Bank Of Ireland Group Plc · EURONEXT:BIRG
Bank Of Ireland — FY2002 Earnings Presentation
62 slides from Bank Of Ireland's earnings presentation, May 2002
Slide 1: Bank of Ireland Group Year End Results to 31 March 2002
Bank of Ireland Group Year End Results to 31 March 2002
Slide 2: Today's Agenda
Today’s Agenda ? The results in detail John O’Donovan ? Our strategy in the UK Jeff Warren ? An overview of Group Strategy Mike Soden 2
Slide 3: Superior Performance
Superior Performance ? A new record profit figure in each of the last ten years ? Average return on equity of 25% for each of the last nine years ? Top quartile shareholder returns for one, five and ten years 3
Slide 4: A Financial Services Company
A Financial Services Company ? Diversified earnings and good geographic spread of profit sources ? RoI and UK retail businesses equal in size ? Substantial earnings from Wholesale, Funds Management, Life Assurance and Pensions 4
Slide 5: Strong Domestic Franchise
Strong Domestic Franchise ? Continuing focus on Ireland ? Undisputed No.1 Financial Services Provider ? Good economic backdrop ? 3.5% growth this year, 5% plus next year 5
Slide 6: Features of the 01/02 Results
Features of the 01/02 Results ? Strong volume growth in Ireland ? Modest margin erosion in Ireland and UK ? Intense competition and business transition in GB ? Buoyancy in Life and Pensions ? Strong Funds inflow in Asset Management ? Continuing very low bad debts ? Top quartile return on equity 6
Slide 7: Costs in Focus
Costs in Focus ? Adverse costs trend will be reversed ? Problem areas identified and remedial action underway ? €85 million annual savings from Group Transformation Programme ? Gap between cost and income growth reduced from 10% at the half year to 3% for the full year 7
Slide 8: Clear Growth Strategy
Clear Growth Strategy ? Organic growth where we have room to grow ? Tactical acquisitions where we can get and add value ? New business development to exploit gaps in the market 8
Slide 9: Iridian
Iridian ? $177 - 198 million for 61% stake ? $11 billion manager of US equities ? Excellent fit for BIAM ? Staged purchase incorporating performance incentives ? Quality earnings and good business synergies ? Matches the Group’s acquisition criteria 9
Slide 10: Financial Review
Financial Review 10
Slide 11: Financial Highlights
Financial Highlights Mar 02 Mar 01 % €m €m Change Profit on Ordinary Activities before Exceptional Item(s)* 1,122 1,085 3 Alternative EPS** (Cent) 93.4 84.5 11 Dividend (Cent) 33.0 29.0 14 Shareholder Value Added 551 510 8 Return on Equity 23.5% 24.5% * Excluding transformation programme costs €37m
Slide 12: Strong Capital Base
Strong Capital Base Preference Share Buyback €261m September 2001 Sept 01 Mar 02 Mar 01 % % % 1.1 Return on Average Assets* 1.1 1.1 4.2 Equity / Assets 4.4 4.3 7.4 Tier 1 Capital 7.6 7.8 11.5 Total Capital 11.5 12.4 81 Equity Element of Tier 1 81 77 * Pre Exceptional Item(s)& Goodwill Amortisation €
Slide 13: Group Balance Sheet
Group Balance Sheet Sept 01 Mar 02 Mar 01 €bn Assets €bn €bn 7.5 Bank Loans 8.4 8.1 54.8 Customer Loans 56.6 51.1 9.7 Debt Securities 10.9 8.5 6.8 Other 5.8 6.2 78.8 81.7 73.9 4.9 Life Assurance 5.6 5.0 83.7 87.3 78.9 Liabilities 11.2 Bank Deposits 12.6 11.7 50.0 Customer Deposits 51.1 45.6 5.0 Debt
Slide 14: Group Profit & Loss a/c
Group Profit & Loss a/c 6 months Sept 01 Mar 02 Mar 01 % €m €m €m Change 746 Net Interest Income 1,595 1,423 12 592 Other Income 1,210 1,114 9 1,338 Total Income 2,805 2,537 11 752 Costs 1,582 1,387 14 43 Loan Losses 102 72 42 6 Associates 1 7 - 549 PBT Pre Exceptional 1,122 1,085 3 Effective Tax Ra
Slide 15: Net Interest Income +12%
Net Interest Income +12% ? Volume (+€195m) 13% ? Margin (-€23m) -1% 15
