EFG Hermes reported solid top-line growth for the year 2019 driven by broad-based expansion across the Group’s platforms; strong revenue growth, which expanded faster than the Group’s expenses, supported robust operational profitability and margins expansion as the Group returned to year-on-year bottom-line growth
EFG Hermes continued to deliver on its strategic objective of diversifying the Group’s product offering, reporting revenue growth at each of its business platforms in 2019. The year saw the Group strengthen its brokerage footprint in regional and Frontier markets and make highly successful exits on the private equity front, while the nonbank financial institution (NBFI) Platform continued on its record-breaking upward trajectory.
The Group’s flagship Investment Bank platform generated solid year-on-year revenue growth, driven predominately by rapid expansion at the Securities Brokerage and Private Equity businesses. In 2019, EFG Hermes made significant progress in expanding its market share across markets where the Firm currently operates. These efforts translated into higher brokerage revenues generated in markets like Saudi Arabia, Kuwait, UAE and Frontier Markets, as well as an enhanced contribution from Structured Products. The Firm’s Investment Banking Division enjoyed its most successful year to date in terms of the value and number of transactions executed. On the buy-side, Private Equity revenues shot up on the back of its Vortex Wind portfolio exit in the first quarter of the year. Meanwhile, Asset Management revenues declined during the period, driven by an increase in client redemptions during the second quarter of the year.
Revenues from the NBFIs platform continued to climb at a rapid pace, exceeding the EGP 1 billion mark for FY19. NBFIs operations contribution to the Firm’s overall revenues and profitability grew to reach 26% and 23%, respectively. This is up from the 20% and 18% contributions made to revenue and profitability respectively in FY18. The platform’s growth continued to be driven by Tanmeyah, which reaped the gains of the branch expansion plan that it embarked on over the past three years. valU, now in its second year of operations, more than doubled its top-line in 2019, propelled by rapid growth in its loan book and in the volume of transactions, which climbed 4x as compared to the year prior. EFG Hermes Factoring also enjoyed a highly successful first year of operations. Meanwhile, EFG Hermes Leasing reported a slight contraction in revenues compared to the previous period, due to FY18’s figure including a one-time securitization gain. When excluding the one-off gain, revenues generated by the Group’s Leasing operations would have increased year-on-year.
EFG Hermes reported operating revenues of EGP 4.8 billion in FY19, representing an increase of 20% from the figure recorded for FY18. Growth was powered by double-digit expansions in both the Investment Banking and NBFI platforms. Fees and commissions came in at EGP 3.4 billion in FY19, representing a 23% Y-o-Y increase and making up 71% of EFG Hermes Group revenues for the year. Continued rapid growth in fee and commission income indicates the Group’s continued success at implementing its strategic objectives of deepening exposure to new client pools while efficiently diversifying its platforms’ product offerings. Revenues from Capital Markets and Treasury Operations, which made up the remaining 29% of total Group revenues in FY19, rose 14% Y-o-Y on the back of higher capital gains and interest income.
Group operating expenses recorded EGP 3.0 billion in FY19, up by 17% Y-o-Y. The increase in employee expenses, which represents the bulk of operating expenses, is predominately attributable to Tanmeyah’s rapidly growing headcount and to an increase in variable compensation outlays on the back of EFG Hermes’ positive performance during the period. At 45%, the Group’s ratio of employee expenses to operating revenues remained below management’s threshold of 50% in FY19. Meanwhile, the increase in other operating expenses is largely related to Tanmeyah’s branch expansion and generally higher operating expenses associated with the growth of the Group’s NBFIs platform.
EFG Hermes booked a net operating profit of EGP 1.8 billion for FY19, up by 26% Y-o-Y from the previous year, with an associated margin of 37%. Net profit after tax and minority interest recorded EGP 1.4 billion in FY19, an increase of 36% Y-o-Y from the EGP 1.0 billion booked for FY18.
