UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the date of 16 June, 2005
ALLIED IRISH BANKS, public limited company
Bankcentre, Ballsbridge, Dublin 4, Republic of Ireland
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F..X... Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No ..X...
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ________
FOR IMMEDIATE RELEASE 16 JUNE 2005
Allied Irish Banks, p.l.c.
Trading Update
Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB) is issuing the following update on
trading before its half year close period.
The half year to 30 June 2005 is the first time we will report under
International Financial Reporting Standards (IFRS). For ease of comparison, the
following information and related comments are attached to this update:
- An audited restatement of 2004 Group profit and loss account and balance
sheet. This reflects the IFRS standards which are required to be applied to
2004.
- An unaudited proforma of 2004 profit and loss account. In addition to the
above restatement, further standards (IAS 32, IAS 39, IFRS 4) will affect
our 2005 results. Where practical and as elaborated on in the attachment to
this update, the proforma is presented as if these standards had applied to
2004.
The impact of IFRS on our financial performance is less than that previously
outlined at our briefing on 1st March. Proforma IFRS earnings per share (EPS) in
2004 are 127.1c (125.6c previously outlined).
The strong, consistent and broad based performance we reported in 2004 is
continuing this year. The key drivers of income growth remain unchanged. High
rates of increase in both loans and deposits reflect further market share gains
in targeted sectors and products in each of our franchises. Customer demand for
our suite of deposit products has increased, notably in the Republic of Ireland.
Income growth is expected to outpace cost growth again in 2005 - at an overall
level and also within each of our operating divisions. The momentum in our
operating divisions and the contribution we anticipate from our successful
partnership with M&T are being complemented by strong asset quality.
At our IFRS briefing on 1st March and at our subsequent AGM, we said that we
expected earnings per share for 2005 would be within a range of 135c - 137c.
Based on strong current business trends and pipelines, together with better than
anticipated asset quality, we are increasing our EPS guidance. We are now
targeting EPS in 2005 to be in a range of 138c - 140c. This compares to the
aforementioned 2004 base of 127.1c. Growth at the interim stage is expected to
be particularly strong due to a very low bad debt provision charge.
This guidance for 2005 assumes:
- c. 1% adverse impact on EPS anticipated from currency translation of
earnings.
- zero volatility due to accounting hedge ineffectiveness under IFRS.
However, some volatility will arise and this will be disclosed separately
in our accounts.
We are making good progress in an enterprise wide programme to enhance and
integrate our risk management and compliance functions - a point acknowledged by
S&P when that agency recently upgraded AIB's long term ratings. We have also
initiated a comprehensive programme to review and improve all our operations and
systems across the enterprise. Over time this action will generate further
productivity, service quality and operational risk benefits.
We are actively managing our capital and funding positions. Both are well
capable of supporting our ambitious organic growth plan.
REPUBLIC OF IRELAND DIVISION
The Irish economy continues to provide very favourable conditions for our
business. We expect GDP growth of around 6% this year.
We are reinforcing our position as the leading retail and commercial bank in
Ireland. Customer demand for our products and services is strong. The special
focus our relationship managers are placing on deposit growth and our
competitive pricing are being very well received by customers and we are on
track to increase deposits by around 15% in 2005. Loans are targeted to grow by
over 20% reflecting our prime position in both the business and personal lending
markets. In mortgages, we are growing our book at a similar rate to the overall
market. This is being achieved by harvesting the potential of our customer base
while maintaining prudent repayment capacity and loan to value criteria.
The impact of competition is largely unchanged and continues to be most evident
in an increased demand for lower margin deposit and mortgage products. We remain
in a strong competitive position, sustained by our model of identifying customer
needs and offering good value products and services.
Ark Life is performing in line with expectations to achieve a higher operating
profit this year compared to 2004 proforma IFRS outturn.
GREAT BRITAIN AND NORTHERN IRELAND DIVISION
Our business banking franchise in Great Britain is performing strongly and
continues to gain share in our chosen sectors. The ongoing investment that we
are making in our people, locations and systems is reflected again this year by
strong increases in deposit and loan volumes. Our loan book is characterised by
a combination of fast growth and high quality. The resilience of the loan book
is underpinned by our in depth knowledge of the limited number of mid market
business sectors in which we participate. We do not participate in the consumer
credit market and our focus in the personal market is largely confined to
individuals with whom we already have a business banking relationship.
In Northern Ireland First Trust is growing profits in line with expectations.
Superior productivity relative to our larger rivals enables us to outperform in
a highly competitive banking environment. We anticipate loans and deposits to
grow in double digits.
We are targeting growth in loans and deposits for the division overall this year
to be close to 25% and 20% respectively.
CAPITAL MARKETS
Customer revenues continue to be the key dynamic that places us on track to
deliver another year of significant growth.
Corporate Banking remains the cornerstone of the division's profit. Loans in
2005 are targeted to increase by around 20% reflecting strong customer demand in
both our domestic and international businesses. This growth is being achieved
despite competitive forces driving prices down which has moderated our volume
growth. We are maintaining our pricing discipline to ensure we continue to
generate good risk adjusted returns relative to our cost of capital.
Treasury is benefiting from the resilience of customer relationships and is on
track to achieve a good performance. In line with our conservative approach to
proprietary trading, utilisation of our risk limits remains modest and the
embedded value in our investment portfolios is positive.
Investment Banking is performing well and in line with expectations.
POLAND DIVISION
We expect to achieve good growth in 2005 on the much higher base of profits
achieved following a very strong recovery in 2004.
Non interest income remains the principal driver of revenue. Notable features of
this year's performance are the strong growth and market share gains we are
achieving in electronic payment, investment fund and stockbroking fees. Deposit
volumes are expected to increase by around 10%. Our corporate loan volumes are
outperforming a still contracting market and while we are maintaining our share
of local currency mortgages, we are not promoting higher risk f.x. mortgages. We
are targeting an overall single digit increase in our loan book. Asset quality
remains best in class and continues to improve.
Cost management is good and we expect income to grow faster than costs this
year.
M&T BANK CORPORATION
Our partnership with M&T is progressing well and meeting all our expectations.
At its Q1 results announcement, M&T reaffirmed guidance for double digit growth
in diluted GAAP earnings per share for 2005. Features of the Q1 results included
good demand for commercial loans, very resilient asset quality and tight cost
management.
M&T management have said that their primary focus at present is on an organic
growth agenda and to extract further synergies from the successful merger with
Allfirst.
Under IFRS we are now accounting for our share of M&T profits based on our
average shareholding for the period (22.7% for 2004).
MARGINS
We continue to expect a reduction in our net interest margin to approximate 20
bps in 2005. The single biggest factor behind the attrition - loans growing
faster than deposits - is unchanged. A combination of lower rates for the
reinvestment of customer account funds, business mix and competition are lesser
contributory factors.
NON INTEREST INCOME
A constant currency increase of around 7% is expected this year. The move to
Effective Interest Rate under IFRS reduces the rate of growth in non-interest
income - lending related fees are reflected in interest income and not
non-interest income as heretofore. Increased account activity, corporate banking
fees and the aforementioned performance in Poland are the primary sources of
growth.
COSTS
We expect constant currency total costs this year to increase by around 6%.
Growth at the interim stage is likely to be higher, mainly due to a ramp up in
costs incurred from the second half of 2004 and continuing in 2005 to ensure
compliance with a host of new regulatory requirements e.g. Sarbanes Oxley, Basel
II.
The cost performance reflects tight management in the context of our strong
business growth.
ASSET QUALITY
High quality is a consistent feature of the credit portfolios across our
franchises. In the year to date we have had a very low level of gross new
non-performing loans combined with strong recoveries. This is likely to mean
that we will report a particularly low bad debt charge at the interim stage. The
charge is also positively influenced by the new IFRS incurred loss provision
rule. Our portfolio reviews do not point to a deterioration in quality. However,
in view of our very strong and consistent loan growth, we believe the current
experience to be exceptional. We now expect the charge in 2005 to be less than
20 bps of average loans, although IFRS makes forecasting more difficult.
NOTE
Group results for the half-year ended 30th June 2005 will be announced on 3rd
August 2005.
-ENDS-
For further information please contact:
Alan Kelly Catherine Burke
Head of Group Investor Relations Head of Corporate Relations
AIB Group AIB Group
Bankcentre Bankcentre
Dublin 4 Dublin 4
Tel: +353-1-6600311 ext. 12162 Tel: +353-1-6600311 ext. 13894
Allied Irish Banks, p.l.c.
Transition to IFRS
Restatement of 2004 financial information
Contents
Page
Introduction 2
Summary 3
Commentary 4
Consolidated preliminary income statement 7
Consolidated preliminary balance sheet 8
Summarised IFRS segmental information 9
Changes in accounting policies - key differences from Irish Generally
Accepted Accounting Principles
10
Special purpose audit report 21
Special purpose review report 23
Appendices
1.Basis of preparation 25
2.Provisional IFRS accounting policies 27
3.Reconciliation of consolidated preliminary balance sheet at 1 January 2004 38
4.Restated financial information for the year end 31 December 2004 39
5.Reconciliation of consolidated preliminary balance sheet at 1 January 2005 41
6.Restated financial information for the half-year end 30 June 2004 43
7.Pro-forma financial information 45
FORWARD-LOOKING STATEMENT
This document contains certain forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995 with respect
to the financial condition, results of operations and business of the Group and
certain of the plans and objectives of the Group. In particular, among other
statements, certain statements on the impact of International Financial
Reporting Standards are forward-looking in nature. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future. There are a
number of factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking statements.
These factors include, but are not limited to, changes in economic conditions
globally and in the regions in which the Group conducts its business, changes in
fiscal or other policies adopted by various governments and regulatory
authorities, the effects of competition in the geographic and business areas in
which the Group conducts its operations, the ability to increase market share
and control expenses, the effects of changes in taxation or accounting standards
and practices, acquisitions, future exchange and interest rates and the success
of the Group in managing these events. Any forward-looking statements made by or
on behalf of the Group speak only as of the date they are made.
AIB cautions that the foregoing list of important factors is not exhaustive.
Investors and others should carefully consider the foregoing factors and other
uncertainties and events when making an investment decision based on any
forward-looking statement. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this Report may not occur.
Introduction
Up to and including the year ended 31 December 2004, AIB's primary financial
statements were prepared in accordance with Irish Generally Accepted Accounting
Principles ('IR GAAP'). On 1 January 2005, AIB Group ('the Group'), in common
with other listed entities within the European Union ('EU'), implemented the
requirements of International Financial Reporting Standards and International
Accounting Standards (collectively, 'IFRS') for the first time and these will be
used for the purpose of preparing financial statements for the year ending 31
December 2005.
This document sets out the impact of these changes upon the Group's financial
position and reconciles the restated comparatives to previously published 2004
IR GAAP financial statements.
Comparative information for 2004 has been restated to take into account the
requirements of all of the IFRSs except for IAS 32 'Financial Instruments:
Disclosure and Presentation', IAS 39 'Financial Instruments: Recognition and
Measurement' and IFRS 4 'Insurance Contracts'. These three standards have been
implemented with effect from 1 January 2005 and the opening balance sheet at
this date has been adjusted accordingly.
Provisional accounting policies that the Group proposes to adopt in the
preparation of its 2005 half-year and full-year results are also provided. These
provisional accounting policies are in accordance with all standards and related
interpretations that have been or are expected to be endorsed by the EU, and
with all extant accounting standards and interpretations issued by the
International Accounting Standards Board ('IASB').
Further standards and interpretations may be issued that could be applicable for
financial years ending in 2005 or later but with the option for earlier
adoption. The Group's first annual IFRS financial statements may, therefore, be
prepared in accordance with different accounting policies to those used in this
document and, as a result, the financial information in this document could be
subject to change.
Summary
From 1 January 2005 the Group has been using International Financial Reporting
Standards (IFRS). Although the move to IFRS changes the timing of earnings
recognition, it is important to note that it does not impact on business
fundamentals or cash flows. The implementation of IFRS may result in greater
earnings volatility in future periods and the Group will endeavour to present
the performance in a manner in which underlying business performance and trends
are identifiable.
2004 Earnings restatement
The results for 2004 have been restated to take account of the International
Financial Reporting Standards implemented with effect from 1 January 2004.This
restatement of results for 2004 excludes adjustments for standards implemented
with effect from 1 January 2005. The main changes to the 2004 profit and loss
account resulting from the restatement are as follows:
Year to December 2004
IR IFRS Increase/
GAAP Audited (decrease)
EUR m EUR m EUR m
Total income 3,264 3,608 344
Operating expenses 1,886 1,894 8
Profit on ordinary activities before taxation 1,418 1,430 12
Basic earnings per share 122.9c 132.0c 9.1c
- Group profit on ordinary activities before taxation increased by
EUR 12 million to EUR 1,430 million.
- Group profit attributable to ordinary shareholders increased by EUR 78 million
to EUR 1,125 million.
- Basic earnings per share increased by EUR 9.1c from EUR 122.9c to EUR 132.0c.
The changes impacting basic earnings per share primarily reflect the positive
accounting treatment of goodwill partly offset by additional expense in respect
of dividend withholding tax on undistributed associate undertaking profits and
employee share option schemes.
2004 Pro-forma earnings restatement
As outlined above, the restatement of results for 2004 excludes adjustments for
standards implemented with effect from 1 January 2005. IAS 32, IAS 39 and IFRS 4
have been implemented from 1 January 2005. Had these standards been implemented
in 2004, it would have impacted the accounting for derivatives, loan impairment,
income recognition on loans ('EIR'), insurance accounting and classification of
financial instruments. Set out below are the pro-forma impacts of EIR, insurance
accounting and classification of financial instruments in order to establish a
2004 pro-forma IFRS restatement. Accounting for derivatives and loan impairment
are not included in the pro-forma restatement.
Year to December 2004
IFRS IFRS Increase/
Audited Pro-forma (decrease)
EUR m EUR m EUR m
Total income 3,608 3,602 (6)
Operating expenses 1,894 1,893 (1)
Profit on ordinary activities before taxation 1,430 1,425 (5)
Basic earnings per share 132.0c 127.1c (4.9c)
- 2004 pro-forma profit on ordinary activities before taxation reduced by EUR 5
million.
- Effective interest rate adjustment reduced profit before taxation by
EUR 28 million.
- Insurance business (IFRS 4 / IAS 39 v embedded value accounting) reduced
profit before taxation by EUR 24 million.
- Classification of financial instruments increased profit before taxation
by EUR47 million.
- Earnings per share reduced by EUR 4.9 c to EUR 127.1c.
- Effective interest rate adjustment - EUR 2.5c decrease.
- Insurance business - EUR 2.4c decrease.
