ISLAMIC BANK OF BRITAIN PLC (Incorporated and registered in England with registered number )

Transcription

1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action to take, you should immediately consult an independent financial adviser duly authorised under the Financial Services and Markets Act 2000 as amended ( FSMA ) who specialises in advising on the acquisition of shares and other securities in the United Kingdom. If you have sold or otherwise transferred all of your Ordinary Shares in Islamic Bank of Britain Plc ( Islamic Bank of Britain or the Company ), please forward this document (together with the attached Form of Proxy) immediately to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee. If you have sold or transferred only part of your holding in Islamic Bank of Britain you should retain this document. Application will be made for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Placing Shares will commence within five days of the Placing becoming unconditional in all respects. The Placing Shares will rank pari passu in all respects with the Ordinary Shares in issue. AIM is a market designated for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the United Kingdom Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration, and if appropriate, consultation with a financial adviser. The London Stock Exchange plc has not itself examined or approved the contents of this document. Your attention is drawn to the letter from the Chairman of Islamic Bank of Britain which is set out in Part I of this document and which contains a recommendation that you vote in favour of the Resolutions. Rule 24.2 (d) ISLAMIC BANK OF BRITAIN PLC (Incorporated and registered in England with registered number ) Placing of 127,470,000 new Ordinary Shares Approval of Waiver of Obligation under Rule 9 of the Takeover Code Increase in authorised share capital Directors authority to allot relevant securities and authority to allot equity securities for cash Adoption of new Articles of Association and Notice of General Meeting A notice convening the General Meeting of the Company to be held at the offices of Eversheds LLP, 115 Colmore Row, Birmingham, B3 3AL at 9.30 a.m. on 19 December 2008 is set out at the end of this document. Shareholders will find attached to this document a Form of Proxy for use in connection with the General Meeting. The attached Form of Proxy for use at the General Meeting should be completed, signed and returned to Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, in accordance with the instructions printed thereon as soon as possible and to be valid must arrive not later than 48 hours before the time fixed for the General Meeting. The return of a Form of Proxy will not preclude a member from attending, speaking or voting in person at the General Meeting should they so wish. Grant Thornton UK LLP is regulated by the Financial Services Authority and is acting exclusively for the Company and no one else in connection with this document. Grant Thornton UK LLP will not regard any other person as its customer or be responsible to any other person for providing the protections afforded to customers of Grant Thornton UK LLP nor for providing advice in relation to the transactions and arrangements detailed in this document. Grant Thornton UK LLP is not making any representations or warranty, express or implied, as to the contents of this document. This document does not constitute an offer to sell or an invitation to subscribe for, or solicitation of an offer to subscribe or buy Ordinary Shares to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation. In particular, this document is not for distribution in, or into, the United States of America, Canada, Australia, the Republic of Ireland, South Africa or Japan. Accordingly, the Ordinary Shares may not, subject to certain exceptions, be offered directly or indirectly in, or into, the United States of America, Canada, Australia, the Republic of Ireland, South Africa or Japan. The Ordinary Shares have not been and will not be registered under the United States Securities Act 1933 (as amended) or under the securities legislation of any state of the United States of America, Canada, Australia, the Republic of Ireland, South Africa or Japan and they may not be sold directly or indirectly within the United States of America, Canada, Australia, the Republic of Ireland, South Africa or Japan or to or for the account of any national, citizen or resident of the United States of America, Canada, Australia, the Republic of Ireland, South Africa or Japan or to an US person (within the definition of Regulation S made under the United States Securities Act 1933 (as amended)). Copies of this document are available from the Company s registered office from the date of this document until the date of the General Meeting. This document will also be available for download from the Company s website, document should not be downloaded by persons in, or residents of, United States of America, Canada, Australia, the Republic of Ireland, South Africa or Japan.

2 CONTENTS Expected Timetable of Principal Events 2 Placing Statistics 2 Definitions 3 Part I Letter from the Chairman 5 Part II Historical Financial Information relating to Islamic Bank of Britain 12 Part III Extract from the Unaudited Interim Report on Islamic Bank of Britain for the six months ended 30 June Part IV Summary of Principal Changes to the Articles of Association 37 Part V Additional Information 40 Notice of General Meeting 49 Page EXPECTED TIMETABLE OF PRINCIPAL EVENTS Latest time and date for receipt of completed Forms of Proxy General Meeting a.m. on 17 December 9.30 a.m. on 19 December If any details contained in the timetable above should change, the revised times and dates will be notified by means of an announcement through a Regulatory Information Service. PLACING STATISTICS Number of Ordinary Shares in issue at the date of this document 419,000,000 Number of new Ordinary Shares to be issued pursuant to the Placing 127,470,000 Number of Ordinary Shares in issue following Admission of the Placing Shares 546,470,000 Percentage of the Enlarged Share Capital represented by the Placing Shares 23.3% Percentage holding of the Sheikh Thani Concert Party following the placing 44.98% Gross proceeds of the Placing 7.49m 2

