Friday, August 13, 2010

Global Investment House 1H10 Results: Still Bleeding Not as Fast

GIH announced its results for the first six months of 2010.  The press release was three pages.  Since financial/business performance wasn't that great, a great deal of space was devoted to awards and other "lemonade from lemons" type items.

But, let's let Global speak for itself.
Key points of the results :
  • Fee-based businesses (asset management, investment banking and brokerage) generated operating income amounting to KD12.0 million and a profit of KD6.8 million during H1 2010. 
  • During H1 2010 losses from principal investments and treasury activities were KD41.1 million, representing a reduction of 49% compared to H1 2009
  • During H1 2010 interest expense reduced by 37%
  • Global made a second principal prepayment of USD50 million of its restructured debt thereby meeting 46% of the principal repayment obligations due by 10 December 2010
  • Overall net loss of KD34.4 million (KD0.028 per share), a 65% reduction over H1 2009 loss of KD98.6 million (KD0.080 per share).
And now to the tafsir.
  1. Global's fee based businesses won't be paying too many bills with a net profit of KD6.8 million, particularly when this probably doesn't consider their corporate overhead.
  2. The Company notes elsewhere in the press release that the annualized average loss on its principal investments during 1H10 was 12.4% compared to 17.4% in 1H09.  One suspects that the other contestants for PERE Awards 2009 "Middle East and North African Firm of the Year" had records less stellar than these.
  3. Interest expense came down largely from the signing of the rescheduling agreement which eliminated the additional penal default margin.
  4. On the debt rescheduling front, as noted earlier, Global has a long way to go on the debt repayment front.
  5. And proving that net income is truly the bottom line, net income for the period is mentioned last:  a KD34.4 million loss, 65% lower than KD98.6 million for 1H09.  Do firms really think that by burying the bad news investors will overlook it?  Or that by reciting modest and manufactured achievements they can make it look less bad?  And anyone want to bet if there were positive net income that it wouldn't be the very first item right  on the top of the list?
Some additional items:
  1. Global continues its drive to rationalize its cost base, cutting general overheads by 15% 1H10 versus 1H09.  As noted these include business travel, promotion, and communication costs - essential expenditures to develop revenue.  
  2. NBUQ intends to appeal the Dubai Court of First Instance's judgment in favor of Global.
As always we at Suq Al Mal are on the look out for major contributions to advancing corporate spin.  We were not disappointed today.  
So a very special tip of Abu Arqala's massive tarboush to whoever at Global came up with the phrase "impeccable track record" and used it in conjunction with Global's success in having a US$103 million in assets in its Saudi fund.   Presumably, that track record does not include Al Thouraia Project Management Company  or Saudi Mazaya - as both are now safely interred.   Or Global MENA Financial Assets.  Or maybe there's a local definition of impeccable that I've missed.

Once Global releases its 1H10 financial report expect more comments.

14 comments:

Anonymous said...

I think, Global soon will be out of the wood, it is a good target for a takeover : It has a good franchise, good brand name, infrastructure and client base. I believe they are in the right track, the $250 million from Um Algowain Bank will certainly help.

Abu 'Arqala said...

Anonymous

Thanks for your comment.

Not sure why anyone would want to buy Global.

It has a mountain of debt - due within three years.

All its assets are pledged to the lenders and unless a miracle occurs in the markets - the assets are probably going to be sold to pay lenders.

It's name has been tarnished by its less than sterling behavior with AlThouraia/Mazaya Saudi and Global MENA Financial Assets.

And its solid lines of business - asset management and investment banking - don't generate enough money to overcome the negatives above.

Still, though, this is Kuwait where wise investors buy Aayan Leasing, Shabka, IIG, etc. So you just may have a point!

Anonymous said...

Thanks for your reply: With all their misgivings Global remains a good brand name, and we should not forget their role in changing the investment industry in Kuwait and the region, we should give them credit for that. It is easy to be a “Monday morning quarterback” .

