1st Aug 2006 07:00
Allied Irish Banks PLC01 August 2006 Highlights - AIB Group interim results 2006 Basic earnings per share EUR 121.2cless profit from Ark Life(1) EUR (18.2c)less profit on Bankcentre(2) EUR (11.0c)adjust for hedge volatility(3) under IFRS EUR 1.7cAdjusted basic earnings per share EUR 93.7c up 29%(4) Divisional pre-tax profit performance (5) - AIB Bank ROI up 19% - Capital Markets up 58% or 45% on an operating profit (6) basis - AIB Bank UK up 18% - Poland up 62% - M&T contribution up 11% Income / cost gap +6% Cost income ratio down 2.7% to 52.4% Exceptionally high credit provision write-backs Return on equity 30.4% Tier 1 capital ratio 8.0% Interim dividend of EUR 25.3c, up 10% AIB Group Chief Executive Eugene Sheehy said: 'The very strong results for the first six months of 2006 reflect buoyantwell-spread growth in all our markets and the development of high qualityfranchises. This performance was achieved thanks to the outstanding commitmentand dedication of our people throughout the group. While exceptionally goodasset quality complemented the first half results, the strong operatingperformance and customer demand underpins confidence in the future growth andresilience of our business.' (1) Includes the profit from Ark Life discontinued operation (• 132 millionafter tax) and the profit on the transfer of the management of certaininvestment contracts to Aviva as part of the Ark disposal (• 26 million aftertax). (2) Includes profit on the new Bankcentre development (• 29 million after tax)and part of the profit on the disposal of the existing Bankcentre (• 67 millionafter tax). (3) The impact of interest rate hedge volatility (derivative ineffectiveness andvolatility) under IFRS was a decrease of €19 million to profit before taxationfor the half-year (• 15 million after tax). (4) A 29% increase compared with EUR 72.4c for the half-year to June 2005, whichincludes the earnings in 2005 from Ark Life which is now a discontinuedoperation. (5) Excluding the impact of exchange rate movements on the translation offoreign locations' profit. (6) Operating profit excludes the • 26 million profit on the transfer of themanagement of certain investment contracts to Aviva as part of the disposal ofArk Life. Results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation (note 2). Dividend The Board has declared an interim dividend of EUR 25.3c per share, an increaseof 10% on the half-year ended 30 June 2005. The dividend will be paid on 26September 2006 to shareholders on the Company's register of members at the closeof business on 11 August 2006. 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 2006 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 • m • m • m ResultsTotal operating income 2,078 1,764 3,647Operating profit 978 750 1,493Profit before taxation - continuing operations 1,214 825 1,706Profit attributable to equity holders of the parent 1,089 661 1,343 Per • 0.32 ordinary shareEarnings - basic (note 12a) 121.2c 72.3c 151.0cEarnings - diluted (note 12b) 120.1c 71.7c 149.8cDividend 25.3c 23.0c 65.3cDividend payout 21% 32% 44%Net assets 851c 770c 773c Performance measuresReturn on average total assets 1.67% 1.23% 1.20%Return on average ordinary shareholders' equity 30.4% 20.1% 20.6% Balance sheetTotal assets 144,073 115,937 133,214Ordinary shareholders' equity 7,413 6,636 6,672Loans etc 105,594 78,214 92,361Deposits etc 123,349 93,646 109,520 Capital ratiosTier 1 capital 8.0% 7.7% 7.2%Total capital 11.1% 11.0% 10.7% Allied Irish Banks, p.l.c. Group Headquarters & Registered Office Bankcentre, Ballsbridge Dublin 4, Ireland Telephone (01) 6600311 Registered number 24173 Results for the half-year ended 30 June 2005 have been restated to represent theresults of Ark Life as a discontinued operation (note 2). Consolidated interim income statement (unaudited) for the half-year ended 30 June 2006 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 Notes • m • m • m Interest and similar income 4 3,130 2,421 5,151Interest expense and similar charges 5 1,701 1,195 2,621 Net interest income 1,429 1,226 2,530Dividend income 19 15 17Fee and commission income 598 513 1,061Fee and commission expense (76) (70) (145)Trading income 6 79 43 112Other operating income 7 29 37 72Other income 649 538 1,117 Total operating income 2,078 1,764 3,647Administrative expenses 8 1,018 907 1,881Depreciation of property, plant and equipment 43 42 83Amortisation/impairment of intangible assets and goodwill 27 23 47Total operating expenses 1,088 972 2,011 Operating profit before provisions 990 792 1,636Provisions for impairment of loans and receivables 16 12 46 115Provisions for liabilities and commitments - (5) 20Amounts written off financial investments - 1 8 Operating profit 