Efg-hold.gdr S Regulatory News (EFGD)

14 Nov 2007 17:54

EFG-Hermes Holdings SAE14 November 2007 3Q2007 Earnings Release - 14 November 2007 3Q 2007 in Review • Total consolidated revenue booked during 3Q 07 more than doubled overthe similar period the previous year and reached EGP 549 million bringing thetotal consolidated revenues for the 9M 07 up to EGP 1.53 billion compared to EGP1.2 billion for the full year 2006; • Total consolidated operating revenue for the 9M 07 reached EGP 928.5million, 41.6% of which were recorded during 3Q 07. This is a 41.3% increaseover 9M 06 levels and 3% over the full year 2006; • Net operating profit for the 9M 07 recorded EGP 556.6 million, close tohalf of which were achieved during 3Q 07.This represents an 88% increase over 9M06 adjusted net operating profit1 and corresponding to a net operating margin of60%. However, as previously mentioned in the 1Q 07 earning release, the Grouphad to pay an additional EGP 23.5 million in bonuses during 1Q 07 that relate tothe fiscal year 2006. Accordingly, the adjusted net operating profit for the 9M07 is EGP 580.1 million reflecting a 62.5% margin; • Net profit after tax and minority increased 1.25 times over the fullyear 2006 level to EGP 879.3 million, 36% of which were booked during 3Q 07; • Total unrealised incentive fees for 9M 07 recorded EGP 132 million upfrom 68.7 million in 1H 07 and EGP 5.4 million in 9M 06. Total incentive feesreflected in the income statement for the 9M 07 is EGP 43 million; • The Brokerage arms in both Egypt and the UAE (on the DFM) havemaintained their number one positions, with positioning on the ADSM improving tobe one of the top 3 players. As at the end of the quarter the Saudi Brokeragearm has moved up to the number 2 position as ranked between the 5 independentbrokerage companies (coming after the 14 companies related to the commercialbanks) despite not having yet launched the advertisement campaign; • The Research Team has been polled the #1 in 9 out of 14 categories in asurvey conducted by the Euromoney Magazine for the Middle East; • Total assets under management with the Group reached the equivalent ofUSD 6.17 billion, USD 5.15 billion of which are in listed equities and moneymarket funds and the remainder in private equity; doubling over the end of 1Q07. Of the increase over the 3Q 07, USD 1.6 billion are new cash inflows; • During 3Q 07 Investment Banking closed two major M&A transactionsnamely the sale of Al Watany Bank of Egypt to the National Bank of Kuwait (USD1.02 billion) and the partial sale of Al Habtoor Engineering to LeightonHoldings (USD 862 million) as well as a private placement in the real estatesector; • During 3Q 07 the Private Equity Team, besides successfully closing theHorus III Fund, has successfully sealed two exits from the Horus II portfolioyielding substantial capital gains; • In addition to coverage by HSBC, Merrill Lynch initiated coverage ofthe stock during September. 1 Adjusted for EGP 91.8 million of Investment Banking fees related toEFG-Hermes' private placement Performance Operating Revenue Outstanding performance continued into 3Q 07, again making it the best everquarter in terms of total consolidated revenue generated from the Group's coreoperations although traditionally the third quarter of every year is the lowest.Consolidated operating revenues for the 9M 07 totaled EGP 928.5 million, a 3%increase over the full year 2006. The EGP 386 million of 3Q 07 consolidatedoperating revenues represents a nearly three-fold increase over the 3Q 06 level. Table 1: Contribution of the Different Divisions to Operating Revenue onQuarterly Basis Please refer to the attached PDF file http://www.rns-pdf.londonstockexchange.com/rns/7574h_-2007-11-14.pdf Sums and percentages may not add up exactly due to rounding * includes EGP 39.6 million of custody & margin fees held at the Holding Companylevel in 3Q 07** excludes EGP 132 million of unrealised incentive fees*** includes EGP 91.68 million in full year 2006 relating to EFG-Hermes capitalincreaseSource: EFG-Hermes, Audited Financial Statements and Management Reports Table 2: Contribution of the Different Divisions to Operating Revenue on 9MBasis Please refer to the attached PDF file http://www.rns-pdf.londonstockexchange.com/rns/7574h_-2007-11-14.pdf Sums and percentages may not add up exactly due to rounding * includes EGP 39.6 million of custody & margin fees held at the Holding Companylevel in 3Q 07** excludes EGP 132 million of unrealised incentive