Management Discussion & Analysis

EFG Hermes delivers a solid set of results driven by a growing contribution from the Non-Bank Financial Institution Platform and expansion at the Investment Bank’s business lines

In 2018, EFG Hermes continued to deliver on its strategic objectives of transforming the Firm from a pure play investment bank into a financial services company.The reshaping of the business in 2018 was executed against a series of strategic objectives, from strengthening current operations to expanding its boundaries beyond the Middle East and North Africa (MENA), growing its non-bank financial institution (NBFI) platform, expanding its public and private assets under management, and establishing merchant banking activities.

EFG Hermes’s flagship Investment Bank Platform enjoyed a highly successful year, with all business lines under its platform reporting solid year-on-year growth rates. The Firm’s Investment Banking arm delivered a record number of deals, its Securities Brokerage business maintained dominant and growing market shares across differ-ent markets, and its buy-side business grew its revenues.

At the NBFI Platform, revenues crossed the EGP 1 billion mark for the first time,providing a powerful impetus to overall top line growth in 2018. Tanmeyah saw strong growth throughout 2018, supported by a more diversified product mix and an expanded portfolio of micro enterprise loans (MEL), driving the wider increase in NBFI revenues. EFG Hermes Leasing saw healthy growth in its portfolio and issued its first securitization bond in 2018, while valU, the Firm’s installment sale service, and EFG Hermes Factoring both started operations during the year.

Broad-based growth at EFG Hermes’ Investment Bank Platform combined with the NBFI Platform’s expanding contribution to yield operating revenues of EGP 4.3 billion in FY18, up19% on their level a year previously. Revenues from core operations, which exclude capital gains, investment exits and non-recurring items, expanded at 32% Y-o-Y during the year.

EFG Hermes ended 2018 with fees and commission revenue of EGP 3.0 billion, an increase of 34% Y-o-Y. Capital Markets and Treasury operations, which represented the remaining 29% of the Group’s total revenues in FY18, saw revenues decline 7% Y-o -Y to EGP1.3 billion. Despite strong revenue growth from merchant banking activities and treasury operations, the comparable year included more gains related to exits and non-recurring gains that weighted down on the Y-o-Y change.

Group operating expenses came in at EGP 2.9 billion in FY18, an increase of 35% Y-o-Y. This was a reflection of the Firm’s growth strategy, which involved headcount, product, and geographical expansions and thus associated costs from higher employee expenses to more operational/startup costs. Despite these outlays, however, the Firm’s employee expenses/operating revenues ratio recorded 42.3% in 2018, below management’s threshold of 50%.

EFG Hermes recorded a net operating profit of EGP 1.4 billion in FY18, down a slight 5% Y-o-Y from the figure recorded in FY17. Excluding gains related to investment, seed capital exits and the non-recurring revenues in both periods, the net operating profit would be up 24% Y-o-Y in FY18, marking a strong operational growth delivered by the business.

Group net profit after tax and minority interest came to EGP 1.0 billion in FY18,down 16% Y-o-Y against a figure of EGP 1.2 billion in FY17, mainly on higher tax provisions taken by Brokerage and Private Equity and higher taxes Y-o-Y, particularly as the NBFIs business continues to grow.

Contribution by Platform

EFG Hermes enjoyed broad-based revenue growth in FY18. The Group’s Non-Bank Financial Institutions Plat-form made great strides in 2018,with Platform revenues surpassing the EGP 1.0 billion mark for the first time and Tanmeyah and Leasing driving growth in the Group’s overall top-line. On the Investment Banking front, EFG Hermes enjoyed growing revenues from all business lines. Revenue from Capital Markets and Treasury Operations contracted slightly during the year.

Non-Bank Financial Institutions generated revenues of EGP 1.1 billion in FY18. At 25% of the Group’s overall top-line, this figure represents NBFI’s largest recorded contribution to Group revenues, up from 16% a year previously. The Y-o-Y doubling of Tanmeyah’s revenues and continued growth at Leasing were the primary drivers of the NBFI Platform’s enhanced contribution. Despite continued start-up losses at some business lines, the Platform’s net profit after tax and minority interest more than doubled Y-o-Y, recording EGP 178 mil-lion in FY18 and accounting for 17% of Group-level profits.

