Annual Report 2012-2013 VENTURE CAPITAL BANK B.S.C.(c) Venture Capital Bank Building Building 247, Road 1704, Block 317, Diplomatic Area P.O. Box 11755, Manama, Kingdom of Bahrain Tel: +973 1751 8888, Fax: +973 1751 8880 www.vc-bank.com Licensed as an Islamic Wholesale Bank by the CBB CONTENTS 1 Business Review 3 Corporate Overview 4 Financial Highlights 5 Operational Highlights 6 Chairman’s Statement 8 Board of Directors 10 Shari’ah Supervisory Board 12 CEO’s Report 14 Executive Management 16 Investment Review 24 Wealth Management 26 Corporate Functions 27 Risk Management Review 28 Corporate Governance Review 36 Governance and Organisation Structure 2 Financial Section 38 Shari’ah Supervisory Board Report 39 Report of the Auditors 40 Consolidated Statement of Financial Position 41 Consolidated Statement of Income 42 Consolidated Statement of Comprehensive Income 43 Consolidated Statement of Changes in Equity 44 Consolidated Statement of Cash Flows 45 Consolidated Statement of Changes In O-Balance Sheet Equity of Investment Account Holders 46 Notes to the Consolidated Financial Statements 3 Basel II – Pillar 3 Disclosures 83 Introduction 83 Capital Structure 87 Risk Management 95 Board and Executive Management Remuneration 96 Corporate Governance and Transparency 2 VENTURE CAPITAL BANK ANNUAL REPORT 2012 2013 CORPORATE OVERVIEW Venture Capital Bank (VCBank) is the rst Prole Islamic investment bank in the GCC and MENA region to specialise in small-to- medium enterprises (SMEs) and venture capital investment opportunities. Incorporated in the Kingdom of Bahrain in October 2005, VCBank operates under an Islamic wholesale banking licence from the Central Bank of Bahrain. With an authorised capital of USD 500 million and paid up capital of USD 250 million, the Bank benets from the nancial backing and support of a prominent group of regional shareholders; an experienced team of industry professionals; and a close-knit network of strategic partners, business associates and allies. VCBank oers clients a broad array of superior services and unique investment opportunities across a number of promising asset classes in the GCC, MENA and the United Kingdom. The Bank focuses primarily on venture capital and business development, private equity, and selective real estate investment opportunities. VCBank is uniquely positioned to lead the development of the nascent venture capital industry in the region by providing unmatched levels of support for fundamentally strong and undervalued small-to- medium enterprises (SMEs) that lack the necessary resources for growth and expansion. Our vision is to be the leading regional Islamic venture capital-based investment bank, helping to drive business growth, and supporting the social and economic development of the GCC and MENA region. Vision We aim to maximise shareholders’ value and clients’ wealth, and add a new dimension to the Islamic banking industry. Our mission is to create a pioneering business model and take a leadership role in institutionalising investment in the regional venture capital market. By forging enduring strategic partnerships, we aim Mission to provide support and encouragement for the growth and development of the underserved small-to- medium enterprises (SMEs) sector in the GCC and MENA region, which lacks the necessary resources for growth and expansion. Our values of performance, innovation, client focus, teamwork, and compliance with the rules and principles of Islamic Shari’ah, guide us in our personal and professional behaviour. Our adoption of Values international standards and global best practice govern the way we manage the operations of the Bank across all areas of activity. 3 VENTURE CAPITAL BANK ANNUAL REPORT 2012 2013 FINANCIAL HIGHLIGHTS US Dollars in Millions Net Prot Operating Prot 18 months ended 30 June 2013 18 months ended 30 June 2013 21.1 27.2 12 months ended 31 December: 12 months ended 31 December: 2011: 2010: 2009: 2011: 2010: 2009: (58.67) (47.60) 11.00 (8.08) (1.44) 13.97 Total Assets Total Liabilities 30 June 2013 30 June 2013 221.6 21.1 31 December: 31 December: 2011: 2010: 2009: 2011: 2010: 2009: 198.54 249.25 356.00 18.82 9.54 70.20 Total Assets Under Management Capital Adequacy Ratio 30 June 2013 30 June 2013 924.9 47.6% 31 December: 31 December: 2011: 2010: 2009: 2011: 2010: 2009: 810.00 896.46 920.18 40% 45% 53% 30 Jun 13 31 Dec 11 31 Dec 10 31 Dec 09 4 Years Summary US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 Net prot (loss) 21,145 (58,670) (47,602) 11,004 Fair value (losses)/gains (7,315) (15,413) (15,158) 3,440 Impairments 1,230 (35,172) (30,999) (6,410) Net operating prot (loss) 27,229 (8,084) (1,444) 13,974 Total assets 221,561 198,535 249,246 356,001 Total liabilities 21,083 18,819 9,544 70,204 Shareholders' equity 200,478 179,716 239,702 285,797 Total assets under management 924,930 810,000 896,462 920,178 Capital adequacy ratio 48% 39.8% 45% 53% Return on average