978 750 1,493Share of results of associated undertakings 86 70 149Profit on disposal of property 9 90 5 14Construction contract income 10 34 - 45Profit on disposal of businesses 26 - 5 Profit before taxation - continuing operations 1,214 825 1,706Income tax expense - continuing operations 11 221 167 319 Profit after taxation - continuing operations 993 658 1,387Discontinued operation, net of taxation 2 132 24 46 Profit for the period 1,125 682 1,433 Attributable to: Equity holders of the parent 1,089 661 1,343 Minority interests in subsidiaries 36 21 90 1,125 682 1,433 Basic earnings per share - continuing operations 105.9c 69.4c 145.7cBasic earnings per share - discontinued operations 15.3c 2.9c 5.3c Total 12(a) 121.2c 72.3c 151.0c Diluted earnings per share - continuing operations 105.0c 68.9c 144.6cDiluted earnings per share - discontinued operations 15.1c 2.8c 5.2c Total 12(b) 120.1c 71.7c 149.8c Results for the half-year ended 30 June 2005 have been restated to representthe results of Ark Life as a discontinued operation (note 2). Consolidated interim balance sheet (unaudited) 30 June 2006 30 June 31 December 30 June 2006 2005 2005 Notes • m • m • m AssetsCash and balances at central banks 618 742 666Treasury bills and other eligible bills 129 201 -Items in course of collection 927 402 695Trading portfolio financial assets 14 10,820 10,113 9,502Financial assets designated at fair value through profit or loss - - 2,197Derivative financial instruments 22 2,239 2,439 2,604Loans and receivables to banks 9,932 7,129 3,543Loans and receivables to customers 15 95,662 85,232 74,671Financial investments available for sale 18 18,664 16,864 16,487Interests in associated undertakings 1,846 1,656 1,629Intangible assets and goodwill 516 517 518Property, plant and equipment 625 706 736Other assets 1,005 778 1,726Current taxation 8 18 -Deferred taxation 224 253 197Prepayments and accrued income 807 801 766Disposal group and assets classified as held for sale 51 5,363 - Total assets 144,073 133,214 115,937 LiabilitiesDeposits by banks 34,318 29,329 22,321Customer accounts 19 66,564 62,580 55,046Trading portfolio financial liabilities 255 240 203Derivative financial instruments 22 1,992 1,967 2,084Investment and insurance contract liabilities - - 4,351Debt securities in issue 22,467 17,611 16,279Current taxation 242 133 225Other liabilities 2,590 1,599 2,207Accruals and deferred income 1,020 1,092 792Retirement benefit liabilities 644 1,227 1,061Provisions for liabilities and commitments 133 140 110Deferred taxation 9 32 41Subordinated liabilities and other capital instruments 20 4,693 3,756 2,853Disposal group classified as held for sale - 5,091 - Total liabilities 134,927 124,797 107,573 Shareholders' equityShare capital 294 294 294Share premium account 1,693 1,693 1,693Other equity interests 497 497 497Reserves 519 1,152 1,451Profit and loss account 4,907 3,533 3,198Shareholders' equity 7,910 7,169 7,133Minority interests 1,236 1,248 1,231 Total shareholders' equity including minority interests 9,146 8,417 8,364 Total liabilities, shareholders' equity and minority interests 144,073 133,214 115,937 Results for the half-year ended 30 June 2005 have been restated to representthe results of Ark Life as a discontinued operation (note 2). Condensed interim statement of cash flows (unaudited) For the half-year ended 30 June 2006 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005Consolidated statement of cash flows • m • m • m Net cash flows from operating activities 4,731 1,594 4,513 Investing activitiesNet increase in financial investments (2,041) (9) (264)Additions to property plant and equipment and intangible assets (94) (50) (136)Disposal of property plant and equipment 142 11 89Investment in associated undertaking - - (3)Disposal of associated undertakings 3 - 4Disposal of investment in businesses 186 - 7Dividends received from associated undertakings 29 18 41 Cash flows from investing activities (1,775) (30) (262) Financing activitiesIssue of ordinary share capital 35 37 47Redemption of subordinated liabilities - (441) (630)Issue of new subordinated liabilities 1,004 718 1,813Interest paid on subordinated liabilities (70) (26) (90)Equity dividends paid (368) (333) (532)Dividends on other equity interests (38) (38) (38)Dividends paid to minority interests (35) (1) (14) Cash flows from financing activities 528 (84) 556 Net increase in cash and cash equivalents 3,484 1,480 4,807 Analysis of changes in cashAt beginning of period 7,670 2,056 2,773Net cash inflow before the effect of exchange translation 3,484 1,480 4,807adjustmentsEffect of exchange translation adjustments (180) 81 90 At end of period 10,974 3,617 7,670 Results for the half-year ended 30 June 2005 have been