6th Mar 2007 07:00
Allied Irish Banks PLC06 March 2007 Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB) Part 2 2006 Annual Results Notes to the accounts 1 Disposal of Ark Life Assurance Company Limited ('Ark Life'). Acquisition of aninterest of 24.99% in Hibernian Life Holdings Limited On 30 January 2006, the previously announced venture with Aviva Group p.l.c. forthe manufacture and distribution of life and pensions products in the Republicof Ireland was completed. The transaction brought together Hibernian Life &Pensions Limited ('HLP') and Ark Life under a holding company Hibernian LifeHoldings Limited of which AIB owns 24.99%. AIB has entered into an exclusiveagreement to distribute the life and pensions products of the venture. Under IFRS 5,'Non-current assets held for sale and discontinued operations', theincome and expenses for 2005 and for the period up to 30 January 2006, the dateof disposal of Ark Life, of the operations deemed to be disposed of have beenreported net of taxation as a discontinued operation below profit aftertaxation. The assets and liabilities of Ark Life (note 19) as at 31 December2005 were classified as held for sale, separate from other assets andliabilities on the balance sheet. The transaction is accounted for as an exchange of 75.01% of Ark Life for 24.99%of HLP and a cash payment of • 165m. Under this approach, the 24.99% of Ark Lifethat is owned by AIB, both directly before the transaction and indirectlythereafter, is treated as being owned throughout the transaction. The transaction gave rise to a profit before and after taxation of • 138m ofwhich • 26m (relating to the transfer by Ark Life of the management contracts ofthe Ark funds from AIB to Aviva) is treated as a profit on disposal of businessand • 112m as a profit on disposal of a discontinued operation. The profit after taxation for Ark Life for the period to date of disposal of d4m (2005: • 46m) is included within discontinued operations. The contribution ofthe venture for the 11 months ended December 2006 is included in the incomestatement within share of results of associated undertakings. The carrying valueof the investment is shown in the balance sheet within interests in associatedundertakings. Accounting for the acquisition of the 24.99% interest in Hibernian Life andPensions Limited The Group's share of the assets and liabilities of HLP as at 30 January 2006 hasbeen recorded at fair value in accordance with the accounting policies of theGroup. The fair value of the consideration given represents the value of the75.01% of Ark Life that is deemed to be transferred to Hibernian Life HoldingsLimited. Acquisition accounting has been adopted in respect of the transactionand the acquisition of the 24.99% interest in HLP comprised: • mBook value of assets acquired 520 Adjustments 146 Intangible assets recognised 67Net assets 733Group's share of net assets - 24.99% 183 Goodwill arising on the acquisition of HLP 12Fair value of consideration given 195 The adjustments reflect bringing HLP's accounting policies in line with AIB's,primarily in respect of accounting for insurance contracts. AIB accounts forinsurance contracts using the embedded value basis and the adjustments of • 146mprimarily reflect the recognition of embedded value on the insurance contractsin force on HLP's books, offset by other adjustments to bring HLP's accountingpolicies in line with AIB's and fair value adjustments. The intangible assetsrecognised relate to the value of management contracts not recognised withinHLP's books. Goodwill arising has been capitalised on the balance sheet withinthe caption 'Interests in associated undertakings'. The Group's share of profits of Hibernian Life Holdings Limited is set out inNote 19. Notes to the accounts 2006 AIB Bank Capital AIB Bank Poland Group Total ROI Markets UK2 Segmental information • m • m • m • m • m • m Operations by business segments(1)Net interest income 1,581 490 593 236 99 2,999Other income 434 464 154 302 (27) 1,327 Total operating income 2,015 954 747 538 72 4,326Administrative expenses 945 425 332 290 182 2,174Amortisation of intangible assets and goodwill 17 4 - 21 11 53Depreciation of property, plant and equipment 38 9 11 19 10 87Total operating expenses 1,000 438 343 330 203 2,314Operating profit/(loss) before provisions 1,015 516 404 208 (131) 2,012Provisions for impairment of loans and 78 5 26 9 - 118receivablesProvisions for liabilities and commitments (4) 1 - (2) (10) (15)Amounts (written back) / written off financial investments for sale (1) 2 - - - 1Operating profit / (loss) 942 508 378 201 (121) 1,908Associated undertakings 18 2 - 6 141 167Profit on disposal of property 6 - 1 - 358 365Construction contract income - - - - 96 96Profit on disposal of businesses - 79 - - - 79Profit before taxation - continuingoperations 966 589 379 207 474 2,615Discontinued operation - net of taxation 116 - - - - 116 Balance sheetTotal loans 60,083 33,040 22,117 4,573 202 