Eastern Financial Statements Together With Auditor'S Report For The Financial Year Ended June 30, 2020

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EASTERN COMPANY (S.A.

E)

FINANCIAL STATEMENTS
TOGETHER WITH AUDITOR’S REPORT
FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020

1
INDEX

Description Pages

Auditor’s Report 1-2

Statement of Financial Position 3

Statement of Income 4

Statement of Comprehensive Income 5

Statement of Changes in Shareholders’ Equity 6

Statement of Cash Flows 7

Notes to the Financial Statements 8-44

-0-
Translation of Auditor’s Report
Originally Issued in Arabic

Auditor's Report

To: The Shareholders of Eastern Company (S.A.E)

Report on the Financial Statements


We have audited the accompanying financial statements of Eastern Company (S.A.E), which
comprise the statement of financial position as of June 30, 2020, the statements of income,
comprehensive income, changes in shareholders’ equity and cash flows for the year ended
June 30, 2020, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
These financial statements are the responsibility of the company’s management.
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with the Egyptian Accounting Standards and the prevailing
Egyptian laws. This responsibility includes designing, implementing and maintaining
internal control relevant to the preparation and fair presentation of the financial statements
that are free from material misstatement, whether due to fraud or error; selecting and
applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
Except for the effects of the basis for qualified opinion paragraph, we conducted our audit
in accordance with the Egyptian Standards on Auditing and the prevailing Egyptian laws.
Those standards require that we plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion on the financial statements.

-1-
Basis for Qualified Opinion
- The company management did not prepare expert actuarial study to validate accuracy
of the employees benefits as of June 30, 2020. (Note 25)
- The company management carried debit adjustments on the tobacco leaf raw materials
stock balance amounted to approximately 2 500 tons. This adjustment understated the
cost of sales and increase gross profit presented in the income statements, without
supporting documents and authorized approvals.
The company financial regulations prohibit any accounting adjustments over the
physical count discrepancies without justification. Any such adjustments must be
sanctioned by the head of costing department shared with the related parties for their
opinion and then inform the stores department about the decision. (Note 15)

Qualified Opinion
In our opinion, except for the effects of the matters described in the basis for qualified
opinion paragraph, the financial statements referred to above present fairly, in all material
respects, the financial position of Eastern Company (S.A.E) as of June 30, 2020, and its
financial performance and cash flows for the year then ended, in accordance with the
Egyptian Accounting Standards and the prevailing Egyptian laws and regulations.

Report on other Legal and Regulatory Requirements


The company maintains its accounting records as required by the Law and the statue of the
company, which agree with the accompanying financial statements. The company is in the
process of upgrading and automating its accounting and costing system. The management
conducted the inventory physical count according to normal practices and under its
responsibility.

The financial information included in the Board of Directors’ Report which are prepared
according to the requirements of Law No. 159 for the year of 1981, and its executive
regulations, is in agreement with the company’s records to the extent that such information
normally recorded.

Cairo: September 27, 2020

Auditor

Dr. Ahmed Shawki


MAZARS MOSTAFA SHAWKI

-2-
Translation of Financial Statements
Originally Issued in Arabic
EASTERN COMPANY (S.A.E)
STATEMENT OF FINANCIAL POSITION
AS AT JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)
Notes 30/6/2020 30/6/2019
ASSETS
Non - Current Assets
Property, plant and equipment (8) 5 236 863 4 951 149
Projects under construction (9) 804 710 1 249 540
Investments property (10) 9 303 9 303
Intangible assets (11) 1 674 2 989
Investments long-term (12) 20 668 120 668
Right of use leased assets (13) 79 665 107 944
Other assets (14) 765 875
Total Non- Current Assets 6 153 648 6 442 468
Current assets
Inventories (15) 5 928 230 7 956 653
Trade and notes receivables (16) 267 098 381 975
Debtors and other debit balances (17) 445 112 511 395
Trade payables - advance payments (18) 47 498 55 475
Cash on hand and at banks (19) 7 438 434 6 029 005
Total Current Assets 14 126 372 14 934 503
Total Assets 20 280 020 21 376 971
Equity
Issued and paid capital (20) 2 250 000 2 250 000
Reserves (21) 3 985 819 3 985 819
Treasury stocks (22) (432 343) --
Retained earnings (23) 1 492 707 1 540 289
Net profit for the year 3 794 249 --
Total equity 11 090 432 7 776 108
Non - Current Liabilities
Deferred tax liability (24) 210 198 185 245
Long-term employees benefits (25) 562 124 571 535
Total Non-Current liabilities 772 322 756 780
Current Liabilities

Provisions (26) 644 945 393 137


Trade and notes payables (27) 412 616 1 457 488
Creditors and other credit balances (28) 6 828 285 10 458 668
Trade receivables - advance payments (29) 156 537 56 351
Financial lease contract obligations (30) -- 93 585
Short term employees benefits (25) 50 887 --
Income tax payable 323 996 384 854
Total current liabilities 8 417 266 12 844 083
Total liabilities 9 189 588 13 600 863
Total of equity and liabilities 20 280 020 21 376 971
- The accompanying notes (from No. 1 to No. 47) are an integral part of these financial statements and
read therewith.
(Accountant/ Niveen Ali Hussein) (Accountant/ Osama Fouad Mohamed)
General Manager / Final accounts and Chief of the financial sector
financial statements
(Mr./ Mostafa Ahmed El-Mahdy) (Mr./ Hany Aman)
Chief Financial Officer Managing Director and Chief Executive
Officer
-3-
Translation of Financial Statements
Originally Issued in Arabic
EASTERN COMPANY (S.A.E)
STATEMENT OF INCOME
FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

Notes 30/6/2020 30/6/2019


Sales/Revenue (33) 14 464 795 14 025 472
Cost of goods sold (34) (8 701 587) (8 791 695)
Gross profit 5 763 208 5 233 777

Other income (35) 60 770 149 638


Sale and distribution expenses (36) (655 689) (617 140)
General and administrative expenses (37) (235 759) (190 592)
Other expenses (38) (360 186) (52 043)
Result of operating activities 4 572 344 4 523 640
Financing cost / income (39) 376 108 274 276
Other financial investments revenue
(40) 5 187 16 255
Profit before tax 4 953 639 4 814 171
Income tax and deferred tax expenses (41) )1 159 390( (1 080 867)
Profit from continued operations 3 794 249 3 733 304
Profit from discontinued operations -- --
Profit for the year 3 794 249 3 733 304
Earnings per share (EGP/share) (42) 1.60 1.55

- The accompanying notes (from No. 1 to No. 47) are an integral part of these financial statements
and read therewith.

(Accountant/ Niveen Ali Hussein) (Accountant/ Osama Fouad Mohamed)


General Manager / Final accounts and financial Chief of the financial sector
statements

(Mr./ Mostafa Ahmed El-Mahdy) (Mr./ Hany Aman)


Chief Financial Officer Managing Director and Chief Executive Officer

-4-
Translation of Financial Statements
Originally Issued in Arabic

EASTERN COMPANY (S.A.E)


STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

30/6/2020 30/6/2019
Net profit for the year 3 794 249 3 733 304
Other Comprehensive Income
Exchange differences resulting from translating the foreign
-- --
operations
Financial investments available for sale -- --
Cash flow hedges -- --
Remeasurements of defined benefit pension plans -- --
Company share of other comprehensive income from associates -- --
Income tax relating to other comprehensive income items -- --
Total other Comprehensive Income of the year after deduct tax -- --
Total Comprehensive Income for the year 3 794 249 3 733 304

- The accompanying notes (from No. 1 to No. 47) are an integral part of these financial statements
and read therewith.
(Accountant/ Niveen Ali Hussein) (Accountant/ Osama Fouad Mohamed)
General Manager / Final accounts and financial Chief of the financial sector
statements

(Mr./ Mostafa Ahmed El-Mahdy) (Mr./ Hany Aman)


Chief Financial Officer Managing Director and Chief Executive Officer

-5-
Translation of Financial Statements
Originally Issued in Arabic
EASTERN COMPANY (S.A.E)
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)
Issued and
Paid up Legal Statutory Capital Other Total Treasury Retained Net profit
capital reserve reserve reserve reserves reserves stocks earnings of the year Total equity
Balance as of July 1, 2018 1 500 000 1 116 106 1 673 498 529 911 1 210 857 4 530 372 -- 452 895 -- 6 483 267
Transferred from legal and other
750 000 (500 000) -- -- (250 000) (750 000) -- -- -- --
reserves for capital increase
Adjustment of expenses and revenues
-- -- -- -- -- -- -- 63 204 -- 63 204
from previous years
Transferred to reserves from dividends
-- 185 677 -- 19 770 -- 205 447 -- 1 024 190 -- 1 229 637
for the fiscal years 2018/2019
Balance as of June 30, 2019 2 250 000 801 783 1 673 498 549 681 960 857 3 985 819 -- 1 540 289 -- 7 776 108
Balance as of July 1, 2019 2 250 000 801 783 1 673 498 549 681 960 857 3 985 819 -- 1 540 289 -- 7 776 108
Treasury stocks -- -- -- -- -- -- (432 343) -- -- (432 343)
Remaining from boards directors
-- -- -- -- -- -- -- 7 000 -- 7 000
reward
Adjustment of expenses and revenues
-- -- -- -- -- -- -- (54 582) -- (54 582)
from previous years
Net profit for the year -- -- -- -- -- -- -- -- 3 794 249 3 794 249
Balance as of 30/6/2020 2 250 000 801 783 1 673 498 549 681 960 857 3 985 819 (432 343) 1 492 707 3 794 249 11 090 432
- The accompanying notes (from No. 1 to No. 47) are an integral part of these financial statements and read therewith.
(Accountant/ Niveen Ali Hussein) (Accountant/ Osama Fouad Mohamed)
General Manager / Final accounts and financial statements Chief of the financial sector

(Mr./ Mostafa Ahmed El-Mahdy) (Mr./ Hany Aman)


Chief Financial Officer Managing Director and Chief Executive Officer

-6-
Translation of Financial Statements
Originally Issued in Arabic

EASTERN COMPANY (S.A.E)


