Efg-hold.gdr S Regulatory News (EFGD)

EFG HERMES REPORTS THIRD QUARTER 2012

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

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

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

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

Key Highlights

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

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

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

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

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

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

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

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

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

A. GROUP PERFORMANCE

I. Performance Indicators and Financial Highlights

Table 1: Key Operating Indicators

Please refer to attached PDF

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

Source: EFG Hermes and Crédit Libanais data

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

Please refer to attached PDF

Source: EFG Hermes management accounts

Table 3: Group Financial Performance - 3Q2012

Please refer to attached PDF

Source: EFG Hermes management accounts

Table 4: Financial Performance - 9M2012

Please refer to attached PDF

Source: EFG Hermes management accounts

II. Group Revenue

Table 5: Group Revenue

Please refer to attached PDF

Source: EFG Hermes management accounts

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

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

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

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

III. Group Operating Expenses

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

Please refer to attached PDF

Source: EFG Hermes Management Accounts

Table 7: Group Operating Expenses - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

Table 8: Group Operating Expenses - 9M2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

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

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

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

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

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

B. THE INVESTMENT BANK

I. Investment Bank Revenue

Table 9: Investment Bank Revenue

Please refer to attached PDF

Source: EFG Hermes Management Accounts

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

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

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

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

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

Fee and Commission Revenue

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

Please refer to attached PDF Please refer to attached PDF

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

Source: EFG Hermes Source: EFG Hermes 

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

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

Table 12: Fee and Commission Revenue - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

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

Table 13: Fee and Commission Revenue - 9M2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

Fee and Commission Revenue - Brokerage

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

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

Figure 14: Brokerage Revenue by Desk

Please refer to attached PDF

*3Q2012 Revenue Breakdown

Source: EFG Hermes

Egypt

Figure 15: Egypt Executions and Market Share

Please refer to attached PDF

Source: EGX, EFG Hermes

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

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

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

UAE

Figure 16: UAE Executions and Market Share

Please refer to attached PDF

Source: DFM, ADX, EFG Hermes

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

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

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

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

Saudi Arabia

Figure 17: KSA Executions and Market Share

Please refer to attached PDF

Source: Tadawul, EFG Hermes

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

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

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

Oman

Figure 18: Oman Executions and Market Share

Please refer to attached PDF

Source: Muscat Securities Market, EFG Hermes

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

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

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

Kuwait

Figure 19: Kuwait Executions and Market Share

Please refer to attached PDF

Source: Kuwait Securities Exchange, EFG Hermes

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

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

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

Jordan

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

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

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

Research

Figure 20: Research Coverage Universe

Please refer to attached PDF

Source: EFG Hermes

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

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

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

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

Fee and Commission Revenue - Asset Management

Figure 21: Development of Listed Assets under Management

Please refer to attached PDF

Source: EFG Hermes

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

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

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

Figure 22: Assets under Management by Geography

 Please refer to attached PDF

Source: EFG Hermes Asset Management

Fee and Commission Revenue - Investment Banking

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

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

Fee and Commission Revenue - Private Equity

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

Capital Markets and Treasury Operations Revenue

Table 23: Capital Markets and Treasury Operations Revenue

Please refer to attached PDF

Source: EFG Hermes Management Accounts

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

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

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

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

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

II. Investment Bank Operating Expenses

Table 24: Investment Bank Operating Expenses - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

Table 25: Investment Bank Operating Expenses - 3Q2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

Table 26: Investment Bank Operating Expenses - 9M2012

Please refer to attached PDF

Source: EFG Hermes Management Accounts

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

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

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

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

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

C. THE COMMERCIAL BANK

Table 27: Commercial Bank Key Financial Highlights and Ratios

Please refer to attached PDF

* Including extraordinary items

** Equity includes 1H2012 net profits & dividend distribution

*** Including net profits of the period

Source: Crédit Libanais

I. Overview

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

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

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

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

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

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

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

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

Q-o-Q Results

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

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

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

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

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

Y-o-Y Results

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

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

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

II. Selected Financials & qualitative information

Assets: 

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

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

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

Loans:

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

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

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

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

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

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

Deposits:

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

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

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

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

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

Net Interest income: 

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

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

Fee & Commission Income:

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

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

Trading income:

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

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

Net Provisions: 

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

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

Net Operating Income (ie after provisions):

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

Total Operating Expenses:

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

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

Net Income: 

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

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

Cost/Income Ratio: 

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

Net Interest Margin:

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

III. International Operations

SENEGAL

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

Balance sheet highlights:

Total assets: USD83.4 million

Cash : USD13.7 million

Loans : USD29.1 million

Securities : USD6.2 million

Deposits : USD30.5 million

Equity : USD17.6 million

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

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

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

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

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

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

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

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

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

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

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Stock Exchange & Symbol:

Cairo: HRHO.CALondon: HRHOq.LBloomberg: EFGHReuters pages: . EFGS .HRMS .EFGI .HFISMCAP .HFIDOM

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EFG Hermes (Holding Main Office)

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

Tel +20 2 353 56 499

Fax +20 2 353 70 942

efghermes.com