EFG-Hermes releases full-year 2008 results

Fee and commission income declined only by 5.8%, reflecting EFG-Hermes' strong positioning vis-à-vis its regional competitors.

For the fiscal year ending December 31, 2008, the firm reported consolidated net revenues of EGP2.2bn, down 15.3% compared with 2007.

"While the most serious global financial crisis has succeeded in quashing the theory that emerging markets had been 'decoupled' from global economies, EFG-Hermes' game plan remains unchanged, say senior company executives," said Yasser El-Mallawany, the firm's Chief Executive Officer.

"Amid challenging market conditions, EFG-Hermes continued to deliver profitability, albeit at lower levels as volumes declined, redemptions increased and investor sentiment was less conducive to the launch of new funds and the closing of investment banking deals," said El-Mallawany. "Still, we are convinced we have the right business model, the right country focus and the right strategy to solidify the Group's positioning in anticipation of the markets improving."

In its FY 2008 results, the firm stated that it is unrealistic to assume that the firm will not continue to be affected by the regional downturn in the coming months. Region-wide, valuations were down 52% in 4Q08 versus the same quarter last year and volumes were off 50%, making it difficult to complete equity capital market transactions. The firm will, in the meantime, focus on increasing the efficiency of its investment banking operations, upgrading its infrastructure and solidifying its market position.

"EFG-Hermes has an unrivaled balance sheet with some $3bn in cash and cash equivalents on hand," said EFG-Hermes CEO Hassan Heikal, noting that the firm has completed what he described as a 'deliberate and focused' reduction of balance-sheet-intensive businesses. Included here were resizing of the margin-lending business and limits on delivery-versus-payment transactions as well as the exit of proprietary trading strategies and the closure of the principal trading account.

"The firm has also taken measures — including redundancies, salary cuts, and the relocation of some operations to Egypt — to reduce its overall cost base by tackling both operating and non-operating expenses," he added.

"These measures, together with our balance sheet, unparalleled regional footprint and strict self-regulation and adherence to best practices leave us well positioned to consolidate our market leadership in the year ahead. We will be in an even stronger position when regional markets begin their recovery," Heikal concluded.

Full-Year 2008 Operational Highlights and Business Segment Review

Group

- Total revenues declined during 2008 to EGP2.2bn down from EGP2.6bn during 2007 predominantly booked through the operations of the Investment Bank; a 15.3% decline compared to declines in equity values in the markets where EFG- Hermes operates in excess of 50%;

- Total revenues booked from the Investment Bank declined 26.6% to EGP1.65bn in 2008, down from EGP2.25bn in 2007. Fee and commission income declined only 5.8%, reflecting EFG-Hermes' stronger positioning vis-à-vis its regional competitors.

- Principal and proprietary trading accounts started in the latter part of 2007 were wound down by year-end 2008, having booked a net gain of EGP147m since inception. Management completed the liquidation of the accounts in October 2008. The accounts lost EGP84m in 2008 on the back of losses in 3Q08 and 4Q08 as they were wound down.

- Regional operations accounted for 42.1% of total fee and commission income in 2008, up from 34.8% in 2007.

- EFG-Hermes' shareholding structure remains dominated by institutional shareholders. The top 50 shareholders own 78.5% of the firm's equity and include 33 Western institutions.

Brokerage

- The firm's brokerage arm remained the clear regional leader in 2008. The Brokerage Division's operations in Egypt and the United Arab Emirates (on the DFM and ADSM) maintained their number-one positions. The Division's operation in the Kingdom of Saudi Arabia continues to be the number-one independent (non-bank) broker in the Kingdom by market share, a position it assumed in June 2008.

- The division is integrating newly acquired Vision Securities (ranked number two in Oman as of September 2008) and Gulf Brokerage House (renamed EFG-Hermes IFA, number 2 in Kuwait as of September 2008) into the platform, imposing the same strict internal policies, procedures and compliance measures that have minimized losses due to client bankruptcies and delayed settlements across the group's footprint.

- EFG-Hermes IFA vaulted into first place in Kuwait in February 2009.

- In 2008, EFG-Hermes Securities Brokerage accounted for 43% of total executions in Egypt, 19.1% on Dubai's DFM, 17.6% on Abu Dhabi's ADSM, 18.4% in Oman, 25.4% in Kuwait and 1.1% in Saudi Arabia.

- In 2008, the firm opened three new branches in Cairo to provide customer service to retail clients.

Research

- The division covers the widest range of equities in the MENA region, with a total of 76 stocks under active coverage as of the end of 2008 and up to 88 as of end of February 2009, up from 60 at the end of 2007.

- Extensive company, economic and strategy coverage of Egypt, the UAE, Saudi Arabia, Qatar, Kuwait, Lebanon, Morocco and Oman continue to position EFG-Hermes Research as the leading franchise in the region. Expanding coverage of stocks to maintain EFG-Hermes' regional leadership remains at the heart of the division's strategy.

- All research published in Saudi Arabia is distributed simultaneously in both English and Arabic, a key differentiating factor for the firm.
- In 2008, the Research Division again topped Euromoney magazine's research poll, ranking as the best MENA research house for the second year in a row.

Investment Banking

- The investment banking team closed eight transactions in 2008, raising $862m for its clients and closing M&A deals worth $720m. This compares with 13 transactions worth $6bn in 2007.

- For the first time in the region, Investment Banking simultaneously closed two large IPOs with the side-by-side offerings of Maridive Oil Services ($273m, 30 times oversubscribed) and Palm Hills ($343m, 17 times oversubscribed).

- In 3Q08, the firm completed the first transaction on the Nilex as it helped the Tarek Nour Group, Egypt's largest advertising and media agency, sell a 49% stake to DDB for $70m. The importance of the transaction is that it was the first listing on the Nilex.

- In Dubai, the firm led the $141m private placement of Gulf Housing Solutions.

Asset Management

- Assets under management declined to $4.2bn by the end of 2008, including listed equities and money market funds. At year's end, the Group had total assets under management (AuM) of $5.35bn when private equity is included; 84.5% of the decline in AuMs in listed equities since the end of 2007 was the result of market conditions.

- Asset Management did not realize incentive fees in 4Q08, traditionally the quarter in which a sizeable portion of incentive fees are booked.

- Incentive fees booked for 2008 stood at EGP218.1m, down from EGP379.1m in 2007.

- Despite a very challenging year, EFG-Hermes-managed funds continued to outperform their peers in Egypt and regionally.

Private Equity

- In 2008, EFG-Hermes Private Equity began its transformation into a regional player. New leadership was recruited and a physical presence in Dubai established.

- Funds under management increased marginally from $890m at year-end 2007 to $1.15bn as of year-end 2008.

- Horus III completed its first GCC investment in 3Q08.

- Private Equity has launched its first transaction-based initiative (Sahara North Baharia oil and gas field), closed Technology Development Fund II and had an initial closing on the Horus Tourism Investment Company.