9th May 2007 11:33
Allied Irish Banks PLC09 May 2007 EMBARGO 11.00 9th MAY 2007 Allied Irish Banks, p.l.c. Annual General Meeting Chairman Mr. Dermot gleeson's Speech ("AIB") (NYSE: AIB) Chairman's speech to AIB Annual General Meeting in RadissonSAS Hotel, Lough Atalia Road, Galway, Ireland Click here (Or copy and paste the link) to download accompanying slides:http://www.aibgroup.com/servlet/ContentServer?pagename=AIB_Investor_Relations/AIB_Download/aib_d_download&c=AIB_Download&cid=1177399193441&channel=IRFP Check against delivery Our shareholders have made clear that they like to receive, at the AGM, anexplanation and an account of how the business is performing, and I'm very happyto provide that. An extensive account is of course available in the Annual Report and a smallerand more accessible summary is available in what we call the Summary Review,which provides a useful birdseye view of where the bank is at this point intime. Looking back then at AIB in 2006 I am glad to say that the story continues to bea very positive one and that we have continued our strong track record indelivering excellent value to our shareholders. In terms of total shareholder return, which includes the growth in your dividendand the capital appreciation in your shares, AIB delivered a robust 29% in 2006. 2006 was a year when we enjoyed outstanding growth across all our divisions. Iam pleased about the consistency and resilience of this performance and I'mequally pleased that customer demand remains strong for our range of competitiveand well-designed products and services. Let me give you a snap shot of that performance. I'll start with the most conventional or traditional way of gauging how we aredoing and that's to look at after tax profit, how much money is left when wehave paid all our taxes. (Slide 1 - After Tax Profit - 2004 to 2006) This slide shows the performance over the last 3 years. In 2006, we generated profit of €2.2 billion after tax, up 57% on 2005. Our profits last year were boosted, exceptionally of course, by the after-taxproceeds from: 1. the sale and leaseback of a number of our properties; and 2. the sales of our Ark Life business and our 50% joint venture withthe Bank of New York. I am aware that some of you would welcome clarification about the reasons why wehave embarked on a sale of our properties and whether it has anything to do withthe particular point in the economic cycle, so allow me to spend a few momentsexplaining exactly why we're doing this. There are two main reasons why we have embarked on this programme. The first and main reason has to do with supporting our phenomenal businessgrowth. AIB is a large, diverse and sophisticated financial services organisation,providing a wide array of products and services to a very large and increasinglydemanding and knowledgeable customer base. One of the biggest elements of our business is lending to customers, and thatincludes lending to individuals, to small and medium sized businesses, and tolarge corporate and international clients. Our business has been growing at a significant rate and this requires that morecapital be held to support our lending activities than is being generatedinternally by our normal trading profit. Therefore, to support our customers' demands, we have released capital byextracting value from property assets on our Balance Sheet. We are not closing any of our branches. We are simply selling ownership of theproperties, renting them back from their new owners, and using the profitgenerated as capital to grow our business. Raising capital from this source is better for our shareholders than otheralternatives. It represents a more efficient use of our assets. The proceeds of these salesbecome the seed capital for expanded and profitable lending activity. The second reason has to do with protecting our independence. The Board's strongly held view is that shareholders interests are best served byAIB retaining its independence. One of the main ways of achieving this is by harvesting and exploiting clearvalue-creating opportunities. This includes realising the hidden value in the business through, among otherthings, the sale of bricks and mortar. We would prefer to give that value to our existing shareholders throughinvesting in the business and generating strong returns which of course impactthe share price and the dividend paid each year. A second way of looking at progress, and one that is favoured, for example, bylarge institutional investors, is the trend in earnings per share or EPS. (Slide 2 - Adjusted Basic Earnings Per Share) The earnings per share figure represents the amount of profit we generated foreach share that AIB has in issue. In other words, we spread the profitgenerated in 2006 across the average number of shares in issue during the year,which was 870 million. The adjusted basic earnings per share for 2006 was 182.8 cents per share, up 25%on 2005. This number has been adjusted to exclude the benefit of the proceedsfrom the sale of property