EFG Hermes, reported today a net profit after tax and minority interest of EGP 90 million in 1Q20, on revenues of EGP 965 million, a 24% Y-o-Y decline. Revenue decline reflects the early adoption of IFRS 9 and weaker performance conditions overall, in addition to a drop in investment bank revenues given an exceptionally strong comparable quarter following the Vortex exit.
“EFG Hermes has maintained a strong balance sheet and retained profitability, with business prospects remaining intact amid the covid-19 outbreak, which has shaken financial markets and impacted economic activity across the globe. Our team has managed the business through headwinds before, and our strategy and approach to risk management are battle-tested. Against this backdrop, and knowing that global economic challenges could linger for some time, we have taken a series of prudential and necessary measures to deal with potential unforeseen risks and to grow as the pandemic recedes,” said EFG Hermes Holding’s Group CEO Karim Awad.
Earnings were impacted primarily by management’s adoption of a conservative approach to prepare for unforeseen risks stemming from the covid-19 outbreak. High provision charges taken by the non-bank financial institution (NBFI) arm do not reflect a deterioration in the quality of the book but rather a precautionary approach to better position the Group should economic activity deteriorate in the coming quarters. Meanwhile the early adoption of IFRS 9, while serving to underscore the resilience of the Firm’s financial statements in these challenging times, had a negative impact on our earnings given volatile market conditions.
Revenues at the Firm’s NBFI platform grew 19% Y-o-Y to EGP 362 million in 1Q20, buoyed by Tanmeyah (which saw revenues rise 17% Y-o-Y to EGP 296 million) and an exceptional six-fold increase in revenue at Fintech platform valU. Despite the revenue uptick, the platform reported losses of EGP 22 million mainly as a result of exceptional provisions worth EGP 138 million taken in the face of covid-19.
EFG Hermes’ sell-side revenues declined 29% Y-o-Y to EGP 229 million in 1Q20, mainly as a result of lower revenues from the Securities Brokerage division, down 26% Y-o-Y to EGP 213 million. Investment Banking revenues eased 54% Y-o-Y in the first quarter to EGP 17 million due to lower advisory fees.
“Despite volatility across the markets in which we execute and a deep decline in global equity volumes, we maintained our position as the leading brokerage house in Egypt, Abu Dhabi, Dubai, Nasdaq Dubai, and Kuwait. At the same time, EFG Hermes Investment Banking continued to lead the MENA equity capital markets league tables, successfully closing the IPO of Saudi-based healthcare company Dr. Sulaiman Al Habib Group,” said Awad.
Buy-side revenues lost 70% Y-o-Y to EGP 106 million in 1Q20 as the comparative figure included incentive fees booked by the Private Equity division following exits from Vortex I and II. Private Equity revenues dropped 83% Y-o-Y but included EGP 16 million in incentive fees booked by TDF II from the exit of Vezeeta. Asset Management revenues shrunk 31% Y-o-Y to EGP 61 million in 1Q20 on the back of lower management fees booked by the Firm’s regional asset manager.
Capital market and treasury revenues inched down 8% Y-o-Y to EGP 268 million in 1Q20 despite higher interest income and capital gains on the back of unrealized losses stemming from the transfer of seed capital/investments from investments at fair value through OCI to investments at fair value through profit and loss under IFRS 9.
Group operating expenses came in largely flat for the quarter, inching up a mere 2% Y-o-Y to EGP 827 million as the increase in provisions booked by the NBFI platform were offset by a 27% Y-o-Y drop in employee expenses during the quarter.
EFG Hermes reported a net profit after tax and minority interest of EGP 90 million, down 76% Y-o-Y in 1Q20, with the Investment Bank contributing EGP 113 million to the bottom line over the same period.
“EFG Hermes is very well-positioned to navigate the macro and capital market challenges presented by the pandemic. Our systems are resilient and our revenue streams are well-diversified, as we offer a full-fledged financial service platform ranging from microfinance, leasing, and factoring to consumer finance, mortgages, payments and insurance – in addition to our longstanding investment bank services. But key to our success will be our people, who are seasoned and ready for the challenges to come. EFG Hermes stands where it does today thanks to the unwavering dedication of our people, who are serving clients around the globe despite the fact that nearly 100% of us — across all 13 of our jurisdictions — are working remotely,” Awad concluded.