Last checked at 14 May 2009 08:30
1Q2009 Earnings Release - 14 May 2009
1Q2009 in Review
EFG-Hermes today reported net consolidated revenues of EGP326 mn and net profit after tax and minority interest of EGP140.1 mn for the quarter ending March 31, 2009. Total revenue growth over the quarter was 17% (4Q2008 revenues EGP279 mn) while net profit growth was over 6 fold (4Q2008 net profits EGP19.7 mn).
Business Highlights
1Q2009 net consolidated revenues of EGP326 mn, predominantly booked through the operations of the Investment Bank, declined 49.3% from EGP644 mn during 1Q2008 compared to declines in equity values in the markets where EFG-Hermes operates in excess of 62%. Total consolidated revenues in 1Q2009 increased 17% over 4Q2008;
Total fee and commission income booked by the Investment Bank declined 68% to EGP151 mn in 1Q2009, down from EGP470 mn in 1Q2008 due to contracting volumes on all regional markets, delays in Investment Banking transactions, increasing redemptions above usual levels and incentive fees became none existent. As challenging market conditions spilled into 1Q2009 from 4Q2008, fee and commissions only slightly decreased by 4.7% compared to market volumes decreasing by an average of 21.6% over the same period;
Total operating expenses declined by EGP45.3 mn (24.1%) versus 4Q2008 as the impact of the cost cutting plan starting to show, with the full effect expected during 2Q2009;
Net operating profit, reflecting the Group's core agency based business, was above breakeven at EGP7.5 mn, compared to loss of EGP30.3 mn in 4Q2008. The Investment Bank remained profitable against a background of global and regional competitors which continued to suffer;
Net profit after tax and minority interests decreased by 59.8% to EGP 140.1 mn during the quarter, down from EGP348.5 mn in 1Q2008; resulting in a margin of 43% compared to 55% in 1Q2008. The 1Q2009 result was a a 6 fold increase over 4Q2008 levels;
Regional operations during 2008 accounted for 48.3% of the total fee and commission income in 1Q2009 up from 25.97% a year earlier;
The Brokerage arms in Egypt and the UAE (on the DFM and ADSM) continued to maintain their number one market share positions. The Kuwaiti operations oscillated between the #1 and #2 position during the quarter while the Omani operation ended the quarter in third position. In markets where institutional trading declined sharply, some market share loss was witnessed (mainly Dubai and Oman);
Total assets under management within the Group decreased to USD4.82 bn, USD3.67 bn of which are in listed equities and money market funds and the remainder in private equity. AuMs in listed equities declined 12.1% since the end of 2008 with nearly 40% of the decline as a result of market conditions;
EFG-Hermes' shareholding structure remains dominated by institutional shareholders. As at the end of 1Q2009, the top 50 shareholders owned 79% of the shares and included 32 western institutions;
Post 1Q2009 Events
After laying the ground work in 1Q2009, Private Equity launched the EFG-Hermes InfraMed Fund early in 2Q2009, a long-term investment fund and the first financing facility of the Union for the Mediterranean, in conjunction with Caisse des Dépôts (France), Cassa depositi e prestiti (Italy), and Caisse de Dépôt et de Gestion (Morocco);
EFG-Hermes is taking advantage of the global financial crisis by beefing up its senior ranks in order to position the firm for long-term success in the region. The firm has recently filled two previously open senior positions with executives from the global competition. The positions to head the Saudi and GCC (ex-Saudi) operations provide added depth to an already strong franchise. Both gentlemen will officially join EFG-Hermes at different times during 2Q2009;
During May 2009 EFG-Hermes Asset Management launched an open-ended Money Market Fund in Egypt in partnership with Bank Audi that targets both institutional and retail investors.
