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EFG-Hermes Holdings EFGD 3rd Quarter Results



  EFG-Hermes Holdings (EFGD) - 3rd Quarter Results

RNS Number : 4235R
EFG-Hermes Holdings SAE
19 November 2012
 

                    EFG HERMES REPORTS THIRD QUARTER 2012

GROUP NET PROFIT OF EGP45 MILLION; ON TOTAL OPERATING REVENUE OF EGP471 MILLON

 

Cairo, November 19^th, 2012  - EFG Hermes reported  today Group net profit  of 
EGP45 million in 3Q2012, up 37% Y-

o-Y, from a net profit of EGP33 million in 3Q2011. The Group operating revenue
rose 19% Y-o-Y to EGP471 million

in 3Q2012, from EGP396 million a  year earlier. Total assets stood at  EGP56.4 
billion at the end of 3Q2012.

 

Key Highlights

 

·      Group  revenue reached  EGP471 million  in 3Q2012  and Group  operating 
expenses came  at EGP327  million, resulting  in a  net profit  after tax  and 
minority of EGP45 million.

 

·      The Investment Bank revenue rose 18% Y-o-Y to EGP176 million in 3Q2012,
reflecting the increase  in revenues  booked by capital  markets and  treasury 
operations during the quarter.

 

·      Capital markets & treasury operations revenue rose 243% Y-o-Y to  EGP41 
million on the back of higher returns on investments.

 

·      Fees and  commission revenue  was broadly  flat, slipping  2% Y-o-Y  to 
EGP135 million  in 3Q2012.  The improvement  in Brokerage  revenue offset  the 
decline in revenue  generated from  Asset Management,  Investment Banking  and 
Private Equity.

 

·      Credit Libanais net  income for the quarter,  came at USD15.7  million, 
down 9%  Y-o-Y  and  resulting in  an  after-tax  RoAE of  13.7%.  The  Bank's 
operating revenue was  driven by  growth in  net interest  income and  trading 
income.

 

·      Brokerage remained #1 on the Egyptian Stock Exchange and on the  Kuwait 
Stock Exchange,  and  maintained a  leading  position  in a  number  of  other 
regional markets. Brokerage executions declined 14.4% Q-o-Q to USD4.0 billion,
while Brokerage  revenue  increased 22%  Q-o-Q  to EGP62  million,  reflecting 
stronger executions in Egypt where commissions are relatively higher.

 

·      EFG Hermes AuM's stood at USD3.3  billion at the end of 3Q2012,  rising 
7% Q-o-Q. This increase is attributed to an improvement in local and  regional 
markets' performance coupled with net cash inflows.

 

 

·      EFG-Hermes  Investment Banking  closed a  landmark M&A  transaction  in 
3Q2012, advising Al Mokhtabar Laboratories on its merge with Al Borg Group  in 
the largest  M&A in  Egypt year  to  date and the  largest in  the  healthcare 
industry in the Arab world.

 

·      Private Equity AuMs stood at USD690 million, with no exits taking place
during the quarter.

 

A.  GROUP PERFORMANCE

I. Performance Indicators and Financial Highlights

 

Table 1: Key Operating Indicators

Please refer to attached PDF

*The decline in Private  Equity's AuM is  due to the  expiration of ECP  III's 
investment period, the fund is included at NAV

Source: EFG Hermes and Crédit Libanais data

 

Table 2: Investment Bank/Commercial Bank Financial Performance - 3Q2012

Please refer to attached PDF

Source: EFG Hermes management accounts

 

 

Table 3: Group Financial Performance - 3Q2012

Please refer to attached PDF

Source: EFG Hermes management accounts

 

 

Table 4: Financial Performance - 9M2012

Please refer to attached PDF

Source: EFG Hermes management accounts

 

 

II.      Group Revenue

 

Table 5: Group Revenue

Please refer to attached PDF

Source: EFG Hermes management accounts

 

Group revenue rose 19%  Y-o-Y to EGP471 million  in 3Q2012, on higher  revenue 
generated from the  Investment Bank  and the Commercial  Bank, increasing  18% 
Y-o-Y and 20% Y-o-Y, respectively. In 3Q2012, the Investment Bank  represented 
37% of the Group revenue while the Commercial Bank represented the  remaining, 
63%.

The Commercial Bank revenue rose 20% Y-o-Y to EGP295 million in 3Q2012, driven
by growth  in net  interest income  and trading  income. The  Investment  Bank 
revenue which increased 18% Y-o-Y to EGP176 million was boosted by an increase
in  the  revenue  generated  from  capital  markets  &  treasury   operations, 
particularly, returns on investments as market performance improved.

On a quarterly basis, the Group revenue was flat, slipping 1%. The  Commercial 
Bank revenue rose  4% Q-o-Q, while  the Investment Bank  revenue declined  10% 
Q-o-Q on the back of  lower fee and commission  revenue. Indeed, 2Q2012 was  a 
strong comparable quarter  as it  included strong revenue  generated from  the 
Investment Banking division.

For 9M2012,  the Group  revenue rose  9% Y-o-Y  to EGP1.4  billion, driven  by 
higher revenue generated from the  Commercial Bank. All the commercial  bank's 
operating revenue lines showed solid improvement Y-o-Y, pushing revenue up 15%
Y-o-Y to EGP844 million. The Investment  Bank revenue was flat, down 1%  Y-o-Y 
to EGP537 million, as the decline  in revenue generated from Asset  Management 
and Private Equity  was largely offset  by higher revenue  generated from  the 
returns on investments.

