Annual Report 06
Annual Report 06
Annual Report 06
Annual report
2006
Orascom Construction Industries
OCI is a leading cement producer and
construction contractor active in emerging
markets. We are based in Cairo, Egypt and
employ more than 40,000 people in
20 countries.
1 Highlights
2 A year of delivery
4 Letter to Shareholders
6 East meets west
8 Expanding into new markets
10 Business review Cement
24 Business review Construction
34 Corporate social responsibility
36 Board of Directors
39 Report of the Directors
40 Corporate governance
43 Management’s discussion and analysis of financial condition
and results of operations
49 Report of the Audit Committee of the Board of Directors
51 Auditor’s report, consolidated financial statements and
notes to the accounts
84 Selected financial data
88 Management and corporate information
Highlights
2006
+
2006 2006 2005 2005
47 % LE US$ LE US$
+
Cash & Cash Equivalents 2,738 479 2,168 376
A year of
delivery...
February
BESIX and its
consortium partners
are awarded a 27-year
BOT contract valued
January at EUR 429 million
OCI acquires a 20% for a new greenfield
stake in Baticim wastewater treatment
Cimento in plant by the Emirate
western Turkey for of Ajman in the UAE.
US$ 55 million. BESIX has a 50% stake
in the new venture.
Baticim together with its
subsidiary Bati Soke Cimento
have a combined annual cement February
capacity of 3 mpta and both are OCI and Sonatrach,
leading cement exporters. the Algerian state-
owned petrochemical
company, sign an initial
agreement to establish
January a urea and ammonia
OCI acquires the Van fertilizer plant with an
cement plant in investment cost of US$
eastern Turkey for 746 million.
US$ 54 million.
The partners later agreed to add
The plant has an annual clinker ammonia capacity to the plant
production capacity of 0.25 mtpa increasing the total investment
and will be upgraded to produce cost to US$ 1.6 billion. OCI has a
0.6 mtpa of cement. 51% stake in the new venture.
March
OCI announces the fast
track development of
a greenfield 2.5 mtpa
production line at its
CBA plant in northern
Algeria.
The grey cement production
line has an investment cost of
US$ 340 million and will be
ready by October 2007.
2.7
Construction
b
Cement
ECC added its fifth production line during the Our investments in natural gas industries should
year increasing their total annual production contribute significantly to net earnings beginning
capacity up to 10 million tonnes. The ECC plant in 2009 with the launch of the EBIC ammonia
is now the second largest in the world. ECC is plant and followed in 2011 by the launch of our
the single largest cement producer in Egypt and Algerian joint venture urea/ammonia plant.
a leading regional cement exporter. Net Income
Net income reached LE 2.7
billion, an increase of 59%
over last year.
5.5
Dividend per share (LE)
The Board has recommended a
dividend of LE 5.5 per share, an
increase of 175% over last year.
Expanding into
new markets...
74 %
International revenue
Revenues from sources
The OCI Cement Group now operates plants
in Egypt, Algeria, Pakistan, northern Iraq,
Turkey and Spain with a combined annual
production capacity of 21 million tonnes.
Our new projects in Algeria, Spain, Turkey,
northern Iraq, the United Arab Emirates
The OCI Construction Group provides
engineering, procurement and construction
services on large, complex and demanding
projects for public and private customers
principally in the Middle East, North Africa and
Central Asia. Our business development teams
outside of Egypt exceeded and Nigeria will increase annual production continue to be selective in the projects we
74% in 2006. capacity to 34 million tonnes by early 2008. undertake ensuring that we consistently meet
Our project teams continue to explore several the demands of our customers with regard
+
new greenfield cement opportunities in to quality, safety and timely delivery, while at
30
emerging markets and remain confident in the same time meeting the demands of our
their ability to successfully launch new ventures shareholders to deliver above average returns
which meet our investment criteria. and sustainable growth.
+
59
A clear trend in our industry is the integration
%
and commercial uses which include heating,
of cement, aggregates and ready mix assets. cooking and cooling. Industrial uses, however,
Many cement companies have taken steps to account for almost half of overall natural gas
acquire aggregates companies to protect their consumption not only as an energy source
position in developed markets and maintain but also as a feedstock in the manufacturing
International their desired growth rates. We believe this
revenue growth
of many chemicals and products including
strategy can work for us too. During the year, fertilizer and plastics. Demand for natural
New projects abroad drives we became partners with Grupo GLA, the
revenue growth.
gas-based fertilizers is surging as a result of
largest independent aggregates and ready global consumption growth and increased
mix producer in Spain. Combined with our demand for agricultural commodity-based
Cementos La Parrilla operation, Grupo GLA fuels such as corn-based ethanol. As a
now has an annual cement grinding capacity contractor, we are well positioned to identify
of 1.8 million tonnes ensuring their ongoing and develop investment opportunities in
competitiveness in the Spanish market. During greenfield industrial projects that leverage
the year, we also invested in aggregates competitively priced natural gas in the region.
resources in Egypt and Algeria and significantly By participating as an equity investor in these
increased the capacity of our ready mix greenfield industrial projects, we can deploy
operations in those markets as well. Looking our construction capabilities and resources in
forward, we intend to expand our aggregates a smarter way which we believe will ultimately
resources and ready mix capabilities in result in exceptional returns for shareholders.
southern Europe which compliment our We have also instructed our construction teams
cement production assets in the Middle East to pursue select infrastructure concession
and North Africa. opportunities in the region that provide
large construction contracts and future steady
cash flows.
Cement...
PAKIS TAN AGGR E GAT ES, READY
Page 16 MIX AND PACKING
NORT HE R N IR AQ Page 21
Page 18
m m
38 %
Increase in sales volume
13
New projects
34
Total production capacity
OCI Cement Group sold 13.9 We have new projects in six The OCI Cement Group will
million tonnes of cement, an countries which will add 13 have an annual production
increase of 38% over last year. million tonnes of new capacity. capacity of 34 million tonnes
in early 2008.
Egyptian Cement Company (ECC) is the the fifth production line was necessary to During the year, total market cement
single largest cement producer in Egypt enable ECC to continue to serve its existing consumption in Egypt increased by 6% to
and the second largest cement plant in international customers while maintaining 30.1 million tonnes, total clinker production
the world. ECC operated at full capacity its domestic market share. During the year, increased by 4% to 35.1 million tonnes,
throughout the year producing 8.2 million ECC exported 2 million tonnes of cement, and total cement and clinker exports
tonnes, an 8% increase over last year. ECC an increase of 5% from last year, to 15 decreased by 11% to 8.1 million tonnes.
completed an ambitious de-bottlenecking different countries including Yemen, Italy, Egyptian cement producers continued to
program during 2005 which increased Spain, Turkey, and the USA. operate at or near full production capacity
the annual production capacity of its during the year. ECC sold 6.1 million tonnes
four main dry process production lines During the summer, the Egyptian of cement locally, an increase of 7% from
up to 8.5 million tonnes. In June, ECC government increased energy prices for last year, maintaining a 20% share of the
completed the construction of its fifth industrial users which raised the cost of market. An increase in demand for cement
production line which increased the total natural gas to LE 1.5 per million BTU. This globally led to significant increases in the
annual production capacity of the plant increase in the cost of natural gas resulted price paid to local producers for exported
by an additional 18% up to 10 million in only a USD 1 per ton increase in the cement during the year. The increase in
tonnes. ECC signed a contract with OCI cost of cement produced by ECC due to export prices contributed to an increase
and ThyssenKrupp Polyisus, the original the high energy efficiency at their modern in local cement prices by 13% during the
equipment manufacturer, in May 2005 to plant. At the same time, major producers year. According to the IMF World Economic
engineer and supply its fifth production in the Egyptian market increased their Outlook issued in September 2006,
line which would utilize an innovative average selling prices by more than USD 2 Egyptian real GDP grew at a rate of 4.7%
production process technology that takes per ton to partially offset their rise in energy during the year, up from 4.5% the year
by-pass dust generated from the existing costs. In response to the rise of cement before. Growth is expected to reach 5.2%
four production lines and burns it at prices following the increase in energy in 2007. Improving macroeconomic factors
high temperatures alongside surplus raw prices, the Egyptian government issued and demographic trends in Egypt including
material to make cement. The new by-pass price guidelines for retail cement prices. a relatively young population and persistent
treatment production line aims to reduce Throughout this period, ECC focused on shortage of housing indicate positive
the plant’s overall dust emissions by up delivering long-term value to its customers growth in cement consumption in both the
to 60% while reducing the energy and and shareholders by not altering its pricing short and long term.
electricity consumption per tonne of cement policies in response to either event.
produced. The additional output from
m
21 24 10
Revenue growth
%
ECC revenue reached LE 2.5
%
Contribution to earnings
ECC contributed 42% of
Annual production capacity
ECC now has 5 production
billion, a 21% increase over Cement Group earnings and lines with a total annual
last year. 24% of OCI net income. capacity of 10 million tonnes.
Algerian Cement Company (ACC) operated In August 2005, Ciment Blanc d’Algerie outlook for cement demand throughout the
at an average rate of 80% capacity in its (CBA) signed a contract with an FL Smidth/ Mediterranean remains strong and export
first full year of operations producing 3.9 OCI team to construct a greenfield white prices for cement should remain favourable.
million tonnes, an increase of 70% over last cement plant with an annual production
year. ACC has two dry process production capacity of 550 thousand tonnes. The During the year, total market cement
lines supplied by FL Smidth which have an new plant will be one of the largest consumption in Algeria increased by
annual production capacity of 5 million white cement plants in the world and will 15% to 15.0 million tonnes, total cement
tonnes. ACC began operations of its cater for both domestic and international dispatches from local producers increased
first production line in March 2004 and customers being strategically located 54km by 16% to 14.8 million tonnes, and total
its second production line in June 2005. south of Arzew Harbour and 60km east of cement and clinker imports decreased
ACC made a strategic decision to operate Oran Harbour, some 380km west of the by 43% to 200 thousand tonnes. The
at less than full capacity throughout the capital city Algiers. The total investment Algerian Government owns 12 plants
year maintaining a 25% market share. cost for the white cement production which produced 10.9 million tonnes during
The new production lines operated as line is expected to be US$ 138 million. the year. ACC is currently the only private
expected without any problems. During Construction work is scheduled for sector cement producer in Algeria although
the year, ACC continued to expand its completion in July 2007. a privatization programme is expected to
network of local dealers and company result in other foreign cement companies
owned distribution centers to ensure the In March, CBA announced that it had acquiring minority stakes in several state-
timely and consistent availability of its signed a second contract with the FL controlled plants. According to the IMF
products throughout the country. ACC is Smidth/OCI team to construct a grey World Economic Outlook, Algerian real
the only local cement producer to operate cement production line with an annual GDP grew at a rate of 2.7% during the
distribution centers and provide delivery production capacity of 2.5 million tonnes. year, down from 5.3% the year before.
services for its customers. Nearly 3% of The total investment cost for the new Growth is expected to increase to 4.5%
sales were made through the distribution grey cement production line is expected in 2007. We continue to have a positive
centers and 15% of sales were delivered to be US$ 340 million. Construction work growth outlook for cement consumption in
direct to customers. By providing delivery is scheduled for completion in October Algeria due to increasing foreign exchange
services to key customers, ACC improved 2007. Since it is difficult to predict cement reserves from petrochemical exports as
the geographical distribution of its products demand growth in emerging markets, CBA well as encouraging demographic trends
with the capital of Algiers, the largest intends to initially export the majority of its including a relatively young population and
market, representing only 25% of sales. production and gradually increase domestic pent up demand for housing and public
The delivery services also enabled ACC to sales as local demand materializes. The infrastructure.
achieve a 65% market share for sulphate
m
80 30 8 % %
resistant cement products.
