3rd Aug 2005 07:00
Allied Irish Banks PLC03 August 2005 Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB) Highlights - AIB Group interim results 2005 Basic earnings per share EUR 72.3c, up 16%(1) or up 15%before the net impact of hedge ineffectiveness and timing of funding payments on certain capital instruments under IFRS(2) Revised guidance for 2005 - EPS in the range of EUR 140c to EUR 142c Divisional Profit Performance (3) • AIB Bank ROI up 34% or 17% excluding the • 45m investigation related charges incurred in 2004 - AIB Bank GB & NI up 13% - Capital Markets up 33% - Poland up 17% Income / cost gap + 4% Cost income ratio down 2% to 54.6% Return on equity 20% Tier 1 capital ratio 7.7% Interim dividend of EUR 23.0c, up 10% Double-digit US$ earnings growth from M&T AIB Group Chief Executive Eugene Sheehy said: 'In the first half of 2005 AIB has continued to deliver a strong and broad basedperformance. Our success is founded on sound business strategies in good marketsexecuted by top quality staff. We are confident that this level of performanceis sustainable and we continue to invest heavily in people and systems tosupport our activities.' (1) A 16% increase compared with the half-year June 2004 pro-forma earnings pershare of EUR 62.4c. (2) The impact of hedge ineffectiveness under IFRS was to add • 2 million toprofit before taxation for the half-year. Under IFRS, funding payments in relation to certain capital instruments areaccounted for as they are paid rather than on an accruals basis. This gives riseto a timing benefit in the first half-year. This timing benefit will beeliminated in the second half-year. (3) Excluding the impact of exchange rate movements on the translation offoreign locations' profit. Results for the half-year ended 30 June 2004 and for the year ended 31 December2004 have been restated to reflect the application of International FinancialReporting Standards, with the exception of IAS 32, IAS 39 and IFRS 4 which applywith effect from 1 January 2005. See Basis of preparation on page 20. Allied Irish Banks, p.l.c. Dividend The Board has declared an interim dividend of EUR 23.0c per share, an increaseof 10% on the half-year ended 30 June 2004. The dividend will be paid on 23September 2005 to shareholders on the Company's register of members at the closeof business on 12 August 2005. For further information please contact: Declan Mc Sweeney Alan Kelly Catherine BurkeChief Financial Officer Head of Group Investor Relations Head of Corporate RelationsBankcentre Bankcentre BankcentreDublin Dublin Dublin353-1-660-0311 353-1-660-0311 353-1-660-0311Ext. 14954 Ext. 12162 Ext. 13894 This results announcement and a detailed informative presentation can be viewedon our internet site at www.aibgroup.com/investorrelations Forward-looking statements A number of statements we make in this document will not be based on historicalfact, but will be 'forward-looking' statements within the meaning of the UnitedStates Private Securities Litigation Reform Act of 1995. Actual results maydiffer materially from those projected in the 'forward-looking' statements.Factors that could cause actual results to differ materially from those in the 'forward-looking' statements include, but are not limited to, global, national,regional economic conditions, levels of market interest rates, credit and otherrisks of lending and investment activities, competitive and regulatory factorsand technology change. Any 'forward-looking' statements made by or on behalf ofthe Group speak only as of the date they are made. Financial highlights (unaudited) for the half-year ended 30 June 2005 Half-year Half-year As at Year 30 June 30 June 1 January 31 December 2005 2004 2005 2004 • m • m • m • mResultsTotal operating income 2,158 1,746 3,608Operating profit 776 630 1,272Profit on ordinary activities before taxation 851 706 1,430Profit attributable to equity holders of the 661 544 1,129parent Per • 0.32 ordinary shareEarnings - basic 72.3c 64.1c 132.0cEarnings - diluted 71.7c 63.8c 131.5cDividend 23.0c 20.9c 59.4cDividend payout 32% 33% 46%Net assets 770c 670c 671c Performance measuresReturn on average total assets 1.23% 1.28% 1.22%Return on average ordinary shareholders' equity 20.1% 20.3% 20.7% Balance sheetTotal assets 115,937 94,627 102,819 101,109Ordinary shareholders' equity 6,636 5,688 5,975 5,745Loans etc 78,214 61,999 68,230 67,278Deposits etc 93,646 78,404 82,384 82,384 Capital ratiosTier 1 capital 7.7% 7.2% 8.3% 8.3%Total capital 11.0% 9.9% 10.9% 11.1% Results for the half-year ended 30 June 2004 and for the year ended 31 December2004 have been restated to reflect the