European Islamic Investment Bank plc -...

European Islamic Investment Bank plc

Annual Report For the year ended 31 December 2014

A London listed asset management group specialized in the growth markets of the GCC


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Introduction 2

Highlights 3

Chairman’s Statement 4

Strategic report 6

Business model and strategy 6

Chief Executive Officer’s review 7

Operating and financial review 12

Directors 18

Corporate Governance 19

Report of the Directors 22

Statement of Directors’ Responsibilities 24

Report of the Sharia’a Supervisory Board 25

Independent Auditor’s Report 26 The Financial Statements Consolidated Statement of Income 27

Consolidated Statement of Other Comprehensive Income 28

Consolidated Statement of Financial Position 29

Consolidated Statement of Changes in Equity 30

Consolidated Statement of Cash Flows 31

Company Statement of Financial Position 32

Company Statement of Changes in Equity 33

Company Statement of Cash Flows 34

Notes to the Financial Statements 35


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A London listed asset management group specialized in the growth markets of the GCC European Islamic Investment Bank plc (EIIB or the Group) is a London listed asset management group focused on the growth markets of the Gulf Cooperation Council (GCC) countries. EIIB has an extensive network of business relationships throughout the GCC and wider Middle East and North Africa (MENA) region. Our skilled and experienced teams provide investment management and financing solutions to pension funds, family groups, corporations and financial and government institutions.


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2014 HIGHLIGHTS Our year at a glance

Assets under management including capital seeded by the Group £715m (US$ 1,113m) (2013: £712m

(US$ 1,176m))

Gross subscriptions in excess of $300m during 2014

Completed successful re-domiciliation of core funds to Luxembourg

Continued to execute product diversification plan with emphasis on alternative investment strategies

Increased shareholding in Rasmala Egypt Asset Management (REAM) to 100%

Flagship Funds continued long-standing track record of investment success

Best Islamic Institution (Europe) 2014 and Sharia Fund Manager of the Year 2014 awards

Started review of Group branding

How we performed

Total operating income £10.8m (2013: £10.2m)

Profit before tax from continuing operations £1.50m (2013: £1.48m)

Profit to equity holders £0.60m, after tax expense of £0.79m and loss on discontinued operations of

£0.12m

Staff costs of £5.40m (2013: £5.78m) and other operating expenses of £3.8m (2013: £2.9m)

Regulatory Capital of the Group at 31 December 2014 stood at £102m (£101m at 31 December 2013)

Net Asset Value, after share consolidation, of 317.2 pence per share (2013: 6.4 pence per share (post

consolidation 320 pence))


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Chairman’s Statement I am pleased to report a second year of profit that is attributable to equity holders, despite the challenging economic climate in the latter part of the year. In 2014 we consolidated our position as a leading asset management and financing group in the MENA region. Further progress In 2014, we made steady progress, building on the groundwork of the previous year. We expanded further our product offering to include alternative strategies and achieved this whilst maintaining control over our cost base. This disciplined and focused approach has enabled the Group to report a second successive profit in 2014, while continuing to invest in the growth initiatives necessary to achieve our five year plan. Performance The Group’s operating income increased to £10.8m (2013 £10.2m) with a particularly strong performance from our asset management business. The second half of the year saw significant volatility in GCC markets, which we have been able to navigate. Our cost base increased slightly, but remained effectively controlled. A second year of stable profit is a clear demonstration that we continue to move in the right direction and we will continue to invest in our platform and people to ensure continued progress. Market developments In the second half of 2014 the GCC countries experienced strong headwinds as a result of falling oil prices and rising political uncertainty. Stock markets in the region fell in line with these concerns. Despite these challenges, we believe stable governments, as evidenced by the smooth transition of power in Saudi Arabia, high growth rates and a combination of sovereign wealth and demographics will continue to translate into long-term growth for the region. Meanwhile, the benefits of an Islamic approach to finance are increasingly being appreciated across developed and growth markets. Our Chief Executive Officer expands on our market views on page 10, but I believe that the Group is well positioned to benefit from the opportunities in our core markets. Regulation The Board undertook a review of the scope of EIIB’s UK regulatory permissions and concluded that they exceeded our requirements. Following detailed discussions with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), the PRA authorised the amending of our permissions and we were able to relinquish the Group’s deposit-taking license. We are now solely regulated by the FCA in the United Kingdom and by local regulators in Egypt, Oman and the United Arab Emirates. The Group’s regulation is now more efficiently aligned to its strategy and business model. Corporate Governance The Group continually assesses corporate governance and its effectiveness, independence and efficiency. Board performance is also evaluated annually. The Board contains a suitable majority of non-executive and independent directors with a wide range of skills and experience relevant to EIIB’s business. Biographies of the Directors and details of the Board and its committees can be found on pages 18 to 21. There were no Board changes made during the year. We will continue to review the Board’s membership, its performance, its committees’ performance and that of individual board members to ensure the Board and its committees have the appropriate balance of skills, experience and independence.


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Tender offer A tender offer was launched on 1 August 2014, and withdrawn on 28 November 2014 as the Company remained in discussions with its regulators regarding the implementation of that offer. Those discussions have now been concluded satisfactorily. A circular explaining the terms of a new tender offer for up to £20 million was posted to shareholders on 17 April 2015 and is expected to close on 6 May 2015. Outlook The Board has worked diligently in following our defined strategy of creating a market leading asset management and financing business focused on the GCC region. The GCC has shown remarkable resilience despite significant headwinds in 2014. We are confident that our business is well positioned to benefit from opportunities in our markets. I look forward to working with our expert staff, management team and board in achieving further positive results.

__________________________ Abdallah Y. Al-Mouallimi Chairman


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STRATEGIC REPORT Our Business Model and Strategy Business Model EIIB is a London listed asset management and financing group focused on the growth markets of the GCC countries. We deliver investment banking and asset management products and services across asset classes to wholesale and institutional clients. We derive management fees from our asset management services and transactional fees from financing activities. We also generate returns from principal investments. Our Clients We are an institutional asset manager working closely with pension funds, family groups, corporations, financial and government institutions including sovereign wealth funds. Our Services Asset Management Investment Banking Principal Investments Our Strategy Our strategy is to promote the GCC and other regional growth markets as a preferred investment destination. We offer our international and regional clients bespoke asset management and financing solutions primarily focused on our core markets. We aim to be a catalyst for consolidation in the GCC asset management industry and to achieve a market leading position. As a leading player in the GCC we are also experts in Islamic Finance (“IF”). IF is an investment discipline that considers environmental, social and other criteria to generate long-term financial returns and a positive impact on society. The principles of IF include the avoidance of:

- Interest or the trading of intangible assets and cash flows relating to such activities - Uncertainty - Speculation - Unjust enrichment or unfair exploitation

Our competition Our principal competition comes from independent regional asset management firms and from regional banks.


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CHIEF EXECUTIVE OFFICER’S REVIEW On behalf of the Directors I am pleased to present my review of the year, as part of our Strategic Report. Our Strategy EIIB is a London listed asset management and financing group focused on the growth markets of the GCC countries. EIIB is authorised by the Financial Conduct Authority in the United Kingdom and also regulated in Egypt, Oman and the United Arab Emirates. EIIB’s primary focus is to provide investment management and financing solutions to pension funds, family groups, corporations and financial and government institutions. The activities of the Group include investment management solutions encompassing equities, fixed income and alternatives; investment banking services encompassing provision of financing, debt capital markets and structured finance; and business advisory services. EIIB's business strategy is to develop as a specialist asset management and financing business, offering clients bespoke solutions focused on the growth markets of the GCC. The Group’s aim is to be a catalyst for consolidation in the GCC asset management industry and to achieve a market leading position. Given our market positon in the GCC we have also developed world class expertise in Islamic Finance. The key principles of Islamic finance are based on ethical real economy transactions, thus Islamic finance transactions avoid the following:

Interest or the trading of intangible assets and cash flows relating to such activities

Uncertainty

Speculation

Unjust enrichment or unfair exploitation As we look forward, we will continue to invest in innovative product development, distribution capabilities, further strengthening of the team and strategic or bolt-on acquisitions as appropriate. Results The financial statements for the reporting year ended 31 December 2014 are shown on pages 27 to 87. I am pleased to report that the results for 2014 reflect continued strengthening of our business, despite challenging market conditions in the second half of the year. Total operating income increased to £10.8m (2013 £10.2m), which, combined with continued tight cost control, delivered an underlying operating profit before tax from continued operations of £1.50m (2013: £1.48m). The net profit including non-controlling interest in 2014 amounted to £0.60m (2013 loss of £0.03m) after tax

expense of £0.79m (2013: £0.26m) and loss on discontinued operations of £0.12m (2013 £1.25m).

Our Asset Management business performed strongly this year, with higher levels of performance fees than last year. Our assets under management have remained broadly flat despite challenging market conditions in the GCC, particularly in the second half of the year. Considering market conditions, this is a highly creditable performance. Whilst we maintained good performance in our flagship funds, new alternative strategies have positioned us well for the years ahead as we diversify our product offering. We continued to build our Investment Banking business and further awards are testament to the level of in-house expertise we have developed. The Group maintained its strong capital adequacy, regulatory and liquidity ratios. The Regulatory Capital of the

Group at 31 December 2014 stood at £102m (£101m at 31 December 2013).

Our change in regulatory permissions, covered in more detail below, has not diminished the importance of maintaining tight controls and transparency around capital and liquidity.


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Regulation During 2014 we gained authorisation from the Prudential Regulation Authority (PRA) to amend our regulatory permissions and relinquished our UK deposit-taking licence at the end of 2014. We are now solo regulated in the UK by the Financial Conduct Authority (FCA) and by local regulators in the UAE, Oman and Egypt. Changing our regulatory permissions was a complex project and a significant step in aligning our permissions with our operating model. Brand franchise We started a review of the Group’s branding and plan to complete this work during 2015. We aim to achieve a clear, recognisable and valued brand name for the Group and its operating companies. A re-launch will help bring market clarity and definition around who we are and what we do. Asset Management While Assets Under Management (AUM) remained broadly constant during the year, this masks a good performance in the face of challenging markets. The business attracted approximately $300m in new subscriptions during the year which were offset by redemptions and market and foreign exchange movements. We saw a significant correction in the equity markets, across the GCC and wider MENA region, in the latter part of the year, with concurrent interest rate uncertainties. Many of our investors sought to exit traditional strategies and rotate into alternative investment strategies. The diversification of our product offering has helped us to retain AUM and consolidate our market share in the UAE. During 2014, we completed the successful re-domiciliation of a selection of our funds to Luxembourg. A broad, Luxembourg-domiciled fund offering is important for our global distribution strategy, boosting the funds' appeal to both international and regional third-party distributors and investors. Investors increasingly recognize Luxembourg as one of the most attractive and cost effective jurisdictions for the domicile of funds. Product Development We continued to build and enhance our product offering. We added the Rasmala GCC Islamic Equity Income Fund and the Rasmala Global Sukuk Fund to complement our flagship products, Rasmala Arabian Markets Growth Equity Fund and the Rasmala GCC Fixed Income Fund. We have also responded to client demand for alternative investment strategies by launching the Rasmala Trade Finance Fund (“RTFF”) and the Rasmala Leasing Fund (“RLF”). RTFF is a Sharia’a compliant open-ended fund providing investors with a low volatility money market alterative that is linked to emerging market trade transactions and aims to benefit from the rapid growth of global trade. RLF is a Sharia’a compliant fund established to capture investment performance in the US leasing market. Strategically, these investment products allow us to retain any outbound investment flows from clients seeking alternative investment ideas. We believe there is a market opportunity for us to offer our GCC client base unique, Sharia’a compliant, investment products investing in international markets in addition to catering to investor requirements in MENA investment markets. Strong Performance and Industry Recognition Overall investment performance remained strong compared to both our competitors and industry-recognised benchmarks. The Rasmala Arabian Markets Growth Equity Fund returned 10.1% (net of all fees and expenses) compared to the S&P Pan Arab Composite Large Mid Cap Index return of -0.9%. This builds upon the fund's long-term track record, which stands at an annualized outperformance of 8.44% since inception in 2006. The Rasmala GCC Fixed Income Fund returned 6.7% (net of all fees and expenses) despite the global fixed income headwinds and compared to the Citigroup MENA Broad Bond Index GCC return of 6.9%, also extending that fund’s long-term track record of annualized outperformance of 2.46% since inception in 2009. In addition all of our mutual funds and discretionary portfolio mandates outperformed their respective benchmarks in 2014. The response from our existing client base has been encouragingly positive as many of them increased assets under management with us during the year.


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We have also attracted new client mandates, including our second discretionary managed portfolio from a government institution in Oman. In 2015 our objective is to win similar mandates from government institutions in other GCC countries. There is growing demand for our products and we will continue to drive growth by recruiting proven talent and increasing our product range. In 2014, Morningstar awarded the Rasmala Arabian Markets Growth Equity Fund with the coveted five star rating based upon its investment performance over the past 3 years. Also, in 2014, Global ISF awarded Rasmala the Sharia Fund Manager of the Year. Such industry recognition is evidence of Rasmala’s continued success in investment performance, product innovation, and serving the needs of our local client base. Rasmala was recently ranked as the 15th largest asset management firm in the Middle East by New York based Institutional Investor, and ranked within the top independent asset management firms if commercial banks were excluded from the list. Investment Banking Traditionally, domestic and regional institutions have acted as distributors of financial products to their customers, relying upon partnerships with bulge bracket firms for product structuring expertise. In contrast, EIIB has continued building on its proven ability to manufacture products in its own right. The investment banking (IB) team structured and placed products during the year that showcased the Group’s skill set in debt capital markets. In March 2014, we successfully acted as lead arranger and book runner for European-based multinational insurance group FWU Group on the second tranche of their sukuk al-wakala programme. This second tranche of US$40m was part of a US$100m programme and was rated BBB by Fitch. This was a unique asset backed transaction involving a European corporate issuing rated paper via the sukuk markets. The transaction helped the Group to win the award for ‘Best Islamic Institution in Europe’ for the second year in a row. In parallel with developing cutting-edge solutions for our clients in sukuk, the IB team has been instrumental in generating value for the Group through evaluating other investment opportunities, both for the Group’s proprietary book and for asset management clients. For example, during 2014, IB arranged the placement of securities in Emirates REIT and worked closely with asset management to evaluate opportunities for the Rasmala Trade Finance Fund. The IB team also established a strategy for real estate and leasing and began evaluating opportunities towards the end of 2014. The IB team looks beyond mere replication of conventional financing structures through the application of Sharia’a ‘wrappers’ and other synthetic structures, and instead focuses on first principles of Islamic finance. We see these products and services as being a growth area as capital from the GCC region flows into the international markets. Principal Investments Principal Investments (PI) main focus is to invest in opportunities that align with our strategy and business model. The PI business unit provides seed funding for new Asset Management products and for Investment Banking transactions. PI also manages our private equity investments. Whilst there has been no change in these investments during 2014, we continue to proactively manage our exposures. Our book exposure is now £16.7m (2013: £15.9m), which includes our private equity assets across the group. We continue to seek exits from our private equity investments and are determined to optimise the returns from our exits.


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Market Review We believe the markets of the GCC region offer favourable prospects despite headwinds from lower oil prices and regional geo-political uncertainties. GCC countries have high growth rates with significant sovereign wealth, high levels of infrastructure spending, rising income and positive demographics which will continue to drive long-term growth in the region. In the short term the price of oil, having declined by about 55% since September 2014, has weakened the external and fiscal balances of oil exporters, including members of the GCC. Stock markets of various countries, including Kuwait, Saudi Arabia and UAE, declined sharply in late 2014 because of concern over how these economies will be affected by lower oil prices. However, large capital buffers, low non-performing loans and generally high liquidity should allow most GCC countries to avoid sharp cuts in government spending, limiting the impact on near-term growth and financial stability. The IMF predicts GDP growth of 3.4% in 2015 for the GCC overall, slightly lower as compared to 3.7% in 2014. There is continued regional demand for sukuk and credit-based products, and ample liquidity within the regional banking sector. We expect reasonable performance from regional credit markets assuming that external shocks are manageable and global rates curves rise within current consensus expectations. Islamic Finance markets are becoming increasingly accepted and attractive among mainstream capital markets for corporates, financial institutions and sovereigns around the globe. Over the past few years, Islamic Finance assets grew at an annual rate of 15% to 20% which is expected to continue over the medium to long term. This growth will be further fuelled by greater liquidity and better price formation. We believe a rebound in confidence in the GCC stock markets will occur in 2015 should regional tensions between Saudi Arabia and Yemen subside. However, we do not anticipate the same degree of abnormal returns from regional equity markets as in 2013 or through most of 2014. Last year, the global index compiler MSCI upgraded UAE and Qatar to Emerging Market status from Frontier Market and there were indications that foreign investors could gain access to Saudi Arabia’s Tadawul in 2015. The liberalisation of a US$500-600bn equity market is an important development in building momentum for the Gulf region as a destination for equity investment in the longer term. Tender offer A tender offer was launched in 2014 and later withdrawn as the Company remained in discussions with its regulators regarding the implementation of that offer. Those discussions have now been concluded satisfactorily and a circular explaining the terms of a new tender offer was posted to shareholders on 17 April 2015 and is expected to close on 6 May 2015. Future Developments Our fundamental belief in the GCC region and our ability to play a key role in its economic development and growth allows us to look forward with optimism. Our clearly defined business model, exceptional local reputation through Rasmala, coupled with committed and hardworking staff reaffirms our belief that EIIB is well placed for growth. Whilst we continue to focus on organic growth we will also continue to monitor acquisition opportunities that align and will add value to our franchise and business model.


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Acknowledgements 2014 is the second year of profit for the Group and underlines the rapid success we have had in turning around the Group and implementing a revised strategy. We look forward to 2015 with confidence as we further diversify our product offering and leverage from the foundations put in place to drive growth and profit. We have a stable and high-performing team across the Group – I would like to thank all of our staff for their continuing contribution to our success. I would also like to thank the Chairman and the Board for their counsel and support during the year.

____________________ Zulfi Caar Hydari Chief Executive Officer


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Operating and Financial Review EIIB is a London listed asset management and financing group focused on the growth markets of the GCC countries. It delivers asset management and investment banking products and services across asset classes to wholesale and institutional markets. EIIB is authorised by the Financial Conduct Authority (FCA) and is listed on the AIM Market of the London Stock Exchange. The Group's activities are also regulated by local regulators in MENA jurisdictions. The Group's competitive position is significantly enhanced by its geographic footprint and network in MENA region. The Directors present the Operating and Financial Review for 2014. Having followed the framework set out in the Accounting Standards Board Reporting Statement: Operating and Financial Review as a guide to best practice, the Directors believe they have discharged their responsibilities under Section 417 of the Companies Act 2006 to provide a balanced and comprehensive review of the development and performance of the business. Results Total operating income in 2014 was £10.8m (2013: £10.2m). Profit before tax from continuing operations amounted to £1.50m (2013: £1.48m).

