Transcript
Page 1: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

investor relations3Q2009 Earnings Release

15 November 2009

Stock Exchange & Symbol

Cairo: HRHO.CA

London: HRHOq.L

Bloomberg: EFGH

Reuters pages: EFGS .HRMS .EFGI .HFISMCAP .HFIDOM

Investor relations contacts

Dina Al-SonbatyManaging Director Corporate Affairs & Investor Relations

Email: [email protected] Tel: +20 2 333 18 202

Mohamed ArafaCFO

Email: [email protected] Tel: +20 2 333 21 120

Tamer ZaferManaging Director Financial Corporate & Regulatory Reporting

Email: [email protected] Tel: +20 2 333 18 153

EFG-Hermes (Main Office)58 Tahrir Street Dokki Egypt 12311

Tel +20 2 333 83 626 Fax +20 2 333 78 038

efg-hermes.com

Performance at a Glance

Table 1: Performance at a Glance

* including FX gain (loss), net interest income, realised & unrealised gains on fixed income products** based on fee & commission revenueSources: EFG-Hermes audited financial statements and management accounts

9M2009 in Review

�Total�net�consolidated�revenues�declined�during�3Q09�to�EGP346�million�down�from���EGP480�million�during�3Q08�and�were�predominantly�booked�through�the�operations�of�the�Investment�Bank.�Total�consolidated�revenues�in�3Q09�decreased�9.4%�over�2Q09�as�reflecting�the�decrease�in�volumes�traded�across�regional�markets;�

�Total�fee�and�commission�income�decreased�around�57.7%�from�3Q08�(and�18.6%�over���2Q09)�to�EGP179�million�reflecting�market�conditions�over�the�year�as�volumes�and�valuations�declined,�the�capital�markets�totally�shutting�down�but�slowly�recovering�in�the�last�couple�of�months�of�3Q09�and�the�total�absence�of�incentive�fees;

�Total�operating�expenses�declined�35.1%�over�9M08�to�EGP454�million�as�the�effects�of���the�cost�cutting�plan�filtered�in.�The�cost�savings�came�from�both�the�employee�expenses�(declining�40.7%)�as�well�as�the�other�operating�expenses�(decreasing�24%);

�The�Investment�Bank�remained�profitable,�as�can�been�seen�in�the�net�operating�profit���recording�EGP26.2�million�during�3Q09.�Net�operating�profits�for�9M09�decreased�over�85%�to�EGP94.8�million�down�from�EGP763.1�million�in�9M08�(of�which�EGP225.9�million�were�incentive�fees�and�EGP23�million�of�gains�on�the�Prop.�Account).�EFG-Hermes’s�net�operating�margin�continued�to�come�under�pressure�during�2009�declining�to�17.3%�down�from�52.2%�in�9M08�(36.7%�if�adjusted�for�the�realised�incentive�fees);

�Net�profit�after�tax�and�minority�interest�for�9M09�fell�by�nearly�50%�over�9M08�to�reach���EGP467.1�million,�30.5%�if�adjusted�for�the�EGP225.9�million�of�incentive�fees�booked�in�9M08�and�the�EGP23�million�of�profitability�relating�to�the�Prop.�Account�compared�to�the�decline�in�revenue�by�over�45%�over�the�previous�year;

����� ���� ���� ����

���������������������������������������

�������������������

�����������������

�����������������

�������������������������������

�������������������������������������������

������������������

��������������������������������������������������������������

����������� ������ ������ ����� ����������������� ����� ����� ���� ����

����������� ����� ����� ���� ���

����������� ����� ����� ���� ����

�� �� �� ��

����������� ����� ��� ����� �����

��� ��� ��� �������������� ��� ��� ��� ���

����������� ��� ��� ��� ���

����������� �� �� � �������������� ��� ��� ��� ���

����

Page 2: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

�Regional�operations�(non-Egypt�related�operations)�during�9M09�accounted�for�54.3%�of�the���total�fee�and�commission�income�up�from�44.6%�a�year�earlier;�

�Although�EFG-Hermes�lost�some�market�share�in�some�markets�where�it�operates�it�regained���share�in�others.�In�all�cases�the�Brokerage�arms�in�Egypt�and�the�UAE�(on�the�DFM�and�ADSM)�continued�to�maintain�their�number�one�positions.�The�Kuwaiti�operations�oscillated�between�the�#1�and�#2�position�during�the�quarter�while�the�Omani�operation�ended�the�quarter�in�the�third�position.�Growing�retail�brokerage�operations�have�better�balanced�the�business,�and�ensured�that�the�Group�maintained�its�regional�dominance�during�the�period�when�the�volume�of�institutional�activity�reduced;

�The�Research�Department�continued�to�increase�the�stocks�and�economies�under�coverage�and���support�the�Investment�Bank’s�operations�as�a�whole�with�the�stocks�covered�increasing�to�95�stocks�as�at�the�end�of�October�2009;�

