12th Mar 2007 07:02
European Islamic Investment BankPLC12 March 2007 12 March 2007 European Islamic Investment Bank plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 The Board of European Islamic Investment Bank plc ("EIIB", the "Bank", the"Company") are pleased to announce its results for the year ended 31 December2006. HIGHLIGHTS •Total operating income of £7.8M, up by 104% (2005: £3.8M). •Profit before tax of £1.89M up by 3% (2005: £1.84M) •Earnings per share 0.07p (2005: 0.11p) •Balance sheet of £236M - up 110% (2005: £112M) •Equity capital base stands at £186M up 67% (2005: £111M) •Participated as a manager / underwriter in eight sukuk and medium term financings •Announced two funds - Pan European Real Estate (PERF) and Structured Equity Fund (SEF) •Opened a Bahrain office and appointed a General Manager to lead the distribution team. EIIB is pleased to announce that following the commencement of business inApril, in an operational period of less then nine months, the Bank has generateda profit before tax of £1.9M driven by revenues of £7.8M. This reflects theprogressive build of transaction flow and the effective utilisation of capitalto participate in secondary market sukuk transactions. 2006 was spent completing the process of building the Bank's infrastructure,including personnel, and establishing a presence in the Islamic marketplace inthe UK and overseas. The principal emphasis during the year was to ensure thatthe Treasury and Capital Markets; and Asset Management business teams as well asthe middle and back office support functions were in place to supporttransactions. The Bank has in parallel, focused on building its deal flow andcounterparty relationships so as to ensure that as it enters the New Year thereis strong momentum across all business lines. Excellent progress has been madein this regard and EIIB have participated in selected primary capital markettransactions, while actively trading in the secondary market for quality sukukissues. In 2007, the Bank intends to further develop its proprietary trading businesswhile sourcing and securitising assets on behalf of clients. The coming yearwill see considerable activity in the Asset Management business, with a numberof planned product launches to follow on from the Pan-European Islamic RealEstate Fund and the Secured Equity Fund announced in December 2006. The Chairman, Adnan Yousif, said: "We can be justifiably satisfied that in 2006 we have substantially delivered onall the product and business milestones we set ourselves at the time of ourlaunch. We have not only put in place the infrastructure needed to support thebusiness growth but we enter the New Year with products that are ready formarketing and a robust deal pipeline that will deliver a sustainable revenuestream for 2007 and beyond. We have a highly motivated team of professionalswhose wide range of capabilities positions us to be the 'Islamic investment bankof choice' in Europe. The team can feel proud in what they have achieved duringthe year, effectively pioneering the establishment of a domestic Islamicinvestment bank in the UK and demonstrating that London can be the gateway tobridging the European and Islamic financial markets. They should all feel greatpride in our achievements over the last year and I am sure that they share ourexcitement for the future." CONTACTS: EIIB Tel: +44 (0) 207 847 9900 John Weguelin, Managing DirectorAtif Raza, Finance Director Fishburn Hedges Tel: +44 (0) 207 839 4321 Michelle James Mobile : +44 (0) 7958 451 446Mark Tierney Evolution Securities Tel: +44 (0) 207 071 4300 Chris SimSimon Leathers Managing Director's Overview Following EIIB's licensing as the first independent FSA authorised Sharia'acompliant Islamic investment bank in the UK on 8 March 2006, we were admitted tothe London Stock Exchange's AIM market where we were quickly included in the AIM100 index. The IPO, raised approximately £73M of capital, net of costs, givingthe Bank a total capital base of £184M before 2006 net earnings. The Bank hasalso completed the process of building a robust operational and technologysystems infrastructure, establishing a risk management and a complianceframework, finalising an operational business plan and recruiting staff to fillkey positions across the Bank. In December 2005 the Bank also moved to itspermanent offices in the City of London. Business Overview We were very pleased with the successful completion of the licensing process inthe early part of 2006 which enabled us to open our doors for business in April.We are also pleased to report that in our operational period of less then ninemonths, we have generated a profit before tax of £1.9M driven by revenues of£7.8M, reflecting the progressive build of transaction flow and the effectiveutilisation of our capital to participate in secondary market sukuktransactions. We continue to find the UK a very supportive regulatoryenvironment for Islamic