report of the auditors - aramex aramex international limited and subsidiaries consolidated income...

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The Shareholders ARAMEX International Limited and subsidiaries Report of the Auditors We have audited the accompanying consolidated balance sheet of ARAMEX International Limited and subsidiaries ("the Group") as of 31 December 2004 and the related consolidated statements of income, cash flow and changes in shareholders’ equity for the year then ended. Respective responsibilities of the Group's Management and the Auditors These consolidated financial statements are the responsibility of the Group’s Management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Basis of opinion We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of ARAMEX International Limited and its subsidiaries as of 31 December 2004 and the results of their operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.

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ARAMEX International Limited and subsidiaries Consolidated income statement for the year ended 31 December 2004 Note 2004 2003 USD’000 USD’000 Revenue 3 188,736 151,549 Cost of services 4 (102,820) (78,104) --------- --------- Gross profit 85,916 73,445 Other operating expenses (25,495) (20,676) Selling expenses (10,084) (8,532) General and administrative expenses 5 (34,567) (31,378) --------- --------- Profit from operations 15,770 12,859 --------- -------- Other income / (expense) Interest income 242 208 Interest expense (233) (341) Loss on sale of assets (4) (26) Exchange loss (159) (613) Other income 170 5 ------ ------ 16 (767) ------ ------ Net profit before income tax 15,786 12,092 Income tax 6 (882) (456)

--------- -------- Net profit after income tax 14,904 11,636 Minority interest 7 (1,947) (1,589) -------- -------- Net profit for the year 12,957 10,047 ===== ===== The notes on pages 6 to 18 form part of these consolidated financial statements. The report of the Auditors is set out on page 1.

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ARAMEX International Limited and subsidiaries

Consolidated balance sheet as at 31 December 2004 Note 2004 2003 Assets USD’000 USD’000 Current assets Cash and cash equivalents 8 14,714 14,901 Receivables (net) 9 33,478 30,040 Inventories 622 378 Other current assets 10 5,653 4,324 -------- --------- Total current assets 54,467 49,643 -------- --------- Non-current assets Property, plant and equipment (net) 11 12,122 10,615 Goodwill (net) 12 8,949 8,769 Due from holding company - 13,085 Deferred tax assets 6 441 380 Other non-current assets 758 1,861 -------- -------- Total non-current assets 22,270 34,710 -------- -------- Total assets 76,737 84,353 ===== ===== Liabilities, minority interest and shareholders’ equity Current liabilities Due to banks 13 346 389 Current portion of long-term debt 14 941 952 Trade payables 17,670 12,912 Other current liabilities 15 12,139 9,684 --------- --------- Net current liabilities 31,096 23,937 -------- --------- Non-current liabilities Long term debt 14 706 898 Deferred tax liabilities 6 3 6 Employee termination indemnities 5,236 4,420 ------- ------- Total non-current liabilities 5,945 5,324 ------- -------- Minority interest in subsidiaries 7 3,267 2,699 ------- -------- Shareholders’ equity Issued and paid-up capital 16 52 52 Contribution to surplus 17 12,441 12,441 Accumulated other comprehensive loss 18 (475) (914) Retained earnings 19 24,411 40,814 -------- --------- Total shareholders’ equity 36,429 52,393 -------- --------- Total liabilities, minority interest and shareholders’ equity 76,737 84,353 ===== =====

The notes on pages 6 to 18 form part of these consolidated financial statements. The Board of Directors approved these consolidated financial statements on _________________ _______________ Fadi Ghandour Emad Shishtawi (President & CEO) (Vice President Finance) The report of the Auditors is set out on page 1.

