Thursday 16, November 2017 by Jessica Combes

EFG Hermes reports 476 per cent Y-o-Y growth to reach EGP 237 million in Q3 2017


Financial services corporation EFG Hermes has reported strong results for Q3 2017 on the back of robust performances from the Group’s three verticals; the investment bank, the non-bank financial institution and merchant banking business.

The Group’s strong performance in the third quarter was driven by its product diversification and geographic expansion strategy, delivering a 184 per cent surge in revenues during Q3 2017 to EGP 834 million. Net profit after tax and minority interest from continued operations increased 476 per cent year-on-year to EGP 237 million in Q3 2017.

“Withstanding the inherent seasonality during the third quarter due to a slow summer season and a number of holidays, our strategy to diversify our product base and expand into newer markets continues to create significant value for our shareholders with another very strong quarter reported by the Firm, in which growth was largely driven by a suite of new initiatives under this strategy,” said EFG Hermes Group Chief Executive Officer, Karim Awad.

The Securities Brokerage division, which led five regional exchanges, reported a revenue of EGP172 million in Q3 2017, a 101 per cent year-on-year increase largely due to higher revenues from the Firm’s traditional markets–namely Egypt & Kuwait–and augmented by contribution from new frontier market operations and continued growth of the newly launched structured products division. 

Awad added, “Parallel to pursuing new ventures and expansion opportunities, our investment banking platform’s sell-side and buy-side businesses delivered outstanding results. Driven by a world-class team, the platform executed a number of high profile advisory mandates, led regional exchanges in our main markets, and capitalised on the new synergies of a key buy-side investment.”

The Investment Banking Division, the top-ranked adviser on Thomson Reuters’ Middle East’s equity capital market rankings, contributed EGP21 million during Q3 2017, a year-on-year increase of 58 per cent owed to closing a number of advisory mandates during the quarter. In aggregate, the Firm’s sell-side business grew 95 per cent year-on-year.

The Firm’s buy-side business, comprised of both the Private Equity and Asset Management divisions, recorded a year-on-year growth of 161 per cent. The Asset Management Division’s reported a revenue of EGP89 million in Q3 2017, a 199 per cent year-on-year increase driven by the Firm’s recently announced investment in Frontier Investment Management Partner Ltd. (FIM) in Q3 2017, which also increased the Division’s AUM base to reach $3.2 billion.  

Similarly, the Firm’s Private Equity Division recorded a year-on-year growth of 95 per cent in revenue during Q3 2017 to contribute EGP33 million; largely attributed to an increase in management fees.

EFG Hermes Finance, the Firm’s NBFI platform continued its stellar growth trajectory, recording a 127 per cent year-on-year growth in Q3 2017, as EFG Hermes Leasing’s revenues increased 178 per cent year-on-year to EGP86 million. Furthermore, Egypt’s leading private sector Microfinance company, Tanmeyah, recorded an 86 per cent year-on-year increase in revenue to reach EGP 72 million. 

Supplemented by capital gains realised from seed capital in funds, merchant banking activities, which the Firm initiated as part of its new strategic direction, reported a revenue of EGP 361 million, to record a strong 357 per cent year-on-year increase in Q3 2017. 

Overall during the third quarter, the merchant banking platform generated EGP 361 million of revenues, representing c. 43 per cent of the total revenues.  The investment bank delivered 38 per cent of total revenues with a contribution of EGP 315 million, while the non-bank financial services platform contributed 19 per cent of total revenues at EGP 158 million.

Despite the challenges associated with costs incurred on the back of expanding the business into new ventures and jurisdictions, management continued to maintain the employee expenses’ ratio to operating revenues well below the 50 per cent mark, at 42 per cent during Q3 2017 compared to 47 per cent recorded a year earlier.

Accordingly, net operating profit grew at a faster pace than revenues recording 263 per cent rise year-on-year, to reach EGP274 million in Q3 2017 and reflecting in a net operating profit margin of 33 per cent in Q3 2017. This filtered into a Group net profit after tax and minority interest from continued operations of EGP 237 million in Q3 2017, up 476 per cent year-on-year.  

“The final months of 2017 will see us make important headway in our strategic goal of expanding our product base, with a major product to be launched under the NBFI platform in the few months ahead,” said Awad. “While pursuing diversification of our products and expanding our presence, EFG Hermes will continue to enhance its traditional lines of business, reinforce its position as the leading financial services corporation in MENA and heighten our execution capabilities across high growth Frontier markets.”

Key Operational Highlights of Q3 2017

Securities Brokerage:
EFG Hermes maintained its leadership position across the region with a first place ranking on the EGX (34.5 per cent), DFM (18.3 per cent), ADX (28.6 per cent), Nasdaq Dubai (48.4 per cent) and Amman (21.2 per cent). Due to coinciding with the summer season, and slower trading days across MENA on the back of religious holidays, regional markets where we operate generally and particularly MENA witnessed a slowdown during Q3 2017. Accordingly, EFG Hermes total execution for MENA and Frontier markets reached $6.4 billion in Q3 2017, down 24 per cent Q-o-Q. Structured products, which the company launched earlier this year, saw a pick-up in Q3 2017, with AuMs reaching $235 million up from $123 million in 2Q17. EFG Hermes Frontier steadily increased its participation in Frontier markets in Q3 2017, where EFG Hermes executed its first trades in Namibia and Mauritius.

