Burgan Bank S.A.K. Interim Financial Information (Unaudited) for the Period Ended Date: XX April Kuwait
Balance Sheet (Unaudited) At Audited 31 December Notes ASSETS Cash and cash equivalents 4 488,137 288,328 343,710 Treasury bills and bonds 449,162 388,909 290,481 Due from banks and other financial institutions 555,338 414,672 431,889 Loans and advances to customers 1,118,502 943,446 839,158 Government debt bonds 5 3,136 13,063 39,527 Investment securities 96,694 107,672 96,871 Other assets 50,400 36,063 30,997 Property and equipment 18,184 18,062 18,384 assets 2,779,553 2,210,215 2,091,017 LIABILITIES AND EQUITY LIABILITIES Due to banks 536,062 291,521 306,721 Due to other financial institutions 392,910 234,438 124,486 Certificates of deposit 10,000 63,000 100,000 Deposits from customers 1,419,347 1,237,936 1,217,953 Other borrowed funds 6 45,369 75,540 75,540 Other liabilities 56,631 47,626 43,330 2,460,319 1,950,061 1,868,030 EQUITY Share capital 7 86,060 86,060 86,060 Share premium 64,759 64,759 64,759 Treasury shares 7 (584) (29,039) (29,092) Statutory reserve 27,502 27,502 21,728 Voluntary reserve 27,880 27,880 22,106 Treasury shares reserve 38,258 1,870 1,845 Investments revaluation reserve 19,090 31,353 24,321 Share based compensation reserve 72 36 - Retained earnings 56,197 49,733 31,260 319,234 260,154 222,987 Liabilities and Equity 2,779,553 2,210,215 2,091,017 Tariq Mohammed Abdul Salam Chairman Jonathan David Lyon Chief General Manager & Executive Officer The attached notes 1 to 14 form an integral part of these interim financial information 2
Income Statement (Unaudited) Period ended Three months ended Six months ended Note Interest income 43,099 31,493 82,257 59,815 Interest expense (27,002) (18,982) (53,687) (34,695) Net interest income 16,097 12,511 28,570 25,120 Net gains from foreign currencies 688 542 1,131 908 Net gains from investments securities 12,092 1,850 27,213 599 Dividend income 370 1,257 4,604 3,783 Fees and commissions 3,539 5,509 7,837 10,418 Other income 343 59 405 116 Operating income 33,129 21,728 69,760 40,944 Staff expenses (3,561) (2,544) (7,037) (5,654) Other expenses (3,744) (2,771) (8,430) (5,687) Operating profit before provisions 25,824 16,413 54,293 29,603 Provision for impairment of loans and Advances (1,431) (1,996) (6,600) (3,061) Provision for impairment of investment Securities - - - (5) Operating profit 24,393 14,417 47,693 26,537 Contribution to Kuwait Foundation for the Advancement of Sciences ( KFAS) (219) (130) (429) (239) National labour support tax (NLST) (609) (321) (1,164) (591) Profit for the period 23,565 13,966 46,100 25,707 Fils Fils Fils Fils Basic earnings per share 8 28.2 17.6 56.6 32.1 Diluted earnings per share 8 28.2 17.6 56.5 32.0 The attached notes 1 to 14 form an integral part of these interim financial information 3
Statement of Changes in Equity (Unaudited) Period ended Share Capital Share Premium Treasury Shares Statutory Reserve Voluntary Reserve Treasury Shares Reserve Investments revaluation Reserve Share based compensation reserve Retained Earnings Balance at 31 December 2005 86,060 64,759 (18,557) 21,728 22,106 1,599 31,858-37,747 247,300 Available-for-sale investments: - Net fair valuation losses - - - - - - (5,068) - - (5,068) - Net transfer to income statement - - - - - - (2,469) - - (2,469) Gain on sale of treasury shares - - - - - 246 - - - 246 Net income / (expense) recognised directly in equity - - - - - 246 (7,537) - - (7,291) Profit for the period - - - - - - - - 25,707 25,707 recognised income / (expense) for the period - - - - - 246 (7,537) - 25,707 18,416 Dividend paid (Note 7) - - - - - - - - (32,194) (32,194) Purchase of treasury shares - - (11,181) - - - - - - (11,181) Sale of treasury shares - - 646 - - - - - - 646 Balance at 86,060 64,759 (29,092) 21,728 22,106 1,845 24,321-31,260 222,987 Balance at 31 December 86,060 64,759 (29,039) 27,502 27,880 1,870 31,353 36 49,733 260,154 Available-for-sale investments: - Net fair valuation gains - - - - - - 6,605 - - 6,605 - Net transfer to income statement - - - - - - (18,868) - - (18,868) Gain on sale of treasury shares - - - - - 36,386 - - - 36,386 Share based compensation expense (Note 13) - - - - - 2-36 - 38 Net income / (expense) recognised directly in equity - - - - - 36,388 (12,263) 36-24,161 Profit for the period - - - - - - - - 46,100 46,100 recognised income / (expense) for the period - - - - - 36,388 (12,263) 36 46,100 70,261 Dividend paid (Note 7) - - - - - - - - (39,636) (39,636) Sale of treasury shares - - 28,455 - - - - - - 28,455 Balance at 86,060 64,759 (584) 27,502 27,880 38,258 19,090 72 56,197 319,234 The attached notes 1 to 14 form an integral part of these interim financial information 4