restated to represent theresults of Ark Life as a discontinued operation (note 2). Consolidated interim statement of recognised income and expense (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 • m • m • m Foreign exchange translation differences (168) 252 287Net change in cash flow hedges, net of tax (259) 120 (76)Net change in fair value of available for sale securities, net of (136) 104 (6)taxNet actuarial gains and losses in retirement benefit schemes, net 492 (157) (285)of tax Income and expense recognised directly in equity (71) 319 (80)Profit for the period 1,125 682 1,433 Total recognised income and expense for the period 1,054 1,001 1,353 Attributable to: Equity holders of the parent 1,018 980 1,263 Minority interests in subsidiaries 36 21 90 Total recognised income and expense for the period 1,054 1,001 1,353 Condensed consolidated interim reconciliation of movements in shareholders'equity (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 • m • m • m Profit attributable to equity holders of the parent 1,089 661 1,343Transition adjustment at 1 January 2005 arising from - 545 545IAS 32, IAS 39 and IFRS 4Dividends on ordinary shares (368) (333) (532)Dividends on other equity interests (38) (38) (38)Share based payments 17 5 16Actuarial gain/(loss) recognised in retirement benefit schemes 488 (154) (285)Actuarial gain/(loss) recognised in associated undertaking 4 (3) - Other recognised (losses)/gains relating to the period (559) 470 198Other recognised (losses)/gains in associated undertaking (35) 6 (65)Other ordinary shares issued 60 56 66Net movement in own shares 83 (9) (6) Net additions to shareholders' equity 741 1,206 1,242Opening shareholders' equity 7,169 5,927 5,927 Closing shareholders' equity 7,910 7,133 7,169 Shareholders' equity: Ordinary shareholders' equity 7,413 6,636 6,672 Other equity interests 497 497 497 7,910 7,133 7,169 Commentary on results Earnings per share Adjusted earnings per share of EUR 93.7c (see note 13) was up 29% compared toEUR 72.4c for the half-year to June 2005,which includes the earnings in 2005from Ark Life which is now a discontinued operation. 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 rates effective rates half-year half-year half-year half-year June 2006 June 2005 June 2006 June 2005 US dollar 1.23 1.29 1.20 1.32Sterling 0.69 0.69 0.69 0.70Polish zloty 3.90 4.08 3.86 4.08 Basis of preparation The results for the half-year ended 30 June 2005 have been restated to representthe results of Ark Life as a discontinued operation. The following commentary ison a continuing operations basis. The growth percentages are shown on anunderlying basis, adjusted for the impact of exchange rate movements on thetranslation of foreign locations' profit and excluding interest rate hedgevolatility under IFRS. "Total operating income up 17%" "Strong loan and deposit volume growth" Total operating income Total income increased by 17% to • 2,078 million. Half-year Half-year Underlying June 2006 June 2005 % changeTotal operating income • m • m 2006 v 2005 Net interest income 1,429 1,226 16Other income 649 538 18 Total operating income 2,078 1,764 17 Commentary on results Net interest income Net interest income amounted to • 1,429 million, an increase of 16%. Strong loanand deposit growth in Republic of Ireland and UK, strong loan growth in Polandand continuing growth in loan arrangement fees were the key factors generatingthe increase. Loans to customers increased by 12% and customer accountsincreased by 10% on a constant currency basis since 31 December 2005 (details ofloan and deposit growth by division are contained on page 13 of this release). Half-year Half-year % June 2006 June 2005 change(1)Average interest earning assets • m • m 2006 v 2005 Average interest earning assets 126,030 99,988 26 (1) This particular analysis is not adjusted for the impact of exchange rate movements. Half-year Half-year Basis June 2006 June 2005 pointNet interest margin % % change Group net interest margin 2.29 2.47(2) -18 (2) The half-year to June 2005 net interest margin has been restated to exclude Ark Life. The domestic and foreign margins for the half-year to June 2006 are reported onpage 32 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 amountedto 2.29%, a decrease of 18 basis points compared with the half-year to June2005. 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. (d) lower yields on the re-investment of deposit and current account funds asthey mature. The largest factor in the margin reduction was average loans increasing at agreater rate than average deposits compared with 2005. 