Annual Report 06

East meets west

Annual report2006

1 Highlights 2 A year of delivery4 Letter to Shareholders 6 East meets west8 Expanding into new markets10 Business review Cement24 Business review Construction34 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 accounts84 Selected financial data 88 Management and corporate information

Orascom Construction IndustriesOCI 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.

Orascom Construction Industries Annual report 2006 1

Highlights2006

2006 2006 2005 2005

LE US$ LE US$

Revenue 16,475 2,865 11,367 1,953EBITDA 4,479 779 2,683 461Net Income 2,671 465 1,700 292Earnings Per Share 12.93 2.35 8.65 1.49Dividends Per Share 5.50 0.96 1.89 0.32

Capital Expenditures 7,869 1,369 2,854 490Total Assets 28,616 5,003 17,610 3,057Cash & Cash Equivalents 2,738 479 2,168 376Total Debt 9,250 1,617 6,862 1,191Minority Interest 2,488 435 1,965 341Shareholders’ Equity 8,672 1,516 4,264 740Egyptian Pounds (LE) and US Dollars (US$) figures in millions except per share data. Growth percentages calculated based on US Dollar figures.

• Cement Group contributed 25% of revenue and 57% of net income.

• Total cement sold grew by 38%, concrete by 217% and cement bags by 163%.

• Cement Group production capacity has now reached 21 million tonnes.

• Cement Group to add 10 million tonnes of capacity during 2007.

• Construction Group revenue reached a record US$ 2.3 billion.

• Backlog statistics: 46% industrial projects, only 10% in Egypt.

• 74% of consolidated revenue was generated outside of Egypt.

Revenue growthConstruction Group drives top line growth.

+47%

Net income growthCement Group drives bottom line growth.

+59%

Return on salesNet margin up from 15% last year.

+16%

Return on equity Creating exceptional value for shareholders.

+41%

During the year, OCI successfully launched four new greenfield cement plants in four countries significantly increasing our total production capacity. We also completed construction work on major projects in twenty countries at the right time with the right quality for our customers. We make promises and we deliver results.

A year of delivery...

FebruaryOCI and Sonatrach, the Algerian state-owned petrochemical company, sign an initial agreement to establish a urea and ammonia fertilizer plant with an investment cost of US$ 746 million.

The partners later agreed to add ammonia capacity to the plant increasing the total investment cost to US$ 1.6 billion. OCI has a 51% stake in the new venture.

FebruaryBESIX and its consortium partners are awarded a 27-year BOT contract valued at EUR 429 million for a new greenfield wastewater treatment plant by the Emirate of Ajman in the UAE. BESIX has a 50% stake in the new venture.

JanuaryOCI acquires the Van cement plant in eastern Turkey for US$ 54 million.

The plant has an annual clinker production capacity of 0.25 mtpa and will be upgraded to produce 0.6 mtpa of cement.

January OCI acquires a 20% stake in Baticim Cimento in western Turkey for US$ 55 million.

Baticim together with its subsidiary Bati Soke Cimento have a combined annual cement capacity of 3 mpta and both are leading cement exporters.

2 Orascom Construction Industries Annual report 2006

MarchOCI 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.

JulyOCI completes construction work and fires the kiln at Pakistan Cement Company which has a production capacity of 2.2 mtpa.

Construction work was completed in only 15 months and the total investment cost was US$ 231 million. OCI owns 62.75% of the company.

OctoberOCI increased its presence in Spain through the acquisition of 50% of Grupo GLA, one of the largest independent aggregates and ready-mix concrete producers in the country. OCI integrated its 59% stake in the Cementos La Parrilla cement grinding plant into Grupo GLA as part of the transaction.July

OCI completes rehabilitation work on the Tasluja cement plant in northern Iraq which has a production capacity of 2.3 mtpa.

The total investment cost was US$ 70 million. OCI and its partner will operate the Tasluja plant under a 12 year lease agreement. OCI has a 60% stake in the venture.


Dear Shareholders,

Orascom Construction Industries had another exceptional year propelled by strong demand for both our cement products and construction services. Consolidated revenue was up by 47% to LE 16.5 billion and net income grew by 59% to LE 2.7 billion. Our businesses continue to generate increased cash flows and exceptional returns for shareholders. EBITDA for the year reached LE 4.5 billion and our return on equity for the year was 41% after taking into consideration our LE 2.3 billion rights issue. Having reviewed the cash and credit resources available to the company for both organic growth and acquisitions, the Board of Directors intends to recommend a LE 5.5 per share cash dividend which represents an increase of 175% over last year.

Operational performanceOur Cement Group now has an annual production capacity of 21 million tonnes having successfully added 7 million tonnes of new capacity in Egypt, Pakistan, northern Iraq and Turkey during the year. This new capacity helped push revenue from our cement operations up by 50% to LE 4.9 billion during the year. Construction work was completed on a fifth bypass line at Egyptian Cement Company in June enabling them to benefit from both rising local demand and higher export prices. Algerian Cement Company in only its first year of full operations surpassed expectations operating at 80% capacity and generating revenue of LE 1.5 billion. Having completed renovation work in June, the Tasluja cement plant in northern Iraq managed to produce 657,000 tonnes during the year. Despite difficulties, Pakistan Cement Company also began operations in June and persevered to capture a 9% share of the market. Operations at the Van cement plant in Turkey which was acquired in January also contributed positive results. Construction work on our next four greenfield projects in Algeria, northern Iraq, and the United Arab Emirates which will

Our Cement Group will add 10 million tonnes of new capacity during 2007 increasing our total annual capacity up to 31 million tonnes and ranking us among the top 10 global cement producers.

Letter to shareholdersA year of achievement


have a combined annual production capacity of 10 million tonnes all remain on track for start up during 2007. In October, we increased our presence in Spain through the acquisition of a 50% share of Grupo GLA, one of the largest independent aggregates and ready-mix producers in the country. Combined with our investment in Cementos La Parrilla, Grupo GLA will have a grinding and import capacity of nearly 2 million tonnes giving us even greater influence over cement trading in the Mediterranean.

Revenue from our construction operations grew by 45% to LE 13.1 billion during the year. Our Construction Group secured LE 14.9 billion in new work and our consolidated backlog at year end stood at LE 12.6 billion. Our strategic build-up of assets and personnel in a few core geographic markets has enable us to attract new clients and undertake new projects while the sector as a whole suffers from a shortage in construction resources. Our Construction Group secured several landmark projects including a EUR 429 million BOT contract for the construction of a wastewater plant in the Emirate of Ajman in the UAE, a US$ 110 million contract to provide operations and maintenance services in Afghanistan, and a US$ 91 million contract to construct the ammonia fertilizer plant for Egyptian Basic Industries Corporation (EBIC).

Business strategiesSince we expect cement consumption growth rates across all emerging markets to outperform developed markets for the foreseeable future, the core business strategy of our Cement Group continues to be the development of large scale greenfield cement plants utilizing the latest manufacturing technologies principally in emerging markets which have large populations, growing economies and abundant energy sources. While our competitors have focused on expensive acquisitions, we have concentrated our efforts on building new

capacity to serve the current and future needs of our customers. We have also worked hard to develop trading relationships with importers in the USA, Europe and Africa to efficiently integrate our cement plants into these international markets. As production and environmental costs increase and existing plants reach the end of their useful life, we believe that cement demand in many developed markets will increasingly be met by imports and that we are well positioned in North Africa and the Middle East to capitalize on this trend. We may also invest in downstream assets such as aggregates and ready-mix in selected developed markets to secure a strategic off-take of demand for our continued capacity expansion in emerging markets.

Our Construction Group will continue to target large, complex and demanding industrial, commercial and infrastructure projects which by their nature have fewer competitors and higher margins. We believe our Construction Group is well positioned in Egypt, Algeria and the United Arab Emirates to capitalize on a wide array of new projects currently being tendered. Our Construction Group also continues to play a key role in identifying new high-return investment opportunities in both natural gas-based industries and infrastructure concessions. We have equity investments in two greenfield fertilizer projects in Egypt and Algeria which should generate substantial returns in the years to come. Demand for natural gas-based fertilizers is surging due to not only global consumption growth but also increased demand for agricultural commodity-based fuels such as corn-based ethanol. Our construction team is actively reviewing other opportunities to invest in new projects that leverage competitively priced natural gas in the region. We aim to invest in greenfield natural gas-based ventures which utilize our construction capabilities to reduce the time and cost of development, replicating the same business model which has been a key driver in

the success of our Cement Group. We have also instructed our construction team to pursue select infrastructure concession opportunities in the region that provide large construction contracts and future steady cash flows.

Future outlookOur Cement Group will add 10 million tonnes of new capacity during 2007 increasing our total annual production capacity up to 31 million tonnes and ranking us among the top 10 global cement producers. Our project in Nigeria will add an additional 3 million tonnes in 2008. Our Cement Group continues to review new opportunities around the world. We believe that current demographic and economic trends in Turkey make that country an attractive cement market at this time. We also see value in greenfield cement projects in Saudi Arabia and South Africa. While investing in cement production capacity in developed markets is not a priority, we will continue to search for downstream cement businesses in southern Europe such as grinding plants, terminals, aggregates and ready-mix operations which meet our investment criteria. Our strong balance sheet ensures our ability to capitalize on accretive acquisition opportunities and new greenfield initiatives as they arise. Looking ahead, we will continue to invest our free cash flow in our proven growth strategy with a clear view of delivering the highest returns to shareholders.

Onsi SawirisChairman

Nassef SawirisChief Executive Officer


CementECC added its fifth production line during the year increasing their total annual production capacity up to 10 million tonnes. The ECC plant is now the second largest in the world. ECC is the single largest cement producer in Egypt and a leading regional cement exporter.

ConstructionOur investments in natural gas industries should contribute significantly to net earnings beginning in 2009 with the launch of the EBIC ammonia plant and followed in 2011 by the launch of our Algerian joint venture urea/ammonia plant.

Net IncomeNet income reached LE 2.7 billion, an increase of 59% over last year.

2.7b

Dividend per share (LE) The Board has recommended a dividend of LE 5.5 per share, an increase of 175% over last year.

5.5

East meets west...

Orascom Construction Industries has grown dramatically over the past eight years. We have become a leading global cement producer even though we launched our first production line in 1999. We have also become one of the largest construction contractors in world reaching out far and wide from our home base in Egypt. With each new venture or project came new risks, both operational and financial. Our success in overcoming these risks was due to our special blend of global vision with local insight, a merging of best practices from the east and west.


Strategic partnershipsBy working in partnership with global leaders in our industries, we have been able to expand rapidly, obtain access to advanced technologies, improve the production efficiency of our manufacturing plants, create strong brand identities for our products, develop our human resources and reduce our financial risks. Our Cement Group has formed partnerships with local leaders in Spain, northern Iraq and the United Arab Emirates helping us to navigate the maze of legal and regulatory issues in these markets and quickly establish long-term relationships with key customers and suppliers. Our Construction Group regularly partners with firms from the USA, Europe and Asia to provide solutions on large and complex projects. Our ability to partner with leaders from both the east and west has been a major factor in our success.

Modern technologiesWe have achieved a competitive advantage in our markets by investing in state-of-the-art manufacturing equipment, construction equipment and information technology systems. All of our cement plants utilize the latest dry process manufacturing technologies and production control systems from ThyssenKrupp Polysius and FL Smidth, the two leading European equipment suppliers, to ensure that they are among the most cost-efficient and environmentally friendly plants in the world. All of our construction businesses maintain a large fleet of modern construction equipment and operate information systems for project engineering, planning, scheduling and financial management which are essential to undertake large, complex and demanding projects in emerging markets. By investing in the latest modern technologies and information systems from the west, we have been able to improve the level of service we deliver to our customers in the east.


Commitment to quality and safetyOur customers around the world value quality and safety when making their purchasing decisions. We have implemented stringent quality control programmes at each of our businesses to ensure the consistent delivery of high-quality products and services in accordance with internationally recognized quality standards. We have also established guidelines and procedures at our manufacturing plants and project sites to protect the health and safety of our employees and those around us. By matching the quality and safety standards of our competitors in the west, we have enhanced the reputation and productivity of our businesses in the east.

Management practices and corporate governanceCompanies have choices about how they manage their business. Companies which embrace proven management practices of lean manufacturing, target setting and performance management, and talent management simply perform better, with higher levels of productivity, profitability, growth rates and stock market valuations, irrespective of their country of operation, size or sector. By adopting international best practices for corporate governance, corporate citizenship and sustainable development, companies are also able to responsibly address the concerns of not only their shareholders, but also their employees, customers, business partners, government and the communities they serve. From the board room to the shop floor, we have worked to implement the best management and governance practices from the west throughout our operations in the east.

PeopleOur employees are the bedrock of our business. Their professionalism, loyalty and willingness to embrace change and new ideas have been a key success factor in our rapid growth. They have delivered results, consistently, time and time again. By partnering with global leaders, utilizing modern equipment, being committed to quality and safety, and adopting international best practices for management and governance, we continue to attract and retain some of the best people in our industries who share our enthusiasm for the future and our determination to emerge as a regional champion on a global scale.

Expanding into new markets...

Many companies evolve over time. A few evolve overnight. Change is an everyday occurrence at Orascom Construction Industries. Our managers and employees know that where we were yesterday is not where we will be tomorrow. In the summer of 2002, OCI devised the “50-05” Action Plan, a group wide strategic initiative which aimed to have 50% of consolidated revenue generated from sources outside of Egypt by 2005. At the end of 2004, revenue from sources outside of Egypt had already reached 66% of total consolidated revenue. At the end of 2006, international revenue exceeded 74% of total consolidated revenue. Over the last five years, consolidated revenue has increased at an average rate of 78% each year. Our managers and employees thrive in this fast paced, entrepreneurial environment and continue to propose and develop new opportunities to grow their businesses.


Cement GroupThe 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 and Nigeria will increase annual production capacity to 34 million tonnes by early 2008. Our project teams continue to explore several new greenfield cement opportunities in emerging markets and remain confident in their ability to successfully launch new ventures which meet our investment criteria.

Development of aggregates and ready mix operationsWell-managed companies do not ignore the actions of their competitors. Sometimes the right course of action is to follow their lead. A clear trend in our industry is the integration of cement, aggregates and ready mix assets. Many cement companies have taken steps to acquire aggregates companies to protect their position in developed markets and maintain their desired growth rates. We believe this strategy can work for us too. During the year, we became partners with Grupo GLA, the largest independent aggregates and ready mix producer in Spain. Combined with our Cementos La Parrilla operation, Grupo GLA now has an annual cement grinding capacity of 1.8 million tonnes ensuring their ongoing competitiveness in the Spanish market. During the year, we also invested in aggregates resources in Egypt and Algeria and significantly increased the capacity of our ready mix operations in those markets as well. Looking forward, we intend to expand our aggregates resources and ready mix capabilities in southern Europe which compliment our cement production assets in the Middle East and North Africa.

Construction GroupThe 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 continue to be selective in the projects we undertake ensuring that we consistently meet the demands of our customers with regard to quality, safety and timely delivery, while at the same time meeting the demands of our shareholders to deliver above average returns and sustainable growth.

Investments in natural gas-based industries and infrastructure concessionsIn recent years, demand for natural gas has soared. Natural gas has many residential and commercial uses which include heating, cooking and cooling. Industrial uses, however, account for almost half of overall natural gas consumption not only as an energy source but also as a feedstock in the manufacturing of many chemicals and products including fertilizer and plastics. Demand for natural gas-based fertilizers is surging as a result of global consumption growth and increased demand for agricultural commodity-based fuels such as corn-based ethanol. As a contractor, we are well positioned to identify and develop investment opportunities in greenfield industrial projects that leverage competitively priced natural gas in the region. By participating as an equity investor in these greenfield industrial projects, we can deploy our construction capabilities and resources in a smarter way which we believe will ultimately result in exceptional returns for shareholders. We have also instructed our construction teams to pursue select infrastructure concession opportunities in the region that providelarge construction contracts and future steady cash flows.


International revenue Revenues from sources outside of Egypt exceeded 74% in 2006.

74%

Countries served OCI serves customers on 5 continents.

+30

International revenue growth New projects abroad drives revenue growth.

+59%

Business reviewCement...


Total production capacityThe OCI Cement Group will have an annual production capacity of 34 million tonnes in early 2008.

34mNew projectsWe have new projects in six countries which will add 13 million tonnes of new capacity.

13mIncrease in sales volume OCI Cement Group sold 13.9 million tonnes of cement, an increase of 38% over last year.

38%

EGYPT

ALGERIAPage 14PAKISTANPage 16NORTHERN IRAQ

Page 18

TURKEY

Page 19SPAINPage 20AGGREGATES, READYMIX AND PACKINGPage 21


The OCI Cement Group is the largest cement producer in the Middle East and a leading regional cement exporter. Our cement subsidiaries are widely recognized as efficient, low cost and environmentally friendly producers of high quality cement. We now have operations in six countries having successfully commissioned a new plant in Pakistan, rehabilitated a plant in northern Iraq and acquired businesses in both Spain and Turkey during the year. We are currently constructing additional cement production capacity in Algeria, northern Iraq, Spain, Turkey, the United Arab Emirates and Nigeria which will increase our total annual production capacity to 34 million tonnes. We export cement primarily from Egypt to customers in 30 countries including the USA. We also produce and distribute aggregates, ready mixed concrete and cement bags in Spain, Egypt and Algeria.


Egypt

Egyptian Cement Company (ECC) is the single largest cement producer in Egypt and the second largest cement plant in the world. ECC operated at full capacity throughout the year producing 8.2 million tonnes, an 8% increase over last year. ECC completed an ambitious de-bottlenecking program during 2005 which increased the annual production capacity of its four main dry process production lines up to 8.5 million tonnes. In June, ECC completed the construction of its fifth production line which increased the total annual production capacity of the plant by an additional 18% up to 10 million tonnes. ECC signed a contract with OCI and ThyssenKrupp Polyisus, the original equipment manufacturer, in May 2005 to engineer and supply its fifth production line which would utilize an innovative production process technology that takes by-pass dust generated from the existing four production lines and burns it at high temperatures alongside surplus raw material to make cement. The new by-pass treatment production line aims to reduce the plant’s overall dust emissions by up to 60% while reducing the energy and electricity consumption per tonne of cement produced. The additional output from

the fifth production line was necessary to enable ECC to continue to serve its existing international customers while maintaining its domestic market share. During the year, ECC exported 2 million tonnes of cement, an increase of 5% from last year, to 15 different countries including Yemen, Italy, Spain, Turkey, and the USA.

During the summer, the Egyptian government increased energy prices for industrial users which raised the cost of natural gas to LE 1.5 per million BTU. This increase in the cost of natural gas resulted in only a USD 1 per ton increase in the cost of cement produced by ECC due to the high energy efficiency at their modern plant. At the same time, major producers in the Egyptian market increased their average selling prices by more than USD 2 per ton to partially offset their rise in energy costs. In response to the rise of cement prices following the increase in energy prices, the Egyptian government issued price guidelines for retail cement prices. Throughout this period, ECC focused on delivering long-term value to its customers and shareholders by not altering its pricing policies in response to either event.

During the year, total market cement consumption in Egypt increased by 6% to 30.1 million tonnes, total clinker production increased by 4% to 35.1 million tonnes, and total cement and clinker exports decreased by 11% to 8.1 million tonnes. Egyptian cement producers continued to operate at or near full production capacity during the year. ECC sold 6.1 million tonnes of cement locally, an increase of 7% from last year, maintaining a 20% share of the market. An increase in demand for cement globally led to significant increases in the price paid to local producers for exported cement during the year. The increase in export prices contributed to an increase in local cement prices by 13% during the year. According to the IMF World Economic Outlook issued in September 2006, Egyptian real GDP grew at a rate of 4.7% during the year, up from 4.5% the year before. Growth is expected to reach 5.2% in 2007. Improving macroeconomic factors and demographic trends in Egypt including a relatively young population and persistent shortage of housing indicate positive growth in cement consumption in both the short and long term.


