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

Good afternoon, and welcome to GFH Financial Group's results presentation for the full year 2022. My name is Surya Hariharan. And today, I'm joined by our CEO, Hisham Al Rayes [indiscernible] 2022, successfully mitigated the impact of the geopolitical crisis, rising inflation and market volatility by implementing the same robust model that saw the group through the pandemic times. Following a strategy of long-term sustainable growth, GFH was able to consolidate a position by also expanding its global footprint, placing the group in good stead. Our strategy brought together carefully considered opportunistic diversification and the continued pursuit of stable returns for our stakeholders. Today, we are delighted to announce another year of progress and growth delivered by the group during 2022, having navigated the turbulence with utmost optimism. Building on 2021, in which we achieved remarkable growth in profits and income, we continue to demonstrate resilience, diversity and agility during 2022. This was another milestone year for GFH as we continue to grow our investments and our investor and shareholder base off the back of ongoing strong performance and market confidence in the group and our ability to enhance results year after year. Despite a challenging year across global markets, the group continued to diversify its activities and further improve income generation and profits. Amidst the disruption in the market, we at GFH stuck to our strategy during this demanding times and have remained focused on drawing on our core strengths to execute our plans. Let me provide you with key milestones achieved by the group for the year 2022. Net profit attributable to shareholders of USD 90.3 million, up by 7%. Consolidated net profit for the year of USD 97.7 million, an increase of 5.5%, rise in total income for the year by 10.8% to USD 441.7 million, return on equity of 9.1% for 2022. Growth in total assets were 21% to USD 9.8 billion, decrease in operating expenses and impairment provisions by 11% in 2022 to USD 151.3 million and an increase in finance expenses by 41%. Capital adequacy ratio improved to 14.8%. Total assets and assets under management increased by 17% to USD 17.6 billion. Our strength was reflected across verticals, including our investment banking, commercial banking, proprietary investments and treasury business lines. Highlights of the contribution by each of the business lines are as follows: Investment Banking, which is our core business line, contributed 27% of the total income of the group for the year. GFH was successful in placing 6 deals throughout the year, our diverse investment portfolio, which spans the GCC, U.K., Europe and the U.S. continue to perform robustly with our strategy of targeting defensive, recession-proof sectors, once again proving its effectiveness and creating value for investors and shareholders in the face of significant headwinds. In terms of Commercial Banking, we realized solid gains from our commercial banking subsidiary, Khaleeji Commercial Bank, which recorded a net profit of [ BHD ] 14 million for the year. Our stake in Khaleeji Commercial Bank has enhanced our diversity of the results. Khaleeji Commercial Bank performed better than its previous year, and gross income contributed 18% of the total income for the group. Proprietary and co-investments. During quarter 1 of 2022, one of the significant milestone for the group was the launch of Infracorp, which specializes in investing and managing sustainable infrastructure and real estate assets. The landmark transaction reflects Infracorp's strategy to accelerate the growth of sustainable infrastructure development across MENA and South Asia regions while generating long-term returns for investors and adding lasting value to communities. The issuance builds on the group's sustainability roadmap, which aims to position Infracorp as the region's pioneer in sustainability investments. The group continues to benefit from its investment in Infracorp along with its other co-investments. Income from this business line contributed 28% to the total income of the group. This business line has helped us in diversifying our source of income in this challenging market environment by filling up for the change in contribution from other business lines. Treasury portfolio contribution dropped during 2022 compared to 2021 and contributed [indiscernible] 26% of the total income of the group. Income from treasury portfolio would have been higher but was impacted by the mark-to-market losses in the portfolio. We continue to monitor the markets closely and accordingly evaluate our strategy relating to this business line. For the quarter of 2022, the following are the key highlights. Net profit attributable to shareholders of USD 24 million, margin up by 0.6%. Consolidated net profit for the quarter of USD 26.2 million, an increase of 7.8%. Rise in total income for the quarter by 15.3% to USD 147.8 million, increase in operating expenses and impairment provisions in the fourth quarter to USD 67 million, an increase in finance expenses to USD 54.6 million. The group's total assets on 31st December 2022 were USD 9.8 billion compared with USD 8.08 billion as of 31st December 2021, an increase of 21%. Similarly, the group's liabilities grew from USD 6.9 billion as the 2021 year-end to USD 8.7 billion at 2022 year-end. The liabilities raised through money market funds have been deployed in the liquid asset portfolio of the bank. Our total asset and funds under management perspective, we have grown from USD 15 billion at the year-end 2021 to USD 17.6 billion at 2022 year-end. This was due to the organic growth of the new products launched by the bank and inorganic growth through the acquisition of Student Quarters and Big Sky asset managers based out of the United States of America. Total liquidity attributed to shareholders increased to USD 1 billion at 31st December 2022. The primary movement in shareholders' equity was the current year's profitability, changes in treasury shares and changes to fair value of investments. Our performance translates into return on equity of 9.1% and return on assets of 1%. Turning to regulatory ratios, our capital adequacy ratio was at 14.8%, liquidity coverage ratio at 134% and net stable funding ratio at 111%. All our regulatory ratios are above the prescribed thresholds with a stable platform from which -- with a stable platform from which to build, GFH was able to expand into global markets through acquiring new portfolio and majority stakes in several leading asset managers. The acquisitions will help the group to unlock significant value in some of the most promising and resilient sectors in the U.S. and Europe, exposing investors to a raft of opportunities. Globally, while no one is immune to the macro environment, we at GFH are executing our strategy and focused on delivering consistent and attractive returns to shareholders. During 2022, we listed our shares on the Abu Dhabi Stock Exchange, marking GFH's fourth regional listing, in a move that allows us to further broaden our shareholder base and create further liquidity. As our investor base and business continue to grow, we are also focused on finding new ways to enhance efficiency and better meet the needs of our clients. Currently, our focus is in the Gulf market, especially the Kingdom of Saudi Arabia and the UAE due to the steady growth and in light of increased government spending on projects. With the rising interest rate environment, we are also continuously evaluating our deal pipelines and actively pursuing organic and inorganic growth with an eye towards delivering greater value for investors and shareholders. In continuing with our commitment to our shareholders, the Board of Directors have proposed a cash dividend yielding 6% on par, subject to approval of the next AGM. We believe we delivered for our clients and shareholders in challenging market conditions, and we are committed to our strategy to disciplined execution and to creating value for our shareholders. We entered 2023 from a position of strength. We continue to show our strategy performs well across the cycle. It was by no means an easy year, but it was a year of strong execution across our diverse business lines. I would like to thank you for your time this afternoon and open the floor for any questions you may have.

I think we have one question which talks about we would have expected to see more increase in profits due to latest multiple acquisitions. As you can see from our financials, we've had a 11% increase on our top line during the year. We've also been impacted by the rising interest rates during 2022. Hopefully, with the rising interest rate scenario being under control, you should expect to see 2023 to be providing us with a higher numbers and also the multiple acquisitions that we did during the year were towards the second half of the year. So the full year contribution from these acquisitions will be reflected in 2023 [Foreign Language]. All right since we don't have any more questions. Thank you very much for your time this afternoon. Thank you very much.