The Investment Bank
Securities Brokerage
EFG Hermes Securities Brokerage completed USD 55.9 billion in executions for FY19, a Y-o-Y increase of 46%. The division’s growth was driven primarily by stronger executions in Saudi Arabia, followed by Kuwait, Egypt, the UAE, Frontier Markets along with a strong contribution from Structured Products. EFG Hermes grew its market share across most of the Group’s geographies in FY19, particularly in its newer Kenyan and Nigerian markets where EFG Hermes’ ranking increased significantly and saw the Group place amongst the top five brokers in both countries. The division remains the top-ranked brokerage in the Egyptian market, with a share of 47.8% for 2019. EFG Hermes similarly retained its first place ranking on the Dubai Financial Market, ending the year with a market share of 33.5%, up 12.0 percentage points from the share recorded in FY18 as the Group captured nearly half of foreign institutional flows. EFG Hermes remains the largest broker operating on the Dubai Nasdaq (65.9%), the Kuwait Exchange (33.7%), and the Abu Dhabi Exchange where the division captured 38% of foreign flows and a market share of 39.1%. In Saudi Arabia, the Group saw its market share jump from 2.8% in FY18 to 6.1% in FY19, yielding a fifth-place finish among pure brokers and a fourth place ranking among foreign brokers. EFG Hermes closed FY19 as the fourth-largest broker in Oman (18.4%) and the sixth largest in Jordan (8.3%). The Group’s market share in Pakistan continued to grow during the period, while EFG Hermes secured a second place ranking in Kenya (34.5%) and a third place finish in its new market of Nigeria (26.2%).
Securities Brokerage booked revenues of EGP 1.2 billion for FY19, up by 16% Y-o-Y, supported by growing revenues booked by KSA, the UAE markets, Kuwait, Frontier Markets, and Structured Products.
Egyptian equities continued to represent the highest contribution to the Brokerage commission pool, representing 22.2% of the total, with Frontier Markets, including Nigeria, Kenya, Pakistan and other Frontier executions, coming second with a 15.9% contribution.
Investment Banking
EFG Hermes Investment Banking successfully executed 22 equity, M&A and debt transactions in FY19, up from the 19 completed in FY18 and representing an aggregate value of USD 33.6 billion.
On the equity front, EFG Hermes Investment Banking acted as a joint bookrunner on the USD 29.4 billion initial public offering of Saudi Aramco, the world’s largest oil producer, on the Tadawul exchange. The transaction marked the largest initial public offering in history, showcasing the Group’s ability to compete in global equity markets alongside other leading investment banks. Earlier in the year, the team also acted as a joint bookrunner on the USD 749 million initial public offering of the leading Saudi-based mall operator Arabian Centres Company. In October, EFG Hermes acted as a joint bookrunner on the USD 361.7 million initial public offering of UK-based telecommunications company Helios Towers on the London Stock Exchange (LSE), marking the largest such transaction on the LSE during the second half of 2019. In EFG Hermes’ home market of Egypt, the team acted as sole global coordinator and bookrunner on the USD 99 million initial public offering of Fawry for Banking and Payment Technology Services. The transaction marked the first fintech and payment processing IPO on the Egyptian Exchange. The Group efficiently capitalized on opportunities in the global equity market despite difficult circumstances on markets around the world and the postponement of several IPOs due to heightened volatility.
In the M&A space, the team successfully acted as financial advisor to major shareholder Veon, on the acquisition of a 42% stake in Global Telecom Holding through a mandatory tender offer amounting to USD 590 million. In line with EFG Hermes strategy to ramp up its Saudi business, the Group completed its first M&A transaction in the Kingdom advising on the NMC Healthcare acquisition of a 49% stake in National Medical CARE, for a total deal value of USD 316 million, through a joint venture with Hassana Investment Company. Later in the year, EFG Hermes successfully advised Al Ezz Dekheila Steel on its restructuring plans, a mandate which involved the mandatory tender offer (MTO) to acquire 100% of Ezz Rolling Mills for USD 424.0 million. The division also advised on the acquisition of a 56% stake in Ezz Flat Steel worth USD 129.4 million.
In the debt-raising space, EFG Hermes pioneered the introduction of several innovative instruments in Egypt’s debt capital market. The division successfully advised on the short-term securitization issuance for Premium Card, valued at USD 12.0 million and representing the first single tranche (10-month) securitization issuance on the Egyptian market following the ratification of the Short-Term Debt Instrument (STD) decree no. 172 of 2018. EFG Hermes also successfully concluded Egypt’s first short-term bond issuance on behalf of Hermes Securities Brokerage (HSB), a transaction valued at USD 25.0 million. Throughout the year, in line with the Group’s goal to enhance its debt raising capabilities, the division advised on the issuance of a securitization bond for leading real estate player Madninet Nasr for Housing and Development, advised on the issuance of a securitization bond for the Egyptian government’s New Urban Communities Authority (NUCA) for a total value of USD 363 million, and advised on the issuance of a securitization bond for Talaat Mostafa Group amounting to USD 30 million.