120,015Interests in associated undertakings 268 5 - 3 1,516 1,792Total assets 66,200 54,093 24,580 7,195 6,458 158,526Total deposits 46,503 70,067 13,624 6,614 31 136,839Total liabilities(2) 46,217 71,656 14,551 6,941 9,249 148,614Total risk weighted assets 53,307 40,538 22,334 5,826 1,029 123,034Ordinary shareholders' equity(2) 3,549 2,629 1,476 374 80 8,108Capital expenditure 104 24 15 24 64 231 Notes to the accounts 2 Segmental information (continued) 2005 AIB Bank Capital AIB Bank Poland Group Total ROI Markets UK • m • m • m • m • m • m Operations by business segments(1)Net interest income 1,314 435 516 205 60 2,530Other income 376 407 148 222 (36) 1,117 Total operating income 1,690 842 664 427 24 3,647Administrative expenses 818 383 313 236 131 1,881Amortisation/impairment of intangible assetsand goodwill 16 7 1 21 2 47Depreciation of property, plant and equipment 33 10 9 23 8 83Total operating expenses 867 400 323 280 141 2,011Operating profit/(loss) before provisions 823 442 341 147 (117) 1,636Provisions for impairment of loans and 45 34 21 14 1 115receivablesProvisions for liabilities and commitments 10 4 - 1 5) 20)Amounts (written back) / written off financialinvestments for sale - 8 - - - 8Operating profit / (loss) 768 396 320 132 (123) 1,493Associated undertakings (1) 2 - - 148 149Profit on disposal of property 12 - 2 - - 14Construction contract income - - - - 45 45Profit on disposal of businesses - 5 - - - 5Profit before taxation - continuingoperations 779 403 322 132 70 1,706Discontinued operation - net of taxation 46 - - - - 46 Balance sheetTotal loans 45,523 23,794 18,346 4,487 211 92,361Interests in associated undertakings 6 14 - 19 1,617 1,656Total assets 55,224 44,371 20,031 7,981 5,775 133,214Total deposits 34,172 58,038 10,958 6,229 123 109,520Total liabilities(2) 39,137 59,014 11,888 6,658 8,100 124,797Total risk weighted assets 39,073 38,974 18,335 4,640 634 101,656Ordinary shareholders' equity(2) 2,564 2,558 1,203 305 42 6,672Capital expenditure 71 13 16 19 17 136 Notes to the accounts 2 Segmental information (continued) 2006 Republic of United Poland United Rest of Total Ireland Kingdom States of the world America • m • m • m • m • m • m Operations by geographical segments(3)Net interest income 1,899 769 264 54 13 2,999Other income 665 240 351 61 10 1,327 Total operating income 2,564 1,009 615 115 23 4,326Administrative expenses 1,401 425 297 42 9 2,174Amortisation of intangible assets and 32 1 20 - - 53goodwillDepreciation of property, plant and equipment 54 12 20 1 - 87Total operating expenses 1,487 438 337 43 9 2,314Operating profit before provisions 1,077 571 278 72 14 2,012Provisions for impairment of loans and 70 41 9 - (2) 118receivablesProvisions for liabilities and commitments (14) 1 (2) - - (15)Amounts written off financial investments available for sale 1 - - - - 1Operating profit 1,020 529 271 72 16 1,908Associated undertakings 20 - 6 141 - 167Profit on disposal of property 364 1 - - - 365Construction contract income 96 - - - - 96Profit on disposal of businesses 77 1 - 1 - 79Profit before taxation - continuingoperations 1,577 531 277 214 16 2,615Discontinued operation - net of taxation 116 - - - - 116 Balance sheetTotal loans 80,853 29,880 5,315 3,315 652 120,015Interests in associated undertakings 266 - 10 1,516 - 1,792Total assets 109,272 33,908 9,109 5,578 659 158,526Total deposits 96,773 29,020 7,072 3,920 54 136,839Total liabilities(2) 104,609 31,932 7,812 4,202 59 148,614Ordinary shareholders' equity(2) 5,164 2,022 398 478 46 8,108Capital expenditure 192 15 24 - - 231 Notes to the accounts 2 Segmental information (continued) 2005 Republic of United Poland United Rest of Total Ireland Kingdom States of the world America • m • m • m • m • m • m Operations by geographical segments(3)Net interest income 1,564 689 225 45 7 2,530Other income 537 252 251 68 9 1,117 Total operating income 2,101 941 476 113 16 3,647Administrative expenses 1,169 401 245 59 7 1,881Amortisation/impairment of intangible assetsand goodwill 23 1 21 2 - 47Depreciation of property, plant and equipment 47 11 24 1 - 83Total operating expenses 1,239 413 290 62 7 2,011Operating profit before provisions 862 528 186 51 9 1,636Provisions for impairment of loans and 46 53 14 (1) 3 115receivablesProvisions for liabilities and commitments 18 1 1 - - 20Amounts written off financial investments available for sale 6 - - 2 - 8Operating profit 792 474 171 50 6 1,493Associated undertakings 1 - - 148 - 149Profit on disposal of property 12 2 - - - 14Construction contract income 45 - - - - 45Profit on disposal of businesses - 1 - 4 - 5Profit before taxation - continuingoperations 850 477 171 22 6 1,706Discontinued operation - net of taxation 46 - - - - 46 Balance sheetTotal loans 58,831 24,888 4,487 3,863 292 92,361Interests in associated undertakings 20 - 19 1,617 - 1,656Total assets 90,731 28,411 7,815 5,962 295 133,214Total deposits 77,971 21,291 6,229 4,021 8 109,520Total liabilities(2) 90653 