finance, as manifested in the strong commitment ofpolitical and business leaders to make London a global centre of excellence forthe industry. The establishment and growth of the industry in the UK has, over the past twelvemonths, received considerable support from Her Majesty's Government andregulators, with developments continuing in the tax and regulatory framework,with a view to providing a level playing field for Islamic finance products.This is in line with a stated intention to develop London as a centre ofexcellence for global Islamic banking. Other significant developments that areproposed include revisions to the tax laws to facilitate the domestic issuancesof sukuks. We believe that these changes are very supportive of our businessplans and will further facilitate EIIB's abilities to provide alternativeinvestment and financing opportunities to both investors and borrowers. We are confident that the robust macro economic environment will continue toprovide a firm underpinning to the growth of the Islamic finance industry andthat EIIB's presence in the UK ensures that we are well placed to build a strongfranchise in our target geographies. The liquidity generated in the Middle Eastwill continue to demand quality investment assets and we are confident that thefranchise that EIIB will offer a range of products and skill sets that candeliver this to customers. In the meantime we also anticipate and welcomeadditional entrants to the Islamic marketplace in the UK over the coming years. 2006 was spent completing the process of building the Bank's infrastructure andestablishing our presence in the Islamic marketplace in the UK and overseas. TheBoard's directive was to select and implement a bespoke IT systems solution,develop operational policies and procedures that would be robust and flexible,secure the Bank's assets and allow generation of responsive customer centricdecision metrics. We are satisfied with the success achieved in this regard. Bythe year end the Company had delivered against the key product and businessroll-out milestones announced at the time of the IPO. We would like to commendthe energy and dedication of all EIIB staff as together they have ensured thesuccessful completion of this phase of our operations. The Board is confidentthat the people and systems needed to take our business forward are now inplace. The principal emphasis during the year was to ensure that our Treasury andCapital market business teams and the middle and back office support functionswere in place to support transactions. Secondly we have, in parallel, focused onbuilding our deal flow and counterparty relationships so as to ensure that as weenter the new year there is strong momentum across all business lines. We havemade excellent progress in this regard and have participated in selected primarycapital market transactions, while actively trading in the secondary market forquality sukuk issues. In 2007 we intend to further develop our proprietarytrading business while sourcing and securitising transactions on behalf of ourclients. The coming year will see considerable activity in our asset managementbusiness, with a number of planned product launches to follow on from thePan-European Islamic Real Estate Fund and the Secured Equity Fund announced inDecember 2006. Treasury Following the raising of capital through a private placement (£108M) and an IPO(£73M), the primary focus of EIIB Treasury was on efficiently managing theBank's surplus liquidity. The maturity profile of assets through the first threequarters of the year was weighted towards the short term, principally in moneymarket placements. However, as the Bank's proprietary investment portfolio hasgrown in size and we have acquired sukuks from both the primary and secondarymarkets, maturities are shifting to the longer term with more than 16% of assetsdated longer than a year. Capital Markets Our Capital Markets business, working with the Treasury department, used theinitial book building to establish EIIB as a provider of Sharia'a compliantfinancial solutions to Islamic borrowers, as well as to conventional borrowerswishing to access the Islamic investor universe. Looking forward, we intend togrow our book through transaction originaton in our selected target markets andfurther development of our distribution and trading activities as a result. TheBank's development of this portfolio is also driven by an intention tosecuritise these assets in the medium term for sale to our investor base. Wehave focused on quality assets with competitive yields and have ensured that theissuers fall within the stringent risk diversification criteria established bythe Board. Our portfolio has been diversified across sectors, to the extentpossible, and we have focused on transactions domiciled in the UAE, Saudi Arabia, Qatar, Malaysia, Kuwait, Turkey and Bahrain. A principal success of this canbe seen in our appointment, after the year