Investment Banking registered revenues of EGP 328 million in FY19, down by 10% Y-o-Y.
Asset Management
EFG Hermes Egypt Asset Management saw a strong year with AuMs expanding 25.3% over the course of 2019, standing at EGP 16.3 billion as at year-end 2019 versus EGP 13.0 billion at the close of the previous year. This increase came on the back of strong inflows from money market funds and a number of new portfolios won during the year.
Meanwhile, EFG Hermes Regional Asset Management (Frontier Investment Management “FIM”) saw Regional AuMs decline over the course of the year standing at USD 1.5 billion as of 31 December 2019. However, FIM’s funds/portfolios positive performance for the year added roughly 10% to total AuMs.
The decline in Regional AuMs weighed down on the division’s revenues which fell 29% Y-o-Y to EGP 283 million in FY19.
Private Equity
EFG Hermes Private Equity’s Vortex platform continues to manage Vortex Solar, the sole owner of a 365MW solar PV farm in the UK. Vortex Solar is jointly owned by Beaufort Investments (5%), a 100% owned subsidiary of EFG Hermes Holding, Tenaga Nasional Berhad (50%) and KWAP (45%). Beaufort is the investment and asset manager of the Vortex Energy Platform. At year-end 2019, Vortex Solar’s EBITDA registered GBP 39.1 million, with an EBITDA margin of 84.2%.
EFG Hermes’ education platform, the Egypt Education Fund, completed two investments in the Egyptian market in 2019. Jointly owned with Dubai-based GEMS Education, the Fund has acquired four operational schools in Rehab and Madinaty, kicked off development on an additional school in Al Rehab and acquired a majority stake in a leading transport provider, Option Travel. The latter investment significantly expands the platform’s service offering to the c.6k students enrolled at the Fund’s institutions and will allow the company to provide high-quality student transportation to third parties at competitive rates.
Meanwhile, the year also saw EFG Hermes Private Equity successfully acquire 80% of United Pharma, a pharmaceutical company with operations in Egypt’s medical solutions sector. The transaction successfully closed in November 2019.
The Private Equity team managed to exit its Energy’s wind assets in 1Q19 realizing strong incentive fees, which in turn supported a 133% Y-o-Y expansion in the division’s revenues which came in at EGP 341 million for FY19.
Research
EFG Hermes Research continued to deepen its coverage, enter new markets and introduce new products in 2019. During the year, the team was voted the number one research team in Frontier Markets and number two in the MENA region in the prestigious 2019 Extel survey. These awards are further testament to the quality of the team’s research which gives clients an unmatched ability to compare across multiple sectors, markets, and regions, setting the division apart from the majority of its peers. Active coverage rose from 263 stocks at year-end 2018 to 287 by year-end 2019. Three new markets were added to the department’s coverage universe in 2019, including Ghana, the Democratic Republic of the Congo and Sri Lanka. Coverage was distributed across 10 sectors, 38 industries and 27 markets. Meanwhile, the year saw EFG Hermes initiate coverage of new equities in Bangladesh (4), Ghana (3), Kuwait (3), Pakistan (2), Egypt (2), Saudi Arabia (2), Vietnam (2), Tanzania (1), the UK (1), Uganda (1), Nigeria (1), DPRC (1) and Sri Lanka (1). This expansion leaves EFG Hermes Research with enhanced in-depth coverage of a variety of dynamic markets and growth sectors. As at year-end 2019, the department’s coverage universe encompassed Egypt (47), UAE (24), Saudi Arabia (65), Kuwait (15), Oman (14), Qatar (10), Lebanon (3), Morocco (4), Jordan (6), Pakistan (30), Kenya (10), Nigeria (12), Vietnam (10), Tanzania (5), Uganda (3), Mauritius (2), Bangladesh (11), Rwanda (1), Botswana (1), Netherlands (1), UK (4), Georgia (2), Ghana (3), the DPRC (1) and Sri Lanka (1). The team continued to introduce innovative new research products designed to capture a share of the growing demand for MIFID-compliant coverage.