application of International FinancialReporting Standards, with the exception of IAS 32, IAS 39 and IFRS 4 which applywith effect from 1 January 2005. See Basis of preparation on page 20. Allied Irish Banks, p.l.c. Group Headquarters & Registered Office Bankcentre, Ballsbridge Dublin 4, Ireland Telephone (01) 6600311 Registered number 24173Consolidated interim income statement (unaudited)for the half-year ended 30 June 2005 Half-year Half-year Year 30 June 30 June 31 December 2005 2004 2004 Notes • m • m • m Interest and similar income 3 2,463 1,838 4,035Interest expense and similar charges 4 1,195 817 1,901 Net interest income 1,268 1,021 2,134Dividend income 40 38 60Fee and commission income 521 507 1,051Fee and commission expense (72) (65) (136)Trading and other financial income 227 103 235Other operating income 5 174 142 264Other income 890 725 1,474 Total operating income 2,158 1,746 3,608 Increase in insurance and investment contract liabilities, 355 156 309and claimsAdministrative expenses 6 920 833 1,748Depreciation of property, plant and equipment 42 32 67Amortisation/impairment of intangible assets and goodwill 23 32 79Total operating expenses 985 897 1,894 Operating profit before provisions 818 693 1,405Impairment losses on loans and advances 11 46 55 114Provisions for contingent liabilities and commitments (5) 8 20Amounts written off/(written back) financial investments 1 - (1) Operating profit 776 630 1,272Share of results of associated undertakings 70 62 132Profit on disposal of property 5 2 9Profit on disposal of businesses - 12 17 Profit on ordinary activities before taxation 851 706 1,430Taxation on ordinary activities 7 169 145 272 Profit for the period 682 561 1,158 Attributable to:Equity holders of the parent 661 544 1,129Minority interests 21 17 29 682 561 1,158 Earnings per • 0.32 ordinary share - basic 8(a) 72.3c 64.1c 132.0c Earnings per • 0.32 ordinary share - diluted 8(b) 71.7c 63.8c 131.5c Results for the half-year ended 30 June 2004 and for the year ended 31 December2004 have been restated to reflect the application of International FinancialReporting Standards, with the exception of IAS 32, IAS 39 and IFRS 4 which applywith effect from 1 January 2005. See Basis of preparation on page 20. Consolidated interim balance sheet (unaudited)30 June 2005 30 June 1 January 31 December 30 June 2005 2005 2004 2004 Notes • m • m • m • m AssetsCash and balances at central banks 666 887 887 599Items in course of collection 695 368 368 625Central government bills and other eligible - - - 153billsTrading portfolio assets 9 9,502 7,957 - -Assets held at fair value through profit and 2,197 1,871 - -lossDerivative financial instruments 2,604 2,581 - -Loans and receivables to banks 3,543 2,538 2,540 2,741Loans and receivables to customers 10 74,671 65,692 64,738 59,258Debt securities - - 24,501 24,228Equity shares - - 1,641 1,470Financial investments 13 16,487 15,720 - -Interests in associated undertakings 1,629 1,395 1,379 1,459Intangible assets and goodwill 518 540 540 534Property, plant and equipment 736 745 745 755Other assets 1,726 1,460 2,622 1,824Deferred taxation 197 204 228 166Prepayments and accrued income 766 861 920 815 Total assets 115,937 102,819 101,109 94,627 LiabilitiesDeposits by banks 22,321 20,428 20,428 23,838Customer accounts 15 55,046 50,151 50,151 47,740Trading portfolio liabilities 203 332 - -Derivative financial instruments 2,084 2,541 - -Investment contract liabilities 2,743 2,422 2,422 2,344Debt securities in issue 16,279 11,805 11,805 6,826Insurance contract liabilities 1,608 1,465 864 733Current taxation 225 197 175 209Other liabilities 2,207 1,593 3,388 3,166Accruals and deferred income 792 705 913 734Retirement benefit liabilities 1,061 886 886 624Provisions for liabilities and charges 110 122 122 115Deferred taxation 41 38 52 57Subordinated liabilities and other capital 2,853 2,451 2,765 2,170instruments Total liabilities 107,573 95,136 93,971 88,556 Shareholders' equityShare capital 294 294 294 293Share premium account 1,693 1,693 1,693 1,694Other equity interests 497 497 182 203Reserves 1,451 1,159 954 965Profit and loss account 3,198 2,829 2,804 2,736Shareholders' equity 7,133 6,472 5,927 5,891Minority interests 1,231 1,211 1,211 180 Total shareholders' equity including minority 8,364 7,683 7,138 6,071interests Total liabilities, shareholders' equity and minority interests 115,937 102,819 101,109 94,627 The financial position as at 30 June 2004 and 31 December 2004 has been restatedto reflect the application of International Financial Reporting Standards, withthe exception of IAS 32, IAS 39 and IFRS 4 which apply with effect