Revenue growth ECC revenue reached LE 2.5 billion, a 21% increase over last year.

21%Annual production capacity ECC now has 5 production lines with a total annual capacity of 10 million tonnes.

10mContribution to earnings ECC contributed 42% of Cement Group earnings and 24% of OCI net income.

24%

ECC is the single largest cement producer in Egypt and the second largest cement plant in the world. ECC is a leading regional cement exporter and the largest exporter of cement from Egypt.

Algerian Cement Company (ACC) operated at an average rate of 80% capacity in its first full year of operations producing 3.9 million tonnes, an increase of 70% over last year. ACC has two dry process production lines supplied by FL Smidth which have an annual production capacity of 5 million tonnes. ACC began operations of its first production line in March 2004 and its second production line in June 2005. ACC made a strategic decision to operate at less than full capacity throughout the year maintaining a 25% market share. The new production lines operated as expected without any problems. During the year, ACC continued to expand its network of local dealers and company owned distribution centers to ensure the timely and consistent availability of its products throughout the country. ACC is the only local cement producer to operate distribution centers and provide delivery services for its customers. Nearly 3% of sales were made through the distribution centers and 15% of sales were delivered direct to customers. By providing delivery services to key customers, ACC improved the geographical distribution of its products with the capital of Algiers, the largest market, representing only 25% of sales. The delivery services also enabled ACC to achieve a 65% market share for sulphate resistant cement products.

In August 2005, Ciment Blanc d’Algerie (CBA) signed a contract with an FL Smidth/OCI team to construct a greenfield white cement plant with an annual production capacity of 550 thousand tonnes. The new plant will be one of the largest white cement plants in the world and will cater for both domestic and international customers being strategically located 54km south of Arzew Harbour and 60km east of Oran Harbour, some 380km west of the capital city Algiers. The total investment cost for the white cement production line is expected to be US$ 138 million. Construction work is scheduled for completion in July 2007.

In March, CBA announced that it had signed a second contract with the FL Smidth/OCI team to construct a grey cement production line with an annual production capacity of 2.5 million tonnes. The total investment cost for the new grey cement production line is expected to be US$ 340 million. Construction work is scheduled for completion in October 2007. Since it is difficult to predict cement demand growth in emerging markets, CBA intends to initially export the majority of its production and gradually increase domestic sales as local demand materializes. The

outlook for cement demand throughout the Mediterranean remains strong and export prices for cement should remain favourable.

During the year, total market cement consumption in Algeria increased by 15% to 15.0 million tonnes, total cement dispatches from local producers increased by 16% to 14.8 million tonnes, and total cement and clinker imports decreased by 43% to 200 thousand tonnes. The Algerian Government owns 12 plants which produced 10.9 million tonnes during the year. ACC is currently the only private sector cement producer in Algeria although a privatization programme is expected to result in other foreign cement companies acquiring minority stakes in several state-controlled plants. According to the IMF World Economic Outlook, Algerian real GDP grew at a rate of 2.7% during the year, down from 5.3% the year before. Growth is expected to increase to 4.5% in 2007. We continue to have a positive growth outlook for cement consumption in Algeria due to increasing foreign exchange reserves from petrochemical exports as well as encouraging demographic trends including a relatively young population and pent up demand for housing and public infrastructure.

Algeria

Revenue growth ACC revenue reached LE 1.5 billion, an 80% increase over last year.

80%Annual production capacity ACC and CBA will have a total annual capacity of 8.05 million tonnes during 2007.

8mContribution to earnings ACC contributed 52% of Cement Group earnings and 30% of OCI net income.

30%

The OCI Cement Group is the only private sector cement producer in Algeria. ACC is the single largest cement producer and CBA will be the only white cement producer in the country.



Pakistan

Pakistan Cement Company (PCC) began operations in July and produced a total of 382,000 tonnes during the year. PCC operates a single dry process production line supplied by FL Smidth which has an annual production capacity of 2.2 million tonnes. The cement plant is located along the Lahore-Islamabad highway in the Punjab Province of northern Pakistan, some 80 kilometers south of Islamabad. Construction work on the PCC plant was undertaken on a fast track schedule and was completed in only 15 months. The construction work was managed by an FL Smidth/OCI team overseeing local Pakistani contractors. During the year, production was disrupted by seasonal shortages of natural gas, intermittent electricity outages and unexpected maintenance work on some plant equipment. To overcome these disruptions, PCC has begun construction of a coal mill to allow the plant to operate on natural gas, fuel oil or coal and has pre-ordered essential spare parts which have long lead times. PCC introduced its products under the brand name “PAKCEM” and has positioned the brand in the market as a premium quality cement. Supported by a wide dealer network and strong in-house technical sales team, PCC

succeeded in capturing a 9% market share despite severe price competition by the existing producers. PCC expects to play an important role in meeting the growing demand for high quality cement in both Pakistan and Afghanistan.

The OCI Cement Group acquired a majority 51% stake in PCC, formerly known as Chakwal Cement Company, in March 2005 and has since increased its stake in the company up to 62.75%. To complete construction of the new plant, PCC secured financing through a syndicate of 11 Pakistani banks and the Eksport Kredit-Fonden (EkF), the Demark-based international export credit agency, for the equivalent of US$ 130 million in limited recourse project finance debt. The OCI Cement Group has invested a total of US$ 231 million in PCC as at year end. The OCI Cement Group is the first international cement company to begin operations in Pakistan.

During the year, total market cement consumption in Pakistan increased by 26% to 18.9 million tons, total cement dispatches from local producers increased by 20% to 20.7 million tonnes, and total

cement and clinker exports increased by 78% to 1.8 million tonnes. There are currently 25 operating cement producers in Pakistan which have a total annual cement production capacity of 33.8 million tons, an increase of 88% over last year. Despite rising local demand, the substantial increase in new production capacity pushed local cement prices lower for most of the year. According to the IMF World Economic Outlook, Pakistan real GDP grew at a rate of 6.2% during the year, down from 8.0% the year before. Growth is expected to be at 6.5% in 2007. We expect cement demand in Pakistan to grow significantly due to generally strong GDP growth, increased housing construction and greater public spending on infrastructure.


Construction record PCC completed construction of its plant in only 15 months.

15mthsAnnual production capacity PCC has a single production line with a total annual capacity of 2.2 million tonnes.

2.2mMarket share PCC has been able to capture a 9% market share since beginning operations in July.

9%

The OCI Cement Group is the first international cement company to begin operations in Pakistan. PCC is among the top 5 largest cement producers in the country.


The OCI Cement Group believes strongly in the future of Iraq and is proud to support the Iraqi people in rebuilding their nation. Our Tasluja and Bazian plants will be the two largest operating plants in the country.

In July, the OCI Cement Group completed rehabilitation work on the second production line at the Tasluja cement plant located near the city of Suleimaniyah in the Kurdistan region of Northern Iraq. The Tasluja plant has two production lines supplied by ThyssenKrupp Polysius which have an annual production capacity 2.3 million tonnes. Rehabilitation work on the first line was completed in July 2005. During the year, the Tasluja plant was able to produce a total of 657,000 tonnes. Production continues to be disrupted by intermittent outages of natural gas and electricity. The OCI Cement Group and its local partner, the Farouk Rasool Group, were awarded a 12-year lease contract to rehabilitate, operate and maintain the Tasluja plant by the Kurdistan regional government and have received a right of

first refusal on any potential privatization of the plant. Together, the OCI Cement Group and its partner have invested a total of US$ 70 million in the rehabilitation of the plant as at year end. The OCI Tasluja management team has overcome tremendous obstacles to restore production operations at the Tasluja plant and their achievement has provided a significant economic and social benefit to the local community.

In February 2005, the OCI Cement Group and the Faruk Rasool Group obtained regulatory approvals for the construction of a new greenfield cement plant near the city of Bazian in the Kurdistan region of Northern Iraq. The new plant will have a single production line supplied by ThyssenKrupp Polysius which will have an

annual production capacity of 2.9 million tonnes. Construction work on the plant began in July 2006 and is scheduled to be completed in 26 months during August 2007. At year end, overall construction work on the plant was 65% complete. The OCI Bazian management team has decided to invest in a small power plant in order to ensure a stable supply of electricity to the plant.

Total market cement consumption in Iraq is estimated to be 10 million tonnes, total cement dispatches from local producers is estimated to be 3 million tonnes, and total cement and clinker imports are estimated to be 7 million tonnes primarily from Turkey, Jordan and Iran. There are 14 state-owned cement plants in Iraq which have a 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.

Northen Iraq

Annual production capacity Tasluja and Bazian will have a total annual capacity of 5.2 million tonnes during 2007.

5.2m


In January, the OCI Cement Group completed the acquisition of the Van cement plant in southeastern Turkey for a total investment cost of US$ 54 million. The Van plant assets were sold to the OCI Cement Group through a public auction conducted by the Turkish Savings & Deposits Fund. Although only having a clinker capacity of 250 thousand tonnes and a cement grinding capacity of 600 thousand tonnes, the Van plant has an established market presence, a competent management team and the potential for expansion. Having gained control of the plant, the OCI Cement Group signed a contract with a ThyssenKrupp Polyisus/OCI team to improve the efficiency and double the clinker production capacity of the plant to 500 thousand tonnes. The OCI Cement Group expects the Van plant to expand its export sales into northern Iraq until new production capacity is brought on stream.

During the year, the OCI Cement Group acquired additional shares in Baticim Cimento to increase its equity stake to 23%. In December 2005, the OCI Cement Group completed the acquisition of a 20% stake in Baticim Cimento in Turkey which has a consolidated annual cement production capacity of 3 million tonnes. Baticim Cimento is the majority shareholder (75%) of Bati Soke Cimento. Both companies are listed on the Istanbul stock exchange. Baticim Cimento is one of the top five cement exporters in Turkey.

During the year, total market cement consumption in Turkey increased by 20% to 39.8 million tons, total cement

dispatches from local producers increased by 17% to 41.6 million tons, and total cement and clinker exports decreased by 32% to 7.2 million tons. There are currently 42 operating cement producers in Turkey which have a total annual cement production capacity of 47.4 million tons. Rising local demand and robust demand for exports has helped pushed local cement prices higher for most of the year. According to the IMF World Economic Outlook, Turkish real GDP grew at a rate

of 5.0% during the year, down from 7.4% the year before. Growth is expected to remain at 5.0% in 2007. We expect cement demand in Turkey to grow significantly due to generally strong GDP growth, increased housing construction and greater public spending on infrastructure.

TurkeyThe Turkish cement market is large, but has many small producers. During the year, we have taken our first steps to enter the market with the acquisition of the Van cement plant in southeastern Turkey and a minority stake in Baticim Cimento.

Madrid. CLP began construction work in late 2005 to increase its grinding capacity to 1.2 million tonnes of cement annually. Together, GLA and CLP will have 1.8 million tonnes of cement grinding capacity located both north and south of Madrid.

Spain is the largest cement consumer in Europe and continues to be one of the world’s largest cement importers. During the year, total market cement consumption in Spain increased by 8.2% to 55.7 million tonnes, total domestic cement production increased by 7.2% to 53.9 million tonnes, and total cement and imports increased by 114.7% to 7.5 million tonnes. There are currently 50 operating cement producers in Spain which have a total annual cement production capacity of 52 million tonnes. Strong cement demand and higher cement import prices has enabled local cement prices to increase moderately during the year. According to the IMF World Economic Outlook, Spanish real GDP grew at a rate of 3.7% during the year, up from 3.5% the year before. Growth is expected to be 3.6% in 2007. We expect cement demand in Spain to continue to benefit from the second home phenomena and increased immigration creating a greater need for housing and public infrastructure.

Spain


Cement capacity GLA and CLP has an annual cement grinding capacity of 1.8 million tonnes.

1.8m

In October, the OCI Cement Group completed the acquisition of a 50% stake in Grupo GLA (GLA), the largest independent aggregates and ready mix concrete producer in Spain. GLA was founded by the prominent Monje Tunon family who will continue to be partners in the business and be responsible for oversight of day-to-day operations. GLA has aggregates and ready mix concrete operations throughout Spain with market leading positions in Madrid and Valencia. GLA has an annual quarrying capacity of 5 million tonnes of aggregates with more than 240 million tonnes of reserves spread over 11 quarries throughout Spain. GLA has an annual production capacity of 3.5 million cubic meters of ready mix concrete and is currently constructing a grinding plant south of Madrid capable of producing 600 thousand tonnes of cement annually. GLA also has additional mortar and pre-cast concrete production operations. The OCI Cement Group acquired GLA for a total cash consideration of EUR 51.3 million and contributed its 59% stake in Cementos La Parrilla (CLP). The OCI Cement Group acquired CLP in September 2005. CLP operates a grinding plant capable producing 600,000 tonnes of cement annually located near the city of Valladolid, northwest of the capital city

Cement consumption in Spain continues to grow and environmental regulations are beginning to impact local producers. We expect Spain will continue to be the largest importer of cement in Europe and that Grupo GLA will become a market leader in cement, aggregates and ready mix.

Concrete capacity GLA has an annual production capacity of 3.5 million cubic meters of concrete.

3.5mAggregates reserves GLA has 240 million tonnes of aggregates reserves located throughout the country.

240m

In January, the OCI Cement Group acquired 100% of Egypt Sack Company (ESC) for a total sum of LE 43 million (US$ 7.4 million). ESC operates a single plant which has two production lines capable of making 60 million cement bags annually. During the year, ESC produced a total of 80.7 million bags.

During the year, National Bag Company (NBC) produced 191 million bags. NBC is the largest bag producer in Egypt and operates a single plant which has six production lines capable of making 240

Concrete produced RME sold 0.5 million cubic meters of concrete in Egypt.

0.5mAggregates sold RME and Besix sold 1.5 million tonnes of aggregates in Europe and Egypt.

1.5m


In October, the BESIX Group announced the acquisition of Socogetra which has 60 years of experience in the road construction industry and is a producer of aggregates, ready mix concrete and asphalt. Socogetra has an annual production capacity of 1.1 million tonnes of aggregates including a limestone quarry capable of producing 700,000 tonnes annually which is owned in joint venture with Lafarge. The BESIX Group believes the acquisition will improve their competitiveness when tendering for infrastructure contracts and their attractiveness as a partner in various private sector infrastructure concessions.Throughout the year, Ready Mix Egypt (RME) invested to expand its aggregates and ready mix assets. RME is now one of the largest aggregates and ready mix companies in Egypt. During the year, RME sold 0.5 million cubic meters of concrete and 0.5 million tonnes of aggregates. RME operates 3 sand and gravel quarries with ample reserves and also operates 9 mobile batch plants and 41 concrete truck mixers.

In December, Ready Mix Algeria (RMA) began operations working closely with the ACC sales team to provide customers with high quality and timely ready mix products. During the year, RMA acquired rights to operate 5 aggregates quarries with ample reserves and also purchased 30 concrete truck mixers, 6 mobile pumps, 4 concrete tracing booms, 2 stationary pumps and 8 batch plants.

Aggregates, ready mix and packaging

million cement bags annually and an assortment of 4-color specialty bags. In October, the OCI Cement Group bought out its local partner in Algeria to acquire full ownership of Mehsas National Bag Company. After gaining control, OCI renamed the business Algerian Bag Company (ABC). ABC produced a total of 70.2 million bags during the year, an increase of 23% over last year. ABC operates a single plant in central Algeria which has two production lines capable of making 80 million bags annually.

343mBags produced NBC, ESC and ABC produced 343 million cement bags in Egypt and Algeria.


Annual Production Capacity EMCC will have an annual production capacity of 3 million tonnes in 2007.

3m

In September 2005, the OCI Cement Group in partnership with Dubai Industrial, an affiliate of Dubai Holding, and the Emirate of Fujairah announced the establishment of Emirates Cement Company (EMCC). The new plant is located in the Emirate of Fujairah and will have a single dry process production line with an annual capacity of 3 million tonnes. EMCC signed an EPC contract with an FL Smidth/OCI consortium to construct the plant in just 27 months with completion scheduled in October 2007. As at year end, construction was 65% complete. The total investment cost of the plant is expected to reach US$ 432 million.

During the year, total market consumption in the UAE increased by 26% to reach 16.5 million tonnes. Total cement dispatches from local producers is estimated to have reached 14.1 million tonnes. The balance was serviced through imports primarily from India and China. GDP growth during 2006 reached 11%. Cement demand continues to be driven by investments in commercial and housing projects and public infrastructure spending necessary to support a vibrant tourism industry and growing immigrant population.

United Arab Emirates Economic growth in the UAE continues to be phenomenal. When completed in October 2007, the EMCC plant will help provide the materials for their ambitious development plan.


In February 2006, Egyptian Cement Company (ECC) agreed to acquire a 70% stake in United Cement Company of Nigeria (UNICEM), a well established cement importer and distributor, from both Holcim and Flour Mills of Nigeria. Following the acquisition, UNICEM began construction of new greenfield cement plant with an annual production capacity of 2.5 million tonnes. The new plant will be located near the port of Calabar in Cross River State in southeastern Nigeria. Construction work is scheduled for completion in early 2008.

Total market cement consumption in Nigeria is estimated to be 12 million tonnes, total cement dispatches from local producers is estimated to be 3 million tonnes, and total cement and clinker imports are estimated to be 9 million tonnes primarily from China. There is only one current producer in Nigeria. Local market cement prices remain high due to a shortage of local supply and the high transportation cost of imported cement. As the most populous country in Africa with a low per capita cement consumption level, we expect demand in Nigeria to grow significantly over the coming years.

Nigeria UNICEM will be one of three cement producers in Nigeria when it begins operations in early 2008. Nigeria continues to be the largest importer of cement in Africa.

Annual Production Capacity UNICEM will have an annual production capacity of 2.5 million tonnes in 2008.

2.5m


New work booked (US$) Besix, Contrack and OCI received US$ 2.6 billion of new work in 2006.

2.6bnNet income margin Construction net income jumped to US$ 255 million as net margin increased to 11.2%.

11.2%Record revenues (US$)Construction revenue grew by 47% to a record US$ 2.3 billion.

2.3bn

BESIX GROUPCONTRACK INTERNATIONALPage 28ORASCOM CONSTRUCTION INDUSTRIESPage 30NATURAL GAS INDUSTRIES

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Business reviewConstruction...

The OCI Construction Group provides engineering, procurement and construction services on large, complex and demanding projects for public and private customers primarily in the Middle East, North Africa and Central Asia. The OCI Construction Group ranks among the top 150 largest global contractors and is one of the leading contractors in the Middle East. The OCI Construction Group operates under three separate business units each of which have established an exceptional track record with their customers, have leading positions in their geographical markets served, and have developed core technical competencies in specialized areas of construction. The OCI Construction Group also provides steel fabrication services in Egypt and Algeria and participates as an equity investor in natural gas based industrial projects and infrastructure concessions.



BESIX Group

Burj Dubai

Aspire Tower

The BESIX Group is based in Belgium and is active in engineering and construction, electro-mechanical services and real estate development. The BESIX Group was established in 1909 and provides engineering, procurement and construction services on large commercial, infrastructure and marine projects for public and private customers worldwide. In addition to its activities in the European Union, the BESIX Group is also active in central and Eastern Europe, Egypt, Libya, Central Africa and in the United Arab Emirate and Qatar through Six Construct. The BESIX Group employs more than 12,000 personnel, is the largest construction contractor in Belgium and is ranked by the Engineering News Record as the 49th largest international contractor and the 98th largest general contractor in the world.

