1st Aug 2007 07:00
Allied Irish Banks PLC01 August 2007 Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB) Part 1 Highlights - AIB Group interim results 2007 Basic earnings per share EUR 114.7cless profit on disposal/development of property(1) EUR (8.3c)adjust for hedge volatility(2) EUR 2.4cAdjusted basic earnings per share EUR 108.8c up 16%(3) Divisional operating profit performance (4) -AIB Bank ROI up 17% -Capital Markets up 12% -AIB Bank UK up 19% -Poland up 37% -M&T contribution up 1% Income/cost gap +4% Cost income ratio down 1.2% to 51.2% Bad debt provision charge of 0.04% Return on equity 23.8% Tier 1 capital ratio 7.6% Interim dividend of EUR 27.8c, up 10% AIB Group Chief Executive Eugene Sheehy said: 'Our business has performed strongly in the first half of 2007. Customer demandcontinues to drive high quality growth and this demand is well spread across ourIrish and international franchises. I am confident that we will continue to growour business and achieve excellent returns for our stakeholders. My confidenceis based on our top class people operating in attractive economies and marketswhere we are delivering a compelling combination of good value products andservices through our customers' chosen channels.' (1) Includes profit on new Bankcentre development (construction contract income;• 44 million before tax, • 38 million after tax) and profit on sale of 16branches in the Republic of Ireland (• 41 million before tax, • 35 million aftertax). (2) The impact of interest rate hedge volatility (hedging ineffectiveness andderivative volatility) was a decrease of • 25 million to profit before taxationfor the half-year (• 21 million after tax). (3) A 16% increase compared with EUR 94.2c for the half-year to June 2006. TheEUR 94.2c in 2006 excludes the profit on disposal of Ark Life discontinuedoperation (€128 million after tax), the transfer by Ark Life of the managementof certain investment contracts to Aviva as part of the disposal of Ark Life (•26 million after tax), the profit on the new Bankcentre development (• 34million before tax, • 29 million after tax), part of the profit on the disposalof the existing Bankcentre (• 89 million before tax, • 66 million after tax) andthe impact of interest rate hedge volatility (hedging ineffectiveness andderivative volatility) in the half-year to June 2006 (a decrease of • 19 millionto profit before tax, • 15 million after tax). (4) Operating profit excludes profit from disposal of property/businesses,construction contract income and associated undertakings. The percentageincrease excludes the impact of exchange rate movements on the translation offoreign locations' profit. Allied Irish Banks, p.l.c. Dividend The Board has declared an interim dividend of EUR 27.8c per share, an increaseof 10% on the half-year ended 30 June 2006. The dividend will be paid on 25September 2007 to shareholders on the Company's register of members at the closeof business on 10 August 2007. For further information please contact: John O'Donnell Alan Kelly Catherine BurkeGroup Finance Director General Manager, Group Finance Head of Corporate RelationsBankcentre Bankcentre BankcentreDublin Dublin Dublin353-1-660-0311 353-1-660-0311 353-1-660-0311Ext. 14412 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 2007 Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • mResultsTotal operating income 2,417 2,076 4,326Operating profit 1,150 976 1,908Profit before taxation - continuing operations 1,318 1,214 2,615Profit attributable to equity holders of the parent 1,041 1,089 2,185 Per • 0.32 ordinary shareEarnings - basic (note 12(a)) 114.7c 121.2c 246.8cEarnings - diluted (note 12(b)) 113.8c 120.1c 244.6cDividend 27.8c 25.3c 71.8cDividend payout 24% 21% 29%Net assets D10.12 Y8.51 Y9.28 Performance measuresReturn on average total assets 1.34% 1.67% 1.63%Return on average ordinary shareholders' equity 23.8% 30.4% 29.0% Balance sheetTotal assets 177,216 144,073 158,526Ordinary shareholders' equity 8,889 7,413 8,108Loans and receivables to banks and customers 135,038 105,594 120,015Deposits(2) 154,001 123,349 136,839 Capital ratios(1)Tier 1 capital 7.6% 8.0% 8.2%Total capital 10.4% 11.1% 11.1% (1) The interim dividend has been deducted in arriving at the capital ratios forJune 2007 and June 2006. The final dividend was not taken into account in thecalculation of the Tier 1 and Total capital ratios at 31 December 2006. TheFinancial Regulator has issued a requirement that a Prudential Filter be appliedto proposed final dividends with effect from July 2007. If applied at 31December 2006, the Tier 1 and Total capital ratios would be 7.9% and 10.8%respectively. (2) Deposits by banks, customer accounts and debt securities in issue. Allied Irish Banks, p.l.c. Group Headquarters & Registered Office Bankcentre, Ballsbridge Dublin 4, Ireland Telephone (01) 6600311 Registered number 24173 Consolidated interim income statement (unaudited)for the half-year ended 30 June 2007 Notes Half-year Half-year Year 30 June 2007 30 June 2006 31 December 2006 • m • m •m Interest and similar income 2 4,354 3,130 6,928Interest expense and similar charges 3 2,687 1,701 3,929 Net interest income 1,667 1,429 2,999Dividend income 4 22 19 23Fee and commission income 713 598 1,235Fee and commission expense (94) (76) (161)Net trading income 5 75 79 173Other operating income 6 34 27 57 Other income 750 647 1,327 Total operating income 2,417 2,076 4,326Administrative expenses 7 1,167 1,018 2,174Amortisation/impairment of intangible assets 28 27 53Depreciation of property, plant and equipment 42 43 87Total operating expenses 1,237 1,088 2,314 Operating profit before provisions 1,180 988 2,012Provisions for impairment of loans and 16 25 12 118receivablesProvisions for liabilities and commitments 4 - (15)Amounts written off financial investments 1 - 1available for sale Operating profit 1,150 976 1,908Associated undertakings 81 88 167Profit on disposal of property 8 41 90 365Construction contract income 9 44 34 