3 DEFINITIONS The following definitions apply throughout this document, unless the context otherwise requires: 1985 Act the Companies Act 1985 (as amended) 2006 Act the Companies Act 2006 Act Admission AIM AIM Rules Board or Directors Company, Bank or Islamic Bank of Britain the 1985 Act and the 2006 Act the admission of the Placing Shares to trading on AIM becoming effective in accordance with the AIM Rules the market of that name, operated by the London Stock Exchange plc the AIM Rules for Companies published by the London Stock Exchange plc the directors of the Company as at the date of this document, whose names appear in paragraph 2.1 on page 40 of this document Islamic Bank of Britain Plc CREST the relevant system (as defined in the CREST Regulations) for the paperless settlement of share transfers and the holding of shares in uncertificated form in respect of which Euroclear is the operator (as defined in the CREST Regulations) in accordance with which securities may be held and transferred in uncertificated form CREST Regulations the Uncertificated Securities Regulations 2001 (SI 2001/3755) as amended Enlarged Share Capital FSA Form of Proxy General Meeting Grant Thornton UK LLP Independent Shareholders Issued Share Capital Options Ordinary Shares the 546,470,000 Ordinary Shares in issue immediately following the Placing Financial Services Authority the form of proxy accompanying this document for use in connection with the General Meeting the general meeting of the Company, to be held at the offices of Eversheds LLP, 115 Colmore Row, Birmingham, B3 3AL at 9.30 a.m. on 19 December 2008, notice of which is set out at the end of this document Grant Thornton UK LLP the nominated adviser of Islamic Bank of Britain the Shareholders, other than members of the Sheikh Thani Concert Party and Mohsen Moustafa the 419,000,000 Ordinary Shares in issue as at the date of this document the share options granted pursuant the to Company s share option plan the ordinary shares of 1 pence each in the share capital of the Company 3

4 Panel Placing Placing Price Placing Shares QIIB QIIC Registrar Regulatory Information Service Resolutions Shareholders Sheikh Thani Takeover Code Sheikh Thani Concert Party Sheikh Thani Concert Party Waiver or Waiver Waiver Resolution the Panel on Takeovers and Mergers the proposed placing of the Placing Shares pence per Placing Share the 127,470,000 new Ordinary Shares to be issued under the Placing Qatar International Islamic Bank (Q.S.C.) Qatar Islamic Insurance Company (Q.S.C.) Capita Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield, West Yorkshire, HD8 0LA any service by which companies can disseminate information to AIM in accordance with the AIM Rules the resolutions set out in the notice of General Meeting the holders of Ordinary Shares HE Sheikh Thani Bin Abdulla Bin Thani Jasim Al Thani The City Code on Takeovers and Mergers, published by the Panel Sheikh Thani, QIIB and QIIC the waiver by the Panel of Rule 9 of the Takeover Code as described in Part I of this document Resolution 1 in the notice of General Meeting at the end of this document 4

5 Directors: Abdul Hakim Al-Adhamy Abdulaziz Al-Khulaifi Sultan Choudhury Gerry Deegan Mohsen Moustafa Robert J Owen Company Secretary: John Mulvey 26 November 2008 PART I LETTER FROM THE CHAIRMAN Islamic Bank of Britain Plc (Incorporated and registered in England with registered number ) Registered Office: Edgbaston House 3 Duchess Place Hagley Road Birmingham B16 8NH To the holders of Ordinary Shares and for information purposes only to the holders of Options Dear Shareholder, Placing of 127,470,000 new Ordinary Shares at pence per Placing Share, Approval of waiver of the obligation under Rule 9 of the Takeover Code, Approval of the increase in authorised share capital, Approval of the Directors authority to allot equity securities for cash, Adoption of the new Articles of Association and Notice of General Meeting. 1. Introduction The Company has today announced that it proposes to raise approximately 7.49 million before expenses by way of a Placing to Sheikh Thani of 127,470,000 new Ordinary Shares, at pence per Placing Share. The net proceeds of the Placing will be used to provide the Company with additional capital. The Placing is conditional upon the passing of the Waiver Resolution by the Independent Shareholders. Sheikh Thani has agreed to subscribe for 127,470,000 Placing Shares representing the entire Placing. Following the Placing, the interest of the Sheikh Thani Concert Party in the issued share capital of the Company would exceed percent of the voting rights of the Enlarged Share Capital. Rule 24.2(f) Section 4(h) Section 2(e) The Placing is conditional upon: (i) (ii) the approval of Independent Shareholders of the waiver from the obligations of Rule 9 of the Takeover Code to make a general offer for the issued share capital of the Company, that the Sheikh Thani Concert Party does not already own; an increase in the authorised share capital and the Directors receiving suitable authority to allot the Placing Shares; and (iii) Admission occurring on or before 31 January The Company is also increasing the authorised share capital and seeking additional authorities pursuant to sections 80 and 95 of the 1985 Act in order to undertake the Placing and to provide future headroom. In light of provisions of the 2006 Act, the Company is taking this opportunity to adopt new Articles of Association which reflect the provisions of the 2006 Act which have come into force. A summary of the principal changes to the Company s Articles of Association is set out in Part IV of this document. 5