Slide 16: Margin Effect
Margin Effect Basis Points Mar 02 Mar 01 Change Group Margin 2.27 2.30 -3 Main Influencers UK Financial Services -3 Retail Republic of Ireland -2 Mix Element +2 16
Slide 17: Other Income +9%
Other Income +9% 43% of Total Income ? Life Businesses Sales (APE +34%) ? Fees ? First Rate ? Davy ? Impact of volatility in Equity Markets ? UK Acquisitions 17
Slide 18: Group Costs
Group Costs 6 months Sept 01 Mar 02 Mar 01 % €m €m €m Change 434 Staff 908 773 17 243 Administrative 519 484 7 68 Depreciation 140 123 14 7 Goodwill 15 7 - 752 1,582 1,387 14 18
Slide 19: Cost / Income Ratios
Cost / Income Ratios Group & Divisional Trends Mar 02 Mar 01 % % Group* 55.8 54.2 Retail Republic of Ireland 63.6 64.4 Asset & Wealth Management 44.7 41.4 Wholesale Financial Serv. 39.1 41.8 UK Financial Services* 56.7 54.7 UK Fin. Servs. excl. Acqs* 49.6 50.9 Bristol & West excl. Acqs* 43.0 46.3 *
Slide 20: Group Credit Risk
Group Credit Risk 8TH consecutive year 20 basis points (bps) Mar 02 Mar 01 €m* bps** €m* bps** ? Group Total 102 19 72 15 ? Specific 89 16 59 12 ? General 7 1 22 4 ? Non Designated Specific Provision 25 5 8 2 ? Recoveries (19) (3) (17) (3) * Loan Loss Charge (€m) ** Charge/Average Loans (bps) 20
Slide 21: Group Credit Risk
Group Credit Risk Excellent Credit Quality Sept 01 Mar 02 Mar 01 % Change €302m Balances under Provisions (BUP’s) €331m €315m 5 €453m Loan Loss Provisions (LLP’s)* €500m €430m 16 150% Coverage Ratio (LLP/BUP) 151% 137% 0.8% LLP’s as a % of Loans 0.9% 0.8% * Includes non designated specific provision
Slide 22: Business Review
Business Review 22
Slide 23: Profit Before Tax by Division
Profit Before Tax by Division 6 months Sept 01 Mar 02 Mar 01 % Constant €m €m €m Change Currency % 168 Retail Republic of Ireland 321 290 11 11 44 Bank of Ireland Life 122 131 (7) (7) 146 UK Financial Services 318 324 (2) 1 178 Wholesale Financial Services 355 283 25 25 60 Asset & Wealth Mgmt. 126 1
Slide 24: Retail Republic of Ireland
Retail Republic of Ireland 27% of Group Profits 6 months Sept 01 Mar 02 Mar 01 % €m €m €m Change 387 Net Interest Income 787 704 12 108 Other Income 228 206 11 495 Total Income 1,015 910 12 307 Operating Costs 646 586 10 20 Loan Loss Provision 48 34 41 168 Profit before Tax 321 290 11 24
Slide 25: Retail Republic of Ireland: Net Interest Income +12%
Retail Republic of Ireland Strong Growth in Net Interest Income +12% ? Good Volume Growth ? Resources +16% ? Mortgages +23% ? Other Lending +8% ? Market Share Gains ? 273K SSIAs/SSIPs to 30 April 02; €3.5bn Maturity Value ? Relationship Management Advanced 25
Slide 26: Retail Republic of Ireland: Other Income +11%
Retail Republic of Ireland Solid Growth in Other Income +11% ? Key Drivers ? Credit Card Turnover ? Branch Transaction Volumes ? General Insurance ? FX Income Lower 26
Slide 27: Retail Republic of Ireland: Good Cost Management
Retail Republic of Ireland Good Cost Management ? Costs Growth +10% Key Drivers: ? Euro Implementation +3% ? Higher Pay & Employer Taxes +5% ? Usage of Direct Channels ? Banking 365 Telephone +60% to 8m calls ? Banking 365 Online +75% to 4m TX ? ATMs +15% to 59m TX 27
Slide 28: Retail Republic of Ireland: Satisfactory Asset Quality
Retail Republic of Ireland Satisfactory Asset Quality ? Increase in Loan Loss Charge of €14m to €48m; mainly Consumer Lending ? Loan Loss of 30 Basis Points (25bps Mar 01) ? Strong Quality Profile 28
Slide 29: Bank of Ireland Life
Bank of Ireland Life 11% of Group Profits 6 months Sept 01 Mar 02 Mar 01* % €m €m €m Change 28 New Business 57 49 16 30 Existing Business 60 54 11 6 Return on Shareholder Funds 10 13 (23) 64 Operating Profit 127 116 9 (26) Investment Variance (8) 9 - 20 Change in Tax Rate 20 33 - - Other Profit Item