Pakistan Cement Company (PCC) began succeeded in capturing a 9% market share cement and clinker exports increased by
operations in July and produced a total despite severe price competition by the 78% to 1.8 million tonnes. There are
of 382,000 tonnes during the year. PCC existing producers. PCC expects to play currently 25 operating cement producers in
operates a single dry process production an important role in meeting the growing Pakistan which have a total annual cement
line supplied by FL Smidth which has an demand for high quality cement in both production capacity of 33.8 million tons,
annual production capacity of 2.2 million Pakistan and Afghanistan. an increase of 88% over last year. Despite
tonnes. The cement plant is located along rising local demand, the substantial increase
the Lahore-Islamabad highway in the The OCI Cement Group acquired a in new production capacity pushed local
Punjab Province of northern Pakistan, majority 51% stake in PCC, formerly cement prices lower for most of the year.
some 80 kilometers south of Islamabad. known as Chakwal Cement Company, in According to the IMF World Economic
Construction work on the PCC plant was March 2005 and has since increased its Outlook, Pakistan real GDP grew at a rate
undertaken on a fast track schedule and stake in the company up to 62.75%. To of 6.2% during the year, down from 8.0%
was completed in only 15 months. The complete construction of the new plant, the year before. Growth is expected to
construction work was managed by an FL PCC secured financing through a syndicate be at 6.5% in 2007. We expect cement
Smidth/OCI team overseeing local Pakistani of 11 Pakistani banks and the Eksport demand in Pakistan to grow significantly
contractors. During the year, production Kredit-Fonden (EkF), the Demark-based due to generally strong GDP growth,
was disrupted by seasonal shortages of international export credit agency, for the increased housing construction and greater
natural gas, intermittent electricity outages equivalent of US$ 130 million in limited public spending on infrastructure.
and unexpected maintenance work on recourse project finance debt. The OCI
some plant equipment. To overcome these Cement Group has invested a total of US$
disruptions, PCC has begun construction 231 million in PCC as at year end. The OCI
of a coal mill to allow the plant to operate Cement Group is the first international
on natural gas, fuel oil or coal and has cement company to begin operations in
pre-ordered essential spare parts which Pakistan.
have long lead times. PCC introduced its
products under the brand name “PAKCEM” During the year, total market cement
and has positioned the brand in the consumption in Pakistan increased by
market as a premium quality cement. 26% to 18.9 million tons, total cement
Supported by a wide dealer network and dispatches from local producers increased
strong in-house technical sales team, PCC by 20% to 20.7 million tonnes, and total
m
15 mths
Construction record
PCC completed construction
9 %
Market share
PCC has been able to capture
2.2
Annual production capacity
PCC has a single production
of its plant in only 15 months. a 9% market share since line with a total annual
beginning operations in July. capacity of 2.2 million tonnes.
In July, the OCI Cement Group completed first refusal on any potential privatization annual production capacity of 2.9 million
rehabilitation work on the second of the plant. Together, the OCI Cement tonnes. Construction work on the plant
production line at the Tasluja cement plant Group and its partner have invested a began in July 2006 and is scheduled to be
located near the city of Suleimaniyah in total of US$ 70 million in the rehabilitation completed in 26 months during August
the Kurdistan region of Northern Iraq. of the plant as at year end. The OCI 2007. At year end, overall construction
The Tasluja plant has two production lines Tasluja management team has overcome work on the plant was 65% complete. The
supplied by ThyssenKrupp Polysius which tremendous obstacles to restore production OCI Bazian management team has decided
have an annual production capacity 2.3 operations at the Tasluja plant and their to invest in a small power plant in order to
million tonnes. Rehabilitation work on achievement has provided a significant ensure a stable supply of electricity to the
the first line was completed in July 2005. economic and social benefit to the local plant.
During the year, the Tasluja plant was able community.
to produce a total of 657,000 tonnes. Total market cement consumption in Iraq
Production continues to be disrupted by In February 2005, the OCI Cement Group is estimated to be 10 million tonnes, total
intermittent outages of natural gas and and the Faruk Rasool Group obtained cement dispatches from local producers is
electricity. The OCI Cement Group and its regulatory approvals for the construction estimated to be 3 million tonnes, and total
local partner, the Farouk Rasool Group, of a new greenfield cement plant near cement and clinker imports are estimated
were awarded a 12-year lease contract the city of Bazian in the Kurdistan region to be 7 million tonnes primarily from
to rehabilitate, operate and maintain the of Northern Iraq. The new plant will Turkey, Jordan and Iran. There are 14 state-
Tasluja plant by the Kurdistan regional have a single production line supplied by owned cement plants in Iraq which have a
government and have received a right of ThyssenKrupp Polysius which will have an total designed annual cement production
capacity of 14 million tonnes. Local
market cement prices remain high due to
a shortage of local supply and the high
transportation cost of imported cement.
We expect cement demand in Iraq to either
remain at current levels or grow significantly
should the overall situation in the country
improve.
m
5.2
Annual production capacity
Tasluja and Bazian will have
a total annual capacity of 5.2
million tonnes during 2007.
240 3.5
Aggregates reserves
m
Concrete capacity
m
1.8m
Cement capacity
GLA has 240 million tonnes GLA has an annual production GLA and CLP has an annual
of aggregates reserves located capacity of 3.5 million cubic cement grinding capacity of
throughout the country. meters of concrete. 1.8 million tonnes.
m
3
Annual Production Capacity
EMCC will have an annual
production capacity of 3
million tonnes in 2007.
2.5 m
Annual Production Capacity
UNICEM will have an annual
production capacity of 2.5
million tonnes in 2008.
Construction...
Page 30
NAT UR AL GAS INDUS T R IE S
Page 32
Aspire Tower
Burj Dubai
The BESIX Group is based in Belgium and the Sears Tower in Chicago for the highest to serve 250,000 people and will involve
is active in engineering and construction, number of floors. BESIX has more than the construction of 22 pumping stations, a
electro-mechanical services and real 2,000 workers mobilized on the project 225 km gravity pipeline, 30 km of pressure
estate development. The BESIX Group which will use more than 230,000 cubic mains and connections to more than
was established in 1909 and provides meters of concrete, 31,400 tonnes of rebar 45,000 households. Total revenues from
engineering, procurement and construction and have curtain walling measuring 27.5 the BOT contract are expected to reach
services on large commercial, infrastructure acres enough to cover 17 soccer fields. EUR 297 million during the concession
and marine projects for public and private BESIX is currently completing a floor every period in addition to the EUR 132 million
customers worldwide. In addition to its three days and expects the project to be construction cost for the new facilities.
activities in the European Union, the BESIX completed in late 2008. Construction work is expected to be
Group is also active in central and Eastern completed in just 30 months. BESIX aims
Europe, Egypt, Libya, Central Africa and in In November, the BESIX Group completed to participate in similar infrastructure
the United Arab Emirate and Qatar through work on the first part of the Aspire Tower concessions as a contractor and equity
Six Construct. The BESIX Group employs in Doha, Qatar. Designed by renowned investor both in Europe and the Middle
more than 12,000 personnel, is the largest architect Hadi Simaan, the tower stands East.
construction contractor in Belgium and is 300 meters high and served as a focal point
ranked by the Engineering News Record as for the 15th Asian Games hosted by Qatar During the year, the BESIX Group
the 49th largest international contractor in December 2006. Work on the interior of acquired five companies: Van Britsom,
and the 98th largest general contractor in the tower is expected to be fully completed Verheye, GRWestkust (50%), Cobelba
the world. by August 2007. Upon completion, the and Socogetra. Van Britsom is active in
Aspire Tower will include a five-star 136 construction works for waterways and
During the year, the BESIX Group secured room hotel with atrium, conference rooms, harbours in Belgium, and Verheye is active
a record US$ 1.7 billion in new work business centre, restaurant, gymnasium, in civil engineering, earthworks, sewage
principally in Belgium and the UAE. At year salons, sports museum, suites, and at the systems and concrete products also in
end, the Besix Group was involved in 81 top of the building, a revolving restaurant, Belgium. GRWestkust is active globally
projects located in 19 countries and the a bar and an observation deck providing in wastewater treatment and water
value of unbilled work in backlog was US$ panoramic views of Doha. production systems and technologies.
1.1 billion. Contracts being undertaken in Cobelba is a reputable general contractor
the UAE, Qatar and Bahrain represented In February, the BESIX Group was awarded established in 1994 with operations in
52% of backlog at year end. a 27-year build-operate-transfer (BOT) Belgium and Luxembourg. Socogetra has
contract for a greenfield wastewater around 60 years of experience in the road
The BESIX Group is a member of the treatment plant in the Emirate of Ajman in construction industry and is a producer of
consortium constructing the Burj Dubai the United Arab Emirates. BESIX will have a aggregates, ready mix concrete and asphalt.
which will be the world’s tallest building 50% stake in the venture alongside Veolia
upon completion standing more than Water, Black & Veatch and the Ajman
725 meters high. By year end, the Burj Government. The scope of the BOT contract
Dubai stood 110 stories tall reaching a includes the engineering, procurement
height of 380 meters making it the tallest and construction of the water treatment
building in the Middle East, the ninth plant as well as ongoing operations and
tallest building in the world and tied with maintenance. The plant will have a capacity
Contrack International (CII) is based in the The CII/Darwish joint venture made CII has been active in Bahrain since 2001
USA and provides engineering, procurement substantial progress on the Science and primarily providing construction services for
and construction services primarily on Technology Park project valued at US$ US Government financed projects. Having
institutional and infrastructure projects 355 million which is part of the Education established an excellent reputation in the
financed by the US Government in the City development in Qatar, the ambitious local market, CII hopes to secure private
Middle East and Central Asia. CII has been flagship project being undertaken by the sector work following the successful business
ranked among the Top 400 US Contractors Qatar Foundation for Education, Science model adopted by the CII team in Qatar.
by Engineering News Record for 16 and Community Development, a charitable CII currently has a local workforce of nearly
consecutive years. CII was ranked 140th in foundation established by Sheikh Hamad 1,000 in Bahrain.
overall revenue for 2006, up from 148th in bin Khalifa Al-Thani, Qatar’s Emir and
2005 and 294th in 2003. CII was ranked head of state. The Science and Technology In 2005, CII formed a joint venture in Egypt
13th in international revenue among all US Park will consist of three main buildings, with Stanley Consultants, a respected
contractors and 77th among all international a podium and parking garage in addition American engineering firm, to provide design
contractors globally. to utilities infrastructure and landscaping support for CII projects which require a
works. A major feature of the project is design-build contracting approach favored
During the year, CII secured US$ 150 million the Veil, a giant sun shade towering above by US government agencies. The Contrack
in new work principally in Afghanistan. At the three main buildings with massive Stanley Group provides CII and other
year end, CII was involved in 26 projects steel quad-columns supporting a wave- clients with a competitive cost advantage in
located in 5 countries worth a total value of shaped Veil built of structural steel space tendering for design-build and EPC contracts.
US$ 839 million and the value of unbilled trusses with perforated stainless steel panel The joint venture employed close to 100
work in backlog was US$ 318 million. cladding covering both the top and bottom. engineers and draftsmen at the close of
Contracts being undertaken in Qatar Construction work on the project was 36% 2006.
represented 65% of backlog at year end. complete at year end and is scheduled
to finish in late 2007. The Education City Contrack FM was formed in 2004 to provide
CII has been active in Afghanistan since campus will cover some 2,500 acres and facilities management services for public
January 2003 and has undertaken work is envisioned to be a totally integrated and private clients in Egypt leveraging on
orders for a variety of projects including education environment offering world the operations and maintenance experience
institutional buildings, wastewater treatment class educational, commercial, recreational, CII has gained over the years working on
plants, water supply pumping stations, roads, cultural, health and housing facilities. The various contracts for the US government in
hospitals, and other humanitarian projects. master plan for Education City was created the region. Contrack FM provides facilities
CII was awarded US$ 141 million of work by renowned Japanese architect Arata operations and maintenance services to more
orders in Afghanistan during the year and Isozaki. CII intends to pursue additional than 21 clients in Egypt including the Nile
was also awarded a three year US$ 110 construction opportunities on the Education City Complex, two 34-floor towers housing
million contract to provide operations and City development including the central international companies in 200,000 square
maintenance services at Afghan National library, student center, auditorium/conference meters of office space, and Smart Village,
Army bases throughout Afghanistan. CII is center, college of engineering and Al Shaqab a 300-acre site containing offices for high
currently one of the largest international equestrian center. tech industries in 14 buildings with 140,000
contractors operating in the country and square meters of office space. Annual
has a local workforce of more than 4,000 In May, CII established a full-fledged branch revenue and personnel at Contrack FM has
personnel. office in Bahrain to pursue more than US$ more than doubled in each of its three years
250 million worth of private sector projects. of operation.
OCI Construction provides engineering, Company second urea/ammonia production infrastructure for the Algerian Railway
procurement and construction services line, and the Helwan Fertilizer Company Authority working in partnership with
on industrial, commercial, infrastructure urea/ammonia production line in Egypt. TSO of France. OCI has a scope of work
and railway projects for public and private Construction work progressed smoothly currently valued at US$ 73 million of which
customers primarily in the Middle East and on all major projects in Egypt including 22% was completed at year end.
