interim results 2006 interim resultsa number of statements we will be making in our presentation and...
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Interim Results
Interim Results 2006
for the half-year ended 30 June 2006
Allied Irish Banks, p.l.c.
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A number of statements we will be making in our presentation and in the
accompanying slides will not be based on historical fact, but will be “forward-
looking” statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995. Actual results may differ 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 and regional economic conditions, levels of
market interest rates, credit or other risks of lending and investment activities,
competitive and regulatory factors and technology change. Any „forward-looking
statements made by or on behalf of the Group speak only as of the date they are
made.
visit www.aibgroup.com/investorrelations
Forward looking statements
The results for the half-year ended 30 June 2005 have been restated to
represent Ark Life as a discontinued operation. The following commentary is on a
continuing operations basis. The growth percentages (excl. EPS) are shown on
an underlying basis, adjusted for the impact of exchange rate movements on the
translation of foreign locations‟ profit and excluding interest rate hedge volatility
under IFRS.
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Eugene Sheehy
Group Chief Executive
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The AIB agenda
Transfer skills internationally to markets where we
identify profitable sectors / niches
Harvest organic growth opportunities in existing
markets
Achieve efficiency and productivity gains driven by
a single enterprise support framework
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Performance highlights
Basic earnings per share 121.2 c
- basic adjusted * 93.7 c 29 %
* Excludes (i) interest rate hedge volatility (ii) profit on bankcentre transactions, and (iii) Ark Life
Positive income / cost gap 6 %
Cost / income ratio 2.7 %
Impaired loans 0.8 %
Dividend 10 %
Return on equity 30.4 %
Tier 1 capital ratio 8.0 %
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Buoyant and diverse momentum
AIB Bank RoI
Capital Markets
AIB Bank UK
Poland
M&T
AIB Bank RoI €453m 19%
Capital Markets €300m 45%
AIB Bank UK €184m 18%
Poland €114m 62%
M&T €80m 11%
Profit by division
40%
27%
16%
10%
7%
*
* 58% (€326m) including profit of certain investment contracts related to Ark Life sale
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14%
28%11%
47%
Increasing international profile
4%24%
14%58%
ROI
USA
UK
Poland
June 2003 June 2006 *
Profit by geography
* Continuing operations, excl. profit on disposal of
business & bankcentre transactions
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Positioned in attractive economies
GDP % 2006 (e) 2007 (f)
Ireland 5.5 5.8
UK 2.5 2.5
USA 3.4 2.7
Poland 5.1 5.0
Eurozone 2.3 1.8
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Irish economy; managing success
Positive outlook, gradual medium term slowdown
Health sustained by strong fundamentals Growing population, positive age profile, full employment, increasing
incomes & wealth, plentiful labour supply
Recognise and mindful of risks
- prudent credit criteria (stress tests,
LTVs and loan durations)
AIB mitigants
Increasing interest rates
Increasing household debt levels
Increasing house prices
high savings ratio (c.14%), SSIA
maturities
debt profile (mortgages predominant)
Issues Mitigants
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Income / cost gap +4%
Income 17%; buoyant customer demand
AIB Bank Republic of Ireland 19%
Year on year growth
32%
25% 20%
38% 33%
Deposits Total Loans Business
Lending
Mortgage
Lending
Personal
Lending
Over 50,000 more active customers in the 6 months to June
Prime competitive position; reinvigorated personal customer
proposition
Costs 13%; investing to sustain growth
Building wealth management platform
400 specialist advisers supporting 1,500 relationship managers
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63%24%
13% Corporate Banking
Treasury
Investment Banking / Allied Irish America
Capital Markets 45% 58% (€326m) including profit of certain investment contracts related to Ark Life sale
Corporate Banking 59%;
Operating profit 24%
Enhanced by exceptional bad debt experience
Loans 21%; focus on optimising returns
c. 80% profit earned in international franchises
Global Treasury 36%
Excellent momentum in customer businesses; well distributed across business lines
and geographies
Strong performance in challenging market conditions, low risk positions maintained
Investment Banking 35%
Well spread growth and good deal flow
Powerful mix of growth and resilience
10 year unbroken record of annual profit growth*; CAGR 22%
Income / cost gap + 13%
* Excludes disposal of businesses
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AIB Bank United Kingdom 18%
18%
27%
9%
AIB Bank
UK
Great
Britain
Northern
Ireland
€184m €103m €81m
Income / cost gap + 5%
Great Britain
Deepening and extending our position in
chosen markets Loans 27%; deposits 21%
Full service provider; product range, systems
& processes
25% more locations in past 4 years
Business developers recruitment rate
10-15% per annum
Developing a complementary wealth
management offering
Foundations of high quality franchise
carefully developed over 10 years
Consistently our no.1 market for investment
