Efg-hold.gdr S Regulatory News (EFGD)

EFG HERMES REPORTS THIRD QUARTER 2010

CONSOLIDATED NET INCOME OF EGP88.1 MILLION; EARNING PER SHARE OF EGP0.23 PER SHARE, ON TOTAL OPERATING REVENUE OF EGP496.9 MILLON

Cairo, November 30, 2010 - EFG-Hermes today reported consolidated net income of EGP88.1 million for the third quarter 2010 compared with EGP96.7 million for second quarter 2010. Consolidated total operating revenue reached EGP496.9 million for third quarter 2010 up from EGP346.8 million in second quarter 2010. Total assets stood at EGP47.1 billion at the end of third quarter 2010.

For the nine months ending September 2010, consolidated net income reached EGP668.4 million versus EGP467.2 million a year earlier. Consolidated total operating revenue rose to EGP1,909.9 million versus EGP1,052.0 million a year ago.

Key Highlights

n EFG Hermes acquired a controlling interest in Crédit Libanais for USD542 million and a call option for an additional 25% exercisable in the next two years. EFG Hermes subsequently received the Central Bank of Lebanon approval and completed the acquisition on November 8th of this year. This step represents a mile stone in transforming EFG Hermes into a universal bank and rolling out its commercial banking strategy. Taking into consideration the unrealized gains on real estate and held-to-maturity investments, the acquisition price would imply a Price to Book multiple of only 1.3x, even before factoring in the call option for an incremental 25% stake.

n As a result, EFG Hermes has consolidated the results of the Bank for the first time in 3Q2010. Total consolidated operating revenues for 3Q2010 came at EGP496.9 million, with the investment bank contributing by EGP241.3 million and Crédit Libanais generating EGP255.6 million. This represents a 46% Y-o-Y increase in revenue, versus EGP341.3 million in 3Q2009.

n As part of the new strategic direction that raised total assets to EGP47 billion in the consolidated balance sheet, management is finalizing a comprehensive corporate reorganization plan to further streamline business lines. The proposed plan is expected to result in cost savings of approximately USD10 million in the annual operating expenses, at a cost of a one-off charge of USD10 million to be potentially booked in 4Q2010.

n The fee and commission business of the investment bank recorded EGP185.1 million, recording a 5% improvement in 3Q2010 compared to 3Q2009. Despite the decline in brokerage revenue as a result of weak executions across regional markets and as a result of 3Q falling in the summer and coinciding with the month of Ramadan, EFG Hermes managed to more than offset this seasonal decline by an increase in revenue generated from Investment Banking and Private Equity activities. On the other hand, revenues generated from capital markets and treasury operations fell to EGP56.1 million in 3Q2010 as a result of the divestment of Bank Audi earlier in the year.

n Crédit Libanais continued to perform strongly during the third quarter of 2010 recording a net income of USD58.8 million (EGP336.6 million) for the nine months ending 30th September, 2010. Earnings, representing 42.1% growth year on year, were driven by 22.3% growth in loans to customers since the beginning of the year, thus taking the Bank's balance sheet footings to USD6.3 billion. The Bank also managed to expand customers' deposits to reach USD5.3 billion, representing 13% growth in 9M2010 and resulting in a loan to deposit ratio of 29.5[1]%.

n The investment bank contribution to the 9M2010 bottom line came at EGP600.3 million and the commercial bank at EGP68.0 million (reflecting the consolidation of Crédit Libanais's 3Q results only not the 9M), thus carrying the total consolidated net income to EGP668.4 million.

n Our brokerage division maintained a leading position in a number of regional markets despite the decrease in our average daily commission to USD107 thousand in 3Q2010 from a peak of USD800 thousand in 4Q2007 and vs USD196 thousand in 3Q2009 as trading was concentrated in the uncovered speculative stocks that our clients do not take exposure to.

n Listed AuMs continued to improve, reaching USD4.6 billion at the end of 3Q2010, its highest level since 3Q2008. Moreover, Asset Management team has continued working on diversifying the client base and funds' origination as well as exploring a number of new opportunities.

n After the recent first closing of the InfraMed "mother" Fund of EUR385 million, the Private Equity team started roadshow for the Egypt's pocket which is expected to close in December 2010/January 2011. Concurrently, roadshows for the Syria Fund are underway with closing also expected in December 2010/January 2011.

n The Investment Banking team is currently involved in two high profile potential transactions. The first is the USD6.6 billion merger of Weather and Vimpelcom and the second is the sale of Olympic Group to Electrolux for USD475 million. Moreover, the team continues to strengthen its DCM franchise with the successful closing of EGP1,650 million bond for Orascom Construction Industries.