fees*** includes EGP 91.68 million in full year 2006 relating to EFG-Hermes capitalincreaseSource: EFG-Hermes, Audited Financial Statements and Management Reports During 3Q 07 Brokerage operations remained the core contributors to operatingrevenue booking 41.8% of the Groups total consolidated operating revenue. It wasfollowed by Private Equity with 27.8% mainly as a result of two majordivestments, while Investment Banking contributed 19.6% to the Group's totalconsolidated revenues. Looking at the nine-months in total, Brokerage remainsthe largest business line delivering 42.2% of total consolidated operatingrevenue with the remainder being equally divided between the Investment Bankingbusiness and the Asset and Fund Management business, the latter which is growingsteadily and is expected to be a main revenue driver going forward. Figure 3: The Breakdown of Operating Revenue by Business Line on a QuarterlyBasis Please refer to the attached PDF file http://www.rns-pdf.londonstockexchange.com/rns/7574h_-2007-11-14.pdf * Includes Asset Management fees as follows: 2Q 05 EGP 15 million, 3Q 05 EGP 12million, 4Q 05 EGP 155 million, 1Q 06 EGP 1 million, 2Q 06 EGP 3 million, 4Q 06EGP 4.9 million, 1Q 07 EGP 6.5 million, 2Q 07 EGP 26.9 million, 3Q 07 EGP 43million** Includes EGP 91.68 million of IB fees relating to EFG-Hermes capital increasein 1Q 06Source: EFG-Hermes, Audited Financial Statements and Management Reports Hereunder is an analysis of the company's main operational divisions: Brokerage The new structure introduced within the Brokerage division during 1Q 07 hasproved beneficial. In general, it ensures that EFG-Hermes maintains itsleadership position in the major markets on which it operates. Furthermore, thissetup has enhanced EFG-Hermes executions for clients onto capital markets wherethe Group does not yet have physical presence including Qatar, Oman and Kuwaitboth enhancing profitability from the major accounts as well as servicing ourclients' regionally rather than locally to each market. As a first step towards the establishment of the fixed income and structuredproducts group EFG-Hermes announced early during 3Q 07 the set up of thestructured products desk initially housed within Brokerage, the activities ofwhich are expected to have major contributions to the business lines'performance going forward as it opens up investment opportunities across theregion for non-GCC nationals. The two professionals responsible for working thedesk that have been hired from a bulge bracket investment bank and have startedwork at the beginning of July. Egypt Volumes executed on CASE increased 32.8% over 3Q 06 levels and the market sharehas slightly improved over to 13.4% up from 12.6%. However, EFG-Hermes' marketshare has declined since 2Q 07 reflecting the fact that traditionally the thirdquarter is usually the lowest quarter due to the nature of the client base, butmore importantly the increased competition. Having said that, since thebeginning of October the Brokerage arms in Egypt have been picking up marketshare. Figure 4: EFG-Hermes Executions and Market Share Please refer to the attached PDF file http://www.rns-pdf.londonstockexchange.com/rns/7574h_-2007-11-14.pdf Source: CASE, EFG-Hermes Traditionally the third quarter of every year is the lowest quarter of the yearin terms of executions and hence market share as the majority of EFG-Hermes'clients (in terms of volumes) remain institutional and high networth individualswhose activity is usually slower during the summer months coupled with the lackof IPO activity during the period. Furthermore, the Brokerage Team in Egyptcurrently sell other markets across the region and hence the reflection of theTeam's success is no longer just the market share in Egypt but also theexecutions on markets where EFG-Hermes has no physical presence; for example asof date EFG-Hermes executes between anywhere from 7-10% of daily volumes inQatar. Online Brokerage and Call Centre activities in Egypt have become more visibleand their contribution has increased over the quarter. Online executions havenearly tripled over 1Q 07 levels. Call Centre operations have also increasedwith the average fee for both services remaining relatively high. It must benoted that the growth in activity in both the Call Centre and Online has nottaken away EFG-Hermes' retails brokerage arm as the number of invoices perquarter remained the same. During the quarter Management has taken the decision to decrease commissions andseveral of the