EFG-Hermes Releases FY09 Results

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EFG-HermesEFG-Hermes reported net consolidated revenues of EGP 1.43 billion, a drop of 33.8% from FY08, reflecting market conditions that adversely affected assets under management, trading volumes (down 40% market-wide in 2009), the ability to close investment banking deals and the raising of new private equity funds.

Fee and commission income fell to EGP 772 million, a 52.3% drop from FY08. Adjusting for FY08 incentive fees, the decline is a more modest 25.7%.

Net operating profit reflecting the Group's core agency business stood at EGP 63 million in FY09, down from EGP 733 million in 2008 (a figure that included EGP 218.1 million in incentive fees). Net operating margin fell to 8.2% in FY09, down from 45.2% the previous year (36.7% if adjusted for realised incentive fees).

Regional operations accounted for 48.2% of total fee and commission income in FY09, up from 44.4% a year earlier.

The Board of Directors is recommending the distribution of an EGP 3/share dividend, broken down as EGP 1/share to be distributed after the ordinary general assembly's ratification of FY09 financial statements and EGP 2/share to be distributed as a special dividend after ratification of 1Q10 figures by an ordinary general assembly.

(Cairo, Egypt) -- EFG-HermesEFG-Hermes,* the leading investment bank in the Arab world, today released its full-year 2009 results, reporting total consolidated revenues of EGP 1.43 billion, a 33.8% drop from the previous year. EFG HermesEFG Hermes emerged from the market-wide challenges of 2009 as the only true regional investment bank in the MENA region -- this despite trading volumes being down 40% market-wide in FY09, with resulting investor sentiment sapping the firm's ability to grow assets under management, book brokerage commissions, close investment banking deals and raise new private equity funds.

EFG HermesEFG Hermes

In the 12 months ending December 2009, EFG HermesEFG Hermes reported net profit after tax and minority interest of EGP 551.8 million, a drop of nearly 41% from the previous year. Adjusted for incentive fees booked before the crisis spilled over into regional markets in 2008, the comparative drop would only be 22.9%.

"Although it is not reflected in our full-year figures, we are pleased to note that we have realised an unconsolidated capital gain of USD 260 million on our sale of our 21.95% stake in Bank AudiBank Audi in the first quarter of 2010," noted EFG HermesEFG Hermes CEO Yasser El-Mallawany. "After lengthy discussions with Bank AudiBank Audi, it became clear that the events of 2008 made an amalgamation unlikely in the near future."

EFG HermesEFG Hermes exited its investment in Bank AudiBank Audi at a 15% premium to the share price at the time, with a deal size of approximately USD 913 million. "With one investment representing more than 50% of EFG HermesEFG Hermes' book value, it was clear a divestiture should be considered," El-Mallawany noted.

In addition to a recommended dividend of up to EGP 3/share, Heikal noted that management continues to study how it will deploy its cash pile of approximately USD 1 billion. The most immediate use, he said, would be to focus on continued expansion into Arab markets where the firm has no direct presence. Management has identified the Levant -- the firm announced this week it would be opening an office in Syria, where it is also launching a new private equity fund -- and Libya as immediate targets.

"Meanwhile, we remain firmly committed to transforming our unrivalled regional platform into a universal bank," noted Heikal, "and we will continue to seek control of a commercial bank. In the meantime, we will further invest in our retail brokerage strategy and anticipate an expansion of margin lending to select, totally collateralized clients. An acquisition in the asset management field is possible, and we certainly have a new interest in putting our balance sheet to work through merchant banking activities, having proven that we can successfully underwrite transactions as large as the recent EGP 1.5 billion Mobinil bond issue."

EFG HermesEFG Hermes is also studying possible expansion into Pakistan, Morocco and Sub-Saharan Africa (excluding South Africa).

EFG-HermesEFG-Hermes' complete full-year 2009 earnings report, with comments and analysis -- as well as a summary of a balance sheet that is strong, liquid and unleveraged -- may be viewed on the firm's website (www.efg-hermes.com). Highlights from the report follow below.

Full-Year 2009 Operational Highlights and Business Segment Review

Group

The Investment Bank remains the largest contributor to total consolidated revenues, accounting for 68.2% (down from 76.5% a year ago). Bank AudiBank Audi contributed 30.6%, while revenues booked from treasury operations accounted for 13.7%.

Regional operations accounted for 48.2% of total fee and commission income in FY09, up from 44.4% a year earlier.

