22nd Feb 2008 07:00
European Islamic Investment BankPLC22 February 2008 22 February 2008 European Islamic Investment Bank plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 The Board of European Islamic Investment Bank plc ("EIIB", the "Bank", or the"Company") is pleased to announce its results for the year ended 31 December2007. Highlights: • Core underlying revenues rose 61% to £12.6m (2006: £7.8m) • Core pre-tax profitability increased by 155% to £4.8m (2006: £1.9m) reflecting increasing revenues • Well-managed cost base with a 62% cost-income ratio (2006: 76%) • Total assets of the Company up 17% to £275m (2006: £236m) and deposits grew by 87% to £90m (2006: £49m) • Consolidated pre-tax loss of £2.5m resulting from the fall in values of the UK commercial property portfolio held by the EIIB Pan-European Islamic Real Estate Fund and the costs of acquiring the portfolio and establishing the Fund • Participated in landmark capital markets transactions in the UK, Middle East and Malaysia • Strategic alliance with Bank Islam Malaysia Berhad giving EIIB access to one of the most active Islamic finance markets • Advising a group of investors in Qatar on the establishment of an Islamic investment bank • Islamic finance continues to grow with London positioned as its international gateway • EIIB received recognition by Islamic Finance News as the Best Islamic Wholesale Bank in Europe 2007 For further information, please contact: EIIB plc Tel: +44 (0)20 7847 9900John Weguelin, Chief Executive Officer Evolution Securities Tel: +44 (0)20 7071 4300Chris Sim Fishburn Hedges Tel: +44 (0)20 7839 4321Andrew MarshallMichelle James Chairman's Statement 2007 has been a challenging year for global financial markets. Despite this, theBank has continued to develop and make progress during the year, even though thevery challenging macro economic environment was also reflected in a slowdown inIslamic capital market issuance in the second half of the year. We continued tobuild our distribution capabilities and marketing strengths in the Middle Eastand Europe and began to leverage our capital markets team to deliver value toour shareholders. The underlying results of the Bank were pre-tax profits of £4,821,507 which werebuilt on increasing revenues and a well managed cost base. Taking account of theimpairment provisions associated with the consolidation of the assets andliabilities of the EIIB Pan-European Islamic Real Estate Fund our results show apre-tax loss of £2,482,486 and a loss after tax of £4,476,781. The impairmentprovisions that have been made in the interim and annual financial statements donot in any way suggest that there are any underlying concerns with the portfolioof properties held by the Fund. This is a portfolio of good commercialproperties and we are confident that, as we actively manage it going forward, wewill be able to recognize value for our shareholders. We continually review the soundness of our business model and, as expected byour shareholders, regularly evaluate how we can leverage our strengths andcapabilities. Accordingly, the Board has tasked management to further utilisethe capabilities of the London market place to develop innovative andsophisticated product solutions for our investor base. We believe that therecent credit market correction will, in the medium term, present an opportunitywhere we can use the strengths of our team in new business areas and our strongcapital base to penetrate new market opportunities for our investor base. The Board and Management recognise that we operate in a highly competitiveenvironment and embrace the challenges and opportunities presented by the rapidgrowth in the Islamic market place. London continues to expand as a centre forIslamic finance and we are very confident that the new players entering the Citywill bring ever increased scale and dynamism to the industry which, in our view,will increase EIIB's market opportunities as well. Adnan Ahmed YousifChairman Chief Executive's Statement Business Overview We have continued to develop our business model through the year and are able toreport that the core underlying revenues of the Company grew by 61% to £12.6mand the core pre-tax profitability of the Bank grew from £1.9m to £4.8m, anincrease of 155%. Total assets of the Company grew by 17% to £275m and depositsgrew by 87% to £90m. Throughout the year we have actively managed expenses,which have