from 1 January 2005. See Basis of preparation on page 20. Condensed interim statement of cash flows (unaudited)for the half-year ended 30 June 2005 Half-year Half-year Year 30 June 30 June 31 December 2005 2004 2004 • m • m • m Net cash flows from operating activities 1,333 4,195 2,660 Investing activitiesNet increase in financial investments (321) (4,130) (4,038)Additions to tangible and intangible fixed assets (50) (51) (126)Disposal of tangible fixed assets 11 6 20Investments in associated undertakings - - (7)Disposal of investment in subsidiary - 11 15Disposal of associated undertakings - - 1Dividends received from associated undertakings 18 17 37 Cash flows from investing activities (342) (4,147) (4,098) Financing activitiesIssue of ordinary share capital 37 7 53Redemption of subordinated liabilities (441) - (32)Issue of new subordinated liabilities 718 - 733Issue of preferred securities - - 990Interest paid on subordinated liabilities (26) (49) (105)Equity dividends paid (333) (218) (340)Dividends on other equity interests (38) (2) (4)Dividends paid to minority interests (1) (2) (2) Cash flows from financing activities (84) (264) 1,293 Net increase/(decrease) in cash and cash equivalents 907 (216) (145)Cash and cash equivalents 1 January 2,056 2,152 2,152Effect of exchange 81 53 49 Cash and cash equivalents 3,044 1,989 2,056 The financial position as at 30 June 2004 and 31 December 2004 has been restatedto reflect the application of International Financial Reporting Standards, withthe exception of IAS 32, IAS 39 and IFRS 4 which apply with effect from 1January 2005. See Basis of preparation on page 20. Interim statement of recognised income and expense (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2005 2004 2004 • m • m • m Foreign exchange translation differences 252 127 (73)Net change in cash flow hedges, net of tax 120 - -Net change in fair value of available for sale securities, net of 98 - -taxNet actuarial gains and losses in retirement benefit schemes, net of (154) 55 (197)taxNet recognised gains/(losses) in associated undertaking 3 - 20 Income and expense recognised directly in equity 319 182 (250)Profit for the period 682 561 1,158 Total recognised income and expense for the period 1,001 743 908 Attributable to:Equity holders of the parent 980 726 879Minority interest 21 17 29 Total recognised income and expense for the period 1,001 743 908 Condensed reconciliation of movements in shareholders' equity (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2005 2004 2004 • m • m • m Profit attributable to equity holders of the parent 661 544 1,129Transition adjustment at 1 January 2005 arising from IAS 32,IAS 39 and IFRS 4 (note 1) 545 - -Dividends on ordinary shares (333) (296) (476)Dividends on other equity interests (38) (2) (4)Share based payments 5 2 8Actuarial (loss)/gain recognised in retirement benefit schemes (154) 55 (197)Actuarial (loss)/gain recognised in associated undertaking (3) (3) (1)Other recognised gains/(losses) relating to the period 470 135 (84)Other recognised gains/(losses) in associated undertaking 6 3 21Ordinary shares issued in lieu of cash dividend - 79 134Other ordinary shares issued 56 34 71Net movement in own shares (9) (6) (20) Net additions to shareholders' equity 1,206 545 581Opening shareholders' equity 5,927 5,346 5,346 Closing shareholders' equity 7,133 5,891 5,927 Shareholders' equity:Ordinary shareholders' equity 6,636 5,688 5,745Other equity interests 497 203 182 7,133 5,891 5,927 Results for the half-year ended 30 June 2004 and for the year ended 31 December2004 have been restated to reflect the application of International FinancialReporting Standards, with the exception of IAS 32, IAS 39 and IFRS 4 which applywith effect from 1 January 2005. See Basis of preparation on page 20. Commentary on results Rates of Exchange The following table shows the average accounting rates and average effectiverates for both periods. The average effective rates include the impact of currency hedging activities. Average Average Average Average accounting rates accounting rates effective rates effective rates half-year half-year half-year half-year June 2005 June 2004 June 2005 June 2004 US dollar 1.2894 1.2279 1.32 1.16Sterling 0.6862 0.6764 0.70 0.70Polish zloty 4.0827 4.7232 4.08 4.70 The results for 2004 have been restated to take account of InternationalFinancial Reporting Standards ('IFRS') implemented with effect from 1 January2004. This restatement of results for 2004 excludes adjustments for standardsimplemented with effect from 1 January 2005. IAS 32, IAS 39 and IFRS 4 have beenimplemented from 1 January 