Annual Report 2008 Staying Ahead… TM & © Turner Entertainment Co. (s09) …in a Surreal 2008 EFG-Hermes One region. One investment bank. EFG-Hermes is the leading investment bank in the Arab world and the market leader in securities brokerage, investment banking, asset management, private equity and research. Contents 02 Overview of the Firm 04 Chairperson’s Foreword 06 From the Chief Executives 08 Highlights of 2008 10 Management Discussion and Analysis 13 Executive Committee 14 Lines of Business 24 Maximizing Governance, Minimizing Risk 26 Corporate Social Responsibility 28 Board of Directors 31 Audited Financial Statements TM & © Turner Entertainment Co. (s09) Overview of the Firm Financial History Securities Investment Brokerage Banking Total Revenues (EGP bn) EFG-Hermes Securities With an unrivalled track 08 2.2 Brokerage enjoys market record advising lead- 07 2.6 leadership in five direct and ing private companies, 06 1.2 six indirect markets across governments and listed 05 0.8 the Arab world, making it corporations from of- the region’s largest and fices around the region, 04 0.2 most diverse broker serving EFG-Hermes Investment 0 500 1,000 1,500 2,000 2,500 3,000 more than 600 global and Banking has raised more regional institutions and than USD 12 billion in over 26,000 high net worth equity for its clients Fee & Commission Income (EGP mn) and retail clients. through public offerings, 08 1,620 secondary offerings and 07 1,720 private placements, and 06 899 completed more than USD 19 billion in M&A 05 796 transactions in the past 04 182 decade. 0 500 1,000 1,500 2,000 Net Income (EGP mn) 08 993 TM & © Turner Entertainment Co. (s09) 07 1,403 06 720 05 379 $31 bn 04 60 $430 mn in equity raised and M&A average daily value traded 0 300 600 900 1,200 1,500 1,800 advisory in the last decade Assets Under Management (EGP bn) 08 29.3 07 40.9 Fee & Commission Income by Region 06 14.3 05 9.7 04 4.4 2008 2005 0510 15 20 25 30 35 40 45 50 55 6.2% Brokerage Executions (EGP bn) 57.4% 42.6% 08 614 93.8% 07 240 06 147 05 103 04 14 Egypt Arab world excluding Egypt 0 100 200 300 400 500 600 700 800 2 EFG-Hermes Annual Report 2008 Asset Management With a distinguished track record that dates back 14 years, EFG-Hermes Asset Management manages 26 mutual funds including eq- uity, fixed income, money TM & © Turner Entertainment Co. (s09) market, indexed and capital- guaranteed funds. The EFG-Hermes Egypt Private Equity Research Fund has been named EFG-Hermes Private EFG-Hermes Research is the best performing fund Equity is one of the Arab the top-rated research in the world for three world’s leading private house covering 76 Arab consecutive years by the equity firms with more equities across eight International Herald Trib- than a decade of experi- countries in all key sectors une.* The MENA Oppor- ence investing across a of the regional economy. tunities Fund is the Arab broad industrial footprint. The independent division world’s first multi-asset It has USD 1.15 billion in creates award-winning hedge fund. funds under management bilingual products includ- and a growing interest ing company coverage, *One year ending August 2005, in infrastructure projects strategy notes, economic two years ending August 2006 and an increasing regional analysis and yearbooks, and three years ending April 2007. presence. among others. Where We Were, Where We Are Today Commercial Bank Investment Bank Platform Exposure Securities Investment Asset Private Equity Research Bank Audi Brokerage Banking Management (27.8% stake) Egypt UAE KSA Qatar Kuwait Oman Lebanon Jordan Morocco Bahrain Physical presence December 2005 December 2008 EFG-Hermes Annual Report 2008 3 Chairperson’s Foreword After a year of unprecedented upheaval, where financial underscores EFG-Hermes’ strong commitment to continu- scandals and the collapse of major institutions have domi- ing to enforce and upgrade internal audit systems that will nated the headlines in the international, regional and local provide maximum protection to our shareholders, be they press, it is now clearer than ever that good corporate gov- the top 50 institutional shareholders who hold 79% of the ernance is not an option, but a fundamental component of firm’s equity or retail investors who have given their trust any business that plans to create value for shareholders in by investing a substantial portion of their net worth in our the long term. stock. This concept has long been high in the minds of both the The majority of my colleagues on the Board are also non- Executive Management and the Board of Directors of EFG- executives with long and outstanding track records in the Hermes. The decision to begin implementing the Egyptian financial and banking sectors — another basic