grown considerably less than revenue and are up by 31%. This was theGroup's first full year of operations, as the Bank was only operational fromApril 2006. The year as a whole can be viewed in two halves, both for the Bank and themarkets. The first six months saw strong deal flow in our Capital Markets business withthe Bank participating in landmark transactions in the UK, Middle East andMalaysia where we entered into an alliance with Bank Islam Malaysia Berhad. Thisalliance provides the Bank with a respected partner in the region and access toone of the most active Islamic markets. We have continued building our Capital Markets business and, in addition toincreasing revenues and deal flow, this has given us significant market presencewhich we are confident of building on in 2008. During the second half of the year, we were inevitably impacted by the globalcredit crunch which saw a considerable slowing of deal flow in the capitalmarkets and commercial property sectors. This macro event affected key aspectsof our business and product roll-out. The principal impact was in our Asset Management business with the disappointingtake-up of the EIIB Pan-European Islamic Real Estate Fund. The poor capitalraising of this Fund resulted in the Bank deciding to withdraw the Fund andbring onto the EIIB balance sheet a property portfolio that had been acquired bythe Fund. We believe this was the most prudent approach in the circumstances while weactively manage this portfolio. We will continue to evaluate these properties toextract value and efficiencies. In our view, and that of our advisors, theproperties comprising this portfolio are in prime locations in the UnitedKingdom with excellent rental agreements and covenants and our objective is toarrange for their disposal on terms favourable to our shareholders. In the interim financial statements the Bank recognised an impairment provisionof £3,102,875 and other net costs of £2,041,177 giving a loss on the portfolioof £5,144,052. The impairment was based on a valuation of the portfolio as at 6August 2007 that we believed was conservative at the time. However, commercialreal estate values fell further in the last quarter of 2007 and we have taken anadditional impairment provision of £1,977,880 as at 31 December 2007, againvaluing the properties, we believe, on a conservative basis. We took the opportunity to reassess our Asset Management business model toestablish a better fit with our target markets. We intend to complete ourplanning and implement a revised strategy during this financial year. The impact of the above was to reduce our earnings for 2007 to a loss before taxof £2,482,486. In the year ahead we believe we are well placed to deliver on ourbusiness plan. Chief Executive's Statement The second half of the year saw progress in our Corporate Finance and Advisorybusinesses. Towards the end of the year we signed an agreement for a UK realestate development project. We also signed an engagement agreement with a groupin Qatar to advise them on establishing an Islamic bank. We are delighted to have signed these mandates and believe that the recognitionthat we are now beginning to enjoy will allow us to further leverage ourCorporate Finance and Advisory capabilities in 2008, as we look to add value toour expanding customer base in the Middle East. Our emphasis during the year was to build our origination capability and growour distribution and placement capabilities in our Bahrain office. We arecontinuing to develop this and are building a recognised brand that isincreasingly understood and respected in the Gulf countries and Malaysia inparticular. At the end of the year we received recognition by Islamic Finance News as theBest Islamic Wholesale Bank in Europe in 2007, as well as receiving two Deals ofthe Year Awards - Best Cross Border Deal: Cherating Capital (Khazanah) and BestEquity Deal: Cherating Capital (Khazanah). London continues to position itself as a centre for Islamic Finance; itsattractive location for conducting Islamic wholesale banking is emphasised bythe number of sharia'a compliant institutions that are establishing operationsin the City. EIIB actively participates in promoting Islamic Finance in theUnited Kingdom and is a member of the Islamic Finance Experts Group, which actsas an industry sounding board for HM Treasury and the UK Financial ServicesAuthority. We eagerly await the launch of the