 

III.     Group Operating Expenses

 

Table 6: Investment Bank/Commercial Bank Operating Expenses - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

Table 7: Group Operating Expenses - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

Table 8: Group Operating Expenses - 9M2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

Group operating expenses declined 1% Q-o-Q to EGP327 million in 3Q2012, driven
by a 5% Q-o-Q  decline in the Investment  Bank operating expenses.  Meanwhile, 
the Group  operating  expenses  rose  19% Y-o-Y  in  3Q2012,  largely  due  to 
exceptional cost items on both the  Commercial Bank (+31%) and the  Investment 
Bank (+10%)  levels. Group  operating expenses  were split  50/50 between  the 
Investment and the Commercial Bank in 3Q2012.

The increase in operating expenses on  the Commercial Bank side, up 31%  Y-o-Y 
in 3Q2012, was driven by 24% Y-o-Y increase in the employee expenses and a 42%
Y-o-Y increase  in other  operating  expenses. This  is  attributed to  a  16% 
government imposed  salary  increase  and  a one  off  tax  charge  of  USD0.5 
million/month amortized from May to year end.

For the  Investment Bank,  the 10%  Y-o-Y increase  in operating  expenses  in 
3Q2012 is attributed  to a  67% Y-o-Y  increase in  other operating  expenses, 
which offset the decline  of 6% Y-o-Y in  the employee expenses. However,  the 
Group maintained its  operating profits margins,  net operating profit  margin 
came at 30% in 3Q2012, unchanged Y-o-Y.

The Group operating expenses declined 1% Q-o-Q. The Investment Bank  operating 
expenses declined 5%, largely offset by the Commercial Bank operating expenses
which rose 4% Q-o-Q. The decline in the Investment Bank operating expenses was
largely attributed  to  lower employee  and  other operating  expenses,  which 
declined 6% Q-o-Q and 3% Q-o-Q, respectively.

For the 9M2012, the Group operating expenses rose 11% Y-o-Y to EGP953 million,
mirroring the 22% Y-o-Y  increase in the  Commercial Bank operating  expenses. 
Meanwhile,  the  increase  in  the  Investment  Bank  operating  expenses  was 
restricted to 3% Y-o-Y. The increase in the Commercial Bank operating expenses
in 9M2012 reflects one-off items and the imposed salary increase. 

 

B.  THE INVESTMENT BANK

I.  Investment Bank Revenue

 

Table 9: Investment Bank Revenue

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

The Investment  Bank revenue  rose  18% Y-o-Y  to  EGP176 million  in  3Q2012, 
reflecting the  increase in  revenue booked  by capital  markets and  treasury 
operations during the quarter.

Fee and  commission revenue  was broadly  flat, slipping  2% Y-o-Y  to  EGP135 
million in 3Q2012. The improvement in Brokerage revenue offset the decline  in 
revenue generated  from  Asset  Management,  Investment  Banking  and  Private 
Equity.

Capital markets & treasury operations revenue rose 243% Y-o-Y to EGP41 million
on the back of higher returns on investments. Unrealized gains on equity funds
came at EGP23.4 million compared to a  loss of EGP4.2 million a year  earlier, 
as the markets rallied during 3Q.

On a Q-o-Q, the Investment Bank revenue declined 10% on the back of lower  fee 
and commission revenue. Fees and commissions declined 27% Q-o-Q, mainly due to
lower revenue generated from  the Investment Banking  division compared to  a  
quarter earlier, as 2Q2012 was a relatively strong quarter.

For the 9M2012, the Investment Bank revenue was flat, down 1% Y-o-Y to  EGP537 
million. The positive market performance pushed revenue generated from capital
markets and treasury operations  up 55% Y-o-Y to  EGP90 million, however,  the 
contraction in revenue generated from the fees and commissions business, which
fell 7% Y-o-Y to EGP447 million, weighted down on the Investment Bank revenue.
The decline in fee  and commission revenue  was on the  back of lower  revenue 
generated from Asset Management and Private Equity compared to the same period
last year.

 

Fee and Commission Revenue

 

  Figure 10:  Brokerage Av.  Daily  Commission              Figure  11:  Asset 
Management AuMs

  

      Please  refer  to  attached   PDF                                        
Please refer to attached PDF

            *In 1Q2011, av. daily comm. in Egypt is calc. on 25 trading day

                                    Source:             EFG             Hermes 
                                                                 Source:   EFG 
Hermes 

 

Fee and  commission revenue  slipped 2%  Y-o-Y to  EGP135 million  in  3Q2012, 
supported by Brokerage revenue. On a quarterly basis, fees and commission fell
27%, mainly due  to lower Q-o-Q  revenue generated by  the Investment  Banking 
division.

Brokerage revenue rose  34% Y-o-Y  to EGP62  million in  3Q2012, supported  by 
strong revenue  generated  from Egypt  Brokerage  as the  market  volumes  and 
performance improved. Asset  Management revenue  declined 25%  Y-o-Y to  EGP25 
million on the  back of lower  management and incentive  fees. Private  Equity 
revenue declined  16%  Y-o-Y  to  EGP26  million  on  lower  management  fees. 
Investment Banking  revenue  declined 19%  Y-o-Y  to EGP22  million  on  lower 
advisory fees booked during the quarter.  