96Profit on disposal of businesses 10 2 26 79 Profit before taxation - continuing operations 1,318 1,214 2,615Income tax expense - continuing operations 11 239 221 433 Profit after taxation - continuing operations 1,079 993 2,182Discontinued operation, net of taxation - 132 116 Profit for the period 1,079 1,125 2,298 Attributable to: Equity holders of the parent 1,041 1,089 2,185 Minority interests in subsidiaries 38 36 113 1,079 1,125 2,298Basic earnings per share - continuing 12(c) 114.7c 105.9c 233.5coperationsBasic earnings per share - discontinued - 15.3c 13.3coperations Total 12(a) 114.7c 121.2c 246.8c Diluted earnings per share - continuing 12(d) 113.8c 105.0c 231.4coperations Diluted earnings per share - discontinued 15.1c 13.2coperations Total 12(b) 113.8c 120.1c 244.6c Consolidated interim balance sheet (unaudited)30 June 2007 Notes 30 June 31 December 30 June 2007 2006 2006 • m • m • mAssets Cash and balances at central banks 613 989 618Treasury bills and other eligible bills 370 196 129Items in course of collection 855 527 927Trading portfolio financial assets 14 9,470 8,953 10,820Derivative financial instruments 22 3,023 2,890 2,239Loans and receivables to banks 14,821 12,900 9,932Loans and receivables to customers 15 120,217 107,115 95,662Financial investments available for sale 18 22,233 19,665 18,664Interests in associated undertakings 1,772 1,792 1,846Intangible assets and goodwill 578 550 516Property, plant and equipment 587 593 625Other assets 1,428 1,117 1,005Current taxation 15 17 8Deferred taxation 181 256 224Prepayments and accrued income 1,031 927 807Assets classified as held for sale 22 39 51 Total assets 177,216 158,526 144,073 LiabilitiesDeposits by banks 39,797 33,433 34,318Customer accounts 19 79,023 74,875 66,564Trading portfolio financial liabilities 493 191 255Derivative financial instruments 22 3,151 2,531 1,992Debt securities in issue 35,181 28,531 22,467Current taxation 220 112 242Other liabilities 2,123 1,757 2,590Accruals and deferred income 1,343 1,410 1,020Retirement benefit liabilities 252 937 644Provisions for liabilities and commitments 98 93 133Deferred taxation - - 9Subordinated liabilities and other capital instruments 21 4,841 4,744 4,693 Total liabilities 166,522 148,614 134,927 Shareholders' equity Share capital 294 294 294Share premium account 1,693 1,693 1,693Other equity interests 497 497 497Reserves 152 543 519Profit and loss account 6,750 5,578 4,907Shareholders' equity 9,386 8,605 7,910Minority interests in subsidiaries 1,308 1,307 1,236Total shareholders' equity including minority interests 10,694 9,912 9,146 Total liabilities, shareholders' equity and minority 177,216 158,526 144,073interests Condensed interim statement of cash flows (unaudited)for the half-year ended 30 June 2007 Consolidated statement of cash flows Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Net cash flows from operating activities 5,066 4,731 8,645Investing activitiesNet increase in financial investments available for sale (2,420) (2,041) (2,477)Additions to property, plant and equipment (40) (66) (144)Additions to intangible assets (52) (28) (87)Disposal of property, plant and equipment 57 142 489Investment in associated undertakings (3) - -Disposal of investment in subsidiaries and businesses 2 189 268Dividends received from associated undertakings 27 29 44 Cash flows from investing activities (2,429) (1,775) (1,907) Financing activitiesRe-issue of treasury shares 45 35 48Issue of perpetual preferred securities - 1,004 1,008Issue of subordinated liabilities 128 - -Interest paid on subordinated liabilities (121) (70) (196)Equity dividends paid on ordinary shares (406) (368) (587)Dividends paid on other equity interests (38) (38) (38)Dividends paid to minority interests (34) (35) (82) Cash flows from financing activities (426) 528 153 Net increase in cash and cash equivalents 2,211 3,484 6,891 Analysis of changes in cashAt beginning of period 14,355 7,670 7,670Net cash inflow before the effect of exchange translation 2,211 3,484 6,891adjustmentsEffect of exchange translation adjustments (39) (180) (206) At end of period 16,527 10,974 14,355 Consolidated interim statement of recognised income and expense (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • mForeign exchange translation differences (24) (168) (149)Net change in cash flow hedges, net of tax (258) (259) (283)Net change in fair value of available for sale securities, net (138) (136) (13)of taxNet actuarial gains in retirement benefit schemes, net of tax 565 492 200Other recognised losses in associated undertakings (55) (35) (47) Income and expense recognised 90 (106) (292)Profit for the period 1,079 1,125 2,298 Total recognised income and expense for the period 1,169 1,019 2,006 Attributable to: Equity holders of the parent 1,134 983 1,859 Minority interests in subsidiaries 35 36 147 Total recognised income and expense for the period 1,169 1,019 2,006 Condensed consolidated interim reconciliation of movements in shareholders'equity (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Profit attributable to equity holders of the parent 1,041 1,089 2,185Dividends on ordinary shares (406) (368) (587)Dividends on other equity interests (38) (38) (38)Share based payments 15 17 30Net actuarial gains recognised in retirement benefit schemes 565 492 200Other recognised losses relating to the period (417) (559) (471)Other recognised losses in associated undertakings (55) (35) (47)Ordinary shares reissued 78 60 87Net movement in own shares (2) 83 77 Net additions to shareholders' equity 781 741 1,436Opening shareholders' equity 8,605 7,169 7,169 Closing shareholders' equity 9,386 7,910 8,605Shareholders' equity: Ordinary shareholders' equity 8,889 7,413 8,108 Other equity interests 497 497 497 9,386 7,910 8,605 Commentary on results Earnings per share The table below shows the basic earnings per share excluding profit on disposal/development of property(1), profit on disposal of business(2) and adjusting