foreign fund manager and high networth individuals (HNWI) havealready began to pay the lower rates, rates that are still high when compared toregional levels. Management believes that the Group's internal capacity canhandle the extra volumes generated as the reduction of commissions is extendedto the larger client base. Executions on markets where EFG-Hermes are not present including among othersQatar, Bahrain, Oman and Kuwait have increased 140% since January 2007 to reachthe equivalent of EGP 2.4 billion in September 2007 and importantly givesManagement an insight to the markets that it intends to expand into. During 3Q 07 revenue from the brokerage activity in Egypt more than doubled over3Q 06 to EGP 135 million 2, constituting 35.1% of the Group's consolidatedrevenue. 2 level Company Holding the at held trading margin and custody for fees of million EGP 39.6 Including UAE Figure 5: Progression of Volumes Executed and Market Shares Please refer to the attached PDF file http://www.rns-pdf.londonstockexchange.com/rns/7574h_-2007-11-14.pdf Source: DFM, ADSM, EFG-Hermes Executing more than double 3Q 06 levels, Brokerage operations in the UAEexecuted AED 13.8 billion in 3Q 07, maintaining the overall number one positionon the UAE market as a whole with a 8.23% market share up from a 5.9% in 2Q 07.On the separate markets, EFG-Hermes continued to be the number one broker on theDFM with total executions of AED 9.8 billion in 3Q 07 and a 9% market share.Market share on the ADSM jumped to 6.82% up from 4.52% in 2Q 07 as EFG-Hermesremained in the top three brokers on the Abu Dhabi exchange. It must be notedthat the consistent growth in market share has been a direct result ofEFG-Hermes introducing its foreign institutional clients to the UAE markets withthe major surge coming with the expanded research coverage of the stocks tradedon both the DFM and ADSM. With its track record both in quality of research andefficiency in execution EFG-Hermes' foreign institutional client base now hasdirect access to the UAE. During 3Q 07 Brokerage operations out of the UAE constituted 6.3% of the Group'stotal consolidated operating revenues. Saudi Arabia Figure 6: Progression of Volumes Executed and Market Shares Please refer to the attached PDF file http://www.rns-pdf.londonstockexchange.com/rns/7574h_-2007-11-14.pdf Source: TADAWUL and EFG-Hermes Brokerage activity in Saudi Arabia is beginning to pick up, with market sharesslowly but steadily picking up to reach 0.5% in September 2007. As at the end ofSeptember, EFG-Hermes KSA is the number 2 broker of the total 5 independentbrokerage companies that are not related to the fourteen commercial banks. It isworth noting that our business model in Saudi Arabia is different than in Egyptor the UAE whereby we concentrate on selling portfolios and Asset Managementproducts utilizing the Brokerage arm for execution given that brokerage in theKSA is a pure commodity and margins are low. Brokerage in Saudi Arabia haslocked in the equivalent of EGP 1 million of net revenue corresponding to 0.4%of the Group's consolidated operating revenues during the third quarter 2007. Research During 3Q 07 the Research Team initiated coverage on Moroccan Banks (3 stocks),Saudi Telecoms (2 stocks), Saudi Cement (8 stocks) and an Egyptian stockbringing the active coverage up to 68 stocks at the end of 3Q compared to 40stocks as at the end of 3Q 06 and 48 as at the end of 2006. Furthermore, 24 morestocks are currently under review. The bulk of the coverage remains focused onEgypt, the UAE and Saudi (20, 22 and 17 companies respectively). The Divisionhas averaged 16 research notes a month (170 published pages) over the pasttwelve months, up from 13 reports (130 pages) a year earlier. The Team expectsto initiate coverage of at least another ten to fifteen during 4Q 07. The targetis to have covered all the large or liquid stocks in Egypt and the UAE by theyear-end and 80% of large caps in Saudi Arabia by the end 1Q2008. EFG-Hermes was ranked #1 in the Euromoney Middle East Research poll released inAugust 2007. The Team was polled #1 in 9 of 14 categories including the mostimportant ones of Economics, Strategy, Banking, Real Estate, Industrials, Cementand Telecoms. It was placed #2 in four and #3 in one. Over 200 investinginstitutions participated in the survey and the competition included bothregional and global research houses. On September 1st, the Research Department established an on-the-ground presencein Riyadh through the transfer of