Slide 30: Bank of Ireland Life
Bank of Ireland Life New Business Market Share 19% ? Annual Premium Equivalent Sales +34% ? Equity Related Special Savings Incentive Accounts (71,000 SSIP accounts opened by 30 April 2002) ? Embedded Value Impact (-€26m Sept 01) -€8m ? Successful Amalgamation of Lifetime and New Ireland ? Free Asset
Slide 31: UK Financial Services (Sterling)
UK Financial Services (Sterling) 27% of Group Profits 6 months Sept 01 Mar 02 Mar 01 % Stg£m Stg£m Stg£m Change 161 Net Interest Income 350 327 7 90 Other Income 179 151 19 251 Total Income 529 478 11 146 Costs* 300 262 15 9 Loan Losses 19 13 46 96 Profit before Tax 210 203 3 * Pre Goodwill Amortisa
Slide 32: UK Financial Services (Sterling)
UK Financial Services (Sterling) 54% of Group Loans & Advances to Customers (€30bn) Sept 01 Mar 02 Mar 01 % Stg£bn Stg£bn Stg£bn Change B&W Residential Mortgages 12.1 - Standard 11.5 12.0 -4 1.6 - Specialised 2.2 0.8 175 1.2 B&W Commercial Mortgages 1.3 1.1 18 3.5 Bank of Ireland GB & NI 3.7 3.3 12
Slide 33: UK Financial Services: Business Trends
UK Financial Services Business Trends ? Income +11% ? 44% of Income from Specialised Lending & Advice Based Businesses (from 25% in 1999) ? Fee Income % Total Income 34% ? Costs +15% Key Driver: ? Full Year Costs of Acquisitions 11% ? Asset Quality ? Loan Loss of 10 basis points (8 bps Mar 01) 33
Slide 34: Wholesale Financial Services
Wholesale Financial Services 30% of Group Profits 6 months Sept 01 Mar 02 Mar 01 % €m €m €m Change 135 Net Interest Income* 306 216 42 37 Dealing Profits* 64 95 (32) 132 Other Income 253 204 24 304 Operating Income 623 515 21 118 Operating Costs 243 215 13 8 Loan Loss Provision 25 17 47 178 Profit b
Slide 35: Wholesale Financial Services: Profit Before Tax Analysis
Wholesale Financial Services Profit Before Tax Analysis 6 months Mar 02 Mar 01 % Sept 01 €m €m €m Change 51 Corporate Banking 113 93 22 84 Treasury & Intl 170 133 28 43 Other* 72 57 26 178 355 283 25 * Includes Davy, Private Banking, IBI Corporate Finance and First Rate Enterprises 35
Slide 36: Wholesale Financial Services
Wholesale Financial Services Income +21% ? Strong Growth in International Lending ? Exceptional performance in Treasury & International Banking ? Excellent performance in Institutional Bonds and Equities by Davy ? Expansion of First Rate’s UK Operations Costs +13% ? Includes expansion costs for Inte
Slide 37: Wholesale Financial Services: Risk Management
Wholesale Financial Services 16% of Group Loan & Advances to Customers (€9bn) Risk Management ? Strong Asset Quality ? Loan Loss of 20 basis points (16 bps Mar 01) ? Modest Proprietary Trading ? Sound Governance, Controls & Risk Culture 37
Slide 38: Asset & Wealth Management
Asset & Wealth Management* 11% of Group Profits 6 months Sept 01 Mar 02 Mar 01 % €m €m €m Change 2 Net Interest Income 4 7 (43) 108 Fee Income 224 220 2 110 Operating Income 228 227 - 50 Operating Costs 102 94 9 - Loan Loss Provision - - - 60 Profit before Tax 126 133 (5) * Includes Asset Management
Slide 39: Asset & Wealth Management
Asset & Wealth Management Income Impacted by Equity Markets Asset Management ? Assets under Management €49.8bn to €57.1bn +15% ? Record New Business €8bn ? Relative Investment Performance has been strong Securities Services Assets under Custody & Administration €121bn to €137bn 39
Slide 40: Asset & Wealth Management: Assets Under Management
Asset & Wealth Management Assets Under Management 6 months 6 months 12 months Sept 01 Mar 02 Mar 02 €bn €bn €bn Opening AUM 49.8 46.8 49.8 Net Cashflow 3.6 4.6 8.2 Performance (6.6) 5.7 (0.9) Closing AUM 46.8 57.1 57.1 40
Slide 41: Strategy
Strategy 41
Slide 42: What is UK FS?