Net operating profit, reflecting the Group's core agency business, stood at EGP 63 million in 2009, down from EGP 733 million in 2008 (of which EGP 218.1 million were incentive fees). EFG HermesEFG Hermes' net operating margin continued to come under pressure during 2009, declining to 8.2% from 45.2% in 2008 (36.7% if adjusted for the realized incentive fees). EFG HermesEFG Hermes Management believes that at least EGP 40 million of total operating expenses are related to non-fee and commission business. Accordingly, a more accurate net operating profit and margin for 2009 are EGP 103 million and 13.3%, respectively;

EFG Hermes Securities Brokerage maintained its number-one position in Egypt and the UAE (on both the DFM and ADSM), the first time a single brokerage has finished number one in the UAE in back-to-back years. The Kuwaiti operations oscillated between the first and second position throughout the year, while the Omani operation ended the year in the third position. Management notes significant new contributions from its strategy to grow its retail brokerage operations in 2009.

Management notes significant new contributions from its strategy to grow its retail brokerage operations in 2009. The retail strategy has seen the Group become the largest retail broker in the region, with approximately 50% of the brokerage business being contributed by retail, VIP, online and call centre clients.

EFG HermesEFG Hermes Research had 96 stocks under active coverage as at year-end 2009, up from 76 in 2008.

Total assets under management (AUM) within the Group increased to USD 5.311 billion (including USD 961 million in private equity funds). Given the market's performance, no incentive fees were booked in 2009, compared with EGP 226.7 million booked in the pre-crisis period the previous year.

EFG Hermes Private Equity was chosen to manage the Egypt compartment of the InfraMed infrastructure fund. Toward the end of the year, Private Equity began work on new initiatives including a Syrian fund (unveiled in early March 2010) and a number of specialized funds.

Amid challenges on both the IPO and M&A fronts in the first half, EFG Hermes Investment Banking focused on building out its debt advisory practice and closed several landmark transactions including the fully-underwritten EGP 1.5 billion bond issue for Mobinil, which closed in 2010. Also closing in 2010 was a rights issue for SODIC. The pipeline into 2010 remains solid and is varied in terms of both deal type and country of origin, notably including Libyan transactions and the largest-ever rights issue in Egypt.

EFG-HermesEFG-Hermes' shareholding structure remains dominated by institutional shareholders. At the end of 2009, the top 50 shareholders owned 73.2% of the firm's equity and included 33 Western institutions and fund managers.

Securities Brokerage

Securities Brokerage remained the key contributor to fee and commission revenues, accounting for 57.6% of the firm's total fee and commission revenue in FY09, up from 48.8% the previous year.

A 40% decline in volumes across regional markets in 2009 saw Brokerage revenues decline to EGP 445 million, down from EGP 791 million in 2008.

The expansion of the division's retail activity through new retail branches in Egypt (which have taken an average of just four months to become profitable) as well as expanded online and call-centre operations proved an important cushion amidst contracting institutional business in 2009. The better-than-anticipated success of the retail strategy has seen the firm revise its target to 15 operating branches in Egypt by year-end 2010. Eight branches were operational as of December 2009, with the Hurghada branch staffed and ready to commence operations and three others under establishment. The retail strategy will next move to other markets in which EFG HermesEFG Hermes has a direct presence.

Also in 2009, Brokerage expanded its activities in the access product market to offer foreigners and / or regulators synthetic access to regional markets. The two access products in circulation (Abwab and Shamal) had outstandings of USD 350.4 million as of 31 December 2009.

In Egypt: The EGX posted the strongest recovery of any regional market in 2009 as its transparency and regulatory framework were the first to lure back institutional clients. Valuations rose 34.7% in 2009 over year-end 2008 levels despite volumes 23.4% lower than 2008. EFG HermesEFG Hermes' executions on the local market fell at a slower rate than market volumes, ending the year at EGP 172 billion, or 19.2% off 2008. EFG Hermes Securities Brokerage remained the number-one broker on the Egyptian market with 44% of total market executions. Revenue from Egyptian brokerage operations dipped 44% from 2008 levels to EGP 445 million, or 57.6% of the Group's consolidated fee and commission income.

In the United Arab Emirates: EFG HermesEFG Hermes closed 2009 as the first broker to have ever finished in the number-one position atop both markets in back-to-back years. Total executions for the Group fell 64.6% from 2008 levels as both retail and foreign institutional clients passed on volatile UAE markets. A new emphasis on online trading in the UAE saw online turnover rise 65% above 2008 levels. Revenues from UAE brokerage operations stood at EGP 65 million in FY09, accounting for 8.5% of EFG HermesEFG Hermes' consolidated operating revenues.

In Saudi Arabia: EFG HermesEFG Hermes closed 2009 with an average of 1% of total market executions in KSA, seeing it finish as the number-two independent broker after shedding some market share. Management believes that brokerage in the Kingdom is a commodity business and will accordingly work to leverage its direct presence in this important market to the benefit of Asset Management and Investment Banking, with the Brokerage business then growing as a result. As markets stabilise and institutional interest returns, EFG HermesEFG Hermes is well positioned to grow its share of market executions, both directly and through access products.