Table 12: Fee and Commission Revenue - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

For 9M2012, fee and  commission revenue declined 7%  Y-o-Y to EGP447  million. 
Brokerage revenue was flat, down 1% Y-o-Y to EGP175 million. Asset  Management 
revenue declined  24% Y-o-Y  to EGP76  million  mainly on  the back  of  lower 
management fees and to  a lower degree, lower  incentive fees. Private  Equity 
revenue declined 29% Y-o-Y to EGP78  million on lower management fees and  the 
disappearance of incentive fees. Investment  Banking was the only division  to 
recognize higher revenue Y-o-Y in 9M2012, with its revenue rising 24% Y-o-Y to
EGP118 million on strong advisory fees booked during 2Q2012.  

Table 13: Fee and Commission Revenue - 9M2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

Fee and Commission Revenue - Brokerage

 

Regional markets' performance rebounded in 3Q2012, seeing most indices gaining
over the quarter. The MSCI EM Index rose  7.0% Q-o-Q and S&P Pan Arab Comp  ML 
Index added 1.9%  over the  same period.  Volumes however  declined, with  the 
average regional volumes falling 31.3% Q-o-Q (14.0% Q-o-Q excluding KSA).  EFG 
Hermes Brokerage executions declined 14.4% Q-o-Q to USD4.0 billion compared to
USD4.7 billion in 2Q2012, while our  Brokerage revenue increased 22% Q-o-Q  to 
EGP62 million in  3Q2012, reflecting  stronger executions in  Egypt where  our 
commissions are relatively higher.

Brokerage  revenue  breakdown  across  different  customer  segments  remained 
essentially unchanged from  the previous quarter.  Revenue generated from  the 
retail business (which includes online, call center, branches, VIP individuals
and HNWI), accounted for 72% of  total brokerage revenue in 3Q2012 versus  70% 
in 2Q2012. Western institutional client  accounted for 21% of total  Brokerage 
revenue at the end of 3Q2012 versus 20% in 2Q2012, and Regional  institutional 
clients accounted for the remaining 7%.

Figure 14: Brokerage Revenue by Desk

Please refer to attached PDF

*3Q2012 Revenue Breakdown

Source: EFG Hermes

 

Egypt

 

Figure 15: Egypt Executions and Market Share

Please refer to attached PDF

 

Source: EGX, EFG Hermes

 

Due to the summer holidays, the Holy  month of Ramadan, and the Eid break  all 
falling during 3Q2012, volumes  in the Egyptian  market declined 10.1%  Q-o-Q. 
The Hermes  Financial  Index  (HFI)  performance  however  improved  over  the 
quarter, gaining 23.2%.

Despite lower  trading volumes  seen  in the  quarter,  the firm  executed  an 
average of 75% of the total  foreign investors' transactions during the  month 
of July and August, with our executions 69% higher than the following  broker. 
This supported our  market share  which rose to  34.0% in  3Q2012 compared  to 
21.3% last quarter, with a number one ranking in 3Q2012 and 9M2012. EFG Hermes
Brokerage executed two special transactions worth of EGP2.9 billion in 3Q2012,
however if we exclude these transaction our market share would stand firmly at
29.4%.

Revenue generated from Egypt brokerage  increased 40.6% to EGP50.3 million  in 
3Q2012, bringing its contribution  to the Group's  total brokerage revenue  to 
81% from 70% in 2Q2012.

 

UAE

 

Figure 16: UAE Executions and Market Share

Please refer to attached PDF

Source: DFM, ADX, EFG Hermes

 

UAE markets  performance was  positive  in 3Q2012,  with the  Dubai  Financial 
Market General Index  (DFMGI) gaining  8.7% Q-o-Q  and Abu  Dhabi Index  (ADI) 
gaining 6.4% over the same period. However, both markets continued to  witness 
low trading volumes over the quarter, especially on the Dubai Financial Market
(DFM) where volumes declined 31.2% Q-o-Q.  The drop on the Abu Dhabi  Exchange 
(ADX) was  less sharp,  with  volumes declining  7.0%  Q-o-Q. The  decline  in 
volumes is mainly  attributed to  having summer  holidays, the  Holy month  of 
Ramadan, and the Eid break all falling during 3Q2012.

Slower individual retail client participation in 3Q2012, resulted in a decline
in our market share on  DFM, coming at 12.0%  compared to 14.1% last  quarter. 
This was reflected on our ranking, which came at 4th place in 3Q2012.

On the  ADX, EFG  Hermes Brokerage  managed to  increase its  market share  in 
3Q2012 to 12.5% from  11.3% in 2Q2012  through executing special  transactions 
for foreign institutional clients. Our ranking stood at 4th place in 3Q2012.

Revenue from  UAE  brokerage  operations reached  EGP2.0  million  in  3Q2012; 
declining 43.8% Q-o-Q. As  a result, UAE's contribution  to the Group's  total 
brokerage revenue fell to 3% from 7% in 2Q2012.

