Egypt Trust
THE EGYPT TRUST
Societe d'Investissement a Capital Fixe
Luxembourg
R.C. no. B 55.584
Unaudited semi-annual report
at September 30th, 2003
THE EGYPT TRUST
Contents
Organisation of the Fund 3
General Information 5Chairman's Statement 6
Manager's Review 7
Statement of Net Assets 21
Shareholders' Equity 21
Statement of Operations 22
Statement of Changes in Net Assets 23
Statistical Information about the Fund 23
Statement of Changes in Shares Outstanding 23
Statement of Investments and Other Net Assets 24
Currency, Geographical and Industrial Classification of the Portfolio 26
Notes to the Financial Statements 27
THE EGYPT TRUST
Organisation of the Fund
Chairman DR. IBRAHIM AHMED KAMEL
8 Ahmed Nessim Street
Giza
EGYPT
Directors MICHAEL BECKETT
Northcroft
Dulwich Common
U.K. - London SE21 7EW
MOHAMED HASSANEIN
c/o NATIONAL BANK OF EGYPT
NBE Tower
1187 Corniche El-Nile
Dokki
Cairo
EGYPT
GAMAL HOSNY MUBARAK
9 Elsaada St. Roxy, 20th Floor, Suite 212
Heliopolis
Cairo
EGYPT
MICHAEL TAIT
c/o Oxford and Edinburgh Consultants
8 Chalcot Crescent
U.K. - London NW1 8YD
ALEXANDER E. ZAGOREOS
c/o Lazard Asset Management LLC
30 Rockefeller Plaza
U.S.A. - New York, NY 10020
AHMED EL BARDAI
22 Adly Street
Cairo
EGYPT
(since August 19th, 2003)
Registered Office 11 rue Aldringen
L - 1118 LUXEMBOURG
Manager Lazard Asset Management LLC
30 Rockefeller Plaza
U.S.A. - New York, NY 10020
Investment Adviser National Bank of Egypt
NBE Tower
1187 Corniche El-Nile
Dokki
Cairo
EGYPT
Advisory Board HERBERT GULLQUIST
Custodian and Paying Agent KREDIETBANK S.A. Luxembourgeoise
43 boulevard Royal
L - 2955 LUXEMBOURG
Domiciliary, Registrar and Transfer KREDIETRUST LUXEMBOURG S.A.
and Administrative Agent 11 rue Aldringen
L - 2960 LUXEMBOURG
Independent Auditor ERNST & YOUNG S.A.
6 rue Jean Monnet
L - 2180 Luxembourg
THE EGYPT TRUST
General Information
1. Shareholders will be sent audited annual accounts relating to the Company,
which will include a report by the Manager, made up to the last day of March in
each year. Shareholders will also be sent an unaudited interim report covering
the six-month period ending September 30th in each year.
2. The Annual General Meeting is held in Luxembourg each year (commencing in
1997) at 4 p.m. on the third Tuesday of August in each year (or, if such day is
not a business day in Luxembourg, on the next following business day). Notices
convening each annual general meeting, including agenda, time and place, and
details of attendance, quorum and majority requirements under Luxembourg law,
will be sent to the registered addresses of Shareholders together with the
annual report and accounts not less than 21 days before the date of such
meeting.
3. The investment objective of the Company is to achieve medium to long-term
capital growth through investment principally in the equities of companies
listed on the Egyptian Stock Exchange, aiming to capitalise on low valuations
and benefiting, in the short-term, from the high dividend yields currently
available in the Egyptian market.
4. The Company intends to distribute annually to Shareholders substantially all
of its income (including dividends and interest) available for distribution
after deducting fees and expenses.
5. Dividends will only be paid to the extent that they are covered by income
received from underlying investments, Shares of profits of associated companies
being unavailable for this purpose unless and until distributed to the Company.
The Articles of incorporation provide that dividends shall not be paid out of
surpluses arising upon the realisation of investments.
6. A dividend declared but not claimed by a Shareholder after twelve years from
the declaration thereof shall lapse and revert to the Company.
7. The Net Asset Value is expressed in US Dollars and is published on a weekly
basis in the Financial Times.
8. The Shares are listed on the London Stock Exchange and the Luxembourg Stock
Exchange. It is also intended that an application will be made for the Shares to
be admitted to listing on the Egyptian Stock Exchange.
Chairman's Statement
The past six months have witnessed a huge run-up in stock prices in the Egyptian
market as the war in Iraq proved short-lived and tourism receipts recovered
quickly. The rapidity with which the sector responded demonstrated its
flexibility and its ability to cope with significant shocks. Since then, Egypt's
balance of payments situation has improved considerably and tourism revenues
have rebounded.
We continue to be optimistic over the medium term. During 2003, the government
implemented a number of reform initiatives designed to spur economic growth. The
Egyptian pound floatation as well as the approval of the new banking law laid
the groundwork for an improved monetary environment. Furthermore, the latest
economic data shows improvement on the balance of payments on the back of rising
export revenues, fast recovery in tourism, as well as record Suez Canal
receipts.
I would like to thank my fellow board members, Lazard Asset Management, LLC, the
manager Dina Khayat and the National Bank of Egypt. We look forward to a
profitable year and the continued success of the Egypt Trust.
Dr. Ibrahim Ahmed Kamel
Chairman
Luxembourg, October 30th, 2003
THE EGYPT TRUST
Manager's Review
Fund Performance: Six months ending September 30th, 2003:
March 31st, 2003 September 30th, 2003 Total
Return
---------------------------------------------------------------------------------------
IFC Investable Index USD 29.96 USD 48.25 61.0 %
Egypt Trust USD 6.18 / share USD 7.33 / share 18.6 %
Note: The September 30th, 2003 value for the Trust includes a dividend of USD
0.31 paid in August 2003 in order to reflect total return.
Performance is not indicative, nor is it a guarantee of future results.
Summary
The market continued the strong rally, which began in the spring, with the IFC
Investable Egypt Index gaining 61 percent (in USD terms), over the past six
months, while Egypt Trust under performed the IFC Investable index by 42.4%,
rising 18.6 percent. The Manager attributes the underperformance to the Trust's
investment restrictions which limit maximum active exposure to 10% of net assets
and the top five stocks in the IFC Investable Egypt Index represent 84% of the
index, whereas the most they could represent in the portfolio is 50%).
But there is cause for concern regarding the market and its 56 per cent
year-to-date rally (in US Dollar terms). Rising prices, in effect, represent a
re-rating of the market to an average valuation of 9.1 times 2003 earnings from
6.3 times earnings at the beginning of the year - a value we believe is not
entirely justified by an improvement in growth prospects or the progress of
economic reforms.
The rally, which was triggered by the flotation and subsequent weakening of the
Egyptian pound as well as a shorter-than-expected war in Iraq, was nevertheless
sustained despite a stagnant economy and an increasingly urgent need for reform.
While privatization remains moribund and foreign direct investment negligible at
USD700 million for fiscal 2002/2003, the complete flotation of the Egyptian
pound became quickly heavily managed as the authorities began to anticipate an
overshoot of foreign exchange rates, as a result of demand continuing to lead
supply. The gap between parallel market rates and the official bank rate has
again widened to double digits, exacerbated by falling interbank rates on the
Egyptian pound and a loose monetary policy.