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Consolidated statement of cash flows for the year ended 31 December 2004 2004 2003 Operating activities USD’000 USD’000 Net profit for the year 12,957 10,047 Adjustments to reconcile net profit before tax and minority interest to net cash from operating activities Depreciation 4,016 3,363 Amortisation - 625 Provision for doubtful debts 1,893 2,368 Provision for employee termination indemnities 1,203 992 Interest expense 233 341 Loss on sale of property, plant and equipment 4 26 Income tax expense 882 456 Minority Interests 1,947 1,589 ----------- ---------- Operating profit before working capital changes 23,135 19,807 Increase in receivables (5,331) (2,017) Increase in inventories (244) (49) Decrease/(increase) in due from holding company 13,085 (9,690) Increase in other current assets (1,329) (85) Increase in trade payables 4,758 1,710 Payment of employee terminal indemnities (340) (411) Increase in other current liabilities 1,985 377 Other 135 145 ---------- --------- Cash generated from operations 35,854 9,787 Income tax paid (475) (725) ----------- ---------- Cash flows from operating activities 35,379 9,062 ---------- ---------- Investing activities Purchase of property, plant and equipment (4,949) (3,527) Proceeds from sales of property, plant and equipment 382 228 Acquisition of investments in subsidiaries (180) (481) Decrease/(increase) in other non current assets 1,103 (105) --------- --------- Cash flows used in investing activities (3,644) (3,885) --------- --------- Financing activities Payment of due to banks (43) (200) Payment of interest expense (233) (343) Net proceeds from long term debt - 99 Repayment of long term debt (354) (132) Payment of capital lease obligations (631) (396) Dividend paid (29,360) - Payments to minority interest (1,379) (1,678) ---------- -------- Cash flows used in financing activities (32,000) (2,650) ---------- -------- Effect of exchange rate changes on cash held 78 (88) --------- -------- Net (decrease)/ increase in cash and cash equivalents (187) 2,439 Cash and cash equivalents at beginning of the year 14,901 12,462 ----------- --------- Cash and cash equivalents at end of the year 14,714 14,901 ====== ====== The notes on pages 6 to 18 form part of these consolidated financial statements. The report of the Auditors is set out on page 1.

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Consolidated statement of changes in shareholders’ equity for the year ended 31 December 2004 Accumulated Total other share- Share capital Share Contribution comprehensive Retained holders’ Shares Amount premium to surplus (loss)/income earnings equity Number USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 At 1 January 2003 5,181,068 52 12,441 - (940) 30,767 42,320 Comprehensive income: - Net profit - - - - - 10,047 10,047 - Translation adjustment - - - - 26 - 26 Transfer to contribution to surplus - - (12,441) 12,441 - - - ------------ ------ --------- -------- -------- --------- ---------- At 1 January 2004 5,181,068 52 - 12,441 (914) 40,814 52,393 Comprehensive income: - Net profit - - - - - 12,957 12,957 - Translation adjustment - - - - 439 - 439 Dividend paid - - - - - (29,360) (29,360) ------------ --- ----- --------- ----- --------- ---------- At 31 December 2004 5,181,068 52 - 12,441 (475) 24,411 36,429 ======= == === ===== === ===== =====

The notes on pages 6 to 18 form part of these consolidated financial statements.

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ARAMEX International Limited and subsidiaries Notes (forming part of the consolidated financial statements) 1 Legal status and principal activities ARAMEX International Limited (“AIL”) (“the Company”) is a limited liability company

incorporated under the laws of Bermuda on 31 October 1996 to be the successor to ARAMEX International Limited, a Hong Kong company that was incorporated in February 1986 (ARAMEX Hong Kong). AIL is the wholly owned subsidiary of ARAMEX Holding Company (“AHL”).

AIL has an authorized share capital of 15,000,000 shares of common stock with a par

value of USD 0.01 per share. The Company is also authorised to issue 5,000,000 shares of preferred stock with a par value of USD 0.01 per share, none of which has been issued or is outstanding.

The principal activity of the Company is to provide express delivery and freight

forwarding services from its main stations (hubs) in Dubai, London and New York primarily to, from and within destinations in the Middle East and India. AIL’s operations are controlled through a regional office, which was registered in Jordan on 15 March 1988 under the name of AIL (the Regional Office) pursuant to the foreign companies law No. (58) of 1985. The operations of the Regional Office are facilitated by the hubs of the ARAMEX network.

Effective 1 January 1996, the Company formally inaugurated its direct marketing and

mail order catalogue service at certain stations in the Middle East. The service, called catalogue shopping services, provides assistance to customers in selecting, ordering and delivering merchandise through catalogs of retail companies based principally in the United States and Western Europe.

During the last quarter of the year 2002, the Group added the services of magazine and

newspaper distribution to its services through the acquisition of the Jordanian Distribution Agency (JDA), by Arab American Express Company (a fully owned subsidiary of AIL).