 

Saudi Arabia

Figure 17: KSA Executions and Market Share

Please refer to attached PDF

 

Source: Tadawul, EFG Hermes

 

The Saudi Stock Market  (Tadawul) activity was  weak, with turnover  declining 
34.2% Q-o-Q in 3Q2012 mainly due to seasonal holidays falling in the  quarter. 
The Tadawul All Share  Index (TASI) performance was  muted, gaining 1.9%  over 
the quarter.

The market  continues  to  be  dominated by  retail  investors,  giving  local 
commercial banks  an edge  in  capturing greater  market shares  by  executing 
through their brokerage arms, EFG Hermes Brokerage nevertheless maintained its
market share from last quarter at 0.3% in 3Q2012.

EFG Hermes KSA brokerage revenue reached EGP1.5 million in 3Q2012, down  27.4% 
Q-o-Q and represented 3% of the Group's total brokerage revenue.

Oman

Figure 18: Oman Executions and Market Share

Please refer to attached PDF

 

Source: Muscat Securities Market, EFG Hermes

 

Third quarter was a quiet quarter for the Muscat Securities Market (MSM), with
volumes increasing 2.1% Q-o-Q and  the Muscat Securities Index (MSM30)  losing 
2.7% over the same period.

EFG Hermes Brokerage market share declined  to 10.9% with a 6th place  ranking 
in 3Q2012 mainly due to the decrease in foreign and GCC institutional investor
activity in the Omani market.

EFG Hermes Oman brokerage revenue came in at EGP0.9 million, down 37.2%  Q-o-Q 
and representing 1% of the Group's total brokerage revenue.

Kuwait

 

Figure 19: Kuwait Executions and Market Share

Please refer to attached PDF

 

Source: Kuwait Securities Exchange, EFG Hermes

Volumes on the  Kuwait Stock Exchange  (KSE) in 3Q2012  fell 30.5% Q-o-Q.  The 
holiday's season in addition to internal political instability contributed  to 
the weaker activity. The KSE Index however gained 3.3% Q-o-Q.

EFG Hermes Brokerage managed to increase  its market share to 28.4% in  3Q2012 
from 27.8% a quarter earlier, successfully positioning itself as the number  1 
broker on KSE during 3Q2012 compared to number 2 last quarter. Despite  fierce 
market competition, the  firm achieved the  1st ranking in  all months of  the 
quarter.

Kuwait Brokerage revenue decreased 10.3% Q-o-Q to EGP6.7 million, bringing its
contribution to the Group's total brokerage revenue to 11% in 3Q2012.

Jordan

 

In 3Q2012, the Amman Stock Exchange (ASE) Index gained 1.1% Q-o-Q and  volumes 
continued to decline, falling 25.4% Q-o-Q.

EFG Hermes  Brokerage's  market share  and  ranking improved  considerably  in 
3Q2012, with market share increasing from 4.7% in 2Q2012 to 7.4% this quarter,
and our ranking  jumping from  the 15th  position in  2Q2012 to  the 7th  this 
quarter. This improvement  is mainly attributed  to higher foreign  investors' 
activity, which constitute a  major segment of  EFG Hermes Jordan's  clientele 
base.

In 3Q2012, revenue from Jordan brokerage operations reached EGP0.8 million;  a 
4.1% Q-o-Q  decline,  bringing  Jordan's contribution  to  the  Group's  total 
brokerage revenue to 1% from 2% in 2Q2012.

Research

 

Figure 20: Research Coverage Universe

Please refer to attached PDF

 

Source: EFG Hermes

 

The Research department coverage reached 138  companies at the end of  3Q2012, 
distributed across the region (Egypt  23, UAE 23, KSA  53, Kuwait 9, Oman  13, 
Qatar 9, Lebanon 3, Morocco 3 and  Jordan 2). Currently EFG Hermes covers  59% 
of the regional market capitalization.

The research department covers 11 economies from a macro level and 8 countries
in terms of  regular strategy  notes. In  addition, the  research team  issues 
regular publications, including daily morning round-ups, after end of  session 
wrap-ups and a regional monthly product.

EFG Hermes Research now offers investors new research portal. Available to EFG
Hermes clients,  Research  Online  provide both  simple  and  advanced  search 
functionality and  access to  EFG Hermes  Research's full  three-year  product 
archive.

Most Recent,  EFG  Hermes  Research topped  Euromoney's  MENA  research  poll. 
Competing against 34  regional and international  research houses, EFG  Hermes 
Research earned top ranking in 7 of 15 categories and ranked the "Best Overall
Research House" in the region for a fifth time, according to Euromoney's  2012 
rankings.

Fee and Commission Revenue - Asset Management

 

Figure 21: Development of Listed Assets under Management

Please refer to attached PDF

 

Source: EFG Hermes

EFG Hermes AuM's  stood at  USD3.3 billion  at the  end of  3Q2012, rising  7% 
Q-o-Q. This  increase  in  AUM's  during  the  quarter  is  attributed  to  an 
improvement in local and regional  markets' performance coupled with net  cash 
inflows, which is seen for the  first time since 3Q2010. The positive  markets 
performances represent 5.4% of the AuMs improvement while the net cash  inflow 
represented the remaining, 1.6%.

