Efg-hold.gdr S Regulatory News (EFGD)

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EFG HERMES REPORTS

GROUP NET INCOME OF EGP133 MILLION FOR FULL YEAR 2011; ON TOTAL OPERATING REVENUE OF EGP1.7 BILLON

Key Highlights

·; Group revenue for FY2011 reached EGP1.7 billion, while the Group's operating expenses for the same period reached EGP1.2 billion, resulting in a net profit after tax and minority of EGP133 million.

·; Investment Bank revenue declined 44% Y-o-Y to EGP668 million (excluding the one-off capital gain generated from the sale of Bank Audi in 2010). Fee and commission revenue declined 31% Y-o-Y to EGP587 million in FY2011, as Brokerage, Asset Management and Investment Banking revenues declined.

·; Investment Bank operating expenses declined 24% Y-o-Y to EGP665 million in FY2011, as a result of management's successful cost reduction initiative, across all operating expense items.

·; Credit Libanais net income for the year, came at USD67.1 million, up 17.6% Y-o-Y, (after adjusting for one-off revenue and cost items in 2010 and 2011, respectively), resulting in a 17.5% ROAE for the year. This contributed USD39.3 million to EFG Hermes Group bottom line.

·; Brokerage remained #1 on the Egyptian Stock Exchange and the Dubai Financial Market and maintained a leading position in a number of other regional markets. Execution volumes declined 50% Y-o-Y to USD19 billion in FY2011, broadly in line with the average decline of 45% in regional market volumes.

·; Asset Management AuMs ended the year at USD3.3 billion, down 30.1% Y-o-Y in FY2011. Nearly 70% of this decline is attributed to redemptions with the remaining 30% attributed to lower asset value, as markets declined. Egypt fixed income funds (MMFs) represented 73% of the redemptions, while regional institutional funds represented an additional 15%.

·; EFG-Hermes Investment Banking closed four major transactions with a combined value of over USD27 billion for FY2011. These transactions have helped us achieve top position among the regional banks in terms of the M&A league tables as well as to place high in the EMEA league tables.

·; Private Equity AuMs stood at USD980 million, with no exits taking place during the year.

A. GROUP PERFORMANCE

I. Performance Indicators and Financial Highlights

Table 1: Key Operating Indicators

Please refer to attached PDF

Table 2: Investment Bank/Commercial Bank Financial Performance - 4Q2011

Please refer to attached PDF

Table 3: Group Financial Performance - 4Q2011

Please refer to attached PDF

Table 4: Group Financial Performance - FY2011

Please refer to attached PDF

II. Group Revenues

Table 5: Group Revenue

Please refer to attached PDF

4Q2011

Group revenue declined 25% Y-o-Y to EGP417 million in 4Q2011. This Y-o-Y decline in revenues is attributed to: (a) The sharp decline in volumes, the poor market performance and the dampened investor sentiment and (b) The 'base effect' of fx-gains in the Investment Bank, generated from the sales proceeds of Bank Audi in 4Q2010.

Commercial Bank revenues declined 3% Y-o-Y to EGP290 million in 4Q2011, as 4Q2010 included extraordinary gains from the sales of investment securities. The Commercial Bank contribution to the Group revenue was 70%.

FY2011

Group revenue declined 31% Y-o-Y to EGP1.7 billion. The comparison here is not indicative, since FY2010 included a one-off capital gain of EGP716.6 million from the sale of Bank Audi and only 2H2010 Commercial Bank revenue was consolidated in FY2010 results, as opposed to full year numbers in FY2011.

Investment Bank revenue declined 44% to EGP668 million (excluding the capital gain from the sale of Bank Audi in FY2010) due to lower revenue generated from Brokerage, Investment Banking and Asset Management and capital markets and treasury operations.

III. Group Operating Expenses

Table 6: Group Operating Expenses - 4Q2011

Please refer to attached PDF

Table 7: Group Operating Expenses - 4Q2011

Please refer to attached PDF

Table 8: Group Operating Expenses - FY2011

Please refer to attached PDF

4Q2011

Group operating expenses declined 14% Y-o-Y to EGP357 million in 4Q2011, reflecting the cost reduction measures taken by the Investment Bank.

The Investment Bank remained committed to reducing costs in 4Q2011, with operating expenses declining 35% Y-o-Y to EGP180 million, while the Commercial Bank operating expenses rose 27% Y-o-Y to EGP177 million. Group operating expenses were split 50/50 between the Investment and the Commercial Bank.