23,046 6,730 4,359 9 124,797Ordinary shareholders' equity(2) 4,039 1,810 320 477 26 6,672Capital expenditure 100 16 19 1 - 136 (1) The business segment information is based on management accountsinformation. Income on capital is allocated to the divisions on the basis of thecapital required to support the level of risk weighted assets. Interest incomeearned on capital not allocated to divisions is reported in Group. (2) The fungible nature of liabilities within the banking industry inevitablyleads to allocations of liabilities to segments, some of which are necessarilysubjective. Accordingly, the Directors believe that the analysis of total assetsis more meaningful than the analysis of ordinary shareholders' equity orliabilities. (3) The geographical distribution of profit before taxation is based primarilyon the location of the office recording the transaction. Notes to the accounts 2 Segmental information (continued) Gross revenue by business segment 2006 AIB Bank Capital AIB Bank Poland Group Eliminations Total ROI Markets UK • m • m • m • m • m • m • mExternal customers 3,080 2,764 1,497 641 974 - 8,956Inter-segment revenue 1,335 2,057 616 1 80 (4,089) -Total gross revenue 4,415 4,821 2,113 642 1,054 (4,089) 8,956 2005External customers 2,232 2,260 1,246 700 39 - 6,477 Inter-segment revenue 903 1,260 333 8 286 (2,790) -Total gross revenue 3,135 3,520 1,579 708 325 (2,790) 6,477 Gross revenue from external customers equates to: interest and similar income;dividend income; fee and commissions income; net trading income; other operatingincome; profit on disposal of property; construction contract income and profiton disposal of businesses. The amounts relate to continuing operations only. 2006 20053 Interest and similar income • m • mInterest on loans and receivables to banks 307 167Interest on loans and receivables to customers 5,444 4,032Interest on trading portfolio financial assets 380 305Interest on financial investments available for sale 797 647 6,928 5,151 Interest income in 2006 includes • 69m removed from equity in respect of cashflow hedges. 2006 20054 Interest expense and similar charges • m • mInterest on deposits by banks 1,163 775Interest on customer accounts 1,597 1,169Interest on debt securities in issue 955 545Interest on subordinated liabilities and other capital 214 132instruments 3,929 2,621 Interest expense in 2006 includes • 18m removed from equity in respect of cashflow hedges. 5 Dividend income The dividend income relates to income from equity shares held as financialinvestments available for sale. 2006 20056 Net trading income • m • mForeign exchange contracts 101 59Profits less losses from trading portfolio financial assets 60 84Interest rate contracts 4 (32)Equity index contracts 8 1 173 112 2006 20057 Other operating income • m • m(Loss)/profit on disposal of available for sale debt (4) 17securitiesProfit on disposal of available for sale equity shares 15 2Miscellaneous operating income 46 53 57 72 Notes to the accounts 2006 20058 Administrative expenses • m • mPersonnel expensesWages & salaries 1,074 948Share-based payment schemes 57 34Retirement benefits 144 133Social security costs 119 104Other personnel expenses 108 79 1,502 1,298General and administrative expenses 672 583 2,174 1,881 9 Profit on disposal of property In addition to the sale of properties which were excess to businessrequirements, giving rise to profit on disposal of • 7m (2005: • 14m) the Groupundertook a significant property sale and leaseback programme during 2006. Theleases qualify as operating leases and the profit arising on these transactionsis included in profit on disposal of property. Details of the more significantof these transactions are set out below: Profit Tax Initial rent Minimum recognised charge payable lease •m • m • m termBankcentre Headquarters Building - Blocks A to D 167 32 4.5 4 yrs, 11 mths, 3 weeksBankcentre Headquarters Building - Blocks E to H 89 17 7.1 20 yearsDonnybrook House 29 4 1.2 1 year11 Branches 73 15 3.1 15 years 358 68 15.9 10 Construction contract income 2006 2005 • m • mConstruction revenue 171 81Construction expense (75) (36) 96 45 In 2005, AIB sold land at its Bankcentre headquarters to a syndicate ofinvestors, the Serpentine Consortium. The consortium has outsourced theconstruction of a new development on the above land to Blogram Limited, asubsidiary of Allied Irish Banks, p.l.c. on a fixed price contract basis. Thetotal consideration amounts to • 367.8m of which • 55.0m has been received. At31 December 2006, €196.5m was due from the consortium in respect of constructioncontracts in progress. Dohcar Limited, a subsidiary of Allied Irish Banks, p.l.c., has contracted withthe Serpentine Consortium to lease the property on completion at an initial rentof • 16.1m per annum for a period of 30 years with a break clause at year 23.Future lease rental commitments in respect of this transaction have beenreported in the accounts. The nature of this transaction, which includes the sale of land, an agreement toconstruct a building and an agreement to lease the building represents a linkedtransaction and meets the definition under IFRS of a sale and leaseback. Becausethe significant income from the transaction arises from the constructioncontracts, the income is recognised in accordance with IAS 11,'ConstructionContracts'. 