6 The purpose of this document is to set out the background and the benefits to the Company and the Shareholders of obtaining the Sheikh Thani Concert Party Waiver and passing the Waiver Resolution and the background to the other Resolutions. 2. Current Trading and Prospects of Islamic Bank of Britain and Reasons for the Placing 2.1 Current trading The Unaudited Interim Report for Islamic Bank of Britain announced on 19 September 2008 (an extract of which is set out in Part III) showed an improved result for the half year to 30 June 2008, with the operating loss reduced by 21 percent to 3.1 million compared to the same period last year (6 months ended 30 June 2007: loss 3.9 million). This was achieved through an increase in operating income of 22 percent to 2.6 million, and a 6 percent reduction in operating expenses to 5.7 million. The Chairman s statement noted the continued steady growth despite the adverse market conditions and the investment that Islamic Bank of Britain had made in new products and technological infrastructure which would serve as a platform for further growth. 2.2 Prospects for Islamic Bank of Britain Islamic Bank of Britain s strategy is to focus on secured finance funded by capital and longer term deposits whilst increasing fee and commission income as a proportion of revenue. The challenging market conditions currently being experienced in the financial services and property sectors make it difficult to forecast future revenues with certainty. Despite these conditions, as the sole full-service wholly Sharia a-compliant retail bank operating in the UK, the Directors believe that Islamic Bank of Britain is well placed due to its low exposure to unsecured higher risk assets. In July 2008, Islamic Bank of Britain extended its secured finance offering to the residential market by launching its Sharia a-compliant Home Purchase Plan ( HPP ) product. The HPP product provides the opportunity for Islamic Bank of Britain to grow its customer finance assets in a capital efficient manner (residential owner occupied property backed secured finance requires less regulatory capital than other financing products). The Directors believe that this product is well placed to take advantage of current market conditions and demand from the Sharia a-compliant home finance market. New and existing savings products will be used to attract longer term customer deposits. These will be used to fund asset growth, while providing an attractive return to customers. Islamic Bank of Britain expects to launch a notice savings product in the near future to enhance the customer offering in this area. Islamic Bank of Britain plans to drive profitability and to increase fee and commission income through the distribution of third party investment products to affluent customers and the creation of a dedicated premier banking channel operating through Islamic Bank of Britain s branch network. 2.3 Reasons for the Placing To support Islamic Bank of Britain s current strategy, it is seeking to raise some capital immediately from an existing shareholder, Sheikh Thani. The capital is required for the following reasons: Regulatory capital. The Board is conscious of its responsibilities to ensure that Islamic Bank of Britain has sufficient regulatory capital to manage and grow the business. The Board closely monitors the Company s capital position to ensure compliance with the FSA s capital requirements through the Internal Capital Adequacy Assessment Process (ICAAP). New capital is required to support the future growth in customer assets, including the HPP product, and ensure that an appropriate buffer is maintained over the minimum regulatory requirement. Rule 24.1 (b and d) Funding. New capital is required to initially fund new long term customer assets, until longer term customer deposits are established. This is intended to help ensure that Islamic Bank of Britain continues to achieve its liquidity and funding requirements. Growth in new areas. It is intended that new capital will be used to fund growth in new areas including the creation of a dedicated premier banking channel, as detailed above. 6

