10th Mar 2010 07:00
European Islamic Investment Bank plc
10 March 2010
Results for the year ended 31 December 2009
The Board of European Islamic Investment Bank plc ("EIIB", the "Bank" or the "Company") announces its audited results for the year ended 31 December 2009.
For further information, please contact:
EIIB plc Tel: +44 (0)20 7847 9900
Keith McLeod, Interim Chief Executive
Evolution Securities Tel: +44 (0)20 7071 4300
Chris Sim/Bobbie Hilliam
Fishburn Hedges Tel: +44 (0)20 7544 3056
Michelle James/Andrew Marshall
CHAIRMAN'S STATEMENT
2009 has been another extraordinary year for global financial markets with capitalisation and liquidity concerns affecting a large number of financial institutions. Liquidity, increased provisioning levels, exposure to the Real Estate sector and low real returns on Money Market activities were themes which characterised the Islamic financial markets during this period.
The Board of EIIB recognised at an early stage that 2009 would be a challenging year and I am pleased to report that the Bank has remained highly liquid; (+361% vs. the FSA minimum of -5%). This coupled with the strong capital position (£132.9m vs. the FSA minimum of £13.6m) has meant that the Bank has been better positioned than most to weather the storm.
The overall result for the year of a loss of £22.2m, whilst disappointing, is broadly in line with the result at the end of the first half of the year. Operating Profit on continued operations before tax, fair value losses, impairments and oil & gas activity declined from £4.3m in 2008, to a loss of £4.0m in 2009. The move from profit to loss was primarily driven by the unprecedented decline in market yields, indeed at the operating level, core Operating Expenses (excluding fair value adjustments, impairment provisions and operating expenses on oil and gas activities) remained static at £7.8m between 2008 and 2009.
Islamic Capital Markets experienced a significant recovery during the second half of 2009, after a subdued first half. A number of high quality entities, e.g. Petronas, GE Capital Corp, Islamic Development Bank, Tourism Development and Investment Company and International Finance Corporation, successfully issued Sukuk during this period, proving that investors retained an appetite for well rated issuers. Unfortunately, events in Dubai towards the end of the year had a materially negative impact on market sentiment, causing the recovery to largely stall.
The Bank continues to actively manage its exposures to Ahmad Hamad Algosaibi and Brothers Company and Saad Golden Belt 1 Sukuk. Events at these enterprises have been the subject of much debate and speculation in the media and after careful consideration the Directors' have concluded that the timeframe, and ultimate recovery of these amounts are highly uncertain and have therefore decided to increase provisions against these exposures up to £13.4m.
The Bank's Private Equity capability has continued its development during 2009, reflecting the surge of potential investment opportunities which have arisen as the Bank has become recognised as an investor of choice. The Board has maintained its careful and prudent approach to the valuation of Private Equity investments, as we believe that this is the only way to develop a credible long term track record of investment performance. With this in mind, the Board has decided to provide £5.1m against the investments in DiamondCorp Plc and TriTech.
During the last quarter of 2009, the Bank undertook a capital reduction and tender offer. The transaction was conducted to provide some liquidity for smaller shareholders who wished to realise some or all of their investment in the Bank. The capital reduction and tender were successfully concluded in December 2009.
As noted in my Interim Statement, during the third quarter of 2009, the Bank received a number of approaches from third parties who were interested in a business combination with EIIB. The Board determined that the approaches did not make strategic sense, nor did they fairly reflect the value of EIIB, hence the discussions were terminated.
On 30 December 2009 the Pan-European Islamic Real Estate Fund was sold to ED Limited, a Cayman Islands registered company. The disposal of this entity effectively concluded the disposal of the property portfolio originally acquired in 2007 by its subsidiary The House Limited, and hence, the loss (£7.1m) accounted for in the Interim income statement was reversed in the second half of 2009.
As I noted in my Interim Statement, Mr. John Weguelin, decided to stand down as CEO of EIIB in August 2009. An extensive search process is currently underway to find a replacement CEO; whilst this process is taking longer than the Board would like, it is obviously vital to ensure that the right person is found for this key role. In the meantime, on behalf of the Board, I would like to take this opportunity to thank Mr Keith McLeod for his continuing diligent and professional stewardship of the Bank during this transitional period.
The strategic review of the Bank's activities referred to in my interim statement has made substantial progress. The new CEO will be charged with refining and concluding the Bank's new strategic development, as well as delivering the strategic vision.
I am excited about the Bank's prospects as it moves into this next phase of development. There will be many fresh challenges ahead, but I am confident that EIIB will start to deliver the building blocks required to construct a long term profitable future.