Commentary on key differences
2004 Earnings restatement summary
The key differences between IFRS and IR GAAP impacting the profit and loss
account for 2004 are described on pages 10 to 14 and the analysis of the impact
of IFRS is detailed on page 39. These impacts are summarised below.
Year to December 2004
IR IFRS Increase/
GAAP Audited (decrease)
EUR m EUR m EUR m
Total income (1) 3,264 3,608 344
Operating expenses (2) 1,886 1,894 8
Share of operating profits of associated undertakings (3) 201 132 (69)
Profit on ordinary activities before taxation 1,418 1,430 12
Basic earnings per share (4) 122.9c 132.0c 9.1c
(1) The EUR 344 million increase in total income reflects
(a) the reclassification of the cost of employee benefits from net interest
income to operating expenses.
(b) line by line profit and loss consolidation of insurance business (Ark Life).
(2) The EUR 8 million increase in operating expenses reflects
(a) line by line profit and loss consolidation of insurance business.
(b) the cost of employee benefits reclassified from net interest income.
(c) the charge in respect of share based payments.
(d) change in the treatment of software development costs.
(e) the benefit of not amortising goodwill in 2004.
(3) The share of after tax profits of associates is included as part of
pre-tax profit. This reduces the share of operating profit of associated
undertakings on the face of the profit and loss account by EUR 61 million with
an offsetting reduction in the taxation charge. This classification is neutral
from an earnings per share perspective. The application of IFRS to the results
of associated undertakings also reduces the income from associated undertakings
by EUR 8 million.
(4) The EUR 9.1c increase in the basic earnings per share reflects
(a) goodwill amortisation. +9.2c
(b) share based payments. -1.2c
(c) dividend withholding tax on associate company profits. -0.6c
(d) software development costs +0.7c
(e) other +1.0c
2004 Pro-forma earnings restatement summary
The additional impacts of applying IAS 32, IAS 39 and IFRS 4 are described on
pages 15 to 20 and a pro-forma income statement for 2004 reflecting the impact
of EIR, insurance accounting and classification of financial instruments is set
out on page 45.
Year to December 2004
IFRS IFRS Increase/
Audited Pro-forma (decrease)
EUR m EUR m EUR m
Total income (1) 3,608 3,602 (6)
Operating expenses 1,894 1,893 (1)
Profit on ordinary activities before taxation 1,430 1,425 (5)
Earnings per share (2) 132.0c 127.1c (4.9c)
(1) The decrease of EUR 6 million in total income reflects
(a) effective interest rate reduced total income by EUR 29 million.
(b) insurance business (Ark Life) reduced total income by EUR 24 million.
(c) classification of financial instruments increased total income by EUR 47
million.
(2) The 4.9c reduction in the earnings per share is outlined below
IFRS EPS 132.0c
EIR (2.5c)
Insurance business (2.4c)
Pro-forma IFRS EPS 127.1c
Balance sheet and shareholders' equity
The overall effect of the adoption of IFRS on the Group's balance sheet is set
out below.
31 December 1 January Increase/
2004 2005 (decrease)
IR GAAP IFRS
EUR m EUR m EUR m
Balance sheet
Shareholders' equity 5,581 6,750 1,169
Total assets 102,240 102,819 579
The key differences between IFRS and IRGAAP are set out on pages 10 to 20 and
the principal impacts of the transition to IFRS on equity at 1 January 2005 are
set out below. The reconciliation of shareholders' equity at 31 December 2004 is
set out in Appendix 4, and at 1 January 2005 incorporating the impacts of IAS
32, IAS 39 and IFRS 4, is set out in Appendix 5.
EUR m
Dividends 336
Effective interest rate (65)
Impairment 139
Available for sale securities 273
Derivatives 38
Insurance accounting (185)
Classification of financial instruments 588
Other 45
1,169
Total assets at 1 January 2005 increased by EUR 0.6 bn to EUR 102.8 bn, when
compared to the IRGAAP balance sheet at 31 December 2004. The increase arose as
a result of a number of different items which are detailed on pages 10 to 20.
IFRS requires certain items, netted under previous GAAP, to be shown gross and
this accounted for an increase of EUR 1.4bn, while other adjustments increased
total assets by EUR 0.4bn. Consolidation of previous unconsolidated entities
reduced total assets by
EUR 1.2 bn due to the elimination of intra group transactions giving a net
increase in total assets of EUR 0.6 bn.
31 December 1 January
2004 2005
IR GAAP IFRS
Capital Ratios % %
Tier 1 capital 7.9 8.3
Total capital 10.7 10.9
The treatment of some items in the calculation of regulatory capital has still
to be finalised, although the effect, if any, is not expected to be material.
The Tier 1 capital ratio increased to 8.3% and the total capital ratio to 10.9%.
The higher ratios reflect the benefit from the transition adjustments to equity,
primarily a timing difference on the recording of the ordinary dividend. The
mark to market of available-for-sale debt securities and derivatives classified
as cash flow hedges are both excluded from the regulatory capital calculation.
Consolidated preliminary income statement
Audited Unaudited
IFRS IFRS
year half-year
31 December 30 June
2004 2004
EUR m EUR m
Interest and similar income 4,035 1,838
Interest expense and similar charges 1,901 817
Net interest income 2,134 1,021
Dividend income 60 38
Fees and commissions income 1,051 507
Fees and commissions expense (136) (65)
Net trading income 235 103
Other operating income 264 142
Other income 1,474 725
Total operating income 3,608 1,746
Insurance claims 309 156
Administrative expenses 1,739 833
Integration and restructuring costs 9 -
Depreciation of property, plant and equipment 67 32
Amortisation and impairment of intangible assets and goodwill 79 32
Total operating expenses 1,894 897
Group operating profit before provisions 1,405 693
Impairment losses on loans and advances (114) (55)
Provisions for contingent liabilities and commitments (20) (8)
Amounts written off fixed assets 1 -
Group operating profit 1,272 630
Share of profits of associated undertakings 132 62
Profit on disposal of property 9 2
Profit on disposal of business 17 12
Group profit on ordinary activities before taxation 1,430 706
Taxation on ordinary activities 272 145
Group profit on ordinary activities after taxation 1,158 561
Profit attributable to minority interests 29 17
Preference dividends 4 2
33 19
Profit attributable to the ordinary shareholders
of Allied Irish Banks, p.l.c. 1,125 542
Earnings per EUR 0.32 ordinary share - basic 132.0c 64.1c
Earnings per EUR 0.32 ordinary share - diluted 131.5c 63.9c
Consolidated preliminary balance sheet
Audited Audited Unaudited Audited
IFRS IFRS IFRS IFRS
1 January 31 December 30 June 1 January
2005 2004 2004 2004
EUR m EUR m EUR m EUR m
Assets
Cash and balances at central banks 887 887 599 838
Items in course of collection 368 368 625 339
Central government bills and other eligible bills - - 153 45
Trading portfolio assets 7,957 - - -
Assets held at fair value through profit and loss 1,871 - - -
Derivative financial instruments 2,581 - - -
Loans and advances to banks 2,538 2,540 2,741 2,633
Loans and advances to customers 65,692 64,738 59,258 51,091
Debt securities - 24,501 24,228 18,366
Equity shares - 1,641 1,470 1,300
Financial investments 15,720 - - -
Interests in associated undertakings 1,395 1,379 1,459 1,361
Intangible assets and goodwill 540 540 534 537
Property, plant and equipment 745 745 755 753
Other assets 1,460 2,622 1,824 1,843
Deferred taxation 204 228 166 161
Prepayments and accrued income 861 920 815 636
Total assets 102,819 101,109 94,627 79,903
Liabilities
Deposits by banks 20,428 20,428 23,838 18,094
Customer accounts 50,151 50,151 47,740 43,813
Trading portfolio liabilities 332 - - -
Derivative financial instruments 2,541 - - -
Investment contract liabilities 2,422 2,422 2,344 2,085
Debt securities in issue 11,805 11,805 6,826 3,489
Insurance contract liabilities 1,465 864 733 799
Current taxation 197 175 209 203
Other liabilities 1,593 3,388 3,166 2,432
Accruals and deferred income 700 913 734 530
Retirement benefit liabilities 886 886 624 683
Provisions for liabilities and charges 122 122 115 87
Deferred taxation 38 52 57 54
Subordinated liabilities 2,178 2,765 2,170 2,130
Total liabilities 94,858 93,971 88,556 74,399
Shareholders' equity
Share capital 294 294 293 290
Share premium account 1,693 1,693 1,694 1,694
Other equity interests 770 182 203 196
Reserves 1,159 954 965 927
Profit and loss account 2,834 2,804 2,736 2,239
Shareholders' equity 6,750 5,927 5,891 5,346
Minority interests 1,211 1,211 180 158
Total shareholders' equity including minority interests 7,961 7,138 6,071 5,504
Total liabilities, shareholders' equity and minority interests 102,819 101,109 94,627 79,903
Summarised IFRS segmental information
Year 31 December 2004
AIB Bank AIB Bank Capital Poland Group Total
ROI GB & NI Markets
EUR m EUR m EUR m EUR m EUR m EUR m
Operations by business segments
Net interest income 1,206 416 360 174 (22) 2,134
Other income 670 189 390 188 37 1,474
Total operating income 1,876 605 750 362 15 3,608
Insurance claims 309 - - - - 309
Total operating expenses 838 305 403 245 103 1,894
Provisions 44 13 29 29 18 133
Group operating profit/(loss) 685 287 318 88 (106) 1,272
Share of operating (loss)/profit of
associated undertakings (1) - 4 1 128 132
Profit on disposal of property 7 1 - 1 - 9
Profit on disposal of businesses - - 4 13 - 17
Group profit on ordinary activities
before taxation 691 288 326 103 22 1,430
Half-year 30 June
2004
AIB Bank AIB Bank Capital Poland Group Total
ROI GB & NI Markets
EUR m EUR m EUR m EUR m EUR m EUR m
Operations by business segments
Net interest income 584 201 174 81 (19) 1,021
Other income 313 94 188 94 36 725
Total operating income 897 295 362 175 17 1,746
Insurance claims 156 - - - - 156
Total operating expenses 406 152 186 118 35 897
Provisions 28 (3) 17 21 - 63
Group operating profit/(loss) 307 146 159 36 (18) 630
Share of operating profit of
associated undertakings - - 3 - 59 62
Profit on disposal of property - 1 - 1 - 2
Profit on disposal of businesses - - - 12 - 12
Group profit on ordinary activities
before taxation 307 147 162 49 41 706
Changes in accounting policies - key differences from IRISH GAAP ('IR GAAP')
Changes applying to comparatives from 1 January 2004 (and to the IFRS balance
sheet at that date)
IR GAAP IFRS
(a) Basis of consolidation
In order to reflect the different nature of the IAS 27 'Consolidated and separate financial
shareholders' and policyholders' interests in the statements'
long-term assurance business, the value of long-term
assurance business attributable to shareholders and requires that all entities are consolidated on a
the long-term assurance assets and liabilities line by line basis, except in very limited
attributable to policyholders are classified under circumstances. The assets and liabilities of the
separate headings in the consolidated balance sheet. life assurance subsidiary will be consolidated on a
line by line basis and all intra group transactions
will be eliminated. The income and expense of the
life assurance subsidiary will be shown within each
relevant line item of the income statement whereas
under IR GAAP it was shown as a one line item.
Under IAS, movement in the value of the
long-term assurance business is presented net of
tax.
IFRS also requires the consolidation of certain
entities that was not required under IR GAAP,
including securitisation vehicles where appropriate.
Under IR GAAP, movements in the value of the
long-term assurance business attributable to
shareholders, was presented in the profit and loss
account grossed up at the statutory tax rate.
IFRS impact:
This is principally a change in presentation on the face of the income statement
and balance sheet. The balance sheet also reduced slightly due to the
elimination of intra group transactions.
(b) Interests in associated undertakings
The attributable share of income of associated IAS 1 'Presentation of Financial Statements' requires
undertakings, based on accounts made up to the end of the the Group to include its share of the income of
financial year, is included in the consolidated profit and associated undertakings as a single item on a net of
loss account using the equity method of accounting. tax basis in the consolidated income statement.
The Group share of tax of associates is included within
the Group's tax charge in the Group profit and loss account
and disclosed separately in the notes to the accounts.
IFRS impact:
This is principally a change in presentation. Profit before taxation will
reduce, and the taxation charge will reduce, with no impact on earnings per
share.
(c) Finance leases
Income from finance leasing transactions is apportioned Under IAS 17 'Leases', income from finance leasing
over the primary leasing period on an after tax basis in transactions is apportioned over the primary leasing
proportion to the net cash investment using the investment period at a rate calculated to give a constant rate of
period method. return on the investment in the lease, without taking
into account the taxation flows generated by the lease.
Rentals received in advance but not yet amortised to
the profit and loss account are included in other Finance lease receivables are stated in the balance
liabilities. sheet at the gross rentals receivable, less income
allocated to future periods and provisions for
impairment.
IFRS impact:
There is a change in the income recognition profile for individual transactions,
but the overall impact on the income statement is not significant.
The reclassification of rentals received in advance from liabilities to assets
reduces the size of the balance sheet.
Changes applying to comparatives from 1 January 2004 (and to the IFRS balance
sheet at that date)
IR GAAP IFRS
(d) Software and software development costs
Operating software and application software are IAS 38 'Intangible assets & system development costs'
capitalised with computer hardware within tangible fixed requires capitalisation of computer software development
assets. costs as an intangible asset, where the entity will
generate future economic benefits from the asset, that
AIB capitalises software development costs under FRS will flow to the entity, and the cost of the asset can be
15, when it leads to the creation of a definable software measured reliably. Capitalised costs are amortised over
asset, subject to a de-minimis limit. the software's estimated useful life.
IFRS impact:
The classification criteria of IFRS gives rise to a reclassification from
tangible fixed assets to intangible assets, being the carrying value of
previously recognised operating software.
The recognition requirements within IAS 38 increases shareholders' equity due to
an increase in capitalised assets. The impact on the income statement is
dependent on the level of internal expenditure on computer software development
in any period. There will be some reclassification impact as administrative
expenses will be lower with an increase in the depreciation / amortisation
charge.
(e) Employee and retirement benefits
AIB implemented FRS 17 'Retirement Benefits' in the The approach within IAS 19 'Employee Benefits' is similar
preparation of its accounts for the year ended 2001. to FRS 17. AIB will continue to recognise the actuarial
gains and losses directly in equity through the statement
The current service cost and past service cost of the of recognised income and expense.
defined benefit schemes is charged to operating profit
and the expected return on assets, net of the change in The cost of providing pensions and post retirement
the present value of the scheme liabilities arising from benefits is shown within administrative expenses and
the passage of time, is credited to other finance income. analysed in the notes to the accounts.