As stated above, market valuations (of Egypt Trust's portfolio holdings) have
now risen to 9.1 times 2003 earnings, with the (weighted) average dividend yield
of these shares at 5.4 percent. The fund was mainly affected by its underweight
position against the index in all stocks, given the 10 per cent ceiling on the
ownership of any one security, compared with the IFC Index in which Commercial
International Bank for example (which rose 56 per cent year-to-date),
constitutes 18.3 per cent of the index and Mobinil (which rose 97 per cent),
represents 16 per cent of the IFC Index. In addition, the Trust does not have a
holding at all in Orascom Telecom, which represents 22.0 percent of the IFC
index. The Manager continues to avoid a stock as opaque as OT, in which holdings
outside Egypt represent 74 per cent of revenues, but where no information on the
underlying companies is available beyond company-released revenues and EBITDA
figures.
Discount to NAV
As of September 30th, the discount to net asset value of the Egypt Trust was
13.8 percent. The discount, which had fallen to as low as seven per cent in
March, prior to the vote scheduled in August for the 10 per cent redemption
feature, rose again when the redemption was not adopted at the August AGM.
Redemption Feature
While the quorum at the AGM of August 19th was sufficient to pass a vote,
abstentions caused the vote to fail. The result surprised the Manager as well as
most investors, who had clearly communicated to the Manager their desire to see
the redemption feature approved. In sympathy with shareholder intentions, the
Board has re-convened an EGM for November 17th to re-address the issue of a
quarterly redemption. As of this writing, the vote has taken place, a quorum was
reached and all proposed amendments to the articles of incorporation enabling
quarterly redemptions at the request of shareholders were passed.
Company Administration
At the August Board meeting, the Manager presented proposals to amend the
investment restrictions to allow for investment above the 10% limit as indicated
in the prospectus. The manager proposed that it be given the authority to
increase the Trust's maximum for exposure to a single issuer to 20% with a board
limitation to 15%. The motion was put forward and the administrator will report
to the Board at its next regular meeting as to the requirements.
Portfolio Overview
There were a few changes during the period under review in the weighting of some
of the top ten holdings of the Trust. In August, the government-owned National
Investment Bank offered to buy on the market, a nine per cent stake in Suez
Cement, raising its holding in the company to 10 per cent. The move was seen by
many as a signal by the government to want to retain a majority stake in Suez
(in which Ciment Francais owns 34 per cent) which represents 20 per cent of the
total cement market and is the last major cement producer that has not been
fully sold off to foreign investors. The position in Suez Cement was liquidated
at EGP 45 per share, on August 21st, 2003. The Egyptian Financial and Industrial
Company (EFIC) replaced Suez Cement in the Trust top ten holdings.
The Trust is 75.7 percent invested with the cash position at 24.3 percent. The
portfolio now consists of 21 holdings, although it remains concentrated, with
the top ten holdings constituting 69.4 percent of net assets. The Trust's policy
is to concentrate on the more liquid large capitalization stocks in the market,
most often the ones most attractive to potential acquirers or new portfolio
investors.
The portfolio yield to the Trust is currently projected at 4.9 percent for the
year ending March 31st, 2004. The fund paid a dividend of USD 0.31 on September
11th, 2003. For all dividend distributions, shareholders have the option to
reinvest their dividends should they elect to do so. Under the Dividend
Reinvestment Plan, participants will be issued new shares at a price per share
equal to the greater of (a) 103 percent of NAV per share; or (b) 95 percent of
the middle market price per share on that valuation date.(1)
The Economy
In September, the Egyptian pound weakened markedly against the US Dollar, with
the parallel exchange rate falling to EGP/USD7.23, compared with the official
exchange rate of EGP6.15/USD. The gap between the two rates has widened over the
past three months, rising from 2.4 per cent in June to 18 per cent in September.
A number of factors may have contributed to the sharp fall in Egyptian pound
rates, including the start of the Umra season, the approach of Ramadan and the
attendant increase in imported foodstuffs, as well as some pick-up in economic
activity, resulting in a further increase in import requirements.
One direct result of the falling exchange rate has been a spike in prices.
Rising inflation rates however, are not reflected in the consumer price index
(CPI), as a large portion of the basket of goods that make up the CPI are
subject to government subsidy. The CPI stands at 4.0 percent, in fiscal year
2002/2003 compared to 2.7 percent a year ago. However, the wholesale price index
(WPI) reflects a more accurate picture of inflation pressures impacting the
fiscal budget. The WPI has risen 18.5 percent this year, raising prices the
government must pay to subsidize consumer goods and services. This, in turn,
puts pressure on the budget, pushing government expenditures up 9.8 percent
year-on-year. As a result, the budget deficit rose from 5.8 percent of GDP (by
the narrowest measure) to 6.3 percent, in fiscal year 2002/2003. The
deterioration in Egypt's fiscal accounts led Standard and Poor's to lower
Egypt's long-term local currency rating from BBB to BBB-, reflecting not only
concerns about the budget deficit but the expectation that the deficit would
climb to around 7.3 percent in fiscal year 2003/2004.
In response, the government has pledged to resume its stalled privatization
process, as well as push through a number of reforms designed to speed up growth
and encourage investment. It is also likely that the Central Bank will reverse
the loose monetary policy it has maintained over the summer and tighten money
supply in the coming months to curb inflation and stabilize the foreign exchange
market.
Short-term uncertainty notwithstanding, the overall economic picture remains
positive. The current weakness in the exchange rate comes despite strong
improvement in Egypt's external accounts. The current account showed a sizeable
surplus of USD1.9 billion, on the back of a 15.2 percent increase in exports,
while imports posted a much smaller increase of 1.4 percent. The services
balance was up 26.1 percent, as Suez Canal revenues rose sharply during the war
in Iraq, to reach USD 2.2 billion for the year, and tourism quickly recovered in
the aftermath of the war, posting an 11.8 percent year-on-year growth to USD 3.8
billion. The overall balance of payments in fiscal 2002/2003 recorded a USD 546
million surplus compared with a deficit of USD 456.4 million last year.
International reserves stand at USD 14.8 billion (as of the end of June 2003),
which is equivalent to 12 months of imports.
Foreign debt remains at under USD30 billion (less than one third of GDP), with
almost 75 per cent of the debt long term and concessionary. While future growth
will depend on how the government will manage the economy as well as on regional
stability, significant reform measures have been undertaken in the past year
that should promote economic growth. A new law confirming the independence of
the central Bank of Egypt was enacted in July. The boards of the four public
sector banks, controlling 80 per cent of Egyptian savings, have been completely
overhauled, putting experienced, Western-educated and trained chairmen at their
helms. In addition, the government passed a new flexible labor law, and is
working on a law restructuring corporate and income taxes, while the process of
overhauling customs, key to encouraging foreign direct investment and exports,
has already begun.
While the main risks to the economy remain regional, however events in the
region may spell opportunity for Egypt in the medium term. Egypt has been
encouraged to play an important role in the reconstruction of Iraq and a nascent
Palestinian state, (as and when that happens), which should provide a boon for
the private sector, in particular (in the case of Palestinian reconstruction)
cement sales and construction contracts. In the immediate term, any progress in
the peace process will likely benefit the Egyptian economy, especially the
tourism sector. Orascom Construction Industries (OCI) has indicated in its most
recent quarterly report that it expects to participate in meaningful development
projects beginning in 2004. Should a comprehensive lasting settlement develop,
the implications for Egypt should be far broader and more substantial.
(1) For more information on the Dividend Reinvestment Plan, please call the
manager or Kredietbank in Luxembourg (Tel: +352 468191).
