Annual Report 2009 FOR A NEW ERA Contents Vision & Mission ...... 1 Ready to Deliver ...... 2 Chairman’s Statement ...... 3 CEO & Managing Director’s Statement ...... 5 Strategy ...... 7 Management Discussion & Analysis ...... 9 Equipped to Grow ...... 16 Key Performance Indicator ...... 17 Financial Highlights ...... 20 Milestones ...... 20 Share Performance ...... 21 Ready to Lead ...... 22 History & Evolution ....... 23 Board of Directors ...... 25 Executive Management ...... 29 Equipped to Inspire Confidence ...... 34 Corporate Governance ...... 35 Ready to Serve ...... 38 Corporate Social Responsibility ...... 39 Contact Information ...... 137 Equipped to Adapt ...... 42 Adapt to Diversify ...... 43 Adapt to Challenge ...... 45 Ready to Act ...... 54 Glossary ...... 135 2010 Events ...... 55 Equipped to Achieve ...... 56 Subsidiaries & Investments ...... 57 Financial Statements (EAS) ...... 61 Financial Statements (IFRS) ...... 97 To shape the future of telecommunication services in the region through world class customer centricity, and attraction and retention of highly talented people while Vision maximizing shareholder value. Our Telecom Egypt is committed to be the best source and total communication solution provider, while dedicating its resources to build a better tomorrow for its employees and community through responsive services and honest business practices. Mission Our Ready to Deliver Chairman’s Statement CEO & Managing Director’s Statement Strategy Management Discussion & Analysis Underground Metro, Cairo, Egypt 2 eady to Deliver R Chairman’s Statement Chairman’s Statement Telecom Egypt (TE) has a long, successful history as one of In 2001, the corresponding figure was just 18 percent. In Egypt’s leading companies. We have operated in many total, there are now more than 55 million mobile subscribers different business cycles and have been at the centre of in Egypt who are demanding more and more from their growth in the Egyptian economy for more than 150 years. providers. Third party providers recognize that our service stands for true value and quality. During the course of 2009, A decade has now passed since the advent of liberalization we consolidated our commercial relationship with Vodafone in 1999. As the market has liberalized, the intensity of Egypt by signing a three year wholesale service agreement competition has grown and we have faced the corresponding to carry its domestic and international gateway traffic. opportunities and challenges head on. Stability and prudence have been our guiding principles in building a diversified, Enterprise is a relatively new focus for TE, one which I expect cash generative business which continues to deliver significant you will hear more of in 2010. We have long had business value to our shareholders. customers, but once again our offering has advanced. We are increasingly integrating voice and data into one Once again our efforts during the year under review have offering – providing a double play package which is both cost translated into sound financial and operational performance. effective and of rigorous quality. In 2009, we recorded revenues of just under EGP 10 billion and annual growth in net profit of 9 percent. The board of Our final customer group is international. We have deep directors proposed a 2009 dividend payment of EGP rooted experience in this area having been the infrastructure 0.75 per share, which was approved in the annual general provider which connects the Red Sea to the Mediterranean. assembly in March 2010. The decision to pay a lower dividend It is due to this expertise, and Egypt’s geographic location, enables TE to maintain the financial flexibility that will that we seek to build out our international franchise. 2009 enable it to advance the company’s ambition as a total was an important year of progress for our TE North build, a telecommunications provider. private submarine cable system that links Egypt to France, enabling us to capture a portion of the non-serviced demand Careful management of TE’s significant free cash flow to fund for IP traffic capacity from Asia and India into Europe and vice our debt repayment program, something that we have versa. TE North is now one of five such contracts we are implemented since 2007, means we have a very strong balance working on: we have commercial agreements in place with sheet with which to look to the future. IMEWE, SEACOM, VSNL, and EIG all of which are progressing on time and on budget. While our operational execution has produced resilient financial performance in these turbulent times, we have 2009 is a year in which our team had once again delivered already been busy cementing our future at the heart of the significant value and I am immensely proud of their work. In Egyptian telecommunications market. challenging times, it is even more important to show the highest levels of governance and leadership. In 2009, we Our business today is much more diversified than ever before, separated the Chairman and Chief Executive Officer positions