Pension scheme assets are recognised in the balance Pension scheme assets are recognised in the balance
sheet at their fair value based on current mid prices. sheet at their fair value based on current bid prices.
The net pension scheme liabilities are shown in the Deferred taxation relating to the recognition of the
balance sheet net of deferred taxation. net pension scheme liabilities is shown within deferred
taxation.
The cost of providing benefits such as subsidised
loans and preferential rates on deposits is charged to Under IAS 19, the cost of providing these benefits should
net interest income as it arises. be recognised within employee costs, over the expected
service lives of the employees.
IFRS impact:
There is a presentation change on the face of the income statement. Other
finance income, which is the expected return on pension scheme assets net of the
change in value of plan liabilities, is now shown within administrative
expenses. This gives rise to a reduction in operating expenses with no impact on
profit before taxation. There is also a presentation change on the face of the
income statement arising from the change in accounting treatment of certain
benefits with an increase in net interest income and an increase in
administrative expenses.
The change in the manner in which deferred tax on the net pension scheme
liabilities is presented gives rise to a gross up of deferred tax assets and
pension scheme liabilities.
A transition adjustment arises on the application of IAS 19 which increases the
retirement benefit liabilities and reduces shareholders' equity.
Changes applying to comparatives from 1 January 2004 (and to the IFRS balance
sheet at that date)
IR GAAP IFRS
(f) Taxation
Subject to certain exceptions, deferred taxation is Under IAS 12 'Income Taxes' deferred tax liabilities and
recognised in full in respect of timing differences assets are generally recognised in respect of all
that have originated but not reversed at the balance temporary differences, subject to assessment of the
sheet date. recoverability of deferred tax assets. Deferred tax assets
are recognised, only to the extent that it is probable
Deferred tax is not provided on timing differences that sufficient taxable profits will be available against
arising:- on the revaluation of property when no which these differences can be utilised.
commitment has been made to sell the asset; when a
taxable gain on the sale of an asset is rolled over Unremitted earnings from subsidiary and associated
into replacement assets; or on the potential additional companies may result in a deferred tax liability unless
tax that may be payable on the payment of a dividend by the entity is able to control the timing of remittances
a subsidiary or associated undertaking where no and it is probable that the earnings will not be remitted
commitment has been made to pay a dividend. in the foreseeable future.
IFRS impact:
Additional deferred tax balances arise on transition in respect of temporary
differences not previously recognised. These include temporary differences
relating to the revaluation of properties and the roll over of taxable gains and
the additional tax that may arise on unremitted profits of associated and
subsidiary companies.
There will be continuing income statement implications from IAS 12, particularly
the requirement to reflect the additional tax that would be payable on the
remittance of profits by associated companies.
(g) Foreign currency
Exchange adjustments arising from the retranslation of net IAS 21 'The Effects of Changes in Foreign Exchange
investments, net of hedging profits and losses, are Rates' requires that all exchange differences arising
recognised in the statement of total recognised gains and on the retranslation of a foreign operation with a
different functional currency than the Euro, should be
losses. recognized in a foreign exchange reserve as a separate
component of equity.
The profit on disposal of a foreign operation is
calculated based on the carrying value of the operation at On disposal of a foreign operation the exchange
the date of disposal. Previous exchange translation gains differences previously recognised in reserves relating
and losses remain in shareholders' equity. to that foreign operation are reversed and recognised
in the income statement in arriving at the profit or
loss on disposal.
IFRS 1 permits companies to deem cumulative
exchange differences as zero at 1 January 2004.
IFRS impact:
This will primarily be a presentational change within shareholders' equity. In
addition, gains on any future disposals of subsidiaries will be higher or lower
depending on whether the functional currency of the subsidiary has appreciated
against the Euro since the later of 1 January 2004 or date of the acquisition or
recognition of the increase in the investment through profits retained in the
foreign operation.
Changes applying to comparatives from 1 January 2004 (and to the IFRS balance
sheet at that date)
IR GAAP IFRS
(h) Intangible assets and goodwill
Goodwill and intangible assets arising on acquisitions of IFRS 1 'First-time adoption of International Financial
subsidiary and associated undertakings prior to 1 January Reporting Standards' does not require the reinstatement
1998 have been written off to reserves in the year of
acquisition. of goodwill previously written off to reserves.
Goodwill, arising on the acquisitions of subsidiary The book value of goodwill existing at 31 December
and associated undertakings since 31 December 1998, is 2003 under IR GAAP is carried forward under IFRS 1 from 1
capitalised as an asset on the balance sheet. Purchased January 2004, subject to two adjustments. If there are
goodwill is the excess of cost over the fair value of the previously unrecognised intangible assets that meet
Group's share of net assets acquired. Intangible assets recognition criteria under IAS 38 'Intangible Assets',
were not identified as a separate component of goodwill these are reported separately to the extent that they are
on acquisitions arising prior to 31 December, 2004. included in goodwill at the date of transition. In
addition, any adjustments to provisional fair values (and
Goodwill is amortised to the profit and loss account hence goodwill) made during the first twelve months after
over its estimated useful economic lives. The useful an acquisition are reflected in the comparative
economic life of goodwill is determined at the time of information.
acquisition, taking into consideration factors such as
the nature of the business acquired, the market in which Under IFRS 3, 'Business Combinations' intangible
it operates and its position in that market. assets are identified separately from purchased goodwill
acquisitions of subsidiary and associated undertakings.
In all cases goodwill is subject to a maximum life of Intangible assets are capitalised as assets on the
20 years and is subject to an impairment review in balance sheet and amortised over their expected lives and
accordance with FRS 11 'Impairment of Fixed Assets and subject to regular impairment reviews. Goodwill is
Goodwill'. capitalised as an asset, without amortisation but with
impairment reviews carried out at least on an annual
On the disposal of subsidiary or associated basis in accordance with IAS 36 'Impairment of Assets'.
undertakings, any unamortised goodwill together with AIB will apply IFRS 3 to all acquisitions occurring after
goodwill previously written off directly to reserves is 1 January 2004.
included with the Group's share of net assets of the
undertaking disposed, in the calculation of the profit or At the date of disposal of subsidiary or associated
loss on disposal. undertakings, the related amount of goodwill is included
in the calculation of the gain or loss on disposal.
Under FRS 7 'Fair values in Acquisition Accounting' Goodwill charged directly against reserves under previous
the acquirer is permitted, in certain circumstances, to GAAP is not recognised in any profit or loss arising on
finalise the fair value adjustments in the period after disposal under IFRS 3.
the one in which the acquisition was completed. Any
necessary adjustments to those provisional fair value Under IFRS 3, the acquirer shall only recognize
adjustments and the corresponding adjustment to goodwill adjustments to the provisional fair values of assets and
are recognised in the financial statements for that liabilities acquired in a business combination within 12
period. There is no adjustment to the prior year months of the acquisition date, with a corresponding
information. adjustment to goodwill. These adjustments are reflected
as if they had occurred at the acquisition date, by way
of an adjustment to the comparative information.
IFRS impact:
From 1 January 2004, there will be no amortisation of goodwill recorded at 31
December 2003 (after adjusting for intangible assets required to be recognised
under IFRS and any adjustments made to provisional fair values on acquisitions).
The cessation of goodwill amortisation has a positive impact on the income
statement. However, goodwill will be the subject of impairment testing at least
annually under IFRS. In the event of impairment, the absence of previous
amortisation would lead to larger impairment charges than would have been
necessary under IR GAAP.
Goodwill previously written off to reserves prior to 1998 is not taken into
account in the calculation of profit or loss on disposal of subsidiary or
associated undertakings. This will generate a higher profit, or lower loss, on
disposal of subsidiary or associated undertakings acquired prior to 1998, under
IFRS.
Changes applying to comparatives from 1 January 2004 (and to the IFRS balance
sheet at that date)
IR GAAP IFRS
(i) Dividends
Equity dividends declared after the balance sheet date but Under IAS 10 'Events after the balance sheet date'
before the accounts are approved by the Directors are dividends declared after the balance sheet date are not
treated as a deduction on the face of the profit and loss recognised as a liability at the balance sheet date.
account and as a liability at the balance sheet date.
In respect of preference shares recognised as
Dividends on preference shares are included in the shareholders' equity, dividends are accounted for as a
profit and loss account on an accruals basis in accordance movement in shareholders' equity and as a charge
with FRS 4 'Capital Instruments'. against earnings per share when they are declared.
IFRS impact:
There will be an increase in shareholders' equity on transition as no liability
is recorded in respect of the final dividend. Where dividends on preference
shares are paid annually, in the second half of the year, the distribution is a
charge against EPS only in the second half of the year.
(j) Share based payments
No expense is recognised for grants of options under the IFRS 2 'Share-based Payment' requires a fair value based
share option schemes. Under these schemes the options are method of accounting for all share-based payments. This
granted with a strike price equal to the market value of value is determined using an options pricing model.
the underlying share at the date of grant.
The expense is recognised over the period in which
An expense is recognised for grants awarded under the the options are expected to vest. Actual expense
long term incentive plan schemes, equivalent to the recognised over the vesting period will be determined by
intrinsic value of the shares awarded. This is charged to the meeting of the vesting conditions and the options
the profit and loss account over the vesting period, that remain outstanding at the end of the vesting period.
based on the number of options that are expected to vest.
If an award is made in respect of service in the past
An expense is recognised in respect of but an employee must complete a further specified period
Save-As-You-Earn schemes. The expense equates to the of service before entitlement to the award (the vesting
discount given to the employees on the market price of period), the expense is spread from the date of
the shares, and is charged to profit and loss over the commencement of the service period, to which the reward
savings period. relates, to the vesting date.
Shares awarded under the profit sharing schemes, as a
bonus for previous service, are expensed immediately.
IFRS impact:
AIB has elected to apply IFRS 2 to all equity settled share based payments
occurring after 7 November 2002 that have not vested by 1 January 2005.
Applying IFRS 2 to AIB's share based payment schemes gives rise to a higher
expense than that arising under IR GAAP. It also gives rise to some changes in
the timing of recognition of the expense with a transition adjustment at 1
January 2004.
Changes applying to comparatives from 1 January 2004 (and to the IFRS balance
sheet at that date)
AIB has implemented IAS 32 'Financial Instruments: Disclosure and Presentation',
IAS39 'Financial Instruments; Recognition and Measurement' and IFRS 4 'Insurance
Contracts' with effect from 1 January 2005.
IR GAAP IFRS
(k) Loan origination - interest income and
expense recognition
Interest income and expense is recognised in the profit Interest income and interest related fees and costs, are
and loss on an accruals basis over contract lives recognised at a constant rate to the expected maturity
except in respect of non-performing loans where date.
interest is not taken to the profit and loss account
when recovery is doubtful. Fees which are considered to Costs associated with mortgage incentives are accrued
increase the yield on transactions are spread over the to interest income so as to give a constant rate to
lives of the underlying transactions on a level yield expected maturity on the mortgage.
basis. All costs associated with mortgage incentive
schemes are charged in the period in which the expense Fees and commissions received on the completion of a
is incurred. Fees and commissions received for services significant act are recognised immediately.
provided are recognised when earned. Fees and
commissions payable to third parties in connection with
lending arrangements are charged to the profit and loss
account as incurred.
IFRS impact:
On transition, certain fees receivable, and fees and commissions payable that
had previously been taken to the profit and loss account are treated as deferred
income and deferred costs and shown within loans and receivables. This gives
rise to a reclassification from liabilities and a transition adjustment to
equity. These deferred fees and costs will be amortised on an effective interest
basis to the profit and loss account over the expected residual lives of the
financial instruments.
The change in policy gives rise to a reclassification from fee income/fee
expense and administrative expenses to interest income with an impact on the net
interest margin.
Revisions of expected maturity of loans could generate income volatility.
(l) Loan impairment - allowance and
provision for losses
Specific provisions are made when, in the judgement of Under IAS 39,impairment provisions are recognised on an
management, the recovery of the outstanding balance is in incurred loss basis if there is objective evidence that
serious doubt. The amount of the specific provision is the Group will be unable to collect all amounts due on a
intended to cover the difference between the balance loan according to the original contractual terms.
outstanding on the loan or advance and the estimated
recoverable amount. In certain portfolios, provisions are Individual credit exposures are evaluated based upon
applied to pools of loans on a formula driven basis the borrower's character, overall financial condition,
depending on levels of delinquency. resources and payment record, the prospects for recovery
from the realisation of collateral or the calling in of
General provisions are also made to cover loans which guarantees where applicable.
are impaired at balance sheet date, and while not
specifically identified, are known from experience to be The estimated recoverable amount is the present value
present in any portfolio of bank advances. The Group of expected future cash flows, which may result from
holds general provisions at a level deemed appropriate by restructuring or liquidation. Impairment is measured and
management taking into account a number of factors allowances for credit losses are established for the
including:- the credit grading profiles and movements difference between the carrying amount and the estimated
within credit grades; historic loan loss rates; local and recoverable amount.
international economic climates and portfolio sector
profiles/industry conditions. The level of general IAS 39 allows collective assessment of impairment for
provisions individually insignificant items. Smaller value impaired
loans are grouped together in homogeneous pools sharing
common characteristics and impairment is measured by
reference to the loss history experience
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that
date)
IR GAAP IFRS
(l) Loan impairment - allowance and
provision for losses (continued)
is reviewed quarterly to ensure that it remains appropriate. of the asset pool.
Interest is not taken to profit when recovery is Where no objective evidence of impairment exists
doubtful. for an individual asset but there are indications of
incurred losses in the portfolio, IAS 39 permits the
creation of provisions for credit losses on an
incurred loss basis.
Upon impairment the accrual of interest income
based on the original terms of the claim is
discontinued, but the increase of the present value of
impaired claims due to the passage of time is reported
as interest income.
IFRS impact:
Application of the IFRS incurred loss model to AIB results in a reduction in the
overall level of provisions carried at the balance sheet date and a transition
adjustment to equity.
The incurred loss model under IFRS may lead to a more volatile impairment charge
in the income statement. In addition, on recognition of individual impairment,
the impairment loss will be higher than that recorded under current GAAP due to
the requirement to discount the recoverable cash flows.
The higher impairment loss will be offset by the recognition of income in the
net recoverable amount due to the passage of time.