11 Profit on disposal of businesses 2006 The profit on disposal of businesses in 2006 of • 79m includes profit relatingto the transfer by Ark Life of investment management contracts in conjunctionwith the sale of Ark Life of • 26m (tax charge C nil) (note 1); AIB's 50% stakein AIB/BNY Securities Services (Ireland) Ltd of • 51m (tax charge • nil);Ketchum Canada Inc. of C 1m (tax charge • nil), and the accrual of • 1m (taxcharge • 0.3m) arising from the sale of the Govett business in 2003. Notes to the accounts 11 Profit on disposal of businesses (continued) 2005 The profit on disposal of businesses in 2005 of • 5m relates to the sale ofCommunity Counselling Services of • 4m (tax charge • 1m), and the accrual of •1m (tax charge • 0.3m) arising from the sale of the Govett business in 2003 2006 200512 Income tax expense - continuing operations • m • mAllied Irish Banks, p.l.c. and subsidiaries Corporation tax in Republic of Ireland Current tax on income for the period(1) 252 160 Adjustments in respect of prior periods 3 1 255 161Double taxation relief (23) (10) 232 151 Foreign tax Current tax on income for the period 220 163 Adjustments in respect of prior periods (14) (11) 206 152 438 303 Deferred taxation Origination and reversal of temporary differences (5) 16Total income tax expense - continuing operations 433 319Effective income tax rate - continuing operations 16.6% 18.7% (1)Includes a charge of • 29.5m in the year ended 31 December 2005 in relationto the Irish Government bank levy. 13 Earnings per share 2006 2005 • m • m(a) Basic Profit attributable to equity holders of the parent 2,185 1,343 Distributions to other equity holders (38) (38)Profit attributable to ordinary shareholders 2,147 1,305Weighted average number of shares in issue during the period 870.1m 864.5m Earnings per share EUR 246.8c EUR 151.0c (b) Diluted 2006 2005 • m • mProfit attributable to ordinary shareholders (note 13(a)) 2,147 1,305 Dilutive impact of potential ordinary shares in subsidiary and associated (2) (1)companiesAdjusted profit attributable to ordinary shareholders 2,145 1,304 Number of shares (millions)Weighted average number of shares in issue during the period 870.1 864.5Dilutive effect of options outstanding 7.0 5.7Potential weighted average number of shares 877.1 870.2Earnings per share - diluted EUR 244.6c EUR 149.8c Notes to the accounts 13 Earnings per share (continued) (c) Continuing operations • m • mProfit attributable to ordinary shareholders (note 13(a)) 2,147 1,305 Discontinued operations 116 46Profit attributable to ordinary shareholders - continuing operations 2,031 1,259Weighted average number of shares in issue during the period 870.1m 864.5m Earnings per share EUR 233.5c EUR 145.7c (d) Continuing operations - diluted • m • mProfit attributable to ordinary shareholders - continuing operations (note 13(c)) 2,031 1,259Dilutive impact of potential ordinary shares in subsidiary and associatedcompanies (2) (1)Adjusted profit attributable to ordinary shareholders - continuing operations 2,029 1,258 Number of shares (millions)Weighted average number of shares in issue during the period 870.1 864.5Dilutive effect of options outstanding 7.0 5.7Potential weighted average number of shares 877.1 870.2Earnings per share continuing operations - diluted EUR 231.4c EUR 144.6c Profit attributable Earnings per share 2006 2005 2006 2005 • m • m cent cent(a) Basic earnings per shareAs reported (note 13(a)) 2,147 1,305 246.8 151.0Adjustments:Construction contract income (82) (38) (9.4) (4.4)Hedge volatility(1) 4 (6) 0.5 (0.7)Profit on disposal of property (290) - (33.4) -Profit on disposal of businesses* (189) - (21.7) - 1,590 1,261 182.8 145.9 Profit attributable Earnings per share 2006 2005 2006 2005 • m • m cent centDiluted earnings per shareAs reported (note 13(b)) 2,145 1,304 244.6 149.8Adjustments:Construction contract income (82) (38) (9.3) (4.4)Hedge volatility(1) 4 (6) 0.5 (0.7)Profit on disposal of property (290) - (33.2) -Profit on disposal of businesses* (189) - (21.5) - 1,588 1,260 181.1 144.7 * of which Ark Life amounts to • 112m which is included within discontinuedactivities 14 Adjusted earnings per share (continued) Profit attributable Earnings per share 2006 2005 2006 2005 • m • m cent cent(b) Basic earnings per share - continuing operationsAs reported (note 13(c)) 2,031 1,259 233.5 145.7Adjustments:Construction contract income (82) (38) (9.4) (4.4)Hedge volatility(1) 4 (6) 0.5 (0.7)Profit on disposal of property (290) - (33.4) -Profit on disposal of businesses (77) - (8.8) - 1,586 1,215 182.4 140.6 Profit attributable