2005. Had these standards been implemented from 1January 2004, it would have impacted the accounting for derivatives, loanimpairment, income recognition on loans (Effective Interest Rate 'EIR'),insurance accounting and classification of financial instruments. In addition tothe IFRS restated accounts, the following commentary shows the IFRS pro-formaaccounts for 2004.The pro-forma accounts for 2004 reflect the impacts of EIR,insurance accounting and classification of financial instruments in order toestablish a 2004 pro-forma IFRS restatement but do not reflect the impact ofaccounting for derivatives and loan impairment. In order to show comparabletrends, the growth percentages in the following commentary reflect the IFRShalf-year to June 2005 compared with the IFRS pro-forma half-year to June 2004.The growth percentages are also shown on an underlying basis adjusted for theimpact of exchange rate movements on the translation of foreign locations'profit and excluding hedge ineffectiveness under IFRS. Investigation related charges referred to in the following commentary wereincurred in 2004 and relate primarily to the application of prices to foreignexchange products without regulatory approval. AIB provided • 45 million forinvestigation related charges and costs in the half-year to June 2004 with • 6million charged to net interest income, • 30 million charged to other income and• 9 million of costs included in operating expenses. "Total income up 12%" "Strong loan and deposit volume growth" "Net interest margin down 18 basis points" Total income(1) Total income increased by 12% to • 1,803 million. IFRS IFRS IFRS Underlying Half-year Half-year Pro-forma % change June 2005 June 2004 June 2004 2005 vTotal operating income • m • m • m Pro-forma 2004 Net interest income 1,268 1,021 1,073 17Other income(1) 535 569 513 2 Total operating income 1,803 1,590 1,586 12 (1) Includes increase in insurance and investment contract liabilities, andclaims. Commentary on results Net interest income Net interest income amounted to • 1,268 million, an increase of 17% or 16%excluding • 6 million of investigation related charges in the half-year to June2004. Strong loan and deposit growth in Republic of Ireland and GB & NI, strongloan growth in Corporate Banking and very good growth in loan arrangement feeswere the key factors generating the increase. Loans to customers increased by11% and customer accounts increased by 6% on a constant currency basis sinceDecember 2004 (details of loan and deposit growth by division are contained onpage 13 of this release). Net interest income also benefited from income earnedon the • 1 billion of perpetual preferred securities issued in December 2004. IFRS IFRS Half-year Half-year % June 2005 June 2004 change(1)Average interest earning assets • m • m 2005 v 2004 Average interest earning assets 100,391 79,060 27 (1) This particular analysis is not adjusted for the impact of exchange ratemovements. IFRS IFRS Pro-forma Half-year Half-year Basis June 2005 June 2004 pointNet interest margin % % change Group net interest margin 2.55 2.73 -18 The domestic and foreign margins for the half-year to June 2005 are reported onpage 47 of this release. AIB Group manages its business divisionally on a product margin basis withfunding and groupwide interest exposure centralised and managed by GlobalTreasury. While a domestic and foreign margin is calculated for the purpose ofstatutory accounts, the analysis of net interest margin trends is best explainedby analysing business factors as follows: The Group net interest margin amounted to 2.55%, a decrease of 18 basis pointscompared with the half-year to June 2004 on an IFRS basis. The margin reductionwas due to a continuation of trends evident in recent years with: (a) loans increasing at a faster rate than deposits. (b) a changing mix of products where stronger volume growth has been achieved inlower margin products; home loans and prime advances on the lending side andterm deposits and other lower margin products on the deposit side, particularlyin AIB Bank ROI and AIB Bank GB & NI. (c) lower yields on the re-investment of deposit and current account funds asthey mature, due to the flattening of the yield curve. (d) higher growth in mid-market loans in the Republic of Ireland and the UnitedKingdom and growth in our international corporate operations. (e) competitive pressures on loan and deposit pricing. The largest factor in the margin reduction was average loans increasing byapproximately double the rate of deposits compared with 2004. While this stronglending growth generated good incremental profit, the funding