EFG Hermes Asset  Management team  remains focused to  maintain a  diversified 
client base and attract more long-term and institutional clients. This is seen
evident in the development of AuMs breakdown across different client  segments 
throughout the quarters.  During 3Q2012, institutional  clients accounted  for 
24.8% of total AuMs  compared to 24.0% last  quarter; SWF clients  represented 
20%   of    total   AuMs    versus   19.0%    a   quarter    earlier,    while 
Foundation/Pension/Insurance clients  contribution declined slightly to  41.6% 
versus 42.1% last quarter.

Investor mix was broadly  unchanged in 3Q2012 in  terms of funds  origination. 
MENA-based clients represented 77.9%  versus 77.6% last quarter;  Europe-based 
clients rose  to 20.5%  from  20.0% a  quarter  earlier; while  the  USA-based 
clients declined to 1.0% this quarter compared to 1.7% in 2Q2012.

Figure 22: Assets under Management by Geography

 Please refer to attached PDF

Source: EFG Hermes Asset Management

 

Fee and Commission Revenue - Investment Banking

 

Despite  the  challenging   investment  climate  in   the  region  and   Egypt 
specifically, the Investment Banking division managed to successfully close  a 
landmark M&A  transaction in  Egypt  during the  third quarter.  The  division 
advised Al Mokhtabar Laboratories  on its merge with  Al Borg Group to  create 
the largest private medical diagnostics business in the Middle East and  South 
Asia, "Integrated Diagnostics Holding".  This transaction remains the  largest 
M&A in Egypt year to  date and the largest in  the healthcare industry in  the 
Arab world, demonstrating the team's unmatched ability to attract and  execute 
large transactions amidst tough market conditions.

Our pipeline of transactions is healthy in spite of unfavorable conditions  in 
the Egyptian and regional  markets. The department  is focusing in  increasing 
its pipeline in  Saudi Arabia in  addition to Jordan,  Lebanon, and UAE.  This 
comes in an effort to build a  stronger regional pipeline and tap key  markets 
outside Egypt where operating environment continues to be difficult.

Fee and Commission Revenue - Private Equity

 

Private Equity assets under management  reached USD0.69 billion as of  3Q2012, 
including the  NAV of  EFG Capital  Partners  Fund III  instead of  its  total 
commitments as reported in 2Q2012. The team continues to be highly focused  on 
portfolio  management  providing  the  necessary  support  to  the   different 
management teams. 

Capital Markets and Treasury Operations Revenue

 

Table 23: Capital Markets and Treasury Operations Revenue

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

Capital markets & treasury operations revenue rose 243% Y-o-Y to EGP41 million
in 3Q2012, on the back of higher returns on investments as markets performance
improved.

Strong revenue booked  as unrealized gains  on equity funds  drove returns  on 
Investments up, rising 910%  to EGP31 million in  3Q2012. Unrealized gains  on 
equity funds reached EGP23.4  million in 3Q2012 compared  to a loss of  EGP4.2 
million a year earlier.

Net interest income rose 5%  Y-o-Y to EGP9 million  in 3Q2012 supported by  fx 
gains. Fx gains came at EGP1.9 million in 3Q2012 compared to a loss of  EGP0.3 
million in 3Q2011. On the other  hand, net interest earned declined 19%  Y-o-Y 
to EGP7.3 million during  the same quarter, as  money market funds' (MMF)  saw 
less activity in 3Q2012.

On a  Q-o-Q  basis,  revenue  generated  from  capital  markets  and  treasury 
operations rose 414% as the quarter saw higher returns on investments compared
to a quarter earlier. Net  interest income declined 12% on  the back of a  62% 
decline in fx-gains.  The sharp  decline is attributed  to a  one-off fx  gain 
included in 2Q2012.

In 9M2012, capital  markets & treasury  operations revenue rose  55% Y-o-Y  to 
EGP90 million driven by strong returns  on investments, which rose 157%  Y-o-Y 
to EGP57 million.  With markets  improving Y-o-Y, unrealized  gains on  equity 
funds reached EGP43.3 million in 9M2012 compared to a loss of EGP12.4  million 
in the same period last year. Net  interest income declined 9% Y-o-Y to  EGP32 
million on the back of lower net interest earned as money market funds'  (MMF) 
saw less activity in 9M2012.

 

II. Investment Bank Operating Expenses

 

Table 24: Investment Bank Operating Expenses - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

Table 25: Investment Bank Operating Expenses - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

Table 26: Investment Bank Operating Expenses - 9M2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

 

The Investment Bank operating expenses declined 5% Q-o-Q to EGP164 million  in 
3Q2012 ,  with employee  expenses  contracting 6%  Q-o-Q and  other  operating 
expenses declining 3% Q-o-Q. The  reduction in the employee expenses  reflects 
high  comparable  quarter,  2Q2012.   Other  operating  expenses  decline   is 
attributed to a decline in most of the other operating expense items.

On a Y-o-Y  basis, the Investment  Bank operating expenses  rose 10% Y-o-Y  in 
3Q2012, on the back  of higher other  operating expenses. Meanwhile,  Employee 
expenses declined  6%  Y-o-Y  to  EGP110 million  in  3Q2012,  reflecting  the 
headcount reduction of 8% Y-o-Y.

Other  operating  expense  rose  67%   Y-o-Y  to  EGP54  million  in   3Q2012. 
Consultancy, legal and third party fees reached EGP19.5 million in 3Q2012  and 
general expenses rose to EGP3.7 million.

