Islamic Bank of Britain Plc
07 September 2006
ISLAMIC BANK OF BRITAIN PLC
Interim results for the six month period to 30 June 2006
Operational Summary
• 67% increase in customer numbers compared to the December 2005 position
(customer numbers have quadrupled in the last 12 months from 5,962 in June
2005 to 23,459 in June 2006)
• Customer deposits grew by 47% to £70.1 million
• Gross customer financing rose by 58% to £7.1 million
• Expected opening for East Ham branch by the end of 2006
• Total branch numbers currently 7 across the UK
• Imminent launch of internet banking service
• Further strengthened business banking proposition with introduction of
commercial property finance in July 2006
• Introduction of Home Finance product in June 2006
Financial Summary
• Income receivable from Murabaha and Wakala transactions increase to £1.7
million (six months to 30 June 2005 £1.2 million)
• Income receivable from consumer finance £281,825 (six months to 30 June
2005 £17,351)
• Net income from Islamic financing transactions of £1.2 million (six months
to 30 June 2005 £1.0 million)
• Operating costs up to £5.4 million from £3.7 million reflecting investment
in increased staff costs due to the opening of four new branches, marketing
and operational infrastructure
• Loss on ordinary activities before tax of £4.2 million (six months to 31
December 2005 £3.7 million)
• Loss per ordinary share 1.0p (six months to 30 December 2005 0.9p)
Abdul Rahman Abdul Malik, Chairman, commented: 'I am pleased to announce our
interim results to 30 June 2006, in particular the very positive increase in our
customer numbers, deposits and financing which demonstrate that Islamic Bank of
Britain is offering a much needed service to Muslims in the UK and many in the
wider community.
'During the first half of the year, we have focused on development of our
product portfolio with the launch of our Home Finance product and commercial
property finance. We have also strengthened our delivery channel capabilities
with the opening of our Manchester branch and the imminent launch of our
internet banking facility, which will be vital in attracting younger customers.
We remain on target to reach our goal of 13 strategically located branches in
the UK.
'Perhaps most importantly, the legislative changes in the 2006 Finance Bill,
which remove a number of tax hurdles that have restricted the development of
certain Islamic financing products, will enable us to promote a much wider range
of financing services to the personal and small business customer.'
-Ends-
Issued on behalf of Islamic Bank of Britain by McCann Erickson PR. McCann House,
Highlands Road, Shirley, Solihull, B90 4WE. Tel 0121 713 3500
For further information please contact Tom Leatherbarrow on 0121 713 3872,
tom.leatherbarrow@europe.mccan..com or Caroline Hosie on 0121 713 3829,
caroline.hosie@europe.mccann.com or Alison Love on 0121 713 3782,
alison.love@europe.mccann.com
GRANT THORNTON, Nominated Advisor:
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 2006
Registered number 4483430
Chairman's Statement
I am pleased to present the Interim Report of the Islamic Bank of Britain (the
'Bank') for the six month period ended 30 June 2006. In the first half of 2006:
• customer numbers increased by 67% to 23,459
• customer deposits grew by 47% to £70.1 million
• gross customer financing rose by 58% to £7.1 million
In the 2005 Annual Report I advised that we were hopeful that the 2006 Finance
Bill would contain legislative changes to remove the tax hurdles which have
restricted the development of certain of our Islamic financing products. I am
pleased to advise that these changes were included and became effective upon the
Bill receiving Royal Assent at the end of July. This will now enable the Bank
to promote a wider range of financing services to the personal and small
business customer.
The operating loss for the first half of the year amounted to £4.2 million.
Whilst costs were in line with budget, revenue has been constrained by the fact
that customer asset growth has been dependant on tax legislative changes as
outlined above. Net operating income of £1.2 million is £0.2 million higher
than the comparative period in 2005. This is reflective of the growth in
customer deposits and financing, but has been partly offset by lower income from
reduced capital. This reduction results from the continued investment in
building the operating infrastructure and distribution capability of the Bank.
Operating expenses at £5.4 million are £1.7 million higher than the 2005
comparative period. Of this amount, £0.6 million is attributable to increased
staff costs as a result of the opening of four new branches and £0.9
attributable to marketing costs. The remainder of the cost increase is
principally related to the further development of the Bank's operating
infrastructure, including Internet Banking and branch related costs. On the
positive side, legal and professional costs have continued to decrease from
£100k to £65k during the comparative period.