impact resulted ina reduction in the overall net interest margin calculation when net interestincome is expressed as a percentage of average interest earning assets. Theimpact of historically low yields on the investment of deposit fundsparticularly affected Republic of Ireland and Polish operations. While it is difficult to disaggregate trends in product margins between mix andcompetitive factors, competitive pricing behaviour did impact deposit margins inRepublic of Ireland and the United Kingdom and loan margins in the Republic ofIreland and Northern Ireland. The Group's new business lending continued to meettargeted return on economic capital hurdles. The structural effect of loansgrowing faster than deposits, changes in business mix and lower yields on there-investment of deposit and current account funds are expected to be continuingfeatures with consequent impacts on future net interest margin. Commentary on results "Banking fees and commissions up 7%" Other income(1) Other income was up 2% to • 535 million since the half-year to June 2004. IFRS IFRS IFRS Underlying % Half-year Half-year Pro-forma change 2005 v June 2005 June 2004 June 2004 Pro-forma 2004Other income(1) • m • m • m Dividend income 40 38 38 1Banking fees and commissions 417 406 352 16Investment banking and asset management fees 84 80 80 2Life assurance fees 20 21 21 -5Fee and commission income 521 507 453 13Less: fee and commission expense (72) (65) (65) 8Trading and other financial income 45 41 41 14Life assurance business - Net trading income 185 63 63 195Total trading and other financial income 230 104 104 142Life assurance business - Insurance premiums 135 62 60 113Profit on termination of off-balance sheet instruments - 36 36 -Other 39 44 44 -14Other operating income 174 142 140 20Currency hedging losses (5) (1) (1) -Hedge ineffectiveness (IAS 39) 2 - - - Other income 890 725 669 31Increase in insurance and investment contract liabilities, (355) (156) (156) 128and claims Total other income(1) 535 569 513 2 Other income summary(1) Life assurance income 359 166 164Increase in insurance and investment contract liabilities, (355) (156) (156)and claimsLife assurance income net 4 10 8Other 531 559 505 Total other income(1) 535 569 513 Loan arrangement fees for the half-year were strong and are reported in the netinterest income line under IFRS. The growth in other income no longer benefitsfrom the growth in arrangement fees associated with strong lending growth. Banking fees and commissions increased by 16%, or 7% excluding the • 30 millionof investigation related charges incurred in the half-year to June 2004. Thegrowth reflects increased business and transaction volumes in AIB Bank Republicof Ireland, GB & NI and Corporate Banking and there was good growth inelectronic business and payment fees in Poland. Total fee and commission incomewas up 13% or 6% excluding the investigation related charges in 2004. Investment banking and asset management revenues were higher due to growth inGoodbody Stockbrokers and in the Polish asset management business. Total life insurance income across all other income headings and insurance andinvestment contract liabilities, and claims are reported separately in theincome statement. Life assurance income (other income) was • 359 millioncompared with • 164 million in the half-year to June 2004, while insurance andinvestment contract liabilities, and claims was • 355 million compared to • 156million in the half-year to June 2004. The full income statement for Ark Life isshown on page 42 of this release. Profit was strong at • 32 million comparedwith the half-year June 2004 pro-forma IFRS profit of • 22 million. The increasereflected growth in single premium sales, higher margins on the protectionbusiness, tight cost management and some technical items. Included in other income in the half-year to June 2004 was a gain of • 36million from closing out capital invested positions in January 2004 resultingfrom the introduction of a new policy in respect of the investment of AIB'scapital funds. Other income as a percentage of total income reduced from 32% to 30%. (1) Includes increase in insurance and investment contract liabilities, andclaims. Commentary on results "Cost income ratio down 2% to 54.6%" "Further investment to ensure compliance with new regulatory projects" "Decrease in depreciation charge" Total operating expenses Operating expenses increased by 8% compared with the half-year to June 2004. IFRS IFRS IFRS Underlying % Half-year Half-year Pro-forma change 2005 v June 2005 June 2004 June 2004 Pro-forma 2004Operating expenses • m • m • m Personnel expenses 