STATEMENT OF CASH FLOW
FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)
30/6/2020 30/6/2019
Cash flows from operating activities:
Cash sales and collection from receivables 51 969 038 52 214 998
Cash purchases and payments to suppliers (5 439 641) (7 667 408)
Salaries paid (1 912 222) (1 943 049)
Revenue from operating for others and other revenues 2 461 601 2 545 237
Proceeds from credit interest 374 216 372 153
Interest paid (657) (9 443)
Taxes and fees paid (42 861 495) (39 657 897)
Export subsidy / Grants and Subsidies 1 472 548
Proceeds from insurance claims 557 8 113
Notes payable 41 965 --
Other payments (34 601) (20 664)
Net Cash flows from operating activities 4 600 233 5 842 588
Cash flows from investing activities
Disbursement for purchasing fixed assets (projects under
(302 491) (849 622)
construction)
Proceeds from sales of fixed assets 114 12 404
Net Cash flows from investing activities (302 377) (837 218)
Cash flows from financing activities
Dividends paid (2 395 013) (2 438 741)
Disbursement for finance lease liabilities )101 299( (111 623)
Net Cash flows from financing activities (2 496 312) (2 550 364)
Foreign currency exchange differences losses and gain (59 772) (185 893)
Treasury Bills purchased )49 097( --
Treasury Bills sales 49 097 --
Investment in investment certificates 100 000 --
Treasury Stocks purchased (432 343) --
Net cash for the year 1 409 429 2 269 113
Cash and cash equivalent at the beginning of the year 6 029 005 3 759 892
Cash and cash equivalent at the end of the year (Note No. 43) 7 438 434 6 029 005
- The accompanying notes (from No. 1 to No. 47) are an integral part of these financial
statements and read therewith.
(Accountant / Mohamed Khalil Khalil) (Mr./ Mostafa Ahmed El-Mahdy)
Head of current account and financing sector Chief Financial Officer
(Mr./ Hany Aman)
Managing Director and Chief Executive
Officer

-7-
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

Translation of Notes to Financial Statements


Originally Issued in Arabic
EASTERN COMPANY (S.A.E)
NOTES TO THE FINANCIAL STATEMENTS
AS OF JUNE 30, 2020

1- COMPANY
1.1 Company’s commercial name:
Eastern Company (S.A.E) Located in Giza.
1.2 Establish date and location:
- The Company was established on 12/7/1920 in Giza city - the Arab Republic of
Egypt.
- The Company was registered in the Commercial Register under No. 6069.
- The Company located at the sixth industrial zone – Oasis Road plots numbers 1
(87 to 98) - Fifth zone - 6th of October City - Giza.
1.3 Purpose
- The Company main activities are manufacturing and trading of Tobacco leaf, its
products and modern smoking alternatives and accessories/ practicing any
investment, financial, commercial, industrial, agricultural or service activities
(except all relevant provisions of the capital market according to the Law no. 95
for the year of 1992 with the commitment of the company to adjust its situation in
accordance with the provisions of the Law No. 120 for the year of 1982.
- Real estate Ownership and Construction, purchasing and dividing lands for the
purposes of utilization, rental or sale, import, export and commercial agencies.
- Establish, participate in establishing, purchasing of companies, contribute to them
even if these entities are practicing its activities or part of it inside or outside the
Arab Republic of Egypt, in order to develop or achieve any of its goals in
accordance to the provisions of the laws, regulations and current decisions. Taking
into consideration issuing the necessary licenses to practice these activities. The
Company may participate or cooperate in any way with other companies which
have similar or non-similar activities.
1.4 Main shareholders
The Holding Company for Chemical Industries owner of 50.5% from the company’s
shares as at 30/6/2020.
1.5 Trading Shares on the Stock Exchange Market:
The Company's nominal shares are traded in the Egyptian Stock Exchange market.
1.6 Company duration:
The Company's duration is Fifty years starting from 2/6/2019 till 1/6/2069 as from the
date of registration in the commercial registration.
1.7 Date of issuing the financial statements:
The financial statements have been approved by the board of directors on 23/9/2020.

-8-
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)
1.8 Company’s financial year:
- From 1/7/2019 till 30/6/2020.
- Shares Percentage of the Holding Company for Chemical Industries have been
decreased from 55% to be 50.5%, after offering a percentage of 4.5% (maximum
number of 101 250 000 shares for Public & Private Offering IPO.
- Private Placement percentage was 95% from the total offered shares with number
of 96 187 500 shares, the share price was 17 EGP per share with total amount of
EGP 1 635 187 500.
- Public Placement percentage was 5% from the total offered shares with number of
(5 062 500 shares), the share price was 17 EGP per share with total amount of
EGP 86 062 500.
- Public & Private Offering has been covered by total amount of
EGP 1 721 250 000.
- According to the Extra-ordinary General Assembly meeting held on June 2, 2019
the shareholders approved to transfer the company and its legal statue from the
Public Business Sector Companies (Law no. 203 for the year of 1991) to be under
the Corporate Company Law no. 159 for the year of 1981, and its executive
regulation.
This is a result of decreasing the shareholder participation of the Holding company
for Chemical Industries percentage of shares to less than 51% of the share capital
of Eastern Company.
approving the new Articles of association which prepared in accordance with the
Corporate Law no. 159 for the year of 1981 and its executive regulation as it was
presented to the General Assembly.
- The Extra-ordinary General Assembly held on June 2, 2019 approved the
company’s New Articles of Association.

2- BASIS OF PREPARING FINANCIAL STATEMENT:


2/1 Accounting Standards:
- The Financial Statements have been prepared in accordance with the Egyptian
Accounting Standards (EAS) and according to the relevant laws and regulations.
- The Minister of Investment and International Cooperation issued Decree No. 69
for the year of 2019 to modify some provisions of the Egyptian Accounting
Standards which issued by the Minister of Investment Decree No. 110 for the year
of 2015.
- The company applied the accounting treatment regarding financial leasing
according to the Egyptian Accounting Standard No. (49) Instead of the Egyptian
Accounting Standard No. (20) Which was replaced according to the latest
Egyptian Accounting Standards Modifications, which in compliance with Law no.
176 for the year of 2018 concerning “Financial Leasing and Factoring Activities”.

-9-
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

The Egyptian Accounting Standards Committee convened to review the Egyptian


accounting standard, limited review and other assurance services, the committee
formed according to the Prime Minister decree No.909 for the year of 2011 headed by
FRA Chairman Dr / Mohamed Omran to study the effect of Ministerial decision No.69
for the year 2019, which has been issued with the purpose of adding and amend some
of the Egyptian Accounting Standards, to be applied at the beginning of the year 2020.
Due to the current circumstances of the outbreak of COVID19 and its economic and
financial implications, as well as the application of preventive procedures as a
response to the Covide 19 spread, and the restrictions on the presence of human
resources in its full capacity on a regular basis in companies.
The decree No. (1871) for the year 2020 issued to postpone the application of the new
Egyptian Accounting Standards and the accompanying amendments to be effective as
of January 1st, 2021.

2/2 Basis of Measurement:


- The financial statements have been prepared in accordance with the historical cost
methods and based on the company continuity.
- The financial statements have been prepared according to the accrual basis except
the cash flows which is prepared according to the cash basis.
- The cash flows statements have been prepared according to direct method.

2/3 Functional and presentation currency:


- The company's financial statements presented in Thousand Egyptian Pound, while
the transaction currency is the Egyptian Pound.
2/4 Use of Estimates and Judgment:
- In the application of the company's accounting policies, management is required
to make judgments, estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other sources. The estimates
and associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from these estimates.
2/5 Fair value measurement:
- The fair value for financial instruments is determined based on either the market
value or similar financial instrument at the date of the financial statements without
deducting any future selling costs.

- The financial assets value is determine based on the current purchase prices of these
assets, while the financial liabilities value are determine based on the current prices
which can settle these liabilities.

- In case of an active market to determine the fair value of financial instruments, the
fair value will be estimated by the different evaluation methods considering the
latest transaction’s prices or other similar instruments are guided, use the
discounted cash flows method or any other evaluation method that result a reliable
values.

- 10 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)
-

- Estimates of the future cash flows based on the best the management estimates
when use the discounted cash flows as an evaluation method , and determine the
used discounted rate according to the prevailing market price as at the financial
statements date of similar financial instruments of their nature and conditions.

The following are main items that the company applied estimation and
judgments:
 Useful life of fixed assets
 Provisions
 Deferred tax assets
 Deferred tax liabilities

3- SIGNIFICANT ACCOUNTING POLICIES:


The Significant Accounting Policies applied in a consistent base throughout the
presented financial periods in these financial statements.

3/1 Foreign Currencies translation:


- The company’s functional and reporting currency is the Egyptian pound.
- Transactions denominated in foreign currencies during the year are translated to
Egyptian pounds at the prevailing rates as at the transaction date. At year-end,
monetary assets and liabilities denominated in foreign currencies are translated to
Egyptian pounds using the prevailing rates as at that date. Translation differences
are included in the income statements.

3/2 Fixed Assets and Depreciation:


- Items of property plant and equipment are stated at cost and presented in the
statement of financial position net of accumulated depreciation and accumulated
impairment losses, if any.
- The items of property plant and equipment are depreciated according to the
straight line method and the depreciation cost is charged to income statement over
the useful life for each item.

3/2/1 Replacement cost:


- The replacement cost incurred for any component of the items of property
recognized as part of the asset cost after disposing the carrying amount of that
component.

Estimated useful live Estimated useful lives (year)


Buildings 25-50
Machines 10
Vehicles 5-8
Tools 5
Furniture 4-10

- 11 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

3/3 Projects under construction:


- Projects under construction are recognized initially at cost. Cost includes all
expenditures directly attributable to bringing the asset to the working condition for
its intended use. Projects under construction are transferred to the fixed assets at
cost when they are completed and are available for the purpose for which they
were acquired.

3/4 Investments:
- Investments property are recorded at cost however, when there is impairment, the
book value should be adjusted with the impairment value and charge impairment
to the income statement.
- Government bonds are recorded at cost and income from bond charged to the
income statements.