On the other hand, travel expenses fell 14% Y-o-Y to EGP3.8 million in 3Q2012.
Occupancy expenses  declined 15%  Y-o-Y to  EGP11.7 million.  Promotional  and 
advertising  expenses  contracted  22%  Y-o-Y  to  EGP2.6  million  on   lower 
promotional and advertising  expenses, telephone/fax/mobile expenses  declined 
17% Y-o-Y to EGP2.0 million, office  expenses fell 8% Y-o-Y to EGP4.8  million 
and data communication expense declined 34% Y-o-Y to EGP5.4 million.

For 9M2012, operating expenses rose 3%  Y-o-Y to EGP500 million. The  employee 
expenses slipped 4%  Y-o-Y to  EGP332 million,  on the  back of  the 8%  Y-o-Y 
decline in the number  of employees, while other  operating expenses rose  20% 
Y-o-Y to EGP168 million.

 

C.  THE COMMERCIAL BANK

Table 27: Commercial Bank Key Financial Highlights and Ratios

Please refer to attached PDF

* Including extraordinary items

** Equity includes 1H2012 net profits & dividend distribution

*** Including net profits of the period

Source: Crédit Libanais

 

I. Overview

 

Despite the ongoing  grave political  turmoil in the  region, Credit  Libanais 
"CL" continues to demonstrate resilient  performance, resulting into an  after 
tax RoAE of 13.7%, the third highest among peers in the country.

Net Income for the quarter declined  Q-o-Q. This can be broadly attributed  to 
geopolitical, competition and seasonal factors (affecting interest expense and
trade finance volumes), as well as to government imposed salary increases and,
one-off, arrears tax charges.

 

However, 9M2012  Y-o-Y  results  better  demonstrate  the  bank's  longer-term 
organic revenue growth as a result of continuous revenue and cost initiatives.

Major  factors  affecting  this  year's  overall  positive  organic  operating 
performance, is the imposition of a USD4 million one-off, arrears, tax  charge 
(which is being amortised as a  general operating expense at USD0.5 million  a 
month from May'12 to year-end) and  a 16% government imposed salary  increase, 
feeding gradually into the financials each month. Tax indemnity provisions  in 
the SPA related to the acquisition of 63.7% of CL by EFG Hermes Holding, allow
EFG Hermes to claw-back 63.7% of this tax charge at the holding company level.

CL continues to steadily increase  its Loans/Deposits ratio (32.9%) closer  to 
the 34.5%  market  average  and, despite  the  continued  spread  compression, 
successfully defends a  NIM of 1.8%,  close to the  1.9% market average.  CL's 
loan portfolio quality is  one of the  highest in the  Lebanese market and  it 
continues to maintain healthy capital  adequacy ratios well over the  required 
regulatory minimums.

CL delivers one of the highest RoAE in the Lebanese market, despite its  57.7% 
cost/income ratio being higher than the  46% market average. This high  return 
is attributed to its low average cost/employee ratio, the high quality of  its 
loan  portfolio  requiring  low  provisions  and  its  successful  collections 
initiative. Faster than market growth in organic revenue, is generated through
increasing the loans/deposits ratio, increasing market share in trade  finance 
volumes and very tight control of other operating expenses. Emphasis is  being 
placed in  increasing  branch  productivity  in  order  to  address  the  high 
cost/income ratio.

Credit International, CL's new subsidiary in Senegal continues to grow and  is 
now a net contributor to  the Bank's bottom line, by  USD67,000 at the end  of 
3Q2012, while Iraq, operational since 1Q2012, is still early to break-even.

Finally, last August, the bank  successfully migrated its IT operating  system 
to the  new  Mysis  platform.  The  next step  will  be  to  upgrade  its  MIS 
functionality.

Q-o-Q Results

Credit Libanais posted  a 3Q2012 net  income after tax  of USD15.7 million,  a 
Q-o-Q decline of 9.1%. This  was a result of the  combination of a 4.0%  Q-o-Q 
growth in  total operating  income, a  6.1% Q-o-Q  growth in  total  operating 
expenses and higher taxes for the quarter.

Total operating income for  the quarter came at  USD47.1 million, up 4%  Q-o-Q 
mainly due to a 71.6% Q-o-Q  increase in trading income, more than  offsetting 
Q-o-Q the small declines of 1.2% and 3.3% in NII and F&Cs, respectively.

Lending  spreads  are  narrowing  due  to  competition  and  interest  expense 
continues to grow as a result of fierce competition among banks in Lebanon  to 
over-stock deposits, in defence to the political turmoil in the region.

CL has  been very  successful in  growing steadily  its organic  fee  business 
focusing on trade  finance, which  usually goes  through a  trough during  the 
summer months.

 

Total operating expenses  for the quarter  continued to increase  at a  faster 
pace due to the previously mentioned salary and tax charges.

Y-o-Y Results

Net Income after tax for 9M2012 was USD51.2 million, flat Y-o-Y to the  9M2011 
result, on a 13% increase  in total operating income  and a 19.2% increase  in 
total operating  expenses. Excluding  the USD0.5  million monthly  tax  charge 
amortisation, 9M2012 Net Income would  have been USD53.7 million, 4.9%  higher 
Y-o-Y.

