FIMBank plc - Full-Year Results

On 1 March FIMBank plc published its Preliminary Profit Statement for the year ended 31 December 2004. The financial period under review was the first full year for the FIMBank Group in which London Forfaiting Company Ltd. (LFC) contributed to the consolidated result. After considerable restructuring at LFC, the Directors were pleased to note that the anticipated turnaround has been realised and this fully-owned subsidiary contributed a positive operating performance to the Group’s results in 2004. Since FIMBank’s latest acquisition (the 38.5% equity stake in Global Trade Finance Private Ltd. in India), was only finalised towards the end of December, the 2004 accounts do not reflect the positive performance of this company, and the benefits from this investment are expected to accrue in future financial periods.

During the twelve months ended 31 December 2004, the Bank’s Net Interest Income grew by 32% to USD2.86 million with net fee and commission income increasing by 23.6% to USD5.8 million, reflecting strong growth in the Bank’s business performance. However other income dropped from USD2.6 million to USD460,771, marking a return to normal operating levels since in 2003 there was a one-off foreign exchange gain arising from the re-denomination of a loan to LFC. This resulted in Total Operating Income dropping by 3% in 2004 to USD9.16 million. Operating Expenses, comprising administrative expenses and depreciation, increased by 13.3% to USD6.9 million as a result of increased business activity. The Bank’s cost to income ratio rose from 64% in 2003 to 75.6%. Net Impairment allowances of the Bank increased from USD60,289 to USD810,834 resulting in a profit before tax of USD1.4 million for the year ended 31 December 2004.

With regards to the FIMBank Group – comprising the consolidated operations of LFC – Total Operating Income for 2004 amounted to USD12.25, million, an increase of 33.6% over that of 2003. Whilst Net Interest Income dropped from USD2.4 million to USD1.8 million, net fee and commission income increased by 40.7% to USD6.6 million and net trading income totalled USD3.3 million representing a surge of 63.7% over the net trading income of 2003, which included the one-off foreign exchange gain of USD2 million arising from the re-denomination of a loan to LFC. The growth in this source of income represents largely the activities of LFC. Other operating income increased from USD53,512 to USD486,258. However this overall growth in income was also reflected in an increase in overheads, which totalled USD11.5 million in 2004 compared to USD6.8 million a year earlier. In the “Review of Performance” accompanying the announcement of the Preliminary Profit Statement, the Board of Directors noted that whilst these figures represent the significant restructuring efforts that have taken place in LFC during 2004, they do not sufficiently reveal the subsidiary’s contribution to the Group bottom-line or the considerable business potential that it is poised to exploit in the years ahead. It is worthwhile to note that after the take-over of LFC in September 2003 the focus was on downsizing the company’s operations towards a sustainable cost base (monthly overheads dropped from USD980,000 in December 2003 to USD360,000 in June 2004) and returning LFC to profitability. The restructuring exercise undertaken at LFC also involved the closure and sale of a number of its non-strategic offices around the world resulting in substantial cost savings. LFC started showing operating profits during the second half of 2004. It is therefore anticipated that this subsidiary should continue to perform strongly during 2005.

The Group results reflect the adoption of IFRS 3 “Business Combinations”, the main difference from its predecessor IAS 22 being that goodwill is no longer amortised over its estimated useful life but measured at cost less any impairment losses. Accordingly, the carrying amount of goodwill in LFC was tested for impairment, and will be so tested annually thereafter. The Directors reported that more than USD2.5 million of LFC’s post-tax profit has been adjusted against goodwill at consolidated level, and therefore not directly reflected in the Group’s profit performance. As long as LFC remains an operationally profitable and cash-generating unit in future years, goodwill can be allocated against profits and should be extinguished in a shorter period of time than if it were amortised over its originally estimated useful life.

After taking these adjustments into account the FIMBank Group registered a loss before tax of USD326,569. However when taking into account a tax credit of USD1.87 million (reflecting utilisation of tax losses in LFC which are available against taxable profits, of which this amount of deferred tax asset was recognised on the basis of LFC’s current year performance and future projections), the Group reported a profit for the year of USD1.5 million, resulting in earnings per share of USD0.0234.

The expansion in the Group’s activity is also reflected in the balance sheet growth. As at 31 December 2004, total assets amounted to USD216 million, an increase of 23% over the Group total assets in December 2003. Commitments, comprising confirmed letters of credit, undrawn credit facilities and documentary credits, which reflect work in progress for 2005, more than doubled over last year to stand at USD129.3 million. Financial assets held for trading, which reflect the main activity of the subsidiary, grew by USD27 million (76%) to USD63.3 million. Intangible assets, which represent the goodwill on LFC’s acquisition, dropped from US$8 million in December 2003 to USD5.2 million as at the end of 2004. This significant reduction in the carrying amount of goodwill reflects adjustments arising from (a) additional evidence that became available in 2004 to assist with the estimation of the value of LFC’s identifiable assets and liabilities at the date of acquisition (in the main part including a decrease in restructuring provision), and (b) the recognition of deferred tax asset by LFC. In both cases, value was created by LFC which is not reflected in the Group profit results but as an adjustment to goodwill. Shareholders’ funds at the end of December amounted to USD48.3 million, translating into a net asset value per share of USD0.732. Compared to a current market price of USD1.15, the price to book multiple works out at 1.57 times.

The Directors have not proposed a dividend. However they are confident that the FIMBank Group’s strategy, as well as its markets and activities continue to provide considerable potential for profit maximisation.

For 2005, the Board is optimistic that the Group’s ideas for developing business, including through joint ventures in new markets, will create further opportunities for increasing shareholder value.

During the Annual General Meeting scheduled to take place on 5 May 2005, the Directors will be proposing changes to the Memorandum and Articles of Association of FIMBank plc.

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