(m) Financial instruments
Debt securities held as financial fixed assets are Under IAS 32 and 39, all debt securities and equity
accounted for on a historic cost basis. These debt shares are classified and disclosed within one of the
securities are stated in the balance sheet at cost, following three categories: held-to-maturity;
adjusted for the amortization of any premiums or available-for-sale; or held as fair value through profit
discounts arising on acquisition and provisions for or loss.
impairment. Profits and losses on disposal of securities
held for investment purposes are recognised immediately
in other operating income. Profits and losses on disposal
of securities held for hedging purposes are amortised Held-to-maturity
over the lives of the underlying transactions and
included in net interest income. Financial instruments are designated as held-to-
maturity when they are debt securities held on a
Debt securities held for trading purposes are stated continuing use basis by the Group for which the Group has
in the balance sheet at market value. Both realised and the ability and intention to hold to maturity. These debt
unrealised profits on trading securities are taken securities are stated in the balance sheet at cost,
directly to the profit and loss account and included adjusted on an effective interest basis for the
within dealing profits. amortization of any premiums or discounts arising on
acquisition and provisions for impairment. The
amortisation of premiums and discounts is included in net
interest income. Provisions for impairment are included
in the income statement.
Available-for-sale
Available-for-sale financial instruments are stated
in the balance sheet at fair value with unrealised
holding gains and losses reported net of applicable taxes
as a separate component in shareholders' equity. Where
impairment arises on an available-for-sale security, the
cumulative loss that has been recognised in equity is
removed and the impairment is recognised in the profit
and loss account. When the conditions that created the
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that
date)
IR GAAP IFRS
(m) Financial instruments (continued)
requirement for a provision no longer exist, the
provision for debt securities may be reversed through
the profit and loss account. No reversal of provisions
for impairment on available for sale equity securities
is allowed until the security has been disposed of.
Profits and losses on available for sale debt securities
are recognised in the profit and loss account based on
the amortised cost of the security.
Held as fair value through profit and loss
Debt securities held as fair value through profit
and loss are stated in the balance sheet at market value
with unrealised gains and losses recognised immediately
in profit and loss.
IFRS impact:
Almost all of AIB's financial instruments, which were previously held as
financial fixed assets, are classified as available-for-sale on transition to
IFRS. This has given rise to an adjustment to equity on transition.
(n) Derivatives
Non-trading derivative transactions comprise transactions IAS 39 'Financial instruments: recognition and
held for hedging purposes as part of the Group's risk measurement' requires all derivatives be recognised as
management strategy against assets, liabilities, positions either assets or liabilities in the balance sheet at
or cash flows, themselves accounted for on an accruals their fair value. The accounting for changes in the fair
basis. The gains and losses on these instruments (arising value of a derivative depends on the intended use of the
from changes in fair value) are not recognised in the derivative and the resulting designation as described
profit and loss account immediately as they arise. below.
Derivative transactions entered into for hedging purposes
are recognised in the accounts on an accruals basis Derivative transactions entered into for hedging
consistent with the accounting treatment of the underlying purposes are classified as 'fair value hedges' if they
transaction or transactions being hedged. A derivative will hedge exposures to changes in the fair value of a
only be classified as a hedge where it is designated as a recognised asset or liability or firm commitment.
hedge at its inception and where it is reasonably expected Derivative transactions entered into for hedging
that the derivative substantially matches or eliminates the purposes are classified as 'cash flow hedges' if they
exposure being hedged. are hedging the exposure to variable cash flows of a
recognised asset or liability or of a highly probable
Except as described below in respect of hedges of the forecast transaction.
income stream on Group capital, upon early termination of
derivative financial instruments classified as hedges, any Interest income and expense on derivatives
realised gain or loss is deferred and amortised to net classified as hedges is recorded within interest income
interest income over the life of the original hedge as long or expense as appropriate.
as the designated assets or liabilities remain. Upon early
termination of derivative transactions classified as hedges The mark to market of derivatives classified as fair
of the income stream on Group capital, any realised gain or value hedges is recognised in the income statement
loss is taken to the profit and loss account as it arises. within other financial income. The hedged item in a fair
value hedge is fair valued with respect to the risk
being hedged only as long as the hedge remains effective
and the mark to market of the hedged item is recorded in
other financial income.
The mark to market of derivatives designated as cash
flow hedges is accounted for in equity, net of the
deferred tax impact. Subsequently it is released into
the income statement in line with the income statement
recognition of the element of the hedged asset,
liability or highly
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that
date)
IR GAAP IFRS
(n) Derivatives (continued)
probable forecast transaction. Any ineffective portion is
reported within other financial income in the income
statement as it arises.
Where a derivative originally classified as a fair
value hedge no longer meets the effectiveness tests, or the
hedge relationship has ceased for any reason, the
underlying hedged position is no longer marked to market.
The fair value adjustment of the hedged item is amortised
to the profit and loss account on an effective interest
rate basis from the date the hedging relationship ceases.
Where a cash flow hedging instrument expires or is
sold, terminated or exercised, the cumulative gain or loss
on the instrument, that remains recognised directly in
equity from the period when the hedge was effective, is
released from equity in line with the income statement
recognition of the underlying hedged position.
IFRS impact:
AIB has implemented IAS 39 such that it complies with the full IAS 39 as
published by the IASB. It has also complied with the hedge accounting
requirements of the IASB unamended IAS 39 and has not implemented the option
provided under the EU 'carved out' version of IAS 39.
The effectiveness rules within IAS 39 have a stricter definition of qualifying
hedges and this has resulted in the recognition of current hedging derivatives
at fair value with no matching offset where the associated hedging relationship
has not met the IAS 39 hedging requirements. There was also an impact on
transition due to fair value movements on derivatives in existing hedge
relationships, that are designated as cash flow hedges, being taken to the cash
flow hedging reserve in equity.
There may be some additional volatility in earnings as a result of a stricter
definition of a qualifying hedge relationship under IFRS, the effectiveness of
hedging strategies and the resulting recognition of hedge ineffectiveness in the
income statement. The amount of this additional volatility in income will
depend, in part, on the extent to which the fair value option for liabilities
available within IAS 39, but carved out in the EU adopted version of IAS 39, is
ultimately endorsed by the EU.
In addition to the classification of derivatives as fair value hedges, AIB
intends, where possible, to hedge its interest rate exposure using cash flow
hedging. This will give rise to volatility in equity.
(o) Netting
Under IR GAAP where the amounts owed by the Group and the Under IAS 32 'Financial instruments: disclosure and
counterparty are determinable and in freely convertible presentation', netting is only allowed if the entity
currencies and where the Group has the ability to insist currently has a legally enforceable right to set off the
on net settlement which is assured beyond doubt and is recognised amounts and intends either to settle on a net
based on a legal right to settle net that would survive basis, or to realise the asset and settle the liability
the insolvency of the counterparty, the amounts are shown simultaneously.
in the balance sheet as net assets or net liabilities as
appropriate.
IFRS impact:
There is a gross up of the balance sheet as a result of the requirement to show
positions on the balance sheet gross unless there is the intention to settle
net. The impact of qualifying netting agreements will be disclosed in the notes
to the financial statements.
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that
date)
IR GAAP IFRS
(p) Long term assurance business
Under IR GAAP the value placed on the Group's long- term The definition of Insurance under IFRS 4 'Insurance
assurance business attributable to shareholders Contracts' restricts the use of embedded value accounting
represents a valuation of the policies in force together by the Group to products with significant insurance risk.
with the net tangible assets of the business including
any surplus retained in the long-term business fund which Investment type products that do not meet the
could be transferred to shareholders. The value of the in definition of insurance contracts must be accounted for
force business is calculated by projecting future under IAS 39. The inclusion of a valuation of the
surpluses and other net cash flows attributable to the discounted future earnings expected to emerge from the
shareholder arising from business written by the balance business currently in force will no longer be possible
sheet date and discounting the result at an appropriate for such contracts. Any investment management element of
discount rate. such contracts will be accounted for under IAS 18 '
Revenue'. This requires that investment management fees
Movements in the value placed on the Group's long- (and incremental directly attributable costs) be spread
term assurance business attributable to shareholders, over the period in which services are provided.
grossed up for taxation, are included in other operating
income.
IFRS impact:
Accounting for contracts meeting the IFRS definition of insurance business is
not impacted by IFRS 4.
Accounting for investment products under IAS 39 serves to delay the recognition
of income for a number of reasons. There is a narrower definition of costs that
can be deferred on the sale of investment products. Initial charges on sale of
investment products are deferred and accrued over the expected life of the
product. There is no opportunity to account for the future surpluses on an
embedded value basis.
As a consequence, there was a reduction in equity on transition as the valuation
of the discounted future earnings expected to emerge from the business currently
in force in the balance sheet will decrease. Income will be recognised on these
contracts in later periods due to the change in the valuation basis.
(q) Acceptances
Acceptances are currently accounted for on a net basis. IAS 39 requires the recognition of a liability for
There is no gross up of the amount to be paid and the acceptances from the date of acceptance. A corresponding
amount receivable from the originator and thus no balance asset due from the originator will also be recognised.
appears in the balance sheet in relation to these
products.
IFRS impact:
This gives rise to a gross up of the balance sheet with no impact on equity.
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that
date)
IR GAAP IFRS
(r) Classification of financial liabilities
Under IR GAAP capital instruments that are not shares Financial instruments with an obligation to pay interest
should be treated as liabilities if they involve an or repay principal are classified in the balance sheet
obligation to transfer economic benefits. All other capital as liabilities. Issue expenses of capital instruments
instruments should be reported in shareholders' funds. classified as liabilities are deducted from the proceeds
of issue and the total finance cost is recognised at a
constant rate to the expected maturity date.
Financial instruments with no obligation to pay
interest or repay principal are classified as equity.
With the exception of dividends declared on ordinary
shares, dividends on financial instruments within equity
are accounted for as a movement in shareholders' equity
and taken into account in the calculation of EPS when
declared. The issue costs of financial instruments
classified as equity are deducted from shareholders'
equity.
IFRS impact:
The US $ 250 million non-cumulative preference shares have been classified as
debt while certain subordinated debt issues together with the reserve capital
instruments will be classified as equity.
This is a presentational change that will impact the face of the income
statement and the balance sheet. Although pre-tax profit will be impacted, there
is minimal impact on income attributable to ordinary shareholders. There will be
an impact on income statement ratios including, net interest margin, cost income
ratio and the effective tax rate.
Special purpose audit report
SPECIAL PURPOSE AUDIT REPORT OF KPMG TO ALLIED IRISH BANKS, P.L.C. (THE COMPANY)
ON ITS PRELIMINARY AND INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')
FINANCIAL INFORMATION
In accordance with the terms of our engagement letter we have audited the
accompanying consolidated preliminary IFRS balance sheets of the Company and its
subsidiaries ('the Group') as at 1 January 2004 and 31 December 2004, the
related consolidated preliminary IFRS income statement for the year ended 31
December 2004, the 1 January 2005 consolidated preliminary balance sheet set out
on pages 7 to 8 and the related notes and reconciliations set out on pages 25 to
42 (hereinafter referred to as 'preliminary IFRS financial information').
Included with the preliminary IFRS financial information set out on pages 7 to 8
are the consolidated preliminary balance sheet as at 30 June 2004 and the
related consolidated preliminary income statement for the six-month period then
ended ('the preliminary IFRS interim financial information').We have not audited
this preliminary IFRS interim financial information and therefore it is not
covered by this opinion.
The preliminary IFRS financial information has been prepared by the Group as
part of its transition to IFRS and as described on pages 25 to 26 to establish
the financial position and results of operations of the Group in order to
provide the comparative financial information and necessary opening adjustments
at 1 January 2005 expected to be included in the first complete set of
consolidated IFRS financial statements of the Group for the year ended 31
December 2005.
Respective responsibilities of Directors and KPMG
The Directors of the Company have accepted responsibility for the preparation of
the preliminary IFRS financial information which has been prepared as part of
the Group's conversion to IFRS. Our responsibilities, as independent auditors,
are established in Ireland by the Auditing Practices Board, our profession's
ethical guidance and the terms of our engagement.
Under the terms of engagement we are required to report to you our opinion as to
whether the preliminary IFRS financial information has been properly prepared,
in all material respects, in accordance with the respective accounting policy
notes to the preliminary IFRS financial information. We also report to you if,
in our opinion, we have not received all the information and explanations we
require for our audit.
We read the other information accompanying the preliminary IFRS financial
information and consider whether it is consistent with the preliminary IFRS
financial information. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the
preliminary IFRS financial information.
Our report has been prepared for the Company solely in connection with the
Company's conversion to IFRS. Our report was designed to meet the agreed
requirements of the Company determined by the Company's needs at the time. Our
report should not therefore be regarded as suitable to be used or relied on by
any party wishing to acquire rights against us other than the Company for any
purpose or in any context. Any party other than the Company who chooses to rely
on our report (or any part of it) will do so at its own risk. To the fullest
extent permitted by law, KPMG will accept no responsibility or liability in
respect of our report to any other party.
Basis of audit opinion
We conducted our audit having regard to Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the preliminary IFRS
financial information. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of the
preliminary IFRS financial information, and of whether the accounting policies
are appropriate to the Group's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the preliminary IFRS
financial information is free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the preliminary IFRS
financial information.
Emphasis of matters
Without qualifying our opinion, we draw your attention to the following matters:
- The basis of preparation set out on pages 25 to 26 explains why there is a
possibility that the preliminary IFRS financial information may require
adjustment before being used as the basis of preparing the final consolidated
IFRS financial statements as at 31 December 2005.
- Due to a number of new and revised standards included within the body of
standards that comprise IFRS, there is not yet a significant body of established
practice on which to draw in forming opinions regarding interpretation and
application. Therefore, the full financial effect of reporting under IFRS as it
will be applied and reported on in the Group's first IFRS consolidated financial
statements for the year ended 31 December 2005 may be subject to change.
- As described in the introduction on page 2, as part of its conversion to IFRS,
the Group has prepared the preliminary IFRS financial information for the year
ended 31 December 2004 to establish the financial position and results of
operations of the Group necessary to provide the comparative financial
information expected to be included in the Group's first complete set of IFRS
consolidated financial statements as at 31 December 2005. The preliminary IFRS
financial information does not include comparative financial information for the
prior period.
- As explained in the basis of preparation, no adjustments have been made for
any changes in estimates made at the time of approval of the 2004 consolidated
financial statements under Irish generally accepted accounting principles on
which the preliminary IFRS financial information is based.
- As permitted by IFRS 1, IAS 32, IAS 39 and IFRS 4 have not been applied to the
preliminary IFRS financial information relating to 2004. The 1 January 2005
preliminary IFRS financial information has been prepared on the basis that IAS
32, IAS 39 and IFRS 4 were applied.