The Group employee expenses declined 25% Y-o-Y to EGP216 million, and represented 61% of the Group total operating expenses. The Investment Bank managed to almost halve employee expenses in 4Q2011, achieving a 44% Y-o-Y reduction to EGP118 million. This was partially off-set by an increase in the Commercial Bank employee expenses which rose 24% to EGP98 million. The increase in the Commercial Bank employee expenses is partially attributed to an unexpected item of EGP14 million relating to the pre-settlement of the National Salary Correction in Lebanon, effective in 4Q2011.

Other operating expenses, which represented 39% of the Group's total operating expenses, rose 11% Y-o-Y to EGP141 million driven by higher expenses on the Commercial Bank's side, which rose 31% to EGP 79 million. This is in part attributed to a one-off expense of EGP13 million relating to the share of Credit Libanais in the donation extended by the Association of Banks in Lebanon to the Lebanese Government's High Relief Commission. The Investment Bank reduced other operating expenses by 7% Y-o-Y to EGP62 million, on tighter cost control.

FY2011

The Group operating expenses came at EGP1.2 billion. The Investment Bank managed to exceed its cost cutting target for FY2011, with operating expenses declining 24% Y-o-Y to EGP665 million. Given that the Commercial Bank was consolidated only in 3Q2010, the full year Y-o-Y comparison is not indicative.

B. THE INVESTMENT BANK

I. Investment Bank Revenue

Table 9: Investment Bank Revenue

Please refer to attached PDF

4Q2011

Investment Bank total revenue declined 50% Y-o-Y to EGP127 million, reflecting lower revenue generated from the fee and commission business and the capital market and treasury operations.

Brokerage, Asset Management and Investment Banking fee and commission revenue declined 47% Y-o-Y to EGP104 million. Capital markets & treasury operations revenue declined 58% Y-o-Y to EGP23 million, principally due to reduced fx-gains and lower net interest income. This however, is more of a 'basis effect', as 4Q2010 included high fx-gains and interest income generated from Bank Audi sale proceeds.

FY2011

Total Revenue declined 65% Y-o-Y to EGP668 million. However, excluding the one-off capital gain from the sale of Bank Audi of EGP716.6 million in 2010, total revenue declined 44% Y-o-Y.

Fee and commission revenue declined 31% Y-o-Y to EGP587 million, as Brokerage, Asset Management and Investment Banking revenues declined. Capital markets & treasury operations revenue fell 76% Y-o-Y (excluding the one-off capital gain of EGP716.6 million), largely due to the 'basis effect' of fx-gains and the related net interest income in 4Q2010, generated from the Bank Audi sales proceeds.

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

4Q2011

Fee and commission revenue declined 47% Y-o-Y to EGP104 million, with Brokerage and Asset Management and Investment Banking being the main contributors to the decline.

Brokerage revenue declined 49% Y-o-Y to EGP43 million, broadly in line with the decline in average regional volumes (excluding KSA) which fell c50% Y-o-Y in 4Q2011. Asset Management revenue declined 69% Y-o-Y to EGP17 million due to lower management and incentive fees. Investment Banking revenue declined 53% Y-o-Y to EGP10 million on lower advisory fees. Private Equity revenue was by its own nature the most resilient, slipping only 4% Y-o-Y to EGP33 million.

FY2011

Fee and commission revenue declined 31% Y-o-Y to EGP587 million. Brokerage revenue declined 42% Y-o-Y to EGP220 million due to lower brokerage fees as regional markets volume (fell c45% - excluding KSA) declined. Asset Management revenue declined 30% Y-o-Y to EGP117 million, driven by lower management and incentive fees. Investment Banking revenue declined 37% Y-o-Y to EGP106 million as advisory fees contracted. Private Equity revenue was flat over the year, inching down 1% Y-o-Y to EGP144 million.

Table 12: Fee and Commission Revenue - 4Q2011

Please refer to attached PDF

Table 13: Fee and Commission Revenue - FY2011

Please refer to attached PDF

Fee and Commission Revenue - Brokerage

In 4Q2011, regional markets performance and volumes were mixed. After taking a breather in 3Q, the Saudi Arabia, Qatar and Oman markets ended the fourth quarter on higher volumes and better performance. Kuwait volumes improved, yet performance remained broadly unchanged. Meanwhile, Egypt, Dubai and Abu Dhabi suffered low volumes and the lack of trading opportunities weighing down on performance. The MSCI EM Index gained 4% over the quarter, while S&P Pan Arab Comp ML Index inched up 1% over the same period.