During the year, the BESIX Group secured a record US$ 1.7 billion in new work principally in Belgium and the UAE. At year end, the Besix Group was involved in 81 projects located in 19 countries and the value of unbilled work in backlog was US$ 1.1 billion. Contracts being undertaken in the UAE, Qatar and Bahrain represented 52% of backlog at year end.

The BESIX Group is a member of the consortium constructing the Burj Dubai which will be the world’s tallest building upon completion standing more than 725 meters high. By year end, the Burj Dubai stood 110 stories tall reaching a height of 380 meters making it the tallest building in the Middle East, the ninth tallest building in the world and tied with

the Sears Tower in Chicago for the highest number of floors. BESIX has more than 2,000 workers mobilized on the project which will use more than 230,000 cubic meters of concrete, 31,400 tonnes of rebar and have curtain walling measuring 27.5 acres enough to cover 17 soccer fields. BESIX is currently completing a floor every three days and expects the project to be completed in late 2008.

In November, the BESIX Group completed work on the first part of the Aspire Tower in Doha, Qatar. Designed by renowned architect Hadi Simaan, the tower stands 300 meters high and served as a focal point for the 15th Asian Games hosted by Qatar in December 2006. Work on the interior of the tower is expected to be fully completed by August 2007. Upon completion, the Aspire Tower will include a five-star 136 room hotel with atrium, conference rooms, business centre, restaurant, gymnasium, salons, sports museum, suites, and at the top of the building, a revolving restaurant, a bar and an observation deck providing panoramic views of Doha.

In February, the BESIX Group was awarded a 27-year build-operate-transfer (BOT) contract for a greenfield wastewater treatment plant in the Emirate of Ajman in the United Arab Emirates. BESIX will have a 50% stake in the venture alongside Veolia Water, Black & Veatch and the Ajman Government. The scope of the BOT contract includes the engineering, procurement and construction of the water treatment plant as well as ongoing operations and maintenance. The plant will have a capacity

to serve 250,000 people and will involve the construction of 22 pumping stations, a 225 km gravity pipeline, 30 km of pressure mains and connections to more than 45,000 households. Total revenues from the BOT contract are expected to reach EUR 297 million during the concession period in addition to the EUR 132 million construction cost for the new facilities. Construction work is expected to be completed in just 30 months. BESIX aims to participate in similar infrastructure concessions as a contractor and equity investor both in Europe and the Middle East.

During the year, the BESIX Group acquired five companies: Van Britsom, Verheye, GRWestkust (50%), Cobelba and Socogetra. Van Britsom is active in construction works for waterways and harbours in Belgium, and Verheye is active in civil engineering, earthworks, sewage systems and concrete products also in Belgium. GRWestkust is active globally in wastewater treatment and water production systems and technologies. Cobelba is a reputable general contractor established in 1994 with operations in Belgium and Luxembourg. Socogetra has around 60 years of experience in the road construction industry and is a producer of aggregates, ready mix concrete and asphalt.


The BESIX Group has been active in the UAE since 1967 and has grown to become one of the largest construction contractors in the Middle East.

Contrack International


Contrack International (CII) is based in the USA and provides engineering, procurement and construction services primarily on institutional and infrastructure projects financed by the US Government in the Middle East and Central Asia. CII has been ranked among the Top 400 US Contractors by Engineering News Record for 16 consecutive years. CII was ranked 140th in overall revenue for 2006, up from 148th in 2005 and 294th in 2003. CII was ranked 13th in international revenue among all US contractors and 77th among all international contractors globally.

During the year, CII secured US$ 150 million in new work principally in Afghanistan. At year end, CII was involved in 26 projects located in 5 countries worth a total value of US$ 839 million and the value of unbilled work in backlog was US$ 318 million. Contracts being undertaken in Qatar represented 65% of backlog at year end.

CII has been active in Afghanistan since January 2003 and has undertaken work orders for a variety of projects including institutional buildings, wastewater treatment plants, water supply pumping stations, roads, hospitals, and other humanitarian projects. CII was awarded US$ 141 million of work orders in Afghanistan during the year and was also awarded a three year US$ 110 million contract to provide operations and maintenance services at Afghan National Army bases throughout Afghanistan. CII is currently one of the largest international contractors operating in the country and has a local workforce of more than 4,000 personnel.

The CII/Darwish joint venture made substantial progress on the Science and Technology Park project valued at US$ 355 million which is part of the Education City development in Qatar, the ambitious flagship project being undertaken by the Qatar Foundation for Education, Science and Community Development, a charitable foundation established by Sheikh Hamad bin Khalifa Al-Thani, Qatar’s Emir and head of state. The Science and Technology Park will consist of three main buildings, a podium and parking garage in addition to utilities infrastructure and landscaping works. A major feature of the project is the Veil, a giant sun shade towering above the three main buildings with massive steel quad-columns supporting a wave-shaped Veil built of structural steel space trusses with perforated stainless steel panel cladding covering both the top and bottom. Construction work on the project was 36% complete at year end and is scheduled to finish in late 2007. The Education City campus will cover some 2,500 acres and is envisioned to be a totally integrated education environment offering world class educational, commercial, recreational, cultural, health and housing facilities. The master plan for Education City was created by renowned Japanese architect Arata Isozaki. CII intends to pursue additional construction opportunities on the Education City development including the central library, student center, auditorium/conference center, college of engineering and Al Shaqab equestrian center.

In May, CII established a full-fledged branch office in Bahrain to pursue more than US$ 250 million worth of private sector projects.

CII has been active in Bahrain since 2001 primarily providing construction services for US Government financed projects. Having established an excellent reputation in the local market, CII hopes to secure private sector work following the successful business model adopted by the CII team in Qatar. CII currently has a local workforce of nearly 1,000 in Bahrain.

In 2005, CII formed a joint venture in Egypt with Stanley Consultants, a respected American engineering firm, to provide design support for CII projects which require a design-build contracting approach favored by US government agencies. The Contrack Stanley Group provides CII and other clients with a competitive cost advantage in tendering for design-build and EPC contracts. The joint venture employed close to 100 engineers and draftsmen at the close of 2006.

Contrack FM was formed in 2004 to provide facilities management services for public and private clients in Egypt leveraging on the operations and maintenance experience CII has gained over the years working on various contracts for the US government in the region. Contrack FM provides facilities operations and maintenance services to more than 21 clients in Egypt including the Nile City Complex, two 34-floor towers housing international companies in 200,000 square meters of office space, and Smart Village, a 300-acre site containing offices for high tech industries in 14 buildings with 140,000 square meters of office space. Annual revenue and personnel at Contrack FM has more than doubled in each of its three years of operation.

Contrack International is a leading US international contractor and the largest construction contractor operating in Afghanistan.


Science and Technology Park, Qatar


Orascom Construction Industries


OCI Construction continues to manage its growth by positioning resources and personnel in only a few key geographical markets.

OCI Construction provides engineering, procurement and construction services on industrial, commercial, infrastructure and railway projects for public and private customers primarily in the Middle East and North Africa. OCI selectively targets large, complex and demanding projects which require internationally accepted quality and safety standards.

During the year, OCI continued to receive repeat orders from satisfied customers and secure large contracts working in partnership with other leading regional and multinational contractors. OCI posted record revenue of LE 5.5 billion and secured LE 2 billion in new work most notably in Egypt and Algeria. At year end, OCI was involved in 59 projects located in 9 countries worth a total value of LE 15.9 billion and the value of unbilled work in backlog was LE 4.7 billion, a 32% decrease over last year. During 2005, OCI secured a record LE 7.5 billion in new work and at year end had a backlog of LE 6.9 billion. The value of work in backlog can vary considerably throughout the year due to the size and timing of contract awards. During the second half of the year, OCI made the strategic decision to hold construction resources in reserve for contracts expected to be awarded and for projects to be tendered in early 2007.

During the year, OCI substantially completed work on several major industrial projects including the AstraZeneca pharmaceutical plant, the Egyptian Fertilizer

Company second urea/ammonia production line, and the Helwan Fertilizer Company urea/ammonia production line in Egypt. Construction work progressed smoothly on all major projects in Egypt including the 750MW Talkha power plant, the 25 story Fairmont Hotel at Nile City, the Pfizer pharmaceutical plant, the warehouse and production facilities for Eastern Tobacco, and the Nagaa Hammadi dam and power station. Construction work on the Proctor & Gamble detergents plant in Nigeria was also on schedule. During the year, OCI was awarded a US$ 91 million contract to construct the ammonia fertilizer plant for Egyptian Basic Industries Corporation, an LE 88 million contract to build the new Maadi City Center building, and a LE 79 million contract to build the new Embassy of Oman in Egypt.

Algeria is a key construction market for OCI. Over the past several years, OCI has invested heavily in both equipment and human resources to enhance our capability and capacity to undertake more work in Algeria. During the year, construction work on the Hammam sea-water desalination plant progressed on schedule. The project valued at US$ 189 million was awarded to an OCI/BESIX joint venture by GE Ionics in April 2005. The sea-water desalination plant is located near the port of Algiers and will be the largest of its kind in North Africa, supplying a quarter of the population of Algiers with drinking water. Also during the year, OCI continued to construct railway

infrastructure for the Algerian Railway Authority working in partnership with TSO of France. OCI has a scope of work currently valued at US$ 73 million of which 22% was completed at year end.

During the year, OCI and Cementech worked together with FL Smidth to provide engineering, procurement and construction services on the new cement production lines being constructed by the OCI Cement Group in Pakistan, Nigeria, Algeria, Turkey and the UAE as well as the new cement production line being constructed by AUCC in Libya. OCI and Cementech worked together with ThyssenKrupp Polysius on cement projects in Egypt and northern Iraq. OCI is one of the most experienced cement plant contractors in the world.

National Steel Fabrication Company (NSF) operates a single plant in 6th of October City which provides a complete range of steel fabrication services including cutting, drilling, bending, welding, sand blasting and painting primarily for customers in the petroleum and construction industries. NSF is a joint venture between OCI and Consolidated Contractors (CCC). During the year, NSF produced 20,006 tons of fabricated steel products.


Natural gas industries

OCI aims to invest in greenfield industrial projects which leverage competitively priced natural gas in the region and which utilize our construction capabilities to reduce the time and cost of development, replicating the same business model that has been a key driver in the success of the OCI Cement Group. Working together with our technology partners, ThyssenKrupp Udhe and KBR, OCI intends to actively pursue urea/ammonia fertilizer projects in the region as both a contractor and equity investor. Should opportunities arise, OCI may also acquire existing natural gas-based businesses, consolidate its activities with existing industry leaders or expand its activities to include trading operations.

In February, OCI signed an initial agreement with the Algerian state-owned oil & gas company Sonatrach to establish a greenfield ammonia/urea fertilizer plant in Algeria with an annual capacity of 1.1 million tonnes of granular urea and 0.7 million tonnes of ammonia. OCI initiated the project with a detailed proposal and feasibility study that was presented to Sonatrach and will act as the lead project developer. Based on the economics of the project and the improved outlook for global fertilizer demand, a strategic decision in August was taken to build an additional ammonia plant on the same site in order to double the annual production capacity of ammonia to 1.3 million tonnes. It is expected that all of the ammonia produced by the plant will

be exported. The total investment cost of the project has increased from US$ 746 million initially up to US$ 1.6 billion. Societe Generale has been appointed as the financial advisor and White & Case (London) has been appointed as the legal advisor for the new venture. OCI will have a 51% stake in the new venture with Sonatrach owning the remaining 49%. In November, the Algerian National Investment Council approved the increased investment in the project. The plants are expected to be built in the industrial zone at Arzew near the Mediterranean Sea shoreline. The proximity of the plants to the two major ports of Arzew and Bethioua will help facilitate the export of their production. The new venture will be financed through long-term project finance debt in a limited recourse structure from a combination of local Algerian and international banks. Sonatrach will enter into a 20-year gas supply agreement with the new venture. Construction work is scheduled to begin in early 2007 and OCI targets to commission the production lines in 2011.

In October 2005, OCI became a significant shareholder in Egyptian Basic Industries Corporation (EBIC) which is currently constructing a greenfield 2,000 ton per day ammonia production plant. The plant will be the largest of its kind in Egypt. The total investment cost is expected to be US$ 540 million of which US$ 225 million has been secured through a facility agreement

with the US Export Import bank and US$ 126 million of commercial debt has been secured through a syndicate of local Egyptian and international banks. By the end of January, OCI and its partners had contributed US$ 189 million of equity. The project reached financial close on 30 March 2006 and at year end, US$ 137 million of debt had been drawn down. A KBR/OCI consortium is undertaking the construction work which is scheduled for completion in late 2008. At year end, the project was 65% complete. OCI made the strategic decision to invest in EBIC after better understanding the economics of the project which capitalizes on the lower cost of natural gas in the region. In addition to the construction work being performed, OCI will realize benefits from the sale of land to the plant by Suez Industrial Development Company and the ongoing export of the ammonia produced which will be loaded at the nearby Sokhna Port.


OCI intends to participate in natural gas based industrial projects in the region as both a contractor and an equity investor.

Orascom Construction Industries is a publicly listed corporation owned by thousands of shareholders. We employ thousands of people and provide goods and services to thousands of customers in many countries. What we do and how we do it can have an impact on the lives of every one of our shareholders, employees, customers, business partners and those in the communities where we operate.

We recognize that we have a social responsibility to our stakeholders and are committed to acting in accordance with international best practices for corporate governance, corporate citizenship and sustainable development. OCI, its subsidiaries and affiliates demand that all their employees conduct themselves in accordance with the highest standard of professional conduct and ethics.

We believe strongly in protecting and supporting the local communities in which we operate. Through our activities, we contribute to the economic and social well-being of our stakeholders.

Corporate social responsibilityUnderstanding our impact


OCI has adopted corporate governance guidelines which comply with all applicable laws and stock exchange regulations. We have adopted strict employee health, safety and environmental policies, have formed a charitable foundation to provide educational opportunities for young people and have joined the UN Global Compact to promote human rights, labour standards, environmental protection and anti-corruption efforts.

Working together with our employees, our international partners and our customers, we are helping to build a brighter future in developing countries around the world.

Corporate citizenshipCompanies have choices about how they manage their business. Being a good corporate citizen balances acting responsibly with the right to trade freely. In the long term, companies are more successful when they responsibly address the concerns of not only their shareholders, but also their employees, customers, business partners, government and the community as a whole.

We believe that good corporate citizenship can provide business benefits and improve business performance by enhancing our corporate reputation, lowering our risk profile, increasing our attractiveness as an employer, improving our relations with potential investors and our access to capital, encouraging creativity and innovation inside our company, differentiating our company from our competitors, increasing our operational efficiency, and ensuring our ability to operate uninterrupted in the communities we serve.

The OCI Foundation was formed in 2000 to invest company resources in educational programs that improve the communities in which we operate. Through the Onsi Sawiris Scholarship Program, the OCI Foundation has provided scholarships to 32 extraordinary Egyptian graduate and undergraduate students for studying at prestigious international universities in fields that will enhance the economic prosperity of Egypt. To date, 8 students have attended Harvard University, 5 have attended the University of Pennsylvania and 4 have attended Stanford University. The OCI Foundation will be sending 4 more students to university this fall.

As part of our corporate citizenship activities, all of our cement companies have launched various educational and training programs to improve their relations with the local communities surrounding their plants. Our construction companies also provide training to improve the construction skills of their local labor force. Contrack International (CII) built a two story training center complete with classrooms and workshop areas in Kabul in 2004 which has since trained more than 1,800 local people in a variety of construction trades such as masonry and plumbing.

During the year, OCI itself made charitable donations in Egypt totalling LE 7.8 million primarily to public sector institutions for building schools and qualified non-governmental organizations for social development projects.

Sustainable developmentSustainable development is about improving the quality of life for everyone, now and for generations to come. OCI believes that the way we operate, the goods we

produce and the services we provide are helping to improve the quality of life and build a brighter future for people in the communities where we operate.

OCI has operations in 20 countries throughout the developing world. We believe strongly in supporting and protecting the local communities in which we live and work. Through our activities, we contribute to the economic and social well-being of a range of stakeholders including our employees, customers, business partners, governments and the community as a whole. We also seek to minimize the environmental impact of our activities and to promote sustainable development by conserving energy, materials and resources through minimizing consumption, maximising efficiency and effectively managing waste.

As part of our sustainable development activities, all of our cement companies have launched de-bottlenecking and efficiency initiatives which have resulted in lower consumption of energy, materials and resources and have reduced waste and emissions at their plants. The new bypass treatment production line at ECC is another example of our commitment to sustainable manufacturing. Overall, our environmental track record is one of the best in our industry due to several factors including our reliance on natural gas as our primary fuel source and our state-of-the-art production plants which have an average age of only 2 years. All of our construction companies continue to source materials from reputable suppliers, avoid the use of potentially dangerous chemicals, provide a healthy and safe work environment for our employees and subcontractors, and minimize, recycle and properly dispose of waste.


Training ProgrammesOCI continues to make charitable donations to public sector institutions for building schools and qualified non-governmental organizations for social development projects.

Scholarship ProgrammeNoura Selim graduated from the University of Pennsylvania with a BS and MS in Biotechnology. She has accepted a position with the consulting firm McKinsey & Company in New York

Working together with our employees, our international partners and our customers, we are helping to build a brighter future in developing countries around the world.

1 Onsi SawirisChairmanEng. Onsi Sawiris was the founder and president of Orascom, the original family partnership involved in trading and contracting which was later to be named “Orascom Construction Industries” after its incorporation in 1998. Eng. Sawiris has been the Chairman of the Board of OCI since its incorporation and also serves as a director of Orascom Telecom Holding. Eng. Sawiris was born in 1930, is an Egyptian citizen and holds a Bachelor of Science degree in Engineering from Cairo University.

2 Nassef SawirisChief Executive OfficerMr. 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.

Board of DirectorsDirection and leadership


1 2

3 4 5

6 7

3 Osama BishaiDirectorEng. Osama Bishai has been a Director of OCI since its incorporation in 1998. Eng. Bishai began working for Orascom in 1985 and currently serves as the Managing Director of the OCI Construction Group. Eng. Bishai was born 1962, is a dual Egyptian/US citizen and holds a Bachelor of Science degree in Civil Engineering from Cairo University and a Construction Management Diploma from the American University of Cairo.

4 Karim Camel-TouegDirectorMr. Karim Camel-Toueg currently serves as the President of Contrack International. Mr. Camel-Toueg joined Contrack International in 1989, became a Vice President in 1990 and was appointed President in 1998. Mr. Camel-Toueg was born in 1960, is a dual Egyptian/US citizen and holds a Bachelor of Arts degree in International Business Administration from the American University in Washington D.C.

5 Alaa SabaaSenior Non-executive DirectorMr. Alaa Saba is currently the Chairman and Managing Director of Beltone Asset Management. Mr. Saba co-founded Hermes Financial which later merged with the Egyptian Financial Group to form EFG-Hermes in 1996. Mr. Saba was previously a Vice President of Kidder Peabody in New York and established its Middle East regional office in Cairo. He is the founder and a board member of the Egyptian Investment Management Association and the Egyptian Capital Markets Association, and was a board member of the Egyptian Stock Exchange. Mr. Saba was born in 1960, is an Egyptian citizen and holds a Bachelor of Science degree from Cairo University, a Master of Science degree from the University of Pennsylvania and a Master of Business Administration degree from the Wharton School at the University of Pennsylvania.