North Africa. OCI selectively targets large, the 750MW Talkha power plant, the 25
complex and demanding projects which story Fairmont Hotel at Nile City, the Pfizer During the year, OCI and Cementech
require internationally accepted quality and pharmaceutical plant, the warehouse and worked together with FL Smidth to provide
safety standards. production facilities for Eastern Tobacco, engineering, procurement and construction
and the Nagaa Hammadi dam and power services on the new cement production
During the year, OCI continued to receive station. Construction work on the Proctor lines being constructed by the OCI Cement
repeat orders from satisfied customers & Gamble detergents plant in Nigeria was Group in Pakistan, Nigeria, Algeria, Turkey
and secure large contracts working in also on schedule. During the year, OCI and the UAE as well as the new cement
partnership with other leading regional and was awarded a US$ 91 million contract to production line being constructed by AUCC
multinational contractors. OCI posted record construct the ammonia fertilizer plant for in Libya. OCI and Cementech worked
revenue of LE 5.5 billion and secured LE 2 Egyptian Basic Industries Corporation, an LE together with ThyssenKrupp Polysius on
billion in new work most notably in Egypt 88 million contract to build the new Maadi cement projects in Egypt and northern Iraq.
and Algeria. At year end, OCI was involved City Center building, and a LE 79 million OCI is one of the most experienced cement
in 59 projects located in 9 countries worth contract to build the new Embassy of Oman plant contractors in the world.
a total value of LE 15.9 billion and the in Egypt.
value of unbilled work in backlog was LE National Steel Fabrication Company (NSF)
4.7 billion, a 32% decrease over last year. Algeria is a key construction market for operates a single plant in 6th of October
During 2005, OCI secured a record LE 7.5 OCI. Over the past several years, OCI has City which provides a complete range of
billion in new work and at year end had a invested heavily in both equipment and steel fabrication services including cutting,
backlog of LE 6.9 billion. The value of work human resources to enhance our capability drilling, bending, welding, sand blasting
in backlog can vary considerably throughout and capacity to undertake more work in and painting primarily for customers in
the year due to the size and timing of Algeria. During the year, construction work the petroleum and construction industries.
contract awards. During the second half of on the Hammam sea-water desalination NSF is a joint venture between OCI and
the year, OCI made the strategic decision plant progressed on schedule. The project Consolidated Contractors (CCC). During
to hold construction resources in reserve for valued at US$ 189 million was awarded to the year, NSF produced 20,006 tons of
contracts expected to be awarded and for an OCI/BESIX joint venture by GE Ionics in fabricated steel products.
projects to be tendered in early 2007. April 2005. The sea-water desalination plant
is located near the port of Algiers and will
During the year, OCI substantially be the largest of its kind in North Africa,
completed work on several major industrial supplying a quarter of the population of
projects including the AstraZeneca Algiers with drinking water. Also during the
pharmaceutical plant, the Egyptian Fertilizer year, OCI continued to construct railway
OCI aims to invest in greenfield industrial be exported. The total investment cost with the US Export Import bank and
projects which leverage competitively priced of the project has increased from US$ US$ 126 million of commercial debt has
natural gas in the region and which utilize 746 million initially up to US$ 1.6 billion. been secured through a syndicate of local
our construction capabilities to reduce the Societe Generale has been appointed as Egyptian and international banks. By the
time and cost of development, replicating the financial advisor and White & Case end of January, OCI and its partners had
the same business model that has been (London) has been appointed as the legal contributed US$ 189 million of equity. The
a key driver in the success of the OCI advisor for the new venture. OCI will have project reached financial close on 30 March
Cement Group. Working together with a 51% stake in the new venture with 2006 and at year end, US$ 137 million of
our technology partners, ThyssenKrupp Sonatrach owning the remaining 49%. In debt had been drawn down. A KBR/OCI
Udhe and KBR, OCI intends to actively November, the Algerian National Investment consortium is undertaking the construction
pursue urea/ammonia fertilizer projects in Council approved the increased investment work which is scheduled for completion
the region as both a contractor and equity in the project. The plants are expected to in late 2008. At year end, the project was
investor. Should opportunities arise, OCI be built in the industrial zone at Arzew 65% complete. OCI made the strategic
may also acquire existing natural gas-based near the Mediterranean Sea shoreline. The decision to invest in EBIC after better
businesses, consolidate its activities with proximity of the plants to the two major understanding the economics of the project
existing industry leaders or expand its ports of Arzew and Bethioua will help which capitalizes on the lower cost of
activities to include trading operations. facilitate the export of their production. natural gas in the region. In addition to the
The new venture will be financed through construction work being performed, OCI
In February, OCI signed an initial agreement long-term project finance debt in a limited will realize benefits from the sale of land to
with the Algerian state-owned oil & gas recourse structure from a combination of the plant by Suez Industrial Development
company Sonatrach to establish a greenfield local Algerian and international banks. Company and the ongoing export of the
ammonia/urea fertilizer plant in Algeria with Sonatrach will enter into a 20-year gas ammonia produced which will be loaded at
an annual capacity of 1.1 million tonnes supply agreement with the new venture. the nearby Sokhna Port.
of granular urea and 0.7 million tonnes of Construction work is scheduled to begin in
ammonia. OCI initiated the project with a early 2007 and OCI targets to commission
detailed proposal and feasibility study that the production lines in 2011.
was presented to Sonatrach and will act as
the lead project developer. Based on the In October 2005, OCI became a significant
economics of the project and the improved shareholder in Egyptian Basic Industries
outlook for global fertilizer demand, a Corporation (EBIC) which is currently
strategic decision in August was taken to constructing a greenfield 2,000 ton per
build an additional ammonia plant on the day ammonia production plant. The plant
same site in order to double the annual will be the largest of its kind in Egypt. The
production capacity of ammonia to 1.3 total investment cost is expected to be US$
million tonnes. It is expected that all of 540 million of which US$ 225 million has
the ammonia produced by the plant will been secured through a facility agreement
2 Nassef Sawiris
Chief Executive Officer
Mr. Nassef Sawiris has been a Director and
the Chief Executive Officer of OCI since its
incorporation in 1998. Mr. Sawiris oversaw
the construction activities of Orascom since
1990. He is a member of the Business
Secretariat of the National Democratic Party,
the German-Arab Chamber of Industry &
Commerce and the Young President’s Club.
Mr. Sawiris was born in 1961, is an Egyptian
citizen and holds a Bachelor of Arts degree in
Economics from the University of Chicago.
1 2
3 4 5
6 7
• There should be a dividend distribution every year, and periodical The Company is authorized to issue shares of up to 1% of the issued
dividends may be considered. and paid in capital to implement its employee share-based incentive
program. Information on this program is shown in note 26 to the
• There should be sufficient earnings to be retained for future consolidated financial statements on page 79.
operating purposes.
• There should be sufficient cash to discharge liabilities before Charitable donations
dividend payments. Payments for charitable purposes made by the Company during
the year ended 31 December 2006 amounted to LE 7.8 million
Corporate governance (2005, LE 1.6 million). The primary beneficiaries of these charitable
The Company endeavors to conduct its affairs in accordance with donations were public sector institutions and qualified non-
good corporate governance practices. A summary of the Company’s governmental organizations for social development projects.
corporate governance guidelines and practices is shown on pages
40-42. Annual General Meeting
The Annual General Meeting will be held at noon on Sunday, 6 May
Directors 2007 at Nile City Towers, 2005A Corniche El Nil, Cairo, Egypt.
The Directors of the Company who served during 2006 are shown on
page 91. Messrs Alaa Saba, Tarek Hatem, Mohamed Abdel Moneim Auditor
were elected as non-Executive Directors on 29 April 2003. These A resolution to reappoint KPMG (Hazem Hassan) as auditor and
Directors will hold office until the Annual General Meeting at which, to authorize the Directors to determine their remuneration will be
being eligible, they offer themselves for re-election. Biographical proposed at the Annual General Meeting.
details for each director are given on page 36-37.
Approved by the Board
Adel Bishai, Corporate Governance Director
April 2007
Orascom Construction Industries SAE is committed to the principles The Board continues to monitor developments in corporate
of good corporate governance and has adopted corporate governance and the actions taken by regulators worldwide to
governance guidelines in compliance with applicable laws and stock improve financial reporting and disclosure. The Board has reviewed
exchange regulations. The Board of Directors (“Board”) believes the recent changes in applicable securities laws and stock exchange
that good corporate governance practices align the interests of regulations and has concluded that the Company is in compliance
management and shareholders thereby maximizing the profitability with all those provisions which are currently in force. In addition,
and long-term value of the company for shareholders. the Board has chosen to make the following voluntary disclosure to
assist shareholders in their evaluation of the corporate governance
The Company is subject to the disclosure rules and the new listing practices of the Company.
rules set by the Cairo and Alexandria Stock Exchanges (“CASE”)
and approved by the Egyptian Capital Markets Authority on 18 June Board of Directors
2002. The Company has been in compliance with the corporate At the Annual General Meeting held on 29 April 2003, shareholders
governance, financial reporting and disclosure provisions of the CASE approved the appointment of four new directors and accepted the
listing rules throughout the year ended 31 December 2006. The US resignation of two existing directors. Naguib Sawiris and Samih
Securities and Exchange Commission (“SEC”) approved CASE as Sawiris resigned as non-executive directors. Karim Camel-Toueg,
“designated offshore securities markets” within the meaning of rule President of Contrack International, was appointed as an executive
902(b) under Regulation S of the US Securities Act of 1933 on 16 director, and Alaa Saba, Tarek Hatem and Mohamed Abdel Moneim
April 2003. were appointed as non-executive directors. The Board consists of
nine directors. Three of the directors are non-executive.
The Global Depositary Receipts of the Company are listed on the
London Stock Exchange (“LSE”) and the Company is therefore The Board maintains an orientation program for new directors. New
subject to the rules of the LSE as well as the rules of the United directors attend an orientation program which includes briefings by
Kingdom Listing Authority (“UKLA”) and the Financial Services senior management to familiarize them with the Company’s strategic
Authority (“FSA”). The Company has been in compliance with its plans, financial statements and key policies and practices. The Board
continuing obligations under the UKLA Listing Rules throughout the maintains a continuing education program for all directors to assist
year ended 31 December 2006. them in carrying out their duties and responsibilities.
In July 2003, the revised Combined Code on Corporate Governance The Board has reviewed the status of all the non-executive directors
(“Combined Code”) was issued and the FSA and the UKLA have and has determined that they are to be regarded as independent.
determined that the revised Combined Code will apply for reporting The Board has adopted a definition of “independent” which
years beginning on or after 1 November 2003. UKLA listing rules complies with the provisions set out in the Combined Code and
require that companies incorporated in the United Kingdom Section 303A.02 of the NYSE listing rules. The process and criteria
include in their annual report and accounts an additional disclosure used by the Board to determine the independence of each director
statement in relation to how the company applies the principles in is detailed in the Corporate Governance Guidelines of the Company.
Section 1 of the Combined Code and an explanation of any non- The non-executive directors are encouraged to meet privately in
compliance. As an overseas company with a secondary listing by regular executive sessions without management participation during
the UKLA, the Company is not required to present this additional the year. The non-executive directors have elected Alaa Saba to
disclosure statement. serve as the senior independent director and lead non-management
director.
The shares and global depositary receipts of the Company are not
registered under the US Securities Act of 1933 and the Company is The Board met six times during the year. The Board has a formal
not subject to US securities laws or the rules and listing standards of schedule of matters reserved to them for decision which includes
the SEC or the New York Stock Exchange (“NYSE”). In July 2002, the approval of the long-term strategic objectives and business plans
US Government passed the Sarbanes-Oxley Act which has introduced of management, major corporate transactions including significant
a number of changes to the corporate governance, disclosure and capital allocations and expenditures, and compensation of the chief
reporting requirements of US domestic and non-US registered issuers. executive officer and executive officers of Company. Most board
The Sarbanes-Oxley Act codifies the view that company management meetings during the year were attended by the full board. The
should be aware of material information that is filed with regulatory directors were given appropriate documentation in advance of each
authorities and released to investors, and should be held accountable board meeting. All directors have had access to the services of the
for the fairness, thoroughness and accuracy of that information. In company secretary and have been empowered to seek independent
November 2003, the NYSE issued new corporate governance rules professional advice at the Company’s expense.
for listed companies which were approved by the SEC. The corporate
governance rules issued by the NYSE allow certain exemptions for
foreign private issuers and controlled companies. The Company is not
required to comply with the provisions of the Sarbanes-Oxley Act or
the NYSE corporate governance rules.
Corporate Governance Guidelines set out in written terms of reference, the Compensation Committee
The Board has adopted Corporate Governance Guidelines Charter, and includes the review, evaluation and approval of director
(“Guidelines”) to provide a framework for the effective governance and executive officer compensation, incentive-compensation plans
of the Company in an effort to enhance long-term shareholder and equity-based plans. In determining the compensation of the
value. The Guidelines address several key governance issues and directors and executive officers of the Company, the Compensation
principles including board responsibilities, director qualifications, Committee considers the Company’s performance and relative
director responsibilities, board structure and operations, board shareholder return, the compensation level of directors and executive
committees, executive sessions, access to management and officers at comparable companies, and the compensation of the
independent advisors, director compensation, director orientation directors and executive officers in past years. No director is solely
and continuing education, management evaluation and succession, involved in deciding their own compensation. Executive officers do
board performance evaluation, and relations with shareholders. The not receive additional compensation for their service as an executive
Guidelines are publicly available from the Company’s website www. director. Non-executive directors receive an annual stipend and may
orascomci.com and a copy may be requested by shareholders from participate in the share-based incentive program of the Company.
the Company’s investor relations officers. The Board believes the
Guidelines adopted generally comply with the provisions set out in The Nominating and Corporate Governance Committee consists of
the Combined Code and Section 303A of the NYSE listing rules. three directors and is chaired by Onsi Sawiris. The Nominating and
Corporate Governance Committee met three times during the year.
