Aib Group Plc · EURONEXT:A5G
Aib — FY2002 Earnings Presentation
55 slides from Aib's earnings presentation, February 2003
Slide 1: AIB Group Preliminary Results 2002
AIB Group Preliminary Results 2002
Slide 2: Forward looking statement
Forward looking statement 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 Private Securities Litigation Reform Act of 1995. Actual results may differ m
Slide 3: Michael Buckley, Group Chief Executive
Michael Buckley Group Chief Executive
Slide 4: Financial highlights
Financial highlights Operating profit before provisions 10% Underlying Earnings per Share* 7% Return on Equity 22.4% Profit before taxation €1,375m 1% Profit attributable €1,037m 4% Dividend per share 12% * before goodwill amortisation and restructuring costs Growth, productivity and resil
Slide 5: Progressing our consistent agenda
Progressing our consistent agenda Relentless focus on key themes Productivity Asset quality Distinctive customer proposition Corporate governance and risk management
Slide 6: Productivity
Productivity Income growing at a faster rate than costs: 2001 2002 Income* +8% +6% Costs* +10% +4% Tangible cost / income ratio from 59.0% to 57.8% * excludes the impact of currency movements and integration costs
Slide 7: Resilient credit quality
Resilient credit quality Non-performing loans 1.8% (2% in 2001) Criticised advances / total advances reduced Retail & commercial NPLs / total advances stable Some deterioration in corporate grading profile Strong provision cover Total provisions / NPLs 87% General provisions / advanc
Slide 8: Resilient credit quality
Resilient credit quality Strong correlation between exposure size and borrower quality in corporate portfolios Well diversified: % of loan book - telecoms 1.7 - technology 0.5 - energy 1.6 Dynamic grading enables early action
Slide 9: Single Group-wide strategic model
Single Group-wide strategic model Turning a distinctive customer proposition into superior profit growth Best services Best products Customer Best delivery Best people Streamlined support infrastructure
Slide 10: AIB Bank Republic of Ireland
AIB Bank Republic of Ireland 5% Banking business 11%, Ark Life 4%* Cost / income ratio unchanged at 51% Strong volume growth in banking business Loans €3.6bn, +20% Home mortgages +31%, other retail &commercial +16%, reflects clear gains in market share Average deposits +11%, increa
Slide 11: Ark Life
Ark Life Annual premium equivalent (APE) sales 11% Under-performance in 2002 reflects changed environment Regular savings market significantly changed by SSIAs. Business model realignment underway Best in class service through integration of distribution and development of advisory capac
Slide 12: Irish economic outlook
Irish economic outlook Growth % 2002 (e) 2003 (f) GDP 6.0 3.5 GNP 2.0 2.8 Unemployment rate 4.5 5.2 Source: AIB Group Chief Economist
Slide 13: Irish economic outlook
Irish economic outlook Implications for AIB: Reasonable levels of indebtedness (% of GDP) Dec 02 Ireland* U.K.* Private sector 94** 127 Home mortgages 34 Total personal 44 Positive demographic trends Numbers at work have grown by over 50% in last decade Maturing profile increases financial s
Slide 14: AIB Bank Great Britain & Northern Ireland
AIB Bank Great Britain & Northern Ireland 8% Cost / income ratio down from 52% to 50% Buoyant volume growth Loans +23%, deposits +13% Investment in people, channels and capability Targeting market segments of choice in G.B. Leveraging RoI experience in N.I. retail & commercial markets
Slide 15: U.S.A.
