possible acts of terrorism, increase competition on the market (see “Risks relating to whether committed in Morocco or abroad, could significantly the regulatory environment” below). The intensification of affect the Moroccan economy in general (in particular through competition among the existing operators or with new a decrease in tourism business). As regards this risk, which is entrants could result in a continued reduction in Maroc not specific to Morocco, Maroc Telecom cannot forecast the Telecom’s market share, and in increased costs for consequences of the perception, informed or otherwise, of customer acquisition and retention, which could lead to a such possible acts of terrorism. reduction in Maroc Telecom’s revenues and earnings (see 5.2.2 “Market trends and other factors affecting earnings”).
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Maroc Telecom is dependent on the reliability of its Maroc Telecom’s indirect distribution network could information systems; damage to or loss of all or part be weakened if Maroc Telecom does not succeed in of its systems could result in a loss of customers and maintaining it. a fall in revenues. Maroc Telecom has an extensive distribution network, with Maroc Telecom can be paid for its services only insofar as it a direct network of branches, an indirect network consisting uses reliable information systems (including collection and of telestores, retailers and partners, and an independent invoicing systems), and succeeds in protecting and securing network (see 4.4.4 “business—Distribution”). the continuity of such systems’ operation. Maroc Telecom If Maroc Telecom were unable to maintain close relations or has established a security policy for its information systems to renew its distribution agreements with the components of allowing it to deal with ordinary disturbances in computer its indirect network, if its indirect distribution network were operations (unauthorized access, power cuts, theft, to be jeopardized for other reasons, in particular the actions hardware crash, etc.) and to secure uninterrupted service. of competitors, or if the managers of telestores failed to Maroc Telecom now has a Recovery Plan for its critical comply with the exclusive agreements made with Maroc information systems, which have a direct impact on its Telecom by distributing products competing with those of revenues, such as pricing data systems, and sales and Maroc Telecom, the distribution network could be billing information for three business lines Fixed-line, Mobile weakened and the Company’s business and earnings could and Internet. be affected significantly. 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 automatically activate a back-up system. Continued and rapid changes in technology could intensify competition or require Maroc Telecom to As the data on the critical information systems is regularly saved from the production platforms onto the back-up make significant additional investments. system, the risk of losing data and being unable to bill Many services offered by Maroc Telecom involve intensive customers and recover outstanding invoices is now very use of technology. The development of new technologies limited. 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 Maroc Telecom is dependent on the reliability of its significant additional investments, in particular for the telecommunications networks. A disturbance to such development of new products and services, or for the networks could result in a loss of customers and a fall installation of infrastructure required to enable it to remain in revenues. competitive. The new technologies in which the Company may choose to invest may affect its ability to achieve its Maroc Telecom is able to provide services only insofar as it strategic targets. Maroc Telecom could then lose is able to protect its telecommunications networks from damage caused by disturbances, power cuts, computer customers, fail to succeed in attracting new customers, or viruses, acts of God and unauthorized access. Any be required to bear significant costs in order to maintain its disturbance to the system, accident or breach of security customer base, which would have a negative effect on its measures causing interruption in the Company’s operations business, revenue and earnings. 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 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.
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Alternative means of communication could result in a Fraudulent diversion of traffic could limit the reduction of the usefulness or even in the Company’s revenues and affect its earnings. obsolescence of the fixed-line network, which could The Company first experienced a fraudulent diversion of its lead to the loss of a competitive advantage and traffic in 2001. In response, Maroc Telecom has established reduce the Company’s revenues significantly. a plan to combat that fraud. Maroc Telecom cannot The Company has already had to deal with the substitution forecast, however, whether new means of fraud will of fixed-line customers by mobile customers, which has develop, the sectors that potential offenders will attack, nor been heightened by the use of alternative technologies. As the effects that any such fraud could have. an illustration, GSM gateway services are beginning to If Maroc Telecom fails to prevent these fraudulent activities, compete with Maroc Telecom’s fixed-line voice services it could see a reduction in its traffic in the sector affected by (see 4.5 “Competition”). the fraud, and its revenues and earnings could thereby be The Company’s fixed-line telecommunications activities affected. could be affected by the development of such gateways or other alternative means of communication. Such alternative technologies could jeopardize the usefulness of Maroc Maroc Telecom may carry out acquisitions of Telecom’s infrastructure and fixed-line network, by enabling telecommunications companies or licenses. competitors to use mobile telecommunications services to compete with Maroc Telecom without having a fixed-line In order to extend its geographical presence, Maroc network. Maroc Telecom’s infrastructure and extensive Telecom could acquire telecommunications companies or network would then become less useful or even obsolete, licenses in other countries. Such transactions necessarily which would lead to the loss of a competitive advantage involve risks. If Maroc Telecom does not achieve the results and could affect significantly the Company’s revenues and expected from such transactions, its business and earnings earnings. could be affected. In particular, Maroc Telecom could: • carry out acquisitions on financial or commercial terms that were subsequently found to be unfavorable; Health risks, whether real or perceived, or other problems connected with mobile devices or their base • incur difficulties in integrating the companies acquired, or stations, could result in less intensive use of mobile their networks, products or services; communications. • fail to retain the key employees of the companies acquired or to recruit skilled personnel as may be required; Certain studies of mobile technology claim that the electromagnetic signals emitted by mobile devices and • fail to achieve the expected synergies or economies of base stations involve health risks. Such risks, whether real scale; or perceived, and the publicity they receive, together with • make investments in countries where the political, any resulting legislation or litigation, could reduce the economic or legal situation involves particular risks, such Company’s base of mobile customers, make the as civil or military unrest, the absence of effective or establishment of new base stations and the maintenance of comprehensive protection of shareholders’ rights, or existing base stations more difficult, or incite customers to disagreements with other major shareholders, including reduce their use of mobile telephones. public authorities, relating to the management of the companies acquired; and
• fail to adapt to the specific features of the countries in which any such companies would be acquired.
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES RISK FACTORS
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 business. Maroc Telecom’s ability to adapt its services, extent on the abilities and services provided by its products and commercial offers, whether in the area of management team. The management team has significant Fixed-line or mobile telecommunications, is highly experience and knowledge of the telecommunications dependent on the presence of competent and skilled teams industry. The loss of key members of management could in its various markets. have a significant adverse impact on Maroc Telecom’s Failure by Maroc Telecom to retain its key personnel, ability to implement its strategy. whether its management team or its commercial and Maroc Telecom and its performance are also dependent on technical executives, could affect the Company’s business skilled personnel having the experience and technical or and its operating income could diminish substantially. commercial abilities required for the development of its
4.14.2 Risks relating to the regulatory environment
The interpretation of existing legislation and the If such liberalization were to entail heightened competition on adoption of new statutory rules could affect Maroc the market for mobile telecommunications in Morocco, Maroc Telecom’s activities significantly. Telecom could see its market share diminish and its customer acquisition and retention costs increase, which could result in Legislation relating to the telecommunications industry in a reduction in its revenues and earnings. Morocco is currently evolving. Act 55-01, dated November 2004, could be interpreted in a manner that could affect Maroc Telecom’s business significantly, and result in a reduction in its Liberalization of the fixed-line market could restrict revenue and earnings. In addition, the introduction of (i) carrier Maroc Telecom’s market share and affect its profitability. pre-selection, (ii) unbundling, and (iii) number portability will necessarily favor the competition to Maroc Telecom’s Maroc Telecom operates in a fixed-line telecommunication detriment. market that has just been liberalized. Two new fixed-line licenses were awarded in 2005 for national, international and local loop services. The increase in the number of players could weaken Liberalization of the fixed-line market could reduce the base of Maroc Telecom’s position on the market for mobile existing or potential customers for Maroc Telecom, who may telecommunications services. be attracted by the competition. In addition, the entry of new operators through the award of international licenses will entail In 2005 and 2006, the ANRT granted a Fixed-line license with heightened competition, which could result in a decrease in reduced mobility to Wana, and three 3G mobile licenses to international rates. Accordingly, the liberalization of these Maroc Telecom, Meditel and Wana. markets may affect Maroc Telecom’s revenue and earnings. Furthermore, the ANRT indicated that a third GSM license may Maroc Telecom could be affected by regulatory decisions be awarded in upcoming years. Nonetheless, after granting enabling other operators to enter the telecommunications the 3G mobile licenses the ANRT stated that this process market on terms less onerous than those imposed on Maroc represented the final stage in the liberalization of the Telecom, and to have access to Maroc Telecom’s network telecommunications sector in Morocco as set out in by the on favorable terms. An operator could provide telecom- Prime Minister in a note setting out general guidelines for the munications services without having to bear the same period 2004-2008 (see section 4.8 “Regulatory Environment obligations as Maroc Telecom, while enjoying the benefit of and Possible Dependencies”). It is possible, however, that the the latter’s infrastructure, thereby enabling it to target highly regulator’s stance will change. The Company cannot forecast profitable markets, to the detriment of Maroc Telecom. whether this process of liberalization of the mobile sector will evolve in a favorable manner.
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As a dominant operator on the fixed-line, voice and data competition among operators with regard to Act 6-99 relating networks, the Company is bound under Act 55-01 to permit to freedom of pricing and competition. The ANRT could access to its network, which will enable competitors to accordingly rule on matters relating to the competitive provide their own services through the use of Maroc Telecom’s environment of the telecommunications market. Maroc network. Telecom cannot forecast to what extent the ANRT’s rulings in Such operators may thereby target markets with this area might affect its operations. comparatively high profitabilities, such as the businesses market, the urban areas or the international market, which Favorable interconnection costs for other operators could restrict the opportunities for Maroc Telecom to extend the number of its high-volume users, or divert its existing could significantly affect the Company’s future earnings. customers in such markets. In order to provide services to its customers, Maroc Telecom is required to connect its network to that of any other operator holding a domestic license, and vice versa. The Maroc Telecom could be affected by the ANRT’s interconnection charges are approved by the ANRT. The application of the legislation relating to competition. Company cannot forecast whether the ANRT’s policy with respect to the fixed-line and mobile interconnection charges Under Act 55-01, the ANRT’s duties will henceforth also will be favorable to it. include monitoring and ensuring the observance of fair
4.14.3 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 against all the debtors for whom it has made a provision. If the a provision is deductible from its taxable base, subject to the deductibility of such provisions for doubtful receivables in an presentation of evidence of legal action taken against the amount below a certain threshold were to be challenged, the debtors. Maroc Telecom has not initiated such legal action Company’s earnings and profit could be adversely affected.
4.14.4 Risks relating to the interests held by major shareholders in Maroc Telecom
The Company could be influenced by Vivendi, whose interests may not always be consistent with those of the Company’s other shareholders. Vivendi hold a majority of the stock and voting rights in the The interests of Vivendi with respect to such matters and the Company. Accordingly, Vivendi will retain control over the factors that it will take into account when exercising its voting decisions requiring adoption by the shareholders acting by a rights may not be consistent with those of the Company’s simple majority of votes. other shareholders.
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4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES RISK FACTORS
4.14.5 Market risks
In accordance with its cash management policy, Maroc approved by the Management board. Telecom does not invest in equities, in equity mutual funds or For market risks (foreign exchange risks, interest rate risks, in derivatives. Maroc Telecom invests its cash with financial stock valuation risks and liquidity risks), see 5.3.6 “Disclosure institutions either in sight deposits or term deposits. The of qualitative and quantitative information about market risks”. counterparty exposure limits for each financial institution are
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5 FINANCIALREPORT
5.1 CONSOLIDATED FINANCIAL DATA FOR YEARS ENDED DECEMbER 31, 2004, 2005 AND 2006
Maroc Telecom’s consolidated financial data is summarized in IFRS-compliant 2004 financial statements and the transition the table below. The financial data for the years ended document were published by Maroc Telecom when it reported December 31, 2004, 2005 and 2006 has been taken from the its consolidated financial statements for the six months ended Group’s consolidated financial statements, which were prepared June 30, 2005. in accordance with International Financial Reporting Standards (IFRS), audited by the statutory auditors Abdelaziz Almechatt, The transition to IFRS had a limited impact on the group’s representative of Coopers and Lybrand Morocco, and by Samir financial statements at December 31, 2004. Agoumi, correspondent of Salustro Reydel in Morocco.
5.1.1 Financial data in Moroccan dirhams
Income statement data
(in millions of Moroccan dirhams) December 31, December 31, December 31, 2006 2005 2004 Consolidated revenues 22,615 20,542 17,408 Operating expenses 12,572 11,864 9,811 Operating income 10,043 8,678 7,597 Earnings from continuing operations 10,029 8,695 7,627 Earnings 6,833 5,921 5,228 Attributable to the equity holders of the parent 6,739 5,809 5,171 Earnings per share (in Moroccan dirhams) 7.7 6.6 5.9 Diluted earnings per share (in Moroccan dirhams) 7.7 6.6 5.9
Balance sheet data (in millions of Moroccan dirhams) December 31, December 31, December 31, 2006 2005 2004 ASSETS Non-current assets 18,095 14,788 14,021 Current assets 10,129 15,090 13,663
LIABILITIES Share capital 5,275 8,791 8,791 Equity attributable to equity holders of the parent 16,261 19,195 17,773 Minority interests 592 529 428 Total equity 16,853 19,724 18,201 Non-current liabilities 224 264 881 Current liabilities 11,147 9,890 8,602 TOTAL LIABILITIES AND EQUITY 28,224 29,878 27,684
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL DATA FOR YEARS ENDED DECEMbER 31, 2004, 2005 AND 2006
5.1.2 Financial data in euros
The company maintains its accounting records and The table below sets out selected consolidated financial data prepares its financial statements in Moroccan dirhams. The for Maroc Telecom in euros, translated at the exchange rates aim of this section is to help investors make comparisons in used for Vivendi’s consolidated financial position and earnings euros. for the years ended December 31, 2004, 2005 and 2006.
Income statement data
(in millions of euros) Published December 31, December 31, December 31, 2006 2005 2004
Consolidated revenues 2,053 1,860 1,581 Operating expenses 1,141 1,074 891 Operating income 912 786 690 Earnings from continuing operations 910 787 693
Earnings 620 536 475 Attributable to the equity holders of the parent 612 526 470
Earnings per share (in euros) 0.7 0.6 0.5
Diluted earnings per share (in euros) 0.7 0.6 0.5
Balance sheet data
(in millions of euros) December 31, December 31, December 31, 2006 2005 2004
ASSETS
Non-current assets 1,624 1,358 1,251 Current assets 909 1,385 1,219
LIABILITIES Share capital 473 807 784 Equity attributable to equity holders of the parent 1,459 1,762 1,586 Minority interests 53 49 38 Total equity 1,512 1,811 1,624 Non-current liabilities 20 24 78 Current liabilities 1,000 908 768
TOTAL LIABILITIES AND EQUITY 2,532 2,743 2,470
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The table below sets out the MAD/EUR exchange rates used for Vivendi’s consolidated financial statements for the years ended December 31, 2004, 2005 and 2006.
For 1 euro Jan. 2004 Dec. 2004 Dec. 2005 Dec. 2006
Period-end rate used for Balance Sheet 11.03721 11.20733 10.89167 11.1447
Average rate used for Income Statement 10.80293 11.01360 11.04579 11.01562
(Source : Vivendi Universal)
The exchange rates above are provided for convenience only. For information relating to the impact of foreign exchange The group does not claim that the amounts denominated in variations on the group’s earnings, see section 5.3.5 Moroccan dirhams were, could have been or could be “Disclosure of qualitative and quantitative information about converted into euros at such exchange rates or any other rate. market risks”.
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5. FINANCIAL REPORT GENERAL OVERVIEW
5.2 GENERAL OVERVIEW
The discussion and analysis below are to be read together The operational data included in Chapter 5.2 refer only to with this Annual Report as a whole including, in particular, business activities in Morocco and do not take into account the audited consolidated financial statements of Maroc data reflecting Mauritel business (for further information about Telecom for the years ended December 31, 2004, 2005 and Mauritel, see 4.4.3 “Shareholdings – Mauritel”) nor Mobisud 2006. business.
5.2.1 General presentation
Maroc Telecom was created in 1998 as a result of a split of the payphones, and through an independent network of phone Office National des Postes et Télécommunications and is shops. Its services also include interconnections with other Morocco’s incumbent telecommunications operator. Maroc domestic and international telecommunication operators Telecom is the leading Moroccan operator and is present on (see 4.4.2 “Description of Operations – Fixed-line and the fixed-line and mobile telecommunications segments and Internet business”). Internet, a fast growing market. Maroc Telecom remains the In addition, Maroc Telecom, together with a group of local domestic leader on these three segments. investors, owns a 51.5% stake in the Mauritanian incumbent • The Mobile business provides mobile telecommunication telecommunications operator, Mauritel. Through this services (subscriptions, rate plans, prepaid phone cards shareholding Maroc Telecom provides telecommunications and handsets) for individuals and businesses in Morocco services in Mauritania. (see 4.4.1 “Description of Operations – Mobile business”). Mobile business has expanded rapidly and represents a growing share of Maroc Telecom’s revenue, rising from On December 28, 2006 Maroc Telecom also acquired a 51% almost 47% in 2004 (pro forma) to more than 54% in 2006. stake in the burkinabe operator Onatel by means of an • The Fixed-line and Internet business provides fixed-line international invitation to tender, and a 51% stake in Gabon telecommunications services, Internet services, TV via Telecom on February 9, 2007. Maroc Telecom launched ADSL and data transmission services for residential and Mobisud, an MVNO (Mobile Virtual Network Operator), on business customers in Morocco. It also provides public December 1, 2006 in France, in partnership with SFR and telephone services through its own network of public SAHAM.
5.2.2 Market trends and other factors affecting earnings
As Maroc Telecom provides telecommunications services in 8.1% in 2006 (Source: Morocco’s Treasury and External Morocco, including international telecommunications Finances Department). services to and from Morocco, the revenues and earnings of Maroc Telecom are dependent to a significant extent on Main factors determining revenues Moroccan consumers’ average telecommunications spending and, to a lesser extent, on the volume of Maroc Telecom generates revenue primarily from sales of international telephone traffic to Morocco. Trends in the telecommunications services by the Mobile business and by consumption of telecommunications services in Morocco the Fixed-line and Internet business and, to a lesser extent, need to be considered against a backdrop of changes in the from sales of products associated with those services, country’s economy and, more specifically, in the Moroccan consisting mainly of handsets used by customers and population’s disposable income. From this point of view, the subscribers (mobile and fixed telephones and multimedia firm growth in Morocco’s gross domestic product should be devices). noted, i.e. 5.2% in 2003, 4.2% in 2004, 1.8% in 2005 and
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Mobile business The Mobile business combines mobile telecommunications grew to 508 minutes per subscriber per month in 2006, and services (voice, data and roaming) and sales of mobile usage by prepaid customers amounted to 21 minutes per handsets. user per month for the same period. The revenues generated by the mobile telecommunications Morocco’s tourism industry also plays a part in this sector vary according to changes in the number of customers development, generating a large flow of visitors (including and Average Revenue Per User (ARPU). Those two factors Moroccans resident abroad), and providing a strong were affected to a significant extent by the introduction of potential revenue stream from roaming services. In 2006, prepaid plans in 1999 and the liberalization of the market in roaming accounted for more than 3.7% of mobile revenues, 2000, with the award of a second license in August 1999. down compared with 2005 due to general price cuts in the There will be further changes after three 3G licenses were sector. In order to capture most of this traffic, Maroc granted in July 2006. (see 4.8 “Regulatory Environment and Telecom has entered into alliances with most foreign Possible Dependencies”). operators, and has signed preferential agreements with the In terms of Mobile customers, Maroc Telecom has benefited largest among them. At December 31, 2006, Maroc Telecom from the expansion of the market, as shown by a significant had 413 roaming agreements for its postpaid customers increase in the penetration rate. The penetration rate with partner operators in 212 countries. Maroc Telecom measures the ratio of users of mobile telecommunications also offers roaming to its prepaid customers with 76 services to Morocco’s total population. It grew rapidly over operators in 48 countries, and for its GPRS and MMS the past six years, from 1.3% at December 31, 1999 to services with 91 operators in 62 countries. 53.5% at December 31, 2006 (Source: ANRT). The number of mobile users increased from 364,000 at the end of 1999 ARPU to 16 million at the end of December 2006 (Source: ANRT). Mobile ARPU corresponds to the revenue generated by The growth in the penetration rate was boosted by the incoming and outgoing calls and value-added services over a launch of prepaid plans in 1999, allowing users to control particular period (excluding roaming revenue), divided by the their spending. average number of customers over the same period and by At December 31, 2006, Maroc Telecom had a 66.9% share of the number of months in the period. The monthly average the Moroccan mobile market compared with 66.7% at customer base is the average number of customers per month December 31, 2005 (Source: ANRT), with prepaid customers during the period. ARPU is influenced by several factors, accounting for 96.2% of Maroc Telecom’s mobile customers including the price and volume of mobile telecommunications (Source: Maroc Telecom). related traffic (incoming calls, outgoing calls and value-added services). Offers ARPU fell from MAD122 in 2005 to MAD111 in 2006. This Mobile offers are described in detail in Chapter IV of this decrease was mainly due to the strong increase in the Registration Document. customer base and the reduction in call charges. These price cuts, which make Maroc Telecom more competitive, Tariffs also favor an increase in consumption and customer base Tariffs include access charges (subscription, prepaid phone growth. cards, installation charges and the price of handsets) and Prepaid ARPU amounted to MAD87 at December 31, 2006 usage charges. compared to MAD97 a year earlier, despite strong growth in The entry of a second mobile operator into the Moroccan the prepaid mobile customer base (+30.2% compared to mobile telecommunications market has put downward 2005). pressure on prices, and prompted operators to adapt their Postpaid ARPU fell between 2005 and 2006, from MAD710 to product range. They initiate frequent promotional offers on MAD702 as a result of the acquisition of lower-use both handset subsidies and usage charges. Maroc Telecom subscribers and the introduction of new rate plans and in offsets the negative impact of these price cuts on ARPU by particular the capped plan and the unlimited formulas. expanding its customer base and boosting usage. Postpaid customers remain predominantly higher-use customers. As a result, Maroc Telecom is implementing a Traffic strategy to encourage its high-use prepaid customers to Incoming and outgoing mobile traffic grew rapidly, due to migrate to postpaid offers in order to increase revenues and increases in the number of prepaid and postpaid customers. build loyalty. Average usage by postpaid subscribers (outgoing traffic)
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5. FINANCIAL REPORT GENERAL OVERVIEW
Fixed-line and Internet business prepaid cards, unlimited offers launched in September 2005 and the extension of public telephone coverage, the Until the end of 2006 Maroc Telecom was the sole provider of penetration rate in Morocco is still very low at 4.24% at Fixed-line telecommunication services and the main provider December 31, 2006 (source: ANRT). In 2006, the fixed-line of Internet services and data transmission services in customer base dropped –5.6% to 1.266 million lines, Morocco. These markets were fully liberalized in 2005 when compared with December 2005. fixed-line licenses were granted to two new operators, which had still not commenced operations at December 31, 2006. Fixed-line offers are described in detail in Chapter IV of this Registration Document. The main Fixed-line services provided by Maroc Telecom are: • telephony; Data transmission services • interconnection with domestic and international operators; Maroc Telecom also provides data transmission services to • data transmission services for businesses and Internet businesses through a wide range of products and services service providers and other telecom operators; (ISDN, X25, Frame Relay, digital and analog leased lines, VPN IP), and a reliable, high quality network. This business • Internet including Internet access services and related is dependent on the development of the Moroccan services such as hosting; economy. Liberalization of the data transmission market, • TV via ADSL. initiated with the award of VSAT satellite telecommunications licenses in 2001, has not yet had a significant impact on As in the Mobile business, revenues in the fixed-line Maroc Telecom revenues. business vary according to the subscriber base, the pricing policy and the usage level of each of the services. Revenues generated by international interconnection services are Internet Services determined by the volumes of incoming traffic on the fixed- Maroc Telecom markets Internet services under its line network and by changes in interconnection charges, “Menara” brand. With the development of new offers which are subject to renegotiation from time to time. (subscription-free dial-up, plans featuring inclusive hours, Revenues generated by domestic interconnection services ADSL) and price cuts, the market has seen rapid growth are determined by the requirement that Maroc Telecom offer since the beginning of 2004. The number of customers interconnection services at prices compensating the actual accessing the Internet through Maroc Telecom increased by cost of the use of the network and related costs. almost 55% in 2006. Growth was boosted by price cuts in The consolidated revenues rose 5.6% in 2006, mainly due ADSL services in March 2005 and May 2006 together with to strong momentum on the public telephony segment, frequent promotional offers. ADSL accounted for 98% of increased international incoming traffic, the confirmed the total Internet customer base at December 31, 2006. success of ADSL, and strong performance in data services The main competitor on the Internet services sector is to businesses and operators. On the voice segment, the Wana, which operates in the consumer and business average invoice per customer increased by almost 3%. segments. Maroc Telecom had a 98% market share at December 31, 2006 (source: ANRT). In 2006, voice services accounted for almost 54% of Fixed- line and Internet consolidated revenues whilst Internet In 2006, Maroc Telecom launched TV via ADSL, which is the services, although growing strongly, accounted for 6.6% of first time this service is available in the African and Arab revenues compared to 4.4% in 2005. world. This offer is available via 4 bouquets of channels and enables customers to watch 60 national and international TV channels. Fixed-line telecommunications services Historically, the penetration rate of fixed-line telecommunications Interconnection services services, which include public telephone lines, has been fairly low, owing in particular to the large number of people per Interconnection revenues arise mainly from incoming household and the high usage rate of public telephones, international traffic, in particular interconnection with which has hindered the development of residential fixed-line international operators (excluding revenues generated by telecommunications. The fall in the penetration rate until 2002 outgoing calls, which are included in fixed-line revenues), was primarily due to fixed-line customers switching to mobile and interconnection with Meditel. services. Through a policy of developing new products and Interconnection revenues generated by incoming international services, such as package deals and capped plans (El Manzil), calls depend on call volume and the allocation of charges
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negotiated with international operators. Operating expenses The positive impact of increased traffic on international Operating expenses include: interconnection services revenues was limited by the • purchases, mainly including the cost of handsets and reduction in termination rates over the same period as a interconnection costs; result of pressure from foreign operators to cut these prices, and Maroc Telecom’s efforts to stimulate outgoing • payroll and payroll-related costs; international traffic by reducing the imbalance between the • taxes and duties; prices for incoming and outgoing traffic. • other operating expenses, such as fees and network maintenance costs; Seasonality • depreciation, impairment and provisions. The summer months, with the return of Moroccans living Operating expenses rose in 2006 due to an increase in maintenance costs resulting from the extension of the abroad, and the two weeks preceding the Eid al-Adha networks, a rise in international bandwidth costs linked to holiday (December 31 in 2006) traditionally bring strong Internet traffic, higher ANRT fees due to revenue growth and business levels (primarily mobile and fixed-line public provisions for trade receivables. telephony), while the month of Ramadan (from September 24 to October 24 in 2006) represents a low point for both fixed-line and mobile businesses.
5.2.3 Scope of consolidation
Mauritel Mobisud Maroc Telecom holds 51.5% of the voting rights of Mauritel S.A., On November 3, 2006 Maroc Telecom acquired a 66% stake the incumbent operator in Mauritania and operator of a fixed-line in SFR6, renamed Mobisud, alongside the other shareholders telecommunications network. Mauritel S.A. itself holds 100% of SAHAM (18%) and SFR (16%). Mauritel Mobiles, which holds a mobile telecommunications license. Mauritel SA is owned by the holding company Mobisud has been operating as an MVNO (Mobile Virtual Compagnie Mauritanienne de Communications (CMC), in which Network Operator) since December 1, 2006 in France. Maroc Telecom holds 80%, so that Maroc Telecom holds a Mobisud creates its own offers and services, develops its own 41.2% interest in the Mauritanian incumbent operator. Through IT system, manages its own brands, its communication, its CMC, the Mauritel group has been fully consolidated by Maroc sales activities and its customers. It uses the radio network of Telecom since July 1, 2004 (see the notes to the consolidated the French mobile operator SFR. financial statements). Mauritel’s contribution to the consolidated Mobisud is specifically targeted towards individuals who live earnings of the Maroc Telecom group amounted to MAD59 in France and have ties with Maghreb countries (Morocco, million in 2004 and MAD73 million in 2005 and MAD67 million in Algeria, Tunisia). 2006 ; 2006 earnings were impacted by an expense of MAD29 million (group share: MAD11 million) due to two voluntary Mobisud has been fully consolidated since Maroc Telecom redundancy plans. acquired its shareholding in the company (see notes to the Consolidated Financial Statements). Mauritel’s gross revenues totaled MAD997 million in 2006 (3.7% of Maroc Telecom’s consolidated gross revenues) with earnings from operations of MAD296 million (2.9% of Maroc Medi-1-Sat Telecom’s consolidated earnings from operations). Its non- current assets amounted to MAD902 million (5% of Maroc Medi-1-Sat has been accounted for by the equity method Telecom’s consolidated assets). Long-term debt amounted to since Maroc Telecom held 26.8% of the company’s share at MAD108 million (98% of Maroc Telecom’s consolidated long- December 31, 2006. Medi-1-Sat produces and broadcasts term debt) and cash and cash equivalents amounted to news programs in French and Arabic in Maghreb countries. MAD408 million. The company started broadcasting on December 1, 2006. The above data are 100% figures.
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5. FINANCIAL REPORT GENERAL OVERVIEW
GSM Al-Maghrib Internet portal), an investment in Matelca (currently in liquidation), and other minority stakes. These companies are GSM Al-Maghrib (GAM) was accounted for by the equity not consolidated as their results do not have a material impact method in 2005, but this is no longer the case since Maroc on Maroc Telecom’s financial statements. The burkinabe Telecom sold its 35% share to Air Time on March 27, 2006. operator, Onatel, in which Maroc Telecom acquired a 51% stake on December 28, 2006, was not consolidated at Other non consolidated investments December 31, 2006 due to the fact that reliable financial Maroc Telecom’s other non-consolidated investments include statements were not available at the acquisition date. Key Casanet (in charge of maintaining Maroc Telecom’s “Menara” data for these companies are presented in the annexes.
5.2.4 Significant accounting policies and estimates
Context of the preparation of 2006 consolidated • The following principle, pending publication of an IASb or financial statements IFRIC text on the matter; In application of the European regulation 1606/2002 dated • Pending a final IFRIC interpretation, Maroc Telecom does July 19, 2002 concerning the adoption of international not accrue loyalty bonuses granted to customers that do accounting standards, the consolidated financial not result in an additional cost. These bonuses are not statements of Maroc Telecom for the year ended December considered to be a greater benefit than those benefits 31, 2006, were prepared in accordance with International granted to new customers at the inception date of a Financial Reporting Standards (IFRS) as determined by the contract. Loyalty bonuses convertible into free services International Accounting Standards board (IASb) and are accrued. The accounting method used is compliant adopted by the European Union at December 31, 2006. For with the proposed IFRIC Interpretation D20 - IAS 18 on the purpose of comparison 2006 financial statements Customer Loyalty Programmes. include items from 2005 and 2004. Maroc Telecom has not opted for a prospective All new standards, interpretations or amendments published application of the following standards, amendments and by the IASb and compulsory in the European Union since interpretations: January 1, 2006, have been applied. This has not resulted in • IFRS 7: Financial Instruments: Disclosures; this text is a restatement of data for the fiscal years 2005 and 2004 as compulsory as from January 1, 2007; their impact was not significant. • IAS 1 Amendment: Presentation of Financial Statements – Capital Disclosures, this text is compulsory as from Statement of compliance January 1, 2007. Maroc Telecom’s consolidated financial statements have been Nonetheless, Maroc Telecom is currently reviewing the prepared in accordance with International Financial Reporting practical implications of these new texts and of their impact Standards (IFRS). on the presentation of its financial statements. Maroc Telecom prepared its 2006 consolidated financial statements and its 2005 and 2004 comparative financial Use of estimates and judgements statements in accordance with: In connection with the preparation of its financial • All mandatory IFRS and IFRIC (International Financial Reporting Interpretations Committee) standards and statements, Maroc Telecom must make estimates and interpretations at December 31, 2006. All these standards judgements and use certain assumptions. Maroc Telecom’s and interpretations have been adopted by the EU; management bases its estimates and judgements on past experience and on various other assumptions that it deems • by anticipation from January 1, 2004: reasonable under the circumstances. These estimates and • IAS 32 and IAS 39 on financial instruments. Maroc Telecom judgements permit an evaluation of the appropriateness of is not concerned by any sections of IAS 39 not adopted by book value. The figures derived from such estimates, the EU. Maroc Telecom has consequently applied IAS 39 judgements and assumptions could differ if other estimates, (see note 15) in full to its 2004 financial statements and its judgements or assumptions had been used. The main items 2005 consolidated financial statements; calculated on the basis of estimates and judgements are
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provisions for litigation, provisions for restructuring, the amount can be evaluated accurately. If the time value impairment of trade receivables and inventories, and effect is significant, provisions are determined by deferred income. discounting expected future cash flows at a pre-tax Management reviews its estimates, judgements and discount rate which reflects the market’s current evaluation evaluations regularly based on past experience and various of the time value of money. If no reliable estimate can be other assumptions that it deems reasonable, which made of the amount of the obligation, no provision is constitute the basis of its evaluations of the book value of recorded and a disclosure is made in the notes to the consolidated financial statements. its assets and liabilities. Restructuring provisions are recorded when the Group has The impact of the changes in accounting estimates is approved a formal and detailed restructuring program and accounted for in the period of the change and thereafter. has either started to implement the program or has published the program publicly. Future operating expenses are not provisioned. Contribution to universal service No provision for pensions and post-retirement benefits Maroc Telecom is required to set aside 2% of its annual relating to the Group’s affiliates incorporated in Morocco revenues net of interconnection costs for its universal has been recorded in the consolidated financial statements service obligation allowing the Company to offset this as pension expenses are covered by statutory pension contribution with its own costs of implementing the plans set up for employees in Morocco. universal service, thereby establishing the principle of “pay or play”. Maroc Telecom was exonerated from these contributions in 2004. Inventories In January 2006, the executive committee in charge of the Inventories comprise: ANRT universal service granted Maroc Telecom a subsidy of • Goods held for sale to customers upon line activation, which MAD202 million to implement the universal service program comprise fixed and mobile telephones and accessories. it had proposed for 2005. Given this amount, Maroc Inventories are accounted for using the first-in, first-out Telecom paid MAD137 million to the universal service fund method. The handsets delivered to distributors and non- for its contribution for 2005. activated at year-end are accounted for in inventories. In April 2006, the ANRT universal service executive The handsets which are still non-activated six months committee granted Maroc Telecom a subsidy of MAD178 after delivery are accounted for in revenues; million for the universal service program that it proposed for • Equipment and supplies unrelated to the telecoms 2006. Given this amount, Maroc Telecom will have to pay network. These inventories are measured at their average MAD195 million to the universal service fund for its acquisition cost. contribution for 2006. This amount was fully provisioned in the accounts at December 31, 2006. Inventories are valued at their lowest net realizable value. An impairment charge is recorded by comparing their fair value and their net realizable value. Deferred income Deferred income mainly corresponds to prepaid subscriptions, Trade accounts receivable and other receivables prepaid top-up cards sold to distributors and not yet activated, These comprise trade and other receivables and are initially unused prepaid minutes sold and to provisions related to recognized at their fair value, and then at amortized cost customer loyalty programs. less impairment. In 2006, Maroc Telecom carried out a one-off revaluation of Accounts receivable include trade receivables and government the non-activated prepaid top-up cards sold to distributors receivables: for the sum of MAD109 million. • Trade receivables: these are amounts receivable from individuals, distributors, businesses and international Provisions operators; Provisions are recorded when, at the end of the period, the • Government receivables: these are amounts receivable Group has a legal, regulatory or contractual commitment to from local authorities and the Moroccan government. a third party resulting from past events, and it is probable An impairment charge is recorded if the carrying amount of that there will be an outflow of resources to the third party, the asset under consideration is greater than the present without any consideration expected from the latter, and that value of the estimated discounted future cash flows.
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5. FINANCIAL REPORT GENERAL OVERVIEW
Contractual obligations and contingent assets and divided proportionally based on the number of employees liabilities in each business segment). Once a year, Maroc Telecom and its subsidiaries prepare detailed records on all contractual obligations, commercial Geographic segment data and financial commitments and contingent obligations, for Maroc Telecom operates in two geographic segments, i.e. which they have liability. These detailed records are updated Morocco and others. on a regular basis by the departments concerned and reviewed with senior management. The value of off-balance sheet commitments for suppliers of Definition of Maroc Telecom group financial statements fixed assets is determined as follows: Revenues • The difference between the minimum commitments and commitments actually fulfilled for the global agreements Revenues from operations are reported when it is probable and any endorsements (exceeding MAD50 million); that future economic benefits will flow to the Group, and that these revenues can be reliably measured. • The difference between firm orders and actual orders for all other contracts. Maroc Telecom group generates revenues from fixed and mobile telecommunications services, Internet services, and In addition, commitments arising from real estate rental the sale of products, which essentially comprise mobile and contracts are estimated on the basis of one month’s fixed-line handsets and multimedia equipment. expense given that virtually all termination clauses require one month’s notice. Revenues from telephone subscriptions are recognized on a straight-line basis over the subscription contract period. Revenues from incoming and outgoing call traffic are Segment data recognized when the service is rendered. For prepaid The group’s business is organized by business segment: services, revenues are recognized as calls are made. Fixed-line and Internet segment and Mobile segment. Revenues from Fixed-line and Internet and Mobile services Revenues from each business segment include revenues comprise: from the provision of telephone services to customers and • income from domestic and international outgoing and subscribers as well as inter-segment transactions. incoming calls under postpaid plans, which is recorded Intersegment transactions are conducted at market price. when generated; Earnings from operations reflect the difference between • income from subscriptions; operating income and expenses. Costs are allocated directly to the relevant segments or alternatively by using • income from prepaid services, which is recognized as cost allocation ratios based on economic criteria. calls are made; Capital expenditure is directly allocated to the relevant • income from advertising in printed and electronic segments. Fixed assets used by several segments are directories, which is recognized when the directories are allocated in proportion to dedicated assets. The main items published. not divided between the segments are tax, cash, financial Revenues from the sale of handsets, net of point-of-sale assets, borrowings and shareholders’ equity. discounts and connection charges, are recognized on The classification of the balance sheet by business segment activation of the line. Customer acquisition and loyalty costs is based partly on estimates. The classification used is for mobile and fixed-line services, principally consisting of based on reasonable assumptions. rebates on the sale of equipment to customers through The following balance sheet items are allocated on an distributors, are recognized as a deduction from revenues. apportionment basis between the two activities: Sales of services provided to subscribers managed by Maroc • For items comprising elements that can be allocated Telecom on behalf of content providers (mainly special-rate directly to a segment and elements shared by both numbers), are accounted for net of related expenses. segments: the shared part of these items is divided When the sale is made via a third party distributor supplied by proportionally in respect of the amounts allocated directly Maroc Telecom and involves a discount compared with the to these items; public sale price, revenues are recorded as gross revenues • For items comprising solely shared elements: these and commissions granted are recognized as operating amounts are allocated in a way that takes into account the expenses. type of items involved (e.g. employee-related liabilities are
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Operating expenses • Net provisions and impairment relating to trade accounts receivable and related accounts, inventories and Operating expenses include purchases, payroll costs, taxes litigation. and duties, other operating expenses and net depreciation, impairment and provisions. 1) Purchases Income from equity affiliates Purchases include the cost of handsets, expenses relating Medi-1-Sat is the only company accounted for using the to interconnection with domestic and international equity method up to December 31, 2006. operators, and other purchases (fuel and electricity, top-up A capital loss was recorded on the sale of the shareholding cards, supplies and consumables). in GSM Al-Maghrib in 2006. 2) Payroll costs GSM Al-Maghrib was the only company accounted for Payroll costs comprise wages, salaries and payroll taxes. using the equity method in 2005. 3) Taxes, duties and fees In 2004, GSM Al-Maghrib was accounted for using the equity method as well as the Mauritel group for the first six This item includes taxes and duties (urban taxes, patents, months of the year (fully consolidated as from July 1, 2004). taxes for occupying public land etc.) and royalties paid to ANRT: Net financial items • royalties related to frequency assignment in compliance with Act 24-96 and Order 310-98 of February 25, 1998; Net financial items include: • Income from cash and cash equivalents (investments). • costs related to universal service in compliance with Act Maroc Telecom’s cash assets generate income from banks 24-96 and Order 2.00.1333 of October 9, 2000; and or the Treasury, either as interest-bearing sight deposits, or • contributions to research, training and standardization in as term deposits not exceeding three months. Generally, telecommunications in compliance with Act 24-96 and Maroc Telecom does not make high-risk investments Order 2.00.1333 of October 9, 2000 (IAM specifications). (investment funds, shares, bonds or derivatives);
4) Other operating income and expenses • Cost of debt: interest expense and expenses incurred for Other operating income and expenses comprise commissions, early repayment. advertising, marketing and other promotional costs and other Net financial items are affected by foreign exchange gains expenses (network maintenance costs, audit and advisory and losses as the group receives income, pays expenses fees, postage and the costs of leasing transportation and has borrowings denominated in foreign currencies (See equipment, land and buildings). They also include foreign section 5.3.5 “Disclosure of qualitative and quantitative currency translation adjustments arising from operations and information about market risks”). expenses linked to voluntary redundancy plans. Income tax Communication expenses comprise advertising, marketing and other promotional and multimedia public relation costs Maroc Telecom pays income tax like any other Moroccan incurred to enhance Maroc Telecom’s market reach and corporation. The income tax rate is 35% in Morocco and profile. 25% in Mauritania. 5) Net depreciation, impairment and provisions Tax consists of tax due and deferred taxes. Deferred taxes reflect temporary differences between the book value and Net depreciation, impairment and provisions include: taxable value of assets or liabilities. • Depreciation calculated on a straight-line basis over the useful life of the relevant assets. Depreciation begins when the asset is effectively placed in service;
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5. FINANCIAL REPORT GENERAL OVERVIEW
Cash flows Comparability of Maroc Telecom financial statements • Net cash from operating activities corresponds to cash The consolidated financial statements have been used by earning plus or minus the change in the Group’s working the company as a means of communication to financial capital requirement. markets since its shares were listed on the Casablanca and • Net cash used in investing activities corresponds to the Paris stock exchanges. In this context, the 2006, 2005 and difference between purchases and sales of property, plant 2004 consolidated financial statements have been prepared and equipment, changes in the scope of consolidation, in accordance with IFRS. proceeds from the sales of investments, and net cash flows relating to long-term loans.