Board Committees The primary purpose of the Nominating and Corporate Governance
The Board has established three committees to assist it in discharging Committee is to assist the Board in (a) identifying individuals qualified
its oversight responsibilities: Audit, Compensation, and Nominating to become Board members and recommending to the Board the
and Corporate Governance. The purpose and responsibilities of each director nominees for the next annual meeting of shareholders, (b)
committee are described in their respective charters. Members of the recommending to the Board director nominees for each committee
committees meet the independence and experience requirements of the Board, (c) developing and recommending to the Board a set
to the extent required under applicable securities laws and stock of corporate governance guidelines applicable to the Company, (d)
exchange regulations. Committee members have access to the overseeing the evaluation of the Board and management, and (e)
services of the company secretary and have been empowered to seek preparing and publishing an annual Committee report on corporate
independent professional advice at the Company’s expense. governance and such other reports to the extent required under any
applicable securities laws and stock exchange regulations. The role
The Audit Committee consists of three independent non-executive and responsibilities of the Nominating and Corporate Governance
directors and is chaired by Alaa Saba. The Board has determined Committee are set out in written terms of reference, the Nominating
that Alaa Saba has recent and relevant financial experience and and Corporate Governance Committee Charter, and includes
shall be regarded as the audit committee financial expert. The Audit determining on an annual basis the independence of each director
Committee met five times during the year. The primary purpose as may be required under any applicable securities laws and stock
of the Audit Committee is to (a) to assist the Board in its oversight exchange regulations, the compliance of each director and executive
of (i) the integrity of the Company’s financial statements, (ii) the officer with the Company’s code of business conduct and ethics, and
Company’s compliance with legal and regulatory requirements, (iii) such other activities as the Board may assign to the committee from
the independent auditor’s qualifications and independence, and time to time.
(iv) the performance of the Company’s internal audit function and
independent auditors, and (b) to prepare and publish an annual Internal Control and Risk Management
Committee report and such other reports to the extent required The Board confirms that there is an ongoing process for identifying,
under any applicable securities laws and stock exchange regulations. evaluating and managing the significant risks faced by the Company,
The role and responsibilities of the Audit Committee are set out that the process has been in place for the year under review and
in written terms of reference, the Audit Committee Charter, and up to the date of approval of the annual report and accounts, that
includes the appointment, compensation and retention of the the process is regularly reviewed by the Board and accords with the
independent auditor, review of the Company’s interim and annual Turnbell Guidance on internal control contained in the Combined
financial statements with management and the independent auditor, Code.
and review of the Company’s internal control and risk management
systems. The Company maintains a sound system of internal controls and
risk management which is embedded in its operations, is capable
The Compensation Committee consists of three directors and is of responding quickly to evolving risks to the business arising
chaired by Onsi Sawiris. The Compensation Committee met three from factors with the company and to changes in the business
times during the year. The primary purpose of the Compensation environment, and includes procedures for reporting immediately to
Committee is (a) to assist the Board in its oversight of all matters appropriate levels of management any significant control weaknesses
relating to director and executive officer compensation and (b) to that are identified together with corrective action being undertaken.
prepare and publish an annual Committee report on director and The Company’s system is designed to manage rather than eliminate
executive compensation and such other reports to the extent required the risk of failure to achieve business objectives and can only provide
under any applicable securities laws and stock exchange regulations. reasonable and not absolute assurance against material misstatement
The role and responsibilities of the Compensation Committee are or loss.
The business of the Company is conducted by its employees, Relations with Shareholders
managers and executive officers, under the direction of the Chief The Board believes that communication with shareholders,
Executive Officer and the oversight of the Board, to enhance the institutional investors, the financial community, the media, and
long-term value of the Company for its shareholders. The Board is other third parties is best handled by the Chief Executive Officer
elected by shareholders to oversee and counsel management. The and designated management representatives of the Company. The
Board acknowledges that it is responsible for the Company’s system Company operates a structured program of investor relations, based
of internal controls and for reviewing its effectiveness to safeguard on formal announcements and publications relating to significant
shareholders’ investment and the Company’s assets. events and financial results, in compliance with applicable securities
laws and stock exchange regulations. To ensure fair disclosure to all
The Audit Committee of the Board reviews the Company’s internal stakeholders at the same time, the Company refrains from disclosing
control and risk management systems, monitors the effectiveness of any information specifically designated to financial analysts, financial
the Company’s internal audit function, identifies matters in respect institutions or other parties before disclosing the information to the
of which it considers that action or improvement is needed, and market as a whole. Directors, executive officers and employees are
makes recommendations to the Board as to the steps to be taken. required to maintain the confidentiality of information entrusted to
The Audit Committee relies on periodic reports from the Company’s them by the Company or its customers, except when disclosure is
executive officers, senior financial managers, internal audit staff, and authorized or legally mandated.
external auditors to obtain reasonable assurance that appropriate
controls are in place and functioning effectively. The Company has appointed Hassan Badrawi as its main Investor
Relations Officer whose responsibility is to provide information
The Chief Executive Officer and Chief Financial Officer are responsible and answer queries of stock exchange officials, shareholders and
for the day-to-day control of the Company’s operations and for institutional investors. Information about the Company including
the design of internal control and risk management systems. These interim and full year financial results and other major announcements
executive officers are held responsible for the disclosure of all is also published on the Company’s website www.orascomci.com.
significant deficiencies and materials weaknesses in the internal
control over financial reporting and any fraud, whether or not The Chairman of the Board, Chief Executive Officer, senior
material, which involves management to the Audit Committee and independent director and other authorized directors and investor
external auditors. These executive officers also are held responsible relations personnel do maintain a dialogue with representatives of
for the preparation and integrity of the Company’s published institutional and other shareholders regarding long-term business
financial statements which shall fairly present in all materials respects strategies, financial performance and corporate governance in order
the financial condition and results of operations of the Company. to establish a mutual understanding of objectives. The annual general
meeting also provides an opportunity for individual shareholders
Code of Business Conduct and Ethics to meet and communicate with the Board to develop a better
The Board has adopted a Code of Business Conduct and Ethics which understanding of the Company’s operations and prospects. All
contains the policies that relate to the legal and ethical standards of directors are expected to attend the annual general meeting absent
conduct that the directors, executive officers and employees of the exceptional cause. Shareholders who wish to communicate with
Company are expected to comply with while carrying out their duties the Board may correspond in writing with the senior independent
and responsibilities on behalf of the Company. director at the principal office of the Company. The senior
independent director will notify the Board or the chairperson of the
This Code is intended to focus the Board and management on areas relevant committee of the Board regarding those matters that are
of ethical risk, provide guidance to personnel to help them recognize appropriate for further action or discussion.
and deal with ethical issues, provide mechanisms to report unethical
conduct, and help to foster a culture of honesty and accountability. Going Concern
After making enquires, the Directors have formed a judgment,
No code or policy can anticipate every situation that may arise. The at the time of approving the accounts, that there is a reasonable
Company expects each director, executive officer and employee to expectation that the Company has adequate resources to continue in
act with honesty and integrity, to exercise independent professional operational existence for the foreseeable future. For this reason, the
judgement and to deter wrongdoing in the conduct of all duties and Directors continue to adopt the going concern basis in preparing the
responsibilities on behalf of the Company. accounts.
The following discussion and analysis should be read in A substantial proportion of the Company’s consolidated revenue,
conjunction with the audited consolidated financial statements of operating expenses and long term debt is denominated in foreign
Orascom Construction Industries S.A.E (OCI) for the years ended currencies. Significant decreases in the exchange rate of the Egyptian
31 December 2006, 2005 and 2004. These consolidated financial Pound against other currencies therefore can have a materially
positive effect on the reported and actual financial performance of
statements have been prepared in accordance with Egyptian
the Company. The Company manages its foreign exchange cash
Accounting Standards (EAS), which are not materially different
flow risk on a consolidated basis by matching its foreign currency-
from International Financial Reporting Standards (IFRS), except as denominated liabilities with continuing sources of foreign currencies.
indicated.
The Company’s taxable income in Egypt has been substantially
Overview altered in 2005 with the introduction of a new tax law. The new
Orascom Construction Industries (OCI) ranks among Egypt’s largest tax rate is 20% instead of 40%, and higher allowable depreciation
private-sector businesses and its primary segments of operations rates will allow the Company to defer taxes. However, the Company
are cement and construction. International operations have grown is no longer entitled to receive the following tax benefits: (1) a tax
significantly in recent years as both cement and construction activities deduction equivalent to the average discount rate of the Central
expanded into Africa, Asia and Europe. Bank of Egypt (CBE) in a given year multiplied by its paid-in capital.
(2) deductions from taxable income of 90% of interest income on
The Company generates revenue primarily from the sale of cement Egyptian Pound deposits, and 90% of investment income received
and construction services. The primary expenses of the Company from a taxable entity. Nevertheless, substantially all of the Company’s
include direct materials used in construction, raw materials, power subsidiaries in Egypt continue to receive a tax holiday ranging from
and fuel consumed in cement production, and labor costs. The major five to ten years, most notably the ten-year tax holiday received by
factors which have had, and are expected to continue to have, a ECC.
significant impact on the results of operations and financial condition
of the Company are: Principal Accounting Policies
• The quantities of cement produced and sold, and the local and Revenue Recognition
international cement prices, Revenue from construction contracts is recognized in the statement
• the demand for construction services on large commercial, of income under the percentage of completion method of
industrial and infrastructure projects in the geographical markets accounting. In applying the percentage of completion method,
served, the Company does not recognize the value of contract change
• foreign currency exchange rates, and orders until these have been formally agreed to in writing with the
• the amount of taxes payable. customer, even if the actual work requested is commenced prior to
the execution of such written change order.
The expansion of the Cement Group continues to have important
implications for the operations of the Company. During 2006, Revenues from non-construction activities are recorded using the
the investment by the Cement Group in the cement industry in accrual basis of accounting.
Turkey and the ready mix and aggregate industry in Spain, and the
expansion of production capacity in Algeria, are expected to have Construction Costs
a positive impact on future operations. Furthermore, the Cement Construction project costs include all direct material, equipment,
Group completed rehabilitation and began operating the Tasluja labor, subcontract and indirect costs related to contract performance,
cement plant in northern Iraq, and continued the construction of such as indirect labor, maintenance, and applicable administrative
new cement plans in northern Iraq, Pakistan and Nigeria. These costs. Materials, labor and equipment provided by subcontractors or
locations are in countries that are affected by civil strife, political joint ventures are included in revenues and costs when management
instability and volatile economies which could have a materially believes that the Company is responsible for the ultimate
adverse effect on the Company’s financial condition, results of acceptability of the project.
operations and business.
Changes in job performance, conditions, estimated profitability
Cement is essentially a commodity product with variable market and final contract settlements may result in revisions to costs and
prices affected by local changes in consumption and production revenue and are recognized in the period in which the facts requiring
levels as well as the degree of competitive rivalry among producers. such revisions become known. Provisions for estimated losses on
Since the Company has and expects to continue to derive a incomplete contracts are made in the period in which such losses are
substantial portion of its revenues and earnings from the sale of determined. Claims for additional contract revenue are recognized
cement, higher market prices will significantly improve the financial when realization is assured and the amount can reasonably be
performance of the Company. determined. Costs and estimated earnings in excess of billings
on incomplete contracts are presented as construction projects in
Demand for construction services on large projects is affected by progress in the consolidated balance sheet.
changes in the general state of economic activity, foreign direct
investment flows, foreign aid flows and government investment
Construction Joint Ventures
incentives. The timing of awards of major construction projects can
Construction projects, which are performed by joint ventures, are
result in significant fluctuations in the Company’s revenues and
accounted for under the proportionate consolidation method. Under
earnings between periods.
this method, the Company’s separate financial statements include
the Company’s pro rata interest in the assets, liabilities, revenues and
During 2006, the Construction Group had significant growth in the
expenses of joint ventures through consolidation of these items on
number and total value of projects undertaken solely by the Group
an item-by-item basis in the financial statements of the Company.
or with other partners in the form of joint ventures. The backlog
Agreements concluded between the Company and the other partner
continues to grow, especially in the Middle East.
in every joint venture stipulate that each party should be jointly Accounting for New Investments
responsible for the activities of that venture. A summary of the investment in controlled and jointly-controlled
companies is presented in note 15 to the consolidated financial
Acquisition of Subsidiaries statements.
