Permanent TSB Group Holdings PLC · EURONEXT:PTSB
Permanent TSB — Irish Life & Permanent — H1 2010 Earnings Presentation
55 slides from Permanent TSB's earnings presentation, 2010
Slide 1: Interim Results 2010
PAGE 1 INTERIM RESULTS 2010: INTERIM RESULTS 2010
Slide 2: Forward looking statement
Forward looking statement PAGE 2 A number of statements we make 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 US Private Securities Litigation Reform Act of 1995. Actual results may differ m
Slide 3: Index
Index PAGE 3 SECTION: PAGE: Business review Review of life business 05 Review of banking business 11 Strategic agenda & Summary 20 Financial Review Group earnings 23 Funding 28 Arrears 29 Loan impairments 32 Capital 34 Outlook 36 Additional information 38 INTERIM RESULTS 2010
Slide 4: Business Review
Business Review PAGE 4 Life* profits recover RECOVERY UNDERWAY Bank losses stabilise Overall results -€10m Operating profit y 40% LIFE PERFORMANCE NORMALISING Business retention improving Good progress on funding BANK MANAGING KEY ISSUES Net interest income stable Provisioning z 21%
Slide 5: Life: Normalising the Performance
Life: Normalising the Performance PAGE 5 Profitability Retention Sales INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIVE
Slide 6: Life: Recovery in Profitability
Life: Recovery in Profitability PAGE 6 H1 2010 €m ▲% New business Improved margins New business 28 +22 Increased overall sales volumes In-force 90 +48 In-force Operating profit 118 +40 Strong risk profits Lower persistency variance INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIVE
Slide 7: Life: Retention Improving
Life: Retention Improving PAGE 7 Retail: Returning to long term lapse assumptions Retail Lapses peaked Q1 2009 Lapses v LTA 2010 2009 Significant improvement this year to Quarter 1 136% date 192% Actions on: Quarter 2 125% 159% Seller / distribution remuneration Quarter 3 105%* 139% Produc
Slide 8: Life: Sales Recovery
Life: Sales Recovery PAGE 8 Retail Life Sharp declines in 2008 & 2009 but stabilising in 2010 2009 2010 2011 2012 Driven by strong consumer confidence and improvement in RETAIL DECLINE STABLE RECOVERY GROWTH markets CORPORATE DECLINE DECLINE STABLE RECOVERY Corporate Life ILIM GROWTH GROWTH
Slide 9: Life: Sales outcome
Life: Sales outcome PAGE 9 Overall sales y 22% H1 2010 €m ▲% Single premium life sales y 7% Investment bonds y 29% Retail 65 (4) Pension y 2% Corporate 70 (23) Annual premium life sales z 25% ILIM & ILI 141 +107 Low salary growth and recruitment SME cash-flow weak Total 276 +22 ILIM
Slide 10: Life: Outlook
Life: Outlook PAGE 10 SALES: >>> Recovery in line with expectations RETENTION: >>> Revert to long term assumptions by year end PROFITABILITY: >>> Further recovery INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIVE
Slide 11: Banking: Managing Key Areas
Banking: Managing Key Areas PAGE 11 Funding Impairments Profitability INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIVE
Slide 12: Bank: Funding Strategy
Bank: Funding Strategy PAGE 12 Focus on maximising “stable funding” 2010 2011 2012 - retail deposits and long-term funding % % % Aim to have 70% of funding Retail Deposits 27 31 34 comprising retail deposits and long- term debt by 2012 Long Term Debt 33 34 36 Residential mortgage book provides
Slide 13: Bank Deposit Funding Progress