638 555 555 13General and administrative expenses 282 278 277 -Depreciation (1) /amortisation (2) 65 64 64 -5 Total operating expenses 985 897 896 8 Operating expenses increased by 8%. The cost base in the comparative half-yearto June 2004 included • 9 million of investigation related costs. Under IFRS,operating expenses include other finance income relating to the return onpension fund assets and the cost of pension fund liabilities and this incomereduced in 2005, increasing the growth in personnel expenses. Excluding theabove two offsetting items, the growth in operating expenses remained at 8%. The growth of 8% was driven from a background of significantly higher businessvolumes and strong revenue growth. In the period there were costs to ensurecompliance with a range of regulatory initiatives such as Sarbanes Oxley andBasel II and there was higher performance related remuneration resulting fromstrong revenue growth. The increase before these items was 5%. Personnel expenses were up 13%, or 12% excluding the above mentioned decline inother finance income. The increase reflected a higher level than normal ofvariable costs arising from performance related remuneration resulting fromstrong revenue growth and the cost of additional resources to ensure compliancewith a range of regulatory initiatives such as Sarbanes Oxley and Basel II.General and administrative expenses were flat, or up 3% excluding investigationrelated costs in the half-year to June 2004. The 3% increase includes theeffects of inflation, consultancy and systems costs relating to theaforementioned strengthening of internal structures to ensure compliance withnew regulatory initiatives. Depreciation/amortisation decreased by 5% in linewith expectations. Improved productivity was evident in a reduction in the cost income ratio to54.6% from 56.5% in the half-year to June 2004. (1) Depreciation of property, plant and equipment.(2) Amortisation/impairment of intangible assets and goodwill. Commentary on results "First half bad debt experience particularly positive" "Provision charge down to 13 basis points" "Reduction in impaired loans as a percentage of loans" Provisions Total provisions were • 42 million, down from • 63 million in the half-year toJune 2004. IFRS IFRS Half-year Half-year June 2005 June 2004Provisions • m • m Impairment losses on loans and advances(1) (46) (55)Provisions for contingent liabilities and commitments 5 (8)Amounts written off financial investments (1) - Total provisions (42) (63) The provision for impairment losses on loans and advances was • 46 millioncompared with • 55 million in the half-year to June 2004, representing a chargeof 0.13% of average loans compared with 0.20% in June 2004. High asset quality,a very low level of gross new impaired loans, strong recoveries and aparticularly benign economic environment resulted in the lower charge. There wasa reduction in impaired loans as a percentage of total loans from 1.3% at 31December 2004 to 1.1% at 30 June 2005 and the provision coverage for impairedloans was 75%. In AIB Bank Republic of Ireland asset quality was strong with impaired loansremaining at 0.8% of average loans compared with 31 December 2004. The provisioncharge as a percentage of average loans reduced from 0.19% to 0.14% in thehalf-year to June 2005. High quality is a consistent feature across all sectorsof the retail and commercial portfolios. The bad debt charge in AIB Bank GB & NI was 0.11% compared with a net credit inthe half-year to June 2004 when there were very strong provision recoveries.Impaired loans at 1.1% of total loans was unchanged compared with 31 December2004. In Capital Markets asset quality was particularly good with a positiveenvironment resulting in a low level of specific bad debt provisions. Theprovision charge reduced to 0.09% from 0.17% for the half-year to June 2004 andimpaired loans reduced to 0.7% from 0.8% of total loans at 31 December 2004. The provision charge in Poland dropped to 0.26% of loans from 1.32% in thehalf-year to June 2004. The downward trend in impaired loans continued with theratio of impaired loans as a percentage of loans declining to 7.8% from 8.4% at31 December 2004. Provisions for contingent liabilities and commitments moved from a provision of• 8 million in the half-year to June 2004 to a credit of • 5 million in June2005 while provisions for amounts written off financial investments were • 1million in the half-year to June 2005. Share of results of associated undertakings The profit in the half-year to June 2005 was • 70 million compared to • 62million in the half-year to June 2004 and reflects AIB's 