3/5 Other assets:


- The other assets are represented in the licenses cost which expected to generate
future economic benefits for the company and the company contribute in
establishment of non-owned assets to serve its purposes.
- The other assets are recognized initially at cost after deduction amortization. Cost
includes all expenditures directly attributable to bringing the asset to the working
condition for its intended use.
- The amortization percentage for the non-owned assets 10%, J.D program
amortization 25%, H.R program amortization 25%, and the Microsoft program
amortization 25%,

3/6 Inventories:
- Inventories of raw materials and inputs materials are stated at cost, and the raw
materials consumptions are evaluated based on weighted average cost.
- Inventories of finished goods are stated at lower of cost or net realizable value.
- The company follow the continuing count method.
- The inventories of Tobacco leaf materials are sufficient for around 13 months.
- The inventories balance of finished goods is sufficient to meet the market needs 2
day.
- The raw materials inventory includes Tobacco leaf in customs warehouses
amounted to 2 912 million Egyptian pounds and the due customs duties must be
paid upon receipt from warehouses.

3/7 Cash on hand and at banks:


- Cash and cash equivalents are comprised of cash on hands, at banks and time
deposits with maturity of three months or less.

- 12 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

3/8 Provisions:
- Provisions are recognized when the company has a present or constructive
obligation as a result of past events, and it is expected that the company will require
to settle the obligation, and a reliable estimated be made for the amount of the
obligation.
- The provisions balance are revised at financial statements date and adjusted
according to the best estimates (if necessary)
3/9 Capital:
- Paid up and issued capital represent the nominal value per share multiplied by the
number of shares as of financial statements date.

3/10 Employees benefits:


a. Short-term employee benefits:
The short-term employee benefits are recognized as expense when providing the
related service, the expected payment is recognized as a liability when the
Company has a legal or implicit obligation to pay this amount against a service
which has been provided by the employee and the obligation can be reliably
measured.

b. Share-Based Payments:
The fair value of shares-based payments paid as Equity instruments (at the grant
date ) is recognized as expense, and as a corresponding increase in equity during
the maturity period, the amount recognized as an expense is adjusted to reflect the
number of grants when the related services and performance conditions expected
to be met, therefore the recognized amount has to be based on the number of
granted equity instruments that met the relevant terms of service and non-market
conditions of performance on the maturity date, regarding the granting instruments
of equity on non-entitlement terms, the fair value of share-based payment (at the
date of granted) is recognized on paid of equity instruments is measured to reflect
these conditions and there is no subsequent adjustment to the differences between
the expected and actual results.

c. Defined Contribution Plans:


Defined Contribution Plans are recognized as an expense when providing the
relevant service, the prepaid contributions is recognized as an asset to the extent
that the down payment leads to reduce the future payments or cashback. the
company contribute in the government social insurance system for employees
interest according to social insurance law no. 97 for the year 1975, both of
employees and employers contribute according to this law by fixed percentage
from the salaries, the company committed by its contribution, the company's
contributions are charged to the Company profits or losses according to the accrual
basis.

- 13 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

d. Employee End of Service Benefits:


The company recognizes the Employee End of Service Benefits as an expense on
one of the following two dates, whichever comes first, when the company can no
longer cancel those benefits or when the company recognizes the costs of
restructuring, and when it is not expected that the benefits will be fully settled
within 12 months after the date of preparing the financial statements, It must be
deducted at a discount rate - before taxes to reflect the time value of money.
3/11 Reserves:
- The company’s reserves are formed by law or the company’s article of association
to support the company’s financial position. These reserves are used based on
approval from the general assembly upon the board of directors’ request to be used
in the benefit of the company.
3/12 Buy back shares or reissue ordinary shares (Treasury Stock):
When the shares of the issued capital are buyback, the amount paid for the buyback
shares is recognized including all direct costs related to the buyback by reducing
the equity, the buyback shares are classified as treasury stock and presented
deducted from the equity, when selling or issuing the treasury shares, the collected
amount is recognized as an increase in the shareholders' equity and the surplus or
deficit resulting from the transaction has to be presented as a shares premium.
3/13 Borrowing Cost:
- Borrowing cost are initially recognized upon receipt the loans or credit facilities,
current portion are classified in the current liabilities unless that the company has
the right to reschedule the payment of loans for more than one year after the date
of the financial position which will be classified as long-term loan in the long-term
liabilities.
3/14 Revenue:
a. Revenue of Sales
- The revenue of sales is recognized according to the sales process and delivering
the goods to the customers when the conditions in the Egyptian Accounting
Standard no. (11) accomplished as follows:
 The entity must transfer the risks and basic returns of ownership of the goods
to the buyer.
 The entity shall not retain the right of continuous administrative intervention
to the degree normally associated with ownership or effective control over the
goods sold.
 The revenue can be accurately measured.
 Must have the forecasting for the flow of economic benefits for the transaction
to the entity.
 The possibility of determining the value of the costs incurred or to be borne
by the entity in relation to the transaction accurately.

- 14 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

- The bonds revenue are recognized when the following conditions are occurred:
 The flow of economic benefits from the transaction is highly expected.
 The revenue can be reliably measured.
 The Minister of Investment and International Cooperation issued Decree
No. 69 for the year of 2019 to modify some standards of the Egyptian
Accounting Standards issued by the Minister of Investment Decree No. 110
for the year of 2015, The new Egyptian Accounting Standard no (48)
revenues from contracts with customers replace the standards No. (8 & 11).

b. Revenues from Operating for other parties:


- The operating services for others are recognized according to the conditions in the
Egyptian Accounting standard no. (11) as follows:
 The revenue can be accurately measured.
 Must have high expectations of economic benefits flow to the entity.
 The degree of completion of the transaction can be accurately measured at the
financial statements date.
 The costs incurred in the production and the costs needed to accomplish could
be accurately measured.
c. Credit Interest Revenue:
- The Credit Interests revenue are recognized using the effective interest rate, the
revenue of credit interest is recorded in the income statement.
3/15 Income tax:
- The income tax on the profit for the period comprises income tax for the period and
deferred tax, and it should be recognized in the income statement, the income tax
on the net profit is recognized by using the current tax price rate as of the financial
statements date.
- Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply in the period in which the liability is settled or the asset realized, based on
tax rates and tax laws that have been enacted by the balance sheet date. The
measurement of deferred tax liabilities and assets reflects the tax consequences that
would follow from the manner in which the Company expects, at the reporting date,
to recover or settle the carrying amount of its assets and liabilities.
3/16 Accounting for grants and subsidies:
- The company recognized revenue from the export subsidy (grants and subsidies) in
income statements and the donated assets recorded as grants in the fixed assets item
and charge the depreciation related to income statement.
3/17 Financial leasing:
- The profit results from sales with lease back for machinery with financial lease are
recognized over the term of the lease contract.
- The rental value and the maintenance expenses are recognized as an expense in the
income statement till the year 2017/2018, and the accounting treatment was
changed to comply with the Amended Egyptian Accounting Standards for 2019 and
the Law no. 176 for the year of 2018 for financial leasing and factoring activities.

- 15 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

3/18 Operating lease:


- Total payments for operating lease contracts are distributed minus any deductions
obtained from the lessor over the course of the contract period and the income
statement for the period is incurred its share of the lease on a time distribution basis
according to the accrual principle.
3/19 Dividends:
- Dividends are recognized when shareholders have the right to receive the amounts
of these dividends.
3/20 Employees' profits share:
- Employees' profits share should be paid without exceeding their total annual basic
salaries in accordance with the law.
3/21 Contingent liabilities:
Amounts in Thousands
Company contingent liabilities
of Egyptian Pounds
letters of guarantee relevant to Cairo and Alexandria customs 253 794
Letter of credits 403 376
Total 657 170

4- FINANCIAL INSTRUMENTS
4/1 Credit Risk:
- The financial instruments risk represents the inability to pay due to liquidity issues
of debtors with credit term and cash and deposit at banks except for cash at safe.
- The company management to control credit risk deals with reputable financial
institution with high credit and stable rating.
4/2 Liquidity Risk:
- The liquidity risk is the risk that when the company cannot settle its liabilities or
financial commitments on due dates, the Company's approach regarding managing
liquidity is to ensure that it has a sufficient liquidity to meet its liabilities on its due
dates in both normal and critical circumstances without incurring unacceptable
losses or damaging the Company's reputation, the company also ensures the cash is
available on request to meet the expected operating expenses for an appropriate
period of time including the financial obligations and disposal the potential impact
of acute and unpredictable conditions such as natural disasters.
Also the company invests the available excess cash from daily cash receipts in the
best aspects of short-term investment
4/3 Market Risk:
- Market risk represents in the changes in the market prices such as foreign exchange
currencies and interest rate.
- The purpose of managing market risk is managing and controlling the market risk
exposure within the acceptable parameters with maximizing revenue.

- 16 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)
(a) Foreign currencies risk: The foreign currency risk is represented in changes in
foreign currency exchange rates, which affect the payments and receivables in
foreign currencies, as well as evaluating assets and liabilities in foreign currencies
which the company management facing it through setting policies such as the
value of what the company gets from the spare parts local manufacturing and
capital equipment, purchasing from suppliers agents, etc.

The Foreign currencies balances as of June 30, 2020:


Assets Liabilities In thousands
Dollars 117 054 22 398 94 656
Euro 831 2 670 (1 839)
Sterling pound 189 92 97
Swiss Franc 58 -- 58

(b) Interest rate risk: The Company is dealing with various banks with interest rates
that enable it to reduce the risk of changes in interest rates, whether debit interest
or credit interest through competition among banks in order to get the best rates
based on the large business size.
- Interest-bearing bank deposits during the financial time period referred to which
are the total deposits in local and foreign currencies.
- The fair values for the financial instruments are not materially different from their
carrying values at the end of the financial period.

4/4 Capital Management:


- The board of directors’ strategy is to maintain strong capital in order to keep the
trust of investors, creditors and the market, as well as to meet future developments
of activity. The Company's Board of Directors is monitoring the return on capital
and the level of dividends. There were no changes in the company's capital
management strategy during the year; also the company is not subject to any
external requirements imposed on its capital.

5- RELATED PARTIES DISCLOSURE:


- The Holding Company for Chemical Industries hold 50.5% from company’s shares
as of 30/6/2020.
- Related parties are treated on the same basis as others.
- The company during the period from 1/7/2019 till 30/6/2020 has incurred salaries,
allowances, and bonuses for members of the high management and the company's
board of directors.
- The General Company for Paper Industry (Rakta) with amount of 48 381 Thousand
Egyptian pounds and Moharram Industrial Printing Co. with amount of
4 070 Thousand Egyptian pounds.
- The Holding Company for Chemical Industries did provide a set of banks
guarantees and non-bank guarantees to some governmental agencies (Customs
Authority - Customs Taxes - Egyptian Tax Authority "Value Added Tax") for the
favor of company amounted to 1 470 000 thousand Egyptian pounds.