assets 6.7% -26.2% -15.7% 3.7% Return on average equity 7.4% -28.0% -18.1% 4.3% Liquidity ratio (liquid assets/total liabilities) 58% 94% 220% 103% 4 VENTURE CAPITAL BANK ANNUAL REPORT 2012 2013 OPERATIONAL HIGHLIGHTS • VCBank concluded a GBP 30 • VCBank is partnering with • VCBank’s new strategic million investment to acquire Al Othman Holding Company business model and a prime new-build freehold to develop a new 150-bed investment strategy was residential development in hospital at Al Khobar in Saudi nalised and approved by the London’s prestigious W1 Arabia. The hospital will focus Board of Directors; and the conservation area. Mayfair on three centres of excellence Bank’s scal year was changed Chambers will house six – women’s health, children’s to July-June, in order to align luxurious residences, designed health, and day surgery – the reporting year with the and nished to the highest together with a range of annual cycle of investment standards. specialist clinics. structuring and placement. • VCBank and SVCIC joined a • VCBank completed the • The organisational high-prole consortium in acquisition of an additional restructuring of VCBank was a GBP 355 million project to 18.5 per cent stake in Goknur completed, including the redevelop an iconic residential Foods Import Export Trading establishment of a single gateway to Regent’s Park to & Distribution Company – the integrated investment division; its former glory. Park Crescent largest producer of fruit juice and the creation of the new West is located in one of concentrate and fruit puree in post of Chief Administrative London’s most prestigious Turkey – bringing the Bank’s Ocer, responsible for Wealth residential neighbourhoods. and its investors’ total indirect Management and HR & equity stake in the Company Administration. to 83.5 per cent. • VCBank increased its stake in Qatar Engineering & Construction Company (QCon) to 28 per cent. QCon is a leading engineering, procurement and construction (EPC) contracting company, specialising in industrial projects and plant maintenance in Qatar and the GCC region. 5 VENTURE CAPITAL BANK ANNUAL REPORT 2012 2013 CHAIRMAN’S STATEMENT In the Name of Allah, the Most Bank, and met our key objective of returning Benecent, the Most Merciful, Prayers to protability. and Peace be upon our Prophet Despite continued global economic Mohammed, His Companions and uncertainty and regional market volatility, Relatives. VCBank posted a very strong nancial On behalf of the Board of Directors, I present performance during this period. Total to you the annual report and consolidated revenue increased by 435 per cent on nancial statements of Venture Capital Bank an annualised basis to US$ 43.9 million (VCBank) for the 18-month period ended compared with US$ 6.7 million for the year 30 June 2013, which reects the change to 2011; with income from investment banking our scal year-end. I am delighted to report activities growing 12-fold to US$ 35 million that, with the grace of God, we successfully from US$ 2.96 million in 2011, representing concluded the strategic realignment of the an annualised growth of almost 8 times. These excellent results mark a major “turnaround in the Bank’s nancial performance. They reect the success of measures taken during the period to reduce costs, utilise our assets more eectively, restructure the organisation to improve eciency and maximise synergies, and refocus our investment activities.“ “ VCBank posted a very strong nancial performance during the period. Total revenue increased by 435 per cent on an annualised basis to US$ 43.9 million, with income from investment banking activities growing to US$ 35 million, representing an annualised growth of almost 8 times. “ Dr. Ghassan Ahmed Al Sulaiman Chairman of the Board Shareholders’ Equity 30 June 2013 US$ 200.5 Million 6 VENTURE CAPITAL BANK ANNUAL REPORT 2012 2013 Total expenses decreased by 27 per cent a remarkable achievement for a regional My thanks are also due to the Central Bank on an annualised basis to US$ 15.9 million investment bank during such a challenging of Bahrain, Ministry of Industry & Commerce due to cost reduction initiatives and business environment. These signicant and other Government institutions, for their organisational restructuring. As a result, deals, which conrm the feasibility of our continued professional advice and support net prot for the period grew signicantly new investment strategy, have further during the period. to US$ 21.1 million compared to a loss of strengthened and diversied our investment I would also like to express my gratitude US$ 58.7 million for 2011. This takes into portfolio, and reinforced our market to our shareholders, clients and business account fair value losses of US$ 7.3 million reputation for oering clients innovative and partners for their enduring loyalty and and impairment provisions of US$ 4.1 million, attractive investment opportunities.