Statement of Cash Flows (Unaudited) Period ended Six months ended Note Operating activities Profit for the period 46,100 25,707 Adjustments: Net gains from investment securities (27,213) (599) Provision for impairment of investment securities - 5 Provision for impairment of loans and advances 6,600 3,061 Dividend income (4,604) (3,783) Depreciation 1,204 1,132 Provision for share based compensation 36 - Operating profit before changes in operating assets and liabilities 22,123 25,523 Changes in operating assets and liabilities: Treasury bills and bonds (60,253) (8,275) Due from banks and other financial institutions (140,666) (193,152) Loans and advances to customers (181,656) (42,414) Government debt bonds 9,927 22,094 Other assets (14,337) (7,397) Due to banks 244,541 63,436 Due to other financial institutions 158,472 31,494 Certificates of deposit (53,000) 75,000 Deposits from customers 181,411 51,308 Other liabilities 9,005 4,830 Net cash from operating activities 175,567 22,447 Investing activities Purchase of investment securities (319,842) (46,035) Sale of investment securities 345,770 35,973 Net additions to property and equipment (1,326) (914) Dividends received 4,604 3,783 Net cash from / (used in) investing activities 29,206 (7,193) Financing activities Other borrowed funds (30,171) (450) Purchase of treasury shares - (11,181) Sale of treasury shares 64,843 892 Cash dividends paid (39,636) (32,194) Net cash used in financing activities (4,964) (42,933) Net increase (decrease) in cash and cash equivalents 199,809 (27,679) Cash and cash equivalents at 1 January 288,328 371,389 Cash and cash equivalents at 4 488,137 343,710 The attached notes 1 to 14 form an integral part of these interim financial information 5
At 1. Incorporation and registration Burgan Bank S.A.K. (the Bank ) is a public shareholding company incorporated in the State of Kuwait by Amiri Decree No. xxx dated 27 December 1975 and listed on the Kuwait Stock Exchange. It is registered as a Bank with the Central Bank of Kuwait. The Bank s address is P.O. Box 5389, Safat 12170, State of Kuwait. It is engaged in all banking activities. During the period, the Bank has become 50.1% owned subsidiary of Kuwait Projects Company Holding K.S.C. which is listed on the Kuwait Stock Exchange. These interim financial information have been approved for issue by the Board of Directors on 9 July. 2. Basis of presentation The interim financial information of the Bank have been prepared in accordance with International Accounting Standard 34: Interim Financial Reporting, except as noted below. The accounting policies used in the preparation of the interim financial information are consistent with those used in the preparation of the annual financial statements for the year ended 31 December. The annual financial statements for the year ended 31 December were prepared in accordance with the regulations of the State of Kuwait for financial services institutions regulated by the Central Bank of Kuwait. These regulations require adoption of all International Financial Reporting Standards (IFRS) except for the International Accounting Standard (IAS) 39 requirement for collective provision, which has been replaced by the Central Bank of Kuwait s requirement for a minimum general provision as described below. The impairment provision for credit facilities complies in all material respects with the specific provision requirements of the Central Bank of Kuwait and IFRS. In March, the Central Bank of Kuwait issued a circular amending the basis of making minimum general provisions on facilities changing the rate from 2% to 1% for cash facilities and 0.5% for non cash facilities. The required rates were to be applied effective from 1 January on the net increase in facilities, net of certain restricted categories of collateral during the reporting period. The general provision in excess of the present 1% for cash facilities and 0.5% for non cash facilities would be retained as a general provision until further directive from the Central Bank of Kuwait. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results of the six months period ended are not necessarily indicative of the results that may be expected for the year ending 31 December. For further information, refer to the financial statements and notes thereto included in the Bank s annual report for the year ended 31 December. 3. Recoveries of provisions Under the terms of Amiri Decrees No. 32 of 1992 and No. 41 of 1993 as amended, relating to resident Kuwaiti customers debts existing at 1 August 1990 sold to the Central Bank of Kuwait there were provisions no longer required as at amounting to KD 23,000 (31 December : KD 58,000; : KD 22,000). Provisions no longer required will be determined at the year-end and will be ceded to the Central Bank of Kuwait depending on the situation at that time. The estimation of provisions no longer required, if any, will be made on a basis consistent with that adopted at 31 December and in accordance with the instructions of the Central Bank of Kuwait. 6