guarantee Capital Market Authority’s corporate governance guidelines, that Executive Management is scrupulously kept account- even though they have not yet become mandatory, was able. Furthermore, by ensuring that key executives and staff taken early on. In that respect, the firm is a true pioneer in are also shareholders in the firm through the management applying international best practices in the area of corpo- incentive scheme, EFG-Hermes ensures a close alignment rate governance. of interests between management and its shareholders. My appointment in the spring of 2008 as EFG-Hermes’ first Corporate social responsibility (CSR), which is very close to external Non-Executive Chair and as Chair of the Audit and my heart, is also a priority for EFG-Hermes. As Chairperson Risk Committee was a significant step forward. The decision of the EFG-Hermes Foundation since 2007, I have spent a to appoint an active external, Non-Executive Chair speaks considerable amount of time providing guidance and sup- to confidence — confidence in the soundness of the firm’s port for the firm’s CSR programs. business model and its principles as well as the integrity of its controls, policies and procedures. The familiarity that I have developed with the firm and its executives as Chairperson of the Audit and Risk Committee Moreover, the decision to expand the mandate of the and the Foundation, combined with my background at the Audit Committee to cover risk, in addition to its traditional helm of a leading Arab corporate law firm, have enabled me mandate of audit and compliance, reflects a clear determi- to effectively carry out my duties as Non-Executive Chair nation to maximize the role and importance of independ- during a particularly difficult year. ent and neutral key mechanisms of internal control. It also 4 EFG-Hermes Annual Report 2008 It is now clearer than ever that good corporate governance is a fundamental component of any business that plans to create value for shareholders in the long term. Management’s proactive approach to the global financial crisis has helped us remain on solid ground despite chal- lenging conditions. In the second half of 2008, the team quickly and aggressively responded to the global financial crisis, including the sharp decline in regional stock mar- kets. By promptly downsizing the margin lending business, exiting proprietary trading strategies, restructuring depart- ments, closely scrutinizing operating expenditures and accepting substantial pay cuts, Management brought down costs across the board and contained risk wherever possible. The Board of Directors is extremely pleased with the prompt actions taken by Executive Management to ad- dress the risks to the business and mitigate the effect of the crisis. Both Executive Management and employees have shown diligence and prudence while working as a team to address the crisis, its inherent risks and its adverse impact on the business. They have done a remarkably good job given the circumstances, as is evident from our 2008 financial results. EFG-Hermes is the only Arab investment bank with an on- the-ground presence in every major regional market, offer- ing the firm a considerable degree of breadth and diversity. We will continue to focus on the region we know best and on our core lines of business. As the crisis continues into 2009, we will maintain the same cautious approach that we adopted last year. We are confident that EFG-Hermes remains on solid ground. We Entertainment Co. Turner TM & © (s09) EFG-Hermes Annual Report 2008 5 From the Chief Executives Dear Shareholders, by 2011. If we add the contributions of treasury opera- tions and Bank Audi to revenues, more than 65% of our The year just ended was full of turmoil and uncertainty, top line is already generated outside of our home market. a year in which we saw conditions across the Arab world turn from sailing seas into gale force conditions shock- Third, we have maintained a capital-light core business. ingly fast. With that in mind, we are delighted to report Unlike most of the global and regional investment banks, that months of sailing in these rough waters has proven we do not have any meaningful proprietary trading activi- not just the integrity and responsiveness of our systems, ties. All of our fee income is derived from being an agent but the fundamental soundness of our business model. as we do not have a trading desk. Our capital committed to the fee business remains confined to our fixed assets As global and regional competitors falter, we stand firm and a modest commitment of seed capital invested in the today because of steps we have taken in the last few years funds we manage. At the start of 2008, we had less than to reposition the firm.