Top Ten Holdings, as of September 30th, 2003:
Company Sector Weight
Orascom Construction
Industries (OCI) Const/Bldg Mats 10.1
Egypt Sovereign Eurobond
(8.75%, 2011) Bonds 10.0
Egyptian Company for Mobile
Services (MobiNil) Telecom 9.7
Commercial International Bank (CIB) Banking 9.5
National Societe Generale
Bank (NSGB) Banking 9.1
First Arabian Investment Tourism 5.8
Egyptian Financial & Industrial
Company (EFIC) Fertilizers 5.4
Egyptian Int'l Pharmaceutical
Company (EIPICO) Pharmaceuticals 4.3
Egyptian American Bank Banking 3.2
Nasr City Housing Housing 2.3
-----------------------------------------------------------------------
69.4
Orascom Construction Industries
Price: EGP 58.24 as of September 30th, 2003
Shares in issue: 95,287,500*
Free float: 30.0 % or 28,586,250 shares
Year-end Net Profit EPS PER Dividend Dividend
(EGP million) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2000 279.2 2.74 17.6 0.00 0.00 %
Dec 2001 303.8 2.88 10.8 1.05 3.39 %
Dec 2002 363.9 3.55 6.5 1.00 4.32 %
Dec 2003e 500.0 4.72 12.3 1.10 1.89 %
-------------------------------------------------------------------------------
Source: LAM. Note: 2000, 2001 and 2002 figures are based on price in effect for
each year and the weighted average number of shares outstanding during the
period. Actual and expected EPS are exclusive of employees' profits share.
*In 2001, OCI had a capital increase, from 75 to 82.5 million shares, in 2002
from 82.5 to 86.625 million shares and from 86.6 to 95.3 million shares.
Strengths
-- Orascom Construction Industries (OCI) is involved in construction,
infrastructure development and building materials manufacturing. The
company's construction group provides engineering and building services for
industrial, commercial, power, water/sewage and railway projects. The
building materials group manufactures basic products used in contracting and
construction such as cement, paints and chemicals, fabricated steel, pipes,
cement bags and industrial gases.
-- Egyptian Cement Company (ECC), which is 53.6 percent owned by OCI, is one of
the most efficient cement companies in Egypt. Benefiting from Holderbank's
technical expertise, the plants have reached high capacity utilization
levels in record time. ECC now has a 20.0 percent market share.
-- As of the end of June 2003, OCI reported a 74.5 percent growth year-on-year
in consolidated revenue, to EGP 2,251 million on the back of a 2.4 times
growth in the construction group to EGP 1,664 million. Net earnings
witnessed a 63.1 percent increase year-on-year, to EGP 255.3 million.
Un-billed backlog reached EGP 2.4 billion up from EGP 2.3 billion, in 2002.
-- For the year 2002, OCI achieved 20.3 percent growth in consolidated revenue;
to EGP 2,911 million and a 19.8 percent increase in net earnings, to EGP
363.9 million from EGP 303.8 million last year.
-- OCI benefits from currency depreciation, as over 50 percent of consolidated
backlog is denominated in US dollars, as of December 31st, 2002.
Additionally, in order to diversify country risk, OCI plans on expanding in
the region, targeting the sourcing of 50 percent of revenues from outside of
Egypt by 2005. In 2002, OCI generated around 18 percent of consolidated
revenues from outside Egypt.
-- OCI's construction arm, Contrack International, a US based construction
company, which bids for international public works and defense contracts
initiated by the US government is expected to benefit from the
reconstruction of Iraq and Afghanistan.
-- OCI has strong relationships with leading multinationals in construction,
engineering and building materials, many of which are joint-venture partners
with OCI.
-- Inter-group synergism provides strong support for top-line growth and
economies of scale.
Weaknesses
-- The inter-locking nature of the businesses and their exposure to the
construction market in Egypt makes them vulnerable to economic cycles.
-- Multitude of inter-company accounts makes it difficult to assess the extent
of inter-company trading.
Egypt's Sovereign Bonds
Issue: USD1,000,000,000
Coupon: Fixed 8.75 %
Par Value: USD1,000
Issue Date: July 12th, 2001
Term: 10 years
Maturity: July 11th, 2011
Payment Frequency: Semi-annual
Current Price (Sept30): 120.44
Yield-to-maturity: 5.38 %
Strengths
-- Provides a partial US dollar hedge for the fund.
-- Balances the portfolio by adding an increased fixed income component.
-- High liquidity
Weaknesses
-- Susceptible to a weakening in price in light of Egypt's macro economic
concerns.
Egyptian Company for Mobile Services
(MobiNil)
Price: EGP 61.37 as of September 30th, 2003
Shares in issue: 100,000,000
Free float: 30.0 % or 30,000,000 shares
Year-end Net Profit EPS PER Dividend* Dividend
(EGP million) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2000 289.1 2.89 26.1 0.00 0.00 %
Dec 2001 340.8 3.43 9.7 1.50 4.50 %
Dec 2002 422.3 4.25 7.3 2.50 8.06%
Dec 2003e 630.0 6.30 9.7 7.38 12.02 %
-------------------------------------------------------------------------------
Source: LAM. Note: 2000, 2001 and 2002 figures are based on price in effect for
each year and the weighted average number of shares outstanding during the
period (adjusted for treasury stocks).
*2003 dividend includes EGP 4.88 of dividend paid in October 2003 from
accumulated retained earnings and an expected dividend of EGP 2.5 to be paid
from 2003 earnings.
Strengths
-- As of the end of June 2003, Mobinil registered a healthy 29.5 percent growth
in revenue, as a result of the growth strategy initiated in 2002, focusing
on high-end consumers. Net earnings jumped 2.2 times year-on-year to EGP
331.1 million. The company's active subscribers reached 2.6 million.
-- For the full year 2002, MobiNil reported an 11 percent growth in revenue
relative to 2001. Net earnings came in at EGP 422.3 million, up from EGP
340.8 million in 2001, representing a 24.0 percent increase. The company has
a market share of approximately 54 percent.
-- In April 2003, Mobinil implemented a more balanced tariff structure, which
is expected to improve post-paid ARPU by 7 percent to EGP 290, while
pre-paid ARPU remains unchanged.
-- MobiNil is one of the highest market capitalization and liquid stocks in the
Egyptian market, with a market cap of USD 999 million (EGP 6.1 billion) and
an average daily volume (last 12 months) of 96,544 shares.
-- There remains growth potential for mobile penetration, as current total
subscribers in Egypt are around 4.9 million from an estimated addressable
market of over 14 million subscribers. However, we currently expect a
relatively slower forthcoming subscriber's growth due to the slow economy.
-- The company gets direct benefits from the technical assistance of Orange as
well as the marketing clout of Orascom.
Weaknesses
-- The currency depreciation continues to put pressure on bottom line results,
as MobiNil has significant amounts of US dollar denominated debt (USD 39
million non-hedged) and hard currency denominated CAPEX needs, which have
been averaging USD 110-125 million annually.
-- With the majority of market demand in the low calling volume pre-paid
service, the overall average revenue per user had been declining. However,
the situation has improved somewhat in 2002, with MobiNil's recent focus on
higher value new subscribers, which has raised blended ARPUs at around EGP
100, up from EGP 97.
-- The company's tax exemption ends after 2003, resulting in a 42 percent tax
rate going forward, (and an expected effective tax rate of 34 per cent).