The Company accounts for its investments in subsidiaries and
associated companies in accordance with the purchase method of (a) The investment in 50% of Group GLA in Spain in October
accounting. 2006, at a cost of Euro 99.8 million (LE 725.9 million), resulted
in recording goodwill in the amount of Euro 21.0 million (LE
Elimination of Profit on Intra-group Construction 131.4 million). The consolidated balance sheet includes a 50%
The Company and its subsidiaries provide construction services for proportionate consolidation of the assets and liabilities of Group
other subsidiaries within the Group. In accordance with EAS and GLA as of 31 December 2006.
IFRS, the unrealized profit in constructing the fixed assets of the
subsidiaries is deducted from income and from gross fixed assets (b) The investment in OCI Cimento (Turkey) on 26 January 2006, at a
upon consolidation in the financial statements of the Company. The cost of US$ 54.6 million (LE 313.6 million), resulted in recording a
cumulative profit deduction is added back to income in the form of a goodwill of US$ 22.3 million (LE 118.2 million).
reduction in depreciation expense over the useful life of these assets
as determined by their depreciation rates. (c) The investment in 60% of United Cement (Iraq) in 2006, which
owns and operates a cement plant in Tasluja in Northern Iraq, at
Impact of Inflation and Interest Rate Fluctuations a cost of US$ 63.8 million (LE 366.3 million), resulted in recording
During the years under review, the consolidated results of operations a goodwill of US$ 16.3 million (LE 93.5 million).
and financial position of the Company have not been materially
affected by inflation or interest rate fluctuations. (d) The investment in Egypt Sack Company in January 2006, at a
cost of acquisition was LE 43.0 million, resulted in recording
Seasonality goodwill of LE 17.3 million. The consolidated financial statements
The Cement Groups’ activity levels are driven by seasonal demand include the full consolidation of the assets and liabilities as of 31
fluctuations in the general construction and residential housing December 2006 of ESC.
sectors. Normally, the Groups’ sales are higher in the second and
third quarter of each year. (e) The investment in 62.752% of Pakistan Cement Company in
September 2005, at a cost of US$ 49.0 million (LE 284.6 million),
The Construction Group’s activities consist principally of major resulted in recording a negative goodwill of US$ 27.5 million (LE
construction projects, which are not generally affected by seasonal 159.5 million), which has been credited to year 2005 income. The
demand fluctuations. In addition, because of the generally warm and consolidated financial statements include the full consolidation of
dry climate in the areas of operations, the Group’s activity levels are the assets and liabilities as of 31 December 2006 of PCC.
not significantly affected by weather conditions.
(f) The investment in Algerian Bags Company (formerly Mehsas
National Bags Company) in December 2006, at a cost of LE 38.7
Differences Between EAS and IFRS
million, resulted in recording goodwill of LE 18.4 million. The
“EAS 20” requires that, with some exceptions, all leases should
consolidated financial statements include the full consolidation of
be accounted for as operating leases, and therefore annual lease
the assets and liabilities as of 31 December 2006 of ABC.
payments by the lessee are charged to the income statement as rent
expense. “IFRS 17” requires that leases which transfer substantially
(g) The investment in 50% of the Belgian construction company
the benefits and risks of ownership related to the leased properties
Besix Group in July 2004, at cost of Euro 68.4 million (LE 519.7
from the lessor to the lessee should be accounted for as finance
million), resulted in a negative goodwill of Euro 29.2 million
leases and therefore recorded as assets of the lessee, with the lease
(equivalent to LE 222.0 million), which has been credited to
obligations included as a liability in the balance sheet. The Company’s
income statement in the years 2004 and 2005. The consolidated
cement subsidiaries apply IFRS 17 instead of EAS 20, the impact on
balance sheet includes a 50% proportionate consolidation of
results, however, is immaterial.
the assets and liabilities of Besix Group, and their revenues and
expenses for each year.
Another difference between EAS and IFRS relates to accounting
for employees share of profits. Egyptian law requires that 10% of
(h) Corporation in Egyptian Basic Industries Corporation in 2005,
distributable profits are set aside for distribution to the employees,
through the jointly–controlled corporation (Middle East
with a maximum of one year’s total salaries. While EAS treats this as
Petrochemical Corporation (MEPCO) on a 50/50 basis, amounted
a charge to equity, IFRS requires that such employee benefits are to
to US$ 64.1 million (LE 366.7 million). The consolidated financial
be expensed as charges in the income statement.
statements include the proportionate consolidation of the assets,
liabilities and expenses of EBIC.
Total 16,475.2 100% 11,366.6 100% 44.9% The income from operations of the Construction Group increased
by 114.0% to LE 1,503.7 million in 2006, as compared to LE 702.8
million in 2005. The operating margin increased to 12.1% for the
Revenue from the Construction Group increased by 45.3% to LE year, as compared to 8.2% during 2005. The increase was due
12,426.3 million in 2006, as compared to LE 8,554.0 million in 2005. principally to the type of contracts executed during the year. In
This growth in revenue is attributable to the increased revenue in 2006, depreciation and amortization expenses increased to LE 341.5
Egypt, but more importantly due to the expansion of international million, as compared to LE204.5 million in 2005.
activities by Besix Group, Contrack International, OCI Algeria, OCI
Nigeria and Cementech. Revenue during the year was primarily from The income from operations of the Cement Group increased by
the following major contracts: construction projects in Egypt, ACC 49.9% to LE 2,312.9 million in 2006, as compared to LE 1,542.8
cement plants, Contrack projects in Afghanistan and the Gulf area, million in 2005. The operating margin increased to 57.1% for
Cementech projects in Algeria, Pakistan and Northern Iraq, and the year, as compared to 54.9% during 2004. This increase was
Besix projects in Europe, Gulf area and Africa. In 2006, OCI itself attributable principally to higher sales prices and volumes at ECC and
contributed LE 2,297.5 million to total consolidated revenue, as ACC on cement products sold during the year In 2006, depreciation
compared to LE 1,691.8 million in 2005, representing 18.5% of the and amortization expenses increased to LE 320.5 million, as
Group’s revenue as compared to 19.8% in 2005. compared to LE 233.2 million in 2005. The increase was attributable
principally to the start of depreciation on ACC’s line II.
Revenue from the Cement Group increased by 44.0% to LE 4,048.9
million in 2006, as compared to LE 2,812.6 million in 2005. This
Other Income and Expenses
increase was attributable to sales growth at ECC to LE 2,459.0
The Company’s consolidated net other income and expenses consists
million (60.7%), reflecting the result of higher prices and export
of income from investments, interest income, gain or loss on
sales, and growth in cement sales at ACC to LE 1,541.7 million
foreign exchange, interest expense, eliminated profit on intra-group
(38.1%) reflecting the start of operations of line II and higher prices.
construction, negative goodwill, and other income and expenses. In
2006, consolidated net other expense amounted to LE 266.6 million,
Gross Profit compared to net other income of LE 58.3 million. Income from
In 2006, the Company’s consolidated gross profit increased by 67.5% investments decreased to LE 86.7 million (2005, LE 122.3 million) due
to LE 4,966.1 million, as compared to LE 2,965.3 million in 2005. to lower profits of companies accounted for by the equity method
The gross profit percentage of revenue increased to 30.1% in 2006, and the revaluation to market value of the investment in Baticim
as compared to 26.1% in 2005, reflecting the type of construction in Turkey. Interest income increased by 71.6% to LE 106.4 million
contracts undertaken during the year. Depreciation and amortization (2005, LE 62.0 million). Interest expense increased by 44.6% to LE
expenses are a significant component of the cost of services and 567.1 million (2005, LE 392.3 million). In 2005, the excess of the
goods sold. In 2006, depreciation and amortization expenses fair values over the cost of acquisitions of 50% of Besix Group and
increased by 51.2% to LE 662.0 million, as compared to LE 437.8 62.75% of Pakistan Cement Company resulted in negative goodwill,
million in 2005. which was credited to income in the amount of LE 313.0 million in
2005. In 2006, the gain on foreign currency exchange amounted to
Selling, General and Administrative Expenses LE 210.1 million (2005, loss LE 73.1 million) primarily as a result of
In 2006, the selling, general and administrative expenses, and stabilization of the Egyptian pound, the decline of the US dollar, and
provisions for claims, increased by 59.7% to LE 1,149.5 million, the increase in the Euro, as these currencies constitute a significant
as compared to LE 719.7 million in 2005. The increase is due part of construction contract revenues. The exchange rates of LE 5.72
primarily to the expansion of the Company internationally, especially and LE 7.55 were used to value the monetary assets and liabilities
in Algeria, Asia and Europe. Selling, general and administrative denominated in US dollars and Euro respectively as at 31 December
expenses as a percentage of revenue increased to 7.0% in 2006, as 2006, as compared to LE 5.76 and LE 6.81 in 2005. In accordance
compared to 6.3% in 2005. with EAS and IAS, deductions totaling LE 181.1 million have been
made from income for the year to eliminate profit from construction
Income from Operations services rendered to the cement companies by the construction
In 2006, the Company’s consolidated income from operations companies (2005, LE 29.3 million).
increased by 70.0% to LE 3,816.6 million, as compared to LE 2,245.6
million in 2005. The Company’s operating margin increased to
23.2% in 2005, as compared to 19.8% in 2005.
Future Outlook
Share Capital Management believes that the Company’s financial results for
The Shareholders approved the increase of the issued share capital by the year ended 31 December 2006 continue to demonstrate the
issuing 11.4 million shares, which were allocated to the shareholders OCI Group’s ability to achieve sustainable growth in a challenging
of record on 16 February 2006, and the increase in the capital was market environment. Management believes it is better placed than
registered on 17 May 2006. most of its competitors to capitalize on growth opportunities in
the region and that it will continue to outperform its peers. By
Dividends continuing to forge strategic partnerships with industry leaders,
The declaration or payment of dividends by OCI is dependant in investing in modern technologies, and developing the Company’s
part on OCI’s financial condition, results of operations, prospects, human resources, management believes the Company will be able
cash flow, capital requirements and reserves, the level of dividends to maintain its competitive advantage in its core businesses and
received from the subsidiaries, and the effect of any such dividend continue to record positive financial results.
on OCI’s tax position. In August 2006, the Company paid dividends
totaling LE 404.1 million (LE 1.89 per share) based on 2005 results. Cement market trends contributing to a positive outlook include:
The Board of Directors proposed payment of a dividend for 2006
amounting to LE 1,111.0 million (LE 5.50 per share). • Favourable prices in Algeria with excellent consumption outlook.
• Stable prices in Egypt with steady growth in consumption.
Construction Backlog • Continued double digit growth in Pakistan, potential over-supply
The Company considers as “backlog” the revenues that the but rebounding prices.
Company expects to receive under contracts that have been awarded • Replacement of imports in Northern Iraq with stable prices based
and signed. Backlog consists of uncompleted portions of engineering driven by high import parity.
and construction contracts, including the Company’s proportionate • Double digit consumption growth in the UAE coupled with stable
share of construction joint-venture contracts. prices.
2006 2005 2004
• Continued tight supply in emerging and international export
markets during 2007.
LE billions % LE billions % LE billions %
Egypt 1.3 10% 1.7 11% 1.4 13% • Rise in opportunities in infrastructure concessions in the region,
Middle East 5.7 45% 6.0 38% 3.7 34% especially in the Gulf area.
Africa 2.6 21% 3.6 23% 1.1 10% • Lack of contractor capacity in the region positively affecting
margins.
Europe 2.5 20% 2.4 15% 3.1 28%
• Robust macroeconomic growth across the region.
Asia 0.5 4% 4.0 13% 1.6 15%
• Governments are initiating infrastructure spending, specifically in
Saudi Arabia and Algeria.
Total 12.6 100% 15.7 100% 10.9 100%
• Continuing to encourage organic growth to tackle pressure on
human resources and construction equipment.
As at 31 December 2006, the Construction Group had unbilled work
in its consolidated backlog worth LE 12.6 billion. The Construction
Group added a record LE 15.2 billion in new work during the year
due in part to additional work added by OCI Algeria, Cementech
and the Besix Group. Construction work in backlog, which will be
undertaken outside of Egypt, reached 89% at the end of the year.
Industrial construction work represents 46% of total backlog at
year end, with commercial construction work representing 39%,
infrastructure work representing 10%, and government construction
work representing 5%.