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. The impact of low yields on the investment of deposit and current account fundsparticularly affected AIB Bank Republic of Ireland and UK divisions. As interestrates increase, the impact of this factor is expected to reduce. 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 continued to meet targeted return oncapital hurdles. Commentary on results "Strong increase in investment banking and asset management fees" "Banking fees and commissions up 5%" Other income Other income was up 18% to • 649 million compared with the half-year to June2005. Half-year Half-year Underlying June 2006 June 2005 % changeOther income • m • m 2006 v 2005 Dividend income 19 15 27Banking fees and commissions 457 429 5Investment banking and asset management fees 141 84 67Fee and commission income 598 513 15Less: fee and commission expense (76) (70) 7Trading income 81 50 63Currency hedging profits / (losses) 17 (9) -Interest rate hedge volatility (IAS 39) (19) 2 -Trading income 79 43 47Other operating income 29 37 -22 Total other income 649 538 18 Dividend income increased 27% mainly reflecting growth in dividends frominvestments held by the Poland business. Banking fees and commissions increased by 5%, due to increased business andtransaction volumes in AIB Bank Republic of Ireland, AIB Bank UK, Poland andCorporate Banking and there was strong growth in credit card activity inIreland. Investment banking and asset management fees increased by 67% driven byparticularly strong sales performances in Asset Management in Poland and BZWBK'sbrokerage operation. Total fee and commission income was up 15%. Trading income increased, with strong growth in interest rate swap and foreignexchange income, bond management activities and increased volumes in the PolandTreasury business. Trading income excludes interest payable and receivablearising from these activities, which is included in net interest income. Other income as a percentage of total income increased to 31.2% from 30.5% forthe half-year June 2005. Commentary on results "Investment to ensure the long term health of the business" "Improved efficiency" - "Very good income / cost gap +6%" - "Cost income ratio down 2.7% to 52.4%" Total operating expenses Operating expenses increased by 11% compared with the half-year to June 2005. Half-year Half-year Underlying June 2006 June 2005 % changeOperating expenses • m • m 2006 v 2005 Personnel expenses 699 630 10General and administrative expenses 319 277 14Depreciation(1)/amortisation(2) 70 65 6 Total operating expenses 1,088 972 11 Operating expenses were up 11%, in an environment of significantly higherbusiness volumes and strong revenue growth. In this time of exceptionalopportunity and income buoyancy, the decision has been made to invest to sustainthe long-term health and development of the business. This has requiredinvestment in a resilient risk, compliance and corporate governance framework,recruitment of appropriate skills, the introduction of enhanced reward systemsand the building of common operating systems. In addition, costs are beingincurred to ensure compliance with a range of regulatory requirements such asSarbanes Oxley and Basel II. Excluding regulatory driven costs and performancerelated remuneration resulting from very strong profit growth, the increase was9%. Personnel expenses were up 10%, due to higher pension costs and a higher levelof variable performance related remuneration. General and administrativeexpenses were up 14% mainly due to consultancy and systems costs to ensurecompliance with a range of previously mentioned regulatory requirements.Depreciation/amortisation increased by 6%, mainly due to the commencement ofdepreciation on the aforementioned recent investment initiatives. Improved productivity was evident in a reduction in the cost income ratio by2.7% to 52.4% from 55.1% in the half-year to June 2005. (1) Depreciation of property, plant and equipment. (2) Amortisation/impairment of intangible assets and goodwill. Commentary on results "Exceptionally positive bad debt experience reflecting benign credit environment" "Reduction in impaired loans as a percentage of loans to 0.8%" "Provision charge down to 3 basis points, not expected to recur" "Very significant level of provision write-backs in the period" Provisions Total provisions were • 12 million, down from • 42 million in the half-year toJune 2005. Half-year Half-year June 2006 June 2005Provisions • m • m Provisions for impairment of loans and receivables 12 46Provisions for liabilities and commitments - (5)Amounts written off financial investments - 1 Total provisions 12 42 Bad debt experience was exceptionally positive reflecting a benign creditenvironment and a significant level of provision write-backs in the period.There was a reduction in impaired loans as a percentage of total