Bank Deposit Funding Progress PAGE 13 Retail Deposit Growth Retail inflows of €0.8bn in H1 2010 Branch networks Brokerage 25,000 current accounts Full year Retail target of €1.7bn Corporate deposits Down slightly Manage transition as guarantee changes end September INTERIM RESULTS 20
Slide 14: Bank: Term Funding Programme
Bank: Term Funding Programme PAGE 14 Refinancing requirement of €6.4bn in total for 2010, of which €5.1bn raised Year Main Amount YTD Status Balance of €1.3bn refinancing to be done by year end 2010 (H2) Guaranteed €1.3bn – €2.8bn Further issuance of up to €1.5bn targeted to improve funding mi
Slide 15: Bank: Loan Arrears & Impairments
Bank: Loan Arrears & Impairments PAGE 15 Irish Residential Mortgage Arrears Cases Continue to work with customers experiencing difficulties with mortgage repayments ROI residential arrears continuing to rise, early arrears more slowly Reductions in ROI consumer finance UK Mortgage Arrears Case
Slide 16: Bank: Loan Book
Bank: Loan Book PAGE 16 Loan Balances Loan book z 2% in H1 2010, constant currency basis Gross new lending €350m in H1 2010 Low level of redemptions impacting level of new lending UK book closed to new business Total Loan Book €38.7bn (Dec 2009: €38.9bn) INTERIM RESULTS 2010 KEVIN MURPHY: GR
Slide 17: Bank: Profitability - N.I. Margin
Bank: Profitability - N.I. Margin PAGE 17 Margin stable in H1 2010 Higher funding costs SVR increases in February and August 2010 New Government Guarantee add further to bank funding costs INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIVE
Slide 18: Bank: Profitability - Cost Reduction
Bank: Profitability - Cost Reduction PAGE 18 Continuing cost reductions z 15% from peak in 2008 Voluntary redundancy programme in Q1 140 FTEs staff Cost €18m Annualised cost saving of €9m Accenture review Long term cost reductions Income generation opportunities On hold INTERIM R
Slide 19: Bank: 3 Year Targets
Bank: 3 Year Targets PAGE 19 H1 2010 2013 Actual Target NII 0.81% >1% Impairment charge €150m Normalised Tier 1 capital 10.7% >10% L/D ratio 240% <170% Stable funding rate 56% 70% Return on equity (ROE) Negative >10% INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIVE
Slide 20: Strategic Opportunities
Strategic Opportunities PAGE 20 Banking EBS Building Society Irish Nationwide Building Society ICS Building Society Insurance New Ireland Other Fund Management Bank of Ireland Asset Management Allied Irish Bank Investment Managers INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIV
Slide 21: Summary
Summary PAGE 21 LIFE - STRONG PROFIT GROWTH BANKING - PATH TO RECOVERY STRATEGY - MAKING PROGRESS INTERIM RESULTS 2010 KEVIN MURPHY: GROUP CHIEF EXECUTIVE
Slide 22: Financial Review
Financial Review PAGE 22 Earnings Funding Asset quality Capital Outlook INTERIM RESULTS 2010 DAVID MCCARTHY: GROUP FINANCE DIRECTOR
Slide 23: Group Earnings
Group Earnings PAGE 23 H1 10 H1 09 Change Small operating loss due to: €m €m % Strong recovery in life business Operating (loss) / profit Bank continuing to experience higher funding costs and • Life 118 84 40 significant impairment provisions • Banking (131) (132) 1 Life embedded value chan
Slide 24: Life Earnings