�Total�assets�under�management�within�the�Group�increased�to�USD5.35�billion,�of�which���USD4.3�billion�are�in�listed�equities�and�money�market�funds�and�the�remainder�in�private�equity.�Assets�under�managment�in�listed�equities�increased�8.6%�since�the�end�of�2Q09�with�the�bulk�of�the�increase�as�a�result�of�market�conditions.�The�Division�began�to�build�up�unrealised�incentive�fees�that�totaled�EGP35.7�million�as�at�the�end�of�3Q09;

�The�roadshow�for�the�Egypt�pocket�of�the�InfraMed�Fund�is�expected�to�start�in�December.���Concurrently,�Private�Equity�has�concluded�a�couple�of�major�investments�during�the�quarter�and�has�submitted�bids�on�two�others;

�Shortly�after�the�end�of�2Q09�the�Investment�Banking�Team�closed�three�transactions;�an���M&A�transaction�for�USD243�million�(Actis-CIB)�and�a�debt�issue�for�USD1.1�billion�(Egyptian�Nitrogen�Products�Company)�that�is�still�in�the�final�execution�phase�as�well�as�the�advisory�on�OT’s�USD50�million�commercial�paper�issue;

�EFG-Hermes’�shareholding�structure�remains�dominated�by�institutional�shareholders.�As�at�the���end�of�3Q09,�the�top�50�shareholders�owned�76.4%�and�include�29�western�institutions�and�fund�managers�(DFG�25%,�Management�c.8%,�ADIA�c.9%).

Page 3: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

3 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Regional Markets During 3Q2009

Traditionally the third quarter is the slowest quarter of the year across regional markets because of the summer season. This trend was further exaggerated during 3Q09 because of the earlier Ramadan lull followed by Eid vacations across regional markets. With only the shy return of institutional investors to the region during this period volume executed across the region’s major markets declined c. 45% over 2Q09 levels. Having said that valuations across the region continued to rise (average of 12.6%) yet remain lower than 3Q08 levels and their emerging market counterparts. In general, the improving global conditions during the quarter set the trend for positive MENA market valuations and hopefully increased activity into 4Q09.

Across the region, the general trend was of improving valuations on the back of weaker volumes. EGX ended in positive territory for the third consecutive month, with the index up 19.5% over the quarter on the back of declining market liquidity owing to the reduced trading hours during Ramadan. Major GCC markets picked up. Both the UAE markets delivered positive performance, with valuations on both the DFM and ADX increasing by 22.8% and 18.7% respectively over the quarter. More importantly, foreign investors began to slowly and selectively return to the UAE markets. Trading and valuation on the Saudi market was weak for most of the quarter before rising sharply in September the market had underperformed all the other regional markets over the past quarter.

With the backdrop of low volumes and the continued cautious return of investor sentiment, EFG-Hermes was able to continue being the #1 brokerage house in Egypt, build an impressive pipeline of Investment Banking transactions and lay the ground for increased assets under management in both listed and private equities going forward. The recently introduced coverage model is showing early signs of success. In addition, the strength of the Group’s balance sheet, coupled with the increasing retail facet have been key advantages for the Group over both its regional and international peer group.

Table 2: Performance of Markets in the Arab Region during 3Q2009

Sources: Regional markets and EFG-Hermes

�����

����

��������������������������

�����������������������������

�������������

����������������������

�������

������������

���������������������������������������������

������������������

�������

�����������������

�������

������������

������� ������ ������ ����� ������ ������ �������������� ������ ������ ������� ������� ������ �������������� ����� ������ ������� ������� ������ �������������� ������ ������ ������� ������� ������ �������������� ������ ������ ������� ������� ������ �������������� ����� ������ ������� ������� ������ �������������� ������ ������ ������� ������� ������ �������������� ������ ����� ������� ������� ����� ������������� ������ ������ ������� ������� ������ �������������� ������ ������ ������� ������ ������ �������������� ������ ������ ������� ������� ������ �������

������� ������ ������ ������� ������� ������ �������

������� ������ ������ ������� ������� ������ �������

�������

������������

�������������

Page 4: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

4 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Performance

Total Revenue

Table 3: Breakdown of Total Revenue

Sums and percentages may not add up exactly due to rounding* including FX gains (losses), net interest expense and realised & unrealised gains on fixed income (EGP43.3 million in 3Q09, EGP21.4 million in 2Q09)Sources: EFG-Hermes audited financial statements and management accounts

Total consolidated revenue decreased 9.3% over 2Q09 level to EGP347 million, with revenues booked from the Investment Bank constituting 66.1% of the total. The decline is directly attributed to the 18.6% decline in fee and commission revenue to EGP179 million down from EGP220 million booked during the previous quarter compared to average declines of 44% of volumes executed on the regional capital markets. Furthermore, the Investment Banking Team concluded a debt advisory deal1 during 3Q09 with fees due for collection during 4Q09 at the final stage of execution. In comparison, total revenue only dropped 24.4% from 3Q08 levels in spite of average declines in indices and volumes traded on the regional capital markets of 22% and 33% respectively over the similar period and the non-existence of one-off revenue items as was the case in 3Q08.

