Islamic Bank of Britain PLC. Interim Report

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2 Contents Chairman s statement 1 Condensed statement of comprehensive income 2 Condensed statement of financial position 3 Condensed statement of changes in equity 4 Condensed statement of cash flows 5 Notes to the condensed interim financial statements 6-9 Independent review report to Islamic Bank of Britain PLC 10

3 Chairman s statement I am pleased to present the of Islamic Bank of Britain PLC for the six months ended 30 June During the period, growth in finance assets and customer deposits has been achieved through continued product innovation. However the unprecedented market conditions have significantly impacted the income of the Bank. Highlights Customer numbers increased by 3% to over 48,000 Deposits increased by 9% to 172m Customer financing increased by 24% to 29m Current environment and trading performance The challenging market conditions experienced in 2008 have continued this year. The Bank s main source of revenue is the profits earned on deposits. Net margins on these deposits continued to fall during the period due to the decline in yields in the interbank market. This has significantly reduced the income of the Bank. The loss for the period increased to 4.6m ( period to 30 June 2008: 3.1m) as net income from financing transactions fell by 1.6m compared to the same period last year. Improvements in economic conditions and the Islamic money markets are not expected until 2010, and therefore the results of the Bank for the full year are likely to be similarly affected. Products Despite the difficult conditions, the Bank made progress against its key business objectives of achieving growth in finance assets funded by longer term customer deposits. The Bank s Home Purchase Plan (HPP) product, launched in September 2008, continues to be the key focus for achieving asset growth, with HPP assets increasing to 14.4m (31 December 2008: 7.0m). The HPP range was expanded during the period with a fixed rental product and a product adapted for the Scottish market. The Bank now has the widest Sharia-compliant Home Finance range in the UK. The growth in the HPP product has been achieved in accordance with prudent credit policies, with currently no arrears within the secured finance portfolios. The realignment of the customer deposit base in favour of longer term products has continued with the launch of an extended range of term deposits. This follows the launch of the Notice Savings account in December 2008, which has performed above expectation during the period. The Bank continues to use retail deposits to fund all customer finance assets and has no reliance on wholesale funding. In the first half of the year, the Bank embarked on a number of initiatives that are expected to contribute to future profitability and diversify income sources, including the distribution of investment products and services. These initiatives continue to be progressed, however significant contributions are not expected until Capital New capital of 7.5m was raised via a placing of new shares in January While the Bank continues to have sufficient capital for its current requirements, the Board is in discussions with its advisors and interested parties regarding the raising of additional capital to support planned future growth. If additional capital is not raised, the Bank may need to scale back its growth plans and operations during 2010 in order to ensure that regulatory capital requirements continue to be achieved. I would like to thank Islamic Bank of Britain s customers, shareholders, and staff for their continued support and commitment to the Bank. Mohsen Moustafa 23 September 2009 Chairman 1

4 Condensed statement of comprehensive income for the Note 30 Jun Jun 2008 Year ended 31 Dec 2008 Income receivable from Islamic financing transactions 1,692,414 4,284,281 8,307,297 Returns payable to customers and banks (880,541) (1,859,492) (3,811,516) Net income from Islamic financing transactions 811,873 2,424,789 4,495,781 Fee and commission income 233, , ,212 Fee and commission expense (37,974) (51,345) (94,783) Net fee and commission income 195, , ,429 Operating income 1,007,142 2,624,287 4,928,210 Net impairment loss on financial assets 6 (200,637) (180,277) (325,971) Personnel expenses (2,601,307) (2,385,682) (4,831,978) General and administrative expenses (2,202,997) (2,244,490) (4,017,168) Depreciation (370,228) (399,805) (775,007) Amortisation (254,602) (473,869) (888,786) Total operating expenses (5,629,771) (5,684,123) (10,838,910) Loss before income tax (4,622,629) (3,059,836) (5,910,700) Income tax expense Loss for the period (4,622,629) (3,059,836) (5,910,700) Total comprehensive income for the period (4,622,629) (3,059,836) (5,910,700) Loss attributable to Owners of the Company (4,622,629) (3,059,836) (5,910,700) Total comprehensive income attributable to Owners of the Company (4,622,629) (3,059,836) (5,910,700) Loss per ordinary share Basic and diluted (pence) 3 (0.87) (0.73) (1.41) All income and expenditure relates to continuing operations. The notes on pages 6 to 9 form part of these financial statements. 2

