Last checked at 13 Nov 2008 08:20
3Q2008 Earnings Release - 13 November 2008
Cairo, November 13, 2008 - EFG-Hermes today reported total consolidated revenues of EGP2.1 billion and net profit after tax and minority interest of EGP913.8 million for the nine month period ending September 30, 2008. Total revenue growth was 37.5% (9M2007 revenues EGP1.5 billion) while net profit growth was 2.8% (9M2007 net profits EGP889.2 million).
For the third quarter 2008, consolidated revenues of EGP576.5 million increased 6.2% from the 3Q2007 and decreased 33.8% compared to the 2Q2008, reflecting the challenging market conditions which spilled over to the regional markets during the quarter. 3Q2008 net profit after tax and minority interest was EGP156.1 million.
Diluted EPS in 9M2008 increased to EGP2.36 up from EGP2.29 in 9M2007. For the 3Q2008, diluted EPS reached EGP0.4 versus EGP0.83 in 3Q2007.
Business Highlights
Net revenues booked from the Investment Bank (net operating revenues) declined 36.8% to EGP289.2 million in 3Q2008 down from EGP457.4 million in 3Q2007 and from EGP696.6 million in 2Q2008. Much of the weakness during the quarter can be attributed to the losses booked on the Principal Account as the underlying total fee and commission income for 3Q2008 increased 9.6% over the comparative period the previous year to EGP422 million. Net operating revenues increased by 20.4% over the 9M2007 period to EGP1.53 billion.
During 3Q2008 the Principal Trading Account booked a net loss of EGP194.3 million (including unrealised losses) as the markets declined across the region. Over 9M2008 the Principal Account has booked a net gain of EGP39 million
Net profit after tax and minority interest of EGP913.8 million for 9M2008 results in a margin of 48.7% versus 59.6% for 9M2007. Bonus accruals for 9M08 reached EGP209.1 million. On a like for like basis, the 9M2007 margin can be compared to a 9M2008 margin (ex. bonus accrual) of 59.8%;
Regional operations during 9M2008 accounted for 40.2% of the total fee and commission income (excluding capital gains from Principal account) up from 20.1% in 9M2007;
During 3Q2008 the Brokerage arms in Egypt (34%1) and the UAE (on the DFM 25% and ADSM 23%)1 continued to maintain their number one market share positions and the Saudi subsidiary (2.4%1) remains the #1 independent brokerage company by market share. Furthermore, EFG-Hermes continues to integrate the newly acquired Vision Securities in Oman (#2 market share position starting September, 30%1) and Gulf Brokerage in Kuwait (renamed EFG-Hermes IFA, #2 market share position starting September, 27%1).
1 percentage of total market executions for the quarter
Total assets under management within the Group decreased to USD7.45 billion, USD6.3 billion of which are in listed equities and money market funds and the remainder in private equity. Assets under management in listed equities declined since the end of 2Q2008 mainly as a result of change in NAVs resulting from market condition which was reflected in a decline of USD1.3 billion in the assets managed for clients (approximately a 17% decrease);
Total realised incentive fees within Asset Management for 9M2008 reached EGP226 million compared to EGP44.3 million for the similar period in 2007. Due to weak market conditions, incentive fees booked during 3Q2008 were minimal at EGP13.7 million;
During 3Q2008, the Investment Banking Team closed 3 transactions; 2 private placements for a total of USD291 million and an M&A deal for USD70 million;
3Q2008 witnessed the first closing of Horus Tourism Investment Company with an initial closing through commitments and asset swaps of around USD200 million;
As of the end of 3Q2008 EFG-Hermes' shareholding structure remained dominated by institutional shareholders. The top 60 shareholders own 72.81% of shares and include 38 western institutions;
A share buyback program is underway to build an inventory of shares to be used for the renewal of the management incentive scheme.
Market Commentary
The global credit and liquidity crunch filtered into the regional markets and created volatility across all markets beginning during the traditionally slow summer months with market downturns and shrinking valuations rolling into the 4th quarter. YTD declines included Egypt down 49%, Dubai down 50% and Saudi down 47% versus declines in Russia of 66%, China of 58% and India of 63%, and compares to developed market declines of 37% for the S&P 500 and 41% for the DJ Euro 50.