Consolidated Balance Sheet

Table: Please refer to attached PDF

Source: EFG Hermes balance sheet

The acquisition of Crédit Libanais has further strengthened EFG-Hermes balance sheet, with total consolidated assets reaching EGP47.1 billion at the end of 3Q2010. Total consolidated shareholders' equity stood at EGP9.0 billion, reflecting the strong capitalization of the Company and its ability to further pursue its growth strategy.

Available-for-sale investments amounted to EGP2.6 billion of which EGP1.1 billion is held by the investment bank (50% of the EGP1.1 billion is attributed to investment in SODIC). Meanwhile, available-for-sale instruments held by Crédit Libanais reached EGP1.5 billion of which 77% is in Lebanese government treasury bills and Eurobonds. Moreover, the Bank's held-to-maturity investments stood at EGP11.3 billion, of which 96% is in Lebanese government treasury bills and Eurobonds.

On the liability side, the creditors and other credit balances account reached EGP4.3 billion versus EGP278 million at the end of 2009, this is largely attributed to a EGP3.1 billion credit balance relating to the acquisition of Crédit Libanais as the transaction was completed on November 8th.

The commercial bank managed to grow its loan portfolio by 22.3% over 9M2010 to reach EGP9,072 million by the end of 3Q. Meanwhile, deposits grew 13% over the same period to reach EGP31,707 million. This took the loans to deposit ratio slightly up from 27.2% at the end of 2009 to 29.5% at the end of the quarter. Crédit Libanais remains retail focused, with retail and SME customers accounting for 69% of total loan portfolio versus 31% for corporate customers. This indicated a slight increase in retail contribution to the lending portfolio, which stood at 65% at the end of 2009.

Consolidated shareholders' equity stood at EGP9.0 billion at the end of 3Q2010. Moreover, post 3Q2010 results, the commercial bank disposed of a certain real estate unit for USD36 million, realizing a capital gain of approximately USD11 million which will be reflected in 4Q2010 results. Additionally, the Bank has unrealized gains related to the market value of real estate and held-to-maturity portfolios, estimated at USD30 million and USD195 million, respectively.

More importantly, the growth was accompanied by an improving quality. Coverage ratio showed a remarkable improvement reaching 96.4% at the end of 3Q from 87.3% at the end of full year 2009.

Financial Summary

Table: Please refer to attached PDF

Source: EFG Hermes management accounts and Crédit Libanais data

Table: Please refer to attached PDF

Source: EFG Hermes management accounts

Consolidated Revenue

Table: Please refer to attached PDF

Source: EFG Hermes management accounts

Total consolidated revenue for 3Q2010 reached EGP497 million, with the commercial bank and the investment bank contributing almost equally to the top line, 51.4% and 48.6%, respectively. Although the contribution from the fee & commission and the capital markets and treasury operations to total revenues fell Y-o-Y as a result of the consolidation, however, total fees and commission revenue rose 5% while revenue from capital markets and treasury operations increased 9% compared to last year.

For the 9M2010, total revenue rose 82% Y-o-Y to EGP1.9 billion. It is worth mentioning that 9M2010 included Crédit Libanais 3Q2010's revenue of EGP256 million and a capital gain of EGP716.6 million for the sale of Bank Audi.

Consolidated Operating Expenses

Employee expenses remain a significant component of total operating expenses, representing 66.8% of the consolidated expenses. Meanwhile, the consolidated non-employee related expenses represented the balance, standing at 33.2% of total expenses.