Commercial International Bank
Price: EGP 42.62 as of September 30th, 2003
Shares in issue: 65,000,000
Free Float: 74.6 % or 48,490,000 shares (includes GDR's)
Year-end Net Profit EPS PER Dividend Dividend
(EGP million) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2000 384.9 5.24 6.8 3.75 10.60 %
Dec 2001 401.8 5.47 5.1 3.75 13.44 %
Dec 2002 380.9 5.19 5.3 3.00 11.00 %
Dec 2003e 420.0 5.81 7.3 3.80 8.92%
-------------------------------------------------------------------------------
Source: LAM. Note: 2000, 2001 and 2002 figures are based on capital structure
and price in effect for each year.
Actual and expected EPS are exclusive of employees' profits share.
2003 figures are based on 65 million shares, as the stock dividend distribution
date has not been announced yet.
Strengths
-- In the first half 2003, CIB witnessed a healthy 12.9 percent growth in net
interest income to EGP 275.7 million, although net profit fell 2.8 percent
year-on-year due to a 65.3 percent increase in tax provisions to EGP 82
million. During the quarter, the bank was able to finalize and pay all tax
liabilities from 1993 to 2000 at a cost of EGP 100 million, fully provided
for.
-- For the year 2002, CIB reported 15.8 percent growth in net interest income,
although net income fell as a result of 63 percent decrease in foreign
exchange commissions. Net earnings came in at EGP 380.9 million, in 2002
versus EGP 401.8 million last year, representing a decline of 5.2 percent.
-- In September 2003, CIB announced that it will double its paid-in-capital
from EGP 650 million to EGP 1.3 billion through a stock dividend, financed
from reserves. This increase will grant the bank a tax benefit, as around 10
percent of the paid-in-capital will be exempt from taxes. The stock dividend
distribution date has not been announced yet.
-- CIB's asset quality is stable with a non-performing loan ratio of 3.6
percent, in the first half 2003 compared to 3.5 percent, in 2002.
-- Among peer group banks (NSGB, MI Bank and EAB), CIB is the largest bank in
terms of assets (EGP 22.9 billion) and net worth (EGP 1.9 billion).
Furthermore, it has the largest branch network with 40 branches, as of the
end of December 2002.
-- The bank is one of the most liquid and largest capitalization stocks on the
exchange with an average daily volume of 78,348 shares (last 12 months) and
a market capitalization of EGP 2,770 million (USD 451 million).
-- CIB is trading at a price-to-book of 1.6 times. Based on 2002 earnings, the
bank has an ROA and a ROE of 1.9 percent and 23.1 percent, respectively.
Weaknesses
-- In the current economic environment, CIB continues to be underlent, with a
loan to deposit ratio down from 69 percent in 2002 to 63.7 percent in the
first half 2003, eroding the bank's spread on the long run.
-- The current slowdown in economic activity combined with the continued
weakness of the Egyptian pound against the US dollar, may increase
non-performing loans, as companies' servicing ability would be negatively
affected.
National Societe Generale Bank
Price: EGP 27.49 as of September 30th, 2003
Shares in issue: 50,000,000*
Free Float: 26.7 % or 13,350,000
Year-end Net Profit EPS PER Dividend Dividend
(EGP million) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2000 124.6 5.80 5.5 1.00 3.12 %
Dec 2001 142.1 5.13 4.5 1.00 4.36 %
Dec 2002 165.4 4.83 4.8 1.25 5.39 %
Dec 2003e 180.0 3.97 6.9 1.05 3.82 %
-------------------------------------------------------------------------------
Source: LAM. Note: 2000, 2001 and 2002 figures are based on price in effect for
each year and the weighted average number of shares outstanding each year.
Actual and expected EPS are exclusive of employees' profits share.
*In 2000, NSGB had a capital increase, from 18 to 22 million shares, in 2001,
from 22 to 30 million shares, in 2002, from 30 to 40 million shares and in 2003,
from 40 million to 50 million shares.
Strengths
-- As of the end of June 2003, NSGB reported an impressive 19.5 percent
increase year-on-year in net earnings to EGP 90.1 million despite a two
times increase in provisions to EGP 91.7 million. Bottom line results were
boosted by a 33.5 percent growth in net interest income to EGP 150.2
million.
-- Despite the general economic slowdown, net earnings for the full year 2002
reached EGP 165.4 million, up from EGP 142.1 million in 2001, representing
an increase of 16.4 percent, which is the highest growth among peer group
banks.
-- In order to increase retail-banking operations, NSGB has been aggressive in
expanding its branch network. The bank expects to add 10 branches before the
end of 2003, increasing the total to 42 operating branches by December 2003.
Furthermore, the bank has an ATM network comprised of 46 ATMs.
-- NSGB has positioned itself as a leader in project finance, especially in the
energy sector in Egypt.
-- As a majority-owned subsidiary of Societe Generale in Paris (54.3%), the
bank benefits from their technical support, management training and global
branch network. Furthermore, Societe Generale in Paris reviews 80-85 percent
of the loan portfolio through its executive committee.
-- NSGB is trading at a price-to-book value of 1.6 times. Based on 2002
earnings, the bank has an ROA and ROE of 2.3 percent and 26.9 percent,
respectively.
Weaknesses
-- As of June 30th, 2003, NSGB reported a significant increase in operating
expenses of 30.9 percent, resulting from the bank's aggressive expansion
plan into retail banking operations.
-- NSGB is one of the less liquid traded stocks in the Egyptian market.
First Arabian Investment & Development-Four Seasons
Price: USD 61.17 (EGP 375.58) as of September 30th, 2003
Shares in issue: 600,000
Free float: 0.00 %
Year-end Net Profit EPS PER Dividend Dividend
(EGP million) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2001 0.57 0.95 64 0.00 0.00 %
Dec 2002 (4.94) (8.23) N/A 0.00 0.00 %
Dec 2003(e) (6.5) (10.83) N/A 0.00 0.00 %
-------------------------------------------------------------------------------
Based on capital structure and price in effect for each year.
Strengths
-- As one of Cairo's highest rated hotels, with Four Seasons management, First
Arabian has at least 2 years over its closest competition, a second Four
Seasons Hotel.
-- In spite of tough tourism environment, in 2002, revenue from the hotel came
in at USD 4.9 million, representing a 12.5 percent year-on-year growth.
-- The mall, which is leased to luxury boutiques, brings in an additional USD
1.5 million per year in revenue.
-- Revenues from La Gourmandise restaurant were up 21 percent, in 2002, to USD
1.1 million
-- The hotel caters to business travelers, who are comparatively less price
sensitive and more service and comfort oriented.
Weaknesses
-- Tourism in Egypt was badly hit by the war in Iraq with occupancy rates down
to 40 percent compared to 59 percent a year earlier. As a result, the
project is not currently expected to show a profit before 2005.
-- In the aftermath of September 11th, Ladbrokes did not renew its casino
contract, resulting in the loss of USD 4.7 million of steady revenue.
However, First Arabian is currently in the process of finalizing a casino
contract with the Russian "Ballo".
-- There are concerns about the continuation of contracts of the mall tenants
if the current business/tourism environment prevails.
-- The project is highly leveraged with annual debt service in the range of USD
9 million. Despite the losses. However, interest and scheduled principal
installments have been paid on time.