Such market conditions proved challenging to EFG-Hermes during 3Q2008. Increased market volatility and reduced interest from both foreign and retail investors across the region have set a backdrop of softening markets in volumes traded and valuation levels. Although 3Q2008 performance attests to the Group's dominant market positioning and leadership across the region, it would be unrealistic to assume that the Firm is not affected due to market turmoil.
Table 1: Performance of Markets in the Arab Region during 3Q2008
Please refer to the attached pdf file for table
Sources: Regional markets and EFG-Hermes
Performance
Total Revenue
Table 2: Breakdown of Total Revenue
Please refer to the attached pdf file for table
Sums and percentages may not add up exactly due to rounding
* net of FX losses and interest expense
** no Principal Account major amount is gain on sale of SODIC in 9M2007
*** Includes EGP89.97 million being the fair value adjustment of the Nile City real estate investment in 3Q2008
Sources: EFG-Hermes audited financial statements and management accounts
Total consolidate revenue booked during 3Q2008 was EGP576.6 million, a 6.2% increase over the same period in 2007 and a 33.8% decline from the record high 2Q2008. The EGP194.3 million of booked and unrealised loss on the Principal Account during the quarter was the main driver of the decline.
Operating Revenues: Total Revenue from the Investment Bank
Revenues booked from the core operation within the investment bank (excluding treasury operations and unrealised incentive fees) reached EGP228.5 million in 3Q2008 down from EGP433 million the previous year. Excluding the EGP194.3 million loss on the Principal Account during the quarter, operating revenues from the core activities (Brokerage, Asset Management, Investment Banking and Private Equity) reached EGP422.8 million, an increase of 9.6% over the EGP385.9 million booked during 3Q2007.
Total operating revenues for 9M2008 reflect the strong market conditions that prevailed during the first part of the year as well as the Firm's ability to grow its core business. Total operating revenues for the 9M2008 increased 20.4% to EGP1.53 billion (including the loss on the Principal Account during the 3Q2008).
Table 3: Contribution of the Different Divisions to Operating Revenue on a Nine-month Basis
Please refer to the attached pdf file for table
Sums and percentages may not add up exactly due to rounding
* excluding Treasury Operations; including unrealised loss (or gain); no Principal Account during 9M2007 the amount is mainly gain on sale on SODIC shares
Sources: EFG-Hermes audited financial statements and management accounts
Table 4: Contribution of the Different Divisions to Operating Revenue on Quarterly Basis
Please refer to the attached pdf file for table
Sums and percentages may not add up exactly due to rounding
* excluding Treasury Operations; no major Principal Account during 3Q2007
Sources: EFG-Hermes audited financial statements and management accounts
Setting aside the large incentive fees that are usually booked during the last quarter of the fiscal year or unusual one-off revenue items, the 3Q2008 broke the record-run of 10 consecutive quarters of rising operating revenues. Revenues booked by Brokerage activities across the region returned to being the core contributor to operating revenues in 9M2008, accounting for 46.8% of operating revenues. The broader asset management business, both in listed and private equities, contributed 35.1% of total operating revenues for the 9M2008. The Principal Account generated 2.6% of the total operating revenues during the first nine months of the year but was a drain on revenues booked during the third quarter.
Continuing the Group's geographic diversification regional operations during 9M2008 accounted for 40.2% of the total fee and commission income.
Hereunder is an analysis of the company's main operational divisions:
Brokerage
Despite softening market conditions EFG-Hermes has managed to retain its leadership positions across all the markets in which it operates due to its widespread distribution platform and its varied client base. In addition, by strictly following internal policies, procedures and compliance regulations, the firm has been able to minimise losses due to client bankruptcies or delayed settlements.
The Brokerage Division continued its leadership on all markets in which it operates. Starting June 2008, EFG-Hermes climbed to the #1 position for non-bank brokers on the Saudi market. Market positioning in both Oman and Kuwait is being solidified as EFG-Hermes introduces its processes and integrates the subsidiaries into the platform. Trading continued on markets where the Firm has no physical presence with revenues booked growing.