first UK government sukuk and arein active dialogue with the Treasury in this regard. We believe that this issuewill further strengthen London's position as a gateway for Islamic Finance andare excited about the prospect of the market's development. The year ahead will undoubtedly be challenging as we navigate the troubledwaters of the global financial markets. The Bank has built a good foundationfrom which to take advantage of the many opportunities that will undoubtedlypresent themselves. We would like to thank our shareholders for their continuedsupport and commend EIIB staff for their efforts in positioning the Bank as aneffective base for future growth and taking advantage of the opportunities. John WeguelinChief Executive Officer Operating and Financial Review Business Strategy and Results The Bank's operations commenced in April 2006 and the principal objective during2007 was to further build the Capital Markets and Asset Management businesseswhile laying the groundwork for a Real Estate, Corporate Finance and Advisorycapability. The results for the year were not in line with our expectations and, at aconsolidated EIIB level, we ended the year with a pre-tax loss of £2,482,486 andpost-tax loss of £4,476,781. The loss was a result of the fall in the value ofthe commercial property portfolio held by the EIIB Pan-European Islamic RealEstate Fund and the costs of acquiring the portfolio and establishing the Fund. Marketing of the Fund commenced in May 2007, shortly after it had been seededwith a UK commercial property portfolio as part of its investment strategy. Asthe capital raising was not successful in raising adequate levels of investorfunds, the Board of Directors, after a careful evaluation of market conditionsand future prospects for the continued capital raising, decided to discontinuefurther capital raising, return in full the investor funds raised and implementa property management and disposal plan that would ensure a measured and taxefficient exit from the Fund and its underlying properties. Excluding the Fund, the Directors viewed the performance of the Bank during theyear as one of two distinct halves. The first half saw our Capital Marketsbusiness participating in some landmark transactions, which helped to raise ourprofile and generate healthy fee and profit income. Unfortunately, the secondhalf of the year saw the global credit crunch seriously impact risk sentiment inWestern economies as well as affect issuances in the sukuk market. The Directors note that the underlying performance of the Bank shows a 61%increase in revenues to £12.6m from £7.8m in 2006. Operating expenses grew by37% to £8.2m from £5.9m in 2006, where the major increase in these expenses wasfor staff costs and reflected the full year impact of recruitment undertaken in2006. We have adopted a conservative approach towards deploying our capital. We havebeen an active participant in the secondary market for sukuk, participated inprimary issues on a selective basis and slowly extended our maturity profile ofassets towards the long end of the yield curve where 27% of our assets are nowin the greater then 12 months maturity bracket. Recent market volatilityvindicates our strategy in that we have maintained a sound and liquid balancesheet as we move into 2008. As noted earlier, capital markets trading in the second half of the year showeda marked slowdown from the first six months. While in overall terms 2007 sawissuers bringing the highest level of sukuk issuances to the market, it is clearthat institutional investors are now markedly more sensitive to risks and arelooking for more attractively priced issues. We manage our risk profile and avoid undue sectoral or regional concentrations.Our portfolio has been diversified across sectors to the extent possible and wehave focused on transactions domiciled in the UAE, Saudi Arabia, Qatar,Malaysia, Kuwait, Turkey and Bahrain. A principal success during the year wasour appointment as a member of a syndicate of international banks to underwritea financing by a leading Islamic financial institution in the Gulf. We have alsobeen asked to participate at a senior level in a sukuk transaction beingproposed by a leading Islamic Bank from the Gulf. The Bank has made progress in building strategic institutional and corporaterelationships in the Middle East. We are confident that these relationships willsignificantly leverage our