Egyptian Financial & Industrial Company
(EFIC)
Price: EGP 48.0 as of September 30th, 2003
Shares in issue: 6,497,028
Free float: 65.0 % or 4,223,068 shares
Year-end Net Profit EPS PER Dividend Dividend
(EGP million) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2000 40.2 5.01 5.5 3.00 10.94%
Dec 2001 42.0 5.15 4.6 3.50 14.89%
Dec 2002 48.8 5.93 6.6 4.00 10.24 %
Dec 2003e 52.0 6.4 7.5 4.00 8.33 %
-------------------------------------------------------------------------------
Source: LAM. Note: 2000, 2001 and 2002 figures are based on capital structure
and price in effect for each year.
Actual and expected EPS are exclusive of employees' profits share.
Strengths
-- EFIC is the dominant phosphate fertilizer player in Egypt with over 70
percent market share.
-- For the six-month period ending June 2003, EFIC witnessed a 17.3 percent
growth year-on-year in revenue to EGP 106.2 million due to a 35.4 percent
increase in export sales. Exports now represent 21.8 percent of sales up
from 18.9 percent a year ago. Net earnings posted a 6.6 percent growth
year-on-year to EGP 22.2 million.
-- In 2002, EFIC reported 10.9 percent growth in revenue on the back of a 7.9
percent growth in local sales to EGP 196 million due to higher volumes and
prices. Local sales prices were increased for the first time since 1999.
Furthermore, export sales witnessed an impressive 40.2 percent growth to EGP
26 million, representing 11.7 percent of total sales up from 9.3 percent, in
2001.
-- In 2001, EFIC signed an agreement with Norsk Hydro to export 80,000 tons per
annum to Brazil over five years and was raised to 100,000 tons per annum, in
2003. This contract limits EFIC's vulnerability to the local demand
seasonality, as the agrarian seasons in Egypt and Brazil are different.
-- With the increase of arable land in Egypt, phosphate fertilizer is the most
needed fertilizer in order to neutralize the alkalinity and salinity of the
soil.
Weaknesses
-- EFIC's imports of sulfur, representing 20 percent of cost, put pressure on
the company's margins as international prices more than doubled and the
Egyptian pound continues to depreciate. This situation is somewhat mitigated
by the increase of average selling prices as well as the increase in export
sales. EFIC secured 180,000 tons of export contracts for 2003 versus 130,000
tons, in 2002.
-- EFIC's revenue relies mainly on a single product, the single super
phosphate, representing 91.4 percent of revenue. However, the establishment
of Suez Fertilizers Company, 99.8 percent owned by EFIC, will diversify the
company's products from single super phosphate only to include ammonium
sulfate and compound fertilizers.
Egyptian International Pharmaceutical Industries Company
(EIPICO)
Price: EGP 8.96 as of September 30th, 2003
Shares in issue: 72,124,000
Free Float: 63.5 % or 45,798,740 shares
Year-end Net Profit EPS PER Dividend Dividend
(EGP millions) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2000 97.5 20.78 6.5 16.00 11.76 %
Dec 2001* 100.7 1.25 6.9 0.99 11.42 %
Dec 2002 102.3 1.26 6.7 1.02 12.14 %
Dec 2003e 105.0 1.36 6.6 1.00 11.16 %
-------------------------------------------------------------------------------
Source: LAM. Note: 2000, 2001 and 2002 figures are based on capital structure
and price in effect for each year.
Actual and expected EPS are exclusive of employees' profits share.
*Underwent a capital increase and a 1 to 16 stock split in early 2001.
Strengths
-- As of the end of June 2003, EIPICO reported a 3.5 percent growth
year-on-year in net earnings to EGP 60.6 million and an 8.8 percent increase
in revenue to EGP 268.4 million.
-- Despite current macro economic conditions, revenue for the year 2002
increased by 12 percent to EGP 481 million, relative to EGP 428 million in
2001.
-- The government has allowed a slight price increase in the lower priced lines
(under EGP 5), which should mitigate the effect of the depreciation of the
Egyptian pound on EIPICO's bottom line, since imported raw materials
represent 51 percent of COGS.
-- As a member of the ACDIMA (Arab Company for Drug Industries and Medical
Appliances), EIPICO is exempt from custom duty on imported raw materials.
-- EIPICO has a broad distribution network distinguished by its direct selling
units (moving drugstores), which allow for on the spot delivery of ordered
items.
Weaknesses
-- EIPICO is exposed to foreign exchange risk, as imported raw materials
represent 51 percent of the company's COGS. In view of the recent Egyptian
pound devaluation, EIPICO's future operating margin will likely be eroded by
around 5 percent, bringing it down to 27 percent by the end of 2003, despite
exports representing 13 percent of sales.
-- EIPICO spends only 3 percent of its revenues on research and development,
and even those are more a development activity for generics rather than a
research activity for new drugs.
-- EIPICO has reached the mature phase of its life cycle. The company needs to
invest in new projects in order to diversify product lines and realize
further sales growth.
-- With the onset of increasing competition from the multinationals likely
resulting from GATT and TRIPS, EIPICO will have to widen the range of the
generic product line in order to drive sales.
Egyptian American Bank
Price: EGP 37.47 as of September 30th, 2003
Shares in issue: 14,400,000
Free Float: 27.0 % or 3,888,000 shares
Year-end Net Profit EPS PER Dividend Dividend
(EGP millions) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
Dec 2000 72.5 4.53 7.5 3.00 8.88 %
Dec 2001 73.2 4.56 7.2 3.00 9.08 %
Dec 2002 50.0 3.12 9.6 3.00 10.06 %
Dec 2003e 67.5 4.22 8.9 3.00 8.01 %
-------------------------------------------------------------------------------
Source: LAM. Note: 2000, 2001 and 2002 figures are based on capital structure
and price in effect for each year.
Actual and expected EPS are exclusive of employees' profits share.
Strengths
-- As one of the leading and innovative private banks in Egypt, EAB provides
the full range of banking services as well as trade finance to multinational
firms in Egypt. EAB caters to the top tier clientele of Egypt.
-- As of the end of June 2003, EAB achieved a 24 percent growth year-on-year in
net interest income to EGP 104.5 million and an 11.3 percent increase in net
earnings to EGP 44.4 million.
-- Despite the current slowdown in economic activity, EAB managed to increase
total income by 18.3 percent to EGP 356 million, in 2002 versus EGP 301
million, in 2001. Earnings before provisions and taxes grew by 27 percent,
reaching EGP 209 million, relative to EGP 165 million. EAB booked EGP 154
million in provisions (loan loss and tax claims), with an extra EGP 65
million compared to last year, which made its net earnings drop from EGP 73
million to EGP 50 million. We believe that this higher provisioning should
improve the bank's asset quality.
-- As a majority-owned subsidiary of AMEX Holdings (40 percent), the bank
benefits from their technical support, management training and global branch
network.
-- EAB is trading at a price-to-book value of 0.9 times.
-- The main reason for holding this share is as an acquisition target. Both
American Express and Bank of Alexandria want to sell the bank. Standard
Chartered had put in a firm offer for this bank earlier last year (at EGP 60
per share) but the transaction failed on a disagreement over price.
Weaknesses
-- EAB has witnessed some deterioration in asset quality due to current
economic conditions. Non-performing loans to total loans reached 6.5 percent
up from 3.5 percent, as of the end of 2000. Since then, management refused
to disclose the bank's non-performing loan balance.
-- Based on 2002 earnings, the bank has an ROA and ROE of 0.64 percent and 9.6
percent, respectively, which is the lowest of the peer group banks.