Adnan Ahmed Yousif
Chairman
OPERATING AND FINANCIAL REVIEW
INTRODUCTION
The Directors present the Operating and Financial Review for 2009. Having followed the framework set out in the Accounting Standards Board's Reporting Statement: Operating and Financial Review as a guide to best practice, the Directors believe they have discharged their responsibilities under Section 417 of the Companies Act 2006 to provide a balanced and comprehensive review of the development and performance of the business.
EIIB'S OBJECTIVES AND MARKET ENVIRONMENT
EIIB was the first independent Sharia'a compliant investment bank to be authorised by the Financial Services Authority (FSA). The Bank received its authorisation on 8 March 2006 and is listed in the UK on the Alternative Investment Market within the London Stock Exchange.
The Bank was established to bridge the gap between the financial markets of the Islamic world and those of Western and OECD territories. It delivers products and services across asset classes to the Islamic wholesale, institutional, and high net worth individual markets. The Bank's competitive positioning is significantly enhanced by its base in the pre-eminent global financial centre, London.
The key principles of Islamic banking are derived from the Quran and are based on the avoidance of:
·; Interest
·; Uncertainty
·; Speculation
·; Unjust enrichment or unfair exploitation
The Bank's Sharia'a Supervisory Board, comprising eminent Islamic scholars, is tasked with ensuring that all products are structured to reflect these principles.
BUSINESS OBJECTIVES
The current operations of the Bank are organised into two business units:
TREASURY AND CAPITAL MARKETS
EIIB's Treasury engages in foreign exchange spot and the Islamic equivalent of forward foreign exchange markets and promotes liquidity in the Islamic money markets. The unit manages the short and medium term liquidity profile of the Bank within the guidelines laid down by the FSA and the Bank's Asset and Liability Committee. In addition to being involved in Islamic interbank commodity murabaha and wakala money markets, it seeks to build a sustainable base of third party deposits by establishing direct relationships and structured investment products.
The Capital Markets unit's remit covers a range of activities including, but not limited to, term financing, sukuk and structured trade finance. It is involved in all aspects of the product value chain, including origination, structuring, underwriting and distribution. The Bank invests in mandated financing issues and develops and maintains an active secondary market in such issues.
PRIVATE EQUITY AND CORPORATE ADVISORY
EIIB's Private Equity and Corporate Advisory Team ('PECA') operates a private equity investment business and provides advisory services to the Bank's clients. PECA sources opportunities to invest in both private and stock exchange listed companies and invests in businesses that meet the criteria set by the Bank's Board Executive Committee. PECA's investment remit is to source transactions primarily from outside of the Gulf Co-operation Council countries and, whilst that remit is global, PECA focuses on investment opportunities within Europe, the Middle East, USA and Africa.
Investee companies are sought that are revenue producing, recession resistant and have good prospects of generating significant upside within a target period of two to four years.
BUSINESS STRATEGY AND RESULTS
2009 continued to be exceptionally challenging for all financial institutions. The overriding themes of depressed asset prices and lack of confidence resulted in very low transaction volumes in the Islamic capital markets. Low profit rates in the sukuk, murabaha and wakala markets reflected the low global base rate environment.
EIIB's results at the consolidated level reflect a loss of £22.2m after tax. The loss reflects the subdued operating environment, and fair value and impairment provisions against two Capital Markets and two Private Equity assets.
EIIB makes term financing facilities available under a number of Sharia'a compliant structures. Prior to committing any financing, EIIB undertakes rigorous credit and risk assessment of the obligor. Capital Markets funding made available to Ahmed Hamad Algosaibi and Brothers Company and Saad Golden Belt 1 Sukuk Company have defaulted during the year and EIIB has made provisions of £13.4m against these.
The Private Equity and Corporate Advisory business acquired its second asset, an interest in a joint venture oil and gas exploration activity during 2009. The division's first acquisition, DiamondCorp Plc, a diamond production company operating in South Africa, has suffered severe financial difficulties during the year. The Oil & gas venture is still in the exploration stage and its success is yet to be determined. In line with Boards' cautious approach on asset valuation, £5.1m is recognised as fair value deterioration and impairment against the two investments made.
EIIB held an interest in a portfolio of UK commercial property through a shareholding in the Pan-European Islamic Real Estate Fund ("PEIREF"). The portfolio was owned by The House Limited ("THL"), a subsidiary of PEIREF. Following a breach of a covenant by THL at the end of 2008 the third-party financial institution that provided senior funding to THL, exercised their security and appointed a receiver to take over the property portfolio. In December 2009 EIIB sold its interest in PEIREF. EIIB's investment in PEIREF was fully written-off by the end of 2008 and hence the 2009 annual financial statements are not impacted by the sale (the net liability position of PEIREF that was reflected in the consolidated interim financial statements -June 2009- has reversed following the disposal).