7 Profitability. Islamic Bank of Britain s strategy is to deliver an improvement in profitability and to expedite the achievement of break-even while minimising credit risk and efficiently using capital. As noted above, new capital is required to take advantage of the growing Sharia a-compliant home finance market. Achievement of a strong credit rating. The Directors believe that Islamic Bank of Britain s financial stability and market reputation is important to its success within its chosen markets. The Directors believe that an improved capital base will enhance the Bank s standing and credit rating with financial markets, new and existing customers and other stakeholders. In order to take advantage of market conditions, the opportunities outlined above and in the light of regulatory requirements, the Board believes that it is in the Shareholders interests to strengthen the Company s capital base with the proposed Placing. The Board will continue to review the Company s financing structure and opportunities for profitable growth and expects to raise further financing in the future to fund anticipated activity as and when the opportunity arises. 3. Principal Terms of the Placing The Company is proposing to raise approximately 7.49 million (before expenses) by a Placing of 127,470,000 new Ordinary Shares at pence each. The Company has received a placing letter from Sheikh Thani to subscribe for the entire Placing. This placing letter is conditional upon the passing of the Waiver Resolution by Independent Shareholders and Resolutions 2, 3 and 4 at the General Meeting and upon Admission occurring on or before 31 January The proceeds (after expenses) of the Placing are expected to amount to approximately 7.35 million and will be used for the activities described in 2.3 above. The Placing Shares will, if issued, rank pari passu with the existing Ordinary Shares and are expected to be admitted to trading on AIM within five days of the Placing becoming unconditional. 4. Background to the Waiver 4.1 General The issue of the Placing Shares to Sheikh Thani gives rise to certain considerations under the Takeover Code. Brief details of the Panel and the Takeover Code, and the protections they afford to Shareholders, are described below. The Takeover Code is issued and administered by the Panel as the competent authority, pursuant to the 2006 Act. The Takeover Code applies to all takeovers and merger transactions, however effected, where the offeree company is, inter alia, a listed or unlisted public company resident in the UK, the Channel Islands or the Isle of Man and to certain categories of private limited companies. The Company falls under the jurisdiction of the Takeover Code and accordingly, Shareholders are entitled to the protection afforded by the Takeover Code. Under Rule 9 of the Takeover Code, any person who acquires an interest in shares (as defined in the Takeover Code) which, taken together with shares in which he is already interested and in which persons acting in concert with him are interested, carry 30 percent or more of the voting rights of a company which is subject to the Takeover Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares. Under Rule 9 of the Takeover Code, when any person or group or persons acting in concert individually or collectively are interested in shares which in aggregate carry not less than 30 percent of the voting rights of a company but does not hold shares carrying more than 50 percent of the voting rights of a company and such person or any person acting in concert with him acquires an interest in any other shares, which increases the shares carrying voting rights in which he is interested, then that person or group of persons is normally required by the Panel to make a general offer to all the remaining shareholders to acquire their shares. 7

8 An offer under Rule 9 must be in cash and at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interest in shares acquired during the 12 months prior to the announcement of the offer. Under the Takeover Code, a concert party arises where persons acting together pursuant to an agreement or understanding (whether formal or informal) actively co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. Control means the holding, or aggregate holdings, of interests in shares carrying 30 percent or more of the voting rights of the company, irrespective of whether the holding or holdings give de facto control. Each member of the Sheikh Thani Concert Party is a Shareholder. Details of their current shareholdings are set out in paragraph 4.2 below. Sheikh Thani has an indirect shareholding in QIIB and QIIC of approximately 27.3 percent and 22.8 percent respectively. One of Sheikh Thani s sons (HE Sheikh Khalid Bin Thani Al Thani) is chairman and a director of QIIB and QIIC respectively and another of his sons (HE Sheikh Abdullah Bin Thani Al Thani) is chairman and a director of QIIC and QIIB respectively. As a result of the above, Sheikh Thani, QIIB and QIIC are currently considered to be persons acting in concert for the purposes of the Takeover Code in relation to the Company. Section 4 (d) Further information on the Sheikh Thani Concert Party is set out in paragraph 5 of Part V of this document. 4.2 The Sheikh Thani Concert Party Waiver The Sheikh Thani Concert Party is interested, in aggregate, in 118,356,746 Ordinary Shares representing approximately percent of the Issued Share Capital at the date of this document. Following completion of the Placing, the Sheikh Thani Concert Party will be interested in 245,826,746 Ordinary Shares, in aggregate, representing approximately percent of the Enlarged Share Capital. The respective interests of the members of the Sheikh Thani Concert Party following completion of the Placing are set out in the table below. Number of Number of Existing Percentage Placing Ordinary Percentage shareholding holding in the Shares Shares held holding in the in the existing share subscribed on Enlarged Company capital for Admission Share Capital Sheikh Thani 36,399, ,470, ,869, QIIB 61,299, ,299, QIIC 20,657, ,657, Total 118,356, ,470, ,826, The Panel has agreed, subject to the approval of the Independent Shareholders voting by way of a poll at the General Meeting, to waive the obligation for any member of the Sheikh Thani Concert Party to make a general offer to Shareholders under Rule 9 of the Takeover Code that would otherwise arise as a result of the Placing. Section 4 (b) Section 4 (d) Rule 25.1 Section 4 e Shareholders should be aware that, following completion of the Placing the Sheikh Thani Concert Party will between them hold more than 30 percent of the Company s voting share capital but not more than 50 percent of the Company s voting share capital and for so long as they continue to be treated as acting in concert any further increase in their aggregate shareholdings will be subject to the provisions of Rule 9 of the Takeover Code. The Company and each member of the Sheikh Thani Concert Party have entered into a standstill agreement. Further details of the standstill agreement are set out in paragraph on page 45 of this Circular. 4.3 Future Intentions The Board does not intend that any changes will be introduced to the Company s business as a result of the Placing. In addition, each member of the Sheikh Thani Concert Party have confirmed that, as a result of the Placing, they have no intention to change the strategic plans for the Rule 24.1 (a), (b) & (e) 8