EFG Hermes’ Investment Bank revenues came in at EGP 3.2 billion for FY18, with all lines of business reporting Y-o-Y growth in revenues. The Platform’s contribution to Group-level revenues declined to 75% in FY18 from 84% in FY17, reflecting NBFI’s growing vitality. With fewer one-off and nonrecurring gains realized during the year, Investment Bank net profit after tax and minority interest was down 26% Y-o-Y,recording EGP 846 million for FY18. This represented a contribution of 83% to Group profitability for the year, down from 94% a year earlier. Revenue from Capital Markets and Treasury Operations was down 7% Y-o-Y, recording EGP 1.3 billion.

The Investment Bank

Securities Brokerage

EFG Hermes Securities Brokerage carried out executions worth USD 38.2 billion in FY18, up 15% Y-o-Y. This increase in executions was driven largely by activity in the division’s Frontier markets, where executions more than doubled during the year,in addition to Saudi Arabia and Qatar. EFG Hermes maintained or expanded its market share across a wide range of geographies during 2018, covering 95% of the MSCI Frontier and MSCI Emerging Frontier indices and executing in more than 75 markets across FEMs. The division retained its longstanding first place ranking in Egypt, with its market share standing at 42.9% for 2018. On the Dubai Financial Market EFG Hermes remains the largest broker, with a market share of 21.5%. On the Abu Dhabi Exchange,where the division enjoys a market share of above 50% of foreign inflows,EFG Hermes retained its top spot and garnered an overall market share of 40.2%. EFG Hermes also remains the largest broker operating on the Dubai Nasdaq (62.9%) and ended the year leading the Kuwait Exchange (38.4%). The Firm’s market shares in Saudi Arabia (2.8%), Jordan (12.7%) and Oman (19.0%) left it the fourth largest brokerage on each of these markets. In its new Pakistani and Kenyan markets,EFG Hermes rapidly grew its market shares over FY18.

Despite mixed overall performance among the division’s executable brokerage universe, Securities Brokerage ended the year with revenues of EGP 1.0 billion, an increase of 15% Y-o-Y. Growth in the business line’s revenues was driven by higher commission income from Frontier markets, Saudi Arabia and Qatar, with executions on the latter market carried out by the Firm’s Egyptian operation.

Egyptian equities remained the largest contributor to the commission pool in FY18 at 32%, followed by Frontier markets with a 17% contribution. Meanwhile, Kuwait moved to be the third largest contributor to the commission pool with an 11% contribution in FY18.

Investment Banking

FY18 saw EFG Hermes Investment Banking break the record it set in FY17 for the largest number of transactions closed in a single year, concluding 19 equity, M&A and debt transactions (FY17: 15) with a combined value of USD 2.5 billion. These included eight equity capital market transactions with an aggregate value of USD 1.5 billion; USD 213 million for five M&A transactions; and USD 670 million in seven debt transactions.

On the ECM front, EFG Hermes executed its first Frontier market initial public offering, acting as joint bookrunner on the USD 181 million initial public offering of international microfinance lender ASA International on the London Stock Exchange. The transaction marked the Firm’s first investment banking foray in Frontier markets since its adoption of a Frontier expansion strategy in early 2017. Closer to home, EFG Hermes acted as sole global coordinator and book- runner on the USD 70 million initiation public offering of Cairo Investment and Real Estate (CIRA), the largest integrated provider of educational services in Egypt’s private sector. EFG Hermes garnered significant investor demand for the exceptionally well- structured offering, marking a successful close to the Firm’s first ECM involvement with the education sector. The division also completed the USD 870 million rights issue offering of Orange Egypt. The department’s most noteworthy accomplishment in the GCC in 2018 was its successful conclusion of an accelerated book build on Humansoft Holding’s USD 226 million offering on the Kuwait Exchange, which was closed in record time and deepened the Firm’s exposure to the MENA region’s promising education space.

Activity in the M&A space included advisory on Telecom Egypt’s USD 90 million acquisition of MENA Cables and Suez Cement Group Companies’ USD 16 million sale of its industrial bags manufacturing plant to Mondi Industrial Bags. The division also acted as sell-side advisor on Talaat Moustafa Group’s divestiture of its education platform to a joint venture between EFG Hermes Private Equity and GEMS Education for a total consideration of USD 58 million. Further afield, EFG Hermes advised UAE-based private equity firm Waha Capital’s USD 49 million exit from PHD Diagnostics.