PEOPLE
A significant differentiating factor for our business has been our ability to attract quality staff from the London market. The Directors believe that the Bank has a competitive remuneration structure, which enables EIIB to retain and attract staff of the highest calibre.
OPERATIONAL
The Bank has built an operational infrastructure that is robust and scalable. The Directors are confident that the controls around these systems and processes are effective in protecting and safeguarding the Bank's assets. EIIB's Internal Audit department, under the direction of the Board's Audit Committee, is responsible for working with management to identify and quantify risk, provide independent appraisals of systems of internal control, add value to business initiatives and support development of a sound control culture throughout the Bank.
RISKS
EIIB is exposed to market risk in relation to its proprietary investments, counterparty risk from transactions with third parties, particularly money market transactions, liquidity risk from liquidity mismatches and operational risk.
The Bank's measured approach to risk is documented in the risk policy. Under this policy risk is monitored on a daily basis.
KEY PERFORMANCE INDICATORS
The Board are of the view that management should build the business while tracking performance against indicators such as return on equity ('ROE'), staff turnover and efficiency. As business activities further develop, the Bank will benchmark these key performance indicators ('KPI's') against international Islamic banking institutions. The Bank does not consider it meaningful at this point to disclose numerical targets and performance indicators.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
|
2009 |
|
2008 |
|
|
|
|
£ |
|
£ |
|
|
Income |
|
|
|
|
|
|
Income from financing and investing activities |
|
3,774,911 |
|
12,785,855 |
|
|
Returns to financial institutions and customers |
|
(450,117) |
|
(2,517,987) |
|
|
Net margin |
|
3,324,794 |
|
10,267,868 |
|
|
|
|
|
|
|
|
|
Foreign exchange gains |
|
91,340 |
|
805,985 |
|
|
Trading income |
|
309,813 |
|
242,970 |
|
|
Fees and commissions |
|
- |
|
787,143 |
|
|
Oil & gas gross loss |
|
(355,930) |
|
- |
|
|
Total operating income |
|
3,370,017 |
|
12,103,966 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
Fair value loss on assets designated as fair value through income statement |
|
(4,134,525) |
|
- |
|
|
Provision for impairment of financing arrangements |
|
(6,351,575) |
|
(3,750,000) |
|
|
Provision for impairment of available for sale securities |
|
(7,030,988) |
|
- |
|
|
Impairment of goodwill |
|
(954,077) |
|
- |
|
|
Staff costs |
|
(4,709,722) |
|
(5,016,059) |
|
|
Depreciation and amortisation |
|
(405,596) |
|
(428,374) |
|
|
Other operating expenses |
|
(2,657,533) |
|
(2,345,672) |
|
|
Oil & gas overheads |
|
(824,715) |
|
- |
|
|
|
|
|
|
|
|
|
Operating (loss)/profit before tax |
|
(23,698,714) |
|
563,861 |
|
|
|
|
|
|
|
|
|
Tax |
|
1,519,399 |
|
(1,091,533) |
|
|
|
|
|
|
|
|
|
Loss for the year from continued operations |
|
(22,179,315) |
|
(527,672) |
|
|
|
|
|
|
|
|
|
Loss after tax for the year from discontinued operations |
|
- |
|
(14,285,451) |
|
|
|
|
|
|
|
|
|
Loss for the year |
|
(22,179,315) |
|
(14,813,123) |
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
Equity holders of the Bank |
|
(22,013,425) |
|
(14,813,123) |
|
|
Non controlling interest |
|
(165,890) |
|
- |
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
- basic and diluted |
|
(1.22p) |
|
(0.81p) |
|
|
Continuing operations |
|
|
|
|
|
|
- basic and diluted |
|
(1.22p) |
|
(0.03p) |
|
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
Year to |
|
Year to |
|
|
31 Dec 2009 |
|
31 Dec 2008 |
|
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
Loss for the year |
(22, 179,315) |
|
(14,813,123) |
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
Net change in fair value of available-for-sale financial assets |
1,744,575 |
|
(3,890,474) |
|
Net amount transferred to profit or loss |
1,322,950 |
|
- |
|
Income tax effect on the changes of available for sale financial assets |
- |
|
1,108,785 |
|