 In terms of margins, the investment bank 3Q2010 net operating profit margin came in at 20.8% while the commercial bank margin reached 53.1%, thus taking EFG Hermes consolidated operating profit margin to 37.4% for 3Q2010. Meanwhile, consolidated EFG Hermes 9M2010 operating profit margin reached 62.5%, with the Investment Bank reporting a margin of 63.9% and the Commercial Bank a margin of 53.1%.

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

A. The Investment Bank

Total Revenues

Total Revenue Breakdown

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

Total revenue for the quarter fell 29.3% Y-o-Y to EGP241 million, with the decline in revenue reflecting the disappearance of Bank Audi's contribution to the Group's total revenue. However, if we exclude Bank Audi's 3Q2009 revenue, total revenue would rise 6% over 3Q2009. Revenue contribution from the fee & commission and the capital markets & treasury operations increased Y-o-Y. Total fees and commission revenue rose 5% while revenue from capital markets and treasury operations increased 9%.

For the 9M2010, total revenue rose 57% Y-o-Y to EGP1.65 billion. Indeed, 9M2010 included a capital gain of EGP716.6 million for the sale of Bank Audi. Excluding the capital gain, total revenue would fall 11% Y-o-Y.

a. Fee and Commission Revenue

Fees and commission revenue in 3Q2010 rose 5% Y-o-Y to EGP185 million, being the main contributor to the total revenue and accounting for 77% of the top line figure. Fees and commission revenue mix has changed in 3Q. Revenue from investment banking rose considerably together with an increase in Private equity's contribution. Meanwhile, brokerage revenue pulled back being directly affected by weaker regional executions, with brokerage currently accounting for 39% of total revenue versus 59% in 3Q2009.

Regional volumes declined in 2010 as global weakness filtered into regional markets only towards the second half of 2009. However, Assets under Management have already started to pick up again reaching their highest level since 3Q2008, both on the public and private sides. This rising trend can be potentially indicating an inflection point especially with the continuous improvement of the macroeconomic backdrop in the MENA region.

Figure: Please refer to attached PDF

Source: EFG Hermes

Fees and Commission Revenue

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

Despite regional market indices rising slightly over the quarter, up 6% (on a weighted average basis), market activity remained lacklustre and negative sentiments weighted down on market performance. Volumes dried up in 3Q2010, down 44% Y-o-Y and 40% Q-o-Q. This had a large impact on brokerage revenue which fell 31% Y-o-Y. Meanwhile, revenue from Asset Management declined slightly, down 8% Y-o-Y.

However, the decline in brokerage revenue was more than offset by Investment banking and private equity revenues' increase. Investment banking revenue rose to EGP40 million up from EGP9 million in 3Q2009, while Private Equity revenue grew to EGP39 million from EGP26 million in 3Q2009. This illustrates the firm's ability to diversify revenue in the face of challenging market conditions on the back of negative sentiment and leveraging the improving macroeconomic backdrop in some of its key regional markets.

Table: Please refer to attached PDF

Source: Regional Markets and EFG Hermes

I. Brokerage

Over 3Q2010, regional markets gained some momentum, with the MSCI Arabian Market index rising 6.9%. Meanwhile, regional markets weighted average turnover fell by c40%. Sentiment remained dampened and activity subdued in 3Q that falls in the summer season which is relatively quiet. Moreover, this year the holy month of Ramadan coincided with the summer season, making the activity even weaker.

EFG Hermes Brokerage total value of executions stood at EGP38.7 billion (USD6.8 billion) in 3Q2010, down 36% Q-o-Q. Accordingly, commissions also fell to EGP71 million (USD12.7 million), down by 30% Q-o-Q. This reflects the improvement in brokerage margins on a Q-o-Q basis. Meanwhile, the decline in executions was attributed to a decline in the group's executions across different operations; especially in Egypt which represents c50% of total executions.

In line with Brokerage strategy, the team remains committed to expanding the retail business and penetrating new segments within these constantly growing markets. The retail business which includes online, call center, branches and VIP individuals represented 52% by the end of 3Q2010.

