EFG-Hermes Swing to Normalized 4Q2013 Profit

EFG Hermes (HRHO.CA) reported today its financial results for the fourth quarter and full year 2013.

The firm closed 4Q2013 with a normalized net profit after tax and before minority interest of EGP 96 million on operating revenues of EGP 637 million. On a full-year basis, the Group reports a 102% rise in normalized net profit after tax and before minority interest to EGP 427 million on revenues of EGP 2,165 million.

The balance sheet clean-up resulted in EGP 715 million in non-cash, one-time charges below the net operating profit level. Including these charges and other one-off operating expenses, EFG Hermes Holding reports a statutory net loss after tax and before minority interest of EGP 335 million.

Notably, both the Investment Bank and the Commercial Bank were profitable at the operating level in both 4Q and FY2013. The Investment Bank posted a net operating profit of EGP 18 million in 4Q2013 (against a net operating loss of EGP 60 million in the same period last year) and of EGP 30 million on a full-year basis (versus a net operating loss of EGP 23 million in FY2012). The Commercial Bank, meanwhile, reported a net operating profit of USD 53.0 million in 4Q2013 (up 14% year on year) and of USD 191.3 million on a full-year basis (up 4% year on year).

The firm’s management is optimistic that the year just-ended represents a turning point in the development of EFG Hermes post the Arab Spring. Notably, the Investment Bank turned net-operating-profit positive in both the fourth quarter and on a full-year basis. Meanwhile, the combined impact of both the firm’s sharp emphasis on cost optimization and the second phase of its balance-sheet clean-up sees it entering 2014 with both a clean balance sheet and a lean P&L that should see it close FY14 with an opex base in line with our previously communicated target.

EFG Hermes turned in an outstanding operational performance across all lines of business in 2013 extending its leadership.

Key Operational Highlights

• Securities Brokerage remained the number-one ranked broker by market share of executions on the Egyptian Exchange (EGX) and maintained a leading position in other regional markets. Brokerage operations closed the year on a strong footing, with total executions rising 11% Q-o-Q to USD 7.1 billion in 4Q2013 and reaching USD 27.2 billion in FY2013, higher 46% than a year earlier.

• EFG Hermes Investment Banking closed five transactions in 2013, including the landmark EGP 600 million right issue for Palm Hills Developments in Egypt, which saw the launch for the first time in Egypt of tradable rights on the EGX. Also in 2013, the Division advised Wadi Degla for Investments on a USD 43 million private placement and Japan Tobacco International on an Egyptian acquisition. The team also counselled Dubai Group on the USD 164 million sale of Dubai First to First Gulf Bank and executed the technical listing of the Bank of London and the Middle East (BLME) on the Nasdaq Dubai. The division continues to build a strong regional pipeline of deals for execution in 2014.

• Assets under management (AUM) grew 3% at EFG Hermes Asset Management, largely on the back of a 6% appreciation in market effect. Equity funds / portfolios, both in Egypt and regionally, performed well in 4Q2013.

• AUM at EFG Hermes Private Equity stood at USD 0.7 billion. The team is negotiating a number of exits that would potentially provide solid returns to investors as well as significantly contribute to the firm’s profitability.

• The region’s award-winning Research house closed 2013 once again ranked number one overall in the Euromoney Research Poll. The Division covers 120 equities representing c. 58% of the aggregate regional market capitalization, with further coverage of 11 economies from a macro perspective and eight in terms of regular strategy notes.

• Net income after tax at Crédit Libanais, the firm’s Commercial Banking arm, rose 71% year-on-year in 4Q2013 to USD 16.8 million, resulting in an after-tax return on average equity of 12.1%. Despite a very challenging business environment due to regional developments, Crédit Libanais continues to deliver stable results while further strengthening its capital base and streamlining its liquidity profile.