23.3% share of theincome after taxes of M&T Bank Corporation on an IFRS basis for the half-year toJune 2005. (1) As noted on page 8 the pro-forma accounts for the half-year to June 2004 donot reflect the impact of loan impairment under IFRS. Commentary on results The following commentary is in respect of the total Group. "Loans up 11%, deposits up 6%" "Effective tax rate at 19.8%" Balance sheet Total assets amounted to • 116 billion compared to • 101 billion at 31 December2004. Adjusting for the impact of currency, total assets were up 12% and loansto customers were up 11% since 31 December 2004 while customer accountsincreased by 6%. Risk weighted assets excluding currency factors increased by10% to • 88 billion. Risk weighted assets, loans to customers and customer accounts (excluding moneymarket funds and currency factors) Risk weighted Loans to Customer assets customers accounts% change June 2005 v December 2004 % change % change % change AIB Bank Republic of Ireland 11 12 8AIBBank GB & NI 15 13 11Capital Markets 8 13 -3Poland -4 - 3 AIB Group 10 11 6 Assets under management/administration and custody Assets under management in the Group amounted to • 13 billion and assets underadministration and custody amounted to • 224 billion at 30 June 2005. Taxation The taxation charge was • 169 million compared with • 145 million in thehalf-year to June 2004 (• 139 million on a pro-forma basis for the half-year toJune 2004). The effective tax rate was 19.8% compared with 20.5% in thehalf-year to June 2004 (or 19.8% on a pro-forma basis). The taxation chargeexcludes taxation on share of profits of associated undertakings. Share ofprofits of associated undertakings is reported net of taxation in the Groupprofit on ordinary activities before taxation. The effective tax rate isinfluenced by the geographic mix of profits, which are taxed at the ratesapplicable in the jurisdictions where we operate. Commentary on results "EPS guidance increased - range EUR 140c to EUR 142c" "Return on equity 20%" Return on equity and return on assets The return on equity decreased to 20.1% compared to 20.3% in the half-year toJune 2004 and the return on assets was 1.23%, down from 1.28% in the half-year to June 2004. Capital ratios A strong capital position was reflected in a Tier 1 ratio at 7.7% and a totalcapital ratio of 11.0%. Outlook In line with the first half performance, we expect all divisions and businesslines to continue to perform strongly for the full year. The buoyant loan anddeposit growth achieved in the half-year to June is expected to continue in thesecond half-year. While we expect asset quality to remain very strong, the baddebt experience in the first half was exceptional and is not expected to repeatto the same extent in the second half. Based on strong current business trendsand pipelines we are increasing our earnings guidance with earnings per shareexpected to be in the range of EUR 140c to EUR 142c compared with previousguidance of EUR 138c to EUR 140c. Divisional commentary On a divisional basis, profit is measured in euro and consequently includes theimpact of currency movements. The underlying percentage change is reported inthe divisional income statements adjusting for the impact of exchange ratemovements on the translation of foreign locations' profit. AIB Bank Republic of Ireland profit was up 34% or 17% excluding the • 45 millionof investigation related charges incurred in 2004 "Banking operations profit up 15%" "Income/cost gap at +3%" "Cost income ratio decreases to 50%" "Strong asset quality" AIB Bank Republic of Ireland Retail and commercial banking operations inRepublic of Ireland, Channel Islands and Isle of Man; AIB Finance and Leasing;Card Services; and AIB's life and pensions subsidiary Ark Life AssuranceCompany. IFRS IFRS IFRS Underlying % Half-year Half-year Pro-forma change 2005 v June 2005 June 2004 June 2004 Pro-formaAIB Bank Republic of Ireland income statement • m • m • m 2004 Net interest income 679 584 585 16Other income(1) 180 157 152 18 Total operating income(1) 859 741 737 16Total operating expenses 430 406 406 6 Operating profit before provisions 429 335 331 29Provisions (27) (28) (28) -8 Operating profit 402 307 303 33Profit on disposal of property 4 - - - Profit on ordinary activities before taxation 406 307 303 34 The divisional profit increase was 34% or 17% excluding the • 45 million ofinvestigation related charges incurred in the half-year to June 2004. Operatingincome was up 16% and operating expenses were up 6%. Excluding the investigationrelated charges these growth rates were 11% and 8% respectively, with theoperating income/cost