Brokerage Revenue by Desk

Figure: Please refer to attached PDF

Source: EFG Hermes

Egypt

In 3Q2010, volumes traded on the EGX declined 42% compared to 2Q2010, while EFG Hermes share of total execution on the Egyptian market fell 58% over the same period, thus resulting in a contraction to our market share to stand at 18% versus 25% in 2Q2010. The market share was mainly lost to some of the smallest brokerage houses, as trading was concentrated in the uncovered speculative stocks that our clients do not trade. However, EFG Hermes remained the #1 broker in the Egyptian market both in terms of volume of executions and revenues. Actually, our two brokerage companies are ranked #1 and #2, with their total execution 146% higher than the following broker, thus reflecting the dominant position of EFG-Hermes in the market.

EFG Hermes Executions and Market Share

Figure: Please refer to attached PDF

Source: EGX and EFG Hermes

Revenue contribution from brokerage activity in Egypt declined to EGP50 million in 3Q2010, down 32% from EGP73 million in 2Q2010, reflecting better margins despite the decline in volumes and executions. However, Egypt continued to be the main contributor to Brokerage revenue, accounting for 70%, slightly below 73% in 2Q2010.

UAE

In 3Q2010, EFG Hermes managed to consolidate its position as the #1 broker in the UAE, pushing up its market share remarkably on both the DFM and ADX. Turnover on the DFM declined sharply, falling 54% in 3Q2010 versus 2Q2010. However, our market share rose to 17.5%, up from 13.1% at the end of 2Q2010. Meanwhile, turnover on ADX decline was limited to 10% in 3Q2010, nevertheless our share of execution increased 26%, pushing our market share to 23.7% from 19.6% in 2Q2010.

EFG Hermes Executions and Market Share

Figure: Please refer to attached PDF

Source: DFM, ADX and EFG Hermes

Total revenue booked by the brokerage operations in the UAE (ADX and DFM) declined to EGP6 million down from EGP10 million in 2Q2010, largely attributed to lower DFM executions. Currently, UAE contributes 8.6% to total brokerage fee and commission income versus 10.2% a quarter earlier.

Saudi Arabia

Trading on the Saudi Stock Exchange declined in 3Q2010, with turnover dropping 50% over 2Q2010 volumes. However, our total executions fell 32%, pushing our market share up to 1.6% from 1.2% at the end of 2Q2010.

EFG Hermes Executions and Market Share

Figure: Please refer to attached PDF

Source: Tadawul and EFG Hermes

Revenues generated from the Saudi brokerage activity fell to EGP2.9 million versus EGP3.6 million in 2Q2010. As such, the contribution to the consolidated brokerage stood at 4.1% at the end of 3Q2010.

Oman

Over 3Q2010, turnover on the Muscat Securities Market declined 28%. Meanwhile, our executions declined 21% over the quarter and thus pushing our market share to 23.3% versus 21% at the end of 2Q2010.

EFG Hermes Executions and Market Share

Figure: Please refer to attached PDF

Source: Muscat Securities Market and EFG Hermes

The operation recorded a revenue of EGP1.6 million down from EGP2.4 million a quarter earlier; however its contribution to the overall brokerage revenue remained unchanged at 2.3%.

Kuwait

As with the majority of the markets, trading on Kuwait Stock Exchange weakened, with volumes declining 12% in third quarter. EFG Hermes share of total executions declined 10%, hence keeping our market share broadly stable, up 0.6% to 28.0% over the quarter. For the quarter, EFG Hermes IFA Brokerage successfully maintained its second ranking on the KSE (excluding special transactions).

EFG Hermes Executions and Market Share

Figure: Please refer to attached PDF

Source: Kuwait Securities Exchange and EFG Hermes

Kuwait is the second revenue generating operation after Egypt. In 3Q2010, brokerage revenue from Kuwait stood at EGP10.4 million, slightly lower than the EGP11.4 million recorded in 2Q2010. However, Kuwait's contribution to total brokerage revenue represents 14.6% this quarter versus 11.3% in 2Q2010.

