Interim Financial Statements - 30 June 2011

European Islamic Investment Bank plc

("EIIB" or the "Company")

Interim Financial Statements - 30 June 2011

The Board of the European Islamic Investment Bank plc ('EIIB' or the 'Bank' or the 'Company') announces its results for the six month period to 30 June 2011.

Highlights

·; Net Income after tax of £11.8m for the period (six months ended 30 June 2010 - loss of £2.2m)

·; Gain on the disposal of oil and gas properties (TriTech) of £13.1m

·; Fair value gain on other Private Equity investments of £2.4m (six months ended 30 June 2010 - Nil)

·; Profit of £3.2m from reversal of previously raised impairment provision

·; No new bonuses allocated under existing staff incentive scheme for 2011

·; Investment of £3.0m in real estate development in Turkey

Enquiries: -

Chairman's statement

By the grace of The Almighty, I am pleased to present to our Shareholders the European Islamic Investment Bank Plc's ('EIIB' or 'Bank' or 'Company') results for the six months ended 30 June 2011.

The first half of 2011 witnessed dramatic changes in EIIB's operating environment. Civil unrest and discontent surfaced in a number of EIIB's target markets, causing significant concern amongst investors, and a sustained flight to quality.

Notwithstanding this, I am pleased to announce that the Bank returned a net income of £11.8m. The standout result in EIIB's first half was the timely exit of the TriTech investment, representing oil and gas assets situated in Texas which were sold in June 2011. This represents the first disposal from EIIB's Private equity portfolio, generating an estimated unleveraged net Internal Rate of Return of at least 35% for EIIB. I wish to acknowledge our Partners in TriTech, especially the Al Rajhi Group who played a key role in the success of this venture.

Looking back to the start of 2011, in January the Bank welcomed HBG as a significant new shareholder; HBG is a private equity investor with significant knowledge of the GCC and a track record of adding value to financial services companies. In May, two representatives of HBG, Michael Willingham-Toxvaerd and Zulfi Caar Hydari were appointed to the Board of EIIB.

At the same time as these appointments, I accepted the resignations of two of my fellow Directors, namely Salman Abbasi and George Morton, and was notified that Yusef Abu Khadra had decided not to put himself forward for re-election at the Bank's Annual General Meeting (AGM). In addition, Director Yaser Alsharifi was not re-elected at the Bank's AGM. Salman, Yusef and George had been Directors of the Bank since its inception, and I wish to record my gratitude, for their contribution over the years.

After leading the bank for 16 months EIIB's Chief Executive Officer, Subhi Benkhadra, has recently left the bank. Whilst the Board is going through the process of appointing a new CEO, Keith McLeod will continue in his role as Deputy Chief Executive officer and Finance Director, supported by the Board and the rest of the management team.

Following a period of review and consultation, the Board has determined that the existing staff incentive scheme does not fully align the interests of both staff and shareholders and hence no new bonuses will be allocated under the scheme for 2011. A revised scheme for 2012 and future years which will align stakeholder interests, and incorporate recent FSA Remuneration Code directives is under consideration.

The implementation of the Bank's focus on Investment Management, Banking and Financial Services is continuing apace. A further £3.1m was deployed into quoted equities via the Turath Quoted Equities Fund. In addition, the Bank was successful in attracting an additional £19.3m of deposits during the period.

Turning to our remaining Private Equity portfolio, our investment in DiamondCorp has reached an advanced stage with the development of the Lace mine, which necessitated the extraction of a bulk sample. In June, DiamondCorp undertook a further capital issue in order to fund the extraction of the bulk sample, raising £3.5m at a price of 13 pence per share. EIIB has maintained a holding at just over 26% by investing £0.9m in July 2011. As at 30 June 2011, EIIB's stake was revalued from 8.5 pence per share to 13 pence per share, generating a profit of £2.2m.

I can also announce our exit from the Aston Martin exposure that had been written down in the Bank's books. After careful review of the ultimate recoverability of the financing facility provided to Aston Martin, the Board decided that it was in the Bank's best interests to exit the facility. The full amount of the facility was sold to third parties, achieving an average price of 96 pence in the pound. An impairment provision of 25 pence in the pound, which had been raised against this exposure in 2009, was consequently reversed resulting in a profit of £3.2m, which was recognised in the first half of 2011.