Total operating income  for 9M2012  came in  at USD136.9  million, 13%  higher 
Y-o-Y, with NII growing at 5%, Trading Income growing at 119% and F&C  growing 
at almost 16%, in light of the successful campaign to grow trade finance.

Total operating expenses  for the  same period,  came in  at USD79.5  million, 
19.2% higher Y-o-Y  highlighting the  base effect  of salary  and arrears  tax 
charge increases.

 

II.    Selected Financials & qualitative information

 

Assets: 

Total Assets reached USD7.7 billion at the end of the quarter, an increase  of 
3.2% Q-o-Q and 9.7% Y-o-Y, primarily driven by corporate loan growth.

The composition of total assets was relatively stable Q-o-Q. Loans represented
28.5% of total assets, securities 43.2% and cash 25.0%.

Total assets allocation  by business line,  remained virtually unchanged  from 
the previous  quarter  with   20.3%  allocated to  retail  banking,  13.2%  to 
corporate banking, 65.4% to treasury & capital markets and 1.2% to  investment 
banking.

 

Loans:

Total Loans reached USD2.20 billion at the end of 3Q2012, an increase of  3.5% 
Q-o-Q and 14.2% Y-o-Y.

Loan growth by  type: Corporate  loans grew  by 5.7%,  SME loans  by 3.6%  and 
retail loans by 2.5%, on a Q-o-Q basis.

Loan distribution  by type:  In  3Q2012, corporate  and SME  loans  marginally 
increased Q-o-Q their contribution to the bank's total loan book to 43.9%  and 
15.3% respectively,  at the  equally marginal  expense of  retail loans  which 
reached 40.8%.

Loan distribution by  sector: Personal  and consumer  loans and  loans to  the 
trading sector posted marginal Q-o-Q declines to 47.0% and 27.1% of the  total 
loan book, respectively.  Loans to  the industrial sector  increased to  14.9% 
from 13.3% a quarter earlier and loans to the construction sector increased to
8.1% from 7.7% over the same period.

Loan quality: Asset quality continued to improve, with the NPL ratio declining
further to 3.6%, as  the Bank's effort  to collect bad  debts continued to  be 
successful. Coverage ratio reached  95.0%. Of total loans,  78% is covered  by 
mortgage, cash or bank guarantees, as collateral, in addition to any  relevant 
reserves, where applicable.

Loans by currency:  At the  end of  3Q2012, the  loan book  was split  38%/62% 
between local and foreign currency, respectively. Loan growth is driven mainly
by loans in foreign currency.

 

Deposits:

Total deposits reached USD6.7 billion at the end of 3Q2012, up 2.4% Q-o-Q  and 
7.9% Y-o-Y, driven mainly by an increase in Term and Sight deposits.

Deposits contribution by type: Savings accounts, the main contributor to total
deposits, represented 60.3%  of deposits  at the end  of 3Q2012  from 61.4%  a 
quarter earlier. Term deposits represented 28.8% from 27.9% a quarter  earlier 
and sight deposits represented 10.9% versus 10.7% a quarter earlier.

Deposits by sector: By the end of 3Q2012, deposits were split 96%/4% between
retail and corporate, respectively.

Deposits by currency: The split between foreign and local currency deposits
came at 53%/47%, respectively.

Loans/Deposits ratio: The  loans/deposits ratio reached  32.9%, up from  31.1% 
one year ago.

 

Net Interest income: 

Net Interest Income for  the quarter reached USD31.5  million, a 1.2%  decline 
Q-o-Q and USD94.7 million for 9M2012, a 4.9% increase Y-o-Y.

The quarterly reduction in  NII reflects the higher  CAGR in interest  expense 
and the decline in lending spreads, both due to increasing market competition.

 

Fee & Commission Income:

F&Cs for the  quarter came  at USD8.8  million, a  decline of  3.3% Q-o-Q  and 
USD25.9 million for 9M2012, an increase of 15.8% Y-o-Y.

The quarterly decline in F&Cs reflects the lower economic activity due to  the 
summer period and the  regional political turmoil.  The Y-o-Y robust  increase 
reflects progress made in capturing a greater market share in trade-finance.

 

Trading income:

Trading Income reached USD6.5  million in 3Q2012, an  increase of 71.6%  Q-o-Q 
and USD14.4 million for 9M2012, an increase of 118.8% Y-o-Y.

Both robust  increases are  a combination  of m-t-m  gains in  the  securities 
portfolio and gains from securities and fx proprietary trading.

 

Net Provisions: 

Net provisions in 3Q2012 came  in at a negative  USD0.5 million compared to  a 
positive of USD0.9 million in 2Q2012. For 9M2012, net provisions came in at  a 
negative USD0.1 million  compared to  a net  collection of  USD3.1 million  in 
9M2011.

Both the  high  quality  of  the  portfolio  and  continued  success  in  debt 
collections, result in  minimal, if  any, incremental  provision charges,  yet 
maintaining a high provision cover ratio of 95%.

 

Net Operating Income (ie after provisions):

NOI came at USD46.6 million for 3Q2012, a 1.0% increase Q-o-Q. For 9M2012, NOI
reached USD136.8 million, a 10.1% Y-o-Y increase.