In Oman: EFG HermesEFG Hermes' executions on the Muscat Securities Market fell 37.5% from 2008 amid declining volumes market-wide. EFG Hermes Securities Brokerage secured an 18% share of market executions in 2009, generating the equivalent of EGP 15 million in agency fees (1.9% of the Group's consolidated operating revenues).

In Kuwait: EFG HermesEFG Hermes increased its market penetration, fully integrated IFA into the Group's trading platform and set a solid stage for the cross-selling of other products including Asset Management in 2010. EFG HermesEFG Hermes' executions in Kuwait fell 30.3% to KWD 6.5 billion, compared with a 42.1% decline in volume traded. EFG Hermes IFAEFG Hermes IFA was the number-one broker in Kuwait in the last five months of the year, generating the equivalent of EGP 78 million in revenues (10.1% of total Group operating revenue).

Other Markets: EFG Hermes Securities Brokerage remained a significant player even in those markets in which it has no direct presence, all of which saw dramatic declines in volumes last year. Brokerage closed 2009 with calculable and increasing market shares in: Qatar (10% market share), Bahrain (4.5%), Jordan (3%) and Morocco (0.5%).

Research

The Research Division continues to cover the widest range of equities in the Arabic world, with a total of 96 stocks under active coverage (representing 50% of the region's market capitalization) at year-end compared with 76 at the end of 2008. Initiations of coverage were predominantly aimed at regional companies in 2009.

For the full year, the team published 529 reports, a sharp rise over the 343 reports issued in 2008.

In early 2009, Research launched the MENA Focus List, a joint product with Securities Brokerage, which highlights the top investment targets across the region. During 2009, the MENA Focus List (which is periodically reviewed) had average returns in excess of 45% compared to around 17% for the MSCI Arabia against which it is benchmarked.

For the third year in a row, Research maintained its number-one overall position in the Euromoney Middle East Research Poll.

Asset Management

Asset management contributed 20.7% to the Group's consolidated net operating revenues in FY09.

Assets under management at the end of FY09 stood at USD 4.35 billion, a sharp fall from the all-time high of USD 7.73 billion (as at 2Q08), but an improvement on the USD 4.2 billion at year-end 2008. The decline in AUMs since the start of the financial crisis has largely been due to market factors and declining valuations. While most regional asset managers recorded net outflows in 2009, the Division has recorded net inflows.

The Firm's two flagship funds, the EFG Hermes MEDA Fund and the MENA Opportunities Fund, ended the year at USD 306 million and USD 426 million respectively, down from USD 386 million and 607 million, respectively, at the end of 2008. The MEDA Fund nonetheless had returns of 8.7% over 2009 and outperformed the MSCI Arabian Markets Index by 1.4% in 4Q09. As market volatility persisted into 4Q09, mostly as a result of the Dubai World contagion, the MENA Opportunities Fund reshuffled its gross long exposure to take advantage of positive momentum while minimizing the downside risk.

The EFG HermesEFG Hermes Saudi Arabia Equity Fund closed 2009 fully 22.4% higher than the previous year, while the EFG HermesEFG Hermes Middle East and Africa Telecom Fund posted an annual gain of 10% and the EFG Hermes Egypt Fund closed 2009 up 12.8%.

Asset Management signed a distribution agreement with Citibank Egypt enabling the latter to act as distributor for the Egypt Fund, the MEDA Fund, and the Telecom Fund to Citibank's clients in Egypt. It is the first agreement that allows a third party to distribute EFG HermesEFG Hermes-branded funds in the Egyptian market.

Asset Management received several new mandates during the latter part of 2009, including a capital-guaranteed fund, a money market fund, and Egypt's first dedicated fixed-income fund; final approvals on the three funds are expected soon. Meanwhile, HSBC has awarded EFG HermesEFG Hermes a mandate for the launch of a capital-protected fund with a minimum size of USD 50 million.

Investment Banking

Investment Banking contributed 5.6% of the Group's consolidated revenues in FY09.

The year just ended was unusually difficult for Investment Banking as low investor sentiment, poor market performance and a disconnect between buyer and seller expectations resulted in the evaporation of both M&A and equity markets.

Against this backdrop, EFG Hermes Investment Banking closed the largest M&A advisory mandate on the Egyptian market this year, acting as sole buy-side advisor to Actis on its USD 243 million acquisition of a 9.3% stake in Commercial International Bank of EgyptCommercial International Bank of Egypt. The deal received significant international and regional recognition and cemented EFG-HermesEFG-Hermes' position as the leading regional M&A franchise.