2 Principal accounting policies Basis of preparation These consolidated financial statements present the financial position and the results of

operations and cash flows of the Company and its subsidiaries (collectively referred to as “the Group”). Statement of compliance

These consolidated financial statements which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the International Accounting Standards Board (“IASB”) have been applied consistently in dealing with items which are considered material in relation to the Company’s financial statements except for amortisation of goodwill (refer note 12) and freight revenue and freight cost restatement (refer note 3 and 4)

Basis of preparation

These consolidated financial statements have been presented in US Dollars (“USD”), rounded to the nearest thousand and have been prepared under the historical cost convention.

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Notes (continued) 2 Principal accounting policies (continued) Basis of consolidation

The consolidated financial statements comprise a consolidation of the audited financial statements of the Company and its subsidiaries on a line-by-line basis. Intra-group balances and transactions, and any unrealised gains/ losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial and operatingpolicies of an enterprise so as to obtain benefits from its activities. The financialstatements of subsidiaries are included in the consolidated financial statements from thedate that control commences until the date that control ceases.

A listing of the subsidiaries, comprising the consolidated financial statements, together

with the respective ownership percentage by AIL is as follows: Subsidiaries (described by location) Ownership % 2004 2003 Amman (except for Arab American Clearance and 100 100 Transport Company owned 90%) Damascus 60 60 Beirut 100 100 Beirut CGO 100 100 Cairo 100 100 Casablanca 100 70 Tripoli 100 100 Dubai 100 100 Abu Dhabi 100 100 Doha 100 100 Bahrain 100 100 Jeddah* 50 50 Nicosia 100 100 Paris 100 100 London 100 100 Washington, D.C. 100 100 New York 100 100 Montreal* 20 20 Kuwait 100 100 Athens 100 100 Jerusalem 60 60 Palestine 100 100 Ramallah 60 60 Istanbul* 50 50 Colombo* 50 50 Mumbai 100 100 Hong Kong 100 100 Memo Express - Dubai 100 100 Prague 100 - * Controlled through shareholders’ agreements


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Notes (continued)

2 Principal accounting policies (continued)

Revenue

Revenue represents the value of services rendered to customers and is stated net of discounts and sales taxes or similar levies.

Revenue recognition

Express revenue is recognized upon receipt of shipment from the customer.

Freight forwarding revenue is recognized upon the delivery of freight to the destination or to the air carrier.

Catalogue shopping services revenue is recognized upon the receipt of the merchandise by the customers. Revenue from magazines and newspapers distribution is recognized when it is delivered to the customers.

Translation of the financial statements of foreign subsidiaries

The Group’s functional currency is the USD. The financial statements of foreign subsidiaries where the local currency is their functional currency (substantially all stations) are translated into USD using exchange rates in effect at year end for assets and liabilities and average exchange rates during each reporting year for results of operations. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders’ equity.

Exchange gains and losses resulting from transactions of the Company and its subsidiaries which are made in currencies different from their own are included in income as they occur.

Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses if any. Depreciation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows:

Life (years)

Leasehold improvements 7 years Furniture and fixtures 7 years Office equipment 7 years Computers 5 years Vehicles 5 years

Assets held under capital leases are depreciated over the shorter of the lease terms or the estimated useful lives of the assets.

Goodwill

Goodwill arising on an acquisition represents the excess of the cost of the acquisition over the fair value of the net identifiable assets acquired. Goodwill is stated at cost less impairment losses. The group has early adopted the provisions of IFRS 3 whereby goodwill is no longer amortised and is, instead, assessed for impairment each financial year. The measurement of possible impairment is based primarily on the ability to recover the balance of the goodwill from discounted expected future operating cash flows.

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Notes (continued) 2 Principal accounting policies (continued)

Inventory

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses. The cost of other inventories is based on the weighted average cost principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

Income taxes

The Group provides income taxes in accordance with IAS 12. As an offshore Company incorporated in Bermuda, profits from operations of foreign subsidiaries are not subject to Bermudan taxes. Income tax on the profit or loss for the year comprises of current and deferred tax. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Employee termination indemnities

Some of the Company’s subsidiaries are required, by their labour law, to provide indemnity

payments upon termination of relationship with their employees. The benefit accrues to employees on a pro-rata basis during their employment period and is based on each employee’s current salary.

Borrowing costs

Interest is payable on current facilities from banks, overdrafts and long-term loans from banks at normal commercial or agreed rates. Borrowing costs are recognised as an expense in the period in which these are incurred.

Cash and cash equivalents

Cash and cash equivalents comprises cash balances, call deposits and bank overdrafts. Due to banks are included as part of cash flows from financing activities for the purpose of the statement of cash flows.