Impairment charges and credit risk provisions amounted to £134k. This figure
represents 1.9% of the total asset book. The figure for the comparative period
in 2005 was £26k. This increase is associated with the significant growth in
the business, but we remain alert to the current strains associated with
consumer debt within the UK and our lending policy approach to this sector is to
remain cautious.
The opening of our Manchester branch in January this year increased the branch
network distribution to seven units. We have successfully negotiated new
premises at East Ham, London and expect to be in a position to open a further
branch there before the end of the year. Additionally, our distribution
capability will shortly be enhanced with the launch of our Internet Banking
service. This has been operating in a test mode for some weeks now and we
expect to be in a position to make it available to all customers during the
third quarter of 2006.
Our Home Finance product was released towards the end of June and is now being
actively promoted to customers. Restrictions still exist on the use of Islamic
home finance for property purchase under the 'Right to Buy' scheme, and we shall
be contributing to the debate which seeks to explore a solution to this
particular hurdle.
Abdul Rahman Abdul Malik
Chairman
Income Statement
for the 6 month period ended 30 June 2006
Note 6 month 6 month 6 month
period ended period ended period ended
30 June 2006 30 June 2005 31 Dec 2005
£ £ £
Income receivable from:
Commodity Murabaha and Wakala transactions 1,725,063 1,178,740 1,604,864
Consumer finance accounts 281,825 17,351 184,188
Returns payable to customers (734,605) (183,794) (631,184)
Net income from Islamic financing transactions 1,272,283 1,012,297 1,157,868
Fees and commissions receivable 54,994 7,948 33,015
Fees and commissions payable (5,001) (746) (2,421)
Net fee income 49,993 7,202 30,594
Total operating income 1,322,276 1,019,499 1,188,462
Impairment charges and other credit risk provisions 4 (134,546) (25,996) (26,072)
Net operating income 1,187,730 993,503 1,162,390
Employee compensation and benefits (1,955,807) (1,334,967) (1,915,609)
General and administrative expenses (2,762,905) (1,743,592) (2,115,624)
Depreciation of property, plant and equipment (696,812) (647,357) (848,251)
Total operating expenses (5,415,524) (3,725,916) (4,879,484)
Operating loss (4,227,794) (2,732,413) (3,717,094)
Tax on operating loss 5 - - -
Loss for the period (4,227,794) (2,732,413) (3,717,094)
Earnings per ordinary share (basic and diluted) - pence 3 (1.0) (0.6) (0.9)
The notes form part of these financial statements.
Balance Sheet
At 30 June 2006
Note 30 June 30 June 31 December
2006 2005 2005
£ £ £
Assets
Cash 642,055 198,598 579,251
Commodity Murabaha and Wakala receivables and 93,686,166 71,947,916 78,037,676
other advances due from banks
Consumer finance accounts 4 6,930,066 2,573,727 4,454,369
Other assets 1,017,848 567,224 910,248
Property, plant and equipment 5,459,955 4,477,835 5,307,956
Total assets 107,736,090 79,765,300 89,289,500
Liabilities and equity
Liabilities
Customer liability accounts 6 70,084,230 33,884,326 47,714,593
Other liabilities 1,315,114 1,599,340 1,010,367
Total liabilities 71,399,344 35,483,666 48,724,960
Equity
Called up share capital 4,190,000 4,190,000 4,190,000
Share premium 48,747,255 48,747,255 48,747,255
Retained earnings (16,600,509) (8,655,621) (12,372,715)
Total equity 36,336,746 44,281,634 40,564,540
Total equity and liabilities 107,736,090 79,765,300 89,289,500
These financial statements were approved by the board of directors on 1
September 2006 and were signed on its behalf by:
Ashraf Piranie FCCA MBA
Finance Director
The notes form part of these financial statements
Statement of Changes in Equity
for the 6 month period ended 30 June 2006
Share Share Retained Total
capital premium Earnings
account
£ £ £ £
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
Loss for the financial period - - (3,717,094) (3,717,094)
Balance at 31 December 2005 4,190,000 48,747,255 (12,372,715) 40,564,540
Balance at 1 January 2006 4,190,000 48,747,255 (12,372,715) 40,564,540
Loss for the financial period - - (4,227,794) (4,227,794)