6 Mohamed Farouk Abdel MoneimNon-executive DirectorEng. Mohamed Farouk Abdel Moneim is currently the Vice Chairman and CEO of Mobica, a diversified Egyptian company with activities in furniture manufacturing. Eng. Abdel Moneim served as the Commercial Manager of Mobica from 1989 until 1994. Eng. Abdel Moneim was born in 1967, is an Egyptian citizen and holds a Bachelor of Science degree in Engineering from Cairo University.

7 Tarek HatemNon-executive DirectorDr. Tarek Hatem is currently a professor of strategic management, international business and entrepreneurship at the American University in Cairo. Dr. Hatem is a Certified Management Consultant from the Institute of Management Consultancy in the UK and is the Chairman of the Management Consultants Association in Egypt. Dr. Hatem is also a member of the Research and Policy Advisory Committee of the Ministry of Foreign Trade and SME Policy Development Project in Egypt, a member of the Executive Committee of the Management Education Division of the Academy of Management in the USA, and a member of the Academy of International Business in the USA. Dr. Hatem was born in 1957, is an Egyptian citizen and holds a Master of Arts degree in Public Administration from the University of Colorado and a PhD in Strategic Management from the University of Colorado.


Report of the Directors, Corporate Governance andManagement’s discussion and analysis of financial condition and results of operationsOrascom Construction Industries SAE is committed to the principles of good corporate governance and has adopted corporate governance guidelines in compliance with applicable laws and stock exchange regulations. The Board of Directors (“Board”) believes that good corporate governance practices align the interests of management and shareholders thereby maximizing the profitability and long-term value of the company for shareholders.

38 OrascomConstructionIndustriesAnnual report 2006


Report of the Directors

The Directors of Orascom Construction Industries (OCI) present their annual report, together with the audited consolidated financial statements for the year ended 31 December 2006.

Principal activities and business reviewOCI is a leading cement producer and construction contractor active in emerging markets. As a cement producer, OCI owns and operates cement plants in Egypt, Algeria, Turkey, Pakistan, northern Iraq and Spain which have a combined annual production capacity of 21 million tonnes. As a contractor, OCI provides engineering, procurement and construction services on industrial, commercial and infrastructure projects for private and public customers. The Company also invests in natural gas-based industries and infrastructure concessions.

OCI shares are listed on the Cairo & Alexandria Stock Exchange and on the London Stock Exchange through a Global Depository Receipts Program.

A review of the businesses, financial performance and future outlook of the Company is contained in the Letter to Shareholders by the Chairman and the Chief Executive Officer, and in Management’s Discussion and Analysis on pages 43-48.

Analyses of revenue, results and net assets by business segment and geographical location are given in note 4 to the consolidated financial statements on page 66.

Profits and dividendsThe consolidated income statement is shown on page 53. The net income was LE 2,670.7 million (2005, LE 1,700.2 million).

In August 2006, the Company paid dividends totaling LE 404.1 million (LE 1.89 per share) based on 2005 results. The Board of Directors proposed payment of a dividend for 2006 amounting to LE 1,111.0 million (LE 5.50 per share).

The dividend policy of the Company is to distribute profits, after deducting the legal reserve and legally mandated employees share, in accordance with the following criteria:

There should be a dividend distribution every year, and periodical dividends may be considered.

There should be sufficient earnings to be retained for future operating purposes.

There should be sufficient cash to discharge liabilities before dividend payments.

Corporate governanceThe Company endeavors to conduct its affairs in accordance with good corporate governance practices. A summary of the Company’s corporate governance guidelines and practices is shown on pages 40-42.

DirectorsThe Directors of the Company who served during 2006 are shown on page 91. Messrs Alaa Saba, Tarek Hatem, Mohamed Abdel Moneim were elected as non-Executive Directors on 29 April 2003. These Directors will hold office until the Annual General Meeting at which, being eligible, they offer themselves for re-election. Biographical details for each director are given on page 36-37.

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EmployeesIn respect of the parent Company itself, the number of permanent employees as of 31 December 2006 was 9,000. The Company aims to attract highly qualified personnel with specific expertise and to retain and reward employees with proven skills and performance. In support of its commitment to quality and equality in employment, the Company continues to develop and implement a comprehensive compensation and benefits system based on equal pay for equal work. In addition to the basic competitive pay scheme, the Company has the following employee benefits:

A training and development program. In addition to the on-the-job training, the cost of the structured portion of the training program amounted to LE 1.6 million in 2006.

A medical insurance plan. All employees inside Egypt are covered by medical insurance. The Company contributes 75% and the employee contributes 25%. The employees’ monthly contribution is calculated according to their grades and gender. The medical insurance cost in 2006 amounted to LE 0.4 million.

Social insurance government-sponsored program. In 2006, the Company’s share of the cost was LE 1.7 million.

Life insurance scheme. All permanent employees under 65 are provided with life insurance protection against financial loss resulting from death or disability. The coverage is calculated as 36 times the gross salary in case of normal death, and 72 times the gross salary in case of accidental death or total disability. In 2006, the cost to the Company amounted to LE 0.3 million.

Profit sharing scheme. Employees are entitled to a share of the Company’s profit in accordance with legislation. The profit share in 2006, based on 2005 profits, amounted to LE 44.9 million.

Share-based incentive program. The OCI stock option plan provides key employees of the Company and its subsidiaries with incentive for continuity and high performance. The cost to the Company up to 31 December 2006 amounted to LE 55.4 million.

ShareholdersThe shareholding structure of the Company as at 31 December 2006 was: Sawiris family 60% and public ownership 40%.

The Company is authorized to issue shares of up to 1% of the issued and paid in capital to implement its employee share-based incentive program. Information on this program is shown in note 26 to the consolidated financial statements on page 79.

Charitable donationsPayments for charitable purposes made by the Company during the year ended 31 December 2006 amounted to LE 7.8 million (2005, LE 1.6 million). The primary beneficiaries of these charitable donations were public sector institutions and qualified non-governmental organizations for social development projects.

Annual General MeetingThe Annual General Meeting will be held at noon on Sunday, 6 May 2007 at Nile City Towers, 2005A Corniche El Nil, Cairo, Egypt.

AuditorA resolution to reappoint KPMG (Hazem Hassan) as auditor and to authorize the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Approved by the Board

Adel Bishai, Corporate Governance Director

April 2007

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Corporate governance

Orascom Construction Industries SAE is committed to the principles of good corporate governance and has adopted corporate governance guidelines in compliance with applicable laws and stock exchange regulations. The Board of Directors (“Board”) believes that good corporate governance practices align the interests of management and shareholders thereby maximizing the profitability and long-term value of the company for shareholders.

The Company is subject to the disclosure rules and the new listing rules set by the Cairo and Alexandria Stock Exchanges (“CASE”) and approved by the Egyptian Capital Markets Authority on 18 June 2002. The Company has been in compliance with the corporate governance, financial reporting and disclosure provisions of the CASE listing rules throughout the year ended 31 December 2006. The US Securities and Exchange Commission (“SEC”) approved CASE as “designated offshore securities markets” within the meaning of rule 902(b) under Regulation S of the US Securities Act of 1933 on 16 April 2003.

The Global Depositary Receipts of the Company are listed on the London Stock Exchange (“LSE”) and the Company is therefore subject to the rules of the LSE as well as the rules of the United Kingdom Listing Authority (“UKLA”) and the Financial Services Authority (“FSA”). The Company has been in compliance with its continuing obligations under the UKLA Listing Rules throughout the year ended 31 December 2006.

In July 2003, the revised Combined Code on Corporate Governance (“Combined Code”) was issued and the FSA and the UKLA have determined that the revised Combined Code will apply for reporting years beginning on or after 1 November 2003. UKLA listing rules require that companies incorporated in the United Kingdom include in their annual report and accounts an additional disclosure statement in relation to how the company applies the principles in Section 1 of the Combined Code and an explanation of any non-compliance. As an overseas company with a secondary listing by the UKLA, the Company is not required to present this additional disclosure statement.

The shares and global depositary receipts of the Company are not registered under the US Securities Act of 1933 and the Company is not subject to US securities laws or the rules and listing standards of the SEC or the New York Stock Exchange (“NYSE”). In July 2002, the US Government passed the Sarbanes-Oxley Act which has introduced a number of changes to the corporate governance, disclosure and reporting requirements of US domestic and non-US registered issuers. The Sarbanes-Oxley Act codifies the view that company management should be aware of material information that is filed with regulatory authorities and released to investors, and should be held accountable for the fairness, thoroughness and accuracy of that information. In November 2003, the NYSE issued new corporate governance rules 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.

The Board continues to monitor developments in corporate governance and the actions taken by regulators worldwide to improve financial reporting and disclosure. The Board has reviewed the recent changes in applicable securities laws and stock exchange regulations and has concluded that the Company is in compliance with all those provisions which are currently in force. In addition, the Board has chosen to make the following voluntary disclosure to assist shareholders in their evaluation of the corporate governance practices of the Company.

Board of DirectorsAt the Annual General Meeting held on 29 April 2003, shareholders approved the appointment of four new directors and accepted the resignation of two existing directors. Naguib Sawiris and Samih Sawiris resigned as non-executive directors. Karim Camel-Toueg, President of Contrack International, was appointed as an executive director, and Alaa Saba, Tarek Hatem and Mohamed Abdel Moneim were appointed as non-executive directors. The Board consists of nine directors. Three of the directors are non-executive.

The Board maintains an orientation program for new directors. New directors attend an orientation program which includes briefings by senior management to familiarize them with the Company’s strategic plans, financial statements and key policies and practices. The Board maintains a continuing education program for all directors to assist them in carrying out their duties and responsibilities.

The Board has reviewed the status of all the non-executive directors and has determined that they are to be regarded as independent. The Board has adopted a definition of “independent” which complies with the provisions set out in the Combined Code and Section 303A.02 of the NYSE listing rules. The process and criteria used by the Board to determine the independence of each director is detailed in the Corporate Governance Guidelines of the Company. The non-executive directors are encouraged to meet privately in regular executive sessions without management participation during the year. The non-executive directors have elected Alaa Saba to serve as the senior independent director and lead non-management director.

The Board met six times during the year. The Board has a formal schedule of matters reserved to them for decision which includes approval of the long-term strategic objectives and business plans of management, major corporate transactions including significant capital allocations and expenditures, and compensation of the chief executive officer and executive officers of Company. Most board meetings during the year were attended by the full board. The directors were given appropriate documentation in advance of each board meeting. All directors have had access to the services of the company secretary and have been empowered to seek independent professional advice at the Company’s expense.


Corporate governance

Corporate Governance GuidelinesThe Board has adopted Corporate Governance Guidelines (“Guidelines”) to provide a framework for the effective governance of the Company in an effort to enhance long-term shareholder value. The Guidelines address several key governance issues and principles including board responsibilities, director qualifications, director responsibilities, board structure and operations, board committees, executive sessions, access to management and independent advisors, director compensation, director orientation and continuing education, management evaluation and succession, board performance evaluation, and relations with shareholders. The Guidelines are publicly available from the Company’s website www.orascomci.com and a copy may be requested by shareholders from the Company’s investor relations officers. The Board believes the Guidelines adopted generally comply with the provisions set out in the Combined Code and Section 303A of the NYSE listing rules.

Board CommitteesThe Board has established three committees to assist it in discharging its oversight responsibilities: Audit, Compensation, and Nominating and Corporate Governance. The purpose and responsibilities of each committee are described in their respective charters. Members of the committees meet the independence and experience requirements to the extent required under applicable securities laws and stock exchange regulations. Committee members have access to the services of the company secretary and have been empowered to seek independent professional advice at the Company’s expense.

The Audit Committee consists of three independent non-executive directors and is chaired by Alaa Saba. The Board has determined that Alaa Saba has recent and relevant financial experience and shall be regarded as the audit committee financial expert. The Audit Committee met five times during the year. The primary purpose of the Audit Committee is to (a) to assist the Board in its oversight of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications and independence, and (iv) the performance of the Company’s internal audit function and independent auditors, and (b) to prepare and publish an annual Committee report and such other reports to the extent required under any applicable securities laws and stock exchange regulations. The role and responsibilities of the Audit Committee are set out in written terms of reference, the Audit Committee Charter, and includes the appointment, compensation and retention of the independent auditor, review of the Company’s interim and annual financial statements with management and the independent auditor, and review of the Company’s internal control and risk management systems.

The Compensation Committee consists of three directors and is chaired by Onsi Sawiris. The Compensation Committee met three times during the year. The primary purpose of the Compensation Committee is (a) to assist the Board in its oversight of all matters relating to director and executive officer compensation and (b) to prepare and publish an annual Committee report on director and executive compensation and such other reports to the extent required under any applicable securities laws and stock exchange regulations. The role and responsibilities of the Compensation Committee are

set out in written terms of reference, the Compensation Committee Charter, and includes the review, evaluation and approval of director and executive officer compensation, incentive-compensation plans and equity-based plans. In determining the compensation of the directors and executive officers of the Company, the Compensation Committee considers the Company’s performance and relative shareholder return, the compensation level of directors and executive officers at comparable companies, and the compensation of the directors and executive officers in past years. No director is solely involved in deciding their own compensation. Executive officers do not receive additional compensation for their service as an executive director. Non-executive directors receive an annual stipend and may participate in the share-based incentive program of the Company.

The Nominating and Corporate Governance Committee consists of three directors and is chaired by Onsi Sawiris. The Nominating and Corporate Governance Committee met three times during the year. The primary purpose of the Nominating and Corporate Governance Committee is to assist the Board in (a) identifying individuals qualified to become Board members and recommending to the Board the director nominees for the next annual meeting of shareholders, (b) recommending to the Board director nominees for each committee of the Board, (c) developing and recommending to the Board a set of corporate governance guidelines applicable to the Company, (d) overseeing the evaluation of the Board and management, and (e) preparing and publishing an annual Committee report on corporate governance and such other reports to the extent required under any applicable securities laws and stock exchange regulations. The role and responsibilities of the Nominating and Corporate Governance Committee are set out in written terms of reference, the Nominating and Corporate Governance Committee Charter, and includes determining on an annual basis the independence of each director as may be required under any applicable securities laws and stock exchange regulations, the compliance of each director and executive officer with the Company’s code of business conduct and ethics, and such other activities as the Board may assign to the committee from time to time.

Internal Control and Risk ManagementThe Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company, that the process has been in place for the year under review and up to the date of approval of the annual report and accounts, that the process is regularly reviewed by the Board and accords with the Turnbell Guidance on internal control contained in the Combined Code.

The Company maintains a sound system of internal controls and risk management which is embedded in its operations, is capable of responding quickly to evolving risks to the business arising from factors with the company and to changes in the business environment, and includes procedures for reporting immediately to appropriate levels of management any significant control weaknesses that are identified together with corrective action being undertaken. The Company’s system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.


Corporate governance continued

The business of the Company is conducted by its employees, managers and executive officers, under the direction of the Chief Executive Officer and the oversight of the Board, to enhance the long-term value of the Company for its shareholders. The Board is elected by shareholders to oversee and counsel management. The Board acknowledges that it is responsible for the Company’s system of internal controls and for reviewing its effectiveness to safeguard shareholders’ investment and the Company’s assets.

The Audit Committee of the Board reviews the Company’s internal control and risk management systems, monitors the effectiveness of the Company’s internal audit function, identifies matters in respect of which it considers that action or improvement is needed, and makes recommendations to the Board as to the steps to be taken. The Audit Committee relies on periodic reports from the Company’s executive officers, senior financial managers, internal audit staff, and external auditors to obtain reasonable assurance that appropriate controls are in place and functioning effectively.

The Chief Executive Officer and Chief Financial Officer are responsible for the day-to-day control of the Company’s operations and for the design of internal control and risk management systems. These executive officers are held responsible for the disclosure of all significant deficiencies and materials weaknesses in the internal control over financial reporting and any fraud, whether or not material, which involves management to the Audit Committee and external auditors. These executive officers also are held responsible for the preparation and integrity of the Company’s published financial statements which shall fairly present in all materials respects the financial condition and results of operations of the Company.

Code of Business Conduct and EthicsThe Board has adopted a Code of Business Conduct and Ethics which contains the policies that relate to the legal and ethical standards of conduct that the directors, executive officers and employees of the Company are expected to comply with while carrying out their duties and responsibilities on behalf of the Company.

This Code is intended to focus the Board and management on areas of ethical risk, provide guidance to personnel to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help to foster a culture of honesty and accountability.

No code or policy can anticipate every situation that may arise. The Company expects each director, executive officer and employee to act with honesty and integrity, to exercise independent professional judgement and to deter wrongdoing in the conduct of all duties and responsibilities on behalf of the Company.

Relations with ShareholdersThe Board believes that communication with shareholders, institutional investors, the financial community, the media, and other third parties is best handled by the Chief Executive Officer and designated management representatives of the Company. The Company operates a structured program of investor relations, based on formal announcements and publications relating to significant events and financial results, in compliance with applicable securities laws and stock exchange regulations. To ensure fair disclosure to all stakeholders at the same time, the Company refrains from disclosing any information specifically designated to financial analysts, financial institutions or other parties before disclosing the information to the market as a whole. Directors, executive officers and employees are required to maintain the confidentiality of information entrusted to them by the Company or its customers, except when disclosure is authorized or legally mandated.

The Company has appointed Hassan Badrawi as its main Investor Relations Officer whose responsibility is to provide information and answer queries of stock exchange officials, shareholders and institutional investors. Information about the Company including interim and full year financial results and other major announcements is also published on the Company’s website www.orascomci.com.

The Chairman of the Board, Chief Executive Officer, senior independent director and other authorized directors and investor relations personnel do maintain a dialogue with representatives of institutional and other shareholders regarding long-term business strategies, financial performance and corporate governance in order to establish a mutual understanding of objectives. The annual general meeting also provides an opportunity for individual shareholders to meet and communicate with the Board to develop a better understanding of the Company’s operations and prospects. All directors are expected to attend the annual general meeting absent exceptional cause. Shareholders who wish to communicate with the Board may correspond in writing with the senior independent director at the principal office of the Company. The senior independent director will notify the Board or the chairperson of the relevant committee of the Board regarding those matters that are appropriate for further action or discussion.

Going ConcernAfter making enquires, the Directors have formed a judgment, at the time of approving the accounts, that there is a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the accounts.


Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis should be read in conjunction with the audited consolidated financial statements of Orascom Construction Industries S.A.E (OCI) for the years ended 31 December 2006, 2005 and 2004. These consolidated financial statements have been prepared in accordance with Egyptian Accounting Standards (EAS), which are not materially different from International Financial Reporting Standards (IFRS), except as indicated.

OverviewOrascom Construction Industries (OCI) ranks among Egypt’s largest private-sector businesses and its primary segments of operations are cement and construction. International operations have grown significantly in recent years as both cement and construction activities expanded into Africa, Asia and Europe.

The Company generates revenue primarily from the sale of cement and construction services. The primary expenses of the Company include direct materials used in construction, raw materials, power and fuel consumed in cement production, and labor costs. The major factors which have had, and are expected to continue to have, a significant impact on the results of operations and financial condition of the Company are:

The quantities of cement produced and sold, and the local and international cement prices, the demand for construction services on large commercial, industrial and infrastructure projects in the geographical markets served,foreign currency exchange rates, and the amount of taxes payable.

The expansion of the Cement Group continues to have important implications for the operations of the Company. During 2006, the investment by the Cement Group in the cement industry in Turkey and the ready mix and aggregate industry in Spain, and the expansion of production capacity in Algeria, are expected to have a positive impact on future operations. Furthermore, the Cement Group completed rehabilitation and began operating the Tasluja cement plant in northern Iraq, and continued the construction of new cement plans in northern Iraq, Pakistan and Nigeria. These locations are in countries that are affected by civil strife, political instability and volatile economies which could have a materially adverse effect on the Company’s financial condition, results of operations and business.