What is UK FS? ? A financial services organisation operating in 4 defined market sectors ? Based on segmentation, not brand ? Businesses based on skill not scale ? An Organisation with PBT Stg £210m* * Pre Goodwill 42
Slide 43: UKFS Targets 4 Market Segments
UKFS Targets 4 Market Segments 1. Business Financial Services Targeting selected niches of the business banking and SME business market in GB 2. Bank of Ireland A product manufacturing business Personal Lending producing loans for the intermediary market 3. Bank of Ireland An integrated business and
Slide 44: Key Business Characteristics
Key Business Characteristics ? Business Financial Services ? Medium Cost Income ratio, mix of balance sheet and fee generating activities ? A strategic opportunity and challenge ? Lending ? Low Cost Income ratio, high capital requirement ? Re-positioning now in 3rd year ? Northern Ireland ? Medium C
Slide 45: UK Priorities
UK Priorities ? Market leadership in non standard, higher margin/return, residential mortgage lending ? Develop niches of the business banking market ? Realise the potential in financial advice and savings propositions ? Growth ? Active management to improve corporate flexibility and increase strate
Slide 46: Group Strategy - Summary
Group Strategy - Summary ? Growth in Britain - organically and through selective acquisition ? Exploit further strong growth potential in Ireland ? Continuing diversification of income streams ? Growing internationalisation of profit sources ? Active capital management ? Highest standards in risk ma
Slide 47: And Finally
And Finally………. ? A new profits record ? Growth in volumes and market share ? Good start to the current year ? Encouraging prospects for 02/03 47
Slide 48: Supplementary Information
Supplementary Information 48
Slide 49: Index - Supplementary
Index - Supplementary ? Economic Outlook ? New Accounting Issues ? Volume Growth ? Group Loan Composition ? Asset Quality ? Group Transformation Programme ? UK Financial Services (Euro) ? Bristol & West (Stg/Euro) 49
Slide 50: Economic Outlook – Ireland
Economic Outlook – Ireland Ireland likely to Exceed European Average Actual Forecast % Growth 2001 2002 2003 GDP 5.9 3.5 5.0 Consumption 4.8 4.2 4.5 Exports 8.4 4.5 8.0 Inflation 4.9 4.2 3.5 Unemployment 3.8 4.4 4.4 Source: Consensus 50
Slide 51: New Accounting Issues
New Accounting Issues ? FRS 19 - Deferred Tax March 2001 Restated - Tax -€6m - Profit Attributable +€6m - Alternative EPS +0.6c ? UITF 33 - Obligations in Capital Instruments Interest on Preferred Securities now included in Interest Payable March 2001 Restated - Interest Payable -€3m - Profit Attrib
Slide 52: Volume Growth: Constant Currency
Volume Growth: Constant Currency Lending Resources P.I.T. Average P.I.T. Average % % % % Increase Increase Increase Increase Group 10 14 11 18 Republic of Ireland 11 14 15 14 UK 7 12 4 15 52
Slide 53: Group Loan Composition at March 2002 - €57bn
Group Loan Composition at March 2002 - €57bn Group R.O.I. UK International % % % % Residential Mortgages 53 13 40 - Business & Other Services 10 6 2 2 Personal Lending 9 7 2 - Construction & Property 7 2 4 1 Manufacturing 6 3 1 2 Other Lending 6 3 1 2 Commercial Mortgages 4 - 4 - TMT 3 2 - 1 Agricul
Slide 54: Asset Quality
Asset Quality Residential Other Total Mortgages Lending Mar 02 Mar 01 Mar 02 Mar 01 Mar 02 Mar 01 Balances under Provision €m €m €m €m €m €m ? Ireland 2 3 209 137 211 140 ? UK 58 95 57 66 115 161 ? International - - 5 14 5 14 60 98 271 217 331 315 Loan Loss Provision ? Ireland 8 5 241 185 249 190 ?