Over the quarter, regional markets volume increased an average of 14% Q-o-Q (excluding KSA), and consequently, Brokerage executions increased 5% Q-o-Q to USD3.8 billion as Brokerage market share in Egypt, which represents our largest market, increased. However, Brokerage income fell 6% Q-o-Q to EGP43 million, reflecting lower revenue generated from Egypt as some transactions executed in 4Q2011 carried very low or zero commissions.

With regional markets volume falling an average of 45% Y-o-Y (excluding KSA) in FY2011, and the Egyptian Stock Exchange (EGX), our largest brokerage market, being closed for almost two months in FY2011, Brokerage executions declined 50% Y-o-Y to USD19 billion. Consequently, brokerage revenues fell 42% in FY2011.

In 4Q2011, Brokerage revenue generated from retail business (which includes online, call center, branches, VIP individuals and HNWI) represented 59% of the brokerage revenue, broadly flat compared to a quarter earlier. Clearly, retail investors (contrary to foreign and domestic institutional clients) engaged in short term trading in an attempt to cover earlier losses.

Figure 14: Brokerage Revenue by Desk

Please refer to attached PDF

Egypt

Figure 15: Egypt Executions and Market Share

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The year's final quarter came to be another weak quarter for the Egyptian equities, with the Hermes Financial Index (HFI) falling 9% and volumes declining 35% Q-o-Q, dragging the HFI and volumes down 42% and 52%, respectively, in FY2011. During 4Q2011, the market witnessed short lived spikes around the parliamentary elections, yet concerns over currency devaluation together with the increased tension between the protestors and the military weighted down on foreign investor appetite.

Egypt Brokerage market share rose to 53.4% in 4Q2011, driven mainly by a number of special transactions including Olympic Group spin-off of Namaa and B.Tech and the transfer of Orascom Telecom's assets. Consequently, our market share rose to 40.2% in FY2011 versus 28.0% a year earlier. This further cements our dominant position (#1) on the EGX for the 4Q2011 and the FY2011. Egypt Brokerage executions came 378% higher than the following broker in 4Q2011 (208% in FY2011), reflecting our strong executions and leadership position.

Egypt Brokerage revenue declined 9% Q-o-Q to EGP33.4 million in 4Q2011, despite higher market share as Egypt Brokerage executed a number of transactions which carry zero or very low commission. Moreover, Egypt's Brokerage contribution to total brokerage revenue reached 77% in 4Q2011.

UAE

Figure 16: UAE Executions and Market Share

Please refer to attached PDF

Trading remained lacklustre on both UAE markets in 4Q2011. Short-term traders suffered due to the lack of trading opportunities, while long-term investors have been adopting a wait and see strategy. Moreover, the disappointment twice over the MSCI decision not to upgrade UAE to emerging market has also dampened sentiment in the market. This all resulted in turnover on the Dubai Financial Market (DFM) falling 14% Q-o-Q, and similarly volumes on the Abu Dhabi Exchange (ADX) declined 13% Q-o-Q. Performance followed suit, with the Dubai Financial Market General Index (DFMGI) and the Abu Dhabi Index (ADI) each declining 5%. For FY2011, the DFM lost more than half its trading value, with turnover falling 54%. On ADX, turnover declined 26%. In terms of performance, DFMGI gave up 17% and the ADI retreated 12%.

Despite the poor market performance in 4Q2011, UAE Brokerage managed to climb to the number one position on the DFM with a market share of 14.5%, and consequently closing FY2011 as the number one broker on the DFM with a market share of 14.1%. On the ADX, we maintained our fourth place in 4Q2011 with a market share of 11.1%, the contraction in executions is mainly due to declining activity from the GCC institutional investors as the market was largely driven by margin brokers and local banks. For FY2011, we were ranked third on ADX with an overall market share of 12.5%.

Total revenue booked by the brokerage operations in the UAE (ADX and DFM) declined 10% Q-o-Q to EGP1.8 million in 4Q2011. Meanwhile, UAE contribution to total brokerage revenue remained at 4%.

Saudi Arabia

Figure 17: KSA Executions and Market Share

Please refer to attached PDF

Fourth quarter was a solid quarter for the Saudi Stock Market (Tadawul), with turnover increasing 67% Q-o-Q and the Tadawul All Share Index (TASI) rising 5% Q-o-Q. For FY2011, TASI slipped 3% while volumes rose 45%.

KSA Brokerage executions increased as market volumes increase, however our market share declined to 0.3% over the quarter. The decline in market share is attributed to a decline in the client base namely the GCC investors, and to the shrinkage in the swap volumes. Retail trading continued to dominate the Saudi market, with most of the trading executed through the commercial banks' brokerage units. Our market share stood at 0.3% in 4Q2011 compared to 0.4% in 3Q2011. For the year, market share stood at 0.6%.