Market Commentary
Despite a decline in both the indices and volumes traded in the 1Q2009 relative to both the 4Q2008 and 1Q2008, the latter part of March 2009 signaled a slight improvement in investor sentiment across the MENA region. Valuations and volumes traded declined on average 7.4% and 19.5% respectively over the quarter versus 4Q2008. However, after ten straight months of declines, the broad MENA market weighted average equity indices registered a gain of 7.4% during March 2009. Regional markets recovered some of their poise after the drastic declines of the past 2 months as a combination of global and regional factors led to some optimism that the worst of the global financial crisis may come to an end and a period of recovery, albeit a slow one, may lay ahead. On the hope that the G20 US$1.1 trillion economic stimulus plan will further boost sentiment at least in the short term, regional markets traded in tandem with other global markets as key equity markets such as the US, Europe and Hong Kong gained anywhere from 4 to 8%, with even stronger gains in key emerging markets such as China and Brazil. Furthermore, commodities including oil and copper also posted strong gains over the final month of the quarter as the improved sentiment encouraged some risk-taking by global investors.
Across the region the focus during 1Q2009 was towards the measures taken by each government to counter the effects of the global financial crisis. Several bond programs which were launched across the GCC have helped thwart the potential of credit defaults and have opened up new sources of funding for public and private corporations as traditional venues have closed up or become prohibitively expensive.
On a cautious note of optimism, gains across the region during March 2009 were fairly uniform, with the exception of Oman which lost close to 5%, Morocco (losing 7%) and Lebanon (losing close to 2%) over the month. The largest market, Saudi Arabia, gained 7.3% as optimism about banking sector profits and an improved oil price boosted sentiment. UAE markets gained ground as local and foreign selling eased amidst improving credit and interbank deposit markets. Qatari equities gained 10.1% on the back of firmer oil prices and the government's plan to purchase banks' investment portfolios. The Kuwaiti market gained close to 5% despite uncertainties over the much-awaited economic stimulus plan. The Egyptian market gained over 17% amidst improved emerging market sentiment and steadily falling interest rates that boosted both domestic investment and spending.
For most of 1Q2009, EFG-Hermes continued to experience deteriorating market conditions impacting the assets under management, trading volumes, and the ability to close Investment Banking deals. The slight improvements in valuations during March 2009 have yet to be reflected in improved investor activity as volumes traded, with the exception of Egypt, have either declined or only slightly improved on the back of mostly retail trading. Currently, longer term institutional investors are still holding back from sizably re-entering the regional markets.
Management continues to expect 2009 to be a difficult year and thus is adamant about adhering to all the cost cutting measures and continues to be vigilant on third party risk and the use of the balance sheet. Nonetheless, the Group's integrated business model, diverse geographic presence and the continued pursuit of a universal banking platform coupled with the increasing retail facet have been key advantages for the Group over its regional as well as International peer group.
Table 1: Performance of Markets in the Arab Region during 1Q2009
Please refer to the attached pdf
Sources: Regional markets and EFG-Hermes
Performance
Total Revenue
Table 2: Breakdown of Total Revenue
Please refer to the attached pdf
Sums and percentages may not add up exactly due to rounding
Sources: EFG-Hermes audited financial statements and management accounts
EFG-Hermes' net consolidated revenue dropped nearly 50% from 1Q2008 levels to EGP326 mn; but increased 17% over 4Q2008 levels. Excluding revenues and losses booked from the proprietary trading account, which was wound down by October 2008, total consolidated revenues in 1Q2009 declined 44.4% and 18.2% from 1Q2008 and 4Q2008 levels respectively. Revenues from the Investment Bank remain the prominent contributor comprising 72.2% of total revenue down from 87.6% a year earlier.
Fee and commission income continued to decline as both market volumes and valuations declined across the region. Fee and commission revenue decreased 68% from EGP470 mn1 in 1Q2008 (EGP158 mn in 4Q2008) to EGP151 mn in 1Q2009, a similar change when compared to the 63.3% decline in market volumes during the year. As revenue from the agency business declined as a proportion of total revenues, revenues booked from treasury operations increased to EGP88 mn2 up from EGP42 mn in 1Q2008 and EGP83 mn in 4Q2008, maintaining the revenue from the Investment Bank above 70% of the total. It must be noted that the increase in revenues booked by the Treasury Department in a declining interest rate environment hinges upon its participation in the fixed income market, whether Egyptian Eurobonds, treasury bills or corporate bonds.
Revenue consolidated from Bank Audi increased 14.9% over 1Q2008 to EGP85 mn in 1Q2009 increasing to 26% of the total consolidated revenue up from 11.5% a year earlier. The stable revenues consolidated from the commercial bank have helped reduce the volatility of the overall Group as revenues from the Investment Bank dwindled as market conditions deteriorated; pursuing a universal banking strategy is paying off during dire market conditions.