Traditionally the third quarter is usually the slowest quarter due to the summer months when the majority of the Egyptian and regional HNWI clients are on vacation and business channeled by foreign clients is usually at its lowest. In addition, Ramadan came in September further putting a dampener on volumes that was amplified by the downturn in global markets and the financial sector crisis.
Egypt
Revenue from brokerage activity in Egypt increased 53.8% over 9M2007 levels to EGP496 million constituting 33% of the Group's consolidated revenue. Although volumes executed on the market have declined by around 8% from 3Q2007 levels, on a quarter-to-quarter basis 3Q2008 revenues remained relatively constant EGP133 million resulting in an increase of market share.
The 12.6% growth in value traded by EFG-Hermes in 3Q2008 over 3Q2007 surpassed the 8% decline in market volumes over the same period resulting in the Group's market share increasing to 17%, up from 15% a year earlier. Al Mal, a local newspaper, published the rankings of Brokerage companies in Egypt during the 9M2008 and reflected EFG-Hermes' leadership of the market and its executing over 43% of daily market volumes over that period.
Figure 5: EFG-Hermes Executions and Share of Total Market Executions
Please refer to the attached pdf file for chart
Sources: CASE and EFG-Hermes
UAE
Figure 6: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf file for chart
Sources: DFM, ADSM and EFG-Hermes
Revenues from Brokerage operations out of the UAE have increased 97.4% over 9M2007 to reach the equivalent of EGP135 million and constituted 9% of the Group's total consolidated revenues.
Brokerage activities in the UAE continued its position as the #1 broker in the country as the value executed by EFG-Hermes increased 7.1% over 2Q2008 levels to USD7.3 billion compared to market volumes over the quarter remaining flat in Abu Dhabi and slightly falling in Dubai. Shares of total market executions continued to increase to all time highs; 24.6% on the DFM and 23.3% on the ADSM. EFG-Hermes is increasingly executing on the DIFX as volumes and liquidity on the exchange slowly pick up.
Saudi Arabia
Figure 7: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf file for chart
Sources: TADAWUL and EFG-Hermes
Brokerage in Saudi Arabia has locked in the equivalent of EGP32 million in agency fees in 9M2008, corresponding to 2.2% of the Group's consolidated operating revenues. The Saudi operation has also begun to book Asset Management revenue (EGP4 million in 3Q2008) after the launch of the Saudi Fund in the latter part of June 2008.
Trading volumes on Tadawul have declined by over 20% during 3Q2008 compared to only an 8.7% decline in volumes executed through EFG-Hermes. The Group's market share increased to 2.42% consolidating EFG-Hermes' positioning as the #1 non-bank broker on the Exchange. During 3Q2008 the Capital Market Authority began allowing foreigners' participation in the market through swaps and participation notes. EFG-Hermes KSA received the approval during August 2008 and began offering the product to clients. While volume growth in this area has been held back by the general market turmoil, EFG-Hermes with its institutional client base and the set up in the KSA is well positioned to capture the increased business once meaningful foreign inflows begin.
Oman
Figure 8: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf file for chart
Sources: Oman Stock Exchange and EFG-Hermes
The portion consolidated from Vision Securities' activities reached the equivalent of EGP7 million in agency fees, corresponding to 3.1% of the Group's consolidated operating revenues during 3Q2008 (EGP16 million and 1% of the total for the 9M2008).
During 3Q2008 EFG-Hermes continued to integrate Vision Securities' operations incorporating the company into the Group's platform and introducing Compliance procedures and workflow. As EFG-Hermes began channeling its client business to Vision Securities (that was not channeled through Vision Securities prior to the acquisition), its share of total market executions more than doubled to 29.9% for 3Q2008 up from 14.4% in 2Q2008.
Kuwait
Figure 9: Progression of Volumes Executed and Share of Total Market Executions
Please refer to the attached pdf file for chart
Sources: Kuwait Stock Exchange and EFG-Hermes
EFG-Hermes acquired a controlling management stake in Gulf Brokerage Company in Kuwait in the middle of August 2008. Since then, the Company has been renamed EFG-Hermes IFA and integration process is well under way. The Company has managed to maintain its share of daily market trading in the vicinity of 26% despite the integration process. The portion consolidated from the Kuwaiti subsidiary in 3Q2008 reached the equivalent of EGP24 million corresponding to 1.6% of the Group's total operating revenues for the 9M2008.