Capital Adequacy

EIIB had total assets of £138m at 31 December 2014 (£154m at 31 December 2013). Regulatory capital resources of the Group as at 31 December 2014 was £102m (£101m at 31 December 2013) and the total risk weighted assets was £124m (£117m at 31 December 2013). The capital adequacy ratio as at 31 December 2014 stood at 83% (2013: 86%).

Liquidity

As at 31 December 2014, the net cash excess (calculated as a percentage of deposits) was +40% (31 December 2013: +40%) in the 8 days and under category, and +60% (31 December 2013: +60%) in the 1 month and under category, against minimum requirements during the year of 0% and -5% respectively. Liquidity is managed on a day to day basis by the Head of Treasury. People A significant differentiating factor for our business is our ability to attract talent. During the period the Directors believe that EIIB has been able to provide a stimulating environment and competitive remuneration structures which has enabled the Group to attract and retain staff of the highest calibre. Operational We have successfully agreed with our regulators a change in permissions, in order to align them with our business model. We are now solo regulated in the United Kingdom by the FCA and by local regulators in the MENA jurisdictions. All relevant consents have been received for our proposed tender offer which will be completed shortly. Key Performance Indicators The Group considers the financial and Assets Under Management figures published in this report as being the most appropriate key performance indicators in judging the success of the business and its strategy.


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2014 Review 2014 was a strong year for Rasmala’s asset management business. Discretionary managed assets including capital seeded by EIIB group stood at £715m (US$ 1,113m) (2013: £712m (US$ 1,176m)). Strong investment performance across our flagship funds and investment strategies showed the benefits of our regional expertise and detailed local insights. Rasmala Assets Under Management

Gross inflows during the year exceeded $300m but offset by redemptions and market and foreign exchange movements. We were pleased to see many of our investors rotate from traditional strategies into our new alternative investment products. During 2014, we completed the successful re-domiciliation of a selection of our funds to Luxembourg. A broad, Luxembourg-domiciled fund offering is important for the expansion of our global distribution strategy, boosting the funds' appeal to both international and regional third-party distributors and investors. Investors increasingly recognize Luxembourg as one of the most attractive and cost effective jurisdictions for the domicile of funds. We focused our efforts on innovating, expanding and upgrading our product offering; and deepening and expanding our market penetration within existing and new distribution channels and clients. The development of our asset management business since 2012 has been marked. Our business is now of scale, appropriately domiciled and effectively distributed. Investment Performance Our investment performance was strong across all investment strategies, Funds and client portfolios. Our two flagship Funds, the Arabian Markets Growth Equity Fund and the Rasmala GCC Fixed Income Fund, continued their long standing track record of investment success, outperforming industry recognized benchmarks and peer group averages.


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Arabian Markets Growth Equity Fund **** Performance Tables

Fund Performance 2014 2013 2012 2011

Arabian Markets Growth Equity Fund*

10.10 37.95 11.91 -2.16

S&P Pan Arab composite Large Mid cap Index***

-0.90 21.62 3.10 -13.62

Relative Return 11.00 16.33 8.81 11.46

Cumulative Returns (%) 1Y 2Y 3Y 5Y SI***

Arabian Markets Growth Equity Fund*

10.10 51.88 69.97 87.88 76.41

S&P Pan Arab composite Large Mid cap Index***

-0.90 20.52 24.26 21.42 -13.95

Relative Return 11.00 31.36 45.71 66.46 90.37

Source: Rasmala’s internal performance measurement *Performance is based on A-Share Class in USD and as of 31

st December 2014.

** Inception date was 30th July 2006.

***Index was MSCI Arabian Markets Index since inception until August 2010. After which, it was changed to S&P Pan Arab Composite Index. ****Performance from September 2014 onwards is for Rasmala Arabian Markets Growth Equity Fund UCITS IV SICAV domiciled in Luxemburg. Prior to September 2014, the Fund was domiciled in Cayman Islands.

Rasmala GCC Fixed Income Fund **** Performance Table

Fund Performance 2014 2013 2012 2011

Rasmala GCC Fixed Income Fund* 6.71 1.14 14.56 6.47

Citigroup MENA Broad Bond Index GCC**

6.89 0.03 12.63 7.49

Relative Return -0.18 1.11 1.93 -1.02

Cumulative Returns (%) 1Y 2Y 3Y 5Y SI

Rasmala GCC Fixed Income Fund* 6.71 7.92 23.63 44.98 69.46

Citigroup MENA Broad Bond Index GCC**

6.89 6.92 20.42 35.18 47.06

Relative Return -0.18 1.00 3.21 9.80 22.40

Source: Rasmala’s internal performance measurement. *Performance is net of fees based on Distribution Share Class in USD and as of 31

st December 2014.

**Index was Citigroup Corporate AAA/AA Bond since inception until March 2011. After which, it was changed to Citigroup MENA Broad Index GCC. ***Inception date is 31

st March 2009.

****Performance from February 2014 onwards is for the Rasmala Global Sukuk Fund UCITS IV SICAV domiciled in Luxemburg. Prior to February 2014, the Fund was domiciled in the Cayman Islands.

Wholesale Distribution Channels We continue to increase our market visibility by opening new distribution channels. In 2014, the core focus of our wholesale distribution efforts was the continued development of strategic partnerships with regional financial services providers. In particular, we have been building relationships with entities that offer Islamic insurance and


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savings products (Sharia’a Compliant Takaful and Re-Takaful) for promotion by Emirati based banks and IFAs to their core banking and wealth management customers respectively. The market for packaged insurance and savings products is growing rapidly in the Gulf, and these entities are well positioned to cooperate with Rasmala. We also work closely with existing distributors to identify new opportunities and add additional products to their platforms. Discretionary Portfolio Mandates Discretionary Portfolio Mandates (DPM) provide the investment manager with the discretion to execute transactions within set parameters without referring to the account owner. We increased both the number and size of our DPMs during 2014. Notably we won a new mandate from a government institution in Oman that we consider to be of strategic significance. In a clear continuing vote of confidence in our investment performance and high levels of client servicing, existing DPM clients increased the size of their portfolios with us during the year. Product Development In 2014, we continued to execute the product expansion plan we developed and set in motion two years ago. The Rasmala Trade Finance Fund saw significant interest from our distributors and is positioned for rapid AUM growth in 2015. We also continued to strengthen our leasing platform. The Rasmala Leasing Fund (RLF) was established to capture investment performance in the US leasing market. RLF pays regular annual distributions of 12%, and targets an IRR of 8% over the full life of the Fund. We plan to launch a second leasing fund in 2015. The leasing and trade finance funds provide an alternative investment strategy to clients who want to reduce exposure to traditional strategies. Strategically, these investment products allow us to retain any outbound investment flows from clients seeking alternative investment ideas. We believe there is a market opportunity for us to offer our GCC client base unique, Sharia’a compliant, investment products investing in international markets in addition to catering to investor requirements in MENA investment markets. The variety in our product offering ensured we were able to retain assets under management in a challenging environment. Rasmala Key Funds These are summarised as follows: Equity

Rasmala Arabian Markets Growth Equity Fund

Rasmala GCC Islamic Equity Income Fund

Rasmala Palestine Equity Fund Fixed Income

Rasmala GCC Fixed Income Fund

Rasmala Global Sukuk Fund Alternative

Rasmala Leasing Fund

Rasmala Trade Finance Fund Investment Banking The investment banking team is specialized in Islamic banking products and services.


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Principal Investments Principal Investments consisted of a number of private equity investments and a financing arrangement. Principal Risks and Uncertainties EIIB's business model involves the taking of risk in return for reward. Our MENA regional focus offers opportunities for financial returns but exposes us to a number of emerging market social, political and economic risks. The Group is exposed to market risk in relation to its assets and liabilities, credit risk from transactions with third parties, particularly money market transactions, liquidity risk from liquidity mismatches and operational risk. The effective management of risk is an essential part of our business and a key element in good corporate governance. Strong risk management is fundamental to EIIB's culture. The Group's approach to risk is documented in various risk policies. Under these policies risk is monitored on a daily basis. Further details are reported in detail in Note 41 to the Financial Statements on pages 73 to 87. Risk Management including Financial Risk In terms of the Corporate Governance Code, the Board is responsible for risk. A Risk Appetite and Tolerance Policy sets the parameters for risk taking, and systems and controls are in place to identify, measure, monitor and manage risk. The responsibility for managing risks lies with senior management. The Risk Department facilitates this process and monitors the effectiveness of the Group's risk management processes. The Board Risk Committee has overall responsibility for ensuring the Group's Risk Policies are implemented. The key elements of our risk management framework are:

setting the Risk Management strategy and philosophy;

defining the business risk appetite and tolerances;

identification and quantification of risks;

evaluation of identified risks;

managing identified risks;

risk reporting to support the on-going management of risks and the effectiveness of the risk solutions; and

business continuity planning. Further details on the Board and Group's approach to risk management are included in the Corporate Governance section, on page 19 and in Note 41 to the Financial Statements on pages 73 to 87. Summary Our asset management business remains on a growth path aided by additional products in the platform and additional focus on sales. Our investment performance and personalised client service continues to attract AUMs from new and established direct clients and via a broadening range of distribution channels. With the launch of new funds and further expansion of Rasmala’s product range planned in 2015, we are confident that our asset management business will continue to flourish. Our investment banking operation is well positioned to grow its debt capital markets and structured debt finance business.


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____________________ Zulfi Caar Hydari Chief Executive Officer, 27

April 2015

Registered Office: Milton Gate 60 Chiswell Street London EC1Y 4SA


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DIRECTORS NON-EXECUTIVE DIRECTORS H.E. Abdallah Yahya Al-Mouallimi (2), (3). Chairman of the Board and Chairman of the Board Risk Committee of EIIB, H.E. Abdallah Yahya Al-Mouallimi is currently the Permanent Representative of Saudi Arabia to the United Nations. He has held various senior government and private sector positions including Ambassador to Belgium, Luxembourg and the European Union, Mayor of Jeddah, member of the Saudi Consultative Council and Director of Saudi General Organisation for Military Industries. His private-sector service includes chairing the Jeddah Chamber of Commerce, Vice-Chairman of Olayan Financing Company, Board Member of Saudi Telecom Company, Managing Director of Coca-Cola Bottling Company Saudi Arabia, Board Member of Saudi National Commercial Bank and Egypt Finance Company amongst others. He is also Co-Founder and Chairman of HBG Holdings. He has a Masters in Management from Stanford University and a Bachelor of Science in Chemical Engineering from Oregon State University.

Mohammed Al Sarhan* (1), (2). Senior Independent Director and Chairman of the Nomination and Remuneration Committee of EIIB. Until recently Mohammed Al Sarhan was Vice President and Chief Operating Officer of Al Faisaliah Group, Kingdom of Saudi Arabia. Previously he was the Vice President of the Saudi Arabian Refining and Marketing Company (SAMAREC). Currently he is the Chairman of Al Safi Danone Company, and a board member of Alfaisaliah group Holding company. He is Vice Chairman of the National Shipping Company of Saudi Arabia; Board Member of Saudi Arabian Public Transport Company; Board Member of the Saudi civil Aviation holding company. He is also a board member of Venture Capital Bank in Bahrain, and a board member of Goknur Juice company in Turkey. He holds a BSc (Mathematics) from Oregon State University, USA.”

John Robertson Wright*

(1). Chairman of the Audit Committee and Non-Executive Director of EIIB. A career Banker with strong experience in UK and international markets including assignments in India, Sri Lanka, West Africa, Canada, Hong Kong and the United States, John Wright was recently appointed Chairman of Butterfields Bank UK. He was formerly Chief Executive of Oman International Bank for seven years, Chief Executive of the Northern and National Irish Banks in Ireland for five years, Chief Executive of the Gulf Bank in Kuwait and finally Chief Executive of Clydesdale & Yorkshire Banks prior to retirement. He has also served as Non Executive Director of banks in Oman, London and Bermuda and as Chairman of companies in Northern Ireland and in Scotland. He is a Fellow of the Chartered Institute of Bankers in Scotland and the Chartered Institute of Bankers in Ireland.

Michael Willingham-Toxvaerd

Non-Executive Director of EIIB. Michael Willingham-Toxvaerd is Managing Partner of HBG Holdings UK LLP. He also holds a number of other directorships. He has significant experience in capital markets, mergers and acquisitions, founding, financing and listing companies on the London Stock Exchange. He is also experienced in private equity and holds an MBA from Cranfield University.

Martin Gilbert Barrow*, CBE

(3). Non-Executive Director of EIIB. Martin Barrow has extensive knowledge of Asia, having worked in the region for 35 years with Jardine Matheson. After joining the Hong Kong operations in 1965, he served as President of the group’s affiliate in Saudi Arabia, Managing Director of the operations in Japan and Regional Managing Director of Hong Kong and China, before being appointed to the board of Jardine Matheson Ltd in 1989. Mr. Barrow is a director of Matheson & Co Limited, Ballie Gifford Japan Trust PLC, China Britain Business Council and the Hong Kong Association. EXECUTIVE DIRECTORS Zulfi Caar Hydari (3). Chief Executive Officer of EIIB. Mr. Hydari is an activist investor experienced in special situations, Private Investment in Public Equities and private equity transactions. He is specialised in structuring investment capital from the GCC and implementing post acquisition value enhancement strategies in portfolio companies. Mr. Hydari is Group Chief Executive of Rasmala Holdings Limited. He is also Co-Founder of HBG Holdings, a leading special situations private equity firm. Mr. Hydari holds an MBA from Cranfield University. (1) Member of the Audit Committee (2) Member of the Nomination and Remuneration Committee (3) Member of the Board Risk Committee * Independent Director


19

CORPORATE GOVERNANCE COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE The Board considers that good corporate governance is central to achieving the Group’s objectives and has applied these principles in drawing up the Group’s risk management framework taking into consideration The UK Corporate Governance Code 2012 published by the Financial Reporting Council (The Code). THE BOARD AND ITS COMMITTEES The Group is led by a Board comprising Non-Executive and Executive Directors with significant experience in financial services and deep relationships in the MENA region. The appointment of Directors is considered by the Nomination and Remuneration Committee and then the Board. Following the provisions in the Articles of Association, all Non-Executive Directors must stand for re-election by the shareholders at the first Annual General Meeting following their appointment and must also stand for re-election by the shareholders, at least every three years. Executive Directors normally retire at age 65, as required by their service agreements. Non-Executive Directors are appointed for three-year renewable terms, which may be terminated by giving three months’ notice. The Board is required to meet at least three times a year; in 2014 there were six Board meetings. The Board has a programme designed to enable the Directors to review corporate strategy and the operations and results of the business and to discharge their duties within a framework of prudent and effective controls relating to the assessment and management of risk. The matters specifically referred to the Board for decision include the approval of the annual report and financial statements; the payment of dividends; the long-term objectives of the Group; the strategies necessary to achieve these objectives; the Group’s budgets and plans; significant credit exposures; significant capital expenditure items; significant investments and disposals; the organisational structure of the Group; the arrangements for ensuring that the Group manages risk effectively; any significant change in accounting policies or practices; the appointment of the Group’s main professional advisers; and the appointment of senior executives within the organisation. The Board has delegated to the Committees of EIIB the power to make decisions on operational matters, including those relating to credit, liquidity, operational and market risk, within an agreed framework. All Directors have access to the services of the Company Secretary, and independent professional advice is available to the Directors at the Group’s expense, where they judge it necessary to discharge their duties as Directors. The Board reviews and approves its composition and charter in order to set the risk management framework of the Group at least annually. To assist the Board in executing its functions, it reviews and approves the composition and charters of the following Board sub-committees: AUDIT COMMITTEE John Wright assumed the chairmanship of the Audit Committee on 7 September 2012. The Audit Committee comprises John Wright (Chairman) and Mohammed Al Sarhan. In discharging its duties, the committee is required to review the external auditors’ remuneration and, in discussion with them, to assess their independence and recommend their re-appointment at the Annual General Meeting. The committee also reviews the financial statements published in the name of the Board and the quality and acceptability of the related accounting policies, practices and financial reporting disclosures; the scope of work of the internal auditor, reports from the internal auditor and the adequacy of their resources; the effectiveness of the systems for internal control, risk management and compliance with financial services legislation and regulations; procedures by which staff may raise concerns in confidence; and the results of the external audit and reports from the external auditor and their findings on accounting and internal control systems. Based on the work as outlined above, the audit committee is satisfied that the external auditor is independent and will ensure that their findings will be considered.


20

NOMINATION AND RENUMERATION COMMITTEE The Nomination and Remuneration Committee, which comprises Mohammed Al Sarhan (Chairman) and Abdallah Al-Mouallimi, reviews the composition of the Board, taking into account the skills, knowledge and experience of Directors and considers and makes recommendations to the Board on potential candidates for appointment as Directors. The committee also makes recommendations to the Board concerning the re-appointment of any Non-Executive Director by the Board at the conclusion of his or her specified term; the re-election of any Director by the shareholders under the retirement provisions of the Articles of Association; any matters relating to the continuation in office of a Director; and the appointment of any Director to executive or other office. The Nomination and Remuneration Committee evaluates the performance of the Board and its committees and makes appropriate recommendations to the Board. This is conducted through a self-assessment process that requires each Director to assess and rate the performance of the Board and its committees. The results of the exercise are considered by the Board and appropriate steps agreed and implemented to remedy any areas of deficiency or concern. The Nomination and Remuneration Committee reviews the remuneration policy for senior management, to ensure that members of the executive are provided with appropriate incentives to encourage them to enhance the performance of the Group and that they are rewarded for their individual contribution to the success of the organisation. It is also made aware of, and advises on, major changes to employee benefits schemes. BOARD RISK COMMITTEE The Board Risk Committee comprises Abdallah Al-Mouallimi (Chairman), Martin Barrow and Zulfi Caar Hydari. The Board Risk Committee assists the Board in fulfilling its investment risk management responsibilities. These responsibilities include determining the Group’s risk profile and ensuring that management remains within the Board’s predetermined risk appetite. Meetings are held at least three times per annum and include the Chief Executive Officer and Finance Director and Head of Risk Management by standing invitation. The terms of reference include reviewing capital adequacy, liquidity, credit risk, market risk, operational risk and approvals under the Board’s delegated authority. EXECUTIVE MANAGEMENT COMMITTEE The Group has an Executive Management Committee to assist the Chief Executive Officer in performing his duties. The Executive Management Committee meetings are held at least once a month and membership comprises the Chief Executive Officer and senior management from finance, risk, treasury, principal investments, investment banking, asset management, legal, compliance and HR. Specifically, the committee considers the development and implementation of strategy, operational plans, policies and budgets; the monitoring of operating and financial performance; the assessment and control of risk; the prioritisation and allocation of resources; human resources; and the monitoring of competitive forces in each area of operation. The committee, assisted by its sub-committees, also supports the Chief Executive Officer in ensuring the development, implementation and effectiveness of the Group’s risk management framework and the clear articulation of the Group’s risk policies, and in reviewing the Group’s aggregate risk exposures and concentrations of risk. The committee may have specific powers delegated to it by the Board from time to time and, following the exercise of these powers, it reports to the Board.