to support growth
Northern Ireland
Solid performance in a challenging market Loans 23%; deposits 15%
Strong focus on efficiency
High quality, high growth franchises
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Poland 62%
Income / cost gap + 17%
Relentless focus on productivity;
cost/income ratio 56.2%, 3 years ago was 80%
Customer demand gaining momentum
Loans 12%, deposits 7%
Well spread across sectors and products
Outstanding growth in non-interest income, 34%
Top tier asset management franchise, AUM 230%
Customer activity levels driving fee income
Best in class asset quality, impaired loans 6.3%
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M&T 11%
Excellent performance in low growth environment
Strong focus on efficiency, cost / income ratio 50.7%
Solid asset quality, NPLs .38%
AIB shareholding 23.9%
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Increasing international profile – supported by single enterprise approach
C. 17% of all staff (4,000) and costs (€400m) now in
Operations & Technology
Business volume growth driving investment; launched
€400m+ in capital spend to drive down unit cost
Core business banking and payment system
11 core systems moving to 1
Rollout early 2007, complete 2008
Core retail banking system
Moving from multiple proprietary to 1 open system
Implementation 2007 - 2008
Rollout of common UK and Irish branch banking front-
end system to complete in November 2006
Shared services centres operating to a single model
Delivering increased automation and STP%
Adopting Right First Time and ISO standards
2 new data centres
1st complete Q4 2006, 2nd commences 2007
Risk
Managed
Cost
Service Quality
Operational
Excellence
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Key performance features
Double digit growth in all principal franchises
Cost / income ratio 2.7% and down in all divisions
Investing in our people to underpin rates of retention &
recruitment
Operating profit 24%
Strong asset quality, impaired loans to 0.8% and
down / stable in all divisions
Intense focus on single enterprise operations
Robust capital and funding positions
Confident we will continue to achieve balanced and well managed growth
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John O’Donnell
Group Finance Director
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Performance snapshot
1,764 Total operating income 2,078 17
972 Total operating expenses 1,088 11
Group operating profit
792 before provisions 990 24
42 Total provisions 12 -69
750 Group operating profit 978 29
825 Group profit before tax 1,214 27
72.3c EPS - total 121.2c 68
72.4c EPS – basic adjusted 93.7c 29
June June ccy change 2005 €m 2006 %
Effective tax rate 18.2%
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Adjusted basic EPS
Basic earnings per share 121.2c 68
IFRS Interest rate hedge volatility 1.7c
Ark Life (18.2c)
Bankcentre (11.0c)
Adjusted basic EPS 93.7c 29
c. % vs June 2005
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Deposit growth
20 20
34
18
7
0
5
10
15
20
25
30
35
Group AIB Bank
RoI
Capital
Markets
AIB Bank
UK
Poland
%
Year on Year to June 2006
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Loan and risk weighted asset growth
28
25
3332
2120
2526
1214
0
5
10
15
20
25
30
35
Group AIB Bank
RoI
Capital
Markets
AIB Bank
UK
Poland
Loan growth
RWA growth
%
Year on Year to June 2006
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2%
25%
6%
8%
13% 13%
4%
2%
8%
29%
4%
13%12%
5%
25%
31%
Agriculture Construction &
Property
Residential
Mortgages
Manufacturing Personal Services Transport &
Distribution
Other
Dec-05 Jun-06
Loan portfolios by sector
% of Group loan portfolio
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Property & construction – solid profile
53%
26%
15%6%
Underwriting: centralised decision making by sectoral experts
Impaired loans: 0.4%, half overall loan book level
Diversified by geography, type and borrower
53%
9%
31%
4% 3%
Investment: primary source of repayment is from diverse
range of quality tenants
Residential development: strong franchise with large
proven players; emphasis on pre-sales / recourse
Commercial development: low exposure to speculative
development; emphasis on pre-sales / pre-lets / recourse
Contracting: working capital for established players
Republic of Ireland
Northern Ireland
Great Britain
USA
Poland
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House mortgages - Republic of Ireland
Primary focus on debt service ratio (repayment capacity)
New Business
Consistent LTVs (% no’s of drawdowns) Dec 02 Dec 04 Jun 06
< 75% 66 67 65
> 75% < 90% 26 24 21
> 90% 8 9 14
Total 100 100 100
Strong arrears profile Dec 02 Dec 04 Jun 06
% total mortgage advances 0.8% 0.5% 0.4%
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Causes of margin attrition Expected future trend
Loans growing faster than deposits 9 bps reducing effect
Re-investment of customer account funds 5 bps reducing effect
Business mix and competition 4 bps unchanged
18 bps
2006 full year guidance: close to -20 bps
Net interest margin
June June bps 2006 2005 change
2.29% 2.47% -18
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Costs – investing to sustain growth
630 Staff costs 699 10
277 Other costs 319 14
65 Depreciation & amortìsation 70 7
972 Operating expenses 1,088 11
June June Underlying *
2005 €m 2006 change %
* excludes impact of currency movements
Heavy investment in people, operations, governance and risk