In terms of recent exposure, in January 2011 EIIB invested £3.0m in a real estate development in Bodrum, Turkey called Carian Bay. Carian Bay is a luxury hospitality and residential waterside development in a desirable location within one of EIIB's target investment markets. The transaction was opportunistic, providing EIIB with valuable future real estate development and investment capabilities in Turkey. I am excited about the potential for this project, and anticipate being able to share further good news about the development in due course.

In summary, the record profit achieved by the Bank in the first half of the year, showcases EIIB's ability to source and develop successful Private Equity investments. This forms a core component of the Bank's strategy and I am confident that with the support of our Shareholders and our Team, the Bank can build on this success in the years ahead.

Shabir Randeree

Chairman

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Keith McLeod

Finance Director and Deputy Chief Executive Officer

29 September 2011

Independent review report to European Islamic Investment Bank plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2011 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flow and the related explanatory notes. We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.

As disclosed in note 2 the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the AIM Rules.

Paul Furneauxfor and on behalf of KPMG Audit Plc

Chartered Accountants 

15 Canada Square, London E14 5GL

29 September 2010

Condensed consolidated statement of comprehensive income for the six months ended 30 June 2011 (unaudited)

Condensed consolidated statement of financial position at 30 June 2011 (unaudited)

These condensed consolidated interim financial statements have been approved by the Board of Directors and are signed on their behalf on 29 September 2011, by:

Shabir Randeree Keith McLeod

Chairman Finance Director and Deputy Chief Executive Officer

 Condensed consolidated statement of changes in equity for the six months ended 30 June 2011 (unaudited)

Condensed consolidated cash flow statement for the six months ended 30 June 2011 (unaudited)

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Notes to the condensed consolidated interim financial statements (unaudited)

At 30 June 2011

1. Principal activities and authorisation of the financial statements

European Islamic Investment Bank plc ('EIIB' or 'Bank') was incorporated as the first independent, UK based Islamic investment bank managed on a wholly Sharia'a compliant basis. The activities of the Bank are focused on servicing clients internationally through the provision of: banking services encompassing deposit taking, provision of financing, treasury services, structured products and trading in Islamic and Sharia'a compliant securities; investment management encompassing quoted equities, private equity and real estate; and financial services encompassing corporate finance, custody, trust and fund administration activities and business advisory services.

The Bank is a company incorporated in the UK which was established on 11 January 2005 and received authorisation from the FSA on 8 March 2006 to carry on activities as an investment bank.

The interim condensed consolidated financial statements of the Bank and its subsidiaries (the 'Group') for the six months ended 30 June 2011 were authorised by the Board of Directors for issue at its meeting on 26 September 2011.

The condensed consolidated financial statements of the Group as at and for the period ended 30 June 2011 are available at www.eiib.co.uk

2. Statement of compliance

The condensed consolidated interim financial statements for the six months ended 30 June 2011 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU. The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2010.

The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2010.

Presentation of comparative figures

The comparative figures for the financial year ended 31 December 2010 are not the Bank's statutory accounts for that financial year. Those accounts have been reported on by the Bank's auditors and delivered to the registrar of companies. The report of the auditors 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 contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Going concern

In approving the financial statements the Directors have reviewed the current and potential future business activities and financial position of the Group, including an assessment of the capital adequacy and liquidity forecasts. Based upon this they are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements.

3. Changes in accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2010.

4. Estimates

In applying accounting policies, management has to exercise its judgement and make estimates in determining the amounts recognised in the financial statements. However, the nature of estimation means the actual outcome could differ from those estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that were applied to the consolidated financial statements as at and for the year ended 31 December 2010.

During the six months ended 30 June 2011, the key estimates that management made were around valuation of financial instruments. No impairment provisions were made during the six months ended 30 June 2011.

5. Financial risk management

The main risk policies and procedures have been consistently applied as detailed in the latest annual report. Policies have been reviewed and enhanced where required with increased focus on large exposures, industry sectors and credit assessment. In addition the Pillar 3 Policy Statement (available on the EIIB website) discloses in detail the Bank's risk management objectives, policies and exposures.

6. Trading income

Trading income consists of realised income and losses on sukuk and equity securities.

7. Segmental information

Following a strategic review of the Bank's business a new business model was implemented during 2010. The future development of the Bank will focus on Islamic markets and centre on the following three core businesses.

