Over the past few years, EFG Hermes has laid strong foundations for a business model that is not only designed to withstand the ongoing volatility of capital markets but, perhaps more importantly, that can promote cross selling to its clients. Today we boast a footprint that expands well beyond the Arab world with a much wider product range on the IB and NBFI fronts that can better cater to the needs of our retail, high net worth, institutional and corporate clients.
While our expectations going into 2019 was that it was going to be a turnaround year for capital markets, the Firm still faced many of the same headwinds as in years prior. However, despite a challenging macroeconomic and geopolitical backdrop, I am proud to say that EFG Hermes continued to grow across all three of its verticals, from our investment bank, to our non-bank finance services and even our merchant banking business — all guided by a lasersharp focus on our six strategic pillars (the “ Six Ps”). At EFG Hermes we believe that the Six Ps are, and will continue to be, the guiding principles that unite the goals of every division and that ensure we remain on course to deliver on the strategy we set for the business several years ago.
Attracting the best the industry has to offer is essential for the sustainability of the Firm’s business model and its future growth. Retaining the best talent, by way of providing them with an environment that helps them learn, grow and thrive — all while delivering results — is something we hold in the highest regard. We continue to funnel investment into improving the development programs we offer our employees as one way to achieve those goals. This year, the
HR department launched the DNA program to help identify employee training needs. In turn, this has allowed various departments to tailor training courses to best suit the individual needs of all employees to ensure everyone has an opportunity to refine their job-specific skills. At the same time, the EFG Hermes Academy continued to provide a superior learning experience for our middle and senior level management. In the coming period, we will work to launch financial training programs for our analysts and associates to ensure the next generation of talent is equipped with the relevant knowledge to support the Firm as we work to deliver on our growth strategy.
All of EFG Hermes’ divisions worked tirelessly to improve the Firm’s positioning in the markets in which we operate. Our Brokerage business has maintained its number one positioning in most of the Firm’s traditional markets while building our market share in some of the markets we’ve recently entered. Especially important to note is the great progress that the Firm has made in Saudi Arabia, where our brokerage market share currently exceeds 5% and where our Investment Banking division has executed two IPOs and one M&A transaction during the year. With one of those IPOs being that of Aramco — the biggest public offering in history — the division ended the year 29th on the global ECM league tables, bookending a very strong year for the team as it closed 22 transactions on the ECM, M&A and DCM spaces. The positions enjoyed by both Brokerage and the Investment Banking division couldn’t have been achieved without the support they receive from EFG Hermes’ top-ranked Research team, which boosted its coverage in 2019 to 287 stocks and 27 economies — giving the Firm a clear advantage over its competitors in a MiFID II world. Finally, the Firm’s structured products desk is carving out a niche for the business in the region, with 2019 seeing it diversify its product base to better cater to our clients’ unique needs. On the buy side, our Private Equity division exited its investment in the wind farm business in Europe at superior returns for EFG Hermes and its LPs. Furthermore, it completed the second close of its education fund and an investment in United Pharma that will act as the foundation for a healthcare platform in Egypt. While our public equities business has had a tough year with redemptions on the regional front, our Egypt Asset Management business has continued to grow its AUM base. Both businesses delivered outstanding alphas for their respective clients, giving the Firm confidence that 2020 will see more clients subscribing to its products. Finally, the NBFI business had another strong year with Tanmeyah consolidating its position as Egypt’s largest micro finance player and valU continuing to make massive inroads in building the country’s most innovative consumer finance business. In addition, our factoring and leasing businesses are finalizing a merger that will create a one-of-a-kind corporate finance solution unit that should massively improve our positioning in the coming years.
In 2019, EFG Hermes had another active year of geographical expansions as it seeks to establish presence in markets where the Firm can create a competitive edge that helps it better serve its clients, especially on the sell side of the business. Accordingly, an on the ground presence in Nigeria was established at the beginning of the year to act as a West Africa hub and complement our East Africa base in Kenya Further Asian expansions were added with Vietnam and Bangladesh. Today, the Firm’s network (through on the ground presence and third-party agreements) currently allows us to execute trades for our clients in more than 75 countries, which is again advantageous for our business, especially when it comes to European institutional clients. Our Investment Banking division is also seeing more traction in terms of M&A and IPO mandates coming out of these newly entered markets, strengthening our belief in the solid grounds upon which our geographical expansion strategy was built on and its trajectory for the future.
2019 saw us make inroads in our product development pillar, seeing us add a fixed income desk and securitization practice to our DCM activities on the Investment Banking front. The United Pharma acquisition provided our clients with a new product on the Private Equity side while our affiliate FIM launched both MENA focused sukuk and conventional fixed income funds to further diversify its product offerings. On the NBFI front, Bedaya, our mortgage affiliate, is expected to launch in early 2020 and with the Firm having recently signed the necessary definitive acquisition documentation, we expect to add life insurance to our financial services offerings during the coming year. Our NBFI platform will a key growth driver going forward, which is why plan to shift focus this year on adding more products to bolster our cross-selling capabilities to existing and new clients of the Firm.
Despite strong capital market headwinds, EFG Hermes delivered profitability growth during the year driven by both our geographical and product diversification strategy. This was also supported by the exit from our European wind business, which created a windfall in terms of incentive fees and capital gains in the first quarter of 2019, as well as the superior returns realized from our treasury business. In the coming year, the Firm’s strategy will continue to be driving revenue growth while managing costs to ensure ROE expansion continues into the new decade.
The EFG Hermes Foundation carried out important work in Naga’ El Fawal in Luxor this past year. The foundation opened the first Montessori nursery serving 50 children and creating 30 employment opportunities for trained teachers. The nursery also serves 20 children with special needs and runs on clean solar energy. In parallel, the team is renovating and upgrading 120 houses, providing them with access to clean water and sanitation services. These initiatives are part of the Firm’s ongoing effort to provide residents of Naga’ El Fawal and its surrounding communities with a wide network of social services. On the business side, EFG Hermes continues to provide training to all its business lines on environmental, social and governance issues. In 2019, the Firm submitted its first report as signatories of the United Nations Principles for Responsible Investments, and we are proud to have assembled an investment portfolio that includes initiatives that directly feed into the Sustainable Development Goals in areas ranging from education, health care and clean energy to microfinance and technology. This year, the Firm also strengthened its approach to ESG from a governance perspective by issuing statements on two urgent issues: climate change and human trafficking and modern slavery.
It is difficult to forecast how 2020 will pan out, and in the coming twelve months it is likely that capital markets will continue to test our resolve, but one thing is certain — we enter the year prepared. In the coming months, we will leverage our experience, creativity, and ability to adapt to adverse conditions to drive growth and obtain the desired results across all our strategic pillars. On the geographic expansion front, while we continue to be on the lookout for new markets to enter, 2020 will be a year of consolidation. Across both those markets where we have established a presence during the course of 2019 and those where we have a more established presence, we will look to deepen our position, capturing a greater segment of the market to ultimately become the go-to financial services provider not just across the MENA region but in the wider FEM space. On the product diversification side, our focus will shift towards further developing our NBFI platform to ensure it continues to evolve to meet the changing needs of our client base. All in all, we enter 2020 with renewed confidence and optimism and a collective sense of responsibility in delivering even better results this same time next year.
Group Chief Executive Officer
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