Revenue generated during the quarter rose to EGP1.2 million, up 22% Q-o-Q in 4Q2011. Accordingly, Saudi operations contribution to total brokerage revenue rose to 3%.

Oman

Figure 18: Oman Executions and Market Share

Please refer to attached PDF

The Muscat Securities Market (MSM) saw a rebound in volumes in 4Q2011, increasing 26% Q-o-Q. In terms of performance, the Muscat Securities Index managed to close the quarter on positive footing, up 2%. For the year, the index slipped 16% and volumes declined 23%.

Oman Brokerage executions rose as market volumes increased. However, our market share declined to 14.9% in 4Q2011, mainly due to a decline in foreign institutional investors' activity. Overall, in FY2011 market share came at 19.2%, close to FY2010 levels of 20.6%. Ranking for 4Q2011 and full year 2011 slipped to 4th place compared to 3rd place in 3Q2011 and FY2010.

Revenue generated rose 3% Q-o-Q to EGP0.9 million with an overall contribution to total brokerage revenue of 2%.

Kuwait

Figure 19: Kuwait Executions and Market Share

Please refer to attached PDF

The Kuwait Stock Exchange (KSE) index ended the final quarter of the year broadly flat, down 0.3%. However, volumes improved 17% over the same period. For FY2011, the KSE index lost 16% and volumes dropped 52%.

Kuwait Brokerage increased its executions in 4Q2011 to reach a market share of 25.1% up from 23.4% in 3Q2011 and advanced to 2nd place versus 3rd place in 3Q2011. This came despite private transactions taking place in December in the form of transfer of ownerships on stocks executed at affiliated brokerage houses, which if excluded, puts the firm's market share at significantly higher levels. Overall in FY2011, EFG Hermes market share stood at 25.5% and maintained its 2nd place ranking.

Revenue generated was flat Q-o-Q at EGP5.0 million, and represented 12% of total brokerage revenue in 4Q2011.

Jordan

It was a muted quarter for the Jordanian market, with the ASE Index broadly flat up 0.2%, and turnover falling 16% over the quarter. Regional unrest, in particular in its neighbor country Syria, weighed down on sentiment, the Index lost 16 % and the volumes declined 57% in FY2011.

Our Brokerage market share came at 8.5% with 7th place ranking in 4Q2011. For the year, our market shares rose significantly to 6.7% up from 2.0% in FY2010 and our ranking jumped to 7th place compared to 42nd, a year earlier.

Revenue booked from the Jordanian operation declined 13% Q-o-Q to EGP0.9 million, and represented 2% of total brokerage revenue in 4Q2011.

Research

Figure 20: Research Coverage Universe

The Research department coverage reached 131 companies at the end of FY2011, distributed across the region (Egypt 30, UAE 25, KSA 38, Kuwait 7, Oman 13, Qatar 9, Lebanon 4, Morocco 3 and Jordan 2). Currently EFG Hermes covers 55% 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 regional monthly products.

Fee and Commission Revenue - Asset Management

Figure 21: Development of Listed Assets under Management

Asset Management AuMs rose 2.2% Q-o-Q to stand at USD3.3 billion by the end of 4Q2011, after having declined over the past three quarters. The increase in AuMs was driven by injections made into Egypt fixed income funds, principally local money markets funds (MMFs), which offset the Regional equity funds redemptions. The total net funds inflow was 2.6% during 4Q2011, while the MMFs net inflow was 4.3%. The aggregate funds performance was slightly negative (-0.4%), due to sluggish local equity performance, which reflected investors' concerns towards the situation in Egypt.

For FY2011, Asset Management AuMs fell 30.1% to USD3.3 billion from USD4.7 billion at the end of FY2010. The decline in AuMs is attributed, in part to redemptions which represented, nearly 70%, while poor market performance represents the remaining 30%. Of the total redemptions, Egypt fixed income funds (MMFs) represented 73%, while regional institutional funds represented an additional 15%.

The strategy of targeting long term clients and increasing institutional base while maintaining diversified client base remains one of the Asset Management team main focuses. During the quarter, the team succeeded in expanding its Foundation/Pension/Insurance clients, rising to 41.5% of total AuMs versus 38.1% a quarter earlier. The SWF clients' contribution to the total AuMs, increased to 22.2% from 21.4% in 3Q2011. Institutional client content declined to 20.8% from 23.1% at the end of 3Q2011.