Audit Committee
Mr. Alaa Saba
Dr. Tarek Hatem
Mr. Mohamed Abdel Moneim
50
50 Orascom Construction Industries Annual report 2006
Auditor’s report
To the Shareholders of In our opinion, based on our audit and the reports of the other
Orascom Construction Industries Company (OCI) auditors, the consolidated financial statements referred to above
together with the notes attached thereto present fairly, in all material
We have audited the accompanying consolidated Balance Sheets of respects, the consolidated financial position of Orascom Construction
Orascom Construction Industries Company (OCI) as of 31 December Industries Company as of 31 December 2006 and the consolidated
2006, and the related consolidated Statements of Income, Changes results of its operations and its cash flows for the year then ended
in Shareholders’ Equity, and Cash Flows for the year then ended. in conformity with Egyptian accounting standards and comply with
These consolidated financial statements are the responsibility of the applicable Egyptian laws and regulations.
Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We Without qualifying our opinion, we draw attention to note No.
did not audit the financial statements of some of the company’s (17) of the notes to the financial statements, certain subsidiaries
subsidiaries, which statements reflect total assets amounted to of the company apply International Accounting Standard No. (17)
approximately L.E 11.2 billion and total revenues amounted to – Accounting for Capital Leases – to record their capital leases
approximately L.E 7.4 billion, of the related consolidated totals. Those transactions, which concluded during the years 2004, 2005 and
statements were audited by other auditors whose reports have been 2006 for some fixed assets, instead of applying the Egyptian
furnished to us, and our opinion, insofar as it relates to the amounts Accounting Standard No. (20) to record such transactions.
included for the said subsidiaries, is based solely on the reports of
those auditors.
The Directors are responsible for the preparation and integrity of the The Audit Committee, which is composed of independent directors,
annual report and the consolidated financial statements of Orascom meets periodically with management, the internal auditors and the
Construction Industries, in accordance with applicable law and independent auditors to review the manner in which these groups
regulations. are performing their responsibilities and to carry out the Audit
Committee’s oversight role with respect to auditing, internal controls
Company law requires the Directors to prepare consolidated and and financial reporting matters.
company financial statements for each year. The consolidated
financial statements and notes have been prepared in accordance There are inherent limitations in the effectiveness of any system of
with Egyptian Accounting Standards, which are not materially internal control, including the possibility of human error and the
different from International Financial Reporting Standards. These circumvention or overriding of controls. Accordingly, even an effective
consolidated financial statements present fairly the financial position internal control system can provide only reasonable assurance
and results of operations of the Group. As such, the consolidated with respect to financial statement preparation. Furthermore, the
financial statements include certain amounts that are estimates based effectiveness of an internal control system may change over time.
upon currently available information and management’s judgment of
current conditions and circumstances. The Directors are responsible Management assessed the Company’s internal control system
also for the other information included in the annual and interim in relation to criteria for effective internal control over financial
reports and for their accuracy and consistency with the consolidated statement preparation. Based upon that assessment, the Directors
financial statements. believe that, as of 31 December 2006, the system of internal control
over financial statement preparation met those criteria.
The annual consolidated financial statements have been audited by
the independent accounting firm, KPMG (Hazem Hassan), which was
given unrestricted access to all financial records and recorded data,
including minutes of all the meetings of the Board of Directors and
committees of the Board.
Revenue
Construction revenue 13,147,511 9,070,808 7,011,155
Cement revenue 4,948,099 3,295,247 2,254,847
Cost
Construction cost 10,836,670 7,836,426 5,821,237
Cement cost 2,288,961 1,585,456 1,106,026
Expenses
Selling, general and administrative expenses 1,031,818 639,993 486,700
Provision for claims and doubtful debts 117,640 79,730 35,981
The accompanying notes form an integral part of the financial statements and are to be read therewith.
Assets
Current assets
Cash and cash equivalents (5) 2,738,067 2,168,316 1,576,363
Marketable securities (6) 473,139 841,064 10,315
Accounts receivable – customers current accounts (net) (7) 3,196,684 1,678,902 1,653,045
– customers retention (net) 589,343 375,172 364,133
– other (net) (8) 1,498,040 1,252,340 726,206
– due from affiliated companies (33.1) 23,114 98,591 62,525
Construction contracts in progress (9) 682,021 640,986 425,328
Inventories (10) 1,512,048 923,564 651,595
Property held for resale 295,884 203,844 197,044
Long-term assets
Long-term receivables 93,747 35,366 22,449
Deferred income taxes (12) 93,348 35,333 4,718
Investments available for sale 20,354 5,992 6,231
Investment in associated companies (13) 168,037 124,302 114,968
Payments for purchase of investments (14) 738,681 253,821
Other assets (net) (16) 948,529 165,431 20,422
Property, plant and equipment ( net) (18) 9,104,053 6,672,420 5,518,146
Assets under construction 6,441,241 2,134,916 1,177,638
The accompanying notes form an integral part of the financial statements and are to be read therewith.
Liabilities
Current liabilities
Bank overdraft and current portion of long-term loans (19) 2,987,693 1,343,855 982,983
Accounts payable – suppliers and sub-contractors 3,167,149 1,254,781 1,329,672
– creditors, accrued liabilities and provisions (20) 1,726,402 1,289,206 1,304,692
– advances from customers 931,070 790,539 482,300
– due to related parties (33.2) 21,954 18,970 15,428
Billings in excess of cost and estimated earnings on incomplete contracts (9) 886,344 479,487 232,025
Income taxes payable (25) 144,457 68,342 83,362
Long-term liabilities
Long-term loans (19) 6,261,949 5,705,589 3,274,010
Deferred income taxes (12) 337,913 123,916 58,792
Other long-term liabilities (21) 991,291 493,441 236,598
Equity
Shareholders’ equity
Share capital (22) 1,009,979 952,875 952,875
Legal reserve (22) 504,989 56,186 47,084
Other reserves 1,804,271
Retained earnings 5,336,413 3,267,439 1,901,285
Cumulative translation adjustment 152,605 21,546 166,557
Treasury stock (24) (136,529) (33,822) (23,454)
The accompanying notes form an integral part of the financial statements and are to be read therewith.
LE’000 LE’000
The accompanying notes form an integral part of the financial statements and are to be read therewith.
1,815,388 2,295,588
( 11,117) (11,117)
(403,992) (403,992)
(57,676) (57,676)
24,358 24,358
(44,888) (44,888)
(93,839) (93,839)
(102,707) (102,707)
131,059 138,521
Income from operating activities before changes in working capital 4,554,486 2,931,408 2,225,986
The accompanying notes form an integral part of the financial statements and are to be read therewith.
Cash and Cash Equivalents at End of The Year 2,738,067 2,168,316 1,576,363
The accompanying notes form an integral part of the financial statements and are to be read therewith.
1 General
Orascom Construction Industries Company has been recorded in the commercial register as an Egyptian Joint Stock company on 30
March 1998. The company’s formation and its articles of association were published in the companies Gazette issue No.658 in April
1998.
The Company’s purpose is contracting, manufacturing, supply and installation of machinery, equipment, tools, materials and supplies
required for construction activities, the undertaking of infrastructure works and the engineering and technical consultation required for
projects being implemented by the Company as well as importing necessary equipment and instruments. The Company’s purpose also
includes the import and export activities, and leasing equipment.
Orascom Construction Industries Company – hereunder referred to as the “Company” or “OCI”-consolidated financial statements as
at and for the year ended 31 December 2006 comprise the Company and its subsidiaries (together referred to as the “Group”) and
the Group’s interest in associates and jointly controlled entities. The Group is involved primarily in the construction industry and the
manufacture and sale of cement.
* During 2005, Contrack International Inc. (CII) was acquired (100 %) by OCIIC. Before 2005 OCI owned directly 45 % of CII.
** During 2004, ECC was owned indirectly by OBMH.
2 Basis of preparation
(a) Statement of compliance
The consolidated financial statements include the financial statements for all subsidiaries that are controlled by Orascom Construction
Industries Company (“the Group”). The financial statements of the parent and its subsidiaries are prepared in accordance with Egyptian
Accounting Standards and applicable Egyptian laws and regulations.
The financial statements were approved by the Board of Directors on 15 April 2007.
The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect
reported amounts of assets and liabilities, income and expenses during the financial periods. Actual results may differ from these
estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of
estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount
recognized in the financial statements are described in the following notes:
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable
are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
Foreign operations
The assets and liabilities of foreign operations are translated to Egyptian pound at exchange rates at the reporting date, and the equity
accounts are translated at the historical exchange rates. The income and expenses of foreign operations are translated to Egyptian
pound at exchange rates at the dates of the transactions. Foreign currency differences are recognized directly in equity.
Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any
directly attributable transaction costs, except as described below. Subsequent to initial recognition non-derivative financial instruments
are measured as described below.
Financial assets are derecognized if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group
transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset.
3.9 Inventories
Inventories are measured at the lower of cost and net realizable value. An inventory of raw materials, spare parts and supplies cost are
based on weighted average principle and the first-in-first-out method, and includes expenditure incurred in acquiring the inventories
and bringing them to their existing location and condition. In case of manufactured inventories and work in progress, cost includes an
appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses.
Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable
that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of
day to day servicing of property, plant and equipment are recognized in profit or loss as incurred.
Depreciation
Depreciation is recognized in profit or loss on a straight line basis over the estimated useful lives of each part of property plant and
equipment. Lease assets are depreciated over the shorter of the lease term and their useful lives.
The estimated useful lives are as follows:
Leases
Leases entered into by the Company or its subsidiaries are accounted for as operating leases in-accordance with Egyptian Accounting
Standards and laws and regulations, except for some subsidiaries which adopted the International Financial Reporting Standard for
finance leases. Rent payable is charged to income on a straight-line basis over the term of the lease.
Mineral reserves 10 - 18
Brands 10 - 15
Other intangible assets with indefinite lives are subject to impairment tests.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less cost to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the assets.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no
longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortization, if no impairment loss had been recognized.
3.18 Provisions
A provision is recognized if as a result of past event the Group has a present legal or constructive obligation that can be estimated
reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre- tax rate that reflects current market assessments of the time value of money and
the risks specific to the liability.
The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract can not
be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. An
expected loss on contract is recognized immediately in profit or loss.
Goods sold
Revenue from sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances,
trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership have been transferred
to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably,
and there is no continuing management involvement with the goods. Transfers usually occur when the products are received by the
customer; however for some international shipments transfer occurs upon loading the goods onto the relevant carrier.
Rental income
Rental income is recognized in the profit or loss on a straight line basis over the term of the lease.
3.21 Expenses
Operating expenses, selling and distribution, general administrative expenses and other expenses are recognized using the accrual basis
of accounting and as such are recognized in the income statement as incurred.
Current tax expense is the expected tax payable on taxable income for the period, using the prevailing tax rates or substantively
enacted at the reporting date, and any adjustment in tax payable in respect of previous years.
Deferred tax expense is recognized using the balance sheet method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized
for the following temporary differences: the initial recognition of goodwill and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that they probably will not reserve in the foreseeable future. Deferred tax is measured at the tax
rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted at the reporting date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which
temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realized.
4 Segmental information
The Group’s primary format for segment reporting is business segment and the secondary format is geographical segments. The risk
and returns of the Group’s operations are primarily determined by different products and services that the group produces or provides
rather than the geographical location of the Group’s operations. This is reflected by the Group organizational structure and the Group’s
financial reporting system.
The Group has two segments of operations, cement and construction. Certain corporate activities that cannot be reasonably allocated
to both reportable segments, such as the cost of corporate headquarters, are included in the construction segment. The Group’s
geographical segments are determined by the geographical location and similarity of economic environments. Transfers prices between
segments are set at an arm’s length basis.
Revenue
2006 External revenue 12,426,314 4,048,885 16,475,199
2006 Intra-group revenue 721,197 899,214 (1,620,411)
Total 2006 13,147,511 4,948,099 (1,620,411) 16,475,199
2005 External revenue 8,553,974 2,812,620 11,366,594
2005 Intra-group revenue 516,834 482,627 (999,461)
Total 2005 9,070,808 3,925,247 (999,461) 11,366,594
2004 External revenue 6,386,982 2,168,812 8,555,794
2004 Intra-group revenue 624,173 86,035 (710,208)
Total 2004 7,011,155 2,254,847 (710,208) 8,555,794
Operating profit
2006 2,000,926 1,815,702 3,816,628
2005 978,041 1,267,514 2,245,555
2004 796,288 1,035,893 1,832,181
Depreciation and amortization
2006 341,507 320,479 661,986
2005 204,542 233,232 437,774
2004 186,501 202,400 388,901
Capital expenditure
2006 1,890,680 5,977,964 7,868,644
2005 459,990 2,393,702 2,853,692
2004 611,054 1,235,323 1,846,377
Total assets
2006 11,493,830 17,122,500 28,616,330
2005 7,607,515 10,002,845 17,610,360
2004 6,234,363 6,296,763 12,531,126
Total liabilities
2006 10,049,800 7,406,422 17,456,222
2005 7,089,290 4,291,561 11,380,851
2004 5,089,442 2,910,420 7,999,862
Revenue
2006 5,875,162 2,140,371 4,542,628 5,537,449 (1,620,411) 16,475,199
2005 4,080,798 1,731,248 3,957,138 2,596,871 (999,461) 11,366,594
2004 3,562,342 1,196,093 2,597,350 1,910,217 (710,208) 8,555,794
Total assets
2006 9,534,135 5,887,687 6,221,560 6,972,948 28,616,330
2005 7,648,729 4,201,527 1,426,699 4,333,405 17,610,360
2004 6,070,147 4,792,689 640,468 1,027,822 12,531,126
Capital expenditure
2006 1,037,522 1,845,831 3,817,824 1,167 7,868,644
2005 605,090 383,814 1,542,206 322,582 2,853,692
2004 542,060 1,116,458 5,597 182,262 1,846,377
* Banks – current accounts include blocked amounts of LE 119.2 million (2005, LE 39.8 million) (2004, LE 42.8 million) held as collateral against letters of credit and letters of guarantee
related to subsidiary companies.
