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

Good afternoon, ladies and gentlemen, and thank you for joining us today. On behalf of Al Ramz Capital, I would like to welcome you to the GFH Fourth Quarter 2021 Earnings Call. My name is Anwaar Khaled, financial analyst at Al Ramz, and I'm joined today by the CEO and senior management of GFH. [Operator Instructions] I will now hand over the floor to Mr. Surya to commence the call. Please go ahead.

A very good afternoon, and welcome to GFH Financial Group's Full Year 2021 Results Presentation. My name is Surya Hariharan; and today, we have our CEO, Mr. Hisham Al Rayes, along with our senior management team joining us on the call. GFH continued to report another profitable year, and we are particularly proud of what we have achieved as a group during these trying times. Each of our businesses have given us very good diversification throughout the cycle, and hence, we are in a position to deliver well for the shareholders. We are extremely pleased with the resilience each of the business lines have shown to achieve this progress. GFH has proven its ability to innovate and adapt during these challenging times, and we are drawing on our core strength and strategy to continue to deliver successfully on value to our shareholders. Our results also continue to reflect the strength of our strategy and the quality of the portfolio of assets we have built and expanded over the past year across the globe. In total, during the year, we closed more than USD 1 billion of new investments across the region, international logistics, health care and education sectors, which were met with strong demand from our investors and successfully placed. This allowed us to increase our total assets and asset under management to USD 15 billion for 2021. Let me first provide you with the key milestones achieved by the group for the year 2021. Net profit attributable to shareholders of USD 84.2 million, up by 87%. Consolidated net profit for the year of USD 92.6 million, an increase of 88%. Rise in total income for the year were 23% to USD 398.7 million. Return on equity of circa 9% for 2021 compared to 4.9% in previous year. Growth in total assets by 23% to USD 8.1 billion. Increase in operating expenses by 19% in 2021 to USD 133.5 million. And a margin increase in finance expenses to USD 137 million. Capital adequacy ratio remained stable at 13.5%. Total assets and assets under management increased by 25% to just under USD 15 billion. In terms of contribution, all business groups delivered better results than last year, which was a particularly challenged and subdued environment with the pandemic impacts. Looking at each of the business groups, some of the highlights for the year 2021 were as follows: Investment Banking, GFH was successful in placing 3 deals in the private equity space and 6 deals in the real estate space during the year, generating an income of circa USD 104 million, which is 20% higher than last year. The bank also exited 3 investments during the year and earned performance fee of USD 5 million. The bank's investment in the tech fund also contributed USD 4 million by way of performance fee and revaluation gain. Investment Banking contributed 28% to the total income of the group. The bank continues to have a healthy pipeline of deals to ensure growth in all the silos within the investment banking business line. Commercial Banking. During the year, GFH raised its stake in Khaleeji Commercial Bank, our Commercial Banking business from 54.4% to 81%. This, combined with a better performance from Khaleeji has helped Khaleeji Commercial Bank contribute USD 25 million towards GFH's profitability. GFH gross income -- sorry, Khaleeji's gross income contributed to 18% of the total income of the group. Real estate. Significant completion in the Harbor Row development during the year, along with continuous sale of the units in the project ensured an income of USD 25 million. During the year, one of the subsidiaries of the bank, RSRED continued the handover of the Harbor Heights apartments and recognized income of USD 4.2 million from the same. Real estate contributed 7% to the total income of the group. During the year, the bank has successfully launched Infracorp, a spin-out company, which will be dedicated towards managing and monetizing the primary real estate assets of the bank. This transaction is expected to be completed in early 2022. Treasury. The treasury portfolio of the bank has almost doubled during the year. Compared to the previous year, the contribution from the treasury portfolio has increased by 19% due to the new funds deployed in the portfolio. Income from treasury portfolio would have been higher but was impacted by the performance of global markets during the last quarter of 2021, resulting in mark-to-market losses in the portfolio. Despite this, treasury and other income contributed 40% of the total income of the group. Performance of the group for the fourth quarter of 2021 was also better than previous year comparative period. Some of the key highlights of the performance for the fourth quarter were as follows: net profit attributable to shareholders of USD 23.9 million, up by 9%; consolidated net profit for the quarter of USD 24.3 million, an increase of 28%; rise in total income for the quarter by 17% to USD 128.1 million; increase in operating expenses in fourth quarter to USD 46.9 million; and an increase in finance expenses to USD 33.18 million. Among the main contributors to fourth quarter results were 3 deals closed in investment banking and 3 exits during the same quarter. We are extremely pleased to report that investment banking activities within the group are reaching towards pre-pandemic levels. Also supporting income growth and profits during the fourth quarter with contributions from rest of the business lines. On the group's balance sheet, total equity attributable to shareholders was USD 963 million at 31st December 2021, up by 5.5% from USD 913 million at year-end 2020. Total assets of the group continued to grow, reaching USD 8.08 billion at 31st December 2021, compared with USD 6.59 billion at 31st December 2020, an increase of 22.6%. The growth in total assets is primarily attributable to the increasing investment in the treasury and liquid portfolio. Total liabilities also grew by 31%, which reflects the confidence deposit holders have with the group helping and raising money market funds. The group's capital adequacy ratio has remained stable at 13.5%, with liquidity coverage ratio and net stable funding ratio at above 100%. Despite the ongoing impact of the COVID-19 pandemic around the world, we were able to improve income and strengthen profitability. We entered 2021 with strong momentum and continued to successfully diversify and expand our business throughout the year. Significant progress was made across all of our business lines with each and every area strengthening its contributions. And they not only show resilience, but also reported consistently strong returns. Investing in downturn proof assets has enabled us to continue to generate steady streams of income for the group and our investors despite the pandemic and its impact on global markets. In continuing with our commitment to our shareholders, the Board of Directors have proposed a total dividend of USD 60 million, equivalent to 6.07% yield on the par value of shares split into USD 45 million cash and USD 15 million shares, subject to approval at the next AGM. Early 2022, we set the ground to spin off our real estate and infrastructure assets to a new company Infracorp, which was announced in January 2022 and will specialize in investing and managing sustainable infrastructure and real estate assets. This is an exciting area of opportunity as global economies transition to a more sustainable future and GFH is well positioned to put its expertise, capital and ethos towards investments that positively contribute to the communities and economics where we are active, while simultaneously delivering solid returns for the group and our investors. Heading into 2022, we remain focused on leveraging our strong financial position and pipeline of opportunities to create even greater value for our stakeholders and look forward to contribution and stronger performance and results. I would like to thank you for your time this afternoon and open the floor for any questions you may have.