21

MEETINGS AND ATTENDANCE

*attended as a non-member SHAREHOLDERS The Board has appointed Mohammed Al Sarhan as the Senior Independent Director. He is available to shareholders if they have concerns which contact through the normal channels of Chairman or Chief Executive Officer has failed to resolve or for which such contact is inappropriate. The Board ensures the Directors develop an understanding of the views of major shareholders by attending shareholder meetings; making them aware of views and feedback received from shareholders; and providing them with analysts’ and brokers’ briefings on the Group.

Main

Board Audit

Committee

Nomination and Remuneration

Committee

Board Risk Committee

No. of meetings in year

Abdallah Yahya Al-Mouallimi 6 - 4 4

Mohammed Al Sarhan 5 5 4 -

Michael Willingham-Toxvaerd 6 - - -

John Robertson Wright 5 6 - -

Zulfi Caar Hydari 6 6* 4* 4

Martin Gilbert Barrow 4 - - 4

Total number of meetings held 6 6 4 4


22

REPORT OF THE DIRECTORS OF THE GROUP The Directors of European Islamic Investment Bank plc (registration number 5328847) have pleasure in presenting their annual report, together with the audited financial statements, for the year ended 31 December 2014. Dividend The company will not be paying a dividend for the year ended 2014 however, it was announced that it would reduce its capital by way of a tender offer in 2014. The tender offer was cancelled as a result of the firm not receiving all necessary consents to reduce its capital. The firm will proceed to finalise the tender offer in 2015. Directors The Directors serving at the date of this report and during the year are shown on page 18. There were no changes to the Board of Directors in 2014. Directors’ interests

The Directors who held office at the end of the financial year had the following beneficial interests in the ordinary shares of the Group according to the register of Directors’ interests. The table shows the number of shares held as a percentage of total shares in issue at that time:

Name Class of share Interest at end of year Interest at start of year

Mohammed Al Sarhan Ordinary 1p 5,549,567 (0.29%) 5,549,567 (0.31%)

Abdallah Al-Mouallimi, the Chairman and Michael Willingham-Toxvaerd hold indirect beneficial interests in EIIB by virtue of their participations in HBG Group fund structures, which in turn hold 16.11% of EIIB’s shares. None of the other Directors who held office at the end of the financial year had any other disclosable interest in the shares of the Group. According to the register of Directors’ interests, no rights to subscribe for shares in the Group were granted to any of the Directors or their immediate families, or exercised by them, during the financial year. Qualifying third party indemnity provisions

The company has arranged qualifying third party indemnity for all of its directors.

Sharia’a supervisory board members The Sharia’a Supervisory Board (SSB) members are as follows: • Dr. Abdul Sattar Abu Ghuddah – Chairman (resigned 30 June 2014) • Dr Talha Azami – Chairman (appointed 17 September 2014) • Shaykh Nizam Yacouby – Deputy Chairman • Dr. Aznan bin Hasan Zakah Zakah is an annual amount to be paid by Muslims to charity out of their savings. The Directors calculate that the Zakah contribution payable by shareholders on their share of the Group’s earnings is 0.165p per share or £1.65 per thousand shares held based on the net assets method as detailed in the Accounting, Auditing and Governance Standards 2004-5 of the Accounting and Auditing Organisation for Islamic Financial Institutions. Political contributions and charitable donations The Group made no political contributions or charitable donations during the year.


23

PRINCIPAL RISKS AND UNCERTAINTIES Refer to the Strategic Report and to Note 41 on pages 73 to 87 of the financial statements. FINANCIAL INSTRUMENTS Refer to the Strategic Report, which includes the Group’s financial risk management and information on its exposure to market, credit and liquidity risk. FUTURE DEVELOPMENTS Refer to the Strategic Report EVENTS SINCE THE REPORTING DATE The Directors confirm there are no significant events arising since the reporting date that should be reported to shareholders other than those disclosed on page 87. GOING CONCERN In approving the financial statements the Directors have reviewed the current and potential future business activities and financial position of the Group, including an assessment of the capital adequacy and liquidity forecasts. Based upon this they are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. AUDITORS The Directors who held office at the date of approval of this Directors’ report confirm that so far as they are each aware there is no relevant audit information of which the Group’s auditors are unaware, and each Director has taken all steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Group’s auditors are aware of that information.


24

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

The directors are responsible for preparing the Annual Report and the Group and Parent company financial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent company financial statements on the same basis. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the UK the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent company and of their profit or loss for that period. In preparing each of the Group and Parent company financial statements, the directors are required to:

select suitable accounting policies and then apply them consistently;

make judgments and estimates that are reasonable and prudent;

state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

By order of the Board,

____________________ Zulfi Caar Hydari Chief Executive Officer 27

April 2015

Registered Office: Milton Gate 60 Chiswell Street London EC1Y 4SA


25

REPORT OF THE SHARIA’A SUPERVISORY BOARD In the name of Allah, The Beneficent, The Merciful To the Shareholders of European Islamic Investment Bank plc (“EIIB”) For the period 1 January 2014 to 31 December 2014 (the “Period”) Assalamu Alaikum Wa Rahmat Allah Wa Barakatuh In compliance with our letters of appointment with EIIB, we are required to submit this report. We have reviewed the principles and the contracts relating to a sample of transactions conducted by EIIB during the Period. We have conducted our review to form an opinion as to whether EIIB has complied, during the Period, with Sharia’a rules and principles and also with the specific fatwas, rulings and guidelines issued by us. EIIB’s management is responsible for ensuring that EIIB conducts its business in accordance with Sharia’a rules and principles. It is our responsibility to form an independent opinion, based on our review of the operations of EIIB in the Period, and to report to you. We conducted our review which included examining, on a test basis, each type of transaction, the relevant documentation and procedures adopted by EIIB for the transaction during the Period. Based on this we are of the opinion that the contracts, transactions and dealings entered into by EIIB during the Period that were reviewed are in compliance with Sharia’a rules and principles. We beg Allah the Almighty to grant us all success and straight-forwardness. Wassalam Alaikum Wa Rahmat Allah Wa Barakatuh 27 April 2015 Signed on behalf of the Sharia’a Supervisory Board of European Islamic Investment Bank plc.

_______________________ _______________________ Sh. Nizam Yacouby Talha Azami (Chairman) (Member)

______________________ Dr. Aznan Hasan (Member)


26

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROPEAN ISLAMIC INVESTMENT BANK PLC

We have audited the financial statements of European Islamic Investment Bank plc for the year ended 31 December 2014 which comprise the consolidated and company statement of financial position, the consolidated statement of income, the consolidated and company statement of cash flows, the consolidated and company statement of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s 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 and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion:

the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2014 and of the group’s profit for the year then ended;

the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the strategic report and directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

the parent company financial statements are not in agreement with the accounting records and returns; or

certain disclosures of directors’ remuneration specified by law are not made; or

we have not received all the information and explanations we require for our audit.

______________________________ Neil Griggs (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor United Kingdom 27 April 2015

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

http://www.frc.org.uk/auditscopeukprivate


27

CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2014

2014

2013

Notes £

£

Income

Income from financing and investing activities 4 1,820,063

2,491,520

Returns to financial institutions and customers 5 (180,966)

(206,830)

Net margin

1,639,097

2,284,690

0

(1)

Net fees and commission income 6 5,921,086

3,154,350

Net gain on funds, Sukuk and quoted equity 7 1,266,191

1,190,493

Gain on private equity investments designated at fair value

159,241

2,480,687

Gain on investment property designated at fair value

357,656

324,953

Other operating income 8 1,423,207

746,079

Total operating income

10,766,478

10,181,252

0

1

Expenses

Provision for impairment of financing arrangements -

202,831

Staff costs 9 (5,378,045)

(5,780,633)

Depreciation and amortization 23, 24 (94,244)

(187,100)

Other operating expenses 10 (3,790,206)

(2,921,197)

Third party interest in consolidated funds -

(10,379)

Total expenses

(9,262,495)

(8,696,478)

0

(1)

Operating profit before tax 11 1,503,983

1,484,774

Tax charge 12 (786,881)

(262,624)

Profit from continued operations

717,102

1,222,150

Loss after tax from discontinued operations 20 (116,976)

(1,249,584)

Profit/(loss) for the year

600,126

(27,434)

0

0

Profit/(loss) attributable to:

Equity holders of the Company

592,037

137,575

Non-controlling interest 38 8,089

(165,009)

600,126

(27,434)

Earnings per share

- Basic 13 3.16p

0.01p

- Diluted 13 3.16p 0.01p


CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014

28

2014

2013

Notes £

£

Profit/(loss) for the year

600,126

(27,434)

Items that may be reclassified subsequently to profit or loss:

Net change in fair value of available-for-sale securities

179,031

(383,595)

Exchange loss on net investment in foreign operations

(526,012)

(413,904)

Total comprehensive income/(loss) for the period

253,145

(824,933)

Total comprehensive income/(loss) attributable to:

Equity holders of the Company

245,056

(561,830)

Non-controlling interest

8,089

(263,103)

253,145

(824,933)


CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2014

29

2014

2013

Notes £

£

Assets

Cash and balances with banks

6,561,726

9,488,406

Other assets 25 12,216,422

4,060,019

Available-for-sale securities - sukuk 16 22,471,325

26,457,774

Assets held for sale 20 91,491

910,109

Leasing fund held for sale 21 -

4,368,976

Financing arrangements 17 7,807,396

11,450,067

Financial assets designated at fair value 15 25,847,173

27,266,475

Fair value of foreign exchange agreements 19 24,394

1,377,797

Due from financial institutions 14 34,056,436

40,244,300

Private equity assets designated at fair value 18 16,693,699

15,864,665

Property, plant and equipment 23 174,243

193,589

Investment properties 22 1,673,630

1,742,156

Intangible assets 24 2,528

13,409

Goodwill 37.3 10,784,754

10,165,750

Total assets

138,405,217

153,603,492

Liabilities

Due to financial institutions 26 6,630,419

13,000,806

Fair value of foreign exchange agreements 19 954,329

2,819

Liabilities held for sale 20 123,545

848,866

Other liabilities 27 5,601,917

6,274,656

Third party interest in consolidated funds

-

6,499,725

Total liabilities

13,310,210

26,626,872

Shareholders' equity

Share capital 28 19,720,892

19,720,892

Share premium account 28 61,815,459

101,815,459

Capital redemption reserve 28 599,040

599,040

Treasury shares 29 (2,117,015)

(2,117,015)

Special reserve 30 60,000,000

20,000,000

Equity reserve (911,624) -

Fair value reserve on available-for-sale securities

398,142

219,111

Foreign exchange reserve

(841,822)

(315,810)

Accumulated losses

(16,395,312)

(16,987,349)

Total equity attributable to the Company's equity holders 122,267,760

122,934,328

Non-controlling interest 38 2,827,247

4,042,292

Total equity

125,095,007

126,976,620

Total equity and liabilities

138,405,217

153,603,492

______________________________ _________________________________ Abdallah Y. Al-Mouallimi, Chairman Zulfi Caar Hydari, Chief Executive Officer

27 April 2015


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014

30

Share capital

Share premium account

Capital redemption

reserve Treasury

shares Special reserve

Equity reserve

Fair value reserve on AFS

securities

Foreign exchang

e reserve

Accumulated losses

Non-controlling

interest Total equity

– Group £ £ £ £ £ £ £ £ £ £ £ Balance at 1 January 2013 17,790,994 96,569,263 599,040 (2,117,015) 20,000,000 - 602,706 (10,814) (13,673,201) 9,170,594 128,931,567 Contributions by and distributions to owners New shares issued 1,929,898 5,246,196 - - - - - - - - 7,176,094 Acquisition of NCI - - - - - - - - - (2,561,405) (2,561,405) Adjustment on premium paid over acquisition of non-controlling interest - - - - -

- - - (3,451,723) - (3,451,723)

Capital distribution by Rasmala subsidiaries - - - - - - - - - (1,086,807) (1,086,807) Reallocation of NCI (note 38) - - - - - - - - - (1,216,987) (1,216,987) Other - - - - - - - 10,814 - - 10,814

19,720,892 101,815,459 599,040 (2,117,015) 20,000,000 - 602,706 - (17,124,924) 4,305,395 127,801,553

Comprehensive income for the year Net change in fair value of available-for-sale securities

(383,595) - - - (383,595)

Foreign exchange loss on conversion of foreign operations

- (315,810) - (98,094) (413,904)

Profit/(loss) for the year - - 137,575 (165,009) (27,434)

Total comprehensive income (383,595) (315,810) 137,575 (263,103) (824,933)

Balance at 31 December 2013 19,720,892 101,815,459 599,040 (2,117,015) 20,000,000 - 219,111 (315,810) (16,987,349) 4,042,292 126,976,620

Balance at 1 January 2014 19,720,892 101,815,459 599,040 (2,117,015) 20,000,000 - 219,111 (315,810) (16,987,349) 4,042,292 126,976,620 Contributions by and distributions to owners Transfer (note 30) - (40,000,000) - - 40,000,000 - - - - - - Disposal of subsidiary - - - - - - - - - (314,345) (314,345) Acquisition of NCI - - - - - (911,624) - - - (696,109) (1,607,733) Forex reserves (note 39.4) - - - - - - - - - (212,680) (212,680)

19,720,892 61,815,459 599,040 (2,117,015) 60,000,000 (911,624) 219,111 (315,810) (16,987,349) 2,819,158 124,841,861

Comprehensive income for the year Net change in fair value of available-for-sale securities

179,031 - - - 179,031

Foreign exchange loss on conversion of foreign operations

- (526,012) - - (526,012)

Profit for the year - - 592,037 8,089 600,126

Total comprehensive income 179,031 (526,012) 592,037 8,089 253,145

Balance at 31 December 2014 19,720,892 61,815,459 599,040 (2,117,015) 60,000,000 (911,624) 398,142 (841,822) (16,395,312) 2,827,247 125,095,007


CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014

31

2014 2013

£ £

Cash flows from operating activities

Operating profit for the period 1,503,983 1,484,774

Operating loss on discontinued operations (116,976) (1,249,584)

Adjusted for:

Net provision for impairment of financing arrangements - (202,830)

Gain on investment in funds and sukuk designated at fair value 184,920 (840,956)

Gain on private equity investments designated at fair value (159,241) (2,480,687)

Reversal of provision on related party (962,958) -

Gain on sale of investments (253,774) -

Depreciation and amortization 94,244 187,100

Loss on disposal of plant & equipment - 28,212

Fair value gain on Investment property (357,656) (177,000)

Net /decrease/(increase) in operating assets:

Due from financial institutions 6,187,864 22,505,646

Financial assets designated at fair value (4,088,576) (1,792,047)

Financing arrangements 3,642,672 (11,450,067)

Available-for-sale securities-sukuk 3,986,449 7,531,340

Private Equity financial assets designated at fair value (669,793) (68,081)

Investment property 426,182 173,302

Fair value of foreign exchange agreements 1,353,403 (580,128)

Assets held for sale 818,617 4,911,345

Lease assets held for sale 4,368,976 -

Other assets (9,161,369) (737,546)

Net (decrease)/increase in operating liabilities:

Due to financial institutions (6,370,387) (13,730,702)

Due to customers - (95,637)

Fair value of foreign exchange agreements 951,510 (36,490)

Liabilities held for sale (725,321) (2,295,325)

Other liabilities (1,459,620) (1,856,704)

Third party interest in consolidated funds (6,499,725) -

Taxation:

Corporation tax paid - -

Net cash outflow from operating activities (7,306,576) (772,065)

Cash flow from investing activities

Sale/(purchase) of investment in funds 5,576,730 (4,368,976)

Payment on acquisition of a subsidiary net of cash acquired (1,773,769) (1,600,000)

Disposal of a subsidiary net of cash disposed of 630,303 -

Purchase of plant and equipment (53,368) (63,612)

Net cash inflow/(outflow) from investing activities 4,379,896 (6,032,588)

Cash flows from financing activities

Net Subscriptions to consolidated funds - 2,668,365

Net cash inflow/ from financing activities - 2,668,365

Cash and cash equivalents at the beginning of period 9,488,406 13,624,694

Cash and cash equivalents at the end of the period 6,561,726 9,488,406 Profit receipt on investments during 2014 included above £1,740k (2013: £2,358k) and profit paid on borrowings £24k (2013: £47k) The notes on pages 35 to 87 forms an integral part of the financial statements.


32

COMPANY STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2014

2014 2013

Notes £ £

Assets

Cash and balances with banks 5,053,233 3,330,188

Other assets 25 7,772,182 567,167

Available-for-sale securities - sukuk 16 22,471,325 26,457,774

Leasing fund held for sale 21 - 4,543,467

Financing arrangements 17 7,807,396 11,450,067 Financial assets designated at fair value 15 21,720,625 18,776,878

Fair value of foreign exchange agreements 19 24,394 1,377,797

Due from financial institutions 14 34,225,916 38,001,173

Property, plant and equipment 23 15,297 28,390

Investments in subsidiaries 37 30,626,590 66,378,641

Intangible assets 24 2,528 13,409

Total assets 129,719,486 170,924,952

Liabilities

Due to financial institutions 26 - 4,279,725

Due to group entities 39.3 - 38,231,018

Fair value of foreign exchange agreements 19 954,329 2,819

Other liabilities 27 1,913,931 2,025,339

Total liabilities 2,868,260 44,538,901

Shareholders' equity

Share capital 28 19,720,892 19,720,892

Share premium account 28 61,815,459 101,815,459

Capital redemption reserve 28 599,040 599,040

Treasury shares 29 (2,117,015) (2,117,015)

Special reserve 30 60,000,000 20,000,000

Fair value reserve on available-for-sale securities 398,142 219,111

Accumulated losses (13,565,292) (13,851,436)

Total equity attributable to the Company's equity holders 126,851,226 126,386,051

Total equity and liabilities 129,719,486 170,924,952

_____________________________ _____________________________ Abdallah Y. Al-Mouallimi, Chairman Zulfi Caar Hydari, Chief Executive Officer

27 April 2015

The notes on pages 35 to 87 form an integral part of the financial statements.