Earnings per share 2006 2005 2006 2005 • m • m cent centDiluted earnings per share - continuing operationsAs reported (note 13(d)) 2,029 1,258 231.4 144.6Adjustments:Construction contract income (82) (38) (9.3) (4.4)Hedge volatility(1) 4 (6) 0.5 (0.7)Profit on disposal of property (290) - (33.2) -Profit on disposal of businesses (77) - (8.7) - 1,584 1,214 180.7 139.5 Although not required under IFRS, adjusted earnings per share is presented tohelp understand the underlying performance of the Group. The adjustments in 2006and 2005 are items that management believe do not reflect the underlyingbusiness performance. The adjustment in respect of profit on sale of propertyrelates only to the profit on sale of properties that are subject to sale andleaseback arrangements (note 9). The adjustments listed above are shown net oftaxation. (1)Included in net trading income 2006 200515 Trading portfolio financial assets • m • mLoans and receivables to banks 3 3Loans and receivables to customers 25 72Debt securities:Governments securities 274 922Other public sector securities - 19Other debt securities (1) 8,527 9,008 8,801 9,949Equity shares 124 89 8,953 10,113 (1) Other debt securities include • 4,832m (2005: • 5,770m) of bank eurobondsand • 3,039m (2005: • 2,646m) of corporate collateralised mortgage obligations. Notes to the accounts 2006 200516 Loans and receivables to customers • m • mLoans and receivables to customers 103,651 81,845Amounts receivable under finance leases and hire purchase contracts 3,003 2,774Unquoted securities 1,166 1,287Provisions for impairment of loans and receivables (note 17) (705) (674) 107,115 85,232 2006 2005 • m • mImpaired loans by divisionAIB Bank ROI 366 308AIB Bank UK 205 166Capital Markets 130 132Poland 232 262 933 868 17 Provisions for impairment of loans and receivables 2006 2005 • m • mAt beginning of period 676 614Exchange translation adjustments (1) 16Charge against income statement 118 115Amounts written off (96) (72)Recoveries of amounts written off in previous years 10 3 At end of period 707 676 At end of period: Specific 518 514IBNR 189 162 707 676Amounts include:Loans and receivables to banks 2 2Loans and receivables to customers (note 16) 705 674 707 676 2006 200518 Financial investments available for sale • m • mDebt securities:Government securities 7,490 8,522Other public sector securities 1,855 507Bank and building society certificates of deposit 1,591 643Other debt securities 8,436 7,021 19,372 16,693Equity shares 293 171 19,665 16,864 Notes to the accounts 19 Interests in Hibernian Life Holdings Limited Ark Life Assurance Company Limited The following table sets out the income and expense from long-term assurancebusiness included in the income statement for the year ended 31 December 2005. Income and expense from Ark Life's long-term assurance business 2005 • mNet interest income 113 Other income 740Total operating income 853 Increase in insurance and investment contract liabilities, and 762claims Total operating expenses 27Income before taxation 64 Taxation 4Income after taxation 60Analysed as to: Continuing operations 14Discontinued operations 46 Some elements of the Ark Life business are being retained within the Group andthis gives rise to the analysis outlined above between continuing operations anddiscontinued operations. Income after taxation of Ark Life amounting to • 4m wasincluded within discontinued activities for the period to 30 January 2006. Balance sheet The assets and liabilities of Ark Life included in the consolidated balancesheet as at 31 December 2005 of the Group were as follows: 2005 • mAssets Loans and receivables to banks 191Assets held at fair value through profit or loss 2,638 Property, plant and equipment 52Reinsurance assets 748Placings with group companies 1,428 Other assets 371Total assets 5,428Liabilities Investment contract liabilities 2,953Insurance contract liabilities 1,923 Other liabilities 215Total liabilities 5,091Shareholders' equity 337Total liabilities and shareholders' equity 5,428 Notes to the accounts 19 Interests in Hibernian Life Holdings Limited (continued) Presentation in the Group balance sheet at 31 December 2005 Holdings of shares in Allied Irish Banks, p.l.c., (by the parent or subsidiarycompanies), for any reason, are deducted in arriving at shareholders' equity. At31 December 2005, shares in AIB with a value of • 77m were held within thelong-term business funds to meet the liabilities to policyholders. Long-termassurance assets attributable to policyholders are presented in the Groupbalance sheet net of the carrying value of the shares in AIB held within thefund. Group shareholders' funds have been reduced by a similar amount. As aresult the assets of Ark Life, • 5,351m (being total assets of • 5,428m net ofAIB shares of • 77m) were included in the Group balance sheet within thecaption, 'Disposal group and assets classified as held for sale'. Ark Life'sliabilities of • 5,091m were included in the