but we have continued to refine our value proposition by with the appointment of Tarek Tantawy as CEO and Managing focusing on our customers’ needs. This is no longer a question Director. In addition to Hassan Helmy to the position of CFO, of placing the emphasis on one group: our customer base is our management team is now complete and I have the great now wide-ranging. confidence in its ability to drive TE forward. Our most well known segment is our retail customer base, We continue to demonstrate TE’s ability to embrace new which currently stands at 9.6 million subscribers and opportunities and ensure that our business model is delivers monthly average revenue per user (ARPU) of EGP sustainable into the future. I strongly believe that we have 54.1 in 2009. The telecommunications needs and drivers in place the best possible commercial, operational, and of the retail customer have evolved significantly over financial structures to deliver on our strategy. Management’s time and our offering in this area reflects this – centering vision is to see the maximum value returned on each asset on bundled voice and data services to the home. we have or for every investment we make. It is with confidence These services leveraged the strength of both our fixed that I say we are well equipped for the next decade of line services and our broadband subsidiary, TE Data, which operation. subsequent to the close of the period under review is now wholly owned. TE Data boasts an ADSL market share of 61 percent. We remain Egypt’s only fixed line operator and thus providing domestic connectivity to mobile operators and other third party service providers. In 2009, 42 percent of Akil Beshir total consolidated revenues were attributable to wholesale. Chairman All financial figures are according to Egyptian Accounting Standards (EAS) Ready to Deliver 4 eady to Deliver R CEO & Managing Director’s Statement CEO & Managing Director’s Statement 2009 was a year in which we made sound progress in our a trend that will doubtless continue. But, we have progressively long term vision to become a total telecommunications harnessed this opportunity and are committed to further provider. We have worked hard to prioritize the market diversifying our strategy with a greater number of customer imperatives which will fuel the next decade of Telecom Egypt’s centric offerings. As we enter a new decade, the importance story. I am immensely proud of the progress we have made of standalone telephony services – as categorized by our in equipping our business with the structure, the assets, and residential voice and access business – will be more evenly the people to harness future commercial opportunities. balanced by revenues from Broadband data as well as the solutions we provide to enterprise and wholesale customers. But in pursuing future opport- unity, we have not sacrificed During the year under review, the short term performance and have Egyptian telecommunications kept a tight hold on the business market has continued to transform at hand. Our ability to deliver and we are not just keeping pace, solid profitability in a turbulent but instead pre-empting future year and our resilience in the trends. Our future will be defined face of intense competition for by our customers; and to succeed mobile subscribers has been we will need an approach which consistently proven quarter-by- will evolve over time as these needs quarter. and demands change. As widely anticipated, financial markets remained volatile Egypt is a young market – both in terms of its age demography during 2009 with many countries entering recession. While and its telecommunications penetration. As the market grows, not untouched, Egypt’s economy continued to expand, albeit demand for mobility, capacity, and content will also increase. at a slower rate, posting GDP growth of 4.7 percent for the For some time now, TE has been benefiting from the growth twelve months. Overall Egyptian consumer spending did not in demand for broadband internet services via our subsidiary, decline in 2009, in fact total expenditure, perhaps buoyed TE Data, which has a market share of 61 percent. Our ability by tourism receipts, actually increased by 15 percent1 to maintain a significant stake of this fast growing market is year-on- year. testament to the quality of our service and our ability to market new commercial offers which fulfil our customers’ We have benefitted from our diversified business model. While needs. In the latter part of the year, we launched TE Live in intense competition from the mobile market has impacted cooperation with Microsoft, plus the first ever ‘triple play’ offer our retail revenues, as TE has responded to the aggressive in Egypt. price wars in the market, this has largely been offset by the increase in revenues from our wholesale business. Additionally, projects such as TE North, provide the company with the prospect of supplementary revenues We successfully anticipated the evolution of the Egyptian that will deliver additional value to our shareholders.