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COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014

Share

capital

Share premium account

Capital redemption

reserve Treasury

shares Special

Reserve

Fair value reserve on AFS

securities Accumulated

losses

Total Equity –

Company

£ £ £ £ £ £ £ £

Balance at 1 January 2013 17,790,994 96,569,263 599,040 (2,117,015) 20,000,000 602,706 (13,673,201) 119,771,787

Contributions by and distributions to owners

New shares issued 1,929,898 5,246,196 - - - - - 7,176,094

19,720,892 101,815,459 599,040 (2,117,015) 20,000,000 602,706 (13,673,201) 126,947,881

Comprehensive income for the year

Net change in fair value of available-for-sale securities (383,595) - (383,595)

Loss for the year - (178,235) (178,235)

Total comprehensive income (383,595) (178,235) (561,830)

Balance at 31 December 2013 19,720,892 101,815,459 599,040 (2,117,015) 20,000,000 219,111 (13,851,436) 126,386,051

Balance at 1 January 2014 19,720,892 101,815,459 599,040 (2,117,015) 20,000,000 219,111 (13,851,436) 126,386,051

Contributions by and distributions to owners

Share premium transfer - (40,000,000) - - 40,000,000 - - -

19,720,892 61,815,459 599,040 (2,117,015) 60,000,000 219,111 (13,851,436) 126,386,051

Comprehensive income for the year

Net change in fair value of available-for-sale securities 179,031 - 179,031

Profit for the year - 286,144 286,144

Total comprehensive income

179,031 286,144 465,177

Balance at 31 December 2014 19,720,892 61,815,459 599,040 (2,117,015) 60,000,000 398,142 (13,565,292) 126,851,226


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COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 2014 2013

£ £

Cash flows from operating activities

Operating profit/(loss) for the period 286,144 (178,235) Adjusted for: Fair value gain on subsidiary investments (872,567) (875,875)

Net provision for impairment of financing arrangements - (202,830)

Gain on investment in funds and sukuk designated at fair value (1,027,990) (661,846) Gain on sale of investments (253,774) -

Depreciation and amortisation 25,376 48,526

Net (increase)/decrease in operating assets:

Due from financial institutions 3,775,257 24,748,772

Financing arrangements 3,642,672 (11,450,067)

Available-for-sale securities - sukuk 3,986,449 7,147,746

Financial assets designated at fair value (2,695,246) (5,257,795)

Fair value of foreign exchange agreements 1,353,402 (580,128)

Investment in subsidiaries (4,244,396) (3,875,014)

Other assets (7,205,016) 4,836,229

Net increase/(decrease) in operating liabilities:

Due to financial institutions (4,279,725) (13,219,434)

Due to group entities (38,231,018) (39,726)

Due to customers - (95,637)

Fair value of foreign exchange agreements 951,510 (36,490)

Other liabilities 67,625 589,753

Net cash (outflow)/inflow from operating activities (44,721,297) 894,439

Cash flows from investing activities

Payment on acquisition of a subsidiary - (1,600,000)

Sale of investment in funds 5,576,730 -

Disposal/redemption in subsidiary 40,869,014 -

Purchase of property, plant and equipment (1,402) (1,889)

Net cash inflow/(outflow) from investing activities 46,444,342 (1,601,889)

Net (decrease)/increase in cash and cash equivalents 1,723,045 (707,450)

Cash and cash equivalents at the beginning of the year 3,330,188 4,037,638

Cash and cash equivalents at the end of the year 5,053,233 3,330,188

Profit receipt on investments during 2014 included above £1,721k (2013: £2,358k)

The notes on pages 35 to 87 forms an integral part of the financial statements.


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1 Principal activities, definitions and authorisation of the financial statements

European Islamic Investment Bank plc (‘EIIB’ or ‘Company’) is a London listed asset management and financing group focused on the growth markets of the Gulf Cooperation Council (GCC) countries. The Company’s primary focus is to provide investment management and financing solutions to pension funds, family groups, corporations and financial and government institutions. The Company is incorporated in the United Kingdom which was established on 11 January 2005 and received authorisation from the FSA on 8 March 2006 to carry on activities as an investment bank. Following agreement with the PRA our permissions were amended on 19 December 2014 and the Company is now solely regulated by the Financial Conduct Authority in the United Kingdom. The consolidated financial statements of the Company as at and for the year ended 31 December 2014 comprise the Company and its subsidiaries (together referred to as the ‘Group’ and individually as ’Group entities’). The following terms are used in the financial statements: Murabaha (notes 14 and 26) is a sale of goods at a cost plus an agreed profit mark up under which a party (the seller) purchases goods at cost price from a supplier and sells the goods to another (the buyer) at a cost plus an agreed mark up. Commodity murabaha, whereby commodities are bought and sold are a common form of Islamic financing transaction. Sukuk (note 16) are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or (in the ownership of) the assets of particular projects or special investment activities. Sukuk are usually tradable and yield periodic profit distributions. Wakala (notes 14 and 26) means agency and can be used in an arrangement whereby one party (the principal) places funds with another (the agent) for investment by the agent on the principal’s behalf in return for an agreed fee or commission. The financial statements of European Islamic Investment Bank plc for the year ended 31 December 2014 were authorised for issue by the Board of Directors on 27 April 2015. 2 Accounting policies 2.1 Basis of preparation The financial statements have been prepared under the historical cost accounting convention except for financial assets stated at their fair value comprising available-for-sale securities, financial assets designated at fair value and fair value of foreign exchange agreements and investment properties. As permitted by section s.408 of the Companies Act 2006 the income statement of the Company is not presented as part of the financial statements. The parent entity’s profit after tax for the year ended 31 December 2014 was £286,144 (2013: loss £178,235). 2.2 Compliance with International Financial Reporting Standards The consolidated financial statements and the financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. 2.3 New accounting policy, disclosures and changes to the accounting policies The accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group in its financial statements as at and for the year ended 31 December 2013.


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2.4 Significant accounting judgements and estimates 2.4.1 Impairment of Goodwill For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit" or "CGU"). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. The Group's corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. The carrying value of goodwill is determined in accordance with IFRS 3 Business Combinations and tested for impairment in accordance with IAS 36 Impairment of Assets. Goodwill arises on the acquisition of subsidiaries and represents the excess of the fair value of the purchase consideration over the fair value of the Group ’s share of the fair value of the assets acquired and the liabilities assumed including contingent liabilities as at the date of the acquisition. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. The test involves comparing the carrying value of goodwill with the present value of the pre-tax cash flows, discounted at a rate of interest that reflects the inherent risks, of the cash generating unit to which the goodwill relates, or the cash generating unit’s (investment in subsidiary) fair value if this is higher. The fair value of the investment in subsidiary is determined using the net asset value (NAV) of the subsidiary as at the year end. An impairment loss is recognised if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. The Group has used the following main assumptions to determine the discount rate used to perform impairment testing of the Goodwill: 2014 2013 Risk free rate of interest 1.62% 2.05% Equity risk premium 7.43% 8.60% Projected growth rate 2.50% 2.50% Term used to forecast cash flows (in years) 5 yrs 5 yrs Discount rate calculated using capital asset pricing model (CAPM) 11.10% 10.90% Credit and liquidity discount factors applied Private investment funds 10 – 50% 10 – 50% Minority interests 20 - 46% 20 - 34%


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2.4.2 Fair value measurement It is EIIB’s policy to revalue its investments and foreign exchange contracts on a periodic basis using independent and market observable pricing sources where possible. Equities are valued at market quotations from exchanges where listed; Funds are valued at market NAV provided and published by the Fund Administrators; Sukuk valuations are based on closing mid-prices from market observable pricing sources or from recent trade information if available; FX spot and Forward contracts are valued using spot and forward mid curve prices obtained from Bloomberg. Real estate investments are measured using latest independent valuation provided by a real estate expert. The valuation takes into account geo-political factors, condition of the land, expected income from the use of the property and is determined on a forced-sale-value (FSV) basis. Closing spot rate used 2014 2013 GBP/USD 1.5577 1.6526 GBP/EUR 1.2878 1.2003 GBP/AED 5.7219 6.0693 GBP/BHD 0.5872 0.6230 GBP/QAR 5.6737 6.0166 Forward mid-rate used 1.5567 1.6489 GBP/USD If a market for a financial instrument is not active (private equities and certain sukuks), the Group establishes fair value using a valuation technique. Valuation techniques include using recent arm's length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and obtain quotes from market makers. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data. Judgements are made to select discount factors to calculate the effect of counterparty credit risk (credit value adjustment) and liquidity discount to be applied to private equity investments. Liquidity discounts are determined using a range of comparable information for companies from market observable sources to adjust the fair values for the impact of minority interest investments of the Group As at 31 December 2014 and 2013 the carrying amounts of the Group’s and Company’s financial instruments that are measured at amortised cost and mature within 12 months from the reporting date (as set out in Note 32) are reasonable estimates of fair value in view of the nature of these instruments or the relatively short period of time between the origination of the instruments and their expected realisation. The fair value of non-current financial instruments for disclosure purposes is estimated by discounting the future contractual cash flows at the current market profit rate that is available to the Group and Company for similar financial instruments. These comprise financing arrangements, amounts due to financial institutions, other assets and other liabilities. The fair value of these non-current floating, fixed and non-rate sensitive financial instruments at the end of the Group's and Company’s reporting periods are not significantly different from the carrying amounts. The current market profit rates utilised for discounting purposes, which were materially equivalent to the respective instruments' contractual profit rates, are deemed observable and accordingly these fair value estimates have been categorised as Level 2 within the fair value measurement hierarchy required by IFRS 7.

2.4.3 Provisions for impairment of financial assets

At each reporting date the Group assesses whether there is objective evidence that financial assets are impaired. A financial asset or a group of financial assets is/are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset/s, and that the loss event has an impact on the future cash flows of the asset/s that can be estimated reliably. Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes


38

in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. The Group considers evidence of impairment for assets carried at amortised cost at specific asset level. All individually significant assets carried at amortised cost are assessed for specific impairment. 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 estimated future cash flows discounted at the asset's original effective profit rate. Impairment losses are recognised in profit or loss and reflected in an allowance account. Profit on impaired assets continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of profit income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. The Group writes off certain investment securities when they are determined to be uncollectible.

2.4.4 Income tax

The Group is subject to direct and indirect taxation in a number of jurisdictions in which it operates. Some transactions and calculations for which a tax charge or credit is computed have an inherent uncertainty given the judgements involved. The Group objectively estimates these amounts and any difference in the final determination will impact the period in which such determination is made. 2.5 Other significant accounting policies

2.5.1 Foreign currency

The financial statements are presented in Sterling, which is the Company’s functional and presentation currency. Transactions in foreign currencies are initially recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into the functional currency at the rate of exchange ruling at the reporting date. Non-monetary assets and liabilities are translated into Sterling at the effective historical rate used on the date of initial recognition. All such differences are taken to the income statement. Foreign exchange translation differences relating to the opening non-controlling interest and movements thereon are taken to the Consolidated Statement of Changes in Equity. Translation gains or losses arising from net investments in foreign subsidiaries are taken to Other Comprehensive Income.

2.5.2 Revenue recognition

(a) Net Margin Sukuk, murabaha and wakala income and expense

Sukuk, murabaha and wakala are Islamic financing transactions. Sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or (in the ownership of) the assets of particular projects or special investment activities. Murabaha is a contract for sale or purchase of goods where there is an agreed mark-up and deferred settlement. Wakala derives income and expense in the form of agency fee or commission. Income and expense for these arrangements are recognised on an effective yield basis over the periods of the contracts.


39

(b) Net fees and commission income (i) Investment management fees, performance fees, brokerage fees, placement fees and other advisory fees are recognised on accrual basis, when the related services are performed and when it is probable that the economic benefit will flow to the Company. (ii) Fees and commissions which are not recognised on an effective yield basis over the life of the financial instrument to which they relate, such as fees for negotiating transactions for third parties and underwriting fees and commission, are recognised in revenue when it is probable that the economic benefit will flow to the Company. This will normally be from the point at which the significant act to which the fees and commissions relate has been completed.

(c) Net gain on funds, Sukuk and quoted equity Net gain on funds, Sukuk and quoted equity comprises realised profits and losses upon sale thereof and dividend income. The latter is recognised when the right to receive income is established.

2.5.3 Cash and cash equivalents

The captions Cash and cash equivalents and Cash and balances with banks represent cash and current account balances with banks and clearing exchanges. This is per the Company Statement of Cashflows.

2.5.4 Financial instruments

(a) Recognition of financial instruments Financial instruments are recognised in the statement of financial position on the trade date, that is, the date on which the Company commits to buy or sell the financial instrument. All financial instruments are recognised initially at fair value. In the case of financial instruments not recognised at fair value through the income statement, that value will include direct costs of acquisition or issue. For financial instruments carried at fair value through the income statement, transaction costs are expensed immediately. (b) Due from financial institutions, Financing arrangements, Due to financial institutions, Due to group

entities and Due to customers Financial assets included within Due from financial institutions and Financing arrangements, as well as financial liabilities included within Due to financial institutions, Due to group entities and Due to customers comprise non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designed as ‘available-for-sale securities’ or ‘financial assets designated at fair value’. Financial assets included under these captions are initially recognised at fair value plus any directly related transaction costs. They are subsequently measured at amortised cost less any impairment losses. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective rate of return. The amortisation is included in Income from financing and investing activities and Returns to financial institutions and customers in the income statement. At each reporting date the Company reviews the carrying values of its financial assets; a financial asset is considered to be impaired if there is objective evidence of events since initial recognition of the asset that will adversely affect the amount or timing of future cash flows from the asset. The amount of the impairment loss will be the difference between the carrying value of the financial asset and the present value of the estimated future cash flows. The amount of the impairment loss will be recognised in the income statement, and the carrying value of the financial asset will be written down and the impairment loss allowance will be recognised in an allowance account for that purpose. Where subsequent events indicate that the impairment loss allowance is not required, or not required in full, the loss allowance made will be reversed. (c) Available-for-sale securities Available-for-sale (‘AFS’) securities are investments that are designated as available-for-sale or are not classified as another category of financial assets. These include sukuk and quoted equity. AFS securities are recognised at cost at the point of acquisition or at fair value which is considered cost for assets transferred from other IAS 39 classifications. Cost on acquisition is considered as the fair value of the investment including any acquisition charges. AFS securities are then carried in the statement of financial position at fair value.


40

profit accruals on AFS securities are recognised in the income statement. Changes in the fair value are recognised directly in the OCI in the Fair value reserve in the accounting period in which they arise. Where the value of a security is considered to be impaired, the losses are recognised in the income statement; otherwise, the gains and losses previously recognised in equity are recognised through the income statement when the investment matures or is sold; these are included under Trading income. Fair value gains and losses are recognised in equity net of any tax effect. (d) Financial assets designated at fair value Quoted equity investments, investment in funds and private equity investments that are managed and evaluated on a fair value basis in accordance with an agreed investment strategy and reported to key personnel on that basis are classified under this category. These assets are recognised initially at fair value and subsequent gains and losses arising from changes in the fair value are recognised directly in the income statement. (e) Foreign exchange commitments The valuation of forward foreign exchange commitments held at fair value through the income statement is recognised in the statement of financial position under Fair value of foreign exchange agreements on either the asset or liability side of the statement of financial position dependent on whether the valuation is positive or negative respectively. Revaluation gains and losses are included in the income statement under other operating income.

2.5.5 Investments in subsidiaries in Parent’s books

The Company’s investments in subsidiaries are designated for recognition and measurement in the financial statements as ‘fair value through profit or loss’. Accordingly these assets are fair valued using suitable valuation techniques and the gain or loss is included in the income statement of Company.

2.5.6 Investment property

Investment properties are held either to earn rental income, for capital appreciation or for both. Investment properties are measured at fair value with any change therein recognised in the consolidated statement of income. Fair value measurement Investment property is measured initially at its historical cost, including related transaction costs. After initial recognition, investment property is subsequently measured at fair value, representing open market value that is determined annually. The determination of fair values of investment properties are based on valuation by an independent professional valuer. The fair value of investment reflects the current prices for similar property in the same location and condition. When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

2.5.7 Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and impairment losses if any. Depreciation is provided on a straight line basis over estimated useful lives as follows: Leasehold improvements 5 years Motor vehicles 4 years Fixtures, fittings and office equipment 3 - 5 years Computer hardware 3 years Buildings 40 years

The asset’s useful lives are reviewed, and adjusted if appropriate, at the reporting date.

2.5.8 Intangible assets

Intangible assets consist of computer licences and software development costs including capitalised staff costs. Intangible assets are stated at cost less accumulated amortisation and impairment losses if any. Amortisation is provided on a straight line basis over a current estimated useful life of five years.


41

2.5.9 Operating leases

Operating lease rentals are charged to the income statement on a straight line basis over the period of the lease.

2.5.10 Pension cost

The Company operates a defined contribution pension scheme for all staff. The cost of the scheme is equal to the contributions payable to the scheme for the accounting period and is recognised within Staff costs in the income statement. The Company has no further obligation once the contributions have been paid.

2.5.11 Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in OCI, in which case it is recognised in OCI. (a) Current tax Current tax is provided on taxable profits at the current rate. (b) Deferred tax Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in

the statement of financial position and the amount attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. The effect of a change in tax rates on deferred tax assets and liabilities is recognised in income in the period that includes the enactment date.

2.6 Accounting for business combinations

European Islamic Investment Bank applies IFRS 10 Consolidated Financial Statements. The consolidated financial statements combine the financial statements of European Islamic Investment Bank PLC and all its subsidiaries. Subsidiaries are entities over which European Islamic Investment Bank PLC has control. The Group has control over another entity when The Group has all of the following: 1) power over the relevant activities of the investee, for example through voting or other rights; 2) exposure to, or rights to, variable returns from its involvement with the investee; and 3) the ability to affect those returns through its power over the investee. The assessment of control is based on the consideration of all facts and circumstances. The Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout The Group for the purposes of the consolidation. Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been obtained and they do not result in loss of control. Details of the principal subsidiaries are given in Note 37. 2.7 Basis of consolidation Subsidiaries The consolidated financial statements of the Company comprise the financial statements of the European Islamic Investment Bank plc and the entities the Company controls. Control exists where the Company has the power to significantly affect the investee’s returns, have exposure or rights over those variable returns, and the ability to


42

affect the amounts of those returns. Controlled entities are consolidated from the date on which control is transferred to the Company and they are deconsolidated from the date the control ceases. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full upon consolidation. Assets under management The Group manages assets held in Funds and other investment vehicles on behalf of investors. The financial statements of these entities are not included in these consolidated financial statements unless these qualify as subsidiaries. Information about the Group’s assets under management is set out in note 31.

Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from inter-company transactions, are eliminated in preparing these consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 2.8 Determination and presentation of operating segments

The Group has adopted IFRS 8 Operating Segments. This Standard requires the presentation of financial information for segments based on information that is internally presented to the decision making function for the purposes of resource allocation and performance assessment. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. IFRS 8 Operating segments requires the Group to report its revenues from its external customers for each group of similar products and services that it offers and also report revenues from its external customers in relation to the Group’s country of domicile and attributed in total to all foreign countries from which the Group derives revenue. The Group is also required by this standard to report on certain non-current non-financial assets that are located in the Group’s country of domicile and attributed in total in all foreign countries in which the Group holds such assets. The Group is not reporting these disclosures as, in each instance, the necessary information is currently not available to it in order for it to do so, and the Board of Directors have assessed that the cost to develop such information for the purpose of 2014 financial statements would be excessive as they outweigh its benefits. This is a direct result of the Group finalising an exercise towards the end of the current year to realign its strategy and business model. The Board foresees that it will be possible to report these disclosures in the subsequent year given that the realignment has been completed by the start of 2015.