Operating Revenues
With the continued decline in regional markets extending into 1Q2009, in both valuations and volumes traded, EFG-Hermes operating revenues continued to decline for the second quarter in a row; albeit at slower rates than the market declines. Total operating revenue declined to EGP148 mn in 1Q2009, a 85.1% decline over the same period the previous year and 23.4% decline versus 4Q2008. As the Group wound down its principal activity during 4Q2008, the Firm has not directly participated in the market rally that started during the latter half of March 2009.
Table 3: Contribution of the Different Divisions to Operating Revenue on a Quarterly Basis
Please refer to the attached pdf
Sums and percentages may not add up exactly due to rounding
* excluding Treasury Operations
Sources: EFG-Hermes audited financial statements and management accounts
1Q2009 was one of the lowest quarters that EFG-Hermes has encountered in terms of fee and commission income in recent history. Having said that, operationally EFG-Hermes has gained market share in several markets, has witnessed a low level of redemptions, is working on several Investment Banking mandates and most recently launched the first long-term investment fund and the first financing facility of the Union for the Mediterranean (InfraMed) in conjunction with Caisse des Dépôts, Cassa Depositi e Prestiti, and Caisse de Dépôt et de Gestion.
Brokerage operations remained the core contributor to the business accounting for 56.2% of total operating revenues up from 54.6% in 1Q2008. Asset Management is the second largest contributor to revenue, booking 22.9% of total fee and commission income. The increase in revenues booked by Private Equity was minimal as no major funds were launched during 2008 and with no exits revenue remains predominantly management fees. Investment Banking revenue booked only 4.8% of the total fee and commission income collected from a small M&A deal concluded at the beginning of the year.
In line with the Group's regionalisation and geographic expansion strategy the Investment Bank's revenues emanating from the region totaled 48.3%3 in 1Q2009 up from 25.97% a year earlier and is expected to further increase as the full effect of the Saudi, Kuwaiti, Qatari and Omani businesses are felt and regional market recovery is sustained.
Hereunder is an analysis of the company's main operational divisions:
Brokerage
The Brokerage Division, while not immune to the turmoil in the capital markets, has successfully maintained its position as the leading brokerage house in the MENA region by offering the most complete trading capabilities in the region, through physical presence or channeling orders through third parties. This, combined with the diversity of the client base, whether through type, origin or sophistication has ensured the Group's market shares are generally maintained. More importantly the strict corporate governance, documentation requirements and compliance and risk management procedures have safeguarded the Group during the market downturn, and have been key in attracting new clients and increased business from existing ones as investor sentiment slowly began to pick up at the end of 1Q2009.
During 1Q2009, Brokerage hosted its 7th annual One-on-One conference in Sharm El Sheikh. Despite the conference being held at the most recent low point in the financial markets, participation in the conference was robust with 47 presenting corporate with senior representation at CEO and CFO levels and 183 institutional investors, predominantly from the US and Europe.
1 includes EGP34.6 mn of realised incentive fees in 1Q2008
2 Includes EGP34.2 mn of net interest and bank charges, EGP10.8 mn of realised capital gains and EGP15.7 mn of unrealised capital gains on fixed income respectively
3 including the revenues from trading regional markets that are reported within Brokerage Egypt numbers
Egypt
During 1Q2009 value traded and valuations on the EGX decreased by 4% and 6.2% respectively from 4Q2008 levels while growth in EFG-Hermes executions on the market increased 18.8% to EGP19 bn resulting in the increase of the Group's share of total market executions to 41% up from 37% during 4Q2008. Accounting for the EGP71.3 bn worth of special transactions EFG-Hermes executed during 1Q2008, total executions declined only 56.5% from 1Q2008 to 1Q2009 compared to 69.9% and 59.6% declines in volumes executed and valuations respectively. EFG-Hermes ended the quarter in the #1 position on EGX.
Figure 4: EFG-Hermes Executions and Share of Total Market Executions
Please refer to the attached pdf
Sources: EGX and EFG-Hermes
With the retail business becoming a more important component of brokerage activity in Egypt, both Online Brokerage and Call Centre activities operations have picked up during the quarter. The number of clients using the Online service increased around 30% over 1Q2008
Revenue from brokerage activity in Egypt decreased 70.2% over 1Q2008 levels (up 12.7% over 4Q2009) to EGP 55 mn constituting 36.7% of the Group's consolidated revenue.