Revenue booked from Bank Audi increased 64.2% over 3Q08 to EGP114 million and its contribution to total revenue continued to increase and reached 32.8% of total consolidated revenue up from 28.4% in 2Q09 and 15.1% in 3Q08.

As revenue from the agency business declined as a proportion of total revenues, revenues booked from treasury operations increased to EGP45 million2 down from a total of EGP68 million in 3Q08 and EGP47 million in 2Q09, maintaining the revenue of the Investment Bank above 65% of the total revenue. The continued contribution of the Treasury Department to the total revenue in a declining interest rate environment continues to hinge upon its continued participation in the fixed income market, whether Egyptian Eurobonds, treasury bills or corporate bonds.

Operating Revenues

Total operating revenue decreased 17.4% to EGP185 million. Fee and commission income decreased 57.8% over 3Q08 levels echoing the 22% decline in valuations and 33% decline in volumes traded across regional markets, the remains of the negative investor sentiment challenging the completion of Investment Banking transactions and the continued absence of incentive fees. Nevertheless, EFG-Hermes managed to maintain it positioning as the largest and premier Investment Bank operating in the region (by sustaining its #1 position across the brokerage firms in spite of its core clients’ low level of activities), the largest asset manager (by beginning to secure net cash inflows) and sealing several investment banking deals in difficult market conditions.

������������������������������

���������

������������������������

�������������������������������������������

��������������������������������������

�������������

�������������������

������������ ����

��������������

����������������� ����

��� �����

�� �����

� ����

��� �����

��� �����

� ����

��� ����

��� �����

�� �����

� ����

��� �����

��� �����

� ����

��� ����

��� �����

�� �����

��� �����

��� �����

�� �����

� ����

��� ����

��� �����

�� �����

����� ������

��� �����

�� �����

�� �����

��� ����

������

������

�������

������

�����

������

������

1 Please refer to Investment Banking section for more details

2 Includes EGP18.8 million of net interest and bank charges, EGP37.8 million of realised capital gains on and EGP14.9 million of unrealised capital gains on fixed income

respectively and FX loss of EGP17.4 million

Page 5: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

5 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Table 4: Contribution of the Different Divisions to Operating Revenue on a Quarterly Basis

Sums and percentages may not add up exactly due to rounding*�excluding�Treasury�OperationsSources: EFG-Hermes audited financial statements and management accounts

Table 5: Contribution of the Different Divisions to Operating Revenue on a nine - Month Basis

Sums and percentages may not add up exactly due to rounding* excludes Treasury Operations; no Principal Account during 9M09Sources: EFG-Hermes audited financial statements and management accounts

Brokerage operations remained the core contributor to the business booking 57.6% of the total fee and commission revenue. That was down from 66.8% in 2Q09 but up from 50.4% in 3Q08 as assets under management began to pick up booking management fees and the Investment Banking division started closing deals after nearly a year of very slow activity as a consequence of the total shut down of equity markets. Asset Management remains the second largest contributor to revenue, booking 22% of total consolidated operating revenues up from 21.7% in 3Q08 in spite of the decline in assets under management to EGP24.4 billion from EGP34.6 billion a year earlier as revenue from the Investment Banking Division declined. In absolute terms operating revenue booked from Private Equity remained nearly constant in the vicinity of EGP27 million in management fees per quarter as no new funds were raised and no major exits were concluded to earn success fees during the quarter. Although Investment Banking closed three deals during 3Q09, the division collected revenues for two transactions with the third expected during 4Q09. As at the end of 3Q09 and as market valuations began to improve, the Group began up unrealised incentive fees; a total of EGP35.7 million as at the end of 3Q09.