Given that the Group is a multi-national asset manager and investment bank with a diverse customer base, it is not reliant on one or a few of these, as it does not derive 10% or more of its revenues from any single external customer. 2.9 Disclosure pertaining to fair values for financial instruments The Group has applied Improving Disclosures about Financial Instruments issued in March 2009, that require enhanced disclosures about fair value measurements and liquidity risk in respect of financial instruments. The amendments require that fair value measurement disclosures use a three-level fair value hierarchy that reflects the significance of the inputs used in measuring fair values of financial instruments. Specific disclosures are required when fair value measurements are categorised as Level 3 (significant unobservable inputs) in the fair value hierarchy. The amendments require that any significant transfers between Level 1 and Level 2 of the fair value hierarchy be disclosed separately, distinguishing between transfers into and out of each level. Furthermore, changes in valuation techniques from one period to another, including the reasons therefore, are required to be disclosed for each class of financial instruments. Disclosures in respect of fair values of assets are included in note 40. 2.10 New standards and interpretations effective for the year New standards and interpretations to existing standards which have been published by IASB and IFRIC which the Company has adopted this year are:


43

IFRIC 21 Levies IFRIC 2010-12 Cycle IFRS2,3,8,13 IAS 16,24,38 IFRIC 2011-13 Cycle IFRS 1,3,13 IAS40 These have not had any material impact on the business during the year. 2.11 Standards and interpretations issued but not yet effective New standards, amendments and interpretations to existing standards which have been published by IASB and IFRIC with an effective date after the date of these financial statements and, which the Company has not early adopted, are as follows:

Standards Description Effective *

IFRS11 Interest in Joint Operations 1 January 2016

IAS16 & 38 Methods of Depreciation 1 January 2016

IAS27 Equity Method in Separate Statements 1 January 2016

IFRS28 / IAS28 Sale or Contribution of Assets 1 January 2016

IFRSs 2012-14 Annual Improvements 1 January 2016

IAS1 Disclosure Initiative 1 January 2016

IFRS10,12 IAS28 Investment Entities 1 January 2016

IFRS15 Revenue from Contracts 1 January 2017

IFRS9 Financial Instruments 1 January 2018

The Group anticipates that the accounting pronouncements (not yet adopted by the EU), which have not been early adopted will have no material effect on the financial statements. The Group is currently in the process of evaluating the potential effect of these standards. *for financial periods starting on or after this date

2.12 Assets and liabilities held for sale Assets and liabilities held for sale comprises assets and liabilities that are classified as held-for-sale such that they will be recovered primarily through sale rather than through continuing use. Immediately before classification as held-for-sale, the assets, or components of a disposal group, are re-measured in accordance with the Group’s other accounting policies. Thereafter, generally the assets are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to financial assets, employee benefits assets or investment property, which continue to be measured in accordance with the Group’s other accounting policies. Impairment losses on re-measurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. Once classified as held-for-sale, intangible assets, and property and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted. 2.13 Going concern In approving the financial statements the Directors have reviewed the current and potential future business activities and financial position of the Group, including an assessment of the capital adequacy and liquidity forecasts. EIIB had total assets of £138m at 31 December 2014 (£154m at 31 December 2013). Capital resources of the Group as at 31 December 2014 was £102m (£101m at 31 December 2013) and the total risk weighted assets was £124m (£117m at 31 December 2013). The capital adequacy ratio as at 31 December 2014 stood at 83% (2013: 86%).


44

The statement of financial position of the Company remains highly liquid. As at 31 December 2014 the Company had no deposits. As at 31 December 2013, the net cash excess (calculated as a percentage of deposits) is +40% in the 8 days and under category, and +60% in the 1 month and under category. Based upon the above, the Directors are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. 3. Segmental Information The Company focuses on MENA markets and for 2014 centred on the following three core businesses:

(a) Investment Banking – encompassing provision of financing, debt capital markets, structured debt finance, and advisory services.

(b) Asset Management – investment management solutions encompassing equities, fixed income and alternatives.

(c) Principal Investments – investing in funds and Islamic products, includes a diversified portfolio of private equity assets

These core business lines were the Group’s strategic business units (‘SBU’). Each SBU offers different products and services, and was managed separately based on the Group’s management and internal reporting structure. SBU activities are monitored by the Company’s management committees and the Board which is provided with internal management reports on a monthly basis. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before tax and is reviewed by Group executive management and the board of directors. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.


45

2014 Banking Asset

Management

Principal Investments

Discontinued

Operations Total

£ £ £ £ £

Revenue from external customers 3,095,416 5,680,705 2,178,521 - 10,954,642

Returns to external customers (52,319) (148,303) (21,901) - (222,523)

Fair value gain on investments - - 34,359 - 34,359

Total operating income 3,043,097 5,532,402 2,190,979 - 10,766,478

(Loss)/profit after tax from continuing activities

(196,229)

(479,188)

1,392,519

-

717,102

Loss from discontinued operations

- - - (116,976) (116,976)

Other comprehensive income after tax

(284,068) (62,913) - - (346,981)

Total comprehensive income (480,297) (542,101) 1,392,519 (116,976) 253,145

Depreciation and amortisation (25,376) (65,968) (2,900) - (94,244)

Segment assets 62,520,532 59,099,494 16,693,699 91,492 138,405,217

Segment liabilities 3,107,784 6,448,913 3,629,968 123,545 13,310,210

Capital expenditure

Leasehold improvements - 20,247 - - 20,247

Plant and equipment 1,402 33,983 - - 35,385

Intangible assets - - - - -


46

2013 Banking Asset

Management

Principal Investments

Discontinued

Operations Total

£ £ £ £ £

Revenue from external customers 4,339,650 3,377,531 147,651 - 7,864,832

Returns to external customers (206,829) - - - (206,829)

Fair value (loss)/gain on investments (134,740) - 2,657,989 - 2,523,249

Total operating income 3,998,081 3,377,531 2,805,640 - 10,181,252

Profit/(loss) after tax from continuing activities 70,605 (774,356) 1,925,901 - 1,222,150

Loss from discontinued operations - - - (1,249,584) (1,249,584) Other comprehensive income after tax (383,594) (413,905) - - (797,499)

Total comprehensive income (312,989) (1,188,261) 1,925,901 (1,249,584) (824,933)

Depreciation and amortisation (38,820) (110,859) (37,421) - (187,100)

Segment assets 124,824,018 10,262,544 17,606,821 910,109 153,603,492

Segment liabilities 14,902,087 4,032,556 6,843,363 848,866 26,626,872

Capital expenditure Plant and equipment 38,167 25,445 - - 63,612

Intangible assets - - - - -


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4. Income from financing and investing activities

2014 2013

Group £ £

Due from financial institutions - murabaha and wakala 221,620 251,385

Financing arrangements - murabaha 306,022 258,261

Available-for-sale investments – sukuk 1,272,851 1,137,504

Sukuk designated at fair value - 844,370

Fixed deposit interest 19,570 -

1,820,063 2,491,520

5. Returns to financial institutions and customers

2014 2013

Group £ £

Due to financial institutions – murabaha, wakala and facilities (180,966) (206,830)

(180,966) (206,830)

6. Net fees and commission income

2014 2013

Group £ £

Investment banking fees 273,352 263,704

Asset management fees (net) 5,114,324 2,603,211

- Management fees 3,420,359 3,038,296

- Performance fees 2,523,151 714,048

- Placement fees 490,160 -

- Introducers fees (1,319,346) (1,149,133)

Brokerage fees 78,882 287,435

Other fee income 454,528 -

5,921,086 3,154,350

7. Net gain on funds, Sukuk and quoted equity

2014 2013

Group £ £

Realised income on investment in equity, sukuk and funds 1,225,154 225,949

Unrealised (losses)/income on investment in equity, sukuk and funds (184,920) 840,955

Dividends 225,957 123,589

1,266,191 1,190,493


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8. Other operating income

2014 2013

Group £ £

Gain on foreign currency differences 218,198 274,444

- Net gains/(losses) on translation of balances denominated in foreign currency

2,521,077 (342,174)

- Net (losses)/gains on translation of forward foreign exchange agreements (2,302,879) 616,618

Reversal or provision 962,958 -

Rental income 181,036 83,456

Other 61,015 388,179

1,423,207 746,079

9. Staff costs

Group 2014 2013

£ £

Staff costs

Directors’ salaries, fees and other 883,215 933,565

Directors’ pension contributions - 10,500

Staff salaries 3,231,796 3,999,405

Bonus 215,061 406,644

Staff pension contributions 169,051 57,153

Social security costs 171,068 194,959

Sharia ’a Supervisory Board (SSB) fees 41,250 47,400

Recruitment costs 96,350 67,251

Staff redundancy cost 45,000 -

Other staff costs 525,254 63,756

5,378,045 5,780,633

Total of Directors' emoluments 883,215 944,065

Amounts in respect of highest paid Director

Emoluments 424,702 409,544

Benefits-in-kind 25,035 14,323

449,737 423,867

Number of employees at year end excluding staff on notice 73 71

Average number of employees 77 72


49

10. Other operating expenses

2014 2013

Group £ £

Legal and professional fees 981,618 826,419

Rent and other occupancy costs 775,354 934,282

Communications and IT costs 408,931 269,024

Advertising and market development 67,955 35,150

Travel 307,516 79,002

Consultancy 134,968 149,223

Board and SSB related expenses 50,530 84,449

Bank charges 810 -

Other operating charges 1,062,524 543,648

3,790,206 2,921,197

Other operating charges are incurred in the ordinary course of the business and do not include any non-recurring items.

11. Operating profit before tax

This is stated after charging:

2014 2013

£ £

Audit of group financial statements pursuant to legislation

- Fees payable to the Group’s auditor for the audit of the Group’s annual accounts 100,000 90,000

- Audit fees related to the prior period 750 -

Other fees payable to Group auditor:

- Other services pursuant to legislation (FCA CASS audit and PRA Return) 7,688 2,500

Fees payable to auditors of the subsidiary entities that are not associates

- Group auditor for the audits of the subsidiaries 25,133 79,061

- Non Group auditor for the audits of the subsidiaries 6,967 -


50

12. Tax charge 2014 2013

£ £

Tax on operating profit

Foreign tax charge for the period 786,881 262,624

UK tax charge for the period - -

Tax charge in the income statement 786,881 262,624

Reconciliation of the total tax charge

Operating income/(loss) before tax 1,503,983 1,484,775

UK corporation tax at standard rate (21.5%) 323,356 345,210

Expenses not deductible for tax purposes 91,995 85,863

Fair value movements on non-UK investments and other non-taxable amounts 337,444 (443,917)

Taxable other income 38,492 (89,186)

UK deferred assets not recognised (4,406) 364,654

Tax charge 786,881 262,624

Current tax liability

Opening balance 262,624 -

Current tax charge on ordinary activities 786,881 262,624

Current tax payable 1,049,505 262,624

Deferred tax assets of £8.1m (2013: £8.1m) on tax losses carried forward of £40.5m (2013: £40.6m) are not recognised in these financial statements given the current level of uncertainty surrounding the Company’s future taxable profits. Deferred tax assets on the UK tax losses are computed at 20%.

Factors that may affect future current and total tax charge

The main rate of UK corporation tax fell from 23% to 21% with effect from 1 April 2014. Further reductions in the rate from 21% to 20%, to take effect from 1 April 2015, was substantively enacted on 2 July 2013 and it is this rate (20%) that has been applied in calculating the Group’s unrecognised deferred tax assets as at 31 December 2013.

It has not been possible to fully quantify the effect of these further rate reductions because of the uncertainty over the timing of suitable future profits against which the company’s losses may be offset. It is expected, however, that these changes will reduce both any future current tax charge and the Group's unrecognised deferred tax assets.

13. Earnings per share (“EPS”)

Income or loss from continuing operations before tax and discontinued operations attributed to the equity holders of the Company is used as the numerator for computing the EPS. The denominator is the issued shares less the treasury shares EPS from continuing operations is 3.16 pence in 2014 (2013: 0.01 pence). EPS from discontinued operations is a loss of 0.15 pence in 2014 (2013: loss of 0.03 pence).


51

2014 2013

‘000

‘000

Weighted average number of shares for Basic EPS 39,121 1,750,648

Weighted average number of shares for Diluted EPS 39,121 1,750,648

14. Due from financial institutions

2014 2013

Group £ £

Murabaha placements 20,800,000 32,101,034

Wakala placements 11,500,000 5,900,139

Treasury bills 1,756,436 2,243,127

34,056,436 40,244,300

2014 2013

Company £ £

Murabaha placements 20,800,000 32,101,034

Wakala placements 13,425,916 5,900,139

34,225,916 38,001,173

15. Financial assets designated at fair value

Group 2014 2013

£ £

Navis Islamic Investment Fund 2,563,120 2,425,984

Fixed Income Funds 9,806,395 16,506,958

Equity and other funds 13,477,658 8,333,533

25,847,173 27,266,475

Company 2014 2013

£ £

Equity and other funds 11,914,230 6,543,117

Fixed Income Funds 9,806,395 12,233,761

21,720,625 18,776,878

The Group’s fund portfolio represents its investment in various open-ended and closed-ended schemes specialising in Asian, MENA and USA based public and private equities and fixed income products. The main objectives of all these funds are medium to long-term capital appreciation and periodic income generation.

These include high quality stocks, Sukuk and other fixed income products. All investments are prudently diversified by issuer, sector, geography and duration.

The Company disposed its interest in Rasmala Leasing Fund (“RLF”) on 31 March 2014. RLF is classified as an entity held for sale in 2013 (note 21).


52

16. Available-for-sale securities - Sukuk

Group & Company 2014 2013

£ £

Sovereign and central bank exposures 5,515,602 7,368,997

Financial institutions 8,386,573 16,128,642

Corporate and other counterparties 8,569,150 2,960,135

22,471,325 26,457,774

17. Financing arrangements


£ £

Sovereign and central bank exposures 2,407,396 3,025,627

Corporate and other counterparties 5,400,000 8,424,440

7,807,396 11,450,067

The above financing arrangements are designed based on Murabaha and Wakala structures. An exposure of £5.4m (2013 £5.4m) of the above is collateralized with a first charge on a property portfolio valued at £12.74m (2013 £10.9m)

18. Private equity financial assets designated at fair value

2014 2013

Group £ £

Opening fair value 15,864,665 13,315,897

Exchange gain 2,489 68,081

Fair value gain during the year 826,545 2,480,687

Closing fair value 16,693,699 15,864,665

These investments are measured at fair value having been designated at ‘fair value through profit and loss’ at inception.

19. Fair value of foreign exchange agreements

Group & Company

Foreign exchange commitments used for matching currency exposures Notional

Assets Liabilities amount

£ £ £

2014

Maturing in 0-3 months 24,394 954,329 80,254,454

2013

Maturing in 0-3 months 1,377,797 2,819 80,046,579


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20. Discontinued operation and assets and liabilities held for sale

On 1 December 2012, the Board of Directors of Rasmala Investment Saudi (“RIS”) resolved to dispose of it interest in RIS and intended to recover carrying amount of assets and liabilities in RIS principally through a sale transaction rather than through continuing use; therefore, all the asset and liabilities of RIS have been classified by Group management as held for sale and have been valued at lower of carrying value and fair value less cost to sell. Rasmala Group owns 80.41% shares in RIS and it was established on 7 April 2007 and commenced its operations on 17 September 2008.

At 31 December 2014, net assets of RIS amounts to £0.3m (2013: £0.5m). Profit from RIS for the year ended 31 December 2014 amounts to £ 0.2m (2013: losses of £0.3m).

In 2011, Rasmala Group management decided to dispose of its interest in Delta Rasmala Investment (“DRI”) and intended to recover carrying amount of assets and liabilities in RIS principally through a sale transaction rather than through continuing use; therefore, all the assets and liabilities of DRI have been classed as held for sale and valued at lower of carrying value or fair value less cost to sell. The net liability of DRI at 31 December 2014 amounted to £0.02m (2013: £0.3m). Profit from DRI for the year ended 31 December 2014 amounts to £0.3m (2013 losses: £0.03m).

All gains or losses arising from the above entities from the day their operations were discontinued have been classified as discontinued operations.

The net assets above reflect the standalone amounts of the company before the exclusion of cash and balances with banks and intercompany balances.

20.1 Loss after tax from discontinued operations

2014 2013

Group £ £

Revenue 319,060 95,414

Expenses (436,036) (1,344,998)

Net loss (116,976) (1,249,584)

Tax - -

Total (116,976) (1,249,584)

A net loss is generated by discontinued activities in the year as a result of ongoing costs associated with the liquidation and closure of these entities.

20.2 Assets held for sale

2014 2013

Group £ £

Property, plant and equipment 2,354 438,716

Financial assets available for sale 56,277 124,051

Other assets 32,860 347,342

Total 91,491 910,109

20.3 Liabilities held for sale

2014 2013

Group £ £

Payables 3,087 6,051

Accruals and other liabilities 120,458 842,815

Total 123,545 848,866


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21. Lease fund held for sale

Lease assets represents the operating lease asset portfolio held at the Company’s subsidiary, Rasmala Leasing Fund, a US based leasing vehicle. The Company disposed of its interest in Rasmala Leasing Fund on 31 March 2014 for £ 5.5m. The carrying value of Company’s holding on the date of disposal was £5.3m (including additional investment of £0.7m made in March 2014).

Group 2014 2013

£ £

Rasmala Leasing Fund - 4,368,976

Company 2014 2013

£ £

Rasmala Leasing Fund - 4,543,467

The lease assets of the fund at 31 December 2013 consisted a diversified portfolio of agricultural, material handling, transportation, food processing, rail and construction equipment.

22. Investment properties

2014 2013

Group £ £

Opening fair value 1,742,156 1,738,458

Additions during the year - 494,387

Disposals during the year (380,689) (778,191)

Change in fair value 206,082 324,952

Exchange gain/(loss) 106,081 (37,450)

Closing fair value 1,673,630 1,742,156

The investment properties include 4 units (2013: 7) of one floor in I-rise Tower (Dubai, UAE) covering the total area of 7,080 square feet (2013: 9,935 square feet). These units are stated at fair value, which has been determined based on a valuation performed by an independent firm of professional valuers.

The Group is required to analyse non-financial assets carried at fair value by level of the fair value hierarchy within which the recurring fair value measurements are categorised in their entirety (Level 1, 2 or 3). The investment property is carried at valuation derived from techniques that use unobservable inputs and therefore falls in Level 3 under the fair value hierarchy.

The valuation of the property has been performed on the basis of rental returns. This valuation technique has not changed from the prior year. The Board of Directors have reviewed any assumptions made by the valuer for reasonableness and concluded that there are no material sensitivities affecting the fair value that warrant disclosure.