In terms of funds' origination, the team maintained its diversified fund sourcing options with MENA-based clients being the main contributor. Investor mix changed slightly in 4Q2011: MENA-based clients increased to 74.7% from 73.2% a quarter earlier on the account of both Europe and USA clients, with the former declining to 21.1% from 22.3% a quarter earlier and the latter declining to 3.5% from 3.8%.

Figure 22: Assets under Management by Geography

Source: EFG Hermes Asset Management

Fee and Commission Revenue - Private Equity

Private Equity assets under management stood at USD 980 million at the end of FY2011, with no exits made during the year. During 4Q2011, Private Equity team continued to play an active role in creating value to portfolio companies and devising strategies that fit new economic variables of the MENA region. In addition, the team has successfully built a solid deal flow pipeline diversified over different sectors and geographies potentially leading to deals closing by 1Q2012.

Fee and Commission Revenue - Investment Banking

EFG-Hermes Investment Banking had a very successful year during FY2011. In spite of the very difficult market and political conditions, the division was still able to close four major transactions with a combined value of over USD27 billion for the year. Those transactions have helped achieve the number one ranking among the regional banks in terms of the M&A league tables as well as to place highly in the EMEA league tables. More importantly, the four transactions that were executed took place in four different markets with the department advising on its first major international transaction (the merger of Wind Telecom and Vimpelcom), the only major M&A to take place in Egypt (the sale of Olympic Group to Electrolux), the only M&A to take place in Sudan (Japan Tobacco on the acquisition of Haggar Cigarettes Factory) and a major M&A in Tunisia (the sale of Orascom Telecom Tunisia to Qatar Telecom).

Although market conditions remain unfavourable, we hope that we will be able to continue our outstanding performance in FY2012. And although Egypt continues to be a core market for us, we are quite focused on trying to build our regional pipeline on the regional front as we tackle such key markets as Saudi Arabia, Qatar and the UAE. Given the highly competitive nature of these markets, we plan to exert additional effort in trying to tackle them and generate additional business from outside Egypt. We are hopeful that our track record in FY2011 together with the anticipated cross-border transaction should help us to achieve that goal.

Capital Markets and Treasury Operations Revenue

Table 23: Capital Markets and Treasury Operations Revenue

4Q2011

Capital markets & treasury operations revenue fell 58% to EGP23 million in 4Q2011 mainly due to lower fx-gains. Fx-gains, which fell to EGP8 million in 4Q2011 versus EGP51 million a year earlier, reflects the 'base effect' of fx-gains in 2010, which declined after completing the purchase of the Commercial bank, Credit Libanais, in November 2010. Net interest earned came at EGP13 million in 4Q2011 versus EGP15 million in 4Q2010.

Returns on investments fell 47% to EGP1 million. Largely due to, unrealized losses on both stock and fixed income instruments, totalling EGP5.4 million, off-set the realized gains on fixed income of EGP3.1 million.

FY2011

Capital markets and treasury operations revenue fell 76% Y-o-Y to EGP81 million (excluding the one-off capital gain of EGP716.6 million). The 'base effect' of Bank Audi sales proceeds and the completion of Credit Libanais purchase, reduced fx-gains and net interest earned down in FY2011. Fx-gains fell to EGP14 million in FY2011 versus EGP157 million in FY2010. Similarly, net interest earned declined to EGP43 million in FY2011 versus EGP142 million in FY2010.

Returns on investments fell 17% to EGP24 million (excluding the one-off capital gain of EGP716.6 million), the decline is mainly due to attributed to unrealized losses on stocks and fixed income of EGP20 million, together with a decline in realized gains on stocks and fixed income, which reached EGP9 million in FY2011 versus a gain of EGP27 million a year earlier.

II. Investment Bank Operating Expenses

Table 24: Investment Bank Operating Expenses - 4Q2011

Please refer to attached PDF

Table 25: Investment Bank Operating Expenses - 4Q2011

Please refer to attached PDF

Table 26: Investment Bank Operating Expenses - FY2011

Please refer to attached PDF

4Q2011

The Investment Bank managed to reduce its operating expenses by 35% Y-o-Y to EGP180 million. Consequently, FY2011 operating expenses fell 24% Y-o-Y, exceeding the cost cutting target of 20% committed to by the management at the beginning of the year.

Employee expenses fell sharply 44% Y-o-Y to EGP118 million. The decline in employee expenses was due to headcount reduction, decline in bonuses, voluntary cut taken by some senior management, and reduction made to employees' packages.