Jordan

EFG Hermes Jordan is the most recent addition to our brokerage network as a result of acquiring Tadawol for Securities and Financial Services, has been consolidated for the first time in 3Q. Revenue booked from the Jordanian operation amounted to EGP0.4 million and current market share stands at 2.0%

Research

Research Coverage Universe

Figure: Please refer to attached PDF

Source: EFG Hermes

At the end of 3Q2010 the Research department had 108 companies under coverage, spread across the region (Egypt 25, UAE 21, KSA 23, Kuwait 7, Lebanon 4, Morocco 3, Oman 18 and Qatar 7), having dropped coverage on one company compared to 2Q2010. However, following the end of 3Q, the research team initiated coverage on sixteen new companies (Egypt 6, KSA 6, UAE 1, Oman 1, Qatar 1, Kuwait 1) bringing the total number of covered stocks to 124. Currently EFG Hermes covers 55% of the regions market capitalization.

Moreover, the research department covers 11 economies from a macro-level and 8 countries in terms of regular strategy notes. In addition, the research is continuing to issue its regular publications including daily morning round-ups, after end of session wrap-ups and a regional monthly product. New products introduced in 2010 include the MENA dashboard and monthly fund flow publications.

The team is aiming to extend coverage on the Levant markets in general as local presence in the Syrian, Jordanian and Lebanese (in terms of Brokerage) has been established.

II. Asset Management

Development of Listed Assets under Management

Figure: Please refer to attached PDF

Source: EFG Hermes

EFG Hermes ended 3Q2010 with USD4.6 billion of assets under management, 7% higher than USD4.3 billion in 3Q2009 and 11% higher than USD4.1 billion in 2Q2010. This increase in AUM's during the quarter, which is the highest in more than a year, can be attributed to net cash inflows coupled with improvement in both local and regional markets' performance. Asset Management attracted a net inflow of USD279.8 million, with the majority (c92%) of these inflows targeting local money market funds. It is also worth noting that the increase was recorded despite the depreciation of the EGP against the USD ( 1USD=5.613 in 2Q2010 and 1USD=5.698 in 3Q2010) which had a negative impact on the AUM's in Egypt.

In line with Asset Management strategy of targeting long term perspective clients and increasing institutional base, the team managed to maintain its diversified client base including institutions, Sovereign Wealth funds and foundations/ endowment/ insurance companies and add new long term clients. At the end of the quarter, Sovereign Wealth funds accounted for 23.4% of the client base versus 17.6% at the end of 2Q2010, an increase of 5.8% towards long term clients.

Assets under Management by Type of Client

Figure: Please refer to attached PDF

Source: EFG Hermes

In terms of funds' origination, the team continues to work aggressively on exploring different funds sourcing options. The investors mix remained stable since 2Q2010, with MENA-based investors slightly raising their contribution to account for 68.2% at the end of 3Q2010, up from 66.7% at the end of 2Q2010.

Assets under Management by Funds Origination

Figure: Please refer to attached PDF

Source: EFG Hermes

During the third quarter, the team managed to close several new discretionary portfolios/ injections by existing clients. The client base was spread across insurance companies, banks, regional HNWI/Family Office and SWF. At the end of 3Q2010, total assets in managed equity and fixed income portfolios stood at USD1.15 billion, 7% higher than end of 2Q2010.

In addition, EFG Hermes AM successfully received two new money market fund mandates; an Islamic mandate with an initial target size of USD20 million and a conventional mandate with an initial target size of USD45 million. Moreover, the team is working on the necessary regulatory approvals for a capital protected and a money market fund sponsored by the same entity with timeline yet to be determined. Furthermore, EFG Hermes AM is in the final stages of completing a distribution agreement with one of the banks; the bank will begin sales of the Egypt and MEDA Funds before moving on to other products. Sales are targeted to begin before year end.