55

23. Property, plant and equipment

Group

Land and Buildings

Motor Vehicles

Leasehold Improvements

Fixtures, Fittings

and office equipment

Computer Hardware

Total

£ £

£ £

£

£

Cost At 1 January 2014 55,660

76,735

1,175,589

591,350

1,067,785

2,967,119

Additions -

-

20,247

-

35,385

55,632 Disposals -

(840)

-

(421)

(1,004)

(2,265)

FX impact 2,334 2,454 39,364 14,096 32,199 90,447

At 31 December 2014 57,994

78,349

1,235,200

605,025

1,134,365

3,110,933

Depreciation At 1 January 2014 2,421

33,986

1,142,633

556,935

1,037,555

2,773,530

Charge for the year 2,900

12,342

23,505

18,309

25,925

82,981 Disposals -

-

(363)

(1,389)

-

(1,752)

FX impact 478 61 39,730 9,489 32,173 81,931

At 31 December 2014 5,799

46,389

1,205,505

583,344

1,095,653

2,936,690

Net Book Value At 31 December

2014 52,195

31,960

29,695

21,681

38,712

174,243

Group

Land and Buildings

Motor Vehicles

Leasehold Improvements

Fixtures, Fittings

and office equipment

Computer Hardware

Total

£ £

£ £

£

£

Cost At 1 January 2013 55,660

107,596

1,403,721

908,196

1,065,302

3,540,475

Additions/Transfers -

42,964

13,313

616

6,719

63,612 Disposals

(73,825)

(241,445)

(317,462)

(4,236)

(636,968)

At 31 December 2013 55,660

76,735

1,175,589

591,350

1,067,785

2,967,119

Depreciation At 1 January 2013 -

94,499

1,307,832

816,971

989,946

3,209,248

Charge for the year 2,421

12,708

67,169

40,711

50,029

173,038 Disposals -

(73,221)

(232,368)

(300,747)

(2,420)

(608,756)

At 31 December 2013 2,421

33,986

1,142,633

556,935

1,037,555

2,773,530

Net Book Value At 31 December

2013 53,239

42,749

32,956

34,415

30,230

193,589


56

Company

Fixtures, Fittings and

office equipment

Computer Hardware

Total

£

£

£

Cost

At 1 January 2014

169,825

218,087

387,912

Additions

-

1,020

1,020

Disposals

-

-

-

At 31 December 2014

169,825

219,107

388,932

Depreciation

At 1 January 2014

146,458

213,064

359,522

Charge for the year

10,285

3,828

14,113

Disposals

-

-

-

At 31 December 2014

156,743

216,892

373,635

Net Book Value

At 31 December 2014

13,082

2,215

15,297

Company

Fixtures, Fittings and

office equipment

Computer Hardware

Total

£

£

£

Cost At 1 January 2013

169,209

216,814

386,023 Additions

616

1,273

1,889

Disposals

-

-

-

At 31 December 2013

169,825

218,087

387,912

Depreciation At 1 January 2013

136,003

189,055

325,058

Charge for the year

10,455

24,009

34,464 Disposals

-

-

-

At 31 December 2013

146,458

213,064

359,522

Net Book Value At 31 December 2013

23,367

5,023

28,390

24. Intangible assets


£ £

At 1 January 1,492,765 1,492,765

Additions 382 -

At 31 December 1,493,147 1,492,765

Amortisation

At 1 January 1,479,356 1,465,294

Charge for the year 11,263 14,062

At 31 December 1,490,619 1,479,356

Net Book Value at 31 December 2,528 13,409


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Intangible assets consist of the costs of computer licences and software development including capitalised staff costs. 25. Other assets

2014 2013

£ £

Group

Accrued income receivable 2,466,188 2,296,665

Other receivables 1,830,299 1,479,657

Escrow deposit* 7,383,038 -

Prepayments 536,897 283,697

12,216,422 4,060,019

2014 2014

£ £

Company

Accrued income receivable 378,573 359,207

Other receivables 108,356 156,025

Escrow deposit* 7,235,000 -

Prepayments 50,253 51,936

7,772,182 567,168

*In connection with the reduction of the share premium account, EIIB entered into a blocked trust account agreement with Berwin Leighton Paisner LLP on 25 June 2014 creating a blocked trust account (“BTA”). EIIB undertook to the court to establish this BTA for the benefit of non-consenting creditors and to hold a retention of £7.2m (such sum representing the amount due to non-consenting shareholders). Under the terms of the BTA the retention will remain held on trust in the BTA until such time as the liability to the non-consenting creditors is extinguished.

26. Due to financial institutions

2014 2013

£ £

Group

Commodity murabahas - 1,000,000

Wakala acceptances - 3,279,725

Term facility of subsidiary 3,629,968 6,843,363

Facilities payable on demand of subsidiary 3,000,451 1,877,718

6,630,419 13,000,806

2014 2013

£ £

Company

Commodity murabahas - 1,000,000

Wakala acceptances - 3,279,725

- 4,279,725


58

Term facilities of subsidiary

(a) Commercial Bank of Dubai -£24.7m facility

The following are the principal terms of the facility:

a variable interest rate cost based on 6 month LIBOR;

the debt to equity ratio for acquisition of companies or projects to be 75:25;

the balance as of 31 December 2014, £3.63m has to be repaid in two semi-annual instalments during 2015

27. Other liabilities

2014 2013

Group £ £

Accrued expenses 4,502,149 4,745,675

Accrued returns payable - 50,977

Social security and PAYE payable 8,231 62,341

Tax payable by a subsidiary 786,881 262,624

Other payables 304,656 1,153,039

5,601,917 6,274,656

Company

Accrued expenses 1,771,440 1,558,959

Accrued returns payable - 50,977

Social security and PAYE payable 8,231 62,341

Other payables 134,260 353,062

1,913,931 2,025,339

28. Share capital, share premium and capital redemption reserve

Authorised

£

2014: 100,000,000 ordinary shares of £0.50 each

50,000,000

2013: 5,000,000,000 ordinary shares of £0.01 each

50,000,000

Number of shares

£ £ £

At 31 December 2014 39,441,784 19,720,892 599,040 61,815,459

At 31 December 2013 1,972,089,151 19,720,892 599,040 101,815,459


59

Events of 2014

During 2014 each ordinary share of 1p each was consolidated into each ordinary share of 50p each. As a result of the share consolidation the number of shares allotted, called up and fully paid are 39,441,784 ordinary shares of 50p each. The number of shares with voting rights is correspondingly amended from 1,922,332,657 to 34,446,653 and the balance represents Treasury shares. Events of 2013

During 2013, EIIB issued 40,681,003 (represents 2.12% of the current total shares) ordinary shares of 1 pence each at a premium price of 3.6p as per its agreement (note 37.1) as part and final settlement of the consideration due in connection with the strategic investment by the Company in Rasmala. These shares were issued in two intervals, 13,440,860 and 27,240,143 and were admitted to AIM on 1 May 2013 and 25 July 2013 respectively.

A further share issue of 152,308,735 (represents 7.92% of the current total shares) ordinary shares was made in December 2013 (note 37.2) in exchange of Rasmala shares of 42,307,982. These were admitted to trading on AIM on 30 December 2013. 29. Treasury shares

The EIIB General Employee Benefit Trust (the ‘GEBT’) purchased £2.1m worth of shares (50m shares) during 2010 at an average price of 4.25p in order to facilitate the establishment of the 2010 employee share incentive plan (the ‘2010 ESIP’). The total value of these shares is presented, at cost, in equity within a treasury shares reserve in accordance with IAS32.

Part of the above shares (34m shares) was allocated to the 2010 ESIP Trust to facilitate the scheme. The 2010 ESIP expired in November 2012 without vesting and the shares remain in the Trust as at the year end.

30. Special reserve

Following an application by EIIB, the Court of the Chancery Division approved a £40m transfer from share premium to a non-capital reserve during July 2014. The capital reduction and tender offer were approved by shareholders by special resolution at a General Meeting held on 25 June 2014.

31. Assets under management

Total AUM of external clients as at 31 December 2014 is £693m (2013: £686m). These funds are invested without recourse to the Group.

Total assets under management include fund management contracts novated to Rasmala by EIIB amounting to £715m (2013: £712m) as at 31 December 2014. On the date of acquisition of Rasmala by EIIB the AUM totalled £391m.

The funds invested by the Group as at 31 December 2014 stood at Nil (2013: £27m) of which funds with a net asset value of Nil (2013: £39m) are consolidated in these Group financial statements.


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32. Maturity Analysis of assets and liabilities

The tables below show an analysis of assets and liabilities analysed between those expected to be recovered or settled within or more than twelve months of the reporting date.

2014 Less than 12

More than 12

Group months months Total

Assets £ £ £

Cash and balances with banks 6,561,726 6,561,726

Other assets 10,460,166 1,756,256 12,216,422

Available for sale securities - Sukuk 1,938,049 20,533,276 22,471,325

Assets held for sale 91,491 - 91,491

Financing arrangements 7,807,396 - 7,807,396

Financial assets designated at fair value 4,126,547 21,720,626 25,847,173

Fair value of foreign exchange agreements 24,394 - 24,394

Due from financial institutions 34,056,436 - 34,056,436

Private equity assets designated at fair value 8,169,949 8,523,750 16,693,699

Property, Plant and equipment - 174,243 174,243

Investment Properties 1,673,630 - 1,673,630

Goodwill - 10,784,754 10,784,754

Intangible assets - 2,528 2,528

Total assets 74,909,784 63,495,433 138,405,217

Liabilities

Due to financial institutions 6,630,419 - 6,630,419


Other liabilities 4,825,229 776,688 5,601,917

Liabilities held for sale 123,545 - 123,545

Third party interest in consolidated funds - - -

Total liabilities 12,533,522 776,688 13,310,210


61

2013

Less than 12

More than 12

Group months months Total

£ £ £

Assets

Cash and balances with banks 9,488,406 - 9,488,406

Other assets 3,248,015 812,004 4,060,019

Available for sale securities - Sukuk 5,199,925 21,257,849 26,457,774

Assets held for sale 910,109 - 910,109

Leasing assets held for sale - 4,368,976 4,368,976

Financing arrangements 3,024,442 8,425,625 11,450,067

Financial assets designated at fair value 27,266,475 - 27,266,475

Fair value of foreign exchange agreements 1,377,797 - 1,377,797


Private equity assets designated at fair value - 15,864,665 15,864,665

Plant and equipment - 193,589 193,589

Investment Properties - 1,742,156 1,742,156


Goodwill - 10,165,750 10,165,750

Total assets 90,759,469 62,844,023 153,603,492

Liabilities

Due to financial institutions 9,600,806 3,400,000 13,000,806


Other liabilities 5,019,725 1,254,931 6,274,656

Liabilities held for sale 848,866 - 848,866

Third party interest in consolidated funds - 6,499,725 6,499,725

Total liabilities 15,472,216 11,154,656 26,626,872


62

2014 Less than 12 More than 12

Company months months Total £ £ £

Assets


Other assets 7,772,183 - 7,772,183

Available for sale securities – Sukuk 1,938,049 20,533,276 22,471,325

Financing arrangements 7,807,396 - 7,807,396

Fair value of foreign exchange agreements

24,394 - 24,394


Investments in funds (FVTPL) - 21,720,625 21,720,625

Investment in subsidiaries - 30,626,590 30,626,590



Total assets 56,821,171 72,898,316 129,719,487

Liabilities


954,329 - 954,329

Other liabilities 1,913,931 - 1,913,931

Total liabilities 2,868,260 - 2,868,260

2013 Less than 12 More than 12

Company months months Total

£ £ £

Assets


Other assets 453,734 113,433 567,167

Available for sale securities – Sukuk 5,199,925 21,257,849 26,457,774

Financial assets held for sale 4,543,467 4,543,467 4,543,467



1,377,797 - 1,377,797


Investments in funds (FVTPL) - 18,776,878 18,776,878

Investment in subsidiaries 48,453,815 17,924,826 66,378,641



Total assets 104,384,541 66,540,410 170,924,951

Liabilities

Due to financial institutions 4,279,725 - 4,279,725

Due to customers - - -

Due to group entities 38,231,018 - 38,231,018


2,819 - 2,819

Other liabilities 1,620,272 405,067 2,025,339

Total liabilities 44,133,834 405,067 44,538,901


63

33. Pension commitments

The Company provides a defined contribution scheme for all staff. The assets of the scheme are held separately from those of the Company in independently administered funds. Total costs of 2014 and 2013 are fully settled. 34. Commitments under operating leases There is a commitment at the year-end under an operating lease for the Company’s main premises at Milton Gate, 60 Chiswell Street, London EC1Y 4SA for a seven-year period from 21 December 2010 to 20 December 2017, at an annual rent and service charge of £279,150 net of VAT (includes a seven-month rent free period). Rasmala has lease commitments in Dubai, Egypt and Oman expiring in March 2017, June 2015 and February 2015 respectively. These cost the Group £585,062, £67,418 and £9,244 annually. Future rentals are as follows:

2014 2013

£ £

Group

Within one year 902,833 1,293,227

One to five years 1,284,043 3,416,729

2,186,876 4,709,956

2014 2013

£ £

Company

Within one year 280,196 198,958

One to five years 552,715 908,628

832,911 1,107,586

35. Contingent liabilities and commitments

No contingent liabilities or contractually obligatory commitments are outstanding as at the reporting date and up to the date that these financial statements were approved, other than the operating lease obligations disclosed in note 34 and items listed below.

a) As at 31 December 2014 the Company had undrawn funding commitments of £6.4m (2013: £1.3m) to the Rasmala Leasing Fund. Upon exiting of EIIB’s investment in Rasmala Leasing Fund in 2014, EIIB’s commitment to fund Rasmala Leasing Fund has increased to its full commitment of £6.4m as at the date of this report.

b) Rasmala closed off its contingent liability in the form of financial guarantees which are issued to the UAE

markets in 2014 (31 December 2013: £3.3m) against fixed deposits under lien (31 December 2013: £3.3m).

c) Rasmala’s outstanding £3.6m loan from Commercial Bank of Dubai is agreed to be repaid in semi-annual

instalments of £1.8m each, up to December 2015.


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36. Assets and liabilities in foreign currency The Company manages its exposure to foreign exchange rate fluctuations by matching assets with liabilities in the same currency as far as possible, with similar maturities and the use of appropriate off-balance sheet instruments.

Group 2014 2013

£ £

Denominated in sterling 54,291,476 49,558,702

Denominated in currencies other than sterling 84,113,739 104,044,791

Total assets 138,405,215 153,603,493




Company 2014 2013

£ £



Total assets 129,719,487 170,924,952


Denominated in currencies other than sterling 239,524 41,459,151


The Group’s foreign exchange arrangements, while providing effective economic hedges for the purposes of Group risk management, do not qualify for hedge accounting under the specific requirements of IAS 39 Financial instruments: Recognition and measurement and are therefore treated as derivatives held for trading. Accordingly, the effects of such arrangements have not been reflected against foreign currency denominated balances in the table above. 37. Subsidiaries

Subsidiaries Principal activity of registration

% held

% held

Country

2014 2013

Rasmala Holdings Limited

Asset Management and Investment banking

76.3 76.3 UAE

Rasmala Egypt Asset Management

Asset Management 100. 51.0 Egypt

Cordoba Capital (UK) Ltd Sharia’a advisory 50 - Cayman Islands

EIIB Investco Limited Investment Holding 100 - Cayman Islands

All of the above subsidiaries and sub-subsidiaries of the Group are consolidated.


65

Investments in subsidiaries

Company 2014 2013

£ £

At 1 January 66,378,641 60,903,627

Additions - 5,711,577

Disposal (40,869,014) -

Fair value gain during the year 872,567 875,875

Exchange gain/(loss) / other movement 4,244,396 (1,112,438)

At 31 December 30,626,590 66,378,641

37.1 Acquisition of a controlling stake in Rasmala Holdings Limited (“Rasmala”) Rasmala is the Holding Company of a financial services group operating in the Middle East, specialising in asset management. Rasmala Investment Bank Limited was one of the first regional investment banks to be licensed by the Dubai Financial Services Authority. EIIB owns a majority (67%) of management shares and a majority ordinary shares (76.3% at 31 Dec 2014) in Rasmala. The total Comprehensive income and loss for the periods in the consolidated statement of comprehensive income since the acquisition date contributed by Rasmala amounted to a gain of £0.3m in 2014 and a loss of £0.4m in 2013.

37.2 Additional acquisition of Rasmala Non-Controlling Interest

On 23 December 2013 EIIB acquired a further 42,307,982 of Rasmala shares for a consideration of 152,308,735 EIIB ordinary shares (note 28). The value of these shares was assessed by the management at £5,711,578 which represents a price of 3.75p per share. With this further acquisition EIIB currently holds 165,479,652 of Rasmala’s total ordinary shares that represents 76.3% of its total shares. The carrying values of the controlling and non-controlling interests are adjusted to reflect the change in interests in the subsidiary. The resulting £3,451,723 difference between the value of consideration paid, of £5,711,578 and the value of consideration received from Non-controlling Interest, of £2,259,854 is recognised directly in equity and attributed to the owners of the Company. No adjustment is made to the goodwill and no loss is recognised in the consolidated income statement.

37.3 Goodwill

2014 2013

Group £ £

Opening book value 10,165,750 11,546,400

Goodwill created on acquisition of Rasmala Holdings Limited - -

Reallocation of NCI (note 38) - (1,216,987)

Foreign exchange gain/(loss) 619,004 (163,663)

Closing book value 10,784,754 10,165,750

Goodwill created on the Rasmala acquisition is principally attributable to the value expected to be derived from the acquired group through future growth, additional business from new clients and the operational synergies and savings derived therefrom.

37.4 Impairment testing of goodwill

Testing goodwill for impairment involves a significant amount of estimation. This includes the identification of independent cash generating units and the allocation of goodwill to these units based on which units are expected to benefit from the acquisition. The allocation is reviewed following business reorganisation. Cashflow projections


66

necessarily take into account changes in the market in which a business operates including the level of growth, competitive activity and the impacts of regulatory change. Determining both the expected pre-tax cashflows and the risk adjusted interest rate appropriate to the cash generating unit require the exercise of judgement. The estimation of pre-tax cashflows is sensitive to the periods for which detailed forecasts are available and to assumptions regarding the long term sustainable cashflows. No impairment charges were recognised during the year. Key assumptions The key assumptions used for impairment testing of goodwill created on the acquisition of Rasmala are stated below.

Rasmala Group was considered to be one cash generating unit (‘CGU’)

The recoverable amount of the CGU has been determined using cashflow predictions based on financial budgets approved by management and covering a five-year period, with a terminal growth rate of 2.5% (2013: 2.5%) applied thereafter

The forecast cashflows have been discounted at a pre-tax rate of 11.1% (2013: 10.9%) Based on these assumptions, the recoverable amount exceeded the carrying amount. Management believes that any reasonably possible change in the key assumptions above would not cause the recoverable amount of the Goodwill to fall below the carrying value.

38. Non-controlling interest

2014 2013

Group £ £

Start of year 4,042,292 9,170,594

Acquisition of non-controlling interest (note 37.2) (696,109) (2,259,854)

Gain/(loss) for the year 8,089 (165,009)

Other comprehensive loss for the year - (98,094)

Distributions - (1,086,807)

Disposal of Subsidiary (314,345) -

Reallocation of NCI (note 37.3) - (1,216,987)

Foreign exchange loss (212,680) (301,551)

End of year 2,827,247 4,042,292

39. Related party disclosures Related parties include group companies including subsidiaries, directors and other key management personnel and close family members of directors and other key management personnel. A related party transaction is a transfer of resources, services or obligations between related parties Management compensation for key management personnel is also included in the related party transaction.