end, as a member of a syndicate ofinternational banks asked to underwrite a financing by a leading Islamicfinancial institution in the Gulf. However, it should be noted that capital market trading in the first half of theyear 2006 was constrained by a lack of suitable assets on the market and by theBank's tactical decision to avoid concentrations of risk. The lack of qualityassets has been a constraint on the growth of the business although we have seenconsiderably more activity in the sukuk and term financing market towards theend of 2006 and in the New Year. The first two months of 2007 have seen a numberof sizeable sukuk issues being brought to market and almost all of these havebeen very well received. We are, therefore, confident that our capital marketsbusiness is extremely well positioned for the coming year. Trade Finance The Bank continues to leverage the institutional and corporate relationships wehave built with the intention of securing increasingly active roles insyndicated financings. We anticipate a continuation of the recent trend for themajority of asset backed issuances to originate from the Middle East, orMalaysia, and for these to be weighted towards the real estate sector. However,we will continue to manage our risk profile and will aim to minimise unduesectoral concentrations. A significant contributor to the build of our balance sheet has been the tradefinance transactions entered into during the year, with eight transactionsvalued at approximately £30M in our portfolio at the year end. A notable success was EIIB's first joint lead arranger role, during September2006, for a Turkish based corporate entity. A healthy pipeline has been builtfor this business and we believe that it will contribute significantly to theBank's performance in 2007. Asset Management The asset management business is now largely fully staffed and was focusedduring 2006 on developing a range of products to meet specific investor appetiteand risk-reward profiles. These efforts were rewarded when both the Pan-EuropeanReal Estate Fund and the EIIB Secured Equity Fund were launched in December 2006following their approval by the Sharia'a Supervisory Board. The Bank intends toraise capital for these funds in the first half of 2007 and in parallel toprogress the sourcing of suitable investment assets for these funds. A number ofadditional products are in the final stages of development and will be ready forlaunch through 2007 that will include a private equity fund and a long onlyabsolute return fund Corporate Finance EIIB provides a range of Advisory and Corporate Finance Services including, butnot limited to, the following: •Advising on capital raising opportunities within the Islamic finance markets •Advising on mergers and acquisitions •Cross-border private equity •Cross - border real estate private equity This unit is presently actively targeting a number of bespoke investment andacquisition opportunities for the Bank's clients. Risk Management The Bank places considerable emphasis on building an operational infrastructurethat is robust, scalable, based on best practice and able to support the growthof the business. This is now in place and based around an IT banking platformthat addresses the Bank's transaction processing and reporting requirements. TheDirectors are confident that the procedures and controls around these systemsand processes are robust and are effective in protecting and safeguarding theBank's assets. EIIB's Internal Audit department was set up in late 2006 andwill, under the direction of the Board's Audit Committee, be responsible forworking with management to identify and quantify risk, provide independentappraisals of systems of internal control, add value to business initiatives andsupport the development of a sound control culture throughout the Bank. While we project a strong market environment in 2007, the principal risks thatmay affect our business include: a sudden and sharp decline in oil prices and/orreal estate markets in the GCC countries; and/or a further sell-off in theequity markets in these countries that may affect the level of liquidity, or thevaluation of assets based in the region. However, our strategy ofdiversification and building an asset base that is progressively more weightedtowards Europe and UK as well as a diverse investor base is designed to mitigatethese risks, as is EIIB's location in a well regulated environment. Brand and Marketing We are very grateful for the recognition we have already received and the brandrecognition that we have started to achieve both in the Middle East and in theUK. We believe that this has positioned us well as we start to raise funds undermanagement and launch of our products through 2007. People A significant differentiating factor for our business is our ability to attractquality staff from the London market. As a start-up Islamic investment bank inthe City of London, we faced initial challenges