At 4. Cash and cash equivalents Audited 31 December Cash in hand and on current account with banks & other financial institutions (OFI s) 23,976 29,378 29,787 Balances with the Central Bank of Kuwait 462 886 90 Due from banks and OFIs maturing within 30 days 463,699 258,064 313,833 488,137 288,328 343,710 5. Government debt bonds The rate of interest on Government Debt Bonds is accrued at 4.62 % per annum for the 6 months ended (31 December : 4.39%, : 3.77 %). 6. Other borrowed funds Effective Interest rate Audited 31 December Medium term USD borrowing due 2009 LIBOR+ 0.375% 45,369 45,540 45,540 Fixed rate KD bond due 5.875% - 30,000 30,000 45,369 75,540 75,540 7. Equity a) The authorised, issued and fully paid up share capital of the Bank comprises 860,603,940 shares of 100 fils each. b) Treasury shares Audited 31 December 2005 Number of shares held 1,365,321 67,879,348 68,016,450 Percentage of shares held 0.16% 7.89% 6.96% Cost 584 29,039 29,092 Market value 1,447 48,873 42,170 Reserves equivalent to the cost of the treasury shares held are not available for distribution. c) Dividend At the annual general meeting of the shareholders held on 19 March, a cash dividend of 50 fils per share for (40 fils per share for 2005) amounting to KD 39,636,230 was approved and paid (2005: KD 32,194,057). 7
At 8. Earnings per share Basic earnings per share is computed by dividing the profit for the period by the weighted average number of shares outstanding during the period less treasury shares. Diluted earnings per share is computed by dividing the profit for the period by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The computation of basic and diluted earnings per share is as follows: Three months ended Six months ended KD KD KD KD Profit for the period 23,565,000 13,966,000 46,100,000 25,707,000 Shares Shares Shares Shares Weighted average number of the Bank s issued and fully paid up shares 860,603,940 860,603,940 860,603,940 860,603,940 Less: Weighted average number of treasury shares (25,932,880) (66,931,780) (46,903,684) (58,942,113) Weighted average number of shares, less treasury shares, outstanding during the period 834,671,060 793,672,160 813,700,256 801,661,827 Effect of dilution due to employee share option plan 972,568 552,203 1,376,907 546,190 Effect of dilution due to discounted share purchase plan 826,644 47,182 569,125 45,488 Weighted average number of shares, less treasury shares, outstanding during the period adjusted for the effect of dilution 836,470,272 794,271,545 815,646,288 802,253,505 Basic earnings per share (fils) 28.2 17.6 56.6 32.1 Diluted earnings per share (fils) 28.2 17.6 56.5 32.0 9. Segmental analysis Primary segment information: The Bank is organised into three main business segments: Retail incorporating private customer current accounts, savings, deposits, investment products, credit and debit cards, consumer and housing loans. Commercial incorporating business current accounts, deposits, overdrafts, loans and other credit facilities. Treasury incorporating money market, foreign exchange, treasury bills and bonds, investments and fund management. Segment results include revenue and expenses directly attributable to a segment and allocation of cost of funds, based on the daily weighted average balance of segment assets. 8
At 9. Segmental analysis (continued) Retail Commercial Treasury Six months ended Operating income 11,623 14,160 43,977 69,760 Segment result 4,579 10,101 40,387 55,067 Unallocated costs (8,967) Operating profit 46,100 Three months ended Operating income 6,231 6,966 19,932 33,129 Segment result 2,150 7,200 17,548 26,898 Unallocated costs (3,333) Operating profit 23,565 Assets 663,005 489,842 1,626,706 2,779,553 Liabilities 738,901 433,792 1,287,626 2,460,319 Retail Commercial Treasury Six months ended Operating income 14,822 13,698 12,424 40,944 Segment result 9,533 12,449 9,611 31,593 Unallocated costs (5,886) Operating profit 25,707 Three months ended Operating income 7,676 6,696 7,356 21,728 Segment result 5,395 5,529 5,538 16,462 Unallocated costs (2,496) Operating profit 13,966 Assets 532,349 370,208 1,188,460 2,091,017 Liabilities 670,308 309,133 888,589 1,868,030 10. Commitments a) Capital commitments There is a capital commitment on the Bank in respect of an investment in a private equity partnership at amounting to USD 400,000 equivalent to KD 115,000(31 December : KD 116,000; : KD 1,750,000). b) Contingent liability There is a lawsuit against the Bank demanding it to pay an amount of KD 20 million plus interest. The Bank has launched a counter lawsuit requesting the appointment of an expert. The case is still in court. The Bank has recently entered into an irrevocable settlement agreement with the counterparty according to which, both parties have agreed to suspend the legal proceedings and consequently legal cases shall be dropped upon the fulfilment of certain specified terms in the agreement. The fulfilment of the specified terms in the agreement is currently in the process. 9