two Cairo-based staff members, and hiringothers. It must be noted that 3Q 07 saw the addition of a significant number ofnew senior hires within Research, several of which were headhunted from globalinvestment banks. Asset Management Figure 7: Development of Listed Assets under Management (totals in EGP billions) Please refer to the attached PDF file http://www.rns-pdf.londonstockexchange.com/rns/7574h_-2007-11-14.pdf Source: EFG-Hermes Assets under management increased by 32.5% during the quarter to reach EGP 28.6billion. If the MENA Special Opportunities Fund is not included the largestgrowth was in the money market funds increasing by 25% followed by discretionaryportfolios for high networth individuals and institutional clients. Of theincrease in assets under management the majority, 79%, derived from new net cashinflows rather than market related increases. Egypt Asset Management out of Egypt has continued to perform strongly. The five fundsmanaged for local commercial banks ranked the top 5 performers in Egypt, withthe top performing local fund yielding a return exceeding 50% during the 9M 07,a return that is double the index performance and 20% more than the second bestperforming fund despite being barred from investing in the EFG-Hermes stock.Such performance is achieved through having diverse and expansive buy-sideresearch coverage as well identifying potential investment targets before themarketplace. EFG-Hermes also manages the top performing money market funds inEgypt. During 3Q 07 the Egypt Fund (which had been named as the best performing fund inthe world 3-years-to-date until April 2007) became the first and only fund withinvestment focus on Egypt to be rated by S&P receiving a AA rating. Despite the index in Egypt increasing around 33% over the quarter, theunrealized incentive fees relating to the Egypt Team more than doubledreflecting both the increase in AuMs as well as the fact that the managedfunds consistently beat the index. Realised incentive fees for 9M 07 were EGP 20million. Asset Management in Egypt's total operating revenue booked in 3Q 07 wasEGP 27 million constituting 7.1% of the total consolidated operating revenuesfor the Group. Regional The Regional Asset Management Team has been restructured as analysts now covercompanies on a sectoral basis regardless of their being located in Dubai orRiyadh. Four new hires, located between Dubai and Riyadh, have also been hired. On the performance level, the EFG-Hermes MEDA Fund received an AA rating from S&P. The MEDA Fund's return for the 9M ending 30th September reached 24%, wellabove the performance of its competitors. During 9M 07, Regional Asset Management realised the equivalent of EGP 23.2million worth of incentive fees and contributed 6.1% to the Group's consolidatednet operating revenues. Investment Banking Investment Banking has sealed two major M&A transactions during 3Q 07, one inEgypt and the other in the UAE. The transaction in Egypt was the sale of AlWatany Bank of Egypt to National Bank of Kuwait for a total deal size of USD1.02 billion. The deal in the UAE was prominent both in the sense that it wasthe largest M&A deal on the Dubai market as well as its being a first sizeablecross continent deal to be brokered by EFG-Hermes there. The deal being theacquisition of 45% of Al Habtoor Engineering by the Australian Leighton Holdingsfor a total deal size of USD 862 million. Of the transactions that theInvestment Banking Team in Egypt is expected to close before the year-end arethe Talaat Mustafa Group IPO for a total deal size of around USD 750 million andan M&A transaction within the food & agri business. The contribution ofInvestment Banking to the Group's consolidated operating revenues declinedslightly to 19.5% during 3Q 07. Revenues booked in 3Q 07 increased 77% over 3Q06 levels to reach EGP 76 million. On the operational level, four members of the Investment Banking Team haverelocated to Riyadh representing the initial core team there. With the Team onthe ground there it would prove a lot easier to follow up on the various pitchesfor major the transactions. Private Equity 3Q 07 was a busy quarter for Private Equity, between the successful closing ofHorus III and several exits from both Horus II and the CIIC portfolio. Horus III closed and investors in the Fund included repeat clients as well asseveral new prominent investors from the region. More importantly is that afterthe success of Horus II more than 85% of the investors in Horus II havesubscribed