Faisal Finance (Switzerland) S.A. Financial & Business Analysis: 1999 "Minor increases in Revenues and Assets under Management Increased provisions offset by FX gains"

Foriegn Exchange Rate - 31 Dec 1999 1 USD = 1.5982 CHF Financial Trends

Ownership and Legal Status

Faisal Finance (Switzerland) S.A. (FFS) was established in Geneva in 1980 under the name Sharia Services S.A. and restructured in 1980 into a bank-like finance company. FFS now offers financial services and Islamic products to institutions and individuals. The ultimate parent of FFS is Dar Al-Maal Al-Islami Trust, an Islamic institution founded in 1981.

The Year in Brief

FFS operating income increased by 422% or CHF 7.3 million to CHF9.5 million (1998: CHF 2.3 million), while net income increased by 39% or CHF 0.7 million to CHF2.5 million (1998: CHF 1.8 million). Net income was materially impacted by an increase of CHF 5.8 million in valuation adjustments and provisions (1998: CHF 0.3 million), offset by foreign exchange income of CHF 4.2 million, CHF 6.4 million greater than the loss of CHF 2.2 million incurred in 1998. While income is mostly denominated in USD, much expense is incurred in CHF, and the accounts are stated in CHF, so the Company is exposed to CHF/USD FX fluctuations.

Income from Islamic financing activities decreased by 22% or CHF 0.9 million to CHF 3.3 million (1998: CHF 4.2 million), reflecting reduced income from parallel purchases and sales of currencies and commodities (down CHF 0.8 million) and from financing and security dealing activities (down CHF 0.4 million). Income from assets under management was 14% higher at CHF 10.5 million (1998: CHF 9.1 million), reflecting increased fees and profit participations (up CHF 1.2 million).

Operating expenses decreased by 7.3% to CHF 8.7 million (1998: CHF 9.3 million). Of this amount, other operating expenses were 13% higher at CHF 2.5 million, while personnel expense was lower by 14% or CHF 1.0 million at CHF 6.2 million (1998:CHF 7.2 million), the reduction reflecting normal levels of social benefit expenses in 1999 rather than the one-off pension fund adjustments incurred in 1998. Ratio of expense to revenue was 48% (1998: 80%).

Total assets increased by 17% to CHF 61.5 million (1998: CHF 52.6 million), while shareholders' equity rose marginally to CHF 50 million (1998: CHF 47.6 million). The major portion of client funds under management is managed on a fiduciary basis, and does not appear on the balance sheet. Total funds under management rose by 19% to CHF 1,182 million (1998: CHF 992 million).

Business Highlights

• Main activities consisted of:
  • (i) trading operations relating to portfolio management, fiduciary placements and security and foreign exchange trading;
  • (ii) financing activity, granted on a credit basis (Morabaha), collateralised with fixed and current assets and
  • (iii) risk management.

   

• The emphasis on real estate investment as a core capability continued, with real estate investments now comprising some 36% of total client funds under management. The Company acted as advisor to other members of the DMI group in relation to their US$441 million acquisition of the 'New England Property Portfolio', a portfolio of 53 commercial properties located in the North Eastern United States

• Overall leasing volumes remained level, comprising 3% of total client funds; trade finance investments increased by 6% to US$144 million, representing 20% of total client funds.

• Enhanced country risk assessment procedures were adopted during the year, while improvements to the operational framework continued, with the goal of raising levels of operational efficiency.