and businesses, and so is more reflective of thestrong underlying performance of the business, because it excludes the once-offboost to profits of those sales. Another way of looking at our performance is through the profit generated by thedivisions - the different areas of the bank's business. I've already mentioned that 2006 was a year when we enjoyed outstanding growthacross all our divisions, so let's take a look at how each of them performed. (Slide 3 - Pre-Tax Profit and Growth by Division) This slide shows the profit growth before tax by division and you will see thatin 2006, all parts of our business performed strongly over and above 2005, and2005 itself was a very good year. Our business in Poland made a special impact in 2006, having turned a corner inthe last couple of years. Poland generated a 56% increase in profits last year. This was driven off the very strong momentum now being experienced, in a morefavourable economic climate, and through the quality of our people and ourproducts, which resulted in higher business activity and volumes. We are going to show you a short video in a few moments, which, this year, has aparticular focus on Poland and our business there, and I hope that it will helpto explain the real sense of anticipation and promise which we feel about thatpart of our business. The traditional core of the Bank is, of course, our retail and commercialbanking operations in the Republic of Ireland. We recorded strong growth acrossall aspects of this business during the year with profit up 24%. 2006 was a year in which competition continued to intensify, especially in ourhome markets. Our response has been robust and we continue to hold and, in many instances, togrow our market share, based on our intelligently designed and competitive rangeof products and services, our highly qualified, competent and committed staff,and the wide choice of channels available to our customers. In fact, just last Thursday (3rd May), we were awarded the Retail BankingExcellence Award at the 2007 KPMG Financial Services Excellence Awards. Thisachievement is a great recognition of the approach we have taken to the personalmarket against the backdrop of stiff competition over the past year. Much ofour success is down to the hard work, dedication and commitment of all Staff, atboth branch and Head Office level, and I want to express my sincere thanks toall involved. Capital Markets has, once again, produced a truly impressive performance withprofits up 29% on 2005. This is a business where, over the last ten years, our compound annual growthrate in profits was 20%, and where the earnings are resilient and recurring, anddisplay very low volatility. Our business in Great Britain & Northern Ireland recorded a strong 17% growth inprofits. This business includes First Trust Bank in the North of Ireland, andour business banking operation in Great Britain, which provides financialservices to the mid-corporate sector. M&T's Earnings Per Share increased by 10% during 2006. Our share of M&T Bank'safter-tax profit in 2006 amounted to €141 million, down 4% when compared to2005. This reduction merely reflected a one-off reclassification of provisions. Many of you will have seen the recent media coverage regarding M&T's firstquarter results, and the references in the media to sub-prime mortgages. M&T is not a sub-prime lender and does not hold sub-prime loans in itsportfolio. The sub-prime market in the US has experienced a deterioration in recent monthsand these difficulties have had a ripple-effect on the rest of the residentialmortgage market place, including the "Alt-A" loan market in which M&T hasparticipated. "Alt-A" loans generally include some form of limited documentation requirements. However, typical borrower credit scores in M&T's portfolio are similar totheir Prime loan borrowers' credit scores. Unfavourable market conditions for the sale and repurchase of such loans in thefirst quarter of this year, impacted M&T's portfolio. We don't believe that these issues will have an impact on the AIB earningsguidance for 2007 that we issued in February. All in all, you will see that we are reporting a very strong performance acrossall our businesses. Another interesting way to look at our performance is through the geographicdistribution of our profits - that is WHERE the profits were generated. (Slide 4 - Profits are well spread geographically) This analysis shows the source of our profits and differs from our Divisionalanalysis in that some of our businesses, particularly our Capital Marketsbusiness, span a number of international boundaries. You can see how the geographic profile of our profits has changed since 2003. Three years ago, we relied upon our Irish business for 64% of our profits. Thathas evolved to the point where half of our normal profits are now generated fromour other businesses and from outside the Republic of Ireland. This diversification provides balanced and well-managed growth and underpins ourearnings stability. You can see that our profits are now generated from a wide area with: 50% in the Republic of Ireland; 26% in the United Kingdom; 13% in Poland; 10% in the United States; and 1% from the Rest of the World. These are all high-performing economies, offering long-term growth opportunitiesfor AIB, and truly allows us to call ourselves an International Business. Thenumber of International Banks generating half of their profits outside theirhome market is, in fact, quite limited. So, what do we do with the profits we're generating? (Slide 5 - How the profit was used) Over 9% of our profit goes in one of three directions. 