Other operating expenses contracted 7% Y-o-Y to EGP62 million in 4Q2011, this 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 fell 28% Y-o-Y to EGP6.5 million in 4Q2011. Promotional and advertising expenses rose 14% Y-o-Y to EGP4.5 million on higher events planning and production costs. Consultation & service fees declined 24% Y-o-Y to EGP18.8 million. Office expenses declined 20% Y-o-Y to EGP4.5 million, while data communication expense declined 14% Y-o-Y to EGP6.9 million and telephone/fax/mobile expense declined 3% Y-o-Y to EGP3.1 million. General expenses came at EGP3.7 million in 4Q2011

FY2011

Operating expenses fell 24% to EGP665 million due to the cost containment initiative on employee expenses. Employee expense, which represents 70% of total operating expenses, declined 25% to EGP464 million. This decline in employee expenses was driven by headcount reduction of 10% in FY2011, a decline in bonuses, voluntary cuts taken by some senior management, and reduction in employees' packages.

Other operating expenses contracted 21% Y-o-Y to EGP201 million in FY2011, as tight cost control measures were taken across all operating cost items.

Travel expenses fell 16% Y-o-Y to EGP23.5 million in FY2011 on tighter travel policy. Promotional and advertising expenses declined 33% to EGP15.6 million largely due to a decline in events planning costs. Consultation & service fees declined 45% Y-o-Y to EGP32.2 million. Office expenses declined 5% Y-o-Y to EGP19.1 million in FY2011. Data communication expense declined 4% Y-o-Y to EGP30.0 million. The telephone/fax/mobile expense declined 3% Y-o-Y to EGP10.0 million. General expenses declined 43% Y-o-Y to EGP17.0 million.

C. THE COMMERCIAL BANK

Table 27: Commercial Bank Key Financial Highlights and Ratios

Please refer to attached PDF

Table 28: Selective results attributable to the majority shareholder*

Please refer to attached PDF

I. Overview

4Q2011

Fourth quarter 2011 performance was characterized by solid organic growth in all revenue lines (NII, Fees & Commissions and Trading) and continued strong bad debt collections. This resulted in net operating income increasing by 17.2% Q-o-Q. However this was offset by two unexpected expenses of USD4.5 million in total: a one-off expense of USD2.2 million, representing the share of Credit Libanais in the donation extended by the Association of Banks in Lebanon to the Lebanese Government's High Relief Commission and the pre-settlement in part of the National Salary Correction of USD2.3 million effective from 4Q2011.

Net Income for the quarter was USD13.7 million, a decline of 20.9% Q-o-Q. Net of the non-recurring expense item related to the High Relief Commission donation, the quarterly result represents a decline of only 8.2% Q-o-Q.

FY2011

Net Income for the year, before preferred dividend costs (and after adjusting for extraordinary income of USD22.1 million in 2010 and the USD2.2 million of extraordinary expense in 2011), came in at USD67.1 million, up 17.6% Y-o-Y, resulting in a 17.5% ROAE for the year. This increase in organic income compares extremely favorably to peers.

Full year results showed solid above peer-average loan and deposit growth. However, after correcting for deposits lost by Lebanese banks exposed in Syria, Credit Libanais grew in line with peers. The increases in fee and commission income together with strong bad debt collection, were offset by a higher interest expense, due to CL's initiative throughout 2011 to grow deposits at a higher than budgeted rate as a defensive buffer against the international and regional turmoil.

Interest income throughout the year was also negatively affected by the maturities of approximately USD800 million equivalent of high coupon Lebanese government securities denominated in Lebanese Pounds held in the HTM portfolio. It is estimated that this represented, on the margin, a loss of more than USD15 million in interest income for the year. Despite this and the higher interest expense, NII finished the year only USD5.0 million lower than in 2010, mainly due to the faster growth of the corporate loan book and the effective redeployment of liquidity.

The Loans-to-Deposits ratio ended the year at 31.4% from 29.3% in 2010 and would have been closer to 33% had CL not adopted the defensive strategy.

Similarly, the Cost-to-Income ratio, closed the year at 58.2% due to both the increased interest expense from excess deposits and the two unexpected cost items at year-end. Excluding extraordinary expenses, the cost-to-income ratio ended the year at 55.5%.

The Bank closed the year extremely capitalized; with capital adequacy ratios well in excess of minimum regulatory requirements.

II. 4Q2011/FY2011 Results Highlights

·; Total Loans reached USD2.0 billion by year-end, an increase of 2.4% Q-o-Q and 19.5% Y-o-Y.