forhedge volatility(3). Earnings per share Half-year Half-year % change June 2006 June 2007 2007 v 2006Basic - continuing operations 114.7c 105.9c 8Basic - discontinued operations - 15.3c - Basic - total 114.7c 121.2c -5less profit on disposal/development of property(1) (8.3c) (11.0c) -less profit on disposal of business(2) - (17.7c) -adjust for hedge volatility(3) 2.4c 1.7c - Adjusted basic earnings per share 108.8c 94.2c 16 Rates of Exchange The following table shows the average accounting rates and average effectiverates for both periods. The average effective rates include the impact ofcurrency hedging activities. Average Average Average Average accounting rates accounting rates effective effective rates rates half-year half-year half-year half-year June 2007 June 2006 June 2007 June 2006 US dollar 1.33 1.23 1.32 1.20Sterling 0.67 0.69 0.67 0.69Polish zloty 3.84 3.90 3.87 3.86 (1) Half-year to June 2007 includes profit on new Bankcentre development(construction contract income; • 44 million before tax, • 38 million after tax)and profit on sale of 16 branches in the Republic of Ireland (• 41 millionbefore tax, • 35 million after tax). Half-year to June 2006 includes the profiton the new Bankcentre development (• 34 million before tax, • 29 million aftertax) and part of the profit on the disposal of the existing Bankcentre (• 89million before tax, • 66 million after tax). (2) Profit on disposal of Ark Life discontinued operation (• 128 millionafter tax) and the transfer by Ark Life of the management of certain investmentcontracts to Aviva as part of the disposal of Ark Life (• 26 million after tax). (3) The impact of interest rate hedge volatility (hedging ineffectiveness andderivative volatility) was a decrease of • 25 million to profit before taxation(• 21 million after tax) in the half-year to June 2007. The impact of interestrate hedge volatility (hedging ineffectiveness and derivative volatility) was adecrease of • 19 million to profit before taxation (• 15 million after tax) inthe half-year to June 2006. Commentary on results Basis of preparation The following commentary is on a continuing operations basis. The growthpercentages are shown on an underlying basis, adjusted for the impact ofexchange rate movements on the translation of foreign locations' profit andexcluding interest rate hedge volatility (hedging ineffectiveness and derivativevolatility). Continued strong growth in operating income, up 17% Total operating incomeTotal income increased by 17% to • 2,417 million. Half-year Half-year UnderlyingTotal operating income June 2007 June 2006 % change • m • m 2007 v 2006 Net interest income 1,667 1,429 16Other income 750 647 19 Total operating income 2,417 2,076 17 Commentary on results Net interest income Net interest income increased by 16% to • 1,667 million in the half-year to June2007. The key drivers of the increase were strong loan growth in the Republic ofIreland and Poland and strong loan and deposit growth in the UK. Loans tocustomers increased by 12% and customer accounts increased by 3% on a constantcurrency basis since 31 December 2006 (details of loan and deposit growth bydivision are contained on page 14 of this release). Average interest earning assets Half-year Half-year % June 2007 June 2006 • change(1) • m • m 2007 v 2006 Average interest earning assets 152,738 126,030 21 (1) This particular analysis is not adjusted for the impact of exchange rate movements. Net interest margin Half-year Half-year Basis June 2007 June 2006 point % % change Group net interest margin 2.20 2.29 -9 The domestic and foreign margins for the half-year to June 2007 are reported onpage 38 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 2.20%, a decrease of 9 basis pointscompared with the half-year to June 2006. The underlying business margindecreased by 9 basis points while the level of growth in treasury assets had aneutral impact. The margin reduction was due to a combination of the following factors: (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; corporate loans, home loans and prime rate advances onthe lending side and term deposits and other lower margin products on thedeposit side. (c) competitive pressures on loan and deposit pricing. The margin reduction continues to be impacted by average loans increasing at agreater rate than average deposits compared with 2006.While this strong lendinggrowth generated good incremental profit, the funding impact resulted in areduction in the overall net interest margin calculation when net interestincome is expressed as a percentage of average interest earning assets. While it is difficult to disaggregate trends in product margins between mix andcompetitive factors, competitive pricing behaviour did impact loan and depositmargins. The Group's new business lending is priced to meet the required return oncapital. Commentary on results Investment banking and asset management fees up 47% Banking fees and commissions up 10% Other income Other income was up 19% to • 750 million compared with the half-year to June 2006. Half-year Half-year Underlying June 2007 June 2006 % changeOther income • m • • m 2007 v 2006 Dividend income 22 19 16Banking fees and commissions 503 457 10Investment banking and asset management 210 141 47feesFee and commission income 713 598 19Less: Fee and commission expense (94) (76) 23Trading income 98 81 17Currency hedging profits 2 17 -Interest rate hedge volatility (25) (19) -Net trading income 75 79 17Other operating income 34 27 18 Total other income 750 647 19 Dividend income increased by 16% mainly reflecting growth in dividends frominvestments held by the Polish business. Total fee and commission income increased by 19%, reflecting increased businessand transaction volumes in AIB Bank Republic of Ireland and Corporate Bankingand good growth in credit card revenue in Ireland. Investment banking and asset management fees increased by 47% driven byparticularly strong performances in Asset Management in Poland and