UAE
Figure 5: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf
Sources: DFM, ADX and EFG-Hermes
Although EFG-Hermes remained the #1 broker in the UAE, its market shares declined to 9% and 14.7% on the DFM and ADSM respectively as trading by western institutional clients, EFG-Hermes' core competence area, came to a near standstill. Total executions during 1Q2009 declined by 61% from 4Q2008 levels to USD1.083 bn compared to market declines of 26.6% and 47% in volumes on the DFM and ADSM coupled with declines in valuations of around 4% in both markets over the similar period.
Revenues from Brokerage operations out of the UAE have decreased 40.5% from 4Q2008 to the equivalent of EGP9 mn and constituted 5.9% of the Group's total consolidated revenues.
Saudi Arabia
Figure 6: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf
Sources: TADAWUL and EFG-Hermes
Total executions have declined slightly more than the average decline in market volumes mainly as a result of the market being dominated by retail activity, a segment that is not yet fully penetrated by the Group.
Our business model in Saudi Arabia is somewhat different from other markets as we concentrate on selling portfolios and Asset Management products utilising the Brokerage arms reach. To spearhead our advancement in this area, EFG-Hermes has recently hired a Saudi national as CEO of EFG-Hermes KSA in order to help in penetrating the market with the Group's other business lines.
Brokerage in Saudi Arabia has locked in the equivalent of EGP4 mn in agency fees, corresponding to 2.7% of the Group's consolidated operating revenues.
Oman
Figure 7: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf
Sources: Oman Stock Exchange and EFG-Hermes
EFG-Hermes's brokerage operations in Oman ended the quarter in the # 3 position with a 19.2% market share, executing the equivalent of USD177.2 mn in transactions.
The Omani operations have been fully integrated into the EFG-Hermes platform since the beginning of the year and all the Group's business practices, documentation requirements and compliance and risk management processes are fully implemented.
Revenue consolidated from Vision Securities' activities recorded the equivalent of EGP3 mn in agency fees, corresponding to 1.7% of the Group's consolidated operating revenues during 1Q2009.
Kuwait
Figure 8: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf
Sources: Kuwait Stock Exchange and EFG-Hermes
Uncertainty and continued delays in the government's bail out plan for the local financial sector. Having said that, with the general wave of market turnarounds during the latter part of March 2009, the Kuwaiti market was one of the prime benefactors of such growth. As EFG-Hermes' executions declined 33% versus 4Q2008 levels compared to 45.7% declines in overall market volumes, the Group's market share increased to 29.1% with its positioning oscillating between #1 and #2 during the quarter.
The integration process of the Kuwaiti operations is continuing and is taking longer than the Omani subsidiary did due to both the larger size of the acquired company as well as market conditions in general. Full integration is expected by 3Q2009.
The Kuwaiti subsidiary in 1Q2009 is the equivalent of EGP14 mn corresponding to 9.2% of the Group's total operating revenues.
Research
Figure 9: Development Active Research Coverage
Please refer to the attached pdf
Source: EFG-Hermes
Research has continued to be the backbone supporting the Group's distribution and investment banking arms. The Division was very active during the quarter and is on track to beat last year's record level of output. At the end of 1Q2009, the Team had 84 stocks under active coverage across 8 countries as well as providing coverage of all countries with stock markets in the GCC, the Levant and North Africa from a macro standpoint and 5 countries from a strategy perspective. EFG-Hermes Research continues to have the widest breadth and most in-depth coverage of the regional markets from a stock, economics and strategy perspective and benefits from having its analysts on the ground in most of the key economies in the region. During 1Q2009 the Research Division published its Egypt Yearbook (in January). In addition, supported the Firm's key One-on-One conference in Sharm El Sheikh.