5 Condensed statement of financial position At 30 June 2009 Note 30 Jun Jun Dec 2008 Assets Cash 460, , ,953 Commodity Murabaha and Wakala receivables and other advances due from banks 162,779, ,747, ,687,736 Consumer finance accounts and other advances to customers 6 6,062,688 9,262,838 7,878,292 Net investment in home purchase plans 14,412,247-6,980,840 Net investment in commercial property finance 8,774,552 8,523,880 8,597,893 Property and equipment 2,961,012 3,361,790 3,265,745 Intangible assets 426, , ,713 Other assets 1,061,613 2,310,996 1,263,128 Total assets 196,938, ,715, ,799,300 Liabilities and equity Liabilities Deposits from banks 7 975,534 6,241,907 5,094,119 Deposits from customers 8 171,355, ,744, ,280,754 Other liabilities 2,939,692 2,930,263 3,480,891 Total liabilities 175,270, ,916, ,855,764 Equity Called up share capital 9 5,464,700 4,190,000 4,190,000 Share premium 54,806,652 48,747,255 48,747,255 Retained deficit (38,646,801) (31,188,401) (34,046,165) Profit stabilisation reserve 43,750 50,864 52,446 Total equity 21,668,301 21,799,718 18,943,536 Total equity and liabilities 196,938, ,715, ,799,300 These financial statements were approved by the Board of Directors on 23 September 2009 and were signed on its behalf by: Gerry Deegan Managing Director The notes on pages 6 to 9 form part of these financial statements. 3

6 Condensed statement of changes in equity for the Note Share capital Share premium account Profit and loss account Profit stabilisation reserve Total Balance at 1 January ,190,000 48,747,255 (28,137,072) 25,126 24,825,309 Total comprehensive income for the period - - (3,059,836) - (3,059,836) Transfer to profit stabilisation reserve - - (25,738) 25,738 - Credit in respect of share based payments charge ,245-34,245 Balance at 30 June ,190,000 48,747,255 (31,188,401) 50,864 21,799,718 Balance at 1 July ,190,000 48,747,255 (31,188,401) 50,864 21,799,718 Total comprehensive income for the period - - (2,850,864) - (2,850,864) Transfer to profit stabilisation reserve - - (1,582) 1,582 - Charge in respect of share based payments - - (5,318) - (5,318) Balance at 31 December ,190,000 48,747,255 (34,046,165) 52,446 18,943,536 Balance at 1 January ,190,000 48,747,255 (34,046,165) 52,446 18,943,536 Total comprehensive income for the period - - (4,622,629) - (4,622,629) Transfer to profit stabilisation reserve - - 8,696 (8,696) - Credit in respect of share based payments charge ,297-13,297 Issue of ordinary share capital 9 1,274,700 6,059, ,334,097 Balance at 30 June ,464,700 54,806,652 (38,646,801) 43,750 21,668,301 The notes on pages 6 to 9 form part of these financial statements. 4

7 Condensed statement of cash flows for the Note 30 Jun Jun 2008 Year ended 31 Dec 2008 Cash flows from operating activities Loss for the period (4,622,629) (3,059,836) (5,910,700) Adjustments for: Depreciation 370, , ,007 Amortisation 254, , ,786 Net impairment loss on financial assets 200, , ,971 Share based payment charge 13,297 34,245 28,927 Change in Commodity Murabaha and Wakala receivables (10,036,319) (7,682,833) (12,784,885) Change in consumer finance accounts and other advances to customers 1,614, ,180 1,459,032 Change in net investment in commercial property finance (176,659) (2,431,998) (2,506,011) Change in net investment in home purchase plans (7,431,407) - (6,980,840) Change in other assets 201,515 (113,172) 934,696 Change in deposits from banks (4,118,585) 3,743,603 2,601,729 Change in deposits from customers 18,074,634 6,103,447 18,634,228 Change in other liabilities (541,199) (42,339) 508,289 Net cash used in operating activities (6,196,918) (2,174,752) (2,025,771) Cash flows from investing activities Purchase of property and equipment (65,495) (318,240) (597,397) Purchase of intangible assets (102,294) (124,576) (205,268) Net cash used in investing activities (167,789) (442,816) (802,665) Cash flows financing activities Issue of ordinary share capital 9 7,334, Net cash generated from financing activities 7,334, Net change in cash and cash equivalents 969,390 (2,617,568) (2,828,436) Foreign exchange gains (3,012) - (221,586) Cash and cash equivalents at beginning of period 2,614,484 5,664,506 5,664,506 Cash and cash equivalents at end of period 5 3,580,862 3,046,938 2,614,484 The notes on pages 6 to 9 form part of these financial statements. 5