BZWBK'sbrokerage operation and very good growth in Goodbody Stockbrokers. Trading income increased reflecting profits from trading portfolio financialassets. Trading income excludes interest payable and receivable arising fromthese activities, which is included in net interest income. Accordingly, theabove trading income does not reflect the full extent of trading activities,which are largely in Global Treasury. Interest income in Global Treasurydecreased relative to 2006. Other income as a percentage of total income was 31.0% compared with 31.2% forthe half-year to June 2006. Commentary on results Investment for long-term growth and development Declining cost income ratio trend continues - cost income ratio down 1.2% to 51.2% Income/cost gap +4% Total operating expenses Operating expenses increased by 13% compared with half-year to June 2006. Half-year Half-year UnderlyingOperating expenses June 2007 June 2006 % change • m • m 2007 v 2006Personnel expenses 799 699 14General and administrative expenses 368 319 15Depreciation(1)/amortisation(2) 70 70 1 Total operating expenses 1,237 1,088 13 Operating expenses increased by 13% reflecting increases in business activityand volumes. The increase in costs reflects normal inflationary increases andcontinuing investment in various programmes to develop capabilities to benefitfrom the ongoing business opportunities and to position the business forlong-term growth and development. This has included investment in people,locations and the continuation of our programme to build common operatingsystems in line with our single enterprise agenda which will support a resilientrisk, compliance and corporate governance framework. Excluding costs arising tomeet expanding regulatory demands and costs relating to investment in our risk,compliance and corporate governance framework, and performance relatedremuneration resulting from very strong revenue growth, the increase in costswas 10%. Personnel expenses were up 14% due to a higher level of variable performancerelated remuneration linked to the strong profit performance, normal salaryincreases and investment in developing our operating systems. General and administrative expenses were up 15% including costs associated withpreparation for AIB's Basel II application to the Financial Regulator (IFSRA),costs relating to the building of common operating systems, rental costs arisingfrom the sale and leaseback arrangements for the Bankcentre and Branch networkand normal inflationary increases. Depreciation/amortisation increased by 1%. Productivity improved with the cost income ratio reducing by 1.2% to 51.2% from52.4% in the half-year to June 2006. Cost growth is expected to moderate in the second half-year due to the nonrecurrence of the step up in regulatory driven and performance relatedremuneration costs incurred in the second half of 2006. (1) Depreciation of property, plant and equipment. (2) Amortisation/impairment of intangible assets. Commentary on results Provision charge low at 4 basis points reflecting strong asset quality Reduction in impaired loans as a percentage of loans to 0.7% Provisions Total provisions were • 30 million, up from • 12 million in the half-year toJune 2006. Half-year Half-year June 2007 June 2006Provisions • m • • m Provisions for impairment of loans and receivables 25 12Provisions for liabilities and commitments 4 -Amounts written off financial investments available 1 -for sale Total provisions 30 12 In the period, credit provision experience was particularly positive reflectinga continued benign credit environment and a strong level of provisionwrite-backs. The provision for impairment of loans and receivables was • 25 million comparedwith • 12 million in half-year to June 2006, representing a charge of 0.04% ofaverage loans compared with 0.03% in June 2006. The 0.04% charge represents • 27million in the incurred but not reported (IBNR) category and a net specificwrite-back of • 2 million. Impaired loans as a percentage of total customerloans decreased from 0.9% at 31 December 2006 to 0.7% at 30 June 2007 with thetotal provision coverage for impaired loans at 80%. In AIB Bank Republic of Ireland asset quality continued to be strong. Impairedloans remained at 0.6% of total customer loans compared with 31 December 2006.The provision charge was 0.15% of average loans compared with 0.14% in June2006. The quality across all sectors of the retail and commercial portfoliosremains very good. In Capital Markets there were net credit provision write-backs of • 22 millionduring the period, compared with net credit provision write-backs of • 37million in the half-year to June 2006. The provision write-backs equated to0.19% of average loans compared to write-backs of 0.39% in the half-year to June2006. Impaired loans reduced to 0.3% from 0.6% of total customer loans at 31December 2006. In the UK division, the provision charge was 0.06% of average loans compared to0.08% in June 2006. Impaired loans remained at 0.9% of total customer loans at30 June 2007. There were net credit provision write-backs in Poland in the half-year to June2007. The provision charge decreased from 0.31% of average loans in thehalf-year to June 2006 to a write-back of 0.24% of average loans in the currenthalf-year. Asset quality continued to improve with the ratio of impaired loansas a percentage of customer loans declining to 3.9% from 4.9% at 31 December2006. There were provisions for liabilities and commitments of • 4 million in thehalf-year to June 2007 and provisions for amounts written off financialinvestments of • 1 million during the period. Associated undertakings The profit in the half-year to June 2007 was • 81 million compared to • 88million in the half-year to June 2006 and mainly reflects AIB's 24.5% averageshare of the income after taxation of M&T Bank Corporation and income aftertaxation from the joint venture in Life and Pensions with Hibernian. M&T'scontribution of US$ 99 million was up 1% compared with the