III. Investment Banking

The Investment Banking team continued its successful efforts to diversify its product offering into fixed income practice along leading M&A and equity franchises. In 3Q2010, the team completed the largest corporate bond issuance in Egypt in 2010 for Orascom Construction Industries, the largest listed and actively traded company on the EGX, building on its success earlier this year, the EGP1.5 billion Egyptian Company for Mobile Services "Mobinil" bond raising. EFG Hermes was the sole financial advisor, lead arranger and sole underwriter for the EGP1.65 billion Orascom Construction Industries bond. The bond was oversubscribed 1.3 times and was met with very strong demand from Egyptian non-banking financial institutions, high net worth individuals as well as the general public.

Building on strong relationship with clients and a spectrum of investment banking activities offered, the investment banking team was the sole advisor on 100% sale of LinkdotNet, the largest ISP in Egypt, for an enterprise value of USD130 million. Our team advised Orascom Telecom on the sale that was finalized in 3Q2010 after exclusive negotiations with the Egyptian Company for Mobile Services, Mobinil.

The second M&A deal closed in 3Q2010 was SODIC's 50% acquisition of Palmyra Real Estate Development Company, a leading real estate developer with a 2.6 million sqm land bank strategically located in Syria. The deal was valued at USD40.5 million and executed through SODIC's direct acquisition of a 40% stake and injection of USD15.2 million through a capital increase, representing the remaining 10%. The deal marks our first presence in the underpenetrated Syrian market, and sets the ground for future transactions in such a promising economy, supported by our local presence in the Syrian market post receiving the investment banking license in Syria.

Two deals are announced and expected to be complete in 4Q2010, the first is the sale of Arabeya Online Brokerage (AOLB), the largest exclusive online securities brokerage in Egypt, to Bank Audi. The deal amounts to EGP267 million and final closing is expected in 4Q2010 after completing regulatory approval. The second deal which is expected to come through in 4Q2010 is the EGP350 million debt raising for SODIC from Bank of Alexandria.

The Investment banking team is currently working on two large transactions that may be completed by 1Q2011, subject to certain conditions. The first is the USD6.6 billion merger of Weather and Vimpelcom to create the fifth largest telecom operator worldwide, and the second is the most recently announced sale of Olympic Group to Electrolux for USD475 million. We believe such deals underpin EFG Hermes position as the advisor choice in cross-border M&A transactions and represent a potential for significant advisory fees if the transactions are to be completed.

The Investment Banking team works continuously on growing their pipeline for 2011. Going forward the team will continue to seek opportunities to diversify their back log, building on previous success stories.

IV. Private Equity

Total funds under management by our Private Equity division stood at USD919 million in 3Q2010, versus USD925 million at the end of 2Q2010, as divestment of the CIIC portfolio continued. Of the USD919 million portfolio we currently manage, approximately USD575 million are attributed to regional funds representing 63% of the aggregate funds under management, while the remaining 37% is directed to local funds.

One successful exit was completed in 3Q2010. The team finalized the exit from one of CIIC's investments, selling it for EGP250 million against an initial investment cost of EGP27.5 million, thus generating EGP27.3 million in success and exit fees. However, this amount will be recognized over a period of time as the payments under the sales contract come due. While no major investments took place over this quarter, the team is in advanced discussions on a number of large opportunities that could materialize in 4Q2010; however, they still require either further due diligence or legal documentation.

During the quarter, the team completed the due diligence required by European Investment Bank on EFG Hermes for the InfraMed Fund. However, recently the team managed to conclude the first closing of the InfraMed "mother" Fund of EUR385 million. The Private Equity team started roadshows for the Egypt's pocket which is expected to close in December 2010/January 2011.

Similar work has been ongoing on the Syria Private Equity Fund where the team has been working towards completing the fund documentation and roadshows were launched at the end of September, with closing expected in December 2010/January 2011.

b. Capital Markets and Treasury operations

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

Given EFG Hermes highly liquid balance sheet, Capital Markets and Treasury Operations continued to play a key role. The treasury department has successfully managed the funds, generating EGP56 million in 3Q2010, up 9% Y-o-Y.

A larger portion of revenue generated by Capital Markets and Treasury Operations is derived from net interest income. Net interest income rose to EGP32 million in 3Q2010 from EGP19 million in 3Q2009, reflecting the increase in cash balance received from the divestment of Bank Audi.