Cement is essentially a commodity product with variable market prices affected by local changes in consumption and production levels as well as the degree of competitive rivalry among producers. Since the Company has and expects to continue to derive a substantial portion of its revenues and earnings from the sale of cement, higher market prices will significantly improve the financial performance of the Company.

Demand for construction services on large projects is affected by changes in the general state of economic activity, foreign direct investment flows, foreign aid flows and government investment incentives. The timing of awards of major construction projects can result in significant fluctuations in the Company’s revenues and earnings between periods.

During 2006, the Construction Group had significant growth in the number and total value of projects undertaken solely by the Group or with other partners in the form of joint ventures. The backlog continues to grow, especially in the Middle East.

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A substantial proportion of the Company’s consolidated revenue, operating expenses and long term debt is denominated in foreign currencies. Significant decreases in the exchange rate of the Egyptian Pound against other currencies therefore can have a materially positive effect on the reported and actual financial performance of the Company. The Company manages its foreign exchange cash flow risk on a consolidated basis by matching its foreign currency-denominated liabilities with continuing sources of foreign currencies.

The Company’s taxable income in Egypt has been substantially altered in 2005 with the introduction of a new tax law. The new tax rate is 20% instead of 40%, and higher allowable depreciation rates will allow the Company to defer taxes. However, the Company is no longer entitled to receive the following tax benefits: (1) a tax deduction equivalent to the average discount rate of the Central 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 Egyptian Pound deposits, and 90% of investment income received from a taxable entity. Nevertheless, substantially all of the Company’s subsidiaries in Egypt continue to receive a tax holiday ranging from five to ten years, most notably the ten-year tax holiday received by ECC.

Principal Accounting Policies

Revenue RecognitionRevenue from construction contracts is recognized in the statement of income under the percentage of completion method of accounting. In applying the percentage of completion method, the Company does not recognize the value of contract change orders until these have been formally agreed to in writing with the customer, even if the actual work requested is commenced prior to the execution of such written change order.

Revenues from non-construction activities are recorded using the accrual basis of accounting.

Construction CostsConstruction project costs include all direct material, equipment, labor, subcontract and indirect costs related to contract performance, such as indirect labor, maintenance, and applicable administrative costs. Materials, labor and equipment provided by subcontractors or joint ventures are included in revenues and costs when management believes that the Company is responsible for the ultimate acceptability of the project.

Changes in job performance, conditions, estimated profitability and final contract settlements may result in revisions to costs and revenue and are recognized in the period in which the facts requiring such revisions become known. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. Claims for additional contract revenue are recognized when realization is assured and the amount can reasonably be determined. Costs and estimated earnings in excess of billings on incomplete contracts are presented as construction projects in progress in the consolidated balance sheet.

Construction Joint VenturesConstruction projects, which are performed by joint ventures, are accounted for under the proportionate consolidation method. Under this method, the Company’s separate financial statements include the Company’s pro rata interest in the assets, liabilities, revenues and expenses of joint ventures through consolidation of these items on an item-by-item basis in the financial statements of the Company. Agreements concluded between the Company and the other partner


Management’s discussion and analysis of financial condition and results of operations continued

in every joint venture stipulate that each party should be jointly responsible for the activities of that venture.

Acquisition of Subsidiaries The Company accounts for its investments in subsidiaries and associated companies in accordance with the purchase method of accounting.

Elimination of Profit on Intra-group ConstructionThe Company and its subsidiaries provide construction services for other subsidiaries within the Group. In accordance with EAS and IFRS, the unrealized profit in constructing the fixed assets of the subsidiaries is deducted from income and from gross fixed assets upon consolidation in the financial statements of the Company. The cumulative profit deduction is added back to income in the form of a reduction in depreciation expense over the useful life of these assets as determined by their depreciation rates.

Impact of Inflation and Interest Rate Fluctuations During the years under review, the consolidated results of operations and financial position of the Company have not been materially affected by inflation or interest rate fluctuations.

SeasonalityThe Cement Groups’ activity levels are driven by seasonal demand fluctuations in the general construction and residential housing sectors. Normally, the Groups’ sales are higher in the second and third quarter of each year.

The Construction Group’s activities consist principally of major construction projects, which are not generally affected by seasonal demand fluctuations. In addition, because of the generally warm and dry climate in the areas of operations, the Group’s activity levels are not significantly affected by weather conditions.

Differences Between EAS and IFRS“EAS 20” requires that, with some exceptions, all leases should be accounted for as operating leases, and therefore annual lease payments by the lessee are charged to the income statement as rent expense. “IFRS 17” requires that leases which transfer substantially the benefits and risks of ownership related to the leased properties from the lessor to the lessee should be accounted for as finance leases and therefore recorded as assets of the lessee, with the lease obligations included as a liability in the balance sheet. The Company’s cement subsidiaries apply IFRS 17 instead of EAS 20, the impact on results, however, is immaterial.

Another difference between EAS and IFRS relates to accounting for employees share of profits. Egyptian law requires that 10% of distributable profits are set aside for distribution to the employees, with a maximum of one year’s total salaries. While EAS treats this as a charge to equity, IFRS requires that such employee benefits are to be expensed as charges in the income statement.

Accounting for New InvestmentsA summary of the investment in controlled and jointly-controlled companies is presented in note 15 to the consolidated financial statements.

(a) The investment in 50% of Group GLA in Spain in October 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 131.4 million). The consolidated balance sheet includes a 50% proportionate consolidation of the assets and liabilities of Group GLA as of 31 December 2006.

(b) The investment in OCI Cimento (Turkey) on 26 January 2006, at a cost of US$ 54.6 million (LE 313.6 million), resulted in recording a goodwill of US$ 22.3 million (LE 118.2 million).

(c) The investment in 60% of United Cement (Iraq) in 2006, which owns and operates a cement plant in Tasluja in Northern Iraq, at a cost of US$ 63.8 million (LE 366.3 million), resulted in recording a goodwill of US$ 16.3 million (LE 93.5 million).

(d) The investment in Egypt Sack Company in January 2006, at a cost of acquisition was LE 43.0 million, resulted in recording goodwill of LE 17.3 million. The consolidated financial statements include the full consolidation of the assets and liabilities as of 31 December 2006 of ESC.

(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), resulted in recording a negative goodwill of US$ 27.5 million (LE 159.5 million), which has been credited to year 2005 income. The consolidated financial statements include the full consolidation of the assets and liabilities as of 31 December 2006 of PCC.

(f) The investment in Algerian Bags Company (formerly Mehsas National Bags Company) in December 2006, at a cost of LE 38.7 million, resulted in recording goodwill of LE 18.4 million. The consolidated financial statements include the full consolidation of the assets and liabilities as of 31 December 2006 of ABC.

(g) The investment in 50% of the Belgian construction company Besix Group in July 2004, at cost of Euro 68.4 million (LE 519.7 million), resulted in a negative goodwill of Euro 29.2 million (equivalent to LE 222.0 million), which has been credited to income statement in the years 2004 and 2005. The consolidated balance sheet includes a 50% proportionate consolidation of the assets and liabilities of Besix Group, and their revenues and expenses for each year.

(h) Corporation in Egyptian Basic Industries Corporation in 2005, through the jointly–controlled corporation (Middle East Petrochemical Corporation (MEPCO) on a 50/50 basis, amounted to US$ 64.1 million (LE 366.7 million). The consolidated financial statements include the proportionate consolidation of the assets, liabilities and expenses of EBIC.

(i) The investment in 50% in Emirates Cement Company in 2005 amounted to US$ 64.7 million (LE 372.2 million). The consolidated financial statements include the proportionate consolidation of the assets, liabilities and expenses of EMCC.


Years Ended 31 December 2006 and 2005

RevenueIn 2006, the consolidated operating revenue increased by 44.9% to LE 16,475.2 million, as compared to LE 11,366.6 million in 2005.

Year ended31 Dec 2006

Year ended31 Dec 2005 2006 vs.

2005(%)LE millions % LE millions %

RevenueConstruction 12,426.3 75.4% 8,554.0 75.3% 45.3%

Cement 4,048.9 24.6% 2,812.6 24.7% 44.0%

Total 16,475.2 100% 11,366.6 100% 44.9%

Revenue from the Construction Group increased by 45.3% to LE 12,426.3 million in 2006, as compared to LE 8,554.0 million in 2005. This growth in revenue is attributable to the increased revenue in Egypt, but more importantly due to the expansion of international activities by Besix Group, Contrack International, OCI Algeria, OCI Nigeria and Cementech. Revenue during the year was primarily from the following major contracts: construction projects in Egypt, ACC cement plants, Contrack projects in Afghanistan and the Gulf area, Cementech projects in Algeria, Pakistan and Northern Iraq, and Besix projects in Europe, Gulf area and Africa. In 2006, OCI itself contributed LE 2,297.5 million to total consolidated revenue, as compared to LE 1,691.8 million in 2005, representing 18.5% of the Group’s revenue as compared to 19.8% in 2005.

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 increase was attributable to sales growth at ECC to LE 2,459.0 million (60.7%), reflecting the result of higher prices and export sales, and growth in cement sales at ACC to LE 1,541.7 million (38.1%) reflecting the start of operations of line II and higher prices.

Gross ProfitIn 2006, the Company’s consolidated gross profit increased by 67.5% to LE 4,966.1 million, as compared to LE 2,965.3 million in 2005. The gross profit percentage of revenue increased to 30.1% in 2006, as compared to 26.1% in 2005, reflecting the type of construction contracts undertaken during the year. Depreciation and amortization expenses are a significant component of the cost of services and goods sold. In 2006, depreciation and amortization expenses increased by 51.2% to LE 662.0 million, as compared to LE 437.8 million in 2005.

Selling, General and Administrative Expenses In 2006, the selling, general and administrative expenses, and provisions for claims, increased by 59.7% to LE 1,149.5 million, as compared to LE 719.7 million in 2005. The increase is due primarily to the expansion of the Company internationally, especially in Algeria, Asia and Europe. Selling, general and administrative expenses as a percentage of revenue increased to 7.0% in 2006, as compared to 6.3% in 2005.

Income from OperationsIn 2006, the Company’s consolidated income from operations 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.




Income from OperationsConstruction 1,503.7 39.4% 702.8 31.3% 114.0%

-Operating margin 12.1% 8.2%

Cement 2,312.9 60.6% 1,542.8 68.7% 49.9%


Total 3,816.6 100% 2,245.6 100% 70.0%

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 year, as compared to 8.2% during 2005. The increase was due principally to the type of contracts executed during the year. In 2006, depreciation and amortization expenses increased to LE 341.5 million, as compared to LE204.5 million in 2005.

The income from operations of the Cement Group increased by 49.9% to LE 2,312.9 million in 2006, as compared to LE 1,542.8 million in 2005. The operating margin increased to 57.1% for the year, as compared to 54.9% during 2004. This increase was attributable principally to higher sales prices and volumes at ECC and ACC on cement products sold during the year In 2006, depreciation and amortization expenses increased to LE 320.5 million, as compared to LE 233.2 million in 2005. The increase was attributable principally to the start of depreciation on ACC’s line II.

Other Income and ExpensesThe Company’s consolidated net other income and expenses consists of income from investments, interest income, gain or loss on foreign exchange, interest expense, eliminated profit on intra-group construction, negative goodwill, and other income and expenses. In 2006, consolidated net other expense amounted to LE 266.6 million, compared to net other income of LE 58.3 million. Income from investments decreased to LE 86.7 million (2005, LE 122.3 million) due to lower profits of companies accounted for by the equity method and the revaluation to market value of the investment in Baticim in Turkey. Interest income increased by 71.6% to LE 106.4 million (2005, LE 62.0 million). Interest expense increased by 44.6% to LE 567.1 million (2005, LE 392.3 million). In 2005, the excess of the fair values over the cost of acquisitions of 50% of Besix Group and 62.75% of Pakistan Cement Company resulted in negative goodwill, 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 LE 210.1 million (2005, loss LE 73.1 million) primarily as a result of stabilization of the Egyptian pound, the decline of the US dollar, and the increase in the Euro, as these currencies constitute a significant part of construction contract revenues. The exchange rates of LE 5.72 and LE 7.55 were used to value the monetary assets and liabilities denominated in US dollars and Euro respectively as at 31 December 2006, as compared to LE 5.76 and LE 6.81 in 2005. In accordance with EAS and IAS, deductions totaling LE 181.1 million have been made from income for the year to eliminate profit from construction services rendered to the cement companies by the construction companies (2005, LE 29.3 million).


Income TaxesThe Company’s consolidated income tax expense in 2006 amounted to LE 136.4 million, as compared to LE114.4 million in 2005. These taxes, which include current and deferred liabilities, are attributable primarily to the construction activities.The effective tax rate in 2006 was 3.8%, as compared to 5.0% in 2005. The low effective rates are due primarily to the exemptions granted to the Company’s subsidiaries.

Minority InterestsIn 2006, net income allocated to minority interests amounted to LE 742.9 million, as compared to LE 489.2 million in 2005. The minority interest in profits of the subsidiaries is attributable principally to the financial performance of ECC.

Net IncomeAs a result of the foregoing, the Company’s consolidated net income increased by 57.1% to LE 2,670.7 million in 2006 (16.2% of revenue), as compared to LE 1,700.2 million in 2005 (15.0% of revenue).

Years Ended 31 December 2005 and 2004

RevenueIn 2005, the consolidated operating revenue increased by 32.9% to LE 11,366.6 million, as compared to LE 8,555.8 million in 2004.




RevenueConstruction 8,554.0 75.3% 6,387.0 74.7% 33.9%

Cement 2,812.6 24.7% 2,168.8 25.3% 29.7%

Total 11,366.6 100% 8,555.8 100% 32.9%

Revenue from the Construction Group increased by 33.9% to LE 8,554.0 million in 2005, as compared to LE 6,387.0 million in 2004. This growth in revenue is attributable to the increased revenue in Egypt, but more importantly due to the expansion of international activities by Besix Group, Contrack International, OCI Asia, OCI Algeria, OCI Nigeria and Cementech. Revenue during the year was primarily from the following major construction contracts: Eastern Tobacco project, Nagaa Hammadi dam, SEGAS LNG project, ACC cement plants, Contrack projects in Afghanistan and the Gulf area, Cementech projects in Algeria, Pakistan and Northern Iraq, and Besix projects in Europe, Gulf area and Africa. In 2005, OCI itself contributed LE 1,691.8 million to total consolidated revenue, as compared to LE 1,058.6 million in 2004, representing 19.8% of the Group’s revenue as compared to 16.6% in 2004.

Revenue from the Cement Group increased by 29.7% to LE 2,812.6 million in 2005, as compared to LE 2,168.8 million in 2004. This increase was attributable to sales growth at ECC to LE 2,034.3 million (26.5%), reflecting the result of higher prices and export sales, and growth in cement sales at ACC to LE 854.6 million (40.9%) reflecting the start of operations of line II.

Gross ProfitIn 2005, the Company’s consolidated gross profit increased by 25.9% to LE 2,965.3 million, as compared to LE 2,354.9 million in 2004. The gross profit percentage of revenue decreased to 26.1% in 2005, as compared to 27.5% in 2004, reflecting the type of construction contracts undertaken during the year. Depreciation and amortization expenses are a significant component of the cost of services and goods sold. In 2005, depreciation and amortization expenses increased by 12.6% to LE 437.8 million, as compared to LE 388.9 million in 2004.

Selling, General and Administrative Expenses In 2005, the selling, general and administrative expenses, and provisions for claims, increased by 37.7% to LE 719.7 million, as compared to LE 522.7 million in 2004. The increase is due primarily to the expansion of the Company internationally, especially in Algeria, Asia and Europe. Selling, general and administrative expenses as a percentage of revenue increased marginally to 6.3% in 2005, as compared to 6.1% in 2004.

Income from OperationsIn 2005, the Company’s consolidated income from operations increased by 22.6% to LE 2,245.6 million, as compared to LE 1,832.2 million in 2004. The Company’s operating margin decreased to 19.8% in 2005, as compared to 21.4% in 2004.




Income from OperationsConstruction 702.8 31.3% 796.3 43.5% (11.7%)


Cement 1,542.8 68.7% 1,035.9 56.5% 48.9%


Total 2,245.6 100% 1,832.2 100% 22.6%

The income from operations of the Construction Group decreased by 11.7% to LE 702.8 million in 2005, as compared to LE 796.3 million in 2004. The operating margin decreased to 8.2% for the year, as compared to 12.5% during 2004. The decrease was due principally to the type of contracts executed during the year. In 2005, depreciation and amortization expenses increased to LE 204.5 million, as compared to LE167.7 million in 2004.

The income from operations of the Cement Group increased by 48.9% to LE 1,542.8 million in 2005, as compared to LE 1,035.9 million in 2004. The operating margin increased to 54.9% for the year, as compared to 47.8% during 2004. This increase was attributable principally to higher sales prices and volumes at ECC and ACC on cement products sold during the year. In 2005, depreciation and amortization expenses increased to LE 233.2 million, as compared to LE 221.2 million in 2004. The increase was attributable principally to the start of depreciation on ACC’s line II.



Other Income and ExpensesThe Company’s consolidated net other income and expenses consists of income from investments, interest income, gain or loss on foreign exchange, interest expense, eliminated profit on intra-group construction, negative goodwill, and other income and expenses. In 2005, consolidated net other income was LE 58.3 million, as compared to net other expenses of LE 250.9 million in 2004. Interest income increased by 416.1% to LE 62.0 million (2004, LE 14.9 million). Interest expense increased by 19.0% to LE 392.3 million (2004, LE 329.6 million). Income from investments increased to LE 127.8 million (2004, LE 19.7 million) due to higher profits of companies accounted for by the equity method and the revaluation to market value of the investment in Baticim in Turkey.

The excess of the fair values over the cost of acquisitions of 50% of Besix Group and 62.75% of Pakistan Cement Company resulted in negative goodwill, which was credited to income in the amount of LE 313.0 million in 2005 and LE 76.8 in 2004. The loss on foreign currency exchange increased to LE 73.1 million (2004, LE 1.5 million) primarily as a result of stabilization of the Egyptian pound and decline of the US dollar and the Euro, as these currencies constitute a significant part of construction contract revenues. The exchange rates of LE 5.76 and LE 6.81 were used to value the monetary assets and liabilities denominated in US dollars and Euro respectively as at 31 December 2005, as compared to LE 6.06 and LE 8.22 in 2004. In accordance with EAS and IAS, deductions totaling LE 29.3 million have been made from income for the year to eliminate profit from construction services rendered to the cement companies by the construction companies in Egypt and Algeria (2004, LE 59.7 million).

Provision for Income TaxesThe Company’s consolidated provision for income taxes in 2005 amounted to LE 114.4 million, as compared to LE 77.2 million in 2004. These taxes, which include current and deferred liabilities, are attributable primarily to the construction activities. The effective tax rate in 2005 was 5.0%, as compared to 4.9% in 2004. The low effective rates are due primarily to the exemptions granted to the Company’s subsidiaries.

Minority InterestsIn 2005, net income allocated to minority interests amounted to LE 489.2 million, as compared to LE 402.8 million in 2004. The minority interest in profits of the subsidiaries is attributable principally to the financial performance of ECC.

Net IncomeAs a result of the foregoing, the Company’s consolidated net income increased by 54.4% to LE 1,700.2 million in 2005 (15% of revenue), as compared to LE 1,101.3 million in 2004 (12.9% of revenue).