• Net cash used in financing activities mainly comprises repayment of long-term debt, increases in borrowings and the payment of dividends.
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5.3 CONSOLIDATED INCOME STATEMENT
The table below sets out data regarding Maroc Telecom’s consolidated income statement for the years ended December 31, 2004, 2005 and 2006.
(in millions of Moroccan dirhams) 2006 2005 2004
Consolidated revenues 22,615 20,542 17,408 Cost of purchases (3,692) (3,879) (3,209) Payroll costs (2,060) (2,056) (1,688) Sundry taxes and duties (771) (680) (398) Other operating income and expenses (2,686) (2,610) (1,781) Net depreciation, amortization and provisions (3,363) (2,639) (2,735)
Operating income 10,043 8,678 7,597
Other income (charges) from ordinary activities 7 4 Income from equity affiliates (21) 14 30
Earnings from continuing operations 10,029 8,695 7,627
Income from cash and cash equivalents 149 143 200 Finance expense (7) (13) (29) Net finance costs 142 130 171 Other financial income 4 47 9 Other financial expense (3) (65) (5)
Net financial items 143 112 175
Tax expense (3,339) (2,886) (2,574)
Earnings 6,833 5,921 5,228
Attributable to the equity holders of the parent 6,739 5,809 5,171 Minority interests 94 112 57
EARNINGS PER SHARE (in Moroccan dirhams)
Net income-group share 6,739 5,809 5,171 Number of shares as of December 31 879,095,340 879,095,340 879,095,340
Earnings per share 7.7 6.6 5.9
Diluted earnings per share 7.7 6.6 5.9
The various items of Maroc Telecom’s consolidated income statement and their changes during the periods under consideration are discussed below.
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5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
5.3.1 Comparison of 2006, 2005 and 2004
Revenues Operating expenses The table below shows the breakdown of revenues for the Operating expenses for the years ended December 31, 2004, years ended December 31, 2004, 2005 and 2006. 2005, and 2006 were as follows.
(in millions of Moroccan dirhams) Published (in millions of Moroccan dirhams) Published Year ended December 31, 2006 2005 2004 Year ended December 31, 2006 2005 2004 Consolidated revenues 22,615 20,542 17,408 Gross revenues Mobile 14,684 12,772 9,684 Cost of purchases 3,692 3,879 3,209 Gross revenues Fixed-line % 16% 19% 18% and Internet 12,613 11,949 11,133 Payroll costs 2,060 2,056 1,688 % 9% 10% 10% Total consolidated gross revenues 27,297 24,721 20,817 Sundry taxes and duties 771 680 398 % 3% 3% 2% Elimination of intra-segment transactions (4,682) (4,179) (3,409) Other operating income and expenses 2,686 2,610 1,781 Total net consolidated % 12% 13% 10% revenues 22,615 20,542 17,408 Net depreciation, amortization and provisions 3,363 2,639 2,735 % 15% 13% 16% between 2005 and 2006, Maroc Telecom’s consolidated revenues rose significantly as a result of growth in mobile Total operating expenses 12,572 11,864 9,811 activity, in the ADSL business, in data services for businesses and operators, and in incoming international traffic. In 2006, consolidated revenues amounted to MAD22,615 Purchases million, up 10.1%, compared to 2005. (in millions of Moroccan dirhams) In 2005, consolidated revenues amounted to MAD20,542 Year ended December 31, 2006 2005 2004 million, up 18%, compared to 2004. In 2005 revenue growth was already a result of growth in mobile activity, in the Cost of handsets 1,466 1,771 1,154 ADSL business and in incoming international traffic. Domestic and international interconnection costs 1,892 1,784 1,491
Other purchases 335 324 564
Total 3,693 3,879 3,209
Other purchases include the purchases of energy (fuel and electricity), phone cards and the other consumables. Purchases dropped 5% to MAD3,693 million in 2006 compared with MAD3,879 million in 2005, mainly due to purchases of handsets impacted by a slight decrease in the volume of handsets purchased and an 11% reduction in the unit purchase price.
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Purchases rose by 21% from MAD3,209 million in 2004 to The taxes, duties and fees include local taxes (trading MAD3,878 million in 2005, mainly due to the enlarged licenses, urban taxes), taxes for occupying public land and customer base and the development of loyalty bonuses. other taxes (stamp duty, vehicle tax). The fees include amounts paid to the ANRT for universal Payroll costs service and training. The increase in fees is mainly due to increased revenues, (in millions of Moroccan dirhams) which are the basis for calculating these fees. Year ended December 31, 2006 2005 2004 Wages 1,709 1,819 1,489 Payroll taxes 274 227 199 Other operating income and expenses
Wages and taxes 1,983 2,046 1,688 (in millions of Moroccan dirhams) Share- based compensation 77 10 Year ended December 31, 2006 2005 2004
Payroll costs 2,060 2,056 1,688 Communication 464 456 355
Average headcount 11,764 12,360 12,859 Commissions 718 659 487
This item includes the payroll costs for the period, excluding Other O/w : 1,504 1,495 939 redundancy costs, which were recognized as other operating Rental expenses 188 191 173 expenses. Maintenance and repair 504 476 396 On December 12, 2006, the group allocated 15 Vivendi Audit and advisory fees 177 116 134 shares to each active employee of Maroc Telecom and who Postage costs and banking services 85 105 93 at that date had been with the company for a minimum of six Voluntary redundancy plan 30 468 30 months. This plan was not subject to any performance related or presence conditions. The 15 shares allocated per Other 520 139 113 beneficiary will be issued at the end of a two-year period Total 2,686 2,610 1,781 from December 12, 2006. These shares are allocated without any conditions on employee presence between when the shares are granted and when they are issued. The charge for between 2005 and 2006, other operating income and Maroc Telecom, which represents the cost of services expenses rose slightly by 3% to MAD2,686 million compared rendered charged by Vivendi, was fully provisioned at with MAD2,610 million in 2005. This increase is mainly due to December 31, 2006. A matching entry is recognized directly mobile commissions linked to prepaid top-up card sales and in equity, which will be revalued at fair value at the end of the next two fiscal years, which is when the shares will be stepped-up sales efforts to increase the customer base and issued. maintenance and repair costs linked to network development. The increase is also due to operations-related foreign This charge is calculated by multiplying the number of exchange losses (line item “Other”). employees present on the company payroll on June 30, 2006 (11,252) by the number of shares allocated per employee The increase in the line item “Other” between 2006 and 2005 (15), by the reference share price on the allocation date is mainly due to: (€29.39 as at December 12, 2006) and by a discount • + MAD85 million: circuit rental; reflecting the absence of dividends over the first two years (91.75%). This discount will be reviewed at the end of each • + MAD180 million: foreign exchange impact (+102 in 2005 of the next two fiscal years. and -77 in 2006);
• + MAD59 million: compensation for intermediaries and fees Taxes, duties and fees (SOX, due diligence….);
(in millions of Moroccan dirhams) • + MAD28 million: travel and other expenses incurred in Year ended December 31, 2006 2005 2004 analyzing acquired companies or companies to be acquired. Taxes and duties 307 280 245 Fees 464 400 153 between 2004 and 2005, other operating expenses were up 47%, from MAD1,781 million in 2004 to MAD2,610 million in Total 771 680 398 2005. This was due to:
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5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
• higher advertising costs linked to intensive advertising (in millions of Moroccan dirhams) campaigns for the mobile business and increased corporate Year ended December 31, 2006 2005 2004 communication; Other intangible assets 564 519 324 • increased commissions for the mobile business linked to the sale of prepaid top-up cards along with intensive efforts Building and civil engineering 273 256 256 to win new customers; Technical plant and pylon 1,662 1,645 1,818 • a rise in maintenance costs and repairs resulting from the regional extension of the network; Other property, plant • expenses associated with voluntary redundancy plans and equipment 253 252 269 amounting to MAD468 million. Total 2,752 2,673 2,666
Net depreciation, impairment and provisions Net depreciation and impairment on fixed assets totaled The table below shows changes in net depreciation, MAD2,752 million in the year ended December 31, 2006 impairment and provisions for the years ended December 31, compared to MAD2,673 million in 2005 and MAD2,666 2004, 2005 and 2006. million in 2004. Net depreciation and impairment on fixed assets are relatively stable; the increases on new fixed (in millions of Moroccan dirhams) assets are offset by the fact that older assets are nearing Year ended December 31, 2006 2005 2004 the term of their depreciation period. Depreciation and impairment of fixed assets 2,752 2,673 2,666 Net provisions and impairment Impairment of accounts receivable 301 110 103 The table below sets out Maroc Telecom’s net provisions Impairment of inventories 15 4 39 and impairment for the years ended December 31, 2004, 2005 and 2006. Impairment of other receivables 5 35 (in millions of Moroccan dirhams) Provisions 290 (184) (73) Year ended December 31, 2006 2005 2004
Net depreciation, amortization Impairment of accounts receivable 301 110 103 and provisions 3,363 2,639 2,735 Impairment of inventories 15 4 39
Impairment of other receivables 5 35 The increase in impairment losses is linked to the growth of the customer base and a stricter policy for recording Provisions 290 (184) (73) impairment of trade receivables. Total 611 (35) 69 The MAD184 million release from provisions includes a release of MAD161 million relating to voluntary redundancies in 2005. Conversely, a provision of MAD300 million for the new Net provisions and impairment totaled MAD611 million at 31 voluntary redundancy plan which will be implemented in 2007, December 2006, compared with MAD-35 million in 2005. is integrated in the provisions for 2006. This is due to:
• the increase of the impairment loss linked to the growth of Depreciation and impairment of fixed assets the customer base and a stricter policy for recording The table below sets out Maroc Telecom’s depreciation and impairment of trade receivables; impairment of fixed assets for the years ended December 31, • the recording of a provision linked to the voluntary redundancy 2004, 2005 and 2006. plan for MAD300 million in 2006 compared to a reversal of MAD161 million in 2005 (related to a provision in 2004). Net provisions and impairment amounted to MAD-35 million in 2005, compared to MAD69 million in 2004. This resulted from changes in several items:
• increased impairment of trade receivables linked to the enlarged customer base;
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• the recognition of a provision of MAD161 million to cover Net financial items the voluntary redundancy plan launched at the end of 2004 and its release in 2005; (in millions of Moroccan dirhams) Year ended December 31, 2006 2005 2004 • MAD237 million of releases from provisions in 2004, following the favorable outcome of the dispute with Income from cash Meditel. and cash equivalents 149 143 200 Interest expenses on loans (7) (13) (29)
Operating income Net finance costs 142 130 171 The table below shows Maroc Telecom’s operating income for the years ended December 31, 2004, 2005 and 2006. (in millions of Moroccan dirhams) Year ended December 31, 2006 2005 2004 (in millions of Moroccan dirhams) Other financial expense (3) (65) (5) Year ended December 31, 2006 2005 2004 Other financial income 4 47 9 Operating income 10,043 8,678 7,597 Other financial income and expense 1 (18) 4 Operating income rose by 16% to MAD10,043 million in 2006 and by 14% to MAD8,678 million in 2005. Other financial expense represent the negative foreign This increase reflected substantial growth in revenues and exchange impact over the past three fiscal years. tight cost control despite intensive efforts to win over new Other financial income includes revenues from non-consolidated customers. equity investments and proceeds from their disposal. between 2005 and 2006, net financial income increased from Income from equity affiliates MAD112 million to MAD143 million, mainly due to the increase in investment income and the positive foreign exchange (in millions of Moroccan dirhams) impact on earnings. Year ended December 31, 2006 2005 2004 between, 2004 and 2005, net financial income fell from Mauritel 33 MAD175 million at December 31, 2004 to MAD112 million at December 31, 2005. This decline is mainly due to a reduction GAM (9) 14 (3) in investment income and to the negative impact of foreign exchange, partly offset by a decrease in interest expense as a Medi-1-Sat (12) result of the early repayment of loans. Total (21) 14 30 Foreign exchange losses totaled MAD3 million at December 31, 2006 compared with MAD65 million in 2005 and MAD5 million in 2004. Income from equity affiliates amounted to MAD-21 million at This is due to the impact of variations in the exchange rate December 31, 2006 compared to MAD14 million in 2005 between the Moroccan dirham and the US dollar, the euro and and MAD30 million in 2004. the Mauritanian ouguiya. Medi-1-SAT is accounted for using the equity method as from fiscal year 2006 with an impact of MAD-12 million. Income tax
Maroc Telecom sold its 35% stake in GSM Al-Maghrib in The table below shows the breakdown of tax into income tax 2006 for MAD13 million generating a capital loss of MAD12 due by Maroc Telecom and deferred taxes for the years ended million offset by positive earnings over the first quarter of December 31, 2004, 2005 and 2006: MAD3 million. (in millions of Moroccan dirhams) The group Mauritel, which was fully consolidated since July Year ended December 31, 2006 2005 2004 1, 2004, has been accounted for by the equity method since Income tax 3,249 2,871 2,560 the first quarter of the period. Deferred taxes 90 15 14 Current tax 3,339 2,886 2,574 Consolidated effective tax rate* 33% 33% 33%
* Income tax / earnings before taxes.
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5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
Income tax increased over the period in line with the rise in The table below shows breakdown of minority interest. earnings in net income from consolidated companies after deduction of non-recurrent items. (in millions of Moroccan dirhams) Year ended December 31, 2006 2005 2004 Earnings before minority interests Mauritel 102 112 57 Earnings before minority interests rose from MAD5,228 million Mobisud (8) in 2004 to MAD5,921 million in 2005 and to MAD6,833 million in 2006, representing a 13% increase in 2005 and a 15% Total Minority interests 94 112 57 increase in 2006.
Minority interests Earnings after minority interests Minority interests amounted to MAD94 million in 2006, Consolidated earnings after minority interests amounted to MAD112 million in 2005, and MAD57 million in 2004, reflecting MAD6,739 million at December 31, 2006 compared with the interests of shareholders other than Maroc Telecom in the MAD5,809 million in 2005 and MAD5,171 million in 2004. earnings of the group’s consolidated entities. This is partly due to the fact that Mauritel group has only been fully consolidated Earnings per share since July 1, 2004. based on 879,095,340 shares in issue, earnings per share amounted to MAD7.7 for the year ended December 31, 2006, MAD6.6 in 2005 and MAD5.9 in 2004.
5.3.2 Comparison of business segment results
Revenues and operating income for the Mobile Comparison of 2005 and 2006 data segment Mobile gross revenues rose sharply between 2005 and 2006 (in millions of Moroccan dirhams) up 15% mainly due to a 15.5% growth in services. Year ended December 31, 2006 2005 2004 Consolidated operating income in the Mobile business Gross revenues-Mobile 14,684 12,772 9,684 totaled MAD6,904 million in 2006 up 28%. This strong • Maroc Telecom 13,996 12,198 9,444 performance is due to the higher revenues and tight cost Revenues from sale of handsets 969 914 562 control for acquisition costs despite strong customer base Revenues from sale of services 13,026 11,284 8,882 growth. • Mauritel 688 573 239 Maroc Telecom: • Elimination of inter-segment transactions (3,349) (2,938) (2,287) Revenues grew strongly as a result of strong customer base growth, up 30% at 10.707 million customers, and a net Operating income-Mobile 6,904 5,394 3,806 increase of 2.47 million clients in 2006. • Maroc Telecom 6,630 5,146 3,714 Continuing as a forerunner, Maroc Telecom confirmed its • Mauritel 309 248 92 market share in 2006 by developing innovative offers, extending unlimited offers to all rate plans, introducing a • Mobisud (35) SIM card at MAD30 (including MAD10 in call credit), new Contribution to consolidated offers for businesses and several new promotional offers. operating income 69% 62% 50% Prepaid ARPU dropped 10.3% to MAD87, due to the strong Depreciation and impairment increase in the customer base and reduced call prices. of intangible assets and PP&E- Postpaid ARPU dropped slightly by 1.1% to MAD702 Mobile (1,428) (1,318) (1,239) compared with 2005. The price cuts implemented by Maroc
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Telecom have made the company more competitive, and Inter-segment transactions, which include transactions both favor increased usage and a wider customer base. within Maroc Telecom and between affiliated companies, increased by 28% from MAD2,287 million to MAD2,938 With the increase in the customer base and the reduction in million, due to the rise in incoming traffic (mainly access costs, the churn rate is now 20.3% (+8.1 points international) to the mobile network. compared with 2005). Intersegment transactions, which include transactions both Mauritel: within Maroc Telecom and between affiliated companies, In 2005, Mauritel Mobiles’ financial data showed: increased by 14% from MAD2,938 million to MAD3,349 million, due to the rise in incoming traffic (mainly • 40% growth in Mobile revenues compared to 2004, (24% international) to the mobile network. considering 2004 as a 12 month period instead of 6 months for the reported figures, as Maroc Telecom Mauritel: acquired its shareholding on July 1, 2004), at MAD574 million at December 31, 2005, mainly due to a 41% In 2006, Mauritel Mobiles showed: increase in the customer base to more than 465,000 • 20% growth in revenues at MAD688 million, mainly due customers to the 29% increase in the customer base which totaled • a 170% increase in operating income to MAD248 million more than 601,221 customers; at December 31, 2005 compared with 2004 (+39% • operating income of MAD309 million, up 25% compared considering 2004 as a 12 month period instead of 6 with 2005. months for the reported figures, as Maroc Telecom acquired its shareholding on July 1, 2004).
Comparison of 2004 and 2005 data Revenues and operating income for the Fixed-line and Mobile gross revenues increased significantly between 2004 Internet segment and 2005, up 32%. Revenues from mobile telecommunications services rose (in millions of Moroccan dirhams) 27%. Eliminating the effect of the rise in international call Year ended December 31, 2006 2005 2004 termination tariffs determined by ANRT and effective from Gross revenues-Fixed-line 12,613 11,949 11,134 January 1, 2005, revenues increased by 21%. • Maroc Telecom 12,304 11,617 10,945 Consolidated operating income in the Mobile business reached MAD5,394 million in 2005, up 42% compared with Voice 6,618 6,583 6,597 2004. This growth was partly due to the increase in Interconnection 3,294 3,145 2,760 international call termination tariffs. Stripping this out, Data 1,585 1,374 1,241 operating income in the Mobile business would have Internet 807 515 346 increased by 27%, due to growth in the customer base to • Mauritel 309 332 189 8.8 million (+2.4 million customers over the year) and tight control of customer acquisition costs. • Elimination of inter-segment transactions (1,333) (1,241) (1,122) Maroc Telecom: Operating income-Fixed-line 3,139 3,284 3,791 Strong revenue growth was mainly due to a 38% increase in the customer base, along with the resilience of prepaid • Maroc Telecom 3,153 3,266 3,756 ARPU, which was MAD94.1 despite the significant increase in its customer base. Postpaid ARPU declined slightly • Mauritel (14) 18 35 (MAD709.8, down 10% compared with 2004) due to Maroc Contribution to consolidated Telecom’s strategy of encouraging prepaid customers to operating income 31% 38% 50% migrate to postpaid plans, which generate greater revenues per subscriber. Depreciation, amortization and impairment of intangible assets and PP&E- Revenues from sales of handsets were up 63%, from Fixed-line (1,324) (1,356) (1,427) MAD562 million to MAD914 million, as a result of new packs retailing at MAD290. by focusing on increasing customer loyalty, the customer churn rate only rose by 0.6 points to 12.2% compared with 2004.
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5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
Comparison of 2005 and 2006 data the end of December 2006 compared with 242,000 at December 31, 2005; In 2006, consolidated revenues in the Fixed-line and Internet segment amounted to MAD12,613 million, up 5.6% • Intersegment transactions were up 7% from MAD-1,241 compared with 2005. million in 2005 to MAD1,333 million in 2006, mainly due to the increase in outgoing international traffic from Maroc In 2006, consolidated operating income in the fixed-line Telecom mobiles, together with leased lines for the mobile totaled MAD3,139 million, down 4% compared with 2005. network.
Maroc Telecom: Mauritel: Revenues rose 6% to MAD12,304 million. This performance In 2006, Mauritel SA revenues from Fixed-line business was mainly a result of strong momentum on the public were down 7% to MAD309 million compared with 2005. telephony segment (revenues up almost 15%), the increase Mauritel SA’s Fixed-line customer base, mainly in incoming international traffic (+11%), the confirmed concentrated in Nouakchott and Nouadhibou, decreased success of ADSL, and the strong performance of the data by 6.4% to 37,447 lines. The company recorded an services to businesses and operators for which revenues operating loss of MAD14 million at December 31, 2006. continue to grow significantly (+15% including leased lines This includes MAD29 million in restructuring costs. for the mobile business). On the voice segment the average Excluding these costs, the company would have recorded invoice per customer increased by almost 3%. operating income of MAD15 million compared with The Fixed-line customer base dropped by -5.6% to 1,266 MAD18 million in 2005. million lines compared with December 31, 2005. The ADSL customer base continues to expand rapidly and at December 31, 2006, totaled 384,000 lines (+59% compared Comparison of 2004 and 2005 data with December 31, 2005). In 2005, gross revenues in the Fixed-line and Internet To build customer loyalty and attract new customers, in segment amounted to MAD11,949 million, up 7% compared September 2006 Maroc Telecom launched Phony, new with 2004. unlimited Fixed-line telecommunications offers enabling Fixed-line consolidated operating income decreased 13% to customers to make unlimited calls to all Maroc Telecom MAD3,284 million in 2005. Excluding the voluntary fixed-line domestic and local numbers. The success of redundancy plan, which mainly concerns the Fixed-line these offers stabilized the customer base over the fourth business, and excluding the impact of the increase in quarter. international call termination tariffs for mobile operators This increase in Fixed-line and Internet revenues can be effective from January 1, 2005, operating income increased analyzed as follows: 8%. • MAD6,618 million, generated by voice traffic, compared to MAD6,583 million in 2005. In 2006 this segment Maroc Telecom: benefited from the strong momentum of the public Revenues rose due to the increase in the number of fixed telephony segment and the rates review that was carried lines (up 2.4% compared with 2004), strong growth in the out at the end of 2005; ADSL business and continuing growth in incoming • MAD3,294 million from interconnection services in 2006, international traffic (up 19% compared with 2004). These up 5% from MAD3,145 million in 2005. This increase was positive factors offset the decline in customers’ average driven primarily by the rise in incoming international traffic spending on voice calls (down 4% compared with 2004). (up 11%), partly offset by the reduction in the average This increase in Fixed-line and Internet revenues can be price per incoming minute paid by international operators; analyzed as follows: • MAD1,585 million for data service revenues at December • MAD6,583 million generated by voice traffic, compared to 31, 2006 compared with MAD1,374 million in 2005, up MAD6,597 million in 2004. This slight decline was due to 15%, reflecting Maroc Telecom’s active presence on this a decline in average use, despite the broader customer segment; base; • MAD807 million from Internet revenues at December 31, • MAD3,145 million from interconnection services, up 14% 2006 compared with MAD515 million in 2005, up 57%. from MAD2,760 million in 2004. This increase was driven This strong performance was due to growth in the ADSL primarily by the rise in incoming international traffic (up customer base, stimulated by price cuts and promotional 19%), partly offset by the reduction in the average price offers, which continued to grow with 384,000 accesses at per incoming minute paid by international operators;
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• MAD1,374 million for data revenues as of December 31, Mauritel: 2005, compared to MAD1,241 million in 2004, up 10%; In 2005, Mauritel SA fixed-line revenues amounted to • MAD515 million from Internet revenues, compared with MAD332 million, up 76% compared to 2004 (down 6% MAD346 million in 2004 (up 49%). This strong performance considering 2004 as a 12 month period instead of 6 was due to growth in the ADSL customer base, which months for the reported figures, as Maroc Telecom grew from 60,000 at December 31, 2004 to 242,000 at acquired its shareholding on July 1, 2004). In 2005, the December 31, 2005, stimulated by a price cut in March number of Mauritel SA fixed lines, concentrated mainly in Nouakchott and Nouadhibou, grew by 2.6% to nearly 2005 and by promotions at the end of the year; 40,000. • Inter-segment transactions were up 11% from MAD-1,122 Operating income amounted to MAD18 million at December million in 2004 to MAD-1,241 million in 2005, mainly due to 31, 2005. the increase in outgoing international traffic from Maroc Telecom mobiles, together with leased lines for the mobile network.
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5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
5.3.3 Cash and cash equivalents
The group’s main source of liquidity has been net cash from operating activities. Maroc Telecom group funds all its capital expenditure with its operating cash flow.
Statement of cash flows The table below contains information relating to Maroc Telecom’s consolidated cash flows for the specified periods:
(in millions of Moroccan dirhams) Year ended December 31, 2006 2005 2004 Cash flows from operating activities 11,233 8,425 7,806
Cash flows used in investing activities (6,435) (3,119) (2,281)
Cash flows used in financing activities (9,615) (5,098) (5,846)
Foreign currency translation adjustments (27) 11 (13)
Change in cash and cash equivalents (4,844) 219 (334)
Cash and cash equivalents at the beginning of the period 7,585 7,366 7,700
Cash and cash equivalents at the end of the period 2,741 7,585 7,366
Change in cash and cash equivalents (4,844) 219 (334)
Cash flow from operating activities Maroc Telecom acquired a 51% stake in Gabon Telecom for MAD61 million. At 31 December 2006, cash flow from operating activities totaled MAD11,233 million, a MAD2,807 million increase Maroc Telecom will also continue its investment strategy in compared with December 31, 2005. This increase is 2007, both in Morocco and Mauritania and in the recently principally the result of an improvement in net income and a acquired subsidiaries. reduction in working capital requirements due to increased A detailed breakdown of investments by segment is shown debt. below. In 2005, cash flows from operating activities totaled MAD8,426 million, up MAD619 million compared with 2004. This was mainly due to improved earnings, partly offset by Cash flows used in financing activities an increase in working capital requirements caused At December 31, 2006, cash flows used in financing primarily by an increase in accounts receivable. activities rose to MAD9,615 million from MAD5,098 million in 2005, due mainly to a dividend payout linked to the capital reduction for MAD3,516 million. The distribution of Cash flows used in investing activities ordinary dividends was significantly higher in 2006 at At December 31, 2006, cash flows used in investing MAD6,142 million compared with MAD4,424 million in activities amounted to MAD6,435 million compared with 2005. MAD3,119 million in 2005. This is mainly due to the fact that At December 31, 2005, cash flows used in financing activities the capital expenditure program in 2006 was greater than in amounted to MAD5,098 million compared to MAD5,846 2005 (+23%) and the acquisition of a 51% stake in Onatel million in 2004, reflecting primarily the payment of a dividend for MAD2,476 million. in 2004 (MAD5,124 million including MAD2,374 million in At December 31, 2005, cash flows used in investing activities extraordinary dividends). The payment of ordinary dividends amounted to MAD3,119 million compared to MAD2,281 increased in 2005 to MAD4,124 million compared with million in 2004. This increase is the result of a more MAD2,750 million in 2004. substantial capital expenditure program in 2005 than in 2004. In 2007, Maroc Telecom will continue to pursue its international growth strategy. Indeed, in February 2007,
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Capital expenditure and supervision of all parts of the network (fixed-line, mobile and company networks together), and the development of The table below sets out Maroc Telecom’s capital network capacity and coverage (+450 bTS). expenditure by segment for the periods specified. In 2007, the investments will be focused on increasing local (in millions of Moroccan dirhams) reach and network capacity, the deployment of 3G equipment Year ended December 31, 2006 2005 2004 and the extension of service platforms.
Fixed-Line 1,533 1,439 1,366 Capital expenditure relating to the Fixed-line and Internet segment Mobile 2,445 1,771 1,122 In 2006, continued ADSL growth and the introduction of TV Total 3,978 3,210 2,488 via ADSL required significant investments in access, core network and transmission equipment. These investments Preliminary note have enabled the Group to deal with the growth in the ADSL customer base. The capacity of the transmission network The difference between tangible and intangible capital has been increased by almost 90%, and the Company has expenditure and net cash used in investing activities is due started laying a submarine cable between Assilah and to the latter taking into account financial investments, sales Marseille. of fixed assets and the repayment of long-term loans. In 2005, the increase in ADSL users required capital In 2006, the difference between net cash used in investing expenditure in access lines, active equipment and activities and tangible and intangible investments was mainly transmission capacity. These investments led to a near due to the acquisition of securities for MAD2,481 million. In doubling in backbone network capacity, a four-fold increase 2006, investments amounted to MAD3,978 million. in DSL connection capacity (+350,000 accesses deployed), In 2005, the difference between net cash used in investing and increased reliability of wireline access. activities and tangible and intangible investments was In 2004, capital expenditure related mainly to the mainly the result of sales of property and securities (MAD88 optimization of the switching network and the extension of million), purchases of securities (MAD13 million) and the ADSL capacity. repayment of housing loans by employees (MAD16 million). In 2007, investments will be focused on increasing the In 2005, capital expenditure amounted to MAD3,210 million. capacity due to DSL traffic and Mobile traffic using the In 2004, the difference between net cash used in investing fixed-line network, on service platforms and on completion activities and tangible and intangible investments was of the submarine cable. mainly the result of sales of property and securities (MAD29 million) and the repayment of housing loans by employees Capital expenditure on information systems (MAD18 million). In 2004, capital expenditure amounted MAD2,488 million, in accordance with the budget. Maroc Telecom’s expenditure on information systems is intended to: Capital expenditure relating to the Mobile segment • industrialize network planning, administration and management; In 2006 and 2005, Maroc Telecom continued to invest in • optimize, integrate and increase the reliability of the enhancing the mobile network’s local reach and capacity. Company’s technical, commercial, human resource, 424 new base transceiver stations (bTS) were placed in administrative and financial processes. service in 2006 and 70 replacement bTS, and 430 in 2005. base station controller (bSC) and network switching In the period from 2004 - 2006, the principal investments on subsystem (NSS) capacity was reinforced following an information systems were: increase in traffic and in the number of clients in 2006 (up • 2004: implementation of the first section of the Finance 2.5 million) and in 2005 (+1.9 million). A redeployment and system (introduction of the first version of an integrated extension program of the TRX started in 2002 has optimized management software package), overhaul of the Fixed- the use of the radio access equipment (TRX). The group also line system (introduction scheduled for early 2005) and invested in service platforms (including IN and SMS MMS, optimization of data storage solutions; VMS systems etc.), and started up new platforms (see chapter 4). • 2005: introduction of the Fixed-line system, changes to In 2004, capital expenditure was related to network and the Finances, Purchasing and HR systems and installation infrastructure development and construction, the implementation of cross back-up sites for Rabat-Casablanca; of a network monitoring center allowing remote inspection • 2006: changes to the Fixed-line system (Fixed-line and
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5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
Internet invoicing, set up and activation), continue balance of unpaid loans was MAD55 million including installing back-up sites and further changes to the MAD53 million for Mauritel. Finances systems. The table below shows the breakdown of outstanding debt In 2007, expenditure on information systems will be shared (excluding accrued interest) by currency for the periods roughly equally between the Fixed-line and Internet sales specified: systems, the Mobile sales systems, the Network and Financial systems, automation systems and production (in millions of Moroccan dirhams) platforms (back-up, monitoring…). Year ended December 31, 2006 2005 2004
Euro 1 11 65 Other non-current financial assets US Dollar - 632
At December 31, 2006, other non-current financial assets Other currencies (mainly Mauritanian ouguiya) 52 105 160 included investments totaling MAD2,354 million in non- Moroccan dirham - 48 consolidated companies (compared with MAD54 million in 2005 and MAD53 million in 2004) and loans to employees Outstanding debt 53 116 905 totaling MAD70 million (compared to MAD82 million in 2005 Interest accrued 1 3 11 and MAD99 million in 2004) and an overdraft extended to Medi-1-Sat for the sum of MAD14 million refundable as from Total borrowing 55 119 916 2013. The Group’s various financial investments and divestments Due to its cash flow from operating activities and despite over the past three years can be summarized as follows: the ordinary dividend and the one-off payout and its equity shareholdings, the Group has a positive cash position as • In 2004, Maroc Telecom sold its stake in New Skies follows: Satellite for MAD11 million, pursuant to the decision of the extraordinary general meeting of shareholders approving (in millions of Moroccan dirhams) the sale of the company to the blackstone investment Year ended December 31, 2006 2005 2004 fund. Outstanding debt and • In 2005, Maroc Telecom sold its stake in Intelsat for accrued interests (a) 55 119 916 MAD62 million, pursuant to the decision of the 2,741 7,585 7,414 extraordinary general meeting of shareholders, acquired a Cash (b) minority stake in the Medi-1-Sat fund for around MAD12 Net cash position (b) – (a) 2,686 7,466 6,498 million and participated in the Sindibad fund capital * Investment securities are treated as cash equivalents if their maturity does not increase (MAD1.4 million). exceed three months. • In 2006, Maroc Telecom sold its stake in GSM Al-Maghrib In its reports to the market authorities, Vivendi states that for MAD13 million, pursuant to the decision of the certain of its bank loans and/or bond issues contain shareholders’ meeting, participated for MAD10 million in standard provisions under which Vivendi undertakes to Medi-1-Sat’s rights issue increasing its share to 27% in ensure that its subsidiaries, including the Company, comply the company, created Maroc Telecom belgium with a with certain commitments such as only carrying out contribution of MAD17 million and acquired a 51% investments, acquisitions or sales of assets in accordance shareholding in Onatel the burkinabe operator for with certain conditions, not granting loans to companies MAD2,476 million. outside the Vivendi group and not providing security for assets in excess of certain defined amounts. The thresholds Capital resources below which these operations are permitted are often determined on a global basis for all subsidiaries of the To date, Maroc Telecom has funded its activities mainly Vivendi group, and the Company may not be able to take full through its surplus cash. Accordingly, Maroc Telecom has advantage of these exclusions in the event that other not taken out any loans since 1996 and has adopted a subsidiaries of Vivendi have already taken advantage of policy of repaying outstanding debt ahead of schedule. them. Maroc Telecom repaid almost MAD2.3 billion of outstanding In addition, Vivendi loans contain financial ratios that it has debt ahead of schedule between 2001 and 2005. undertaken to comply with, such as the maximum ratio of net debt to EbITDA, the minimum ratio of EbITDA to net These early redemptions allow Maroc Telecom to reduce its financial costs and the maximum percentage of net debt foreign exchange risk. At December 31, 2006, the outstanding taken out by its subsidiaries compared with the
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consolidated Group net debt. These ratios are determined Commitments given on a consolidated basis and take into account the indebtedness, the financial position and the results of (in millions of Moroccan dirhams) Year ended December 31, 2006 2005 2004 Vivendi subsidiaries, including the Company. Consequently, Vivendi may exercise its power of control Contract guarantees over the Company to prevent it from undertaking certain Securitized receivables operations to the extent that financing of such operations (Daily receivables) would not comply with the commitments made by Vivendi with regard to its loans or would result in Vivendi breaching Pledges, mortgages and its financial ratio covenants. real security interests Not being a party to these loans or commitments, the Guarantees, security and warranties 205 236 226 Company is not capable of estimating the nature or the Other commitments* 1,336 689 907 exact extent of their restrictions or terms contained within the documents, other than those documents that are Total 1,541 925 1,133 publicly available. Maroc Telecom cannot guarantee that the * balances of contracts with suppliers. Vivendi group has made other commitments that may have an impact on the activities of the Company and its financial resources (see 4.14 “Risk factors”). Commitments received (in millions of Moroccan dirhams) Commitments Year ended December 31, 2006 2005 2004 Maroc Telecom’s commitments include the balance of Government guarantee on loans 1 11 694 contracts made with suppliers and commitments relating to capital increases or financing requirements for companies in Guarantees, security and warranties 1,152 705 598 which Maroc Telecom holds a stake. These commitments Total 1,153 716 1,292 amounted to MAD1,042 million at December 31, 2006. Maroc Telecom also had guarantees and warranties relating to equipment supply contracts for MAD205 million. Maroc Telecom had MAD66 million in mortgages (collateral The table below sets out these commitments (in million of and pledges) at December 31, 2006 compared with MAD80 Moroccan dirhams): million in 2005 and MAD96 million in 2004.
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5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
5.3.4 Contractual obligations and commercial commitments
The table below sets out the contractual obligations borne by Maroc Telecom at December 31, 2006, by maturity:
(in millions of Moroccan dirhams) Total < 1 year 1 - 5 years > 5 years
Long-term debts 54 43 11 0
Finance lease obligations -- --
Operating leases* 51 33 19
Irrevocable purchase obligations -- --
Other long-term commitments -- --
Total 105 76 30
* long-term vehicle leases (excluding tax).
Maroc Telecom has no lines of credit, letters of credit, three years of MAD7,410 million and create 150 new jobs warranties or buy-back obligations. during the period 2006-2009. In return, the public authorities Maroc Telecom entered into an investment agreement with agreed to exonerate Maroc Telecom from customs duty for all the public authorities of the Kingdom of Morocco in 2006, capital goods imported. by December 31, 2006 Maroc applicable since April 30, 2006, whereby Maroc Telecom Telecom’s capital expenditure under this program totaled agreed to implement a capital expenditure program over MAD2,836 million.
5.3.5 Disclosure of qualitative and quantitative information about market risks
The group is exposed to various market risks connected In addition, Maroc Telecom had debt of MAD119 million at with its business. December 31, 2006, denominated mainly in Mauritanian ouguiyas (see 5.3.3 “Cash and cash equivalents—Capital Foreign exchange risk resources”). Maroc Telecom is exposed to changes in exchange rates as Maroc Telecom cannot net its foreign currency disbursements the breakdown of its foreign currency receipts differs from and receipts, as Moroccan law allows it to retain only 20% of the breakdown of its foreign currency disbursements. its telecom receipts in a foreign currency account. The remaining Foreign currency receipts and disbursements represent a 80% are converted into Moroccan dirham. Consequently, significant portion of the company’s activity. Maroc Telecom’s earnings may be affected by fluctuations in Maroc Telecom’s foreign currency receipts relate to revenues exchange rates, and in particular by fluctuations in the from international operations and its foreign currency Moroccan dirham against the US dollar or the euro. disbursements relate to the servicing of debt, payments to Finally, Maroc Telecom could be exposed to risks suppliers (in particular concerning investments and purchases connected with the conversion into Moroccan dirhams of of handsets) and payment for interconnection with foreign the earnings and assets and liabilities of its non-Moroccan operators. These disbursements are mainly denominated in euros. The portion of foreign currency disbursements subsidiaries in the event that they become significant for denominated in euros, excluding Mauritel, was 73% at Maroc Telecom. December 31, 2006, out of an aggregate of MAD6,320 million. In 2006, the euro rose 2.1% in relation to the Moroccan dirham These foreign currency disbursements exceed the amount of (from MAD10.9085 at December 31, 2005 to MAD11.1410 foreign currency receipts (MAD3,331 million in 2006). at December 31, 2006). Over the same period, the US dollar
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fell 8.6%, from MAD 9.2494 in 2005 to MAD 8.4566 in 2006. commitments to foreign suppliers. The table below sets out the Company’s net foreign- Maroc Telecom is long on the US dollar and short on the euro. currency positions (excluding Mauritel) at December 31, Most net foreign-currency assets are euro denominated, and 2006. so Maroc Telecom is more exposed to fluctuations in the exchange rate between the euro and the Moroccan dirham. A 1% rise in the euro and US dollar against the Moroccan (in millions) EURO USD Other dirham would have an impact at December 31, 2006 of: currencies (Euro + MAD20 million on assets denominated in foreign currencies, equivalent)* - MAD19 million on liabilities denominated in foreign Assets 136 59 0 currencies, + MAD1 million on net liabilities, Liabilities (161) 0 (6) - MAD8 million on commitments, Net assets (liabilities) (25) 59 (6) - MAD7 million on total liabilities denominated in foreign currencies. Commitments (58) (16) (3) Conversely, a 1% decrease in the euro and US dollar against Total net assets (liabilities) the Moroccan dirham would have an impact at December 31, denominated in foreign currencies (83) 43 (9) 2006 of:
* Assuming Euro1= MAD11.410 - MAD20 million for assets denominated in foreign currencies, Nb: + MAD19 million on liabilities denominated in foreign (1) the other main currencies are the Japanese Yen (JPY), the Swiss franc currencies, (CHF) and the livre sterling (GbP) (2) Exchange rate against in euro and US dollar are calculated by applying - MAD1 million on net liabilities, the currency-specific proportion of receipts and disbursements made + MAD8 million on commitments, during 2006 to the receivables and payables of foreign operators in Special Drawing Rights (SDR) at December 31, 2006. + MAD7 million on total liabilities denominated in foreign (3) As regards the balance of commitments relating to current agreements, currencies. the breakdown by currency is based on the balance observed for such contracts. Liquidity risk The group does not use foreign currency hedging instruments. As regards the various loans taken out by the Company, it is Assets denominated in foreign currencies are mainly not exposed to any risk of forced early redemption resulting receivables from foreign operators. from covenants or other clauses. In addition, the loans taken Liabilities denominated in foreign currencies are mainly out by the Company are secured by the Moroccan debts to foreign operators and suppliers. government. The Company has not securitized any of its Commitments in foreign currencies are Maroc Telecom’s accounts receivable.