9 Company, the locations of the Company s places of business or the continued employment of its employees and management, including any material change in the conditions of employment nor will there be any redeployment of the fixed assets of the Company. 5. Related Party Transactions Sheikh Thani is a substantial shareholder directly and indirectly holding more than 10 percent of the Issued Share Capital. The issue of the Placing Shares to Sheikh Thani therefore constitutes a related party transaction for the purposes of AIM Rule 13. Where a company whose shares are quoted on AIM enters into a related party transaction, the directors are required to consider, having consulted with the Company s nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned. The Directors, having consulted with Grant Thornton UK LLP the Company s nominated adviser, consider that the terms of the related party transaction with Sheikh Thani to be fair and reasonable insofar as Shareholders are concerned. 6. Dilution for Shareholders Due to cost constraints and timing issues, the Board has determined that it would not be practical to issue a prospectus which would have permitted the participation of all Shareholders in the Placing. As a consequence, the Placing could result in certain Shareholders suffering significant dilution. 7. Increase in authorised share capital, authority to allot shares and authority to allot equity securities for cash The Placing will utilise all of the Company s headroom of authorised but unissued share capital that is not reserved for the exercise of share options and will utilise some of the increased authorities to allot relevant securities and allot equity securities for cash proposed in Resolutions 3 and 4. The Directors believe it is important to maintain a level of headroom in authorised but unissued shares and accordingly Resolution 2 will be proposed as an ordinary resolution to increase 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. Resolution 3 will be proposed as an Ordinary Resolution to provide the Directors with authority to allot relevant securities (within the meaning of the 1985 Act) up to an aggregate nominal amount of 2,250,000. This authority will be in addition to the Directors existing authority granted at the Company s annual general meeting held on 24 April 2008 and following the Placing would leave the Directors with authority to allot relevant securities up to an aggregate nominal amount of 1,785,300 representing percent of the Enlarged Share Capital. In order to provide the Directors with the power to allot equity securities (within the meaning of section 94(2) of the Act) for cash without first offering those equity securities to shareholders in accordance with section 89(1) of the Act, Resolution 4 will be proposed as a Special Resolution to provide the Directors (in addition to their existing authorities) with authority to allot equity securities as if section 89(1) of the 1985 Act did not apply to such allotments: (i) in connection with rights issues and other pre-emptive offers to shareholders; and (ii) otherwise, up to an aggregate nominal amount of 737,935. Following the Placing, the Directors would have the authority to allot equity securities for cash up to an aggregate nominal amount of 273,235 representing 5 percent of the Enlarged Share Capital. 8. New Articles of Association The opportunity is being taken to update the Articles of Association of the Company to ensure that they comply with the requirements of the 2006 Act. Set out in Part IV of this circular is a summary of the principal changes proposed to be made to the Articles of Association. A copy of the full terms of the proposed new Articles of Association will be available for inspection at the registered office of the Company and on the Company s website, 9