23% of our total profit in 2006 went to paying dividends to shareholders -that's €628 million in value terms. This percentage is significantly reduced bythe retention of the one-off profits from property sales and business unitdisposals. In a more normal year, our dividend payout ratio from profit aftertax would be in the 40% - 45% range. And as I've stated on many previous occasions, as well as individualshareholders like yourselves receiving your dividend, many Irish andInternational Pension funds are also significant beneficiaries of ourperformance. There is hardly a Pension Fund in Ireland that doesn't hold AIB shares. Thevast majority of Irish pensioners, therefore, both existing and future, have avery significant personal interest in these profits. There are almost half a million people in private sector pension schemes andthose schemes depend for their viability on investments in successful businessessuch as AIB. That's the first element of the distribution. The second element is what we retain in the business for future growth. Retained profits represent our most significant source of "fresh" capital, whichis essential in growing and developing our business and in maintaining strongcapital ratios - all significant contributors to the strength of the shareprice. 56% of our profits, or over €1.5 billion, was retained and kept to grow thebusiness. That figure, however, is flattered by the profits from one-offproperty transactions and disposals. All of that, and more, will be needed togrow the business in 2007. Finally, the third major destination for our profits is Government taxes and in2006 we paid €433 million, or 16% of our profits. That equates to over €1.7 million in tax per working day. (Slide 6 - Dividend Growth 2004 - 2006) As a result of our strong performance, we have increased the dividend by 10%over the 2005 payment. This results in a compound growth of 10.4% per annumover the 5 years to 2006. Some of you might ask why, with profits after tax up 57% and adjusted earningsper share up by 25%, we have increased the dividend by 10%. Well again, it comes back to ensuring that the business retains sufficientcapital in the business. Because we are performing so strongly, the Board has to strike the right balancebetween what we retain, out of after-tax profit, to provide for the bank'sfuture growth and development, and what we distribute. We continue to keep thatbalance under constant review. Now finally let me say something about 2007, the year to date. It is of course early days yet, but our business continues to enjoy strongmomentum and we continue to see sustained demand in all of our markets for allof our key products. I am happy to reiterate guidance already given for 2007 of low double digitgrowth in Earnings Per Share as issued at our 2006 results presentation. Our Irish business continues to perform well in an economy that remains strong.Economic growth is moderating but to a pace that is likely to remain above theEuropean average and to a level which continues to represent a good environmentfor the bank. Our UK, Poland and Capital Markets businesses are all performing well. Across the businesses, customer demand for loans and deposits remains strong. Asset quality remains very good and we are not seeing cause for concern in anyof our loan portfolios. It's over 40 years since the Royal, Provincial, and Munster and Leinster joinedtogether to form AIB - we have come a long way since then and learned a lotalong the way. We remain Ireland's largest, and one of Ireland's most successful companies andthe prospects for future growth and profitability remain bright. We are now going to show the short video after which we will move into the mainpart of the meeting. I mentioned earlier in the meeting that our Polish business was experiencingvery strong momentum as a result of a growing economy and the quality of ourpeople and products, all of which led to a significant increase in profits lastyear. This year, we are concentrating on Poland in the video and, in doing so, we hopeto give you a better insight into this expanding part of our business, and tohelp you understand the potential that exists in BZWBK. Thank you. -ENDS- For further information please contact:Catherine BurkeHead of Corporate RelationsAIB GroupBankcentreDublin 4Tel: +353-1-6600311 ext. 13894 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ALBK.L