Exchange difference on net investment in foreign operations |
183,728 |
|
- |
|
Other comprehensive income/(expense) for the period, net of income tax |
3,251,253 |
|
(2,781,689) |
|
|
|
|
|
|
Total comprehensive expense for the year |
(18,928,062) |
|
(17,594,812) |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Bank |
(18,785,201) |
|
(17,594,812) |
|
Non-controlling interest |
(142,861) |
|
- |
|
|
|
|
|
|
|
(18,928,062) |
|
(17,594,812) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2009
|
|
|
2009 |
|
2008 |
|
|
|
£ |
|
£ |
|
Assets |
|
|
|
|
|
Cash and balances with banks |
|
685,495 |
|
972,540 |
|
Due from financial institutions |
|
120,295,974 |
|
144,365,892 |
|
Financing arrangements |
|
11,250,000 |
|
28,390,180 |
|
Available for sale securities - Sukuk |
|
23,496,214 |
|
56,559,347 |
|
Available for sale securities - Equity |
|
127,817 |
|
- |
|
Financial assets designated at fair value |
|
750,438 |
|
4,884,963 |
|
Fair value of foreign exchange agreements |
|
30,091 |
|
20,012 |
|
Investment property |
|
- |
|
38,699,245 |
|
Plant and equipment |
|
191,061 |
|
293,107 |
|
Intangible assets |
|
415,512 |
|
683,261 |
|
Oil & gas properties |
|
7,032,334 |
|
- |
|
Other assets |
|
1,747,471 |
|
1,975,217 |
|
Current tax asset |
|
955,973 |
|
815,076 |
|
Total assets |
|
166,978,380 |
|
277,658,840 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Due to financial institutions |
|
21,273,067 |
|
107,084,431 |
|
Due to customers |
|
1,009,533 |
|
2,728,522 |
|
Fair value of foreign exchange agreements |
|
539,811 |
|
1,924,178 |
|
Other liabilities |
|
2,837,556 |
|
2,504,209 |
|
Deferred tax liability |
|
- |
|
60,212 |
|
Total liabilities |
|
25,659,967 |
|
114,301,552 |
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
Share capital |
|
17,656,585 |
|
18,255,625 |
|
Share premium account |
|
116,219,800 |
|
164,229,939 |
|
Capital redemption reserve |
|
599,040 |
|
- |
|
Fair value reserve |
|
(161,161) |
|
(3,228,686) |
|
Foreign exchange reserve |
|
160,699 |
|
- |
|
Retained earnings |
|
5,903,845 |
|
(15,899,590) |
|
Total equity attributable to the Bank's equity holders |
|
140,378,808 |
|
163,357,288 |
|
|
|
|
|
|
|
Non-controlling interest |
|
939,605 |
|
- |
|
|
|
|
|
|
|
Total equity and liabilities |
|
166,978,380 |
|
277,658,840 |
Adnan Yousif Keith McLeod
Chairman Acting Chief Executive Officer and Finance Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2009
|
|
Share capital |
|
Share premium account |
|
Capital redemption reserve |
|
Special reserve |
|
Fair value reserve |
|
Forex reserve |
|
Retained earnings |
|
Non controlling interest |
|
Total equity - Group |
|
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2008 |
18,255,625 |
|
164,229,939 |
|
- |
|
- |
|
(446,997) |
|
- |
|
(1,119,160) |
|
- |
|
180,919,407 |
|
Share award |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
32,693 |
|
- |
|
32,693 |
|
|
18,255,625 |
|
164,229,939 |
|
- |
|
- |
|
(446,997) |
|
- |
|
(1,086,467) |
|
- |
|
180,952,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised loss on available for sale investments |
|
|
|
|
|
|
|
|
(3,890,474) |
|
- |
|
- |
|
- |
|
(3,890,474) |
|
Tax effect adjusted |
|
|
|
|
|
|
|
|
1,108,785 |
|
- |
|
- |
|
- |
|
1,108,785 |
|
Loss for the year |
|
|
|
|
|
|
|
|
- |
|
- |
|
(14,813,123) |
|
- |
|
(14,813,123) |
|
Total comprehensive loss for the year |
|
|
|
|
|
|
|
|
(2,781,689) |
|
- |
|
(14,813,123) |
|
- |
|
(17,594,812) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2008 |
18,255,625 |
|
164,229,939 |
|
- |
|
- |
|
(3,228,686) |
|
- |
|
(15,899,590) |
|
- |
|
163,357,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2009 |
18,255,625 |
|
164,229,939 |
|
- |
|
- |
|
(3,228,686) |
|
- |
|
(15,899,590) |
|
- |
|
163,357,288 |
|
Creation of special reserve |
- |
|
(48,010,139) |
|
- |
|
48,010,139 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
Redemption/ repurchase of shares |
(599,040) |
|
- |
|
599,040 |
|
(4,193,279) |
|
- |
|
- |
|
- |
|
- |
|
(4,193,279) |
|
Non controlling interest arising on business combinations |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
1,082,466 |
|
1,082,466 |