����������������

��������������

�����������������������

��������������������������

��������������

�������������������������

�����������������������

�����

�������������������������

���� ���� ����

��������������

���������������������������������������������

���������������

�����������������

���� ������������������

������������������������������

�� ����� �� ����� �� ����� ��� ����� ������

�� ���� �� ���� � ���� �� ���� ������

� ���� � ���� � ���� �� ���� ������

� ���� � ���� � ���� � ���� ������

�� ���� �� ����� �� ���� �� ���� �

�� ���� �� ���� � ���� �� ���� �����

�� ����� �� ����� �� ����� �� ����� ������

�� ����� �� ����� �� ����� �� ���� �����

� ���� � ���� � ���� �� ����� ������

� ���� � ���� � ���� �� ���� �

��� ���� ��� ���� ��� ���� ��� ���� ������

� ���� � ���� ��� ����� ����� ������ �������

��� � ��� � ��� � ��� � ������

����������������

��������������

�����������������������

��������������������������

��������������

�������������������������

������������������������

�����������

��������

�����������������

������������ ����

��������������

��������������������������������������������

���������������

�����������������

�����������������������

������������������������������

��� ����� ��� ����� ������

�� ���� ��� ���� ������

�� ���� �� ���� ������

�� ���� �� ���� ������

�� ����� �� � �

�� ���� �� ���� ������

�� ����� ��� ����� ������

�� ����� �� ���� �����

�� ���� ��� ����� ������

� ���� �� ���� ������

��� ���� ����� ��� ����

� ���� �� ���� ������

��� ���� ����� ���� ����

Page 6: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

6 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

In line with the Group’s regionalisation and geographic expansion strategy the Investment Bank’s revenues emanating from outside Egypt totaled 54.3%3 in 9M09 up from 44.6% a year earlier and expected to further increase as the Group’s operations further expand across the region.

Hereunder is an analysis of the company’s main operational divisions:

BrokerageDecreased market activity across all regional markets was reflected by the decrease in Brokerage revenue to a total of EGP103 million down from EGP147 million the previous quarter and EGP213 million during 3Q08. Nevertheless, Brokerage remained the key contributor to fee and commission revenue at 57.6% in 3Q09. The expansion into retail brokerage activity through the growth in online and call centre activities as well as the branch network currently being built up in Egypt have ensured that although the Firm lost some market share it remained the #1 broker in its core markets as well as the largest broker operating in the Middle East and North Africa.

Egypt

Valuations on EGX increased 19.5% during 3Q09 but volumes traded declined 38.5% as both institutional investors and high networth individuals retracted in the seasonal cycle of slow activity during the summer months. Accordingly, EFG-Hermes’ market share dropped to 28% but still remained the #1 broker on the Egyptian Stock Exchange. However, looking at the volumes executed by EFG-Hermes closely, it must be noted that the decline in market share during 3Q09 is due to the fact that the Group had executed special crossing transaction for USD3.46 billion for OCI during 2Q09 and hence if this transaction is set aside the Group’s the share of secondary market trading remained more or less constant at around 28%.

The growing retail activity, especially through the expanding branch network has been instrumental in maintaining the Group’s continued dominance of the market even in these unusual conditions that have changed the composition of the market participants away from institutional activity since the financial crisis.

Figure 6: EFG-Hermes Executions and Share of Total Market Executions

Sources: EGX and EFG-Hermes

The recently introduced retail component of the Brokerage business has been increasing and has supported the Group’s market share during the quarter when the activity of the institutional investors was at its lowest since the beginning of the year. In Egypt, both Online Brokerage and Call Centre activities operations have picked up further during 3Q09. The number of clients using the online service remains on the increase.

Revenue from brokerage activity in Egypt decreased 52.2% over 3Q08 levels to EGP64 million4. This is a decrease of around 24% over 2Q09 levels echoing the net resulting decrease of both declining volumes traded on the EGX and improving valuations and constituting 35.8% of the Group’s consolidated operating revenue during the quarter.

���������������������� ������������

���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ����

��� ���

�� �� ��

��

��� ���

��

����

���

��

��

��

��� ���

������

������ ���

������

��� ���

��

���

���

���

���

��

���

���

���

���

���

���

����

3 Including the revenues from trading regional markets that are reported within Brokerage Egypt numbers

4 Includes commissions earned trading markets other than Egypt

Page 7: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

7 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

UAE

Figure 7: Progression of Volumes Executed and Share of Total Market Executions

Sources: DFM, ADX and EFG-Hermes

The several-quarter decline in EFG-Hermes’ market share was reversed during 3Q09 as institutional investors shyly returned to the markets. Market shares on the DFM and ADX increased to 11.1% and 18.3% respectively, maintaining the Firm’s #1 broker positioning. Total executions during 3Q09 decreased 16.7% over 2Q09 levels to USD2 billion compared to market volumes shrinking in excess of 30% on both markets . However, markets saw around 20% increases in valuations over the similar period.

Although not as large as the operations in Cairo, online trading in the UAE has continued to pick up over the year with an average commission well above that charged for the normal brokerage activities.

In line with the general decrease in capital market activity over the quarter across all regional markets, revenues from Brokerage operations out of the UAE have decreased.

Saudi Arabia

Figure 8: Progression of Volumes Executed and Share of Total Market Executions

Sources: TADAWUL and EFG-Hermes

EFG-Hermes believes that the Brokerage business in the Kingdom is a commodity business and hence the real value out of the presence in Saudi would be from the other business lines including Asset Management and Investment Banking, both of which the Firm has been growing with results expected to trickle down as investor sentiment slowly comes back. The Brokerage business would then inevitably grow as a result.

The Saudi market was the worst hit in the region in terms of trading volumes, declining 48.6% over 2Q09 and still some 32% below 3Q08 levels. The Group’s total executions decreased 58.2% to SAR1.3 billion as speculative retail activity continued to dominate the exchange. As previously explained, the Group is currently finalising the listing of the participation notes on a European exchange, a move that is expected to grow the Group’s current market share.