Operating Expenses

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

Table: Please refer to attached PDF

Source: EFG Hermes Management Accounts

While non-employee related operating expenses continued to decline reflecting management's ongoing effort to control costs, total operating expenses rose 20.1% Y-o-Y (over 3Q2009) with the bulk attributed to the fee and commission business. The company hired more staff to support the Group's operational expansion in different countries and retail branches' network expansion in Egypt.

Given the management's continuous search to hire the best caliber and retain its high-quality human capital, employee expenses represented the bulk of operating expenses, accounting for 71.0% of total operating expenses (versus 63.6% in 3Q2009). Total employee expenses rose 33.9% Y-o-Y in 3Q2010, with employee costs relating to the fee and commission business rising 29.4% and employee costs relating to capital markets & treasury operations increasing 76.7% over 3Q2009 levels.

Other operating expenses (29% of the total operating expenses) continued to decline, falling 4.2% to EGP56 million in 3Q2010 and reflecting management prudent spending policy. Other operating expenses includes occupancy expenses, office expenses, communication expenses (data and telecommunication), travel and marketing expenses, promotion and advertising expenses and consultant and service fees.

Travel expenses were largely maintained, increasing only 6% Y-o-Y to EGP5.5 million in 3Q2010, as third quarter is usually characterized with lower activity especially with summer and the holy month of Ramadan falling in between.

Occupancy expenses rose 50% Y-o-Y to EGP13.7 million in 3Q2010, with the majority of costs attributed to utility and maintenance expenses related to the new headquarters. Meanwhile, data communication expenses rose slightly to EGP7.1 million in 3Q2010, up 6% Y-o-Y

Promotional and advertising expenses declined 17% Y-o-Y to EGP3.1 million in 3Q2010; with 3Q was broadly a quiet quarter with no major events taking place.

Consultation fees rose 13% Y-o-Y to EGP10.9 million in 3Q2010, mainly due to an increase in legal fees followed by other consulting and third party fees.

B. The Commercial Bank

Table: Please refer to attached PDF

Source: EFG Hermes and Crédit Libanais

Crédit Libanais reported 3Q2010 net income of USD22 million, up 72% from USD12 million a year earlier. This takes 9M2010 net profit to USD58.8 million, representing an increase of 42% over 9M2009, reflecting the strong performance of the Lebanese banking sector in general and the bank in specific over the course of 2010.

Moreover, the balance sheet witnessed strong growth during the quarter, with total assets growing 9% Q-o-Q. The loan book grew by 8% Q-o-Q while the deposit base increased by 7% during the third quarter. Compared to December 2009, the loan book grew 22% while deposits grew at a slower rate at 13%, thus resulting in loans market share of 4.62% at the end of 3Q2010 versus a deposits market share of 5.04%.

Total Assets Growth Loans and Deposits Market Share

Figure: Please refer to attached PDF Figure: Please refer to attached PDF

Source: Crédit Libanais data Source: Crédit Libanais data

Loan Book Breakdown by Currency

Figure: Please refer to attached PDF

Source: Crédit Libanais data

Loans denominated in foreign currency represented 60% of the bank's total loans portfolio, whereas loans denominated in local currency came at 40%. In terms of geographical distribution, approximately 98% of total loans are booked in Lebanon and 1% in Saudi Arabia, with the remaining 1% distributed over a number of countries including Bahrain, Senegal and Cyprus.

The contribution of retail loans consumers to total loans continued to grow representing 54% of the Bank's total loans portfolio in 9M2010, compared to 52% and 53% in 2008 and 2009 respectively. Retail loans grew by 24% in 9M2010, representing a CAGR of approximately 19% since 2007.

Crédit Libanais remains retail focused, with retail customers representing 54% of total loan portfolio versus 31% for corporate clients and 15% for SMEs. The number of retail clients increased 7% to 278,070 clients at end of 3Q2010, confirming the Bank's ability to attract new customers and retain its low retail loan concentration. The number of issued credit cards also increased to 135,301 at the end of 3Q2010 from 125,829 at the end of FY2009.