10 9. General Meeting You will find set out at the end of this document, a notice convening the General Meeting of the Company to be held at 9.30 a.m. on 19 December 2008 for the purpose of considering, and if thought fit, passing the following Resolutions: 1. approve the Sheikh Thani Concert Party Waiver in respect of Rule 9 of the Takeover Code; 2. increase the authorised share capital of the Company from 5,000,000 to 7,250,000 by the creation of 225,000,000 new Ordinary Shares; 3. give the Directors authority to allot shares up to an aggregate nominal value of 2,250,000 (in addition to the existing authorities which the Directors have); 4. give the Directors authority to allot equity securities for cash in connection with rights issues and otherwise up to an aggregate nominal amount of 737,935 (in addition to the existing authorities which the Directors have); and 5. adopt new Articles of Association. To be passed, Resolution 1 requires a majority of more than 50 percent of the Independent Shareholders voting on a poll in person or by proxy in favour of this resolution. Section 2d To be passed, Resolutions 2 and 3, require a majority of more than 50 percent of Shareholders and Resolutions 4 and 5 require a majority of 75 percent or more of Shareholders voting in favour of the respective Resolutions (either on a show of hands or on a poll). If Resolutions 1 to 4 are not passed the Directors may need to consider other options to finance the continuing development of the Company. The approval of the Placing and the Waiver is dependent upon the passing of resolutions 2 to Action to be taken You will find attached to this document a Form of Proxy for use by Shareholders at the General Meeting. Whether or not you intend to be present at the General Meeting, you are requested to complete and return the Form of Proxy in accordance with the instructions printed thereon. To be valid, completed Forms of Proxy must be received by Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU as soon as possible and in any event not later than 9.30 a.m. on 17 December 2008 being 48 hours before the time appointed for holding the General Meeting. Completion of a Form of Proxy will not preclude you from attending the meeting and speaking and voting in person if you so choose. 11. Recommendation by the Directors The Directors, other than myself and Abdulaziz Al-Khulaifi, who have been so advised by Grant Thornton UK LLP, consider the Placing and the Waiver to be fair and reasonable and in the best interests of the Independent Shareholders and the Company as a whole. In providing advice to the Directors, Grant Thornton UK LLP has taken into account the Directors commercial assessments. Section 4a Rule 3 As well as being your Chairman, I also hold the position of Deputy Chief Executive Officer of QIIB and Abdulaziz Al-Khulaifi is a director of QIIC. For these reasons we are not permitted to give our support to, or vote upon, Resolution 1, being the approval of the Placing and the Waiver. Rule 25.3(v) 10

11 Accordingly, the Directors, other than myself and Abdulaziz Al-Khulaifi, for the reasons set out above, recommend that you vote in favour of Resolution 1 in respect of the Placing and the Waiver, and, the Directors, including myself and Abdulaziz Al-Khulaifi, recommend that you vote in favour of Resolutions 2 to 5 in respect of the other business of the General Meeting, as we intend to do in respect of our own beneficial holdings amounting in aggregate to 54,000 Ordinary Shares representing approximately 0.01 percent of the Issued Share Capital in respect of Resolution 1, and 154,000 Ordinary Shares representing approximately 0.04 percent of the Issued Share Capital in respect of Resolutions 2 to 5. Yours faithfully Mohsen Moustafa Chairman 11

12 PART II HISTORICAL FINANCIAL INFORMATION RELATING TO ISLAMIC BANK OF BRITAIN PLC The following financial information does not constitute statutory accounts as defined in section 434 of the Companies Act The financial information displayed below is an abridged version of the Company s published financial statements for those years, which contained unqualified audit reports and which have been filed with the Registrar of Companies. Rule 24.2 Income Statement For the years ended 31 December Note Income receivable from: Islamic financing transactions 7,804,290 4,554,578 2,985,143 Returns payable to customers and banks (3,208,871) (1,705,389) (814,978) Net income from Islamic financing transactions 4 4,595,419 2,849,189 2,170,165 Fee and commission income 240, ,554 40,963 Fee and commission expense (138,619) (12,764) (3,167) Net fee and commission income 5 101, ,790 37,796 Operating income 4,696,862 3,010,979 2,207,961 Net impairment loss on financial assets (644,071) (445,089) (52,068) Personnel expenses (5,138,376) (4,241,778) (3,250,576) General and administrative expenses (3,978,992) (5,430,902) (3,859,216) Depreciation (746,353) (621,462) (754,689) Amortisation (1,106,074) (1,105,001) (740,919) Total operating expenses (11,613,866) (11,844,232) (8,657,468) Loss before income tax (6,917,004) (8,833,253) (6,449,507) Income tax expense Loss for the year (6, 917,004) (8,833,253) (6,449,507) Loss per ordinary share Basic and diluted (pence) (1.7) (2.1) (1.5) 12

13 Balance sheet As at 31 December Note Assets Cash 7 509, ,492 Commodity Murabaha and Wakala receivables and other advances to banks 8 141,768, ,286,964 Consumer finance accounts and other advances to customers 9,663,295 8,092,326 Net investment in commercial property finance 9 6,091,882 2,338,401 Property and equipment 3,443,355 3,965,370 Intangible assets 1,262,231 1,894,272 Other assets 2,197, ,270 Total assets 164,936, ,012,095 Liabilities and equity Liabilities Deposits from banks 10 2,498, ,164 Deposits from customers ,640,612 83,853,383 Other liabilities 2,972,602 2,187,261 Total liabilities 140,111,518 86,280,808 Equity Called up share capital 4,190,000 4,190,000 Share premium 48,747,255 48,747,255 Retained deficit (28,137,072) (21,205,968) Profit stabilisation reserve 25,126 Total equity 24,825,309 31,731,287 Total equity and liabilities 164,936, ,012,095 13