����������������������������

�������������������

�������������������

��������

�����

�����

�����

�����

����������

����������

����������

�����

����������

�����

�����

�����

�����

�����

����� �����

�����

�����

����

�����

���� ����

����

�����

����������

�����

����������

�����

�����

�����

��

��

���

���

���

���

���

���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� �����

�����

�����

�����

�����

�����

�����

�����

�����

��������

���� ���� ���� ���� ���� ���� ���� ����

���������������������� ������������

����

�����

��

�����

����������

�����

���������� �����

�����

����������

�����

�����

�����

�����

����������

�����

������

�����

�����

�����

�����

������

����

����

����

����

����

����

����

����

Page 8: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

8 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Oman

Figure 9: Progression of Volumes Executed and Share of Total Market Executions

Sources: Oman Stock Exchange and EFG-Hermes

Although a relatively small market, Oman remains an important market in the greater EFG-Hermes footprint. Executions reflected the market movements over the quarter and the Firm has managed to maintain its market share at 17.2% and improve its positioning to #3.

Revenues consolidated from Vision Securities’ activities recorded the equivalent of EGP4 million in agency fees corresponding to 2.5% of the Group’s consolidated operating revenues during 3Q09.

Kuwait

Figure 10: Progression of Volumes Executed and Share of Total Market Executions

Sources: Kuwait Stock Exchange and EFG-Hermes

EFG-Hermes’ foothold in the Kuwaiti market through the acquisition of IFA in August 2008 continued to be a pleasant surprise. The Group’s market penetration continued and the Brokerage business has began to cross-sell the other business lines, with results expected to come in during 2010.

EFG-Hermes executions decreased 47.2% in 3Q09 to KWD1.5 billion echoing the 3.3% and 43.2% decline in market valuations and volumes executed respectively over the similar period. Although the Firm’s market share declined to 27.3% during the quarter down from 30.2% in 2Q09, it is worth mentioning that there were several special transactions during the quarter that were channeled outside EFG-Hermes IFA. Accordingly, if the effect of these special one-off transactions are removed, EFG-Hermes’ market share would have slightly increased. Nevertheless, EFG-Hermes IFA remained the #2 broker on the exchange.

The Kuwaiti subsidiary managed to book the equivalent of EGP17 million in revenue during 3Q09 corresponding to 9.8% of the Group’s total operating revenues.

���������������������� ��������������������

���� ���� ���� ���� ���� ����

���

������

�� ��

������

�����

����������

�����

�����

�����

�����

��

���

���

���

���

��

��

���

���

���

���

���

���

����

���������������������� ��������������������

���� ���� ���� ���� ���� ����

����� �����

����������

���

�����

�����

������������

������������

������������

������

���

�����

�����

�����

�����

�����

�����

��

��

���

���

���

���

���

���

����

Page 9: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

9 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Research

Figure 11: Development of Active Research Coverage

Source: EFG-Hermes

The Research Department continued to reach record publication levels. As at the end of 3Q09, the Research had 88 stocks under coverage. Over 9M09 the Team published a total of 365 reports compared to 343 reports for the full year 2008. It is worth noting that the total number of stocks covered as at the end of October increased to 95 stocks as several new initiations coincided with the MENA Manhattan Capital Markets Conference and the Second Egypt Capital Markets Day on the London Stock Exchange, both hosted by EFG-Hermes during the second half of October 2009.

Asset Management

Figure 12: Development of Listed Assets under Management (totals in EGP bns)

Source: EFG-Hermes

Assets under management continued to increase during 3Q09, albeit at rates lower than 2008, with the bulk of the increase being market related. Having said that, 3Q09 is the first quarter since the financial crisis that witnessed net cash inflows, a trend that continued into 4Q09. As at the end of 3Q09, total assets under management increased 8.6% (up 18% from the beginning of the year) to USD4.33 billion up from USD3.982 billion as at the end of 2Q09. The growth in assets under management reflected the general improvement in market conditions as around USD269 million of the increase was related to market effect. EFG-Hermes’s client base remained diverse with institutional clients representing the dominant portion.

The Firm’s two flagship funds, the EFG-Hermes MEDA Fund and the MENA Opportunities Fund, ended the quarter at USD339 million and USD528 million respectively, slightly higher than in 2Q09. During 3Q09, the Team added several discretionary portfolios from across the region with a mandate to invest both regionally

����� ��� ��� ������

��

��

��

��

��

��

��

�� ���� �� �� �� ��� �

����

���� ��

���

���

�� ��

��

��

��

��

��

��

���

���� ���� ���� ���� ���� ���� ����

�������������������������� ��������������������������������������� ����������

����

��������

��

��

��

��

��

��

��

��

���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ����

����

����

����

����

��������

��������

Page 10: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

10 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

and in Egypt in both equities and fixed income products. The Team is in the process of closing several Egypt-centric mandates managing funds for local commercial banks. It also has several products that are due for launch over the next few months with a general regional investment focus.