to the new fund. Horus III has already closed the first investment inthe textile sector, signed a term sheet for a sizeable deal, has submitted anoffer to acquire a majority stake in a bank in the Maghreb area (it later lostthe deal) and is looking into several other investments. Horus II, which closed at the end of 2005, had deployed USD 142 million of thetotal USD 155 million and had an overall IRR of 75%. Two exits we completedduring 3Q 07 bringing in USD 133.6 million against a much lower investment cost.The two divestments were Suez Cement and Al Watany Bank of Egypt. The resultingproceeds are to be used as the first distribution from the Fund. Two divestmentsfrom the CIIC portfolio were also concluded for a total of EGP 103.3 million. Private Equity grossed total revenue of EGP 107 million more than five times thesame period the previous year. The business line contributed 27.8% to theGroup's consolidated revenues in 3Q 07. Saudi Arabia As mentioned above revenue from Brokerage operations is the only revenue that isbeing booked directly to the Saudi entity. Asset Management fees on theportfolios manage for high networth individuals and family groups are stillbeing reported within the Regional Asset Management operations until the Team isfully on the ground in the Kingdom. Research coverage has continued into 3Q 07with several new initiations planned for the remainder of the year. A majoradvertising campaign directed at the retails investors including booths in majormeeting points has only recently been launched and is expected to result in amarked increase in retail brokerage accounts as well as raise the awareness ofthe Group's activities in the Kingdom. Operating Expenses In absolute terms general and administrative expenses, including employee costs,have increased by 74.2% compared to 9M 06 to reach EGP 371.9 million and 40% ofoperating revenue compared to 32.5% during the 9M 06 mainly as a result of theincreased hiring over that period and the set up of the Saudi operation whichhas not yet began to have any serious contributions to the revenue line. Havingsaid that, on a quarterly basis general and administrative expenses haveimproved declining in relation to operating revenues from 43% in 1H 07 to 40%for the 9M 07. Furthermore, if the general and administrative expenses areneutralised for the EGP 23.5 million of extra bonuses that relate to 2006 andwere paid during 1Q 07 the total general and administrative expenses for the 9M07 would drop to 37.5% of total operating revenues. Overall, EFG-Hermes has managed to maintain high operating margins despite thesunken cost of establishing the Saudi and Qatari operations as well as themassive increase of the general and administrative costs including marketing andtravel. These margins have been achieved without taking into consideration theunrealised accrued incentive fees (EGP 132 million for 9M 07) which oncerecognised will improve the margins even more. Due to the nature of the business employee expenses remains the largest singlecomponent of operating expenses. For the full 9M 07 fully loaded employeeexpenses have increased to 57.6% of total operating expenses up from 56.9%during the 9M 06. However, if the EGP 23.5 million relating to 2006 bonuses andEGP 91.68 million being the one-off investment banking revenue relating toEFG-Hermes' capital increase are neutralised total employee expenses relating to2007 represent 54.7% of total general and administrative expenses and 20.54% oftotal operating revenues, a decrease over 9M 06 levels (67.9% of total operatingexpenses and 25.6% of total operating revenues) despite the fact that over 100new hires were recruited since then, many of which are senior positions. The second largest operation expense remained promotional and advertisingexpenses. Increasing to EGP 19.8 million during 9M 07 the expense constituted5.3% of total operating expenses and 2.1% of total operating revenues down from6.3% and 2.1% respectively in the 9M 06. Continuing form the beginning of theyear, promotional and advertising expenses became a major expense as the Groupundertook the re-branding campaign as well as the promotion of EFG-Hermes' imageand new products across the region. Travel and marketing expenses have increased 85% over 9M 06 levels and represent5% and 2.01% of total operating expenses and operating revenues respectively upfrom 4.72% and 1.53% in 9M 06 respectively. This increase is expected given theincreased travel by Senior Executives and staff