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 of 2023. My name is Surya Hariharan. And today, I'm joined by our CEO, Mr. Hisham Al Rayes, along with my colleagues on the senior management team on the call. As you all know, the past few years have been a roller coaster ride for global markets with challenges like inflation, rising profit rates and geopolitical tensions making the headlines. But it's during these times that a company's true strength shines through. GFH's diversified and prudent asset allocation strategy helped us to overcome a year full of macro and geopolitical surprises. Today, I'm excited to share with you how we have navigated these challenging times and delivered another year of solid financial performance in 2023. Key milestones achieved by the group for the year 2023 are as follows: net profit attributable to shareholders of USD 102.9 million, up by 14%; consolidated net profit for the year of USD 105.2 million, an increase of 7.7%; a rise in total income for the year by 24% to USD 369.5 million. In line with the expansion, increase in total expenses by 24% in 2023 to USD 243.8 million; increase in impairment provisions during 2023; return on equity of 10% for 2023; growth in total assets by 14%; capital adequacy ratio improved to 21%; and our total assets and assets under management increased by 20% to USD 21 billion. Key highlights for the fourth quarter of 2023 were as follows: net profit attributable to shareholders of USD 24 million; consolidated net profit for the quarter of USD 24.18 million; total income for the quarter of USD 108.2 million; and a marginal increase in operating expenses and impairment provision in the fourth quarter to USD 84 million. The strong double-digit growth in income and enhanced profitability for 2023 was supported by contributions from across the group's business verticals. Highlights of the contribution by each of the business lines were as follows. Investment banking. We saw strong momentum in our investment banking vertical, which remains our core business line. This line contributed about half of the total income of the group for the year, driven by successfully placing eight deals throughout the year. We remain focused on further building our positions in attractive, recession-proof sectors in the local and global markets. It has been an unwavering focus on the group strategy that has allowed us to build our core businesses and expand our investment portfolios in key defensive sectors and geographies, especially in the GCC and U.S. We also had exits from several investments, including the sale of the group's first Diversified U.S. Student Portfolio acquired in 2021, delivering 10.4% ROI to GFH investors. Commercial banking. Commercial banking continues to remain one of our strategic business lines. And this business line has contributed circa 21% of the total revenues of the group. Despite the impact of rising profit rates, Khaleeji Bank continued to report profitability for the year. Treasury and proprietary investments. Our treasury and proprietary investment portfolio contribution was at 24% of the total income for the year 2023. Positive sentiments in the global equities market towards the end of 2023 helped in improving the fair values of our treasury portfolio. The treasury book is being continuously monitored very closely, along with the asset allocation, to ensure continuous contribution from the treasury business line. In terms of the performance of the proprietary investments, the group's investment in Infracorp continues to generate returns, helping in boosting the revenues of the group. 2023 was also a year where GFH was able to partially exit investments like Lost Paradise of Dilmun, which was in line with the bank's strategy to monetize its proprietary investments. Coming to the balance sheet. The group's total asset on 31 December 2023 was at USD 11.1 billion compared with USD 9.76 billion on 31 December 2022, an increase of 14%. Similarly, the group's total liabilities, including equity investment account holders, grew from USD 8.7 billion as of 2022 year-end to USD 10 billion at 2023 year-end. The liabilities raised through money market funds and equity account holders have been deployed in the liquid asset portfolio of the bank. From a total asset and funds under management perspective, we have grown from USD 17.6 billion at year-end 2022 to USD 21 billion at 2023 year-end. This was largely due to organic growth from the new products launched by the bank across its private equity and yielding real estate business lines. Total equity attributable to shareholders remained close to USD 1 billion as at 31st December 2023. Our key ratios. Our performance for the year translates into a return on equity of 10% and return on assets of 1%. Turning to regulatory ratios, our capital adequacy ratio was at 21%, liquidity coverage ratio at 233% and net stable funding ratio at 148%. All our regulatory ratios are comfortably above the prescribed thresholds. Ratings and recognition. During the year, the bank's external ratings by all the rating agencies, Fitch, S&P and Capital Intelligence have been reaffirmed as B. The group's success across its business line garnered international recognition, earning noteworthy distinctions throughout the year. ESG. GFH continued to implement positive initiatives fostering its commitment to ESG-related practices. Proposed dividends. Our diversification strategy isn't just about growth. It's about mitigating risk and volatility by spreading our investments across different asset classes and markets. This has resulted in an attractive portfolio that produces reliable [ benefits ]. This comes as part of our unwavering commitment to deliver consistent returns for our investors and creating value for our shareholders. In continuing with our commitment to our shareholders, the Board of Directors have proposed a cash dividend yielding 6.2% to par, subject to approval at the next AGM. Looking forward, having started the year 2023 with a strong momentum, we are delighted to end the year with growth marked by enhanced profitability and double-digit increase in income. Our agility and ability to deliver growth year-after-year continues to be rewarded. And we are proud of the strong investor and market confidence in the group. Across all we do, we are working to increase our contributions to sustainable growth and development of the sectors and markets in which we invest and for the benefit of all our stakeholders. Having ended the year with positive momentum, we look forward to continuing to achieve greater value for our investors and shareholders in 2024 and beyond. We will continue to prudently grow our portfolio of investments and strategic assets across our key markets of focus in the region and internationally. In conclusion, we would like to extend our attitude to our shareholders, investors, regulators and partners for their continued confidence in GFH. We are also proud of our employees across the group for delivering such a strong performance during 2023 and remain confident in their ability to execute our strategy in 2024. This trust and dedication were key to our success in 2023, setting us up for a promising 2024. 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 here about results of Khaleeji Bank. The primary reason for that is the rise in the profit rates during last year. That has been the primary reason for the results of Khaleeji not being up to the previous year's performance. And there's another question on update on your listing in Saudi. We have engaged with the relevant parties to come into the process for listing in Saudi Arabia. We shall keep you updated as soon as we have more updates on this. We have a question on future projects and concentration -- areas of concentration for 2024. We remain optimistic for the opportunities that we have. We have a very strong deal pipeline for our private equity and yielding real estate business lines, along with treasury portfolio and private credit business lines. So we remain optimistic in terms of the opportunities that we have to offer to our investors. I think there's one more question, which is what is the reason for expenses increase in 2023? This is primarily two things. One is the finance expenses increasing due to the rising profit rates. And two, we've also had a lot of subsidiaries that we acquired during end of last year, which has contributed to the rise in expenses for 2023. Many thanks for your time this afternoon, hope to see you during the next one in Q1 2024. Thank you very much for your time today.