EFG Hermes, a leading financial services corporation in Frontier Emerging Markets (FEM), reported today strong operational results for the three months ending 31 March 2018, delivering a netprofit after tax and minority interestof EGP 249 million on revenues of EGP 945 million. Net profit after tax and minority interest was up 6% Y-o-Y when adjusting for one-off gains related to the sale of our stake in Lebanese bank Credit Libanais realized in the comparable period last year.

Fee and commission income rose 41% Y-o-Y to EGP 659 million in 1Q2018, with the Group’s solid performance during the quarter being driven by the strength of its non-bank financial institutions (NBFIs) and buy-side business. Strong gains in fees and commissions were offset by a comparatively weaker quarter for our treasury function given the strong gains from merchant banking exits in 1Q2017.  

“In spite of challenging regional market conditions, EFG Hermes is off to a strong start in 2018 aided by a strategy that focuses on building Egypt’s leading NBFI platform, a larger buy side business and a sell side business that extends beyond MENA into frontier markets. As those business lines continue to ramp up, we will, for the first time, segregate our consolidated profits between the investment bank and the NBFI to give our shareholders greater clarity into the value we have created by launching the latter three years ago,” said EFG Hermes Holding Group CEO Karim Awad.

“Our traditional lines of business continue to bolster the Firm’s standing as a regional leader, with our Investment Banking Division closing four key equity, M&A and debt capital market transactions. Our Securities Brokerage Division was once again the largest broker in the region, while our buy-side platform saw revenues grow more than twofold for the quarter,” Awad noted.

Revenues contributed by the Investment Bank, which recorded EGP 718 million in 1Q2018, accounted for approximately 76% of the Group’s total revenues during the period. Proceeds from capital markets, merchant banking activities and treasury operations accounted for 30% of total operating revenue in 1Q2018, reaching EGP 285 million.

The Firm’s strategy of diversifying its NBFI offering continued to deliver positive results, with net (after eliminating associated financing costs) revenues more than doubling (+125% Y-o-Y) to EGP 227 million, contributing EGP 45 million (18%) to the bottom line in 1Q2018. Portfolios continued on a solid path of growth, reaching c.EGP 4.0 billion by the end of 1Q2018.

Meanwhile, buy-side revenues rose 110% Y-o-Y to EGP 116 million, predominantly on the back of the consolidation of our regional asset manager affiliate FIM and increased private equity management fees. Sell-side revenues were broadly unchanged, up 2% Y-o-Y to EGP 316 million backed by frontier executions and higher advisory fees during the quarter.

The Group’s employee expenses stood at 42% of revenues, well below the firm’s longstanding target of 50%.

Net operating profit stood at EGP339 millionin the first quarter, while net profit after tax and minority interest was EGP 249 million (+6% Y-o-Y after adjusting for 1Q2017 one-off gains).

“2018 will see the continuation of our diversification and expansion strategy, with at least one more on-ground expansion into a new geography and the full operational launch of our factoring business under our NBFI platform both planned during the year,” concluded Awad.

Key Operational Highlights of 1Q2018

The Investment Bank:

·        EFG Hermes Securities Brokerage reported total executions of USD 9.7 billion across MENA and frontier markets in 1Q2018, a rise of 19% compared with the previous quarter, predominantly on higher executions in Egypt, KSA and Frontier markets. The firm was once again the largest broker in four markets, including the Egyptian Exchange, the Dubai Financial Market, the Abu Dhabi Exchange and Nasdaq Dubai. The division was also the broker of choice for foreign institutions trading Kuwait and the second-largest foreign broker in Saudi Arabia while delivering good results in Oman and Jordan. In frontier markets, the team traded in more than 20 markets in 1Q2018 for over 70 institutions, a sharp increase from 53 institutions the previous quarter. 

·        EFG Hermes Investment Banking closed four transactions worth a combined USD 976 million in 1Q2018spanning equity, M&A and debt capital markets. The division was sole global coordinator and bookrunner for both a USD 40 million rights issue for Cleopatra Hospitals Group (Egypt’s largest private hospital group) and a USD 870 million rights issue for mobile telecommunications operator Orange Egypt. The team was also sell-side advisor to the UAE’s Waha Capital on its USD 48 million sale of its outstanding equity in Proficiency Healthcare Diagnostics Laboratories. On the debt front, the team arranged a USD 18 million debt facility for one of its clients. The division continues to develop a robust pipeline of transactions for execution throughout 2018.

EFG Hermes Asset Management’s total public AUMs stood at USD 3.3 billion at the end of 1Q2018, up 132% Y-o-Y. The firm’s Egypt AUMs rose 5.1% Q-o-Q to EGP 13.1 billion, while regional AUMs rose 4.5% Q-o-Q to USD 2.5 billion asmarkets’ positive performance overshadowed net outflows.

·        EFG Hermes Private Equity’s Vortex platform reported AUM of EUR 1.3 billion and stable managed capacity of 822 MWat the end of the first quarter. Vortex’s assets include a 49% stake in EDPR France’s wind portfolio (334 MW), a 49% stake in EDPR’s Pan-European wind portfolio (664 MW) as well as Vortex Solar, a 365 MW UK solar PV portfolio. The wind portfolio of Vortex I and Vortex II generated EBITDA of c. EUR 52 million in 1Q2018 while Vortex Solar generated EBITDA of GBP 3 million on the back of 50 GWh of electricity produced.

·        EFG Hermes Research’s coverage universe grew to include 235 companies at the end of 1Q2018, up from 224 at the end of 2017 and 165 at the end of 1Q2017. Coverage initiations in the period included Mauritius, Uganda and Bangladesh, with upcoming initiations set to expand the division’s frontier offering to include Zambia, Botswana, Ghana, Zimbabwe and Sri Lanka. The division also initiated coverage of two companies in the UAE and one each in Egypt, Morocco and Vietnam during the period. EFG Hermes Research also supported the EFG Hermes One on One, the firm’s annual flagship investor event, in Dubai during the quarter.

The Non-Bank Financial institutions (NBFIs):

·        EFG Hermes Leasing reported an 11% Q-o-Q increase in contract value booked in 1Q2018, pushing net financed amounts to EGP 289 million, and taking the accumulated bookings’ value (NFA) to EGP 2.6 billion, and the net outstanding portfolio to EGP 2.2 billion by the end of 1Q2018. The recent decrease in the corridor rates showed a tangible impact starting March, with 65% of the Division’s bookings having taken place in March; an indication of an increase in business activity in general and an improvement in appetite for CAPEX spending.

·        Tanmeyah Micro Enterprise Services continued to turn in solid results, including growth in active borrowers (+16% Q-o-Q), applications processed (+26% Q-o-Q) and loans issued (+25% Q-o-Q). Tanmeyah’s total outstanding portfolio reached EGP 1.7 billion at the end of 1Q2018, up 39% Q-o-Q and showing the fastest growth rates in Tanmeyah’s history. This was driven by higher productivity levels from loan officers as consumers showed increased appetite for borrowing. The company opened 21 new branches in 1Q2018 to close the quarter with 171 operational branches. Tanmeyah continues to have a lower PAR 30+ than the industry standard as a result of the quality of its portfolio and its loan approval process.

EFG Hermes’ 1Q2018 financial results and management’s commentary on them are nowavailable here.