In the debt-raising space, 2018 saw the department successfully raise a syndicated credit facility and an Islamic standby credit facility worth USD 590 million on behalf of its longstanding client ADES. This highly tailored transaction vividly demonstrated EFG Hermes’ client-centric approach to structuring deals.

Investment Banking booked revenues of EGP 364 million in FY18, a Y-o-Y increase of 8%.

Asset Management

EFG Hermes Asset Management closed the year with total public AUM of USD 2.8 billion, down 10% Y-o-Y from USD 3.1 billion at the end of FY17 on the back of poor performance of regional equities. EFG Hermes Egypt Asset Management ended 2018 with EGP 13.0 billion in AUM, up 4.3% Y-o-Y despite the sluggish performance of Egyptian equity markets. Egypt AUM growth was supported by new injections and positive performances by the Fixed Income portfolios and MMFs, which offset the poor performance seen in equity markets.

Meanwhile, EFG Hermes Regional Asset Management, which includes EFG Hermes and FIM’s AUM, declined 12% Y-o-Y to USD 2.1 billion in 2018, a consequence of generally weaker equity markets.

Despite the somewhat unfavorable headwinds punctuating 2018, Asset Management revenues grew rapidly over the year. The division’s top-line came to EGP 409 million in 2018, an increase of 26% Y-o-Y.

Private Equity

EFG Hermes Private Equity made rapid progress towards the divestment of its stakes in its Vortex I and Vortex II Energy platforms. In December 2018, a sale and purchase agreement was entered into with institutional investors advised by J.P.Morgan Asset Management for the full divestment of Vortex Wind, with a complete exit from both portfolios completed in March 2019. As of year-end 2018, the wind portfolio had generated an EBITDA of EUR 150 million, while the solar portfolio had yielded an EBITDA of GBP 34.8 million. Total managed capacity at the Vortex platforms remained at 822 MW. 2018 Annual Report December 2018 saw the Private Equity department secure first close on EFG Hermes’ Egypt Education Fund,drawing commitments of USD 109 million at its offering, well above an initial target of USD 50-100 mil-lion. The oversubscribed capital was raised in just over six months and saw strong interest from a diverse group of international investors, including high-net-worth individuals and institutional investors from Egypt, the GCC and Southeast Asia. The second close is expected to be completed in 2019, with the goal of raising an additional USD 40 million in capital.

The USD 150 million investment fund is part of a USD 300 million education platform built in exclusive partnership with Dubai-based GEMS Education, one of the world’s oldest and largest K-12 private education providers, and is focused on Egypt’s K-12 sector. In May 2018, the platform completed its first investment in Egypt, acquiring four national and British schools in Cairo’s suburbs from Talaat Moustafa Group in a transaction worth EGP 1 billion (USD 58 million). EFG Hermes Private Equity booked revenues of EGP 146 million in FY18,a Y-o-Y increase of 12%.


The Research department significantly expanded its coverage in 2018,accelerating EFG Hermes’ evolution from a research house covering mostly MENA equities into a leading authority on the broader Frontier Emerging Markets universe. From 225 companies at year-end 2017, the Research department’s coverage expanded to 263 companies in 2018. Coverage was distributed across 10 sectors, 36 industries and 24 markets. The year saw EFG Hermes Research initiate coverage of equities in Uganda (2), Mauritius (2), Bangladesh (7), Rwanda (1), Botswana (1) and Georgia (2), boosting its ability to perform cross-market analyses across a broad variety of industries and geographies. Meanwhile, the department deepened its existing coverage of markets such as Egypt (47), UAE (25), Saudi Arabia (63), Kuwait (11), Oman (14), Qatar (10), Lebanon (3), Morocco (4), Jordan (6), Pakistan (27), Kenya 11), Nigeria (11), Vietnam (8), Tanzania (4), the Netherlands (1) and the United Kingdom (3). An expanded depth and breadth of coverage was accompanied by continued development of innovative products designed to lock in or attract MiFid-compliant or institutional clients seeking to concentrate their research expenditure with a sole research provider.