loans from 1.0%at 31 December 2005 to 0.8% at 30 June 2006 and the provision coverage forimpaired loans increased to 81%. The provision for impairment of loans andreceivables was • 12 million compared with • 46 million in the half-year to June2005, representing a charge of 0.03% of average loans compared with 0.13% in theperiod to June 2005. The 0.03% charge represents • 14 million in the incurredbut not reported ('IBNR') category and a net specific write-back of • 2 million. In AIB Bank Republic of Ireland asset quality continued to be strong. Impairedloans as a percentage of total loans reduced to 0.6% at 30 June 2006 from 0.7%at 31 December 2005 and the provision charge remained at 0.14% of average loanscompared with the half-year to June 2005. All leading indicators of assetquality across the retail and commercial portfolios remain solid. The bad debt charge in the UK division decreased to 0.08% compared with 0.11%for the half-year to June 2005 reflecting positive bad debt experience and verystrong recoveries. Impaired loans remained at 0.9% of total loans compared with31 December 2005. In Capital Markets, there were exceptional non-recurring credit provisionwrite-backs during the period. There was a net provision write-back of • 37million or -0.39% of average loans and impaired loans reduced to 0.3% from 0.7%of total loans at 31 December 2005. The provision charge in Poland was 0.31% of loans compared with 0.26% in thehalf-year to June 2005. The downward trend in impaired loans continued with theratio of impaired loans as a percentage of loans declining to 6.3% from 6.8% at31 December 2005. There were no net provisions for liabilities and commitments or for amountswritten off financial investments in the half-year to June 2006. Share of results of associated undertakings The profit in the half-year to June 2006 was • 86 million compared to • 70million in the half-year to June 2005 and mainly reflects AIB's 23.9% share ofthe income after taxation of M&T Bank Corporation (• 80 million) and incomeafter taxation from the recently completed venture in Life and Pensions withHibernian. Commentary on results The following commentary is in respect of the total Group. "Loans up 12%, deposits up 10%" "Effective tax rate at 18.2%" Balance sheet Total assets amounted to • 144 billion compared to • 133 billion at 31 December2005. Adjusting for the impact of currency, total assets were up 10% and loansto customers were up 12% since 31 December 2005 while customer accountsincreased by 10%. Risk weighted assets excluding currency factors increased by11% to • 111 billion. Risk weighted assets, loans to customers and customer accounts (excludingcurrency factors) Risk weighted Loans to Customer assets customers accounts(1)% change June 2006 v December 2005 % change % change % change AIB Bank Republic of Ireland 18 16 7AIB Bank UK 9 9 13Capital Markets 5 7 25Poland 6 8 3 AIB Group 11 12 10 (1) Excludes money market funds Assets under management/administration and custody Assets under management in the Group amounted to • 15 billion and assets underadministration and custody amounted to • 265 billion at 30 June 2006. Taxation The taxation charge was • 221 million compared with • 167 million in thehalf-year to June 2005. The effective tax rate was 18.2% compared with 20.2% inthe half-year to June 2005 (or 18.4% excluding the bank levy). The taxationcharge excludes taxation on share of results of associated undertakings. Shareof results of associated undertakings is reported net of taxation in the Groupprofit before taxation. The effective tax rate is influenced by the geographicmix of profits, which are taxed at the rates applicable in the jurisdictionswhere we operate. Commentary on results "EPS guidance increased - growth targeted to be over 20% for year 2006" "Return on equity 30.4%" Return on equity and return on assets The return on equity increased to 30.4% compared to 20.1% in the half-year toJune 2005 and the return on assets was 1.67%, up from 1.23% in the half-year toJune 2005. The return on equity was boosted by the profit on Bankcentre(1) andthe profit on the disposal of Ark Life. Capital ratios A strong capital position was reflected in a Tier 1 ratio of 8.0% and a totalcapital ratio of 11.1%. Outlook Momentum and the operating performance in all our principal franchises isstrong. The impaired loan provision charge in the first half-year should beconsidered exceptional due to very high levels of credit provision write-backs.Arising from positive business trends and well distributed customer demand,growth in adjusted basic earnings per share (2005 base EUR 145.9c) is nowtargeted to be over 20% for the full year 2006. (1) Includes profit on the new Bankcentre development (• 29 million after tax)and part of the profit on the disposal of the existing Bankcentre (• 67 millionafter tax). 