Other Regional Markets
Trading on markets where EFG-Hermes has no physical presence is growing. Qatar, Jordan and Morocco remain the markets where EFG-Hermes has most activity after volumes in Oman and Kuwait began to be channeled through EFG-Hermes' subsidiaries in these countries.
Research
Figure 10: Development Active Research Coverage
Please refer to the attached pdf file for chart
* active coverage defined as at least one note published in the past 6 months
Source: EFG-Hermes
The Research Division continues its leading position, covering the widest range of stocks across the MENA region with a total of 76 stocks under active coverage as of the end of 3Q2008. With the market turmoil impacting most stocks across the region, the firm's analysts remain focused on providing in depth, fundamental research to its client base. Expanding coverage of stocks to maintain EFG-Hermes' regional leadership remains at the heart of the Division's strategy.
Asset Management
Figure 11: Development of Listed Assets under Management (totals in EGP billions)
Please refer to the attached pdf file for chart
Source: EFG-Hermes
Asset Management revenues more than doubled to the equivalent to EGP91 million in 3Q2008 over the similar quarter the previous year. During the 3Q2008, EGP13.7 million in incentive fees were realised. Asset Management revenues over the 9M2008 increased 275.3% over the 9M2007 level to EGP447 million, contributing 29.8% to the Group's consolidated net operating revenues. During the 9M2008, EGP226 million in incentive fees were realized. Unrealised incentive fees as at the end of 3Q2008 were negligible compared to EGP99 million in 2Q2008 and EGP132 million in 3Q2007.
Assets under management declined to USD6.3 billion by the end of 3Q2008, down from USD7.7 billion at the end of 2Q2008. The bulk of the fall was due to the 22.8%2 decline in regional market valuations over the quarter which led to a USD1.25 billion decline in AuMs. The remainder of the decline was a result of the net cash outflows of USD102.4 million. The bulk of the absolute outflows and redemptions were from the Money Market Funds, with gross outflows of USD1.54 billion and net outflow of USD114.2 million. Regional funds witnessed a total net cash inflow of USD34.5 million, the bulk of which were inflows into EFG-Hermes' flagship funds. At the end of the quarter 46.4% of the assets under management were regional funds and portfolios.
Investment Banking
Investment Banking revenues in 3Q2008 increased by 27.1% to EGP97 million compared to 3Q2007. However, total revenues for the full 9M2008 have declined 14.7% over the similar period the previous year to EGP232 million as a result of several deals being delayed due to market conditions. During 9M2008 Investment Banking contributed 22.9% to the consolidated fee and commission income.
In spite of challenging market conditions EFG-Hermes Investment Banking Division had a strong third quarter. The Team was able to close three transactions during that period; two out of the Egypt and the third out of Dubai. In Egypt, one of the transactions was the private placement of a USD150 million stake in Offshore Oil Services Ltd, a vehicle that owns a 21% stake in Maridive and Oil Services, a company that the Team had successfully taken public during 2Q2008. The other transaction was the sale of 49% of the Tarek Nour Group, Egypt's largest advertising and media agency to DDB for USD70 million. The transaction out of Dubai was a USD141 million private placement for Gulf Housing Solutions, a company that provides workers' housing across the GCC.
2 The average decline in Egypt and the GCC markets
Private Equity
Private Equity, revenues for the 9M 08 registered a decline of 44.1% from the 9M2007 to EGP81 million corresponding to 5.4% of the Group's total consolidated operating revenues. For the 3Q2008, revenues reached EGP22 million versus EGP107 million in 3Q2007.