Asset Management
Figure 10: Development of Listed Assets under Management (totals in EGP bns)
Please refer to the attached pdf
Source: EFG-Hermes
Assets under management continued to decline during 1Q2009 on the back of weak global investor sentiment and difficult market conditions which prevented meaningful new assets being raised. As at the end of 1Q2009 total assets under management declined to EGP20.6 bn. Unlike previous quarters the 12.1% decline since the yearend 2008 was mostly due to redemptions (62.4%), predominantly from the regional funds. This has been partly offset by net inflows into the money market funds and fixed income portfolios. The MENA Opportunities Fund and the MEDA Fund ended the quarter with USD530 mn and USD321 mn respectively down from around USD1 bn each 9 months ago. All categories of assets under management ended the quarter lower due to a combination of redemptions and/or onerous market conditions. Recently the Team has been awarded new mandates totaling approximately USD55 mn. The flexibility and active investment style of the EFG-Hermes' Asset Management Team was underscored in the asset allocation across the various funds and managed accounts.
Going into 2Q2009 Asset Management's client base continues to be diverse to include endowments, family offices, institutional investors and sovereign wealth funds from across the world.
Revenues of the Asset Management business decreased 25.2% over 4Q2008 to EGP34 mn as the AuMs declined and the lower-earning money market and fixed income portfolios increased as a proportion of the total AuMs. Setting aside the incentive fees which were non-existent in both 4Q2008 and 1Q2009, total revenues booked by Asset Management declined 65.6% over 1Q2008 mirroring the 52% decline on AuMs over the similar period. Asset Management contributed 22.8% to the Group's consolidated net operating revenues.
Investment Banking
Investment Banking continued to face difficult market conditions during 1Q2009. Although the pipeline in terms of signed mandates for equity offerings remains quite strong, the complete halt in regional market activity continued from 2H2008. Given such unfavorable market conditions and the highly dilutive nature of the prevailing valuations, the Team has advised its clients to postpone IPO and equity raising plans.
During 2008 the Investment Banking Team started to increase the focus on M&A transactions as a hedge to the slowdown in the equity markets, a focus which continued into 1Q2009. Having said that, the main challenge to finalising or executing M&A transactions remains the continued disconnect between buyers and sellers when it comes to valuations as well as the lack of proper financing tools
The Team has also been active in building the M&A pipeline through intensive pitching across the region. Consequently, EFG-Hermes is currently advising on a sizeable regional acquisition in several sectors that are still in the early stages of development. On the sell side of the business, EFG-Hermes has managed to secure several high profile mandates in both Egypt and the region.
Revenues booked by the Investment Banking Division 1Q2009 recoded EGP7 mn compared to EGP85 mn during 1Q2008. It must be noted that Investment Banking revenue booked during 1Q2008 was predominantly the unbilled portion relating to the Talaat Mustafa Group private placement and IPO that took place at the end of 4Q2007. Investment Banking revenue contributes 4.8% to the Group's consolidated revenues Although the Investment Banking Team is currently working on several mandates, going forward, it is expected to have a lower level of contribution to the total fee and commission income as the within the framework of the expected future growth of Asset Management and Private Equity.
Private Equity
Funds under management at the end of 1Q2009 of USD1.15 bn remained at the same level as 4Q2008. In general the Team continued to develop the pipeline of investments along the articulated strategy that hinges on expanding the investment scope beyond Egypt and North Africa as well as increasing the investor base beyond the MENA region; the latter which has successfully begun through the partnerships with CDC and CDP. In addition, the pipeline for investments and level of activity has grown with the Team currently reviewing several investment opportunities.
Over the course of 1Q2009, Private Equity worked extensively on developing the Inframed opportunity that culminated in signing the memorandum of understanding between the sponsoring parties under the auspices of the Egyptian Minister of Trade and Industry on 30th April 2009. InfraMed, a long-term investment fund and the first financing facility of the Union for the Mediterranean, is to be an equity investor in primarily greenfield projects to build urban, energy and transport infrastructure in the Southern and Eastern Mediterranean region. EFG-Hermes and the governing bodies of Caisse des Dépôts (France), Cassa depositi e prestiti (Italy), and Caisse de Dépôt et de Gestion (Morocco) have approved a joint commitment of up to €400 mn for InfraMed. InfraMed will be open to other long-term investors, particularly in Europe, the Middle East and North Africa with the aim of raising in excess of €1 bn over the coming months, with the first closing expected by the beginning of 3Q2009.