- 17 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)
6- IMPAIRMENT OF FINANCIAL ASSETS:
- Periodically the company management at financial statement date assess if there is
an objective evidence that a financial asset or a group of assets is impaired or not.
Financial assets or a group of assets can be considered as an impairment asset. If
there is any objective evidence referring to such impairment which results from one
or more events occurring after the initial recognition of the asset and have an impact
on the estimated cash flows of a financial asset or group of financial assets that can
be estimated reliably.
6/1 Non-derivative financial assets:
Non-derivative financial assets is valued at fair value through profit or loss,
including shares that are accounted by the equity method, the company estimates
at the end of each financial period whether there is indicators for impairment in the
value of the asset.
Indicators of impairment of the asset includes:
- Non-payment or late payment by a debtor.
- Rescheduling amounts due to the group on conditions that the company would
not have accepted in other circumstances.
- Indicators of bankrupt the debtor or issuer.
- Adverse changes in the repayment status of borrowers or issuers.
- The disappearance of the active market for the financial asset due to financial
difficulties.
- The presence of clear data indicating a measurable decrease in the expected
future cash flows from the group of financial assets.
- Investment in the equity instrument includes objective evidence of important
or continues impairment in fair value from cost.
Financial assets recognized at amortized cost
The company assesses whether there is objective evidence of an impairment in the
value of these assets individually or at the aggregate level of all assets that represent
relative importance on their own, they are evaluated in relation to individual
impairment, and in the absence of evidence of the impairment of these assets
individually, they are evaluated collectively with respect to any impairment a value
has occurred and has not yet been identified on the individual assets, assets that are
not individually considered as relatively important assets are assessed collectively
for any impairment in value for the purposes of the aggregate assessment of assets,
assets with similar risk characteristics are grouped together.
When assessing the impairment at the aggregate level of the assets, the company
uses historical information on the timing of recovery for the loss arising from the
impairment and the value of the losses incurred, and makes adjustments if the
current economic and credit conditions indicate that effective losses are more likely
to be more or less than expected with historical indicators.
Impairment losses are calculated as the difference between the asset's carrying
amount and the present value of expected future cash flows discounted by the
effective interest rate of the financial asset, the amount of the loss is recognized in
profit or loss, the accumulated impairment is deducted to the carrying amount of
the asset.

- 18 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

If the company considers that there are no possibilities for reversing the loss
resulting from the impairment of the asset's value, then write-off the related value.
In case of the subsequently decrease in impairment loss value, and the decrease can
be related objectively to an event occurring after the impairment loss was
recognized, then the previously recognized impairment loss is reversed through
profit or loss.
Financial assets available for sale
Impairment losses are recognized in available-for-sale financial assets by
reclassifying previously recognized losses under other comprehensive income
items that are accumulated in the fair value reserve and recognized in profit or loss.
The amount of accumulated loss excluded from equity and recognized in profit or
loss is the difference between the acquisition cost (net of any amortization or
payment of any amount of the principal) and the fair value less any loss of
impairment for this financial asset that has previously been recognized in profit or
loss.
When the fair value of the performance of a debt, which classified as available for
sale are increased in the subsequent period, and this increase is related to an
objective relation to an event that occurred after the recognition of the impairment
loss in profit or loss, then this impairment loss is reversed in profit or loss.
Impairment losses recognized in profit or loss are not reversed for any investment
in an equity instrument classified as available for sale in profit or loss.
Investments accounted for using Equity Method:
Impairment losses of financial investment which accounted using the Equity
Method are measured by comparing the carrying amount with the recoverable
amount, and the impairment losses are recognized in profit or loss, the impairment
loss is reversed when detailed changes occur in the estimates used to determine the
recoverable amount.
6/2 Non-Financial assets:
The carrying amounts of the company’s assets, except inventory, are reviewed at
each balance sheet date to determine whether there is any indication of impairment.
If any such indication exists, the asset’s recoverable amount is estimated. The
recoverable amount of the asset is assessed if there is any indication to impairment.
The recoverable value of the good will and intangible assets which have indefinite
useful lives or not available to be used should be assessed at the date of each
financial statements.
An impairment loss is recognized if 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 the
income statement.

- 19 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)
The recoverable amount of an asset or cash-generating unit is the greater of its value
in use and its fair value less costs 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 asset.
The impairment losses of other assets recognized in the previous periods are
reviewed at the date of each financial statements to determine the indication to the
decrease of loss or that it does not 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.

FINANCIAL INSTRUMENTS
The company classifies non-derivative financial assets among the following
categories: Financial assets classified at fair value through profits or losses,
Investments held to maturity, Loans, debts and financial assets available for sale.
The company classifies non-derivative financial liabilities between the following
categories:
Financial liabilities classified at fair value through profit or loss and a group of
other financial liabilities.

a. Non-derivative financial assets and financial liabilities - recognition and


derecognition:
The company initially recognizes the loans, debts and debt instruments issued
on the date of its creation. All financial assets and other financial liabilities are
initially recognized on the date of the transaction when the company becomes
a party to the contractual provisions of the financial instrument.
The company derecognizes the financial asset when the contractual right to the
cash flows from the financial asset expires, or it transfers the contractual right
to receive cash flows from the financial asset in a transaction in which all the
risks and rewards of ownership of the financial asset have been transferred
substantially.
Or if the company does not transfer not retain substantially all the risks and
rewards of owners of the financial asset and the company does not retain control
of the transferred asset, it derecognize the financial assets and recognize
separately as assets or liabilities any rights and obligations created or retained
in the transfer.
The company remove a financial liability when, it is extinguished, the
obligation specified in the contract is discharged or cancelled or expires.
A financial asset and liability is offset and the net offset is presented in the
financial position when, and only when the company currently has the
enforceable legal right to offset the recognized amounts and has the intention
to either make a settlement on the basis of the net amounts or recognization of
the asset and settlement of the liabilities simultaneously.

- 20 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)

b. Non-derivative financial assets - measurement:


Financial assets held at fair value through profit or loss:
The financial asset is classified at fair value through profit or loss if it is
classified as an asset held for trading or it is classified at initial recognition to
be measured at fair value through profit or loss, the transaction cost directly
related to the acquisition or issue of the financial asset is recognized directly
within the profit or losses when incurred.
Financial assets measured at fair value are measured through profit or loss at
fair value, and changes in fair value are recognized, including any rewards or
dividends.
Investments held to maturity:
These assets are measured at the initial recognition by the fair value plus the
cost of the transaction directly related to the acquisition or issue of the financial
asset after the initial recognition, they are measured at the amortized cost using
the effective interest method.
Loans and receivables:
These assets are measured at the initial recognition by the fair value plus the
cost of the transaction directly related to the acquisition or issue of the financial
asset after the initial recognition, they are measured at the amortized cost using
the effective interest method.
Available-for-sale financial assets:
These assets are measured at initial by of the fair value in addition to the
transaction cost directly related to the acquisition or issuance of the financial
asset after the initial recognition. Changes in the fair value except for
impairment losses and foreign exchange gain and losses are recognized in other
comprehensive income.

c. Non-derivative financial liabilities - measurement:


The financial obligation is classified at fair value through profit or loss if it is
classified as a liability held for trading purposes or is classified at initial
recognition to be measured at fair value through profit or loss, the transaction
cost directly related to the acquisition or issue of the financial obligation is
recognized directly within the profit Or losses when incurred, Financial
liabilities measured at fair value are measured through profit or loss at fair
value, and changes in fair value are recognized, including any interest expense
in profits or losses. Other non-derivative financial liabilities are initially
measured at fair value, less any costs directly related to the acquisition or issue
after the initial recognition, these liabilities are measured at amortized cost
using the effective interest method.

- 21 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)
contingent assets
The potential assets represent the compensation values issued in favor of the
company according to the following statement:
Value (in millions)
A judgment was issued in Case No. 9869 of 1994 (total civil) 12
Cairo appeals to compensate the company, and that was during
the 10/5/2017 hearing and until this date, the judgment has not
been implemented.
A judgment was issued in Case No. 3650 Civilians, College of 42
Giza, on December 25, 2019, and to date, the judgment has not
been implemented
Total 54

7- TAX POSITION
7/1 Corporate Tax:
- The company was inspected till the financial year 2014/2015.
- The financial year 2015/2016 and 2016/2017 is under inspection.
- The company submit the tax return till 2018/2019 according to the income tax law
no. 91 for 2005 om due dates.
7/2 Stamp duty fees:
- The company was inspected till the financial year 2015/2016.
- The financial year 2016/2017 is not inspected
7/3 Payroll Tax:
- The company was inspected till the financial year 2012.
- The company has received for years 2013, 2014 and 2015 form no. (38) amounted
to 209 238 thousand Egyptian Pounds and it has been objected upon the estimated
inspection of the tax office on 3/8/2017 and the company required to re-inspecting
the file.
7/4 Value Added Tax:
- The company is paying the monthly value added tax amount (VAT) according to
the Law no. 67 for the year of 2016, and the company was inspected till the financial
year 2013/2014.
- The company was inspected till financial years 2014/2015 and 2015/2016 and the
notification was made with a form no. 15 dated 2/3/2020 and this form was
contested on legal dates and transferred to the internal committee.
- The years of 2016/2017, 2017/2018 and 2018/2019 are under inspection.
7/5 Property Tax:
- The company paid the accrued preporty according to claims received from real state
tax authorities for the year of 2020.