3 Revenue 2004 2003 USD’000 USD’000

International express* 77,809 61,234 Freight forwarding* 66,794 53,582 Domestic express* 25,348 21,483 Catalogue shopping services 1,871 1,930 Magazines & newspaper distribution 8,134 7,191 Other** 8,780 6,129 ---------- ---------- 188,736 151,549 ====== ======

*Amount includes value added tax/ postal levy where not shown separately on the face of the invoice.

** Amounts represent revenues from other special services which, the company renders, including airline ticketing and travel and visa services. All related costs are reflected in cost of services.

Prior year freight forwarding revenue and related expenses have been restated to eliminate inter company revenue of USD 15,248K (refer note 4).

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Notes (continued) 4 Cost of services 2004 2003 USD’000 USD’000

Line haul expenses - express 19,825 13,424 Distribution expenses – express 14,125 9,043 Inbound costs – express 4,668 3,261 Freight forwarding and related expenses 48,229 38,948 Catalogue shopping services 1,473 1,304 Magazines and newspapers distribution 7,040 6,264 Others 7,460 5,860 --------- --------- 102,820 78,104 ====== ===== Cost of service includes value added tax/ postal levy where not shown separately on the

face of the invoice. Prior year freight forwarding revenue and related expenses have been restated to

eliminate the inter company costs of USD 15,248K (refer note 3). 5 General and administrative expenses 2004 2003 USD’000 USD’000 Staff salaries and benefits 14,148 12,668 Rent and operating leases 3,168 2,923 Depreciation charge 4,016 3,363 Communication expense 2,655 2,373 Provision for bad and doubtful debts 1,893 2,368 Maintenance 1,134 1,104 Others 7,553 6,579 -------- --------- 34,567 31,378 ====== ====== 6 Income taxes

The charge for income taxes on results of operations of foreign subsidiaries comprises of the following:

2004 2003 USD’000 USD’000

Current 947 433 Deferred (65) 23 ------- ------ 882 456 ===== ====

Deferred income taxes are provided in accordance with the liability method under IAS 12, for the temporary differences between the financial reporting basis and the tax basis of the Group’s assets and liabilities. The composition of deferred taxes reflected on the balance sheet is as follows:

2004 2003 USD’000 USD’000

Current Provision for doubtful accounts 10 39 Other 16 27 ----- --- 26 66 ----- ---

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Notes (continued) 6 Income taxes (continued) 2004 2003 Non-current AED AED Depreciation (113) (77) Termination indemnities (59) 49 Net operating losses carry forwards 603 333 Capital allowance (18) - Other - 3 ------- ----- 413 308 ------ ----- 439 374 === ===

The Group’s consolidated effective tax rate was 11% and 6% for 2004 and 2003 respectively.

In certain countries the tax returns for certain years have not yet been reviewed by the tax authorities. However, the Group is satisfied that adequate provisions have been provided for potential tax contingencies.

As of 31 December 2004, the retained earnings of the Group represent the retained earnings of AIL and its share of the post-acquisation retained earnings of its subsidiaries. Such earnings are expected to be indefinitely reinvested or, if distributed, are expected to be distributed tax-free.

7 Minority interest 2004 2003 USD’000 USD’000 Balance at 1 January 2,699 2,788 Net profit for the year 1,947 1,589 Dividends paid (1,594) (2,160) Minority interest acquired during the year (180) (483) Exchange translation difference and other movements 395 965 ------- ------- Balance at 31 December 3,267 2,699 ==== ====

The Group fully acquired the minority interest in ARAMEX Casablanca in 2004 and established a fully owned station in Prague (in 2003 the Group acquired fully the minority shares of ARAMEX Beirut).

8 Cash and cash equivalents

Cash and cash equivalents includes restricted cash amounting to USD 762K as of 31 December 2004 (2003: USD 674K). This amount represents margin against bank guarantees.

9 Receivables (net) 2004 2003 USD’000 USD’000

Trade receivables 39,665 35,878 Employee advances 394 445 --------- ---------- 40,059 36,323 Less: Provision for doubtful accounts (6,581) (6,283) ---------- ---------- 33,478 30,040 ====== ======

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Notes (continued)

9 Receivables (net) (continued)

All employee advances bear no interest and are due on demand.