Amid a challenging M&A market, Investment Banking expanded its activities in 2H09 to products outside its traditional scope. EFG HermesEFG Hermes acted as Sole Advisor to Orascom Development Holding on the issuance of the first ever Egyptian Depositary Receipt program for a total size of USD 1.8 billion. On the debt advisory side, the firm was Financial Advisor in 4Q09 to Egyptian Nitrogen Products CompanyEgyptian Nitrogen Products Company's USD 1.1 billion project finance facility (the largest debt syndication in Egypt in 2009). The Team also used the Group's strong balance sheet by fully underwriting Orascom Telecom's USD 50 million commercial note and, in 4Q09, began acting as the Sole Advisor to Orascom Telecom in the defense of its stake in Mobinil (currently worth approximately USD 4.45 billion).

Importantly, EFG HermesEFG Hermes was the Sole Financial Advisor and Underwriter for Mobinil's EGP 1.5 billion bond issue, the first time a fully-underwritten issue has been syndicated to non-banking financial institutions. The transaction closed in 1Q10.

Finally, Investment Banking successfully launched an underwritten USD 100 million rights issue for SODIC (closed in 1Q10) and began a USD 800 million rights issue for Orascom Telecom, a deal that on closing will be the largest rights issue in Egyptian history. The team has two new IPO mandates that could close before June (if market conditions stabilise) and is now pitching for mandates in Syria and Libya (from which mandates have already been sourced).

Private Equity

Private Equity contributed 8.67% of the Group's consolidated revenues in 3Q 09. Revenues were mostly composed of management fees on existing funds under management.

2009 saw Private Equity providing extensive support to portfolio companies to help them cope with the spill over of the global financial crisis into the local market. Against that backdrop, fundraising conditions remained volatile, the Division closing the year with USD 961 million in funds under management (down from USD 1.15 billion at year-end 2008) following redemptions on Horus II, Horus Agri and SNB.

Private equity sold three significant investments over the year (in real estate, oil and gas and foods), with all achieving returns in excess of limited partners' hurdle IRR.

Horus III negotiated two new investments, including a 74% stake in Ridgewood Egypt (a mid-sized water desalination company) and a 75% stake in Omnia Investment Group, a leading transporter, producer and processor of live cattle in Egypt. (Horus Agri was also a party to the Omnia transaction.)

Horus II exited five investments in 2009, realising capital gains in excess of USD 100 million. The distribution that followed saw the total distribution to LPs to date rise to USD 186.4 million, or 1.2x committed capital.

In April 2009, EFG Hermes Private Equity signed a memorandum of understanding for the launch of InfraMed in partnership with sponsors that include leading European and North African public-sector institutions. EFG HermesEFG Hermes' commitment to the fund is capped at EUR 15 million. In addition to sponsoring the Fund, EFG HermesEFG Hermes will manage a portion of InfraMed, with that percentage being dedicated to Egypt. EFG HermesEFG Hermes will establish a local Egyptian fund to co-invest alongside InfraMed in the Egyptian projects.

Private Equity laid the groundwork in 2009 for its new Syria Private Equity Fund, which was announced in the first week of March 2010.

-Ends-

About EFG Hermes
Established in 1984, EFG HermesEFG Hermes is the leading investment bank in the Arab world. The firm specializes in Investment Banking, Asset Management, Private Equity, Securities Brokerage and Research. With listings on both the Egyptian and London stock exchanges, EFG HermesEFG Hermes currently boasts a market capitalization of around USD 2.2 billion.

Through its operations in Egypt, the UAE, the Kingdom of Saudi Arabia, Qatar, Lebanon, Kuwait and Oman, and with 957 employees of 25 nationalities, EFG HermesEFG Hermes serves a considerable and diversified client base from the Middle East and North Africa to Europe, Africa and the United States. Our clients include governments, corporations, financial institutions, high net worth individuals and retail customers.

For further information about EFG HermesEFG Hermes, please visit www.efg-hermes.com.

Note on Forward-Looking Statements

In this press release, EFG-HermesEFG-Hermes may make forward looking statements, including, for example, statements about management's expectations, strategic objectives, growth opportunities and business prospects. These forward-looking statements are not historical facts but instead represent only EFG-HermesEFG-Hermes' belief regarding future events, many of which, by their nature are inherently uncertain and are beyond management's control and include among others, 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. Accordingly, the readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made.

For further information, please contact:
Dina Al-Sonbaty
Corporate Strategy and Investor Relations Executive Director
EFG-HermesEFG-Hermes Holding SAE
dsonbaty@efg-hermes.com
T: 00 20 2 3331 8202

For media inquiries, please contact:
Heba El-Hamzawy
Public Relations Manager
EFG-HermesEFG-Hermes Holding SAE
helhamzawy@efg-hermes.com
T: 00 20 2 3331 8255
F: 00 20 2 3338 3616
M: 00 20 16 550 979

© Press Release 2010