GFH Bank B.S.C. (GFH) Earnings Call Transcript & Summary

Good afternoon. I, Surya Hariharan, Head of Financial Control, on behalf of the GFH management, welcome you to GFH Financial Group's financial results presentation for the year 2019. Along with me today on the call is Mr. Hisham Al Rayes, the group CEO of GFH Financial Group; and other senior members of the management team. We are pleased to present to you the group's financial results for the year 2019, which have marked another year of profitability and contributions from across business lines. The highlight of this year's performance has been the cash nature of business income, which is a testament to the strategic direction in which the group is moving. This is also the 20th year of the organization. And we would like to, at the outset, thank all the stakeholders who have continued to support our organization through the different phases. The management has successfully delivered on the goals set out in the beginning of the year, which was to have cash and realized income from all its core business lines. Let me start the session with the key performance highlights from the income statement for the year 2019. Total operating income of the group was USD 335.7 million for the year 2019 compared to $286.2 million, an increase of 17.3%. This increase is primarily driven by the increased contribution from Investment Banking, Treasury and Real Estate business lines. Total operating expenses of the group were $102.4 million for the year ended December 31, 2019, compared to $117.5 million for the comparative year, a decrease of 12.9%. Finance expenses of the group increased from $39.5 million for the year 2018 to $111.3 million for the year 2019. Growing investor confidence led to higher inflows of money market funds during the year, helping us build one of our emerging business line treasury operations. Net profit attributable to shareholders of the bank for the year 2019 was $80.1 million compared to $114.1 million for the year 2018, a decrease of 30%. The decrease in net profits is attributed to lower contribution from the group's Commercial Banking arm due to higher impairment provisions at the commercial bank during the year. Excluding KHCB performance, GFH recorded net profit attributable to shareholders of circa $107 million. Impairment provisions for the group stood at $54.3 million for the year compared to $17.6 million for the year 2018, primarily from the Commercial Banking subsidiary of the group. We believe that with these provisions at Khaleeji level, the bank is poised for better performance in the coming years, contributing positively to the group's net profit. Earnings per share decreased for the year 2019 to $2.37 to -- from $3.22 in line with the earnings. On the balance sheet, the key highlights are as follows. Total assets of the group have increased to $5.9 billion at December 31, 2019, from $4.9 billion at 2018 year-end, primarily on account of increase in liquid assets of the bank. Total liabilities of the group have increased to $3.4 billion from $2.7 billion in 2018 year-end, primarily due to the increase in money market funds raised by the bank. Money market funds raised by the bank at December 31, 2019, is $1.8 billion compared to $1 billion at December 31, 2018. The growing deposit base has resulted in a leverage ratio of -- a net leverage ratio of 0.77x. Equity attributable to shareholders of the bank was $1 billion compared to $1.06 billion at 2018 year-end. Most business lines across the group have delivered strong performances during the year 2019, with further details on the major developments achieved within each business line to follow. Investment Banking contributed 29% to the total income of the Group, mainly from placement activities in the education platform and U.S.-based real estate projects. The group's strategy for its Treasury business line has showed significant improvement, with Treasury contributing to 23% of the total income through investment in Sukuks and other equity products. Solid performance from the proprietary investments held by the bank as the business line generated 12.5% of the total income. Real Estate contributed 12% of the total income, primarily from the sale of development units in Bahrain. Commercial Banking revenues reflected growth compared to the previous year. However, the contributions were low due to the provisions taken on their investments and credit book. GFH results for the year 2019 translate into an annualized return on equity of 7.8%. Considering the financial performance of the group, the Board of Directors have recommended a cash dividend of 5.57% on our value of the shares, amounting to USD 50 million, subject to approval from the shareholders. Our efforts towards realizing our strategy has strengthened market confidence in the group, whose ratings were affirmed by Fitch, who maintained the Group's B rating with a stable outlook; along with S&P Global ratings, who assigned the Group of B long-term issuer credit rating with a stable outlook. We believe that we are well positioned and in the cusp of growth across business lines. We strive to ensure that our strong performance deliver good return for our shareholders consistently. And once again, thank you for the enormous trust imposed by our shareholders over these last 2 decades. I would like to thank you for your time this afternoon and open the floor for any questions you may have.

We have one question, which says, can you provide more information on the provisions at Commercial Banking and if we should see improvement going forward. These were onetime provisions that we had taken, given the nature of the credit book of commercial bank. We hope that -- this is a cleanup exercise that we have done for 2019, and we should not see this happening going forward. So we have 2 more questions here. One is when do you expect to be listed in the Saudi market. We are still working on it. And as soon as we have some developments -- positive developments on this, we will keep the market informed on this. One more question is, was the increase in the Khaleeji Commercial provisions expected, as it seems to be a big increase from 2018. It was increased -- it was expected. And this is something that probably was pushed by the regulator as well as the markets, so something that we had to take during 2019. But as we said, hopefully, this will not recur going forward. All right. Thank you all for joining us today afternoon. If you have any more questions, please feel free to contact our Investor Relations. Thank you very much.