Cairo – Masaader News
EFG Hermes, the leading financial services corporation in the Middle East and North Africa, reported today very strong results for the second quarter and first half of 2017 despite slower market activity in the second quarter during the Holy Month of Ramadan and the subsequent feast. according to a press release.
Group net profit after tax and minority interest from continued operations in 2Q17 rose 718% year-on-year to EGP 395 million, while operating revenue climbed 252% in the same period to cross the EGP 1 billion mark.
“Our strategy to diversify our lines of business has started to create significant value for our shareholders as our non-bank financial operations continued their stellar growth trajectory, with revenues from the platform more than doubling year-on-year in the second quarter,” said EFG Hermes Group Chief Executive Officer Karim Awad. “Meanwhile, our frontier markets and structured products businesses began contributing to our brokerage revenues during the second quarter.”
Better utilization of the group’s balance sheet liquidity in merchant banking activities contributed to a record quarter for EFG Hermes’ capital markets and treasury operations, which delivered revenues c. 22x higher in 2Q17 at EGP 372 million compared to the same period last year. Setting aside the capital gain from the sale of Crédit Libanais shares realized in the quarter, revenue from these activities would still increase by 782% Y-o-Y in 2Q17, underpinned by treasury operations and merchant banking activities.
The investment bank business lines also delivered an excellent quarter, with solid growth recorded in the advisory, brokerage and asset management businesses that — together with the growth in NBFI and treasury operations — helped Group revenues cross the EGP 1 billion mark for the quarter. In the process, fee and commission revenues rose 136% Y-o-Y to contribute EGP 639 million to the top line.
On the cost front, employee expenses stood at 39% of operating revenues in 2Q17, once again well below 50% despite higher overseas salaries following the float of the Egyptian pound, inflationary pressure, the hiring of new employees to support the development of new businesses, as well as some one-off expenses.
Accordingly, EFG Hermes reported a net operating profit of EGP 462 million in 2Q17 (up 507% Y-o-Y in 2Q17) and a net operating profit margin of 46%, up from 26% a year earlier.
This filtered into a Group net profit after tax and minority interest from continued operations of EGP 395 million in 2Q17, up 718% Y-o-Y. Moreover, if the non-recurring gain realized from the sale of Credit Libanais shares during the quarter was excluded, the Group’s net profit after tax and minority interest would have risen 252%Y-o-Y in 2Q17 to EGP 170 million.
EFG Hermes continues to divest its remaining stake in Crédit Libanais (CL) following the sale of its majority stake in the bank and its subsequent deconsolidation in the second quarter of last year. In 2Q17, EFG Hermes offloaded an additional 3.65% of CL’s shares, thus leaving the Firm with a 9.46% stake at the end of the period.
Key Operational Highlights of 2Q17
- The Securities Brokerage division ranked first in three markets in 2Q17 including Egypt (43.9% market share), Nasdaq Dubai (56.8%), Abu Dhabi (32.5%) in addition to ranking second in Oman (30.3%), third in Jordan (11.5%) and fourth in both Kuwait (26.1%) and Dubai (15.2%). Moreover, following the Firm’s completion of the acquisition of IFSL, which was rebranded to EFG Hermes Pakistan, EFG Hermes managed to report a market share of 3.4% in 2Q17. The quarter just ended saw Brokerage steadily extend its participation in Frontier markets with the initiation of coverage, new hires and client base growth. The Division also began to execute trades across several new markets including Nigeria, Kenya, Bangladesh, Sri Lanka, Ghana, Rwanda and Uganda. This saw total executions climb 15% Y-o-Y to USD 8.3 billion in 2Q17. Reported revenues, which reflect MENA markets’ executions, new markets, and new products — including the team’s first structured product, launched earlier this year which accumulated USD 123 million in AuM during 2Q17 — came in 122% higher Y-o-Y to EGP 236 million in 2Q17. On a Q-o-Q basis, revenues declined 11% as MENA volumes contracted. Penetrating new markets diversified the Division’s commission pool, with Pakistan now contributing 5%, offshore Frontier markets at 7% and Structured Products contributing an additional 6%.