Abu 'Arqala said...

Anonymous

Thanks yours.

Monday morning quarterbacking is extremely easy.

And I've done my share of that.

However, with GIH, the case is different. While it wasn't as easy to analyze as say Gulf Finance House, it was clearly a "no thank you". And this was well before the problems of 2008.

Chapter 11 said...

I think Anon is either a current employee with locked up stock, or an external shareholder who had 75% of their net worth in the stock right when liquidity went "kaput!"

Either way, other than one or two initiatives here and there (efforts at stimulating local bond market for example) there is very little "innovation" that came out of the levered mess we call jaloobal!

Their asset mgmt arm has no discernable edge over any other MENA asset manager, they dont even tell investors when a portfolio manager changes.

Investment banking is again, pro cyclical and to be honest, a highly competitive industry.

Brokerage is the most boring, low margin, volume and hence pro-cyclical business out there.

As for brand name, you cannot build a sustainable business on goodwill alone.

Bottom line is global has a very poor record of retaining talent. Their HR is a total mess. In an industry where your people are everything, this is the one thing that nobody seems to be talking about.

With all due respect, it will take more than just 50 indian MBAs with excel spreadsheets to turn this company around.

Abu 'Arqala said...

Chapter 11

I thought one advantage that Global had and still does in Asset Management was that anchor portfolio from Ms. Maha's former employer.

Nouman said...

Globals statements have been released on DFM website http://www.dfm.co.ae/pages/default.aspx?c=501&nid=12725
They made losses on stock market potfolio and sell of associated companies (perhaps to generate cash for principal repayment).

The Rageful Cynic said...

i love how the buried the lede about 2Q10 net loss of KD 20 mn... i.e. 43% higher than Q1 net loss...

AA? you must give credit where credit is due, Global does have "impeccable talent".. when it comes to talking about itself...

Abu 'Arqala said...

Nouman

Thanks for your email.

Strange thing. Global gave the BSE only part of the report. Hadn't posted it on its own website. But gave the DFM the entire report.

Abu 'Arqala said...

TRC

Thanks for the comment.

Global certainly has a talent for putting the best face on news. When it's bad, they use the well proven tactic of ignoring it.

I'll post on the financials in a day or so.

Without my morning jolts of caffeine, I am flying on one engine the past five days.

Laocowboy2 said...

Chapter 11 - spot on. Especially about the HR. More generally, while GIH may have a "brand", brands can be tarnished - ask the folks at BP! I would estimate the brand value of any FI that has in effect defaulted to be at least "impaired".

Leaving that aside, GIH was a business that started with a respectable asset management franchise and some limited investment banking capability. Both very Kuwait-specific (amount of AUM from non-Kuwaiti investors limited I believe). Unfortunately they began to read their own PR and embarked on massive growth in areas that carried much higher risk. And outside Kuwait, the record is hardly stellar.

A candidate to be bought? What exactly would a buyer be purchasing? Quality assets at low valuations? Predictable and high quality revenue streams? High quality management with a strong track record of success? And in what is still a recession for the brokerage and asset management businesses? I think not.

The Rageful Cynic said...

i would have to agree with Laocowboy2, in this climate, no sane investor would purchase Global.. hell it will probably take a good deal of suspended reality to purchase some of their ASSETS, let alone the whole company.

That being said, i think that if Global makes it past the next 3 years, and that's a big IF, then they might have a chance of surviving this thing... also, if push came to shove, i think KIA might be willing to take a chunk of a stake at some point.... if things go really sour.

laocowboy2 said...

RC - I am afraid you are correct ref the KIA. However I do not understand why this would be seen as a sensible course of action! There is much too much reluctance to let the dead get buried. If money is going to be thrown at (aka wasted on) such problems, better to use it to unwind things in an orderly manner than use it to prolong a zombie existence.

The Rageful Cynic said...

laocowboy2 - we do have a soft spot for wasting money up here :)