Loan Book Breakdown by Type

Figure: Please refer to attached PDF

Source: Crédit Libanais data

In terms of sector contribution to the Bank's loan book, the commerce & trade sector's contribution slowly declined to 24% in 9M2010 from 24.8% in 2009; however the sector remains the second largest contributor to the portfolio. The industrial sector's contribution comes next at 17%. Despite the marginal share of construction & real estate sector to total loans, the sector showed a growing trend from 1.5% in 2009 to 4% in 9M2010. Finally, the agricultural sector's contribution remains low at only 1% of the bank's total loan portfolio.

Loan Book Breakdown by economic sector

Figure: Please refer to attached PDF

Source: Crédit Libanais data

Deposits reached USD5,301 million at the end of 3Q2010 of which 95.3% are private sector deposits and 4.5% are attributed to the public sector. At the end of 3Q2010, total saving accounts amounted to 63.9% of total deposits while term deposits and current accounts represented 32.1%.

The balance sheet of Crédit Libanais remains highly liquid, with a loans to deposits ratio of 29.5% compared to 27.17% in 2009. While the Bank continues to enhance its asset utilization, it has managed to maintain a strong liquidity position with net liquid assets to total assets standing at 17% at the end of 3Q2010.

Loans to Deposits Ratio

Figure: Please refer to attached PDF

Source: Crédit Libanais data

Accordingly, net interest income rose by 24% over 3Q2009 as a result of the enhanced asset utilization. Net interest margin stood at 2.13% at the end of 3Q2010. In parallel, non-interest income grew 147% Y-o-Y to represent 34% of the Bank's total banking income.

Net operating income for the quarter before provisions reached USD28.2 million, up 80% versus 3Q2009. Net operating profit margin also improved to 56% from 47% in 3Q2009, as the Bank managed to bring its cost/income ratio down to 44% in 3Q2010 from 53% a year earlier.

As part of the Bank's conservative strategy, provisions booked in 3Q2010 amounted to USD3.6 million, versus USD0.7million in 3Q2009. Over the course of 9M2010, the Bank took provisions of USD5.9 million compared to USD2.9 in 9M2009. That said, coverage ratio improved to 96.4% versus 87.3% at the end of FY2009 for the NPL portfolio that represented 5.2% of gross loans by the end of 3Q2010.

Total shareholders' equity stood at USD410 million at the end of 3Q2010. Moreover, post 3Q2010 results the Bank disposed of a certain real estate unit for USD36 million realizing a capital gain of approximately USD11 million which will be reflected in 4Q2010 results. Additionally, the Bank has unrealized gains related to the market value of real estate and held-to-maturity portfolios, estimated at USD30 million and USD195 million, respectively.

The Bank remains well capitalized with a Capital Adequacy Ratio (Basel II) of 12.9% at the end of second quarter 2010, thus remaining unchanged compared to end of FY2009.

As a result, Crédit Libanais continues to record very decent returns on its equity and asset bases. The Bank reported a return on equity of 23.9% and a return on assets of 1.49% in 3Q2010, up from 17.8% and 1.24%, respectively, at the end of FY2009.

ROAE ROAA

Figure: Please refer to attached PDF Figure: Please refer to attached PDF

Source: Crédit Libanais data Source: Crédit Libanais data

Click on, or paste the following link into your web browser, to view the associated PDF document.

EFG Hermes Q3 2010 Earnings Release

http://www.rns-pdf.londonstockexchange.com/rns/0315X_1-2010-11-30.pdf 

EFG Hermes Q3 Earnings Release Graphs

http://www.rns-pdf.londonstockexchange.com/rns/0315X_-2010-11-30.pdf 

EFG Hermes Consolidated Financial Statements

http://www.rns-pdf.londonstockexchange.com/rns/0315X_2-2010-11-30.pdf

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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 1,939,320,000.

المجموعة المالية هيرميس القابضة شركة مساهمة القرية الذكية مبنى 129ب، المرحلة الثالثة، السادس من أكتوبر رأس المال المصدر: 1,939,320,000 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

efg-hermes.com