- Investment Banking ended 1H2017 on top of Thomson Reuters’ equity capital market (ECM) league table for MENA with a 31% market share. During the quarter, the Division successfully closed one initial public offering on the Egyptian Stock Exchange (EGX), one on the London Stock Exchange (LSE), three accelerated book building transactions and one M&A transaction. In May, EFG Hermes became the first MENA-based bank to act as Sole Global Coordinator for an LSE offering as the team closed the USD 280 million IPO for ADES International Holding, in addition to acting as Joint Bookrunner for the transaction. Furthermore, acting as Sole Global Coordinator and Bookrunner, the team successfully closed the IPO of Raya Contact Center on the EGX with a 4.6x oversubscription and a transaction value of c.USD45 million. The team also raised c.USD 120 million for Al Imtiaz Investment in a secondary sale of 10% in HumanSoft, the first accelerated book building process on Boursa Kuwait, and raised c.USD 50 million for Actis’ remaining 7.5% stake in Edita, representing the largest equity offering on the EGX since Domty’s IPO in March 2016. Additionally, the team sold c.USD 36 million of Global Telecom Holding shares in its third accelerated book building transaction. Year-to-date, the Investment Banking division successfully completed eight high-profile transactions with an aggregate value of c.USD 802 million.
- EFG Hermes Asset Management’s assets under management (AuM) stood at USD 1.4 billion at the end of 2Q17, inching up 2% Q-o-Q. EFG Hermes Egypt-based AuM gained 4% Q-o-Q to reach EGP 9.8 billion at the end of 2Q17, with growth being primarily driven by positive market performance, whereas net inflows had a minimal effect. Meanwhile, EFG Hermes Regional-based AuM remained broadly flat Q-o-Q at USD 0.9 billion, where a 6% addition by market performance was offset by regional portfolio redemptions. In July, a wholly owned subsidiary of EFG Hermes Holding entered into definitive agreements to invest USD21.5 million in Frontier Investment Management Partners Limited (“FIM”). FIM will add USD 1.6 billion to the Firm’s Assets under Management (“AUMs”), and will be consolidated into the EFG Hermes regional asset management operations in 3Q17.
- Private Equity assets under management at the end of 2Q17 stood at USD1.6 billion. In May 2017, the division completed the financial close of Vortex Solar’s acquisition, as it acquired (jointly with Tenaga Nasional Berhad), a 100% stake in a 365 MW UK solar PV portfolio. Vortex Solar, Vortex I (49% stake in EDPR France: 330 MW) and Vortex II (49% stake in EDPR’s Pan European Portfolio: 664 MW) saw Vortex’s capacity stand at 822 MW. Today, Vortex stands among the top-ten renewable energy investment managers in Europe. In terms of operational performance in 1H17, EDPR France and EDPR Participaciones generated EBITDA of c.EUR 75 million, broadly in-line with budget. Meanwhile, the Rx Healthcare Fund expects to formally announce and start its investor roadshow before the end of 3Q17.
- The Research department’s coverage universe reached 171 companies across the region as of the end of 2Q17, with the division now covering 62% of regional market capitalization. The second quarter of the year was an eventful one for the research team, with the division successfully expanding its coverage to Frontier markets, and ranking first in Institutional Investor’s 2017 MENA survey. Meanwhile, the division also maintained its second-place ranking on the MENA Extel survey, with the majority of its analyst making the top-30 list and three analysts in the top-ten.
- EFG Hermes Leasing ranked sixth with a market share of 8% in 2Q17. In the first six months of 2017, Leasing’s market share reached 9%, giving it a fifth-place ranking. Despite the challenging macro environment — characterized by higher inflation and slower business — EFG Hermes Leasing managed to almost double its NFAs (Net Financed Assets) to reach EGP820 million in 1H17, and grow its client base by 56% over 1H17; thus taking its outstanding portfolio to EGP1.8 billion at the end of 1H17, up 64% as compared to year end 2016. Moreover, following EFG Hermes Leasing’s venture into the renewable energy sector through financing program with KarmSolar, new vendor programs in the medical, healthcare and transportation sectors are expected to launch during the second half of 2017.
- Tanmeyah Micro Enterprise Services continued to turn in solid results with KPI growth across the board, including growth in active borrowers (+13% Q-o-Q), applications processed (+13% Q-o-Q) and loans issued (+17% Q-o-Q). Improved performance came thanks to higher loan officer productivity, as well as an increase in average ticket size following management’s intervention to raise ceilings on the initial ticket size. Operationally, the company opened 10 new branches during 2Q17 (versus a target of 9 branches), taking the total number of branches to 133 branch. This together with the rollout of new functions and roles to support growth saw the number of employees increase 1% Q-o-Q to 1,967.
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