Opinion
In our opinion, the accompanying preliminary IFRS financial information has been
properly prepared, in all material respects, in accordance with the basis of
preparation and the provisional accounting policies set out on pages 27 to 37,
which describe how IFRSs have been applied under IFRS 1, including the
assumptions made by the Directors of the Company about the standards and
interpretations expected to be effective, and the policies expected to be
adopted, when they prepare the first complete set of consolidated IFRS financial
statements of the Company for the year to 31 December 2005.
KPMG
Chartered Accountants
Dublin
16 June 2005
Special purpose review report
SPECIAL PURPOSE REVIEW REPORT OF KPMG TO ALLIED IRISH BANKS, P.L.C.('THE
COMPANY') ON ITS PRELIMINARY INTERNATIONAL FINANCIAL REPORTING STANDARDS
('IFRS') INTERIM FINANCIAL INFORMATION
In accordance with the terms of our engagement letter we have reviewed the
accompanying consolidated preliminary IFRS balance sheet of the Company and its
subsidiaries ('the Group') as at 30 June 2004 and the related consolidated
preliminary IFRS income statement for the six month period then ended set out on
pages 43 to 44 and which have been prepared in accordance with the IFRS
measurement and recognition principles as set out in the basis of preparation
and the provisional accounting policies on pages 25 to 37 (hereinafter referred
to as 'the preliminary IFRS interim financial information').
As described on pages 25 to 26, and as part of the Group's transition to IFRS,
the preliminary IFRS interim financial information has been prepared by the
Group in advance of preparing the Company's first consolidated interim report,
in accordance with IFRS measurement and recognition principles, as at and for
six month period to 30 June 2005.
Respective responsibilities of Directors and KPMG
The Directors of the Company have accepted responsibility for the preparation of
the preliminary IFRS interim financial information which has been prepared as
part of the Group's conversion to IFRS. Our responsibilities under the terms of
engagement are to report to you our review conclusions as to whether we are
aware of any material modifications that should be made to the preliminary IFRS
interim financial information which has been prepared, in all material respects,
in accordance with the accounting policy notes to the preliminary IFRS interim
financial information.
We read the other information accompanying the preliminary IFRS interim
financial information and consider whether it is consistent with the preliminary
IFRS interim financial information. We consider the implications for our review
conclusions if we become aware of any apparent misstatements or material
inconsistencies with the preliminary IFRS interim financial information.
Our report has been prepared for the Company solely in connection with the
Company's conversion to IFRS. Our report was designed to meet the agreed
requirements of the Company determined by the Company's needs at the time. Our
report should not therefore be regarded as suitable to be used or relied on by
any party wishing to acquire rights against us other than the Company for any
purpose or in any context. Any party other than the Company who chooses to rely
on our report (or any part of it) will do so at its own risk. To the fullest
extent permitted by law, KPMG will accept no responsibility or liability in
respect of our report to any other party.
Basis of review conclusion
We conducted our review having regard to Bulletin 1999/4: Review of interim
financial information issued by the Auditing Practices Board. A review consists
principally of making enquiries of Group management and applying analytical
procedures to the preliminary IFRS interim financial information and underlying
financial data and, based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A review
is substantially less in scope than an audit performed in accordance with
Auditing Standards and therefore provides a lower level of assurance than an
audit. Accordingly we do not express an audit opinion on the preliminary IFRS
interim financial information.
Emphasis of matters
Without qualifying our review conclusions, we draw your attention to the
following matters:
- The basis of preparation set out on pages 25 to 26 explains why there is a
possibility that the preliminary IFRS interim financial information may require
adjustment before inclusion as comparative information in the Company's interim
report for the six month period to 30 June 2005 when the Company prepares its
first interim report applying the measurement and recognition principles of
IFRS.
- Due to a number of new and revised standards included within the body of
standards that comprise IFRS, there is not yet a significant body of established
practice on which to draw in forming opinions regarding interpretation and
application. Therefore the full financial effect of reporting under IFRS as it
will be applied and reported on in the Group's first consolidated IFRS interim
report as at and for the six month period to 30 June 2005 may be subject to
change.
- The Company has prepared the preliminary IFRS interim financial information
for the six month period ended 30 June 2004 to establish the financial position
and results of operations of the Company necessary to provide the comparative
financial information expected to be included in the Company's first interim
report for the six month period to 30 June 2005. The preliminary IFRS interim
financial information does not itself include comparative financial information
for the prior period.
- As explained in the basis of preparation, no adjustments have been made for
any changes in estimates made at the time of approval of the previous Irish GAAP
interim report for the six month period ended 30 June 2004 on which the
preliminary IFRS interim financial information is based, as required by IFRS 1.
- As permitted by IFRS 1, IAS 32, IAS 39 and IFRS 4 have not been applied to the
preliminary IFRS interim financial information. There has been no related
restatement of the 30 June 2004 balance sheet. Any adjustments will be shown as
an equity movement on 1 January 2005.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the preliminary IFRS interim financial information on pages 7
to 8 as presented for the six month period ended 30 June 2004 which has been
prepared, in all material respects, in accordance with the basis of preparation
and the provisional accounting policies on pages 27 to 37,which describe how the
measurement and recognition principles of IFRS have been applied under IFRS 1,
including the assumptions made by the directors of the Company about the
standards and interpretations expected to be effective, and the policies
expected to be adopted, when they prepare the first complete set of consolidated
IFRS financial statements of the Company for the year to 31 December 2005.
KPMG
Chartered Accountants
Dublin
16 June 2005
Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB)
Trading Update 16 June 2005 - PART 2
Basis of preparation Appendix 1
First time adoption of International Financial Reporting Standards ('IFRS')
Up to and including the year ended 31 December 2004, AIB's primary financial
statements were prepared in accordance with Irish Generally Accepted Accounting
Principles ('IR GAAP'). On 1 January 2005, AIB Group, in common with other
listed entities within the European Union, implemented the requirements of
International Financial Reporting Standards and International Accounting
Standards (collectively, 'IFRS') for the first time and these will be used for
the purpose of preparing financial statements for the year ending 31 December
2005. This document has been prepared based on the recognition and measurement
requirements of IFRS issued by the International Accounting Standards Board
('IASB') and endorsed (or where there is a reasonable expectation of
endorsement) by the European Union ('EU') by 31 December 2005, other than that
in respect of the fair value option as described below.
The IFRS in effect at 31 December 2005 may differ from those applied in the
preparation of the financial information in this document due to decisions that
may be taken by the EU on endorsement, new or amended standards issued by the
IASB, interpretative guidance issued by the International Financial Reporting
Interpretations Committee ('IFRIC') and the requirements of companies
legislation. In addition, as IFRS is currently being applied in Europe for the
first time, certain practices in applying the standards may develop, which may
be different than those adopted in this document. Therefore, the financial
information in this document could be subject to change.
The financial information contained in this document complies with the EU
'carved out' version of IAS 39 'Financial Instruments: Recognition and
Measurement' ('IAS 39') which means that AIB has not availed of the option
within the full IAS 39 to measure certain liabilities at fair value. The
EU-endorsed version does not permit non-trading financial liabilities to be
designated as 'at fair value through profit or loss'. However, it is expected
that proposed amendments to IAS 39 will result in the EU endorsing a revised
version of the standard that would permit such designation in certain
circumstances ('the fair value option'). It is anticipated that the relevant
transitional arrangements would permit designation as at 1 January 2005 for
companies adopting IFRS from that date. Should this option be available, AIB
would consider making use of the proposals where appropriate.
In accordance with IFRS 1 'First-time Adoption of International Financial
Reporting Standards' ('IFRS 1'), there have been no adjustments to the estimates
made at the time of the approval of the IR GAAP interim report for the six month
period ended 30 June 2004 and the financial statements for the year ended 31
December 2004. IFRS 1 provides first time adopters of IFRS with certain
exemptions. IFRS 1 also allows or requires a number of other exceptions to its
general principle that the standards in force at the reporting date should be
applied retrospectively. AIB has availed of certain exemptions as set out below:
-
First time application relating to financial instruments and insurance contracts
AIB has availed of transitional provisions for IAS 32 'Financial Instruments:
Disclosure and Presentation' ('IAS 32'), IAS 39 'Financial Instruments:
Recognition and Measurement' ('IAS 39') and IFRS 4 'Insurance Contracts' ('IFRS
4') and will not present comparative information in accordance with these
standards in its 2005 financial statements. Accordingly, comparative information
for 2004 in respect of financial instruments and insurance contracts will be
prepared on the basis of the Group's accounting policies under IR GAAP.
Share based payments
AIB has implemented the requirements of IFRS 2 'Share Based Payment' ('IFRS 2')
to all equity settled share based payments granted after 7 November 2002 that
had not vested by 1 January 2005.
Property, plant & equipment
AIB has retained its existing carrying value of occupied properties, plant and
equipment at 1 January 2004 as deemed cost, rather than either reverting to
historical cost or carrying out a valuation at the date of transition as
permitted by IFRS 1.
Cumulative exchange differences
AIB has elected to deem cumulative exchange differences on the net investments
in foreign branches and subsidiaries as zero at January 2004, as permitted by
IFRS 1.
Employee benefits
AlB has recognised the cumulative actuarial gains and losses of defined benefit
pension schemes and other post retirement benefits upon transition.
Business combinations
AIB has elected not to apply IFRS 3 'Business Combinations' to business
combinations that arose prior to 1 January 2004.
Derecognition of financial instruments
Financial instruments derecognised prior to 1 January 2004 have not been
re-recognised by the Group under IFRS.
Effects of the transition to IFRS
A description of the differences between IR GAAP and IFRS accounting policies is
set out on pages 10 to 20. Reconciliations of balance sheets prepared under IR
GAAP and IFRS at 1 January 2004, 30 June 2004 and 31 December 2004 are included
on pages 38, 40 and 44. Reconciliations of the profit and loss account prepared
in accordance with IR GAAP and prepared in accordance with IFRS for the periods
ending 30 June 2004 and 31 December 2004 are included on pages 39 and 43. In
addition, a reconciliation of the amount of shareholders' equity at 1 January
2005, before and after the application of IAS 32, IAS 39 and IFRS 4, and an
explanation of the effects of their application on the 1 January 2005 balance
sheet, is presented on pages 41 to 42 and pages 15 to 20.
Provisional IFRS accounting policies Appendix 2
This appendix sets out the Accounting policies that the Group expects to apply
from 1 January 2005. Full details of the accounting policies applied in previous
periods under IRGAAP can be found on pages 64 to 68 of the 2004 Annual Report.
1 Accounting convention
The restated financial information has been presented in accordance with
International Accounting Standards and International Financial Reporting
Standards (collectively 'IFRS') as endorsed by the EU or expected to be
applicable at 31 December 2005.
The financial statements have been prepared in accordance with IFRS as required
by European directives. The financial statements have been prepared under the
historical cost convention, as modified by the revaluation of certain fixed
assets and certain asset and dealing positions.
The preparation of accounts requires management to make estimates and
assumptions that affect the reported amounts of certain assets, liabilities,
revenues and expenses, and disclosures of contingent assets and liabilities.
Since management's judgement involves making estimates concerning the likelihood
of future events, the actual results could differ from those estimates. Some
estimation techniques involve significant amounts of management valuation
judgements, often in areas which are inherently uncertain. The estimation
techniques which are considered to be most complex are in the areas of
impairment of financial assets, share based payments, fair value of financial
assets and liabilities, the impairment of goodwill, the value of the long-term
assurance business, and retirement benefits.
The accounting policies have been consistently applied by Group entities.
2 Basis of consolidation.
The Group financial information includes the accounts of Allied Irish Banks,
p.l.c. (the parent company) and its subsidiary undertakings made up to the end
of the financial year. A subsidiary is one where the Group has the power,
directly or indirectly, to govern the financial and operating policies of the
entity, so as to obtain benefits from its activities. The existence and effect
of potential voting rights that are currently exercisable or convertible are
considered in assessing whether the Group controls the entity.
Subsidiaries are consolidated from the date on which control is transferred to
the Group until the date that control ceases. The Group uses the purchase method
of accounting to account for the acquisition of subsidiary undertakings. The
cost of an acquisition is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of the
transaction, plus costs directly attributable to the acquisition. Identifiable
assets acquired are fair valued at the acquisition date, irrespective of the
extent of any minority interest. The excess of the cost of acquisition over the
fair value of the Group's share of the identifiable net assets acquired is
recorded as goodwill.
Intra-group balances and any unrealised gains and losses, or income and
expenses, arising from intra-group transactions are eliminated on consolidation.
Unrealised losses are eliminated unless the transaction provides evidence of
impairment of the asset transferred.
3 Interests in associated undertakings
An associate is generally one in which the Group's interest is greater than 20%
and less than 50% and in which the Group has significant influence, but not
control over, the entity's operating and financial policies.
Investments in associated undertakings are initially recorded at cost and
increased (or decreased) each year by the Group's share of the post acquisition
net income (or loss), or other movements reflected directly in the equity of the
associated undertaking.
Goodwill arising on the acquisition of an associated undertaking is included in
the carrying amount of the investment (net of any accumulated impairment loss).
When the Group's share of losses in an associate has reduced the carrying amount
to zero, including any other unsecured receivables, the Group does not recognise
further losses, unless it has incurred obligations to make payments on behalf of
the entity.
The Group's share of the results of associates after tax is based on financial
statements made up to a date not earlier than three months before the balance
sheet date, adjusted to conform with the accounting polices of the Group.
Unrealised gains on transactions are eliminated to the extent of the Group's
interest in the investee. Unrealised losses are also eliminated in the same way
as unrealised gains unless the transaction provides evidence of impairment of
the asset transferred.
4 Foreign currency translation
The consolidated financial statements are presented in Euro, which is the
Group's presentational currency.
Items included in the financial statements of each of the Group's entities are
measured using their functional currency, being the currency of the primary
economic environment in which the entity operates.
Transactions and balances
Foreign currency transactions are translated into the appropriate entity's
functional currency using the exchange rates prevailing at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the rate prevailing at the period end. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
retranslation at period end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement except
for qualifying cash flow hedges. Exchange differences on equities and similar
non-monetary items held at fair value through profit or loss, are reported as
part of the fair value gain or loss. Translation differences on equities
classified as available-for-sale financial assets and non-monetary items, are
included directly in equity.
Foreign operations
The results and financial position of all Group entities that have a functional
currency different from the Euro are translated into Euro as follows:
o assets and liabilities including goodwill and fair value adjustments
arising on consolidation of foreign operations are translated at the
closing rate;
o income and expenses are translated into Euro at the average rates of
exchange during the period; and
o all resulting exchange differences are included in cumulative translation
reserves within shareholders' equity.
Exchange differences arising from the translation of the net investment in a
foreign operation, and of borrowings designated as hedges of such investments,
are taken to a separate component of shareholders' equity and included in the
profit or loss on disposal or partial disposal of the foreign operation.