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Interest-rate risk The table below sets out outstanding debt by creditor at December 31, 2006:
(in millions of Moroccan dirhams) Interest rate Maturity December 31, December 31, December 31, % 2006 2005 2004 AbCI EUR13.9 m 08/95-02/05 6.73% 18/02/2005 08
AbCI EUR7.2 m 09/96-03/07 7.41% 28/03/2007 1 7 14 NATEXIS EUR2.7 m 12/95-06/05 6.70% 03/06/2005 02 HSbC CCF EUR10.5 m 01/96-07/05 7.34% 11/07/2005 0 12 HSbC CCF EUR11.5 m 09/95-03/05 6.50% 15/03/2005 06 KFWF EUR18.7 m 01/97-04/06 8.07% 09/04/2006 5 23 SEE USD69 m 07/98-01/38 0.00% 11/01/2038 0 476 SEE USD20.7 m 01/01-07/40 0.00% 10/07/2040 0 154 Mauritanian government (October 2000) 8.00% 18/01/2008 53 103 170 Others 8.00% 1 43 bank overdrafts 48
Borrowings and other financial liabilities 55 119 916
The table below sets out net cash position by maturity: Year ended December 31, 2006:
(in millions of Moroccan dirhams) < 1 year 1 - 5 years > 5 years Total borrowings 44 11 55
Facilities and overdrafts 0
Borrowings and other financial liabilities 44 11 0 55
Cash and cash equivalents 2,741 2,741
Net cash position 2,697 (11) 0 2,686
Year ended December 31, 2005:
(in millions of Moroccan dirhams) < 1 year 1 - 5 years > 5 years Total borrowings 62 57 119
Facilities and overdrafts
Borrowings and other financial liabilities 62 57 119
Cash and cash equivalents 7,585 7,585
Net cash position 7,523 (57) 7,466
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Year ended December 31, 2004:
(in millions of Moroccan dirhams) < 1 year 1 - 5 years > 5 years Total borrowings 148 183 537 868
Facilities and overdrafts 48 48
Borrowings and other financial liabilities 196 183 537 916
Cash and cash equivalents 7,414 7,414
Net cash position 7,218 (183) (537) 6,498
All loans taken out by Maroc Telecom are fixed-rate loans. • Conversely, based on the average cash position at Consequently, Maroc Telecom is not exposed to any material December 31, 2006, a 1% decrease in the interest rate impact from favorable or unfavorable changes in interest rates. would lead to a loss of income of MAD37 million over a one- year investment period. Surplus cash is invested at market rates. Changes in interest rates on credit balances therefore have a significant impact on investment income: Equity risk • based on the average cash position at December 31, 2006, Maroc Telecom does not have a significant portfolio of listed a 1% increase in the interest rate would lead to additional equities. As a result, there is no risk relating to changes in the income of MAD37 million over a one-year investment value of such securities. period;
5.3.6 Transition from individual financial statements to consolidated financial statements
The consolidated financial statements are derived from the • The reclassification of the Fidel provision, which is instead individual financial statements of Maroc Telecom and its netted against revenues; subsidiaries, as prepared under Moroccan and Mauritanian • The reclassification under financial income of non-current generally accepted accounting principles. A number of financial items. adjustments are made to comply with consolidation rules The main adjustments to the balance sheet relate to current and to bring the individual financial statements into assets: compliance with the format required by IFRS. For the details of the transition to IFRS, please refer to part II of the • SIM cards: reclassification of inventories under fixed financial statements below. assets; • Non-activated handsets: handsets sold but not activated The main adjustments to the income statement items are: are restated to take into account the recognition of • The cancellation of revenues related to cancelled revenues upon activation. subscriptions between the date of cancellation and the Regarding trade payables, the main restatement entails end of subscription period; recording certain operating payables as provisions for • The recognition as consolidated operating expenses of liabilities and charges. retailers’ commissions. These costs were initially netted The changes in presentation do not affect group earnings. against revenues in the individual financial statements; Other consolidation adjustments include the elimination of • The reclassification of non-current items to operating statutory provisions, the determination of deferred taxes, income, with the exception of variations in the value of and all consolidation-related operations (such as the fixed assets; elimination of investment securities).
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
5.4 Consolidated Financial Statements
In compliance with European regulation 1606/2002 of July 19, • the consolidated financial statements at December 31, 2003 2002, the consolidated financial statements of Maroc Telecom prepared under French GAAP and the related auditors’ were prepared in accordance with IFRS as approved by or in report are presented on pages 122 to 159 and on page 208 the process of being approved by the European Union (EU) at respectively of the annual report n° I 04-198 filed with the year-end. The following elements are included for reference: Autorité des marchés financiers on November 8, 2004. • the consolidated financial statements at December 31, The «IFRS 2004 Transition» report was published on 2004 prepared under French GAAP and the related September 9, 2005. This report on the transition to IFRS as auditors’ report are presented on pages 100 to 154 and on regards 2004 financial information set out, as preliminary page 157 respectively of the annual report n° R 05-038 information, the expected quantifiable impact of the IFRS filed with the Autorité des marchés financiers on April 8, adoption on the balance sheet as the transition date (January 2005; 1, 2004), the financial position at December 31, 2004 and financial performance in 2004.
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Consolidated balance Sheet at December 31, 2006, 2005 and 2004
(in millions of Moroccan dirhams) ASSETS Note 2006 2005 2004 Goodwill 3 146 129 137
Other intangible assets 4 2,415 1,392 1,307
Property, plant and equipment 5 12,460 12,584 11,922
Investments in equity affiliates 6 9 22 8
Other non-current financial assets 7 2,620 136 152
Deferred tax assets 8 445 525 495
Non-current assets 18,095 14,788 14,021 Inventories 9 438 373 420
Trade accounts receivable and other 10 6,928 7,115 5,829
Other current financial assets 11 22 17
Cash and cash equivalents 12 2,741 7,585 7,414
Current assets 10,129 15,090 13,663
TOTAL ASSETS 28,224 29,878 27,684
(in millions of Moroccan dirhams) LIABILITIES Note 2006 2005 2004 Share capital 5,275 8,791 8,791
Retained earnings 4,247 4,595 3,811
Earnings for the fiscal year- group share 6,739 5,809 5,171
Equity attributable to equity holders of the parent 13 16,261 19,195 17,773
Minority interests 592 529 428
Total equity 16,853 19,724 18,201 Non-current provisions 14 36 35 32
borrowings and other non-current financial liabilities 15 11 57 720
Deferred tax liabilities 8 177 172 129
Non-current liabilities 224 264 881 Trade accounts payable and other 16 10,278 9,380 7,561
Current income tax liabilities 437 347 557
Current provisions 14 388 101 288
borrowings and other current financial liabilities 15 44 62 196
Current liabilities 11,147 9,890 8,602
TOTAL LIABILITIES AND EQUITY 28,224 29,878 27,684
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Consolidated Income Statement for the years ended December 31, 2006, 2005 and 2004
(in millions of Moroccan dirhams) Note 2006 2005 2004
Consolidated revenues 17 22,615 20,542 17,408
Cost of purchases 18 (3,692) (3,879) (3,209)
Payroll costs 19 (2,060) (2,056) (1,688)
Sundry taxes and duties 20 (771) (680) (398)
Other operating income and expenses 21 (2,686) (2,610) (1,781)
Net depreciation, amortization and provisions 22 (3,363) (2,639) (2,735)
Operating income 10,043 8,678 7,597
Other income (charges) from ordinary activities 7 4
Income from equity affiliates 23 (21) 14 30
Earnings from continuing operations 10,029 8,695 7,627
Income from cash and cash equivalents 149 143 200
Finance expense (7) (13) (29)
Net finance costs 142 130 171
Other financial income 4 47 9
Other financial expense (3) (65) (5)
Net financial items 24 143 112 175
Tax expense 25 (3,339) (2,886) (2,574)
Earnings 6,833 5,921 5,228
Attributable to the equity holders of the parent 6,739 5,809 5,171
Minority interests 26 94 112 57
Earnings per share (in Moroccan dirhams)
Net income-group share 6,739 5,809 5,171
Number of shares as of December 31 879,095,340 879,095,340 879,095,340
Earnings per share 27 7.7 6.6 5.9
Diluted earnings per share 27 7.7 6.6 5.9
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Consolidated Statement of Cash Flows at December 31, 2006, 2005 and 2004
(in millions of Moroccan dirhams) Note 2006 2005 2004
Consolidated earnings (including minority interests) 6,833 5,921 5,228
Net depreciation, impairment and provisions 3,043 2,503 2,833
Non-cash expenses/income 74 (14) (29)
Capital gains and losses (6) (33) (23)
Net earnings after net finance costs and income tax 9,944 8,377 8,009
Net finance costs (142) (130) (171)
Income tax expense (including deferred taxes) 3,339 2,886 2,574
Net earnings before net finance costs and income tax (A) 13,141 11,133 10,412
Tax paid (b) (3,152) (3,084) (2,420)
Change in WCR related to operating activities (C) 1,244 377 (186)
Cash flow from operating activities (D) = (A+B+C) 11,233 8,426 7,806
Purchase of PP&E and intangible assets (3,978) (3,210) (2,488)
Proceeds from disposals of PP&E and intangible assets 7 26 18
Purchase of non-consolidated investments (2,481) (13)
Proceeds from disposals of non-consolidated investments 62 11
Change in long-term debt (3) 16 18
Effects of changes in scope of consolidation (*) 20 160
Cash flow used in investing activities (E) (6,435) (3,119) (2,281)
Dividends paid during the year (**) 13 (6,142) (4,424) (5,154)
Principal payments on borrowings (79) (757) (853)
Net interest paid & received 122 83 161
Changes in share capital (share capital reduction) (3,516)
Cash flow used in financing activities (F) (9,615) (5,098) (5,846)
Foreign currency translation adjustments (G) (27) 11 (13)
Change in cash and cash equivalents (D+E+F+G) 12 (4,844) 219 (334)
(*) . Mauritel has been fully consolidated by Maroc Telecom since July 1, 2004. . Mobisud has been fully consolidated since November 1, 2006. (**) Dividends paid: . MAD6,119 million paid by Maroc Telecom. . MAD23 million paid by Maroc Telecom to minority shareholders.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity at December 31, 2006, 2005 and 2004
Share Other Cumulative Earnings & Attributable (in millions of Moroccan dirhams) Note Capital adjustments translation retained to equity Minority Total differences earnings holders of interests the parent Balance at January 1, 2004 8,791 8,965 17,756 67 17,823 Dividends 13 (5,124) (5,124) - (5,124) Earnings for the year 5,171 5,171 57 5,228 Income & charges recorded directly in equity (12) (18) (30) (30) (25) (55) Current charges and income 0 (12) (18) 5,141 5,141 32 5,173 Changes in scope of consolidation (*) 00329 329
Balance at December 31, 2004 8,791 (12) (18) 8,982 17,773 428 18,201
Dividends 13 (4,396) (4,396) (28) (4,424) Earnings for the year 5,809 5,809 112 5,921 Income & charges recorded directly in equity 16 16 16 22 38 Current charges and income 00 16 5,825 5,825 134 5,959 Changes in scope of consolidation (*) (8) (8) (4) (12)
Balance at December 31, 2005 8,791 (12) (2) 10,404 19,195 530 19,724
Dividends 13 (6,121) (6,121) (31) (6,152) Earnings for the year 6,739 6,739 94 6,833 Income & charges recorded directly in equity (36) (36) (36) (34) (70) Current charges and income 00 (36) 6,703 6,703 60 6,763 Share capital reduction (3,516) 0 (3,516) 0 (3,516) Changes in scope of consolidation (*) 0033 33
Balance at December 31, 2006 5,276 (12) (37) 10,986 16,261 592 16,853
(*) Change in scope of consolidation: Mauritel has been fully consolidated by Maroc Telecom since July 1, 2004. Acquisition of an additional 0.527% stake in CMC, in the first quarter of 2006. Mobisud has been fully consolidated since November 1, 2006.
Maroc Telecom’s share capital comprises 879, 095, 340 ordinary earnings attributable to the equity holders of the parent. shares. Ownership of these shares is as follows: It should be noted that the nominal value of shares decreased • Kingdom of Morocco: 34%; from MAD100 to MAD10 in 2004 and from MAD10 to MAD6 in • Vivendi: 51% via its wholly-owned subsidiary Société de 2006. The shares were fully paid up at December 31, 2006. Participation dans les Télécommunications (SPT); There is no privilege, restriction or particular interest attached • Other: 15% to the shares. In addition, the shares are not held by Maroc Telecom or by one or several of its subsidiaries. Retained earnings mainly comprise undistributed earnings of MAD3,424 million recorded at December 31, 2006 and current
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting principles and valuation methods
1.SIGNIFICANTS EVENTS 2-ACCOUNTING PRINCIPLES AND VALUATION METHODS In February 2006, CMC acquired an additional 0.527% stake in Mauritel SA; The group companies are consolidated on the basis of the full-year financial statements at December 31, 2006, with the In March 2006, the sale of 35% of GAM for MAD13 million exception of Medi-1-Sat whose financial statements were generated a capital loss of MAD12 million; prepared at November 30, 2006. In May 2006, Maroc Telecom paid out MAD6,119 million in The financial statements and notes were approved by the dividends; executive committee on February 20, 2007. In May 2006, Maroc Telecom participated in the capital 2.1. bASIS OF PREPARATION increase of Medi-1-Sat and increased its stake to 26.8% from 24.7% at December 31, 2005, for the sum of MAD10 million; In accordance with European regulation 1606/2002 of July 19, 2002 concerning the adoption of International Financial In June 2006, Maroc Telecom launched TV over ADSL; Reporting Standards (IFRS), the consolidated financial In June 2006, Maroc Telecom decreased its share capital by statements of Maroc Telecom for the year ended December MAD3,516 million; 31, 2006 have been prepared in accordance with the IFRS set out by the International Accounting Standards board In June 2006, Maroc Telecom launched a voluntary (IASb) and effective at December 31, 2006, as approved by redundancy plan, effective from 2006 through 2007 for a the European Union (EU). For comparison purposes, the total cost of MAD300 million; 2006 financial statements present 2005 and 2004 financial In June 2006, the universal service executive committee information. granted Maroc Telecom a subsidy of MAD178 million for the The group has applied all of the new standards, completion of the universal service program proposed by interpretations and amendments published by the IASb and Maroc Telecom for 2006. In respect of this amount, Maroc mandatory in the European Union from January 1, 2006. Telecom will be bound to pay MAD195 million to the Restatement of 2005 and 2004 financial information was not universal service fund as its contribution for 2006. This required as its impact was immaterial. amount was provisioned in the financial statements at 2.2. STATEMENT OF COMPLIANCE December 31, 2006; The consolidated financial statements of Maroc Telecom At June 30, 2006, Mauritel SA implemented two voluntary group have been prepared in accordance with IFRS. redundancy plans involving 192 employees for a total cost of MAD29 million; In its consolidated financial statements at December 31, 2006, Maroc Telecom has included consolidated financial In July 2006, Maroc Telecom belgique was set up. It is wholly information for 2005 and 2004: owned by Maroc Telecom; 1.All mandatory IFRS and IFRIC interpretations at December In November 2006, Maroc Telecom was awarded a third 31, 2006. All these standards and interpretations have generation mobile licence for a total cost of MAD372 million; been adopted by the EU. In November 2006, Maroc Telecom acquired a 66% stake in 2.Early implementation as of January 1, 2004: SFR6, renamed Mobisud for an amount of MAD74 million, IAS 32 and IAS 39 on financial instruments, Maroc alongside its stake in SAHAM (18%) and SFR (16%); Telecom is not concerned by any sections of IAS 39 not In December 2006, Maroc Telecom belgique’s share capital adopted by the EU. Maroc Telecom has consequently increased MAD16.8 million; applied IAS 39 (see note 15) in full to its 2004 comparative financial statements and 2005 consolidated financial On December 29, 2006, Maroc Telecom acquired a 51% statements. stake in Onatel for a total cost of MAD2,476 million, financed 3.The following option, pending publication of an IASb or by cash and cash equivalents. New management was IFRIC text on the matter: appointed by Maroc Telecom at the beginning of January Pending an IASb or IFRIC interpretation, Maroc Telecom 2007. does not accrue loyalty bonuses granted to customers for the replacement of their mobile phone that do not result in
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an additional cost relative to the benefit granted to new received from non-consolidated interests, and the results of customers at the inception date of a contract. Loyalty consolidated operations or companies that do not qualify as bonuses convertible into free services are accrued. discountinued operations. The accounting methods selected in conformity with IFRIC 2.3.2. balance sheet D 20-IAS 18 interpretation relating to Customer Loyalty Assets and liabilities expected to be realized in, or intended Program. for sale or consumption in the entity’s normal operating Maroc Telecom did not opt for the early implementation of cycle, usually less than 12 months, are recorded as current the following standards, amendments and interpretations: assets or liabilities. If their maturity exceeds this period, they • IFRS 7 “Financial Instruments: Disclosures”, this text has are recorded as non-current assets and liabilities. been applied since January 1, 2007; 2.3.3. Consolidated statement of cash flows • Amendment of IAS 1 “Presentation of Financial Statements- Maroc Telecom prepares its consolidated statement of cash capital information”, mandatory since January 1, 2007. flows using the indirect method. Nevertheless, Maroc Telecom, in the presentation of its Working capital requirements correspond to balance sheet accounts, is analysing the practical consequences and the items, which include trade receivables, inventories, impact of implementing these new standards. provisions and accounts payable. 2.3. bASIS OF PREPARATION 2.3.4. Use of estimates The consolidated financial statements have been prepared in In connection with the preparation of its financial statements, accordance with the historical cost principle, with the Maroc Telecom must make estimates and certain exception of certain asset and liability categories detailed assumptions. Maroc Telecom’s management bases its below, in accordance with IFRS. The consolidated financial estimates on past experience and on various other statements are presented in Moroccan dirhams and all assumptions that it deems reasonable under the figures are rounded up or down to the closest million unless circumstances. These estimates permit an evaluation of the otherwise stated. They include Maroc Telecom’s financial appropriateness of book value. The figures derived from statements as well as its subsidiaries’ financial statements such estimates and assumptions could differ if other after elimination of intra-group items and transactions. estimates or assumptions had been used. The main items calculated on the basis of estimates are provisions for 2.3.1. Income statement litigation, restructuring provisions and impairment of Maroc Telecom prepares its consolidated income statement accounts receivable, inventories and deferred income. according to a format detailing revenue and expenses Management reviews its estimates and valuations regularly based on their nature. based on past experience and various other assumptions Operating income and earnings from continuing operations. that it deems reasonable, which constitute the basis of its evaluations of the book value of its assets and liabilities. Operating income comprises revenues, cost of purchases, payroll costs, sundry taxes and duties, other operating The impact of the change in estimates is booked in the income and expenses as well as amortization, depreciation, current period and all subsequent periods. impairment and net provisions. 2.3.5. Principles of consolidation Earnings from continuing operations includes operating The generic name Maroc Telecom refers to the group of income, other income and expense from continuing companies of which Itissalat Al-Maghrib SA is the parent. operations (including impairment of goodwill and other A list of Maroc Telecom’s major subsidiaries and affiliates is intangible assets) as well as income (loss) from equity presented in note 2 “Scope of consolidation at December affiliates. 31, 2006, 2005 and 2004”. Interest and other financial expense and income. The accounting methods described below were applied Net interests include: consistently to all of the periods presented in the • Gross interest, which includes interest expenses relating consolidated financial statements, as well as in the to borrowings calculated at the effective interest rate; preparation of the opening balance sheet at January 1, 2004 for the purpose of the IFRS transition. • Financial income from cash and cash equivalents. The accounting methods were applied in a uniform manner Other financial expense and income primarily include foreign by all group entities. exchange gains and losses (other than relating to operating activities classified in operating income), and dividends
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Full consolidation business combinations prior to January 1, 2004. All companies in which Maroc Telecom has a controlling business combinations are recorded using the purchase interest, specifically when it has the power to direct the method. Under this method, the assets acquired and the financial and operating policies of these companies to obtain liabilities and contingent liabilities assumed are recognized benefits from their operations, are fully consolidated. at their fair value. A controlling position is assumed to exist where Maroc At the acquisition date, goodwill is initially measured at cost, Telecom holds, directly or indirectly, a voting interest being the excess of the cost of the business combination exceeding 50%, and where no other shareholder or group of over Maroc Telecom’s interest in the net fair value of the shareholders exercises a significant right that would enable identifiable assets, liabilities and contingent liabilities. it to veto or to block ordinary decisions taken by Maroc Subsequently, goodwill is measured at cost less Telecom. accumulated impairment. Goodwill is allocated to each The subsidiaries’ financial statements are included in the cash-generating unit, and is then subject to impairment tests consolidated financial statements from the date control is each year, or more frequently when events indicate a risk of obtained to the date control ceases. impairment. In the event of a loss in value, impairment is recorded under “Other charges from ordinary activities”. A controlling position also exists where Maroc Telecom holds an interest of 50% or less in an entity, but control over more In the event of the acquisition of an additional interest in a than 50% of the voting rights by virtue of an agreement with subsidiary, the excess of the acquisition cost over the other investors, has the power to direct the financial and carrying amount of minority interests acquired is recognized operating policies of the entity by virtue of a statute or as goodwill. contract, has the power to appoint or remove from office the In accordance with IFRS 3, goodwill is no longer amortized. majority of the members of the board of Directors or equivalent management body, or has the power to assemble 2.3.7. Foreign currency translation the majority of voting rights at meetings of the board of Foreign currency transactions are initially recorded in the Directors or equivalent management body. functional currency at the transaction date exchange rate. At period end, monetary assets and liabilities denominated in a Proportionate consolidation foreign currency are translated into the functional currency at Maroc Telecom uses proportionate consolidation for the period-end exchange rate. All foreign currency companies that are controlled jointly by the Group and a adjustments are expensed for the period. limited number of other shareholders under the terms of a 2.3.8. Translation of financial statements of foreign activities contractual arrangement. Assets and liabilities relating to foreign activities, including Equity accounting goodwill and fair value adjustments arising from Maroc Telecom accounts for affiliates over which it exercises consolidation, are translated into Moroccan dirhams at the significant influence under the equity method. Significant period-end rate. Income and expense items are translated influence is assumed to exist where Maroc Telecom holds, into Moroccan dirhams using rates that approximate the directly or indirectly, at least a 20% voting interest in an exchange rates at the dates of the transactions. Foreign entity, unless it can be clearly demonstrated that this is not currency translation adjustments resulting from the the case. The existence of significant influence can be application of these different rates are recorded as a proven on the basis of other criteria, such as representation separate line item within shareholders’ equity. on the board of Directors or equivalent management body of 2.3.9. Assets the entity, participation in the process of policy definition, the existence of material transactions with the entity or 2.3.9.1. Other intangible assets exchange of management personnel. Intangible assets acquired separately are recorded at cost, Transactions eliminated when preparing the consolidated and intangible assets acquired in connection with a business combination are recorded at their fair value at the acquisition financial statements date. The historical cost model is applied to intangible Revenues, expenses and balance sheet items resulting from assets subsequent to their initial recognition. Assets with a intra-group transactions are eliminated when preparing the finite useful life are amortized. Useful life is reviewed at the consolidated financial statements. end of each reporting period. 2.3.6. Goodwill and business combinations Useful life is estimated between 2 and 5 years. In accordance with the provisions of IFRS 1 “First time Trade names, subscriber bases and market shares adoption of IFRS”, Maroc Telecom decided not to restate generated internally are not recognized as intangible assets.
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Licenses to operate telecom networks are recorded at property and there have been no significant incidents to historical cost and amortized on a straight line basis from the date. effective starting date of the service until maturity. The assets transferred by the Moroccan government on Maroc Telecom has chosen not to apply the option provided February 26, 1998 to set up Maroc Telecom as a public in IFRS 1 to remeasure certain intangible assets at their fair operator were recorded as a net amount in the opening value at January 1, 2004. balance sheet, as approved by: The 3G licence of Maroc Telecom is recorded in intangible • the Postal Services and Information Technology Act no. assets for a total cost of MAD372 million, which includes the 24-96; licence fee (MAD300 million) and the cost of the contribution • the joint order no. 341-98 of the Telecommunications to frequency spectrum planning (MAD72 million). It is Minister and Minister of Finance, Commerce and Industry, amortized over 25 years from the launch of the service. approving the inventory of assets transferred to the Maroc The 3G licence of Mauritel is recorded under intangible Telecom group. assets for a total cost of MAD10 million and is amortized Depreciation is calculated using the straight-line method over 15 years. over the estimated useful lives of the assets. Useful lives are reviewed at the end of each reporting period and are Subsequent expenditure on intangible assets is only added determined as follows: to these assets if the probable future economic benefits specific to the asset to which they relate increase. All other • buildings 20 years expenditure is expensed in the period in which it is incurred. • Civil engineering 15 years • Network equipment: 2.3.9.2. Research and development costs Transmission (Mobile) 8 years Research costs are expensed when incurred. Development Switching 8 years expenses are capitalized when the feasibility and profitability Transmission (Fixed-line) 10 years of the project can reasonably be considered certain. • Furniture and fittings 10 years • Computer equipment 5 years In compliance with IAS 38 “Intangible assets”, development • Office equipment 10 years costs are capitalized only after the technical and financial • Transportation equipment 5 years feasibility of the asset for sale or use have been established, where it is probable that the future economic benefits Assets which have not yet been placed into service are attributable to the asset will flow to the company and where recorded as work-in-progress. the cost of the asset can be measured reliably. Assets financed by finance leases are capitalized at the Research and development costs incurred by Maroc lower of the value of future minimum lease payments and fair Telecom are not significant. value, and the related debt is recorded in “borrowings and other financial liabilities”. These assets are depreciated on a 2.3.9.3. Property, plant and equipment straight-line basis over their estimated useful lives, with Property, plant and equipment are carried at historical cost depreciation included in general depreciation expense. less accumulated depreciation and impairment. Historical Maroc Telecom has chosen not to apply the option provided cost includes the acquisition cost or production cost as well by IFRS 1 to remeasure property, plant and equipment at fair as the costs directly attributable to bringing the asset to the value at January 1, 2004. location and condition necessary for its use in operations. The book value of an item of property, plant, and equipment borrowing costs are recorded as expenses for the period in includes the replacement cost of a component of such an which they are incurred. When property, plant and item if this cost is incurred, if it is probable that the future equipment include significant components with different economic benefits associated with the asset will flow to useful lives, they are recorded and depreciated separately. Maroc Telecom and if the cost can be measured reliably. Property comprising “land” and “buildings” is derived in part from the contribution in kind granted in 1998 by the All maintenance costs are expensed when incurred. Moroccan government in connection with the transfer from 2.3.9.4. Impairment of fixed assets ONPT to Maroc Telecom, when the latter was established. Goodwill and intangible assets with an indefinite useful life When these assets were transferred, the property titles could are subject to an annual impairment test and are also tested not be registered with the property registry. whenever there is an indication that they may be impaired. This situation was still unresolved at the end of December The book value of other fixed assets is also subject to an 2006. Although this uncertainty over the title of property impairment test whenever there is an indication that the remains, the risk is limited as the Moroccan government has book value may not be recoverable. The impairment test guaranteed that Maroc Telecom can use the transferred compares the carrying amount with its recoverable amount,
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which is the greater of its fair value less selling costs and its This item includes mainly trade accounts receivable and value in use. loans to employees. The recoverable amount is determined for an individual asset Available-for-sale financial assets unless the asset does not generate cash inflows that are largely independent from those of other assets or groups of These assets include non-derivative assets that are assets. If this is the case, as for goodwill, the recoverable classified as being either available for sale or that are not amount is determined for the cash-generating unit. Maroc allocated to any other category of financial assets. Telecom has determined its fixed-line and mobile businesses Available-for-sale assets are recognized at fair value. Profit as cash-generating units. and loss resulting from available-for-sale assets is taken to 2.3.9.5. Financial assets equity until the financial asset is sold, redeemed or removed from the balance sheet in another way, or until it can be Financial assets with a maturity of more than 3 months are demonstrated that the investment is impaired indefinitely, at classified in one of the following four categories: which time the accumulated gain or loss previously recorded • Assets recognized at fair value through profit and loss; in equity is expensed. • Held-to-maturity financial assets; For financial assets actively traded in organized public • Loans and receivables; markets, fair value is determined by reference to the published market price at period end. • Available-for-sale financial assets. If the fair value cannot be determined accurately, available- Financial assets recognized at fair value through profit and for-sale assets are stated at cost. In the event of objective loss evidence that the investment is impaired indefinitely, This category comprises financial assets bought in order to irreversible impairment is expensed. be resold in the very near term, and held for trading When an available-for-sale financial asset generates interest, purposes. Profit and loss arising from changes in the fair the interest is calculated in accordance with the effective value of assets in this category is recorded in the period interest method and is charged against income. during which they arise. The main available-for-sale assets are non-consolidated The principal financial assets recognized at fair value investments in unlisted companies. through profit and loss comprise term deposits. 2.3.9.6. Inventories Held-to-maturity financial assets Inventories comprise: Held-to-maturity financial assets are non-derivative financial • Goods held for sale to customers upon line activation, assets, other than loans and receivables, with fixed or comprising fixed and mobile handsets and accessories. determinable payments that the group intends and is able to Inventories are accounted for using the first-in, first-out hold to maturity. These assets are initially recognized at their method. Handsets delivered to distributors and not fair value including attributable transaction costs. After initial activated at year-end are recorded as inventories. recognition they are measured at amortized cost using the Handsets not activated within six months from the delivery effective interest rate method. date are taken to revenues. They are subject to impairment tests in the event of objective • Equipment and supplies corresponding to non-network evidence of impairment. Impairment is booked if the asset's equipment. These inventories are measured at their carrying amount is greater than the present value of average acquisition cost. estimated future cash flows. Stocks are measured with the weakest of their cost and their At December 31, 2006, Maroc Telecom has no held-to net amount of realization. An impairment loss is recognized maturity financial assets. if the value of an asset is higher of its actual value. Loans and receivables 2.3.9.7. Trade accounts receivable and other This category comprises non-derivative assets where This item comprises accounts receivable and other payment is fixed or determinable and which are not listed on receivables, which are initially recognized at their fair value, any active market. These assets are recognized at amortized and then at amortized cost less impairment. Accounts cost using the effective interest rate method. receivable include trade receivables and government These assets are subject to an impairment test in the event receivables: that a loss in value is indicated. Impairment is booked if the • Trade receivables: held against individuals, distributors, carrying amount is greater than the estimated recoverable businesses and international operators; amount.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
• Government receivables: held against local authorities and the consolidated statement of cash flows. the Moroccan government. 2.3.12. Financial liabilities Impairment is recorded if the carrying amount of the asset Financial liabilities include borrowings, accounts payable under consideration exceeds the present value of its and bank overdrafts. estimated future cash flows. 2.3.9.8. Cash and cash equivalents Borrowings Cash and cash equivalents include cash on hand, sight All borrowings are initially accounted for at cost, deposits, current accounts and short-term, highly liquid corresponding to the fair value of the amount received, net of investments with a maturity of three months or less. costs directly relating to the borrowing. 2.3.10. Stock options granted to employees The allocation of borrowings to current liabilities or non- current liabilities is based on contractual maturity. On December 12, 2006, all employees of Maroc Telecom, with more than 6 months service at December 31, 2006, In the context of the first-time adoption of IFRS, Maroc were given 15 Vivendi shares. These shares will be recorded Telecom did not discount borrowings with an interest rate of in an individual share account on December 13, 2008. 0% since repayment by the company had been initiated a long time before and they were repaid in full in July 2005. As these shares have been granted regardless of whether the employees will remain in post between the allocation The impact on financial expenses, equity and debt in 2004 period and the registration period in the individual account, and 2005 is presented in note 15. the expense for Maroc Telecom was completely provisioned Derivative financial instruments at December 31, 2006 and will be remeasured to present value in the next financial statements. Maroc Telecom currently does not use any derivative financial instruments or currency hedging instruments. The expense is calculated by multiplying the number of employees by the number of shares given, based on the 2.3.13. Provisions share price at the date of attribution and a discount Provisions are recognized when, at the end of the reporting reflecting the absence of dividends for the first two years. period, the Group has a legal, regulatory or contractual The corresponding payroll cost is recorded as a financial obligation as a result of past events, when it is probable that liability which is measured at fair value at maturity on the an outflow of resources (without any expected related inflow) basis of changes in the data used to calculate payroll costs. will be required to settle the obligation, and when the obligation can be reliably estimated. Where the effect of the 2.3.11. Assets held for sale and discontinued operations time value of money is material, provisions are determined A non-current asset or a group of assets and liabilities is held by discounting expected future cash flows using a pre-tax for sale when its carrying amount will be recovered discount rate that reflects current market assessments of the principally through its divestiture and not through continuing time value of money. If no reliable estimate can be made of utilization. To meet this definition, the asset must be the amount of the obligation, no provision is recorded and a available for immediate sale, and divestiture must be highly disclosure is made in the Notes to the consolidated financial probable. statements. These assets and liabilities are recognized as assets held for Restructuring provisions are recorded when the Group has sale and liabilities associated with assets held for sale, and approved a formal and detailed restructuring program and are not netted. The related assets recorded as assets held has either started to implement the program or has for sale are stated at the lower of fair value, net of divestiture announced the program publicly. Future operating expenses fees, and cost less accumulated depreciation and are not provisioned. impairment, and are no longer depreciated. No provision for pensions and post-retirement benefits for An operation is considered as discontinued when the criteria the Group’s Moroccan companies have been recorded in the for classification as an asset held for sale have been met, or consolidated financial statements as pension expenses are when Maroc Telecom has sold the operation. Discontinued covered by statutory pension plans set up for employees in operations are presented as a separate line on the statement Morocco. of earnings, comprising the earnings after tax of 2.3.14. Deferred taxes discontinued operations until divestiture and the gain or loss after tax on sale or fair value measurement, less costs to sell Deferred taxes result from temporary differences arising at the assets and liabilities making up the discontinued period end between the tax basis of assets and liabilities and operations. In addition, the cash flows generated by the their carrying amount. They are accounted for using the discontinued operations are presented on a separate line of liability method.
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Deferred tax liabilities are recognized: However, the calculation of the share-based payment expensed depends upon whether the obligation is settled in • for all taxable temporary differences, except where the deferred tax liability results from goodwill impairment that Maroc Telecom’s shares or in cash: is not tax-deductible, or from initial recognition of an asset or • If the instrument is settled in shares, the fair value of the liability in a transaction which is not a business combination instrument granted is measured and fixed at the grant date, and which, at the transaction date, does not impact either then spread over the vesting period, according to the accounting earnings or taxable earnings or losses; and characteristics of equity-settled instruments.The obligation • for taxable temporary differences arising from investments is recorded as a corresponding increase in equity; in subsidiaries, affiliates and joint ventures, except where • If the share-based payment transaction is settled in cash, the date on which the temporary difference reverses can the fair value is measured and fixed at the initial grant date, be controlled and where it is probable that the temporary then remeasured at each year-end and adjusted for difference will not reverse in the foreseeable future. subsequent changes in the value of the vested rights. The Deferred tax assets are recognized for all deductible expense is spread over the vesting period in accordance temporary differences and for carry-forwards of tax losses with the characteristics of the instruments. The and unused tax credits, if it is probable that a taxable profit corresponding obligation is booked as a non-current will be available, or when a current tax liability exists, to provision. make use of those deductible temporary differences, tax Maroc Telecom chose the retrospective application of loss carry forwards and unused tax credits: IFRS 2 from January 1, 2004. • except where the deferred tax asset associated with the The grant of free shares by the parent campany led to the deductible temporary difference is generated by initial recognition of additional payroll costs and the corresponding recognition of an asset or liability in a transaction which is liability measured at fair value. not a business combination, and which, at the transaction date, does not impact either accounting earnings, taxable 2.3.17. Revenues earnings or taxable losses; Revenues from operations are reported when it is probable • for deductible temporary differences arising from that future economic benefits will flow to the Group, and that investments in subsidiaries, affiliates and joint ventures, these revenues can be reliably measured. deferred tax assets are recorded to the extent that it is Maroc Telecom group generates revenues from fixed and probable that the temporary difference will reverse in the mobile telecommunications services, internet services, and foreseeable future, and that taxable profit will be available the sale of products, which essentially comprise mobile and against which the temporary difference can be utilized. fixed-line handsets and multimedia equipment. The carrying amount of deferred tax assets is reviewed at Revenues from telephone subscriptions are recognized on a each period end, and reduced to the extent that it is no straight-line basis over the subscription contract period. longer probable that a taxable profit will be available to allow Revenues from incoming and outgoing call traffic are the deferred tax asset to be utilized. recognized when the service is rendered. For prepaid Deferred tax assets and liabilities are measured at the services, revenues are recognized as calls are made. expected tax rates for the year during which the asset will be Revenues from fixed-line and internet and mobile services realized or the liability settled, based on tax rates (and tax comprise: regulations) in force or substantially in force by the period end. • income from domestic and international outgoing and Current tax and deferred tax is charged or credited directly incoming calls under postpaid plans, which is recorded to equity if the tax relates to items that are credited or when generated; charged directly to equity. • income from subscriptions; 2.3.15. Trade accounts payable • income from prepaid services, which is recognized as calls Trade accounts payable include other accounts payable. are made; They are initially measured at fair value and subsequently at • income from data transmission services provided to amortized cost. professionals and internet service providers as well as to 2.3.16. Share-based compensation other telecommunications operators; In accordance with IFRS 2, share-based compensation is • income from advertising in printed and electronic recorded as a payroll cost at the value of the equity directories, which is recognized when the directories are instruments granted, measured using a binomial model. published.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Revenues from the sale of handsets, net of point-of-sale Commitments arising from fixed asset contracts are based discounts and connection charges, are recognized on solely on the contracts included in the reporting system. In activation of the line. Customer acquisition and loyalty costs addition, commitments arising from real estate rental for mobile and fixed-line services, principally consisting of contracts are estimated on the basis of one month’s expense rebates on the sale of equipment to customers through given that virtually all termination clauses require one distributors, are recognized as a deduction from revenues. month’s notice.
Sales of services provided to subscribers managed by Maroc 2.5. SEGMENT DATA Telecom on behalf of content providers (mainly special-rate numbers), are accounted for net of related expenses. A segment is a distinguishable component of the group that is engaged in providing a product or service or a group of When the sale is made via a third party distributor supplied related products or services (business segment), or in by Maroc Telecom and involves a discount compared with providing a product or service in a specific economic the public sale price, revenues are recorded as gross environment (geographical segment) that generates revenues and commissions granted are recognized as significant revenue from external customers, and that is operating expenses. subject to risks and rewards that are different from those of 2.3.18. Cost of purchases other business segments. Cost of purchases comprises the purchase of mobile and 2.5.1. business segment data fixed-line handsets and interconnection costs. The group’s business is divided into fixed-line, internet and 2.3.19. Other income (expenses) from operations mobile segments. This item comprises commissions to distributors, network Revenues from each business segment include revenues maintenance expenses, advertising, marketing and from the provision of telephone services to customers and promotion costs and expenses linked to the voluntary subscribers as well as inter-segment transactions. redundancy plan. Intersegment transactions are conducted at market price. 2.3.20. Net finance costs Operating income reflects the difference between operating Net finance costs include interest expense on loans income and expenses. Costs are allocated directly to the calculated using the effective interest rate method and relevant segments or alternatively by using cost allocation interest income on investments. ratios based on economic criteria. Capital expenditure is directly allocated to the relevant Investments are recognized in the consolidated statement of segments. Fixed assets used by several segments are earnings when they are acquired. allocated in proportion to dedicated assets. 2.3.21. Income tax expenses The classification of the balance sheet by business segment Income tax expenses include income tax payable and was in part based on estimates. The classification used is deferred tax expense (or income). Tax is expensed unless it based on reasonable assumptions. applies to items recognized as equity. The following items of the balance sheet are allocated proportionally between the two activities: 2.4. CONTRACTUAL ObLIGATIONS AND CONTINGENT ASSETS AND LIAbILITIES • For items comprising elements that can be allocated directly to a segment and elements shared by both Once a year, Maroc Telecom and its subsidiaries prepare segments: the shared part of these items is divided detailed records on all contractual obligations, commercial proportionally in respect of the amounts allocated directly and financial commitments and contingent obligations, to to these items. which they are party or exposed. These detailed records are • For items comprising solely shared elements: these updated on a regular basis by the departments concerned amounts are allocated in a way that takes into account the and reviewed by senior management. type of items involved (e.g. employee-related liabilities are The assessment of off-balance sheet commitments relating to divided proportionally based on the number of employees suppliers of fixed assets is carried out in the following way: in each business segment). • Variation of minimum commitments and settlements 2.5.2. Geographical data relating to the principal framework contracts and their Information by geographical area is the second level of endorsements (higher than MAD50 million) segment data and comprises the two geographical areas in • Variation between firm orders and delivery for all the other which Maroc Telecom is present: Morocco and other. contracts.
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2.6. NET CASH FLOW Diluted earnings per share are calculated by dividing the: This item includes cash and cash equivalents less • the earnings attributable to the equity holders of the borrowings, and excludes short-term financial assets (term parent; deposits) with a maturity exceeding three months. • by the average number of shares outstanding over the period, plus the average number of shares that would have 2.7. EARNINGS PER SHARE been issued upon conversion of all instruments that can Earnings per share, as presented in the consolidated potentially be converted into ordinary shares. statement of earnings, are calculated by dividing earnings At December 31, 2006, there were no instruments that could for the period by the average number of shares outstanding potentially be converted into ordinary shares. over the period.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Scope of consolidation at December 31, 2006, 2005 and 2004
Company name Legal form % group % capital Consolidation Address interest held method
Maroc Telecom SA 100% 100% FC Avenue Annakhil Hay Riad Rabat - Morocco
Compagnie Mauritanienne de Communication (CMC) SA December 31, 2006 80% 80% FC December 31, 2005 80% 80% FC Avenue Roi Fayçal Nouakchott - Mauritania
Mauritel SA SA December 31, 2006 41% 52% FC December 31, 2005 41% 51% FC Avenue Roi Fayçal 7000 Nouakchott - Mauritania
Mauritel Mobiles SA December 31, 2006 41% 52% FC December 31, 2005 41% 51% FC Av. Charles de Gaulle, Ilot 37-38 Nouakchott - Mauritania
Mobisud SA December 31, 2006 66% 66% FC 55, avenue Hoche, 75008 Paris - France
Medi-1-Sat SA December 31, 2006 27% 27% EM Zone franche, lot n°31 bP 2397 - Tanger - Morocco
GSM Al-Maghrib (GAM) SA December 31, 2006 --- December 31, 2005 35% 35% EM 17, Immeuble la Régence, Lotissement la Colline II, Sidi Maârouf - 20190 Casablanca - Morocco
Maroc Telecom is a Moroccan corporation, its main activity In March 2006, Maroc Telecom sold a 35% stake in GSM being the sale of telecommunications goods and services. Its Al- Maghrib. Prior to this date the company was accounted for registered office is located at Avenue Annakhil Hay Riad Rabat, using the equity method. Morocco. Mobisud has been fully consolidated since November 1, 2006. Maroc Telecom is fully consolidated by Vivendi. At the end of December 2006, Maroc Telecom held 26.8% of Maroc Telecom acquired Mauritel SA and its subsidiary, Mauritel Mobiles SA, in April 2001, through a shareholders’ agreement Medi-1-Sat, up from 24.7% at the end of December 2005. conferring participating veto rights to the Mauritanian because of a lack of activity in 2005, Medi-1-Sat has only been government. Those veto rights were effective until June 30, accounted for using the equity method since 2006. 2004. Mauritel group has been fully consolidated in the financial Other companies in which Maroc Telecom holds a stake (see statements of Maroc Telecom group since July 1, 2004. note 7) have not been consolidated as their impact on the During the first quarter, Maroc Telecom acquired 0.527% of group’s financial statements is immaterial. Mauritel.