(a) Banking - encompassing deposit taking, provision of financing, treasury services, structured products and trading in Islamic and Sharia'a compliant securities

(b) Investment Management - covering quoted equities, private equity and real estate

(c) Financial Services - including corporate finance, custody, trust and fund administration activities and business advisory (active business of this segment is yet to commence)

These core business lines are the Group's strategic business units ("SBU"). Each SBU offers different products and services, and is managed separately based on the Group's management and internal reporting structure. SBU activities are monitored by the Bank's management committees and the Board which is provided with internal management reports on a monthly basis.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment income 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.

8. Taxation

**Deferred tax asset of £6.1m on tax losses carried forward of £23.3m is not recognised in these financial statements given the current level of uncertainty surrounding the Bank's future taxable profits. Deferred tax asset on the UK tax losses are computed at 26%.

Factors that may affect future current and total tax charge

In the 2011 budget (March 2011), the UK government announced its intention to reduce the UK rate of corporate income tax from 28% to 26% with effect from 1 April 2011 with further reductions of 1% in each year until the standard rate will be 23% in 2014. The UK corporate rate was reduced to 26% with effect from 1 April 2011 and as at 30 June 2011 no further changes in the rate had been enacted.

9. Earnings per share

Basic earnings per share is calculated by dividing the income/(loss) for the period by the weighted average number of ordinary shares outstanding during the period. There are currently no instruments in issue which would materially dilute earnings per share.

10. Available-for-sale securities - sukuk

11. Private equity financial assets designated at fair value

Private equity investment represents the following:

(a) The Group's ownership of 26.5% of an AIM (London) listed company that carries out diamond mining activities in southern Africa. The Group made a commitment to purchase 7.1m shares at a value of £923,067 (13p per share) in June 2011 and honored the obligation in July 2011. A fair value gain of £2.2m in respect of this investment was recorded during 2011, representing the value enhancement from 8.5p per share as at 31 December 2010 to 13p per share (2010 fair value gain: £0.6m). The Group exerts significant influence over this associate company investment. The venture capital exemption of IAS 28 is used to account for this as an investment designated at fair value with the fair value changes recognised in the income statement.

(b) The Group's investment in partnership shares representing ownership of 6.5% of a closed investment fund, specialising in Asian private and public equities, at a cost of £2.68m. Fair value gain in respect of this fund was recorded at £0.2m (2010: £1.1m).

(c) The Group's secondary market purchase of 19.6% of a private equity company that invests in ventures specialising in the information and communications technology value chain in the Arabian region. Fair value as at 30 June 2011 of this investment is still held at its original cost (October 2010), as there have been no indications to suggest otherwise.

12. Real estate investments designated at fair value

As a part of EIIB's revised strategy implemented in 2010, the Group bought a real estate investment in 2011, which represented a 19% interest in a luxury residential and hospitality real estate development based in Turkey purchased at a cost of £3.0m. This investment is designated as an asset held at fair value. Management has assessed the fair value of this investment as at 30 June 2011 and determined that the original cost best represents the fair value.

13. Treasury shares

The EIIB General Employee Benefit Trust (the 'GEBT') purchased £2.1m worth of shares during 2010 at an average price of 4.45p per share in order to facilitate the establishment of the 2010 employee share incentive plan (the '2010 ESIP'). The total value of these shares is presented, at cost, in equity within a treasury shares reserve in accordance with IAS32.

The 2010 ESIP will allow employees (the 'Beneficiaries') to benefit from the growth in EIIB's share price above 4.5 pence per share based on the shares attributable to them. The plan involves the Beneficiaries subscribing to interests in the EIIB 2010 ESIP Limited Partnership, which is a partnership between the Beneficiaries and the GEBT.

Subject to an appreciation of EIIB's share price beyond 4.5 pence per share and the meeting of other vesting conditions on each of the three vesting dates of 30 November 2010, 2011 and 2012, the 2010 ESIP will provide the Beneficiaries with the growth in value of ordinary shares attributable to them. This growth in value will be settled in shares (equity settled).

The 2010 ESIP was approved by the Board of Directors on 5 March 2010 and was effective from 5 July 2010.

14. Assets and liabilities in foreign currency

The Bank manages its exposure to foreign exchange rate fluctuations by matching assets with liabilities in the same currency as far as possible, with similar maturities and the use of appropriate foreign exchange instruments.