Nasr City Housing Company
Price: EGP 25.69 as of September 30th, 2003
Shares in issue: 16,000,000
Free float: 75.0 % or 12,000,000 shares
Year-end Net Profit EPS PER Dividend Dividend
(EGP million) (EGP) (X) (EGP) Yield
-------------------------------------------------------------------------------
June 2001 52.7 3.05 7.1 2.00 9.19 %
June 2002 50.1 2.89 6.8 2.00 10.22 %
June 2003 43.0 2.46 11.1 2.00 7.31 %
June 2004e 46.5 2.68 9.6 2.00 7.78 %
-------------------------------------------------------------------------------
Source: LAM. Note: 2001, 2002 and 2003 figures are based on capital structure
and price in effect for each year.
Actual and expected EPS are exclusive of employees' profits share.
Strengths
-- Nasr City Housing witnessed an 11.4 percent decline year-on-year in revenue
to EGP 51.5 million, in June 2003. This was a result of an 81.7 percent
decline in land sales, compared to 2002. Note that 2002 revenue figure also
included an extra-ordinary sale transaction of EGP 12 million to the
military forces. If we deduct this transaction, Nasr City Housing would have
achieved a 10.2 percent growth in revenue year-on-year June 2003. Net
earnings dropped 14.1 percent year-on-year to EGP 43.0 million.
-- Nasr City Housing is one of the largest real estate development companies in
Egypt and the first company to be majority privatized (75%) in Egypt.
-- The company is the developer of "Nasr City" one of Cairo's largest
districts, with a total area of approximately 45 million square meters.
-- The company has no competition in the Nasr City area and has a diversified
line of luxury, upper and middle-income housing, which cushions demand
swings.
-- The company's land bank was granted to the company by the government at zero
cost. The remaining land bank today is estimated at 9.3 million square
meters, which should fulfill development needs for the next 15 years.
-- In efforts to integrate, the company acquired two contracting companies,
Nasr Civil Works and Nasr Infrastructure. As the companies were
sub-contractors to Nasr City, the acquisition allowed for better
cost-control, while yielding dividends of around EGP 13.1 million or 25.5
percent of total net earnings, in 2003.
-- The new mortgage law, which will allow for mortgages of up to 30 years and
foreclosures for non-payment of installments, as well as the new law
permitting non-Egyptians to own real estate, should help revitalize the
residential and commercial real estate market in Egypt over the long run.
Weaknesses
-- The Civil Aviation Authority has frozen new development in areas that are
close to Cairo International Airport until the plans for the new runway are
completed. This area represents around 38% of the company's total land bank.
-- The economic slowdown in Egypt has affected sales and the payment of unit
installments, with the percentage of uncollected installments increasing
from 21.1 percent, in 2002 to 23.9 percent, in 2003.
-- The current economic situation in the country has led Nasr City housing to
reduce purchase down payments from 50 percent to 30 to 40 percent, thereby
increasing default risk.
Luxembourg, October 30th, 2003 Lazard Asset Management
THE EGYPT TRUST
Statement of Net Assets
(in USD)
September 30th, 2003 September 30th, 2002
ASSETS
-------------------------------------
Securities' portfolio at market value 36,389,915 31,878,207
Cash at bank 11,499,994 11,107,310
Receivable on sales of securities 356,375 1,997,310
Income receivable on portfolio 98,951 106,078
Interest receivable on bank accounts 8,356 6,894
Prepaid expenses 6,606 6,834
--------------- ----------------
Total assets 48,360,197 45,102,633
LIABILITIES
-------------------------------------
Bank liabilities 174,805 112,033
Interest payable on bank accounts 494 -
Expenses payable 114,314 125,472
Other liabilities - 1,000,000
--------------- ----------------
Total liabilities 289,613 1,237,505
---------------- --------------
NET ASSETS at the End of the Period 48,070,584 43,865,128
================ ==============
Number of Shares outstanding 6,849,510 6,849,510
Net Asset Value per Share 7.02 6.40
Shareholders' Equity Represented by
(in USD)
September 30th, 2003 September 30th, 2002
Capital 8,513,347 Shares at USD 2.00 17,026,694 17,026,694
Share Premium 73,633,306 73,633,306
Legal Reserve 786,253 786,253
Loss brought forward -7,658,705 -2,946,638
------------- ---------------
Total Capital and Reserves 83,787,548 88,499,615
Cost of 1,663,837 Shares held in
Treasury -15,939,917 -15,939,917
Net realised loss/gain for the period -298,265 402,679
Unrealised depreciation on securities -17,355,434 -27,658,852
Dividend -2,123,348 -1,438,397
---------------- ----------------
Total Shareholders' Equity 48,070,584 43,865,128
================ ================
The accompanying notes are an integral part of these financial statements
THE EGYPT TRUST
Statement of Operations
(in USD)
From April 1st, 2003 From April 1st, 2002
to September 30th, 2003 to September 30th, 2002
INCOME
-------------------------------------------------------------
Dividends, net 801,296 1,575,634
Interest on bonds and other debt securities 218,961 233,719
Interest on bank accounts 60,609 269,043
Other income 3,577 -
------------------- -------------------
Total income 1,084,443 2,078,396
EXPENSES
-------------------------------------------------------------
Management fees 232,021 218,565
Advisory fees 58,005 54,641
Custodian fees 9,201 8,507
Bank and financial services 64,445 21,296
Central administration costs 21,569 19,698
Audit and supervisory fees 10,682 11,076
Printing and publication expenses 31,968 23,536
Subscription duty ("taxe d'abonnement") 11,966 11,018
Interest paid 494 247,270
Directors' fees and expenses 39,206 60,313
Other expenses 5,426 889
------------------- -------------------
Total expenses 484,983 676,809
------------------- -------------------
NET INVESTMENT INCOME 599,460 1,401,587
NET REALISED LOSS / GAIN
-------------------------------------------------------------
- on sale of securities (-1 year) -1,334,872 -808,624
- on sale of securities (+1 year) 470,926 -179,455
- on foreign exchange -33,779 -10,829
------------------- -------------------
REALISED LOSS / GAIN -298,265 402,679
CHANGE IN NET UNREALISED DEPRECIATION
-------------------------------------------------------------
- on securities 8,145,262 1,051,682
------------------- -------------------
Increase in Net assets as a Result of Operations 7,846,997 1,454,361
=================== ===================
Dividend paid -2,123,348 -1,438,397
------------------- -------------------
TOTAL CHANGE IN NET ASSETS 5,723,649 15,964
TOTAL NET ASSETS AT THE BEGINNING OF THE PERIOD 42,346,935 43,849,164
------------------- -------------------
TOTAL NET ASSETS AT THE END OF THE PERIOD 48,070,584 43,865,128
=================== ===================
The accompanying notes are an integral part of these financial statements
Statement of Changes in Net Assets
(in USD)
From April 1st, 2003 From April 1st, 2002
to September 30th, 2003 to September 30th, 2002
Net Assets at the Beginning of the Period 42,346,935 43,849,164
Net investment income 599,460 1,401,587
Net realised loss on exchange -33,779 -10,829
Net realised loss on sale of securities (-1
year) -1,334,872 -808,624
Net realised gain/loss on sale of securities (+1
year) 470,926 -179,455
------------ ------------
Net realised loss/gain for the Period -298,265 402,679
Change in unrealised appreciation on securities 8,145,262 1,051,682