8 Notes to the condensed interim financial statements (forming part of the condensed financial statements) 1 Accounting policies and basis of preparation Islamic Bank of Britain PLC ( the Company ) is a company incorporated in the UK. The annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the EU. The interim financial information included in this half-yearly report has been prepared in accordance with the disclosure requirements of AIM Rules and the recognition and measurement requirements of IFRSs as adopted by the EU excluding IAS34 Interim Financial Reporting, applying the accounting policies and presentation that were applied in the preparation of the Company s published financial statements for the year ended 31 December The directors anticipate that these accounting policies will be used in the preparation of the Company s annual financial statements for the year ended 31 December The interim financial statements are condensed and do not include all of the information required for full annual financial statements. The information in this interim report is unaudited. Going Concern The interim financial statements of the Company have been prepared on the going concern basis. In making the going concern assessment, the directors have prepared detailed financial forecasts of the Company, including its funding and capital position, for the twelve months from the date of approval of these interim financial statements. As noted in the Chairman s Statement, the Board is in discussions with its advisors and interested parties regarding the raising of additional capital to support planned future growth. The directors have considered the effect upon the Company of more pessimistic scenarios of its business, in particular the worsening of the economic environment and if new capital is not raised as planned. The scenarios show that if new capital is not raised, the directors may need to scale back the Bank s growth plans and operations during 2010 in order to ensure that regulatory capital requirements continue to be achieved. The directors are prepared to implement appropriate management actions to address any potential regulatory capital deficit as required, including a cost reduction exercise. Based on these forecasts, the directors are confident that the Company has adequate resources to continue in operational existence and will continue to comply with all relevant regulatory requirements for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements. 2 Segmental Reporting The company has one class of business and all other services provided are ancillary to this. All business is conducted from the United Kingdom. 3 Earnings per ordinary share Basic and diluted earnings per ordinary share are calculated by dividing the loss for the financial period attributable to equity shareholders by the weighted average number of ordinary shares in issue in the 30 June 2009 of 530,272,155 ( 30 June 2008: 419,000,000, Year ended 31 December 2008: 419,000,000). The Company has established an HMRC approved Company Share Option Plan ( CSOP ) under which options to subscribe for the Company s ordinary shares of 1p each have been awarded to certain employees. At 30 June ,481,037 options remain outstanding (30 June 2008: 3,200,469, 31 December 2008: 1,600,230). Diluted loss per share is the same as basic loss per share since the outstanding share options have not been taken into account due to their anti-dilutive effect. This arises since the Company is currently loss making. 6

9 Notes (continued) 4 Income tax expense There were no taxable profits or recoverable losses for the ( period ended 30 June 2008: nil, Year ended 31 December 2008: nil) and accordingly the Company has not provided for a tax charge or a tax debtor. As at 30 June 2009, the Company had potential deferred tax assets in respect of tax losses carried forward of 8,734,271 (30 June 2008: 6,855,212, 31 December 2008: 7,555,394) and in respect of timing differences on capital allowances of 1,518,551 (30 June 2008: 1,251,716, 31 December 2008: 1,437,613). The corporation tax rate used to calculate potential deferred tax assets was 28%. In respect of the recognition of deferred tax assets, for the purposes of applying the requirements of IAS 12 ( Income Taxes ), it has been considered that the Company is not currently at a sufficiently advanced stage in its development to confidently assert future offsetting tax liabilities. Capital allowances to be claimed are being finalised and therefore the level of the potential asset shown above may change. 5 Cash and cash equivalents 30 Jun Jun Dec 2008 Cash 460, , ,953 Other advances to banks 3,119,888 2,450,866 2,067,531 Total cash and cash equivalents 3,580,862 3,046,938 2,614,484 6 Impairment allowance 30 Jun Jun 2008 Year ended 31 Dec 2008 Specific allowances for impairment Balance at beginning of period 145, , ,309 Charge for the period - 50,373 64,223 Amounts written off during the period (105,734) (112,825) (112,825) Balance at end of period 39, , ,707 Collective allowances for impairment Balance at beginning of period 939, , ,708 Charge for the period 200, , ,748 Amounts written off during the period (476,046) (86,166) (140,548) Balance at end of period 664, , ,908 Total allowances for impairment Balance at beginning of period 1,085,615 1,013,017 1,013,017 Charge for the period 200, , ,971 Amounts written off during the period (581,780) (198,991) (253,373) Balance at end of period 704, ,303 1,085,615 This impairment allowance relates to consumer finance accounts and other advances to customers. 7