Although AuM remained Egypt centric, representing 65.3% as at the end of 3Q09, Egyptian AuM have generated approximately 31.7% of the total booked revenues due to the prevalence of money market funds within the Egyptian operations.

Asset Management revenues decreased 57.2% over3Q08 to EGP39 million as the AuMs declined over 30%, the lower-earning money market and fixed income portfolios increased as a proportion of the total AuMs, and market conditions dictated that no incentive fees could be booked. Asset Management contributed 22% to the Group’s consolidated net operating revenues in 3Q09.

Investment Banking

Ongoing unfavorable market conditions continued to make the execution of the mandated pipeline challenging for the Team. The equity business, which was historically the main driver for the Division’s revenues continued to be non-existent as markets remained frail. The M&A advisory business continued to be weak across all EFG-Hermes’ major markets with occasional deals closing and at a fraction of the fees that were previously charged. In spite of this backdrop, the Team was able to close the largest M&A advisory on the Egyptian market this year; acting as sole buy side advisor to Actis on its USD244 million acquisition of a 9.3% stake in Commercial International Bank of Egypt. The deal received a lot of international and regional recognition and cemented EFG-Hermes’ position as the leading M&A franchise in the region.

The weak equity markets over the past year have highlighted the need to add debt advisory to the array of services provided. As a result, the Team is in the final stages of closing its first debt advisory transaction this year (and the largest on the Egyptian market) being a USD1.1 billion debt syndication for Egyptian Nitrogen Products Company. Although expected to close during 3Q09, some unexpected delays (that are more execution related than funding related) have deferred receiving the fees to the fourth quarter. On the debt side, during 3Q09 the Team also advised OT on a commercial note for USD50 million.

The Team is currently working on several deals that are in the final stages of execution. Strategically, the Team has continued to step up the pitching process across the region for both debt and equity transactions and has secured a varied backlog of mandates, whether by country of origin or type of deal. Debt deals that the Team had traditionally stayed clear of increasing have increased as an alternative to support the Division’s revenues in the absence of healthy equity markets. Having said that the current backlog includes several equity based mandates, including the recently announced underwriting of SODIC’s upcoming USD100 million rights issue. On the debt side, the Team managed to secure a several mandates.

Revenues booked by the Investment Banking Division in 3Q09 recorded EGP9 million compared to EGP96 million during 3Q08, contributing 5.3% to the Group’s consolidated operating revenues

Private Equity

3Q09 was very busy on the Private Equity front as the Team began reviewing over 20 investment opportunities across several geographies including several of which are in the advanced stages. On the existing initiatives, the Team continues to prepare the domestic vehicle that will house the Egyptian pocket of the INFRAMED Fund the European Investment Bank committed Euro100 million to the fund.

In general the Team is seeing stronger investor appetite to invest in private equity, an opportunity that EHPE is working to take advantage of. Accordingly, two new initiatives are being explored. With the increase in coordination with the other business lines through the newly implemented CRM system and coverage model, sourcing capabilities on both the investment and fund raising sides have been greatly increased.

On the operational level, the Team is looking to hire opportunistically in the short to medium term with one possible addition in Cairo and up to two in the UAE. The installation, training and data migration to the new Private Equity system is well advanced and expected to be completed before the yearend.

Total revenue booked by Private Equity reached EGP27 million during 3Q09 up from EGP22 million during 3Q08 representing the management fees of existing funds under management as there were no exits during the quarter.

Page 11: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

11 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Operating Expenses

Table 13: Breakdown of Operating Expenses

* fee and commission income** adjusted for both annual and monthly bonuses both expensed and accruedSources: EFG-Hermes audited financial statements and management accounts

EFG-Hermes continued to administer cost cutting well into the third quarter. Although the fully loaded operating expenses decreased by only 5% over 3Q08 (to EGP152 million, down from EGP161 million in 3Q08) it must be noted that during 3Q09 the full effect of the expansion into Oman and Kuwait were totally incorporated both in terms of employee costs, occupancy expenses and the associated communications cost that ensures that the Group operates as one entity, servicing the clients as one rather than as separate companies. For the full nine months, operating expenses decreased 35.1% over 9M08 as cost cutting measures across all expense items were swiftly introduced during 4Q08 as the financial crisis took the world by storm.

Employee costs remain the largest component of operating expenses, constituting 60.6% of the total, down from 66.4% a year earlier. Fully loaded employee expenses decreased 40.7% to EGP275 million in 9M09 down from EGP464 million in 9M08. The main decrease came as bonuses decreased over 80% since last year due to the reduced accrual of annual bonuses and monthly bonuses paid to the Brokerage Team.