15. Investments in subsidiaries

The Bank's subsidiaries as at 30 June 2011 are as follows:

Country

Subsidiaries Principal Activity Control % of registration

EIIB InvestCo SPC Investment holding 100 Bahrain

EIIB ServiceCo WLL General Partner for diamond mining investment 100 Bahrain

EIIB ServiceCo 1 WLL Inactive 100 Bahrain

EIIB ServiceCo 2 WLL Inactive 100 Bahrain

EIIB ServiceCo 3 WLL General partner for oil & gas investment 100 Bahrain

EIIB ServiceCo 4 WLL Inactive 100 Bahrain

Sub-subsidiaries

TriTech Capital Oil & gas investment 78 BVI

Turath Quoted Equity Fund Quoted equity fund 100 BVI

15.1 Oil & gas subsidiary

The Group acquired a controlling interest in an oil & gas exploration venture on 20 March 2009. A financing facility was extended to facilitate the acquisition. The Group obtained control over TriTech Capital Ltd (BVI) ('TriTech Capital') and its subsidiaries ('TriTech Group') via the acquisition of a shareholding in TriTech Capital and entering into a shareholders' agreement that enabled the Bank to appoint the majority of the directors to the board of the TriTech Group companies. The terms of the financing facility were such that EIIB Group effectively bore the significant risks of the investment, and included the right to convert the facility into equity shares at any time as determined by EIIB. EIIB's interest in TriTech for consolidation purposes was determined based on its effective interest in the net assets of the investee. On 21 December 2010, EIIB exercised its rights and converted the facility into equity which represented 91% of TriTech Capital. EIIB also participated in an additional capital raise of TriTech Capital in February 2011.

On 9 June 2011, EIIB InvestCo SPC (owner of TriTech Capital) contributed its TriTech ownership to a Bahrain based English partnership held by EIIB InvestCo SPC (Limited partner) and EIIB ServiceCo 3 WLL (General Partner).

In early 2011, the Board decided to place a portion of the TriTech asset with investors in order to reduce its exposure to the oil & gas sector. In line with this decision, a significant marketing campaign was undertaken to secure commitments from investors to acquire exposure to the TriTech assets. On 9 June 2011 those investors who had previously committed to invest became Limited Partners of the English partnership. This resulted in 12.55% of TriTech Capital being transferred for a consideration of £2.1m, being the fair value of the oil and gas assets, as at 31 December 2010.The 12.55% represents 10.95% for third party investors; 0.98% for employees and 0.62% for Directors (please refer to Note 17). In addition to the £2.1m consideration on disposal a further £1.3m was raised from the investors for expected future capital requirements of TriTech Capital.

A further NCI is created as a result of an arrangement between the TriTech Group and a team of consultants who are entitled to 20% of distributions after the settlement of total capital contributed by the owners.

Sale of oil and gas properties

On 14 June 2011, TriTech Group agreed to sell its oil and gas properties for a total consideration of £39.6m to JGC Energy Development (USA) Inc ('JGC'). Under the terms of the deal, 10% of the purchase consideration was paid in June 2011 with £28.1m in August 2011 and 10% retained until February 2012. In addition, a balance of £3.6m is retained until legal matters related to a number of mineral lease rights are resolved. This would be payable, if resolved within 120 days from 1 August 2011. The Board has evaluated the nature of these legal matters and determined that as at 30 June 2011 there is material uncertainty regarding the ultimate recoverability of these amounts; hence an amount of £1.0m has not been recognised in the gain on the sale of oil & gas properties. Capital gains tax of the Group on the disposal is estimated at £8.0m. As part of the commercial negotiations it was agreed that any approved capital expenses incurred after 1 April 2011 ('cut-off date') would be reimbursed by JGC. Accordingly a sum of £1.5m was reimbursed by JGC in August 2011.

16. Contingencies and commitments

There were no significant third party contingent items or commitments in existence as at the balance sheet date except for the following:

(a) Receivable described in Note 15.1 above where £3.6m is retained by the buyer of the oil & gas asset, until the successful resolution of legal matters. The Board has evaluated the nature of these legal matters and made a provision of £1.0m in recognition of the risk (please refer to Note 15.1). Management is confident of the successful recovery of the net receivable amount.

(b) The Group made a commitment to purchase 7.1m DiamondCorp shares at a value of £0.9m (13p per share) during June 2011, the obligation was honoured on 26 July 2011.

(c) Commitments on operating lease obligations are £0.8m as at 30 June 2011 for the Bank's London and Bahrain premises.

17. Related party disclosures