10 Notes (continued) 7 Deposits from banks 30 Jun Jun Dec 2008 Repayable on demand 319,637 6,175 94,119 3 months or less but not repayable on demand 655,897 6,000,000 5,000,000 1 year or less but over 3 months - 235,732 - Total deposits from banks 975,534 6,241,907 5,094,119 Comprising: Non profit sharing 319,637 6,000 94,119 Profit sharing/paying accounts 655,897 6,235,907 5,000,000 Total deposits from banks 975,534 6,241,907 5,094,119 8 Deposits from customers 30 Jun Jun Dec 2008 Repayable on demand 102,867,109 87,885,144 94,232,981 3 months or less but not repayable on demand 47,651,745 43,097,222 45,392,618 1 year or less but over 3 months 20,836,534 9,761,693 13,655,155 Total deposits from customers 171,355, ,744, ,280,754 Comprising: Non profit sharing 32,413,000 26,237,158 24,755,496 Profit sharing/paying accounts 138,942, ,506, ,525,258 Total deposits from customers 171,355, ,744, ,280,754 9 Called up share capital 30 Jun Jun Dec 2008 Authorised: Equity: 725,00,000 (30 June 2008: 500,000,000, 31 December ,000,000) ordinary shares of 0.01 each 7,250,000 5,000,000 7,250,000 Allotted, called up and fully paid: Issued ordinary share capital 5,464,700 4,190,000 4,190,000 On 19 December 2008, an ordinary resolution was passed at an extraordinary general meeting increasing the authorised share capital of the Company from 5,000,000 to 7,250,000 by the creation of an additional 225,000,000 new Ordinary Shares. On 23 January 2009, an additional 127,470,000 shares were allotted for consideration of 7,488,863 before expenses. Expenses of 154,766 were incurred in the placing resulting in an increase to equity of 7,334,097. 8

11 Notes (continued) 10 Related party disclosures At 30 June 2009, directors of the Company and their immediate relatives controlled 0.03% of the voting shares of the Company (30 June 2008: 0.04%, 31 December 2008: 0.04%). Transactions with key management personnel Key management of the Company are the Board of Directors and Management Committee members. The compensation of key management personnel, including the directors, is as follows: 30 Jun Jun 2008 Year ended 31 Dec 2008 Key management emoluments including social security costs 735, ,216 1,376,291 Company contributions to pension plans 27,722 21,950 49,251 Total 762, ,166 1,425,542 Deposit balances, operated under standard customer terms and conditions, held by key management personnel, including directors, totalled 399,571 as at 30 June 2009 (30 June 2008: 162,379, 31 December 2008: 242,923). The highest balance during the was 458,601 ( 30 June 2008: 279,043, Year ended 31 December 2008: 322,988). Total returns paid on these accounts for the 30 June 2009 totalled 1,221 ( 30 June 2008: 1,664, Year ended 31 December 2008: 2,895). Outstanding consumer finance and home purchase plan account balances relating to key management personnel, including directors, totalled 225,195 as at 30 June 2009 (30 June 2008: 63,638, 31 December 2008: 54,302). Returns recognised and rent received on these accounts for the totalled 2,816 ( 30 June 2008: 1,941, Year ended 31 December 2008: 3,553). All consumer finance and home purchase plan facilities taken by key management personnel and directors were offered in line with standard customer terms and conditions. 11 and statutory accounts The comparative figures for the financial year ended 31 December 2008 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company'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 237(2) or (3) of the Companies Act

12 Independent review report to Islamic Bank of Britain PLC Introduction We have been engaged by the company to review the condensed set of financial statements in the report for the six months ended 30 June 2009 which comprises the Condensed statement of comprehensive income, Condensed statement of financial position, Condensed statement of changes in equity, Condensed statement of cash flows and the related explanatory notes. We have read the other information contained in the 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 1, 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 the recognition and measurement requirements of IFRSs as adopted by the EU. The next annual financial statements of the company will be prepared in accordance with IFRSs as adopted by the EU. The accounting policies that have been adopted in preparing the condensed set of financial statements are consistent with those that the directors currently intend to use in the next annual financial statements. There is, however, a possibility that the directors may determine that some changes to these policies are necessary when preparing the full annual financial statements in accordance with IFRSs 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 2009 is not prepared, in all material respects, in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU and the AIM Rules. Ian Dewar for and on behalf of KPMG Audit Plc 23 September 2009 Chartered Accountants One Canada Square London E14 5AG 10

Interim Results. Interim Results. Date Published: 14/09/05. Islamic Bank Britain. Islamic Bank of Britain Plc 14 September 2005

Interim Results. Interim Results. Date Published: 14/09/05. Islamic Bank Britain. Islamic Bank of Britain Plc 14 September 2005 Interim Results Date Published: 14/09/05 Islamic Bank Britain Interim Results Islamic Bank of Britain Plc 14 September 2005 Islamic Bank of Britain PLC Interim Results for the six months to 30 June 2005