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Note 3. Goodwill at December 31, 2006, 2005 and 2004
December 31, December 31, December 31, of each CGU with discounted expected future cash flows. 2006 2005 2004 CGUs correspond to businesses within each business segment (fixed-line and mobile). Mauritel 137 129 137 Valuations are based on the following main assumptions: Mobisud 9 00 • The impairment of goodwill test is based on a 3 year Net total 146 129 137 business plan; • The terminal growth rate is estimated at 2.53%. This Goodwill is subject to impairment tests each year or more assumption takes into account the level of inflation in the frequently when events indicate a risk of impairment. country, and the growth potential in the telecommunications Impairment of goodwill is tested for each identifiable cash market and Moroccan economy due to the oil industry; generating unit (CGU). • Mauritel’s discount rate – calculated using the weighted The impairment of goodwill test compares the carrying amount average cost of capital – is estimated at 12%.
(in millions of Moroccan dirhams) beginning Impairment Translation Other End of period adjustment period
December 31, 2004 0 137 137
Mauritel 0 137 137
December 31, 2005 137 (8) 129
Mauritel 137 (8) 129
December 31, 2006 129 17 146
Mauritel 129 8 137 Mobisud 099
Mobisud has been fully consolidated since November 1, 2006. In the first quarter of 2006, Maroc Telecom acquired 0.527% of Mauritel.
Note 4. Other intangible assets at December 31, 2006, 2005 and 2004
(in millions of Dec. 31, Dec. 31, Dec. 31, "Other intangible assets" includes primarily telecommunications Moroccan dirhams) 2006 2005 2004 network equipment, software and work in progress. Patents, trademarks, and similar rights 416 311 219 Intangible assets in progress increased considerably in 2006 due to a large volume of investments in intangibles relating to: Mobile License 503 147 154 • mobile network (IN platform; new value added services; network software upgrades); Other intangible assets 1,496 934 934 • fixed-line network (ADSL; optical fibres; corporate networks); Net total 2,415 1,392 1,307 • information systems (GISR Lot2 and WIAM).
The item “Mobile license” includes the 2G license of Mauritel acquired in 2000 and two 3G licences acquired respectively by Maroc Telecom and Mauritel.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Year ended 2006
(in millions of Moroccan dirhams) 2005 Acquisitions Disposals Translation Changes in Reclas- 2006 & additions and adjustment scope of sification withdrawals consolidation Gross 3,128 1,149 (7) (26) 0 380 4,625
Patents, trademarks and similar rights 572 2 (1) 0 238 812 Mobile license 226 382 (17) 00591 Other intangible assets 2,330 766 (7) (8) 0 142 3,222
Amortization and impairment (1,737) (564) 0 12 0 79 (2,210)
Patents, trademarks and similar rights (262) (135) 10 0(396) Mobile license (79) (15) 60 0(88) Other intangible assets (1,396) (414) 5 79 (1,726)
Net total 1,392 585 (7) (14) 0 460 2,415
Year ended 2005
(in millions of Moroccan dirhams) 2004 Acquisitions Disposals Translation Changes in Reclas- 2005 & additions and adjustment scope of sification withdrawals consolidation Gross 2,508 142 (15) 11 0 482 3,128
Patents, trademarks and similar rights 395 0 177 572 Mobile license 215 11 00226 Other intangible assets 1,898 142 (15) 0 305 2,330
Amortization and impairment (1,201) (519) 15 (3) 0 (29) (1,737)
Patents, trademarks and similar rights (176) (85) 0 (261) Mobile license (61) (15) (3) 0 (79) Other intangible assets (963) (419) 15 (29) (1,396)
Net total 1,307 (377) -80453 1,392
Year ended 2004
(in millions of Moroccan dirhams) Jan. 1, Acquisitions Disposals Translation Changes in Reclas- Dec.31, 2004 & additions and adjustment scope of sification 2004 withdrawals consolidation Gross 1,845 260 (26) (13) 233 208 2,507
Patents, trademarks and similar rights 257 16132 395 Mobile license (13) 227 215 Other intangible assets 1,588 259 (26) 76 1,898
Amortization and impairment (842) (324) 25 4 (62) 0 (1,200)
Patents, trademarks and similar rights (92) (78) (6) (176) Mobile license (8) 4 (56) (61) Other intangible assets (750) (238) 25 (963)
Net total 1,003 (64) (1) (9) 171 208 1,307
The reclassification column concerns movements of intangible assets between line items and the restatement of retired assets that were not adjusted in the individual financial statements.
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Note 5. Property, plant and equipment at December 31, 2006, 2005 and 2004
(in millions of Moroccan dirhams) Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004 Land 989 975 940 buildings 1,544 1,500 1,711 Technical plant, machinery and tooling 6,810 6,336 6,427 Transportation equipment 41 49 55 Office equipment, furniture and fittings 651 646 713 Other property, plant and equipment 2,425 3,078 2,076 Net total 12,460 12,584 11,922
The majority of “other property, plant and equipment” includes technical installations in progress relating to the telecommunications network. The audit of work in progress led to a decrease in this item in 2006 despite increased capital expenditure.
Year ended 2006
(in millions of Moroccan dirhams) 2005 Acquisitions Disposals Translation Changes in Reclassi- 2006 and additions and adjustment scope of fication withdrawals consolidation Gross 30,140 2,829 (276) (91) 1 (745) 31,858 Land 975 0 (1) (1) 17 989 buildings 3,733 11 (2) (5) 311 4,048 Technical plant, machinery and tooling 20,014 110 (71) 1,962 22,015 Transportation equipment 122 2 (22) (2) 1 101 Office equipment, furniture and fittings 1,900 7 (3) 1 222 2,127 Other property, plant and equipment 3,396 2,700 (252) (9) (3,258) 2,578 Depreciation and impairment (17,557) (2,188) 22 40 0 (285) (19,398) Land 0 0 buildings (2,232) (273) 12 (2,503) Technical plant, machinery and tooling (13,678) (1,827) 0 34 265 (15,205) Transportation equipment (74) (10) 21 2 (60) Office equipment, furniture and fittings (1,254) (243) 2 19 (1,476) Other property, plant and equipment (318) 165 0 (153) Net total 12,584 641 (254) (52) 1 (461) 12,460
Year ended 2005
(in millions of Moroccan dirhams) 2004 Acquisitions Disposals Translation Changes in Reclassi- 2005 and additions and adjustment scope of fication withdrawals consolidation Gross 27,432 3,067 (48) 55 0 (365) 30,140 Land 941 1 33 975 buildings 3,686 53 39 3,733 Technical plant, machinery and tooling 18,635 107 (17) 45 1,245 20,014 Transportation equipment 118 5 (5) 21122 Office equipment, furniture and fittings 1,736 4 (22) 2 181 1,900 Other property, plant and equipment 2,316 2,946 (4) 3 (1,865) 3,396 Depreciation and impairment (15,510) (2,161) 29 (21) 0 105 (17,557) Land buildings (1,975) (256) (1) (2,232) Technical plant, machinery and tooling (12,209) (1,567) 17 (18) 98 (13,678) Transportation equipment (63) (14) 4 (1) (74) Office equipment, furniture and fittings (1,023) (245) 8 (1) 7 (1,254) Other property, plant and equipment (240) (78) (318) Net total 11,922 907 (19) 34 0 (260) 12,584
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Year ended 2004
(in millions of Moroccan dirhams) Jan. 1, Acquisitions Disposals Translation Changes in Reclassi- Dec. 2004 and additions and adjustment scope of fication 31, withdrawals consolidation 2004 Gross 24,762 2,228 (316) (63) 1,029 (208) 27,432 Land 886 (1) 18 37 940 buildings 3,543 7 (3) 49 91 3,687 Technical plant, machinery and tooling 16,391 202 (195) (53) 777 1,513 18,635 Transportation equipment 116 7 (39) (2) 33 4 118 Office equipment, furniture and fittings 1,556 2 (28) (2) 29 178 1,736 Other property, plant and equipment 2,270 2,011 (54) (3) 123 (2,031) 2,316 Depreciation and impairment (13,078) (2,342) 258 24 (372) (15,510) Land buildings (1,708) (256) 1 (13) (1,976) Technical plant, machinery and tooling (10,300) (1,800) 192 21 (322) (12,209) Transportation equipment (99) (13) 66 1 (19) (63) Office equipment, furniture and fittings (749) (256) 1 (19) (1,023) Other property, plant and equipment (222) (18) (240) Net total 11,684 (114) (58) (39) 657 (208) 11,922
The reclassification column concerns movements of property, plant and equipment between line items.
Note 6. Investment in equity affiliates at December 31, 2006, 2005 and 2004
6.1 Principal investments in equity affiliates at December 31, 2006, 2005 and 2004
% interest Value of equity affiliates (in millions of Moroccan dirhams) Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2006 2005 2004 2006 2005 2004 Medi-1-Sat 26.8% 9 GSM Al-Maghrib 35.0% 35.0% 22 8
Net total 9 22 8
Sale of Maroc Telecom’s stake in GSM Al-Maghrib during the first quarter of 2006. In 2005, Maroc Telecom invested in Medi-1-sat. The campany was consolidated for the first time in 2006 because of a lack of activity in 2005.
6.2 Financial information relating to equity affiliates at December 31, 2006, 2005 and 2004
(in millions of GSM Al-Maghrib (in millions of Medi-1-Sat Moroccan dirhams) Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Dec. 31, Dec. 31, Dec. 31, 2006 2005 2004 2006(*) 2005 2004 Revenues 1,373 1,117 Revenues Operating income 56 4 Operating income (45) (1) Net earnings 28 NS Net earnings (46) 0
Total assets and liabilities 149 223 Total assets and liabilities 224 61
(*) On the basis of provisional data at November 30, 2006 , prepared at January 8, 2007. Information at December 31, 2006 was not available when Maroc Telecom’s 2006 financial statements were prepared.
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Note 7. Other non-current financial assets at December 31, 2006, 2005 and 2004
(in millions of Note Dec. 31, Dec. 31, Dec. 31, At December 31, 2006 financial assets had the following Moroccan dirhams) 2006 2005 2004 maturities: Non-consolidated (in millions of Dec. 31, Dec. 31, Dec. 31, investments 7.1 2,534 54 53 Moroccan dirhams) 2006 2005 2004 Due within one year 12 14 20 Other financial assets (a) 86 82 99 Due between 1 and 5 years 39 40 47 Net total 2,620 136 152 Due after 5 years 35 29 32
(a) Other financial assets mainly include loans granted to Net total 86 82 99 employees, which amounted to MAD70 million and a loan to At year-end 2004, the amount due within one year Medi-1-Sat for MAD14 million, to be repaid from 2013. (MAD20 million) assumed the early repayment of part of the loans granted to employees benefiting from the voluntary redundancy plan. At year-end 2006 and 2005, these assumptions were only partially confirmed.
7.1 Non-consolidated investments
Year ended 2006
% Gross Impairment Net carrying Earnings Total interest amount equity Casanet (1) 100% 18 18 Arabsat NS 13 0 13 ND ND Autoroute du Maroc NS 20 20 0 ND ND Thuraya NS 10 0 10 ND ND Sindbad investment fund 10% 33 0 ND ND Onatel 51% 2,476 2,476 ND ND Matelca (2) 50% NS NS NS ND ND MVNO belgium (3) 100% 17 17 ND ND Others NS 00ND ND Total 2,557 23 2,534
Year ended 2005 % Gross Impairment Net carrying Earnings Total interest amount equity Casanet (1) 100% 18 18 5 12 Arabsat 1% 14 0 14 544 4,548 Autoroute du Maroc NS 20 20 0 ND 2 Thuraya NS 10 0 10 ND ND Sindbad investment fund 10% 33 0 (1) 14 Medi-1-Sat 25% 12 12 ND ND Matelca (2) 50% NS NS NS ND ND Others NS NS NS ND ND Total 77 23 54
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Information concerning non-consolidated interests was not available when Maroc Telecom’s 2005 financial statements were prepared. Therefore, the data presented above concern 2004.
Year ended 2004
% Gross Impairment Net carrying Earnings Total interest amount equity Casanet (1) 100% 18 18 5 12 Matelca (2) 50% NS NS NS ND ND Arabsat 1% 14 0 14 544 4,548 Intelsat NS 27 0 27 1,585 20,530 Autoroute du Maroc NS 20 20 NS 2 Thuraya NS 10 10 ND ND Sindbad investment fund 10% 11 (1) 14 Others NS 22ND ND Total 92 39 53
(1) Casanet’s business activity relates to the maintenance of Maroc Telecom’s internet portal (Menara). Casanet invoices the related costs to Maroc Telecom. (2) Matelca was not included in the scope of consolidation, since it is in liquidation. (3) An MVNO in belgium was created in 2006 and the business has not started yet.
7.2 Explanatory note of consolidation of Onatel Group
As recent reliable financial information was unavailable at the balance Sheet Items Sept. 30, acquisition date (financial statements at September 30, 2006 (in millions of Moroccan dirhams) 2006 in local GAAP), Onatel was only consolidated from January 1, 2007. For information purposes and with the exception of TOTAL ASSETS 2,521 corrections to be made later, the principal aggregates of the Total consolidated net equity in local GAAP 550 Onatel group were summarized as follows: Price of acquisition 2,476 Goodwill 1,926 bORROWINGS AND DEbT 730 Cash and cash equivalents 140
NET CASH POSITION (590)
Revenues From 01/01 to 30/09/2006 (in millions of Fixed-line Mobile Eliminations Total Moroccan dirhams) Consolidated Revenues 609 412 (65) 956
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Note 8. Change in deferred taxes at December 31, 2006, 2005 and 2004
(in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004 Assets 445 525 495 Liabilities 177 172 129
Net equity 268 353 366
8.1 Change in deferred taxes
(in millions of Dec. 31, Dec. 31, Statement Equity Change in Translation Dec. 31, Moroccan dirhams) 2004 2005 of income impact scope of adjustment 2006 impact consolidation Assets 495 525 (85) 6 (1) 445
Liabilities 129 172 50177
Net assets 366 353 (90) 0 6 (1) 268
The change in scope in 2006 related to including the net equity of Mobisud.
(in millions of Jan. 1, Dec. 31, Statement Equity Change in Translation Dec. 31, Moroccan dirhams) 2004 2004 of income impact scope of adjustment 2005 impact consolidation Assets 433 495 30 1 525
Liabilities 47 129 43 172
Net assets 386 366 (13) 1 353
8.2 Deferred tax assets and liability components
(in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004 Deferred tax assets 445 525 495 - Impairment deductible in later periods 423 520 495 - Other 22 5
Deferred tax liabilities 177 172 129 - Restatement of revenues 61 84 69 - Other 116 88 60
Net assets 268 353 366
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Inventories at December 31, 2006, 2005 and 10.2. Other receivables and prepaid expenses 20043 (in millions of Dec. 31, Dec. 31, Dec. 31, (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) 2006 2005 2004 Moroccan dirhams) 2006 2005 2004 Trade payables, advances Inventories 525 445 488 and downpayments 260 51 136 Impairment (87) (72) (68) Employee accounts 31 21 22 Tax receivables 559 548 438 NET TOTAL 438 373 420 Other receivables 3 8 155 Inventories at December 31,2006 essentially comprise: Accruals 174 320 395 • MAD191 million mobile handsets; NET TOTAL 1,027 948 1,146 • MAD103 million multimedia handsets; • MAD29 million fixed-line handsets; Advances, downpayments, trade payables, receivables from • MAD101 million goods sold. employees, government receivables and other receivables are due in less than one year. Changes in current asset inventories are recorded as cost of goods sold. Employee accounts comprise advances granted to The impairment of inventories is recorded in “Allowances net employees, net of write-downs. As these loans are granted to amortization, depreciation and provision”. many employees, under particular conditions, and concern non significant amounts, Maroc Telecom judged that it was not relevant to provide details of their specific elements Note 10. Receivables at December 31, 2006, 2005 (repayment date, early repayment options, conditions of the and 200431 déc. 1 jan. instruments, interest rates…). Impairment is recorded under “Impairment of other receivables”. It amounted to (in millions of Dec. 31, Dec. 31, Dec. 31, MAD2 million and is included in net allowances and write- Moroccan dirhams) 2006 2005 2004 backs recorded on the income statement. Accounts receivable 5,901 6,167 4,683 Tax receivables mainly comprise VAT items. Other receivables Accruals essentially relate to prepaid expenses for transport and accruals 1,027 948 1,146 operating leases and insurance policies.
NET TOTAL 6,928 7,115 5,829 Note 11. Short term financial assets at December 10.1. Accounts receivable 31, 2006, 2005 and 2004
(in millions of Dec. 31, Dec. 31, Dec. 31, (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) 2006 2005 2004 Moroccan dirhams) 2006 2005 2004 Trade receivables 8,415 8,498 7,186 Term deposits > 90 days 22 17
Government receivables 1,473 1,363 1,075 Short-term investments Impairment of receivables (3,987) (3,694) (3,578) TOTAL 22 17 0
NET TOTAL 5,901 6,167 4,683 Short term financial assets include term deposits which have Trade receivables include receivables collected from GAM, a maturity exceeding three months and which do not meet the Group’s definition of highly liquid investments. SFR and Casanet. The details of these transactions are set out in note 30 concerning related parties. The increase in the impairment of trade receivables and related accounts is due to the increased customer base and a more restrictive policy of provisionning of accounts receivable.
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Note 12. Cash and cash equivalents at December The increase in cash flow used in investing activities in 2005 31, 2006, 2005 and 2004 compared to 2004 resulted mainly from the investment plan
(in millions of Dec. 31, Dec. 31, Dec. 31, Cash flow used in financing activities Moroccan dirhams) 2006 2005 2004 The increase in cash flow used in financing activities in 2006 Cash 1,123 5,112 7,155 compared to 2005 was due primarily to the dividend payout related to Maroc Telecom‘s capital reduction for an amount of MAD3,516 Cash equivalents 1,618 2,473 259 million. In addition, the ordinary dividend payout increased TOTAL 2,741 7,585 7,414 considerably in 2006 to MAD6,142 million compared with MAD4,424 million in 2005. Change in cash and cash equivalents The decrease in cash flow used in financing activities in 2005 compared with 2004 was primarily due to the dividend payout in (in millions of Dec. 31, Dec. 31, Dec. 31, 2004 which totalled MAD5,154 million including exceptional Moroccan dirhams) 2006 2005 2004 dividends of MAD2,374 million. Cash flow from operating activities 11,233 8,426 7,806 Note 13. Dividends Cash flow used in investing activities (6,435) (3,119) (2,281) 13.1 Dividends Cash flow used in financial (in millions of Dec. 31, Dec. 31, Dec. 31, activities (9,615) (5,098) (5,846) Moroccan dirhams) 2006 2005 2004 Foreign currency translation adjustments (27) 11 (13) Dividends received from equity affiliates (a) --- Change in cash and cash equivalents (4,844) 219 (334) Dividends paid by consolidated Cash and cash equivalents companies to their minority at the beginning of the period 7,585 7,366 7,700 shareholders Cash and cash equivalents . Mauritel 23 28 - at the end of the period 2,741 7,585 7,366 . Other 23 28 - Dividends paid by Maroc Telecom Change in cash and cash equivalents (4,844) 219 (334) to shareholders (b) . Moroccan government 2,080 1,499 3,331 . Vivendi 3,121 2,242 1,793 Cash flow from operating activities . Other 918 655 (*) The increase in cash flow from operating activities in 2006 6,119 4,396 5,124 compared to 2005 mainly related to an improvement in net Total dividend payout (a)+(b) 6,142 4,424 5,124 income, and a decrease in capital working requirements due (*) Includes an exceptional dividend of MAD2,374 million for the year ended to the increase in debt items. December 31, 2004. The increase in cash flow from operating activities in 2005 The payment period of dividends by Mauritel is long because compared to 2004 was mainly due to an improvement in net of Mauritanian taxation. income less the rise in working capital requirements primarily due to the effect of an increase in trade receivables. 13.2 Dividends proposed for the year ended December 31, 2006
Cash flow used in investing activities On March 1, 2006, date of the Supervisory Board meeting The increase in cash flow used in investing activities in 2006 which approved Maroc Telecom’s 2006 consolidated financial compared to 2005 rose mainly on one hand due to the statements and appropriation of earnings, Maroc Telecom’s investment plan for 2006 which was 23% higher than in 2005 Supervisory Board proposed the distribution of a MAD7.88 and on the other hand due to the acquisition of a 51% stake per share dividend to shareholders, corresponding to a total in Onatel for MAD2,476 million. payout of MAD6,929 million.
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Note 14. Provisions at December 31, 2006, 2005 and 2004
Provisions for liabilities mainly relate to disputes with employees and third parties. They are evaluated on a case-by-case basis. Provisions for contingent liabilities are analyzed as follows:
(in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004
Non-current provisions 36 35 32 Provisions for life annuities 28 25 26 Other provisions 8 10 6 Current provisions 388 101 288 Provisions for voluntary redundancy plan 304 6 161 Provisions for employees 26 54 58 Provisions for disputes with third parties 35 32 59 Other provisions 23 9 11 TOTAL 424 136 320
Year ended 2006
(in millions of Moroccan dirhams) 2005 Charges Utilised Change in Translation Releases 2006 scope of adjustment consolidation Non-current provisions 35 4 (2) 0 (1) 0 36 Provisions for life annuities 25 3 28 Other provisions 10 1 (2) (1) 8 Current provisions 102 320 (24) 0 (2) (9) 388 Provisions for voluntary redundancy plan 6 300 (2) 304 Provisions for employees 53 2 (15) (14) 26 Provisions for disputes with third parties 13 10 (3) 15 35 Other provisions 29 9 (3) (2) (10) 23 TOTAL 137 325 (26) 0 (2) (9) 424
The provision for employee-related expenses corresponds to The other current provisions correspond mainly to the Maroc Telecom’s commitment to pay life annuities to its Mauritel group, and relate to litigation with the tax authorities current and former employees for work-related accidents, and the telecommunications regulatory authority. and other related expenses. The allowance of MAD300 of restructuring provisions corresponds to the voluntary redundancy plan launched by Maroc Telecom in 2006.
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Year ended 2005
(in millions of Moroccan dirhams) 2004 Charges Utilised Change in Translation Releases 2005 scope of adjustment consolidation Non current provisions 32 30 0 1(1) 35 Provisions for life annuities 26 (1) 25 Other provisions 63 1 10 Current provisions 288 33 (201) 00(19) 101 Provisions for voluntary redundancy plan 161 6 (161) 6 Provisions for employees 57 7 (1) (10) 54 Provisions for disputes with third parties 52 4 (37) (6) 13 Other provisions 18 15 (2) (3) 29 TOTAL 320 36 (201) 01(20) 136
In 2005, provisions for litigation with third parties were The MAD161 million reversal of restructuring provisions reduced by MAD37 million, primarily due to the settlement of corresponds to the voluntary redundancy plan launched by litigation with Continental. Maroc Telecom in 2004. A change to provisions of The provision for employee-related expenses corresponds to MAD6 million is recorded in the 2005 financial statements. Maroc Telecom’s commitment to pay life annuities to its current and former employees for work-related accidents, and other related expenses.
Year ended 2004
(in millions of Moroccan dirhams) January 1, Charges Utilised Change in Translation Releases Dec. 31, 2004 scope of adjustment 2004 consolidation Non current provisions 24 20 6 0032 Provisions for life annuities 24 2 26 Other provisions 66 Current provisions 355 174 (1) 7 (1) (247) 288 Provisions for voluntary redundancy plan 161 161 Provisions for employees 59 8 (10) 57 Provisions for disputes with third parties 286 4 (1) (237) 52 Other provisions 10 27(1) 18 TOTAL 379 176 (1) 13 (1) (247) 320
In 2004, the MAD237 million reversal of the provision for The provision for employee-related expenses corresponded to litigation with third parties concerns the settlement of litigation Maroc Telecom’s commitment to pay life annuities to its current with Meditel over interconnection tariffs. Other litigation mainly and former employees for work-related accidents and other consisted of a dispute with a supplier, and the 2004 provision related expenses. for the latter was justified by ongoing legal proceedings. The restructuring provision corresponded to the voluntary redundancy plan launched by Maroc Telecom at the end of 2004.
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Note 15. Borrowings and other financial liabilities at December 31, 2006, 2005 and 2004
15.1. Net cash position
(in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004 Borrowings due less than one year 44 62 148 Borrowings due more than one year 11 57 720 Facilities and overdrafts 48 Borrowings and other financial liabilities 55 119 916 Cash and cash equivalents 2,741 7,585 7,414 Net cash position 2,686 7,466 6,498
15.2. Net cash position by maturity
The breakdown by maturity is based on the repayment terms and conditions of the borrowings.
Year ended December 31, 2006
(in millions of Moroccan dirhams) < 1 year 1 to 5 years > 5 years TOTAL Borrowings 44 11 55 Facilities and overdrafts 0 Borrowings and other financial liabilities 44 11 0 55 Cash and cash equivalents 2,741 2,741 Net cash position 2,697 (11) 0 2,686
Year ended December 31, 2005
(in millions of Moroccan dirhams) < 1 year 1 to 5 years > 5 years TOTAL Borrowings 62 57 119 Facilities and overdrafts Borrowings and other financial liabilities 62 57 119 Cash and cash equivalents 7,585 7,585 Net cash position 7,523 (57) 7,466
Year ended December 31, 2004
(in millions of Moroccan dirhams) < 1 year 1 to 5 years > 5 years TOTAL Borrowings 148 183 537 868 Facilities and overdrafts 48 48 Borrowings and other financial liabilities 196 183 537 916 Cash and cash equivalents 7,414 7,414 Net cash position 7,218 (183) (537) 6,498
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Maroc Telecom did not discount borrowings with an interest If the debt had been discounted the impact on the consolidated rate of 0% since the company initiated talks to repay them a balance sheet and the consolidated income statement would long time ago and they were repaid in full in early August 2005. have been as follows:
(in millions of Moroccan dirhams) December 31, December 31, January 1, 2005 2004 2004
Balance sheet
Total equity 290 302
o/w earnings (290) (12)
Deferred tax liabilities 157 163
Borrowings and other financial liabilities (447) (465)
- 0-
Income statement
Interest and other financial charges and income (447) (18)
Income tax expense 157 6
(290) (12)
15.3. Table of analysis
(in millions of Moroccan dirhams) Interest rate Maturity Dec. 31, Dec. 31, Dec. 31, % 2006 2005 2004 ABCI EUR13.9 m 08/95-02/05 6.73% 18/02/05 08 ABCI EUR7.2 m 09/96-03/07 7.41% 28/03/07 1 7 14 NATEXIS EUR2.7 m 12/95-06/05 6.70% 3/06/05 02 HSBC CCF EUR10.5 m 01/96-07/05 7.34% 11/07/05 0 12 HSBC CCF EUR11.5 m 09/95-03/05 6.50% 15/03/05 06 KFWF EUR18.7 m 01/97-04/06 8.07% 9/04/06 5 23 SEE USD69 m 07/98-01/38 0.00% 11/01/38 0 476 SEE USD20.7 m 01/01-07/40 0.00% 10/07/40 0 154 Mauritanian government (October 2000) 8.00% 18/01/08 53 103 170 Others 8.00% 1 43 Bank overdrafts 48 Borrowings and other financial liabilities 55 119 916
Currency risk Interest rate risk Maroc Telecom is exposed to variations in exchange rates as Maroc Telecom’s debt is entirely at fixed interest rates. the breakdown of its receipts in foreign currencies differs from Consequently, Maroc Telecom is not siginificantly exposed to the breakdown of its disbursements in foreign currencies. favourable or unfavourable changes in interest rates. Receipts and disbursements in foreign currencies account for a significant portion of its revenues.
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Note 16. Accounts payable at December 31, 2006, (in millions of Year ended December 31 Moroccan dirhams) Published 2005 and 2004 2006 2005 2004
(in millions of Dec. 31, Dec. 31, Dec. 31, Gross revenues Moroccan dirhams) 2006 2005 2004 . Maroc Telecom 26,300 23,815 20,390 Trade accounts payable 5,318 5,126 3,674 . Mauritel 997 906 427 Employee related liabilities 555 555 404 Total consolidated gross revenues 27,297 24,721 20,817 Tax liabilities and other payables 3,002 2,658 2,521 Elimination of inter-segment transactions (4,682) (4,179) (3,409) Accruals 1,403 1,041 962 Total consolidated revenues 22,615 20,542 17,408 TOTAL 10,278 9,380 7,561
Trade accounts payable and related accounts include debts Revenues correspond to services provided to customers and due from GAM, SFR, Vivendi Universal, Vivendi Telecom subscribers, based on calls made and effective rates. This International, Canal+ Group and Casanet. Details of these item also includes reciprocal fixed/mobile services which can transactions are presented in note 30 concerning related be analysed as inter-segment transactions that are eliminated parties. for consolidation purposes. ‘’Tax liabilities and other payables’’ mainly includes tax and VAT payables. It also includes payables relating to obligations arising from Maroc Telecom’s corporate mission. Note 18. Purchases for the years ended December “Accruals” mainly includes prepaid income of MAD1,350 31, 2006, 2005 and 2004 million corresponding to subscriptions invoiced in advance, SIM cards sold but not used (whether activated or not), (in millions of Year ended December 31 handsets sold but not activated and provisions relating to Moroccan dirhams) 2006 2005 2004 loyalty programs. Cost of handsets 1,466 1,771 1,154 In 2006, Maroc Telecom revalued the unactivated prepaid Domestic and international cards held by third party distributors by MAD109 million. interconnection charges 1,892 1,784 1,491 Other 335 324 564
Note 17. Revenues for the years ended December Total 3,693 3,879 3,209 31, 2006, 2005 and 2004 Exercice clos le 31 décembre The item ‘’Other’’ mainly includes fuel and electricity, phone cards and other purchases of consumables. (in millions of Year ended December 31 Moroccan dirhams) Published 2006 2005 2004 Note 19. Payroll and payroll-related costs for the Mobile gross revenues 14,684 12,772 9,684 years ended December 31, 2006, 2005 and 2004 Sale of goods 969 914 670 Sale of services 13,715 11,858 9,014 (in millions of Year ended December 31 Moroccan dirhams 2006 2005 2004 Fixed-line and internet gross revenues 12,613 11,949 11,133 Wages 1,709 1,819 1,489 Sale of goods 101 73 132 Payroll taxes 274 227 199 Sale of services 12,512 11,876 11,001 Wages and taxes 1,982 2,046 1,688 Total consolidated Share-based compensation 77 10 gross revenues 27,297 24,721 20,817 Elimination of inter-segment Payroll costs 2,060 2,056 1,688 transactions (4,682) (4,179) (3,409) Average headcount 11,764 12,360 12,859 Total consolidated revenues 22,615 20,542 17,408
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This item includes payroll costs for the period, excluding Note 21. Other operating expenses for the years redundancy costs, which are recognized as other operating ended December 31, 2006, 2005 and 2004 expenses. On December 12, 2006, all of Maroc Telecom’s employees (in millions of Year ended December 31 with six months’ seniority at December 31, 2006, were Moroccan dirhams) 2006 2005 2004 granted 15 free Vivendi shares. These shares will be registered Communication 464 456 355 in an ‘’Individual share” account at December 13, 2008. Commissions 718 659 487 As the shares were granted without the condition of presence Other including: 1,504 1,495 939 between the allocation period and the registration period in Rental expenses 188 191 173 the individual account, the charge for Maroc Telecom was Maintenance and repair 504 476 396 completely provisioned on December 31, 2006 and will be Audit and advisory fees 177 116 134 added in the next financial statements. As the corresponding Postage and banking services 85 105 93 obligation is a financial liability, it will be remeasured at fair Voluntary redundancy plan 30 468 30 value at the end of the next two fiscal years, or when the Other 520 139 113 shares are issued. Total 2,686 2,610 1,781 The amount of the obligation is calculated by multiplying the number of employees present at June 30, 2006 (11,252) by the number of shares granted (15), by the share price at the The change in item ‘’Other’’ of other operating expenses grant date (Euro29.39 at December 12, 2006) and by a between 2006 and 2005 is explained primarily by: discount to reflect the absence of dividends for the first two + MAD85 million: leased lines years (91.75%).The latter will be reviewed at the end of the next two fiscal years. + MAD180 million: impact of exchange difference (+102 in 2005 and -77 in 2006); + MAD59 million: payments of intermediaries and fees (SOX, due diligence…); Note 20. Taxes, duties and fees for the years ended December 31, 2006, 2005 and 2004 + MAD28 million: travel and assignments related to assessing acquired companies or in view of acquisitions. (in millions of Year ended December 31 Moroccan dirhams) 2006 2005 2004 Taxes and duties 307 280 245 Note 22. Net depreciation, impairment and Fees 464 400 153 provisions for the years ended December 31, 2006, 2005 and 2004 Total 771 680 398 (in millions of Year ended December 31 Moroccan dirhams) 2006 2005 2004 Taxes, duties and fees include local taxes (patents, urban taxes), the tax for occupation of public land and other taxes Depreciation and impairment (registration taxes, motor tax). of fixed assets 2,752 2,673 2,666 Fees include amounts paid to the telecommunications Impairment of accounts receivable 301 110 103 regulatory authority with respect to universal service and Impairment of inventories 15 4 39 training. Impairment of other receivables 5 35 The change in fees is mainly due to the change in business Provisions 290 (184) (73) levels that serve as the basis for calculating the research Total 3,363 2,639 2,735 training contribution.
The increase in the impairment of accounts receivable is due to growth in the customer base and a more restrictive policy of provisioning for accounts receivable. The change in allowance for expenses provisions is mainly explained by the constitution of a provision of MAD300 million relating to the voluntary redundancy plan launched in 2006
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and which will be effective in 2007 and a reversal of MAD161 24.2 Other financial income and expense million in 2005. (in millions of Year ended December 31 Allowances and reversals relating to the voluntary redundancy Moroccan dirhams) 2006 2005 2004 plan are presented in detail in note 29. Other financial expense (3) (65) (5)
Other financial income 4 47 9
Note 23. Income from equity affiliates for the years Other financial income and expense 1 (18) 4 ended December 31, 2006, 2005 and 2004 The item “other financial expense” represents foreign (in millions of Year ended December 31 exchange loss during the last three fiscal years. Moroccan dirhams) 2006 2005 2004 Mauritel 33 Other “financial income” includes income from the sale of the GAM (9) 14 (3) non-consolidated investments as well as disposal results. Medi-1-Sat (12)
Total (21) 14 30 Note 25. Income taxes for the year ended December 31, 2006, 2005 and 2004 Mauritel group has been fully consolidated since July 1, 2004. (in millions of Year ended December 31 Medi-1-Sat has been accounted for by the equity method Moroccan dirhams) 2006 2005 2004 since January 1, 2006. Income tax 3,249 2,871 2,560 GSM Al-Maghrib was sold in the first quarter of 2006 for Deferred taxes 90 15 14 MAD13 million, generating a capital loss of MAD12 million offset by positive results of MAD3 million in the first quarter of Current tax 3,339 2,886 2,574 2006. Consolidated effective tax rate* 33% 33% 33%
* Income tax/earnings before taxes.
Note 24. Interest and other financial charges and (in millions of Year ended December 31 Moroccan dirhams) 2006 2005 2004 income for the years ended Dec.31, 2006, 2005 and Earnings 6,833 5,921 5,228 2004 Goodwill impairment 24.1 Cost of debt Income tax 3,339 2,886 2,574 (in millions of Year ended December 31 Consolidated earnings before tax 10,172 8,807 7,802 Moroccan dirhams) 2006 2005 2004 Moroccan statutory tax rate 35% 35% 35% Income from cash Theoretical income tax 3,560 3,082 2,731 and cash equivalents 149 143 200 Impact of change(s) in tax rates 63 (27) (12) Interest expense on loans (7) (13) (29) Other differences (284) (170) (145) Cost of net debt 142 130 171 Effective income tax 3,339 2,886 2,574
Between 2005 and 2006, cost of financial debt raised to Oher differences primarily include the 50% tax exemption on MAD142 million from MAD130 million. This was mainly due to the proportion of revenues from international activities, which the increase in investment income. changed between 2005 and 2006. The statutory deferred tax rate is 25% in Mauritania compared with 35% in Morocco. The decline in income from investments was due to the reduced interest rate on term deposits and sight deposits. Due to the early repayment of financing debts, interest expense decreased in 2005 compared with 2004.
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Note 26. Minority interests for the years ended December 31, 2006, 2005 and 2004
Minority interests reflect the interests of shareholders other than (in millions of Year ended December 31 Maroc Telecom in Mauritel and Mobisud group’s earnings. Moroccan dirhams) 2006 2005 2004
Mauritel 102 112 57 The marked change between 2005 and 2004 is due to the full consolidation of Mauritel since July 1, 2004. Mobisud (8)
Total Minority interests 94 112 57
Note 27. Earnings per share for the year ended December 31, 2006, 2005 and 2004
27.1 Earnings per share
2006 2005 2004 Basic Diluted Basic Diluted Basic Diluted
Earnings (in millions of Moroccan dirhams)
Earnings attributable to the equity holders of the parent 6,739 6,739 5,809 5,809 5,171 5,171
Adjusted earnings attributable to the equity holders of the parent 6,739 6,739 5,809 5,809 5,171 5,171
Number of shares (in millions) 879.1 879.1 879.1 879.1 879.1 879.1
Earnings per share (in Moroccan dirhams) 7.7 7.7 6.6 6.6 5.9 5.9
27.2 Change in the number of shares
in number of shares 2006 2005 2004
Weighted average number of shares outstanding over the period 879,095,340 879,095,340 879,095,340
Adjusted weighted average number of shares outstanding over the period 879,095,340 879,095,340 879,095,340
Potential dilutive effect of financial instruments outstanding
Weighted average number of shares after potential dilutive effect 879,095,340 879,095,340 879,095,340
It should be noted that the nominal value of the shares decreased from MAD100 to MAD10 in 2004 and from MAD10 to MAD6 in 2006. All shares were fully paid up at December 31, 2006.
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Note 28. Segment data
28.1. Breakdown of balance sheet items by business segment
2006 (in millions of Moroccan dirhams) Fixed-line Mobile Unallocated Total Maroc (A) (B) (C) Telecom Group
Non-current assets 7,468 7,408 3,220 18,095 Current assets 4,525 2,823 2,780 10,129 Total assets 11,993 10,231 6,000 28,224 Total equity 36,069 36,069 Non-current liabilities 27 10 1,020 1,057 Current liabilities 4,667 5,989 491 11,147 Total liabilities and equity 4,694 5,999 37,580 48,273 Acquisition of tangible and intangible assets 1,533 2,445 3,978
2005 (in millions of Moroccan dirhams) Fixed-line Mobile Unallocated Total Maroc (A) (B) (C) Telecom Group
Non-current assets 8,020 6,085 684 14,788 Current assets 5,064 2,397 7,629 15,090 Total assets 13,084 8,481 8,313 29,879 Total equity 19,724 19,724 Non-current liabilities 8 1 255 264 Current liabilities 4,770 4,703 418 9,891 Total liabilities and equity 4,778 4,704 20,397 29,879 Acquisition of tangible and intangible assets 1,439 1,771 3,210
2004 (in millions of Moroccan dirhams) Fixed-line Mobile Unallocated Total Maroc (A) (B) (C) Telecom Group
Non-current assets 7,506 5,861 655 14,021 Current assets 3,999 2,205 7,459 13,663 Total assets 11,505 8,065 8,114 27,684 Total equity - - 18,201 18,201 Non-current liabilities 7 - 874 881 Current liabilities 4,021 3,720 861 8,602 Total liabilities and equity 4,028 3,720 19,936 27,684 Acquisition of tangible and intangible assets 1,366 1,122 - 2,488
(C) Includes mainly taxes, cash, financial assets, borrowings and net equity.