liabilities caption, 'Disposalgroup classified as held for sale'. Hibernian Life Holdings Limited The contribution of Hibernian Life Holdings Limited ('HLH') from 30 January 2006is included within share of results of associated undertakings as follows:- 2006 •mShare of income of HLH 26Amortisation of intangible assets 2Share of income before taxation 24Taxation attributable to policyholder returns 12Profit attributable to shareholders before taxation 12Taxation 1Included within associated undertakings 11 In addition to the income described above, the Group recognised fee income onthe sale of life insurance and investment products amounting to • 31m for theyear ended 31 December 2006 (2005: • 26m). The assets and liabilities of HLH at 31 December 2006, accounted for inaccordance with the accounting policies of the Group, and taking into accountthe acquisition adjustments, are set out below: Summary of consolidated balance sheet 2006 • mCash and placings with banks 762Financial investments 11,648Investment property 765Property, plant and equipment 15Reinsurance assets 2,145Other assets 821Total assets 16,156Investment contract liabilities 6,742Insurance contract liabilities 7,055Other liabilities 1,253Shareholders' equity 1,106Total liabilities and shareholders' equity 16,156 Notes to the accounts 2006 200520 Customer accounts • m • mCurrent accounts 25,151 20,909Demand deposits 8,924 8,013Time deposits 33,831 28,118 67,906 57,040Securities sold under agreements to repurchase 1 6Other short-term borrowings 6,968 5,534 6,969 5,540 74,875 62,580 Contract amount 2006 200521 Memorandum items: contingent liabilities and commitments • m • mContingent liabilities: Guarantees and assets pledged as collateral security: Guarantees and irrevocable letters of credit 5,902 7,157Other contingent liabilities 1,191 1,396 7,093 8,553 Commitments: Other commitments 24,056 19,558 31,149 28,111 The Group's maximum exposure to credit loss under contingent liabilities andcommitments to extend credit, in the event of non-performance by the other partywhere all counterclaims, collateral or security prove valueless, is representedby the contractual amounts of those instruments. The following table presents the notional principal amount and gross replacementcost of interest rate, exchange rate, equity and credit derivatives contractsfor 2006 and 2005. 2006 2005 Notional Gross Notional Gross principal replacement principal replacement amount cost amount cost • m • m • m • mInterest rate contracts(1) 217,435 1,165 178,326 1,146Exchange rate contracts(1) 20,226 107 19,799 238Equity contracts(1) 6,485 438 4,386 253Credit derivatives(1) 570 - - -Total 244,716 1,710 202,511 1,637 (1) Interest rate contracts are entered into for both hedging and tradingpurposes. Exchange rate, equity and credit derivative contracts are entered intofor trading purposes only. Notes to the accounts 21 Memorandum items: contingent liabilities and commitments (continued) The Group uses the same credit control and risk management policies inundertaking off-balance sheet commitments as it does for on balance sheetlending including counterparty credit approval, limit setting and monitoringprocedures. In addition, in relation to derivative instruments, the Group'sexposure to market risk is controlled within the risk limits in the Group'sInterest Rate Risk and Foreign Exchange Risk Policies and is further constrainedby the risk parameters incorporated in the Group's Derivatives Policy asapproved by the Board. 22 Average balance sheets and interest rates The following tables show the average balances and interest rates of interestearning assets and interest bearing liabilities for the years ended 31 December2006 and 2005. The calculation of average balances include daily and monthlyaverages for reporting units. The average balances used are considered to berepresentative of the operations of the Group. Year ended 31 December 2006 Year ended 31 December 2005 Average Interest Average Average Interest Average balance rate balance rateAssets • m • m % • m • m %Loans and receivables to banks Domestic offices 4,930 191 3.9 4,596 117 2.5 Foreign offices 2,307 116 5.1 1,131 50 4.4Loans and receivables to customers Domestic offices 62,641 3,162 5.1 47,806 2,084 4.4 Foreign offices 33,133 2,177 6.6 27,664 1,768 6.4Trading portfolio financial assets Domestic offices 9,205 349 3.8 7,786 257 3.3 Foreign offices 1,316 31 2.3 1,308 48 3.7Financial investments available forsale Domestic offices 14,671 588 4.0 12,869 470 3.7 Foreign offices 4,339 209 4.8 3,220 177 5.5Total interest earning assets Domestic offices 91,447 4,290 4.7 73,057 2,928 4.0 Foreign offices 41,095 2,533 6.2 33,323 2,043 6.1Net interest on swaps 85 125Total average interest earning assets 132,542 6,908 5.2 106,380 5,096 4.8 Non-interest earning assets 8,827 13,209Total average assets 141,369 6,908 4.9 119,589 5,096 4.3Percentage of assets applicable to foreign activities 31.5 31.1 Notes to the