|
|
17,656,585 |
|
116,219,800 |
|
599,040 |
|
43,816,860 |
|
(3,228,686) |
|
- |
|
(15,899,590) |
|
1,082,466 |
|
160,246,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealised profit on available for sale securities |
|
|
|
|
|
|
|
|
1,744,575 |
|
- |
|
- |
|
- |
|
1,744,575 |
|
Impairment losses on available for sale investments transferred to income statement |
|
|
|
|
|
|
|
|
1,322,950 |
|
- |
|
- |
|
- |
|
1,322,950 |
|
Loss for the year |
|
|
|
|
|
|
|
|
- |
|
- |
|
(22,013,425) |
|
(165,890) |
|
(22,179,315) |
|
Foreign exchange adjustment |
|
|
|
|
|
|
|
|
- |
|
160,699 |
|
- |
|
23,029 |
|
183,728 |
|
Transfer from Special Reserve |
|
|
|
|
|
|
(43,816,860) |
|
- |
|
- |
|
43,816,860 |
|
- |
|
- |
|
Total comprehensive loss for the year |
|
|
|
|
|
|
(43,816,860) |
|
3,067,525 |
|
160,699 |
|
21,803,435 |
|
(142,861) |
|
(18,928,062) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2009 |
17,656,585 |
|
116,219,800 |
|
599,040 |
|
- |
|
(161,161) |
|
160,699 |
|
5,903,845 |
|
939,605 |
|
141,318,413 |
CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
|
2009 |
|
2008 |
|
|
Notes |
£ |
|
£ |
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
Operating (loss)/profit on |
|
|
|
|
|
- continuing activities before tax |
|
(23,698,714) |
|
563,861 |
|
- discontinued operations |
|
- |
|
(14,285,451) |
|
Adjusted for: |
|
|
|
|
|
Provision for impairment of the property portfolio |
31 |
- |
|
14,705,914 |
|
Provision for impairment of financial assets |
|
14,336,640 |
|
3,750,000 |
|
Net loss on investment securities at fair value through income statement |
|
4,134,525 |
|
- |
|
Depreciation and amortisation |
18,19 |
405,596 |
|
722,460 |
|
Charges for share awards |
8 |
- |
|
32,693 |
|
Net (increase)/decrease in operating assets: |
|
|
|
|
|
Collateral deposits |
|
- |
|
235,732 |
|
Due from financial institutions |
|
24,069,917 |
|
53,405,223 |
|
Financing arrangements |
|
10,788,605 |
|
(7,105,241) |
|
Available for sale securities - sukuk |
|
29,421,992 |
|
(26,129,769) |
|
Available for sale securities - equity |
|
(127,817) |
|
- |
|
Financial assets designated at fair value |
|
- |
|
(4,884,963) |
|
Fair value of foreign exchange agreements |
|
(1,394,446) |
|
1,170,102 |
|
Investment property |
31 |
38,699,245 |
|
- |
|
Other assets |
|
1,561,775 |
|
1,745,276 |
|
Net increase/(decrease) in operating liabilities: |
|
|
|
|
|
Due to financial institutions |
|
(85,811,364) |
|
(19,596,561) |
|
Due to customers |
|
(1,718,988) |
|
(43,458) |
|
Other liabilities |
|
(163,258) |
|
(2,087,890) |
|
Taxation: |
|
|
|
|
|
Corporation tax recovered/(paid) |
|
785,471 |
|
(1,790,000) |
|
Net cash inflow from operating activities |
|
11,289,179 |
|
407,928 |
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
Acquisition of subsidiaries, net of cash acquired |
|
(7,347,144) |
|
- |
|
Purchase of plant and equipment |
18 |
(15,878) |
|
(28,478) |
|
Purchase of intangible assets |
19 |
(19,923) |
|
(51,756) |
|
Net cash outflow from investing activities |
|
(7,382,945) |
|
(80,234) |
|
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
Redemption of shares |
|
(4,193,279) |
|
- |
|
Net cash outflow from financing activities |
|
(4,193,279) |
|
- |
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(287,045) |
|
327,694 |
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
|
972,540 |
|
644,846 |
|
Cash and cash equivalents at the end of the year |
|
685,495 |
|
972,540 |
Notes to the consolidated financial statements for the year ended 31 December 2009
1 Segmental information
The Group has two reporting segments as at the end of 2009, the "Treasury and Capital Markets" division and the "Private Equity and Corporate Advisory" division, which are the Group's strategic business units ("SBU"). These SBU offer different products and services, and are managed separately based on the Group's management and internal reporting structure. A description of the activities of these divisions can be found in the "Operating and Financial Review" (page 6). For each SBU, the Group's management committees and the Board review internal management reports on a monthly basis.
