# **Exhibit 2.3 – Profitability Analysis by Industry**

_<u>Medians by year and average median and compounded average growth rate of period 2003-2007</u>_

|||**Travel and l**|**eisure**|||**Construction an**|**d materials**||
|---|---|---|---|---|---|---|---|---|
||**2003**|**2007**|**Average**|**CAGR**|**2003**|**2007**|**Average**|**CAGR**|
|**Operating profit margin, %**|||||||||
|Peer group|13.9|12.0|13.9|-2.9|13.8|14.4|16.1|0.8|
|Egypt - Top tier|53.0|28.1|33.4|-11.9|19.8|20.3|27.8|0.4|
|**ROA, %**|||||||||
|Peer group|3.1|3.4|3.2|1.4|3.7|6.4|5.8|11.5|
|Egypt - Top tier|4.5|9.5|8.8|16.1|9.5|10.7|14.7|2.3|
|**ROE, %**|||||||||
|Peer group|2.9|4.4|3.5|9.2|4.9|10.5|10.1|16.4|
|Egypt - Top tier|2.9|17.9|15.7|44.1|12.8|18.7|22.1|7.8|
|**Yearly real sales growth, %**|||||||||
|Peer group|NA|NA|1.9|NA|NA|NA|10.7|NA|
|Egypt-Top tier|NA|NA|28.9|NA|NA|NA|21.8|NA|
|||**Consumer s**|**taples**|||**Industrial c**|**yclical**||
||**2003**|**2007**|**Average**|**CAGR**|**2003**|**2007**|**Average**|**CAGR**|
|**Operating profit margin, %**|||||||||
|Peer group|7.8|8.8|8.4|2.5|7.5|7.9|8.1|0.9|
|Egypt - Top tier|9.1|4.0|5.8|-15.2|19.1|12.4|17.8|-8.3|
|**ROA, %**|||||||||
|Peer group|5.6|6.3|5.4|2.2|4.5|5.7|5.3|5.1|
|Egypt - Top tier|9.9|10.2|9.8|0.7|10.3|16.7|13.3|10.2|
|**ROE, %**|||||||||
|Peer group|7.0|10.1|7.6|7.6|5.4|9.6|8.0|11.9|
|Egypt - Top tier|18.4|24.8|21.0|6.1|19.8|24.8|23.3|4.6|
|**Yearly real sales growth, %**|||||||||
|Peer group|NA|NA|3.0|NA|NA|NA|8.8|NA|
|Egypt-Top tier|NA|NA|-5.4|NA|NA|NA|14.0|NA|

_Source: Worldscope; World Bank staff analysis_

## **<mark>Box 1 – Median regressions: A robust technique to statistically assess country differences</mark>**

<mark>In the median regression models, we analyze all available firm information from all countries. The purpose is to estimate whether there are significant differences between Egyptian firms and firms in the benchmark group. In doing so, we estimate the coefficient of an indicator variable that takes on the value 1 if the firm is Egyptian and 0 otherwise. The estimated coefficient on the indicator variable represents the difference between the typical Egyptian firm versus the typical non-Egyptian firm. This value is the reported value. To account for differences in industry composition for each country we add industry-fixed effects to the model.</mark> <mark>We use median regressions (a particular type of quantile regressions) because balance sheet and profit and loss data are noisy. Thus averages are misleading and medians are a better central tendency indicator. Therefore we don’t use Ordinary Least Squares (OLS). The interpretation of the coefficients is similar, except the result of a median regression represents the expected value for a median firm, instead of the average firm as in OLS.</mark>

**Exhibit 2.4 – Statistical differences between the median Egyptian firm and the median benchmark group firm** _<u>Quantile regressions for period 2003-2007</u>_

||_Difference_<br>**Median diffe**<br>**countries, (pp**|_Statistically_<br>_different?_<br>**rence with LMI**<br>**)**|_Difference_<br>**Median di**<br>**gr**|_Statistically_<br>_different?_<br>**fference with peer**<br>**oup, (pp)**|
|---|---|---|---|---|
|**Real sales growth, %**|6.8|Yes|3.4|No|
|**Op. profit margin, %**|8.4|Yes|7.5|Yes|
|**ROA, %**|6.9|Yes|6.3|Yes|
|**ROE, %**|15.8|Yes|14.6|Yes|
|**Real asset growth, %**|5.2|Yes|-0.9|No|

_Source: Worldscope; World Bank staff analysis Note: Differences are expressed in percentage points. Statistically different refers to a p-value less than 0.1._ 7