Removing the success fees booked during 1Q2008 (EGP4.9 mn), revenues from Private Equity slightly increased in 1Q2009 to EGP24 mn as a result of the funds raised during 2Q and 3Q2008. The business line contributed 16.2% to the Group's consolidated operating revenues.
Operating Expenses
Table 11: Breakdown of Operating Expenses
Please refer to the attached pdf
Sources: EFG-Hermes audited financial statements and management accounts
Cost cutting measures introduced across the major expense items have began to bear fruit in 1Q2009. Fully loaded consolidated total operating expenses have decreased by EGP45 mn (by 24.1%) over 4Q2008 levels to EGP143 mn. The 25.5% decline versus 1Q2008 levels is even more significant given that during 1Q2008 neither the Omani nor Kuwaiti operations were accounted for.
Due to the nature of the business, employee expenses remains the single largest component of operating expenses. Fully loaded employee expenses decreased 27.7% from 1Q2008 levels and 8.5% from 4Q2008 levels to reach EGP80 mn. The decrease is despite headcount rising from 762 in 1Q2008 to a total of 870 as at the end of 1Q2009, and can be attributed to the salary reductions implemented across the Group's top 200 employees starting in March, the full effect of which will become apparent during 2Q2009. Coupled with the reduction in salaries, the fixed portion of the expense has in fact decreased by a total of 28.1% over 4Q2008.
Other operating expenses include occupancy expenses, office expenses, communication expenses (data and telecommunication), travel and marketing expenses, promotion and advertising expenses and consultant and service fees, have declined over 4Q2008 levels as the cost curbing measures were immediately implemented starting the end of 4Q2008 and the full effect is mostly reflected in the current levels. Other operating costs declined 22.6% over 1Q2008 levels to EGP 63 mn down from EGP81 mn a year earlier when the Group's operating expenses did not include the Kuwaiti and Omani operations and down 35.6% from EGP101 mn in 4Q2008. Major cost saving came from the decline in promotional and advertising expenses by decreasing by 79.5% (EGP13.1 mn) over 4Q2008 as the Group downsized all promotional and advertising to a minimum. The Group did not sponsor any major conferences, bar its own One-on-One conference, reversing the trend of sponsoring major conferences and events in its key markets during 2008. Several cost curbing measures have been introduced with respect to travel and marketing expenses starting the beginning of the year that has restricted use to particular airlines and hotels with which the Group has corporate rates, as well as limiting entertainment and other expenses have brought down travel and marketing expenses a 43.9% reduction in 1Q2009 to EGP5.96 mn from EGP10.6 mn in 4Q2008 and EGP9.4 mn in 1Q2008.
Despite the sharp decline in operating revenues, the Investment Bank remained profitable over 1Q2009; this in itself is an achievement given the near collapse of the investment banking industry in general and the turmoil and dire conditions regional markets are experiencing . Net operating profit declined to EGP8 mn from a profit of EGP278 mn in 1Q2008 (of which EGP34.6 mn were incentive fees) but up from a loss of EGP30 mn in 4Q2008.
Other Revenue
The major components of other revenue are the consolidated portion of EFG-Hermes' 27.87% ownership stake in Bank Audi Saradar and the net income from treasury operations and balance sheet management.
Banque Audi: The importance of pursuing a universal banking model has proved advantageous. With the contraction of fee and commission income, revenues consolidated from the investment in Bank Audi has provided a stable revenue stream. In terms of performance, the consolidated portion from the Bank Audi investment during 1Q2009 is the equivalent of EGP85 mn, 14.9% above 1Q2008.
Treasury Operations: The Treasury Department has been increasingly capturing opportunities in the fixed income market in order to maximise returns on the Group's cash balances. Accordingly, the combined revenue from treasury operations has been reclassified into net interest, realised and unrealised capital gains (or losses) on fixed income instruments.
During 4Q2008, net revenues consolidated from the treasury operations amounted to the equivalent of EGP83 mn. The amounts booked during 1Q2009 increased to a total of EGP88 mn as the EGP slightly depreciated (from 1USD=EGP5.52 to EGP5.59) locking in an FX gain of EGP27.1 mn. As more of the Group's liquidity was channeled to fixed income instruments, predominantly Egyptian treasury bills and bonds with the only corporate bond being the Weather bond, the net interest earned declined to EGP34.3 mn during 1Q2009 and is being replaced by revenue booked from fixed income (both realised and unreaslised) of EGP26.5 mn.