Dividend -2,123,348 -1,438,397
--------------- ---------------
Net Assets at the End of the Period 48,070,584 43,865,128
=============== ===============
Statistical Information about the Fund
(in USD)
September 30th, 2003 March 31st, 2003 March 31st, 2002
---------------------------------------------------------------
Total Net Assets 48,070,584 42,346,935 43,849,164
Net Asset Value per Share 7.02 6.18 6.40
Statement of Changes in Shares Outstanding
For the Period ended September 30th, 2003
Number of Shares Outstanding at the Beginning of the Period 6,849,510
Number of Shares repurchased -
------------
Number of Shares Outstanding at the End of the Period 6,849,510
------------
The accompanying notes are an integral part of these financial statements
THE EGYPT TRUST
Statement of Investments and Other Net Assets
as at September 30th, 2003
(in USD)
Currency Number / Description Cost Market value % of
nominal value total
net
assets
----------------------- ---------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
-------------------------------------------------------------------
TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGE
LISTING
-------------------------------------------------------------------
Shares
-------------------------------------------------------------------
Banks
EGP 611,996 Commercial Intl Bank Ltd 5,111,456 4,248,089 8.83
EGP 254,055 Egyptian American Bank Reg 1,726,128 1,550,398 3.23
EGP 1,350 Misr Exterior Bank 626,577 212,401 0.44
EGP 69,510 Misr Intl Bank 497,537 180,567 0.38
EGP 980,506 National Societe Generale Bank Reg 4,232,615 4,389,920 9.12
------------- ------------- --------
12,194,313 10,581,375 22.00
Capital goods
EGP 54,816 Misr Refrig & Air Cond Manu 750,547 282,561 0.59
EGP 509,940 Orascom Construction Industrie Reg 4,414,262 4,836,955 10.05
------------- ------------- --------
5,164,809 5,119,516 10.64
Food, beverage and tobacco
EGP 925 Al Nasr for Dehydrating Prod 12,056 2,563 0.01
Hotels, restaurants and leisure
EGP 537,047 Orascom Proj Touristic Dev Reg 4,034,952 265,025 0.55
Insurance
EGP 115,000 Delta Insurance 723,353 247,793 0.52
EGP 168,531 Mohandes Insurance 2,129,761 502,574 1.05
------------- ------------- --------
2,853,114 750,367 1.57
Materials
EGP 8,617 Alexandria Iron & Steel 801,871 139,332 0.29
EGP 332,369 Egyptian Financial & Indust Co Reg 2,444,397 2,598,324 5.41
------------- ------------- --------
3,246,268 2,737,656 5.70
Pharmaceuticals and biotechnology
EGP 1,423,636 Egyptian Intl Pharma Invest 5,246,583 2,077,488 4.32
EGP 22,598 Memphis Pharmaceutic Chem Ind 526,635 190,390 0.40
------------- ------------- --------
5,773,218 2,267,878 4.72
Real estate
EGP 266,780 Nasr City Housing & Dev SA 4,208,217 1,116,218 2.32
Telecommunication services
EGP 464,859 Egyptian Co for Mobile Com 4,367,707 4,646,319 9.66
Utilities
EGP 12,570 Egypt Gas 1,102,603 196,596 0.41
------------- ------------- --------
Total shares 42,957,257 27,683,513 57.58
Participating shares
-------------------------------------------------------------------
Banks
USD Commercial Intl Bank Ltd GDR repr 1 Reg
51,150 Share 594,582 301,785 0.63
------------- ------------- --------
Total participating shares 594,582 301,785 0.63
Bonds
-------------------------------------------------------------------
Countries and governments
USD 4,000,000 Egypt 8.75% 01/11.07.11 3,880,000 4,817,600 10.01
Materials
EGP 5,000,000 Arab Factory for Iron 11% 98/26.07.05 1,468,004 806,596 1.68
------------- ------------- --------
Total bonds 5,348,004 5,624,196 11.69
OTHER TRANSFERABLE SECURITIES
-------------------------------------------------------------------
Shares
-------------------------------------------------------------------
Hotels, restaurants and leisure
USD 45,454 First Arabian Hotels & Resorts 4,845,506 2,780,421 5.78
------------- ------------- --------
Total shares 4,845,506 2,780,421 5.78
------------- ------------- --------
TOTAL INVESTMENTS IN SECURITIES 53,745,349 36,389,915 75.68
CASH AT BANKS 11,499,994 23.93
OTHER NET ASSETS/(LIABILITIES) 180,675 0.39
------------- --------
TOTAL 48,070,584 100.00
============= ========
The accompanying notes are an integral part of these financial statements
THE EGYPT TRUST
Currency, Geographical and Industrial Classification of the Portfolio
as at September 30th, 2003
(in percentage of net assets)
Currency Classification
Egyptian Pound 59.26 %
US Dollar 16.42 %
---------
TOTAL INVESTMENTS IN SECURITIES 75.68 %
US Dollar 23.93 %
---------
TOTAL CASH AT BANKS 23.93 %
OTHER ASSETS AND RECEIVABLES 0.39 %
---------
TOTAL 100.00 %
=========
Geographical Classification
Egypt 75.68 %
---------
TOTAL INVESTMENTS IN SECURITIES 75.68 %
OTHER ASSETS AND RECEIVABLES 24.32 %
---------
TOTAL 100,00 %
=========
Industrial Classification
Banks 22.63 %
Capital goods 10.64 %
Countries and governments 10.01 %
Telecommunication services 9.66 %
Materials 7.38 %
Hotels, restaurants and leisure 6.33 %
Pharmaceuticals and biotechnology 4.72 %
Real estate 2.32 %
Insurance 1.57 %
Utilities 0.41 %
Food, beverage and tobacco 0.01 %
---------
TOTAL INVESTMENTS IN SECURITIES 75.68 %
OTHER ASSETS AND RECEIVABLES 24.32 %
---------
TOTAL 100,00 %
=========
The accompanying notes are an integral part of these financial statements
THE EGYPT TRUST
Notes to the Financial Statements
September 30th, 2003
NOTE 1 - GENERAL
The Egypt Trust (the "Fund" or the "Company") is a closed-end investment
company incorporated as a societe d'investissement under the laws of the Grand
Duchy of Luxembourg and qualified as a "societe d'investissement a capital fixe"
under the law of March 30th, 1988 regarding undertakings for collective
investments and the law of August 10th, 1915, as amended regarding commercial
companies.
The Fund was incorporated in Luxembourg on July 23rd, 1996 for an indefinite
period. However, at the annual general meeting of the Company to be held in
2002, and subsequently at every third annual general meeting, a resolution will
be put to Shareholders that the Fund should continue as a closed-end investment
company. During the annual general meeting of the Company held on August 20th,
2002 it was resolved that the present Company structure is maintained.
The Fund's Articles have been published in the "Memorial, Recueil des Societes
et Associations" and they have been filed with the Registrar of the Luxembourg
District Court, where copies thereof may be obtained. In addition, a legal
notice concerning the issue of the Shares is on file with the Registrar of the
Luxembourg District Court.
The Fund's investment objective is to achieve medium to long term capital growth
through investment principally in the equities of companies listed on the
Egyptian Stock Exchange, aiming to capitalise on low valuations and benefiting,
in the short-term, from the high dividend yields currently available in the
Egyptian market.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a) Presentation of Accounts
The financial statements are presented in accordance with the Luxembourg
regulations relating to investment funds. The Fund keeps its books and records
in USD.
b) Valuation
1) The Net Asset Value per Share is calculated in accordance with Article 22 of
the Articles on each Valuation Date (as defined in the Articles). "Valuation
Date" means the date fixed by the Board for the valuation of the Shares being
Friday of each week (or, if that day is not a business day in Luxembourg, on the
next business day).