U.S.A. 13% Allfirst... Business stabilised post fraud Operating profit before provisions 4% Impact of provisions / one-off items M&T integration plans well advanced Allied Irish America… Good profit growth continues USA Division…. Cost / income ratio down from 62% to 60%* * excludes
Slide 16: Capital Markets
Capital Markets 8% Cost / income ratio down from 57% to 54% Strong corporate banking performance Principal focus on mid-market Recurring income extended Careful selection of markets and niches Lower investment banking and asset management revenues Treasury performing well Low risk
Slide 17: Poland
Poland 71% Cost / income ratio down from 76%* to 71% Operating profit before provisions 36%* Measured lending growth, strong growth in non interest income Underlying provisions rate from 1.9% to 1.2% of average loans New branch banking model rollout virtually complete Cost containm
Slide 18: Corporate governance & risk management
Corporate governance & risk management In place Group-wide risk management structure Group-wide internal audit function Senior appointments deepen management capability Substantial progress in work programme implementing consultants recommendations Focus on preparations for Basel II
Slide 19: Sustaining our growth
Sustaining our growth 1997 - 2002 Delivering Shareholder Value * Source: Bloomberg
Slide 20: Summary
Summary High productivity, growing revenues faster than costs Localised business development, centralised control Relentless development of distinctive customer proposition Compelling combination of resilience and growth Consistent strategic agenda, wherever we operate
Slide 21: Gary Kennedy, Group Director, Finance & Enterprise Technology
Gary Kennedy Group Director, Finance & Enterprise Technology
Slide 22: Profit and Loss account
Profit and Loss account Change 2001 €m 2002 % 3,751 Total operating income 3,930 5 2,284 Total operating expenses 2,318 1 Group operating profit 1,467 before provisions 1,612 10 204 Total provisions 251 23 Group operating profit on 1,263 continuing activities 1,361 8 1,366 * Group profit before tax
Slide 23: 2002 underlying results
2002 underlying results 2001: Adjusted EPS 119.4c One-off items: KCH profit (10.8c) Poland restructuring 2.3c Additional unallocated provision 5.1c (3.4c) Base for 2002 comparison 116.0c 2002: Adjusted EPS 123.0c 6% Allfirst restructuring 1.0c 124.0c 7%
Slide 24: Operating income
Operating income Underlying 2001 €m 2002 Change %* 2,258 Net interest income 2,351 7 67 Other finance income 62 -7 1,426 Other income 1,517 6 3,751 Total operating income 3,9306 39.8% Other income ratio 40.2% 15% increase in banking fees and commissions Challenging year for Ark Life - underlying
Slide 25: Ark Life performance
Ark Life performance €m 2001 2002 New business contribution 65 60 Operating profit 72 69 Embedded value impact (3) (32) Change to discount rate - 17 Other items 15 3 Income before tax 84 57 No capital adequacy issues
Slide 26: Risk weighted asset & loan growth
Risk weighted asset & loan growth * RWA Loan 12 Group 10 20 AIB Bank Rep of Ireland 18 23 AIB Bank GB & NI 23 -4 USA 2 1 Capital Markets -1 8 Poland 3 -8 -4 0 4 8 12 16 20 24 28 • Allfirst direct retail & SME up 3% • Capital Markets average loan growth 13% * excludes the impact of currency movements
Slide 27: Deposit growth
Deposit growth * Group 4 AIB Bank Rep of Ireland 7 AIB Bank GB & NI 13 USA -3 Capital Markets 1 Poland -7 -8 -4 0 4 8 12 16 • Allfirst average core deposits up 1% • Average deposits in Poland up 1% * excludes the impact of currency movements
Slide 28: Net interest margin
Net interest margin H1 H2 bps 2002 2002 % 2002 2001 change 3.06 2.95 Group 3.00 2.99 1 2.78 2.69 Domestic 2.73 2.59 14 3.33 3.21 Foreign 3.27 3.34 -7 Some attrition due to changes in product mix, margin effect of lower interest rates on deposits and non-interest bearing funds, and impact of loans