half-year to June2006 contribution of US$ 98 million. Commentary on results The following commentary is in respect of the total Group. Loans up 12%; deposits up 3% Effective tax rate at 18.1% Balance sheet Total assets amounted to • 177 billion at 30 June 2007 compared to • 159 billionat 31 December 2006. Adjusting for the impact of currency, total assets were up12% and loans to customers were up 12% since 31 December 2006 while customeraccounts increased by 3%. Risk weighted assets excluding currency factorsincreased by 10% to • 135 billion. Risk weighted assets, loans to customers and customer accounts (excludingcurrency factors) Risk weighted Loans to Customer assets customers accounts(1)% change 30 June 2007 v 31 December % change % change % change2006 AIB Bank Republic of Ireland 10 10 -Capital Markets 7(2) 18 -AIB Bank UK 11 13 15Poland 13 17 5 AIB Group 10 12 3 (1) Excludes money market funds. (2) The risk weighted asset growth of 7% is lower than the growth in loans to customers of 18% due to a lower capital requirement relating to trading book risks. Assets under management Assets under management in the Group amounted to • 19 billion at 30 June 2007compared with • 17 billion at 31 December 2006. Income tax expense The taxation charge was • 239 million compared with • 221 million in thehalf-year to June 2006. The effective tax rate was 18.1% compared with 18.2% inthe half-year to June 2006. The taxation charge excludes taxation on share ofresults of associated undertakings. Share of results of associated undertakingsis reported net of taxation in the Group profit before taxation. The effectivetax rate is influenced by the geographic mix of profits, which are taxed at therates applicable in the jurisdictions in which we operate. Commentary on results Return on equity 23.8% Continued strong customer demand Outlook - now expect low teen EPS growth in 2007 Return on equity and return on assets The return on average equity was 23.8% in the half-year to June 2007. The returnon average assets was 1.34% in the half-year to June 2007. The return on equityand return on assets included the profit on the development of Bankcentre andfrom the sale of branches. Capital ratios A strong capital position was reflected in a Tier 1 ratio at 7.6% and a totalcapital ratio of 10.4%. Recent developments On 29 June 2007, AIB entered into an agreement to acquire AmCredit, the mortgagefinance business of the Baltic-American Enterprise Fund ("BalAEF"). Thebusiness, which has a strong track record in mortgage lending, operates inLatvia, Lithuania and Estonia. It was established in 1997. BalAEF is a Delawarecorporation chartered in 1994, pursuant to legislation enacted by the USCongress to promote private sector development in the Baltic States. TheInternational Finance Corporation (the private sector arm of the World BankGroup) has played an important role in its development over the years. AmCredit,which has 13 outlets and 145 staff, will give AIB entry to three high growthmarkets underpinned by an experienced workforce, robust systems and processesand an established brand. On 19 July 2007 M&T Bank and Partners Trust Financial Group announced that theyhave entered into a definitive agreement under which Partners Trust will mergeinto M&T in a transaction valued at approximately US$ 555 million. M&T has US$57.9 billion in assets, while Partners Trust has US$ 3.7 billion in assets. M&Twill acquire 33 branch locations in Upstate New York and approximately US$ 2.3billion in loans from Partners Trust. Outlook to December 2007 Growth continues to be underpinned by strong customer demand that is well spreadacross all our principal franchises. Productivity is good and asset qualityremains robust although the high level of net specific write-backs of provisionsin the first half is not expected to recur in the second half of the year. Basedon these factors we are now increasing our target for the full year 2007 to lowteen percentage growth (previously low double-digit) in adjusted basic earningsper share compared with the 2006 base of EUR 182.8c. Divisional commentary AIB Bank Republic of Ireland profit of • 534 million was up 18% Strong business momentum, revenue growth of 16% Income/cost gap at +4% Cost income ratio decreases to 48.0% 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; Wealth Management and share of Hibernian Life Holdings Limited,AIB's venture with Hibernian Life & Pensions Limited. Half-year Half-year Underlying June 2007 June 2006 % changeAIB Bank Republic of Ireland income statement • m • m 2007 v 2006 Net interest income 868 745 17Other income 238 212 12 Total operating income 1,106 957 16Personnel expenses 353 317 11General and administrative expenses 152 128 19Depreciation / amortisation 26 28 -7Total operating expenses 531 473 12 Operating profit before provisions 575 484 19Provisions for impairment of loans and receivables 46 35 31Provisions for liabilities and commitments 2 - -Total provisions 48 35 36 Operating profit 527 449 17Associated undertakings 7 4 103 Profit before taxation - continuing operations 534 453 18 AIB Bank Republic of Ireland reported growth in profit before tax of 18%benefiting from the ongoing business opportunities afforded by a supportiveeconomic environment. Operating income was up 16% and operating expenses were up12% with the operating income/cost gap at +4%. The strong profit growth reflects our commitment to developing our business andto competing aggressively to increase and protect market share across thefranchise. AIB Bank continues to invest heavily in both front-line andback-office activities, whilst maintaining good operating leverage. Loans increased by 10% and deposits were flat since 31 December 2006 (up 26% and12% respectively since 30 June 2006). Loan demand remains good, with growth inbusiness lending particularly strong. AIB also benefited from attractive pricingwithin our deposit product suite in the post-SSIA savings market. Operating expenses increased