Looking at employee expenses more closely on a quarter to quarter basis (3Q09 to 3Q08), the continued decline in the fixed portion of the expense reflects both the finalisation of the redundancy and relocation plan as well as the decrease in salaries introduced in March 2009. The fixed portion of the employee expense is what constitutes the bulk of the cost (currently around 60% of the total) has decreased 18.1% reflecting the decrease in salaries introduced to the Group’s top 200 employees. It must be mentioned however the salary cuts were reversed starting October 2009 as a result of competitive pressures due to the global investments banks returning to the region and headhunters targeting several of the Group’s key players.

Overall on a nine-month basis, as operating revenues declined by around 63% due to market conditions that obliterated incentive fees and shut down equity capital markets for the bulk of 2009, fully loaded employee expenses shot up 50.2% of total operating revenue from 31.7% in 9M 08. Conversely employee expenses declined to 60.6% of total operating expenses in 9M09 down from 66.4% in 1H09 as cost curbing measures in all expense items filtered through.

Both on a nine-month and quarterly basis other operating expenses that include occupancy expenses, office expenses, communication expenses (data and telecommunication), travel and marketing expenses, promotion and advertising expenses and consultant and service fees, decreased over 2008 comparative periods as the severe cost cutting measures were introduced starting 4Q08. Total other operating expenses decreased 24% over 9M08 to reach EGP179 million, a saving in excess of EGP56 million over the year. It must be noted, however, that the cumulative 2009 expenses include expenses of both the Kuwaiti and Omani subsidiaries that were acquired during 2008, while the 2008 expense levels included their contributions for only a few months.

���� ���� ���������������� ���� ��������

����

������������������������

����������������������������������������������������������������

�����������������

�������������������������������������

��������������������������������������

�����������������������������������������������������������������������������������������������������������������

��������

���������������������������

�������������������

��� ��� ������� ��� ����� �������

��� ��� ������ ��� ��� ��������� ��� ������� �� ��� �������

������ ������ ������ ������

��� �� ������ ��� ��� �������

�� �� ������ ��� ��� ������

��� ��� ������ ��� ��� ������

������ ������ ������ ������

������ ������ ������ ������

�� �� ������� ��� ��� ������������� ������ ������ ������������ ������ ������ ������

Page 12: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

12 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

As the Group’s footprint increased over the past year to include Kuwait, Oman and Lebanon and the modus operandi was re-geared at decreasing travel levels to a minimum, two constituents of the other operating costs increased over their 9M08 levels, namely occupancy and data communication expenses. Occupancy expenses increased 54% over 9M08 to EGP28.5 million as offices in Kuwait, Oman, Qatar and Lebanon came online. Data Communication expenses increased 34.2% over 9M08 levels to EGP22 million as the Firm continued to ensure smooth connectivity between its increasing physical locations as well as its various disaster recovery sites as well as the increased use of audio and video conferencing facilities in replacing travel whenever possible. All other expense items witnessed declines both on a quarterly basis and the nine-month comparative basis. The major absolute cost savings were in the promotional and advertising expenses that decreased EGP22.1 million (a 63% decline) from 9M08 levels and travel and marketing expenses that decreased EGP19.2 million (a 55% decline) over the similar period.

Since the beginning of the financial crisis EFG-Hermes Management was adamant that the Investment Bank (based on fee and commission income fully loaded with all expenses) remain profitable; a feat that has held true for every quarter during 2009. As market conditions had deteriorated since 3Q08, fee and commission revenue declined by 62.5% in 9M09 to EGP549 million down from EGP1.5 billion resulting in net operating profits of EGP95 million in 9M09 down from EGP763 million in 9M08 (of which EGP225.9 million were incentive fees). EFG-Hermes’s net operating margin continued to come under pressure during 2009 declining to 17.3% down from 52.2% in 9M08 (36.7% if adjusted for the realised incentive fees). It must be noted however, that increasing profitability at the level of the Investment Bank signifies EFG-Hermes’ positioning as the regional leader in the industry as it was able to swiftly change its operating model to encompass changing market conditions while continuing to keep its core Team intact as well as hiring renowned professionals into key positions to be able to take advantage to the embryonic market improvements.

Other Revenue

The major components of other revenue remain the consolidated portion of EFG-Hermes’ 27.93% ownership stake in Bank Audi Saradar and the net income from treasury operations and balance sheet management.

Bank Audi: Bank Audi continued to solidify its positioning across the region and revenue consolidated at the EFG-Hermes level grew 25.9% over 9M08 levels to reach EGP307.6 million, EGP113.8 million of which were booked during 3Q09 and constituting 32.8% of EFG-Hermes’ total net revenue for the quarter.

Treasury Operations: Treasury operations and cash management continued to be a strong source of revenue that has supported the Group’s overall revenue during dire market conditions. During 9M09, the net revenue generated by the Treasury Division was EGP45 million5 compared to EGP68 million and constituted 12.9% of the Group’s total revenue for the quarter. EFG-Hermes remaining close to debt-free and the Treasury Department continued to resort to fixed income operations to counter the declining interest rate environment. It must be noted that the large increase in Treasury operations during 2009 are attributed to capital gains realised on fixed income products.