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28.2. Breakdown of balance sheet by geographical area
(in millions of Moroccan dirhams) 2006 2005 2004
Morocco (a) 21,008 20,192 18,216 Other (b) 1,216 1,375 1,355
Total segment assets (a) + (b) 22,224 21,567 19,571
28.3. Breakdown of earnings by business segment
Year ended December 31, 2006
(in millions of Moroccan dirhams) Fixed-line Mobile Eliminations Total
Consolidated revenues 12,613 14,684 (4,682) 22,615
Operating income 3,139 6,904 10,043
Net depreciation and impairment 1,324 1,428 2,752
Voluntary redundancy plan 30 1 30
Year ended December 31, 2005
(in millions of Moroccan dirhams) Fixed-line Mobile Eliminations Total
Consolidated revenues 11,949 12,772 (4,179) 20,542
Operating income 3,284 5,394 8,678
Net depreciation and impairment 1,356 1,317 2,673
Voluntary redundancy plan 216 97 313
Year ended December 31, 2004
(in millions of Moroccan dirhams) Fixed-line Mobile Eliminations Total
Consolidated revenues 11,133 9,684 (3,409) 17,408
Operating income 3,791 3,806 7,597
Net depreciation and impairment 1,427 1,239 2,666
Voluntary redundancy plan 111 50 161
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28.4. Segment earnings by geographical area
Year ended December 31, 2006
(in millions of Moroccan dirhams) Morocco Other Eliminations Total
Consolidated revenues 21,736 928 (50) 22,615
Operating income 9,783 260 10,043
Net depreciation and impairment 2,601 151 2,752
Voluntary redundancy plan 2 28 30
Year ended December 31, 2005
(in millions of Moroccan dirhams) Morocco Other Eliminations Total
Consolidated revenues 19,737 836 (31) 20,542
Operating income 8,411 267 8,678
Net depreciation and impairment 2,529 145 2,674
Voluntary redundancy plan 313 313
Year ended December 31, 2004
(in millions of Moroccan dirhams) Morocco Other Eliminations Total
Consolidated revenues 17,041 382 (15) 17,408
Operating income 7,470 127 7,597
Net depreciation and impairment 2,589 77 2,666
Voluntary redundancy plan 161 161
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Note 29. Restructuring provisions for the years ended December 31, 2006, 2005 and 2004
(in millions of Moroccan dirhams) Maroc Telecom Mauritel Group Total Maroc Telecom Group
Redundancy benefits Balance at January 1, 2004 -
Changes in scope of consolidation and adjustments - - - of allocation of acquisition price Addition - Utilization - Release -
Balance at December 31, 2004 - - -
Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition - - Utilization - Release -
Balance at December 31, 2005 - - -
Other restructuring costs Balance at January 1, 2004 -
Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition 161 161 Utilization - Release -
Balance at December 31, 2004 161 - 161
Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition 6 6 Utilization - Release (161) (161)
Balance at December 31, 2005 6 - 6
Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition 300 300 Utilization (2) (2) Release
Balance at December 31, 2006 304 - 304
Maroc Telecom launched a voluntary redundancy plan in 2004. The initial provision totalled MAD161 million. In 2005, the total cost amounted to MAD474 million, MAD468 million of which was used for 912 people and MAD6 million in additional provisions recorded in the financial statements at December 31, 2005. In 2006, another voluntary redundancy plan was launched, and the related provisions were increased to MAD300 million.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
Note 30. Transactions with related parties GSM Al-Maghrib: During 2002 and 2003, Maroc Telecom concluded agreements 30.1. Compensation of executive officers, Group management with GSM Al-Maghrib relating to the marketing of the mobile, and directors in 2006, 2005 and 2004 fixed, internet and multimedia services of Maroc Telecom. For the year ended December 31, 2006, members of the During 2004, the framework agreement was updated though Management Board received MAD22 million. the execution of several amendments relating in particular to For the year ended December 31, 2005, members of the the payment of fees by Maroc Telecom to GSM Al-Maghrib Management Board received MAD20 million. marketing. For the year ended December 31, 2004, members of the During 2006, 2005 and 2004, Maroc Telecom’s main related Management Board received MAD19 million. party was GSM Al-Maghrib (GAM), which has been equity- accounted since July 1, 2003. In March 2006, Maroc Telecom (in millions of Moroccan dirhams) 2006 2005 2004 sold its stake in GSM Al-Maghrib. The main transactions with GAM and sums due by the latter or by Maroc Telecom are Short-term benefits (1) 22 20 19 detailed as follows: Post-employment benefits (2) Other long-term benefits (3) (in millions of Moroccan dirhams) 2005 2004 Redundancy benefits (4) 25 26 36 Consolidated revenues 1,283 1,078 Share- based compensation (5) Expenses 21 8 Total 47 46 55 Receivables 74 304
(1) Salaries, compensation, incentive plans and social security contributions, Payables 11 4 holiday pay, Directors’ fees and non-monetary benefits. (2) Including pension and post-retirement benefits, life insurance and medical care. 30.3. Other related parties (3) Long-service leave, sabbatical leave, long service benefits, jubilees, deferred compensation, incentive plans and bonuses (if payable wholly within 12 Casanet months or more after the end of the period). During 2003, Maroc Telecom concluded several agreements (4) Redundancy pay. with Casanet covering: (5) Stock options and other share-based compensation. • the maintenance of Maroc Telecom’s “Menara” internet portal; 30.2. Equity affiliates • the supply of development services and hosting of Maroc Medi-1-Sat: Telecom’s mobile portal;
Medi-1-Sat was created in 2004. Its business activity includes: • the hosting of IAM’s’’ Elmanzil’’ website;
• satellite transmission and broadcasting of news, educational • the maintenance of new WAP applications on the Menara programs, sports and entertainment programs; portal and the production of content relating to these • broadcasting of advertising; applications;
• all cable and satellite TV activity; • the marketing of internet access over leased lines. • all operations related to satellite image broadcasting, notably setting up and broadcasting TV programs. (in millions of To ensure good managment in accordance with the Moroccan dirhams) 2006 2005 2004 shareholders’ agreement, Maroc Telecom granted Medi-1-Sat Consolidated revenues 5 6 5 a loan of MAD14 million. The main operations with Medi-1-Sat and the amounts due by Medi1-Sat or Maroc Telecom are Expenses 27 16 13 detailed below: Receivables 11 75 (in millions of Moroccan dirhams) 2006 Payables 17 5 2 Consolidated revenues Vivendi Universal – SFR – Vivendi Telecom International- Expenses Groupe Canal + Receivables 14 In 2001, Itissalat Al-Maghrib entered into a management Payables services agreement with Vivendi Telecom International (VTI),
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which provides Maroc Telecom with technical assistance in At December 31, 2005, no charge related to the agreement the following fields: was recorded in the company’s financial statements.
• strategy and organization; • development; Note 31. Contractual obligations and contingent • sales and marketing; assets and liabilities • finance; • purchasing; 31.1. Contractual obligations and commercial commitments • human resources; recorded in the balance sheet • information systems; • regulation and interconnection; (in millions of Total Due less than Due Due more than • infrastructure and networks. Moroccan dirhams) 1 year 1-5 years 5 years
In addition, with a view to further strategic cooperation, Long-term debts 54 43 11 Maroc Telecom has entered into transactions with SFR (the leading French private mobile operator), Canal + group and Capital lease obligations the Vivendi Universal group. Operating leases * 51 33 19 These transactions are summarized as follows: Irrevocable purchase obligations Year ended December 31, 2006 Other long-term (in millions of Vivendi Vivendi Telecom SFR Canal + commitments Moroccan dirhams) International Group Total 105 76 29 Consolidated revenues 114 * long-term vehicle leases (excluding tax) Expenses 70 25 28 5 Receivables 31 31.2. Other commitments given and received relating to Payables 60 2 92 0 operations Commitments given Year ended December 31, 2005 In 2006
(in millions of Vivendi Universal SFR Vivendi Telecom • Guarantees on equipment sale contracts. At the end of Moroccan dirhams) International 2006, these commitments amounted to MAD205 million, compared with MAD236 million in 2005, and are mostly Consolidated revenues 413 current.
Expenses 15 57 39 • A guarantee given relating to the participation of Maroc Receivables 35 Telecom in the bid for Gabon Telecom’s privatization for an amount of MAD11 million. Payables 14 55 8 • Supplier orders, which amounted to MAD910 million at the end of 2006, compared with MAD613 million at the end of Al Akhawayn University 2005, and are mostly current. These orders mainly relate to The Supervisory Board meeting of December 21, 2004, investments in property, plant and equipment. authorized Itissalat Al-Maghrib to conclude an agreement with • Operating leases with terms of between 3 and 10 years for Al Akhawayn University to set up a global framework of MAD10 million at the end of December 2006. The amount cooperation to carry out joint actions in areas of common recorded corresponds to one month’s expense reflecting interest concerning scientific and technical research, in the termination clause, which includes a one-month notice particular R&D and consulting. In accordance with this period. agreement, each year, two scholarships will be paid by Itissalat Al-Maghrib to two students chosen from company • Long-term contracts for the lease of space segments for employees’ children. MAD117 million. At December 31, 2006, Maroc Telecom recorded an expense • Sindibad investment fund amounting to MAD2 million in of MAD3 million for this purpose. 2006 compared to MAD2 million in 2005. • Stake acquired in Medi-1-Sat for MAD42 million.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
• CMC group has agreed to retrocede to Socipam, a civil goods imported, due to an investment agreement with the company comprising the employees of the Mauritanian public authorities of the Kingdom of Morocco, whereby Maroc subsidiaries, its 0.527% interest in Mauritel SA bought in Telecom agrees to carry out a capital expenditure program February 2006. The terms and conditions governing this over three years from 2003 to 2005 for MAD7 billion and to commitment are the following: create 300 new jobs. At December 31, 2005, this capital expenditure program had been completed. • possible buyback during 5 years, required by Socipam, of 5,592 shares sold to CMC for MAD7.8 million;
• by tranche of 100 shares; Commitments received • at a unit price which will increase every year from 2007. In 2006
• the agreement concluded between Mobisud and SFR • Guarantees of MAD1,152 million in 2006, compared with whereby Mobisud is committed to paying an advance of MAD705 million in 2005. MAD84 million in January 2007 for its interest in the • Moroccan government guarantee on group loans for Enhanced Service Provider (ESP). (SFR provides MAD1 million compared to MAD11 million at the end of transmission and other services to Mobisud over its GSM 2005. This guarantee matures at the same time as the loans. and UMTS networks throughout mainland France). SFR will repay MAD72 million of the advance when Mobisud signs • The agreement concluded between Mobisud and SFR up 75,000 customers. by which Mobisud is committed to pay an advance of MAD84 million in January 2007 for its interest in the Enhanced • Mauritel’s commitment to the government to invest Service Provider (ESP). (SFR provides transmission and other MAD160 million in the third generation license, MAD32 services to Mobisud over its GSM and UMTS networks million of which within one year and the remaining amount throughout mainland France). SFR will repay MAD72 million subsequently. when Mobisud signs up 75,000 customers. • Maroc Telecom is exempt from customs duty on all capital • Commitments received relating to capital increase of goods imported, due to an investment agreement with the Mobisud: public authorities of the Kingdom of Morocco, whereby Maroc Telecom agrees to carry out a capital expenditure • From SFR MAD9 million before December 31, 2007 and program over three years from 2006 to 2009 for MAD9 million before December 31, 2008; MAD7.4 billion and create 150 new jobs. At December 31, • From Saham MAD10 million before December 31, 2007 2006, the remaining capital expenditure program amounted and MAD10 million before December 31, 2008; to roughly MAD4.6 billion. If Maroc Telecom does not make these investments, it will have to pay the cutoms duty • In July 2006, Maroc Telecom was awarded by the regulator outstanding on all the goods imported, plus penalties for late ( ANRT) a mobile license (3G) for 25 years (from July 2006 to payment. July 2031) for MAD300 million (27 million Euros) paid in the fourth quarter of 2006. In 2005 • In July 2006, Mauritel SA was awarded by the regulator • Guarantees on equipment sale contracts. At the end of (ARE) a third generation license for 15 years (from July 2006 2005, these commitments amounted to MAD236 million to July 2021) for MAD10 million. compared to MAD226 million in 2004, and were mostly current. Maroc Telecom is exempt from customs duty on all capital goods imported, due to an investment agreement with the • Suppliers orders, which amounted to MAD613 million at the public authorities of the Kingdom of Morocco, whereby Maroc end of 2005, compared with MAD903 million at the end of Telecom agrees to carry out a capital expenditure program 2004, and were mostly current. These orders mainly relate over three years from 2006 to 2009 for MAD7.4 billion and to investments in property, plants and equipment. create 150 new jobs. At December 2006, the amount of capital • Operating leases with terms of between 3 and 10 years expenditure outstanding amounted to roughly MAD4.6 billion. amounted to MAD9 million at the end of December 2005. If Maroc Telecom does not carry out these investments, it will The amount recorded corresponds to one month’s expense, have to pay the cutoms duty outstanding on all the goods given the termination clause, which includes a one-month imported, plus penalties for late payment. notice period. In 2005 • Sindibad investment fund amounted to MAD2 million in • Guarantees of MAD705 million in 2005, compared with 2005 compared with MAD4 million in 2004. MAD598 million in 2004. • Stake acquired in Medi-1-sat for MAD 65 million. • Moroccan government guarantee on group loans for Maroc Telecom is exempt from customs duty on all capital MAD11 million at the end of 2005, compared with MAD694
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million at the end of 2004. This guarantee matures at the • With regard to GSM Al-Maghrib’s receivables, Air Time is same time as the loans. committed to paying the arrears for MAD22 million within Maroc Telecom is exempt from customs duty for all capital less than one year. goods imported, due to an investment agreement with the In 2005 public authorities of the Kingdom of Morocco, whereby Maroc Collateral and pledges include mortgages amounting to Telecom agrees to carry out a capital expenditure program MAD80 million at December 31, 2005 compared with MAD96 over three years from 2003 to 2005 for MAD7 billion and to million at December 31, 2004. create 300 new jobs. At December 31, 2005, this capital expenditure program had been completed. Note 32. Post-balance sheet events 31.3 Collateral and pledges On February 9, 2007, acquisition of a 51% stake in Gabon In 2006 Telecom for 61 million euros. • Pledge of MAD66 million at December 31, 2006 compared As financial information at the date of acquisition was not to MAD80 million at December 31, 2005. available, it was not possible for Maroc Telecom to provide the • In the event of the disposal, within a two-year period of over fair value of the assets acquired and liabilities assumed or the 65% of GSM Al-Maghrib’s share capital for a price above elements constituting goodwill. MAD293 per share, Air Time is committed to repaying the capital gain exceeding 65% to Maroc Telecom.
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5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
STATUTORY AUDITORS’ REPORTS - CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2006
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 generally accepted 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 document.
To the Shareholders, In compliance with the assignment entrusted to us in your general meetings, we have audited the accompanying consolidated financial statements of Itissalat Al-Maghrib SA (IAM) for the year ended December 31, 2006. The 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.
I - OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS We conducted our audit in accordance with international generally accepted auditing standards. These standards require us to plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. 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 the management, as well as evaluating the overall financial statements’ presentation. We believe that our audit provides a reasonable basis for our opinion set out hereafter. We certify that the consolidated financial statements give a true and fair view of the assets and liabilities, and of the financial position as well as the results of operations of the Group of individuals and entities included in the consolidation, in accordance with IFRS, as adopted by the EU. Without prejudice to the opinion above, we draw your attention to the following items explained in the notes to the consolidated financial statements:
• the estimates used for segment information (notes 2.5 and 28);
• note 2 (§ 2.3.9.3) and Note 5 related to Property, Plant and Equipment: as of December 31, 2006, the majority of the land and buildings transferred by the ONPT at the time of the incorporation of IAM, had been formally registered or are under requisition, although the process continues for properties that have not yet been registered with the property office.
II - SPECIFIC VERIFICATION We have also carried out the verification of the information given in the management report of the group. We have no comments to make as to its fair presentation and its conformity with the consolidated financial statements.
Casablanca, March 2, 2007
Statutory Auditors
Abdelaziz ALMECHATT Samir AGOUMII
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5.5 INDIVIDUAL FINANCIAL STATEMENTS
Balance sheet
ASSETS Gross Depreciation, Amorti- Net (in thousands of Moroccan dirhams) zation and Provisions 2006 2005 2004
CAPITALIZED COSTS (A) - - - - - . Start up costs - - - - - . Deferred costs - - - - - . Bond redemption premiums - - - - - INTANGIBLE ASSETS (B) 4,228,295 2,058,296 2,169,999 1,147,997 663,673 . Research and development costs - - - - - . Patents, trademarks, rights and similar rights 3,739,883 2,039,401 1,700,482 1,035,081 218,770 . Goodwill 21,093 18,895 2,198 4,628 7,954 . Other intangible assets 467,319 - 467,319 108,288 436,949 PROPERTY, PLANT AND EQUIPMENT (C) 31,839,824 20,084,393 11,755,431 11,841,635 11,579,536 . Land 971,953 - 971,953 956,277 923,206 . Buildings 3,984,283 2,481,819 1,502,464 1,460,823 1,673,648 . Technical plant, machinery and tooling 21,977,729 15,675,625 6,302,103 5,805,749 6,323,553 . Vehicles 75,587 71,194 4,393 7,207 11,874 . Office equipment 2,374,668 1,693,380 681,288 678,019 730,368 . Other property, plant and equipment 11,048 - 11,048 11,048 11,048 . Work in progress 2,444,556 162,375 2,282,181 2,922,512 1,905,838 FINANCIAL ASSETS (D) 3,113,635 41,886 3,071,749 519,370 549,188 . Long term loans 83,399 - 83,399 80,101 96,159 . Other financial receivables 1,989 - 1,989 1,967 1,968 . Equity investments 3,028,247 41,886 2,986,361 437,303 451,061 . Other investments and securities UNREALISED FOREIGN EXCHANGE LOSSES (E) 46 - 46 2,802 3,574 . Decrease in long term receivables - - - 2,462 - . Increase in long term debt 46 - 46 341 3,574 TOTAL I (A+B+C+D+E) 39,181,800 22,184,575 16,997,225 13,511,804 12 795,970 INVENTORIES (F) 423,670 89,224 334,446 264,152 539,675 . Merchandise 322,395 56,426 265,969 194,640 283,635 . Raw materials and supplies 101,275 32,798 68,476 69,512 256,039 . Work in progress - - - - - . Intermediary and residual goods - - - - - . Finished goods - - - - - CURRENT RECEIVABLES (G) 11,081,455 4,451,224 6,630,232 6,796,268 5,537,046 . Trade payables, advances and downpayments 254,288 - 254,288 49,676 135,353 . Accounts receivable and related accounts 10,102,868 4,407,706 5,695,162 5,920,324 4,505,133 . Employees 25,207 4,120 21,087 9,514 13,164 . Tax receivable 532,169 - 532,169 535,004 416,779 . Shareholders' current accounts - - - - 89,697 . Other receivables 64,977 39,397 25,580 34,422 65,218 . Accruals 101,947 - 101,947 247,329 311,702 MARKETABLE SECURITIES (H) 1,400,000 - 1,400,000 5,041,341 200,000 UNREALIZED FOREIGN EXCHANGE LOSSES (I) - - - - - (Current items) 63,166 - 63,166 97,936 78,825 TOTAL II (F+G+H+I) 12,968,291 4,540,448 8,427,844 12,199,697 6,355,546 CASH AND CASH EQUIVALENTS 854,254 - 854,254 2,232,865 6,998,032 . Checks 9,375 - 9,375 225,599 7,340 . Bank deposits 839,851 - 839,851 1,996,828 6,979,847 . Petty cash 5,028 - 5,028 10,439 10,845 TOTAL III 854,254 - 854,254 2,232,865 6,998,032 TOTAL GENERAL I+II+III 53,004,345 26,725,023 26,279,322 27,944,366 26,149,548
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
SHAREHOLDERS' EQUITY AND LIABILITIES NET (in thousands of Moroccan dirhams) 2006 2005 2004
SHAREHOLDERS' EQUITY (A) 15,628,890 18,334,674 16,858,251 . Share capital (1) 5,274,572 8,790,953 8,790,953 . Less : Capital subscribed and not paid-in - - - . Paid-in capital - - - . Premium of merger, contribution - - - . Revaluation difference - - - . Statutory reserve 879,095 879,095 650,806 . Other reserves 2,546,122 2,792,726 1,688,019 . Retained earnings (2) - - - . Unllocated income (2) - - - . Net income of the year (2) 6,929,101 5,871,900 5,728,473
QUASI EQUITY (B) 0 0 265,332 . Investment subsidies - - - . Regulated provisions 0 0 265,332
LONG TERM DEBT (C) 2,029 11,371 693,815 . Debenture bonds - - - . Other long term debt 2,029 11,371 693,815
PROVISIONS (D) 28,400 27,485 29,077 . Provisions for contingencies 46 2,802 3,574 . Provisions for losses 28,355 24,682 25,504
UNREALIZED FOREIGN EXCHANGE GAINS (E) - 68 122,291 . Increase in long term receivables - 68 - . Decrease in long term debt - - 122,291
TOTAL I (A+B+C+D+E) 15,659,319 18,373,598 17,968,766
CURRENT LIABILITIES (F) 9,890,079 8,955,490 7,557,245 . Accounts payable and related accounts 5,025,705 4,891,925 3,485,423 . Trade receivables, advances and downpayments 248,829 89,697 - . Payroll costs 467,591 493,067 345,539 . Social security contribution 78,525 53,920 54,375 . Tax payable 2,506,014 2,324,953 2,404,552 . Shareholders' current accounts 1 0 - . Other payables 468,348 396,564 520,351 . Accruals 1,095,066 705,363 747,005
OTHER PROVISIONS FOR CONTINGENCIES AND LOSSES (G) 689,555 460,207 551,675
UNREALIZED FOREIGN EXCHANGE GAINS (CURRENT ITEMS) (H) 40,369 155,072 24,090
Total II (F+G+H) 10,620,003 9,570,768 8,133,010
BANK OVERDRAFTS - - 47,772 . Discounted bills - - - . Treasury loans - - - . Bank loans and overdrafts - - 47,772
Total III - - 47,772
TOTAL GENERAL I+II+III 26,279,322 27,944,366 26,149,548
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INCOME STATEMENT (excluding VAT)
(in thousands of Moroccan dirhams) 2006 2005 2004
I- OPERATING INCOME 21,733,218 19,882,077 17,656,644 Sales of goods 829,042 954,215 609,804 Sales of manufactured goods and services rendered 20,407,427 18,355,382 16,154,813 Operating revenues 21,236,468 19,309,597 16,764,617 Change in inventories - - - Self-constructed assets - 9,710 97,917 Operating subsidies - - - Other operating income 19,751 24,138 34,517 Operating write-backs; expense transfers 476,999 538,631 759,593 TOTAL I 21,733,218 19,882,077 17,656,644 II- OPERATING EXPENSES 11,564,577 11,108,858 9,851,038 Cost of goods sold 1,343,139 1,817,714 1,193,680 Raw materials and supplies 2,299,185 2,063,516 2,187,874 Other external expenses 2,559,357 2,245,697 1,775,006 Taxes (except corporate income tax) 303,657 267,785 243,586 Payroll costs 1,958,220 1,946,026 1,604,513 Other operating expenses 4,000 - - Operating allowances for amortization 2,483,137 2,336,352 2,272,029 Operating allowances for provisions 613,882 431,768 574,349 TOTAL II 11,564,577 11,108,858 9,851,038 III- OPERATING INCOME I-II 10,168,641 8,773,218 7,805,606 IV- FINANCIAL INCOME 326,001 374,659 382,591 Income from equity investments 23,667 9,553 848 Foreign exchange gains 63,567 121,681 53,232 Interest and other financial income 138,030 142,852 203,342 Financial write-backs; expense transfers 100,738 100,573 125,169 TOTAL IV 326,001 374,659 382,591 V- FINANCIAL EXPENSES 130,483 180,218 209,823 Interest on loans 366 2,293 25,023 Foreign exchange losses 66,905 75,780 96,945 Other financial expenses - - 0 Financial allowances 63,212 102,144 87,855 TOTAL V 130,483 180,218 209,823 VI- FINANCIAL INCOME IV - V 195,519 194,441 172,767 VII- ORDINARY INCOME III + VI 10,364,160 8,967,660 7,978,374 VIII- EXTRAORDINAY INCOME 466,312 806,500 984,371 Proceeds from disposal of fixed assets 20,244 61,849 28,842 Subsidies received - - - Write-backs of investment subsidies - - - Other extraordinary income 74,258 94,362 82,863 Extraordinary write-backs; expense transfers 371,810 650,289 872,667 TOTAL VIII 466,312 806,500 984,371 IX- EXTRAORDINARY EXPENSES 794,245 1,121,089 716,940 Net book value of disposed assets 12,606 43,577 5,546 Subsidies - - - Other extraordinary expenses 45,752 484,061 77,756 Regulated provisions - - - Extraordinary allowance for depreciation and provisions 735,887 593,451 633,638 TOTAL IX 794,245 1,121,089 716,940 X- EXTRAORDINARY INCOME VIII - IX (327,933) (314,588) 267,431 XI- INCOME BEFORE TAX VII + X 10,036,227 8,653,071 8,245,805 XII- CORPORATE INCOME TAX 3,107,127 2,781,171 2,517,331 XIII- NET INCOME XI - XII 6,929,101 5,871,900 5,728,473 XIV- TOTAL INCOME ( I+IV+VIII) 22,525,531 21,063,236 19,023,606 XV- TOTAL EXPENSES ( II+V+IX+XII) 15,596,431 15,191,336 13,295,132 XVI- NET INCOME (Total income - Total expenses) 6,929,101 5,871,900 5,728,473
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
STATEMENT OF OPERATING DATA
OPERATING STATEMENT (in thousands of Moroccan dirhams) 2006 2005 2004
1 Sales of goods 829,042 954,215 609,804 2-Cost of goods sold 1,343,139 1,817,714 1,193,680
I=GROSS MARGIN ON SALES (514,097) (863,498) (583,875)
II + PRODUCTION FOR THE YEAR : (3+4+5) 20,407,427 18,365,092 16,252,730 3 Sales of manufactured goods and services rendered 20,407,427 18,355,382 16,154,813 4 Change in inventories - - - 5 Self-constructed assets - 9,710 97,917
III - COST OF CURRENT YEAR PRODUCTION 4,858,542 4,309,214 3,962,880
6 Raw materials and supplies 2,299,185 2,063,516 2,187,874 7 Other external expenses 2,559,357 2,245,697 1,775,006
IV = ADDED VALUE (I+II-III) 15,034,787 13,192,380 11,705,974 8+Operating subsidies - - - 9-Taxes 303,657 267,785 243,586 10 - Payroll costs 1,958,220 1,946,026 1,604,513
V=GROSS OPERATING SURPLUS 12,772,910 10,978,569 9,857,875
= NET LOSS FROM OPERATIONS - - -
11 + Other operating income 19,751 24,138 34,517 12 - Other operating expenses 4,000 - - 13 + Operating write-backs; expense transfers 476,999 538,631 759,593 14 - Operating allowances 3,097,019 2,768,120 2,846,379
VI = OPERATING INCOME 10,168,641 8,773,218 7,805,606
VII + / - FINANCIAL INCOME 195,519 194,441 172,767
VIII = ORDINARY INCOME 10,364,160 8,967,660 7,978,374
IX + / - EXTRAORDINARY INCOME (327,933) (314,588) 267,431
15 - CORPORATE INCOME TAX 3,107,127 2,781,171 2,517,331
X=NET INCOME 6,929,101 5,871,900 5,728,473
CASH EARNINGS (in thousands of Moroccan dirhams) 2006 2005 2004
1 Net income + Profit 6,929,101 5,871,900 5,728,473 - Loss - - - 2+Operating allowances (1) 2,486,809 2,336,352 2,273,630 3+Financial allowances (1) 46 4,208 9,030 4+Extraordinary allowances (1) 435,887 587,251 314,623 5-Operating write-backs (2) - 821 1,189 6-Financial write-backs (2) 2,802 21,748 66,746 7-Extraordinary write-backs (2) , (3) 369,940 489,789 872,667 8-Proceeds on disposal of fixed assets 20,244 61,849 28,842 9+Net book value of disposed assets 12,606 43,577 5,546
I CASH EARNINGS 9,471,463 8,269,080 7,361,858
10 - Dividends 6,118,504 4,395,477 5,123,557
II NET CASH EARNINGS 3,352,959 3,873,604 2,238,301
(1) Excluding allowances related to current assets and liabilities and cash. (2) Excluding write-backs relating to current assets and liabilities and cash. (3) Including write-backs of investments subsidies.
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STATEMENT OF CASH FLOWS
SELECTED BALANCE SHEET DATA
Year Year Change (a-b) LINE ITEMS 2006 2005 Uses Sources (In thousands of Moroccan dirhams) (a) (b) (c) (d)
1 Equity and long term liabilities 15,659,319 18,373,598 2,714,279 2 Less long term assets 16,997,225 13,511,804 3,485,421 3 WORKING CAPITAL (1-2) (A) (1,337,906) 4,861,794 6,199,699 4 Current assets 7,027,844 7,158,356 130,513 5 Less current liabilities 10,620,003 9,570,768 1,049,235 6 WORKING CAPITAL REQUIREMENT (4-5) (B) (3,592,160) (2,412,412) 1,179,747 7 NET CASH (A-B) 2,254,254 7,274,206 5,019,952
USES AND SOURCES
I - LONG TERM FINANCING SOURCES 2006 2005 2004 (In thousands of Moroccan dirhams) Uses Sources Uses Sources Uses Sources
Net cash earnings (A) 3,352,959 3,873,604 2,238,301 Cash earnings 9,471,463 8,269,080 7,361,858 Dividends 6,118,504 4,395,477 5,123,557
DISPOSALS AND REDUCTIONS OF FIXED ASSETS (B) 292,172 82,238 95,245 Reduction of intangible assets 7,424 - 1,027 Reduction of property, plant and equipment 254,138 4,330 57,687 Disposal of property , plant and equipment 7,149 1,834 17,754 Disposal of financial assets 13,095 60,016 11,088 Write-backs of long term receivables 10,367 16,059 7,689
INCREASE IN SHAREHOLDERS' EQUITY AND QUASI EQUITY (C) - -- Increase in equity, capital contribution - -- Investments subsidies - --
INCREASE IN LONG TERM DEBT (D) 1,111 - - (Net of redemption premiums) - -
TOTAL (I) LONG TERM RESOURCES (A+B+C+D) 3,646,242 3,955,842 2,333,546
II - LONG TERM USES FOR THE YEAR
ADDITIONS & INCREASE IN FIXED ASSETS (E) 6,319,402 3,465,343 2,366,898 Acquisitions of intangible assets 1,071,497 83,304 181,641 Acquisitions of property, plant and equipment 2,674,391 2,902,907 2,100,587 Acquisitions of financial assets 2,559,827 12,971 - Increase in long term receivables 13,687 - 84,671 Increase in property, plant and equipment (*) - 466,161 -
REIMBURSEMENT OF EQUITY (F) 3,516,381 - -
REIMBURSEMENT OF LONG TERM DEBT (G) 10,158 801,502 747,969
CAPITALIZED COSTS (H) - - -
TOTAL (II) STABLE USES (E+F+G+H) 9,845,941 4,266,845 3,114,868
III - CHANGE IN WORKING CAPITAL REQUIREMENT - 1,179,747 - 434,949 - 249,689
IV - CHANGE IN CASH AND CASH EQUIVALENTS - 5,019,952 123,946 - - 531,633
TOTAL 9,845,941 9,845,941 4,390,791 4,390,791 3,114,868 3,114,868
(*) reclassification of advances and prepaids from account 3411 to 2397 reclassification of cables and spare parts.
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
A1: ADDITIONAL DISCLOSURES
ACCOUNTING POLICIES
The company’s financial statements have been prepared in . Computer equipment 5 years accordance with generally accepted accounting principles, . Office equipment 10 years and in particular with principles related to historical cost, . Transportation equipment 5 years independence, conservatism, consistency of methods and no offsetting. Whenever necessary, an additional provision is recorded for technical obsolescence, reduction in the estimated useful life or impairment of the asset. Property, plant and equipment and intangible assets Assets which have not yet been brought into service are The assets transferred by the Moroccan government on recorded as work-in-progress. February 26, 1998, to set up Maroc Telecom as a public operator, were recorded as a net amount in the opening Financial assets balance sheet, which was approved by: Non-consolidated investments are reported at their • the Postal Services and Information Technology Act N° acquisition value. A provision for impairment is recorded 24-96 and; whenever the carrying value is higher than the value in use. • the joint order no. 341-98 of the Telecommunications The provision is determined based on the Group’s Minister and Minister of Finance, Commerce and Industry, proportionate share in the equity of the non-consolidated approving the inventory of assets transferred to Maroc investment, which is adjusted, where appropriate, to Telecom group. account for the company’s growth and earnings outlook. Assets acquired subsequently are recorded at their Other financial assets, which include receivables, loans and acquisition or production cost, which for networks deposits, are recorded on the basis of their nominal value, essentially comprises design and planning costs, with provisions recorded, where appropriate, for collection construction costs, site development cost, network rollout risk. costs, customs duties and internal costs related to network development. Inventories Financial expenses corresponding to interest payments on loans to finance the production of property, plant and Inventories consist of: equipment are not included in production costs during the • mobile and fixed-line telephones and accessories held construction period. for sale to customers upon line activation;
Network maintenance charges are expensed. • technical equipment required for network rollout and Assets are depreciated in a consistent way according to maintenance other than cable and spare parts. their nature (intangible vs. tangible) and their use (e.g. Inventories of mobile and fixed-line telephones and transmission, network equipment). accessories are accounted for using the first-in, first-out Depreciation and amortization is calculated using the method and a provision for impairment is recorded for both straight-line method over the estimated useful lives of the the risk of obsolescence and excess inventory. assets, which are as follows: Technical equipment inventories are measured at their average acquisition cost (including customs duties and . Intangible assets: 4 to 5 years except goodwill other costs) and are written down based on their value in (no amortization) use or obsolescence. . Property, plant and equipment: . Buildings 20 years . Civil engineering 15 years Accounts receivable . Network equipment: Accounts receivable are reported at nominal value.
- Transmission (Mobile) 8 years • Trade receivables: Impairment provisions are recorded to - Switching 8 years cover collection risk, which is estimated based on the age - Transmission (Fixed-line) 10 years of the receivable.
. Other plant and equipment • Government receivables: Provisions are recorded to cover . Furniture and fittings 10 years the risk of the Moroccan government not recognizing
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these receivables. These provisions are evaluated Receivables and payables in foreign currencies statistically. Receivables in foreign currencies are translated into the • Other receivables: Where appropriate, other receivables reporting currency using the exchange rate at the are provisioned in line with the estimated collection risk. transaction date. At period end, receivables and payables in foreign currencies are translated using the exchange rate at the closing date, and the unrealized gain or loss is Accruals (assets) recorded on the balance sheet under ‘Accruals’ (assets or This caption mainly includes prepaid expenses. liabilities). Unrealized losses are accrued in full.
Cash and investment securities Revenues Cash and investment securities are made up of immediately Revenues are recorded on the basis of consumption by available liquid assets and short-term investments, and are subscribers and customers at the end of the period, net of recognized at cost. customer acquisition and loyalty costs. Sales of goods and services are related to outgoing and ingoing communications at the time they take place Regulated provisions (communication and access charges). Subscription fees are Regulated provisions comprise: recognized every month in advance under deferred income on the balance sheet, then reported in revenues for the • provisions for employee housing; period. For prepaid services, revenues are recognized as • provision for investments in capital goods and machinery. and when consumption takes place. in accordance with the fiscal regulations at the end of the They also include revenues from advertisements in paper year. and electronic telephone directories, which are recognized when the advertisements are published. Provisions for contingent liabilities Sales of merchandise relate to revenues from handset sales, which are recognized at the time of delivery or line These include long term provisions for contingent liabilities activation. and other provisions for contingent liabilities. Customer acquisition and loyalty costs include discounts to Long term provisions for liabilities and charges correspond new customers and promotions (free airtime granted to new to provisions related to translation adjustments and life customers). Discounts on mobile phones are deducted from annuities. revenues at the time the mobiles are delivered to the Other provisions for contingent liabilities include provisions customer or the distributor. Discounts granted to for reorganization and loyalty programs, and provisions to distributors as remuneration for services rendered are cover liabilities or litigation outstanding at period end. mainly recognized in revenues at the time of delivery. These provisions are evaluated on the basis of the state of procedures underway and estimated risks at period end. Other income No provision for pension and post-retirement benefits has been recorded in the consolidated financial statements as Other income from operations include: pension expenses are covered by statutory pension plans • Expenses transfered (mainly telecommunication costs set up for employees in Morocco. specific to IAM, recognized under Other operating expenses) Accruals (liabilities) • Reversal of operating provisions (provisions for impairment of inventories and provisions for liabilities and This item mainly contains deferred income concerning charges). prepaid subscriptions and unused prepaid minutes sold.
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
Other expenses
Aside from rental expenses, maintenance charges, • costs related to research, training and telecommunication advertising expenses and general expenses, other standardization in accordance with Act 24-96 and Order expenses include: 2.00.1333 of October 9, 2000.