presence in key geographies, assist in productdevelopment and allow us to penetrate market segments in a cost effectivemanner. Operating and Financial Review People A significant differentiating factor for our business has been our ability toattract quality staff from the London market. As we move out of our start-upphase and as our business model develops, we are confident that we will be ableto continue to source individuals with the appropriate skill sets andcapabilities from within the City. We also continue to evaluate and redesign ourcapabilities based on the evolution of our business strategy and are pleasedthat we have strong operational capabilities and a team that is in place tosupport our business growth. The Islamic banking market remains exceptionally competitive in terms ofattracting and retaining talent and this will remain a particular challenge asmore institutions set up operations in London. We believe that the EIIB employeeincentive plan that is being offered in 2008 will offer a range of cash, equityand options as a package of rewards that will work effectively as a recruitment,retention and incentive tool for our team. Operational The Bank has placed considerable emphasis on building an operationalinfrastructure that is robust, scaleable and based on best practice that willsupport the growth of the business. This is now in place and structured on an ITbanking platform that adequately addresses the Bank's transaction processing andreporting requirements. The Directors are confident that the controls aroundthese systems and processes are adequate and effective in protecting andsafeguarding the Bank's assets. EIIB's Internal Audit department is under thedirection of the Board's Audit Committee, and is tasked with working withmanagement to identify and quantify risk, provide independent appraisals ofsystems of internal controls, add value to business initiatives and supportdevelopment of a sound control culture throughout the Bank. Risks Islamic finance is principally driven by significant capital flows generated inthe Middle East, which is sustaining strong demand for assets and transactions.In our view, EIIB is well placed to take advantage of the demand. We expect thisto continue through 2008 and we are confident that it will be a key driver forEIIB's growth. However, the Bank will continue to monitor and mitigate theprincipal risks affecting our business, which in our view are the possibility ofa further decline in global credit markets liquidity, a sustained slowdown orrecession affecting Western economies and a further decline in the commercialand residential property markets in the Gulf and the UK. We believe that EIIB'slocation in a well regulated environment would likely be seen as a 'safe haven'for investors should such a series of economic events occur. Dividend The Bank has no plans to declare a dividend. Board Changes As announced on 25 January 2008, Mr. Atif Raza, the Bank's Finance Director andChief Operating Officer, will resign from the Bank with effect from 30 May 2008.The Board has been advised he will resign from the Board effective from the dateof signing the accounts but will remain an employee of the Bank until 30 May2008. On 28 September, 2007 Sheikh Mubarak Abdulla Al Mubarak Al Sabah was appointed anon-executive director of the Bank. The Bank's Deputy Chairman, Khalid Abdulla Al Bassam retired as a non-executivedirector on expiry of his contract on 17 February 2008, having served the 3 yearterm for which he was appointed. Shabir Randeree has been elected by the boardto replace him as Deputy Chairman. Outlook The Bank remains well capitalised and its regulatory capital is at a level thatis substantially above minimum requirements. As such, we are well positioned todeliver on our business objectives in the coming years and will continue tofocus on building a sustainable transaction pipeline in our key business areas.We remain confident that we are in a position to effectively leverage our skillsto bring sophisticated products to our investor base and in the near future tobegin originating transactions in our target markets. Consolidated income statement for the year ended 31 December 2007 2007 2006 £ £Income fromIncome from financing and investing 13,728,894 8,092,184activitiesReturns to financial institutions and (2,784,333) (174,056)customersReturns related to the property portfolio (1,859,148) -Net margin 