The Net Asset Value per Share is determined by dividing the Net Assets of the
Fund, being the value of its assets less liabilities, by the number of Shares
then outstanding.
2) In calculating the Net Asset Value, income and expenditures are treated as
accruing from day to day and the Articles of incorporation provide, inter alias,
that:
(i) unquoted investments will initially be valued at cost price, which will
include any expenses relating to their acquisition;
(ii) a revaluation of unquoted investments to a value in excess of or below cost
may be made where, in the opinion of the Board, or in the opinion of the Fund's
investment manager (where the Board has delegated its powers), it is justified.
Factors affecting such revaluations may include: the prices at which further
issues of capital or dealings between third parties take place, the market value
of comparable companies (making appropriate adjustments for such factors as
limitation of marketability) or the price at which any agreement has been
entered into, or is reasonably contemplated, for the sale of the investments;
(iii) securities which are listed on an official stock exchange or traded on any
other regulated market will be valued at the last available price on the
principal market on which such securities are traded, or by a pricing service
approved by the Board; and
(iv) assets or liabilities expressed in terms of currencies other than US
dollars will be translated into US dollars at the prevailing market rate for
such currencies at the Valuation date.
3) First-in first-out method : purchases of securities are recorded at cost.
Realised gains and losses on securities sold are computed on the first-in
first-out basis.
4) The value of cash in hand or on deposit, bills and notes payable on
presentation, accounts due, prepaid expenses and dividends and interest declared
and fallen due but not yet received consists of the nominal value of such
assets, except, however, in the event that it seems improbable that such value
can be realised, in which event the value is determined by deducting a sum which
the Board of Directors of the Fund considers appropriate to reflect the
realisable value of such assets.
5) Foreign currencies: monetary assets and liabilities denominated in foreign
currencies in the Statement of Net Assets are translated into USD at the rates
of exchange ruling at the date of the report. Transactions in foreign currencies
are recorded in USD based on the exchange rates in effect at the date of
transactions. The following significant exchange rates have been applied for the
conversion as at September 30th, 2003:
USD
1 EGP Egyptian Pound 0.1628665
1 EUR Euro 1.1668500
1 GBP Pound Sterling 1.6638500
c) Income Recognition
Interest and dividend income is recorded on an accrual basis, net of any
withholding taxes in the relevant country.
d) Net Realised Gain/Loss
The net realised gain/loss on sale of securities is split between two accounts
depending on the fact that the securities have been owned during more than one
year or not.
e) Comparatives
The Directors of the Fund have decided with a view to better describe the
expenses of the Fund, to allocate and disclose some types of expenses
differently according to their nature. In order to allow comparability between
both periods, some analytical reclassifications have been done between the
expenses accounts in the statement of operations. These reclassifications have
no impact on the total of expenses as of September 30th, 2002. The concerned
items were the following: printing and publication expenses, directors' fees and
expenses as well as other expenses.
NOTE 3 - MANAGEMENT AND ADVISORY FEES
The Fund pays to Lazard Asset Management LLC, the Manager, annual management
fees of 1.00 per cent, of the value of the gross assets of the Company, payable
monthly in arrears and to National Bank of Egypt, the Investment Advisor, 0.25
per cent, per annum, of the value of the gross assets of the Company, payable
monthly in arrears.
NOTE 4 - TAXES
As a Luxembourg investment company, under present laws the Fund is not subject
to income taxes in Luxembourg. Taxes may be withheld at the source on dividends
and interest received on investment securities.
According to the law of March 30th, 1988, the Fund is subject to Luxembourg
subscription duty ("taxe d'abonnement") at the rate of 0.05 percent per annum
of its Net Assets, such tax being payable quarterly on the basis of the Total
Net Assets of the Fund at the end of the relevant quarter.
NOTE 5 - REPURCHASES
The Fund is not obliged to purchase Shares at the request of Shareholders.
The maximum price at which Shares can be repurchased will be Net Asset Value per
Share. Under Luxembourg law, repurchases may only be made to the extent that the
Company has distributable reserves available for the purpose, being Share
premium or accumulated reserves.
Any Shares so repurchased will be held in treasury or will be cancelled by way
of reduction of issued capital. The Shares held in treasury may be resold at any
time, at the discretion of the Directors, if a premium to the Net Asset Value
per Share may be obtained. Details of such repurchases and sales will be
communicated to all Shareholders as well as to the London and the Luxembourg
Stock Exchanges and to the Egyptian Stock Exchange if the Shares are there
listed.
Until the date of the report, the Fund has repurchased the following shares:
Prior to March 31st, 2003 Total repurchase 1,663,837 Shares USD 15,939,917
---------------
USD 15,939,917
These Shares are held in Treasury.
NOTE 6 - CAPITAL
The authorised Share capital of the Company on incorporation was USD 40,000,000
divided into 20,000,000 Shares with a par value of USD 2 each.
On December 12th, 1997 a capital increase of 8,490,847 Shares has been
registered with a par value of USD 2.
The Fund is required by Luxembourg law to transfer five percent of its yearly
net profits to a non-distributable legal reserve until such reserve amounts to
ten percent of the Fund's nominal Share capital. This reserve is not available
for dividend distribution.
On July 18th, 2003 the Board of Directors decided to distribute a dividend of
USD 0.31 per share. The Fund's Annual General Meeting on August 19th, 2003
approved to pay the decided annual dividend payable on September 11th, 2003 to
shareholders. The ex-dividend date was August 25th, 2003.
NOTE 7 - RECEIVABLE FROM AND PAYABLE TO BROKERS
Amounts under Receivable from Brokers relate to sales of securities, which have
been partially delivered by the Fund, or with delayed delivery, as at the date
of the report. Amounts under Payable to Brokers relate to purchases of
securities which have been partially received by the Fund, or with delayed
reception, as at the date of the report.
NOTE 8 - CUSTODIAN FEES
The Custodian will receive, under the terms of the Custodian Agreement, fees for
its services at rates to be agreed from time to time between the Fund and the
Custodian in accordance with Luxembourg practice.
NOTE 9 - DIRECTORS FEES
Each of the Directors shall be paid a fee at such a rate (if any) as the Board
of Directors shall determine provided that the aggregate of such fees shall not
exceed USD 200,000 per annum or such higher amount as may from time to time be
decided by resolution of the Company.
The Directors shall also be entitled to reimbursement of all traveling, hotel
and other expenses properly incurred by them in attending and returning from
meetings or otherwise in connection with the business of the Company.
NOTE 10 - BENEFICIAL AND NON-BENEFICIAL INTEREST OF DIRECTORS IN THE SHARE
CAPITAL
As of, September 30th, 2003 the beneficial and non-beneficial interests of the
Directors in the Share capital are the following:
Alexander E. Zagoreos 2,500 shares
NOTE 11 - DIRECTORS' INTEREST IN SIGNIFICANT CONTRACTS
Alexander E. Zagoreos is a Managing Director of Lazard Asset Management, LLC,
which serves as an investment manager for the Fund. Mohamed Hassanein is General
Manager at the National Bank of Egypt, which serves as Advisor to the Fund.
NOTE 12 - SUBSTANTIAL SHAREHOLDING
All issued Shares of the Fund are on deposit with a registered clearinghouse
and, accordingly, the Directors are not in a position to state the exact size of
any Share holdings in the Fund.
NOTE 13 - CHANGES OF THE INVESTMENT PORTFOLIO
The changes of the investment portfolio are available at the registered office
of the Fund without any fee.