accounts Year ended 31 December 2006 Year ended 31 December 2005 Average Interest Average Average Interest Average balance rate balance rateLiabilities and shareholders' equity • m • m % • m • m % Due to banks Domestic offices 28,375 1,067 3.8 25,288 693 2.7 Foreign offices 2,098 96 4.6 1,963 81 4.1Due to customers Domestic offices 36,101 809 2.2 27,820 473 1.7 Foreign offices 21,282 768 3.6 18,545 642 3.5Other debt issued Domestic offices 13,615 456 3.4 7,001 171 2.4 Foreign offices 10,144 499 4.9 8,486 374 4.4Subordinated liabilities Domestic offices 3,542 182 5.2 2,925 132 4.5 Foreign offices 551 32 5.8 - - - Total interest earning liabilities Domestic offices 81,633 2,514 3.1 63,034 1,469 2.3 Foreign offices 34,075 1,395 4.1 28,994 1,097 3.8 Total average interest earningliabilities 115,708 3,909 3.4 92,028 2,566 2.8Non interest earning liabilities 18,263 21,237 Total liabilities 133,971 3,909 2.9 113,265 2,566 2.3Stockholders' equity 7,398 6,324 Total average liabilities and stockholders' equity 141,369 3,909 2.8 119,589 2,566 2.2 Percentage of liabilities applicable to foreign operations 30.2 30.7 22 Average balance sheets and interest rates (continued) 23 Post-balance sheet events There have been no material post-balance sheet events which would requiredisclosure or adjustment to the 31 December 2006 Financial Statements. On 5March 2007, the Board of Directors reviewed the Financial Statements andauthorised them for issue. These Financial Statements will be submitted to theAnnual General Meeting of Shareholders to be held on 9 May 2007 for approval. 24 Dividends Final dividends are not accounted for until they have been approved at theAnnual General Meeting of Shareholders to be held on 9 May 2007. It isrecommended that a final dividend of Eur 46.5c per ordinary share, amounting to• 407m, be paid on 10 May 2007. The Financial Statements for the year ended 31December 2006 do not reflect this resolution, which will be accounted for inshareholders' equity as an appropriation of retained profits in the year ending31 December 2007. 25 Form 20-F An annual report on Form 20-F will be filed with the Securities and ExchangeCommission, Washington D.C. and, when filed, will be published on the Company'swebsite and will be available to shareholders on application to the CompanySecretary. 26 Approval of accounts The accounts were approved by the Board of Directors on 5 March 2007. Financial and other information 2006 2005Operating ratiosOperating expenses/operating income 53.5% 55.2%Other income/operating income 30.7% 30.6%Net interest margin:Group 2.26% 2.38%Domestic 2.04% 2.17%Foreign 2.77% 2.83%Rates of exchange• /US $Closing 1.3170 1.1797Average 1.2566 1.2484• /Stg £Closing 0.6715 0.6853Average 0.6822 0.6851• /PLNClosing 3.8310 3.8600Average 3.8965 4.0276 2006 2005Capital adequacy information • m • mRisk weighted assetsBanking book:On balance sheet 101,285 79,520Off-balance sheet 13,033 14,682 114,318 94,202Trading book:Market risks 8,172 6,891Counterparty and settlement risks 544 563 8,716 7,454Total risk weighted assets 123,034 101,656 Capital Tier 1 10,116 7,275 Tier 2 3,838 4,089 13,954 11,364 Supervisory deductions 310 487 Total 13,644 10,877 Capital ratios(1) Tier 1 8.2% 7.2%Total 11.1% 10.7% (1) The final dividend of • 407m has not been taken into account in thecalculation of the Tier 1 and Total capital ratios. The Financial Regulator hasissued a requirement that a Prudential Filter be applied to proposed finaldividends with effect from July 2007. If applied at 31 December 2006, the Tier 1and Total capital ratios would be 7.9% and 10.8% respectively. Five year financial summary 2006 US Summary of consolidated income statement (1) 2006 Year ended 31 December $m 2005 2004 IFRS 2003 2002 IFRS IFRS • m IR GAAP IR GAAP • m • m • m • m 3,950 Net interest income 2,999 2,530 2,072 1,934 2,351 - Other finance income - - - 12 62 1,748 Other income 1,327 1,117 1,144 1,230 1,514 5,698 Total operating income 4,326 3,647 3,216 3,176 3,927 3,048 Total operating expenses 2,314 2,011 1,869 1,960 2,318 2,650 Operating profit before provisions 2,012 1,636 1,347 1,216 1,609 137 Provisions 104 143 133 177 251 2,513 Operating profit 1,908 1,493 1,214 1,039 1,358 220 Associated undertakings 167 149 132 143 9 Share of restructuring & integration costs in associated undertaking - - - (20) - - Amortisation of goodwill on acquisition of associated undertaking - - - (42) - -481 Profit on disposal of property 365 14 9 32 5 126 Construction contract income 96 45 - - - 104 Profit/(loss) on disposal of businesses 79 5 17 (141) - 3,444 Profit before taxation - continuing operations 2,615 1,706 1,372 1,011 1,372 570 Income tax expense - continuing operations 433 319 267 318 306 2,874 Profit after taxation - continuing operations 2,182 1,387 1,105 693 1,066 153 Discontinued operation, net of taxation 116 46 53 - - 3,027 Profit for the period 2,298 1,433 1,158 693 1,066 325.0c Basic earnings per share 246.8c 151.0c 