9,085,413 7,918,128Foreign exchange gains and losses 219,684 (131,005)Trading income 335,057 53,942Fees and commissions 1,114,405 -Rental income 2,257,494 -Total operating income 13,012,053 7,841,065 ExpensesProvision for impairment of the property (5,080,755) -portfolioStaff costs (4,764,764) (3,756,742)Depreciation and amortisation (392,218) (247,195)Other operating expenses (2,635,274) (1,948,746)Operating expenses of the property (2,621,528) -portfolioTotal operating expenses (15,494,539) (5,952,683) Operating (loss)/profit before tax (2,482,486) 1,888,382 Tax (1,994,295) (663,544) (Loss)/profit for the year (4,476,781) 1,224,838 Attributable to equity holders of the Bank (4,476,781) 1,224,838 Earnings per share- basic and diluted -0.25p 0.07p Consolidated balance sheet at 31 December 2007 2007 2006 £ £AssetsCash and balances with banks 644,846 811,416Collateral deposits 235,732 235,732Due from financial institutions 177,134,119 164,896,947Financing arrangements 45,671,934 30,582,012Available for sale securities 34,320,051 33,443,122Fair value of foreign exchange agreements - 2,444,554Property portfolio 53,699,245 -Plant and equipment 409,325 347,644Intangible assets 915,997 1,081,739Other assets 3,719,682 2,435,991Deferred tax assets 97,391 -Total assets 316,848,322 236,279,157 LiabilitiesDue to financial institutions 126,680,992 47,505,774Due to customers 2,771,980 895,638Fair value of foreign exchange agreements 734,064 7,821Other liabilities 4,592,100 1,534,516Current taxation 1,149,779 500,332Deferred taxation - 131,099Total liabilities 135,928,915 50,575,180 Shareholders' equityShare capital 18,255,625 18,255,625Share premium account 164,229,939 164,229,939Fair value reserve (446,997) (12,541)Retained earnings (1,119,160) 3,230,954Total equity attributable to the Bank's 180,919,407 185,703,977equity holders Total equity and liabilities 316,848,322 236,279,157 Consolidated statement of changes in equity for year ended 31 December 2007 Share Share Fair Retained Total capital premium value earnings account reserve £ £ £ £ £ Balance at 1 January 2006 15,244,370 94,325,276 1,586,116 111,155,762Share issue 3,011,255 72,270,127 75,281,382Transaction costs of (2,365,464) (2,365,464)share issueShare award 420,000 420,000 18,255,625 164,229,939 - 2,006,116 184,491,680 Net unrealised loss on (12,541) (12,541)available for saleinvestmentsProfit for the year 1,224,838 1,224,838 (12,541) 1,224,838 1,212,297 Balance at 31 December 18,255,625 164,229,939 (12,541) 3,230,954 185,703,9772006 Balance at 1 January 2007 18,255,625 164,229,939 (12,541) 3,230,954 185,703,977Share award 126,667 126,667 18,255,625 164,229,939 (12,541) 3,357,621 185,830,644 Net unrealised loss on (434,456) (434,456)available for saleinvestmentsProfit for the year (4,476,781) (4,476,781) (434,456) (4,476,781) (4,911,237) Balance at 31 December 18,255,625 164,229,939 (446,997) (1,119,160) 180,919,4072007 Consolidated cash flow statement for the year ended 31 December 2007 2007 2006 £ £ Cash flows from operating activitiesOperating (loss)/profit on ordinary (2,482,486) 1,888,382activities before taxAdjusted for:Provision for impairment of property 5,080,755 -portfolioFair value of foreign exchange agreements 3,170,797 (2,436,733)Depreciation and amortisation 392,218 247,195Charges for share awards 126,667 420,000Net increase in operating assets:Collateral deposits - (235,732)Due from financial institutions (12,237,172) (53,682,230)Financing arrangements (15,089,922) (30,582,012)Available for sale securities (1,497,579) (33,461,039)Property portfolio (58,780,000) -Other assets (1,283,691) (2,108,540)Net increase in operating liabilities:Due to financial institutions 79,175,218 47,505,774Due to customers 1,876,342 895,638Other liabilities 3,057,584 813,375Taxation:Corporation tax paid (1,387,143) (560,416)Net cash inflow/(outflow) from operating 121,588 (71,296,338)activities Cash flow from investing activitiesPurchase of plant and equipment (185,748) (307,986)Purchase of intangible assets (102,410) (935,884)Net cash outflow from investing activities (288,158) (1,243,870) Cash flows from financing activitiesNet proceeds from issue of share capital - 72,915,918 Net increase/(decrease) in cash and cash (166,570) 375,710equivalents Cash and cash equivalents at the beginning 811,416 435,706of the periodCash and cash equivalents at the end of the 644,846 811,416period Company balance sheet at 