Slide 55: Asset Quality
Asset Quality Loan to Value Residential Mortgages: Republic of Ireland Average Loan to Value ? Owner Occupied 61% ? Investors 63% Mark to Market Loan to Value 33% Residential Mortgages: Bristol & West Average Loan to Value ? Standard 69% ? Specialised 71% 55
Slide 56: Republic of Ireland Residential Mortgages
Republic of Ireland Residential Mortgages Arrears Balance Profile 1-6 mths 6-12 mths 12+ mths Total 2002 (%) 1.2 0.3 0.2 1.7 2001 (%) 1.0 0.2 0.2 1.4 New Business LTV’s <75% 75-90% >90% 2002 (%) 59 33 9 2001 (%) 62 32 6 Book LTV’s <75% 75-90% >90% 2002 (%) 69 27 4 2001 (%) 69 27 4 % Growth 2000 2001
Slide 57: UK Residential Mortgages
UK Residential Mortgages Arrears Balance Profile 1-6 mths 6-12 mths 12+ mths Total 2002 (%) 1.5 0.2 0.2 1.9 2001 (%) 1.8 0.3 0.2 2.3 New Business LTV’s <75% 75-90% >90% 2002 (%) 58 34 8 2001 (%) 54 28 17 Book LTV’s <75% 75-90% >90% 2002 (%) 49 30 20 2001 (%) 47 28 25 57
Slide 58: Group Transformation Programme
Group Transformation Programme Annual Savings €85m from April 2003 Mar 01 Mar 02 Mar 03 Achieved Achieved Forecast Savings (€m) 22 55 75 Staff Reductions (cumulative) 440 790 1,000 Branch Closures (cumulative) 15 28 35 Total Exceptional Costs €130m 58
Slide 59: UK Financial Services (Euro)
UK Financial Services (Euro) 6 months Sept 01 Mar 02 Mar 01 % €m €m €m Change 255 Net Interest Income 554 532 4 144 Other Income 284 247 15 399 Total Income 838 779 8 231 Costs* 475 427 11 15 Loan Losses 30 21 43 153 Profit before Tax 333 331 1 * Excludes Goodwill €15m Mar 02, €7m Mar 01 & €7m Sept
Slide 60: Bristol & West (Sterling)
Bristol & West (Sterling) 6 months Sept 01 Mar 02 Mar 01 % Stg£m Stg£m Stg£m Change 92 Net Interest Income 211 199 6 69 Other Income 133 108 23 161 Total Income 344 307 12 91 Costs* 188 161 17 3 Loan Losses 6 2 - 67 Profit before Tax 150 144 4 * Excludes Goodwill of Stg£9m Mar 02, Stg£4m Mar 01 & St
Slide 61: Bristol & West (Euro)
Bristol & West (Euro) 6 months Sept 01 Mar 02 Mar 01 % €m €m €m Change 146 Net Interest Income 333 325 2 109 Other Income 212 175 21 255 Total Income 545 500 9 143 Costs* 298 263 13 5 Loan Losses 9 2 - 107 Profit before Tax 238 235 1 * Excludes Goodwill of €15m Mar 02, €7m Mar 01 & €7m Sept 01 61
Slide 62: For Further Information Please Contact
For Further Information Please Contact Mary King Head of Group Investor Relations Tel: +3531 604 3501 Fax: +3531 661 5105 Email: mary.king@boimail.com Website: www.bankofireland.ie/investor 62