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

A very good afternoon. My name is Surya Hariharan, and it's my pleasure to welcome you all today to GFH Financial Group's results presentation for quarter 1 of 2024. I will be presenting the highlights of the group's financial performance for the first quarter of 2024, along with insights on the strategic transactions undertaken during the quarter. In line with our Board's approved strategy, GFS continued to report another quarter of enhanced performance and results, including momentum in the group's income and profitability. The group achieved net profit attributable to shareholders of USD 27.1 million, up by 13% compared to quarter 1 of 2023. Consolidated net profit for the period was USD 30.3 million, an increase of 24%. In addition to the continuous contributions from the core business lines, the higher profits were from increased contributions from the strategic transactions carried out by the bank during this quarter. Rise in total income for the period by 55% to USD 163 million, in line with the growth, rise in total expenses by 44% during the period to USD 89 million. Earnings per share for the period grew by 6.9% to USD 0.77 per share. Highlights of contribution by each of the business lines were as follows. Investment banking. Investment banking, which remains our core business line, contributed circa, 28% of the total income of the group for the period. GFH was successful in placing one private equity deal during this period. GFH Partners, the asset management arm of the group, was successful in placing four deals during the period. Investment banking income contributions were in line with the previous period of 2023. However, the opportunities offered to the investors were more diverse compared to the previous 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 in creating value for investors and shareholders. We have also built a strong pipeline of exciting deals for the rest of the year. In the U.S., GFH Partners is working closely with our specialist asset management subsidiaries on the ground to identify and close new transactions to grow our existing portfolios. Commercial banking. Income from our commercial banking arm, Khaleeji Bank, remained steady compared to the previous period and contributed circa 24% to the total income of the group. Khaleeji reported a net profit of BHD 3 million for the quarter. During the period, we reduced our stake in Khaleeji through sale of our stake to strategic investors from Bahrain. This is in line with the bank's strategy to diversify and improve the shareholder base of Khaleeji and seek value add for the business. Treasury and proprietary investments. Contribution from treasury and proprietary investments, including strategic transactions, increased from USD 20 million in quarter 1 of 2023 to USD 78 million during current period. This business line contributed circa 48% of the total income of the group for the current quarter. Performance of the treasury portfolio, excluding mark-to-market movements, were in line with the previous period. During this quarter, the group has tightened its funding portfolio, which has helped in reducing the finance costs across all business lines. Treasury portfolio was also impacted by the negative mark-to-market movement in its portfolio. In line with the board's approved strategy, the proprietary investment business line has been successful in exiting real estate assets from the portfolio, contributing to gains from sale of assets. This business line has exciting prospects for exit from some of the major assets of the group. The group entered into strategic transactions during the quarter, including the sale of Khaleeji Bank additional Tier 1 certificates to strategic investors and partial sale of one of its subsidiaries. During the quarter, the commercial banking arm also concluded one exit from one of its significant real estate holdings. These transactions presented a gain for the group. Expenses. In line with the growth in the business lines, the total operating expenses have also increased during the quarter. Total expenses, including impairment allowances, have increased by circa 44% during this quarter. GFH has taken a cautious approach towards certain exposures at the group level on its financing assets and credit portfolio, which has led to an increase in the impairment allowances during the quarter. Moving on to the financial position of the group. The group's total assets dropped by 5% from the 2023 year-end balances. This was in line with the drop in liabilities per circa 12% during the quarter compared to the year-end. The group has been managing its funding profile cautiously, given the interest rate environment and, during this quarter, has tightened its liquidity, which has led to a decrease in the liabilities and, consequently, in the assets of the group. Key highlights of the statement of financial position were as follows: drop in total assets by 5% to USD 10.6 billion; drop in total liabilities by 12% to USD 5.8 billion; total assets and assets under management at USD 20.6 billion; capital adequacy ratio also circa 20%. Total equity attributable to shareholders dropped from USD 990 million at 31 December 2023 to USD 924 million at the end of first quarter of 2024. The primary movement in shareholders' equity was the current period's profitability, dividends approved by the shareholders for 2023 and changes in shareholding of Khaleeji. Our performance translates into an annualized return on equity of 11.3% and return on assets of 1%. Turning to regulatory ratios. Our capital adequacy ratio was at 19.6%, liquidity coverage ratio at 219% and net stable funding ratio at 133%. All our regulatory ratios are above the prescribed thresholds. In terms of strategic initiatives, we continue to pursue further strategic acquisitions to broaden and expand our investment portfolio in key global markets to deliver additional value to shareholders. One of those initiatives is the onward discussions to acquire Ithmaar Holding's financing and investment portfolios. Discussions are in progress to finalize and agree on the transaction structure and definitive documents, which remain subject to due diligence and satisfactory completion of key regulatory approvals. On the ESG front, the Board has a clear strategy to foster sustainable growth and positive societal impact. As part of the ESG initiatives, GFH has partnered with Al Areen Raffles in their sustainability initiative of creating a fruits and herbs garden with an aim to create a sustainable fresh source for its restaurants and grow the area greener. Closing remarks. Ongoing growth and progress remain rooted in the success of the group's strategy and its focus on investing in well-performing, differentiated sectors and high-growth markets in the region and internationally, where we have an active and growing presence. Across the group's business lines, we remain focused on accelerating our strategy for nonorganic growth through new investments and the acquisition of funds, portfolios and other financial institutions. In the GCC markets, and particularly Saudi Arabia, GFS Capital Saudi Arabia is looking to build our presence and contribution to the growth of priority Vision 2030 sectors, such as health care, education and logistics, where we have deep expertise and a track record of success. Having entered the year with positive momentum, we look forward to further expanding the group's investments across core business lines and geographies and generating even greater value for shareholders and investors throughout the remainder of the year. We look forward to further ramping up the group's growth trajectory throughout 2024. 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 a first question, which says, any update on the KSA listing? As we have disclosed to the market, we have already appointed advisers for the process. And we are in the process of finalizing documents to be submitted to the CMA for this process. We have a question on, are we going to complete the shares buyback? We have the necessary approvals from the regulator to go ahead with the shares buyback. And we are doing it as per the requirements for the transactions that we are undertaking. The new shareholders' introduction was -- I think there's a question on the additional liquidity was injected in Khaleeji Commercial Bank as a result of new shareholders introduced. No, it was a conversion of the additional Tier 1 sukuk into new shares. There's one question on, what's the loan-to-deposit ratio for Khaleeji Bank? It stands in the range of about circa 16% for Khaleeji as of 31 March 2024. Another question, on the size of the Ithmaar transaction and how it compares. I think we cannot be giving a lot of information about the Ithmaar transaction currently, as we mentioned, that it's under due diligence and still subject to regulatory approvals. So that's an information that cannot be disclosed as part of this webcast. As and when we have finalized something, for sure, it will be up in the market. Are there discretionary funds invested in the announced private equity transactions? It's a mix of how we use our funding in acquiring transactions. It could be discretionary funds. Our bank also uses its own balance sheet for these transactions. Thank you very much for your time today. Since we have no more questions, we'll end the webcast for today. Thank you for your time, appreciate it. Thank you very much.