- 22 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds unless otherwise stated)
8- PROPERTY, PLANT AND EQUIPMENT
(Amounts expressed in Thousands of Egyptian Pounds)
Machines Furniture
and and office
Fixed assets movement statement: Lands Buildings equipment Vehicles Tools equipment Total
Cost as of 1/7/2018 218 103 3 498 629 4 455 517 329 215 161 842 771 833 9 435 139
Additions during the year -- 39 204 563 873 20 365 5 467 16 844 645 735
Disposals during the year -- ) 1 984( ) 19 697( ) 168( )4 435( ) 322( )26 606(
Total Cost as of 30/6/2019 218 103 3 535 849 4 999 693 349 412 162 874 788 355 10 054 286
Cost as of 1/7/2019 218 103 3 535 849 4 999 693 349 412 162 874 788 355 10 054 286
Additions during the year 83 930 48 676 872 7 809 3 793 70 282 842 734
Disposals during the year -- -- )5 778( -- )36( )123( )5 937(
Total Cost as of 30/6/2020 302 033 3 535 897 5 670 787 357 221 166 631 858 514 10 891 083

Accumulated depreciation and impairments


movement:
Accumulated depreciation as of 1/7/2018 -- 704 902 2 977 550 252 764 138 589 539 074 4 612 879
Additions during the year -- 90 496 341 855 27 912 12 232 58 959 531 454
Disposals during the year -- )1 218( )13 320( )98( )4 305( )321( )19 262(
Impairment of fixed assets -- (21 934) -- -- -- -- (21 934)
Accumulated depreciation and impairment -- 772 246 3 306 085 280 578 146 516 597 712 5 103 137
as of 30/6/2019
Accumulated depreciation as of 1/7/2019 -- 772 246 3 306 085 280 578 146 516 597 712 5 103 137
Additions during the year -- 95 015 365 526 16 495 8 282 65 583 550 901
Disposals of the year -- -- )5 768( -- )36( )23( )5 827(
Impairment of fixed assets -- -- 6 009 -- -- -- 6 009
Accumulated depreciation and impairment -- 867 261 3 671 852 297 073 154 762 663 272 5 654 220
as of 30/6/2020
Property, plant and equipment assets of 218 103 2 763 603 1 693 608 68 834 16 358 190 643 4 951 149
30/6/2019
Property, plant and equipment assets of 302 033 2 668 636 1 998 935 60 148 11 869 195 242 5 236 863
30/6/2020
On 24/11/2019 the company’s board of director decided in its meeting the decision No. 10 for 2019, going through procedures to re-exploit
the company’s stores and factories of Al-Zumar Street and change its activities to a hospital and tourism services this is in exchange for paying
the value of the improvement which amounted 83 930 Thousand Egyptian Pounds, to be paid in two installments:
 First installment 50%upon the issuance of the approval of the Chairman of Giza City Council.
 Second installment remaining 50% will pay 1/12/2020

- 23 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

On 15/2/2020 the company was have the approval of the Exceptions Committee of the
Housing and Utilities Directorate in Giza was obtained and initial approvals of (water,
sanitation, civil defense, traffic, electricity) were obtained and the approval to construction
of the project was paid, and the first installment was paid upon obtaining this approval.
* The fully depreciated property, plant and equipment as of June 30, 2020 is 2 728 712
Thousand Egyptian Pounds include:
* Fully depreciated property, plant and equipment still in use amounted to 2 076 317
Thousand Egyptian Pounds (including machines and equipment amounted to 1 294 832
Thousand Egyptian Pounds)
* Fully carried depreciated fixed assets and others under scrap process amounted to
613 762 Thousand Egyptian Pounds.
* The fixed assets are including approximately 109 381 Thousand Egyptian Pounds
representing net donated assets as following:
Amounts expressed in Thousands of
Donated Assets
Egyptian Pounds
Production’s machinery 104 990
Production Utilities, equipment of Services 2 577
Transportation 21
Furniture 1 793
Total 109 381

* Deduct amount 6 009 Thousand Egyptian Pounds from Production Utilities, equipment
which represent impairment in line in Talbieh and this reduction appeared in note (37) of
other expenses in the income statement
Book value
in million
The Manesterly buildings are being used in part, and the necessary
20
licenses are being extracted for its use as a commercial mall.
Giza buildings an optimization study is underway. 4
Al-Zomor buildings and stores are currently obtaining the necessary
0.9
licenses for their use as a hospital.
Total book value 24.9

Financial Leasing:
- The Decree of Minister of Investment and International Cooperation No. 69 of 2019
was issued to modify some provisions of the Egyptian Accounting Standards which
issued by the Minister of Investment Decree No. 110 of 2015 by replacing the Financial
Leasing Standard no. 20 (old one) by a new one numbered (49) covering the Financial
Leasing Contracts.

- 24 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

- The financial leasing contracts were treated by the Egyptian Accounting Standard no.
(49) according to the Amended Accounting Standards for the year of 2019, This
amended standard applied for the leasing contracts which were under the finance
leasing law no. 95 for the year of 1995 and its amendments, these contracts were treated
by the Egyptian Accounting Standard no. (20) which was stating that “the accounting
rules and standards related to process of the finance leasing” and the finance leasing
contracts which established under the law of organizing the finance leasing and the
factoring activities no. 176 for the year of 2018 starting from the beginning of the
annual report time period which in the law no. 95 for 1995 was canceled and instead of
the law no. 176 for 2018 was issued.
- A contract was signed with Al-Ahly Company for Financial Leasing to sell and rent
some machines with total cost of (398 324 153 Egyptian Pounds) by changing interest
rate (average price of corridor + 1.2%) on 28/6/2012 for 6 years in addition to two years
as an extra years, after that time period the total rental amount should be paid for
72 months amounting to almost 8 404 Thousand Egyptian Pounds.
- The ownership of these machines will devolve to the company at the end of contract
with a memorial amount of one Egyptian Pound.
- The last installment of the lease value of the financial leasing contract was paid with
QNB Al-Ahly Financial Leasing Company on 28/6/2020.
9- PROJECTS UNDER CONSTRUCTION
In thousands
30/6/2020 30/6/2019
Projects 719 110 916 612
Advance payments an LCs 85 600 332 928
Total 804 710 1 249 540
 Projects investment Formation include:
30/6/2020 30/6/2019
Buildings 59 103 1 359
Machinery 540 735 746 917
Tools 626 --
Transportation 15 831 10 134
Office equipment and installations* 102 815 158 202
Total 719 110 916 612

* The amount 4 907 Thousand Egyptian Pounds has been deducted from the Projects
account of typewriters and calculators for the impairment of the J.D Edwards
program.
 Advance payments an LCs Investment Formation include:
30/6/2020 30/6/2019
Advance payments fixed assets 82 480 79 215
Goods in transit - fixed assets 640 49 671
LCs of fixed assets 2 480 204 042
Total 85 600 332 928

- 25 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

10- INVESTMENTS PROPERTY


30/6/2020 30/6/2019
Land of Gizert Eldahb in Elbahr Elaazam - Giza 8 894 8 894
Land of Alsalom factory - Alexandria 404 404
Land of Jan Marchena 5 5
Total 9 303 9 303

* The plot of land owned by the company located at 41 Abu Al-Dardaa Street,
El-Laban, Alexandria Governorate, was put up for sale by public bidding for the
closed envelopes system on Thursday 30/1/2020, as a total amount 51 743
Thousand Egyptian Pounds, the payment will be as follows:

- Supplying the initial insurance amount of 500 Thousand Egyptian Pounds to the
company’s treasury after an auction is awarded.

- The initial insurance amount must be completed up to 25% of the sale value within
fifteen days from the date of award notification.

- 25% of the sale value shall be paid within 3 months from the date of award
notification.

- The remaining 50% must be paid in 12 installments for a period of three years, in
equal installments, provided that an interest equivalent to the interest of the Central
Bank is added to the declared borrowing on the amounts of these installments as
compensatory interest.

- The preliminary sale contract is released upon payment of 50% of the total value of
the sale.

11- INTANGIBLE ASSETS


30/6/2020 30/6/2019
Computes’ program and H.R software license update 33 755 33 755
Amortization (31 732) (30 417)
Refunded Sales tax (349) (349)
Net 1 674 2 989
* The estimate useful life of the intangible assets 4 years has been re-evaluated by the
company technicians.

- 26 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

12- INVESTMENTS LONG-TERM


30/6/2020 30/6/2019
Deposit in the Central Bank of Egypt invested in
20 663 20 663
government bonds*
Investments in other companies shares 5 5
Investments in foreign securities** 23 23
Investment in investment certificates*** -- 100 000
Total 20 691 120 691
Less impairment in securities 23 23
Net 20 668 120 668
* Cash deposit in the Central Bank of Egypt to be invested in Governmental bonds and
National Investment Bank against 5% of the surplus from the prior years of issuing the
law no. 203 for the year of 1991, the cash deposit yields a return of 3.5% annually.
** Investments in foreign securities
*** Represent a new Suez Canal investment certificates by returns of 15.5% annually,
its maturity expired on 9/2019.

13- RIGHT OF USE LEASED ASSETS


30/6/2020 30/6/2019
Right of use leased assets 159 330 143 926
Accumulated depreciation right of use leased assets (79 665) (35 982)
Net 79 665 107 944

14- OTHER ASSETS


30/6/2020 30/6/2019
The company's contribution to the project of filling,
10 537 10 537
improvement and coverage of the El Zomor Canal
Expense of providing Gas to the new industrial
16 016 16 016
complex in 6th October city
Expense of providing Gas to Moharem Bek 348 348
Expense for to external roads 756 756
Retriever from some customers who benefit from
(1 403) (1 403)
gas delivery
Amortization to date (25 489) (25 379)
Net 765 875

- 27 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

15- INVENTORIES
30/6/2020 30/6/2019
Raw materials * 645 248 608 623
Raw materials (Tobacco leaf) under customs
2 912 310 4 284 172
custody (unpaid custom yet) **
Fuel inventory 1 312 2 548
Spare parts 583 298 483 760
Packaging 1 641 177 2 271 943
Waste and scrap 2 356 1 875
Materials and spare parts under process storage 757 926
Production work in process 63 290 94 696
Finished goods 81 290 63 828
Consignment packing materials and spare parts 937 1 851
Goods in transit 5 298 11 165
Letter of Credit 62 196 133 142
Total 5 999 469 7 958 529
Less the impairment in inventory *** 71 239 1 876
Net 5 928 230 7 956 653
- The company management used to in previous years to record the inventory (in) from
the tobacco leaf raw material under custom custody at the lower of cost according to
the quantities as per supplier invoice or the actual quantities weight per customs.

- The Egyptian Custom Authority select a sample from tobacco leaf raw material
shipment to be weighted. Customs make adjustment to increase weights in case of the
sample selected from tobacco leaf cartons is lower than standard cost recorded on the
cartons. According to the Minister of Finance decree No. (189) for year 2008 amending
some of the executive regulation articles from custom Law issued by the Minister of
Finance No. (10) for year 2006. “The tobacco leaf imported weight recorded with
estimated custom taxes, other taxes and fees should be recorded for custom tax purpose
based on the higher weight of the actual weight performed by the custom upon storing
in customs warehouse or weight stated in shipment documents”.