5 Interest income and expense recognition
Interest income and expense is recognised in interest receivable in the income
statement for all interest-bearing financial instruments classified as held to
maturity, available for sale or other loans and advances using the effective
interest method.(what about interest on trading securities) The effective
interest method is a method of calculating the amortised cost of a financial
asset or liability (or group of assets and liabilities) and of allocating the
interest income or interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts the expected future cash
payments or receipts through the expected life of the financial instrument, or
when appropriate, a shorter period, to the net carrying amount of the financial
asset or financial liability. The application of the method has the effect of
recognising income (and expense) receivable (or payable) on the instrument
evenly in proportion to the amount outstanding over the period to maturity or
repayment.
In calculating the effective interest rate, the Group estimates cash flows
(using projections based on its experience of customers' behaviour) considering
all contractual terms of the financial instrument but excluding future credit
losses. The calculation takes into account all fees, including those for early
redemption, and points paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs and all other
premiums and discounts.
All costs associated with mortgage incentive schemes are included in the
effective interest calculation. Fees and commissions payable to third parties in
connection with lending arrangements, where these are direct and incremental
costs related to the issue of a financial instrument, are included in interest
income as part of the effective interest rate.
6 Fee and commission income
Fees and commissions are generally recognised on an accruals basis when the
service has been provided, unless they have been included in the effective
interest rate calculation. Loan syndication fees are recognised as revenue when
the syndication has been completed and the Group has retained no part of the
loan package for itself or retained a part at the same effective interest rate
for the other participants.
Portfolio and other management advisory and service fees are recognised based on
the applicable service contracts. Asset management fees related to investment
funds are recognised over the period the service is provided. The same principle
is applied to the recognition of income from wealth management, financial
planning and custody services that are continuously provided over an extended
period of time.
Commitment fees, together with related direct costs, for loan facilities where
draw down is probable are deferred and recognised as an adjustment to the
effective interest on the loan once drawn. Commitment fees in relation to
facilities where draw down is not probable are recognised over the term of the
commitment.
7 Financial assets
The Group classifies its financial assets in the following categories: -
financial assets at fair value through profit or loss; loans and receivables;
held to maturity investments; and available for sale financial assets.
Purchases and sales of investments are recognised on trade date, being the date
on which the Group commits to purchase or sell the asset. Loans are recognised
when cash is advanced to the borrowers. With the exception of financial assets
at fair value through profit and loss, financial assets are initially recognised
at fair value including direct and incremental transaction costs.
The fair value of assets traded in active markets is based on current bid
prices. In the absence of current bid prices, the Group establishes a fair value
using valuation techniques. These include the use of recent arm's-length
transactions, reference to other similar
instruments, discounted cash flow analysis, option pricing models and other
valuation techniques commonly used by market participants.
Interest is calculated using the effective interest method and credited to the
income statement. Dividends on available-for-sale equity securities are
recognised in the income statement when the entity's right to receive payment is
established. Impairment losses and translation differences on monetary items are
recognised in the income statement.
Financial assets are derecognised when the rights to receive cash flows from the
financial assets have expired or where the Group has transferred substantially
all the risks and rewards of ownership.
Financial assets at fair value through profit or loss
This category has two sub categories:- Financial assets held for trading; and
those at fair value through profit or loss at inception. A financial asset is
classified in this category if it is held primarily for the purpose of selling
in the short term, or if it so designated by management.
The assets are recognised initially at fair value and transaction costs are
taken directly to the income statement. Interest and dividends on assets within
this category are reported in interest income. Gains and losses arising from
changes in fair value are included directly in the income statement within other
financial income.
Derivatives are also classified in this category unless they have been
designated as hedges.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market and which are not
classified as available for sale. They arise when the Group provides money or
services directly to a customer with no intention of trading the loan.
Held to maturity
Held to maturity investments are non-derivative financial assets with fixed or
determinable payments that the Group's management has the intention and ability
to hold to maturity. If the Group was to sell other than an insignificant amount
of held to maturity assets, the entire category would be tainted and would be
required to be reclassified as available for sale.
Available for sale
Available for sale investments are non-derivative financial investments that are
designated as available for sale and are not categorised into any of the other
categories described above. Available for sale investments are those intended to
be held for an indefinite period of time, which may be sold in response to needs
for liquidity or changes in interest rates, exchange rates or equity prices.
Available for sale investments are recognised at fair value including direct and
incremental transaction costs. They are subsequently held at fair value. Gains
and losses arising from changes in fair value are included as a separate
component of equity until sale when the cumulative gain or loss is transferred
to the income statement.
8 Financial liabilities
Financial liabilities are initially recognised at fair value, being their issue
proceeds (fair value of consideration received) net of transaction costs
incurred. Financial liabilities are subsequently measured at amortised cost, any
difference between the proceeds net of transaction costs and the redemption
value is recognised in the income statement using the effective interest method.
The Group will consider applying the fair value option to certain financial
liabilities if this is permitted.
Preference shares, which carry a mandatory coupon, are classified as financial
liabilities. The dividends on these preference shares are recognised in the
income statement as interest expense using the effective interest method.
9 Property, plant & equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and provisions for impairment, if any. Additions and subsequent expenditures are
capitalised only to the extent that they enhance the future economic benefits
expected to be derived from the asset. No depreciation is provided on freehold
land. Property, plant and equipment are depreciated on a straight line basis
over their estimated useful economic lives. Depreciation is calculated based on
the gross carrying amount, less the estimated residual value at the end of its
economic life.
The Group generally uses the following useful lives when calculating
depreciation:
Freehold buildings and long-leasehold property 50 years
Short leasehold property Life of lease, up to 50 years
Costs of adaptation of freehold and leasehold property
Branch properties up to 10 years*
Office properties up to 15 years*
Computers and similar equipment 3 - 5 years
Fixtures and fittings and other equipment 3 - 10 years
*Subject to the maximum remaining life of the lease.
The Group reviews its depreciation rates regularly to take account of any change
in circumstances. When deciding on useful lives and methods, the principal
factors that the Group takes into account are the expected rate of technological
developments and expected market requirements for, and the expected pattern of
usage of, the assets. When reviewing residual values, the Group estimates the
amount that it would currently obtain for the disposal of the asset, after
deducting the estimated cost of disposal if the asset were already of the age
and condition expected at the end of its useful life.
Gains and losses on disposal of property, plant and equipment are included in
the income statement.
10 Intangible assets
Goodwill
Goodwill may arise on the acquisition of subsidiary and associated undertakings.
Purchased goodwill is the excess of the fair value of the purchase consideration
and direct costs of making the acquisition, over the fair value of the Group's
share of the assets acquired and the liabilities and contingent liabilities
assumed on the date of the acquisition. For the purpose of calculating goodwill,
fair values of acquired assets, liabilities and contingent liabilities are
determined by reference to market values or by discounting expected future cash
flows to present value. This discounting is either performed using market rates
or by using risk-free rates and risk adjusted expected future cash flows.
Goodwill is capitalised and reviewed annually for impairment, or more frequently
when there are indications that impairment may have occurred. Goodwill is
allocated to cash-generating units for the purpose of impairment testing.
Goodwill on the acquisitions of associates is included in the carrying amount of
those investments in the consolidated financial statements. Gains and losses on
the disposal of an entity include the carrying amount of the goodwill relating
to the entity sold.
Goodwill previously written off to reserves under IRGAAP has not been reinstated
and will not be included in calculating any subsequent profit or loss on
disposal.
Computer software
Computer software is stated at cost, less amortisation and provisions for
impairment, if any. The identifiable and directly associated external and
internal costs of acquiring and developing software are capitalised where the
software is controlled by the Group, and where it is probable that future
economic benefits that exceed its cost will flow from its use over more than one
year. Costs associated with maintaining software are recognised as an expense
when incurred. Capitalised computer software is amortised over 3 to 5 years.
11 Derivatives and hedge accounting
Derivatives, such as interest rate swaps, options, forward rate agreements are
used for trading and for hedging purposes.
The Group maintains trading positions in a variety of financial instruments
including derivatives. Trading transactions arise as a result of activity
generated by customers while others represent proprietary trading with a view to
generating incremental income.
Non-trading derivative transactions, comprise transactions held for hedging
purposes as part of the Group's risk management strategy, against assets,
liabilities, positions or cash flows, themselves accounted for on an amortised
cost basis.
Derivatives
Derivatives are measured initially at fair value on the date on which the
derivative contract is entered into and subsequently remeasured at fair value.
Fair values are obtained from quoted market prices in active markets, including
recent market transactions, and valuation techniques, including discounted cash
flow models and options pricing models as appropriate. All derivatives are
included in assets when their fair value is positive, and liabilities when their
fair value is negative, unless there is the legal ability and intention to
settle net. Profits or losses are only recognised on initial recognition of
derivatives when there are observable current market transactions or valuation
techniques that are based on observable market inputs.
The best evidence of the fair value of a derivative at initial recognition is
the transaction price (i.e. the fair value of the consideration given or
received) unless the fair value of that instrument is evidenced by comparison
with other observable current market transactions in the same instrument (i.e.
without modification or repackaging) or based on a valuation technique whose
variables include only data from observable markets.
Embedded derivatives
Some hybrid contracts contain both a derivative and a non-derivative component.
In such cases, the derivative component is termed an embedded derivative. Where
the economic characteristics and risks of embedded derivatives are not closely
related to those of the host contract, and the hybrid contract itself is not
carried at fair value through profit and loss, the embedded derivative is
treated as a separate derivative, and reported at fair value with gains and
losses being recognised in the income statement.
Hedging
All derivatives are carried at fair value in the balance sheet and the
accounting treatment of the resulting fair value gain or loss depends on whether
the derivative is designated as a hedging instrument, and if so, the nature of
the item being hedged. Where derivatives are held for risk management purposes,
and when transactions meet the criteria specified in IAS 39, the Group
designates certain derivatives as either:
(1) hedges of the fair value of recognised assets or liabilities or firm
commitments (fair value hedge);
(2) hedges of probable future cash flows attributable to a recognised asset or
liability, or a forecasted transaction (cash flow hedge); or
(3) hedges of a net investment in a foreign operation.
When a financial instrument is designated as a hedge, the Group formally
documents the relationship between the hedging instrument and hedged item as
well as its risk management objectives and its strategy for undertaking the
various hedging transactions. The Group also documents its assessment, both at
hedge inception and on an ongoing basis, of whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in fair
values or cash flows of hedged items.
The Group discontinues hedge accounting when:
a) it is determined that a derivative is not, or has ceased to be, highly
effective as a hedge;
b) the derivative expires, or is sold, terminated, or exercised;
c) the hedged item matures or is sold or repaid; or
d) a forecast transaction is no longer deemed highly probable.
To the extent that the changes in the fair value of the hedging derivative
differ from changes in the fair value of the hedged risk in the hedged item; or
the cumulative change in the fair value of the hedging derivative differs from
the cumulative change in the fair value of expected future cash flows of the
hedged item, the hedge is deemed ineffective. The amount of ineffectiveness,
(taking into account the timing of the expected cash flows, where relevant)
provided it is not so great as to disqualify the entire hedge for hedge
accounting, is recorded in the income statement. In certain circumstances, the
Group may decide to cease hedge accounting even though the hedge relationship
continues to be highly effective by no longer designating the financial
instrument as a hedge.
Fair value hedge accounting
Changes in fair value of derivatives that qualify and are designated as fair
value hedges are recorded in the income statement, together with changes in the
fair value of the hedged asset or liability that are attributable to the hedged
risk. If the hedge no longer meets the criteria for hedge accounting, the fair
value hedging adjustment cumulatively made to the carrying value of the hedged
item is, for items carried at amortised cost, amortised over the period to
maturity of the previously designated hedge relationship using the effective
interest method. For available for sale items this fair value hedging adjustment
remains in equity until the hedged item affects profit or loss. If the hedged
item is sold or repaid, the unamortised fair value adjustment is recognised
immediately in the income statement.
Cash flow hedge accounting
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised initially directly in
shareholders' equity, and recycled to the income statement in the periods when
the hedged item will affect profit or loss. Any ineffective portion of the gain
or loss on the hedging instrument is recognised in the income statement
immediately.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time, remains in equity and is recognised in the income statement
when the forecast transaction arises. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the income statement.
Net investment hedge
Hedges of net investments in foreign operations, including monetary items that
are accounted for as part of the net investment, are accounted for similarly to
cash flow hedges. The effective portion of the gain or loss on the hedging
instrument is recognised directly in equity and the ineffective portion is
recognised immediately in the income statement. The cumulative gain or loss
previously recognised in equity is recognised in the income statement on the
disposal or partial disposal of the foreign operation. Hedges of net investments
may include non-derivative liabilities as well as derivative financial
instruments.
Derivatives that do not qualify for hedge accounting
Certain derivative contracts entered into as economic hedges do not qualify for
hedge accounting. Changes in the fair value of any derivative instrument that do
not qualify for hedge accounting are recognised immediately in the income
statement.
12 Impairment of financial assets
It is Group policy to make provisions for impairment of financial assets to
reflect the losses inherent in those assets at the balance sheet date.
The Group assesses at each balance sheet date whether there is objective
evidence that a financial asset or a portfolio of financial assets is impaired.
A financial asset or portfolio of financial assets is impaired and impairment
losses are incurred if, and only if, there is objective evidence of impairment
as a result of one or more loss events that occurred after the initial
recognition of the asset ('a loss event') and that loss event or events has had
an impact such that the estimated present value of future cash flows is less
than the current carrying value of the financial asset, or portfolio of
financial assets.
Objective evidence that a financial asset, or a portfolio of financial assets,
is impaired includes observable data that comes to the attention of the Group
about the following loss events:
a) significant financial difficulty of the issuer or obligor;
b) a breach of contract, such as a default or delinquency in interest or
principal payments;
c) the granting to the borrower a concession, for economic or legal reasons
relating to the borrower's financial difficulty that the Group would not
otherwise consider;
d) it becomes probable that the borrower will enter bankruptcy or other
financial reorganisation;
e) the disappearance of an active market for that financial asset because of
financial difficulties; or
f) observable data indicating that there is a measurable decrease in the
estimated future cash flows from a portfolio of financial assets since the
initial recognition of those assets, although the decrease cannot yet be
identified with the individual financial assets in the portfolio,
including:
i. adverse changes in the payment status of borrowers in the portfolio;
ii. national or local economic conditions that correlate with defaults on
the assets in the portfolio.