The Treasury and Capital Markets unit became fully active in April 2006 following FSA authorisation. The majority of the cost base, and the assets and liabilities of the Bank have been deployed in support of that business unit. The Real Estate division was discontinued during 2009. The Private Equity and Corporate Advisory division was launched in 2008 and the division had made two investments by 31 December 2009.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before tax and is reviewed by Group executive management and the board of directors. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
|
2009 |
|
|
Treasury |
|
Real |
|
Private Equity |
|
|
|
|
|
|
and Capital |
|
Estate |
|
and Corporate |
|
|
|
|
|
|
Markets |
|
(Discontinued) |
|
Advisory |
|
Total |
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers |
|
4,176,064 |
|
1,991,000 |
|
69,884 |
|
6,236,948 |
|
|
Returns to external customers |
|
(450,117) |
|
(1,779,000) |
|
- |
|
(2,229,117) |
|
|
Costs associated with Real Estate |
|
|
|
(212,000) |
|
- |
|
(212,000) |
|
|
Gross loss of oil & gas operations |
|
- |
|
- |
|
(425,814) |
|
(425,814) |
|
|
Operating income |
|
3,725,947 |
|
- |
|
(355,930) |
|
3,370,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional loss before tax |
|
(13,851,082) |
|
- |
|
(8,952,999) |
|
(22,804,081) |
|
|
Unallocated* |
|
|
|
|
|
|
|
(894,633) |
|
|
Operating loss before tax |
|
|
|
|
|
|
|
(23,698,714) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value movement Impairment of assets
|
|
|
- (13,382,563)
|
|
- - |
|
(4,134,525) (954,077)
|
|
(4,134,525) (14,336,640)
|
|
|
|
|
(13,382,563) |
|
- |
|
(5,088,602) |
|
(18,471,165) |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
(304,197) |
|
- |
|
(101,399) |
|
(405,596) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
158,162,900 |
|
- |
|
8,815,480 |
|
166,978,380 |
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
24,791,873 |
|
- |
|
868,094 |
|
25,659,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
|
|
|
|
|
|
|
|
|
|
Plant and equipment |
|
|
11,490 |
|
- |
|
4,388 |
|
15,878 |
|
Intangible assets |
|
|
13,947 |
|
- |
|
5,976 |
|
19,923 |
*-Centrally incurred costs are allocated according to usage
|
2008 |
|
Treasury |
|
|
|
Private Equity |
|
|
|
|
|
and Capital |
|
Real |
|
and Corporate |
|
|
|
|
|
Markets |
|
Estate |
|
Advisory |
|
Total |
|
|
|
|
|
(Discontinued) |
|
|
|
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers |
14,621,953 |
|
3,693,527 |
|
- |
|
18,315,480 |
|
|
Returns to external customers |
(2,517,987) |
|
(2,555,972) |
|
- |
|
(5,073,959) |
|
|
Operating income |
12,103,966 |
|
1,137,555 |
|
- |
|
13,241,521 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
2,926,301 |
|
(15,704,317) |
|
(943,574) |
|
(13,721,590) |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets |
|
(3,750,000) |
|
(14,705,914) |
|
- |
|
(18,455,914) |
|
Depreciation and amortisation |
|
(376,791) |
|
(327,478) |
|
(18,191) |
|
(722,460) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
232,940,220 |
|
39,551,255 |
|
5,167,365 |
|
277,658,840 |
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
74,822,437 |
|
39,479,115 |
|
- |
|
114,301,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
|
|
|
|
|
|
|
|
|
Plant and equipment |
|
18,061 |
|
6,779 |
|
3,638 |
|
28,478 |
|
Intangible assets |
|
46,910 |
|
3,205 |
|
1,641 |
|
51,756 |
2 Income from financing and investing activities
|
|
|
2009 |
|
2008 |
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
Due from financial institutions - murabaha and wakala |
|
1,376,022 |
|
7,487,206 |
|
Financing arrangements - murabaha |
|
1,184,794 |
|
3,148,045 |
|
Available for sale investments - sukuk |
|
1,214,095 |
|
2,150,604 |
|
|
|
3,774,911 |
|
12,785,855 |
3 Returns to financial institutions and customers
|
|
|
2009 |
|
2008 |
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
Due to financial institutions - murabaha and wakala |
|
365,959 |
|
2,374,638 |
|
Due to customers - murabaha and wakala |
|
84,158 |
|
143,349 |
|
|
|
450,117 |
|
2,517,987 |
4 Foreign exchange gains
|
|
|
2009 |
|
2008 |
|||
|
|
|
£ |
|
£ |
|||
|
Net (losses)/gains on translation of balances denominated in foreign currency |
(1,303,106) |
|