Expansion and restructuring of the Private Equity division continued during the quarter with the regional team being enhanced. Although the total funds under management increased marginally to USD1.15 billion, operationally 3Q2008 was a busy quarter for the Team as follows:
1. Horus Tourism Investment Company completed its first closing during the quarter with cash subscriptions and asset swaps of around USD200 million, not included in the funds under management figure above;
2. With the expansion of Horus III's investment scope from Egypt and North Africa to the broader MENA region the fund closed and fully paid for 2 investments during 3Q2008 namely; Gulf Housing Solutions (a total of USD65 million) where the Fund owns 38%; and 50% of Pacific Crest (a total of USD75 million). An additional 20% of the Fund was called during 3Q2008 (USD116 million) to be paid-in during 4Q2008 bringing the total called amount to 80% of the fund size;
3. The Technology Development Fund II received its operating license and closed at EGP215 million.
Given current market conditions the Team is working on identifying special situation/distressed investment opportunities arising from the market falls and/or the change in macro environment. Currently, the Team is starting to lay the groundwork for EHPE's first regional fund which will be launched when market conditions are more favorable.
It is worth noting that Private Equity is still in the "building" phase, with funds under management being accumulated and invested. The doubling the funds under management with the addition of Horus III and SNB during the latter part of 2007 and early 2008 has benefited the Division's revenues as management fees tripled in 9M2008 to EGP68 million.
Principal & Proprietary Trading
During 3Q2008 the net realised loss on the Principal accounts was EGP55.4 million while unrealised loss announced to EGP138.9 million. For the 9M2008 the Principal account has booked a net gain of EGP39 million. The creation of a meaningful Principal Account (not including the SODIC investment) began at the end of 3Q2007 and booked total revenue of EGP133 million in 2007. Overall the account has booked a total gain of EGP172 million since inception until the end of 3Q2008.
Operating Expenses: General Administrative Expenses
Please note that starting 1Q2008 EFG-Hermes began to accrue a provisional amount each quarter to account for the annual bonuses; traditionally and until yearend 2007actual amounts due for payout were deducted during the fourth quarter.
Table 12: Comparative Operating Expenses and Margins
Please refer to the attached pdf file for tabel
* adjusted in 9M2008 for EGP209.1 million of accrued bonuses and in 9M2007 for 2006 bonuses of EGP23.5 million
** adjusted in 9M2008 for 75% of the EGP209.1 million of accrued and in 9M2007 for 75% of EGP290 million bonuses paid in 2007
Sources: EFG-Hermes audited financial statements and management accounts
Operating expenses in the 9M2008 have more than doubled over 9M2007 levels to EGP699 million, which due to softening market conditions has not been matched by an equivalent increase in operating revenues. Operating expenses include EGP209.1 million of accrued bonuses as a result of the change in accounting policy to allow for the monthly accrual of bonuses in the range agreed to by the Board of Directors. The resulting net operating margins declined to 53.4% during the 9M2008 from 66.5% during 9M2007. If adjusted for the accrued bonuses to accurately reflect the net comparable margins, 9M2008 operating margins recorded a slight decline to 67.4% from 68.6% a year earlier and increased from 56.9% for the full year 2007.
Total adjusted operating expenses increased 40.6% to EGP490 million3 in 9M2008 over the 9M2007 level (adjusted for the 2006 bonuses paid in 1Q2007 and accrued bonuses in 9M2008). The main components of operating expenses are as follows:
Employee expenses: EFG-Hermes continues its investment in human capital in order to maintain its leadership in the region with employee expenses remaining the largest single expense item for the firm. Fully loaded employee expenses, including accrued bonuses, increased 118.7% over adjusted 9M2007 levels to reach EGP464.3 million. However, adjusting for the accrued bonuses in 9M2008, employee expenses totaled EGP255.3 million, or a 35.2% increase over adjusted 9M2007 levels. Total fully loaded employee expenses account for 66.4% of total operating expenses and 31.7% of operating revenues up from 57.1% and 19.1% respectively in 9M2007.
Third party expenses: This area booked EGP35.6 million in expenses, the bulk of which were expensed during 3Q2008 at the Holding Company level and relate mostly to due diligence processes and legal fees related to the acquisitions and product launches, whether completed or not. The expense constituted 5.1% of total operating expenses and 2.4% of total operating revenues during 9M2008 up from 3.3% and 1.1% in 9M2007 respectively.
Travel expenses: Although this expense nearly doubled over 9M2007 to EGP35 million, travel expenses remained in the same vicinity of 5% of total operating expenses. Travel expenses are expected to continue increasing in absolute terms as the Group's footprint is expanded across the region.