Financial Liquidity and ConditionThe Company and its subsidiaries have three principal sources of short-term liquidity: (i) existing cash and cash equivalents which at 31 December 2006 totaled LE 2,738.1 million, as compared to LE 2,168.3 million at 31 December 2004; (ii) cash generated by operations; and (iii) short-term borrowings under credit facilities.

For long-term investments, the Group has access to long-term financing from international financial institutions. The Company also increased its share capital during 2006.

Cash is used to meet operating obligations, investing activities, payment of long and short-term debt, and for distribution of profit to shareholders. The following table sets forth certain consolidated financial data concerning the liquidity and capital resources as at and for the periods indicated.

At and for the Year ended 31 December

2006 2005 2004

LE millions LE millions LE millions

Cash and Cash EquivalentsBeginning of year 2,168.3 1,576.4 917.4

End of year 2,738.1 2,168.3 1,576.4

Net increase 569.8 592.0 658.9

Net Cash Provided by (Used in)Operating activities 3,831.0 2,034.2 1,092.3

Investing activities (7,917.5) (3,891.3) (1,634.4)

Financing activities 4,656.2 2,449.1 1,201.0

Net provided 569.8 592.0 658.9

Cash provided by operating activities in 2006 was LE 3,831.0 million, as compared to LE 2,034.2 million in 2005 and LE 1,092.3 million in 2004. Cash provided by operating activities was principally generated from income from operations and from increases in receivables, inventories and construction in progress, which were reduced by increases in payables and in billings in excess of costs and estimated profits on incomplete contracts.

Cash used in investing activities in 2006 was LE 7,917.5 million, as compared to LE 3,891.3 million in 2005 and LE 1,634.4 in 2004. Investing activity was attributable principally to the investment in plants and equipment in Algeria, Northern Iraq, and Nigeria, and the investment in the share capital of Pakistan Cement Company, Group GLA in Spain, Sudacem in Sudan, and Baticim Cimento in Turkey.

Cash provided by financing activities in 2006 was LE 4,656.2 million, as compared to LE 2,449.1 million in 2005 and LE 1,201.0 million in 2004. Financing activity consisted principally of increased share capital and bank borrowings to finance the capital expenditures and business acquisitions.

The long-term and short-term debt are disclosed in Note 19 to the consolidated financial statements.

In June 2005, the credit rating of OCI was raised from A+ to AA-.


Share CapitalThe Shareholders approved the increase of the issued share capital by issuing 11.4 million shares, which were allocated to the shareholders of record on 16 February 2006, and the increase in the capital was registered on 17 May 2006.

DividendsThe declaration or payment of dividends by OCI is dependant in part on OCI’s financial condition, results of operations, prospects, cash flow, capital requirements and reserves, the level of dividends received from the subsidiaries, and the effect of any such dividend 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. The Board of Directors proposed payment of a dividend for 2006 amounting to LE 1,111.0 million (LE 5.50 per share).

Construction BacklogThe Company considers as “backlog” the revenues that the Company expects to receive under contracts that have been awarded and signed. Backlog consists of uncompleted portions of engineering and construction contracts, including the Company’s proportionate share of construction joint-venture contracts.

2006 2005 2004

LE billions % LE billions % LE billions %

Egypt 1.3 10% 1.7 11% 1.4 13%

Middle East 5.7 45% 6.0 38% 3.7 34%

Africa 2.6 21% 3.6 23% 1.1 10%

Europe 2.5 20% 2.4 15% 3.1 28%

Asia 0.5 4% 4.0 13% 1.6 15%

Total 12.6 100% 15.7 100% 10.9 100%

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%.

Future OutlookManagement believes that the Company’s financial results for the year ended 31 December 2006 continue to demonstrate the OCI Group’s ability to achieve sustainable growth in a challenging market environment. Management believes it is better placed than most of its competitors to capitalize on growth opportunities in the region and that it will continue to outperform its peers. By continuing to forge strategic partnerships with industry leaders, investing in modern technologies, and developing the Company’s human resources, management believes the Company will be able to maintain its competitive advantage in its core businesses and continue to record positive financial results.

Cement market trends contributing to a positive outlook include:

Favourable prices in Algeria with excellent consumption outlook.Stable prices in Egypt with steady growth in consumption.Continued double digit growth in Pakistan, potential over-supply but rebounding prices.Replacement of imports in Northern Iraq with stable prices based driven by high import parity.Double digit consumption growth in the UAE coupled with stable prices.Continued tight supply in emerging and international export markets during 2007.

Factors contributing to positive Construction Group outlook include:

Rise in opportunities in infrastructure concessions in the region, especially in the Gulf area.Lack of contractor capacity in the region positively affecting margins.Robust macroeconomic growth across the region.Governments are initiating infrastructure spending, specifically in Saudi Arabia and Algeria.Continuing to encourage organic growth to tackle pressure on human resources and construction equipment.

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Report of the Audit Committee of the Board of Directors

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s consolidated financial statements, compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence, the performance of the Company’s internal audit function and independent auditors, and risk assessment and management. The Audit Committee manages the Company’s relationship with its independent auditors (who report directly to the Audit Committee). The Audit Committee acts under a written charter adopted and approved by the Board, and has authority to obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties.

The Company’s management has responsibility for preparing the consolidated financial statements and financial reporting process, including the system of internal control. The Company’s independent auditors, KPMG (Hazem Hassan), are responsible for expressing an opinion as to whether those financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the Company in accordance with Egyptian Accounting Standards, which are not materially different from International Financial Reporting Standards.

In this context, the Audit Committee hereby reports as follows:

The Audit Committee has reviewed and discussed the audited consolidated financial statements for the year ended 31 December 2006 with the Company’s management. The Audit Committee discussed with the independent auditors the conduct of their audit in accordance with Egyptian Auditing Standards, and compliance with legal and regulatory requirements.The Audit Committee has received written confirmation of the Independent Auditors’ independence.Based on the review and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited consolidated financial statements be included in the 2006 Annual Report for filing with the Capital Market Authority.

Audit CommitteeMr. Alaa SabaDr. Tarek HatemMr. Mohamed Abdel Moneim

1.

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3.

4.


Auditor’s report,consolidated financial statements and notes to the accounts


Auditor’s report

To the Shareholders of Orascom Construction Industries Company (OCI)

We have audited the accompanying consolidated Balance Sheets of Orascom Construction Industries Company (OCI) as of 31 December 2006, and the related consolidated Statements of Income, Changes in Shareholders’ Equity, and Cash Flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of some of the company’s subsidiaries, which statements reflect total assets amounted to approximately L.E 11.2 billion and total revenues amounted to approximately L.E 7.4 billion, of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the said subsidiaries, is based solely on the reports of those auditors.

We conducted our audit in accordance with Egyptian Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of the other auditors, the consolidated financial statements referred to above together with the notes attached thereto present fairly, in all material respects, the consolidated financial position of Orascom Construction Industries Company as of 31 December 2006 and the consolidated results of its operations and its cash flows for the year then ended in conformity with Egyptian accounting standards and comply with applicable Egyptian laws and regulations.

Without qualifying our opinion, we draw attention to note No. (17) of the notes to the financial statements, certain subsidiaries of the company apply International Accounting Standard No. (17) – Accounting for Capital Leases – to record their capital leases transactions, which concluded during the years 2004, 2005 and 2006 for some fixed assets, instead of applying the Egyptian Accounting Standard No. (20) to record such transactions.

KPMG Hazem Hassan Cairo, 15 April 2007


Directors’ statement in respect of responsibility for financial reporting

The Directors are responsible for the preparation and integrity of the annual report and the consolidated financial statements of Orascom Construction Industries, in accordance with applicable law and regulations.

Company law requires the Directors to prepare consolidated and company financial statements for each year. The consolidated financial statements and notes have been prepared in accordance with Egyptian Accounting Standards, which are not materially different from International Financial Reporting Standards. These consolidated financial statements present fairly the financial position and results of operations of the Group. As such, the consolidated financial statements include certain amounts that are estimates based upon currently available information and management’s judgment of current conditions and circumstances. The Directors are responsible also for the other information included in the annual and interim reports and for their accuracy and consistency with the consolidated financial statements.

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.

The Company maintains a system of internal control over financial reporting, which is intended to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation of the consolidated financial statements. The system includes a documented organizational structure and division of responsibility, established policies and procedures, and the careful selection and development of staff. Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the Audit Committee of the Board of Directors. Corrective actions are taken to control deficiencies and other opportunities for improving the system as they are identified.

The Audit Committee, which is composed of independent directors, meets periodically with management, the internal auditors and the independent auditors to review the manner in which these groups are performing their responsibilities and to carry out the Audit Committee’s oversight role with respect to auditing, internal controls and financial reporting matters.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the effectiveness of an internal control system may change over time.

Management assessed the Company’s internal control system in relation to criteria for effective internal control over financial statement preparation. Based upon that assessment, the Directors believe that, as of 31 December 2006, the system of internal control over financial statement preparation met those criteria.


Consolidated income statementyears ended 31 December

Notes 2006 2005 2004

LE’000 LE’000 LE’000

RevenueConstruction revenue 13,147,511 9,070,808 7,011,155

Cement revenue 4,948,099 3,295,247 2,254,847

18,095,610 12,366,055 9,266,002

Elimination of inter-company revenue (1,620,411) (999,461) (710,208)

Total revenue (4) 16,475,199 11,366,594 8,555,794

CostConstruction cost 10,836,670 7,836,426 5,821,237

Cement cost 2,288,961 1,585,456 1,106,026

13,125,631 9,421,882 6,927,263

Elimination of inter-company cost (1,616,518) (1,020,566) (726,331)

Total Cost of Construction and Goods Sold 11,509,113 8,401,316 6,200,932

Gross profit 4,966,086 2,965,278 2,354,862

ExpensesSelling, general and administrative expenses 1,031,818 639,993 486,700

Provision for claims and doubtful debts 117,640 79,730 35,981

Income from operations 3,816,628 2,245,555 1,832,181

Other income (expenses)Interest income 106,356 61,983 14,889

Foreign exchange gain (loss) 210,085 (73,089) (1,482)

Gain ( loss ) on sale of investments 13,762 (5,414) (117)

Income from investments 51,846 27,678 19,721

Net change in the market value of trading investments 21,050 100,082

Other income 72,991 20,366 28,139

Interest expense (567,080) (392,285) (329,583)

Gain on sale of property and equipment 5,475 35,279 507

Negative goodwill amortization 312,968 76,755

Unrealized profit on intra-group construction (181,126) (29,283) (59,720)

Net other income (expenses) (266,641) 58,285 (250,891)

Income before taxes and minority interest 3,549,987 2,303,840 1,581,290Income taxes (25) (136,378) (114,443) (77,212)

Income before Minority Interest 3,413,609 2,189,397 1,504,078Minority interest (742,891) (489,167) (402,790)

Net income 2,670,718 1,700,230 1,101,288

Earnings per share LE (29) 12.93 8.65 5.63

The accompanying notes form an integral part of the financial statements and are to be read therewith.


Notes 2006 2005 2004

LE’000 LE’000 LE’000

AssetsCurrent assetsCash 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

Total current assets 11,008,340 8,182,779 5,666,554

Long-term assetsLong-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

Total long-term assets 17,607,990 9,427,581 6,864,572

Total assets 28,616,330 17,610,360 12,531,126


Consolidated balance sheetas of 31 December


Notes 2006 2005 2004

LE’000 LE’000 LE’000

LiabilitiesCurrent liabilitiesBank 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

Total current liabilities 9,865,069 5,245,180 4,430,462

Long-term liabilitiesLong-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

Total long-term liabilities 7,591,153 6,135,671 3,569,400

Total liabilities 17,456,222 11,380,851 7,999,862

Equity

Shareholders’ equityShare capital (22) 1,009,979 952,875 952,875

Legal reserve (22) 504,989 56,186 47,084

Other reserves 1,804,271Retained 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)

Total shareholders’ equity 8,671,728 4,264,224 3,044,347Minority interest in subsidiary companies 2,488,380 1,965,285 1,486,917

Total Equity 11,160,108 6,229,509 4,531,264

Total liabilities and equity 28,616,330 17,610,360 12,531,126


Chairman Chief Executive Officer Chief Financial Officer

Consolidated balance sheet continuedyears ended 31 December


Notes Share Capital Legal Reserve

LE’000 LE’000

Balance at 31/12/2003 952,875 38,737Net income for the year 2004

Transfer to legal reserve 8,347

Distribution of cash dividends

Employees’ share of profits 2003

Employees’ share of subsidiaries profit distribution

Minorities’ share of subsidiaries profit distribution

Transactions of treasury stock by OCI ESOP limited

Loss on translation of foreign companies

Balance at 31/12/2004 952,875 47,084Net income for the year 2005

Transfer to legal reserve 9,102





Adjustments to retained earnings - subsidiary acquision


Loss on translation of foreign companies

Balance at 31/12/2005 952,875 56,186

Net income for the year 2006

Transfer to legal reserve (22) 25,707

Issue of share capital (22) 57,104 423,096

Hedge reserve





Adjustments (23)


Gain on translation of foreign companies

Balance at 31/12/2006 1,009,979 504,989


Consolidated statement of changes in equityyears ended 31 December 2006


Other Reserve Retained Earnings Cumulative Adjustment on Translation of Foreign

Companies

Treasury Stock Total

LE’000 LE’000 LE’000 LE’000 LE’000

981,344 195,564 (10,291) 2,158,2291,101,288 1,101,288

(8,347)

(142,931) (142,931)

(15,881) (15,881)

(26,919) (26,919)

11,576 11,576

1,155 (13,163) (12,008)

(29,007) (29,007)

1,901,285 166,557 (23,454) 3,044,3471,700,230 1,700,230

(9,102)

(171,517) (171,517)

(19,058) (19,058)

(31,902) (31,902)

13,086 13,086

(115,583) (115,583)

(10,368) (10,368)

(145,011) (145,011)

3,267,439 21,546 (33,822) 4,264,224

2,670,718 2,670,718

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

1,804,271 5,336,413 152,605 (136,529) 8,671,728


Consolidated cash flow statementyears ended 31 December

Notes 2006 2005 2004

LE’000 LE’000 LE’000

Cash Flows From Operating ActivitiesNet income for the year 2,670,718 1,700,230 1,101,288

Adjustments to reconcile net income to net cash provided by operating activities

Income tax expense 136,378 114,443 77,212

Depreciation and amortisation 624,805 432,377 388,901

Provisions for claims and impairment of debts 117,640 79,730 35,981

Loss (gain) on sale of investments (13,762) 5,414 117

Net change in the value of marktable securities (21,050) 100,082

Gain on sale of property and equipment (5,475) (35,279) (507)

Company share in associates results (51,846) (127,760) 8,399

Foreign exchange difference (106,537) 150,273 14,342

Minority interest 742,891 489,167 402,790

Negative goodwill amortization (312,968) (74,195)

Interest expense incurred 567,080 392,285 329,583

Interest income earned (106,356) (61,983) (57,925)

Income from operating activities before changes in working capital 4,554,486 2,931,408 2,225,986

Changes in Working CapitalIncrease in accounts receivable (2,411,289) (719,417) (1,604,128)

Decrease (increase) in due from related parties 75,477 (36,066) (113,110)

Increase in inventories (588,484) (228,651) (167,463)

Increase in cost of construction in progress (41,035) (245,011) (236,071)

Increase in property held for resale (92,040) (6,800) (186,984)

Increase in accounts payable 2,276,674 363,238 1,560,140

Increase (decrease) in due to related parties 2,984 3,542 (17,587)

Increase in billings in excess of cost and estimated earnings 406,857 259,718 39,171

Interest expense paid (458,518) (349,455) (305,779)

Interest income collected 105,935 61,686 57,143

Net cash provided by operating activities 3,831,047 2,034,192 1,092,318



Consolidated cash flow statement continuedyears ended 31 December

Notes 2006 2005 2004

LE’000 LE’000 LE’000

Cash Flows From Investing ActivitiesPayments for the purchase of property, equipment and assets under construction (7,467,577) (2,920,679) (1,615,562)

Payments for purchase of investments and securities, net of cash acquired (1,474,969) (1,143,488) (45,611)

Proceeds from sale of fixed assets 216,828 136,224 26,408

Proceeds from sale of long term investments 808,211 36,601 404

Net cash used in investing activities (7,917,507) (3,891,342) (1,634,361)

Cash Flows From Financing ActivitiesIncrease in bank over draft and current portion of long-term loans 1,643,838 360,872 268,541

Increase in long-term loans 743,635 2,072,065 930,143

Increase in other long-term liabilities 479,850 198,051 157,240

Changes in treasury stock (102,707) (10,368) (12,008)

Proceeds from issued capital increase 2,295,587Cash dividends to shareholders (403,992) (171,517) (142,931)

Net cash provided by financing activities 4,656,211 2,449,103 1,200,985

Net increase in cash and cash equivalents 569,751 591,953 658,942 Cash and cash equivalents at beginning of the year 2,168,316 1,576,363 917,421

Cash and Cash Equivalents at End of The Year 2,738,067 2,168,316 1,576,363



Notes to the consolidated financial statementsyears ended 31 December

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.

OCI owns directly the following consolidated subsidiaries:

Subsidiary 31/12/2006 31/12/2005 31/12/2004

% of ownership % of ownership % of ownership

OCI International Cyprus (OCIIC)* 100.00 % 100.00 %

OCI Finance Limited (OCIF) 100.00 % 100.00 %

OCI International Netherland (OCIIBV) 100.00 %Orascom Building Materials Holding Company (OBMH)** 99.9 % 99.9 % 99.9 %

Orascom Construction Industries Nigeria (OCIN) 99.9 % 99.9 %

Egypt Sack Company (ESC) 99.9 %Orascom Construction Industries Algeria (OCIA) 99.4 % 99.4 % 99.4 %

Suez Industrial Development Company (SIDC) 60.5 % 60.5 % 59.0 %

Egyptian Cement Company (ECC)** 53.7 % 53.7 % 53.7 %

Egyptian Containers Handling Company (ECHCO) 50.0 % 50.0 % 50.0 %

OCI Besix 50.0 % 50.0 %

* 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 complianceThe 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.

(b) Basis of measurementThe consolidated financial statements have been prepared on the historical cost basis except for the following:

Derivative financial statements are measured at fair valueFinancial instruments at fair value through profit and loss are measured at fair valueAvailable for sale financial assets are measured at fair valueThe methods used to measure fair values are discussed further in the notes below

••••


(c) Use of estimates and judgments

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:

Note 9 - contract revenueNote 12 - deferred taxNote 15 - business combinations Note 16 - intangible assets Note 17 - accounting for an arrangement containing a leaseNote 20 - provisionsNote 26 - measurement of share-based paymentsNote 30 - contingent liabilitiesNote 32 - valuation of financial instruments

3 Significant accounting policies

3.1 Basis of consolidation

SubsidiariesSubsidiaries 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.

Associates and joint venturesAssociates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Joint ventures are those entities over whose activities the Group has joint control, established by the contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates are accounted for using the equity method. Joint venture are accounted for using proportionate consolidation method The consolidated financial statements include the Group’s share of the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that the significant influence or joint control commences until the date that significant influence or control ceases.

Transactions eliminated on consolidationIntra-group balances, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent there is no evidence of impairment.

3.2 Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The group primary format for segment reporting is based on business segment.

3.3 Foreign currency

Foreign currency transactionsTransactions in foreign currencies are translated to the respective functional currencies of Group entities at the average exchange rates during the year. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Foreign currency differences arising on retranslation are recognized in profit or loss.

Foreign operationsThe 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.