Other expenses for the quarter ending September 30, 2009 include the usual depreciation and amortisation amounting to EGP12.9 million.

Balance Sheet

EFG-Hermes’ balance sheet continued to be strong, liquid and unleveraged. High levels of cash, cash equivalents and other investments (namely T/Bills, bank deposits and investment in money market funds and fixed income products6) reaching EGP2.7billion down from EGP3 billion at the end of 2008. With the Investment Banking platform continuing to be profitable, the Group’s cash balances have been preserved in spite of the continued spending on the new premises at the Smart Village. Cash has been a cornerstone in generating revenues and supporting the Group through the recent downturn in the market. It has been instrumental in providing comfort to EFG-Hermes’ clients in terms of counterparty risk and stability. Although maintaining large cash balances is comforting, in the absence of an imminent acquisition in the commercial banking realm, Management is investigating several alternatives in which to park the cash and earn returns higher than is currently being reined in by the Treasury Department. The recent underwriting of SODIC’s rights issue being a case-in-point.

5 Includes EGP18.8 million of net interest and bank charges, EGP37.8 million of realised capital gains on and EGP14.9 million of unrealised capital gains on fixed income

respectively and FX loss of EGP17.4 million

6 EGP380 million of investment in money market funds and bond is reported in the EGP471 million investment at fair value through profit and loss figure

Page 13: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

13 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Changes on the available for sale investments, from EGP758.2 million as at the end of 2Q09 up to EGP822 million as at the end of 3Q09, is due to the change in the market valuations that have caused the value of the Group’s stake in SODIC to increase to a total of EGP351 million up from EGP270.3 million as at the end of 2Q09 as the investment was marked-to-market.

Total receivables and payables resulting from operations resulted in net payable to clients of EGP116.7 million incurred mainly due to the normal course of business concentrated within the Brokerage and Asset Management divisions. This is in comparison to a net payable of EGP344.1 million as at the end 2008. Such balances relate to the daily operations and have since been settled.

During August 2009 the Capital Market Authority finally approved the retiring of 5.15 million shares (as approved by the Firm’s extraordinary general assembly on 7th April 2009) and accordingly as at the end of the quarter issued and paid-in capital has been decreased to EGP1.914 billion divided into 382,714,000 shares with a par value of EGP5/share. The value of the treasury shares redeemed on the balance sheet as at the end of 2Q09 was EGP94.8 million.

Taxes

The effective tax rate for 3Q09 has remained in the same vicinity of 2Q09 at 7.8% and down from 11.3% in 1Q09 as revenues emanating outside Egypt and from non-taxable entities have increased. The overall effective tax rate for 9M09 has also decreased to 8.9% down from 11.5% in 9M08 as revenues from the non-taxable entities increased. The effective tax rate remains well below the 20% tax rate set for Egyptian companies given that the Firm continues to administer tax management at the level of the Group as a whole, as well as optimising balance sheet management.

Profitability

Given the melt down in the financial markets that started in the latter part or 2008, net profit after tax and minority interest for 9M09 fell by nearly 50% over 9M08 to reach EGP467.2 million, 30.5% if adjusted for the EGP225.9 million of incentive fees booked in 9M08 and the EGP23 million of profitability relating to the Prop. Account (19.8% if the one-off gains on the revaluation of Nile City is included) compared to the decline in revenue by over 45% over the previous year. Having said that, during 2008 the bulk of the bottom line emanated from the Investment Banking platform but with the challenging market conditions experienced during 2009, the bulk of the bottom line relates to the Bank Audi investment as well as the Treasury operations, both which have ensured healthier returns to the Group as a whole, even though revenues booked by the Investment Bank have covered the fully loaded costs for the Group as a whole including minimal accrual of bonuses.

Page 14: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

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 58 El Tahrir Street, Dokki, Giza and has an issued capital of EGP 1,939,320,000.

المجموعة المالية هيرميس القابضة شركة مساهمة58 شارع التحرير- الدقى- الجيزة رأس المال المصدر: 1,939,320,000 جم

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

EFG-Hermes (Holding Main Office) 58 Tahrir Street Dokki Egypt 12311 Tel +20 2 333 83 626 Fax +202 333 78 038 efg-hermes.com

14 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009

Page 15: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 16: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 17: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 18: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 19: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 20: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 21: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 22: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 23: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 24: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 25: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 26: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 27: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 28: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 29: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 30: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 31: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 32: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 33: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 34: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 35: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 36: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 37: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 38: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 39: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 40: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted
Page 41: investor relations - EFG Hermes Releases...2 efg-hermes investor relations 3Q2009 Earnings Release 15 November 2009 Regional operations (non-Egypt related operations) during 9M09 accounted

Recommended