(IBB.L) Islamic Bank of Britain PLC Buy/Sell

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 (6 month 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 2010.

Capital

New capital of £7.5m was raised via a placing of new shares in January 2009. 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
Condensed statement of comprehensive income

for the 6 month period ended 30 June 2009

Note 6 month 6 month
period ended period ended Year ended
30 Jun 2009 30 Jun 2008 31 Dec 2008
£ £ £
Income receivable from Islamic 1,692,414 4,284,281 8,307,297

financing transactions
Returns payable to customers (880,541) (1,859,492) (3,811,516)

and banks

Net income from Islamic 811,873 2,424,789 4,495,781

financing transactions

Fee and commission income 233,243 250,843 527,212
Fee and commission expense (37,974) (51,345) (94,783)
Net fee and commission income 195,269 199,498 432,429
Operating income 1,007,142 2,624,287 4,928,210
Net impairment loss on 6 (200,637) (180,277) (325,971)

financial assets
Personnel expenses (2,601,307) (2,385,682) (4,831,978)
General and administrative (2,202,997) (2,244,490) (4,017,168)

expenses
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 4 - - -
Loss for the period (4,622,629) (3,059,836) (5,910,700)

Total comprehensive income for (4,622,629) (3,059,836) (5,910,700)

the period

Loss attributable to Owners of (4,622,629) (3,059,836) (5,910,700)

the Company
Total comprehensive income (4,622,629) (3,059,836) (5,910,700)

attributable to Owners of the Company

Loss per ordinary share
Basic and diluted (pence) 3 (0.87) (0.73) (1.41)

All income and expenditure relates to continuing operations.
Condensed statement of financial position

At 30 June 2009

Note 30 Jun 2009 30 Jun 2008 31 Dec 2008
£ £ £

Assets
Cash 460,974 596,072 546,953
Commodity Murabaha and Wakala 162,779,424 146,747,433 151,687,736

receivables and

other advances due from banks
Consumer finance accounts and 6 6,062,688 9,262,838 7,878,292

other advances to customers
Net investment in home 14,412,247 - 6,980,840
purchase plans
Net investment in commercial 8,774,552 8,523,880 8,597,893
property finance
Property and equipment 2,961,012 3,361,790 3,265,745
Intangible assets 426,405 912,938 578,713
Other assets 1,061,613 2,310,996 1,263,128
Total assets 196,938,915 171,715,947 180,799,300

Liabilities and equity

Liabilities
Deposits from banks 7 975,534 6,241,907 5,094,119
Deposits from customers 8 171,355,388 140,744,059 153,280,754
Other liabilities 2,939,692 2,930,263 3,480,891
Total liabilities 175,270,614 149,916,229 161,855,764

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 196,938,915 171,715,947 180,799,300

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

Condensed statement of changes in equity

for the 6 month period ended 30 June 2009

Note Share Share Profit Profit stabilisation Total
capital premium and loss reserve
account account
£ £ £ £ £

Balance at 1 January 2008 4,190,000 48,747,255 (28,137,072) 25,126 24,825,309

Total comprehensive income for - - (3,059,836) - (3,059,836)

the period
Transfer to profit - - (25,738) 25,738 -

stabilisation reserve
Credit in respect of share - - 34,245 - 34,245

based payments charge
Balance at 30 June 2008 4,190,000 48,747,255 (31,188,401) 50,864 21,799,718

Balance at 1 July 2008 4,190,000 48,747,255 (31,188,401) 50,864 21,799,718

Total comprehensive income for - - (2,850,864) - (2,850,864)

the period
Transfer to profit - - (1,582) 1,582 -
stabilisation reserve
Charge in respect of share - - (5,318) - (5,318)
based payments

Balance at 31 December 2008 4,190,000 48,747,255 (34,046,165) 52,446 18,943,536

Balance at 1 January 2009 4,190,000 48,747,255 (34,046,165) 52,446 18,943,536

Total comprehensive income for - - (4,622,629) - (4,622,629)

the period
Transfer to profit - - 8,696 (8,696) -
stabilisation reserve
Credit in respect of share - - 13,297 - 13,297
based payments charge
Issue of ordinary share 9 1,274,700 6,059,397 - - 7,334,097
capital

Balance at 30 June 2009 5,464,700 54,806,652 (38,646,801) 43,750 21,668,301
Condensed statement of cash flows

for the 6 month period ended 30 June 2009

Note 6 month 6 month
period ended period ended Year ended
30 Jun 2009 30 Jun 2008 31 Dec 2008
£ £ £