by 12%. The key cost drivers were higher staffnumbers reflecting growth in business activity, development of a refinedbusiness operating model, annual salary inflation, performance related costs,impact of the career framework pay structure introduced during 2006 and higheradvertising spend. The strong operating performance resulted in a furtherreduction in the cost income ratio from 49.4% to 48.0%. Asset quality remains strong with the provision charge for the half-year to June2007 at 0.15% of average loans compared with 0.14% in the half-year to June2006. Retail Banking had another strong half-year with strong growth in business andpersonal lending. There was good growth in the mortgage book, against a backdropof slowing demand in the mortgage market generally. Deposit income benefitedfrom the higher interest rate environment and our strong market position. Wealthmanagement continues to experience excellent growth. Private Banking isinvesting heavily in its business and has enjoyed significant growth in itsassets under management. Sales of life and pensions through the bank channel hasproduced Annual Premium Equivalent ("APE") growth of 74% since the half-year toJune 2006, whilst our investment in Hibernian Life Holdings has also producedgood growth. Profit growth in AIB Card Services was also strong benefiting frombuoyant growth in revenue and tight cost control. AIB Finance & Leasing reportedgood lending growth spread across all key market segments. Divisional commentary Capital Markets operating profit was up 12%. Profit before taxation of • 333million was up 3%(1). Strong performance and continued business momentum in Corporate Banking Robust performance in customer treasury business but weaker wholesale trading Exceptional profit growth across key investment banking units Income/cost gap at +4% Capital Markets Corporate Banking, Global Treasury, and Investment Banking. Half-year Half-year Underlying June 2007 June 2006 % changeCapital Markets income statement • m • m 2007 v 2006 Net interest income 285 239 20Other income 254 227 13 Total operating income 539 466 17Personnel expenses 165 140 19General and administrative expenses 55 56 -Depreciation / amortisation 7 6 13Total operating expenses 227 202 19 Operating profit before provisions 312 264 -41Provisions for impairment of loans and receivables (22) (37) -4Provisions for liabilities and commitments 2 3 -Amounts written off financial investments available for 1 - -44saleTotal provisions (19) (34) 12 Operating profit 331 298 12Associated undertakings - 2 -Profit on disposal of businesses 2 26 -93 Profit before taxation 333 326 3 Capital Markets profit before taxation of • 333 million was up 3%(1). Operatingprofit before provisions of €312 million grew by 19% on the half-year to June2006, underpinned by continued growth in business volumes, strong customerrelationships and the success of new product initiatives in key business areas.Operating profit was ahead by 12% since the half-year to June 2006, impacted bya lower level of credit provision write-backs than the comparative period in2006. Corporate Banking continued its strong growth momentum with operating profitbefore provisions up 24% and profit before taxation up 12%. Key contributors torevenue growth were increased loan volumes in established markets, theintroduction of significant new product initiatives in Ireland and overseas,additional income streams from new overseas markets and continued focus oncustomer relationship management. Corporate Banking continues to alignspecialist resources in new markets to the skills and experience of otherbusiness units in developing new structured product initiatives in line withcustomer demand. Loans grew by 18% while asset quality and margins continued tobe actively managed against a backdrop of maintaining asset quality in anenvironment of increased competition and market volatility. Credit qualityremains strong, reflected in continued write-backs of provisions for impairmentof loans and receivables and in line with management's active approach to creditmanagement. Overall Global Treasury profit before taxation declined by 19% on 2006,positively impacted by robust customer treasury business in Ireland, Britain andPoland, and adversely offset by a weaker performance in wholesale treasurybusiness. Customer treasury income benefited from increased customer numbers andgenerated strong income growth, particularly from foreign exchange and cashmanagement. The performance of the wholesale treasury investment book wasnegatively impacted by increasing interest rates. Investment Banking experienced exceptional growth, with profit before taxationup 48%. Strong growth in the asset management business continued, benefitingfrom increased volumes of new funds. In Ireland, stockbroking activities,structured product initiatives, corporate advisory services and financialoutsourcing activities all contributed strongly to the exceptional level ofgrowth. Operating expenses increased by 13%, principally impacted by higher performancerelated costs, while the cost income ratio improved from 43.5% in 2006 to 42.2%.General and administrative costs were held at 2006 levels, reflectingmanagement's continued focus on cost containment. (1) The half-year to June 2006 included • 26 million profit on disposal ofbusiness arising from the transfer by Ark Life of the management of certaininvestment contracts to Aviva, as part of the Ark Life disposal. Divisional commentary AIB Bank UK division profit was up 19% to • 223 million Well managed growth in profit before taxation of 19% Income/cost gap at +5% Cost income ratio improves by 2.3% to 45.0% AIB Bank UK Retail and commercial banking operations in Great Britain andNorthern Ireland. Half-year Half-year Underlying June 2007 June 2006 % changeAIB Bank UK income statement • m • m 2007 v 2006 Net interest income 339 287 16Other income 78 75 1 Total operating income 417 362 13Personnel expenses 129 118 7General and administrative