132.0c 78.8c 119.1c 322.1c Diluted earnings per share 244.6c 149.8c 131.5c 78.4c 117.9c 2006 US Summary of consolidated balance sheet (1) 2006 Year ended 31 December $m 2005 2004 IFRS 2003 2002 IFRS IFRS • m IR GAAP IR GAAP • m • m • m • m 208,777 Total assets 158,526 133,214 101,109 80,960 85,821 158,059 Total loans 120,015 92,361 67,278 53,326 58,483 180,216 Total deposits 136,839 109,520 82,384 66,195 72,190 3,514 Dated capital notes 2,668 2,678 1,923 1,276 1,287 1,147 Undated loan capital 871 868 346 357 389 1,587 Other capital instruments 1,205 210 497 497 496 1,721 Minority interests in subsidiaries 1,307 1,248 1,211 158 274 655 Shareholders' equity: other interests 497 497 182 196 235 10,678 Ordinary shareholders' equity 8,108 6,672 5,745 4,942 4,180 19,302 Total capital resources 14,656 12,173 9,904 7,426 6,861 Five year financial summary (continued) Year ended 31 December 2006 2005 2004 2003 2002 IFRS IFRS IFRS IR GAAP IR GAAPOther financial data(1) % % % % %Return on average total assets 1.63 1.20 1.22 0.90 1.24Return on average ordinary shareholders' equity 29.0 20.6 20.7 14.5 23.7Dividend ratio 29.3 43.5 45.5 66.8 41.5Average ordinary shareholders' equity as a percentage of average total assets 5.2 5.3 5.7 6.0 5.1Allowance for loan losses as a percentage of total loans to customers at year end 0.7 0.8 1.2 1.3 1.6Net interest margin 2.26 2.38 2.45 2.72 3.00Tier 1 ratio 8.2 7.2 8.2 7.1 6.9Total ratio 11.1 10.7 10.9 10.4 10.1 (1) Up to and including the year ended 31 December 2004,AIB's primary financialstatements were prepared in accordance with Irish Generally Accepted AccountingPrinciples ('Irish GAAP'). On 1 January 2005, AIB Group implemented therequirements of International Financial Reporting Standards and InternationalAccounting Standards (collectively, 'IFRS') for the first time and these wereused for the purpose of preparing the financial statements for the years ended31 December 2005 and 31 December 2006. These financial statements have beenprepared based on the recognition and measurement requirements of IFRS issued bythe International Accounting Standards Board ('IASB') as adopted by the EuropeanUnion ('EU'). AIB availed of transitional provisions for IAS 32 'Financial Instruments:Disclosure and Presentation' ('IAS 32'), IAS 39 'Financial Instruments:Recognition and Measurement' ('IAS 39') and IFRS 4 'Insurance Contracts' ('IFRS4') and did not present comparative information in accordance with thesestandards in its 2005 financial statements. Accordingly, comparative informationfor 2004 in respect of financial instruments and insurance contracts has beenprepared on the basis of the Group's accounting policies under Irish GAAP. Thusthe five year trends will not be entirely comparable. Accounts in sterling, US dollars and Polish zloty Summary of consolidated income statement • m Stg £ m US $ m PLN mFor the year ended 31 December 2006 STG£ 0.6715 US $ PLN 3.8310 = • 1 1.3170 = • 1 = • 1Operating profit before provisions 2,012 1,351 2,650 7,708Provisions 104 70 137 398Operating profit 1,908 1,281 2,513 7,310Associated undertakings 167 112 220 640Profit on disposal of property 365 245 481 1,398Construction contract income 96 65 126 368Profit on disposal of businesses 79 53 104 302Profit before taxation - continuing operations 2,615 1,756 3,444 10,018Income tax expense - continuing operations 433 291 570 1,658Profit after taxation - continuing operations 2,182 1,465 2,874 8,360Discontinued operation, net of taxation 116 78 153 444Profit for the period 2,298 1,543 3,027 8,804Minority interests in subsidiaries 113 76 149 433Profit attributable to equity holders of the parent 2,185 1,467 2,878 8,371Basic earnings per share 246.8c 165.7p 325.0c 945.5PLNDiluted earnings per share 244.6c 164.3p 322.1c 937.1PLN Summary of consolidated balance sheet31 December 2006 • m Stg £ m US $ m PLN mAssetsTrading portfolio financial assets 8,953 6,012 11,791 34,299Derivative financial instruments 2,890 1,941 3,806 11,071Loans and receivables to banks 12,900 8,662 16,989 49,420Loans and receivables to customers 107,115 71,928 141,070 410,358Financial investments available for sale 19,665 13,205 25,899 75,337Intangible assets and goodwill 550 369 724 2,107Property, plant and equipment 593 398 781 2,272Disposal group and assets classified as held for sale 39 26 51 149Other assets 5,821 3,908 7,666 22,300 158,526 106,449 208,777 607,313LiabilitiesDeposits by banks 33,433 22,450 44,031 128,082Customer accounts 74,875 50,278 98,610 286,846Derivative financial instruments 2,531 1,700 3,333 9,696Debt securities in issue 28,531 19,159 37,575 109,302Other liabilities 4,500 3,021 5,926 17,239Subordinated liabilities and other capital instruments 4,744 3,185 6,248 18,175Minority interests in subsidiaries 1,307 878 1,721 5,007Shareholders' equity 8,605 5,778 11,333 32,966 158,526 106,449 208,777 607,313 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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