Islamic Bank of Britain Plc
31 March 2005
ISLAMIC BANK OF BRITAIN
Final Results Announcement
Five month period ended 31 December 2004
Financial Highlights
• Profit receivable from Murabaha and Wakala transactions increase to
£683,898 (year ended 31st July 2004 £491,211)
• Loss on ordinary activities before tax £3,107,370 (year ended 31st
July 2004 £2,685,949)
• Loss per ordinary share 0.9p (year ended 31st July 2004 1.0p)
Operational Highlights
• Authorisation from Financial Services Authority (FSA) in August 2004
to operate as a bank
• Opening of first branch on Edgware Road in London in September 2004
• Launch of first products including savings accounts
Abdul Rahman Abdul Malik, Chairman, said 'The period is one during which we
significantly increased our investment in building the bank following
authorisation from the Financial Services Authority in August 2004.
'Inevitably, this resulted in a sharp increase in our cost base which has been a
necessary step in order to expand our operating capability beyond the initial
branch opening in Edgware Road London in September 2004.
'We now have further branches operating in both Birmingham and Leicester and
have recently expanded our distribution capability with a Direct Banking
service. Our product set has also been expanded and more is to follow this
year.'
- ENDS -
Issued on behalf of Islamic Bank of Britain by McCann Erickson PR. McCann House,
Highlands Road, Shirley, Solihull, B90 4WE
For further information please contact McCann Erickson on 0121 713 3500 or Dawn
Walker on
0121 713 3790 or dawn.walker@europe.mccan.com or Paula Mitchell on 0121 713 3775
or paula.mitchell@europe.mccann.com or Alison Love on 0121 713 3782 or
alison.love@europe.mccann.com
GRANT THORNTON, Nominated Adviser:
Gerry Beaney (0870 991 2589) or Fiona Kindness (0870 991 2520)
KEITH BAYLEY ROGERS, Broker:
Howard Drummon (020 7253 7502)
ISLAMIC BANK OF BRITAIN PLC ('IBB' OR THE 'COMPANY')
AUDITED RESULTS FOR THE FIVE MONTHS ENDED 31 DECEMBER 2004
Chairman's Statement
I am pleased to present the report and financial statements of the Islamic Bank
of Britain for the five-month period ended 31 December 2004.
Following authorisation of the Bank by the Financial Services Authority (FSA) in
August 2004, we took the decision to amend our annual reporting date to 31st
December. This adjustment now establishes us on the same reporting cycle
adopted by most of the financial services industry in the UK.
In late September of 2004 we opened for business. Edgware Road, London branch
commenced with the offering of a small suite of savings products. This produced
a good response both in terms of customers recruited and enquiries received.
Slightly later than planned, we have supplemented the branch network with two
further openings; Small Heath, Birmingham opened in January 2005 with London
Road, Leicester a month later. Additionally, we have added to the initial
product offering of savings accounts through the introduction of Islamic current
accounts and consumer financing. A debit card together with a specific
proposition for the Small Business and Professional customer will shortly be
released.
More recently we have announced an extension of our distribution capability with
the launch of Direct Banking. This now enables customers to access their
accounts and implement transactional activity through the medium of telephone
and postal banking. The branch network does, however, remain a key component of
our distribution strategy. We plan for a total of thirteen outlets spread
nation-wide which will be based in cities where there is a significant
concentration of the Muslim community. By the summer of this year we plan to
open a further three branches, with the objective that the complete target
network will be in place by the summer of 2006. Distribution will be further
supplemented with the introduction of Internet banking. Work has already
commenced on the development of a suitable solution, although implementation of
the capability is not scheduled for release until early 2006.
The introduction of Islamic structured retail financial services products into
the conventional interest based western environment continues to be a
challenging process. We seek to achieve the establishment of our retail banking
products on the same industry level playing field. Specifically, the tax
treatment of a number of our products differs from the conventional banking
alternative. Our discussions with the tax and other authorities have taken
place in an environment of constructive and helpful debate. Progress made has
been excellent. Indeed, I am pleased to advise you that emerging from these
discussions to date is an announcement within the 2005 Finance Bill of
legislative change which will tax Islamic profit returns on savings accounts and
related commodity transactions no more or less favourably than the finance
return associated with conventional banks.