• ANRT fees related to frequency assignment in compliance with Act 24-96 Order 310-98 of February 25, 1998; Financial instruments
• costs related to the universal service obligation in Maroc Telecom does not use financial instruments or accordance with Act 24-96 and Order 2.00.1333 of currency hedges. October 9, 2000;
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A1: MAIN VALUATION METHODS USED BY THE COMPANY
VALUATION METHODS USED BY THE COMPANY Year ended December 31, 2006
I- FIXED ASSETS A. ENTRY VALUATION 1. Capitalized costs 2. Intangible assets 3. Property, plant and equipment 4. Financial assets B. VALUE ADJUSTMENTS 1. Amortization methods 2. Methods used to calculate provisions for depreciation 3. Methods used to calculate unrealized foreign exchange losses
II- CURRENT ASSETS A. ENTRY VALUATION 1. Inventories 2. Receivables 3. Investment securities B. VALUE ADJUSTMENTS SEE NOTES TO FINANCIAL 1. Methods used to calculate provisions for depreciation 2. Methods used to calculate unrealized foreign exchange losses STATEMENTS
III- EQUITY AND LONG TERM LIABILITIES 1. Revaluation methods 2. Methods used to calculate regulated provisions 3. Long term debt 4. Methods used to calculate provisions for contingencies and liabilities 5. Methods used to calculate unrealized foreign exchange gains
IV- CURRENT LIABILITIES (excluding bank overdrafts) 1. Revaluation methods 2. Methods used to calculate regulated provisions 3. Long term debt
V- CASH AND CASH EQUIVALENTS 1. Cash 2. Bank overdrafts 3. Methods used to calculate provisions for depreciation
A2: EXCEPTIONS
Year ended December 31, 2006
JUSTIFICATION EFFECT OF EXCEPTIONS TYPE OF EXCEPTION OF EXCEPTION ON ASSETS AND LIABILITIES, FINANCIAL POSITION AND NET INCOME
I- EXCEPTIONS FROM ACCOUNTING PRINCIPLES NONE NONE
II- EXCEPTIONS FROM VALUATION METHODS NONE NONE
III- EXCEPTIONS FROM PREPARATION AND PRESENTATION RULES FOR SELLECTED DATA NONE NONE
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
A3: CHANGES IN METHODS
Year ended December 31, 2006
JUSTIFICATION EFFECT OF EXCEPTIONS DESCRIPTION OF CHANGES OF CHANGES ON ASSETS AND LIABILITIES FINANCIAL POSITION AND NET INCOME
Changes affecting valuation methods NONE NONE
Changes affecting presentation rules NONE NONE
B1: CAPITALIZED COSTS
Year ended December 31, 2006
MAIN ACCOUNT HEADING AMOUNT
2110 Start up costs NONE
2116 Prospecting costs NONE
2118 Other start up costs NONE
2120 Deferred costs NONE
TOTAL –
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B2: NON-FINANCIAL ASSETS
Year ended December 31, 2006 (in thousands of Moroccan dirhams) INCREASE DECREASE GROSS BALANCE Self-constructed GROSS BALANCE DESCRIPTION CARRIED FORWARD Acquisition assets Transfer Disposal Withdrawal Transfer YEAR END
CAPITALIZED COSTS ------
. Start up costs ------. Deferred costs ------. Bond redemption premiums ------
INTANGIBLE ASSETS 2,711,712 1,071,497 - 1,157,551 - 7,424 705,041 4 228,295
. Research and development costs ------. Patents, trademarks, rights 2,584,117 - - 1,155,766 - - - 3 739,883 and similar rights . Goodwill 19,307 - - 1,786 - - - 21,093 . Other intangible assets 108,288 1,071,497 - - - 7,424 705,041 467,319
PROPERTY, PLANT 29,875,959 2,674,391 - 2,797,091 6,271 251,745 3,249,601 31,839,824 AND EQUIPMENT . Land 956,277 - - 16,714 1,038 - - 971,953 . Buildings 3,674,846 - - 310,997 1,560 - - 3,984,283 . Technical plant, machinery and tooling 19,749,644 1,085 - 2,226,999 - - - 21,977,729 . Vehicles 78,109 - - 1,151 3,673 - - 75,587 . Office equipment 2,129,703 3,735 - 241,230 - - - 2,374,668 . Other property, plant 11,048 ------11,048 and equipment . Work in progress 3,276,331 2,669,571 - - - 251,745 3,249,601 2,444,556
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
B2 Cont: DEPRECIATION SCHEDULE
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
OPENING ALLOWANCES DEPRECIATION OF ACCUMULATED DESCRIPTION PERIOD OF THE YEAR (*) DISPOSED ASSETS DEPRECIATION YEAR END
CAPITALIZED COSTS ---- * Start up costs ---- * Deferred costs ---- * Bond redemption premiums
INTANGIBLE ASSETS 1,563,715 494,044 - 2,057,758
* Research and development costs ---- * Patents, bonds, rights and related rights 1,549,036 489,828 - 2,038,864 * Goodwill 14,679 4,216 - 18,895 * Other intangible assets - - - -
PROPERTY, PLANT AND EQUIPMENT 17,571,709 2,220,177 4,434 19,787,452
* Land ---- * Buildings 2,147,023 268,508 761 2,414,770 * Plant and machinery 13,902,099 1,707,104 - 15,609,203 * Vehicles 70,903 3,965 3,673 71,194 * Furniture and fittings 1,451,684 240,600 - 1,692,284 * Other property, plant and equipment ---- * Work in progress ----
(*) Of which extraordinary allowances:
- Asset retirements MAD39 m - Delayed placing in service MAD192 m Total of extraordinary allowances MAD231 m
B3: GAINS OR LOSSES ON DISPOSALS OR WITHDRAWALS OF FIXED ASSETS
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
Disposal or Main Gross Accumulated Net book Proceeds from Gains Losses withdrawal date account amount depreciations value disposal of assets
2006 231 & 232 2,598 761 1,837 4,549 2,712
2006 233 - - - -
2006 234 3,673 3,673 - 2,600 2,600
2006 235 - - - -
2006 251 10,769 - 10,769 13,095 2,326
TOTAL 17,040 4,434 12,606 20,244 7,638 -
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B4: EQUITY INVESTMENTS
Year ended December 31, 2006 (in thousands of Moroccan dirhams) % Derived from latest selected Business Share Interest in Overall Net financial data of issuer company Income segment Capital share capital acquisition book recorded in price value Closing Net Net Income date equity income Statement 123456789
MATELCA Study and realization of submarines cables 300 50 50 0 Dec. 31, 06 - ARABSAT Operation and commercialization of telecommunications systems 5,094,637 0.61 6,454 6,454 Dec. 31, 06 696 ADM Building and operation of Moroccan road network 4,438,000 0.45 20,000 - Dec. 31, 06 - THURAYA Regional satellite operator 5,312,845 0.16 9,872 9,872 Dec. 31, 06 - CASA@NET Internet Service Provider 14,414 100 18,174 18,174 Dec. 31, 06 - CMC Financial Holding 396,546 80 399,469 380,469 Dec. 31, 06 22,971 FONDS AMORCAGE "Capital- amorçage" fund SINDBAD 27,230 10 2,836 - Dec. 31, 06 - Medi-1-Sat Media (Satellite television company) 80,062 27 21,573 21,573 Dec. 31, 06 - Mobisud SA Telecommunication 112,226 66 73,685 73,685 Dec. 31, 06 - Maroc Telecom Belgique SA Telecommunication 16,769 100 16,754 16,754 Dec. 31, 06 - Onatel Telecommunication 204,343 51 2,459,380 2,459,380 Dec. 31, 06 -
TOTAL 3,028,247 2,986,361 23,667
B5: PROVISIONS
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
DESCRIPTION OPENING ALLOWANCES WRITE-BACKS CLOSING BALANCE Operating Financial Extraordinary (*) Operating Financial Extraordinary (*) BALANCE
1- Provisions for depreciation of fixed assets 504,502 - - 204,803 - - 369,940 339,365 2-Regulated provisions 0 ------0 3-Provisions for contingencies and losses 27,485 3,672 46 - - 2,802 - 28,400 SUB-TOTAL (A) 531,987 3,672 46 204,803 - 2,802 369,940 367,765 4-Provisions for depreciation of current assets 4,048,729 565,249 - - 73,530 - - 4,540,448 (excluding cash and cash equivalents) 5-Other provisions for contingencies and losses 460,207 44,960 63,166 300,000 78,973 97,936 1,870 689,555 6-Provisions for depreciation of cash and cash equivalents ------SUB-TOTAL (B) 4,508,935 610,210 63,166 300,000 152,503 97,936 1,870 5,230,003
TOTAL (A+B) 5,040,922 613,882 63,212 504,803 152,503 100,738 371,810 5,597,768
( * ) Of which: ( * ) Of which: Amortization MAD16 m Depreciation of inventories class 2 MAD134 m Spare parts MAD111 m Delayed placing in service of work in progress MAD71 m Delayed placing in service of work in progress MAD243 m Total MAD205 m MAD370 m
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
B6: RECEIVABLES Year ended December 31, 2006 (in thousands of Moroccan dirhams)
RECEIVABLES TOTAL BREAKDOWN BY MATURITY OTHER BREAKDOWN Due in more Due in less Matured Amounts in Amounts due : Amounts due: Amounts than one year than one year but not foreign Government & related parties in notes recovered currency social security
FIXED ASSETS 85,388 73,809 11,579 - - - - - Long term loans 83,399 71,820 11,579 - - - - - Other financial receivables 1,989 1,989 ------
CURRENT ASSETS 11,081,455 18,780 5,729,911 5,332,765 - 1,980,652 - - . Trade payables, advances and downpayments 254,288 - 254,288 - - - - - . Accounts receivable and related accounts 10,102,868 - 4,813,620 5,289,248 - 1,448,483 - - . Employees 25,207 - 21,087 4,120 - - - - . Tax receivable 532,169 - 532,169 - - 532,169 - - . Shareholders' current accounts ------. Other receivables 64,977 - 25,580 39,397 - - - - . Accruals 101,947 18,780 83,167 - - - - -
B7: LIABILITIES Year ended December 31, 2006 (in thousands of Moroccan dirhams)
LIABILITIES TOTAL BREAKDOWN BY MATURITY OTHER BREAKDOWN Due in more Due in less Matured but Amounts in Amounts due: Amounts due: Amounts than one year than one year not recovered foreign Government and related parties in notes currency social security
LONG TERM DEBT 2,029 - 2,029 - - - - - . Debenture bonds ------. Other long term debt 2,029 - 2,029 - - - - -
CURRENT LIABILITIES 9,890,079 22,535 9,830,667 36,877 - 2,506,014 - 54,001 . Accounts payable and related accounts 5,025,705 22,535 5,003,169 - - - - 54,001 . Trade receivables, advances and downpayments 248,829 - 248,829 - - - - - . Employee 467,591 - 467,591 - - - - - . Social security 78,525 - 78,525 - - - - - . Tax payable 2,506,014 - 2,506,014 - - 2,506,014 - - . Shareholders' current accounts 1 - 1 - - - - - . Other payables 468,348 - 431,472 36,877 - - - - . Accruals 1,095,066 - 1,095,066 - - - - -
B8: GUARANTEES GIVEN OR RECEIVED
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
Amount covered Description Date and place Purpose Net book value THIRD PARTIES by garantee (1) of registration (2) (3) of the garantee given at closing date
. Guarantees given
. Guarantees received Guarantees received are Long term loans 83,399 (1) from employees
( 1) Collateral : 1-Mortgage : 2-Pledge : 3-Warrant : 4- Others : 5- (To specify) ( 2 ) State if the guarantee is given to a company or to a person (guarantees given) (related parties, associates, employees) ( 3 ) State if the guarantee is received from a person other than the debtor (guarantees received)
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B9: FINANCIAL COMMITMENTS RECEIVED OR GIVEN EXCLUDING LEASING TRANSACTIONS
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
Amounts Amounts COMMITMENTS GIVEN Year end Previous year
- Investments not yet realized * Investment commitment 4,573,675 - * Property, plant and equipment 1,022,047 562,712 4,573,675 562,712 - Guarantees from banks * Documentary credit 142,426 175,288 * Endorsements 60,502 60,842 * Guarantees 13,196 - 216,124 236,130 - Equity investments * Fonds Amorçage Sindbad 2,164 2,164 * Medi-1-Sat ( capital increase ) 24,456 34,464 * Medi-1-Sat ( quasi capital) 17,352 30,635 * Mobisud ( capital increase ) 73,781 - 117,753 67,263
- Partenership commitment with Association Forum de Casablanca 10,500 12,000
10,500 12,000
- Operating lease obligations (*) 9,459 9,014
TOTAL 4,927,512 887,118
(*) 2 to 15 year rent contract with tacit renewal. The amount indicated is related to one months notice.
Amounts Amounts COMMITMENTS RECEIVED Year end Previous year
. Endorsements and guarantees 1,079,493 688,218 . Other commitments received . Commitment by the Moroccan government to social welfare . Commitment on payment of arrears by the Moroccan Goverment . Commitment by Air Time/GAM on payment of GAM arrears 22,259 - . Commitment by Air Time/GAM to transfer the gain from disposal on MAD293 per share on portion above 65% of the capital . Commitment on loans by the Moroccan Goverment 918 11,371
TOTAL 1,102,669 699,589
B10: ASSETS LEASED
Year ended December 31, 2006
Items Date of Duration Est.value Theoretical Accumulated Installments Installments Residual Comments first of contract of assets asset installments of outstanding price installment in months at date depreciation current less than more than at end of of contact period year one year one year contrat ( 1) ( 2) ( 3) ( 4) ( 5) ( 6) ( 7) ( 8) ( 9) ( 10) ( 11)
VOID VOID
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
B11: INCOME STATEMENT ITEMS
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
Item CURRENT YEAR 2006 PREVIOUS YEAR 2005
OPERATING INCOME 21,733,218 19,882,077 711 . Sales of goods - - . Sales of goods in Morocco 829,042 954,215 . Sales of goods abroad - - . Other sales of goods
Total 829,042 954,215
712 Sales of manufactured goods and services rendered . Sales of manufactured goods in Morocco . Sales of manufactured goods abroad . Sales of rendered services in Morocco 20,407,427 18,355,382 . Sales of rendered services abroad . Royalties for patents, brands, rights ... . Other sales of manufactured goods and services rendered - -
Total 20,407,427 18,355,382
713 Change in Inventories - - . Change in manufactured goods inventory - - . Change in rendered services inventory - - . Change in product inventory WIP - -
Total - -
714/718 Other operating income . Directors' fees received - - . Rest of line item (other revenues) 19,751 33,849
Total 19,751 33,849
719 Operating write-backs, expense transfers . Write-backs 152,503 259,199 . Expense transfers 324,496 279,431
Total 476,999 538,631
FINANCIAL INCOME 738 . Interest and other financial income . Interest and similar income 49,845 63,368 . Revenues from receivables from controlled entities - - . Net revenues from disposal of marketable securities 87,010 76,391 . Other interest and financial income 1,175 3,093
Total 138,030 142,852
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B11: INCOME STATEMENTS ITEMS
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
POSTE CURRENT YEAR 2006 PREVIOUS YEAR 2005
OPERATING EXPENSES 611 Cost of goods sold . Cost of goods 1,422,480 1,708,733 . Change in inventory (+,-) (79,341) 108,981
Total 1,343,139 1,817,714
612 Raw materials and supplies . Raw materials - - . Change in raw material inventory . Supplies and packaging 279,393 208,403 . Change in supplies and packaging inventory (6,646) (6,165) . Cost of materials and supplies not stocked 167,345 145,951 . Cost of works, studies and services 1,859,093 1,715,328
Total 2,299,185 2,063,516
613/614 Other external expenses . Rent and rental expenses 324,434 243,243 . Leasing installments - - . Maintenance and repair 471,023 452,494 . Insurance premiums 21,941 31,445 . Payments of external staff 53,783 42,922 . Payments for intermediaires and fees 270,408 222,518 . Fees for patents, brand, rights... 445,803 366,003 . Transportation 10,447 6,772 . Travel and entertainment expenses 81,957 53,507 . Other external expenses 879,561 826,793
Total 2,559,357 2,245,697
617 Payroll costs . Payroll 1,695,081 1,724,380 . Social security 263,139 221,608 . Other payroll costs - 38
Total 1,958,220 1,946,026
618 Other operating expenses . Directors’ fees 4 000 - . Losses on uncollectible receivables - - . Other operating expenses - -
Total 4 000 -
638 FINANCIAL EXPENSES Other financial expenses - - . Net losses on disposal of marketable securities - - . Other financial expenses - -
Total - -
658 EXTRAORDINARY EXPENSES . Other extraordinary expenses 9,947 472 692 . Contract cancallation payments and forfeiture of deposit - - . Paid back tax (other than income tax) - - . Penalities and tax fines 1,543 3 830 . Uncollectible receivables - - . Other extraordinary expenses 34,261 7 539
Total 45,752 484 061
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
B12: RECONCILIATION OF NET INCOME AND TAX INCOME
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
I DETERMINATION OF INCOME AMOUNT AMOUNT
I NET INCOME . Net profit 6,929,101 . Net loss
II TAX ADJUSTMENTS TO ADD 3,463,737 1. Ordinary 3,164,543 - Income tax 2006 3,107,127 - Amortization exceeding MAD300.000 852 - POP Paris expenses (IAM branch) 1,510 - Unrealized foreign exchange gains 2006 40,369 - Gifts exceeding MAD100 per unit 3,638 - Grants in cash or kind 11,047
2. Extraordinary 299,194 - Provisions & amortization 263,390 - Tax penalities 1,543 - Prior period expenses 34,261
III TAX DEDUCTIONS 498,335 1. Ordinary 179,393 - Unrealized foreign exchange gains 2005 155,140 - POP Paris income (IAM branch) 1,282 - Revenues from equity investments 22,971 2. Extraordinary 318,942 - Allowance on net capital gains from disposal 3,130 - Provisions & amortization 315,812 - Reversal of provision for restructuring -
TOTAL 3,463,737 498,335
IV GROSS TAXABLE INCOME - Gross profit 9,894,503 - Gross taxable loss
V LOSS CARRIED OVER -
VI TAXABLE INCOME - Net taxable profit 9,894,503 - Net taxable loss
EXEMPTION OF 50% OF EXPORT REVENUES 355,949
* CORPORATE INCOME TAX 3,107,127
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B13: DETERMINATION OF ORDINARY INCOME AFTER TAX
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
I DETERMINATION OF INCOME AMOUNT
Ordinary income from income statement (+) 10,364,160 Add-backs on ordinary operations 57,416 Deduction of ordinary operations 179,393
Ordinary income theoretically taxable (=) 10,242,183
Theoretical tax on ordinary income ( - ) 3,584,764 Exemption of 50% on export revenues (368,457)
Ordinary income after tax (=) 7,147,853
II - INDICATION OF THE TAX STATUS AND ADVANTAGES GRANTED
IAM has an income tax exemption on 50% of its international revenues.
BY THE INVESTMENT CODES OR BY SPECIFIC LEGAL REGULATIONS
B14: VALUE ADDED TAX
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
Opening Operations VAT returns Closing DESCRIPTION balance balance 123(1+2-3)
A / Invoiced VAT 1,987,127 3,618,962 3,541,911 2,064,177
B / Recoverable VAT 433,617 1,265,421 1,223,999 475,040
* On expenses 280,480 905,938 892,896 293,522 * On assets 153,137 359,484 331,102 181,518
C / VAT PAYABLE (VAT CREDIT) 1,553,510 2,353,540 2,317,912 1,589,137 VAT = (A-B)
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
C1: SHAREHOLDING STRUCTURE
Year ended December 31, 2006
Surname, first name or Address STOCKS HELD Nominal value CAPITAL AMOUNT (in MAD) business name of Previous Current of each stock Subscribed Called Fully paid main shareholders (1) year year or share (in dirhams) 1 2345678
1°/ Kingdom of Morocco represented by 299,771,480 298,892,389 6 1,793,354 1,793,354 1,793,354 Mr. Fathallah Oualalou, Minister of the Economy, Finance and Privatization
2°/ Societe de Participation dans les Telecom- 448,338,570 448,338,570 6 2,690,031 2,690,031 2,690,031 munications represented by Mr. Jean Bernard Levy
3°/ Mr. Fathallah Oualalou 10 10 6 0.06 0.06 0.06
4°/ Mr. Jean Bernard levy 10 10 6 0.06 0.06 0.06
5°/ Mr. El Mostafa Sahel 10 0 6 0.00 0.00 0.00
6°/ Mr. Jacques Paul Espinasse 10 10 6 0.06 0.06 0.06
7°/ Mr. Robert de Metz 10 10 6 0.06 0.06 0.06
8°/ Mrs. Françoise Colloc'H 10 10 6 0.06 0.06 0.06
9°/ Mr. Franck Esser 10 10 6 0.06 0.06 0.06
10°/ Mr. Jean-Rene Fourtou 10 10 6 0.06 0.06 0.06
11°/ Mr. Abdelaziz Talbi 0 10 6 0.06 0.06 0.06
12°/ Mr. Chakib Benmoussa 0 10 6 0.06 0.06 0.06
13°/ Other shareholders 130,985,210 131,864,291 6 791,186 791,186 791,186
(1) If the number of shareholders is less than or equal to 10, the company should list all the shareholders. Otherwise, the company may list only the 10 major shareholders.
C2: APPROPRIATION OF YEAR-END INCOME
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
AMOUNT AMOUNT
A. SOURCE OF INCOME B. INCOME APPROPRIATION (Decision of march 30, 2006)
. Statutory reserve 0 . Retained earnings at December 31, 2005 0 . Other reserves 266,303 . Net income to be allocated 0 . Directors' profit sharing 0 . Net income of the year 5,871,900 . Dividends 6,118,504 . Retained reserves 512,907 . Other allocations 0 . Other reserves 0 . Retained earnings 0
TOTAL A 6,384,807 TOTAL B 6,384,807
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C3: INCOME AND OTHER SIGNIFICANT CHARACTERISTICS OF COMPANY OVER THE LAST THREE YEARS
(in thousands of Moroccan dirhams)
DESCRIPTION YEAR YEAR YEAR 2004 2005 2006
NET EQUITY OF THE COMPANY Shareholders' equity and quasi equity 17,123,583 18,334,674 15,628,890 less capitalized costs
OPERATIONS AND INCOME FROM PERIOD Revenues excluding tax 16,764,617 19,309,597 21,236,468 Income before tax 8,245,805 8,653,071 10,036,227 Corporate income tax 2,517,331 2,781,171 3,107,127 Dividends 5,123,557 4,395,477 6,118,504
Unappropriated income 1,252,512 1,332,997 266,303 (reserves or to be allocated)
EARNINGS PER SHARE (in dirhams) Earnings per share for period 6.52 6.68 7.88 (*) Dividends per share (*) 58.28 5.00 6.96
(*) The nominal value decreased from MAD100 in 2003 to MAD10 in 2004 and MAD6 in 2006.
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5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS
C4: TRANSACTIONS IN FOREIGN CURRENCIES DURING THE PERIOD
Year ended December 31, 2006 (in thousands of Moroccan dirhams)
DESCRIPTION Entry Out-going Exchange value Exchang value
. Permanent financing . Gross assets 4,548,368 . In-flow of assets 15,633 . Repayment of long term debt 10,158 . Dividends paid
. Income 3,315,175
. Expenses 1,761,308
TOTAL IN-FLOWS 3,330,808 TOTAL OUT-FLOWS 6,319,834 FOREIGN CURRENCY BALANCE 2,989,027 TOTAL 6,319,834 6,319,834
C5: DATE OF FINANCIAL STATEMENTS AND SUBSEQUENT EVENTS
I. DATES
. Closing date (1) December 31, 2006 . Date of the financial statements (2) January 16, 2007 . Date of rectifying declaration
(1) Proof in case of change of closing date
(2) Proof in case regulated delay of three months is extended forecast for preparation of financial statements
II. EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS RELATED TO THIS PERIOD AND KNOWN BEFORE THE FIRST RELEASE OF THE FINANCIAL STATEMENTS
Dates Indication of events
NONE
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REPORT OF THE STATUTORY AUDITORS ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2006
In compliance with the assignment entrusted to us, we have audited the accompanying financial statements of Itissalat Al-Maghrib (IAM) for the fiscal year ended December 31, 2006, which include the balance sheet, the income statement, the management accounts, the cash flow statement and the additional disclosures for the year. These financial statements, which show capital and reserves of MAD 15,628,890 thousand, including a net profit of MAD6,929,101 thousand, are the responsibility of the Management of the company. It is our responsibility, based on our audit, to express an opinion on these financial statements.
We conducted our audit in accordance with the auditing standards generally accepted in Morocco. These standards require that we plan and perform such tests and procedures so as to obtain reasonable assurance that the financial statements are free from material misstatement. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the accounting policies used and significant estimates made by Management in the preparation of the financial statements, and an evaluation of the overall adequacy of the presentation of these statements. We believe that our audit provides a reasonable basis for the opinion expressed below.
I. OPINION ON THE FINANCIAL STATEMENTS In our opinion, the financial statements referred to in the first paragraph give a true and fair view of Itissalat Al-Maghrib’s assets, liabilities and financial position as of December 31, 2006, as well as of its results and cash flows for the year then ended, in accordance with the accounting principles generally accepted in Morocco. Without prejudice to the opinion above, we draw your attention to the following items:
• As of December 31, 2006, the majority of the land and buildings transferred by the ONPT at the time of the incorporation of IAM, had been formally registered or were under requisition, although the process continues for properties that have not yet been registered with the property office.
II. SPECIFIC CONTROLS AND INFORMATION We also performed the specific verifications required by law. In particular, we ensured that the information contained in the Management Board’s Report to the Supervisory Board was consistent with the Company’s financial statements.
We draw your attention to the fact that during 2006, Itissalat Al-Maghrib (IAM) carried out:
• the acquisition of 66% of Mobisud for MAD0.28 million, increased to MAD73.6 million following the capital increase of this company;
• the acquisition of 51% of Onatel, the incumbent operator in Burkina Faso, for MAD2,459 million;
• the creation of a 100% owned subsidiary in Belgium, “Maroc Telecom Belgique SA”, with a capital of MAD16.7 million.
Casablanca, March 2, 2007
Statutory Auditors
ABDELAZIZ ALMECHATT SAMIR AGOUMI
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REPORT OF THE STATUTORY AUDITORS
SPECIAL REPORT OF THE STATUTORY AUDITORS ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2006
As statutory auditors of the company, we present our report on related-party transactions. In compliance with Article 58 of Moroccan Law n°17-95, we have been informed of all the related party transactions that are subject to the prior approval of the Supervisory Board.
1. Related-party transactions concluded during 2006 fiscal year 1.1. Current account advance During 2006 fiscal year, for financial needs, Itissalat Al-Maghrib concluded an agreement with Medi-1-Sat, under which it committed to grant Medi-1-Sat an advance of €2,800,000, recorded in a current account advances. In 2006, Maroc Telecom paid the first tranche of this advance for amount of €1,200,000 (MAD13,282,800). As of December 31, 2006, interest receivable recorded by Itissalat Al-Maghrib related to this agreement amounted to MAD382,204.
1.2. Contract with Media Overseas On February 24, 2006, IAM’s Supervisory Board approved the agreement entered into over the period with Media Overseas, a subsidiary of Canal + Group, concerning the launch of a TV via ADSL offer. Pursuant to this agreement, operations are performed with Multitv Afrique, a subsidiary of Media Overseas. Itissalat Al-Maghrib recorded an expense of MAD4,357,610 for this purpose. Itissalat Al-Maghrib recorded a fixed asset related to this agreement of MAD89,495. As of December 31, 2006, the balance of Multitv Afrique in Itissalat Al-Maghrib’s books amounted to a liability of MAD33,183.
1.3 Sale of property Itissalat Al-Maghrib’s Supervisory Board approved on September 4, 2006 the sale of a housing property to one member of the Management Board.
1.4 Current account advance On December 19, 2006, the Supervisory Board approved the current account advance agreement between IAM and Mobisud. At December 31, 2006, no payment had yet been made under this agreement.
2. Related-party transactions concluded in previous years that were still effective during this year 2.1. Management Services’ Agreement with Vivendi Telecom International (VTI) During 2001, Itissalat Al-Maghrib entered into a Management Services’ Agreement with Vivendi Telecom International (VTI), under which the latter and its subsidiaries provide Itissalat Al-Maghrib with technical assistance in the following fields: • Strategy and organization; • development; • sales and marketing; • finance; • purchasing; • human resources; • information systems; • regulation and interconnection; • infrastructure and networks. This related-party transaction also concerns Vivendi group and its subsidiaries. In accordance with the terms of this agreement, the fees (exclusive of tax) agreed to be paid by Itissalat Al- Maghrib amounted to MAD95,002,576 in 2006. The balance payable amounted to MAD62,096,523 as of December 31, 2006.
2.2 Agreement with Mauritel SA During fiscal year 2001, Mauritel S.A concluded an agreement with Itissalat Al-Maghrib under which the latter provides services, technical assistance and transfer of equipment to Mauritel SA.
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The amount charged by Itissalat Al-Maghrib to Mauritel SA was MAD 12,512,851 exclusive of tax for 2006. As of December 31, 2006, the balance of Mauritel’s account in Itissalat Al-Maghrib’s books was negative and amounted to a liability of MAD19,755,505.
2.3 Agreement with Casanet During fiscal year 2003, Maroc Telecom concluded several agreements with Casanet that related to: • the maintainance of Maroc Telecom’s Internet portal “Menara”; • the supply of development services and hosting of Itissalat Al-Maghrib’s Mobile portal; • the hosting of Itissalat Al-Maghrib’s website “El Manzil”; • the maintenance of new WAP applications on the Menara portal; • the production of the IPTV web site; • the commercialisation of leased line internet access; • etc. As of December 31, 2006, total expenses recorded by Itissalat Al-Maghrib under this agreement amounted to MAD27,483,055 exclusive of tax. As of December 31, 2006, the amount of incomes recorded by Itissalat Al-Maghrib under this agreement amounted to MAD5,457,381 exclusive of tax. As of December 31, 2006, the balance of Casanet’s account in Itissalat Al-Maghrib’s books amounted to MAD17,180,726, and a liability of MAD10,713,753.
2.4 Agreement with GSM Al-Maghrib (GAM) During fiscal years 2002 and 2003, Itissalat Al-Maghrib concluded agreements with GSM Al-Maghrib relating to the marketing of the mobile, fixed, Internet and multimedia services of Itissalat Al-Maghrib. During fiscal years 2004 and 2005, the framework agreement was updated through several amendments relating in particular to the payment conditions of fees by Itissalat Al-Maghrib to GSM Al-Maghrib. Maroc Telecom sold its stake in this company at the end of March 2006. On March 2006, the amount charged by Itissalat Al-Maghrib to GAM was MAD150,337,499 exclusive of tax, and the amount charged by GAM to Itissalat Al-Maghrib was MAD1,607,658 exclusive of tax. As of March 31, 2006, the balance of GSM Al-Maghrib’s accounts in Itissalat Al-Maghrib’s books amounted to a debit of MAD51,307,744, and a credit of MAD12,664,768.
2.5 Related-party transactions with Al Akhawayn University The Supervisory Board of December 21, 2004, authorized Itissalat Al-Maghrib to conclude an agreement with Al Akhawayn University, to set up a global framework of cooperation to carry out joint actions in domains of common interest of scientific and technical research, in particular those of Research and Development and Research and Consulting. In accordance with this agreement, each year, two scholarships will be paid by Itissalat Al-Maghrib to two students chosen from children of the company’s employees. At December 31, 2006, the amount of expenses recorded by Itissalat Al-Maghrib relating to this agreement was MAD3,100,963. As of December 31, 2006, the balance of Al Akhawayn University’s account in Itissalat Al-Maghrib’s books was positive and amounted to MAD518,300.
Casablanca, March 2, 2007 Statutory Auditors
Samir AGOUMI Abdelaziz ALMECHATT
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5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD
5.6 REPORT OF THE MANAGEMENT BOARD
In accordance with Article 141 of Act 17-95 of August 30, • the launch on December 1, 2006 of an MVNO (Mobile 1996 and with the agenda that has been communicated to Virtual Network Operator) in France, under the Mobisud you, we are honored to present the report of the brand, in partnership with SFR and Saham. Maroc Management Board of Itissalat Al-Maghrib (‘Maroc Telecom also created a subsidiary in Belgium which is due Telecom’), with the aim of presenting the company’s to launch an MVNO in 2007; business activity and financial results for 2006, submitting • the acquisition on December 29, 2006, of a 51% stake in for your approval the financial statements for the period Onatel, Burkina Faso’s incumbent operator by means of ended December 31, 2006, and submitting for your an international invitation to tender; approval a bond issuance plan and a share buyback program in a view to stabilize the share price. • the acquisition of 51% of Gabon Telecom in February 2007, Gabon’s incumbent operator. On the regulatory side, 2006 was marked by the following 2006 Highlights events:
According to the latest estimates, Morocco’s real GDP • three new 3G mobile licenses were granted to Maroc growth should reach 8.1% in 2006, due to favorable Telecom, Medi Telecom and Wana (Maroc Connect); weather conditions which doubled cereal production, and to the positive contribution from non-agricultural activities. • Maroc Telecom submitted its proposals to the ANRT for carrier pre-selection, interconnection to fixed-line and By developing innovative solutions that meet customer mobile networks (including leased lines) and partial expectations and by using state-of-the-art technology, Maroc unbundling which has applied since January 8, 2007. All Telecom strengthened its leadership position in 2006: of these proposals were approved by the ANRT in January • the Mobile customer base grew by 30%, totaling 10.7 2007, except the proposal concerning the interconnection million customers. By gaining more than 2/3 new clients of the mobile network; on the market, Maroc Telecom increased its market share • the ANRT set the dates for the portability of numbers (1) by 0.4 point to 66.9% ; according to the following agenda:
• the Fixed-line customer base decreased slightly by 5.6%, • portability of mobile numbers by January 1, 2007 at the at 1,266 million lines, mainly due to the reduction in the latest (postponed until February 1, 2007); residential customer base; • portability of Fixed-line numbers by March 31, 2007 at • the Internet customer base continued to show strong the latest; growth (+55.2%) totaling 391,000 accesses, driven by ADSL which accounts for 98% of accesses. • the ANRT decided to set new interconnection charges between the two first operators and the new operator, In 2006, Maroc Telecom launched various projects Wana; concerning its corporate image and structure such as: • ANRT’s universal service executive committee validated • the modification of its visual identity in January 2006 and part of the program proposed by Maroc Telecom for 2006, a revamped brand architecture; for the sum of MAD188 million. • a new internal organization, with the Mobile business and Fixed-line & Internet business grouped together into a single entity, the Services department, and sales teams Business activity were set up within the regional divisions; Customer base • a new voluntary redundancy plan to be finalized during 2006 was marked by a reduction in the Fixed-line customer 2007; a provision of MAD300 million has been recorded in base and the strong increase in the Mobile and Internet the 2006 financial statements to cover the cost of this customer bases. plan. In addition, Maroc Telecom was very active internationally in 2006 with:
(1) Source: ANRT (at December 31, 2006)
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The table below shows the development of Maroc Telecom’s various customer bases:
As of December 31 and in thousands 2004 2005 2006 Change 05/06
Number of Mobile customers* 6,306 8,237 10,707 +30.0% Prepaid 6,050 7,908 10,297 +30.2% Postpaid** 256 329 410 +24.6%
Number of fixed-line subscribers*** 1,309 1,341 1,266 (5.6%)
Number of internet customers**** 105 252 391 +55.2% o/w ADSL 60 242 384 +58.7%
* Mobile customers include customers with prepaid cards and postpaid subscribers according to the ANRT definition. 2004 and 2005 data are reprocessed according to this definition. ** Including “no commitment” rate plans in 2005 and 2006 *** Not including Maroc Telecom in-house lines **** Internet customers are IP accounts opened with Maroc Telecom (subscribers and pay-as-you-go customers).
Mobile Fixed-line and Internet 2006 was a year of strong growth for the mobile business: The number of fixed lines totaled 1,266 million lines at December 31, 2006, down 5.6% compared with the previous • the active customer base gained 4.7 million customers gross (2.4 million net) to reach 10.7 million, corresponding to year. This was mainly due to the consolidation of the a market share of 66.9% (1), compared with 66.5% at residential customer base. December 31, 2005. To build customer loyalty and attract new customers, in September 2006 Maroc Telecom launched Phony, new • Gross revenues (2) for the mobile business in Morocco reached more than MAD14 billion, an increase of 15% unlimited Fixed-line telecommunications offer enabling compared with 2005. customers to make unlimited calls to all Maroc Telecom fixed- line national and local numbers. The success met by these After interconnection costs and cost of sales, gross profit was offers stabilized the customer base over the fourth quarter. more than MAD10.9 billion, up 22% relative to 2005. In 2006, the company continued its actions to promote ARPU fell 9.3% to MAD111 in 2006 compared with 2005. This Internet use in Morocco, with further price cuts and regular decrease was mainly due to the strong increase in the promotional offers. The number of Internet users reached customer base and the reduction in call charges. ARPU 391,000 at December 31, 2006, including 384,000 ADSL dropped 13.1% over the last quarter of the year partly affected subscribers. At December 31, 2006 the number of ADSL lines by year-end promotional offers and the revaluation of non- accounted for almost 35% of fixed lines (excluding public activated prepaid phone cards sold to distributors. telephony). With the increase in the customer base and the reduction in In 2006, Fixed-line and Internet gross revenues (2) in Morocco, access costs, the churn rate is now 20.3% (+8.1 points totaled MAD12.3 billion, up almost 6% compared with 2005. compared with 2005). This growth was mainly due to strong momentum on the Maroc Telecom confirmed its market share in 2006 by public telephony segment (revenues up almost 15%), growth developing innovative offers, extending unlimited offers to all in incoming international traffic (+11%), the confirmed rate plans, introducing a SIM card at MAD30 (including MAD10 success of ADSL services and strong performance in data in call credit), new offers for businesses and several new services to businesses and operators (revenues up 13%), promotional offers Maroc Telecom remains the leading player stimulated by the price cuts offered since the beginning of the for text messaging (SMS) with the total number of outgoing year. On the voice segment, the average monthly invoice per SMS messages on the Maroc Telecom network reaching more customer increased by almost 3% in 2006. than 1.4 billion in 2006 up 23% compared with 2005.
(1) Source : ANRT (December 31, 2006). (2) Gross revenues include intersegment transactions between Maroc Telecom’s Fixed-line and Mobile businesses. These transactions include interconnection and operator leased lines.
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5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD
Human Resources Companies Gross investment Share (in thousands of MAD) (in %) Maroc Telecom’s headcount rose slightly to 11,212 at December 31, 2006, compared with 11,178 at the end of Onatel 2,459,380 51 2005. Compagnie Mauritanienne de Communications 399,469 80 The company continues to regard staff training as a priority and in 2007 organized 35,149 training days which benefited Mobisud SA 73,685 66 22,399 employees, representing an average of 3 training Medi-1-Sat 21,573 27 days per employee. Casanet 18,174 100 In 2006, the Group took a closer look at its sales force Maroc Telecom Belgique SA 16,754 100 aiming to increase professionalism to provide better Autoroutes du Maroc (ADM) 20,000 0.45 customer service. More than half of sales staff underwent Thuraya 9,872 0.16 an individual evaluation carried out by an external consultant mainly assessing their professional and Arabsat 6,454 0.61 behavioral skills. This operation helped optimize the Fonds d’amorçage Sindbad 2,836 10 redeployment of staff and training programs in order to Matelca 50 50 meet Maroc Telecom’s sales requirements. Maroc Telecom signed two new agreements in 2006 with Earnings from operations from the main subsidiaries and investments: the unions which mainly cover points such as the levels of certain employee benefits and other advantages, and salary • Mauritel: increases. In 2006, CMC-Mauritel reported MAD997 million in gross revenues, up 10% compared with 2005.
Subsidiaries and investments • Fixed-line: gross revenues were down 6.9% in 2006 to Maroc Telecom carried out a very aggressive international MAD309 million, and the customer base shrank 6.2% to 37,447 lines. development strategy in 2006: • Mobile: gross revenues (2) in 2006 grew 19.9% to MAD688 • The Group owns a 66% stake in Mobisud, an MVNO million, with a 29.2% increase in the customer base at which was launched in France on December 1, 2006 601,221 customers. using SFR’s network. Pursing its strategy to capture traffic Mauritel’s operating income totaled MAD295 million in 2006, between Europe and Maghreb countries, Maroc Telecom up 10.9%, and 21.9% eliminating the effect of the voluntary redundancy plan for the Fixed-line business (MAD29 million). also created a subsidiary in Belgium, which is due to This strong performance was mainly due to robust Mobile launch an MVNO in the first half of 2007; activity, whose operating income rose 24.6%. • Maroc Telecom acquired a 51% stake respectively in the incumbent operator of Burkina Faso, Onatel on 28 • Casanet: December 2006 and of Gabon, Gabon Telecom on 9 In 2006, the Menara portal, which is maintained by Casanet, February 2007 via an international invitation to tender. remained the preferred point of Internet access for Moroccans. CMC, which is 80% owned by Maroc Telecom, acquired 0.527% of Mauritel SA’s share capital from Socipam, a non- Casanet’s provisional 2006 revenues totaled more than MAD35 million, up 23% and its provisional earnings reached trading company created by the staff of the Mauritanian more than MAD6 million, up 21%. subsidiaries. • Mobisud: In addition, Maroc Telecom sold its 35% shareholding in GSM Al-Maghrib for MAD13 million on March 29, 2006. In 2006, Mobisud, a virtual mobile operator specifically aimed at people living in France with ties in Maghreb countries, after Maroc Telecom’s investments at December 31, 2006 can be only one month in operation at December 31, 2006 recorded summarized as follows: revenues of MAD0.4 million and an operating loss of MAD-35 million, which included all the start-up costs.
(2) Gross revenues include intersegment transactions between Maroc Telecom’s Fixed-line and Mobile businesses. These transactions include interconnection and operators leased lines.
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Changes in the individual company financial statements and earnings The presentation rules and valuation methods used to prepare these documents comply with current regulations and generally accepted accounting principles. The table below presents a summary of changes in Maroc Telecom’s main financial indicators:
(in millions of Moroccan dirhams) 2004 2005 2006 Change 2006/2005
Revenues 16,765 19,310 21,236 +10.0%
Operating income 7,806 8,773 10,169 +15.9%
Corporate income tax 2,517 2,781 3,107 +11.7%
Earnings 5,729 5,872 6,929 +18.0%
Capex 2,282 2,986 3,745 +25.4%
Income statement MAD11.842 billion in 2005 to MAD11.755 billion in 2006. Once again, Maroc Telecom posted excellent results. Financial assets totaled MAD3.072 billion compared with Revenue amounted to MAD21.2 billion, whilst operating MAD519 million in 2005 mainly due to the acquisition of Onatel. income reached MAD10.2 billion and earnings totaled MAD6.9 billion. Current assets were slightly down by 2% at MAD7.028 billion compared with MAD7.159 billion in 2005, mainly due to an • Revenue increase in provisions for trade receivables. Maroc Telecom’s revenue for the year ended December 31, Accounts receivable amounted to MAD5.695 billion. 2006, amounted to MAD21.236 billion, up 10.0% compared with 2005. Cash, including short-term investments, totaled MAD2.254 billion at December 31, 2006, compared with MAD7.274 • Operating income and earnings billion in 2005, after an extraordinary dividend (ordinary Operating income increased by 15.9% compared with 2005 dividend and a capital reduction) and the acquisition of from MAD8.773 billion to MAD10.169 billion. Onatel. Net financial income remained stable at MAD196 million in • Liabilities and shareholders’ equity 2006. Taking into account 2006 earnings of MAD6.929 billion, Maroc Net extraordinary items were negative at MAD328 million, Telecom’s net equity was MAD15.629 billion at December 31, mainly due to expenses linked to the voluntary redundancy 2006. plan for MAD300 million. Long-term debt fell to MAD2 million at December 31, 2006 Income before corporate income tax amounted to from MAD11 million at the end of 2005. MAD10.036 billion, resulting in earnings of MAD6.929 At December 31, 2006, current liabilities represented 40% of billion. total liabilities and were up 11% to MAD10.620 billion, mainly due to an increase in trade payables, resulting from increased Balance sheet data handset purchases and network investments, and to the increase in deferred income (up MAD383 million) and At December 31, 2006, total assets were MAD26.279 billion, restructuring provisions (MAD300 million). compared with MAD27.944 billion a year earlier. • Assets at December 31, 2006 Changes in the consolidated financial statements and Net fixed assets amounted to MAD16.997 billion, representing earnings 65% of total assets and compared with MAD13.512 billion a year earlier. • Scope of consolidation Intangible assets totaled MAD2.170 billion in 2006, compared The scope of consolidation for the Maroc Telecom group’s with MAD1.148 billion in 2005. financial statements includes Maroc Telecom and the Gross tangible assets increased by 18% and investments following companies: amounted to MAD3.745 billion, up 25% compared with 2005. • Mauritel SA and Mauritel Mobiles, in which Maroc Net tangible assets dropped by MAD87 million, from Telecom holds a 51.5% stake via the holding company
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5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD
Compagnie Mauritanienne de Communications (“CMC”). markets since its shares were listed on the Casablanca and Since July 1, 2004 – when the Mauritanian government’s Paris stock exchanges. In this context, Maroc Telecom’s veto rights expired – Mauritel has been fully consolidated consolidated financial statements for the years ended in Maroc Telecom’s financial statements. December 31, 2004, 2005 and 2006 are prepared in compliance with applicable International Financial Reporting • Mobisud SA, a company governed by French law, in which Maroc Telecom holds a majority stake of 66%, has Standards (IFRS). been fully consolidated since November 1, 2006. Maroc Telecom prepared its 2006 and 2005 consolidated financial statements in accordance with: • Medi-1-Sat, in which Maroc Telecom owns 27%, is accounted for by the equity method. 1.All mandatory IFRS and IFRIC (International Financial Reporting Interpretations Committee) standards and • GSM Al-Maghrib, a distributor in which Maroc Telecom owned 35% of the share capital until it sold its stake in interpretations at December 31, 2006. All these standards March 2006 was accounted for by the equity method until and interpretations have been adopted by the EU. the date of the disposal. 2.By anticipation from January 1, 2004:
Casanet, which is wholly-owned by Maroc Telecom is not • IAS 32 and IAS 39 on financial instruments. Maroc consolidated, as the main part of Casanet’s activity, which Telecom is not concerned by any sections of IAS 39 not concerns the maintenance of Maroc Telecom’s Menara adopted by the EU. Maroc Telecom has consequently Internet portal, is carried out together with Maroc Telecom. applied IAS 39 in full to its 2004 financial statements and Due to the absence of reliable financial statements (financial its 2005 consolidated financial statements. statements for the period ending September 30, 2006 drawn 3.The following principle, pending publication of an IASB or up under local accounting standards which contained IFRIC text on the matter: reservations) and to the fact that management teams from Pending a final IFRIC interpretation, Maroc Telecom does not Maroc Telecom were not operational until the beginning of accrue loyalty bonuses granted to customers that do not 2007, Onatel will only be fully consolidated as from January 1, result in an additional cost. These bonuses are not considered 2007. to be a greater benefit than those benefits granted to new customers at the inception date of a contract. Loyalty bonuses Comparability of financial statements convertible into free services are accrued. The accounting The consolidated financial statements have been used by the method used is compliant with the proposed IFRIC Company as a means of communication with financial Interpretation D20/IAS 18 on Customer Loyalty Programmes.