1,976,086 |
||||
|
Net gains/(losses) on translation of forward foreign exchange agreements |
1,394,446 |
|
(1,170,101) |
||||
|
|
|
91,340 |
|
805,985 |
|||
5 Trading income
|
|
|
2009 |
|
2008 |
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
Available for sale securities - sukuk and equity securities |
|
309,813 |
|
242,970 |
6 Investments in subsidiaries
The Bank's subsidiaries as at 31 December 2009 are as follows:
Country
Company Principal Activity Control % of registration
EIIB InvestCo SPC * Limited partner 100 Bahrain
EIIB ServiceCo WLL * General partner 100 Bahrain
TriTech Capital Limited Oil & gas exploration 87 British Virgin Islands
* no business activities during 2009
The Bank's controlled entities as at 31 December 2008 were as follows:
EIIB Pan-European Islamic Real Estate Fund** Holding company 100 Cayman Islands
The House Limited** Real Estate 100 Cayman Islands
** disposed of in 2009
|
Investment in subsidiaries |
|
|
|
2009 |
|
|
£ |
|
At 1 January |
- |
|
Additions |
8,153,134 |
|
Disposals |
- |
|
Fair value loss during the year |
(1,808,132) |
|
At 31 December |
6,345,002 |
|
|
|
There was no movement in 2008.
6.1 Acquisition of a subsidiary
On 20 March 2009, as part of EIIB's Private Equity and Corporate Advisory activities, the Group obtained control of TriTech Capital Ltd (BVI) (and the entities incorporated as its subsidiaries, together the 'TriTech Capital Group'). Control was obtained by acquiring a shareholding in TriTech Capital Ltd (BVI) and entering into a shareholders' agreement that enables the Bank to appoint the majority of the directors to the board of the TriTech Capital Group companies.
The investment was structured via a financing facility with rights to convert the facility into equity shares at any time as determined by EIIB. EIIB's interest in TriTech for consolidation purposes is determined based on its effective interest in the net assets of the investee.
Identifiable assets and liabilities of TriTech Capital Group as at the date of acquisition:
|
|
|
|
|
£ |
|
Cash & bank balances |
810,512 |
|
Oil & Gas assets |
7,583,539 |
|
Other assets |
252,938 |
|
Other liabilities |
(496,605) |
|
Net assets |
8,150,384 |
|
Non controlling interest (13.1322%) |
(1,070,326) |
|
Total net assets acquired |
7,080,058 |
|
Goodwill |
954,077 |
|
Consideration satisfied by cash |
8,034,135 |
There were no significant differences between carrying values and fair values at the date of acquisition.
|
Goodwill:
|
£ |
|
Total consideration transferred in respect of financing facility and equity share (all settled in cash) |
8,034,135 |
|
Less: value of identifiable net assets |
(7,080,058) |
|
Goodwill on acquisition |
954,077 |
|
Impairment |
(954,077) |
|
Balance |
- |
Goodwill was created on acquisition as the cost exceeded EIIB's interest in the fair values of TriTech's identified net assets. The goodwill was impairment tested as at 31 December 2009 in compliance with IAS 36, evaluating the results so far and the possible outcomes. In line with the Boards' cautious approach on asset valuation management has decided to impair the goodwill.
The effective interest of EIIB and that of the Non-controlling interest:
The following table illustrates the effective interest of EIIB and that of the non-controlling equity contributors based on the IAS 27 which states that the proportion allocated is determined taking into account the eventual exercise of potential voting rights. Accordingly the financing facility is treated as an equity stake for consolidation purposes and to calculate the effective non-controlling interest.
|
|
Date
|
% acquired by EIIB |
EIIB cumulative % |
Non-controlling interest % |
|
Initial drawdown of facility |
20 Mar 09 |
82.58% |
82.58% |
17.42% |
|
Second drawdown of facility |
12 May 09 |
2.58% |
85.16% |
14.84% |
|
Third drawdown of facility |
11 Jun 09 |
1.70% |
86.87% |
13.13% |
Had the acquisition date been 1 January 2009, the Group would have made a post-tax loss of £22.5m on its continuing operations. The Group's total revenue would have been unchanged.
The investment in the TriTech project is the second investment made by the business segment, 'Private Equity and Corporate Advisory' after its establishment in 2008.