The accounts for the period reflect a loss of £3.1m (£2.7m for the year to 31
July 2004). Upon receiving authorisation from the FSA we accelerated our
investment programme thereby increasing the cost base. Legal and professional
fees remain a significant cost item. It has been essential for us to engage
professional expertise to support us in the task of achieving legislative
equality for Islamic retail banking products so that we can compete on equal
terms with conventional banking services in the UK. Consulting costs have also
remained at a high level as we continue to be reliant on specialist resources to
assist us in addressing the systems complexities and meeting the regulatory
requirements associated with the building of a Sharia'a compliant banking
operation. However, I do expect these costs to reduce in the year ahead.
The increase in our income generation primarily reflects investment returns
arising from our own funds which were increased following the successful
floatation of the company on the Alternative Investment Market in October 2004.
Customer profit payable is entirely attributable to earnings from the initial
limited savings account offering available from the end of September 2004, and
which attracted balances of £2.1m as at 31 December 2004. Customer profit
payable was in fact below budget as we had expected to be in a position to
introduce additional products during the period as well as open two further
branches. In the event a combination of systems complexities and premises
conversion difficulties caused delays although, as referred to above,
implementation of these plans has now taken place.
At the end of 2004 AbdulMagid Breish, a non-Executive Director, submitted his
resignation from the Board. Mr. Breish has recently taken on additional
responsibilities with the Arab Banking Corporation, which have been more
demanding of his time. Additionally, we have recently announced the resignation
of Dr. Hussain Ali Al-Abdullah, which arises from increasing business demands on
his time. The resignation of Dr Hussain Ali Al-Abdullah also results in his
Alternate Director, Mr. Abdulbasit Al Shaibei, automatically stepping down.
These gentlemen have been associated with the Bank since inception and I extend
to them our sincere thanks for their respective contributions during this
formative period.
At Executive level we are strengthening the Executive team with the appointment
of a Finance Director. I anticipate being able to make a formal announcement in
connection with this appointment shortly. Furthermore, my own position has been
adjusted to Executive Chairman (part-time), as I am now able to undertake a more
active role in supporting the future development of the Bank.
We continue to be grateful to our Sharia'a Supervisory Committee which provides
religious guidance, thereby ensuring that our customer offering is totally
Sharia'a compliant. However, it is with regret that I announce the resignation
of Justice (Ret'd) Muhammad Taqi Usmani from the Committee. His advice,
guidance and contribution to our development have been greatly appreciated.
We remain pioneers within the industry and will continue to face the unusual as
well as the unexpected. However, I am greatly encouraged by the progress which
has been made to date in overcoming obstacles, many of these being difficult or
impossible to identify in advance. It is here that I must pay a particular
tribute to the staff and leadership within the Bank, who have worked in a
committed and enthusiastic way to find solutions and move ahead.
We are now engaged on the task of customer recruitment. In the year ahead we
shall continue to add further to the range of products and extend the
distribution capability, thereby placing within reach of the consumer a
proposition which is wholly Sharia'a compliant and service orientated. In
making progress I know that there will be challenges ahead, but the progress to
date gives me confidence of an ability to reach our goals.
ABDUL RAHMAN ABDUL MALIK
CHAIRMAN
Profit and loss account
for the 5 month period ended 31 December 2004
Note 5 month Year ended
period ended
31 December 31 July
2004 2004
£ £
Profit receivable from Murabaha and Wakala transactions 683,898 491,211
Profit payable to customers (7,500) -
Operating income 676,398 491,211
Administrative expenses 3 (1,309,511) (1,100,599)
Depreciation (503,564) (194,522)
Other operating charges 4 (1,970,693) (1,882,039)
Operating expenses (3,783,768) (3,177,160)
Loss on ordinary activities before tax (3,107,370) (2,685,949)
Tax on loss on ordinary activities - -
Loss on ordinary activities after tax (3,107,370) (2,685,949)
Retained loss for the period/year 12 (3,107,370) (2,685,949)
Retained losses brought forward 12 (3,089,436) (403,487)
Transfer from share premium account 12 273,598 -
Retained losses carried forward 12 (5,923,208) (3,089,436)
Earnings per ordinary share (basic and diluted) - pence 5 (0.9) (1.0)
There is no difference between the retained loss for the period and the retained
loss on an historical cost basis.
The result for the period is derived entirely from continuing activities.
There were no other recognised gains and losses for the period other than those
above.
Balance sheet
At 31 December 2004
Note 31 December 2004 31 July 2004
£ £ £ £
Assets
Cash 47,195 -
Murabaha and Wakala receivables and other 6 47,022,681 10,109,218
advances due from banks
Tangible fixed assets 3,547,073 1,966,108
Other assets 197,568 1,027,421
Prepayments and accrued income 189,509 58,668
Total assets 51,004,026 13,161,415
Liabilities
Customer accounts 7 2,124,790 -
Other liabilities 117,800 1,180,501
Accruals and deferred income 1,747,389 843,952
Shareholders' funds:
Called up share capital 12 4,190,000 2,590,000
Share premium 12 48,747,255 11,636,398
Profit and loss account 12 (5,923,208) (3,089,436)
47,014,047 11,136,962
Total liabilities 51,004,026 13,161,415
Cash flow statement
for the 5 month period ended 31 December 2004
Note 5 month period Year ended
ended 31 July 2004
31 December
2004
£ £
Net cash (outflow)/inflow from operating activities 9 (35,425,343) 2,213,442
Capital expenditure 10 (2,084,529) (2,063,399)
Financing 10 38,984,455 -
Increase in cash 11 1,474,583 150,043
Notes
1 General
The financial information herein does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985.
The financial information has been extracted from the company's 2004 statutory
financial statements upon which the auditors reported. Their opinion was
unqualified and does not include any statement under section 237 of the
Companies Act 1985.
The financial statements have been prepared in accordance with applicable United
Kingdom Accounting Standards and under the historical cost convention. The
principal accounting policies have remained unchanged since the previous audited
period.
Copies of the annual report are being posted to shareholders and copies will
shortly be available from the company's registered office at Edgbaston House, 3
Duchess Place, Birmingham B16 8NH.
2 Accounting Policies
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Company's financial
statements:
(a) Accounting convention
The financial statements have been prepared under the historical cost convention
and in accordance with the special provisions of Part VII, Chapter II of the
Companies Act 1985 relating to banking companies, applicable accounting
standards and the British Bankers' Association Statements of Recommended
Accounting Practice.
(b) Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated
into sterling at the exchange rates ruling at the balance sheet date and the
gains or losses on translation are included in the profit and loss account.
Income and expenses denominated in foreign currencies are converted into
sterling at the rate prevailing at the date of the transaction.
(c) Depreciation
Depreciation of tangible fixed assets is provided on a straight-line basis over
estimated useful lives as follows:
Computer equipment, software and licences 3 years
Fixtures, fittings and office equipment 5 years
(d) Murabaha and Wakala receivables and other advances due from
banks
Murabaha is an Islamic financing transaction, which represents an agreement
whereby the Company buys a commodity and sells it to a customer based on a
promise received from the customer to buy the commodity according to specific
terms and conditions. The selling price comprises of the cost of the commodity
and a pre-agreed upon profit margin.
Wakala is an Islamic financing transaction, which represents an agreement
whereby the Company provides a certain sum of money to an agent, who invests it
according to specific conditions in order to achieve a certain specified return.
The agent is obliged to return the invested amount in case of default,
negligence or violation of any of the terms and conditions of the Wakala.
Profit, on both Murabaha and Wakala receivables, is recognised on a
time-apportioned basis over the period of the contract based on the principal
amounts outstanding. Murabaha and Wakala receivables are stated at cost less any
provision for impairment.
Other advances due from banks are stated at cost and are non-profit bearing.
(e) Customer profit
Profit sharing accounts are based on the principle of Mudaraba whereby the bank
and the customer share an agreed percentage of any profit earned on the customer
deposit accounts. The customer's share of profit is paid in accordance with the
terms and conditions of the account. The profit calculation is undertaken at
the end of each calendar month.
(f) Taxation
Deferred tax is recognised, without discounting, in respect of all timing
differences between the treatment of certain items for taxation and for
accounting purposes and which have arisen but not reversed by the balance sheet
date, except as otherwise required by FRS 19.
(g) Operating lease charges
Operating lease rentals are charged to the profit and loss account on a straight
line basis over the period of the lease.
(h) Pension costs
The Company participates in a defined stakeholder contribution pension scheme.
The cost of the defined stakeholder contribution scheme is equal to the
contributions payable to the scheme for the accounting period and is recognised
within operating profit in the profit and loss account.
(i) Cash
Cash, for the purposes of the cash flow statement, comprises of cash and any
Murabaha and Wakala receivables and other advances due from banks which are
repayable upon demand.
(j) Comparative figures
On 6 August 2004, the Company was granted permission under Part IV of the FSMA
by the FSA which allows it to act as an authorised person under the regulation
of the FSA. Accordingly, the financial statements for the 5 month period ended
31 December 2004 have been presented in accordance with the format prescribed by
Schedule 9 of the Companies Act 1985. Consequently, certain of the prior year
comparatives have been reclassified to conform with the current period's
presentation.
3 Administrative expenses
5 month period Year ended
ended 31 July 2004
31 December 2004
£ £
Wages and salaries 552,460 437,751
Social security costs 280,407 205,554
Pension costs 34,902 17,373
Sharia'a supervisory committee meeting fees 8,462 17,608
Directors' meeting fees 31,128 67,204
Recruitment costs 105,949 230,124
Other administrative expenses 296,203 124,985
1,309,511 1,100,599
The average number of persons employed by the Company during the period was 63
(year ended 31 July 2004: 15).
4 Other operating charges
5 month period Year ended
ended
31 December 2004 31 July 2004
£ £
Legal and professional 621,076 461,701
Consultancy 201,763 485,479
Travel and accommodation 49,171 108,875
IT and web development costs 101,344 142,974
Marketing and promotion costs 438,404 415,991
Product stationery 147,910 45,320
Other 411,025 221,699
1,970,693 1,882,039
Costs of £273,598 relating to marketing and promotion which had been expensed in
the prior period were reclassified in the current period once the share offering
had been completed and definitive costs were known (see note 12).
5 Earnings per ordinary share
Basic and diluted earnings per ordinary share are calculated by dividing the
loss for the financial period attributable to equity shareholders by the
weighted average number of ordinary shares in issue in the 5 month period ended
31 December 2004 of 343,705,882 (year ended 31 July 2004: 259,000,000).
6 Murabaha and Wakala receivables and other advances due from
banks
(a) Residual maturity
31 December 2004 31 July 2004
£ £
Repayable on demand 1,644,817 217,429
3 months or less 44,241,373 9,891,789
1 year or less but over 3 months 1,136,491 -
47,022,681 10,109,218
Balances maturing in 1 year or less but over 3 months include a balance of
£521,921 (year ended 31 July 2004: £nil) representing a repayable security
deposit held by a bank that has issued a guarantee to cover the Company's future
customer card transactions with Mastercard. The deposit earns no profit.
(b) Concentrations of exposure
The Company has the following credit concentrations:
31 December 2004 31 July 2004
£ £
Total Murabaha and Wakala receivables and other
advances due from banks located in:
Europe and North America 38,456,559 4,214,764
Middle East 8,566,122 5,894,454
Total 47,022,681 10,109,218
7 Customer accounts
31 December 2004 31 July 2004
£ £
With agreed maturity dates or periods of notice, by
remaining maturity:
Repayable on demand 1,390,550 -
3 months or less but not repayable on demand 264,740 -
1 year or less but over 3 months 469,500 -
__________ __________
Total 2,124,790 -
Comprising:
Non profit sharing accounts 6,593 -
Profit sharing accounts 2,118,197 -
________ __________
Total 2,124,790 -
8 Called up share capital
31 December 2004 31 July 2004
£ £
Authorised
Equity: 500,000,000 ordinary shares of £0.01 each 5,000,000 5,000,000
Allotted, called up and fully paid
Issued ordinary share capital 4,190,000 2,590,000
During the period, the Company issued 160,000,000 new ordinary shares with an
aggregate nominal value of £1,600,000 as part of a private placement and initial
public offering. The Company received £40,000,000 as consideration for this
share issue.
9 Reconciliation of operating loss to net cash outflow from
operating activities
5 month period Year ended
ended
31 December 2004 31 July 2004
£ £
Operating loss (3,107,370) (2,685,949)
Increase in prepayments and accrued income (130,841) (31,418)
Increase in accruals and deferred income 903,437 828,602
Depreciation 503,564 194,522
Net cash outflow from trading activities (1,831,210) (1,694,243)
Net (increase)/decrease in Murabaha and Wakala receivables and
other advances due from banks
(35,486,075) 3,753,840
Net increase in customer accounts 2,124,790 -
Net decrease/ (increase) in other assets 829,853 (1,026,656)
Net (decrease)/increase in other liabilities (1,062,701) 1,180,501
Net cash (outflow)/inflow from operating activities (35,425,343) 2,213,442
10 Gross cash flows
5 month period Year ended
ended 31 July 2004
31 December 2004
£ £
Capital expenditure
Purchase of tangible fixed assets (2,084,529) (2,063,399)
Financing
Issue of ordinary share capital 40,000,000 -
Expenses paid in connection with share issue (1,015,545) -
38,984,455 -
11 Analysis of cash balances as shown in the balance sheet
31 December Change 31 July 2004 Change 31 July 2003
2004
£ £ £ £ £
Cash 47,195 47,195 - - -
Murabaha and Wakala receivables
and other advances due from banks
which are repayable upon demand 1,644,817 1,427,388 217,429 150,043 67,386
1,692,012 1,474,583 217,429 150,043 67,386
12 Reconciliation of movements in shareholders' funds
Share Share Profit Total
capital premium and loss
account account
£ £ £ £
Balance at 1 August 2004 2,590,000 11,636,398 (3,089,436) 11,136,962
New share capital subscribed (net of issue 1,600,000 37,384,455 - 38,984,455
costs)
Transfer between reserves (273,598) 273,598 -
Loss for the financial period - - (3,107,370) (3,107,370)
Balance at 31 December 2004 4,190,000 48,747,255 (5,923,208) 47,014,047
Costs equating to £273,598 which had been expensed in the prior period were
reclassified in the current period once the share offering had been completed
and definitive costs were known.
13 Risk management
Through its banking services the Company is exposed to a range of risks. The
Company's goal in risk management is to ensure that it understands, measures and
monitors the various risks that arise and that it adheres to the policies and
procedures which have been established to address these issues. As a bank, the
Company is primarily exposed to credit risk, profit rate risk, liquidity risk,
foreign exchange risk and operational risk. Committees of the Board of Directors
have been constituted to oversee various activities. Additionally, the Board of
Directors has delegated authority to the Managing Director, who is assisted by
executive management committees. In turn, this is supplemented by Internal
Audit.
Major risks
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to
discharge an obligation and cause the other party to incur a financial loss.
The Banks' credit risk is primarily attributable to facilities receivable. The
Bank seeks to manage credit risk by monitoring credit exposures, limiting
transactions with specific counterparties and continually assessing the
creditworthiness of counterparties. Credit risk policies are applied by the
Credit Committee which operates within the authority granted to it by the Board.
Country and counterparty limits are established and monitored on a weekly basis,
with a detailed review at least once a year. Management receives regular reports
on the utilisation of these limits.
Profit rate risk
Profit rate risk primarily arises on the mis-matching of the banks assets with
its funding. This is monitored weekly and is managed by the Asset and Liability
Committee. Principal limits have been established for the Company's assets and
liabilities when allocated to time bands by reference to the next contractual
re-pricing date.
The Company currently has minimal risk to changes in profit rate risk arising
from the fact that the majority of funding is by equity shareholders. The return
payable to customer account holders is based on the principle of the Mudaraba
contract by which the customer account holders agree to share the profit or loss
made by the Company over a given period. The Company is not liable to pay any
predetermined returns to customer account holders.
The company has presented the following tables on profit rate re-pricing of the
assets and liabilities on the grounds that the company is commercially obliged
to seek to pay profits to its customers as far as possible although not
necessarily obliged from a Sharia'a legal perspective where these profits have
not arisen on the underlying investments.
Liquidity risk
Liquidity risk arises on the mis-matching of the residual maturity of the
Company's assets and funding. This is also monitored weekly, and is managed by
the Asset and Liability Committee. Limits have been established for each time
band and incorporate FSA agreed limits where appropriate.
Foreign exchange risk
Foreign exchange risk is managed within the treasury function. Policies and
procedures are detailed in an operational procedures manual. This incorporates
FSA agreed limits where necessary, and other regulatory bodies requirements and
best practices. It is subject to periodic review by Internal Audit, and is
approved by the Board. Senior management also monitors the positions taken on a
weekly basis.
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events. The Company's
operational risk framework is subject to procedural policies and best practice
standards, with senior management being responsible for their implementation and
maintenance. Adherence to these policies is also subject to periodic review by
Internal Audit.
Profit rate re-pricing schedule
At 31 December 2004, the profit rate risk comprises (all amounts in £):
Less than 3 More than 3 More than 6 More than Non profit Total
months months but not months but one year but earning
more than 6 not more not more
months than one than 5 years
year
Assets
Cash - - - - 47,195 47,195
Murabaha and Wakala 44,241,373 614,570 - - 2,166,738 47,022,681
receivables and
other advances due
from banks
Tangible fixed - - - - 3,547,073 3,547,073
assets
Other assets - - - - 197,568 197,568
Prepayments and - - - - 189,509 189,509
accrued income
Total assets 44,241,373 614,570 - - 6,148,083 51,004,026
Liabilities
Customer accounts 1,656,197 462,000 - - 6,593 2,124,790
Other liabilities - - - - 117,800 117,800
Accruals and - - - - 1,747,389 1,747,389
deferred income
Shareholders' funds - - - - 47,014,047 47,014,047
Total liabilities 1,656,197 462,000 - - 48,885,829 51,004,026
Gap 42,585,176 152,570 - - (42,737,746) -
Cumulative 42,585,176 42,737,746 42,737,746 42,737,746 - -
The figures above do not demonstrate the exposure of the Company to particular
profit rates as the assets and liabilities have been consolidated across all
currencies.
At 31 July 2004, the profit rate risk comprised (all amounts in £):
Less than 3 More than 3 More than 6 More than Non profit Total
months months but months but one year but earning
not more not more not more
than 6 than one than 5 years
months year
Assets
Murabaha and 9,891,789 - - - 217,429 10,109,218
Wakala
receivables and
other advances
due from banks
Tangible fixed - - - - 1,966,108 1,966,108
assets
Other assets - - - - 1,027,421 1,027,421
Prepayments and - - - - 58,668 58,668
accrued income
Total assets 9,891,789 - - - 3,269,626 13,161,415
Liabilities
Other liabilities - - - - 1,180,501 1,180,501
Accruals and - - - - 843,952 843,952
deferred income
Shareholders' - - - - 11,136,962 11,136,962
funds
Total liabilities - - - - 13,161,415 13,161,415
Gap 9,891,789 - - - (9,891,789) -
Cumulative 9,891,789 9,891,789 9,891,789 9,891,789 - -
This information is provided by RNS
The company news service from the London Stock Exchange