Translation of GFH 2019 Annual General Meeting Minutes - Part 1 of 2

One of Bashmutargim AA's Finest Bur Least Known  Successes

I Helped a Relative Unknown Become President of Egypt and Keep the Job

Part 2 is here.

In my post “What’s a Board Worth?” I recommended reading the minutes of GFH’s FY 2018 AGM and EGM held 28 March this year.  

At that time I noted that the complete minutes were available only in Arabic and only on the Bahrain Bourse website. Links here:  AGM and EGM.  But the Arabic versions there  are PDFs of an image so those who can’t read Arabic can’t cut and paste into translation software. Not that that technique will be greatly helpful.  

These same minutes are not on GFH’s website.  Nor at the DFM.  On both you will find summaries that just tell you what was approved and omit any details of the accompanying discussion. 

As usual AA has your back, if you can’t read Arabic. Below is a translation/paraphrase. 

Now AA is not James T. Monroe so the translation is a paraphrase and certainly short of his work. That being said, there is little that could be described as maqaamaat (مقامات) in GFH’s financials.

Some preliminary caveats.  AA doesn’t know if GFH voice records its AGM and EGM.  A lot of companies do. That practice makes the later compilation of minutes easier than working from handwritten notes.  

But whether voice recording or hand written notes are used, the minute taker/preparer then goes on to summarize key points. The minutes are not a verbatim transcript of the words actually spoken by participants.  

Bear these two points in mind as they may explain some things that appear to be incomplete or puzzling.  

As well, sometimes detail can be lost or deliberately omitted if the transcriber doesn’t know the topic well. Why raise what you can't explain or express? "Lost in Transcription" as they say.  Once shareholders depart it is not convenient to check with them as to what they meant to say.  That’s an exercise, at least theoretically, for the 2020 AGM for FY 2019.  

As well, while it pains me to say this, you may not want to rely 100% on AA’s translation. If any readers of Arabic out there have a different translation, please leave a comment with your correction.

What follows are excerpts from the complete minutes with a focus on shareholder questions and GFH’s responses delivered by its Chairman Mr. Jassim al Seddiqi.  AA’s comments are in italics to try and make it clearer what’s in the minutes and what’s not.  

Also note if the minutes or AA's translation are incorrect or incomplete, then the comments may be as well.

This was GFH’s second “go” for its AGM and EGM as the first failed to have a quorum.  Second time lucky a quorum of 48.96% of shareholders was obtained.  

Discussion of Board of Directors Report to Shareholders (Agenda Item #2)  

Mr. Ali Tariif started off shareholder comments by lamenting the continuing decline of Khaleeji Commercial Bank.  He encouraged the Board to pay more attention to KHCB. GFH”s Chairman reportedly took his proposal under consideration.  

Auditors’ Report to Shareholders (Agenda Item #4) 

After listening to KPMG’s report as GFH’s external auditors, Mr. Ahmad Abdullah expressed the view that the income from settlement of debts was exceptional income.  (Reading between the lines “RBTL”—a favorite pastime of AA--this would appear to be reference to the fact that it was not normal income nor likely to be recurring.)  

And if it were excluded, then the Group (GFH) didn’t achieve anything (a reference to profit) and there would be expenses only (that is, GFH would have a loss).  

In addressing this point, Mr. al Seddiqi, laid the blame (al-atab) on the auditors (فاجاب بأن العتب على المدققين ) who he said had used “specific principles”  (probably a reference to accounting principles) that didn’t sufficiently explain the income.  

He noted that in 1Q19 the firm would should additional income of this sort in a clearer fashion.  (Note 16 1Q2019 – another debt settlement).  (Presumably to point out that for GFH this sort of income is normal, recurring, and real.)

He commented that GFH was an Islamic investment bank and not a conventional one and thus engaged in contracts like this with income that was “certain/firm”.  

He further noted the settlement of debts referred to by the auditors involved acquiring a real estate firm (unnamed but clearly GH) and debt at a discount.  

Now  if you read auditors’ reports to the shareholders, you will see the statement that management is "responsible for preparing the financial statements" .  That’s everything from the balance sheet through all the notes.  Auditors then audit and comment on those statements. 

Here’s a close-to-home example right here on page 6 from KPMG’s report in GFH’s FY 2018 financials.  

At first blush, it would seem GFH is dodging its responsibility for what it claims is unclear wording.   Trying to shift the blame onto the auditors.  Instead of Brother Jassim squaring his shoulders for a “buck stops here” moment (appropriate because GFH keeps its books in US dollars), we got Trump.  Blame someone else.

To be very clear on this unless there is something very unusual going on GFH would be the original author of the note with the auditors making revisions if they felt those were appropriate.  If GFH’s auditors suggested a change GFH felt was unclear, GFH certainly could raise the point and seek to find wording that the auditors could “live” with.

Additionally GFH has a free hand in the Chairman’s Report to Shareholders and the Management Discussion and Analysis to emphasize its points.  You can look over those for clarification.  AA found none.

Those looking for a silver lining—as AA always does—could read this an indicating that GFH never ever tries to influence its auditors’ work in an attempt to spin things in its favour. 

Others might not read it in this fashion. It would depend, AA thinks, on their assessment of GFH disclosures in the past.  

Shareholder concerns seem well founded to AA.  

GFH should have a core business that covers expenses and generates an appropriate net profit.  Debt settlement gains might make a good but infrequent add-on.  But if firm profitability or a decent return depend on them, then there is something wrong with the business.  

If GFH can’t make an appropriate return from these other businesses and can't "fix" them, then it should exit them and focus on those where it can. 

It may be the GFH’s management not only has the skill to identify and exploit distressed situations but also is able fill the deal pipeline with them. Or perhaps that last skill was the previous management?    

More to come (much more) in Part 2.