Marketing and events expense: The spend in this area increased 75.8% over 9M2007 to EGP34.7 million but decreased to 4.97% of total operating expenses and 2.4% of total consolidated operating revenues from 5.31% and 1.8% respectively in 9M2007. Although the major cost component of this expense remains the EFG-Hermes' annual One-on-One Conference, increasing spend reflects additional conference sponsorships and advertising for its newly introduced retail products.
Utilities and office expenses: This expense nearly doubled over 9M2007 levels to reach EGP34 million as the Group opened offices and branches across various markets. This expense remained at the same levels as the previous year at around 4.9% of total operating expenses.
Telecommunication expenses: This area increased 62.9% over 9M2007 and reached EGP26.4 million, or 1.8% of operating revenues slightly up from 1.5% during 9M2007 as a result of the increasing communications between the various regional offices as well as the communications with the increasingly diverse client base. Telecommunication expenses have declined to 3.8% of total operating expenses down from 4.4% in 9M2007.
Net adjusted operating profit during 9M2008 increased 32.8% over 9M2007 levels to EGP1.01 billion. Adjusted net operating margins have slightly decreased to 67.4% from 68.6% despite increasing employee expenses, operating revenues only increasing by 35% and the loss booked on the Principal Account during 3Q2008. Furthermore, as can be seen from the table above, if the net operating expenses are adjusted to include the prorate bonuses (75% of the EGP209 million accrued in 9M2008 and 75% of the EGP290 million paid in 2007) the operating margin has improved to 56.9% up from 49.9% in 9M2007.
3 Starting 1Q2008 EFG-Hermes started to accrue a provisional amount for the annual bonuses which until the yearend 2007 the actual amount to be paid was deducted during the fourth quarter; amounts to EGP209.1 million in 9M2008 of which EGP174.5 million were deducted during 2Q2008
Other Revenue
The major components of Other Revenues are the consolidated portion of EFG-Hermes' 28.15% ownership stake in Banque Audi Saradar and the net income from treasury operations. However, during 3Q2008 revenues resulting from fair value adjustments contributed to non-agency business revenues.
A) Banque Audi
Total revenue consolidated EFG-Hermes' stake in Banque Audi remains sizeable but continued to decline in importance as the Group's core business develops even during weaker market conditions that dominated 3Q2008. The 9M2008 revenue consolidated from Banque Audi grew 16.7% over 9M2007 to EGP 244.3 million. The contribution to the Group's total consolidated revenue declined to 13% in 9M2008 from 14% during 9M2007 and around 25% when the investment first began to be consolidated in 2006.
B) Treasury Operations
EFG-Hermes continues to have a positive net cash position despite the trend since the beginning of the year of decreasing free funds that are left to Treasury to manage due to the use of approximately EGP1 billion in the Principal Trading account (both equity and fixed income), the payment of around USD125 million in the Kuwait acquisition, the stake in Panmure Gordon and the increased DVP activity and margin lending. Nevertheless, Treasury operations continued to support the Group's bottom line profitability, whether directly through revenue generation or aversion of genuine FX losses.
The net interest differential during 9M2008 recorded EGP64.9 million down from EGP180 million the previous year. The decline relates to the varied use of the cash and quasi cash balances within the business with the difference being a result of use of the cash in the Principal Account that was not part of the business during 9M2007.
C) FX Gain & Loss
EFG-Hermes realised EGP34.8 million in FX gains during 3Q2008 as NDF contracts matured. For the 9M2008, the Firm realised a total FX loss of EGP34.5 million, a figure which has benefited from the various hedges on FX based investments and major cash balances of the firm.
Netting out the FX loss from the revenue of Treasury operations results in a total gain of EGP30 million in 9M2008 down from EGP162 million during 9M2007.
D) Fair Value Adjustments
During 3Q2008 EFG-Hermes revalued its real estate investment in Nile City. The 5,209 sqr. metres owned were revalued at EGP34,200/metre and resulted in net revenues of EGP90 million.
Other Expenses
Other expenses include depreciation, amortisation and provision expenses. Depreciation increased slightly over 9M2007 levels to reach EGP18.1 million as premises across the region become operational. The other expense incurred was a provision expense for EGP27.6 million in 3Q2008 (a total of EGP41 million during 9M2008) which relate to normal business practices.