Geographic concentrations of accounts receivables as of 31 December 2004 and 2003 are as follows:

2004 2003 USD’000 USD’000 % %

Middle East and North Africa 83.33 80.97 Europe 6.29 8.00 North America 1.50 2.22 Asia 8.88 8.81 ==== ====

Management believes that all receivables, net of related provisions, will be collected in due course.

Movements in the provision for doubtful accounts are as follows:

2004 2003 USD’000 USD’000 Balance – at January 1 6,283 6,715 Provision made during the year 1,893 2,368 Write-offs (1,595) (2,800) ------- -------- Balance – at December 31 6,581 6,283 ====== ====== 10 Other current assets 2004 2003 USD’000 USD’000

Prepaid expenses 1,736 1,346 Refundable deposits 1,157 1,265 Advances 170 151 Withholding tax 1,089 747 Supplies and stationery 823 711 Others 678 104 --------- --------- 5,653 4,324 ====== =====

11 Property, plant and equipment (net) At the At the beginning Exchange end of of the year Additions Disposals differences the year USD’000 USD’000 USD’000 USD’000 USD’000 Costs – Land 142 - (139) - 3 Leasehold improvements 3,245 590 (191) (17) 3,627 Building 1,407 - - 1 1,408 Furniture and fixtures 2,676 360 (115) (16) 2,905 Office equipment 2,813 355 (42) 172 3,298 Computers 8,334 2,530 (98) 155 10,921 Vehicles 5,647 1,897 (703) 136 6,977 ---------- -------- -------- ----- ---------- 24,264 5,732 (1,288) 431 29,139 ====== ===== ===== === ======

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ARAMEX International Limited and subsidiaries Notes (continued) 11 Property, plant and equipment (net) (continued) At the At the beginning Depreciation Exchange end of of the year expense Disposals differences the year USD’000 USD’000 USD’000 USD’000 USD’000 Accumulated depreciation – Land - - - - - Leasehold improvements 1,502 485 (93) 2 1,896 Building 207 94 - 1 302 Furniture and fixtures 1,682 269 (74) (9) 1,868 Office equipment 1,936 235 (63) 113 2,221 Computers 5,410 1,526 (67) 87 6,956 Vehicles 2,912 1,407 (605) 60 3,774 ---------- -------- ------ ----- --------- 13,649 4,016 (902) 254 17,017 -------- -------- ------ ------ --------- Net book value 10,615 12,122 ===== =====

Included in the net book value of assets are capital leases amounting to USD 1,536K as of 31 December 2004 (2003: USD 1,385K).

12 Goodwill (net) The movement in the goodwill account is as follows: 2004 2003 USD’000 USD’000 Balance at January 1 8,769 8,911 Acquisitions during the year 180 483 Amortization for the year - (625) ------- ------- Balance at December 31 8,949 8,769 ==== ====

Goodwill has not been amortized during the year as the group has early adopted IFRS 3 whereby goodwill is no longer amortised on a straight line basis but is assessed for impairment on an annual basis.

It is management’s opinion that no material impairment exists as at 31 December 2004.

Acquisitions reported in the consolidated statement of cash flows are represented in the following way:

Total USD’000 Consideration 246 Cash and cash equivalents at the date of acquisition (66) Due to banks at the date of acquisition - ----- Net cash consideration 180 ===

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Notes (continued) 13 Due to banks AIL and its subsidiaries maintain lines of credit with various banks with a total of USD 423K

and USD 423K at 31 December 2004 and 2003 respectively. The Group had utilised USD 259K and USD 352K of these lines of credit as at 31 December 2004 and 2003 respectively. The remaining balances of USD 87K and USD 37K in due to banks as of 31 December 2004 and 2003, respectively, represent bank overdrafts. AIL has provided a personal guarantee of USD 500K (2003: USD 500K) to Audi Bank in Lebanon to secure the bank facilities given for the ARAMEX subsidiary in Lebanon, none of which was utilised by ARAMEX Lebanon as of 31 December 2004 and 2003 respectively.

14 Long term debt 2004 2003 USD’000 USD’000 Long term loan (a) - 301 Long term notes payables (b) 111 164 Capital lease obligations (c) 1,536 1,385 Less: Current maturities (941) (952) ------ ----- Long term portion 706 898 === ===

(a) Long term loan

This represents the balances outstanding from:

1. Bank loan granted to Arab American Express company Ltd (Amman Station) (a 100% owned subsidiary of the Group) from Jordan Kuwait Bank on 30 May 2002 with the total amount of JD 350K (USD 493K) at an annual interest rate of 8 per cent free of commissions. This loan is repayable over 36 monthly installments amounting to JD 9.7K (USD 13.7K) starting from 30 June 2002. The loan was fully repaid during the year.