31 December 2007 2007 2006 £ £AssetsCash and balances with banks 561,279 811,416Collateral deposits 235,732 235,732Due from financial institutions 190,703,335 164,896,947Financing arrangements 45,671,934 30,582,012Available for sale securities 34,320,051 33,443,122Fair value of foreign exchange agreements - 2,444,554Plant and equipment 409,325 347,644Intangible assets 915,997 1,081,739Other assets 2,399,057 2,435,991Deferred tax assets 97,391 -Total assets 275,314,101 236,279,157 LiabilitiesDue to financial institutions 87,630,992 47,505,774Due to customers 2,771,980 895,638Fair value of foreign exchange agreements 734,064 7,821Other liabilities 2,107,879 1,534,516Current taxation 1,149,779 500,332Deferred taxation - 131,099Total liabilities 94,394,694 50,575,180 Shareholders' equityShare capital 18,255,625 18,255,625Share premium account 164,229,939 164,229,939Fair value reserve (446,997) (12,541)Retained earnings (1,119,160) 3,230,954Total equity attributable to the Bank's 180,919,407 185,703,977equity holders Total equity and liabilities 275,314,101 236,279,157 Selected notes to the consolidated financial statements at 31 December 2007 Segmental information The Bank manages its activities primarily by class of business and the risks andreturns are affected predominantly by differences in the products and servicesprovided. For management purposes the Bank operates three business units orsegments, namely Treasury and Capital Markets, Asset Management and CorporateFinance and Advisory. The Treasury and Capital Markets unit became fully activein April 2006 following FSA authorisation. The majority of the cost base, andthe assets and liabilities of the Bank have been deployed in support of thatbusiness unit. The other two business units were established in the year but didnot commence trading and their combined costs amounted to less than 5% of totalcosts, consequently the Bank is not presenting an analysis of business brokendown by primary segment for 2006. Primary reporting segment - Operating businesses 2007 Treasury & Corporate Capital Asset Finance Markets Management & Advisory Total £ £ £ £ Net income from external 12,613,707 398,346 - 13,012,053customersInter segment income/(expense) 760,404 (760,404) - -Operating income 13,374,111 (362,058) - 13,012,053 Profit/(loss) before tax 9,308,919 (10,739,000) (1,052,405) (2,482,486) Depreciation, amortisationandimpairment of assets (323,119) (5,136,393) (13,461) (5,472,973) Total assets 261,744,885 55,103,437 - 316,848,322 Total liabilities 94,394,694 41,534,221 - 135,928,915 The Asset Management loss results from the fall in the value of the commercialproperty portfolio held by the EIIB Pan-European Islamic Real Estate Fund andthe costs of acquiring the portfolio and establishing the Fund. The CorporateFinance and Advisory loss relates primarily to the costs of establishing thebusiness. Secondary reporting segment - Geographical 2007 Europe GCC Turkey Asia Total £ £ £ £ £ Operating Income 4,172,501 8,532,189 214,630 92,733 13,012,053 Segment assets 99,285,203 199,857,789 4,400,736 10,096,461 313,640,189Unallocated 3,208,133assetsTotal assets 316,848,322 Segment 42,561,136 47,172,079 - 40,032,187 129,765,402liabilitiesUnallocated 6,163,513liabilitiesTotal liabilities 135,928,915 2006 Europe GCC Turkey Asia Total £ £ £ £ £ Operating Income 4,057,369 3,268,393 408,610 106,693 7,841,065 Segment assets 67,764,569 143,423,159 18,208,598 5,223,144 234,619,470Unallocated 1,659,687assetsTotal assets 236,279,157 Segment 5,252,060 43,221,774 - - 48,473,834liabilitiesUnallocated 2,101,346liabilitiesTotal liabilities 50,575,180 Staff costs and number of employees 2007 2006 £ £Staff costsDirectors' salaries and fees 660,045 728,663Directors' pension contributions 30,500 29,454Staff salaries 2,839,887 1,512,802Staff pension contributions 147,771 89,592Incentive payments 384,376 653,166Social security costs 364,032 277,393Sharia'a Supervisory Board fees 56,542 167,400Recruitment costs 92,769 204,834Other staff costs 188,842 93,438 4,764,764 3,756,742 Number of employees at year end 39 36Average number of employees 42 20 Other operating expenses 2007 2006 £ £ Rent and other occupancy costs 462,518 403,253Advertising & market development 486,346 371,567Legal and professional fees 708,858 543,260Communications & IT costs 662,168 233,039Consultancy 205,176 157,981Other operating charges 110,208 239,646 2,635,274 1,948,746 