At 11. Transactions with related parties The Bank has entered into transactions with certain related parties (major shareholders, directors and key management personnel of the Bank and entities controlled, jointly controlled or significantly influenced by such parties) who were customers of the Bank during the period. The terms of these transactions are approved by the Bank s management. The balances included in the interim financial information are as follows: Parent company Others Audited 31 December Related parties Due from banks and other financial Institutions - 46,622 46,622 29,042 30,542 Loans and advances - 27,844 27,844 65,156 46,677 Investment securities managed by a related party - 7,491 7,491 4,899 4,235 Due to banks - 17,121 17,121 230 377 Due to other financial institutions - 8,091 8,091 7,698 12,989 Deposits from customers 20,910 909 21,819 3,866 3,378 Commitments and contingencies - 4,948 4,948 5,302 6,969 No. of Board members or executive staff Audited 31 December Board members Loans and advances 3 439 552 504 Deposits from customers 6 1,612 1,069 969 Executive staff Loans and advances to customers 5 101 118 111 Deposits from customers 6 463 281 245 Commitments and contingencies 4 4 4 4 Key management compensation Remuneration paid or accrued in relation to "key management" (deemed for this purpose to comprise Directors in relation for their committee service, the Chief Executive Officer and other Senior Officers) are as follows: Six months ended Short term employee benefits including salary & bonus 423 461 Accrual for end of service indemnity 31 55 Accrual for cost of long term incentive rights 50 54 compensation to 'key management' 504 570 10
At 12. Off balance sheet financial instruments a) Financial instruments with contractual amounts representing credit risk Audited 31 December Acceptances 88,461 70,500 52,281 Letters of credit 85,044 85,830 68,523 Letters of guarantee 295,660 281,481 282,329 469,165 437,811 403,133 Commitments to extend credit 230,463 152,203 121,489 13. Share Based Compensation The Bank operates two share based compensation plans for its employees, namely a discounted share purchase plan (DSPP) and an employee share option scheme (ESOP). The DSPP scheme is available for all bank employees who have completed a minimum of one year employment with the Bank and is subject to meeting a certain performance condition. Eligible employees under the DSPP can purchase bank shares at a predetermined discount with a lock-in period of 5 years. The ESOP scheme is available only for employees who hold certain specified posts within the Bank. Eligible employees are granted the option to purchase a predetermined number of the Bank s shares at a specified exercise price; the exercise of the option is subject to meeting certain performance conditions; and the option is valid for 10 years with the first year being the fiscal year ended 31 December. The number of shares allowed to be granted under both schemes is not to exceed 5,000,000 shares in total and not to exceed 10% of total share capital. As of, the Bank has granted a total of 4,557,174 shares (31 December : 2,995,610, : Nil) under both DSPP and ESOP schemes. The Bank recognised total expenses of KD 36,000 ( : Nil) related to share-based compensation during the period. 14. Derivatives In ordinary course of business the Bank enters into various types of transactions that involve derivative financial instruments. A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements in price of one or more underlying financial instruments, reference rate or index. The table below shows the notional amounts of derivatives outstanding as of the balance sheet date analysed by the term to maturity. The notional amount of a derivative s underlying asset, reference rate or index is the basis upon which changes in the value of derivatives are measured.. The notional amounts indicate the volume of transactions outstanding at the period / year end and are not indicative of either market or credit risk. The net positive / (negative) fair value of the derivative instruments as at is KD 160,000 (31 December : KD (559,000), : KD 7,996) and is included in the carrying amount of the other assets/other liabilities. 11
At 14. Derivatives (continued) Notional amounts by term to maturity Notional amount Within 1 year Over 1 year Derivatives held for trading (non-qualifying hedges) Forward foreign exchange contracts 188,752 188,752 - Interest rate swap 28,806-28,806 Derivatives held for hedging purposes Forward foreign exchange contracts 7,707 7,707-225,265 196,459 28,806 31 December Notional amounts by term to maturity Notional amount Within 1 year Over 1 year Derivatives held for trading (non-qualifying hedges) Forward foreign exchange contracts 134,108 134,108 - Interest rate swap 6,361 6,361 - Derivatives held for hedging purposes Forward foreign exchange contracts 10,572 10,572 - Interest rate swap 6,857 6,857-157,898 157,898 - Notional amounts by term to maturity Notional amount Within 1 year Over 1 year Derivatives held for trading (non-qualifying hedges) Forward foreign exchange contracts 73,402 73,402 - Interest rate swap 26,023 26,023 - Derivatives held for hedging purposes Interest rate swap 10,907 10,907-110,332 110,332-12