EFG Hermes for financial services released, on Tuesday, its financial results for the second quarter (Q2) of 2020.
The company reported profit after tax and minority interests (PATMI) of EGP 328m in Q2 of 2020, and revenues of EGP 1.3bn, an 8% and 26% year-on-year (y-o-y) increase, respectively.
In a press statement, the company reported that its top-line performance was primarily driven by revenue growth at the group’s investment bank arm. It recorded revenues of EGP 1.0bn in Q2 of 2020, up 40% y-o-y.
EFG Hermes benefited from the recovery of regional capital markets and the subsequent revaluation of seed capital and investments, after it was strongly hit in Q1 of 2020.
Revenues for the first half (H1) of 2020, reported at EGP 2.3bn for the period, were largely unchanged. The company’s management notes that these figures are a more indicative assessment of the group’s operational performance.
The group has shown resilience during Q2 of 2020, as it continued to navigate a challenging external environment due to the novel coronavirus (COVID-19) pandemic, EFG Hermes Holding Group CEO, Karim Awad, said.
He added, “With a diverse geographical presence and a full array of services, the Group is able to navigate a challenging external environment with great success, with securities brokerage having solid and growing market shares in the majority of markets in which we operate. We maintained our position as Middle East and North Africa’s (MENA) top [equity capital markets] ECM adviser, all while ramping up our [non-bank financial institution] NBFI offering.”
Awad also said that the merger of EFG Hermes’ Egypt-focused factoring and leasing companies, under the EFG Hermes Corporate Solutions umbrella, will allow the company to grow at scale. This will also ensure minimal investment in new hires, whilst allowing the company to take advantage of a larger capital base.
“Cross-selling will also enhance the attractiveness of our offering to clients. Meanwhile, the team at valU, our fintech platform, focuses on establishing stronger relationships with e-commerce players to stimulate activity for the business,” Awad added.
A strong performance from the Group’s capital markets and treasury operations during Q2 of 2020 helped offset pressure on the Investment Bank’s performance during the period. Despite lower interest from treasury operations, foreign exchange (FX) gains and a recovery in regional capital markets drove a 142% y-o-y increase in revenues to EGP 653m in Q2 of 2020. The regional capital markets recovery was reflected in the revaluation of seed capital/investment. For the first six months of the year, EFG Hermes’ top line increased by 64% y-o-y to EGP 921m.
EFG Hermes’ sell-side revenues declined 20% y-o-y to EGP 292m in Q2 of 2020, primarily due to the 21% y-o-y contraction in brokerage revenues for the quarter. This came on the back of a drop in daily traded values across the majority of markets EFG Hermes serves. In parallel, Investment Banking revenues declined 13% y-o-y to EGP 58m, on the back of lower advisory fees.
Buy-side revenues were down 15% y-o-y to EGP 93m in Q2 of 2020, due to lower Asset Management revenues. The division lost 22% y-o-y, with revenues reported at EGP 65m, on the back of lower management and incentive fees booked by EFG Hermes’ regional asset manager, FIM. Meanwhile, Private Equity revenues stood at EGP 28m, marking a 6% y-o-y rise in the division’s top line.
At the group’s NBFI platform, revenues declined just 7% y-o-y to EGP 299m in Q2 of 2020, despite a 17% y-o-y contraction revenues at Tanmeyah, as the platform’s other lines of business posted y-o-y growth.
Tanmeyah’s revenues stood at EGP 229m, due to lower quarterly sales and loans issued versus the same period in 2019. The valU revenues increased by 239% y-o-y to EGP 20m in Q2of 2020, as a result of high interest spreads and solid sales growth. Leasing revenues posted a strong 21% y-o-y expansion to EGP 47m in Q2 of 2020.
Group operating expenses rose 25% y-o-y to EGP 861m in Q2 of 2020, on the back of higher employee and other operating expenses. Employee expenses to revenues stood at 46% in Q2 of 2020, well below the 50% target mark. On a six-month basis, the group’s operating expenses increased 13% y-o-y, due to higher loan loss provisions taken by the NBFI platform in the face of the pandemic. Employee expenses were broadly unchanged at EGP 1.0bn during the period, in line with the relatively flat revenue booked in H1 of 2020.
EFG Hermes’ net profit after tax and minority interest increased 8% y-o-y to EGP 328m in Q2 of 2020. This was supported by the solid bottom line generated by the Investment Bank, which increased 46% y-o-y to EGP 297m.
In H1 of 2020, the group’s net profit after tax and minority interest declined 38% y-o-y to EGP 418m, due to higher loan loss provisions booked by the NBFI platform during the period.
“EFG Hermes is ideally positioned to capture new opportunities when global markets and economic activity picks up,” Awad said, “The cornerstones of our firm remain unchanged: the hundreds of committed, experienced professionals who make up our team and the well-diversified base of revenues.”