expenses 53 48 9Depreciation / amortisation 5 5 9Total operating expenses 187 171 8 Operating profit before provisions 230 191 18Provisions for impairment of loans and receivables 7 7 -16Provisions for liabilities and commitments - - -Amounts written off financial investments available for - - -saleTotal provisions 7 7 -16 Operating profit 223 184 19Profit on disposal of property - - - Profit before taxation 223 184 19 AIB Bank UK reported strong business performance in the first half of 2007 withprofit before taxation increasing by 19%, driven by well managed growth of loansand deposits. These increased by 13% and 15% respectively since 31 December 2006(23% and 24% respectively since 30 June 2006), driving an increase of 16% in netinterest income, with customer deposits continuing to grow strongly across bothpersonal and business current accounts. Other income grew by 1%. The cost incomeratio improved significantly from 47.3% to 45.0%, reflecting a balancedperformance between strong revenue growth and controlled cost growth in anenvironment of increasing inflation. The provision charge decreased whencompared against 2006, with the charge representing 0.06% of average loans,reflecting good credit quality within the lending portfolio. Allied Irish Bank (GB), which focuses on business banking, reported strongprofit growth of 17% to • 122 million in the first half of 2007. This wasprimarily driven by strong growth in net interest income and in particulargrowth in deposit volumes. Loans and deposits increased by 10% and 18% since 31December 2006 (17% and 29% respectively since 30 June 2006). Costs increased by9%, reflecting a combination of increasing investment in front line staff andthe development of our operating systems, with the cost income ratio improvingfrom 46.0% to 44.2%. In Northern Ireland, First Trust Bank increased profit before tax to €101million representing 21% growth on the same period last year. Loans and depositsincreased by 17% and 10% respectively since 31 December 2006 (32% and 17%respectively since 30 June 2006), with strong growth in business lendingactivity combined with significant growth in business and personal deposits.Costs increased by 6% reflecting the impact of increased investment in thedevelopment of our operating systems, with the cost income ratio improvingsignificantly from 48.7% to 46.0%. First Trust Bank also launched a new personalcurrent account " The Plus account", which can offer customers both creditinterest and the opportunity of transaction free banking, which will strengthenthe current account proposition in our target markets. Divisional commentary Poland division profit was • 155 million, up 35% on the half-year to June 2006 Continued significant profit growth Very strong demand for credit Growth in mutual funds balances and income Income/cost gap +5% Poland Bank Zachodni WBK ('BZWBK'), in which AIB has a 70.5% shareholding,together with its subsidiaries and associates. BZWBK Wholesale Treasury and Capital Markets share of certain Investment Bankingsubsidiaries results are reported in Capital Markets division. Half-year Half-year Underlying June 2007 June 2006 % changePoland income statement • m • m 2007 v 2006 Net interest income 139 112 22Other income 192 160 19 Total operating income 331 272 20Personnel expenses 101 79 25General and administrative expenses 64 55 15Depreciation / amortisation 17 22 -22Total operating expenses 182 156 15 Operating profit before provisions 149 116 26Provisions for impairment of loans and receivables (6) 7 -Provisions for liabilities and commitments - (3) -Total provisions (6) 4 - Operating profit 155 112 37Associated undertakings - 2 - Profit before taxation 155 114 35 AIB Poland Division had an excellent performance in the first half-year withprofit before taxation increasing by 35%. This reflects the strong growthmomentum, increased business activity and diversification of income streams nowevident in the division. Total operating income increased by 20% with net interest income up by 22%.Demand for credit has been very strong with total loans increasing by 17% from31 December 2006 (34% since 30 June 2006). Business lending growth of 16% since31 December 2006 (30% since 30 June 2006) continues to be ahead of the market,while personal lending at 18% since 31 December 2006 (36% since 30 June 2006)continues to grow substantially. Mortgage demand in the market remains strongwith the majority of the business being foreign exchange denominated facilities,a product sector in which BZWBK does not actively participate. Against thisbackground, mortgage lending grew by a very satisfactory 16% since 31 December2006 (33% since 30 June 2006). Customer deposits increased by 5% since 31December 2006 (18% since 30 June 2006), with growth primarily in currentaccounts and in the business sector. Other income increased by 19%. Success continued in the mutual funds business,where balances increased by 30% since 31 December 2006 (77% since 30 June 2006)in a more dynamic and competitive market. Asset management income increased by69% supported primarily by management fees. The brokerage business continued torecord increased turnover and related income, helped by the strong performanceof the Warsaw Stock Exchange in the first half-year. Business momentum continuedto increase income from foreign exchange, debit cards, dividends and fees, whichtogether now comprise approximately 60% of other income. Operating expenses increased by 15% reflecting increased business opportunityand the roll out of the expansion of the branch network. The staff costsincrease was driven by increased employment levels, higher basic salaries andenhanced performance related pay. General and administrative expenses increasedmainly due to increased IT maintenance and marketing expenditure. Impaired loans as a percentage of total loans continued to decline with theratio at 3.9% at 30 June 2007 compared with 4.9% at 31 December 2006.Exceptional recoveries, in a