Summary of the consolidated income statement The table below sets out Maroc Telecom’s main consolidated indicators:
(in millions of Moroccan dirhams) 2004* 2005 2006 Change 2006/2005
Consolidated revenues 17,408 20,542 22,615 10.1%
Operating income 7,597 8,678 10,043 15.7%
Financial income 175 112 143 27.7%
Earnings 5,228 5,921 6,833 15.4%
Earnings attributable to the equity holders of the parent 5,171 5,809 6,739 16.0%
Net cash position 6,498 7,466 2,686 (64.0%)
* excluding CMC Mauritel group for the first six months of the year.
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Maroc Telecom consolidated revenues as at December 31, Outlook for 2007 2006 amounted to MAD22,615 million up 10.1% due to Based on current market conditions and insofar as no major strong performance from all activities. event of an extraordinary nature disrupts Maroc Telecom’s In 2006, Fixed-line and Internet gross revenues (2) in Morocco, business, consolidated revenues growth should exceed 6% totaled MAD12,613 million, up 5.6% compared with 2005. and consolidated operating income should grow by more than This growth was mainly due to strong momentum on the 10% in 2007 supported by continued growth in the mobile public telephony segment (revenues up almost 15%), growth and ADSL activities and maintaining leadership on the Fixed- in incoming international traffic (+11%), the confirmed line market. success of ADSL services and strong performance in data These targets do not take into account the contribution from services to businesses and operators (revenues up 13%), the acquisitions of Onatel and Gabon Telecom in December stimulated by the price cuts offered since the beginning of 2006 and February 2007. the year. On the voice segment the average monthly invoice per customer increased by almost 3% in 2006. Mobile gross revenues (2) in 2006 rose 15% to MAD14,684 Proposal of allocation of earnings million compared with 2005, due to the strong increase in the We put forward for your approval the following allocation of customer base (3) (excluding Mauritel) which totaled almost earnings: 10.71 million customers, representing a 30% increase compared with 2005 and a net increase of almost 2.5 million Allocation of 2006 earnings (in thousand of Moroccan dirhams) customers over the year. Net income for the year 6,929,101 Other operating income and expenses grew by less than 6% to MAD12.572 billion. This slight increase was mainly due to: Legal reserve -
• a 5% drop in purchases mainly due to a slight decrease in Regulated reserve - the volume of handsets purchased and an 11% reduction in Optional reserve - the unit purchase price; Ordinary dividend 6,927,271 • stable personnel costs; Retained earnings 1,829 • other operating income and expenses rose by 3%, mainly due to mobile commissions linked to prepaid top-up card sales and stepped-up sales efforts to increase the customer The total dividend payment is MAD7.88 for each share with base, and due to maintenance and repair costs linked to dividend rights. network development. Ordinary dividends paid out with respect to the previous three • despite the 13% increase in taxes, duties and fees due years were as follows: higher ANRT fees, which are calculated based on revenues and MAD35 million in stamp duty linked to the capital 2003 2004 2005 reduction carried out in 2006. Number of shares 87,909,534 879,095,340 879,095,340 Maroc Telecom consolidated operating income totaled MAD10,043 million in 2006, up 15.7% compared with 2005, Dividend/share (dirhams) 31.28 5.00 6.96 which includes a MAD300 million provision for a new Total payment voluntary redundancy plan, which is comparable to the (thousand of dirhams) 2,750,000 4,395,477 6,118,504 restructuring charge in 2005.
Earnings attributable to the equity holders of the parent rose The nominal share value was reduced in 2004 from MAD100 16% compared with 2005 at MAD6,739 million in 2006. to MAD10 and from MAD10 to MAD6 in 2006. The Group’s net cash position totaled MAD2,686 million. Regulated related-party agreements in accordance with Article 95 of Act 17-95 (2) Gross revenues include intersegment transactions between Maroc Telecom’s We also ask you to approve transactions carried out during Fixed-line and Mobile businesses. These transactions include interconnection and operator leased lines. the year ended December 31, 2006 in view of fulfilling (3) The active customer base which includes prepaid customers having made or regulated related-party agreements provided in Article 95 of received a voice call in the last three months and postpaid customers who have the Moroccan Act 17-95 on limited-liability corporations, not terminated their contracts, in compliance with the ANRT definition.
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5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD
properly authorized by your Supervisory Board and that Share buyback program with a view to stabilize the continued over the past year. share price The statutory auditors have been informed that these We submit for your approval a share buyback of program with agreements continued over the past year, and they have a view to stabilize the share price, in accordance with Articles stated so in their report. 279 and séq. of Act no. 17-95 on public limited companies. The statutory auditors have stated, in their general report, The share buyback is limited to 3% share capital for a period of that they have conducted the assignment entrusted to eighteen months, to be implemented in one or several them. transactions, on the stock market or otherwise, namely by purchasing company shares or using options, with a view to stabilize the share price. Plan for the issuance of bonds and similar securities The maximum amount of the authorized share buyback We submit for your approval a plan for the issuance of program may not exceed MAD4 billion. We also propose that bonds and similar securities in Morocco in Moroccan you confer on the Management Board all powers to place dirhams. The purpose of this issuance is to enable Maroc orders on the stock market, sign any contracts of sale or Telecom to carry out its external growth strategy. transfer, enter into any other agreements, option contracts, The maximum nominal amount of these bonds issued may perform any disclosures and any necessary formalities, with the not exceed MAD5 billion or the equivalent value of that option of subdelegating such powers. amount, with or without specific collateral, in such This authorization should enable Maroc Telecom to set up proportions, at such times and under such interest rates liquidity contracts with stock brokers with the aim of: and redemption terms as it may deem appropriate, • Helping to ensure the liquidity of Maroc Telecom shares on We also propose that you confer on the Management Board the Casablanca and Paris stock exchanges; all powers to carry out such issuance plans with the option • Stabilizing the share price by trading against excessive of subdelegating them to the Chairman. market trends, whether upward or downward; The present authorization is valid for a period of five years However, the orderly functioning of the stock market must not from this date. be disrupted by these two targets.
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6 CORPORATE GOVERNANCE
6.1 MANAGEMENT AND SUPERVISORY BOARDS
6.1.1 Composition and functioning of the Management Board
Name (Age) Current office Date of appointment Expiry of term of office and main duties
Abdeslam AHIZOUNE Chairman First appointed February 20, 2001 2007* (51) Renewed on March 4, 2005
Arnaud CASTILLE Managing Director First appointed February 24, 2006 2007* (34) Administration and Finance with effect on April 1, 2006
Janie LETROT Managing Director First appointed June 29, 2006 2007* (52) Regulation, Communication and International Development
Larbi GUEDIRA Managing Director First appointed February 20, 2001 2007* (52) Services Renewed on March 4, 2005
Mohammed HMADOU Managing Director First appointed February 20, 2001 2007* (53) Networks Renewed on March 4, 2005
* The members of Management board’s terms office were renewed at the time of Supervisory Board meeting held on the first of March 2007, for a period of two years, up to 2009.
Biographies and duties of the members of the Management Board
Mr. Abdeslam AHIZOUNE Mr. Abdeslam Ahizoune was appointed Chairman of the and August 1997), Minister of Postal and Telecommunications Management Board of Maroc Telecom in February 2001. He is Services and Managing Director of the ONPT (between August also a member of the Management Board of Vivendi (since April 1992 and February 1995) and Director of Telecommunications 2005). Mr. Ahizoune is a member of the Board of Directors of in the Ministry of Postal and Telecommunications Services Mauritel SA, Mauritanian’s incumbent operator and of the (between 1983 and 1992). From 1982, Mr. Ahizoune held a following organizations: Mohammed V Foundation for Solidarity, number of positions in the Postal and Telecommunications Mohammed VI Foundation for the Environment, the Lalla Salma Services department and then in the ONPT. Association Against Cancer and Al Akhawayne University. Mr. Ahizoune holds an engineering degree from the École In 2006, Mr. Ahizoune was elected Chairman of Directors Board Nationale Supérieure des Télécommunications in Paris, of Mobisud SA, the Mobile Virtuel Network Operator (MVNO) in France (1977). France, and member of Directors Board of Onatel, the incumbent operator in Burkina Faso. Also he was elected Mr. Larbi GUEDIRA President of the Royal Moroccan Federation of Athletics (FRMA). Mr. Larbi Guedira is Managing Director of Maroc Telecom’s At the beginning of 2007, Mr. Ahizoune was elected director of Services Segment, and served previously as Executive Gabon Telecom, the incumbent operator in Gabon. Director of the Commercial Segment, Executive Director of In addition, Mr. Ahizoune has a part time employment contract Telecommunications and Chief Financial Officer and Regional with Vivendi, and takes part in determining Vivendi’s Director for Casablanca. In addition, Mr. Guedira serves as international development strategy. Director of CMC, Mauritel SA, Mauritel Mobiles and Matelca. Mr. Ahizoune served as Chairman and Chief Executive Officer of He also served as President of the National Association of Maroc Telecom (between February 1998 and 2001), He held the Telecommunications Engineers (Association Nationale des position of Minister of Telecommunications (between August Ingénieurs des Télécommunications) between 2000 and 2002. 1997 and 1998), Managing Director of the Office National des Mr. Guedira holds a Diplôme d’Etudes Supérieures Postes et Télécommunications (ONPT) (between February 1995 Spécialisées (DESS) in Management from the University of
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6. CORPORATE GOVERNANCE MANAGEMENT AND SUPERVISORY BOARDS
Lille, and he is a Fellow of the Ecole Nationale Supérieure des Arnaud Castille is 34 years old. Télécommunications in Paris, having received his Master’s Mr. Castille holds a Masters degree in Management and a Degree in Mathematics from Paris XI (Orsay). Diplôme d’Etudes Supérieures Spécialisées (DESS) in Company Finance from the Paris Dauphine University and is a Mr. Mohammed HMADOU graduate of INSEAD’s International Executive Programme. Mr. Mohammed Hmadou is Managing Director of Maroc Telecom’s Network. He previously served as Director of Mrs. Janie LETROT Subsidiaries and Interests, Director of Operations and Mrs. Janie Letrot, Managing Director Regulation, Executive Director of Infrastructure Segment until 2001. In Communication and International Development, was addition, he serves as a Director at CMC, Mauritel SA, appointed as a member of Maroc Telecom’s Management Mauritel Mobiles, Casanet and Matelca. Previously, Mr. Board on June 29, 2006. From January 1999 to July 2001 Mrs. Hmadou served as Managing Director of the National Letrot was Vivendi Group’s General Delegate in Morocco, and Company of Telecommunications (Société Nationale des Télécommunications). Mr. Hmadou holds an engineering joined Maroc Telecom as Director, Regulation and Public degree from the Ecole Nationale Supérieure des Relations before being promoted to Director, Regulation and Télécommunications in Paris. Communication. Previously Mrs. Letrot had been Civil Administrator in the French Ministry of Finance, Commercial Advisor and Financial Advisor to the Economic Mission of the Mr. Arnaud CASTILLE French Embassy in Rabat and then Economic and Financial Mr. Arnaud Castille was appointed as a member of Maroc Advisor to the Permanent Mission of France to the United Telecom’s Management Board and Managing Director, Nations in New York. Administration & Finance on April 1, 2006. Since September 2001 he had been Director of Management Control at Maroc Mrs. Janie Letrot holds a degree in History and Geography Telecom. Previously he held positions as Head of from the Paris-Sorbonne University, she is a graduate of the Administration and Finance of Bouygues, then Accounts Ecole Nationale d’Administration in Paris. Manager in the consultancy firm CSC Peat Marwick. He Mrs. Janie Letrot has been nominated Knight of the National started his career as an auditor with Ernst & Young. Order of Merit.
Duties and responsibilities of the Management Board
The Management Board is responsible for managing and and Mrs. Janie Letrot represent the interests of Vivendi. conducting the operations of the Company, under the Within a period of three months following the close of the supervision of the Supervisory Board. fiscal year, the Management Board must prepare the financial The Board is composed of five members who collectively statements and deliver them to the Supervisory Board, so that manage the Company’s operations. The Board members may the latter may conduct its audit procedure. allocate management tasks among them, subject to the Likewise, the Management Board must provide a management approval of the Supervisory Board. Its decisions are taken by report to the Supervisory Board before presenting the same to a majority of the votes of its members that are present or the ordinary general shareholders’ meeting, so that the represented. Messrs. Larbi Guedira and Mohammed Hmadou Supervisory Board may provide its comments, if any, on the represent the interests of the Government of the Kingdom of report. Morocco , while Messrs. Abdeslam Ahizoune, Arnaud Castille
Rights and obligations of the members of the Management Board
In accordance with Moroccan law, the Management Board is account, it could not have ignore it; the publication of the bylaws vested with the most comprehensive powers to act in all alone is sufficient to constitute such proof. circumstances on behalf of the Company; the Board exercises The provisions of the Company’s bylaws limiting the powers of these powers within the limits of the Company’s corporate its Management Board are not opposable to third parties. purpose and subject to those powers that legally belong to the Supervisory Board and to the shareholders. Except with the special waiver granted by the Supervisory Board, the members of the Management Board, upon the vote With respect to relationships with third parties, the Company of a 75% qualified majority of its members, are required to be remains bound by the actions of the Management Board that do employees of the Company and present in Morocco for more not diverge from the Company’s corporate purpose, unless the than 183 days each year. Company can prove that the third party knew that such action was outside such purpose or, taking the circumstances into
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6.1.2 Composition and roles of the Supervisory Board
Composition of the Supervisory Board as at March 9, 2007
Name (Age) Current Office Date of appointment Expiry of term of office Principal post or occupation
Fathallah OUALALOU Chairman Shareholders’Meeting Ordinary General Assembly of Minister of Finance (64) of February 20, 2001 Shareholders called to approve and Privatization the financial statements for 2006
Jean-Bernard LEVY Vice-Chairman Supervisory Board Meeting Ordinary General Assembly of Chairman of the (52) of December 17, 2002 Shareholders called to approve Management Board the financial statements for 2006 of Vivendi
Chakib BENMOUSSA Member Supervisory Board Meeting Ordinary General Assembly of Minister of the Interior (49) of February 24, 2006 Shareholders called to approve the financial statements for 2006
Abdelaziz TALBI Member Supervisory Board Meeting Ordinary General Assembly of Director of State Owned (57) of March 4, 2005 Shareholders called to approve Entreprises at the Ministry the financial statements for 2006 of Finances and Privatization Secretary General of the National Accounting Council
Jean-René FOURTOU Member Supervisory Board Meeting Ordinary General Assembly of Chairman of the (67) of January 4, 2005 Shareholders called to approve Supervisory Board of the financial statements for 2006 Vivendi
Jacques ESPINASSE Member Supervisory Board Meeting Ordinary General Assembly of Chief Financial Officer (63) of December 17, 2002 Shareholders called to approve of Vivendi the financial statements for 2006 Member of the Management Board of Vivendi
Frank ESSER Member Supervisory Board Meeting Ordinary General Assembly of CEO of SFR group (48) of March 4, 2005 Shareholders called to approve Member of the the financial statements for 2006 Management Board of Vivendi
Robert de METZ Member Supervisory Board Meeting Ordinary General Assembly of Deputy Managing, (55) of December 17, 2002 Shareholders called to approve Director for divestitures, the financial statements for 2006 mergers, and acquisitions of Vivendi
Philippe CAPRON* Member Supervisory Board Meeting Ordinary General Assembly of Director of Vivendi (48) of March 1, 2007 Shareholders called to approve the financial statements for 2009
* Madam Françoise Colloc’h presented her resignation at the time of Supervisory board meeting of June 29, 2006. It proposed to the Ordinary Shareholders’meeting of April 12, 2007, the ratification of the co-option of Mr. Philippe Capron as member of the Supervisory Board, replacing Madam Françoise Colloc’h for the raimining period of his mandate.
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6. CORPORATE GOVERNANCE MANAGEMENT AND SUPERVISORY BOARDS
Biographies and duties of the members of the Supervisory Board
Mr. Fathallah OUALALOU - Chairman Mr. Chakib BENMOUSSA Since 2002, Mr. Fathallah Oualalou has been Minister of Mr. Chakib Benmoussa has been Minister of the Interior since Finance and Privatization. Mr. Oualalou was formerly Minister February 15, 2006. Previously, he served as Director of of Economics and Finance from 1998 to 2002. He also heads Planning, Director of Roads in the Infrastructure Ministry, the parliamentary group of the Socialist Union of Popular Secretary General to the Prime Minister and Chairman Forces (Union Socialiste des Forces Populaire) (“USFP”) in the Delegate of SONASID and of Tangier Free Zone. Chamber of Representatives. Mr. Oualalou has been a Mr. Benmoussa has also served as Director and Chief Operating member of the political office of the USFP since 1989, and he Officer of the Brasseries du Maroc Group, as member of the was elected several times as a city councilman of Rabat and General Confederation of Moroccan Businesses (CGEM) for as deputy in the Chamber of Representatives. Enterprise and of COSEF (Special Commission for Education Mr. Oualalou joined the teaching staff of the law school of and Training), and as Secretary General to the Minister of the Rabat, of the law school of Casablanca, and of the Ecole Interior. Nationale d’Administration (“ENA”), after having defended his Chakib Benmoussa graduated from Ecole Polytechnique in thesis for a Doctorate in Economics in Paris in 1968. 1979 and from Ecole Nationale des Ponts and Chaussées in 1981. He graduated with a Master of Science degree in Civil He is the author of several books and works about political Engineering from Massachusetts Institute of Technology in economy, international economic relations, particularly 1983 and holds a post-graduate diploma (DESS) in Project focusing on relationships between Europe and Maghreb. Management (I.A.E, Lille). For several years he chaired the Association des économistes marocains (Association of Moroccan Economists) and l’Union Mr. Abdelaziz TALBI des économistes arabes (Union of the Arab Economists). Mr. Abdelaziz Talbi was appointed Director of State Owned Fathallah Oualalou, as a representative of the Moroccan Entreprise and privatization (DEPP) at the Ministry of Finances Government, is a member of the Supervisory Board of Credit and Privatization in 2005. He had previously assumed various du Maroc, Holding Al Omrane and Maroclear and a member of responsibilities within the DEPP, overseeing the service of the the Board of Directors of the Agency for the de-densification accounting revision then the division of audit and accounting and rehabilitation of the Fes Medina (ADER). normalization then he held a position as deputy director. Before his entry to the public Administration, he was CFO of a Mr. Jean Bernard LEVY – Vice-Chairman company in Rabat and local responsible an accounting firm in Paris. In parallel to his activities within the DEPP, Abdelaziz Mr. Jean-Bernard Levy is Chairman of the Management Board Talbi is also General Secretary of the National Accounting of the Vivendi group. He previously served as deputy Chief Council. Operating Officer of the Vivendi Universal group, Chairman and Chief Executive Officer of Matra Communication and Mr. Abdelaziz Talbi is a chartered accountant graduate by the Managing Partner at Oddo Pinatton. French State and holds a diploma in administration of companies and regional and local authorities of the University From 1988 to 1993, he was Director of Telecommunications of Nancy. Satellites at Matra Marconi Space. Mr. Abdelaziz Talbi, as a representative of the Moroccan Mr. Levy also served as the technical advisor and chief of staff government, is a member of the Supervisory Boards of the to Mr. Gerard Longuet, the French Minister for Industry, Postal Regie des Tabacs, Atlas Blue and Credit Agricole du Maroc. Services, Telecommunications and Foreign Trade in 1993 and He also serves on the Board of Directors of Royal Air Maroc, 1994. of the Moroccan Navigation Company (COMANAV), of the Jean-Bernard Levy is a Member of the Supervisory Board of National Radio and Television Company (SNRT) and of the the Canal+ Group, Director of SFR, Vivendi Games, Inc (US) National Local Planning Company (SONADAC). and NBC Universal, Inc (US). Over the past five years, Mr. Levy Over the past five years, as a representative of the Moroccan has served as Chairman and Chief Operating Officer of government, he has also been a member of the Supervisory Vivendi Universal Net and Vivendi Telecom International. He Board of the Agricultural Development Society (SODEA), of was also a member of the Supervisory Board of Cegetel, the Management of Agricultural Land Society (SOGETA), of Director of UGC and HCA. the Audiovisual Studies Society (SOREAD) and of the Mr. Levy is a graduate of the École Polytechnique and the Management Board of the Commercial Coal Company École Nationale Supérieure des Télécommunications. (SOCOCHARBO).
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Mr. Jean-Rene FOURTOU Director of SFR, Vivendi Games Inc (US), Veolia Environment and Vivendi Universal Net. Mr. Jean-Rene Fourtou is a former student of the Ecole Polytechnique. In 1963, Jean-Rene Fourtou was a Over the past five years, Mr. Jacques Espinasse has been a management consultant at Bossard & Michel. In 1972, he Director of Vivendi Universal Publishing, Cegetel Group, TPS became Chief Operating Officer of Bossard Consultants and and Multithématiques SA. He has also been: Chairman-CEO in 1977. In 1986, he was appointed Chairman • Chairman of Light France Acquisition SAS; and Chief Operating Officer of the Rhône-Poulenc Group. • Permanent representative of Vivendi, UGC; From December 1999 to May 2002, he served as Vice- Chairman and Chief Operating Officer of Aventis. • Permanent representative of Vivendi to the Board of Directors, Sogecable (Spain); Since April 28, 2005, Mr. Fourtou has been Chairman of the Supervisory Board of Vivendi, after having served as • Permanent representative of SAIGE to the Board of Chairman and Chief Executive Officer of Vivendi, Chairman of Directors, SFR; the Supervisory Board of Canal+ Group and Director of NBC • Chairman and Chief Operating Officer of J.E.D Conseil. Universal (US). Mr. Jean-Rene Fourtou the Honorary Chairman of the Mr. Frank ESSER International Chamber of Commerce. He is the Co-chairman Mr. Frank Esser holds a doctorate in economics from the of the Franco-Moroccan impetus group created in September University of Economic Science of Fribourg. He was 2005. This working group aims to propose any measure likely appointed member of the Management Board of Vivendi in to improve economic relations between the two countries. April 2005. Mr. Esser was appointed Chairman of SFR in Mr. Fourtou is Vice Chairman of the Supervisory Board of AXA, December 2002 and has been with the group since member of the Executive Committee of AXA Millesimes SAS, September 2000, when he was appointed Chief Executive and Director at Cap Gemini and Sanofi Aventis. Officer. Mr. Esser has been a member of the Board of Directors of the GSM Association since February 2003 and became Over the past five years, he has served as Chairman of the Chairman of its Public Policy Committee in 2004. Prior to Supervisory Board of Vivendi Environment, Chief Operating joining SFR, Mr. Esser was Executive Vice President at Officer of USI Entertainment Inc. (US), Vice-Chairman of the Mannesmann, in charge of international business and Board of Directors of AXA Assurances IARD Mutuelle and business development. Permanent Representative on the Board of AXA, of Finaxa (AXA Assurances IARD Mutuelle). Mr. Frank Esser is also Chairman and Chief Operating Officer of SHD and Director of Neuf Telecom, Vivendi Telecom He was also a Director of EADS (Netherlands), of Rhône International and Faurecia. He is also Chairman of the Board Poulenc Pharma, of Rhône- Poulenc AGCO Ltd, of Schneider of Directors of Vizzavi France, Permanent Representative of Electric, of Pernod Ricard and of la Poste. SFR to the Board of Directors of LTB-R and member of the Supervisory Board of Vodafone D2. Mr. Jacques ESPINASSE Over the past five years, Mr. Frank Esser has held the Mr. Jacques Espinasse holds an MBA from the University of following Directorships: Michigan. • Chairman and Chief Operating Officer of Cegetel; Mr. Espinasse was appointed Chief Financial Officer of Vivendi • Chief Operating Officer of Cegetel Group; in July 2002, and appointed to the Management Board of • Director of Cegetel Entreprises; Vivendi on April 28, 2005. He had previously been Chief • Director of Cofira; Operating Officer of TPS, a French satellite television service, • Director of Omnitel; since 1999 and became a member of the Board of Directors • Director of Infostrada. of TPS in 2001 Previously, Mr. Jacques Espinasse held a variety of senior Mr. Robert de METZ management positions in major French companies, including Mr. Robert de Metz has been Deputy Managing Director for CEP Communication and Group Larousse Nathan, where he divestitures, mergers, and acquisitions of the Vivendi group was appointed Senior Executive Vice President in 1984. In since September 2002. He was previously involved in the 1985, he became Chief Financial Officer of the Havas group. management of private funds. Mr. de Metz was also a member He was appointed Senior Executive Vice President of the of the executive board of directors of Paribas from 1997 to Havas group when it was privatized in May 1987 and held this 2000. Mr. Robert de Metz is a graduate from the Institut position until January 1994. d’Etudes Politiques in Paris and from the Ecole Nationale He is a Director of SES Global, member of the Supervisory d’Administration (ENA) and former inspector in Ministry of Board of Canal+ Group and of SES Global (Luxembourg) and Finance.
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6. CORPORATE GOVERNANCE MANAGEMENT AND SUPERVISORY BOARDS
Mr. Philippe CAPRON Mr. Philippe Capron is a graduate of the Institut d’études division then of International Trading and Distribution. At the politiques of Paris (IEP) and the Ecole des hautes études beginning of 2006, he became Director of financial businesses commerciales (HEC). and member of the Management Board of the Arcelor Group. Mr. Capron was assistant to the Chairman and Secretary to Since January 2007, Philippe Capron is a Director of Vivendi’s the Board of Directors of Sacilor from 1979 to 1981. Management Team. On graduating from the Ecole Nationale d’Administration Mr. Capron is also a member of Maroc Telecom’s Supervisory (ENA) in 1985, he joined the Inspectorate General of the Board, Chairman of Achatpro’s Supervisory Board, member of Ministry of Finance. the Supervisory Board and Chairman of the Audit Committee of the Virbac group and a member of Club de Verzy, club 40 Advisor to the Chairman-Chief Executive Officer of Duménil and the Society of Political Economy. Leblé from 1989 to 1990, then Managing Director and member of the Management Board of Duménil Leblé Bank Over the past five years he has been: (Cérus group) from 1990 to 1992, he was then appointed Vice • Chairman–Chief Executive Officer of Arcelor Packaging President and Partner of the consultancy firm Bain and International; Company from 1992 to 1994. • Member of the Supervisory Board of Eko-Stahl; After serving as Director of International Development and • Chairman-Chief Executive Officer of Solvi; member of Euler Group’s Executive Committee from 1994 to • Director of Eco Emballage; 1997, he served as Chairman-Chief Executive Officer of Euler- • Manager of Arcelor Treasury; SFAC from 1998 to 2000. • Chairman of the Board of Directors of Sollac Ambalaj; • Chairman of Arcelor International; Mr. Capron joined the Usinor group in November 2000 as • Chairman of Arcelor Projects; Director of Financial Services, and member of the Executive • Chairman of the Board of Directors of Line Inc; Committee until 2002, when he was appointed Executive • Director of Cockerill-Sambre. Vice-president of Arcelor, in charge of the steel packaging
Duties and responsibilities of the Supervisory Board Pursuant to the Articles of Association, the Supervisory Board periods of service and the duties of its members, and the may be composed of a minimum of eight members and a decision-making process, see section 3.1 “General information maximum of 15 members since the listing of shares of the regarding the Company—Administration of the Company— Company. Supervisory Board”. Among its members, the Board elects a Chairman and a Vice In 2006, the Supervisory Board met five times to approve the Chairman, who are in charge of convening the Board and Company’s performance as well as its perspectives on leading its discussions. The Supervisory Board appoints the medium and long-term, with an average attendance rate of 62%. members of the Management Board for a renewable term of two years, appoint the Chairman among the members of the As of today, three members of the Supervisory Board— Management Board. Messrs. Fathallah Oualalou, Chakib Benmoussa, and Abdelaziz Talbi—were appointed upon proposal of the Depending on the matters and in accordance with the terms Government of the Kingdom of Morocco and 5 members— of the Amended Shareholders’ Agreement, decisions of the Messrs. Jean Bernard Levy, Jean-Rene Fourtou, Jacques Supervisory Board are validly taken whether at a simple Espinasse, Frank Esser and Robert de Metz—were appointed majority or, subject to a qualified 75% majority of its members. upon proposal of Vivendi. The Supervisory Board exercises permanent control of the Each member of the Supervisory Board must hold at least one Company’s management by the Management Board. For share, which share must be in registered form. information on the composition of the Supervisory Board, the
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Rights and obligations of the members of the Supervisory Board In accordance with Moroccan law, the Supervisory Board Company proves that such parties knew or could not have exercises permanent control over the management of the ignored such requirement. Company by the Management Board. Throughout the year, the Supervisory Board carries out the The Company’s bylaws may require the prior approval of the verifications and monitoring that it deems appropriate, and it Supervisory Board for carrying out certain types of actions. may require to be provided with the documents it deems When an operation requires approval from the Supervisory useful in accomplishing its mission. The members of the Board and the Board refuses to grant such approval, the Supervisory Board may have access to all information relating Management Board may submit the disagreement to the to the Company’s activities. At least once each quarter, the shareholders’ meeting for the latter to decide. Management Board provides a report to the Supervisory The disposal of property, the full or partial disposal of Board. Within three months following the close of each shareholdings and the pledging of collateral, guarantees, financial year the Management Board provides the documents security and warranties are subject to authorization by the covered under the Law 17-95 concerning corporations to the Supervisory Board. The Board determines the amount for Supervisory Board, for the purpose of verification and review. each transaction. Nevertheless, the Management Board may The Supervisory Board may provide to the shareholders’ be entitled to grant, endorsements and guarantees to meeting its comments on the report from the Management customs and tax authorities, without any limit on the amount. Board, as well as its comments on the financial statements for Whenever a transaction exceeds the amount determined as the fiscal year. mentioned above, the approval of the Supervisory Board is required. The Management Board may delegate the power The members of the Supervisory Board are not employee of that it has received pursuant to the previous paragraphs. The the Company. absence of approval is void as against third parties, unless the
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6. CORPORATE GOVERNANCE CORPORATE GOVERNANCE
6.2 CORPORATE GOVERNANCE
6.2.1 Audit Committee
Maroc Telecom’s Audit Committee is responsible for 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:
Name (Age) Current office Date of appointment Principal post or occupation
Jacques ESPINASSE Chairman 2003 Chief Financial Officer of Vivendi (63) Member of the Management Board of Vivendi
Noureddine BOUTAYEB Member 2003 Director of Rural Affairs (49) of the Ministry of Interior
Abdelaziz TALBI Member 2004 Director of State Owned Entreprises (57) at the Ministry of Finances and Privatization Secretary General of the National Accounting Council
Bousselham HILIA Member 2003 Secretary General of the Ministry of Industry, (47) Commerce and Economic Development
Robert de METZ Member 2003 Deputy Managing Director for Divestitures, (55) Mergers, and Acquisitions of Vivendi
Pierre TROTOT Member 2003 Senior Executive Vice President, Administration (52) and Finance Director of SFR
Biographies and duties of the members of the Audit Committee Mr. Noureddine BOUTAYEB Mr. Bousselham HILIA Mr. Noureddine Boutayeb was appointed as Director of Rural Mr. Bousselham Hilia is Secretary General of the Ministry of Affairs at the Ministry of the Interior in 2003. Mr. Boutayeb is Industry, Commerce and Telecommunications. He is also a also a member of the Supervisory Board of Crédit Agricole. member of the Boards of Directors of various state-owned Previously, Mr. Boutayeb served as Deputy Managing Director and para-governmental companies. Previously, Mr. Hilia of Maghrebine Consulting Engineers (Société Maghrébine served as Head of the division on electrical and electronics d’Ingénierie (INGEMA SA)), after he served as an Engineer at industries, Director of Domestic Trade, and Director of the Ministry of Equipment (Ministère de l’Equipement) and in a General Affairs. consulting firm in Paris. Mr. Hilia holds a degree from the Mohammadia School of Mr. Boutayeb holds a degree from the Ecole Centrale in Paris. Engineering. 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 also has a higher degree (Diplôme d’Etudes Approfondies) in Soil Mechanics.
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Mr. Pierre TROTOT behavior, are within the framework defined by guidelines for corporate business operations by the management and by Mr. Pierre Trotot is the Senior Executive Vice President, applicable laws and regulations; and Administration and Finance Director of SFR. Previously, Mr. Trotot served as Chargé de Mission, then Director of Financial • on the other hand, to check that the accounting, financial Management at Compagnie Générale des Eaux, after having and management information provided to the management been Chargé de Mission reporting to the President of of the Company accurately reflect the Company’s Compagnie de Navigation Mixte (1982-1988). Before then, Mr. operations and financial position. Trotot was a Chargé de Mission at Arthur Andersen Audit The objectives of the internal control’s process are to avoid (1978-1982). and to control risks arising from corporate undertakings, error Mr. Trotot is a graduate of Hautes Etudes Commerciales (HEC) and fraud, in particular in the financial and accounting areas. in Paris. As is the case for all audit systems, however, they cannot provide an absolute guarantee that these risks will be completely eliminated. Operations of the Audit Committee In order to carry out its task of assessing and validating Created by the Supervisory Board in 2003, the Audit Company internal audits, the Audit Committee relies on the Committee responds to the will of the shareholders to adopt Internal Audit and Inspection departments. The Audit international standards for the corporate governance and Committee defines the Internal Audit and Inspection internal controls of Maroc Telecom. departments’ mandates and analyzes their findings. The Audit Committee is composed of a Chairman and five In 2006, the average attendance rate at the Audit Committee’s permanent members, with three representatives of the meetings was 50%. Government of the Kingdom of Morocco and three of Vivendi, including the Chairman. The Audit Committee was convened for the first time in May 2004, and held four meetings in 2006. Internal Audit and Inspection The Committee’s role is to give recommendations and Internal Audit opinions to the Supervisory Board on matters such as:
• the individual financial statements and consolidated The Internal Audit department of Maroc Telecom is an financial statements, before they are presented to the independent function that has direct access to the Audit Supervisory Board; Committee. Its functions are governed by a charter approved by the Audit Committee. • the consistency and efficiency of the Company’s internal audit process; The Internal Audit department’s role is to ensure that the Company has control over its operations and to monitor the • review of the work programs of internal and external quality of internal control at each level of the Company’s auditors and the examination of the results of their audits; organization. The Internal Audit department assists the • accounting principles and methods, and consolidation Management in achieving its objectives by assessing its risk scope; management and control procedures and corporate governance. • the Company’s off-balance sheet risks and commitments; The efficacy of the internal audit process is assessed by the • establishing procedures for selecting statutory auditors, Internal Audit department, according to an annual audit plan reviewing the amounts of the fees solicited for the approved by the Audit Committee. Synopses of the comments performance of their audit duties, and monitoring and recommendations formulated by the Internal Audit compliance with the rules guaranteeing auditor department are provided to the Audit Committee so that the independence; and latter can assure its compliance and guarantee its execution.
• considering all issues that, in its judgment, present risks for The audit plan is defined according to an analysis of company the Company or could result in the malfunction of auditing risks, which covers both financial risks, information systems procedures. risks, and risks particular to the operational units of the Company. For the purpose of meeting this double target, the Internal Internal Control Audit department is composed of two segments which have The internal control procedures in force within the Maroc the following complementary missions: Telecom group have the following objectives: • financial audit (18 auditors, as of December 31, 2006) part • on the one hand, to ensure that the actions of management of the Administration and Finance Department for matters and the execution of operations, as well as the employees’ having an accounting and financial impact; and
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6. CORPORATE GOVERNANCE CORPORATE GOVERNANCE
• operational audit (18 auditors, as of December 31, 2006) Control Department (Presidency) and to the Audit Committee. part of the General Control Department (Presidency) that At their request or its own initiative, the Inspection department focuses on the operational units (Sale Agencies and Regional headquarters). This audit proceeds with a review conducts regular audits, specific and unannounced, for the of the procedures for managing resources, networks and following purposes: customer services. • to protect the assets, property, resources and means used; The annual audit plan is comprised of a program of missions, • to check that management procedures, instructions, the implementation of which is entrusted to the Internal Audit policies and rules are observed; department. The missions have the following main objectives:
• ascertain the existence and adequacy of controls in the • to ensure the quality, sufficiency and reliability of data and areas of finance, data processing and operations, to ensure optimization of the allocation of resources; and that the main risks are identified and suitably covered; • to demonstrate and determine the possible liabilities in the • review the integrity of the financial information, including the event the Company became aware of malfunctions, controls relating to security of communicating, recording irregularities or fraud. and backing up information; The Inspection department may assist the Internal Audit • review the operational units and systems for ensuring department in the implementation of specific missions, to adequacy with respect to policies, procedures and legal and regulatory requirements; determine a program of study and analysis, and to provide proposals on the Company’s operations. • review the means of safeguarding assets and advising management as to the efficiency and effectiveness of its use of resources; and Sarbanes-Oxley
• assure that recommendations are carried out within the On October 31, 2006, Vivendi filed a Form 15 with the Securities framework of follow-up tasks. and Exchange Commission (SEC) to terminate its obligations Finally, the Internal Audit department communicates and under the Securities Exchange Act of 1934. Vivendi had already coordinates with the Company’s external auditors, to terminated the deposit agreement with the Bank of New York maximize the effectiveness of the scope of the audit’s relating to its American Depositary Receipts (ADR). coverage. For the needs of Vivendi, since the parent company is listed on Internal audits performed in 2006 involved the main items of the New York Stock Exchange, Maroc Telecom, as a subsidiary balance sheet and the consolidated income statement, i.e. of the group, initiated work in 2003 to prepare to comply with revenues, fixed assets, inventories and cash flow. Sarbanes-Oxley Act, by assessing the quality of processes that Inspection might effect the reliability of its financial information. Together with the Internal Audit department, the Inspection Once Vivendi is no longer bound by regulatory obligations to the department (15 inspectors, as of December 31, 2006) likewise US market authorities, Maroc Telecom will remain committed to takes part in the assessment and approval of Company maintaining the highest standards of corporate governance and internal controls. The department reports to the General financial information.
6.2.2 Code of Ethics
Maroc Telecom has drawn up a Code of Ethics in order to among company employees, and to assist them in adjusting maintain a high level of fairness, transparency, market their professional behavior to those best practices. integrity, and primacy of the client’s interests. This Code of Ethics includes rules for dealing with real or This Code is not intended to replace existing rules, but apparent conflicts of interest in order to avoid situations such outlines the ethical principles and rules that are generally as insider trading or the suspicion of such. applicable and the need to comply with them scrupulously. Employees may also consult the person responsible for It aims to make each member of the Company accountable, ethical standards, who is in charge of ensuring compliance setting out the principal rules governing the use of privileged with the rules of the Code of Ethics, and with all rules and information, in order to increase awareness of best practices regulations as defined by law.
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6.3 INTERESTS OF THE CORPORATE EXECUTIVES
6.3.1 Compensation of the Management and Supervisory Boards
The Supervisory Board sets, as part of its appointment Some companies in the Vivendi group cover part of these decisions, the form and the amount of compensation paid to payments to certain members of the Management Board. In each member of the Management Board. That information is addition, certain members of the Management Board are then stated in the employment contract of the respective eligible for Vivendi’s stock option plans. Based on member. A compensation committee comprised of the compensation for 2006, the minimum amount to be paid by Chairman and the Vice Chairman of the Supervisory Board the Company in the event of termination of the employment meets each year to examine the total compensation of the contract of the members of the Management Board would members of the Management Board, including any variable amount to around MAD25.3 million in total, except for portion, and submits its proposal to the Supervisory Board. dismissal for serious misconduct or gross negligence. The total gross compensation paid by the Company, its Furthermore representation and travel expenses incurred by subsidiaries and all controlling companies to members of the the members of the Management Board in the performance of Management Board for fiscal year 2006 amounted to their functions are borne by the company. approximately MAD22.2 million, of which 30% represented The Shareholders’ meeting on October 28, 2004 decided to variable compensation. Variable compensation for the allocate the total annual sum of two million dirhams members of the Management Board for 2006 was determined (MAD2,000,000) for the payment of directors’ fees for the on the basis of: (a) Vivendi group and/or Maroc Telecom’s members of the Supervisory Board. This decision is valid until financial targets and (b) priority developments in their a new decision is made by the Shareholders’ meeting. The business areas. conditions and means of payment are to be determined each The following table sets out the compensation for the past year by the Supervisory Board. three fiscal years: At the Supervisory Board meeting held on June 29, 2006, the (in millions of members of the Board decided, as in the previous year, to Moroccan dirhams) 2004 2005 2006 waive the payment of Directors’ fees that were due in respect of 2005 and chose for these fees to be awarded by Gross compensation 19.4 20.2 22.2 Maroc Telecom to the Maroc Telecom Association for Entrepreneurship which distributes these sums in the form of Variable compensation (in %) 31% 33% 30% grants to Moroccan students of merit studying at university in Minimum amount in the event Morocco or abroad, in a subject relating to one of Maroc of termination of contract 35.6 26.5 25.3 Telecom or Vivendi’s activities.
6.3.2 Participation of Management structures and Supervisory Board in the Company’s share capital
As of December 31, 2006, the members of the Supervisory Board and the Management Board held respectively, directly or indirectly, 7,355 and 154,495 Maroc Telecom shares.
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6. CORPORATE GOVERNANCE INTERESTS OF THE CORPORATE EXECUTIVES
6.3.3 Conflict of interests
Over the past five years, no conviction in relation to fraudulent Supervisory Board, except Mr. Larbi Guedira, Chief Operating offences has been delivered against any member of Maroc Officer of the Services Segment, who is the husband of the sister Telecom’s Management Board or Supervisory Board, none of of Mr. Fathallah Oualalou, Chairman of the Supervisory Board. the members of the Management Board or the Supervisory Mr. Guedira already acted as Director of Telecommunications Board have been associated with a bankruptcy, receivership or when Mr. Oualalou was appointed as Chairman of the liquidation while serving on an administrative, management or Supervisory Board and was previously Regional Director of supervisory body, and no official public incrimination and/or Telecommunications for Casablanca (1988-1993) and CFO sanction has been delivered against any members of the (1993-1996). Management Board or the Supervisory Board by statutory or Finally, members of the Management Board and of the regulatory authorities. Supervisory Board are appointed by the Shareholders’ Furthermore, there are no family relations between the Agreement according to the conditions set out in paragraph members of the Management Board and those of the 3.5.5 “Shareholders’ Agreement”.