 

Total Operating Expenses:

TOEs for the  quarter were USD28.7  million, up 6.1%  Q-o-Q. For 9M2012,  TOEs 
reached USD79.5 million, a 19.2% Y-o-Y increase.

In particular, staff expenses increased 7.1% Q-o-Q and 17.3% Y-o-Y and general
expenses increased 4.1% Q-o-Q and 20.9% Y-o-Y.

 

Net Income: 

NI came in at USD15.7 million in 3Q2012, a decline of 9.1% Q-o-Q. For 9M2012,
Net Income came flat at USD51.2 million.

Excluding the arrears tax charge, NI for 9M2012 would have been USD53.7
million, ie 5.0% higher Y-o-Y.

 

Cost/Income Ratio: 

Cost-to-Income remains high,  at 57.7%, reflecting  the structural reasons  as 
well as the cost increases described and explained earlier.

 

Net Interest Margin:

NIM remained flat at 1.8% in at the end of the quarter.

 

III. International Operations            

 

SENEGAL

Credit International, CL's fully owned  subsidiary in Senegal has now  reached 
break-even status, contributing to the group USD67,000 by 3Q2012.

Balance sheet highlights:

Total assets: USD83.4 million

Cash           : USD13.7 million

Loans         :  USD29.1 million

Securities   :  USD6.2 million

Deposits    :  USD30.5 million

Equity        :  USD17.6 million

 

Note: In accordance with the  Egyptian Accounting standards, the  presentation 
of the financial statements, the Income Statements and the Balance Sheet,  has 
changed this quarter: (Bullet points below provides a narrative description of
the change)

·      Income  Statement  -  Profits/losses from  all  subsidiaries  that  are 
intended for transfer to EFG Hermes Qatar will appear on the Income  statement 
in a single field, labeled "Profit(loss) from discontinued operations (net  of 
tax)".

 

·      Balance Sheet - All assets and liabilities of the subsidiaries that are
intended for transfer  to EFG Hermes  Qatar will be  presented in two  fields, 
labeled "Assets classified as  held for sale"  and "Liabilities classified  as 
held for sale".

 

The operating expenses of EFG Hermes Holding and some of the subsidiaries that
are not included in the sale, include the costs of some joint departments that
are intended for  transfer to  EFG Hermes  Qatar along  with the  subsidiaries 
subject to  transfer.  Thus,  the figure  of  Profit(loss)  from  discontinued 
operations does not  capture the total  costs of the  businesses intended  for 
transfer to  EFG  Hermes  Qatar,  rather reflect  the  Profits/losses  of  the 
subsidiaries subject to transfer.

For further details on the accounting treatment, please refer to note 4 in the
consolidated financial statements.

 

_______________________________________________________________________________

In this  earnings release  EFG  Hermes may  make forward  looking  statements, 
including, for example, statements about management's expectations,  strategic 
objectives, growth opportunities and business prospects. Such forward  looking 
statements by their nature  may involve a number  of risks, uncertainties  and 
assumptions that could  cause actual  results or events  to differ  materially 
from those  expressed or  implied by  these statements.  Examples may  include 
financial market  volatility; actions  and initiatives  taken by  current  and 
potential competitors; general economic conditions; and the effect of current,
pending  and   future  legislation,   regulations  and   regulatory   actions. 
Furthermore, forward  looking  statements  contained  in  this  document  that 
reference past trends or  activities should not be  taken as a  representation 
that such trends or  activities will continue. EFG  Hermes does not  undertake 
any obligation to update or revise any forward looking statements.

Accordingly, readers  are cautioned  not to  place undue  reliance on  forward 
looking statements, which speak only as of the date on which they are made.

This document  is  provided  for  informational purposes  only.  It  does  not 
constitute an  offer  to  sell or  a  solicitation  of an  offer  to  buy  any 
securities or interests described within  it in any jurisdiction. We  strongly 
advise potential investors to seek financial guidance when determining whether
an investment is appropriate to their needs.

EFG Hermes Holding SAE has its address  at  Building No. B129, Phase 3,  Smart 
Village - km  28 Cairo Alexandria  Desert Road,  6 October and  has an  issued 
capital of EGP 2,391,473,750

المجموعة المالية هيرميس القابضة شركة مساهمة القرية الذكية مبنى 129ب، المرحلة
الثالثة، السادس من أكتوبررأس المال المصدر: 2,391,473,750 جم

_______________________________________________________________________________

Stock Exchange & Symbol:

Cairo: HRHO.CA
London: HRHOq.L
Bloomberg: EFGH
Reuters pages: . EFGS .HRMS .EFGI .HFISMCAP .HFIDOM

_______________________________________________________________________________

EFG Hermes (Holding Main Office)

Building No. B129, Phase 3, Smart Village - km 28 Cairo Alexandria Desert
Road, 6 October Egypt 12577

 

Tel +20 2 353 56 499

Fax +20 2 353 70 942

efghermes.com

 

Click on, or paste the following link into your web browser, to view the
associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/4235R_-2012-11-19.pdf

http://www.rns-pdf.londonstockexchange.com/rns/4235R_1-2012-11-19.pdf

                     This information is provided by RNS
           The company news service from the London Stock Exchange
 
END
 
 
QRTGGGGPGUPPURB -0- Nov/19/2012 08:32 GMT
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