Slide 29: Operating expenses
Operating expenses Underlying * 2001 €m 2002 Change % 1,348 Staff costs 1,391 4 703 Other costs 707 3 Depreciation & 195 amortisation 207 8 2,246 2,305 4 38 Integration costs 13 2,284 Operating expenses 2,318 3 59.0% Tangible cost / income ratio 57.8% * excludes the impact of currency movements and
Slide 30: Provisions
Provisions €m 2001 2002 Bad and doubtful debts 179 194 Contingent liabilities & commitments 19 2 Investment provisions 6 55 Total Provisions 204 251
Slide 31: Bad debts provisions - underlying analysis
Bad debts provisions - underlying analysis 2001 2002 bps bps Bad and doubtful debts 36 37 Fair value adjustment (10) - US specific case - (7) Create unallocated 10 - Release from unallocated - 7 Underlying rate 36 37
Slide 32: Bad debts provisions
Bad debts provisions Average Average 2001 Loans % €m 2002 Loans % 43 0.25 AIB Bank Rep Ire 52 0.26 19 0.25 AIB Bank GB & NI 22 0.26 37 0.28 USA 86 0.68 14 0.17 Capital Markets 33 0.37 16 * 0.47 Poland 41 1.22 50 - Group (40) - 179 0.36 Total 194 0.37 * includes the use of general provisions in 2001
Slide 33: Provisions for amounts written off fixed assets investments
Provisions for amounts written off fixed assets investments Driven by prudent and realistic view of investment values €m Debt securities 19 Venture capital (Allfirst) 12 Technology sector 17 Telecom sector 2 Other sectors 5 Total 55
Slide 34: Conservative investment portfolio
Conservative investment portfolio Debt securities 97% investment grade Financial fixed assets (74%) book value < market value Trading portfolio (26%) mark to market Equity shares Well provisioned, book value < market value
Slide 35: Balance sheet
Balance sheet Dec €m Dec Underlying * 2001 Assets: 2002 change % 51,216 Loans to customers 53,447 12 54,557 Customer accounts 52,976 4 89,359 Total assets 86,049 5 * excludes the impact of currency movements Dec 2001 Dec 2002 Tier 1 6.5% 6.9% Total 10.1% 10.1%
Slide 36: Pensions cost
Pensions cost 2002 Global issue, impacting all providers of defined benefit pensions FRS 17 implemented - greater transparency Significant reduction in equity market values Mark to market net pension liability €482m at Dec „02 Liability < 5% of market capitalisation Pension assets total
Slide 37: Pensions cost continued
Pensions cost continued No immediate funding implications Actuarial review H2 „03 Anticipate increase in contribution rate for defined benefit pensions Review does not impact P&L / EPS
Slide 38: Pensions cost continued
Pensions cost continued 2003 Reduced other finance income: Decision not to increase yield on assets assumption €47m Increased interest cost on liabilities €11m P&L impact (equivalent to 3.5% of 2002 Group operating profit before provisions) €58m
Slide 39: Outlook for 2003 - exceptional / one-offs
Outlook for 2003 - exceptional / one-offs A. USA: Transition from Allfirst to M&T Q1 lower Allfirst performance (securities gains in Q4 2002) profit on merger of Allfirst Q2 - Q4 share (22.5%) of M&T restructuring costs B. Government levy: estimated €30m C. FRS 17: estimated €58m
Slide 40: Outlook for 2003 - underlying
Outlook for 2003 - underlying Strong volume growth Tight cost control Robust asset quality Good margin management Share (22.5%) of M&T attributable profit and share buyback Resilient balance sheet, strong capital ratios Focus on profit attributable and EPS Mid single digit EPS growth
Slide 41: Additional Information
AIB Additional Information
Slide 42: Performance by division
Performance by division Change 2001 €m 2002 % 562 AIB Bank Rep Ire 590 5 223 AIB Bank GB & NI 240 8 355 USA 308 -13 194 Capital Markets 209 8 36 Poland 61 71 (4) Group (33) 1,366 Group profit before tax 1,375 1