14 Statement of changes in equity For the years ended 31 December Share Profit Profit Share premium and loss stabilisation capital account account reserve Total Balance at 1 January ,190,000 48,747,255 (12,372,715) 40,564,540 Loss for the year (8,833,253) (8,833,253) Balance at 31 December ,190,000 48,747,255 (21,205,968) 31,731,287 Balance at 1 January ,190,000 48,747,255 (21,205,968) 31,731,287 Loss for the year (6,917,004) (6, 917,004) Credit in respect of share based payments charge 11,026 11,026 Transfer to profit stabilisation reserve (25,126) 25,126 Balance at 31 December ,190,000 48,747,255 (28,137,072) 25,126 24,825,309 14

15 Statement of cash flows For the years ended 31 December Note Cash flows from operating activities Loss for the year (6,917,004) (8,833,253) Adjustments for: Depreciation 746, ,462 Amortisation 1,106,074 1,105,001 Impairment on financial assets 644, ,089 Share based payments charge 11,026 Change in Commodity Murabaha and Wakala receivables and other advances to banks (38,065,860) (24,870,824) Change in consumer finance accounts and other advances to customers (2,215,040) (4,083,046) Change in net investment in commercial property finance (3,753,481) (2,338,401) Change in other assets (1,214,554) (73,022) Change in deposits from banks 2,258, ,164 Change in deposits from customers 50,787,229 36,138,790 Change in other liabilities 785,341 1,176,894 Net cash generated from/(used in) operating activities 4,172,295 (471,146) Cash flows from investing activities Purchase of property and equipment (224,338) (787,881) Purchase of intangible assets (474,033) (1,490,268) Net cash used in investing activities (698,371) (2,278,149) Net change in cash and cash equivalents 3,473,924 (2,749,295) Cash and cash equivalents at 1 January 2,190,582 4,939,877 Cash and cash equivalents at 31 December 7 5,664,506 2,190,582 15

16 Notes to the Financial Information 1. Reporting entity Islamic Bank of Britain PLC ( the Company ) is a company domiciled in the UK. The address of the Company s registered office is Edgbaston House, 3 Duchess Place, Hagley Road, Birmingham B16 8NH. The financial statements of the Company are presented as at and for the years ended 31 December. The Company is a retail bank offering Sharia a compliant banking products and services. 2. Basis of preparation (a) Statement of compliance The financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and approved by the directors. The financial statements for the year ended 31 December 2007 were approved by the Board of Directors on 12 March The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in this financial information. (b) (c) (d) Basis of measurement The financial information has been prepared on the historical cost basis. Functional and presentation currency The financial information is presented in Sterling, which is the Company s functional currency. Use of estimates and judgements The preparation of financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. 3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. (a) Property and equipment (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. (ii) (iii) Subsequent costs The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in the income statement as incurred. Depreciation Depreciation is recognised in the income statement on a straight line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. 16

17 Notes to the Financial Information (continued) 3. Significant accounting policies (continued) (b) (c) Computer equipment Fixtures, fittings and office equipment Leasehold improvements 3 years 5 years 10 years or over the life of the lease whichever is shorter Depreciation methods, useful lives and residual values are reassessed at the reporting dates. Intangible assets Software and computer licences acquired by the Company are stated at cost less accumulated amortisation and accumulated impairment losses. Expenditure on internally developed software is recognised as an asset when the Company is able to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly attributable to developing the software, and are amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment. Subsequent expenditure on software assets and computer licences is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Amortisation is recognised in the income statement on a straight line basis over the estimated useful life of the software or the licence term, from the date that it is available for use. The estimated useful life of software is three years. Commodity Murabaha and Wakala receivables and other advances to banks Commodity Murabaha is an Islamic financing transaction, which represents an agreement whereby the Company buys a commodity and sells it to a counterparty based on a promise received from that counterparty to buy the commodity according to specific terms and conditions. The selling price comprises of the cost of the commodity and a pre-agreed upon profit margin. Wakala is an Islamic financing transaction, which represents an agreement whereby the Company provides a certain sum of money to an agent, who invests it according to specific conditions in order to achieve a certain specified return. The agent is obliged to return the invested amount in case of default, negligence or violation of any of the terms and conditions of the Wakala. Commodity Murabaha receivables are recognised upon the sale of the commodity to the counterparty. Wakala receivables are recognised upon placement of funds with other institutions. Income, on both Commodity Murabaha and Wakala receivables, is recognised on an effective yield basis. The effective yield rate is the rate that exactly discounts the estimated future cash payments and receipts through the agreed payment term of the contract to the carrying amount of the receivable. The effective yield is established on initial recognition of the asset and is not revised subsequently. The calculation of the effective yield rate includes all fees paid or received, transaction costs, and discounts or premiums that are an integral part of the effective yield rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. Commodity Murabaha and Wakala receivables are initially recorded at fair value and are subsequently measured at amortised cost using the effective yield method, less impairment losses. The accrued income receivable is classified under other assets. Other advances to banks are stated at cost and are non-return bearing. 17