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 division profit was up 19% "Very strong revenue growth" "Income / cost gap at +4%" "Cost income ratio decreases to 49.4%" AIB Bank Republic of Ireland Retail and commercial banking operations inRepublic of Ireland, Channel Islands and Isle of Man; AIB Finance and Leasingand Card Services. Half-year Half-year Underlying June 2006 June 2005 % changeAIB Bank Republic of Ireland income statement • m • m 2006 v 2005 Net interest income 745 637 17Other income 212 183 16 Total operating income 957 820 17Total operating expenses 473 417 13 Operating profit before provisions 484 403 20Provisions 35 27 35 Operating profit 449 376 19Share of results of associated undertakings 4 - -Profit on disposal of property - 4 - Profit before taxation 453 380 19 AIB Bank Republic of Ireland generated growth in profit before tax of 19%underpinned by a continuing strong Irish economy and a dynamic AIB franchise.Operating income was up 17% and operating expenses were up 13% with theoperating income/cost gap at +4%. The strong profit growth reflects increased customer demand for products andservices and the benefits of a refined branch operating model. Loans anddeposits increased by 16% and 7% respectively since 31 December 2005 (+33% and+20% compared with June 2005), despite ongoing, though largely unchangedcompetitive pressure. Operating expenses were up 13%. Increased staff numbersreflecting higher activity levels across the business, annual salary inflation,the impact of a new career framework pay structure, performance related costsand pension costs were key drivers. In addition increased costs were incurred ina number of non-business related areas, including mandatory / regulatory drivenproject costs. The strong operating performance is further reflected in animprovement in the cost income ratio which reduced to 49.4% compared with 51.0%in June 2005. Asset quality remains strong and the provision charge for thehalf-year to 30 June 2006, was 0.14% of average loans, unchanged from thehalf-year to 30 June 2005. The increase in absolute amounts reflects the growthin loans. Retail Banking reported a very strong half-year profit. Business lending growthwas exceptionally strong, with personal lending, home mortgages and privatebanking activities all experiencing excellent increases reflecting buoyantcustomer response to competitive product offerings. Profit growth in AIB CardServices also increased significantly, resulting from strong revenue due tohigher consumer spending and card balances, with costs flat compared with thecomparative period. In AIB Finance and Leasing there was solid profit growthreflecting a strong growth in loan volumes and new business levels, particularlyin the motor, plant and equipment and property finance sectors. The recently completed venture in Life and Pensions with Hibernian is animportant part of the wealth management platform being developed by AIB inIreland. Divisional commentary Capital Markets division profit was up 58% on the half-year to June 2005 "Another excellent performance in Corporate Banking" "Exceptional credit provision write-backs" "Customer treasury business was very strong and wholesale trading performed well" "Investment Banking profits show strong growth" "Income / cost gap at +13%" Capital Markets Global Treasury, Corporate Banking and Investment Banking. Half-year Half-year Underlying June 2006 June 2005 % changeCapital Markets income statement • m • m 2006 v 2005 Net interest income 239 214 11Other income 227 194 15 Total operating income 466 408 13Total operating expenses 202 200 - Operating profit before provisions 264 208 26Provisions (34) 3 - Operating profit 298 205 45Share of results of associated undertakings 2 1 47Profit on disposal of business 26 - - Profit before taxation 326 206 58 Profit before taxation at • 326 million was 58% ahead of the comparative period,with operating profit up 45%. The performance benefited from a combination ofstrong revenue growth, tight cost management and exceptional credit provisionwrite-backs. Operating profit before provisions at • 264 million was 26% aheadof the comparative period. Performance in Corporate Banking was excellent with operating profit beforeprovisions up 24% and pre-tax profit up 59% on the comparative period. Loansincreased by 7% since 31 December 2005 (21% since 30 June 2005), reflectingstrong underlying growth, principally in our International and New Yorkbusinesses, partly impacted by the repositioning of certain loan portfolios. Overall, Global Treasury profit was up 36% compared with the half year to June2005. Our