Cash flows from operating activities
Loss for the period (4,622,629) (3,059,836) (5,910,700)
Adjustments for:
Depreciation 370,228 399,805 775,007
Amortisation 254,602 473,869 888,786
Net impairment loss on 200,637 180,277 325,971

financial assets
Share based payment charge 13,297 34,245 28,927
Change in Commodity Murabaha (10,036,319) (7,682,833) (12,784,885)
and Wakala receivables
Change in consumer finance 1,614,967 220,180 1,459,032

accounts and other advances to
customers
Change in net investment in (176,659) (2,431,998) (2,506,011)

commercial property finance

Change in net investment in (7,431,407) - (6,980,840)
home purchase plans
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 18,074,634 6,103,447 18,634,228
customers
Change in other liabilities (541,199) (42,339) 508,289
Net cash used in operating (6,196,918) (2,174,752) (2,025,771)
activities
Cash flows from investing
activities
Purchase of property and (65,495) (318,240) (597,397)
equipment
Purchase of intangible assets (102,294) (124,576) (205,268)
Net cash used in investing (167,789) (442,816) (802,665)
activities
Cash flows financing
activities
Issue of ordinary share 9 7,334,097 - -
capital
Net cash generated from 7,334,097 - -
financing activities
Net change in cash and cash 969,390 (2,617,568) (2,828,436)
equivalents
Foreign exchange gains (3,012) - (221,586)
Cash and cash equivalents at 2,614,484 5,664,506 5,664,506
beginning of period
Cash and cash equivalents at 5 3,580,862 3,046,938 2,614,484
end of period
Notes to the condensed interim 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 2008. 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 2009.

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 6 month period ended 30 June 2009 of 530,272,155 (6 month period ended 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 2009 1,481,037 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.

4 Income tax expense

There were no taxable profits or recoverable losses for the 6 month period ended 30 June 2009 (6 month 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 2009 30 Jun 2008 31 Dec 2008
£ £ £
Cash 460,974 596,072 546,953
Other advances to banks 3,119,888 2,450,866 2,067,531
Total cash and cash 3,580,862 3,046,938 2,614,484

equivalents

6 Impairment allowance
6 month 6 month
period ended period ended Year ended
30 Jun 2009 30 Jun 2008 31 Dec 2008
£ £ £

Specific allowances for impairment
Balance at beginning of period 145,707 194,309 194,309
Charge for the period - 50,373 64,223
Amounts written off during the (105,734) (112,825) (112,825)

period
Balance at end of period 39,973 131,857 145,707

Collective allowances for impairment
Balance at beginning of period 939,908 818,708 818,708
Charge for the period 200,637 129,904 261,748
Amounts written off during the (476,046) (86,166) (140,548)

period
Balance at end of period 664,499 862,446 939,908

Total allowances for impairment
Balance at beginning of period 1,085,615 1,013,017 1,013,017
Charge for the period 200,637 180,277 325,971
Amounts written off during the (581,780) (198,991) (253,373)

period
Balance at end of period 704,472 994,303 1,085,615

This impairment allowance relates to consumer finance accounts and other advances to customers.

7 Deposits from banks
30 Jun 2009 30 Jun 2008 31 Dec 2008
£ £ £
Repayable on demand 319,637 6,175 94,119
3 months or less but not 655,897 6,000,000 5,000,000

repayable on demand
1 year or less but over 3 - 235,732 -

months

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 2009 30 Jun 2008 31 Dec 2008
£ £ £
Repayable on demand 102,867,109 87,885,144 94,232,981
3 months or less but not 47,651,745 43,097,222 45,392,618

repayable on demand
1 year or less but over 3 20,836,534 9,761,693 13,655,155

months

Total deposits from customers 171,355,388 140,744,059 153,280,754

Comprising:
Non profit sharing 32,413,000 26,237,158 24,755,496
Profit sharing/paying accounts 138,942,388 114,506,901 128,525,258
Total deposits from customers 171,355,388 140,744,059 153,280,754
9 Called up share capital
30 Jun 2009 30 Jun 2008 31 Dec 2008
£ £ £

Authorised: Equity: 725,00,000 (30 June 2008:
500,000,000, 31 December 2008 7,250,000 5,000,000 7,250,000

725,000,000) ordinary shares of £0.01 each

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.

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:

6 month 6 month
period ended period ended Year ended
30 Jun 2009 30 Jun 2008 31 Dec 2008
£ £ £

Key management emoluments 735,161 788,216 1,376,291
including social security
costs
Company contributions to 27,722 21,950 49,251
pension plans

Total 762,883 810,166 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 6 month period ended 30 June 2009 was £458,601 (6 month period ended 30 June 2008: £279,043, Year ended 31 December 2008: £322,988). Total returns paid on these accounts for the 6 month period ended 30 June 2009 totalled £1,221 (6 month period ended 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 6 month period ended 30 June 2009 totalled £2,816 (6 month period ended 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 Interim Report 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 1985.

This information is provided by RNS The company news service from the London Stock Exchange

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