- Upon release of tobacco leaf shipment from customs warehouse to the factory
warehouse the imported tobacco leaf should be recorded for customs tax purpose based
on weights approved from custom (Higher weight) the related customs taxes and other
taxes are settled based on the approved customs weights.

- Due to the incorrect accounting treatment in previous years which lead to a difference
in inventory book value with approximately 2 600 ton from different tobacco leaf
grades initially amounted to 111 5 Million EGP representing 2.6% from inventory
opening balance and 1.3% from current year cost of sales.

- 28 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

Adjustments booked on inventory quantities during current year was without


supporting documents and necessary authentication.
Currently the company management perform studies to identify and settle variance
causes in coordination with external parties.
- The company management taken the necessary action towards modifying the recording
method of tobacco leaf raw material inventory (in and out) to prevent recurrence of
errors in the future.
* The raw materials stock as of 30/6/2020 includes items under inspection with an
amount 2 257 Thousand Egyptian pounds, and Items under inspection (packaging and
mixing materials) with an amount 48 496 Thousand Egyptian pounds. The
examination and final receipt are carried out periodically for all items.
** Raw tobacco leaf material at customs balance include items under inspection
(tobacco leaf raw materials) with estimated amounted to 53 175 Egyptian pounds, and
unpaid customs fees are estimated at 311 521 Thousand Egyptian pounds., The total
unpaid fee for the development of the state’s financial resources is estimated at 65 789
thousand Egyptian pounds.
*** The decrease in inventory impairment represented in spare parts and gear by
LE 70,000 Thousand, and finished goods by LE 1 239 thousand.

16- TRADE AND NOTES RECEIVABLE


30/6/2020 30/6/2019
Trade receivables (foreign production) 204 352 135 346
Trade receivables (co-production*) 62 746 244 785
Foreign Trade receivables -- 1 844
Total 267 098 381 975

* The trade receivables (co-production) will be paid in the next month, although the
company does not give credit in the domestic sales.

17- DEBTORS AND OTHER DEBIT BALANCES


Note 30/6/2020 30/6/2019
Holding company debit balance 502 567
Debtor Accounts to governmental Authorities (17/1) 349 916 369 074
Accrued revenues (17/2) 2 600 3 194
Prepaid expenses 3 800 11 545
Other debit balances (17/3) 100 147 140 426
Total 456 965 524 806
Less impairment in debtors 11 853 13 411
Net 445 112 511 395

- 29 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

17/1 Debtor Accounts to governmental Authorities

30/6/2020 30/6/2019
VAT tax authority 282 587 345 372
Custom authority 36 921
Debit balance for other governmental authorities 67 293 22 781
349 916 369 074

Accounts receivable with other authorities include the following:


- 45 951 Thousand Egyptian pounds for Tax authority for salaries.
- 11 874 Thousand Egyptian pounds for Customs Department, Drupak Tobako.
- 5 628 Thousand Egyptian pounds for sales paid on imported goods.
- 2 033 Thousand Egyptian pounds for sales tax paid on investment goods
- 1 719 Thousand Egyptian pounds for Ministry of Finance - imported sales tax.
- 88 Thousand Egyptian Pounds others.
17/2 Accrued revenues
30/6/2020 30/6/2019
Accrued export incentives 832 1 045
Securities accrued income 709 1 474
Debit rents accrued 550 635
Miscellaneous income accrued 509 40
Total 2 600 3 194
17/3 Other debit balances:

30/6/2020 30/6/2019
Guarantees for others 10 795 10 740
Employees loans 11 027 10 391
Other debit balances * 78 325 119 295
Total 100 147 140 426
* The other debit balance includes the follows:

48 381 thousand pounds for the State Company for Paper Industry (Racta)
12 961 thousand pounds for stock for others joint production (Viceroy / pal mal)
8 014 thousand pounds for confiscated goods belonging to the company and fines
owed to the company, as well as a travel allowance abroad
3 255 thousand belonging to the treasury of the Rusafa factory, which is registered
with Misdemeanor No. 4900/2016
1 249 thousand pounds for insurance claims under settlement and for cars
657 thousand pounds belong to the mosque deposit, and it has a charge in other
credit accounts of the same value

- 30 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

18- TRADE PAYABLES - ADVANCE PAYMENTS


30/6/2020 30/6/2019
Public sector suppliers 2 198 6 807
Private sector suppliers 40 296 43 179
Public sector services suppliers 5 004 4 229
Other -- 1 260
Total 47 498 55 475

19- CASH ON HAND AND AT BANKS


30/6/2020 30/6/2019
Banks time deposits -- 751
Banks current accounts 7 419 268 5 831 822
Cash on hand 19 166 196 432
Total 7 438 434 6 029 005

* The cash is including 5.9 Million Egyptian Pounds related to the social solidarity
fund of the company’s employees Against a commitment confirmed in other credit
balances of the same amount

20- ISSUED AND PAID-UP CAPITAL


The Authorized Capital amounted to 3 000 Million Egyptian Pounds (Three Billion
Egyptian Pounds) and the Paid and Issued Capital amount is 2 250 Million Egyptian
Pounds (Two Billion and two hundred and fifty Million Egyptian Pounds) divided to
2 250 Million Shares with nominal amounted of one Egyptian Pound.

The Share Capital Structure as of 30/6/2020:


Company name Shares number Percentage
The holding company for Chemical industries 1 136 250 000 50.5%
Employees associations 138 035 692 6.14%
Treasury bills 35 382 492 1.57%
Free trading 940 331 816 41.79%
Total 2 250 000 000 100.00%

- On 29/5/2018 the Extra-ordinary General Assembly increased the company’s’


issued and paid capital from 1.5 Billion Egyptian Pounds to 2.25 Billion Egyptian
Pounds (with total increasing amount of 750 Million Egyptian Pounds) divided to
450 million shares as nominal shares amounted to five Egyptian Pound per share
financed from the legal reserves and other reserves appeared in financial statements
for the financial year ended on 30/6/2017, and the securities committee issued a
decision to approve this increase on 1/8/2018.

- 31 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

- The nominal share was divided by percentage of 1:5 to be one Egyptian Pound
instead of five Egyptian Pounds with keeping the company’s’ capital as it is
amounted to 2.25 Billion Egyptian Pounds to be divided to 2.25 Billion Shares, and
the necessary approval has been obtained from the concerned authorities according
to the decision of the extra-ordinary general assembly for the Eastern company
which held on 29/8/2018.
- The employee’s association of the Eastern company has bought number of
1 199 529shares from the Eastern company shares During the period from 1/7/2019
to 30/3/2020, so, the company’s shares will be 138 035 692 shares by contributions
percentage up to 6.14%.
- The company’s board of directors which held on 19/3/2020 decided that buy of
treasury stock up to a maximum of 3% of the company's shares traded on the stock
exchange, the purchasing process will be during a month start from 23/3/2020 till
22/4/2020 and notifying the shareholders that not perform any operations on it, The
board of directors also decided to seek the assistance from (CI Capital company and
EFG company).
- The company’s board of directors which held on 23/4/2020 approved to complete
the purchase of treasury shares start from 28/4/2020 till 27/7/2020 to complete the
aforementioned percentage 3%, the number of treasury shares purchased amounted
to 40 410 210 share as percentage 1.796% from the company’s shares till 27/7/2020,
The company’s board of directors, held on 28/7/2020, also decided to extend the
completion of the purchase of treasury shares, provided that the purchase process
starts from 29/7/2020 and ends on 28/10/2020 and another 6 013 208 shares were
purchased during the period from 29 /7/2020 until 5/8/2020
21- RESERVES

30/6/2020 30/6/2019
Legal reserve 801 783 801 783
Regular /Statutory reserve 1 673 498 1 673 498
Capital reserve 549 681 549 681
Reserve to be invented in governmental bonds 20 662 20 662
Reserve of profits estimated budget 940 170 940 170
Other reserves 25 25
Total 3 985 819 3 985 819

- 32 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

 Movement of share capital, reserves and retained earnings


Thousand Egyptian Pounds
Balance as Balance as of
of 1/7/2019 Additions Exclusions 30/6/2020
Paid and issued share capital 2 250 000 -- -- 2 250 000
Legal reserve 801 783 -- -- 801 783
Reserve to be invested in governmental bonds 20 662 -- -- 20 662
Capital reserve 549 681 -- -- 549 681
Reserve of profit estimated budget 940 170 -- -- 940 170
Statutory reserve 1 673 498 -- -- 1 673 498
Other reserves 25 -- -- 25
Treasury shares -- -- *432 343 (432 343)
Retained earnings 1 540 289 7 000 54 582 1 492 707
Total 7 776 108 7 000 486 925 7 296 183

* The purchase of approximately 35 382 thousand shares.

The legal reserves: according to the corporate law no .159 for 1981 and the company’s
article was conforming by percentage of 5% from the year net profit and to legal reserve
account, and based on the suggestion of the Board of Directors, it is permissible to suspend
part of the profits for the legal reserve account if the legal reserve reaches 50% of the issued
capital the legal reserve is not available for distribution to shareholders.

The Other reserves: the remaining reserves in the financial statements its formation
according to law no. 203 for 1991.

22- TREASURY STOCKS


The total bought treasury stocks is 35 382 492 share amounted 432 343 358 EGP with
average price 12.22 EGP/share during the period from March 23, 2020 till May 7, 2020.

23- RETAINED EARNINGS


The charge on retained earnings during the fiscal year 2019/2020 amounted to 47 582
thousand pounds, which is the adjustments of previous years expenses and previous
years revenues and deferred taxes in accordance with Egyptian Accounting Standard
No. (5) The Board of Directors in calculating the retained earnings according to the
decisions of the general assembly of the company

- 33 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

24- DEFERRED TAX


30/6/2020 30/6/2019
Deferred tax liabilities 411 822 361 579
Deferred tax assets (201 624) (176 334)
Net tax liabilities 210 198 185 245

- The deferred tax which result from temporary time differences between book value
for assets and liabilities according to the account basic and its value according to the
tax basic are recognized, the amount of deferred tax was determined according to
what expected to achieve or settle values of assets and liabilities by using current tax
price on the financial statements date, the deferred tax assets will be recognized
when having a strong probability to achieve profits that may be taxed in the future
where the assets can be used and the value of deferred tax assets can be decreased
by the value of the part which will not achieve any tax benefits through the future
years.
- Clearing was performed between the deferred tax assets and deferred tax liabilities.