benign environment have led to overall netprovision write-backs in the period. The credit provision write-back as apercentage of average loans was 0.24%, compared with a charge of 0.31% in thehalf-year to June 2006. Divisional commentary Group Group includes interest income earned on capital not allocated to divisions, thefunding cost of certain acquisitions, hedging in relation to the translation offoreign locations' profit, unallocated costs of central services, thecontribution from AIB's share of approximately 24.5% in M&T Bank Corporation ('M&T') and profit on disposal of property. Half-year Half-year June 2007 June 2006Group income statement • m • m Net interest income 36 46Other income / (loss) (12) (27) Total operating income 24 19Personnel expenses 51 45General and administrative expenses 44 32Depreciation / amortisation 15 9Total operating expenses 110 86 Operating loss (86) (67)Associated undertaking - M&T 74 80Profit on disposal of property 41 90Construction contract income 44 34 Profit before taxation - continuing operations 73 137 Group reported profit before taxation of • 73 million for the half-year to June2007 compared with a profit of • 137 million in the half-year to June 2006. Theprofit reported includes profit on disposal of property and constructioncontract income of • 85 million compared with • 124 million from theseactivities in 2006. Total income increased from • 19 million in the half-year to 30 June 2006 to •24 million in the half-year to 30 June 2007. Other income/(loss) includes hedging profits in relation to foreign currencytranslation hedging (• 2 million in the half-year to June 2007 compared with •17 million in the half-year to June 2006) and interest rate hedge volatility(1)(a decrease in other income of • 25 million in the half-year to June 2007compared with a decrease of • 19 million in 2006). Total operating expenses were higher due to increased compliance related spend,mainly on the preparation of AIB's Basel II application to the FinancialRegulator and investment in systems and infrastructure to sustain the long-termdevelopment of the business in line with our single enterprise agenda.Performance related costs were higher in line with strong profit growth. AIB's share of M&T after-tax profit in the half-year to June 2007 amounted to •74 million. On a local currency basis M&T's contribution of US$ 99 million wasup 1% relative to the half-year to June 2006 contribution of US$ 98 million. M&Treported its half-year results on 12 July 2007, showing net income (profit aftertax) down 6% to US$ 390 million. US GAAP-basis diluted earnings per share wasdown 4% to US$ 3.51 from US$ 3.64 in the half-year to June 2006. Diluted netoperating earnings per share, which excludes the amortisation of core depositand other intangible assets and banking office acquisition-related expenses, wasUS$ 3.70, down 2% from US$ 3.79 in the half-year to June 2006. Profit on disposal of property reflects profit on the sale of 16 branches in theRepublic of Ireland (• 41 million before tax, • 35 million after tax).Construction contract income of • 44 million (• 38 million after tax) reflectsthe profit earned from the new development at Bankcentre, based on the stage ofcompletion. (1) Hedging ineffectiveness and derivative volatility. Basis of preparation Accounting policiesThere have been no significant changes to the accounting policies described onpages 47 to 61 in the 2006 annual report. Change in pension scheme assumptionsAs described on page 50 of the 2006 annual report, pension scheme liabilitiesare discounted at the current rate of return on a high quality corporate bond ofequivalent term and currency. The discount rates used in the preparation of theaccounts as at 30 June 2007 were 5.3% for the Irish scheme (31 December 2006:4.7%) and 5.5% for the UK scheme (31 December 2006: 5.0%). The change in thediscount rates, together with actuarial gains on assets, gave rise to anactuarial gain of d 565 million, net of tax, in the current period. Prospective accounting changesThe prospective accounting changes setting out accounting standards/amendmentsthat apply with effect from 1 January 2007 to companies that report under IFRS,and their expected impact on the Group, are set out on page 62 of the 2006annual report. These are updated below for recent developments. IFRIC 10 - Interim Financial Reporting and Impairment. This interpretation,which was endorsed by the EU on 1 June 2007, clarifies that any impairmentlosses on goodwill and equity instruments in an interim period may not bereversed in subsequent interim periods. This IFRIC does not have a materialimpact on the Group. The following accounting developments will impact companies that report underIFRS in future periods:- IFRIC 11 - Group and Treasury Share Transactions (effective 1 January 2008).This interpretation deals with accounting for share based payments at subsidiarylevel hence it will not have an impact on AIB's consolidated accounts. The EU Transparency Directive was transposed into Irish law on 13 June 2007 andwill impact AIB's external reporting from 1 January 2008. The Directive seeks toenhance transparency in EU capital markets in order to improve investorprotection and market efficiency. The Directive sets out publication deadlinesand content requirements in relation to annual financial reports and half yearlyfinancial reports. The IASB announced on 1 July 2006 that it will not require the application ofnew IFRSs under development or major amendments to existing IFRSs before 1January 2009. Delaying implementation of new standards until 2009 provides fouryears of stability in the IFRS platform of standards for those companies thatadopted IFRSs in 2005. Companies will however, be permitted to adopt a newstandard on a voluntary basis before its effective date. Interpretations andminor amendments to correct problems identified in practice are not subject tothis 2009 delay. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ALBK.L