Non-Bank Financial Institutions
EFG Hermes Leasing
EFG Hermes Leasing recorded a market share of 4.5% for FY19, leaving the Group among the Egyptian industry’s top ten firms by value of contracts booked. EFG Hermes Leasing worked to improve the quality of the division’s portfolio during the year, with average ticket sizes rising compared to the level as at FY18. The division’s net outstanding portfolio booked increased 18% Y-o-Y to reach EGP 3.4 billion at year-end 2019 compared to 2.9 billion one year previously. EFG Hermes Leasing reached 219 clients in 2019, up significantly from the 165 clients served in 2018.
Leasing revenues slipped by 6% Y-o-Y to EGP 157 million in FY19, with the comparable year including a one-off gain related to the division’s securitization transaction completed in November 2018.
Tanmeyah
EFG Hermes microfinance subsidiary Tanmeyah grew its outstanding portfolio to reach EGP 3.2 billion as of 31 December 2019, representing a Y-o-Y increase of 16%. Portfolio growth was driven by rising volumes, with the number of active borrowers climbing 23% Y-o-Y to reach 360,334 against 292,605 in the previous year. Processed applications increased at a similarly rapid rate of 16% to record 412,772 by year-end 2019. The company continued to rapidly grow its branch network in 2019, which reached 271 as of 31 December 2019, with an associated rise in headcount to 4,417 from 3,827 over the year.
In 2019, Tanmeyah continued to roll out its innovative group lending product. Currently focused in the Greater Cairo Area, the program achieved over EGP 61.4 million in sales in FY19. With the product offered solely to women, group lending has enhanced Tanmeyah’s ability to achieve its social outreach goals while further differentiating the company’s service offering.
Tanmeyah’s revenues booked EGP 1.0 billion in FY19, climbing by 66% Y-o-Y from the EGP 631 million recorded one year previously. The continued rapidity of Tanmeyah’s operational expansion has driven the NBFI Platform’s enhanced contribution to EFG Hermes overall top line in 2019.
valU
valU is a state-of-the art fintech solution offering Egyptian consumers payment-on-installment-programs. In its second full year of operations, valU continued to meet the Group’s strategic objectives of diversifying its revenue stream through innovative financial products and utilizing the potential of Egypt’s large consumer population smartphone penetration.
In FY19 valU’s primary objectives were to enlarge the company’s client base, activating new accounts, retaining existing clients and increasing the number of transactions per client. It pursued several means to achieve these objectives, including the introduction of extended tenures of up to 36 months, and new promotional initiatives such as instant cash back promotions during valU Friday. The year also saw valU launch e-commerce and services financing, roll out its first e-Gift card “TOU”, and the kickoff partnerships with SWVL and with one of Egypt’s largest retail groups which led to the addition of several important brands to the valU network. valU also penetrated one of Egypt’s top megastores, HyperOne. In recognition of valU’s success and rapid growth achieved thus far, the platform won two distinguished awards during 2019. The app was recognized as the “Fintech Innovation of the Year” at the prestigious 2019 Seamless Awards in Dubai and also received the “Best Payment Award” at this year’s e-commerce summit.
valU ended its second year of operations with a base of 58,517 customers, up significantly from 21,618 at year-end 2018. The company’s merchant network also continued to expand rapidly, with 485 merchants registered for FY19 against 206 one year previously. More than 55,000 transactions were completed using the valU platform during FY19, up from 14,040 in FY18, with the company’s total outstanding portfolio standing at EGP 362 million against EGP 137 million for the comparable year.
valU closed the year booking revenues of EGP 25 million, up an impressive 111% Y-o-Y in FY19.
Factoring
EFG Hermes subsidiary EFG Hermes Factoring received a license to offer factoring services in the Egyptian market in March 2018 and began operations in the final quarter of that same year. At the end of its first complete year of operations, EFG Hermes Factoring’s outstanding portfolio reached EGP 369 million, with the subsidiary booking total revenues of EGP 9 million in FY19 up from the EGP 3 million recorded in FY18.