Madinaty Master Plan - Talaat Moustafa Group

and IT support, among other services (collectively, the “Alexandria Management Services”). See “MaterialContracts — City and Community Complex Management Agreements”. These management fees are calculatedas a percentage of the contract selling price for the units, which have historically been fixed at 6.0 per cent. for ArabCompany and 7.0 per cent. for San Stefano Real Estate, and have been recognised on Alexandria Real Estate’sincome statement on the date of the contract for the sale of units by Arab Company and San Stefano Real Estaterespectively, while for Arab Company and San Stefano Real Estate these are indirect development costs recognisedwhen units are delivered (as described above under “— Real estate units”).Tax HolidayCertain of the Group’s development projects to be constructed on land acquired from the New Urban CommunityAuthority benefit from ten year tax holidays offered to developers of new urban communities during that period.Five of the six phases of Arab Company’s Al Rehab I development project are tax exempt for ten years from the dateof commencement of development of the phase. Applications to the tax authorities have or will be made in respectof obtaining tax exempt status for the two remaining phases. Two subsidiaries of Arab Company also enjoys a taxholiday in connection with the provision of certain services in relation to Al Rehab I and II. Mayfair and Al Rabwa Icomplexes enjoyed ten year tax holidays, which expired in 2004 and 2005, respectively. The Group’s newerprojects, such as Madinaty, Arab Company’s Al Rehab II and Alexandria Real Estate’s Al Rabwa II, will not benefitfrom tax holidays due to a change in law. The taxable income from these projects will be taxable at the corporate taxrate of 20 per cent. on net profits.Analysis of Results of OperationsArab CompanyThe following table sets forth certain information in relation to Arab Company’s sales, cost of sales, and gross profitduring the periods presented:For the year ended 31 DecemberFor the six months ended 30 June2004 2005 2006 2006 2006 2007 2007LE LE LE US$ LE LE US$(unless otherwise stated)Arab CompanySales (1) ............ 605,306,419 379,011,734 379,077,158 66,592,386 170,583,984 440,342,604 77,354,871Cost of sales . ........ (485,816,866) (274,433,915) (275,491,792) (48,395,572) (120,234,554) (287,474,037) (50,500,490)Gross profit . ........ 119,489,553 104,577,819 103,585,366 18,196,814 50,349,430 152,868,567 26,854,382Gross margin (%) (2) . . . . 19.7 27.6 27.3 29.5 34.7Number of unitsdelivered. . ........ 2,464 1,358 1,303 548 852Average Selling Price ofDelivered Units . . . . . 221,140 261,988 253,891 44,601 264,389 426,852 74,985Average Cost of UnitsDelivered (per m 2 ) . . . 1,203 1,257 1,119 197 1,422 2,070 364(1) Sales as recognised on the income statement. See “— Factors Affecting Results of Operations — Revenue Recognition and DevelopmentCost Recognition”.(2) Gross profit as a percentage of sales.San Stefano Real EstateSan Stefano Real Estate began recognising operational revenues in 2006. The following table sets forth certaininformation in relation to San Stefano Real Estate’s sales, cost of sales, and gross profit during the periodspresented:For the year ended31 DecemberFor the six months ended30 June2006 2006 2007 2007LE US$ LE US$San Stefano Real EstateSales (1) ................................. 33,887,097 5,952,938 92,438,837 16,238,707Cost of sales ............................. (23,462,865) (4,121,715) (71,582,920) (12,574,953)Gross profit .............................. 10,424,232 1,831,222 20,855,917 3,663,75439