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

Very, good afternoon. My name is Surya Hariharan, and a warm welcome to GFH Financial Group's first half results presentation. I will be presenting the highlights of the group's financial performance for the second quarter of 2024, along with performance for the first half of 2024. Despite market volatility and geopolitical challenges, our results for the first half of 2024 reflect the group's ability to effectively execute our strategy, drive value from our assets and further build our market leadership in the region and globally for the benefit of our investors and shareholders. The group achieved net profit attributable to shareholders of USD 60.8 million, up by 11.4% compared to first half of 2023. Consolidated net profit for the first half was USD 67.9 million, an increase of 18.7%. All the core business lines of the group continued their contributions to the revenue, delivered double-digit growth in income for the 6 months period by 53.7% to USD 332.2 million. In line with the growth rise in total expenses by 40.5% to USD 163.8 million. Higher return of equity as of June 2024 at 12.5% compared to 10.4% as of December 2023. Earnings per share for the period grew by 9.7% to USD 0.017 per share. In this slide, we will highlight the second quarter financial performance. Strong growth in total income of 52.4% year-on-year, driven by solid performance across all the business lines. The group reported consolidated profit of USD 37.5 million, an increase of 14.7%. For the quarter, the group reported shareholders' profit of USD 33.6 million, an increase of 9.8%. 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 38.1% during this quarter. Moving on to the financial question of the group. The group's total assets dropped by 2% from the 2023 year-end. This was in line with the drop in liabilities by circa 6% during the quarter compared to the year-end. The group has been managing its funding profile cautiously given the profit rate environment. And during this quarter has tightened its liquidity. The group's assets and funds under management is $21 billion. Total equity attributable to shareholders dropped from USD 990 million at 31st December 2023 to USD 969 million at end of second 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. We remain well capitalized. Our capital adequacy ratio was at 18%, liquidity coverage ratio at 240% and net stable funding ratio at [ 132% ]. All our regulatory ratios are above the prescribed threshold. The positive momentum and progress in the first half financial results reflect the ambition across the bank to deliver its full potential. We will now demonstrate the main highlights for each of the business lines, along with their contribution to quarter 2 revenues. Investment Banking, our core business line, investment banking contributed circa 26% of the total income of the group for the quarter. GFH Partners, the asset management arm of the group base out of UAE was successful in placing [ 3 Ds ] during the period with a total fund size of circa USD 165 million. Investment banking contributions were in line with the previous period of 2023. 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. Commercial Banking. Income from our Commercial Banking arm, Khaleeji Bank, improved slightly compared to the previous period and contributed circa 22% to the total income of the group. Khaleeji reported a net profit of BHD 2.2 million for the quarter. Treasury and proprietary investments. Contributions from treasury and proprietary investments, including strategic transactions and sale of real estate assets increased from USD 37 million in quarter 2 of 2023 to USD 94 million during the period -- current period. This business line contributed circa 52% of the total income of the group for the current quarter. Performance of the treasury portfolio, excluding mark-to-market movements were better than the previous period. During this quarter, the group has tightened its funding portfolio, which has helped in reducing the finance cost across all business lines. In line with this Board approved strategy, the proprietary investments 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 from exit from some of the major real estate exposures for the group. 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. We would like to give some insight on the group's share performance. We have made good progress on one of our strategic priorities, taking decisive actions to further enhance the shareholders' value and return. We have recently appointed BHM Capital as liquidity provider for GFH shares listed on the Dubai Financial Market and Abu Dhabi Securities Exchange, as well as SICO as liquidity provider for GFS shares listed on Bahrain Bourse to provide additional liquidity in the shares, enhancing access and ensuring a seamless experience for both individual and institutional investors. Furthermore, Mr. Ahmed Bin Mohammed Al Qassimi has joined the group's list of major shareholders. The group continued to effectively execute on its environmental, social and governance strategy undertaking key initiatives in the second quarter, including. GFH welcomed summer internship students for the 2024 program. The initiative offers practical experience in the financial sector through on-the-job training across multiple departments and subsidiaries. The group signed with the Bahrain Sports Federation for Disabilities to sponsor the upcoming 3x3 wheelchair bus. With a robust strategy in place, we look ahead to the second half of 2024 to continue accelerating our growth, we remain focused on driving our growth in new investments through diverse and active pipeline of opportunities and acquisitions. In the GCC, we continue to focus on opportunities in high-growth markets with an emphasis on the Kingdom of Saudi Arabia, where we are building our presence to GFH Capital Saudi Arabia and in the U.S. and U.K. working through GFH partners and our specialist asset management subsidiaries on the ground. Building on the growth momentum through this year, our focus remains on even further diversifying our international portfolio of assets and creating tangible value for our investors and shareholders in the forming period. I would like to thank you for your time this afternoon and open the floor for any questions you may have.

Let me take a couple of questions out here. The first one is, the group is planning listing of shares in the Saudi Stock Exchange, are you considering capital increase taking into consideration authorized capital? Currently, we do not have any plans of capital increase. Yes. And the plan for listing in Saudi Stock Exchange is ongoing. We are in touch with our advisers on the same. And as soon as we have any update on the same, we shall be announcing to the markets, but currently no plans for increasing our capital. The second question is, GFH reduced its ownership in Khaleeji Bank through conversion of ownership certificates in addition to announcing divesture of share in Charthouse Bahrain, certain liquidity shall result in lower risk-weighted assets, assuming weight of cash. Place update. The capital adequacy currently is at 18.1%. Your question is -- I mean, what you've asked in the question is absolutely right. So when we sell these -- when you sell these assets, you should definitely have a change in risk weighted assets. But you need to also consider the Khaleeji Commercial Bank has not been fully deconsolidated. It still remains a subsidy for GFH and hence, there is a change in the minority interest portion of benefit that we previously used to get. So that has had a smaller impact in terms of the capital adequacy ratios. There's one more question in terms of income from treasury segment includes real estate divestures. Does GFH embrace certain financial smoothing tools that would moderate recognition of profit? I think -- to answer this question, it is more in line with the opportunities that we see. Now as a strategy for real estate, we would want to monetize real estate assets as much as we can. And probably hold on to assets where we see possibility of developing them and creating value or adding value for us. So real estate is like if you look at last quarter, we didn't have a lot of real estate sales. But this quarter, we did. So I think it's a moving number. The strategy is there to monetize real estate assets as much as we can. What is the reason for increase in expenses of the group? Expense for the group includes finance expense as well. Given that the fed rate cycle has still not been very favorable in terms of the treasury portfolio of the bank, we've had a higher finance expenses for the group, which has led to higher expenses overall for the group. Any further -- yes, there's one question that says any future plans to further reduce real estate consideration? Yes, there is. So the plan, as I mentioned just some time back, the plan and the strategy of the Board is to reduce real estate exposure. And this is something that we are actively pursuing. I think there are a lot of questions, which talks about the update on acquisition of assets from Ithmaar Bank. We haven't had a very formal disclosure in the market so far. So whatever was the last disclosure that we did in the market, it stays as it is. If there is any update on the same, we shall be updating the market about the update in terms of the acquisition of assets of Ithmaar. So we have a question in terms of expectation of the second half profits in general. As you know, we are not allowed to be giving forward-looking statements. And hence, I wouldn't be able to give you a color on the same. However, I could just tell you that we are working towards enhancing shareholders' value and contribution for the shareholders. All right. I don't think we have more questions. So thank you very much for your time this afternoon, and I hope to speak to you again during the results of the next quarter. Thank you very much.