Customer Treasury business performed strongly and was well ahead ofthe comparative period. Wholesale Treasury business performed well, in adifficult trading environment in the first half-year, with a good profitincrease compared to 2005. Investment Banking profit was 35% ahead of the half-year to June 2005. Theresult was underpinned by strong profit growth in asset management andstockbroking. Operating expenses were in line with June 2005 with investment in growthbusinesses offset by the impact of selective business rationalisation during thelatter half of 2005. The cost income ratio decreased to 43.5% from 49.1%reflecting increased productivity. Exceptional credit provision write-backs were experienced during the period,reflecting the uniquely benign global credit environment. A conservativeapproach to credit management continues to be adopted and the quality of ourloan portfolios remains strong. Profit on disposal of business was earned on the transfer of the management ofcertain investment contracts to Aviva, as part of the Ark Life disposal. The consistency and quality of growth underlines the capability within thedivision to identify, develop and sustain profitable sectors and niches. Divisional commentary AIB Bank UK division profit was up 18% "Buoyant growth in customer volumes" "Income / cost gap at +5%" "Cost income ratio improves by 2.0% to 47.3%" AIB Bank UK Retail and commercial banking operations in Great Britain andNorthern Ireland. Half-year Half-year Underlying June 2006 June 2005 % changeAIB Bank UK income statement • m • m 2006 v 2005 Net interest income 287 247 17Other income 75 74 2 Total operating income 362 321 13Total operating expenses 171 158 8 Operating profit before provisions 191 163 18Provisions 7 8 -4 Operating profit 184 155 19Profit on disposal of property - 1 - Profit before taxation 184 156 18 AIB Bank UK had an excellent business performance in the half-year to June 2006with profit before taxation increasing by 18%, continuing the trend of strongdouble-digit growth in recent periods. Loans and deposits increased by 9% and13% respectively since 31 December 2005 and by 25% and 18% when compared with 30June 2005,resulting in a net interest income increase of 17%. Other income wasup 2%, reflecting growth in credit card income and banking commissions.Operating expenses were up 8%, due to increases in staff numbers, marketingexpenditure and pension costs combined with annual salary increases. The costincome ratio improved from 49.3% to 47.3%. Allied Irish Bank (GB), primarily a business bank, reported significant profitgrowth of 27% to • 103 million in 2006. This growth was driven primarily bystrong volume growth with loans and deposits increasing by 27% and 21%respectively since 30 June 2005. This volume growth underpins the strength ofcustomer demand and is the result of consistently focusing on chosen businesssectors. Costs increased by 11% when compared against the same period last year,driven by the same factors noted above. The cost income ratio improved from48.7% to 46.0% reflecting improved productivity. In Northern Ireland, First Trust Bank increased profit before tax to • 81million representing 9% growth on the same period last year (11% if the impactof property disposals is excluded). Loans and deposits were up 23% and 15%respectively when compared with 30 June 2005 with strong growth in business andhome mortgage lending activity. Costs increased by 6% impacted by higher pensioncosts. Higher productivity resulted in an improvement in the cost income ratiofrom 50.0% to 48.7%. Divisional commentary Poland division profit was • 114 million, up 62% "Substantial profit growth" "Strong increase in customer lending" "Exceptional growth in mutual funds" "Income / cost gap + 17%" Poland Bank Zachodni WBK ('BZWBK'), in which AIB has a 70.5% shareholding,together with its subsidiaries and associates. BZWBK Wholesale Treasury and share of certain Investment Banking subsidiariesresults are reported in Capital Markets division. Half-year Half-year Underlying June 2006 June 2005 % changePoland income statement • m • m 2006 v 2005 Net interest income 112 93 16Other income 162 115 34 Total operating income 274 208 26Total operating expenses 156 136 9 Operating profit before provisions 118 72 58Provisions 4 4 -2 Profit before taxation 114 68 62 Profit before taxation was up by 62% on a local currency basis to • 114 million,reflecting increasingly strong momentum across the division's business lines,generated through higher business activity and volumes and the execution of itsbusiness strategy. Total operating income increased by 26% with net interest income increasing by16% and other income increasing by 34%. The first half-year saw a material