Given the above, Treasury operations earned a total of a total of EGP88 mn in 1Q2009 constituting 27% of total revenue, up from around 6.5% a year earlier.
Balance Sheet
In the continuing ominous market conditions EFG-Hermes' balance sheet continued to be strong, liquid, unleveraged and free of toxic assets. High levels of cash, cash equivalents and other investments (namely T/Bills, bank deposits and investment in money market funds and fixed income products4) reaching EGP3.002 bn down slightly from EGP3.004 bn at the end of 2008. Working towards maintaining that Investment Banking platform is profitable and closing the proprietary trading account during the latter part of 2008 ensured that the Group did not burn cash during 1Q2009 and has the firepower to expand its business whether organically or through acquisitions at anytime.
As EFG-Hermes wound down the Principal and Proprietary Trading accounts and has not traded any of its seed capital positions, the available for sale investments declined to EGP660 mn as at the end of 1Q2009 down from EGP704.7 mn at the yearend 2008. A large part of the decline is the due to the decline in the market valuations that have caused the value of the Group's stake in SODIC to drop to a total of EGP145.8 mn down EGP175.7 mn as at the end of 2008 as the investment was marked-to-market as well as the sale of a portion of bonds.
Total receivables and payables resulting from operations resulted in a net payable to clients of EGP247.7 mn incurred mainly due to the normal course of business concentrated within the Brokerage and Asset Management divisions. This is down slightly from EGP344.1 mn as at the end 2008.
The increase in property, plant and equipment since the end of 2008 to EGP392.7 mn relates mainly to the continued work on EFG-Hermes' new headquarters in Egypt.
The increase over the year of the total, current and non-current, amounts relating to the EFG-Hermes Employee Trust from EGP305.8 mn as at the end of 2008 to EGP409.1 mn as at the end of 1Q2009 reflects the transfer of the latest tranche to the Trust from the treasury shares during January 2009.
As at the end of 1Q2009 the treasury shares for a total of EGP94.8 mn correspond to a total of 5,150,000 shares that the Firm's extraordinary general assembly approved redeeming on 7th April 2008.
On the liability side, the Group continues to carry very little bank debt. The only debt outstanding as at the end of 1Q2009 is a total of EGP127.5 mn of long term loans to DEG and IFC.
As at the end of 1Q2009 shareholders' equity increased to EGP8.19 bn up from EGP7.97 bn as at the end of 2008 in spite of having a total of EGP94.8 mn worth of treasury shares on the balance sheet as at the end of 1Q2009.
Taxes
The effective tax rate for 1Q2009 has decrease to 11.3% down from 12.6% in 1Q2008 as revenues emanating outside Egypt and from non-taxable entities have increased.
4 EGP431.7 mn of investment in money market funds and bonds is reported in the EGP521.7 mn trading investment figure
Profitability
Net income after tax and minority interest decreased 59.4% to EGP140.1 mn in 1Q2009 down from EGP348.5 mn in 1Q2008. Of the bottom line EGP34.6 mn relate to incentive fees realised on the listed equity funds and portfolios in 1Q2008 and none in 1Q2009. Compared to 4Q2008, net profit after tax and minority interest increased over 6 fold. However, adjusting for the one-off impairment of EGP102 mn taken during 4Q2008, the bottom line increased only marginally (around 15%) above the adjusted 4Q2008 profit after tax and minority interest despite capital markets in general weakening over the course of 1Q2009.
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 ("Investments") 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.CALondon: HRHOq.LBloomberg: EFGHReuters pages: EFGS .HRMS .EFGI .HFISMCAP .HFIDOM
EFG-Hermes (Holding Main Office)58 Tahrir Street Dokki Egypt 12311Tel +20 2 333 83 626 Fax +202 333 78 038 efg-hermes.com
1Q 09 Charts & Financial Statements
http://www.rns-pdf.londonstockexchange.com/rns/2329S_-2009-5-14.pdf
1Q2009 Earnings
http://www.rns-pdf.londonstockexchange.com/rns/2329S_1-2009-5-14.pdf