Investment Banking:
During Q3 2017, the team was able to close two M&A transactions as well as one GDR listing and one debt refinancing transaction. The department acted as financial advisor on two major acquisitions during the quarter. In Egypt, the team completed the sale of Native Markets – a leading, local F&B platform whose flagship concept, the TBS brand, is the first local premium bakery & pastry producer and retailer in Egypt–to Intro Investments Holding. In the GCC, the team acted as buy-side advisor on Al Futtaim Group’s acquisition of a 38 per cent stake in Cairo Festival City. Moreover, the team also acted as the sole Financial Advisor to Al Futtaim Group in relation to debt refinancing to fund the asset deployment plan for Cairo Festival City. In September, the department acted as the Sole Financial Advisor to Amer Group Holding Company in arranging and setting up a Depositary Receipts programme that is traded on the London Stock Exchange with a focus on enlarging the company’s investor base, improving the share trading liquidity and enhancing the corporate profile.

Asset Management: EFG Hermes Assets under Management increased to $3.2 billion at the end of Q3 2017, up from $1.4 billion at the end of 2Q17. In July, a wholly owned subsidiary of EFG Hermes Holding has entered into definitive agreements to invest $21.5 million in Frontier Investment Management Partners Limited (“FIM”), which added $1.6 billion of Assets under Management (AUM) to the Firm’s regional AUM base, thus reaching $2.6 billion at the end of Q3 2017.

EFG Hermes Egypt Asset Management AuMs reached EGP10.6 billion at the end of Q3 2017, up 8 per cent Q-o-Q. Inflows in equity portfolios and MMFs increased during Q3 2017, adding five per cent Q-o-Q to the AuMs base; meanwhile positive markets performance added another three per cent to total Egypt AuMs.

Private Equity:
Vortex platform’s AUMs and managed capacity at the end of Q3 2017 remained at EUR1.3bn and 822MW, respectively. The platform includes (i) Vortex I, a 49 per cent stake in EDPR France Wind Portfolio (334MW), completed in December 2014 (ii) Vortex II, a 49 per cent stake in EDPR’s Pan European Wind Portfolio (664MW in Spain, Portugal, France and Belgium) completed in June 2016; and (iii) Vortex Solar, a 50 per cent stake in a 365MW UK Solar PV portfolio, completed in May 2017.

On the operational front, the Wind Portfolio (Vortex I & II) generated EBITDA of c. EUR107 million during 9M17 period, in line with budget. Vortex Solar’s performance exceeded budgeted figures for 9M17, with EBITDA reaching EUR34 million (25 per cent above budget) on the back of ongoing revenue optimization activities pursued by the asset management team.

In terms of healthcare investments through the Rx Healthcare Fund (RxHF), The team is actively engaged in closing the Fund’s first investment warehoused by EFG Hermes. The formal announcement of the Fund and launch of the investors’ roadshow will start later in Q4 2017.

The Research department coverage reached 189 companies at the end of Q3 2017, distributed across different markets: Egypt (44), UAE (20), KSA (58), Kuwait (nine), Oman (13), Qatar (10), Lebanon (three), Morocco (three), Jordan (five), United Kingdom (two), Netherlands (one), Vietnam (five) and Pakistan 16). EFG Hermes covered 61 per cent of the MENA’s market capitalisation at the end of Q3 2017. The third quarter also saw the division successfully initiate coverage in a number of key Pakistani sectors including banks, oil and gas, automotive and fertiliser stocks as well as initiate coverage of two Vietnamese equities. The quarter also saw the division launch a state-of-the-art web portal that houses the division’s research and data, financial news and a financial event calendar across its markets of coverage.

EFG Hermes leasing continued to diversify its funding, offering a full-fledged range of facilities that can meet demands of all types/sizes of businesses in different sectors; starting from special structured and subsidised funds for SMEs to large corporate enterprises’ needs for MTLs to cover all types of CAPEX, whether in local or foreign currencies. Furthermore, this will underpin several vendor programmes in renewables, medical and health care, and transportation sectors. EFG Hermes Leasing successfully maintained its fifth place ranking for Q3 2017 and climbed to fourth place in September 2017, with a market share of eight per cent and nine per cent, respectively.

Tanmeyah delivered another quarter of stellar performance, with the number of active borrowers, applications processed and loans issued increasing 13.6 per cent Q-o-Q, 10.8 per cent Q-o-Q and 8.7 per cent Q-o-Q, respectively. This marked improvement was a result of exceeding all sales targets as loan officer productivity continued to improve and seasonal promotions support our outstanding portfolio to surpass the EGP1 billion mark. Moreover, Tanmeyah’s management intervention to raise the ceiling of the initial ticket size limit for new customers, pushed the average initial ticket size to over EGP 10,000. Tanmeyah opened five new branches opened during Q3 2017, with a plan to open an additional 12 branches by the end of FY17 to reach a total of 150 branches; an extra 7 branches to the original 20 branches originally planned for the year. The total number of employees increased by 4.8 per cent Q-o-Q, predominately to serve the new branches opened. Two new functions were added to Tanmeyah’s head office, research and project management, with the objective of supporting business growth and future development.

Features & Analyses

SME Finance A sincere form of flattery?

  When Stevi Lowmass of The Camel Soap Factory discovered her product was being copied and sold, she took a number of steps to… read more