3 Significant accounting policies continued

3.4 Financial instruments

Non derivative financial instrumentsNon derivative financial instruments comprise cash and cash equivalents, investments in equity, trade and other receivables, loans and borrowings, and trade and other payables. These financial assets and liabilities are recognized in the balance sheet when the Group becomes a party to the contractual provisions of the financial instruments.

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.

Derivative financial instrumentsThe Group holds derivative financial instruments to hedge foreign currency and interest rate risk exposure. Derivatives are recognized initially at fair value, subsequent to initial recognition derivatives are measured at fair value, and changes in the hedging instruments are recognized directly in equity to the extent that the hedge is effective.

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.

3.5 Cash and cash equivalents

Cash and cash equivalents comprise cash balances, balances of banks current accounts, and time deposits with banks. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

3.6 Investments at fair value through profit and loss

An instrument is classified at fair value through profit and loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value. Upon initial recognition transaction costs are recognized in profit or loss when incurred. Financial instruments fair values through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

3.7 Accounts receivable and other debit balances

Customer accounts receivable and other debit balances are recorded at their nominal value less appropriate allowances for estimated irrecoverable amounts.

3.8 Construction contracts

Construction project costs include all direct costs, such as materials, supplies, equipment depreciation and labor, as well as indirect costs such as indirect labor and maintenance. Construction project costs also include general and administrative expenses directly related to these projects. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. The excess of construction project costs and estimated profits over billings is recognized as construction contacts in progress. Billings in excess of cost of estimated earnings on incomplete contracts are recognized as a current liability.

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.

3.10 Property held for resale

Property held for resale that are expected primarily to be recovered through the sale rather than through the continuing use are classified as held for sale. Immediately before classification as held for sale, the assets are re-measured in accordance with the Group accounting policies. Thereafter generally the assets are measured at the lower of their carrying amount and fair value less cost to sell. Impairment loss on initial recognition as held for sale and subsequent gains on re-measurement are recognized in profit or loss.

Notes to the consolidated financial statements continued



3.11 Investment in associated companies

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Associates are accounted for using the equity method (equity accounted investees). The consolidated financial statements include the Group’s share of the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. In case of impairment, the carrying amount of the investment is reduced and the impairment loss is charged to the consolidated income statement. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

3.12 Investments available-for-sale

The Group’s investments in equity securities, other than investment in associated companies, are classified as available-for-sale financial assets. Subsequent to initial recognition they are measured at fair values and changes therein, other than impairment losses are recognized directly in equity. When an investment is derecognized, the cumulative gain or loss in equity is transferred to profit or loss.

3.13 Property, plant and equipment

Recognition and measurementItems of property, plant and equipment are measured at cost less accumulated depreciation and impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the asset. When part of an item of property, plant and equipment have different useful lives they are accounted for as separate items of property, plant and equipment.

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.

DepreciationDepreciation 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:

Type of Asset Years

Buildings 2.0 - 50.0

Machinery and equipment 3.0 - 35.0

Vehicles 4.0 - 14.2

Tools and supplies 1.5 - 16.6

Furniture and office equipment 3.0 - 16.0

Information systems 3.0 - 7.0

LeasesLeases 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.

3.14 Assets under construction

The amounts spent on the construction of fixed assets are initially recorded in assets under construction and measured at cost less impairment, if any. When these assets are completed and become ready for use, the related costs are transferred to fixed assets.



3.15 Intangible assets

GoodwillGoodwill arises on the acquisition of subsidiaries, associates and joint ventures. Goodwill represents the excess of the cost of acquisition over the Group’s interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the entity acquired. Goodwill is recorded at cost less any accumulated impairment losses. In respect of equity accounting investee the carrying amount of goodwill is included in the carrying amount of the investment. Recognized goodwill impairment losses are not subsequently reversed.

Other intangible assetsOther intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized in profit and loss on a straight line basis over the estimated useful lives from the date they are available for use. The estimated useful lives for the current and comparative periods are as follows:

Type of Asset Years

Mineral reserves 10 - 18

Brands 10 - 15

Other intangible assets with indefinite lives are subject to impairment tests.

3.16 Impairment of assets

The carrying amounts except for inventories, assets held for sale and deferred tax assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. A cash generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognized in profit or loss. Impairment losses are recognized in respect of cash- generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of other assets in the unit on a pro rata basis.

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.

3.17 Share-based payment transactions

The grant fair value of options granted to employees is recognized as an employee expense, over a period in which the employees become unconditionally entitled to the options. The amount recognized as expense is adjusted to reflect the actual number of share options that vest.

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.

3.19 Treasury stock

Repurchased shares are classified as treasury shares and are presented as a deduction from shareholders’ equity at their acquisition cost. Gain or loss from transactions relating to the treasury stock are reflected in shareholders’ equity.




3.20 Revenue

Construction contractsAs soon as the outcome of the construction contract is estimated reliably, contract revenues and expenses are recognized in profit or loss in proportion to the stage of completion of the contract. Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments to the extent that is probable that they will result in revenue and can be measured reliably.

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 soldRevenue 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 incomeRental 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.

3.22 Post employment benefits

Payments to defined contribution schemes are expensed as they become due. For defined benefit pension plans adopted the benefit obligation is determined using the projected unit credit method, with actuarial valuations being carried out at each consolidated balance sheet date. Actuarial gains and losses are recognized in full in the period in which they occur.

3.23 Borrowing costs

All borrowing costs that do not meet the capitalization criteria are recognized in profit or loss under the effective interest method.

3.24 Income tax

Income tax comprises current and deferred tax payable on taxable income. Income tax expense is recognized in profit or loss to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

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.

3.25 Earnings per share

The Group presents basic earnings per share (EPS), which is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.


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.

Operating Segment Construction Cement Elimination Consolidated

LE’000 LE’000 LE’000 LE’000

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) 16,475,1992005 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) 11,366,5942004 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) 8,555,794Operating profit2006 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 amortization2006 341,507 320,479 661,986

2005 204,542 233,232 437,774

2004 186,501 202,400 388,901

Capital expenditure2006 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 assets2006 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 liabilities2006 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



4 Segmental information continued

Geographic Segment Egypt Africa Asia Europe and Other

Elimination Consolidated

LE’000 LE’000 LE’000 LE’000

Revenue2006 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 expenditure2006 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

5 Cash and cash equivalents

Description 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Cash on hand 17,587 2,919 12,647

Banks – current accounts * 1,561,053 1,664,439 539,077

Banks – time deposits ** 1,159,427 500,958 1,024,639

Total 2,738,067 2,168,316 1,576,363

* 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

Shares in Baticim Cimento, Turkey 448,503 413,850

Investment securities, cumulative interest bearing certificates 24.636 427,214 10,315

Total 473,139 841,064 10,315

7 Accounts receivable- customers current accounts (net)

Accounts receivable- customers current accounts and notes receivable are shown net of impairment losses amounting to LE 44.2 million, (2005 , LE 38.1 million) (2004, LE 55.9 million).


8 Accounts receivable- other (net)Accounts receivable other are shown net of impairment losses amounting to LE 32.8 million (2005, LE 19.2 million) (2004, LE 11.9 million) and consist of the following:

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

Total 1,498,040 1,252,340 726,206

9 Construction contracts in progressThe billing status of construction contracts in progress at 31 December is as follows:

Description 2006 2005 2004

LE’000 LE’000 LE’000

Costs incurred on incomplete contracts 18,653,102 13,683,252 11,699,535

Estimated earnings 2,728,743 1,794,908 1,652,148

21,381,845 15,478,160 13,351,683

Less billings to date (21,586,168) (15,316,661) (13,158,380)

(204,323) 161,499 193,303

Presented in the balance sheet as follows:

Construction contracts in progress 682,021 640,986 425,328

Billings in excess of cost and estimated earnings on incomplete contracts (886,344) (479,487) (232,025)

(204,323) 161,499 193,303

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

Raw materials 549,797 394,897 283,479

Spare parts and fuel 459,710 233,391 195,367

Packing materials 40,502 38,489 21,927

Work in progress 306,124 162,802 72,359

Finished goods 80,393 19,280 22,878

Developed land for sale 75,522 74,705 55,585

Total 1,512,048 923,564 651,595



11 Joint VenturesA summary of the Group’s share in the assets, liabilities, revenues, and expenses in the Joint Ventures relating to the construction activities are as follows:

Description 31/12/2006 31/12/2005 31/12/2005

LE’000 LE’000 LE’000

Share in Net AssetsAssets 951,155 765,297 692,570

Liabilities (651,466) (610,278) (520,397)

Company’s Share in Net Assets 299,689 155,019 172,173

2006 2005 2005

Share in Operating Net Results Revenue 1,251,777 1,142,863 1,512,616

Cost (1,172,307) (1,071,900) (1,342,587)

Company’s Share in Net Profit 79,470 70,963 170,029

12 Deferred tax assets and liabilitiesAs at 31 December, the recognized deferred tax assets (liabilities) that are attributable to temporary timing differences related to the following:

Description 31/12/2006 31/12/2005 31/12/2005

LE’000 LE’000 LE’000

Deferred Tax Assets:Property, plant and equipment 22,599 8,554

Working capital 70,749 26,779 4,718

Total Assets 93,348 35,333 4,718

Deferred Tax Liabilities:Property, plant and equipment (111,370) (40,795) (5,387)

Working capital (226,543) (83,121) (53,405)

Total Liabilities (337,913) (123,916) (58,792)

Net (244,565) (88,583) (54,074)

13 Investment in associated companies

Description Ownership Country 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Nile Valley Gas Company Egypt 12,935 13,787

National Pipes Company 40% Egypt 11,713 8,964 7,350

United Company for Paints and Chemicals 50% Egypt 44,014 39,109 48,414

Mehsas National Bag Algeria 3,875 6,251

Besix Group investments (various) Belgium 67,090 25,884 36,942

Sudacem Investments Company 49% Sudan 32,081 27,185

El Yamama Orascom United 50% Saudi Arabia 1,499 1,764

Others 11,640 4,586 2,224

Total 168,037 124,302 114,968


14 Payments for purchase of investments

As of 31 December 2006, payments for purchase of investments amounting to LE 738.7 million represents the payments for the purchase of shares of United Nigeria Cement Company -UNICEM (currently under establishment) by the Egyptian Cement Company and Egyptian Cement Holding Netherland. This investment will be fully consolidated when control is established.

15 Investment in controlled and jointly-controlled companies

During the three years ended 31 December 2006, OCI acquired control and joint-control of companies in Spain, Iraq, Turkey, Egypt, Pakistan, Algeria and Belgium. The Company’s share in the fair values of the assets and liabilities of these companies at the dates of acquisition has been recorded as follows:

LE million GLAGroup

(Spain)

OCICimento (Turkey)

UnitedCement

(Iraq)

EgyptSack

Company

PakistanCement

Company

AlgerianBags

Company

BesixGroup

(Belgium)

Total

50% 100% 60% 100% 62.75% 100% 50%

AssetsCash 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

LiabilitiesBank 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.

Investment in 50% of GLA GroupIn October 2006, OCI acquired 50% of GLA Group (a Spanish limited liability company). The total cost of acquisition was Euro 99.8 million (LE 725.9 million). The purchase price was paid partly in cash and the balance by surrender of OCI’s 59.4% share in Cementos La Parrilla, S.A. (a Spanish limited liability Company) at the fair value of Euro 28.5 million (LE 213.7 million).

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).



15 Investment in controlled and jointly-controlled companies continued

Investment in OCI Cimento (Turkey)On 26 January 2006, OCI indirectly acquired all the assets of Van Cimento Sanayi ve Ticaret AS (VC) (a Turkish limited liability company). The total cost of acquisition was US$ 54.6 million (LE 313.6 million). The fair value of the net assets acquired, as determined by independent appraisers, amounted to US$ 32.3 million (LE 195.4 million). The excess of the cost of acquisition over the fair value of the net assets acquired at the date of acquisition represents goodwill of US$ 22.3 million (LE 118.2 million).

Investment in United Cement (Iraq)In 2006, OCI increased its investment in the shares of United Cement Holding Company (UCH)by 9% to reach 60%. UCH owns and operates a cement plant in Tasluja in Northern Iraq. The cost of the additional acquisition was US$16.0 million (LE 92.0 million). The excess of the total cost of acquisition over the fair value of the net assets acquired at the date of acquisition represents goodwill of US$ 16.3 million (LE 93.5 million).

Investment in Egypt Sack CompanyIn January 2006, OCI acquired 100% ownership of Egypt Sack Company (ESC) which was incorporated on 20 November 1997. The total cost of acquisition was LE 43.0 million. The fair value of the net assets of ESC, as determined by independent appraisers,amounted to LE 25.7 million. The excess of the cost of acquisition over the fair value of the net assets acquired at the date of acquisition represents goodwill of LE 17.3 million.

Investment in Pakistan Cement CompanyIn September 2005, OCI increased its indirect ownership to 62.752% of Pakistan Cement Company (PCC) which was incorporated on 23 May 1993. The total cost of acquisition was US$ 49.0 million (LE 284.6 million). The fair value of the net assets of PCC, as determined by independent appraisers, amounted to US$ 121.9 million (LE 707.7 million), and OCI’s 62.752% share of the fair value of the net assets acquired amounted to US$ 76.5 million (LE 444.1 million). The excess of the fair value of the net assets acquired over the cost of acquisition at the date of acquisition represents a negative goodwill of US$ 27.5 million (LE 159.5 million), and has been credited to year 2005 income.

Investment in Algerian Bags CompanyIn December 2006, OCI acquired the remaining 50% ownership of Mehsas National Bags Company (an Algerian limited liability company) which was incorporated on 19 May 1999, and renamed it Algerian Bags Company (ABC). The total cost of acquisition of 100% of the shares of ABC was LE 38.7 million. The fair value of the net assets of ABC amounted to LE 20.3 million. The excess of the cost of acquisition over the fair value of the net assets acquired at the date of acquisition represents goodwill of LE 18.4 million.

Investment in 50% of Besix GroupMANOCI (a Belgian Company) was incorporated in March 2004 with a share capital of Euro 37.5 million (LE 285 million) owned equally by OCI Luxembourg (ultimately owned by OCI) and MANCO Investments (a Belgian partnership). On 4 April 2004, MANOCI acquired control (100% by July 2004) of SBB-BBM (a Belgian construction Company, which consists primarily of Besix group of companies and subsequently renamed Besix Group).

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.

Investment in Egyptian Basic Industries CorporationIn 2005, OCI invested in a jointly–controlled corporation Middle East Petrochemical Corporation (MEPCO) on a 50/50 basis. MEPCO acquired 60% of the share capital of Egyptian Basic Industries Company (EBIC), which was established on 12 February 2002 in a free zone area to manufacture and sell ammonia. As of 31 December 2006, the total investment in EBIC amounted to US$ 64.1 million (LE 366.7 million).

Investment in Emirates Cement CompanyIn 2005, OCI invested in a jointly–controlled corporation (Emirates Cement Company) (EMCC), which was established in 2005 in the United Arab Emirates to manufacture and sell cement. As of 31 December 2006, the total investment in EMCC amounted to US$ 64.7 million (LE 372.2 million).


16 Other assets

Description 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Goodwill 502,451 124,794 12,021

Mineral reserves 212,510Brands 19,872Cement mill license 85,390Other deferred expenses 128,306 40,637 8,401

Total 948,529 165,431 20,422

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:

Purchase price (LE Million) 263.8

Total lease payments (LE Million) 303.3

Lease period (years) 3 - 15

Selling price at the end of the lease terms (LE Million) 2.5

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.

17.2 Operating Leases

During 2002, 2003 and 2004 OCI and other subsidiaries leased some equipment under the following conditions:

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



18 Property, plant and equipment

Description Land Buildingsand

construction

Machineryand

equipment

Furnitureand office

equipment

Vehicles Information Tools and supplies

Total

LE ‘000 LE ‘000 LE ‘000 LE ‘000 LE ‘000 LE ‘000 LE ‘000 LE ‘000

CostBalance 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 depreciationBalance 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 depreciation at acquisition

9,126 70,441 1,431 13,002 1,191 4,670 99,861

Transfers/Adjustments 3,613 283,369 (226,627) 2,761 7,143 3,790 508 66,977

Disposals accumulated depreciation

50 (62,609) (3,841) (2,588) (2,760) (38) (71,786)

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:

Description Cost AccumulatedDepreciation

Net

31/12/2006 31/12/2006 31/12/2006

LE ‘000 LE ‘000 LE ‘000

Machinery and equipment 134,247 (36,056) 98,191

Vehicles 176,002 (51,905) 124,097

Building 20,774 (3,943) 16,831

Information systems 959 (608) 351

Total 331,982 (92,512) 239,470


19 Loans

Company responsible for loan Lending institution Interest rate

Orascom Construction Industries Company

3rd Bond (Due 29 June 2012) 11.75% fixed on 2.5 million bonds, 1.5% over 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 Algeria

Different banks - overdraft Average 7%

Egyptian Container Handling Company

CIB loan (Due 31 December 2006) 1.85% over LIBOR 6 months and 1.4% + 1.6% 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- undEntwicklungsgesellschaft mbHf

5.69%

International Finance Corporation (IFC) 7.55%

European Investment Bank (EIB) 4.44%

DEG - Deutsche Investitions- undEntwicklungsgesellschaft mbHf

5.58%

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%

Bank overdraft and bank facilities Variable

Total 31/12/2005

Total 31/12/2004

Total 31/12/2003



Outstanding amount 31/12/2006

Long-term portion 31/12/2006

Bank overdraft and current portion

31/12/2006

Collateral /Support given

LE ‘000 LE ‘000 LE ‘000

1,312,506 1,176,743 135,763

45,283 45,283

1,110,219 2,891 1,107,328 LE 1.11 billion promissory notes

1,644,620 1,644,620

521,818 171,094 350,724 Commercial lien on the company’s assets

76,288 76,288 DZD 826 million and US$ 12 Million promissory notes equals to LE 67.3 and 68.6 respectively


4,775 4,775 Commercial lien on the company’s assets



957,400 957,400 Promissory notes equals full loan amount

116,514 116,514 LE 116 million promissory notes

149,566 119,653 29,913 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


198,306 198,306 Full amount promissory notes



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


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



20 Creditors, accrued liabilities and provisions

Description 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

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

Total 1,726,402 1,289,206 1,304,692

Movement in provisions for claims 2006 2005 2004

LE’000 LE’000 LE’000

Balance at 1 January 272,285 190,160 128,417

Additions during the year 83,416 85,872 61,855

Used during the year (6,181) (1,416) (1,271)

Foreign exchange difference 270 (2,331) 1,159

Balance at 31 December 349,790 272,285 190,160

21 Other long-term liabilities

Description 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Loans to subsidiaries from non-Group shareholders 537,099 237,807 36,744

Liability under capital leases 45,255 34,160 34,330

Liability for purchase of fixed assets 1,229 885

Sales tax installments on imported machinery 116,277 10,235 16,536

Liability for post employment benefits 3,083 19,479 24,603

Provisions for claims and contract performance 160,443 104,500 121,146

Others 127,905 86,375 3,239

Total 991,291 493,441 236,598


22 Capital

Authorized CapitalThe Company’s authorized capital is LE 5 billion.

Issued and paid in capitalOn 18 August 2004, the shareholders approved reducing the share par value from LE 10 to LE 5 per share and increasing the total number of outstanding shares from 95,287,500 to 190,575,000. OCI Global Depository Receipts holders also received one additional GDR for every GDR held.