The Group first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, and
individually or collectively for financial assets that are not individually
significant (i.e. individually insignifiant). If the Group determines that no
objective evidence of impairment exists for an individually assessed financial
asset, whether significant or not, it includes the asset in a group of financial
assets with similar credit risk characteristics and includes these performing
assets under the collective "incurred but not reported ('IBNR')"assessment. An
IBNR impairment provision represents an interim step pending the identification
of impairment losses on an individual asset in a group of financial assets. As
soon as information is available that specifically identifies losses on
individually impaired assets in a group, those assets are removed from the
group. Assets that are individually assessed for impairment and for which an
impairment loss is, or continues to be, recognised are not included in a
collective assessment of impairment.
For loans and receivables and assets held to maturity, the amount of impairment
loss is measured as the difference between the asset's carrying amount and the
present value of estimated future cash flows discounted at the asset's original
effective interest rate. The amount of the loss is recognised using an allowance
account and the amount of the loss is included in the income statement.
The calculation of the present value of the estimated future cash flows of a
collateralised financial asset reflects the cash flows that may result from
foreclosure costs for obtaining and selling the collateral, whether or not
foreclosure is probable.
For the purposes of a collective evaluation of impairment, (individually
insignificant impaired assets and IBNR) financial assets are grouped on the
basis of similar risk characteristics. These characteristics are relevant to the
estimation of future cash flows for groups of such assets by being indicative of
the counterparty's ability to pay all amounts due according to the contractual
terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated
for impairment are estimated on the basis of the contractual cash flows of the
assets in the group and historical loss experience for assets with credit risk
characteristics similar to those in the group. Historical loss experience is
adjusted on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss
experience is based and to remove the effects of conditions in the historical
period that do not currently exist.
The methodology and assumptions used for estimating future cash flows are
reviewed regularly to reduce any differences between loss estimates and actual
loss experience.
Following impairment, interest income is recognised using the original effective
rate of interest which was used to discount the future cash flows for the
purpose of measuring the impairment loss. If, in a subsequent period, the amount
of the impairment loss decreases and the decrease can be related objectively to
an event occurring after the impairment was recognised, the previously
recognised impairment loss is reversed by adjusting the allowance account. The
amount of the reversal is recognised in the income statement.
When a loan has been subjected to a specific provision and the prospects of
recovery do not improve, a time will come when it may be concluded that there is
no real prospect of recovery. When this point is reached, the amount of the loan
which is considered to be beyond the prospect of recovery is written off against
the related provision for loan impairment. Subsequent recoveries of amounts
previously written off decrease the amount of the provision for loan impairment
in the income statement.
Assets acquired in exchange for loans and advances in order to achieve an
orderly realisation are accounted for as a disposal of the loan and an
acquisition of an asset. Any further impairment of the assets or business
acquired is treated as an impairment of the relevant asset and not as an
impairment of the original instrument.
In the case of equity instruments classified as available for sale, a
significant or prolonged decline in the fair value of the instrument below its
cost is considered in determining whether impairment exists. Where such evidence
exists, the cumulative net loss that has been previously recognised directly in
equity is removed from equity and recognised in the income statement. Reversals
of impairment of equity shares are not recognised in the income statement and
increases in the fair value of equity shares after impairment are recognised
directly in equity.
In the case of debt instruments classified as available for sale, impairment is
assessed based on the same criteria as all other financial assets. Reversals of
impairment of debt securities are recognised in the income statement.
13 Employee benefits
Retirement benefit obligations
The Group provides employees worldwide with post retirement benefits mainly in
the form of pensions.
The Group provides a number of defined benefit and defined contribution
retirement benefit schemes the majority of which are funded. In addition, the
Group contributes, according to local law in the various countries in which it
operates, to Governmental and other plans which have the characteristics of
defined contribution plans.
Full actuarial valuation of defined benefit schemes are undertaken every three
years and are updated to reflect current conditions at each balance sheet date.
Scheme assets are valued at fair value determined by using current bid prices.
Scheme liabilities are measured on an actuarial basis using the projected unit
credit method and discounted at the current rate of return on a high quality
corporate bond of equivalent term and currency to the liability. The difference
between the fair value of the plan assets and the present value of the defined
benefit obligation at the balance sheet date is recognised in the balance sheet.
Schemes in surplus are shown as assets and schemes in deficit, together with
unfunded schemes are shown as liabilities. Actuarial gains and losses are
recognised immediately in the statement of changes in shareholders' equity.
The cost of providing defined benefit pension schemes to employees, comprising
the current service, past service cost, the expected return on plan assets and
the change in the preset value of scheme liabilities arising from the passage of
time is charged to the income statement within employee expenses.
The cost of the Group's defined contribution schemes, are charged to the income
statement in the accounting period in which they are incurred. Any contributions
unpaid at the balance sheet date are included as a liability. The Group has no
further obligations under these plans once these contributions have been paid.
Short-term employee benefits
Short-term employee benefits, such as salaries, and other benefits, are
accounted for on an accruals basis over the period which employees have provided
services in the year. Bonuses are recognised to the extent that the Group has a
present obligation to its employees that can be measured reliably. The cost of
providing subsidised staff loans and preferential rates on staff deposits is
charged within employee expenses.
Share based compensation
The Group operates a number of share based compensation plans. The fair value of
the employee services received is measured by reference to the fair value of the
shares or share options granted on the date of the grant. The cost of the
employee services received in exchange for the shares or share options granted
is recognised in the income statement over the period during which the employees
become unconditionally entitled to the options, which is the vesting period. The
amount to be expensed is determined by reference to the fair value of the option
granted. The fair value of the options granted is determined using option
pricing models, which take into account the exercise price of the option, the
share price at date of grant of the option, the risk free interest rate, the
expected volatility of the share price over the life of the option and other
relevant factors. Vesting conditions included in the terms of the grant are not
taken into account in estimating fair value except where those terms relate to
market conditions. Non-market vesting conditions are taken into account by
adjusting the number of shares or share options included in the measurement of
the cost of employee services so that ultimately, the amount recognised in the
income statement reflects the number of vested shares or share options. Where
vesting conditions are related to market conditions, the charges for the
services received are recognised regardless of whether or not the market related
vesting condition is met, provided that the non-market vesting conditions are
met.
The expense related to share based payments is credited to shareholders' equity.
Where the share based payment arrangements give rise to the issue of new shares,
the proceeds of issue of the shares are credited to share capital (nominal
amount) and share premium when the options are exercised. When the share based
payment give rise to the reissue of shares from treasury shares the proceeds of
issue are credited to shareholders' equity. In addition there is a transfer
between the share based payment reserve and profit and loss account, reflecting
the cost of the share based payment recognised in the profit and loss account.
14 Non-credit risk provisions
Provisions are recognised for present legal or constructive obligations arising
as consequences of past events where it is probable that transfer of economic
benefit will be necessary to settle the obligation, and it can be reliably
estimated.
When the effect is material, provisions are determined by discounting expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and where appropriate, the risks specific to the
liability.
Payments are deducted from the present value of the provision and interest at
the relevant discount rates is charged annually to interest expense. Changes in
the present value of the liability as a result of movements in interest rates
are included in other financial income. The present value of provisions are
included in other liabilities.
When a leasehold property ceases to be used in the business, provision is made,
where the unavoidable costs of the future obligations relating to the lease are
expected to exceed anticipated income. The provision is calculated using market
rates of interest to reflect the long-term nature of the cash flows.
Restructuring costs
Where the Group has a formal plan for restructuring a business and has raised
valid expectations in the areas affected by the restructuring, by starting to
implement the plan or announcing its main features, provision is made for the
anticipated cost of restructuring, including retirement benefit and redundancy
costs, when an obligation exists. The provision raised is normally utilised
within twelve months. Future operating costs are not provided for.
Legal claims and other contingencies
Provisions are made for legal claims where the Group has a present legal or
constructive obligation as a result of past events and it is more likely than
not that an outflow of resources will be required to settle the obligation and
the amount can be reasonably estimated.
Contingent liabilities are possible obligations whose existence will be
confirmed only by uncertain future events giving rise to present obligations
where the transfer of economic benefit is uncertain or cannot be reliably
measured. Contingent liabilities are not recognised but are disclosed in the
notes to the financial statements unless they are remote.
15 Income tax, including deferred income tax
Income tax, including deferred income tax, on taxable profits is recognised as
an expense in the period in which the profits arise. Income tax recoverable on
tax allowable losses is recognised as an asset only to the extent that it is
regarded as recoverable by offset against current or future taxable profits.
Deferred income tax is provided, using the balance sheet liability method, on
temporary timing differences arising between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax is determined using tax rates based on legislation enacted
or substantially enacted at the balance sheet date and expected to apply when
the deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable
profit will be available against which the temporary differences will be
utilised.
Deferred and current tax assets and liabilities are only offset when they arise
in the same tax reporting group and where there is both the legal right and the
intention to settle on a net basis or to realise the asset and settle the
liability simultaneously.
The principal temporary differences arise from depreciation of property, plant
and equipment, revaluation of certain financial assets and liabilities including
derivative contracts, provisions for pensions and other post retirement benefits
and tax losses carried forward, and in relation to acquisitions, on the
difference between the fair values of the net assets acquired and their tax
base.
Deferred income tax is provided on temporary differences arising from
investments in subsidiaries and associates, except where the timing of the
reversal of the temporary difference is controlled by the Group and it is
probable that the difference will not reverse in the foreseeable future.
Income tax payable on profits, based on the applicable tax law in each
jurisdiction, is recognised as an expense in the period in which the profits
arise. The tax effects of income tax losses available for carry forward are
recognised as an asset when it is probable that future taxable profits will be
available against which these losses can be utilised.
Deferred tax related to items that are charged or credited to equity, is
credited or charged directly to equity and is subsequently recognised in the
income statement together with the deferred gain or loss.
16 Impairment of property, plant and equipment and intangible assets
At each balance sheet date, or more frequently where events or changes in
circumstances dictate, property, plant and equipment and intangible assets, are
assessed for indications of impairment. If indications are present, these assets
are subject to an impairment review. Goodwill is subject to an impairment review
as at the balance sheet date each year. The impairment review comprises a
comparison of the carrying amount of the asset with its recoverable amount. The
recoverable amount is determined as the higher of the net selling price of the
asset and its value in use. Net selling price is calculated by reference to the
amount at which the asset could be disposed of in a binding sale agreement in an
arm's length transaction evidenced by an active market or recent transactions
for similar assets. Value in use is calculated by discounting the expected
future cash flows obtainable as a result of the asset's continued use, including
those resulting from its ultimate disposal, at a market-based discount rate on a
pre-tax basis.
The carrying values of property, plant and equipment and intangible assets are
written down by the amount of any impairment and this loss is recognised in the
income statement in the period in which it occurs. A previously recognised
impairment loss relating to a fixed asset may be reversed in part or in full
when a change in circumstances leads to a change in the estimates used to
determine the fixed asset's recoverable amount. The carrying amount of the fixed
asset will only be increased up to the amount that it would have been had the
original impairment not been recognised. Impairment losses on goodwill are not
reversed. For the purpose of conducting impairment reviews in respect of
goodwill, the recoverable amount is determined as the higher of the net selling
price of the cash-generating unit and its value in use. Cash-generating units
are the lowest level at which management monitors the return on investment on
assets.
17 Collateral & netting
The Group enters into master agreements with counterparties, to ensure that if
an event of default occurs, all amounts outstanding with those counterparties
will be settled on a net basis.
Collateral
The Group obtains collateral in respect of customer liabilities where this is
considered appropriate. The collateral normally takes the form of a lien over
the customer's assets and gives the Group a claim on these assets for both
existing and future liabilities.
The Group also receives collateral in the form of cash or securities in respect
of other credit instruments, such as stock borrowing contracts, and derivative
contracts in order to reduce credit risk. Collateral received in the form of
securities is not recorded on the balance sheet. Collateral received in the form
of cash is recorded on the balance sheet with a corresponding liability or
asset. These items are assigned to deposits received from banks or other
counterparties in the case of cash collateral received, and to loans and
advances to banks or customers in the case of cash collateral paid away. Any
interest payable or receivable arising is recorded as interest payable or
interest income respectively.
Netting
Financial assets and liabilities are offset and the net amount reported in the
balance sheet if, and only if, there is a currently enforceable legal right to
set off the recognised amounts and there is an intention to settle on a net
basis, or to realise an asset and settle the liability simultaneously. This is
not generally the case with master agreements, and the related assets and
liabilities are presented gross in the balance sheet.
18 Financial guarantees
Financial guarantees are given to banks, financial institutions and other bodies
on behalf of customers to secure loans, overdrafts and other banking facilities
('facility guarantees'), and to other parties in connection with the performance
of customers under obligations related to contracts, advance payments made by
other parties, tenders, retentions and the payment of import duties. Financial
guarantees are initially recognised in the financial statements at fair value on
the date that the guarantee was given. Subsequent to initial recognition, the
bank's liabilities under such guarantees are measured at the higher of the
initial measurement, less amortisation calculated to recognise in the income
statement the fee income earned over the period, and the best estimate of the
expenditure required to settle any financial obligation arising as a result of
the guarantees at the balance sheet date.
Any increase in the liability relating to guarantees is taken to the income
statement in Provisions for undrawn contractually committed facilities and
guarantees.
19 Sale and repurchase agreements (including stock borrowing and lending)
Investment and other securities may be lent or sold subject to a commitment to
repurchase them ('repos'). Such securities are retained on the balance sheet
when substantially all the risks and rewards of ownership remain with the Group.
The liability to the counterparty is included separately on the balance sheet as
appropriate.
Similarly, securities purchased subject to a commitment to resell ('reverse
repos'), or where the Group borrows securities, but does not acquire the risks
and rewards of ownership, the transactions are treated as collateralised loans,
and the securities are not included in the balance sheet.
The difference between sale and repurchase price is accrued over the life of the
agreements using the effective interest method. Securities lent to
counterparties are also retained in the financial statements.
Securities borrowed are not recognised in the financial statements, unless these
are sold to third parties, at which point the obligation to repurchase the
securities is recorded as a trading liability at fair value and any subsequent
gain or loss included in Net trading income.
20 Leases
Lessor
Assets leased to customers are classified as finance leases if the lease
agreements transfer substantially all the risks and rewards of ownership, with
or without ultimate legal title. When assets are held subject to a finance
lease, the present value of the lease payments, discounted at the rate of
interest implicit in the lease, is recognised as a receivable. The difference
between the total payments receivable under the lease and the present value of
the receivable is recognised as unearned finance income, which is allocated to
accounting periods under the pre-tax net investment method to reflect a constant
periodic rate of return.
Assets leased to customers are classified as operating leases if the lease
agreements do not transfer substantially all the risks and rewards of ownership.