Life Earnings PAGE 24 H1 10 H1 09 Change Life new business volumes 7% lower, €m €m % offset by doubling of sales by ILIM New business 28 23 22 Total expected return Life (excl. ILIM) new business margin: 68 61 Experience variances 13 (21) APE: 13.0% (FY 09: 11.4%) Assumption changes 9 21 Imp
Slide 25: Life Variances & Assumptions
Life Variances & Assumptions PAGE 25 Experience Variances Assumption Changes Experience variances Strong risk result in Corporate H1 10 H1 09 H1 10 H1 09 Business €m €m €m €m Improved persistency Persistency (7) (34) - - Assumption changes Risk 19 6 - - Expense assumption change in Expenses /
Slide 26: Bank Earnings
Bank Earnings PAGE 26 H1 10 H1 09 Change €m €m % Net interest income broadly in-line with H1 2009 Net interest income 192 195 (2) Net interest margin 81bps excluding cost Other income* 21 18 of ELG scheme Government guarantee (45) (11) Government guarantee reflects higher 168 202 (17) cost of
Slide 27: Net Interest Margin
Net Interest Margin PAGE 27 Margin Movement BPS Net Interest Margin – Run-rate FY 2009 83 Cost of Funds Book Cost Retail deposit funding (12) % % Wholesale funding (6) Customer accounts 34 2.1 Asset re-pricing 14 Long-term 33 1.8 Other ECB 17 1.0 4 Short term 16 0.7 83 100 1.6 Balance Sheet (2) Asse
Slide 28: Funding
Funding PAGE 28 June 2010 - Total €47bn Raised €5.1bn term debt to date 80% refinancing completed Recent €270m private placement Plan to raise €1.3bn - €2.8bn Retail deposits continue to grow strongly Reliance on ECB reducing, significant collateral available Very difficult funding con
Slide 29: Arrears - UK Mortgages
Arrears - UK Mortgages PAGE 29 CHL Mortgage Arrears Cases BTL accounts for 94% of Capital Home Loans (CHL) portfolio Closed for new business since early 2008 CHL BTL arrears down 38% to 998 in June 2010 against peak in Q1 2009 CHL 3+ month arrears - 2.1% at June 2010 Industry average 3+ mo
Slide 30: Arrears - ROI Residential Mortgages
Arrears - ROI Residential Mortgages PAGE 30 PTSB ROI Residential Mortgage Arrears Cases 28% increase in total arrears cases in H1 2010 > 90 days monthly arrears increase of 33% in H1 2010 Irish mortgage cases > 90 days in arrears 9,167 at June 2010 out of total portfolio of c. 181,000 cases
Slide 31: Arrears - Car Finance
Arrears - Car Finance PAGE 31 Car Finance Arrears Cases Significant arrears and losses in 2009 Arrears levels stabilising Short duration book, average 3 years Increase in 2nd hand car prices has significantly reduced provisions Overall provision down INTERIM RESULTS 2010 DAVID MCCARTHY: GR
Slide 32: Impairment Charge
Impairment Charge PAGE 32 H1 2010 H1 2009 Specific Collective Total Total €m €m €m €m ROI mortgages 82 4 86 98 UK mortgages 12 1 13 17 ROI commercial 32 - 32 30 Consumer finance - 19 19 44 126 24 150 189 Collective provisions: are determined on a portfolio basis generally using a statistical roll-ra
Slide 33: Impairment Model
Impairment Model PAGE 33 Indicative expected provisions €800m to €900m from 2009 to 2011 inclusive Assumes peak to trough fall of 40% in house prices Sensitivity to house price change 2009 peak of bank provisioning ROI residential mortgage arrears to peak towards end of 2010 INTERIM RESULT
Slide 34: Capital - Bank
Capital - Bank PAGE 34 Basel II Jun 10 Dec 09 Robust group capital position to absorb €m €m expected defaults Tier 1 capital 1,769 1,858 Core Tier 1 ratio of 10.7% (Dec 09: 11.3%) Total required capital 1,328 1,313 Basel II minimum total capital Total RWAs requirement of 8% 16,603 16,411 Sur