gap at +3%. Profit from banking operations was up 15% reflecting strong loan and depositgrowth and higher productivity. Loans and deposits increased by 12% and 8%respectively since 31 December 2004. Operating expenses were up 6% or 8%excluding investigation related costs in the comparative half-year. Under IFRSoperating expenses includes other finance income relating to the return onpension fund assets and the cost of pension fund liabilities. In the periodother finance income decreased from • 9 million to • 6 million which added 1% tothe operating expenses growth, excluding this factor the increase was 7%.Increased business volumes, annual salary inflation, performance costs relatedto strong revenue growth and costs associated with a number of mandatory andregulatory driven projects, were the drivers of the 7% increase. The cost incomeratio was 50.1% compared with 55.1% in 2004 (51.4% excluding the • 45 million ofinvestigation related charges incurred in the half-year to June 2004). AIB Card Services profit growth was exceptionally strong, resulting from goodgrowth in fee income reflecting higher consumer spending, a significant increasein merchant turnover, lower costs and a lower bad debt charge. Profit alsoincreased in AIB Finance and Leasing due to a 15% increase in loan volumes sinceJune 2004, good growth in fee income and a lower bad debt charge. Ark Life reported strong profit before taxation of • 32 million compared withpro-forma IFRS profit of • 22 million in the half-year to June 2004. Theincrease reflected growth in single premium sales, higher margins on theprotection business, tight cost management and some technical items. (1) Includes increase in insurance and investment contract liabilities, andclaims. Divisional commentary AIB Bank GB & NI profit was up 13% "Continuing double-digit profit growth" "Loans up 13%, deposits up 11%" "Cost income ratio declines from 52.3% to 49.3%" AIB Bank GB & NI Retail and commercial banking operations in Great Britain andNorthern Ireland. IFRS IFRS IFRS Underlying % Half-year Half-year Pro-forma change 2005 v June 2005 June 2004 June 2004 Pro-forma 2004AIB Bank GB & NI income statement • m • m • m Net interest income 247 201 215 16Other income 74 94 71 5 Total operating income 321 295 286 14Total operating expenses 158 152 150 7 Operating profit before provisions 163 143 136 21Provisions (8) 3 3 - Operating profit 155 146 139 13Profit on disposal property 1 1 1 - Profit on ordinary activities before taxation 156 147 140 13 AIB Bank GB & NI had a good business performance in the half-year to June 2005with profit before taxation increasing by 13%, continuing the trend of strongdouble-digit growth in recent periods. Loans and deposits increased by 13% and11% respectively since 31 December 2004 with net interest income increasing by16%. The increase includes strong growth in loan arrangement fees in line withlending growth. Other income was up 5%, reflecting growth in commitment fees andcredit card income. Operating expenses were up 7% due to annual salaryincreases, inflation, performance costs related to strong revenue growth,regulatory driven projects and investment in future business developmentcapability. The cost income ratio reduced from 52.3% to 49.3%. Credit qualityremained strong with bad debt provisions at • 8 million, or 0.11% of averageloans, compared to a net recovery of • 3 million in 2004. Allied Irish Bank (GB), primarily a business bank, reported significant profitgrowth of 17% to • 81 million in 2005. Loans and deposits increased by 14% and13% respectively since 31 December 2004. Ongoing expansion initiatives in recentyears have resulted in repeated very strong balance sheet and revenue growthwith a very positive outcome for productivity, the cost income ratio was downfrom 54.1% to 48.7%. First Trust Bank, a retail bank in Northern Ireland, achieved profit growth of9% to • 75 million. Loans and deposits were up 11% and 9% respectively withstrong growth in business and home mortgage lending activity. The bank'scustomer relationship management strategy is central to the continuedimprovement in the share of these key markets. The cost to income ratio reducedfrom 50.7% to 50.0%. Divisional commentary Capital Markets profit was up 33% on the half-year to June 2004 "Exceptional profit growth in Corporate Banking" "Conservative risk positioning resulted in lower Treasury profits. Customer treasury business strong" "Investment Banking profits show strong growth" Capital Markets Global Treasury, Corporate Banking and Investment Banking.Related Shares:
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