Non-Bank Financial Institutions

EFG Hermes Leasing

EFG Hermes Leasing At the end of its third full year of operations, EFG Hermes Leasing enjoyed a market share of 8%, maintaining its position as one of the five largest companies in the industry by contracts booked. The division booked 184 additional contracts during FY18, an increase of 12% Y-o-Y,taking the total number of contracts to 557. Additional bookings of EGP 1.8 billion in FY18 grew Leasing’s net outstanding portfolio to a value of EGP 2.9 billion at year-end. EFG Hermes Leasing continued to grow the share of its portfolio devoted to SMEs during 2018, a main focus of the division’s efforts to expand and diversify its client base. The division’s client base stood at 165 clients by the end of FY18, up 40% Y-o-Y from the 118 served by the end of FY17, with the SME contribution growing to 15% from 8% over the year.

EFG Hermes Leasing marked a major milestone in November 2018 when it concluded the first issuance of its securitization program. The EGP 313 million bond was backed by 107 con-tracts originating with 47 clients over the period between May 2015 and June 2018. Outstanding receivables on the closing date of the issue had a net present value of approximately 2018 Annual Report 21 EGP 333 million. Leasing’s successful securitization launch will boost its operational flexibility in the quarters and years ahead, leaving it unencumbered to pursue continued rapid growth, improving its leverage ratio and enhancing its market credibility.

Leasing revenues continued to grow rapidly over 2018, taking the division’s contribution to the Firm’s overall top-line into the double digit. EFG Hermes Leasing booked revenues of EGP 436 million in FY18, representing a Y-o-Y increase of 48% from the EGP 295 million recorded in FY17.


EFG Hermes’s microfinance operation Tanmeyah ended FY18 with a total outstanding portfolio of EGP 2.8 billion. This represented a remarkable growth rate of 120% Y-o-Y and was driven by stronger loan growth, a more diversified product offering, and a strong branch roll-out. The number of active borrowers grew 76% Y-o-Y to reach 292,605 at year-end 2018, while applications processed climbed at the same rate to record a total of 355,220 for the year.

Tanmeyah pressed ahead with its agenda of innovative product development in 2018. At a value of EGP 357 million, Tanmeyah’s Light Vehicles product now represents 13% of its total outstanding portfolio, while the end of the year saw the company launch a group lending product that involves transferring monitoring functions to borrowers and a proper alignment of incentives through the implementation joint liability. Tanmeyah’s risk level remains well below local and international standards.

Tanmeyah’s top-line expanded by a rapid 125% Y-o-Y to record EGP 631 million during FY18, up from EGP 280 million in the previous year. Along with Leasing, Tanmeyah’s fast-paced growth drove the NBFI’s enhanced contribution to Group-level revenues in 2018.


EFG Hermes launched valU, a state-of-the art fin-tech solution offering Egyptian consumers payment-on-installment- programs, in January of 2018. In its first full year of operations, valU began to make significant headway in meeting the Group’s objectives of diversifying its revenue stream through innovative financial products and utilizing the potential of Egypt’s large consumer population and smartphone penetration.

Throughout 2018, valU focused on launching promotional campaigns across the Greater Cairo and Alexandria markets. Covering different product categories, valU’s promotions were successful in driving increased engagement with the mobile application by customers and expanding the company’s merchant network.Events such as ‘valU Friday’, held in the final quarter of 2018, stimulated growing engagement, with more than 50% of inactive merchants completing their first transaction during the event. valU continues to expand its sales and sourcing channels, initiating sales through e-commerce channels in addition to traditional retail locations, while partnering with well-established brands in the furniture, consumer electronics and solar panel spaces. The company has also partnered with Fawry Plus and Amalex, which have on-boarded valU customers to facilitate easy signups.

As of year-end 2018, the valU app had acquired 28,566 customers and a network of 206 merchants across the Greater Cairo and Alexandria areas. More than 14,000 transactions were completed using the valU platform and 156 Uber cars delivered during FY18, with the company’s total out- standing portfolio standing at EGP 137.5 million for the year.


In March 2018, EFG Hermes subsidiary EFG Hermes Factoring received a license to offer factoring services in the Egyptian market. The Group allocated an initial EGP 250 million in capital to operate the new venture, which is intended to leverage EFG Hermes’ liquid balance sheet to meet growing demand for factoring services from Egypt’s large corporates and SMEs. Factoring began operations during the final quarter of 2018, booking total revenues of EGP 2 million