** Banks – time deposits include blocked deposits of LE 42.9 million held as collateral against letters of guarantee, letter of credit and short-term loans of OCI and its subsidiaries
(2005, LE 157.2 million) (2004, LE 279 million).
6 Marketable securities
Description 31/12/2006 31/12/2005 31/12/2004
LE’000 LE’000 LE’000
Joint Ventures receivables and other debit balances 680,293 354,091 255,890
Suppliers and subcontractor debit balances 207,308 530,639 164,088
Deposits with others 73,889 26,312 24,258
Withholding taxes 171,504 84,725 86,329
Prepaid expenses 140,219 95,592 73,851
Accrued revenue 9,825 40,219 21,712
Letters of guarantee margin 72,530 72,427 56,760
Letters of credit for supplies 142,472 48,335 43,318
In determining the revenue and costs to be recognized each year for work to be carried out on construction contracts, estimates are
made to the final outcome on each contract. Management continually reviews these estimates and makes adjustments and provisions
where necessary.
10 Inventories
Description 31/12/2006 31/12/2005 31/12/2004
LE’000 LE’000 LE’000
Assets
Cash and cash equivalents 57.3 17.8 3.1 0.1 0.2 500.6 579.1
Accounts receivable 362.7 38.4 5.8 22.5 2.2 1,006.1 1,437.7
Investments 27.2 4.2 79.8 111.2
Long-term receivable 6.4 6.4
Inventories 58.2 6.5 70.8 7.8 2.9 62.1 208.3
Property held for sale 152.2 152.2
Property, plant and equipment 263.5 190.4 395.1 12.7 43.9 28.6 387.7 1,321.9
Assts under construction 122.6 509.7 98.2 730.5
Other assets 474.3 0.1 11.5 485.9
Total assets 1,365.8 196.9 522.1 33.6 582.6 34.0 2,298.2 5,033.2
Liabilities
Bank overdraft and current portion of long-term debt 122.9 0.1 47.6 9.0 71.5 251.1
Accounts payable and accrued liabilities 284.3 1.5 249.3 7.3 42.8 1.8 1,226.4 1,813.4
Long-term liabilities 336.1 0.5 48.1 2.9 256.1 643.7
Minority interest 28.0 2.5 30.5
Total liabilities 771.2 1.5 249.3 7.9 138.5 13.7 1,556.5 2,738.6
Net assets acquired 594.6 195.4 272.8 25.7 444.1 20.3 741.7 2,294.6
Cost of acquisition 725.9 313.6 366.3 43.0 284.6 38.7 519.6 2,291.7
Goodwill * 131.3 118.2 93.5 17.3 18.4 378.7
Negative goodwill (159.5) (222.1) (381.6)
* Determining whether goodwill is impaired requires an estimation of the future cash flows expected to arise from the cash-generating units to which the goodwill is attached. Management
has established that there is no impairment to the goodwill recognized in the balance sheet as of 31 December 2006.
OCI’s 50% share of the fair value of GLA’s net assets acquired, amounted to Euro 78.8 million (LE 594.5 million). The fair value of the
net assets acquired was determined by an independent appraiser. The excess of the cost of acquisition over the fair value of the net
assets acquired at the date of acquisition has been recorded as at 31 December 2006 as goodwill in the amount of Euro 21.0 million
(LE 131.4 million).
The cost of acquisition was Euro 136.8 million financed by an international bank loan of Euro 99.3 million. OCI’s 50% share of the
total consideration amounted to Euro 68.4 million (LE 519.7 million). The fair value of the net assets acquired, as determined by
independent appraisers, amounted to Euro 195.3 million. OCI’s 50% share of the fair value of the net assets acquired amounted to
Euro 97.7 million (LE 741.7 million). The excess of the fair value of the net assets acquired over the cost of acquisition represent a
negative goodwill of Euro 58.5 million (equivalent to LE 444.1 million of which OCI owns 50%), and has been credited to income
statement in the years 2004 and 2005.
16 Other assets
Description 31/12/2006 31/12/2005 31/12/2004
LE’000 LE’000 LE’000
During 2005 and 2004, goodwill amortization expense amounted to LE 2.6 million in each year.
17 Leases
17.1 Finance Leases
Some of the Company’s subsidiaries had leased some buildings, machinery, equipment, trucks and information systems equipment
from finance leasing companies. The terms of these lease contracts were as follows:
As the leases substantially transfer all of the benefits and risks of ownership related to the leased assets from the lessors to these
subsidiaries they have been accounted for as finance leases in accordance with International Financial Reporting Standards (IAS 17).
The total amounts of the leased assets are included in property, plant and equipment in the balance sheet. The lease obligations are
included in long-term liabilities in the balance sheet, with the current portion shown under current liabilities.
Egyptian Accounting Standards (EAS 20) require that all leases should be accounted for as operating leases.
Accordingly, the effect of applying IAS 17 instead of EAS 20 is overstating consolidated net income by LE 13.2 million.
Total lease payments payable LE (108 million) over 48 to 108 months at annual rent of LE 21.4 million
Lease term (months) 48-108
Estimated useful life of leased equipment (years) 5 - 10
Selling price at end of lease term (LE million) 2
Payments during the period to the lessor amounted to LE 10.7 million. 21.4
Cost
Balance at 1/1/2006 141,813 1,271,907 6,359,922 136,033 328,139 116,938 66,585 8,421,337
Additions 76,327 562,817 1,803,696 107,954 181,671 56,001 21,797 2,810,263
Subsidiary cost at acquisition 41,449 71,427 205,950 3,014 15,115 1,978 12,056 350,989
Transfers/Adjustments 4,545 1,303,125 (1,015,711) 4,595 10,806 (28,242) (5,743) 273,375
Disposals (62,743) (179,855) (8,331) (17,828) (7,445) (6,937) (283,139)
Balance at 31/12/2006 264,134 3,146,533 7,174,002 243,265 517,903 139,230 87,760 11,572,827
Accumulated depreciation
Balance at 1/1/2006 145,256 1,349,068 63,050 121,307 44,828 25,408 1,748,917
Depreciation 70,707 441,137 20,531 57,640 20,724 14,066 624,805
Subsidiary accumulated 9,126 70,441 1,431 13,002 1,191 4,670 99,861
depreciation at acquisition
Transfers/Adjustments 3,613 283,369 (226,627) 2,761 7,143 3,790 508 66,977
Disposals accumulated 50 (62,609) (3,841) (2,588) (2,760) (38) (71,786)
depreciation
Balance at 31/12/2006 3,613 508,508 1,571,410 83,932 196,504 60,193 44,614 2,468,774
Net book value at 31/12/2006 260,521 2,638,025 5,602,592 159,333 321,399 79,037 43,146 9,104,053
Net book value at 31/12/2005 141,813 1,126,651 5,010,854 72,983 206,832 72,110 41,177 6,672,420
Net book value at 31/12/2004 82,218 1,107,142 4,003,865 83,999 152,251 50,352 38,319 5,518,146
The adjustments in the cost and accumulated depreciation represent translation differences which arise from the Groups’ share in the
joint ventures’ fixed assets held in foreign currencies translated at the closing rates of exchange and their values at the beginning of the
year.
There is capitalized interest amounted to LE 0 million ( LE 16.7 million in 2005, LE 23.0 million in 2004 ).
There is change in the estimated useful lives of buildings in the current year that reduced the depreciation charge during the year by
LE 19.9 million.
Property,plant and equipment include the following assets which have been acquired and accounted for under finance lease
transactions:
19 Loans
Company responsible for loan Lending institution Interest rate
Orascom Construction Industries 3rd Bond (Due 29 June 2012) 11.75% fixed on 2.5 million bonds, 1.5% over
Company Central Bank Rate on LE 2.5 million bonds and
1.5% over LIBOR 6 months on 1.5 million US$
bonds
European Investment Bank (EIB) Variable
Different banks - overdraft and bank facilities Variable for the LE portion and 1%-1.25%
overLIBOR for the US$ portion
Different banks - loans First tranche 10.75% second tranche 1.25%
+ central bank rate third tranch 1% + libor 6
months
Besix Group Different banks - overdraft and bank facilities Variable
Orascom Construction Industries Different banks - overdraft Average 7%
Algeria
Egyptian Container Handling CIB loan (Due 31 December 2006) 1.85% over LIBOR 6 months and 1.4% + 1.6%
Company over LIBOR 6 months
CIB overdraft Variable
Export-Import Bank of the United States 0.45% over LIBOR 6 months
IFC 3% over LIBOR 6 months
Egyptian Cement Company Different banks loans Tranche (A)9.75% Tranche (B)0.75% over LIBOR
Different banks - overdraft and bank facilities 10%
Algerian Cement Company International Finance Corporation (IFC) 8.08%
European Investment Bank (EIB) Loan - Part A 3.98%
European Investment Bank (EIB) Loan - Part B 3.44%
Citibank N.A., Algeria 6.63%
Caisse National D’ epargne Et De Prevoyance Banque 6.63%
DEG - Deutsche Investitions- 5.69%
undEntwicklungsgesellschaft mbHf
International Finance Corporation (IFC) 7.55%
European Investment Bank (EIB) 4.44%
DEG - Deutsche Investitions- 5.58%
undEntwicklungsgesellschaft mbHf
Citibank International PLC 5.46%
Caisse National D’epargne Et De Prevoyance Banque 6.27%
Citibank N.A., Algeria 6.25%
Borrowing Cost
GLA Group Commercial facility - different banks - loans Variable
Different banks - overdraft Variable
Contrack International Inc. Different banks Variable
Ciment Blanc Algerien Citibank Algiers 5.65% and 2% + CBA Interest rate
OCI Mepco Commercial facilities Variable
Emirates Cement Company Different banks- loans 1.5% over LIBOR per annum
Pakistan Cement Company Different banks- loans KIBOR + 2.25%
EKF -loans KIBOR + 1%
Diffrent bank-facilities KIBOR 0.7% to 1.3% + KIBOR
Other Subsidiaries Different banks 12% - 13%
45,283 45,283
1,110,219 2,891 1,107,328 LE 1.11 billion promissory notes
1,644,620 1,644,620
50,375 43,427 6,948 Pledge of shares and assets and company’s business undertaking
75,557 65,135 10,422 Pledge of shares and assets and company’s business undertaking
51,129 41,390 9,739 Pledge of shares and assets and company’s business undertaking
151,119 130,275 20,844 Pledge of shares and assets and company’s business undertaking
184,637 123,091 61,546 Pledge of shares and assets and company’s business undertaking
21,931 14,621 7,310 Pledge of shares and assets and company’s business undertaking
(99,164) (99,164)
177,508 137,364 40,144 Promissory notes full amount
82,712 82,712 Promissory notes full amount
74,395 74,395 Promissory notes full amount
198,306 198,306 Full amount promissory notes
391,863 391,863 Promissory notes full amount
238,131 238,131 Promissory notes full amount
405,907 405,907 Sale and purchase of company stock
252,188 252,188 Pledge of the Company’s sponsor shares
172,399 172,399
11,121 11,121 Promissory not full amount+ Commercial lien on Alico and
Mehsas assets
68,039 68,039 Promissory notes full amount
9,249,642 6,261,949 2,987,693
6,862,169 5,518,314 1,343,855
4,256,993 3,274,010 982,983
Joint Ventures payables and other credit balances 285,798 131,871 184,501
Creditors for purchase of fixed assets 38,267 44,196 422
Deposits from others 234,119 132,642 169,403
Employees’ share in profit 65,349 19,543 21,792
Deferred revenue 19,192 12,761 16,874
Taxes withheld 201,682 170,537 167,001
Sundry creditors 102,438 184,166 303,705
Accrued expenses and interest 429,767 321,205 250,834
Provisions for claims 349,790 272,285 190,160
On 6 February 2006, the Company’s Board of Directors decided to increase the share capital by issuing 11.5 million common shares
at the fair value of LE 201.0 per share as of that date. This increase has been approved to the shareholders as of 16 February 2006.