framework
Regulatory / compliance and performance pay adding 2 – 3% to
cost growth
2006 full year guidance + 11%
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Positive “jaws” in all franchises
0
5
10
15
20
25
30
Group AIB Bank
RoI
Capital
Markets
AIB Bank
UK
Poland
Income Costs
6% 4%
5%
17%
13%
%
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Cost / income ratio in all divisions
55.1
51.049.1 49.3
65.2
56.2
47.3
43.5
49.4
52.4
40
50
60
70
Group AIB Bank
RoI
Capital
Markets
AIB Bank
UK
Poland
Jun-05
Jun-06
%
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Widening income / cost gap
2002 2003 2004 2005 H1 2006
Cost growth
Income growth
2
4
6
8
10
12
14
16
18
%
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Strong asset quality
1.0 Impaired loans (ILs) % 0.8
5.1 Criticised loans / total loans % 5.1
0.4 Gross new ILs % 0.4
78 Total provisions / ILs % 81
15 Bad debt charge bps 3
December June 2005 2006
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Impaired loans by Division
308 0.7 84 AIB Bank ROI 313 0.6 89
132 0.7 78 Capital Markets 50 0.3 106
166 0.9 75 AIB Bank UK 176 0.9 72
262 6.8 72 Poland 248 6.3 73
868 1.0 78 Total 787 0.8 81
As at December 31, 2005 As at June 30, 2006 ILs/ Total ILs/ Total Actual Provisions/ Actual Provisions/ ILs Advances ILs ILs Advances ILs €m % % €m % %
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Bad debt provisions by division
26.3 0.14 AIB Bank ROI 35.4 0.14
6.9 0.10 Capital Markets (37) (0.39)
7.8 0.11 AIB Bank UK 7.5 0.08
4.6 0.26 Poland 6.1 0.31
45.6 0.13 Total 12.1 0.03
June Average June Average 2005 Loans % €m 2006 Loans %
2006 full year guidance c. 0.12%
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Tier 1 capital
30%
Tier 1 capital ratio 7.7% 8.0%
Equity Preference Shares
June 2005
25%
June 2006
70%
75%
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Funding
0
20
40
60
80
100
2005 H1 2006
Capital
Senior Debt
CDs & CPs
Deposits by banks
Customer a/cs
52%
24%
10%
10%
49%
25%
10%
13%
%
4% 3%
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Outlook – full year 2006
H1 underlines buoyant, well spread growth
Strong operating momentum and pipelines
Bad debt experience exceptional in H1
Now targetting 2006 growth of over 20% in EPS
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Appendices
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Loans / deposits by division
12
28
16
33
7
21
9
25
8
12
Group AIB Bank
RoI
Capital
Markets
AIB Bank
UK
Poland
YTD YoY
10
20
7
20
25
34
13
18
3
7
Group AIB Bank
RoI
Capital
Markets
AIB Bank
UK
Poland
YTD YoY
Loans Deposits
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Loan and risk weighted asset growth
12
11
1618
7
5
9 98
6
0
2
4
6
8
10
12
14
16
18
Group AIB Bank
RoI
Capital
Markets
AIB Bank
UK
Poland
Loan growth
RWA growth
% Year to date
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AIB Bank RoI profit statement
H1 H1 Change 2005 €m 2006 %
637 Net interest income 745 17
183 Other income 212 16
820 Total operating income 957 17
417 Total operating expenses 473 13
403 Operating profit before provisions 484 20
27 Provisions 35 35
376 Operating profit 449 19
4 Profit on disposal of property - -
- Share of results of associates 4 -
380 Profit before taxation 453 19
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Capital Markets profit statement
H1 H1 Change 2005 €m 2006 %
214 Net interest income 239 11
194 Other income 227 15
408 Total operating income 466 13
200 Total operating expenses 202 -
208 Operating profit before provisions 264 26
3 Provisions (34) -
205 Operating profit 298 45
1 Share of results of associates 2 47
- Profit on disposal of business 26 -
206 Profit before taxation 326 58
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AIB Bank UK profit statement
H1 H1 Change 2005 €m 2006 %
247 Net interest income 287 17
74 Other income 75 2
321 Total operating income 362 13
158 Total operating expenses 171 8
163 Operating profit before provisions 191 18
8 Provisions 7 -4
155 Operating profit 184 19
1 Profit on disposal of property - -
156 Profit before tax 184 18
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Poland profit statement
H1 H1 Change 2005 €m 2006 %
93 Net interest income 112 16
115 Other income 162 34
208 Total operating income 274 26
136 Total operating expenses 156 9
72 Operating profit before provisions 118 58
4 Provisions 4 -2
68 Profit before tax 114 62
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Group profit statement
H1 H1 2005 €m 2006
35 Net interest income 46
(28) Other income (27)
7 Total operating income 19
61 Total operating expenses 86
(54) Operating loss (67)
69 Share of results of associates – M&T 80
- Profit on disposal of property 90
- Construction contract income 34
15 Profit before tax 137
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Capital actions H1 2006
Euro Tier 1 Issue – step up 500
Sterling Tier 1 Issue – non step 500
Bankcentre
Development c.30
Sale & leaseback c.70 c.100
Ark Life
Profit / change in supervisory deductions c. 300
€m
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Contacts
+353-1-660 0311
+353-1-641 2075
Alan Kelly [email protected] +353-1-6412162
Maurice Tracey [email protected] +353-1-6414191
Pat Clarke [email protected] +353-1-6412381
Alma Pearson [email protected] +353-1-6413469
Our Group Investor Relations Department will be happy to
facilitate your requests for any further information
Visit our website www.aibgroup.com/investorrelations