at all levels to support the newoffices across the region, investigate opening up new markets, servicing dealsand roadshowing the new funds across Europe, the US and the region. Telecommunication expenses doubled over 9M 06 levels to EGP 16.2 million and1.75% of operating revenues up from 1.27% during the 9M 06 as a result of theincreasing communications between the Egypt, UAE and Saudi offices as well asthe increased communications with the proliferating client base across theregion and the world as a whole. Net operating profit for 9M 07 reached EGP 556.6 million; 48.5% of which werebooked during 3Q 07. This level of operating profits is a record for EFG-Hermesand is a 25.5% growth over 9M 06 and represents 95.3% of the full year 2006operating profits with a net operating margin of 60% compared to 67.5% in 9M 06.However, the growth is 64.9% over 9M 06 and represents 1.24 times full year2006 operating profits if adjusted for the EGP 23.5 million of 2006 bonuses paidduring 1Q 07 and the one-off Investment Banking revenue (EGP 91.68 million)relating to the first capital increase booked during the previous year. The netoperating margin would further improve to 62.5%. With the unrealised incentivefees for the 9M 07 standing at EGP 132 million, even if only a portion of thatis realised at the year-end, would further boost profitability from the Group'score operations. Other Revenues and Expenses EFG-Hermes' 28.6% ownership stake in Banque Audi Saradar remains a major revenuecontributor. During 3 Q 07, the consolidated portion was equivalent to EGP 70.4million (EGP 65.1 million in 2Q 07). No major additions were done toEFG-Hermes' strategic stake during 3Q 07. With EFG-Hermes having a positive net debt position bank interest payable forthe DEG and IFC long term loans and other bank expenses and charges, totalingEGP 10.5 million in 3Q 07, is more than covered by interest and quasi interestearned on the cash balances, income from money market operations using fundsfrom both the operations and clients' free float and the difference in paymentson the NDF (non-deliverable forward) contracts hedging both the investment inBanque Audi and part of the cash balances in foreign currency. Treasuryoperations have continued as a major contributor to the Group's bottom lineprofitability. Total interest income for the quarter recorded EGP 45.4 million.Added to that is EGP 18.5 million being the gain on sale of money marketinvestments recorded within the EGP 28.8 million on the gains arising from saleof investments. Accordingly, treasury operations have netted EGP 63.4 million in3Q 07. It must be noted that the gains relating to the the NDF contractscorrespond not only to the amounts booked on to the financial statements butmore importantly is the contracts' aversion of the FX losses that the Firmwould have incurred given the appreciation of the Egyptian Pound against the USDover the past few months which would have resulted in an FX loss of EGP 72million (on the Audi investment) and around EGP 13 million (on the remaining USDcash balances) if the USD was marked-to-market. Having said that, EGP 10.5million of FX losses incurred during 3Q 07 was as a result of the appreciationof the EGP against the USD and relate to the unhedged portions of the FXbalances. As at the beginning of the quarter the USD: EGP exchange rate was EGP5.7 and fell to EGP 5.56 at the end of the quarter. Although the third quarter is usually the lowest quarter in terms of revenue andprofitability, 3Q 07 proved a record quarter. Resulting from the above netprofit before taxes and minority interest for 9M 07 recorded EGP 1.061billion over 36% of which were booked during 3Q 07 and nearly doubling over 9M06 levels. However, adjusting the net profit before taxes and minority interestfor consolidated income from Banque Audi and the interest income earned on theproceeds of the second capital increase, net profit before taxes and minorityinterest amounts to EGP 718.5 million for the 9M 07 and EGP 276.8 million in 3Q07 compared to EGP 255 million in 2Q 07 and 118.5 million in 3Q 06. Furtheradjusting the above for capital gains on the sale of SODIC shares (held at OPDlevel) during 1Q 07 and 2Q 07, the adjusted net profit before tax and minorityinterest margin in the 3Q 07 is 62.9% and 62.6% for the 9M 07 despite the factthat during 1Q 07 EFG-Hermes had to pay EGP 23.5 million of extra bonusesrelating to 2006. Balance Sheet With the proceeds of the second capital increase remaining not fully deployed