in sourcing individuals with theright profile and skill sets and as a result our recruitment was staggeredthrough the year. However, all key areas were staffed by the year end and theBank's Bahrain Office was opened in January 2007, following the hiring of aGeneral Manager, to oversee EIIB's marketing and placement activities in theMiddle East. Further hiring to bolster our distribution capability will continuethrough the first quarter of 2007, and with EIIB's established presence andincreasing brand recognition, in the Islamic market place this process isproving progressively easier to manage. The Islamic banking market is exceptionally competitive in terms of attractingand retaining talent and we see this as a particular challenge over the shortterm. We are putting in place an EIIB employee incentive plan which has beendesigned to attract, incentivise and reward staff. When it is rolled out in 2007it will provide a mixture of cash and equity rewards that will be linked to theBank's and their individual performances. With the bulk of our teams in place, our growth in headcount is expected to slowin 2007, although it will continue to track business and product growth. Themajority of the headcount increase will likely be in the Bahrain office. The Board At the beginning of 2006, two of our founder Directors, Christopher Balet andMichael Carter resigned. During the course of the year Tony Ellingham, ourFinance Director, having seen the Bank through its IPO also resigned and wasreplaced by Atif Raza as Finance Director and Chief Operating Officer. We wouldlike to take this opportunity to thank the departing Directors for theirservices in setting up EIIB and wish them well for the future. Finally, we wouldlike to take this opportunity to thank the Chairman and Members of the Sharia'aSupervisory Board for their support and guidance throughout the year. Dividend The Board being cognisant of the Bank's business plans and transaction pipeline,are of the view that retained earnings in the current year should be retained inthe business to cater for ongoing development of the business. As such they haverecommended that no dividends should be paid in the current year. International Financial Reporting Standards (IFRS) EIIB adopted IFRS for our financial year ending on the 31 December 2006 and thefinancial statements have been prepared on this basis. Current Trading and Future Prospects We have seen a solid start to business activity in 2007 and the Bank has closed3 capital market transactions in the first 2 months of the year and will shortlystart the capital raising for the PEREF and SEF. In addition, the Bank has beenappointed an underwriter and Mandated Lead Arranger in a $500M facility for aleading Gulf Investment Bank. Based on our achievements to date, together with the robust macroeconomicenvironment in the Middle East, the Board remains confident that we can continueto deliver on expectations for 2007. Income statement for the year ended 31 December 2006 31 Dec 2006 For the period 11 Jan 2005 to 31 Dec 2005 £ £IncomeIncome from financing and investing activities 8,092,184 3,840,502Returns to financial institutions and customers (174,056) - ---------- -----------Net margin 7,918,128 3,840,502Foreign exchange losses (131,005) -Trading income 53,942 - ---------- -----------Total operating income 7,841,065 3,840,502 ExpensesStaff costs (3,756,742) (1,138,753)Depreciation and amortisation (247,195) (11,955)Other operating expenses (1,948,746) (850,000) ---------- -----------Total operating expenses (5,952,683) (2,000,708) ---------- -----------Operating profit before tax 1,888,382 1,839,794 Tax (663,544) (533,678) ---------- ----------- Profit for the period 1,224,838 1,306,116 ---------- ----------- Attributable to equity holders of the Bank 1,224,838 1,306,116 ---------- ----------- Earnings per share- basic and diluted 0.07p 0.11p ---------- ----------- Balance sheet at 31 December 2006 31 Dec 2006 31 Dec 2005 restated £ £Assets Cash and balances with banks 811,416 435,706Collateral deposits 235,732 -Due from financial institutions 164,896,947 111,214,717Financing arrangements 30,582,012 -Available for sale securities 33,443,122 -Fair value of foreign exchange agreements 2,444,554 -Plant and equipment 347,644 96,493Intangibles assets 1,081,739 336,214Other assets 2,435,991 327,451 ---------- ----------Total assets 236,279,157 112,410,581 ---------- ---------- Liabilities Due to financial institutions 47,505,774 -Due to customers 895,638 -Fair value of foreign exchange agreements 7,821 -Other liabilities 1,534,516 721,141Current tax 500,332 533,678Deferred tax 131,099 - ---------- ----------Total liabilities 50,575,180 1,254,819 Shareholders' equityShare capital 18,255,625 15,244,370Share premium account 164,229,939 94,325,276Fair value reserve (12,541) -Retained earnings 3,230,954 1,586,116 ---------- ----------Total equity attributable to the bank's equityholders 