Balance Sheet
Despite using around USD150 million on long term investments (namely Gulf Brokerage and Panmure Gordon) during 3Q2008 EFG-Hermes' balance sheet remains strong and unleveraged.
The balance sheet contains high levels of cash and cash equivalents of EGP3.4 billion as at the end of September 2008 versus EGP3.2 billion as at the end of 1H2008 down mainly as a result of the partial liquidation of the Principal Trading account and the declining levels of DVP transactions reflecting the contraction of volumes traded across all regional markets. EFG-Hermes' Treasury Department continued to maintain a rate of return above that earned on money market operations.
The available for sale investments remained in the vicinity of EGP1 billion. The investment in SODIC (through OPD) is always marked-to-market and as at the end of 3Q2008 its value declined to EGP428.8 million down from EGP665 million at the end of 2Q2008 and EGP942 million as of December 2007 as the price declined with the downturn of the Egyptian market since the beginning of the year. The acquisition in Kuwait has been included for EGP18.3 million (with EGP568.8 million being recorded within the intangible assets). Another investment undertaken within 3Q2008 is the seed capital for Horus Tourism Investment Company.
Total receivables and payables resulting from operations resulted in a net payable to clients for EGP609.8 million incurred during the normal course of business mainly within the Brokerage Division.
The growth in property, plant and equipment over the quarter to EGP312.9 million up from EGP160.9 million at the beginning of the year relates mainly to the acquisition of new freehold space in the Gate in Dubai, the continued work on EFG-Hermes' new Egypt premises as well as the new Saudi and Qatari offices.
The increase in the goodwill as at the end of 3Q2008 to EGP699.4 million, up from EGP131.6 million at the end of 2Q2008 and 63.5 million as at the yearend 2007 is due to the consolidation of the Omani subsidiary, Vision Securities, in 2Q2008 and the Kuwaiti subsidiary, Gulf Brokerage, during 3Q2008.
On the liability side, the Group continues to have a negative net debt position. Two sets of gross debt were outstanding as at the end of 9M2008: a total of the equivalent of EGP155.1 million being the loans from IFC and DEG and an overdraft for EGP237.8 million which has since been repaid.
Shareholders' equity decreased to EGP9.27 billion as at the end of 9M2008 up from EGP9.32 billion as at the end of 2007 and a market cap of EGP13.2 billion as at 30th September 2008 translating to a P/BV of 1.43 and a PE (on annualized earnings) of 10.84 down from 1.97 and 12.85 as at the end of 2Q2008. The decline being predominantly as a result of marking the SODIC investment to market.
Taxes
The effective tax rate for the 9M2008 has slightly decrease to 11.48% down from 12.84% in 9M2007 as revenues emanating outside Egypt and from non-taxable entities have increased. Furthermore, the Firm continues to administer tax management at the level of the Group as a whole.
Profitability
Net adjusted income after tax and minority interest increased 2.8% to EGP913.8 million in 9M2008 up from EGP889.2 million in 9M2007; a level that is higher than the net profitability for the full year 2006. Net adjusted income after tax and minority interest increased 23.03% to EGP1.12 billion with a margin of 53.7% down from 60.1% in 9M2007. Of the bottom line EGP186.7 million relate to incentive fees realised on the listed equity funds and portfolios in 9M2008 compared to EGP 44.3 million during 9M2007.
The majority of the bottom line in 9M2008 relates to the core operations. If the bottom line is adjusted for a total of EGP244.3 million of revenue consolidated from Banque Audi, approximately EGP30 million of net treasury operations and the one-off fair value adjustment relating to Nile City, the net profit after tax and minority interest relating to the investment bank is EGP549.3 million. For a fair comparison with the previous year the bottom line need to be adjusted for the accrued bonuses yielding a margin of 50.5% in 9M2008 for the operations of the Investment Bank up from the adjusted 46.7% in 9M2007.
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
Please refer to the attached pdf copy of the audited financial statements
http://www.rns-pdf.londonstockexchange.com/rns/0719I_-2008-11-13.pdf