25- EMPLOYEE BENEFITS


- The total employee benefits is representing an amount of 613 011 Thousand
Egyptian Pounds which expressing the end of service grant for the permanent
employees of the company on 30/6/2020
- The expected value of the end-of-service grant for graduates during the fiscal year
2020/2021, amounting to 50 887 thousand pounds, has been separated and included
in current liabilities and the rest has been included in long-term liabilities.
26- PROVISIONS:
- The provisions are composing according to the Egyptian Accounting Standard No.
(28).
 Movement of provisions:
Thousand Egyptian Pounds
Balance as No longer Balance as of
of 1/7/2019 Provided needed/ used*** 30/6/2020
Provision of disputed taxes * 209 238 -- -- 209 238
Provision of contingent liabilities
-- 262 000 -- 262 000
Provision of legal claims ** 183 899 -- 10 192 173 707
Total 393 137 262 000 10 192 644 945
* The provision of disputed taxes: composed to meet the tax liabilities.
** The provision of legal claims, salaries, and other: the company’s lawyer prepared
lists from his point of view according to the prospect liabilities.

*** 9,000 thousand Egyptian pounds is no longer needed provision, and the amount
of 1,192 thousand Egyptian pounds is used provision.
- 34 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

The provisions have been created against expected claims from third parties related to
The Company activities.
The Company's management did not disclose provisions details as per Egyptian
Accounting Standard No. (28) article No. (92) due to the Company management's
consider that such disclosure may extremely negatively impact the negotiations results
with external parties, the company management reviews the provisions periodically
and adjusts their value according to the latest updates, discussions and agreements
with those parties.

27- TRADE AND NOTES PAYABLES


30/6/2020 30/6/2019
Trade payables (public sector) 48 616 37 133
Trade payables (private sector) 149 899 104 698
Foreign Trade payables 172 136 1 315 657
Notes Payable * 41 965 --
Total 412 616 1 457 488

* The amount of notes payables represent the due installment to re-exploit the company’s
stores and factories of Al-Zumar Street and change its activities to a hospital.

28- CREDITORS AND OTHER CREDIT BALANCES


30/6/2020 30/6/2019
Governmental authorities current account 5 673 729 6 832 929
Dividends payable 11 663 2 504 663
Accrued expenses 628 899 624 020
Other credit balances 513 994 497 056
Total 6 828 285 10 458 668

28/1 Governmental authorities credit accounts


30/6/2020 30/6/2019
VAT tax authority* 5 606 129 6 740 215
Health insurance contribution 37 325 34 999
General Tax Authority (withheld from others at source) 4 621 27 311
Property tax authority 1 018 952
National organization for social insurance 24 636 29 452
Total 5 673 729 6 832 929

* The amount of value added tax includes two-months “February and March” because
of the electronic payment system from March 2019 where tax payment will be first
day of the next month instead of being at the previous month.

28/2 Accrued expenses


* 628 899 Thousand Egyptian Pounds representing accrued expenses for employees
and other.
- 35 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

28/3 Other credit balances


30/6/2020 30/6/2019
Deposits from others 55 517 52 982
Fixed assets supplies 53 296 71 606
Creditors amounts deducted from employees 7 748 7 396
Remaining accrued cost relevant to finance leased
-- 7 363
machines
Deferred revenue related to gifted fixed assets* 118 975 142 544
Sums set aside for the benefit of workers - social
216 006 182 587
services
Other 62 452 32 578
Total 513 994 497 056

* Credit balances include deferred revenue


109 381 thousand Egyptian pounds, pertaining to the net gifted fixed assets
9 594 thousand Egyptian pounds for equipment against tobacco leaf raw materials.
The amounts withheld for the benefit of social services workers are the value of the
remaining profits to be distributed at least 10% of these profits and not more than the
total annual wages of the employees, where the company was subject to the provisions
of Law No. 203 of 1991, where article 33 of that law stipulates that "the employees of
the company shall have a share in the profits to be distributed determined by the
Association based on the proposal of the Board of Directors at least 10% of these
profits.
The workers total cash distribution of these profit must not exceed total them yearly
basic salaries, executive regulations shows how to distribute what it exceed total
yearly basic salary that benefit the company's employees
When the company became under the Law No. 159 of 1981 by the decision General
Assembly of the Company on 2/6/2019, article 41 of the same law stipulates that "the
employees of the company shall have a share in the profits to be distributed determined
by the General Assembly on the proposal of the Board of Directors at least 10% of
these profits and does not exceed the total annual wages of the employees of the
company and the executive regulations show how to distribute more than 10% of the
profits indicated by the employees and services that come to them.
* Includes other credit balances
20,981 EGP is deducted from employees, especially for the Shareholders Union
10 475 Egyptian pounds for the social solidarity committee of the company
10 449 EGP thousand under the account of selling the plot of land at 41 Abu Darda
Street - Laban Division
2 585 Egyptian pounds for joint production stocks (Target / LD)
2 182 thousand pounds pertaining to checks whose owners did not come forward to
cash them
1 342 thousand pounds of due marketing expenses
657 thousand pounds for the deposit of the mosque

- 36 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

29- TRADE RECEIVABLES - ADVANCE PAYMENTS


30/6/2020 30/6/2019
Receivables - other credit balances 156 266 56 085
Receivables credit balances - scrap 270 266
Total 156 536 56 351

30- FINANCIAL LEASE CONTRACT OBLIGATIONS


The last installment of the rental value of the financial leasing contract was paid with
QNB Al-Ahly Financial Leasing Company on 28/6/2020.

31- CAPITAL COMMITMENTS


The capital commitments represented in accrued customs fees on the company which
the company paid after the smoke out from the custom warehouses and the
development resources fees amounted 377 310 Thousand Egyptian Pounds.

32- THE INCOME STATEMENT:


The cost of revenues includes an amount of 39 832 Thousand Egyptian Pounds related
to the depreciation of finance leased assets (for the financial year from 1/7/2019 till
30/6/2020), in addition to an amount of 3 023 Thousand Egyptian Pounds as
maintenance expenses (spare parts) related to the leased assets.

33- SALES REVENUE


30/6/2020 30/6/2019
Net sales 11 956 465 11 685 596
Revenue of operation for other 2 508 330 2 339 876
Total 14 464 795 14 025 472

34- COST OF GOODS SOLD


30/6/2020 30/6/2019
Raw Materials 6 028 934 6 223 024
Depreciation and amortization 518 563 485 967
Wages 1 803 391 1 751 738
Maintenance 138 453 159 923
Miscellaneous service expenses 50 844 66 206
Insurance expenses 26 061 21 938
Decline in inventory value 70 205 1 361
Revers of impairment in inventory value )637( --
Others 65 773 81 538
Total 8 701 587 8 791 695

- 37 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

35- OTHER INCOME


30/6/2020 30/6/2019
Gain from materials sales 197 286
Other miscellaneous income* 30 297 62 410
Other miscellaneous income property investment 1 297 --
Gain from scrap sales 7 685 22 106
Rent income 2 020 1 663
Credit compensation 351 246
No-longer needed provisions 16 530 41 906
Capital gain** 1 134 19 770
Grants and subsidies *** 1 259 1 251
Total 60 770 149 638

* The miscellaneous revenues include an amount of 23 569 Thousand Egyptian Pound


relevant to gifted assets.
** The capital gain is an amount 1 134 Thousand Egyptian pound.
*** The other revenues includes the grants and subsidies related to the financial year
ended in 30/6/2020. Also the comparative period which has been transferred from
operating revenue to other income item.

36- SALE AND DISTRIBUTION EXPENSES


30/6/2020 30/6/2019
Wages 404 929 370 534
Depreciation and amortization 4 101 2 834
Maintenances 3 249 1 896
Miscellaneous service expenses 5 834 4 275
Insurance expenses 2 258 4 188
Marketing expenses 47 337 41 174
Permitted Discount 133 120 131 937
Finished product transfer 22 125 21 733
Other 32 736 38 569
Total 655 689 617 140

- 38 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

37- GENERAL AND ADMINISTRATIVE EXPENSES


30/6/2020 30/6/2019
Wages 162 398 147 344
Depreciation and amortization 20 160 33 162
Maintenances 237 141
Miscellaneous service expenses 45 866 5 999
Other 7 098 3 946
Total 235 759 190 592
- The general and administrative expenses includes amount of 37 325 Thousand
Egyptian Pound related to health insurance contribution for the financial year from
ended 30/6/2020.
38- OTHER EXPENSES
30/6/2020 30/6/2020
Donations for other 19 592 34 700
Raw materials sales losses -- 6 576
Extraordinary losses 20 226 600
Compensation and fines 4 10
Allocation of the end of service grant for disability
41 476 9 735
and death
Impairment losses provision 10 916 --
Provision for contingent liabilities* 262 000 --
Doubtful provision 5 972 422
Total 360 186 52 043
* Provision for contingent liabilities related to expected claims in relation to external
parties in relation to the company's activities, and the management reviews these
provisions periodically with the assistance of specialists and consultants when
required, and the amount of the allowance is adjusted according to the latest
discussions and agreements with those parties.
The information that was usually published according to the requirements of the
Egyptian accounting standards was not disclosed because the management of the
company believes that doing so strongly affects the results of negotiations with those
parties.

39- NET FINANCING COST/ REVENUE


30/6/2020 30/6/2019
Credit interest 415 582 417 261
Gains revaluation differences on foreign currencies 82 487 73 152
Total finance revenue 498 069 490 413
Bank interest and bank expenses (10 634) (34 119)
(Losses) revaluation differences on foreign currencies (111 327) (182 018)
Total finance expenses (121 961) (216 137)
Net finance expenses 376 108 274 276

- 39 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

40- OTHER FINANCIAL INVESTMENTS REVENUE


The financial investments revenue includes 3 111 Thousand Egyptian Pounds interest
from investments in Suez Canal and 1 353 Thousand Egyptian Pounds from treasury
bills revenue, 723 Thousand Egyptian Pounds for the return on government bonds.