Slide 35: Capital - Life
Capital - Life PAGE 35 Regulatory Capital Movement €m Minimum solvency requirement Jan 2010 685 for Irish Life Assurance of €424m Capital from existing business 104 (Dec 09: €416m) covered 1.7 times (Dec 09: 1.6 times) New business strain (35) Strong cash-flow generation Net capital release 69
Slide 36: Earnings Outlook
Earnings Outlook PAGE 36 Banking In-line with first half Funding costs main risk Life Lower level of positive variances Risk to persistency assumptions INTERIM RESULTS 2010 DAVID MCCARTHY: GROUP FINANCE DIRECTOR
Slide 37: Additional Information
Additional Information PAGE 37 Page 38. Group total (loss) after tax - EV basis 39. Group operating (loss) after tax - EV basis 40. Group operating EPS - EV basis 41. Group IFRS (loss) after tax 42. Group IFRS and EV basis results reconciliation 43. Bank non-interest income 44. Bank asset portfolio
Slide 38: Group Total (Loss) After Tax - EV Basis
Group Total (Loss) After Tax - EV Basis PAGE 38 H1 10 H1 09 Pre-tax Tax Post-tax Post-tax €m €m €m €m Operating (loss) (10) 7 (3) (44) Investment fluctuations (11) (1) (12) (69) Economic assumptions (7) 6 (1) (78) Other changes (4) 0 (4) - Total (loss) (32) 12 (20) (191) INTERIM RESULTS 2010
Slide 39: Group Operating (Loss) After Tax - EV Basis
Group Operating (Loss) After Tax - EV Basis PAGE 39 H1 10 H1 09 Pre-tax Tax Post-tax Post-tax €m €m €m €m Life assurance 118 (12) 106 75 Banking (131) 19 (112) (117) Associate 2 - 2 4 Other 1 0 1 (6) Operating (loss) / profit (10) 7 (3) (44) INTERIM RESULTS 2010
Slide 40: Group Operating EPS - EV Basis
Group Operating EPS - EV Basis PAGE 40 H1 10 H1 09 €m €m Operating (loss) / profit (10) (51) Taxation 7 7 (Loss) / profit after tax (3) (44) Average no. of shares 276m 276m EPS (1)c (16)c Note: “own shares” included for EPS calculation INTERIM RESULTS 2010
Slide 41: Group Total (Loss) After Tax - IFRS Basis
Group Total (Loss) After Tax - IFRS Basis PAGE 41 H1 10 H1 09 €m €m Life assurance & investment 90 65 IFRS Life Earnings Movement H1 2010 Banking (131) (132) €m General Insurance 2 4 New business effect (1) Other 1 (7) Interest on insurance VIF 32 Expected profit on Inv. contracts 37 90 (38) (70) Ex
Slide 42: IFRS / EV Reconciliation
IFRS / EV Reconciliation PAGE 42 H1 2010 S’Holders Total (Loss) / Equity Profit after Tax €m €m Embedded Value basis 2,453 (20) Investment business • Value of in-force (690) (27) • Deferred costs & fees 145 2 • Restatement of liabilities 70 (2) Own shares adjustment - 11 Other (25) 10 IFRS (Statutor
Slide 43: Bank Non-Interest Income
Bank Non-Interest Income PAGE 43 H1 10 H1 09 €m €m Fees & Comms (rec’d) 26 27 Fees & Comms (payable) (4) (3) 22 24 Trading income (4) (6) Investment return 3 0 21 18 Note: Bancassurance Embedded Value operating profit €6m [H1 09: €6m] included in life assurance INTERIM RESULTS 2010
Slide 44: Bank Asset Portfolio
Bank Asset Portfolio PAGE 44 Asset Portfolio June 2010 Category €bn % Total bank asset portfolio of €8.1bn Sovereign Bonds The portfolio is made up of €3.4bn AAA 1.7 50 Sovereign Bonds (42%), €4.1bn Bank AA 1.6 47 FRNs (50%) and €0.6bn Prime RMBS A 0.1 3 (8%) 93% of the Prime RMBS is EURO Bank
Slide 45: Impaired Loans