39.1 Compensation of key management personnel

2014 2013

£ £

Short-term employee benefits 715,836 898,565

Compensation for loss of office - 35,000

Post-employment pension costs - 10,500

715,836 944,065


67

Executive

Salary Benefits

in kind Pension

contributions

Compen-sation for

loss of office

Total 2014

Total 2013

£ £ £ £ £ £

Zulfi Caar Hydari 424,702 25,035 - - 449,737 423,867

Keith McLeod - - - - - 239,436

424,702 25,035 - - 449,737 663,303

Non-executive

Fixed fees Attendance

fees Total 2014

Total 2013

£ £ £ £

Abdallah Y Al-Mouallimi 32,000 8,000 40,000 44,826

Aabed Al Zeera - - - 31,667

Michael Willingham-Toxvaerd 40,000 3,000 43,000 44,000

Mohammed Al Sarhan 60,599 6,000 66,599 99,766

John Wright 28,500 7,000 35,500 38,167

Martin Barrow 25,000 6,000 31,000 22,336

186,099 30,000 216,099 280,762

In addition to the above, Michael Willingham-Toxvaerd had Consultancy arrangement with EIIB Plc and charged £50,000 during 2014.

39.2 Other Directors’ interests

The Company enters into transactions, arrangements and agreements involving Directors and their related concerns in the ordinary course of business. Management believes that all such business is conducted on an arms-length basis.

(a) HBG Group owns 16.11% of EIIB ordinary shares, and a number of its partners and connected parties hold

key managerial positions and directorships at the EIIB Group.

Abdallah Al-Mouallimi – Chairman of EIIB.

Zulfi Caar Hydari – CEO of EIIB and Group CEO of Rasmala group.

Michael Willingham-Toxvaerd – Non-Executive Director of EIIB.

Imtiaz Hydari – Chairman of Rasmala. There were no payments made by EIIB to HBG in 2014. EIIB settled £442,062 of HBG consultancy charges during 2013. This amount was accrued in the 2012 financial statements. £192,592 is accrued in 2014 financial statements for Mr. Imtiaz Hydari for the services he rendered as the Chairman of Rasmala. He drew £208,705 from the Group during 2013. Other payments made to HBG group by Rasmala during 2014 are £46,907 (2013:£51,523).

(b) Full impairment provision was created in 2011 by Rasmala of £3.8m, relating to a receivable from iHilal Baghlaf Development Company, a related party, which represents accrued management fees in connection with a real estate project based in Dubai. An amount of £1.0m is reversed from such provision and reflected in 2014 financial statements.

39.3 Intra Group transactions

(a) The Company has accepted Wakala deposits from EIIB InvestCo, EIIB ServiceCo 3 WLL and Rasmala Investment Saudi during the year on an arms-length basis. Deposits outstanding as at 31 December 2014 amount to £Nil (2013: £38.2m). As at 31 Dec 2014, the outstanding Wakala deposits from these entities stood at £Nil (2013: £36.9m) and £Nil (2013: £0.7m) respectively. The respective


68

profit accruals on these were £Nil (2013: £159k) and £Nil (2013: £1k). The Company has entered into a commodity murabaha agreement with Rasmala Holdings Limited during the year. Outstanding principal as at 31 December 2014 was £1.9m (2013: £Nil) and the profit accrual was £40k (2013: £Nil)

(b) The following intercompany transactions between EIIB and Rasmala took place during the year: 2014

2013

Charged by Rasmala £ £

Fee for managing EIIB's sukuk portfolio and funds 96,651 168,910

Advisory services 633,769 498,275

Investment banking fee share (183,911) 90,769

Salary recharges 76,053 77,140

Other recharges 115,875 75,127

Total 738,437 910,221

(a) The following intercompany charges were made by Rasmala from the three funds of EIIB (that are

consolidated to the Group financial statements):

2014 2013

Charged by Rasmala £ £

Management fees - 181,614

Total - 181,614

(b) The following intercompany payments were made by the three EIIB funds (that are consolidated to the Group financial statements) to EIIB:

2014 2013

Paid to EIIB £ £

Fees - 119,498

Total - 119,498

39.4 Transaction with non-controlling interests

During 2014, Rasmala acquired the 49% NCI of its subsidiary, Rasmala Egypt Asset Management, thereby increasing its stake to 100%. £1,773,769 was paid as purchase consideration towards this buy-out of NCI share of £0.8m effective 31

st December 2013.

During 2014, Rasmala exited from its Brokerage entity along the lines of its vision, for £0.6m for its shares and intercompany receivables On 23 December 2013 EIIB acquired a further 42,307,982 of Rasmala shares for a consideration of 152,308,735 EIIB ordinary shares to the other shareholders in Rasmala. The value of these shares was assessed by the management at £5,711,578 which represents a price of 3.75p per share (note 37.2). None of the parties listed in note 39.1 and 39.2 receive EIIB shares on this transaction. Rasmala shareholders agreed that the shares would be issued to their pooled investment vehicles, Fortek Investments Ltd and Vallford Limited. These SPVs comprised individuals who are employees of Rasmala. In connection with this transaction, Rasmala created an equity reserve of £1,194,790 as required by accounting standards in connection with a share for share exchange. The equity reserve has been reflected in the Group accounts and is split across group and non-controlling interest as described in the Consolidated Statement of Changes in Equity.


69

39.5 Other related party transactions

Management considers all above transactions with related parties have been conducted at an arm’s-length basis. 40. Valuation of assets measured at fair value The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument

Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs

This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using valuation techniques. Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark rate of returns, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates and net asset valuations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm's length. The Group has an established control framework with respect to the measurement of fair values. This framework includes independent price verification and reporting by the Group’s Risk department to the Chief Executive Officer, and the Group’s Risk and Audit committees. The Risk department has overall responsibility for independently verifying the transactions, assets and all significant fair value measurements. The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised. During 2013, certain investments in funds and private equity financial assets were transferred from Level 3 to Level 2 principally due to improved transparency of market prices as a result of market transactions in these instruments.


70

Group

Company

The above table does not include financial instruments within the ‘Assets held for sale’ and ‘Liabilities held for sale’ categories.

Group

Company

The above table does not include financial instruments within the ‘Assets held for sale’ and ‘Liabilities held for sale’ categories.

At 31 December 2014 Level 1 Level 2 Level 3 Total

Assets £ £ £ £

Investments in funds designated at fair value 4,126,547 21,720,626 - 25,847,173

Available-for-sale securities – sukuk - 22,471,325 - 22,471,325 Private equity financial assets designated at fair value - 4,042,702

12,650,997 16,693,699

Fair value of foreign exchange arrangements - 24,394 - 24,394

4,126,547 48,259,047 12,650,997 65,036,591

Liabilities


- 954,329 - 954,329


Assets £ £ £ £

Investments in funds designated at fair value - 21,720,625 - 21,720,625

Available-for-sale securities – sukuk - 22,471,325 - 22,471,325

Investments in subsidiaries - - 30,626,590 30,626,590


- 44,216,344 30,626,590 74,842,934

Liabilities


- 954,329 - 954,329


Assets £ £ £ £

Financial assets designated at fair value 6,466,921 20,799,553 - 27,266,475

Available-for-sale securities – sukuk - 22,431,090 4,026,684 26,457,774 Private equity financial assets designated at fair value - 2,788,071

13,076,594 15,864,665

Fair value of foreign exchange arrangements - 1,377,797

- 1,377,797

6,466,921 47,396,511 17,103,278 70,966,711

Liabilities


- 2,819 - 2,819


Assets £ £ £ £

Available-for-sale securities – sukuk - 22,431,090 4,026,684 26,457,774

Investments in funds designated at fair value - 18,776,878 4,543,467 23,320,345

Investments in subsidiaries - - 66,378,641 66,378,641

Fair value of foreign exchange arrangements -

1,377,797

- 1,377,797

- 42,585,765 74,948,792 117,534,557

Liabilities


- 2,819 - 2,819


71

The following table reconciles the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy.

Group 2014

Available-for-sale securities –

sukuk

Investments in funds designated

at fair value

Private equity financial assets

designated at fair value

Total

Balance at 1 January 4,026,684 - 13,076,594 17,103,278

Transfer - - -

Purchases/Additions 1,505,890 - - 1,505,890

Disposal/Redemptions (974,322) (253,774) - (1,228,096)

Transfers* (4,573,284) - - (4,573,284)

Total gains or losses: 15,032 253,774 (878,764) (609,958)

- in income statement - 253,774 (878,764) (624,990) - in other comprehensive

income 15,032 - - 15,032

Settlements and other movements - - 453,167 453,167

Balance at 31 December - - 12,650,997 12,650,997

Company 2014


sukuk


at fair value

Investments in Subsidiaries Total

Balance at 1 January 4,026,684 4,543,467 66,378,641 74,948,792


Disposals/Redemptions (974,322) (4,797,241) (40,869,013) (46,640,576)

Transfers* (4,573,284) - - (4,573,284)

Total gains or losses: 15,032 253,774 872,567 1,141,373

- in income statement - 253,774 872,567 1,126,341 - in other comprehensive

income 15,032 - - 15,032

Settlements and other movements - - 4,244,395 4,244,395

Balance at 31 December - - 30,626,590 30,626,590

*Sukuks previously treated as level 3 have been transferred to level 2

Group 2013


sukuk


at fair value

Private equity financial assets

designated at fair value

Total


Transfer (3,266,046) 1,026,092 (2,239,954)


Disposals/Redemptions (378,203) - - (378,203)

Total gains or losses: 14,183 - 1,923,073 1,937,256

- in income statement - - 1,923,073 1,937,256 - in other comprehensive

income 14,183 - - 14,183

Settlements and other movements (30,055) - (385,687) (415,742)

Balance at 31 December 4,026,684 - 13,076,594 17,103,278


72

Company 2013


sukuk


at fair value

Investments in Subsidiaries Total


Purchases/Additions 3,025,627 3,570,240 5,711,577 12,307,444

Disposals/Redemptions (378,203) - - (378,203)

Total gains or losses: 14,183 - 875,875 890,058

- in income statement - - 875,875 875,875 - in other comprehensive

income 14,183 - - 14,183

Settlements and other movements (30,055) (156,440) (1,112,438) (1,298,933)

Balance at 31 December 4,026,684 4,543,467 66,378,641 74,948,792

Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measures of fair value. For fair value measurements in Level 3, changing one or more of the assumptions used, to reasonably possible alternative assumptions would have the following effects:

Effect on profit or loss

Effect on comprehensive

income

Group Favourable (Unfavourable) Favourable (Unfavourable)

31 December 2014 £ £ £ £

Private equity financial assets designated at fair value **

1,265,100

(1,265,100)

- -

1,265,100 (1,265,100) - -



income

Company Favourable (Unfavourable) Favourable (Unfavourable)

31 December 2014 £ £ £ £

Investments in subsidiaries *** 612,532 (612,532) - -

612,532 (612,532) - -

Appropriate change for each asset measurement based on * applicable % change to the market price (5%) ** applicable % change to the market price (10%) *** 2% change in fair value


Effect on comprehensive income

Group Favourable (Unfavourable) Favourable (Unfavourable)

31 December 2013 £ £ £ £

Available-for-sale securities – sukuk * -

- 201,334 (201,334) Private equity financial assets designated at fair value ** 1,307,659 (1,307,659) - -

1,307,659 (1,307,659) 201,334 (201,334)


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income

Company Favourable (Unfavourable) Favourable (Unfavourable)

31 December 2013 £ £ £ £

Available-for-sale securities – sukuk *

-

- 201,334 (201,334) Investments in funds designated at fair value *

227,173

(227,173) - -

Investments in subsidiaries *** 1,327,573 (1,327,573) - -

1,554,746 (1,554,746) 201,334

(201,334)

Appropriate change for each asset measurement based on * applicable % change to the market price (5%) ** applicable % change to the market price (10%) *** 2% change in fair value Inputs are inter-related as they are influenced by market conditions and these inter-relationships may mitigate the impact on value if these inputs moved in opposite directions. The percentages used in the sensitivity analysis represents the Board of Director’s assessment of the reasonable possible change in them at the reporting date.

41. Risk management

41.1 Introduction

The Board of Directors have set an overall risk framework in line with risk appetite, documented within a set of risk management policies which are approved by the Board or mandated risk committees. Ultimate responsibility for risk resides with the Board of Directors. The Company is exposed mainly to credit risk, market risk, operational risk and liquidity risk.

(1) Structure

The Board of Directors is ultimately accountable for risk within the Company and for ensuring a strong control environment. The Board has mandated a number of committees tasked with managing and monitoring risks within the Company. (a) Board of Directors The Board of Directors has overall responsibility for risk management and for approving the risk appetite, tolerances, strategies and principles. (b) Board Risk Committee (“BRC”) The BRC is a sub-committee of the Board of Directors which assists the Board in fulfilling its risk management responsibilities from day to day. The committee’s responsibilities include advising on risk strategy, providing oversight and challenge supporting a risk culture, reviewing and approving risk policies and assessing, reviewing, and approving all exposures that are within its delegated authority. (c) Executive Management Committee (“EMC”) The EMC assists the Chief Executive Officer in performing his duties. These include consideration of the development and implementation of strategy, operational plans, policies and budgets as well as the assessment and control of risk (d) Risk Management Committee (“RMC”) The RMC assists the Executive Management Committee and the Board of Directors in managing and controlling risk in all areas of the Company, through proactive identification, measurement, evaluation, control, monitoring, and reporting of:


74

Credit risk

Market risk

Operational risk including other residual risks

Liquidity risk

(e) Asset and Liability Committee (“ALCO”) The ALCO is constituted to assist the Executive Management Committee and the Board in proactively managing the capital, liquidity, assets and liabilities of the Company. It is also mandated to manage the risk-reward relationship that exists between solvency, liquidity and profit rate risk. (f) Internal Audit Internal Audit’s primary role is to provide assurance to the Audit Committee and the Board that the risk management, internal control, corporate governance and other key business processes and controls, as appropriate, are operating effectively and meeting the ongoing and changing needs of the Company. This includes providing management with independent appraisals of systems of internal control and supporting development of a sound control culture throughout the Company. (2) Measurement and reporting The risks within the Company are assessed using quantitative and qualitative methodologies. Losses are calculated using assumptions based on consideration of the economic environment in which the Company operates, stress scenarios and conditions in the Islamic banking market. Risk is managed by a set of comprehensive limits, triggers and processes. These reflect the business strategy, risk appetite and market environment in which the Company operates and its overall risk capacity in relation to capital and regulatory requirements set by the UK Regulatory Authorities. Information is compiled by the Risk department from all business areas and is then presented to the Executive Management Committee and Board on a monthly basis. The Risk Report includes detailed reporting of credit exposures by internal ratings, geographical regions, industry sectors, asset maturities, liquidity, and market risk exposures for profit rates, foreign exchange, money and capital market instruments and the results of the stress tests. Daily reports on credit exposures and market risks are compiled and distributed by the Risk department to senior management. (3) Risk mitigation Risk mitigants are used where possible. However the Company cannot use conventional derivative products to mitigate risk. Consequently as part of its overall risk management framework the Company utilises Sharia’a compliant products to hedge currency risk and profit rate risk. (4) Concentration risk Concentration risk arises when a number of counterparties are engaged in similar business activities, or activities in the same geographic regions, or have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by a change in economic, political or other conditions. In order to avoid excessive concentration risk the Company has specific guidelines and limits in place to restrict large exposure to Group, Issuer, Country and Industry sector exposures.

41.2 Credit risk

Credit risk is the risk that the Company’s customers, clients or counterparties will not be able or willing to repay capital and/or profit or otherwise be unable to meet their contractual obligations under credit facilities or in respect of other agreements.


75

The Company has a standard credit approval process for all customers, clients and counterparties and all are assigned an internal risk rating. Exposures are subject to regular review. All exposures are allocated to a country within a pre-approved country limit.

(1) Exposure

Exposures by asset class were: 2014

2014

2013

2013

Group

Company

Group

Company

£

£

£

£ Assets carried at amortised cost Cash and balances with banks

6,561,726

5,053,233

9,488,406

3,330,188 Due from financial institutions

34,056,436

34,225,916

40,244,300

38,001,173

- Wakala 11,500,000 11,500,000 5,900,139 5,900,139

- Treasury Bills 1,756,436

-

-

-

- Murabaha 20,800,000 22,725,916 34,344,161 32,101,034

Financing arrangements 7,807,396

7,807,396

11,450,067

11,450,067 Assets carried at fair value Available for sale securities - sukuk 22,471,325 22,471,325 26,457,774 26,457,774 Private equity financial assets available for sale 16,693,699 - 15,864,665 - Assets held for sale Assets held for sale 91,491 - 910,109 - Leased Assets held for sale - - 4,368,976 4,543,467

Fair value through income statement QE investments designated FVTPL - - 6,466,921 - Financial assets designated at fair value 25,847,173 21,720,625 5,633,149 18,776,878 Fair value through profit and loss securities -sukuk

- - 15,166,405 -

Fair value of foreign exchange agreements 24,394 24,394 1,377,797 1,377,797 Investments in subsidiaries - 30,626,590 - 66,378,641 Accrued income 1,673,630 - 1,742,156 - Total credit exposure

115,227,270

121,929,479

139,170,725

170,315,985


76

(2) Geographical regions

Exposures by geographical region were 2014 2014 2013 2013 Group Company Group Company £ £ £ £

GCC countries 61,567,992 71,435,163

67,849,155

120,298,652

Bahrain 154,140 154,140 7,382,235 51,496,830

UAE 57,764,717 68,012,303 44,440,717 63,504,866

Kuwait - - 110,671 -

Saudi Arabia 380,415 - 8,589,770 -

Qatar 3,268,720 3,268,720 7,325,762 5,296,956

Middle East (Other) 3,497,300 - 7,424,707 3,024,443

Europe 24,361,320 35,983,210 31,092,892 31,092,890

USA 13,500,000 13,500,000 21,531,818 15,900,000

Turkey 2,206,180 1,011,106 2,807,599 -

Asia 3,715,948 - 3,626,467 -

Australasia - - 288,180 -

Africa 6,378,530 - 4,549,907 -

Total credit exposure 115,227,270 121,929,479 139,170,725 170,315,985

(3) Industry Sector

Exposures by industry sector were 2014

2014

2013

2013 Group

Company

Group

Company

£ £ £ £

Financial services 47,273,198 47,690,621 73,786,507 55,812,173

GCC banks 18,876,158 19,293,581 25,341,579 16,294,089

Europe/Other banks 28,397,040 28,397,040 48,444,928 39,518,084

Manufacturing & engineering 1,391,539 1,391,539 6,568,394 1,328,250

Government 5,515,098 5,515,098 11,158,646 7,368,997

Real estate 11,303,670 8,434,965 12,601,017 7,031,900

Other financial 36,646,111 56,489,861 21,306,396 92,724,596

Oil & gas - - 139,661 -

Mining 4,042,702 - 2,788,070 -

Food 2,563,120 - 299,156 -

Healthcare - - 92,029 -

Agricultural - - 220,523 -

Information & Communication technology 2,931,610 - 2,763,348 -

Other 3,560,222 2,407,396 7,446,978 6,050,069

Total credit exposure 115,227,270 121,929,480 139,170,725 170,315,985

(4) Credit quality

The credit quality of financial assets is managed by the Company using internal credit ratings which are mapped to external credit rating agencies’ ratings including Fitch, Moody’s and Standard & Poor’s. The table below shows the credit quality of the portfolio based on the Company’s internal credit rating. The Company’s Risk Framework guides the firm as to what and how much credit risk to take. Adoption of and adherence to its Risk Appetite Statement and Tolerance Policy provides the principles to ensure the bank’s risk culture is consistent with its overall strategy and informs business development and risk decision-making.