6.3.4 Interests of corporate executives in significant customers and suppliers of the Company
None
6.3.5 Service contracts
To date, with the exception of employment contracts between Board or the Supervisory Board and the Company and/or any members of the Management Board and Maroc Telecom, of its subsidiaries, which bestow any individual benefits. there are no contracts between members of the Management
6.3.6 Stock options
As of the date of this annual report, no director and/or under the conditions provided for by law, on one or more employee owns any stock options. occasions, for a period of three years from the date of Nonetheless, the Extraordinary and Ordinary Shareholders’ authorization, to members of the Board, directors, senior meeting of March 30, 2006, in the eighth resolution, executives, or in exceptional cases to non-executive Group authorized the Management Board to grant stock options, employees.
6.3.7 Loans and guarantees granted to corporate executives
None.
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6.4 RELATED PARTY TRANSACTIONS
As Maroc Telecom is incorporated under Moroccan law, the the Supervisory Board. The same applies for agreements French commercial code is not applicable to it. entered into between the Company and another company, if However, under Article 95 of Moroccan law 17-95 relating to one of the members of the Management or Supervisory Corporations, any agreement entered into, directly or Board, is an owner, a partner, a manager, an administrator, a indirectly, between the Company and one of the Management director or a member of the Management or Supervisory or Supervisory Board members, is subject to prior approval by Board of the said company.
6.4.1 Management Services’ Agreement In June, 2001, Maroc Telecom entered into a Management interconnection, and infrastructures and networks. The Services’ Agreement with Vivendi, under which the latter implementation of these services can be made through provides Maroc Telecom, directly or via its subsidiaries, and in expatriated employees. particular Vivendi Telecom International (VTI), technical In accordance with the terms of this agreement, the fees assistance in the following fields: strategy and organization, (exclusive of tax) paid by Maroc Telecom to Vivendi amounted to development, commercial and marketing, finances, purchases, MAD95 million in 2006, MAD69 million in 2005 and MAD50 human resources, information systems, regulation and million in 2004.
6.4.2 Management Services Agreement with Mauritel During the fiscal year 2001, the company Mauritel SA The amount charged by Maroc Telecom to Mauritel SA was concluded an agreement with Maroc Telecom under which the MAD12.5 million excluding tax in 2006, MAD13.9 million latter provides services, technical assistance and transfer of excluding tax in 2005, and MAD16.8 million excluding tax in material to Mauritel SA. 2004.
6.4.3 Agreement with Casanet During fiscal year 2003, Maroc Telecom concluded several and the production of the content relative to these modules, agreements with Casanet related to the maintenance of the as well as the marketing of internet access over leased lines. Maroc Telecom internet portal “Menara”, the supply of The amount charged by Casanet to Maroc Telecom by virtue development services and the hosting of Maroc Telecom‘s of these agreements for the fiscal years 2006, 2005 and 2004 Mobile portal, hosting of Maroc Telecom’s website “El Manzil”, was MAD27.5 million, MAD17.1 million and MAD13.2 million the maintenance of new WAP modules on the Menara portal respectively.
6.4.4 Agreement with GSM Al-Maghrib (GAM) During fiscal years 2002 and 2003, Maroc Telecom concluded Maroc Telecom sold its stake in this company on March 28, agreements with GSM Al-Maghrib relating to the marketing of 2006. the mobile, fixed, Internet and multimedia services of Maroc At the end of March 2006, the amount charged by Maroc Telecom. During fiscal year 2004, the framework agreement Telecom to GAM amounted to MAD150 million and to was updated through several amendments relating especially MAD1,282.9 million for fiscal year 2005. to the payment conditions of the fees paid by Maroc Telecom At the end of March 2006 the amount charged by GAM to to GSM Al-Maghrib. Maroc Telecom amounted to MAD2 million for the fiscal year 2006 and MAD20.6 million for 2005.
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6. CORPORATE GOVERNANCE RELATED PARTY TRANSACTIONS
6.4.5 Costs relating to stock options and restricted stock
In accordance with IFRS standards, Vivendi invoices its For stock options: MAD21.5 million in 2006 and MAD9.8 subsidiaries for costs related to benefits granted to employees million in 2005. in the form of stock options and restricted stock. The following For restricted stock: MAD53 million. amounts were charged to Maroc Telecom:
6.4.6 Sale of property to a member of the Management Board In the context of its disposal program, disposing of non-core property assets, Maroc Telecom sold housing property, previously used as company accommodation, to a number of employees including a member of the Management Board.
6.4.7 Agreement with Al Akhawayn University In 2004, Itissalat Al-Maghrib signed an agreement with Al In accordance with this agreement, two study grants will be Akhawayn University to set up a global framework of awarded each year, to two students selected from amongst cooperation to carry out joint actions in domains of common Itissalat Al-Maghrib’s employees’ children. interest of scientific and technical research, in particular those At December 31, 2006, Itissalat Al-Maghrib recorded an of Research and Development and those of Studies and expense of MAD3 million in relation to this agreement. Consulting.
6.4.8 Contract with Media Overseas On February 24, 2006, Itissalat Al-Maghrib’s Supervisory agreement, operations are performed with Multitv Afrique, a Board approved the agreement entered into over the period subsidiary of Media Overseas. with Media Overseas, a subsidiary of the Canal + Group, Maroc Telecom recorded an expense of MAD4 million in concerning the launch of a TV via ADSL offer. Pursuant to this relation to this agreement.
6.4.9 Med-1-Sat current account advance During 2006, IAM entered into an agreement with Medi-1-Sat, in paid €1.2 million for the first tranche of this advance (MAD13.3 which it grants the latter €2.8 million in current account advances, million). to meet the latter’s financial needs. In 2006, Itissalat Al-Maghrib
6.4.10 Mobisud current account advance On December 19, 2006, the Supervisory Board approved the current account advance agreement between Itissalat Al-Maghrib and Mobisud. At December 31, 2006, no payment had yet been made under this agreement.
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7 RECENT DEVELOPMENTS AND OUTLOOK
7.1 RECENT DEVELOPMENTS
7.1.1 Shareholders’ Meeting held April 12, 2007 Maroc Telecom’s Annual General Shareholders’ Meeting was • the re-election of Mr. Abdelaziz TALBI as a member of the held at 3pm on April 12, 2007 at the Mohammed VI Palais des Supervisory Board; Congrès in Skhirat. • the re-election of Mr. Jacques ESPINASSE as a member of The Ordinary Shareholders’ Meeting approved, by more than the Supervisory Board; 99% of votes the following resolutions: • the re-election of Mr. Frank ESSER as a member of the • the Reports and Annual Financial Statements for the year Supervisory Board; ended December 31, 2006; • the re-election of Mr. Jean-Rene FOURTOU as a member of • the Consolidated Financial Statements for the year ended the Supervisory Board; December 31, 2006; • the re-election of Mr. Robert de METZ as a member of the • the agreements referred to in the Statutory Auditors’ special Supervisory Board; report; • the ratification of the co-option of Mr. Philippe CAPRON as a • the allocation of net income for the year ended December 31, member of the Supervisory Board; 2006 – Dividend; • the appointment of KPMG Morocco, represented by Mr. • the re-election of Mr. Fathallah OUALALOU as a member of Fouad LAHGAZI, as principal Statutory Auditor; the Supervisory Board; • the authorization granted to the Management Board to issue • the re-election of Mr. Jean-Bernard LEVY as a member of the bonds and similar securities; Supervisory Board; • the authorization for the Company to purchase its own shares • the re-election of Mr. Chakib BENMOUSSA as a member of • the powers to carry out any formalities required by law. the Supervisory Board;
7.1.2 Acquisition of Gabon Telecom On February 9, 2007, Maroc Telecom was declared the selected bidder in the international invitation to tender for the acquisition of 51% of Gabon Telecom’s share capital for a total amount of €61 million.
7.1.3 Phony case On February 23, 2007 the ANRT published its decision which customer base and traffic data and the new conditions to the stated that: ANRT, will result in the Phony offer “Residential Anytime” being suspended, without retroactive effect; • The Phony offer “Evenings and Weekends” (“Soirs et Week- end”) is not considered as an anti-competitive practice; • Medi Telecom’s application for flat-rate interconnection was rejected. • The Phony offer “Residential Anytime” (“Tout Temps Résidentiels”) in its current form cannot be reproduced by On April 9, 2007, the ANRT published a new decision, which another operator, and therefore Maroc Telecom must submit completed the prior decision in which it granted its approval of new conditions which will allow this offer to be replicated, to the new phony tariff “Residential Anytime” proposed by Maroc the ANRT within one month of this decision. Failure to disclose Telecom.
7.1.4 Wana referral On March 16, 2007 Wana made a referral to the ANRT WANA’s referral includes an application for interim measures concerning Maroc Telecom’s anti-competitive practices on the and an application to refer the case to the public prosecutor to following points: seek criminal sanctions. • quality of IAM’s bulk ADSL services; This case is currently being examined by Maroc Telecom. We • IP VPN ADSL retail offers with guaranteed bandwidth cannot believe that we have grounds to refute the arguments presented be reproduced by another operator; in this case, particularly given that the ANRT has given its • leased lines contract including anti-competitive clauses approval for the IP VPN ADSL retail offers and the leased lines (loyalty-based price reductions, length of contractual contracts. As regards referring the case to the Public prosecutor, commitment and termination costs). according to Article 67 of Act no. 6-99, the ANRT only deems that such a referral is justified based on the facts of the case.
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7. RECENT DEVELOPMENTS AND OUTLOOK MARKET OUTLOOK
7.2 MARKET OUTLOOK
The discussion herein relating to market outlook contains On the Mobile segment, revenue growth is expected to derive forward-looking statements, and information relating to the mainly from the increase in the penetration rate of mobile Company’s expectations. Such forward-looking statements telecommunications in Morocco. On the basis of research involve risks and uncertainties inherent to forecasts, and are conducted for Maroc Telecom by independent experts in based solely on evaluations made as of the date on which 2002, the rate of mobile penetration in Morocco could reach such statements are made. The Company warns investors approximately 40% of the Moroccan population in the that a significant number of factors could result in the actual medium term. Given the growth recorded in 2005 and 2006, results differing materially from those expected, including the the penetration rate could exceed 70% in the medium term. In factors listed in section 4.14. addition, the Company hopes to benefit from the growth in The telecommunications market in Morocco offers large usage, owing mainly to a migration of prepaid customers to potential for growth, owing to the following economic and postpaid subscriptions and the increased use of data services social factors, which favor the further penetration of new in the medium term. Regarding its competitive position in this information and telecommunications technologies: market, Maroc Telecom considers that is possible that a new operator, holding a new license as a Mobile Virtual Network • the population’s overall youth (51% aged under twenty Operator (MVNO) or through other means, may enter the five)(*); market in the near future. • population growth of 1.4% per year; On the Fixed-line and Internet segments, Maroc Telecom • the fact that the population is increasingly living in urban intends to pursue its efforts, initiated in 2002, in order to areas (with the rate of urbanization rising from 43% in 1982 expand its fixed-line business, and expects moderate growth to 55% in 2004)(*); in the number of fixed lines in Morocco. Regarding the internet, the strong growth posted since the beginning of 2004 • sustained growth in GDP (5,3% annual average growth is expected to continue in the coming years, in particular due between 2001 and 2006) and completion in the medium to the development of broadband. The Company also term of programs for the development of road and tourism considers that the liberalization of the market in the near future infrastructures, and electrification of rural areas; could result in the Company losing market share in the short • the National Initiative for Human Development (INDH) was term. However, the fixed-line market might benefit from this launched in 2005 and aims to set up programs which aim to liberalization and from the competition incurred by new combat poverty and exclusion, along with; entrants, as it has been the case in other countries that liberalized their telecommunications sector. • the establishment of free-trade agreements with the European Union, the United States and Arab countries.
(*) Census 2004.
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7.3 OBJECTIVES
This section contains information regarding the Company’s factors” herein may affect the Company’s operations and its objectives for the fiscal year 2006. The Company warns ability to achieve its targets (see also section 7.2 “Market potential investors that these forward-looking statements are Outlook”). dependent on circumstances and events which are expected Given continuing growth in the mobile and ADSL markets and to occur in the future. These statements do not reflect Maroc Telecom’s capacity to maintain leadership given stringer historical data and are not to be interpreted as warranties that growth on the Fixed-line segment, the Company’s growth the facts and data mentioned will occur or that the targets will targets for 2007 like-for-like excluding its recent acquisitions be achieved. By their nature, these are targets and it is are as follows: therefore possible that they may not be achieved, and the assumptions on which they are based may be found to be • Consolidated revenues should grow by more than 6%; erroneous. Investors are invited to take into consideration the • Consolidated operating income should grow by more than fact that some of the risks described in section 4.14 “Risk 10%.
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7. RECENT DEVELOPMENTS AND OUTLOOK OBJECTIVES
REPORT OF THE STATUTORY AUDITORS ON THE PROFIT FORECASTS
In our capacity as Statutory Auditors and in accordance with the European Regulation (EC) no. 809/2004, we have prepared this report on Itissalat Al-Maghrib’s profit forecasts in part 7, section 7.3 of this Registration Document. These forecasts and underlying significant assumptions were prepared under the responsibility of the Management Board of Itissalat Al-Maghrib, in accordance with the provisions of the European Regulation (EC) no.809/2004 and the CESR recommendations on profit forecasts. It is our responsibility to express, in accordance with the terms required by annex I, item 13.3 of the European Regulation (EC) no.809/2004, our conclusions on the appropriateness of the preparation of such forecasts. We conducted our work in accordance with International Auditing Standards. Our work included an assessment of the procedures implemented by management to prepare the forecasts, as well as the performance of procedures to obtain assurance about whether the accounting methods used are consistent with those used for the preparation of historical data of Itissalat Al-Maghrib. They also involved collecting data and explanations we deemed necessary in order to obtain reasonable assurance about whether the forecasts are appropriately prepared on the basis of the specified assumptions. We remind you that, as this concerns forecasts, which are uncertain by nature, actual results may differ significantly from the forecasts presented and so, we do not express any conclusion as to the potential realization of such forecasts. In our opinion: • The forecasts have been appropriately prepared in accordance with the basis indicated; • The accounting basis used for the purposes of these forecasts is consistent with the accounting methods used by Itissalat Al-Maghrib.
This report is issued for the sole purpose of publication of these forecasts in the Registration Document and may not be used in any other context.
Casablanca, May 4, 2007 Statutory Auditors
Abdelaziz ALMECHATT Samir AGOUMI
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TABLE OF CONCORDANCE
Schedules from appendix 1 of the European regulation 809/2004 Page number of the Registration Document 1. PERSONS RESPONSIBLE 8 2. STATUTORY AUDITORS 8 3. SELECTED FINANCIAL INFORMATION 3.1. Selected historical financial information 6 / 106 3.2. Selected financial information for interim periods 7 4. RISK FACTORS 100 to 105 5. INFORMATION ABOUT THE ISSUER 5.1. History and development of the Issuer 12 to 14 / 42 5.2. Investments 127 to 128 6. BUSINESS OVERVIEW 6.1. Principal activities 49 to 80 6.2. Principal markets 49 to 80 6.3. Information given pursuant to items 6.1. and 6.2. that has been influenced by exceptional events NA 6.4. Extent to which the issuer is dependent on patents or licenses, industrial commercial or financial contracts or new manufacturing processes 97 6.5. The basis for any statements made by the issuer regarding its competitive position 78 to 80 7. ORGANIZATIONAL STRUCTURE 7.1. Description of the group 42 to 45 7.2. Significant subsidiaries 42 à 45 / 71 to 73 8. PROPERTY, PLANT AND EQUIPMENT 8.1. Existing or planned material tangible fixed assets 96 8.2. Environmental issues that may affect the issuer’s utilization of tangible fixed assets NA 9 OPERATING AND FINANCIAL REVIEW 106 to 126 9.1. Financial condition 106 to 126 9.2. Operating income 118 to 126 10. CAPITAL RESOURCES 127 to 136 10.1. Information concerning the issuer’s capital resources (both short and long term) 129 to 133 10.2. Cash flows 127 to 128 10.3. Information on the borrowing requirements and funding structure of the issuer 129 to 131 10.4. Information regarding any restrictions on the use of capital resources NA 10.5. Information regarding the anticipated sources of funds needed to fulfill commitments referred to in items 5.2.3 and 8.1 NA 11. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES 81 12. TREND INFORMATION 213 to 214 13. PROFIT FORECASTS OR ESTIMATES 214 14. ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES AND SENIOR MANAGEMENT 14.1. Administrative, management or supervisory bodies 208 to 213 14.2. Administrative, management, and supervisory bodies and senior management conflicts of interests 219 15. REMUNERATION AND BENEFITS 218 to 219 15.1 Remuneration paid and benefits in kind 218 15.2. Pension, retirement and similar benefits 218 16. BOARD PRACTICES 16.1. Date of expiration of the current term of office 208 / 210
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TABLE OF CONCORDANCE
Schedules from appendix 1 of the European regulation 809/2004 Page number of the Registration Document
16.2. Information about members of the administrative, management or supervisory bodies’ service contracts 219 16.3. Audit committee and remuneration committee 215 to 216 16.4. Statement as to whether or not the issuer complies with the incorporation corporate governance regime of its country NA 16.5. Report of the Chairman of the Supervisory Board on internal control NA 16.6. Statutory Auditors’ report on the Chairman’s report NA 17. EMPLOYEES 17.1. Human resources 92 to 95 17.2. Shareholdings and stock options 219 17.3. Description of any arrangements for involving the employees in the capital of the issuer 37 18. MAJOR SHAREHOLDERS 36 to 40 18.1. Breakdown of capital and voting rights 36 to 37 18.2. Different voting rights NA 18.3. Control of the issuer 37 to 40 18.4. A description of any arrangements, known to the issuer, the operation of which may at a subsequent date result in a change of control of the issuer 37 to 40 19. RELATED PARTY TRANSACTIONS NA 20. FINANCIAL INFORMATION CONCERNING THE ISSUER’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES 106 to 126 20.1. Historical financial information 106 to 126 20.2. Pro forma financial information NA 20.3. Financial statements 135 to 207 20.4. Auditing of financial information 175 /198 20.5. Age of latest financial information 106 20.6. Interim and other financial information 7 20.7. Dividend policy 33 20.8. Legal and arbitration proceedings 99 20.9. Significant change in the issuer’s financial or trading position 222 21. ADDITIONAL INFORMATION 21.1. Share capital 28 to 40 21.2. Memorandum and articles of association 12 to 27 / 39 22. MATERIAL CONTRACTS NA 23. THIRD PARTY INFORMATION AND STATEMENT BY EXPERTS AND DECLARATION OF ANY INTEREST NA 24. DOCUMENTS ON DISPLAY 9 25. INFORMATION ON HOLDINGS 42 to 45 / 71 à 73
In compliance with article 28 of European Commission the Registration Document filed with the AMF on April 8, 2005 regulation (EC) no. 809/2004 dated April 29 2004, the following (R 05-038) information is included for reference in the present Registration • The consolidated financial statements for the year ended Document: December 31, 2003, the relevant Statutory Auditors’ report • The consolidated financial statements for the year ended and the Group financial report on pages 160, 122 and 208 of December 31, 2005, the relevant Statutory Auditors’ report the Registration Document recorded with the AMF on and the Group financial report on pages 124, 167 and 98 of November 8, 2004 (I 04-198). the Registration Document filed with the AMF on April 11, The chapters of the Registration Document no. R 05-038 and of 2006 (R 06-031) the draft prospectus no. I 04-198 that are not referred to above • The consolidated financial statements for the year ended are either not relevant for the investor, or are covered elsewhere December 31, 2004, the relevant Statutory Auditors’ report in this Registration Document. and the Group financial report on pages 157, 131 and 100 of
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2006 ANNUAL INFORMATION DOCUMENT
The following table shows a list of the information published or made public by Maroc Telecom over the past twelve months (from 26 January 2006 to 22 January 2007), in accordance with article L. 451-1-1 of the Monetary and Financial Code and article 221-1-1 of the AMF General Regulation:
Date Title
January 26, 2006 Press release: fourth quarter 2005 and full year 2005 revenues
February 27, 2006 Press release: 2005 results
March 1, 2006 Shareholders’ Meeting Notice for the Combined Ordinary and Extraordinary General Meeting on March 30, 2006
April 11, 2006 Registration Document 2005 filed with the AMF under no. R. 06-0031
April 18, 2006 Press release: first quarter 2006 revenues
May 15, 2006 Press release: first quarter 2006 results
July 25, 2006 Press release: second quarter 2006 revenues and first half 2006 revenues
September 05, 2006 Press release: first half 2006 results
November 03, 2006 Press release: third quarter 2006 revenues
November 14, 2006 Press release: third quarter 2006 results
January 22, 2007 Press release: fourth quarter 2006 and full year 2006 revenues
March 2, 2007 Press release: full year 2006 results
All press releases are available on: • The AMF website: http://www.amf.fr • Maroc Telecom’s website under “Information réglementée”: http://www.iam.ma/Information-Reglementee.aspx
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STATUTORY AUDITORS FEES
STATUTORY AUDITORS FEES
In accordance with the provisions of article 221.1.2 of the AMF General Regulation, the table below shows the amount of fees paid by the Maroc Telecom Group, to each of its statutory auditors for the fiscal year 2006: (in millions of Moroccan dirhams) Maroc Telecom Group TOTAL 2006 TOTAL 2005 Samir Agoumi Abdelaziz Sidi Mohamed Salustro Reydel Almechatt El Emine, Conex (Mauritania)
Statutory Auditors’ fees 5.45 3.5 0.77 9.72 14.20
Other missions of audit 9.80 0.24 - 10.04 4.40
TOTAL 15.25 3.74 0.77 19.76 18.60
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APPENDICES
MAROC TELECOM’S ORDINARY GENERAL MEETING, APRIL 12, 2007
Proposed resolutions
• First resolution • Distributable income MAD6,929,100,734.45 Approval of the reports and annual financial statements • Dividend per share MAD7.88 for the year ended December 31, 2006 • Total dividend MAD6,927,271,279.20 The Shareholders’ Meeting, having satisfied the quorum and • Balance carried forward MAD1,829,455.25 majority requirements for Ordinary Shareholders’ Meetings, The Shareholders’ Meeting sets the total dividend at after reviewing: MAD7.88 per share for each of the shares making up the • the Management Board’s report and the comments of the share capital held on the record date. This dividend will be Supervisory Board on the said report, paid on May 12, 2007.
• and the Auditors’ Report on the financial statements for the The ordinary dividends paid over each of the past three fiscal year ended December 31, 2006. years were as follows: Consequently, the Shareholders’ Meeting decides to give final discharge to the members of the Supervisory and Fiscal Year 2005 2004 2003
Management Board for the performance of their term of office Number of shares 879.095.340 879.095.340 87.909.534 for the fiscal year 2006. Dividend/share (MAD) 6.96 5.00 31.28
• Second resolution Adjusted dividend /share* (MAD) 6.96 5.00 3.128
Approval of the consolidated financial statements for the Total dividend 6.118.503.566.40 4.395.476.700 2.750.000.000 year ended December 31, 2006 * Adjusted: the nominal value per share was reduced from MAD100 to MAD10 The Shareholders’ Meeting, having satisfied the quorum and in 2004 following the obligatory conversion of one old share into 10 new shares. majority requirements for Ordinary Shareholders’ Meetings, approves where necessary the consolidated financial • Fifth resolution statements for the year ended December 31, 2006, such as Re-election of Mr. Fathallah OUALALOU as member of the they have been presented. Supervisory Board The Shareholders’ Meeting, acting on a proposal of the • Third resolution Supervisory Board, decides to renew Mr. Fathallah Approval of the regulated related-party agreements OUALALOU’s term of office as member of the Supervisory The Shareholders’ Meeting, having satisfied the quorum and Board, for a period of six years as provided for by the Articles majority requirements for Ordinary Shareholders’ Meetings, of Association, namely until the end of the Ordinary after having heard a reading of the Statutory Auditors’ Report Shareholders’ Meeting to be held in 2013. on the agreements referred to in Article 95 of Act no. 17- 95, approves all the transactions and regulated related-party • Sixth resolution agreements described in this report. Re-election of Mr. Jean-Bernard LEVY as member of the Supervisory Board • Fourth resolution The Shareholders’ Meeting, acting on a proposal of the Allocation of net income and payment of dividend Supervisory Board, decides to renew Mr. Jean-Bernard LEVY’s term of office as member of the Supervisory Board, for The Shareholders’ Meeting, having satisfied the quorum and a period of six years as provided for by the Articles of majority requirements for Ordinary Shareholders’ Meetings, Association, namely until the end of the Ordinary decides to allocate the net income of MAD6,929,100,734.45 Shareholders’ Meeting to be held in 2013. for the year ended December 31, 2006 as follows:
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APPENDICES MAROC TELECOM’S ORDINARY GENERAL MEETING, APRIL 12, 2007
• Seventh resolution • Twelfth resolution Re-election of Mr. Chakib BENMOUSSA as member of the Re-election of Mr. Robert de METZ as member of the Supervisory Board Supervisory Board The Shareholders’ Meeting, acting on a proposal of the The Shareholders’ Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Chakib Supervisory Board, decides to renew Mr. Robert de METZ’s BENMOUSSA’s term of office as member of the Supervisory term of office as member of the Supervisory Board, for a Board, for a period of six years as provided for by the Articles period of six years as provided for by the Articles of of Association, namely until the end of the Ordinary Association, namely until the end of the Ordinary Shareholders’ Meeting to be held in 2013. Shareholders’ Meeting to be held in 2013.
• Eighth resolution • Thirteenth resolution Re-election of Mr. Abdelaziz TALBI as member of the Ratify the appointment of Mr. Philippe CAPRON as a Supervisory Board member of the Supervisory Board The Shareholders’ Meeting, acting on a proposal of the The Shareholders’ Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Abdelaziz TALBI’s Supervisory Board, decides to ratify the appointment of Mr. term of office as member of the Supervisory Board, for a Philippe CAPRON as a member of the Supervisory Board to period of six years as provided for by the Articles of replace Mrs. Françoise COLLOC’H for the remaining period of Association, namely until the end of the Ordinary his mandate, namely until the end of the Ordinary Shareholders’ Meeting to be held in 2013. Shareholders’ Meeting to be held in 2009.
• Ninth resolution • Fourteenth resolution Re-election of Mr. Jacques ESPINASSE as member of the Supervisory Board Appointment of KPMG, represented by Mr. Fouad LAHGAZI as Statutory Auditor The Shareholders’ Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Jacques The Shareholders’ Meeting, acting on a proposal of the ESPINASSE’s term of office as member of the Supervisory Supervisory Board, decides to appoint KPMG, represented by Board, for a period of six years as provided for by the Articles Mr. Fouad LAHGAZI, as Statutory Auditor, for a period of 3 of Association, namely until the end of the Ordinary years, namely until the end of the Ordinary Shareholders’ Shareholders’ Meeting to be held in 2013. Meeting to be held in 2010.
• Tenth resolution • Fifteenth resolution Re-election of Mr. Frank ESSER as member of the Authorization granted to the Management Board to issue Supervisory Board bonds and similar securities The Shareholders’ Meeting, acting on a proposal of the The Shareholders’ Meeting, having satisfied the quorum and Supervisory Board, decides to renew Mr. Frank ESSER’s term majorities required for Ordinary Shareholders’ Meetings and of office as member of the Supervisory Board, for a period of having reviewed the Management Board’s report, authorizes the six years as provided for by the Articles of Association, namely Management Board, with effect from this meeting, to arrange, on until the end of the Ordinary Shareholders’ Meeting to be held one or more occasions, for the issuance of bonds and related in 2013. securities, in Morocco in Moroccan dirhams, by means of traditional bonds or related securities, notably redeemable • Eleventh resolution subordinated securities or non-perpetual notes, either bearing interest or not at a fixed or variable rate, or any other marketable Re-election of Mr. Jean-René FOURTOU as member of the securities giving right to a claim on the Company and with or Supervisory Board without coupons giving rights to the allotment, acquisition or The Shareholders’ Meeting, acting on a proposal of the subscription to other marketable debt securities up to a Supervisory Board, decides to renew Mr. Jean-Rene maximum nominal amount of five (5) billion in Moroccon dirhams FOURTOU’s term of office as member of the Supervisory or the equivalent of this amount, with or without any particular Board, for a period of six years as provided for by the Articles collateral or other surety, in the proportions and forms, at the of Association, namely until the end of the Ordinary times and rates, and under the issuance and amortization terms Shareholders’ Meeting to be held in 2013. that it may deem appropriate.
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The Shareholders’ Meeting confer on the Management Board The Ordinary Shareholders’ Meeting decides that the volume all powers to carry out such issuance plans with the option of of shares to be purchased in respect of the share buyback subdelegating them to the Chairman, and namely as regards: program with a view to stabilizing the share price, must not exceed 3% of the total shares comprising the share capital • determining the nature of the bonds or securities to be and that the unit purchase price must not exceed MAD150, or issued; the equivalent value in euros, and that the unit sale price must • determine the interest rate, the redemption terms, and more not be lower than MAD100, or the equivalent value in euros, generally all other terms and conditions. excluding disposal expenses. The Shareholders’ Meeting decides that the present The Shareholders’ Meeting decides that the maximum amount authorization is valid for a period of five years from this date. of the authorized share buyback program must not exceed MAD4 billion and confers on the Management Board all powers to place orders on the stock market, sign any • Sixteenth resolution contracts of sale or transfer, enter into any other agreements Authorization granted to the Management Board as or contracts, perform any disclosures and any necessary regards a share buyback program formalities, with the option of subdelegating such powers. The Shareholders’ Meeting, having satisfied the quorum and majority requirements for Ordinary Shareholders’ Meetings, • Seventeenth resolution after reviewing the Management Board’s report and the prospectus approved by the Moroccan Securities and Powers for formalities Exchange Commission (Conseil Déontologique des Valeurs The Shareholders’ Meeting, having satisfied the quorum and Mobilières), authorizes the Management Board, with effect majority requirements for Ordinary Shareholders’ Meetings, from this meeting, in accordance with the provisions of Articles gives full powers to the bearer of an original, copy or extract 281 of Act no. 17-95 on public limited companies, for a period of the minutes of this meeting for the purposes of carrying out of eighteen months, to implement a share buyback program to any formalities required by law. acquire its own shares, on one or more occasions, on the stock exchange or otherwise, in Morocco or abroad, by purchasing company shares with a view to stabilize the share price.
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GLOSSARY
GLOSSARY
3RP (Réseau Radioélectrique à Ressources Partagées). Trunked DSLAM (Digital Subscriber Line Access). ADSL device located at a private mobile radio networks Mobile radio networks where frequencies telephone exchange. It is an electronic assembly holding several cards are shared by the users of several companies or organizations for internal that are equivalent to the client filter and modem. The filter separates communications. The sharing of frequencies is limited to the duration of incoming phone and data signals and the modem translates back the each call. ATM cells (small packets transported over ATM connections. ADSL (Asymetrical Data Subscriber Line). Technology enabling users to ISP (Internet Service Provider). A company or an organization offering receive high bandwidth services through their existing phone lines while internet access to household, professional and business users. being able to make a phone call at the same time. The transmission Radio-relay link. Technology used for radio signal transmission (voice, capacity going from the network to the customer is greater than that from data or video). Relays are installed on pylons or highpoints, which are the customer to the network, hence Asymmetric. deployed to carry signals from one point to the next, creating the link. ANRT (Agence Nationale de Réglementation des Télécommunications). Fidelio. Fidelio is the first point-based loyalty program introduced in The Moroccan Telecommunications Regulator Morocco. It is reserved for postpaid customers and was launched on ARPU (average revenue per user). ARPU corresponds to the revenues June 1, 2002. The program allows points to be collected based on generated (prepaid and postpaid) for a given period, excluding roaming- expenditure, and provides advantages in the form of free or cut-price in revenues (incoming and outgoing calls, revenues from value added handsets, and free calls and SMS messages. services) divided by the average number of customers (prepaid and Inter-segment revenues. Inter-segment revenues are mainly generated postpaid) over the same period, on a monthly basis. The average number from interconnection services relating to traffic between the fixed-line of customers is the average of average monthly customer base (prepaid and mobile networks and the provision to the Mobile segment of leased and postpaid) figures. The monthly average customer base corresponds lines by the Fixed-line and Internet segment. Since July 1, 2004, they to the mean number of customers per month (prepaid and postpaid) also include revenues from the provision of services to Mauritel. taken at the beginning and at the end of each month. Frame Relay. Technology used to send high bandwidth data over long ATM (Asynchronous Transfer Mode). Network technology that accommodates distances enabling the transmission of large amounts of information, the the simultaneous transmission of data, voice, and video. It is based on handling of fluctuations in data flows and voice transmission. asynchronous transmission of short packets of fixed length. GMPCS (Global Mobile Personal Communications by Satellite). Personal Optical local loop. Optical Fiber Cable-based access network used for communications system providing cross-border, regional or worldwide connecting broadband customers. coverage via a network of satellites accessible using small easily BTS (Base Transeiver Station). Component of the mobile radio network transportable handsets. comprising antennas and radio transmitters/receivers (TRX). It provides GPRS (General Packet Radio Service). Packet switching system enabling GSM network coverage within a given range. enhanced data rates over GSM networks. Self-Routing Switch. A switch is a piece of equipment used to establish Maroc Telecom Group. Indicates all the companies fully consolidated a temporary link or connection between an incoming path and an within the scope of consolidation. outgoing path on a line or circuit. GSM (Global Systems for Mobile communications). European digital radio CAIR. Virtual call center solution offered by Maroc Telecom, aimed at transmission standard for mobile telephony, known as 2G (2nd generation), companies for which customer relationship management is strategically adopted in 1987 and devised by the ETSI (European Telecommunications crucial. This solution enables businesses to set up customer-response Standard Institute). It is the most widely used standard in the world. In solutions with minimum investment. All call center functions can be operation since 1992, this technology uses two band frequencies: 900 and managed within Maroc Telecom’s network. 1,800 MHz, and can transmit voice as well as data. SIM (Subscriber Identity Module). Without a SIM card, calls cannot be Interconnection. Reciprocal service offered by the operators of two made from a mobile phone. In particular, the SIM card stores the user’s different telecommunications networks enabling all subscribers within personal profile and a PIN code protecting access to the card. the two groups to communicate freely with each other. Mobile Switching Center (MSC). A central switching point that controls IP (Internet Protocol). Telecommunications protocol used on networks the routing of calls. used to carry internet traffic and based on the technique of transmission International Transit Center. A switch that carries international calls to of data packets. foreign operators’ networks. Kbits/s (Kilo bits per second). Unit of measurement used to express the Unbundling. An incumbent operator, owner of the local loop, has an speed at which data can be transmitted along a line. obligation to provide pairs of copper wires to third-party operator, in Leased line. Every part of the network, including an access line to the exchange for compensation. Such third-party operator install their own network, that is supplied as a dedicated channel with all of its capacity transmission equipment in order to connect their network to their available exclusively to the user and on which there are no controls or customers’ premises. signaling. Partial unbundling allows the third party operator to take over the Internet connection while the incumbent operator still provides telephony LO BOX (GSM Gateways). Terminal equipment, compatible with the GSM subscription and services. standard, that has been designed to act as an interface between the Full unbundling allows the third party operator to connect the entire GSM network and terminal equipment that is normally meant to be customer line to its own network, and thus to offer both telephony and connected to the fixed public telecommunications network (such as ADSL services. private switching systems (PABX) or ordinary telephones).
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MENA (The Middle East and North Africa). Region including the message center. The length of time these messages are stored for varies following countries: Algeria, Bahrain, Egypt, Gaza and the West Bank, depending on the operator. Nonetheless, in order for messages to be Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, received, the maximum storage capacity of the handset must not have Qatar, Saudi Arabia, Syria, Tunisia, Turkey, UEA, Yemen. been attained. PCM (Pulse Code Modulation). Process used to transmit the spoken SMS (Short Message Service). Written message, limited to 160 characters, word involving the sampling and digital coding of the signal. The PCM exchanged between mobile telephones. circuit is the circuit at the heart of the 2 Mbps telephone network. SMW3 (SEA-ME-WE3 / South East Asia – Middle East – Western Europe). MMS (Multimedia Messaging Service). Multimedia version of SMS Fiber optic sub-sea cable linking 4 continents. enabling real multimedia files to be attached to text messages: videos, audio, high-resolution images. SSNC (Signalling System Network Control). A new component developed by Siemens for controlling signaling traffic for MSCs (mobile Multiplexer. A piece of telecom network equipment enabling the switching centers), enabling handling capacity to be increased. insertion or extraction of data packages. Signaling Transfer Point (STP). Signaling transfer point for S7 signaling NORME NMT (Nordic Mobile Telephone). Mobile network launched by systems. The STP allows for the routing and transfer of signaling Maroc Telecom, based on analogue technology operating in the 450 messages using the SS7 protocol. Mhz frequency band. Churn rate. An indicator that is calculated by dividing the number of PABX (Private Automatic Branch eXchange). Equipment able to stablish contracts terminated over a given period by the average customer base temporary connections between inbound and outbound lines in order to over the same period, expressed on an annualized basis. The average route communications. customer base corresponds to the mean number of clients taken at the beginning and at the end of each month. IN platform (Intelligent Network). Platform allowing value-added services to be made available (prepaid card, prepaid line, kiosk, capped Average churn rate. An indicator that is calculated by dividing the rate plan, etc.). number of contracts terminated (by clients subscribing to prepaid and Segments. Refers to the Mobile segment or the Fixed-line and Internet postpaid offers) over a given period by the average total customer base segment of Maroc Telecom. (prepaid and postpaid) over the same period, expressed on an annualized basis. The average customer base is based on the average Postpaid (services). Method of paying for services after they have been monthly figures (prepaid and postpaid) for the period. The average used (free services can also be included in this method). monthly customer base corresponds to the mean number of clients (prepaid and postpaid) at the beginning and at the end of the month. Power CP. New more powerful processor for MSC mobile switches based on Siemens technology. Dropped call rate. A quality indicator that measures, across the whole of the existing mobile subscriber base, the number of disconnected calls PPT. Intelligent Network service allowing the marketing of capped-rate in proportion to all the calls made on the network. plans, not with a line number (CLI) but any virtual phone number. Successful connections rate. A quality indicator that measures, during Prepaid (services). Formula whereby services are paid for prior to being peak periods on the network, the number of calls successfully used (free services can also be included in this formula). established emanating from the existing mobile subscriber base (on the Radio paging. Transmission of numeric or alphanumeric messages to a BSS radio part), in relation to all calls made on the network. mobile handset or a group of mobile handsets. Fault report rate. Generic term, applicable to different services, NSS (Network Sub-System). All elements/equipment, notably switchgear, illustrating the number of faults reported on lines or for services over a required to make up a GSM network. certain period in proportion to the total number of lines or services on offer over the same period. SS7 (Signaling System 7). American name for the CCITT 7 network signaling protocol. Success rate. A quality indicator that measures the number of SMS successfully sent by the existing mobile subscriber base in relation to ISDN (Integrated Services Digital Network). Entirely digital telecom the total number of SMS sent over the network. network enabling the simultaneous transmission of voice and data (fax, internet etc.). CAMEL Technology (Customized Applications for Mobile networks Enhanced Logic). A technology that enables a user to call his home Roaming. When a user is abroad, this function enables a user to make country without needing an area code. The technology works for short and receive calls via an operator other than the one to which he/she is messages (SMS) as well as voice calls. a subscriber. SDH Technology (Synchronous Digital Hierarchy). High throughput PSTN (Public Switched Telephone Network). This is the traditional two technology based on a “ring”. This type of structure allows for a wire network. This network is switched in so far as the connection with different geographical trace to be made available, providing a back-up the person being called is temporary as opposed to cable where the path when the primary route becomes unavailable. connection is permanent. Phone shops. Commercial outlet managed by a third party not SDH (Synchronous Digital Hierarchy). Digital method of transmission employed by Maroc Telecom, open to the public and containing a used to optimize transmissions over optic fiber and radio systems. certain number of payphones, providing telecom services to SMSC (Short Message Service Center) servers. Service allowing the consumers. sending and reception of written messages containing a maximum of Digital network termination. Device used to connect ISDN clients. 160 characters. Messages can be sent via an operator, via the internet or directly using the keyboard on a mobile phone. If the recipient’s TRX (Transceiver Receiver). The part of the BTS that emits and receives phone is turned off the messages are still saved at the operator’s the GSM signal.
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GLOSSARY
UMTS (Universal Mobile Telecommunications System). 3G (3rd VSAT (Very Small Aperture Terminal). System of satellite transmission using generation) standard used for the transfer of voice and data. This small antennas. A VSAT base equates to a micro-station made up of technology, based on the WCDMA-CDMA standards, allows for antennae with a diameter of 0.9 to 3.5 m. A VSAT network is a satellite throughput in excess of 2Mbps. network enabling communications, via a hub, with a group of sites equipped with micro-stations (VSAT) linked to a central system by a star topology. Billing unit (BU). Unit used for billing calls, the duration of which varies WAP (Wireless Application Protocol). Standard adapting the internet to according to the type of call made (local, national, international, fixed- the constraints of mobile telephony, notably through the use of an to-mobile). appropriate content format. VMS (Voice Mail System). Name given to the voice messaging system. WiFi (Wireless Fidelity). Commercial brand name for a data transmission VPN (Virtual Private Network). A VPN is a private communications system based on the IEEE 802.11 standard that allows wireless access to an Ethernet network from up to a few hundred meters away at a network used for the internal needs of a closed group of users to speed of 11 Mbits/s. communicate over one or a number of public networks. This product fulfils both the internal and external communication requirements of X 25. Protocol used to manage packet switched networks. Used by businesses. Maroc Telecom through Maghripac.
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Maroc Telecom – Itissalat Al Maghrib -Société Anonyme à Directoire et Conseil de surveillance with a share capital of MAD5,274,572,040 - Registred Office : Avenue Annakhil – Hay Riad Rabat – Morocco - RSC Rabat 48 947 Document deréférenceDocument English version 2006 5/09/07 10:21:20