[Operator Instructions] We have the first question. So good evening, Mr. Hisham and GFH Financial Group. My name is [ Ali Tarif, ] and I would like to start by congratulating all of you on the excellent results of both 4Q '21 and year-end '21. My question is, although the revenue grew, [ TBSF ] expanded and net profit increased, the group still could not improve the total shareholder equity, which has deteriorated by the end of '21 to USD 1.1. Do you have any tangible actions that you are planning to take in the future to rectify the situation? Why the customer current accounts dropped to $133,046 end of year 2021. Income from proprietary and co-investment was lower than the previous year. Why? Note 22 on Page 15 of the financials has increased significantly, any reason? And what are the latest news about moving the group offices to the GFH Tower.

Thank you, Mr. Ali for your compliments, and thank you for attending this call. In terms of the equity, there are a couple of factors which has impacted the shareholders' equity. So despite the profits that we have recorded for the year, there also the foreign currency translation reserve and there is a fair value adjustment, which happens on the treasury portfolio. So certain assets in our treasury portfolio are carried at fair value equity. So any fair value movements are recorded there. These are more timing issues. This is something that will be recouped over a period of the maturity of the treasury portfolio. So this is something that will come back with the equity statement later on. In terms of foreign currency translation reserve, these relate to our legacy asset portfolio, which are planned to be shifted to the new entity Infracorp in the future. So that also should help us in improving our shareholders' equity going forward. In terms of customer current accounts, this is a number that we get from Khaleeji Commercial Bank. So it's something that -- just a consolidation in GFH books. So I wouldn't have more color on that. And in terms of our shifting to the new offices, I think this is under consideration, but we don't have any updates on it so far. Also to add to your question on shareholders' equity, we had the AGM approval to go ahead with an AT1 issuance, which is also something that we can work on going forward. Thank you.

We have 2 questions. Could you comment on your issuance plans? Can you elaborate on the plans to issue around $800 million in perpetual Green Sukuk?

Thank you for your question. The $800 million Sukuk is an issuance that would happen at Infracorp level, not at GFH. So this is a plan that for the new entity to issue $800 million of Green Sukuk. In terms of GFH, as I mentioned before, the only plan that we have got an approval from the AGM is for issuing AT1. We are considering -- thinking about it and the timing for it. We'll let you know.

The next question comes from Fadel Rashed. What is your expectation for 2022 performance?

Thank you, Fadel. As you know, we can't be disclosing any numbers to you in terms of this webcast. But we believe -- the senior management strongly believes we have a growth engine in place. So hopefully, with the markets now being in a recovery phase, we expect that the key metrics should be performing well for us. And [Foreign Language], we should hopefully see some growth coming up in the next year.

Another question from Fadel Rashed. During today's interview with the CEO, Mr. Hisham Al Rayes, he made it clear that the financial impact of the separation of infrastructure projects will appear in the first quarter as profits and as quality of balance sheet. Is there more clarification about this?

Yes, Mr. Fadel, it is expected to have generally a positive impact on the financials in terms of how our financials are structured today. As you know, it is more real estate heavy balance sheet that we have. So given Infracorp transaction that would happen early 2022, we expect the balance sheet to be much more aligned towards our core business functions. It would also help us in terms of concentrating on our core growth engine models that we have in investment banking, treasury, commercial banking and corporate investments. So hopefully, we hope to see this impacting positively on our financial numbers and on our ratios.

We have 2 more questions. So key highlights for 2022? And can you specify the growth aspects of 2022?

Thank you for the question. I think as we answered before, '20, we believe that we have our growth engines in place. And each of our core business lines should contribute towards growth in 2022, subject to market conditions as usual. But I think we have the growth engines in place and the key metrics should see a growth going forward in 2022.

This concludes the Q&A session. I will now give back the floor to the GFH team.

Thank you very much for your time today. I think it's been a wonderful year for GFH. We have come out of the pandemic, and we've been -- given the challenging times, I think we have posted good results for the group. And hopefully, as I mentioned, we believe -- we strongly believe that we have the growth engine to go forward in 2022. Thank you very much for your time.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation.