Islamic Bank of Britain Plc
14 September 2005
Islamic Bank of Britain PLC
Interim Results for the six months to 30 June 2005
Financial Summary
• Income receivable from Murabaha and Wakala transactions increase to
£1,178,740 (five months to 31st December 2004 £683,898)
• Loss on ordinary activities before tax of £2,732,413 (five months to 31st
December 2004 £3,107,370)
• Loss per ordinary share 0.7p (five months to 31st December 2004 0.9p)
Operational Summary
• Customer deposits increased to £33.9m (as at 31st December 2004, £2.1m)
inclusive of £14m deposit from major IBB shareholder
• Strengthening customer recruitment profile
- Current customer base of 5,962
- Total of 10,511 accounts opened
• Since period end a further 40% increase in customer numbers
• Continued new product development with introduction of Islamic current
accounts, debit cards and consumer financing facilities
• Expanded distribution channels with opening of three new branches (Small
Heath Birmingham, London Road Leicester and Southall London) and
introduction of a direct banking service. Since period end a branch has
opened in Whitechapel Road, London and branches in Birmingham and Manchester
are planned for the second half of the year
Abdul Rahman Abdul Malik, Chairman, commented: 'I am pleased to announce our
results for the six months to 30th June 2005, which demonstrate continued steady
improvement in both our financial and operational performance. During the
period, we have made considerable progress with our product development and in
the building of our delivery channel capabilities, with a corresponding impact
on customer recruitment numbers. 'Our focus in the second half of the year is to
further enhance our distribution network with new branch openings and, subject
to FSA approval, launch our home finance product. 2006 will also herald the
inception of our online banking service.'
- 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)
KEITH BAYLEY ROGERS, Broker:
Howard Drummon (020 7253 7502)
Islamic Bank of Britain PLC
Interim Report
6 month period ended 30 June 2005
Registered number 4483430
Chairman's Statement
I am pleased to present the Interim Report of the Islamic Bank of Britain PLC
(the 'Bank') for the period ending 30 June 2005. In the six months to 30 June
2005 the operating loss amounted to £2.7m (five months to December 2004, loss of
£3.1m). This position was broadly in line with forecast.
Customer deposits increased to £33.9m (31 December 2004, £2.1m). Of this,
£14.1m represented a deposit from a significant shareholder which was placed in
the early part of the year. Consumer finance, which was not released until the
second quarter of 2005, amounted to £2.6m. Our consumer finance activity has
been restricted due to two key products, based on the Islamic financing
principles of Murabaha and Ijara, requiring tax clearance from the Revenue and
Customs Authority. The tax situation with regard to both is complex, but good
progress towards achieving a solution to the issues is being made.
During the half-year further progress has been made in developing products and
in building the delivery channel capability. In addition to savings accounts,
the Bank is now able to offer its customers Islamic current accounts, debit
cards and consumer financing facilities. Distribution has been expanded with
the addition of a further three branches, Small Heath Birmingham, London Road
Leicester and Southall London. This has been supplemented with the introduction
of a direct banking service which became effective in April.
Customer recruitment during the six month period was more active in the second
quarter of 2005, a response reflecting the timing of the launch of additional
products and the new delivery channels becoming functional. At the end of June
the customer base stood at 5,962 with a total of 10,511 accounts opened. The
strengthening customer recruitment profile has continued as we enter the second
half of the year with the past two months alone reflecting a further 40%
increase in customer numbers.
During the second half of 2005 our plan is to expand the Bank's distribution
network and open a further three branches. The first of these, Whitechapel
Road, London, opened on 5 July. Subject to receipt of the requisite permissions
from the FSA, the home finance product will become available during this period
as will the introduction of business finance to complement the Small Business
proposition recently launched on to the market. Inception of our internet
banking solution has taken place. The project will be further developed in the
months ahead, although current planning indicates that it will be the early part
of 2006 before this capability will become available to customers.
Abdul Rahman Abdul Malik
Chairman
Income Statement
for the 6 month period ended 30 June 2005
Note 6 month 5 month
period ended period ended
30 June 2005 31 December
2004
£ £
Income receivable from:
Murabaha and Wakala transactions 1,178,740 683,898
Consumer finance 17,351 -
Returns payable to customers (183,794) (7,500)
Net income from Islamic financing transactions 1,012,297 676,398
Fees and commission receivable 7,948 -
Fees and commission payable (746) -
Net fee income 7,202 -
Total operating income 1,019,499 676,398
Impairment charges and other credit risk provisions 5 (25,996) -
Net operating income 993,503 676,398
Employee compensation & benefits (1,334,967) (867,769)
General and Administrative expenses (1,743,592) (2,412,435)
Depreciation of property, plant and equipment (647,357) (503,564)
Total operating expenses (3,725,916) (3,783,768)
Operating loss (2,732,413) (3,107,370)
Tax on operating loss 6 - -
Loss for the period (2,732,413) (3,107,370)
Earnings per ordinary share (basic and diluted) - pence 4 (0.7) (0.9)
The notes form part of these financial statements
Balance sheet
At 30 June 2005
Note 30 31 December 2004
June 2005
£ £
Assets
Cash 198,598 47,195
Murabaha and Wakala receivables and other
advances due from banks 71,947,916 47,022,681
Consumer finance 5 2,573,727 -
Other assets 349,004 197,568
Prepayments and accrued income 218,220 189,509
Property, plant & equipment 4,477,835 3,547,073
Total assets 79,765,300 51,004,026
Liabilities and equity
Liabilities
Customer accounts 7 33,884,326 2,124,790
Other liabilities 1,599,340 1,865,189
Total liabilities 35,483,666 3,989,979
Equity
Called up share capital 4,190,000 4,190,000
Share premium 48,747,255 48,747,255
Retained earnings (5,923,208)
(8,655,621)
Total equity 44,281,634 47,014,047
Total equity and liabilities 79,765,300 51,004,026
These financial statements were approved by the board of directors on 12
September 2005 and were signed on its behalf by:
Michael R. Hanlon
Managing Director
The notes form part of these financial statements
Statement of changes in equity
for the 6 month period ended 30 June 2005
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
Balance at 1 January 2005 4,190,000 48,747,255 (5,923,208) 47,014,047
Loss for the financial period - - (2,732,413) (2,732,413)
Balance at 30 June 2005 4,190,000 48,747,255 (8,655,621) 44,281,634
Statement of recognised income and expense
for the 6 month period ended 30 June 2005
There were no items of recognised income and expense other than those disclosed
in the income statement or the statement of changes in equity.
The notes form part of these financial statements
Statement of cashflows
for the 6 month period ended 30 June 2005
Note 6 month period 5 month period
ended ended
30 June 2005 31 December
2004
£ £
Cash flows from operating activities
Operating loss (2,732,413) (3,107,370)
Adjustments for:
Non cash items included in net profit:
Depreciation
647,357 503,564
Impairment charges and other credit risk provisions 25,996 -
Change in operating assets (18,904,777) (34,787,063)
Change in operating liabilities 31,493,687 1,965,526
Net cashflow from operating activities 10,529,850 (35,425,343)
Cash flows from investing activities
Purchase of property, plant & equipment (1,578,119) (2,084,529)
Net cash used in investing activities (1,578,119) (2,084,529)
Cash flows from financing activities
Issue of ordinary share capital - 40,000,000
Expenses paid in connection with share issue - (1,015,545)
Net cash from financing activities - 38,984,455
Net increase in cash and cash equivalents 8,951,731 1,474,583
Cash and cash equivalents at beginning of period 8 1,692,012 217,429
Cash and cash equivalents at end of period 8 10,643,743 1,692,012
The notes form part of these financial statements
Notes to the Financial Statements
1 Basis of preparation
For all periods up to and including the 5 months ended 31 December 2004, Islamic
Bank of Britain PLC prepared its financial statements in accordance with UK
Generally Accepted Accounting Principles ('UK GAAP'). From 1 January 2005,
Islamic Bank of Britain PLC has elected to prepare its financial statements in
accordance with International Financial Reporting Standards ('IFRSs') as
endorsed by the EU and effective for the reporting period ended 31 December
2005. IFRSs comprise accounting standards issued by the International
Accounting Standards Board ('IASB') and its predecessor body as well as
interpretations issued by the International Financial Reporting Interpretations
Committee ('IFRIC') and its predecessor body. IFRSs in existence as at the date
of these interim consolidated financial statements may differ from endorsed
IFRSs actually in effect at 31 December 2005 as a result of decisions taken by
the EU on endorsement, interpretative guidance issued by the IASB and IFRIC, and
the requirements of companies legislation. These factors may affect Islamic Bank
of Britain PLC's Annual Report and Accounts 2005 and the information contained
within this document.
The adoption of IFRS has resulted in changes to the accounting policies as
compared with the most recent published financial statements prepared under UK
GAAP. The accounting policies set out below have been applied consistently
during the period commencing 1 January 2005.
In preparing these interim financial statements Islamic Bank of Britain PLC has
elected to take advantage of certain transitional provisions within IFRS 1 '
First-time Adoption of International Financial Reporting Standards' which offer
exemption from presenting comparative information or applying IFRS
retrospectively. The most significant of these provisions applying to these
accounts is the exemption from presenting comparative information in accordance
with IAS 32 'Financial Instruments: Disclosure and Presentation' ('IAS 32') and
IAS 39 'Financial Instruments: Recognition and Measurement' ('IAS 39').
Comparative information for financial instruments has been prepared on the basis
of Islamic Bank of Britain PLC's previous accounting policies.
The transition to IFRS has had no material impact upon the figures previously
reported in the Islamic Bank of Britain PLC's financial statements for the 5
month period ended 31 December 2004 nor on its opening balance sheets as at 1
August 2004 and 1 January 2005. Consequently, no material adjustments were
required of the figures previously reported under UK GAAP to those now reported
under IFRS, and, hence, reconciliations of the UK GAAP and IFRS figures have not
been provided.
2 Accounting policies
The following accounting policies have been applied in dealing with items which
are considered material in relation to the Company's financial statements. Where
these accounting policies differ to those previously applied under UK GAAP, the
old UK GAAP accounting policy has also been provided.
(a) 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 or goods and sells it to a counterparty
based on a promise received from that counterparty to buy the commodity or goods
according to specific terms and conditions. The selling price comprises of the
cost of the commodity or goods 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.
Murabaha receivables are recognised upon the sale of the commodity or goods to
the counterparty. Wakala receivables are recognised upon placement of funds
with other institutions.
Income, on both Murabaha and Wakala receivables, is recognised on a
time-apportioned basis over the period of the contract. Murabaha and Wakala
receivables are stated at cost less any provision for impairment and the accrued
income receivable is classified under other assets.
Other advances due from banks are stated at cost and are non-profit bearing.
(b) Consumer finance
Islamic consumer financing transactions represent an agreement whereby the
Company buys a commodity or goods and then sells it to the customer with an
agreed profit mark-up with settlement of the sale price being deferred for an
agreed period. The customer may subsequently sell the commodity purchased in
order to generate cash. Consumer finance balances are stated at cost less any
provision for impairment. Income is recognised on an effective yield basis over
the period of the contract based on the principal amounts outstanding. The
accrued profit receivable from the customer is classified under other assets.
(c) Impairment of financial assets
An assessment is made at each balance sheet date to determine whether there is
evidence that a specific financial asset may be impaired. If such evidence
exists, the estimated recoverable amount of that asset is determined and any
impairment loss, based on the net present values of future anticipated cashflows
discounted at original profit rates, is recognised in the income statement.
In addition, a provision is made to cover impairment of financing transactions
assessed collectively. These are estimated based on historical patterns of
losses in each component, and the credit ratings allocated to the counterparties
and reflecting the current economic climate in which the counterparties operate.
(d) Customer accounts
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.
Customer Murabaha deposits consist of an Islamic financing transaction involving
the Company arranging the purchase of an asset on behalf of the customer and the
purchase thereof from the same customer by the Company at cost plus an agreed
profit mark-up with settlement on a deferred payment basis. Customer Murabaha
deposit balances are included in the balance sheet under customer accounts and
the accrued returns payable to the customer is classified under other
liabilities. Returns payable on Customer Murabaha deposits is recognised on a
time apportioned basis over the period of the contract.
(e) Property, plant and equipment
Property, plant and equipment is stated at historical cost less any impairment
losses and depreciation. Depreciation of property, plant & equipment 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
Leasehold improvements 10 years
Property, plant & equipment is subject to review for impairment if there are
events or changes in circumstances that indicate that the carrying amount may
not be recoverable.
(f) Provisions
Provisions are recognised at the management's best estimate, when the Company
has a present obligation (legal or constructive) arising from a past event and
the costs to settle the obligation are both probable and able to be reliably
measured.
(g) Income Taxes
Income tax on the profit or loss for the periods presented comprises current and
deferred tax. Income tax is recognised in profit or loss except to the extent
that it relates to items recognised directly to equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantially enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
amount of deferred tax provided is based on the expected manner of realisation
or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised. Previously under UK
GAAP, deferred tax was recognised, without discounting, in respect of all timing
differences between the treatment of certain items for taxation and for
accounting purposes and which were risen but not reserved by the balance sheet
date, except as otherwise required by FRS 19. This change in accounting policy
has not resulted in any impact to these financial statements.
(h) Operating lease charges
Operating lease rentals, where the Company is the lessee, are accounted for on a
straight line basis over the period of the lease and included in general and
administrative expenses. The leased assets are not recognised on the balance
sheet.
(i) 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 are recognised
as an expense as they fall due.
(j) Cash and cash equivalents
For the purposes of the statement of cashflows, cash and cash equivalents
comprises of cash and any Murabaha and Wakala receivables and other advances due
from banks which are repayable in three months or less. Previously under UK
GAAP, cash, for the purposes of the cashflow statement, comprised of cash and
any Murabaha and Wakala receivables and other advances due from banks which were
repayable upon demand.
(k) 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.
3 Segmental Reporting
The company has one class of business and all other services provided are
ancillary to this. All business is conducted from the United Kingdom.
4 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 6 month period ended
30 June 2005 of 419,000,000 (5 month period ended 31 December 2004:
343,705,882).
5 Impairment charges and other credit risk provisions
6 month period 5 month
ended period ended
30 June 2005 31 December
2004
£ £
Income statement charge
Financing impairment charges:
- collectively assessed provision allowance 25,996 -
Total impairment charges and other credit risk provisions 25,996 -
This impairment provision has been classified in the balance sheet against
consumer finance.
6 Taxation
There were no taxable profits or recoverable losses for the 6 month period ended
30 June 2005 (5 month period ended 31 December 2004: £nil) and, accordingly, the
Company has not provided for a tax charge or a tax debtor.
As at 30 June 2005, the Company had deferred tax assets in respect of tax losses
carried forward of £1,846,016 (31 December 2004: £1,252,347) and in respect of
timing differences on capital allowances of £392,169 (31 December 2004:
£197,962). In respect of the recognition of deferred tax assets, for the
purposes of applying the requirements of IAS 12 ('Income Taxes'), it has been
considered that the Company is not currently at a sufficiently advanced stage in
its development to confidently assert future offsetting tax liabilities.
7 Customer accounts
6 month 5 month
period ended period ended
30 June 2005 31 December
2004
£ £
Non profit sharing accounts 2,529,980 6,593
Profit sharing accounts 27,738,034 2,118,197
Customer Murabaha deposits 3,616,312 -
Total customer accounts 33,884,326 2,124,790
8 Cash and cash equivalents
6 month 5 month
period ended period ended
30 June 2005 31 December
2004
£ £
Cash 198,597 47,195
Murabaha and Wakala receivables and other advances due
from banks which are repayable within 3 months 10,445,146 1,644,817
Total cash and cash equivalents 10,643,743 1,692,012
9 Related party disclosures
During the period the Company has undertaken transactions with Pelham
Incorporated Limited and The Support Store Limited, related parties by virtue of
the fact that Mr Shabir Randeree is a Director of Pelham Incorporated Limited
and The Support Store Limited and also serves on the board of the Company.
Details of these transactions are as follows:
6 month period 5 month period
ended ended
30 June 2005 31 December 2004
£ £
Pelham Incorporated Limited
Property rental 7,386 727
Other - 336
The Support Store Limited
IT expenses 2,201 7,859
Other 1,003 612
As at 30 June 2005 Pelham Incorporated Limited had deposits of £752,975 held
within accounts as a customer of the Bank. During the period ended 30 June 2005
total customer profit returns paid for these accounts were £6,185.
Additionally, as at 30 June 2005 one significant shareholder of the Company had
a deposit balance of £14,145,877. During the period ended 30 June 2005 total
customer profit returns paid for this account were £44,714.
10 Interim Report and statutory accounts
The information in this interim report is unaudited and does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985
(the Act). The Interim Report 2005 was approved by the Board of Directors on 12
September 2005. The comparative figures for the 5 month period ended 31
December 2004 are the Company's statutory accounts for that period. These
accounts, which were prepared under UK GAAP have been delivered to the Registrar
of Companies in England & Wales in accordance with section 242 of the Act. The
auditor has reported on those accounts. Its report was unqualified and did not
contain a statement under section 237(2) or (3) of the Act.
Independent review report by KPMG Audit Plc to Islamic Bank of Britain PLC
Introduction
We have been engaged by the Islamic Bank of Britain PLC ('the Company') to
review the financial information set out above and we have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Rules of the
Alternative Investment Market of the London Stock Exchange ('AIM'). Our review
has been undertaken so that we might state to the company those matters we are
required to state to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company for our review work, for this report, or for the
conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the AIM Rules
which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed.
As disclosed in note 1 to the financial information, the next annual financial
statements of the company will be prepared in accordance with IFRSs adopted for
use in the European Union.
The accounting policies that have been adopted in preparing the financial
information are consistent with those that the directors currently intend to use
in the next annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with those IFRSs adopted for use by the European Union.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of company management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
KPMG Audit Plc
Chartered Accountants 12 September 2005
8 Salisbury Square
London
EC4Y 8BB
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