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 ReserveAccording 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 ReservesAccording 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

Changes in accounting policy by a subsidiary (52,858)

Deferred tax adjustment (44,037)

Share based payments and a foreign exchange adjustments (40,805)

Prior year adjustments in a subsidiary 43,861

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:

31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Number of shares (including 47,987 GDR’s) 1,546,806 1,062,774 1,017,774

Book value 137,912 33,392 23,023Average cost per share 89.16 31.42 22.62

Market value 426,764 232,397 73,884Price per share 275.90 218.67 72.54

Price per GDR 552.76 430.50 146.96

25 Income tax expense

Income tax expense recognized in the income statement is as follows:


LE’000 LE’000 LE’000

Current tax expense 144,457 68,342 83,362

Deferred tax expense (benefit) (8,079) 46,101 (6,150)

Total tax expense 136,378 114,443 77,212

Reconciliation of effective tax rate to statutory tax rate:


LE’000 LE’000 LE’000

Income before tax 3,549,987 2,303,840 1,581,290

Statutory corporation tax rate 20% 20% 42%

Income tax at statutory corporation tax rate 709,997 460,768 664,141

Add (deduct) tax effect on the following:

Non-deductible expenses 15,863 10,328 2,855

Non- taxable income (624,391) (420,034) (571,017)

Provisions for claims and doubtful debts (16,917) (10,985) (2,717)

Depreciation temporary differences 46,749 32,241 (5,387)

Other deductions and adjustments to prior years (42,074) (27,321) 8,086

Effect of different tax rates in foreign jurisdictions 69,612 69,446 (18,749)

Total tax expense 136,378 114,443 77,212

Effective tax rate 3.84% 4.97% 4.88%



26 Share-based payments

OCI has a plan to provide some of its employees with stock options on its shares. According to this plan, OCI ESOP Limited, a British Virgin Islands Company, purchases OCI shares from the stock market equivalent to the value of options granted to employees. This purchase is financed by a loan from OCI. The exercise price of the options granted to employees is equal to the fair market value of the shares on the date of grant. When the options vest, the employee has the right to exercise the options by payment of the full option price. Payment may be by cash, OCI shares owned for at least six months, delivery of an employee promissory note bearing interest and secured by a pledge of the OCI shares purchased by the note, or consideration received from OCI ESOP under a cashless exercise program implemented in connection with the plan. Payments received from employees for options exercised are used by OCI ESOP Limited to repay the outstanding loan due to OCI or to finance the purchase of other options.

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 subject to option

Average per share exercise price

Average per share market price

Shares LE LE

Balance at 31 December 2002 257,731 20.18 23.16 Options exercised 2003 (257,731) (20.18) (92.75)

Options granted 2003 250,000 10.46 11.36

Balance at 31 December 2003 250,000 10.46 72.51Options granted 2004 617,808 36.50 36.02

Options exercised 2004

Balance at 31 December 2004 867,808 29.00 72.54

Options granted 2005 1,161,708 80.41 81.58


Balance at 31 December 2005 2,029,516 58.43 218.67Options granted 2006 625,541 224,32 221.42


Balance at 31 December 2006 2,655,057 97.51 275.90

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

Fair value at measurement date (LE) 48.00 27.82 12.29 4.98

Share price at grant date (LE) 221.42 97.88 36.02 11.36

Exercise price (LE) 224.32 97.15 36.50 10.46

Expected volatility (%) 34% 39% 46% 53%

Option life (years) 5 5 5 5

Expected dividend yield (%) 3% 3% 3% 3%

Risk-free interest rate (%) 5.06% 5.03% 5.39% 7.35%

Forfeiture per year (%) 5% 5% 5% 5%

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:

LE‘000 LE per share

2004 142,931 0.75

2005 171,517 0.90

2006 403,992 2.00

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).

29 Earnings per share

Earnings per share are calculated by dividing the net income available for shareholders’ dividends, after deducting the employees’ profits share, by the weighted average number of shares outstanding during the period, adjusted for the share split, as follows:

Description 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Net income 2,670,718 1,700,230 1,101,228

Less: Employee share in company’s profit (116,964) (42,350) (19,058)

Employee share in subsidiaries profit (17,239) (18,391) (15,010)

Adjusted net profit 2,536,515 1,639,489 1,067,220

Shares’000 Shares’000 Shares’000

Weighted average number of shares 197,709 190,575 190,575

Less: Treasury stock (1,547) (1,099) (1,054)

Adjusted weighted average number of shares 196,124 189,476 189,521

Earnings per share (LE) 12.93 8.65 5.63



30 Contingent liabilities

GuaranteesLetters of guarantee issued by banks for OCI and its subsidiaries in favor of others as at 31 December 2006 amounted to LE 2.9 billion (2005, LE 2.5 billion) (2004,LE 1.9 billion). The restricted cash margin for these letters of guarantee amounted to LE 72.5 million (2005, LE 72.4 million) (2004, LE 56.8 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.

LitigationIn 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.


32 Financial instruments and related risk management

The financial instruments of OCI and its subsidiaries are represented in the financial assets (cash, banks, investments in securities, accounts receivable and some debtors and debit accounts) and financial liabilities (banks-overdraft, short-term loans, long-term loans, suppliers and subcontractors, notes payable and some creditors and credit accounts) in the consolidated balance sheet. The Group is exposed to risks relating to interest rates, credit, liquidity and currency arising from the financial instruments it holds. The Group does not use derivative financial instruments for speculative purposes. The risk management policies employed by the Group to manage these risks are as follows.

Interest Rate RiskInterest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group is exposed to interest rate risk in relation to its interest-bearing assets and borrowings. Interest-bearing assets and borrowings issues at variable rates expose the Group to cash flow interest rate risk. Borrowings at fixed rates expose the Group to fair value interest rate risk. The interest rates on the Group’s borrowings are shown in note (19). The Group’s management monitors the interest rate fluctuations on a continuous basis and act accordingly.

Credit RiskCredit 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 RiskLiquidity 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 RiskCurrency 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 ValueA 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:

Property plant and equipmentThe fair values of property, plant and equipment recognized as a result of a business combination are based on market values.

InventoryThe 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.

Trade and other receivablesThe fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of interest.

DerivativesThe 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.

Investments in equity securitiesThe fair values of financial assets at their fair value through profit or loss and investments available for sale are determined by reference to their quoted bid prices at the reporting date.



33 Related Parties transactions

The intra-group transactions, balances and unrealized profits or losses have been eliminated. Transactions with non-consolidated companies and joint ventures are in the normal course of business at arms’ length prices. The aggregate sales to the associated companies during the year amounted to LE 321.5 million and these associates supplied the Group by an amount of LE 176.9 million.

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:

33.1 Due from Related Parties

Description 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Joint Ventures 6,522 9,188 37,765

Egyptian Company for Investment & Development 4,524 4,416 4,572

National Pipe Company 55 4,722 4,245

Orascom Telecom Holding 571 7,985 10,516

National Equipment 1,120 1,333

Orascom Trading 725 1,810 1,423

Al Yamama Orascom United 8,250 4,684

United Cement Nigeria 3,760

MEPECO 60,361

Other companies 2,467 545 2,671

Total 23,114 98,591 62,525

33.2 Due to Related Parties

Description 31/12/2006 31/12/2005 31/12/2004

LE’000 LE’000 LE’000

Joint Ventures 12,799 9,648 15,303

United Paints and Chemicals 9,131 9,131

Other companies 24 191 125

Total 21,954 18,970 15,428


Selected financial datayears ended 31 December

Supplementary financial information in Egyptian Pounds

The selected consolidated financial data for the five years ended 31 December 2005 has been extracted without material adjustmentfrom the consolidated financial statements of the Company. The selected data should be read in conjunction with the consolidated financial statements and the notes thereto reported upon by KPMG Hazem Hassan, the Company’s auditor.

31/12/2002 31/12/2003 31/12/2004 31/12/2005 31/12/2006

LE ‘000 LE ‘000 LE ‘000 LE ‘000 LE ‘000

Income Statement DataRevenue

Construction revenue 1,784,254 3,208,807 6,413,365 9,070,808 13,147,511Cement revenue 946,475 1,242,102 2,254,847 3,295,247 4,948,099Concessions / materials revenue 405,503 506,559 597,790

Elimination of intra-group revenue (225,397) (554,324) (710,208) (999,461) (1,620,411)

Total revenue 2,910,835 4,403,144 8,555,794 11,366,594 16,475,199

Cost of services and goods sold

Construction cost 1,507,811 2,661,612 5,391,593 7,836,426 10,836,670Cement cost 539,418 737,584 1,106,026 1,585,456 2,288,961Concessions / materials cost 299,873 386,007 429,644

Elimination of intra-group cost (195,715) (591,721) (726,331) (1,020,566) (1,616,518)

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 from operations 589,680 945,152 1,832,181 2,245,555 3,816,628

Other income and expensesInterest income 66,723 9,971 14,889 61,983 106,356Foreign exchange gain (loss) 102,954 245,117 (1,482) (73,089) 210,085Income from investments 3,469 9,043 (117) (5,414) 13,762Gain (loss) on sale of investments (17,267) 1,975 19,721 27,678 51,846Net change in market value of investments 100,082 21,050Other income 10,045 6,088 28,139 20,366 72,991Interest expense (282,361) (263,382) (329,583) (392,285) (567,080)Gain (loss) on sale of equipment 2,062 (3,187) 507 35,279 5,475Negative goodwill amortization 76,755 312,968

Profit on intra-group construction (425) (97,895) (59,720) (29,283) (181,126)

Net other income (expense) (114,800) (92,270) (250,891) 58,285 (266,641)

Income before taxes and minority interest 474,880 852,882 1,581,290 2,303,840 3,549,987

Provision for income taxes (8,966) (28,637) (77,212) (114,443) (136,378)Minority interest (102,062) (265,959) (402,790) (489,167) (742,891)

Net income 363,852 558,286 1,101,288 1,700,230 2,670,718

Per share information

Earnings per share 1 3.60 5.56 5.63 8.65 12.93Cash dividend per share 2 0.47 0.71 0.85 1.89 5.50


31/12/2002 31/12/2003 31/12/2004 31/12/2005 31/12/2006

LE ‘000 LE ‘000 LE ‘000 LE ‘000 LE ‘000

Balance Sheet DataCash and cash equivalents 787,494 917,421 1,576,363 2,168,316 2,738,067Accounts receivable - customers (net) 480,413 585,456 1,653,045 1,678,902 3,196,684Total current assets 2,452,851 2,881,439 5,666,664 8,182,779 11,008,340Property, plant and equipment (net) 2,862,359 3,610,567 5,518,146 6,672,420 9,104,053Assets under construction 842,661 1,378,012 1,177,638 2,134,916 6,441,241

Total assets 6,327,433 8,111,499 12,531,126 17,610,360 28,616,330

Short-term debt 757,958 714,442 982,983 1,343,855 2,987,693Accounts payable 1,303,782 1,170,655 3,132,092 3,353,496 5,868,789Total current liabilities 2,273,796 2,106,588 4,430,462 5,245,180 9,865,069Total long term liabilities 1,737,873 2,701,129 3,569,400 6,135,671 7,591,153Minority interest 876,293 1,145,553 1,486,917 1,965,285 2,488,380Total shareholders’ equity 1,439,471 2,158,229 3,044,347 4,264,224 8,671,728

Total shareholders’ equity and liabilities 6,327,433 8,111,499 11,044,209 15,645,075 26,127,950

Other DataReturn 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 1.12Net 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).


Supplementary financial information in US$

The selected consolidated financial data for the five years ended 31 December 2005 has been extracted without material adjustment from the consolidated financial statements of the Company. The selected data should be read in conjunction with the consolidated financial statements and the notes thereto reported upon by KPMG Hazem Hassan, the Company’s auditor.

31/12/2002 31/12/2003 31/12/2004 31/12/2005 31/12/2006

US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Income Statement DataRevenue

Construction revenue 356,851 519,224 1,058,311 1,558,558 2,286,524Cement revenue 189,295 200,987 372,087 566,194 860,539Concessions / materials revenue 81,101 81,967 98,645

Elimination of intra-group revenue (45,079) (89,696) (117,196) (171,729) (281,811)

Total revenue 582,167 712,483 1,411,847 1,953,023 2,865,252

Cost of services and goods sold

Construction cost 301,562 430,682 889,702 1,346,465 1,884,638Cement cost 107,884 119,350 182,513 272,415 398,080Concessions / materials revenue 59,975 62,461 70,898

Elimination of intra-group cost (39,143) (95,748) (119,857) (175,355) (281,134)

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 from operations 117,936 152,937 302,340 385,834 663,761

Other income and expensesInterest income 13,345 1,613 2,457 10,650 18,497Foreign exchange gain (loss) 20,591 39,663 (245) (12,558) 36,537Income from investments 694 1,463 (19) (930) 2,393Gain (loss) on sale of investments (3,453) 320 3,254 4,756 9,017Net change in market value of investments 17,196 3,661Other income 2,009 985 4,643 3,499 12,694Interest expense (56,472) (42,618) (54,387) (67,403) (98,623)Gain (loss) on sale of equipment 412 (516) 84 6,062 952Negative goodwill amortization 12,666 53,775

Profit on intra-group construction (85) (15,841) (9,855) (5,031) (31,500)

Net other income (expense) (22,960) (14,930) (41,401) 10,015 (46,372)

Income before taxes and minority interest 94,976 138,007 260,939 395,849 617,389

Provision for income taxes (1,793) (4,634) (12,741) (19,664) (23,718)Minority interest (20,412) (43,035) (66,467) (84,049) (129,198)

Net income 72,770 90,338 181,731 292,136 464,473

Per share information

Earnings per share1 0.72 0.90 0.93 1.49 2.25Cash dividend per share2 0.09 0.11 0.14 0.32 0.96

Selected financial data continuedyears ended 31 December


31/12/2002 31/12/2003 31/12/2004 31/12/2005 31/12/2006

US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Balance Sheet DataCash and cash equivalents 157,499 148,450 260,126 376,444 478,683Accounts receivable - customers (net) 94,734 94,734 272,780 291,476 558,861Total current assets 490,570 466,252 935,093 1,420,621 1,924,535Property, plant and equipment (net) 572,472 584,234 910,585 1,158,406 1,591,618Assets under construction 168,532 222,979 194,330 370,645 1,126,091

Total assets 1,265,487 1,312,540 2,067,843 3,057,354 5,002,855

Short-term debt 151,592 115,606 162,208 233,308 522,324Accounts payable 260,756 189,426 516,847 582,204 1,026,012Total current liabilities 454,759 340,872 731,099 910,622 1,724,663Total long term liabilities 347,575 437,076 589,010 1,065,221 1,327,125Minority interest 175,259 185,365 245,366 341,195 435,031Total shareholders’ equity 287,894 349,228 502,367 740,317 1,516,036

Total shareholders’ equity and liabilities 1,265,487 1,312,540 1,822,477 2,716,159 4,567,824

Other DataReturn 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 1.12Net debt to equity ratio 6 0.74 0.76 0.66 0.85 0.70Foreign exchange rate (LE = US$ 1) 5.00 6.18 6.06 5.76 5.72Foreign 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).


Board of Directors

Eng Onsi Sawiris Chairman

Mr Nassef SawirisDirector

Eng Mohamed YoussefDirector

Eng Maged AbadirDirector

Eng Osama BishaiDirector

Mr Karim Camel-TouegDirector

Mr Alaa Saba *Non-executive Director

Dr Tarek Hatem *Non-executive Director

Eng Mohamed Farouk Abdel Moneim *Non-executive Director

* Members of the Audit Committee

Corporate Officers

Mr Nassef SawirisDirector and Chief Executive Officer

Mr Salman ButtChief Financial Officer

Mr Nicolas EstayExecutive Vice President – Europe

Mr Adel BishaiCorporate Governance Director

Ms Dalia KhorshidCorporate Treasurer

Mr Fady KiamaCorporate Controller

Mr Hussein MareiGeneral Counsel

Mr Kevin StruveStrategic Planning Director

Mr Hassan BadrawiInvestor Relations Director

Construction Group

Eng Osama BishaiManaging DirectorOCI Construction

Mr Johan BeerlandtChief Executive OfficerBESIX Group

Mr Karim Camel-TouegPresident, Contrack Group

Cement Group

Eng Milad BishayCement Group Director

Mr Nassef SawirisManaging Director, ECC

Mr Ayman AnisManaging Director, ACC

Mr Ahmad HeshmatManaging Director, PCC

Mr Osama ElrefaieManaging Director, UCC

Mr Valentin TunonChairman, Group GLA

Investor Relations

Ms Sarah [email protected]

Mr Omar [email protected]

Tel: +20 22 461 1036

Shareholder Information

Corporate OfficeNile City South Tower2005A Corniche El NilCairo, Egypt 11221

Tel: +20 22 461 1111Fax: +20 22 461 9400

www.orascomci.com

Full Listing: Cairo & Alexandria Stock ExchangeReuters / Bloomberg: OCIC.CA / ORCI EY

GDRs Listed: London Stock ExchangeReuters / Bloomberg: OCICq.L / ORSD LI

Management and corporate information

designed by dmicreative + 44 (0) 20 7993 2583

Business segments and activities

Construction Group

OCI Construction ActivitiesRegional engineering, procurement and construction services

BESIX Group (50%)Global engineering, procurement and construction services

Contrack Group (100%)Engineering, procurement and construction services on U.S. government-financed projects

Cementech Limited (100%)Specialized engineering, procurement and construction services on cement plants

Orascom Road Construction (90%)Asphalt and concrete paving

National Steel Fabrication (50%)Steel cutting, bending, welding, and painting services

Alico Egypt (50%)Building facade, curtain walling, and window systems

Concessions / Industrial

Suez Industrial Development Company (60.5%)Industrial park developer and operator

Egyptian Container Handling Company (50%)Stevedoring services at Adabiya port– Sokhna Port Development Company (85%)

Stevedoring services at Sokhna port

Egyptian Basic Industries Corporation (30%)Ammonia fertilizer manufacturer

Other Building Materials

United Paints & Chemicals (50%)Pre-blended dry plaster, putty, and tile adhesives– Egyptian Gypsum Company (50%)

Gypsum manufacturer – MBT Egypt (50%)

Construction chemicals– A-Build Egypt (50.1%)

Waterproofing contractor

National Pipe Company (40%)Concrete pipe

SCIB Chemical (15%)Paints and building chemicals

Cement Group

Egyptian Cement Company (53.7%)Cement manufacturer

Algerian Cement Company (100%)Cement manufacturer

Pakistan Cement Company (62.75%)Cement manufacturer

United Cement Company (60%)Tasluja cement plant operator in northern Iraq

OCI Cimento (100%)Cement manufacturer in Turkey

Group GLA (50%)Aggregates, ready-mix concrete and cement importer in Spain

Ciment Blanc d’Algerie (100%)Cement manufacturer

Bazian Cement Company (65%)Cement manufacturer in northern Iraq

Emirates Cement Company (49%)Cement manufacturer

United Cement Company of Nigeria (UNICEM) (70%)Cement manufacturer

Sudacem (49%)Cement import terminal in Sudan

Baticim Cimento (21.6%)Cement manufacturer in Turkey

OCI Cement Trading (100%)Global cement trader

Ready Mix Egypt (100%)Aggregates and ready-mix concrete

Ready Mix Algeria (100%)Aggregates and ready-mix concrete

National Bag Company (75%)Cement, building materials and foodstuff bags

Algerian Bags Company (100%)Cement, building materials and foodstuff bags

EgyptSack (100%)Cement, building materials and foodstuff bags

Orascom Construction IndustriesNile City Tower2005A Corniche El NilCairo, Egypt 11221

Tel: +20 22 461 1111Fax: +20 22 461 9400

Annual Report 06

Documents

Transcript of Annual Report 06