41- TAX EXPENSES


- The income tax in the income statement as of 30/6/2020 was amounted to
1 152 361 Thousand Egyptian Pounds.
- The deferred tax in income statement as of 30/6/2020 was amounted to
7 029 Thousand Egyptian Pounds according the following:
Thousand Egyptian Pounds
Deferred tax assets 32 318
Deferred tax liabilities )25 289(
Total 7 029
- It includes amount of 5.2 Million Egyptian Pound for the taxes of financial year
2018/2019.

42- EARNINGS PER SHARE


Unit 30/6/2020 30/6/2019
Net profit for the year after deducting
the dividends for employees, Youth Thousand
3 590 550 3 479 637
and sport Authority, and rewards of Egyptian Pounds
Board of Directors Members.
Weighted average number of common shares Thousand shares 2 241 641 2 250 000
Portion per share in net profit Egyptian Pounds 1.60 1.55

- The weighted average number of ordinary shares was calculated according to standard
(22) weighted by the number of days after the reduction of treasury stocks.
The Cash Flows Statement:
43- CASH AND CASH EQUIVALENT
- The cash and cash equivalent balance amounted to 7 438 434 Thousand Egyptian
Pounds are as following:
30/6/2020 30/6/2019
Banks - time deposits -- 751
Banks - current accounts 7 419 268 5 831 822
Cash on hand 19 166 196 432
Total 7 438 434 6 029 005
- The credit facilities which available to be used in future amounted to 7 320 Million
Egyptian Pounds.
- Cash balance as of 30/6/2020 include an amount of 1.872 Billion Egyptian Pounds
for the favor of the Ministry of finance regarding the declaration of May which was
paid in first day of July 2020 instead of the last day of June 2020 because the
company applied the electronic payment system.

- 40 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

44- LIST OF PROPOSED DISTRIBUTIONS


On the occasion of the company's transformation to Law No. (159) of 1981, where the
company was subject to the provisions of Law No. 203 of 1991, where Article No. (33) of
Law No. 203 of 1991 stipulated that “the employees of the company shall have a share in
the profits that are decided to be distributed, which the association determines upon the
proposal of the Council Management of at least 10% of these profits.
The cash disbursed to workers from these profits may not exceed the sum of their basic
annual wages. The executive regulations shall indicate how to distribute what exceeds the
total annual wages from profits on services that benefit the company’s employees.
As well as Paragraph (c) of Article No. (47) of the Company’s Articles of Association prior
to the transformation of Law No. 159 of 1981, which states: “The amount necessary for
the distribution of a share of profits of 5% of the capital shall be deducted from the share
of the profits to the shareholders for what was paid from the value of their shares and for
the employees. The share of workers in the profits to be distributed shall not be less than
10%, provided that what is disbursed to them in cash from them shall not exceed their total
annual basic wages, and more than that shall be set aside in a special account for the
establishment of housing projects for these workers and the provision of social services to
them in accordance with the decision of the general assembly of the company ".
And when the company was transformed into the umbrella of Law No. 159 of 1981 by the
decision of the ordinary general assembly of the company on 2/6/2019, where Article No.
(41) of the same law stipulated that “the employees of the company shall have a share in
the profits that are decided to be distributed. Not less than (10%) of these profits and not
more than the sum of the annual wages of the company’s employees. The executive
regulations indicate how to distribute more than the aforementioned 10% of profits to
workers and services that benefit them.
As well as Article No. (55) of the company’s articles of association, which stipulates
“distributing 10% of the profits that are decided to be distributed in cash to the company's
employees in accordance with the rules established by the company's board of directors
and approved by the general assembly exceeding the total annual wages for workers.”

45- COMPARATIVE FIGURES


Some comparative figures have been reclassified to conform to the presentation of
the financial statements for the current year.

46- OTHER DATA


46/1 Fight smoking:
- On 21/6/2007 the law no. 154 for the year of 2007 issued a modification of some
provisions of the law no. 52 for the year of 1981 about the protection from the
damage of smoking which prevents smoking completely in all facilities as health,
educational, governmental departments, sports and social clubs, youth centers and
all other places that the ministry of health determine. This law state penalties on
those responsible for these places and on the smoker.
- 41 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

In addition the company is obliged to print a warning of smoking risk on at least


the half of the two sides of the package accompanied with adding other warnings
or publishing photos confirm damage of smoking, The company to comply with
this law and the decree of minister of health and population no. 443 for the year of
2007, the company endured by additional burden cost as a result of the continuous
adjustment in printing cylinders which resulting losses in the publications material
related to products.
In addition, the company is obliged to change the photo each six months according
to the decision of ministry of health and population.
46/2 Industrial complex in the 6th of October:
- Industrial complex in the 6th of October was established on 353 acre and the actual
cost amounted to 5.8 billion Egyptian pound and most of the company activities
transferred to the industrial complex and the company will invest its appreciated
premises to decrease the finance cost incurred.

46/3 Insurance:
- The company have various insurance using insurance policies which covered all
potential risks that company may face, such as:
a. Comprehensive Certificate/document:
- To cover risks of fire properties, risk of cash transfer, dishonesty, machinery
malfunction, the common civil responsibility, loss revenues, and remove debris.
b. Cars Certificate/document:
- Cover all risks fleet of cars facing (comprehensive insurance - compulsory
insurance).
c. Transportation Certificate/document:
- Cover risks of transportation, sea and air transportation for all production
materials and finished goods.
d. Lifts Certificate/document:
- Cover the civil responsibility result from operation.
e. Political violence Certificate/document:
- Cover terrorism, vandalism, willful acts, riots, civil unrest, armed insurrection,
revolution, rebellion, military coup, and costs of rubble elimination.
f. Personnel accident violence Certificat/document :
- Cover the death, the full and partial disability result from accidents and the
medical care expenses (10% from the insurance amount). Terrorism risk was
added.
g. Dishonesty Certificate/document:
- Cover the drivers who are working on contractual terms for transporting the
company’s’ products.

- 42 -
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

46/4 Environmental responsibility:


- According to the Eastern company’s continued efforts to achieve protecting
environment and preserving the common health and as a commitment by the
company to apply the environmental requirements of Environment Law No. 4 for
the year of 94 and it’s amendments and executive regulations through implementing
and maintaining the internal environment in its factories and the external
environment surrounding the company in the purpose of achieving sustainable
compatibility of its environmental conditions, these points are representing in some
projects as following:
 The company has established and implemented the integrated industrial
complex in the industrial zone at the City of 6th October to include all its
locations. This procedure is an evidence of commitment towards the
environmental laws and regulations.
 The company has used the Natural Gas as a clean source of energy in operating
boilers, generation power as a clean source of energy, and to reduce
environmental pollutants from combustion.
 The company established an environment friendly incinerator and the heat
generated are used to generate ice water in a heat exchange to A/C factories.
 The company has controlled the emissions of fine tobacco leaf using cyclones
with non-permeable filters to prevent dust of tobacco leaf powder in the
airspace in order to protect the environment from pollution and reuse and
recycling through manufacturing natural tobacco leaf flakes.
 The company established a station of liquid waste treatment (industrial
drainage) in the industrial complex of the company in the City of 6 th October
with total capacity of 610 m3/day and the company got the environmental
approval for energy raising up to be 1220 m3/day. Installations and the station
are currently in the testing phase to start operation.
 The company has also implemented a project of central air conditioning
operating by natural gas to one of its factories to avoid the impact of thermal
stress knowing that there is no raise in the temperature of the working
environment as a result of various industrial processes more than allowed rates
according to the executive decisions and regulations, through the monitoring
carried out at the facility.
 The company established a central station for collecting the manufacturing
process outputs resulting from the company's production activities. Some items
are sold and others are recycled in industries. Compost production from
unusable dust of tobacco leaf is also been studied.
 The company already bought a group of the environmental measuring devices
to monitor pollutants and emissions of the work environment to determine the
permissible limits in accordance with the requirements of the environmental
law (number 4 for the year of 1994) and its executive regulation. In addition,
the experts of the National Research Center had done the required regularly
measurements and approved it in the environmental records for the different
locations of the company. It is worth mentioning that the company spares no
effort in supplying all personal protection tools to employees according to the
nature of each activity.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2020
(Amounts expressed in Thousands of Egyptian Pounds)

 Extensive environmental approval was obtained for the project of establishing


and extending a factory of roots plant (ESS) as space of 13350 m3 in the
industrial complex of the company in the City of 6th October, the company has
also planted green areas and windbreaks and ornamental plants inside the
industrial complex zone , and that with the implementation of the construction
requirements and green spaces in the general plan for the industrial complex
approved by the Urban Communities Authority as well as green areas around
the eastern side of the industrial complex.
 Environmental approval was obtained for the construction of a 1 MW solar
power station with an area of 14000 m2 in the industrial complex of the
company in the City of 6th October, the station has already been completed and
it is currently in the testing phase for its service entry in order to reduce the
burden on the electricity network in the industrial complex of the company in
the City of 6th October. The company also is in the process stage of establishing
additional electricity generating station by (BOT) system and 2 MW power.
 The soiled thinner is recovered and reused by an organic solvent separator.
The company has all the environmental approvals and has updated
environmental records approved by the largest research and scientific bodies
(National Research Center) and it has been reviewed by the Environmental
Affairs Agency. Also, the company is committed to all environmental laws and
regulations.

47- MATERIAL EVENT


The second half of March witnessed the beginning of the impact of the spread of the
Corona virus in the Egyptian market, and the Egyptian government announced
unprecedented measures to combat the virus infection and its spread. In the company's
operations, all risks have already been studied and evaluated, and a series of measures
have been taken to reduce the risks to the work team and to ensure the continuation of
the operational, manufacturing, sales and collection operations in this period and there
is no effect on the company's current economic position (its financial position,
business results and cash flows)
In view of the lack of clarity of the effects that could result from the development of
the situation related to the impact of the spread of the virus (Covid-19) in the future,
it is not possible to precisely determine the impact of these developments on the
company's activity.

(Accountant/ Niveen Ali Hussein) (Accountant/ Osama Fouad Mohamed)


General Manager / Final accounts and Chief of the financial sector
financial statements

(MR/ Mostafa Ahmed El Mahdy)


Chief financial officer

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