inaddition to the cash generated from the business the total cash, cashequivalents and other investments (namely T/Bills, Central Bank deposits andinvestment in money market funds 3 ) remains at the EGP 3.4 billion level.Although this gives the Firm fire power for any major acquisition, it stillremains a challenge every quarter to maintain a rate of return higher than thatearned on money market funds without exposing the Company to undue risk. The major portion of the EGP 1.1 billion available for sale investments remainsthe SODIC investment (through OPD) that is marked-to-market at EGP 727.8million. Please note that as SODIC is not within the trading portfolio and hencemarking-to-market is not recorded through the income statement. Net payables resulting from operations recorded EGP 3 million incurred mainlydue to the normal course of business as brokerage, private equity and investmentbanking activities. On the liability side, the Group remains to have a positive net debt position,with the only outstanding bank debt standing at a total of the equivalent of EGP209.5 million being the loans from IFC and DEG drawn down towards the end of2005 with repayment commencing during 2007. As at the end of the quarterEFG-Hermes had an outstanding overdraft of EGP 141 million pertaining tooverdrafts in the UAE used to finance DVP transactions for foreign institutionalclients that were duly settled. 3 EGP 1.7 billion of investment in money market funds is reported in the EGP 2.2billion trading investment figure Taxes The effective tax rate for the 3Q 07 has decreased to 10.65% from 13.59% in 2Q07 and 15.09% in 1Q 07 as a result of the continuous tax management at the levelof the Group as a whole both though optimising balance sheet management andrevenue generation while effectively minimising FX fluctuations and as a resultof an increase in the revenues stemming from the region as a whole. The overalleffective tax rate for the 9M 07 stands at 12.96%. Profitability As a result, net income after tax and minority interest increased 72.4% over 9M06 level and recorded EGP 879.3 million with EGP 314.7 million being bookedduring 3Q 07. 9M 07 profits after tax and minority interest surpassed the fullyear 2006 profits 1.25 times. Attesting the Group's continued growth and enhanced performance across businesslines, the majority of the bottom line relates to the core operations. If thebottom line is adjusted for a total of EGP 209.2 million of revenue consolidatedfrom Banque Audi and approximately EGP 133.7 million of the interest incomerelating to the unutilized portion of the latest capital increase and the 2006bonuses paid in 1Q 07, the net profit after tax and minority interest relatingto the investment bank is EGP 559.8 million and a margin of 60.3%. This is animprovement on the 9M 06 when the adjusted net profit after tax reached EGP394.5 million. 3Q 07 performance is by far the best results EFG-Hermes has delivered to itsshareholders to date backed by the work of an elite and dedicated team as wellas favourable market conditions. But the results have further challengedManagement into delivering even more superior results in the future. Please refer to the attached Audited Financial Statements for the Period ending30th September 2007 http://www.rns-pdf.londonstockexchange.com/rns/7574h_1-2007-11-14.pdf In this earnings release EFG-Hermes may make forward looking statements,including, for example, statements about management's expectations, strategicobjectives, growth opportunities and business prospects. These forward-lookingstatements are not historical facts but instead represent only EFG-Hermes'belief regarding future events, many of which, by their nature are inherentlyuncertain and are beyond management's control and include among others,financial market volatility; actions and initiatives taken by current andpotential competitors; general economic conditions and the effect of current,pending and future legislation, regulations and regulatory actions. Accordingly,the readers are cautioned not to place undue reliance on forward-lookingstatements, which speak only as of the date on which they are made. EFG-Hermes (Main Office), 58 Tahrir Street, Dokki, Egypt 12311Tel.: +20 2 333 836 26 | Fax: +202 333 780 38 | Website: www.efg-hermes.comStock Exchange & Symbol: Cairo-HRHO.CA | London-HRHOq.LBloomberg: EFGH | Reuters pages: EFGS .HRMS .EFGI .HFISMCAP .HFIDOM This information is provided by RNS The company news service from the London Stock Exchange