·; Total Deposits reached USD6.3 billion by year-end, an increase of 1.4% Q-o-Q and 11.5% Y-o-Y.

·; NII was USD31.9 million in 4Q2011, an increase of 12.7% Q-o-Q and a decline of 3.6% Y-o-Y. For the year 2011, NII reached USD122.2 million compared to USD127.2 million last year, representing a 3.9% decline from last year.

·; Fee & Commission Income was USD10.5 million in 4Q2011, an increase of 15.7% Q-o-Q and 203.8% Y-o-Y. For the full year, F&C Income came in at USD32.8 million, a 15.7% increase from last year.

·; Trading Income for the quarter was USD4.4 million, an increase of 160.2% Q-o-Q and a decline of 69.9% Y-o-Y. For the full year, Trading Income reached USD10.9 million compared to USD19.6 million a year earlier, but the latter contained extra-ordinary gains.

·; Net Provisions in 4Q2011 showed a positive balance of USD1.6 million, a decline of 36.1% Q-o-Q. and compared to a credit loss expense of USD4.1 million in 4Q2010. For the year 2011, Net Provisions also showed a positive balance of USD4.7 million, compared to credit loss expense of USD10.0 million for the previous year.

·; Net Operating Income for the quarter came in at USD49.1 million, a 17.2% increase Q-o-Q and a 3.2% decline Y-o-Y. It reached USD173.3 million for the full year, a decline of 2.0% compared to last year.

·; Total Operating Expenses in 4Q2011 reached USD31.8 million, an increase of 41.6% Q-o-Q and 26.5% Y-o-Y. For the year 2011, total operating expenses were USD98.6 million, an increase of 14.1% compared to the previous year.

·; Net Income for the quarter reached USD13.7 million, a decline of 20.9% Q-o-Q and of 32.6% Y-o-Y. For the full year, NI was USD 64.9 million, a decline of 18.0% compared to last year.

·; Loans/Deposits ratio reached 31.4%, up from 31.1% a quarter earlier and up from 29.3% at the end of FY2010.

III. Comments

Assets: Total Assets came at USD7.2bn up 2.0% Q-o-Q in 4Q2011 and 10.0% Y-o-Y in FY2011, driven by loan growth.

The Securities content of total assets declined from 48.4% in 2010 to 44.2% this year, in favor of loans and cash which, increased as a percentage of total assets: from 23.0% to 25.4% and from 25.2% to 27.6% in 2010 and 2011, respectively.

Treasury and Capital Markets continue to be the dominant line of business, representing 67.0% of total assets, followed by Retail Banking (20.1%) and Corporate Banking (11.7%), the latter demonstrating a clear increasing trend in line with our strategy.

Loans: Total loans increased to USD2.0bn up 2.4% Q-o-Q in 4Q2011 and 19.5% Y-o-Y in FY2011. Corporate loans grew over the year by 27.5%, SME loans by 20.1%, and Retail by 11.3%.

By the end of the year, corporate loans represented 41.9% of the total loan book, up from 39.2% last year; while retail loans represented 42.4% of the total loan book in 2011, down from 45.1% in 2010, and SME percentage of total loan book remained practically flat at 15.7%.

Loan portfolio concentration: About 48.8% of total loan portfolio is personal and consumer, loans to the trade and industry sectors represent approximately 28.0% and 15.9% respectively, loans to Construction represent 4.6%, while loans to Agriculture and other sectors represented 2.7% of total loan portfolio.

NPLs decreased to 3.9% by the end of 2011 from 4.7% last year, reflecting the quality of CL's risk management process. About 72% of total loans (including corporate) is covered by mortgages, cash, and bank guarantees.

The total loan book is split 40/60 between local and foreign currency, respectively.

Blended yield on loans declined from 7.8% last year to 7.5% by year-end.

Deposits: Total deposits grew 1.4% Q-o-Q in 4Q2011 and 11.5% Y-o-Y in FY2011. This increase in deposits is higher than peer numbers and reflects the conservative deposits collection strategy explained above.

Savings accounts in FY2011 represented 61.5% of total deposits compared to 62.3% last year, while Term accounts represented 27.9% in FY2011 up from 26.9% last year and Sight accounts stayed relatively stable representing around 10.4% compared to 10.8% last year.

Deposits are split 96%/4% between retail and corporate, respectively.

The split between foreign and local currencies in deposits has remained practically stable at 53%-47% respectively.