Taxation 2007 2006 £ £Tax on profit on ordinary activities charged in theincome statement Current tax for the year 1,975,974 505,707Prior year's current tax adjustment 246,812 26,738Current tax 2,222,786 532,445 Deferred tax for the year (3,091) 81,326Prior year's deferred tax adjustment (225,400) 49,773Deferred tax (228,491) 131,099 Tax charge in the income statement 1,994,295 663,544 Reconciliation of the total tax charge(Loss)/profit before tax (2,482,486) 1,888,382 UK corporation tax at the standard rate (30%) (744,746) 566,515Expenses not deductible for tax purposes 3,395,537 20,518Income not subject to UK taxation (677,908) -Adjustments for prior year's tax 21,412 76,511Tax charge in the income statement 1,994,295 663,544 Current year's tax 1,335,974 505,707Current tax related to items charged to equity (186,195) (5,375)Current tax liability 1,149,779 500,332 Accelerated capital allowances (113,309) (131,099)Share awards 210,700 -Deferred tax asset/(liability) 97,391 (131,099) In 2007 Expenses not deductible for tax purposes and Income not subject to UKtaxation relate principally to the income, expense and impairment provisions ofthe EIIB Pan-European Islamic Real Estate Fund. Earnings per share Basic earnings per share is calculated by dividing profit for the year by theweighted average number of ordinary shares outstanding during the year. Thereare currently no instruments in issue which would dilute earnings per share. 2007 2006 thousand thousand Weighted average 1,825,562 1,725,187 Property portfolio The Bank has an interest in a UK commercial real estate property portfoliothrough the EIIB Pan-European Islamic Real Estate Fund ('the Fund'). The Fundacquired the portfolio as part of its investment strategy, prior to thecommencement of capital raising. The acquisition of the properties was financedby the Bank and by a third party both on a murabaha basis. The Fund wasestablished on 22 November 2006, and the property portfolio was acquired on 18April 2007. The Bank owns 100% of the management shares in the Fund, there beingno other equity shares in issue. In turn the Fund owns 100% of the equity sharesof The House Limited, the company which owns the properties. Both the Fund andThe House Limited are registered in the Cayman Islands. At acquisition The HouseLimited had assets of £58,968,092 and liabilities of £50,083,429. The property portfolio was acquired for £58,780,000 and under IFRS 5 theportfolio is treated as a current asset held for sale. Third party murabahafunding was £41,050,000 at acquisition with the balance being funded by abridging facility made available by the Bank. At the year end third partyfunding was £39,050,000, which is included in Due to financial institutions inthe consolidated balance sheet As a result of the nature of the relationship between the Bank and the Fund, therequirements of IAS 27 stipulate that the results of the Fund and the underlyingproperty portfolio should be consolidated with those of the Bank. The propertyportfolio and the related funding are therefore included in the Bank's balancesheet. The Operating expenses of the property fund relate principally to theacquisition of the property portfolio and the establishment costs of the Fund.The Provision for impairment of property portfolio allows for valuation of theproperties less the likely costs of sale. The last external valuation dated 6August 2007 was conducted by CB Richard Ellis Ltd who valued the propertiestogether at £56,525,000. Having taken external advice the Directors are of theview, based on market yields and economic returns of the properties, that thevaluation has subsequently declined by a further 3.6% to the end of December2007. Based on the external advice, the Directors believe that this is aconservative valuation, but while commercial real estate values in the UnitedKingdom remain volatile, the Directors believe it is prudent to make thisprovision. The following items in the income statement relate to the Fund and The HouseLimited: 2007 £Rental income 2,257,494Returns related to the property portfolio * (1,859,148)Foreign exchange gains and losses 2,200Operating expenses of the property portfolio (2,621,528)Provision for impairment of the property portfolio (5,080,755)Total loss relating to the property portfolio (7,301,737) * Murabaha returns due to financial institutions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Rasmala