The total subscribed shares were 11,420,837 shares with a fair value amounting to LE 2,295,588 thousand. The fair value of the
shares subscribed represents the share par value of the increased capital, with an aggregate amount of LE 57,104 thousand, and the
remaining balance amounting to LE 2,238,484 thousand represents an additional paid-in capital. An amount of LE 423,096 thousand
was added to legal reserve, which reached the maximum limit of 50% of issued capital, and the excess of LE 1,815,388 thousand
credited to special reserve.
On May 2006, the Capital Market Authority approved issuing the shares of the increase in capital, and the increase was recorded in the
commercial register on 17 May 2006.
The Company’s issued and fully-paid capital, after the increase on 17 May 2006, is LE 1,009,979 thousand divided into 201,995,837
common shares at a par value of LE 5 each.
OCI’s shares have been listed on the Cairo and Alexandria Stock Exchange since March 1999. In September 2004, the Company listed
part of its shares on the London Stock Exchange in the form of Global Depository Receipts (GDRs), each represents two shares. The
Bank of New York was appointed to act as the depository bank.
Reserves
Legal Reserve
According to the Company’s articles of incorporation, 5% of annual net income is set aside as a legal reserve. Setting aside this
percentage stops when the total accumulated reserve reaches 50% of the Company’s issued capital. If the reserve falls below the
defined level (50 % of the issued share capital), then the company is required to resume settling aside 5 % of the annual profit until
it reaches 50 % of the issued share capital. This reserve is used to increase the Company’s issued capital or to cover the Company’s
losses.
Other Reserves
According to the Company’s articles of incorporation, the General Assembly can establish and use other reserves from annual revenue
upon a recommendation by the Board of Directors.
23 Retained earnings
In 2006, the adjustment to retained earnings consists of the effect of the following:
LE’000
Total (93,839)
24 Treasury stock
As of 31 December 2006, the treasury stock item amounting to LE 136.5 million represents the carrying cost of 1,546,806 shares
owned by OCI ESOP Limited and 38,279 shares owned by Asia Tel (two subsidiaries). The OCI shares held by OCI ESOP Limited are
acquired to discharge the liabilities under the Employee Share Option Plan. The net cost of acquisition of shares and GDRs of OCI,
including share dividends, adjusted for the share dividends and split, were as follows:
There is a limit on the number of options which OCI ESOP may grant to employees under the plan. OCI ESOP may not grant options
to employees representing more than ten per cent of the Company’s shares in any five-year period and may not grant options
representing more than two per cent of the Company’s shares in any one year. Options granted under the plan generally vest only
after four years from the date of grant, however, under the plan, OCI ESOP may allow options to vest beforehand under certain
circumstances.
On 27 December 2006, the Shareholders approved at an extraordinary general assembly to issue shares at nominal value with a ceiling
of 1% of the current issued shares, in order to meet any of the Company’s obligations under share-based payments relating to the
incentive programs for employees and managers, subject to the approval of the regulatory authorities.
Share Option Activities Number of shares Average per share Average per share
subject to option exercise price market price
Shares LE LE
The fair value of services received in return for share options granted are measured by reference to the fair value of share options
granted. The estimate of the fair value of the services received is measured using independent probability and simulation models and
the following assumptions:
Fair value of share options and assumptions 2006 2005 2004 2003
As at 31 December 2006, the cumulative cost of share-based pay under the OCI Employee Share Option Plan amounting to LE 55.4
million has been provided for and included in “Accrued Liabilities” (Note 20) and “other long-term liabilities” (Note 21) in the amounts
of LE 37.2 million and LE 18.2 million respectively.
27 SWAP agreement
The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2006 were US$ 3,945,320 and US$
10,600,607 for a commercial facility and an Ex-Im Bank facility, respectively. At 31 December 2006, the fixed interest rates were
5.8975% to 5.9525% for the commercial portion of the Ex-Im Bank loans and the floating rates, based on LIBOR, on both facilities.
The gains and losses on these swap contracts are recognized under hedging reserve in equity on interest rate swap contracts at 31
December 2006.
The Group entered into several agreements of foreign currency swaps at 31 December 2006 to exchange LE 128.4 million against US$
22.4 and then exchange US$ 22.4 million for LE 128.86 in January 2006.
28 Dividends
The following cash dividends were paid by the Company:
The Group employee’s share in profits, which have been charged to equity, amounted to LE 78.2 million (2005, LE 37.9 million)
(2004, LE 31.2 million).
Outstanding letters of credit as at 31 December 2006 (uncovered portion) amounted to LE 3.5 billion (2005, LE 1.0 billion) (2004, LE
291.2 million).
OCI guarantees facilities for US$ 300.0 million in favor of lending banks. On 31 December 2006, there was no balance in these
facilities.
OCI guarantees to International Finance Corporation relating to a loan amounted to US$ 90.0 million.
One of the Company’s subsidiaries (Contrack International) contributes in a joint venture which OCI guarantees the facilities granted to
this JV by LE 1.5 billion representing 50% of facilities granted to this Joint Venture.
Litigation
In the normal course of business, the Group entities and joint ventures are involved in some arbitration or court cases as defenders or
claimants. These litigations are carefully monitored by the entities management and legal counsels, and are regularly assessed with
due consideration for possible insurance coverage and recourse rights on third parties. Provisions are made if required and regularly
updated.
The major portion of the business of the Company’s US subsidiary involves contracting with departments and agencies of the
U.S. Government. Such contracts are subject to audit and possible adjustment by the respective agencies. The USAID Agency has
investigated the nature of the relationship and performance of a contract with an Egyptian Joint Venture of which the company has
40% share. The USAID Agency have recently filed a suit against all partners of the Joint Venture contending that it is entitled to refund
from the partners all the contract funds paid for these projects plus damages and civil penalties. Management has substantive reasons
to oppose the allegations raised by Agency. The Company management also believes that the ultimate resolution of any such claims
and counter claims will not have a negative impact on reported results of operations, financial position and cash flows.
In June 2006, a court judgment in the amount of Euro 1.2 million (LE 9.0 million) has been pronounced against one of the jointly-
controlled companies and its manager relating to a construction project almost 11 years ago in an African country where the company
is currently less active. An appeal has been made against the judgment, and a provision has been recognized to an extent consistent
with the external legal counsel’s opinion.
In 2005, one of the subsidiaries terminated two subcontract agreements for the failure by the subcontractor to meet their contractual
obligations. The subcontractors filed a request for arbitration for compensation for the loss incurred. The ultimate resolution of the
first arbitration was in favor of the Company by refusing the claim of the subcontractor in the amount of LE 218.7 million. The other
subcontractor claimed compensation in the amount of LE 17.3 million and the case has not been resolved yet.
Management of a completed joint venture contract, with a total value of LE 1.2 billion and in which OCI contribution is 50%, has
entered a judicial motion on 25 January 2006 to settle matters of dispute with the owner regarding a claim by the Joint Venture
for the unjustified liquidation by the owner of letters of guarantee valued at LE 66.0 million, owner’s refusal to pay price difference
of imported supplies amounting to LE 8.15 million and USD 2.4 million, in addition to the owner’s failure to meet the contracted
obligation to pay 50% of completed work value in US Dollars at the rate of LE 3.4. The court is not yet to make any judgment
regarding this dispute. Project management and the legal department of OCI believe that the Joint Venture has enough documents
and justification to support its position and reserve its rights and, therefore, collecting the total of LE 142.0 million due from the owner
with no obligation to pay any delay penalties.
31 Commitments
At 31 December 2006, capital commitments of the Group for purchasing fixed assets amounted to approximately LE 1.8 billion.
The balance of the Group’s investment in the share capital of associated companies and investments-available-for sale which have not
become due for payment at the balance sheet date amounts to LE 3.5 million.
OCI has a commitment to cover any deficit pertaining to the financing of construction of the Algerian Cement Company’s (ACC) plant
(an indirectly owned subsidiary) to a maximum of US$ 52.0 million. The Company is also committed to maintain, directly or indirectly,
an ownership interest of at least 51% in ACC’s capital.
OCI is committed to cover the deficit, if any, in financing the construction of Pakistan Cement Company (an indirect subsidiary) to a
maximum of US$ 43.0 million in favor of lending banks for this subsidiary.
Credit Risk
Credit risk is represented in the ability of customers to pay their debts. To limit this risk, OCI and its subsidiaries provide credit only to
government entities, associated companies, and a large number of credits worthy private sector customers. For specific activities in
certain cases, insurance is concluded regarding country risk.
Liquidity Risk
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match or when the Group is unable to liquidate
its assets with values that approximate their fair values to meet the Group’s liabilities. While an unmatched position may enhance
profitability, it can also increase the risk of losses. To manage the liquidity risk, the Group’s management aims to have sufficient
amounts of cash, available finance and credit facilities to discharge the liabilities when due and minimizes potential losses. For
construction contracts, attention is paid to obtaining a pre-financing by the client.
Currency Risk
Currency risk is the risk that the value of the financial instruments will fluctuate due to changes in foreign currency exchange rates.
Currency risk arises when the transactions and recognized assets and liabilities are denominated in a currency that is not the Company’s
functional currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to
foreign operations. The Group manages this risk by monitoring the exchange rates fluctuations on a continuous basis and by matching
its liabilities in foreign currencies with its sources of funds in foreign currencies.
Fair Value
A number of the Group’s accounting policies and disclosures require determination of fair value for both financial and non financial
assets and liabilities. Fair values have been determined for measurement purposes based on the following methods:
Inventory
The fair values of inventory acquired in a business combination is determined based on its estimated selling price in the ordinary course
of business less the estimated cost of completion and sale, and a reasonable profit margin based on the effort required to complete
and sell the inventory.
Derivatives
The fair value of forward exchange is based on their listed market price or, if not available, the difference between the contractual
forward price and the current forward price for the residual maturity of the contract.
The fair value of interest rates swaps is based on broker quotes tested for reasonableness by discounting estimated future cash flows
using market interest rates for similar instruments at the measurement date.
Balances with non-consolidated companies and joint ventures are reported in the consolidated balance sheet under due from and due
to related parties, as follow:
Total cost of services and goods sold 2,151,387 3,193,482 6,200,932 8,401,316 11,509,113
Selling, general and admin expenses 169,768 264,510 522,681 719,723 1,149,458
Income before taxes and minority interest 474,880 852,882 1,581,290 2,303,840 3,549,987
Total shareholders’ equity and liabilities 6,327,433 8,111,499 11,044,209 15,645,075 26,127,950
Other Data
Return on sales 3 12.50% 12.68% 12.87% 14.96% 16.21%
Return on equity 4 27.09% 31.04% 42.34% 46.53% 41.29%
Current ratio 5 1.08 1.37 1.28 1.56 1.12
Net debt to equity ratio 6 0.74 0.76 0.66 0.85 0.70
1 Net income available for shareholder dividends, after deducting the employees’ profit share, divided by the weighted average
number of shares outstanding during the period.
2 Total cash dividend paid for each year divided by current number of shares of 190,575,000.
3 Net income as a percentage of sales.
4 Net income as a percentage of average total shareholders’ equity.
5 Current assets to current liabilities.
6 Net debt to internal finance (shareholders’ equity plus minority interests).
Total cost of services and goods sold 430,277 516,745 1,023,256 1,443,525 2,001,585
Selling, general and admin expenses 33,954 42,801 86,251 123,664 199,906
Income before taxes and minority interest 94,976 138,007 260,939 395,849 617,389
Total shareholders’ equity and liabilities 1,265,487 1,312,540 1,822,477 2,716,159 4,567,824
Other Data
Return on sales 3 12.50% 12.68% 12.87% 14.96% 16.21%
Return on equity 4 25.90% 28.36% 42.68% 47.02% 41.17%
Current ratio 5 1.08 1.37 1.28 1.56 1.12
Net debt to equity ratio 6 0.74 0.76 0.66 0.85 0.70
Foreign exchange rate (LE = US$ 1) 5.00 6.18 6.06 5.76 5.72
Foreign exchange rate (LE = US$ 1) PL 5.82 5.75
1 Net income available for shareholder dividends, after deducting the employees’ profit share, divided by the weighted average
number of shares outstanding during the period.
2 Total cash dividend paid for each year divided by current number of shares of 190,575,000.
3 Net income as a percentage of sales.
4 Net income as a percentage of average total shareholders’ equity.
5 Current assets to current liabilities.
6 Net debt to internal finance (shareholders’ equity plus minority interests).
Mr Osama Elrefaie
* Members of the Audit Committee Managing Director, UCC
Mr Valentin Tunon
Chairman, Group GLA
www.orascomci.com
Suez Industrial Development Company (60.5%) United Cement Company of Nigeria (UNICEM) (70%)
Industrial park developer and operator Cement manufacturer