2. Bank loan granted to Jordan Distribution Agency (a 100% owned subsidiary of the Group)

from Jordan Kuwait Bank on 14 April 2003 with the total amount of JD 100K (USD 141K) at an annual interest rate of 8 per cent free of commissions. This loan is repayable over 24 monthly installments amounting to JD 4.3K (USD 6K) starting from 1 June 2003. The loan was fully repaid during the year.

(b) Long term notes payable

This represents various notes payable for the purpose of financing the purchase of vehicles and

equipment repaid by monthly installments with original average maturities of three years, at interest rates ranging from 10% for India, 52.1% for Istanbul, 5.5% for Washington DC and 9.7% for Greece.

The aggregate amount of annual principal maturities of notes payable are as follows: 2004 2003 USD’000 USD’000 Current 64 84 == == Non-current 47 80 == ==

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Notes (continued)

(c) Capital lease obligations 2004 2003 USD’000 USD’000 Capital lease obligations in respect of vehicles, telephones and computer equipment 1,536 1,385 Less: current maturities (877) (631) ----- ----- Long term portion 659 754 === === Future minimum annual payments under all non-cancelable capital leases are as follows: 2004 2003 USD’000 USD’000 Less than one year 967 718 Between one and five years 690 797 ------ ----- Total minimum lease payments 1,657 1,515 Less: Interest component (121) (130) ------- ------- Present value of minimum lease payments 1,536 1,385 ==== ==== 15 Other current liabilities 2004 2003 USD’000 USD’000 Accrued expenses 9,021 6,905 Deferred revenue 687 783 Income taxes payable 1,007 535 Social security and taxes payable 161 173 Sales and other taxes 876 773 Customers’ deposits 153 287 Others 234 228 -------- ------- 12,139 9,684 ===== ==== 16 Share capital

AIL has an authorized share capital of 15,000,000 shares of common stock with a par value of USD 0.01 per share. The Goup is also authorized to issue 5,000,000 shares of preferred stock with a par value of USD 0.01 per share, none of which have been issued or are outstanding. The number of common shares outstanding as of 31 December 2004 are 5,181,068 shares owned by AHL (parent company of AIL).

On 3 January 2002 AHL granted a charge over its shares in AIL to Shuaa Capital p.s.c. On 28 July 2002, this charge over shares was transferred from Shuaa Capital p.s.c. to Export and Finance Bank.

17 Contribution to surplus

During the previous year, the Board of Directors in their meeting held on 15 July 2003, decided that the proceeds from the reduction of share premium account of the Group be approved and accepted as a contribution to the surplus of the Group.

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Notes (continued) 18 Accumulated other comprehensive loss 2004 2003 USD’000 USD’000 Translation adjustment (475) (914) ==== === 19 Restriction on appropriations Included in the retained earnings balance as of 31 December 2004, there is a statutory

reserve amounting to USD 1,187K (2003: USD 960K) which represents earnings restricted from distribution in accordance with the local laws of the domiciles of certain subsidiaries.

20 Operating leases The Group leases office space and transportation equipment under various operating

leases, some of which are renewable annually. Rent expense related to these leases amounted to USD 3,109K and USD 2,871K for the years ended 31 December 2004 and 2003, respectively. The Group believes that most operating leases will be renewed at comparable rates to the expiring leases.

The approximate minimum annual rental commitments of the Group under the existing lease agreements, are as follows:

2004 2003 USD’000 USD’000 Less than one year 2,461 1,820 Between one and five years 3,416 1,306 ==== ===== 21 Related parties transactions AIL leases the premises currently occupied by the Group’s London operations from Mr.

Ali Ghandour, the father of Mr. Fadi Ghandour (CEO), at an annual rental of USD 133K (GBP 75K). The lease is open-ended and is renewed annually. Management believes that the terms of the lease are at least as favourable to AIL as those available unaffiliated third parties. During 1996, AIL leased the premises currently occupied by the AIL’s corporate office in Amman, Jordan, from ARAM, an investment company controlled by the CEO’s family. The rent expense for 2004 equals USD 157K (JD 112K). The lease is open-ended and is renewed annually. Management believes that terms of the lease are at least as favourable to the Group as those available from unaffiliated third parties.