77

Investment Grade: The company has classified financial instruments issued by financial institutions which were rated at least BBB-, Baa3 or BBB- (2013: same) by Standard and Poor’s, Moody’s or Fitch, respectively, as investment grade. Non-Investment Grade: Financial instruments issued by financial institutions rated below BBB-, Baa3 or BBB- by Standard and Poor’s, Moody’s or Fitch, respectively, have been classified as non-investment grade.

Investment Grade

Non-Investment

Grade

Total

£

£

£

2014 Group

Cash and balances with banks 6,034,874 526,852 6,561,726

Available for sale securities -sukuk 12,892,824

9,578,501 22,471,325

Assets held for sale -

91,491 91,491


5,400,000 7,807,396

Financial assets designated at fair value 2,563,120

23,284,053 25,847,173

Fair value of foreign exchange agreements 24,394

- 24,394

Due from Financial Institutions 34,056,436

- 34,056,436

Private equity financial assets designated at fair value 1,152,828

15,540,871 16,693,699

Accrued Income -

1,673,630 1,673,630

Total credit exposure 59,131,872

56,095,398

115,227,270

2014 Company

Investment Grade

Non-Investment

Grade

Total £

£

£


Available for sale securities - sukuk 12,892,824 9,578,501 22,471,325


5,400,000 7,807,396

Financial assets designated at fair value -

21,720,625 21,720,625

Fair value of foreign exchange agreements 24,394

- 24,394

Due from Financial Institutions 34,225,916 - 34,225,916

Investment in subsidiaries -

30,626,590 30,626,590

Total credit exposure 54,602,504

67,326,975

121,929,479

Investment Grade

Non-Investment

Grade Total 2013 Group £ £ £


Available for sale securities -sukuk 20,522,266 5,935,508 26,457,774

Assets held for sale - 910,109 910,109

Leased assets held for sale - 4,368,976 4,368,976


Financial assets designated at fair value 18,486,651 8,779,824 27,266,475

Fair value of foreign exchange agreements 1,305,900 71,897 1,377,797

Due from Financial Institutions 36,084,743 4,159,557 40,244,300

Private equity financial assets designated at fair value 1,187,613 14,677,052 15,864,665

Accrued Income - 1,742,156 1,742,156

Total credit exposure 93,117,753 46,052,972 139,170,725


78

Investment

Grade

Non-Investment

Grade Total 2013 Company £

£

£


Available for sale securities - sukuk 20,522,266 5,935,508 26,457,774

Leased assets held for sale - 4,543,467 4,543,467


Financial assets designated at fair value - 18,776,878 18,776,878

Fair value of foreign exchange agreements 1,305,900 71,897 1,377,797

Due from Financial Institutions 35,001,173 3,000,000 38,001,173

Investment in subsidiaries - 66,378,641 66,378,641

Total credit exposure 66,201,700 104,114,285 170,315,985

(5) Aged analysis of impaired financial assets

No financial assets are past due or impaired at the year-end (2013: Nil). The Group holds no collateral in respect of financial assets. 41.3 Market risk

The Company had no trading portfolio during 2014 (2013: Nil). The commentary below relates to banking book positions.

41.3.1 Profit Rate Risk

Profit rate risk is the risk of loss arising from changes in profit rates. The Company manages profit rate risk by using maturity buckets to calculate the net profit rate gap whilst considering floating, fixed and non-sensitive rates of return. As outlined under Sensitivity to fair value of instruments below, the impact of these gaps on the Group and Company’s equity is not considered to be material. 2014 Profit Rate profile (£000) Rate profile band Group 0-1 2-3 4-6 7-12 1-5 Over 5 Assets Total month months months months years years Fixed Rate Items 63,722 21,564 15,145 7,156 - 19,857 - Variable Rate Items 676 - - - - 676 - Non rate Sensitive 50,829 10,161 488 - 9,935 - 30,245 Total Assets 115,227 31,725 15,633 7,156 9,935 20,533 30,245 Liabilities Fixed Rate Items - - - - - - - Variable Rate Items 6,630 3,000 - - 3,630 - - Non rate Sensitive - - - - - - - Total Liabilities 6,630 3,000 - - 3,630 - - Net Gap 28,725 15,633 7,156 6,305 20,533 30,245 Cumulative Gap 28,725 44,358 51,514 57,819 78,352 108,597


79

2014 Profit Rate profile (£000) Rate profile band Company 0-1 2-3 4-6 7-12 1-5 Over 5 Assets Total month months months months years Years Fixed Rate Items 63,828 21,500 15,145 7,326 - 19,857 - Variable Rate Items 676 - - - - 676 - Non rate Sensitive 57,425 5,078 - - - - 52,347 Total Assets 121,929 26,578 15,145 7,326 - 20,533 52,347 Liabilities Fixed Rate Items - - - - - - - Variable Rate Items - - - - - - - Non rate Sensitive - - - - - - - Total Liabilities - - - - - - - Net Gap 121,929 26,578 15,145 7,326 - 20,533 52,347 Cumulative Gap 26,578 41,723 49,049 49,049 69,582 121,929

2013

Profit Rate profile (£000) Rate profile band

Group 0-1 2-3 4-6 7-12 1-5 Over 5

Assets Total month months months months years years

Fixed Rate Items 88,570 32,365 8,000 - 19,522 8,434 20,249

Variable Rate Items 1,845 - - - 844 1,001 -

Non rate Sensitive 48,756 19,830 1,407 - 5,543 8,723 13,253

Total Assets 139,171 52,195 9,407 - 25,909 18,158 33,502

Liabilities

Fixed Rate Items 4,280 4,026 - - 254 - -

Variable Rate Items 8,721 5,223 - 1,749 1,749 - -

Non rate Sensitive - - - - - - -

Total Liabilities 13,001 9,249 - 1,749 2,003 - -

Net Gap 42,946 9,407 (1,749) 23,906 18,158 33,502

Cumulative Gap 42,946 52,353 50,604 74,510 92,668 126,170


80

2013

Profit Rate profile (£000) Rate profile band

Company 0-1 2-3 4-6 7-12 1-5 Over 5

Assets Total month months months months years years

Fixed Rate Items 74,064 33,026 8,000 - 4,356 28,682 -

Variable Rate Items 1,845 - - - 844 1,001 -

Non rate Sensitive 94,407 4,708 - - 48,454 - 41,245

Total Assets 170,316 37,734 8,000 - 53,654 29,683 41,245

Liabilities

Fixed Rate Items 42,511 14,742 15,888 9,676 2,205 - -

Variable Rate Items - - - - - - -

Non rate Sensitive - - - - - - -

Total Liabilities 42,511 14,742 15,888 9,676 2,205 - -

Net Gap 22,992 (7,888) (9,676) 51,449 29,683 37,691

Cumulative Gap 22,992 15,104 5,428 56,877 86,560 124,251

Sensitivity to income

Profit rate risk is managed within profit rate gap limits on a daily basis. The sensitivity of the Income Statement to various profit rate scenarios is considered on a daily basis. An analysis of sensitivity to an increase or decrease in market profit rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows at the financial year end. The percentages used in the sensitivity analysis below represent the Board’s assessment of the reasonable possible change in profit rates at the reporting date.

2014

Group & Company

Change in rates (Basis points)

-100 bp -50 bp -25 bp +25 bp +50 bp +100bp

Effect on income statement £ 000

-368 -193 -106 107 214 428

2013

Group


-100 bp -50 bp -25 bp +25 bp +50 bp +100bp


-181 -171 -101 +101 +203 +405

Company


-100 bp -50 bp -25 bp +25 bp +50 bp +100bp


-104 -95 -22 +22 +44 +88


81

Sensitivity to fair value of instruments

While the Company does not hold or trade in profit rate products, the fair value of financial instruments held will be affected by current market forces including profit rates. The table below sets out the sensitivity of the Group’s and Company’s equity to changes in fair values of related instruments assuming all other factors remain constant. The percentages used in the sensitivity analysis below represent the Board’s assessment of the reasonable possible change in profit rates at the reporting date.

2014

Group & Company

2013

Group & Company

41.3.2 Currency Risk

Currency risk is the risk of loss arising from changes in foreign exchange rates. The Board has set limits on open currency positions and these positions are monitored daily to ensure positions are maintained within the established limits. The Company does not take significant currency positions as all positions other than the reporting currency are substantially covered. Small residual currency exposures remain which are well within the Board approved limits. The percentages used in the sensitivity analysis below represent the Board’s assessment of the reasonable possible change in currency rates at the reporting date.

2014

Group

Bank

2013

Group


-100 bp -50 bp -25 bp +25 bp +50 bp +100bp

Effect on fair value (equity) £ 000

+929 +465 +232 -232 -465 -929


-100 bp -50 bp -25 bp +25 bp +50 bp +100bp

Effect on fair value (equity) £ 000

+1,098 +549 +275 -275 -549 -1,098

Change in currency rates (%)

-10% -5% -2% +2% +5% +10%


-1343 -672 -269 +269 +672 +1343


-10% -5% -2% +2% +5% +10%


-77 -39 -15 +15 +39 +77


-10% -5% -2% +2% +5% +10%


-359 -180 -72 +72 +180 +359


82

Company

41.3.3 Equities Risk Equities risk is the risk of loss arising from changes in equity prices. In addition to investments made in equity funds, EIIB also held a portfolio of MENA equities as at December 2014 (2013: none). Exposure comprises direct exposure to this discretionary portfolio and indirect exposure to equities held by a fund all of which are separately managed and administered. The impact of a reasonable price shift in the Group and Company’s equity investment is not deemed significant in the context of the figures reported in the relevant statement of financial position. The analysis is based in the assumption that the price of these investments had increase/decreased by 5% at the reporting date with all other variables being constant.

41.3.4 Commodities Risk

Commodities risk is the risk of loss arising from changes in commodity prices. No commodities were held during 2014 (2013: none). Investments are made in trade finance funds from time to time. Exposure to a trade finance fund may include indirect exposure to commodities held by a fund which is separately managed and administered.

41.4 Operational risk

Operational risk is the risk of loss arising from inadequate or failed systems, human error and fraud, processes and external events. Operational risks can result in damage to reputation, have legal or regulatory implications or lead to financial loss. The Company has implemented a control framework to mitigate these risks. Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes, including the use of internal audit. Risk registers and matrices have been developed for each department which form part of a quality self-assessment process.

41.5 Liquidity risk

Liquidity risk is the risk that the Company will be unable to meet its payment obligations when they fall due. To limit this risk the Company manages the maturities of its assets and liabilities and its cash flows on a daily basis and maintains a portfolio of short-term bank deposits. Liquidity risk management is the responsibility of ALCO.

41.5.1 Liquidity profile

Liquidity is managed based on contractual cash flows. Liquidity risk is quite minimal since EIIB no longer takes deposits and is lowly leveraged. The Company’s gross cash outflows are largely self-liquidating from offsetting transactions. Treasury manages any resulting liquidity risk by utilising some or all of the following techniques:

matching cash inflows with expected cash outflows using specific cash flow projections or more general asset and liability matching techniques such as duration matching;

maintaining sufficient cash resources;

maintaining a prudent level of investments in higher credit-quality securities with deep and liquid markets; and

monitoring investment concentrations and restricting them where appropriate, for example, by debt issues or issuers.

The Group and Company had the following liquidity profiles that are representative of its contractual undiscounted cash flows and which include forward foreign exchange commitments:


-10% -5% -2% +2% +5% +10%


-91 -45 -18 +18 +45 +91


83

(Foreign currency amounts in sterling equivalents)

2014

Cash flow band Liquidity profile

(£000)

0-1

2-3

4-6

7-12

1-5

Over 5

Group Total

month

months

months

months

years

years

GBP

Assets 127,089

44,817

70,235

5,400

4,043

2,594

-

Liabilities 83,348

21,289

62,059

-

-

-

-

Net 43,741

23,528

8,176

5,400

4,043

2,594

-

USD

Assets 62,664

6,008

4,345

-

4,127

17,939

30,245

Liabilities 10,318

6,688

-

-

3,630

-

-

Net 52,346

(680)

4,345

-

497

17,939

30,245

Euro

Assets 21

21

-

-

-

-

-

Liabilities -

-

-

-

-

-

-

Net 21

21

-

-

-

-

-

GCC currencies

Assets 2,849

1,175

-

-

1,674

-

-

Liabilities -

-

-

-

-

-

-

Net 2,849

1,175

-

-

1,674

-

-

Other currencies

Assets 2,845

510

488

1,756

91

-

-

Liabilities 124

124

-

-

-

-

-

Net 2,721

386

488

1,756

91

-

-

Total

Assets 195,468

52,531

75,068

7,156

9,935

20,533

30,245

Liabilities 93,790

28,101

62,059

-

3,630

-

-

Net 101,678

24,430

13,009

7,156

6,305

20,533

30,245


84

2013


(£000)

0-1

2-3

4-6

7-12

1-5

Over 5

Group Total

month

months

months

months

years

Years

GBP

Assets 133,048

66,442

40,210

18,208

-

8,188

-

Liabilities 87,954

35,262

34,194

18,244

254

-

-

Net 45,094

31,180

6,016

(36)

(254)

8,188

-

USD Assets 71,355

7,966

-

-

21,660

13,627

28,102

Liabilities 22,242

8,250

712

1,749

1,749

9,782

-

Net 49,113

(284)

(712)

(1,749)

19,911

3,845

28,102

Euro Assets 111

111

-

-

-

-

-

Liabilities -

-

-

-

-

-

-

Net 111

111

-

-

-

-

-

GCC currencies Assets 15,499

11,829

36

-

1,892

1,742

-

Liabilities -

-

-

-

-

-

-

Net 15,499

11,829

36

-

1,892

1,742

-

Other currencies Assets 3,209

-

852

-

2,357

-

-

Liabilities 849

-

-

-

849

-

-

Net 2,360

-

852

-

1,508

-

-

Total Assets 223,222

86,348

41,098

18,208

25,909

18,157

33,502

Liabilities 111,045

43,512

34,906

19,993

2,852

9,782

-

Net 112,177

42,836

6,192

(1,785)

23,057

8,375

33,502


85

2014


(£000)

0-1

2-3

4-6

7-12

1-5

Over 5

Company Total

month

months

months

months

years

Years

GBP Assets 123,046

44,817

70,235

5,400

-

2,594

-

Liabilities 81,299

21,289

60,010

-

-

-

-

Net 41,747

23,528

10,225

5,400

-

2,594

-

USD Assets 78,926

2,369

4,345

1,926

-

17,939

52,347

Liabilities -

-

-

-

-

-

-

Net 78,926

2,369

4,345

1,926

-

17,939

52,347

Euro Assets 21

21

-

-

-

-

-

Liabilities -

-

-

-

-

-

-

Net 21

21

-

-

-

-

-

GCC currencies Assets 176

176

-

-

-

-

-

Liabilities -

-

-

-

-

-

-

Net 176

176

-

-

-

-

-


47,383

74,580

7,326

-

20,533

52,347

Liabilities 81,299

21,289

60,010

-

-

-

-

Net 120,870

26,094

14,570

7,326

-

20,533

52,347


86

2013

Cash flow band

Liquidity profile (£000)

0-1

2-3

4-6

7-12

1-5

Over 5

Company Total

month

months

months

months

years

Years

GBP

Assets 130,214

66,915

39,691

18,208

-

5,400

-

Liabilities 87,649

35,262

33,889

18,244

254

-

-

Net 42,565

31,653

5,802

(36)

(254)

5,400

-

USD Assets 71,670

1,786

-

-

4,356

24,283

41,245

Liabilities 40,648

13,133

15,888

9,676

1,951

-

-

Net 31,022

(11,347)

(15,888)

(9,676)

2,405

24,283

41,245

Euro Assets 94

94

-

-

-

-

-

Liabilities -

-

-

-

-

-

-

Net 94

94

-

-

-

-

-

GCC currencies Assets 52,389

3,091

-

-

49,298

-

-

Liabilities 659

659

-

-

-

-

-

Net 51,730

2,432

-

-

49,298

-

-


71,886

39,691

18,208

53,654

29,683

41,245

Liabilities 128,956

49,054

49,777

27,920

2,205

-

-

Net 125,411

22,832

(10,086)

(9,712)

51,449

29,683

41,245

As at 31 December 2014 and at 31 December 2013, the Company had no contingent liabilities. As at 31 December 2014 the Company had undrawn funding commitments of £6.4m (2013: £1.3m) (note 35). 41.6 Capital management and risk The Firm’s lead regulator, the Financial Conduct Authority (previously the Prudential Regulatory Authority (“PRA”)) sets and monitors capital requirements for the Company. The Company complies with the regulatory framework in respect of regulatory capital. To calculate capital requirements for the firm, it uses the “standardised approach” for credit risk, the “standardised approach” for market risk and the “basic indicator approach” for operational risk. The Group’s capital comprises ordinary share capital, share premium, capital redemption reserve, special reserve, accumulated losses and fair value reserve subject to other regulatory adjustments. All banking operations are categorised as ‘Banking book’ business and accordingly the risk-weighted assets are calculated to reflect the varying levels of risks attached to assets. The Group’s primary objective and policy is to maintain a strong capital base so as to maintain investor, depositor and market confidence. The firm has along with its major subsidiary, Rasmala has complied with all regulatory capital requirements throughout the year.

¤


87

£000

£000

2014

2013

Group

Regulatory Capital 102,161 100,965

Total Risk Weighted Assets

123,643

116,895

Credit Risk 92,882 86,134

Market Risk 12,000 12,400

Operational Risk 18,761 18,361

Capital Adequacy Ratio 83%

86%

The current level of capital is considered to be adequate to support future growth. Capital and risk-reward management are the responsibility of ALCO, which monitors capital and risk limits for the various areas of the Company’s business. Currently capital is not a constraint on growth. 42. Post reporting date events The Directors confirm that there are no significant events arising since the reporting date that should be reported to shareholders other than a tender offer for up to £20 million (the “Tender Offer”) which was posted to shareholders on 17 April 2015. The Tender Offer is expected to close on 6 May 2015. During July 2014 the court approved a reduction of the Company’s Share Premium Account by the amount of £40,000,000 to create extra distributable reserves required to complete the Tender Offer. The Company intends to purchase up to 8,000,000 shares (approximately 21% of the Company’s issued share capital) for £2.50 per share. The price per share represents a discount of 22% to the net asset value per ordinary share at 31 December 2013 of 6.4p.

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