Blended cost of deposits declined to 4.3% in 2011 from 4.5% last year. In view of our comfortable liquidity position and relatively more stable markets, we intend to gradually relax our aggressive deposit collection strategy to support further NII growth.

Loans/Deposits ratio: In line with our strategy to grow the loan book despite the deteriorating economic conditions in the country, the loans/deposits ratio reached 31.4%, up from 31.1% a quarter earlier and up from 29.3% at the end of FY2010.

NII: Net Interest Income for the quarter increased by 12.7% Q-o-Q supported by a concerted effort to mitigate growth of interest expense in the latter months of the year. For the year, NII declined 3.9%. This does not fully reflect the strong loan growth achieved this year as it was negatively impacted by maturing high coupon government securities as well as increased interest expense, as deposits grew 11.5% over 2011.

Fee & Commission Income: The increase of 15.7% Q-o-Q for 4Q2011 and 15.7% Y-o-Y for FY2011 reflects the Bank's successful focus on trade finance and higher account charges.

Trading Income: The increase of 160.2% Q-o-Q in Trading Income reflects to a large extent the mark-to-market gains in our securities trading portfolio in 4Q2011 as markets recovered from their summer lows, together with FX trading gains. For the year, the large Y-o-Y decline of 44.0% is attributed to one-off gains of USD10.7 million that boosted Trading Income in 2010. If we exclude the effect of this one-off gain, Trading Income would have increased in FY2011 by 23.7% Y-o-Y.

Net Provisions: Net Provisions were positive for another quarter as collections came in higher than the provisions made. For the year, net provisions were positive at USD4.7 million compared to credit loss expense of USD10.0 million a year earlier, as a result of collecting USD8.3 million of NPLs while provisions made were at USD3.6 million.

Expenses: Total Operating Expenses for the quarter increased by 41.6% Q-o-Q due to the one-off expense of USD2.2 million related to the share of Credit Libanais in the donation extended by the Association of Banks in Lebanon to the Lebanese Government's High Relief Commission and the pre-settlement in part of the National Salary Correction (USD2.3 million) effective from 4Q2011. These impacted the full year Operating Expenses which increased by 14.1% Y-o-Y. However, if we exclude the USD2.2 million one-off expense of the share in the High Relief Commission, Total Operating Expenses for FY2011 would have increased by only 11.6%.

Net Income: Net Income declined by 20.9% Q-o-Q in 4Q2011 and by 18.0% Y-o-Y in FY2011. However, if we excluded the one-off High Relief Commission share cost booked in 2011 and the extraordinary income in 2010, Net Income from organic business, increased 17.6% Y-o-Y, reaching USD67.1 million in 2011.

Income from Corporate Banking increased 83% in FY2011 to represent 17% of Total Banking Income compared to 9% last year. Treasury and Capital Markets operations and Retail Banking each represented 37% of Total Banking Income in FY2011; while Investment Banking operations contribution to Total Banking Income came at 10%.

Cost/Income Ratio: Cost-to-income ratio came at 58.2% in 4Q2011. This is a result of the two unexpected expense items (mentioned above) of USD4.5 million, in addition to our defensive deposit strategy that kept interest expense high.

Net Interest Margin: NIM was unchanged Q-o-Q, standing at 1.85% in 4Q2011. In FY2011, NIM came at 1.85% down from 2.2% in FY2010. This reflects the general market trend in Lebanon in line with the impact of gradual maturities of high coupon securities and increased competition.

Capital Adequacy Ratio: Despite the high loan growth rate and the redemption of the preferred share issue in August 2011, Credit Libanais remains extremely well capitalized, (with dividends reinvested and not distributed every year). As of 31st December 2011, the Tier 1 capital ratio was at 12.0% and the total Capital Adequacy Ratio (CAR) was 14.3%, both well over the minimum regulatory requirements. Capital adequacy calculations are effected twice annually at 1H and 2H.

IV. International Operations 

SENEGAL

In 2010, Credit Libanais invested USD20 million in a full banking license in Senegal and opened one branch in Dakar in August of the year. Total assets came in at USD47.1 million by 2011 year-end, with loans reaching USD22.8 million, and deposits USD19.5 million; resulting in a loans/deposits ratio of 116.6%. The subsidiary incurred a loss of USD1.6 million in 2010 (for the first four months of operation) but managed to narrow its losses to USD0.5 million in 2011. We expect Senegal to break even in 2012.

IRAQ

We now have two branches of Credit Libanais in Iraq; one in Baghdad and one in Arbil at the cost of USD7 million per branch. Iraq started operations in January 2012 and will focus almost exclusively on cross-border trade finance.

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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