6.2 Oil and gas properties
Oil and gas properties capitalised during the year are as follows. All these assets were acquired by the Group during the year as a part of the acquisition of TriTech Capital Group.
|
|
|
2009 |
|
|
|
£ |
|
Unproved intangible mineral interest |
|
|
|
- Intangible drilling |
|
2,426,991 |
|
- Intangible completion |
|
1,075,590 |
|
- Prospect development |
|
2,801 |
|
- Leasehold costs |
|
2,656,517 |
|
|
|
6,161,899 |
|
Unproved property, plant & equipment |
|
|
|
- Tangible |
|
639,472 |
|
- Facilities |
|
196,895 |
|
- Buildings |
|
1,053 |
|
- Leasehold improvements |
|
14,353 |
|
- Inventory |
|
18,662 |
|
|
|
870,435 |
|
Total oil and gas properties |
|
7,032,334 |
|
|
|
|
In accordance with IFRS 6 all oil & gas exploration costs are capitalised as intangible assets on acquisition. These are tested for impairment on a regular basis, based on the results of exploratory activity and management's evaluation thereof. No impairment allowances have been made against the oil & gas properties during the year.
7 Investment property
The Bank's interest in the asset management special purpose vehicle, EIIB Pan-European Islamic Real Estate Fund (the Fund), which held a UK commercial real estate property portfolio through its investment in The House Limited (THL) was sold to a third party in December 2009 for negligible consideration.
The Fund was established on 22 November 2006, and the property portfolio was acquired on 18 April 2007. The acquisition of the properties was financed by a third-party financial institution on a murabaha basis and the Bank via a bridging facility. The Bank owned 100% of the management shares in the Fund, there being no other equity shares in issue. In turn the Fund owned 100% of the equity shares of THL, the company which owns the properties. Both the Fund and THL are registered in the Cayman Islands. As a result of the nature of the relationship between the Bank and the Fund, the requirements of IAS 27 and Standard Interpretation Committee (SIC) 12, the results of the Fund and the underlying property portfolio were consolidated with those of the Bank in 2008.
Following a breach of a covenant in 2008 the third-party financial institution appointed an administrator to take over all the properties of THL. The property activities were accounted for under IFRS 5 "Discontinued operations" in the Bank's interim financial statements as at 30 June 2009. The fund was sold in December 2009 and was therefore deconsolidated as at 31 December 2009. The Group's reported loss on THL activities of £7.1m in its June 2009 interim financial statements has therefore been offset by an equivalent profit arising following the disposal of the Fund.
The Bank's consolidated statement of financial position for 2008 recognised the properties in accordance with the requirements of IAS 40. Accordingly these properties were carried at original cost less depreciation and were impairment tested for reporting purposes. The Group estimated the recoverable amount for this purpose. The recoverable amount of an asset is the higher of its fair value less cost to sell, and its value in use. Value in use is the present value of future cash flows from the assets discounted at a rate that reflects market returns adjusted for risks specific to the assets. When the recoverable amount of an asset is less than its carrying value, an impairment loss is recognised immediately in profit or loss and the carrying value of the asset reduced by the amount of the loss. The value in use of the property portfolio as at 31 December 2008 was £38,699,245.
As the Bank had provided junior financing to THL via the Fund, an impairment provision of £14,285,451 was charged against the income statement in 2008.The following items in the income statement and balance sheet relate to the Fund and THL:
|
|
2009 |
|
|
2008 |
|
|
£ |
|
|
£ |
|
Rental income |
1,991,000 |
|
|
3,693,527 |
|
Returns related to the property portfolio * |
(1,779,000) |
|
|
(2,555,972) |
|
Foreign exchange gains and losses |
- |
|
|
- |
|
Operating expenses of the property portfolio |
(212,000) |
|
|
(423,006) |
|
Depreciation |
- |
|
|
(294,086) |
|
Provision for impairment of the property portfolio |
(7,084,020) |
|
|
(14,705,914) |
|
Disposal of property portfolio |
7,084,020 |
|
|
- |
|
Total loss relating to the property portfolio |
- |
|
|
(14,285,451) |
*Murabaha returns on due to financial institutions.
|
|
|
2009 |
|
2008 |
|
|
|
£ |
|
£ |
|
Balance brought forward |
|
38,699,245 |
|
53,699,245 |
|
Depreciation |
|
- |
|
(294,086) |
|
Provision for impairment |
|
- |
|
(14,705,914) |
|
Disposal of property portfolio |
|
(38,699,245) |
|
- |
|
Balance carried forward |
|
- |
|
38,699,245 |
The financial information included within this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2009 were approved by the directors on 9 March 2010. These accounts will be published on 1 April 2010 after which they will be delivered to the Registrar of Companies. The report of the auditors on these accounts was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not include a statement under section 498 of the Companies Act 2006.
Related Shares:
Rasmala