Impaired Loans PAGE 45 June 2010 December 2009 Balances Total Loans Balances Total Loans €m % €m % Residential mortgages • ROI 736 2.7 415 1.5 • UK 105 1.3 75 1.0 Commercial mortgages 217 9.1 171 7.2 Consumer finance 160 10.5 167 9.5 1,218 3.2 828 2.1 Impaired loans: are loans where there is objecti
Slide 46: Non-Performing Loans
Non-Performing Loans PAGE 46 June 2010 December 2009 June 2009 Balances Total Loans Balances Total Loans Balances Total Loans €m % €m % €m % Residential mortgages • ROI 1,858 6.9 1,342 4.9 1,165 4.2 • UK 265 3.3 258 3.4 297 3.8 Commercial mortgages 378 16.2 307 12.9 216 8.9 Consumer finance 195 12.8
Slide 47: Bank Capital - Basel II
Bank Capital - Basel II PAGE 47 Basel II Capital Jun 10 Dec 09 €bn €bn Available capital Basel II minimum total capital Tier 1 3.9 3.9 requirement of 8% Tier 2 1.2 1.2 Surplus capital of €441m Total capital 5.1 5.1 Strong capital position to absorb expected defaults Deductions* (3.4) (3.3) Tot
Slide 48: Life Embedded Value Movement
Life Embedded Value Movement PAGE 48 Required Net Worth VIF Total Capital €m €m €m €m Opening 1 Jan 2010 566 1,076 1,642 634 Operating profit 69 37 106 Investment fluctuations 8 (20) (12) Economic assumptions 1 (2) (1) Capital & other movements (5) - (5) Closing 30 Jun 2010 639 1,091 1,730 645 * All
Slide 49: Life Asset Quality
Life Asset Quality PAGE 49 Non-linked Debt Securities Rating €m % Non-linked liabilities matched with debt AAA 1,520 79 securities of appropriate duration AA 371 20 Majority high quality sovereign bonds A 24 1 1,915 100 Shareholders’ Net Worth Insurance & investment assets €m % Deposits 550 64
Slide 50: Life New Business Margin
Life New Business Margin PAGE 50 H1 10 H1 09 APE Sales H1 10 H1 09 New Business Contribution €m €m €m €m Life 20 18 Life 156 167 ILIM 120 60 ILIM 8 5 Margin - APE % % Life 13.0 10.5 PVNBP* Sales ILIM 6.3 8.8 H1 10 H1 09 €m €m Margin – PVNBP* % % Life 1,095 1,090 Life 1.8 1.6 ILIM 1,199 605 ILIM 0.6
Slide 51: Life Operating Costs
Life Operating Costs PAGE 51 H1 10 H1 09 €m €m Retail & Corporate 77 80 ILIM 6 5 Other 6 4 89 89 IFRS adjustment (7) 4 82 93 INTERIM RESULTS 2010
Slide 52: Life & Investment Sales
Life & Investment Sales PAGE 52 Recurring Premium Single Premium H1 10 H1 09 H1 10 H1 09 €m €m €m €m Retail 38 42 267 257 Corporate 46 69 244 219 ILIM - - 1,199 605 ILI - - 208 79 Total 84 111 1,918 1,160 APE Basis 84 111 192 116 PVNBP Basis 376 535 1,918 1,160 INTERIM RESULTS 2010
Slide 53: Retail & Corporate Life Sales
Retail & Corporate Life Sales PAGE 53 Retail APE Sales Corporate APE Sales H1 10 H1 09 Change H1 10 H1 09 Change €m €m % €m €m % Products Products Pension 28 32 (13) DC pension 39 55 (29) Protection / Risk 20 22 (9) Protection / Risk 10 17 (41) Investments 13 10 30 Annuities 12 9 33 Savings 4 4 - PR
Slide 54: Other Operating Activities
Other Operating Activities PAGE 54 H1 10 H1 09 €m €m Cornmarket / IPSI 7 3 Corporate costs (6) (10) 1 (7) Associate 2 4 3 (3) INTERIM RESULTS 2010
Slide 55: Contact Information
Contact Information PAGE 55 Please contact our Investor Relations Department for any further information or visit our group website at www.irishlifepermanent.ie Contact details: Barry Walsh barry.walsh@irishlife.ie +353 1 704 2678 Orla Brannigan orla.brannigan@irishlife.ie +353 1 704 1345 INTERIM RE
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