AIL entered into a new alliance called Global Distribution Alliance (“GDA”) in December

2003. GDA is a global alliance among thirty three leading independent express companies that functions as a worldwide delivery network for its members in which AIL is one of the founding members. AIL and the alliance maintain normal business relations whereby they share profits on handling of freight shipments. At 31 December 2004 USD 199,618 was due from AIL to the network.

ARAMEX Beirut premises are rented from the station manager and her relatives at an

annual rental amount of USD 36K for the year 2004. Management believes that the rental terms are at least as favourable to AIL as those available from unaffiliated third parties.

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Notes (continued) 22 Information about business segments The company operates predominantly in a single industry as a courier and cargo freight

forwarder. The following is a summary of financial data by business segment consistent with the way senior management organizes operations within the company for decision making purposes and performance assessment.

International

expressFreight

forwardingDomestic

Express

Other Elimi- nation

Conso- Lidated

2004 revenue External sales 77,809 66,794 25,348 18,785 188,736 Inter-segment sales* 35,335 21,398 12 3,195 (59,940) Segment sales 113,144 88,192 25,360 21,980 (59,940) 188,736 Gross profit 38,867 18,566 20,441 8,042 85,916 2003 revenue External sales 61,234 53,582 21,483 15,250 - 151,549 Inter-segment sales* 28,678 15,491 13 2,163 (46,345) - Segment sales 89,912 69,073 21,496 17,413 (46,345) 151,549 Gross profit 35,410 14,634 17,617 5,784 - 73,445

* Revenue between stations that are wholly owned subsidiaries is priced at cost.

Transactions with other affiliated stations are typically priced at cost plus 10%. All intercompany transactions have been eliminated in consolidation.

AIL does not segregate assets and liabilities by business segment and accordingly such

information is not available. The following table shows AIL’s consolidated revenues, assets and liabilities by geographical area:

2004 2003 USD’000 USD’000

Revenues Middle East and North Africa 157,077 123,351 Europe 8,485 8,036 North America 3,847 5,267 Asia 19,327 14,895 ---------- ---------- 188,736 151,549 ====== ======

2004 2003 USD’000 USD’000 Assets

Middle East and North Africa 65,979 74,623 Europe 3,731 3,458 North America 1,446 1,434 Asia 5,581 4,838 -------- --------- 76,737 84,353

===== ===== 2004 2003 USD’000 USD’000 Long lived assets *

Middle East and North Africa 20,342 20,066 Europe 554 363 North America 188 107 Asia 745 709 -------- --------- 21,829 21,245 ===== =====


Notes (continued) 22 Information about business segments (continued)

* Long lived assets include property, plant and equipment, goodwill, and other non-current assets.

2004 2003 USD’000 USD’000 Liabilities

Middle East and North Africa 30,563 24,017 Europe 3,081 2,521 North America 1,107 1,047 Asia 2,290 1,676 -------- -------- 37,041 29,261

===== ===== 23 Financial instruments a) Fair value The carrying amounts of cash, current receivables, trade payables, and due to banks approximate their fair market values due to the short term maturities of these financial instruments. The carrying amounts of long term debt approximate their fair market values. b) Interest rate risks

The majority of the financial instruments in the consolidated balance sheets are not subject to interest rate risks except for long term debt.

c) Credit risks The Group has no concentration of credit risk with any single counterparty or

group of counterparties having similar characteristics. The Group has procedures in place to ensure that sales are made to customers with an appropriate credit history and do not exceed an acceptable credit exposure limit.

d) Currency risks Most of the Group’s transactions are in USD. However, a majority of the

Group’s business is conducted outside the United States. As a result, the Group’s operations are subject to various risks associated with currency fluctuation. There can be no assurance that such risks will not have an adverse effect on the company.

24 Subsequent events Subsequent to the year end Arab International Logistics Company will be formed and is

expected to be listed on the Dubai Financial Market with the intention of acquiring all the shares of ARAMEX International Limited.

25 Comparative figures

Certain previous year figures have been reclassified to correspond with the current year presentation.

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ARAMEX International Limited and subsidiaries Consolidated financial statements 31 December 2004

ARAMEX International Limited and subsidiaries Consolidated financial statements 31 December 2004 Contents Page Report of the Auditors 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of cash flow 4 Consolidated statement of changes in shareholders’ equity 5 Notes 6-18

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