Balance at 30 June 2006 4,190,000 48,747,255 (16,600,509) 36,336,746
The notes form part of these financial statements
Cash Flow Statement
for the 6 month period ended 30 June 2006
Notes 6 month 6 month 6 month
period ended period ended period ended
30 June 2006 30 June 2005 31 Dec 2005
£ £ £
Cash flows from operating activities
Operating loss (4,227,794) (2,732,413) (3,717,094)
Adjustments for:
Non cash items included in net loss:
Depreciation 696,812 647,357 848,251
Impairment charges and other credit risk provisions 134,546 25,996 26,072
Increase in other assets (107,600) (180,147) (343,024)
Increase in Commodity Murabaha and Wakala receivables (17,241,077) (16,124,907) (12,174,279)
Increase / (decrease) in other liabilities 304,747 (265,849) (588,973)
Increase in customer liability accounts 22,369,637 31,759,536 13,830,267
Increase in consumer finance accounts (2,610,243) (2,599,723) (1,906,714)
Net cash (used in )/ from operating activities (680,972) 10,529,850 (4,025,494)
Cash flows from investing activities
Purchase of property, plant and equipment (848,811) (1,578,119) (1,678,372)
Net cash used in investing activities (848,811) (1,578,119) (3,256,491)
Net (decrease) / increase in cash and cash equivalents (1,529,783) 8,951,731 (5,703,866)
Cash and cash equivalents at beginning of period 7 4,939,877 1,692,012 10,643,743
Cash and cash equivalents at the end of the period 7 3,410,094 10,643,743 4,939,877
The notes form part of these financial statements
Notes
(forming part of the financial statements)
1 Accounting policies and basis of preparation
Islamic Bank of Britain PLC ('the Company') is a company incorporated in the UK.
This interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Company's
published financial statements for the year ended 31 December 2005.
The directors anticipate that these accounting policies will be used in the
preparation of the Company's annual accounts for the year ended 31 December
2006.
2 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.
3 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 2006 of 419,000,000 (6 month period ended 31 December 2005: 419,000,000,
6 month period ended 30 June 2005: 419,000,000)
4 Impairment charges and other credit risk provisions
6 month 6 month 6 month
period ended period ended period ended
30 June 2006 30 June 2005 31 Dec 2005
£ £ £
Income statement charge
Financing impairment charges:
- collectively assessed provision allowance 31,715 25,996 26,072
- specific provisions 102,831 - -
Total impairment charges and other credit risk provisions 134,546 25,996 26,072
This impairment provision relates to consumer finance accounts
Notes (continued)
5 Taxation
There were no taxable profits or recoverable losses for the 6 month period ended
30 June 2006 (6 month period ended 30 June 2005: £nil, 31 December 2005 £nil)
and, accordingly, the Company has not provided for a tax charge or a tax debtor.
As at 30 June 2006, the Company had potential deferred tax assets in respect of
tax losses carried forward of £3,703,692 (30 June 2005: £1,846,016, 31 December
2005 £2,690,896) and in respect of timing differences on capital allowances of
£781,257 (30 June 2005: £392,169, 31 December 2005 £646,645). 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. The capital allowances to
be claimed are being finalised and therefore the level of the asset shown above
may change.
6 Customer liability accounts
30 June 2006 30 June 2005 31 Dec 2005
£ £ £
Non profit sharing accounts 13,054,446 2,529,980 8,931,963
Profit sharing accounts 40,041,100 27,738,034 28,400,083
Customer Murabaha deposits 16,988,684 3,616,312 10,382,547
Total customer liability accounts 70,084,230 33,884,326 47,714,593
7 Cash and cash equivalents
30 June 2006 30 June 2005 31 Dec 2005
£ £ £
Cash 642,055 198,598 579,251
Other advances due from banks 2,768,039 10,445,145 4,360,626
Total cash and cash equivalents 3,410,094 10,643,743 4,939,877
Notes (continued)
8 Related party disclosures
During comparative periods the Company undertook the following transactions with
Pelham Incorporated Limited, a related party by virtue of the fact that Mr
Shabir Randeree is a director of Pelham Incorporated Limited and also serves on
the board of the Company.