Slide 43: AIB Bank Republic of Ireland profit statement
AIB Bank Republic of Ireland profit statement Change 2001 €m 2002 % 843 Net interest income 921 9 43 Other finance income 40 -7 359 Other income 353 -2 1,245 Total income 1,314 6 (641) Operating costs (677) 6 604 Operating profit before prov. 637 5 (44) Provisions (55) 23 560 Operating profit 582 4
Slide 44: AIB Bank GB & NI profit statement
AIB Bank GB & NI profit statement Change 2001 €m 2002 % 336 Net interest income 363 8 3 Other finance income (1) - 161 Other income 166 3 500 Total income 528 6 (259) Operating costs (266) 2 241 Operating profit before prov. 262 9 (19) Provisions (22) 18 222 Operating profit 240 8 1 Profit on dispos
Slide 45: USA profit statement
USA profit statement Change 2001* €m 2002 % 584 Net interest income 549 -6 2 Other finance income (2) - 446 Other income 528 18 1,032 Total income 1,075 4 (638) Operating costs (655) 3 - Restructuring costs (13) 394 Operating profit before prov. 407 4 (39) Provisions (98) 154 355 Operating profit 30
Slide 46: Capital Markets profit statement
Capital Markets profit statement Change 2001 €m 2002 % 210 Net interest income 271 29 8 Other finance income 7 -11 305 Other income 282 -8 523 Total income 560 7 (296) Operating costs (300) 1 227 Operating profit before prov. 260 14 (38) Provisions (60) 56 189 Operating profit 200 6 5 Income from as
Slide 47: Poland profit statement
Poland profit statement Change 2001 €m 2002 % 275 Net interest income 272 -1 163 Other income 188 15 438 Total income 460 5 (358) Operating costs (351) -2 (38) Integration costs - 396 Total operating expenses (351) -11 42 Operating profit before prov. 109 160 (9) Provisions (46) 417 33 Operating pro
Slide 48: Poland Division relative to BZWBK
Poland Division relative to BZWBK 2002 PLN €m BZWBK consolidated Polish GAAP 389 101 BZ Goodwill amortisation (25) Other adjustments * (15) Poland division 61 * includes capital adjustment and alignment with Group accounting policies
Slide 49: Tangible cost / income ratios
Tangible cost / income ratios 85.0% 80.0% 76%* 75.0% 71% 70.0% 65.0% 62% 59.0% 60% 60.0% 57.8% 57% 55.0% 54% 51% 51% 52% 50% 50.0% 45.0% Group ROI GB&NI USA Cap Mkts Poland 2001 2002 * excludes integration costs
Slide 50: Risk weighted assets
Risk weighted assets 31 Dec 31 Dec Underlying 2001 €m 2002 Change %* 15,987 AIB Bank Rep Ire 18,821 18 7,542 AIB Bank GB & NI 8,666 23 22,403 USA 19,234 2 18,821 Capital Markets 18,599 -1 4,105 Poland 3,662 3 - Group 257 - 68,858 69,239 10 * excludes the impact of currency movements
Slide 51: Return on risk weighted assets
Return on risk weighted assets Return €bn % Average RWA (bn) 3.0 70 60 50 2.0 40 30 1.0 20 10 1.63 1.61 1.74 1.96 1.78 1.65 1.66 1.56 0.0 0 1995 1996 1997 1998 1999 2000 2001 2002
Slide 52: Credit quality
Credit quality % 2001 2002 NPLs / loans 2.0 1.8 Bad debts charge / average loans 0.36 0.37 Provisions / NPLs 97 87 • Reduction in NPLs influenced by accelerated write-off of Polish NPLs • Strong provision / NPL cover, reduction reflects partial use of group general unallocated provision
Slide 53: Non-performing loans by division
Non-performing loans by division As at December 31, 2001 As at December 31, 2002 NPLs/ Total NPLs/ Total Actual Provisions/ Actual Provisions/ NPLs Advances NPLs NPLs Advances NPLs €m % % €m % % 162 0.9 123 AIB Bank Rep Ire 194 0.9 108 107 1.3 119 AIB Bank GB & NI 88 1.0 138 87 0.6 222 USA - €m 107
Slide 54: AIB
AIB
Slide 55: Contacts
Contacts Our Investor Relations Department will be happy to facilitate your requests for any further information Alan Kelly alan.j.kelly@aib.ie +353-1-6412162 David O‟Callaghan david.a.o’callaghan@aib.ie +353-1-6414191 Pat Clarke patricia.m.clarke@aib.ie +353-1-6412381 Mary Gethings mary.gethi