18 Notes to the Financial Information (continued) 3. Significant accounting policies (continued) (d) Consumer finance accounts Islamic consumer financing transactions represent an agreement whereby the Company buys a commodity or goods and then sells it to the customer with an agreed profit mark-up with settlement of the sale price being deferred for an agreed period. The customer may subsequently sell the commodity purchased to generate cash. Consumer finance assets will be recognised on the date that the commodity or good is sold by the Company. Consumer finance account balances are initially recorded at fair value and are subsequently measured at amortised cost. The amortised cost is the amount at which the asset is measured at initial recognition, minus repayments received relating to the initial recognised amount, plus the cumulative amortisation using an effective yield method of any difference between the initial amount recognised and the agreed sales price to the customer, minus any reduction for impairment. Income is recognised on an effective yield basis over the period of the contract. The effective yield rate is the rate that exactly discounts the estimated future cash payments and receipts through the agreed payment term of the contract to the carrying amount of the receivable. The effective yield is established on initial recognition of the asset and is not revised subsequently. The calculation of the effective yield rate includes all fees paid or received, transaction costs, and discounts or premiums that are an integral part of the effective yield rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. The accrued income receivable from the customer is classified under other assets. (e) Commercial property finance Commercial property finance is provided using the Diminishing Musharaka (reducing partnership) principle of Islamic financing. The Company will enter into an agreement to jointly purchase a property with another party and rental income will be received by the Company relating to that proportion of the property owned by the Company at any point in time. The other party to the agreement will make separate payments to purchase additional proportions of the property from the Company, thereby reducing the Company s effective share. The transaction is recognised as a financial asset upon legal completion of the property purchase and the amount receivable is recognised at an amount equal to the net investment in the transaction. Where initial direct costs are incurred by the Company such as commissions, legal fees and internal costs that are incremental and directly attributable to negotiating and arranging the transaction, these costs are included in the initial measurement of the receivable and the amount of income over the term will be reduced. Rental income is recognised at a constant periodic rate of return on the Company s net investment. (f) Deposits from customers Profit sharing accounts are based on the principle of Mudaraba whereby the Company and the customer share an agreed percentage of any profit earned on the customer deposits. The customer s share of profit is paid in accordance with the terms and conditions of the account. The profit calculation is undertaken at the end of each calendar month. Customer Murabaha deposits consist of an Islamic financing transaction involving the Company arranging the purchase of an asset on behalf of the customer and the purchase thereof from the same customer by the Company at cost plus an agreed profit mark-up with settlement on a deferred payment basis. Customer Murabaha deposit balances are included in the balance sheet under deposits from customers and the accrued returns payable to the customer are classified under other liabilities. Returns payable on Customer Murabaha deposits are recognised on an effective yield basis over the period of the contract. 18

19 Notes to the Financial Information (continued) 3. Significant accounting policies (continued) (g) (h) Profit stabilisation reserve The profit stabilisation reserve is used to maintain returns payable to customers on Mudaraba based savings accounts. Returns payable on these profit sharing accounts are credited to customers in accordance with the terms and conditions of the account. Any surplus returns arising from the investment of funds are then credited to this reserve. In the case of inadequate returns generated by these funds, the Company will maintain the return to depositors by utilising this reserve. Derecognition of financial assets and liabilities The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards or ownership of the financial asset are transferred. Any remaining interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. (i) Impairment of financial assets At each balance sheet date the Company assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated readily. The Company considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Objective evidence that financial assets are impaired include default or delinquency by the counterparty, extending or changing repayment terms, indications that a counterparty may go into bankruptcy, or other observable data relating to a group of assets such as adverse changes in the payment status of counterparties, or economic conditions that correlate with defaults in the group. In assessing collective impairment the Company uses analysis of historical trends to identify the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management s judgement as to whether current economic conditions are such that the actual losses are likely to be greater or less than suggested by historical analysis. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of the estimated cash flows discounted at the assets original effective yield rate. Losses are recognised in the income statement and reflected against the asset carrying value. When a subsequent event causes the amount of impairment losses to decrease, the impairment loss is reversed through the income statement. (j) Impairment of non-financial assets The carrying amounts of the Company s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. 19