6 month 6 month 6 month
period ended period ended period ended
30 June 2006 30 June 2005 31 Dec 2005
£ £ £
Pelham Incorporated Limited
Property rental - - 7,175
Other - - 211
In addition to the above transactions, Pelham Incorporated Limited held bank
accounts with the Company under normal customer terms and conditions. As at 30
June 2006 the total balances held on these accounts were £2,583,170 (30 June
2005: £752,975, 31 December 2005: £567,249) and returns paid on these accounts
were £17,536 (30 June 2005: £6,185, 31 December 2005: £9,377).
During the 6 month period ended 30 June 2006 there were no related party
transactions with The Support Store Ltd (30 June 2005: £3,204, 31 December 2005:
£1,321), DCD (30 June 2005: £nil, 31 December 2005: £2,294) and IJVP (30 June
2005: £nil, 31 December 2005: £530).
At 30 June 2006, there were no outstanding balances related to transactions with
The Support Store Ltd (30 June 2005: £nil, 31 December 2005: £413), DCD (30 June
2005: £nil, 31 December 2005: £nil), IJVP (30 June 2005: £nil, 31 December 2005:
£nil) and Pelham Incorporated Limited (30 June 2006: £nil, 30 June 2005: nil, 31
December 2005: £1,022).
A bank account was also held by European Islamic Investment Bank PLC (EIIB), a
related party by virtue of the fact that Shabir Randeree served on the boards of
both companies during the period. As at 30 June 2006, the deposit balances on
this account amounted to £4,942,189 (30 June 2005: £nil, 31 December 2005:
£5,031,793) and returns paid were £48,450 (30 June 2005: £nil, 31 December 2005:
£58,013).
Additionally, as at 30 June 2006 one significant shareholder of the Company had
a deposit balance of £3,582,038 (30 June 2005: £14,145,877, 31 December 2005:
£7,445,662) and returns paid were £115,256 (30 June 2005: £44,714, 31 December
2005: £228,020).
Notes (continued)
Transactions with key management personnel
Directors of the Company and their immediate relatives control 7.41 per cent of
the voting shares of the Company. Key management of the Company are the Board of
Directors and Management Committee members.
Other related party transactions
The compensation of key management personnel including the directors is as
follows:
6 month 6 month 6 month
period ended period ended period ended
30 June 2006 30 June 2005 31 Dec 2005
£ £ £
Key management emoluments including social security 544,950 365,000 406,112
costs
Company contributions to pension plans 15,872 17,000 14,708
Compensation for loss of office - 29,165 31,050
Total 560,822 411,165 451,870
Deposit balances, operated under standard customer terms and conditions, held by
key management personnel, including directors, totalled £183,488 as at 30 June
2006 (30 June 2005 £78,267; 31 December 2005 £960,426). The highest balance
during the 6 months period ended 30 June 2006 was £210,010 (30 June 2005
£78,267, 31 December 2005: £1,942,604). Total returns paid on these accounts
for the 6 months period ended 30 June 2006 totalled £488 (30 June 2005 £225; 31
December 2005 £15,270).
Outstanding consumer finance accounts balances relating to key management
personnel totalled £18,871 as at 30 June 2006 (30 June 2005 £nil, 31 December
2005: £37,304). Returns recognised during the year for these accounts were
£3,555 (30 June 2005 £nil, 31 December 2005: £594). All consumer finance
accounts facilities taken by key management personnel and staff were offered in
line with standard customer terms and conditions.
9 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'). This interim report was approved by the Board of Directors on 1
September 2006. The statutory accounts for the year ended 31 December 2005 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.
A summary of the interim report will be sent to shareholders and copies of the
summary document will be made available to the public for one month after such
mailing, free of charge, at the Bank's Birmingham Head Office, 3 Duchess Place,
Hagley Road, Edgbaston, Birmingham, B16 8NH.
Independent review report by KPMG Audit Plc to Islamic Bank of Britain PLC
Introduction
We have been instructed by Islamic Bank of Britain PLC ('the Company') to review
the financial information for the six months ended 30 June 2006 set out on pages
2 to 9, which comprises of an income statement, balance sheet, statement of
changes in equity, cash flow statement and related notes. 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. 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 interim report must be presented and prepared in a
form consistent with that which will be adopted in the Company's annual accounts
having regard to the accounting standards applicable to such annual accounts.
Review work performed
We conducted our review having regard to the guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board for use in the UK. 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 excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Statements on Auditing (UK and Ireland) 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 2006.
KPMG Audit Plc
Chartered Accountants
1 September 2006
8 Salisbury Square
London
EC4Y 8BB