185,703,977 111,155,762 ---------- ----------Total equity and liabilities 236,279,157 112,410,581 ---------- ---------- Statement of changes in equity for year ended 31 December 2006 Share capital Share premium Fair value Retained Total account reserve earnings £ £ £ £ £ Balance at 11 January 2005 -Share issue 15,244,370 98,870,591 114,114,961Transactioncosts of shareissue (4,545,315) (4,545,315)Share award 280,000 280,000 --------- --------- ------- -------- --------- 15,244,370 94,325,276 - 280,000 109,849,646 Profit for theperiod 1,306,116 1,306,116 --------- --------- ------- -------- ---------Balance at 31December 2005 15,244,370 94,325,276 - 1,586,116 111,155,762 --------- --------- ------- -------- --------- Balance at 1January 2006 15,244,370 94,325,276 1,586,116 111,155,762Share issue 3,011,255 72,270,127 75,281,382Transactioncosts of shareissue (2,365,464) (2,365,464)Share award 420,000 420,000 --------- --------- ------- -------- --------- 18,255,625 164,229,939 (12,541) 2,006,116 184,479,139 Profit for theyear 1,224,838 1,224,838Net unrealisedloss onavailable forsalesecurities (12,541) (12,541) ------- -------- ---------Net incomerecognised (12,541) 1,224,838 1,212,297for the year --------- --------- ------- -------- ---------Balance at 31December 2006 18,255,625 164,229,939 (12,541) 3,230,954 185,703,977 --------- --------- ------- -------- --------- Cash flow statement for the year ended 31 December 2006 Year ended For the period 31 Dec 2006 11 Jan 2005 to 31 Dec 2005 (restated) £ £Cash flows from operating activities Operating profit on ordinary activities beforetax 1,888,382 1,839,794Adjusted for:Fair value of foreign exchange agreements (2,436,733) -Depreciation and amortisation 247,195 11,955Charges for share awards 420,000 280,000Net increase in operating assets:Collateral deposits (235,732) -Due from financial institutions (53,682,230) (111,214,717)Financing arrangements (30,582,012) -Available for sale securities (33,461,039) -Other assets (2,108,540) (327,451)Net increase in operating liabilities:Due to financial institutions 47,505,774 -Due to customers 895,638 -Other liabilities 813,375 721,141 ---------- -----------Net cash outflow from operating activities (70,735,922) (108,689,278) TaxationCorporation tax paid (560,416) - Cash flow from investing activitiesPurchase of plant and equipment (307,986) (98,368)Purchase of intangible assets (935,884) (346,294) ---------- -----------Net cash outflow from investing activities (1,243,870) (444,662) Cash flows from financing activitiesNet proceeds from issue of share capital 72,915,918 109,449,646 ---------- -----------Net increase in cash and cash equivalents 375,710 435,706 ---------- ----------- Cash and cash equivalents at the beginning ofthe period 435,706 - ---------- -----------Cash and cash equivalents at the end of theperiod 811,416 435,706 ---------- ----------- Selected notes to the financial statements At 31 December 2006 Staff costs Staff costs Year ended For the period 31 Dec 2006 11 Jan 2005 to 31 Dec 2005 £ £ Directors' salaries and fees 728,663 541,696Directors' pension contributions 29,454 12,853Staff salaries 1,512,802 216,966Staff pension contributions 89,592 13,316Incentive payments 653,166 -Social security costs 277,393 36,623Sharia'a Supervisory Board fees 167,400 136,334Recruitment costs 204,834 162,733Other staff costs 93,438 18,232 ---------- ----------- 3,756,742 1,138,753 ---------- ----------- Total of directors' emoluments 867,302 554,549 ---------- ----------- Share award In February 2005 12,000,000 ordinary 1p shares were issued to Directors andother staff at par in lieu of salaries for the 36 months from that point. Theyare deemed to have been issued at a premium of 7p per share under IFRS2. Thefair value of the shares is being amortised over the 36 month vesting period.This gave rise to a fair value charge in the income statement of £420,000 in2006 (2005: £280,000). The unamortised amount of the premium at the end of 2006was £140,000 (2005: £560,000). Other operating expenses Year ended For the period 31 Dec 2006 11 Jan 2005 to 31 Dec 2005 £ £ Rent and other occupancy costs 403,353 72,494Advertising and market development 371,567 26,654Legal and professional fees 543,260 445,335Communications and IT costs 233,039 71,697Consultancy 157,981 83,650Other operating charges 239,646 150,170 ---------- ----------- 1,948,746 850,000 ---------- ----------- Selected notes to the financial statements At 31 December 2006 Earnings per share Basic earnings per share is calculated by dividing profit for the period by theweighted average number of ordinary shares outstanding during the year. Thereare currently no instruments in issue which would dilute earnings per share. 2006 2005 thousand thousandWeighted average number of shares for basic earningsper share 1,725,187 1,139,227 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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