pickup in the demand for credit. Total loans increased by 8% since December 2005(12% since 30 June 2005), with the pick-up in retail lending continuing and anincreased demand for business lending, which increased by 8%. Mortgage growth at10% continued to be tempered by the market preference for foreign exchangedenominated lending. Overall lending margins were maintained reflecting a betterproduct mix, despite increasing competition in business and mortgage lending.Customer deposits increased by 3% since December 2005 (7% since 30 June 2005),with growth primarily in current accounts and foreign exchange deposits. Depositgrowth must be seen in the context of customer preference for mutual funds inwhich we are achieving very significant growth (as outlined below). Lowerinterest rates and increased competition reduced deposit margins, compensatedsomewhat by a better product mix. Other income growth of 34% was driven by a variety of positive factors,including exceptional growth in assets under management. Mutual fund balancesincreased 230% on June 2005 and market share increased to 16.4% in June 2006from 12.6% in December 2005. Outstanding sales and favourable portfolio mixresulted in asset management income growth of 341%. The brokerage businessenjoyed an excellent half-year with substantial increases in turnover, buoyed bythe performance of the Warsaw Stock Exchange in the first half of 2006. Inaddition, E-business and payment fees, dividends, equity disposals and foreignexchange income also contributed to the strong growth. Operating expenses increased by 9% reflecting increased business activity andhigher performance related costs. Impaired loans as a percentage of total loans continued to decline with theratio at 6.3% at 30 June 2006 compared with 6.8% at 31 December 2005. Totalprovisions were at the same level as the half-year to June 2005. The creditprovision charge as a percentage of average loans was 0.31%, compared with 0.26%in the half-year to June 2005. 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 and thecontribution from AIB's share of approximately 23.9% in M&T Bank Corporation ('M&T'). Half-year Half-year June 2006 June 2005Group income statement • m • m Net interest income 46 35Other income/(loss) (27) (28) Total operating income 19 7Total operating expenses 86 61 Operating loss (67) (54)Share of results of associated undertaking - M&T 80 69Profit on disposal of property 90 -Construction contract income 34 - Profit before taxation 137 15 Group reported profit of • 137 million for the half-year to June 2006 comparedwith a profit of • 15 million in 2005. The increase mainly reflects profit onthe partial disposal of the existing Bankcentre building and profit on the newBankcentre development (total • 124 million). Net interest income increased due to higher capital income resulting from highercapital balances (strong retained earnings and the return on the funds generatedfrom the sale of Bankcentre and Ark Life). Other income/(loss) remained broadlyin line with June 2005. In the half-year to June 2006 there was profit from theeconomic hedging of foreign currency translation including • 12 million of markto market profit relating to economic hedges in place for the second half of2006. The profit from foreign exchange hedging was offset by interest rate hedgevolatility. Other income/(loss) in the half-year to June 2005 included economichedging losses in relation to foreign currency translation hedging and interestrate hedge volatility. Total operating expenses were higher due to increased compliance related spend,mainly Sarbanes Oxley and Basel II and systems development costs. Performancerelated costs were higher in line with strong profit growth. AIB's share of M&T after-tax profit in 2006 amounted to • 80 million. On a localcurrency basis M&T's contribution of US$ 98 million increased by 11% relative tothe half-year to June 2005 of US$ 88 million. AIB benefited from a 23.9% shareof profit compared to a 23.3% share in the half-year to June 2005. M&T reportedits half-year results on 12 July 2006, showing strong earnings growth with netincome up 8% to US$ 415 million. US GAAP-basis diluted earnings per share was up10% to US$ 3.64 from US$ 3.31 in the half-year to June 2005. Diluted netoperating earnings per share, which excludes the amortisation of core depositand other intangibles and branch acquisition related expenses, was US$ 3.79, up10% from US$ 3.46. Profit on disposal of property relates to part of the profit on the disposal ofthe existing Bankcentre building. Construction contract income reflects theprofit from the new development at Bankcentre. NOTES IN AIB 2006 INTERIM RESULTS PART 2 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ALBK.L