The leased assets are included within property, plant and equipment on the
Group's balance sheet and depreciation is provided on the depreciable amount of
these assets on a systematic basis over their estimated useful lives. Lease
income is recognised on a straight-line basis over the period of the lease
unless another systematic basis is more appropriate.
Lessee
Operating lease rentals payable are recognised as an expense in the income
statement on a straight line basis over the lease term unless another systematic
basis is more appropriate.
21 Share capital
Share issue costs
Incremental costs directly attributable to the issue of new shares or options or
the acquisition of a business are shown in equity as a deduction, net of tax,
from the proceeds.
Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which
they are approved by the Company's shareholders, or in the case of interim
dividend when it has been approved by the Board of directors. Dividends declared
after the balance sheet date are disclosed in the subsequent events note.
Treasury shares
Where the Company or other members of the consolidated Group purchases the
Company's equity share capital, the consideration paid is deducted from total
shareholders' equity as treasury shares until they are cancelled. Where such
shares are subsequently sold or reissued, any consideration received is included
in shareholders' equity.
22 Insurance and investment contracts
The Group has classified its Long term assurance business in accordance with
IFRS 4 'Insurance Contracts'. Insurance contracts are those contracts containing
significant insurance risk. Tracker bonds which provide for a return of premium
on death are regarded as containing significant insurance risk. Investment
contracts are contracts that do not have significant insurance risk. There are
no contracts with discretionary participating features.
Insurance contracts
The Group accounts for its insurance contracts using the embedded value basis.
The embedded value comprises two components: the net assets attributable to the
Group and the present value of the in-force business ('VIF').The change in the
VIF before tax is accounted for as revenue. The value is estimated as the net
present value of future cash flows attributable to the Group before tax, based
on the market value of the assets at the balance sheet date, using assumptions
that reflect experience and a long-term outlook
for the economy and then discounting at an appropriate risk discount rate.
Insurance contract liabilities are calculated on the modified statutory basis.
Premiums are recognised as revenue when due from the policyholder. Claims are
the cost of all claims arising during the period.
Investment contracts
Investment contracts are primarily unit-linked. The liability is measured at
fair value, which is the bid value of the assets held to match the liability,
less an amount in respect of tax. Revenue in relation to investment management
services is recognised as the services are provided. Premiums and claims are
accounted for directly in the balance sheet as adjustments to the investment
contract liability.
23 Segment reporting
Business segments are distinguishable components of the Group that provide
products or services that are subject to risks and rewards that are different to
those of other business segments. Geographical segments provide products or
services within a particular economic environment that is subject to different
risks and rewards that are different to those of components operating in other
economic environments. The Group has determined that business segments are the
primary reporting segments.
24 Cash and cash equivalents
For the purposes of the cash flow statement, cash comprises cash on hand and
demand deposits, and cash equivalents comprise highly liquid investments that
are convertible into cash with an insignificant risk of changes in value with
original maturities of less than 3 months.
25 Trust activities
The Group commonly acts as trustees and in other fiduciary capacities that
result in the holding or placing of assets on behalf of individuals, trusts,
retirement benefit plans and other institutions. These assets and income arising
thereon are excluded from the financial statements, as they are not assets of
the Group.
Reconciliation of consolidated preliminary balance sheet Appendix 3
As at 1 January 2004
Irish GAAP Consol- Associated Finance Software Taxation Intangible Dividends Share Employee IFRS
31 December idation under- Leases assets & based benefits 1 Jan-
& uary
2003 takings goodwill payments other 2004
(a) (b) (c) (d) (f) (h) (i) (j) Total
EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m
Assets
Cash and balances
at central banks 838 - - - - - - - - - 838
Items in course
of collection 339 - - - - - - - - - 339
Central government
bills and other
eligible 45 - - - - - - - - - 45
bills
Loans and
advances to banks 2,633 - - - - - - - - - 2,633
Loans and advances
to customers 50,490 719 - (118) - - - - - - 51,091
Securitised
assets 203 (203) - - - - - - - - -
Debt securities 18,127 239 - - - - - - - - 18,366
Equity shares 180 1,120 - - - - - - - - 1,300
Interests in
associated
undertakings 1,361 - (5) - - (5) 4 - 6 - 1,361
Intangible
assets and
goodwill 420 - - - 117 - - - - - 537
Property, plant
and equipment 792 49 - - (88) - - - - - 753
Other assets 1,507 329 - - (13) 20 - - - - 1,843
Deferred
taxation 174 - - 1 - (151) - - - 137 161
Prepayments and
accrued income 636 - - - - - - - - - 636
Long term
assurance business
attributable to 405 (405) - - - - - - - - -
shareholders
Long term assurance
business
attributable to 2,810 (2,810) - - - - - - - - -
policyholders
Total assets 80,960 (962) (5) (117) 16 (136) 4 - 6 137 79,903
Liabilities
Deposits by banks 18,094 - - - - - - - - - 18,094
Customer accounts 44,612 (799) - - - - - - - - 43,813
Investment
contract
liabilities - 2,085 - - - - - - - - 2,085
Debt securities
in issue 3,489 - - - - - - - - - 3,489
Insurance contract
liabilities - 799 - - - - - - - - 799
Current taxation - 3 - - - 200 - - - - 203
Other liabilities 3,144 (146) - (116) - (169) - (298) - 17 2,432
Accruals and
deferred income 595 (65) - - - - - - (4) 4 530
Retirement benefit
liabilities 502 - - - - - - - - 181 683
Provisions for
liabilities and
charges 87 - - - - - - - - - 87
Deferred taxation 142 30 - - 3 (122) - - 1 - 54
Subordinated
liabilities 2,130 - - - - - - - - - 2,130
Long term
assurance business
attributable to 2,869 (2,869) - - - - - - - - -
policyholders
Total liabilities 75,664 (962) - (116) 3 (91) - (298) (3) 202 74,399
Share capital 290 - - - - - - - - - 290
Share premium
account 1,694 - - - - - - - - - 1,694
Other equity
interests 196 - - - - - - - - - 196
Reserves 951 - - - - (24) - - - - 927
Profit and loss
account 2,007 - (5) (1) 13 (21) 4 298 9 (65) 2,239
Shareholders'
equity 5,138 - (5) (1) 13 (45) 4 298 9 (65) 5,346
Equity and non-
equity minority
interests in 158 - - - - - - - - - 158
subsidiaries
Total shareholders'
equity including
minority 5,296 - (5) (1) 13 (45) 4 298 9 (65) 5,504
interests
Total liabilities,
shareholders'
equity and 80,960 (962) (5) (117) 16 (136) 4 - 6 137 79,903
minority
interests
Reconciliation of consolidated preliminary income statement Appendix 4
Year ended 31 December 2004
Irish GAAP Consol- Associated Finance Software Taxation Intangible Dividends Share Employee IFRS
idation under- leases assets & based benefits
takings goodwill payments &
other
(a) (b) (c) (d) (f) (h) (i) (j)
EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m
Interest and
similar income 4,006 19 - 2 - - - - - 8 4,035
Interest expense
and similar
charges 1,970 (45) - - - - - - - (24) 1,901
Net interest
income 2,036 64 - 2 - - - - - 32 2,134
Other finance
income 18 - - - - - - - - (18) -
Dividend income 27 33 - - - - - - - - 60
Fees and
commissions
income 1,031 20 - - - - - - - - 1,051
Fees and
commissions
expense (131) (5) - - - - - - - - (136)
Dealing profits 96 139 - - - - - - - - 235
Other operating
income 187 79 - - - - - - - (2) 264
Other income 1,210 266 - - - - - - - (2) 1,474
Total operating
income 3,264 330 - 2 - - - - - 12 3,608
Insurance
claims - 309 - - - - - - - - 309
Administrative
expenses 1,713 25 - - (14) - - - 4 11 1,739
Integration
and
restructuring
costs 9 - - - - - - - - - 9
Depreciation of
property, plant
and 125 1 - - (59) - - - - - 67
equipment
Amortisation/
impairment of
intangible 39 - - - 66 - (26) - - - 79
assets
& goodwill
Total operating
expenses 1,886 26 - - (7) - (26) - 4 11 1,894
Group operating
profit before 1,378 (5) - 2 7 - 26 - (4) 1 1,405
provisions
Impairment loss
on loans and
advances (116) 2 - - - - - - - - (114)
Provisions for
contingent
liabilities (20) - - - - - - - - - (20)
and commitments
Amounts written
off fixed assets 1 - - - - - - - - - 1
Group operating
profit 1,243 (3) - 2 7 - 26 - (4) 1 1,272
Share of
results of
associates and 201 - (60) - - (5) 1 - (5) - 132
joint ventures
Amortisation of
goodwill on
acquisition (52) - - - - - 52 - - - -
of associates
Profit on
disposal of
property 9 - - - - - - - - - 9
Profit on
disposal of
business 17 - - - - - - - - - 17
Group profit
before taxation 1,418 (3) (60) 2 7 (5) 79 - (9) 1 1,430
Taxation 336 (3) (61) - 1 (1) - - - - 272
Group profit
after taxation 1,082 - 1 2 6 (4) 79 - (9) 1 1,158
Profit
attributable to
minority 30 - - - - - - (2) - 1 29
interests
Preference
dividends 5 - - - - - - (1) - - 4
35 - - - - - - (3) - 1 33
Profit attributable
to ordinary 1,047 - 1 2 6 (4) 79 3 (9) - 1,125
shareholders
Reconciliation of consolidated preliminary balance sheet Appendix 4
As at 31 December 2004
Irish Consol- Associated Finance Software Taxation Intangible Dividends Share Employee IFRS
GAAP 31
31 December idation under- Leases assets & based benefits December
2004 takings goodwill payments & other 2004
(a) (b) (c) (d) (f) (h) (i) (j) Total
EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m
Assets
Cash and balances
at central banks 887 - - - - - - - - - 887
Items in course
of collection 368 - - - - - - - - - 368
Central government
bills and other - - - - - - - - - - -
eligible bills
Loans and
advances to banks 2,320 220 - - - - - - - - 2,540
Loans and advances
to customers 64,836 - - (98) - - - - - - 64,738
Securitised
assets - - - - - - - - - - -
Debt securities 24,076 425 - - - - - - - - 24,501
Equity shares 195 1,446 - - - - - - - - 1,641
Interests in
associated
undertakings 1,317 - 12 - - (9) 52 - 7 - 1,379
Intangible
assets and
goodwill 380 - - - 133 - 27 - - - 540
Property, plant
and equipment 785 51 - - (91) - - - - - 745
Other assets 2,247 366 - - (18) 27 - - - - 2,622
Deferred
taxation 198 - - 1 - (137) - - - 166 228
Prepayments and
accrued income 918 - - - - - - - 2 - 920
Long term
assurance
business 467 (467) - - - - - - - - -
attributable to
shareholders
Long term
assurance
business 3,246 (3,246) - - - - - - - - -
attributable to
policyholders
Total assets 102,240 (1,205) 12 (97) 24 (119) 79 - 9 166 101,109
Liabilities
Deposits by
banks 20,428 - - - - - - - - - 20,428
Customer
accounts 51,397 (1,246) - - - - - - - - 50,151
Investment
contract
liabilities - 2,422 - - - - - - - - 2,422
Debt securities
in issue 11,805 - - - - - - - - - 11,805
Insurance
contract
liabilities - 864 - - - - - - - - 864
Current taxation - - - - - 175 - - - - 175
Other
liabilities 3,900 41 - (98) - (137) - (334) - 16 3,388
Accruals and
deferred income 911 - - - - - - - (2) 4 913
Retirement
benefit
liabilities 676 - - - - - - - - 210 886
Provisions for
liabilities and
charges 122 - - - - - - - - - 122
Deferred taxation 123 34 - - 4 (110) - - 1 - 52
Subordinated
liabilities 2,765 - - - - - - - - - 2,765
Long term
assurance
business 3,320 (3,320) - - - - - - - - -
attributable
to policyholders
Total
liabilities 95,447 (1,205) - (98) 4 (72) - (334) (1) 230 93,971
Share capital 294 - - - - - - - - - 294
Share premium
account 1,693 - - - - - - - - - 1,693
Other equity
interests 182 - - - - - - - - - 182
Reserves 977 - - - - (23) - - - - 954
Profit and loss
account 2,435 - 12 1 20 (24) 79 336 10 (65) 2,804
Shareholders'
equity 5,581 - 12 1 20 (47) 79 336 10 (65) 5,927
Equity and
non-equity
minority 1,212 - - - - - - (2) - 1 1,211
interests in
subsidiaries
Total
shareholders'
equity
including 6,793 - 12 1 20 (47) 79 334 10 (64) 7,138
minority
interests
Total
liabilities,
shareholders'
equity and (1,205) 12 (97) 24 (119) 79 - 9 166 101,109 102,240
minority
interests
Reconciliation of consolidated preliminary balance sheet Appendix 5
(including IAS 32, IAS 39 and IFRS 4)
As at 1 January 2005
IFRS Loan Loan Financial Derivatives Netting Long-term Acceptances Financial IFRS
31 December origination impairment instruments assurance liabilities 1 Jan
2004 business uary
(k) (l) (m) (n) (o) (p) (q) (r) 2005
Total
EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m
Assets
Cash and balances
at central banks 887 - - - - - - - - 887
Items in course
of collection 368 - - - - - - - - 368
Trading
portfolio assets - - - 7,957 - - - - - 7,957
Assets held at
fair value through - - - 1,871 - - - - - 1,871
profit and loss
Derivative
financial
instruments - - - 1,576 162 843 - - - 2,581
Loans and
advances to
banks 2,540 - - (2) - - - - - 2,538
Loans and
advances to
customers 64,738 (111) 146 919 - - - - - 65,692
Debt
securities 24,501 - - (24,501) - - - - - -
Equity shares 1,641 - - (1,641) - - - - - -
Financial
instruments - - - 15,720 - - - - - 15,720
Interests in
associated 1,379 - 17 (1) - - - - - 1,395
undertakings
Intangible
fixed assets 540 - - - - - - - - 540
Property, plant
and equipment 745 - - - - - - - - 745
Other assets 2,622 - - (1,576) 12 601 (211) 12 - 1,460
Deferred taxation 228 - (24) - - - - - - 204
Prepayments and
accrued income 920 - - - (59) - - - - 861
Total assets 101,109 (111) 139 322 115 1,444 (211) 12 - 102,819
Reconciliation of consolidated preliminary balance sheet Appendix 5
(including IAS 32, IAS 39 and IFRS 4)
As at 1 January 2005
IFRS Loan Loan Financial Derivatives Netting Long-term Acceptances Financial IFRS
31 origination impairment instruments assurance liabilities 1
December January
2004 business 2005
(k) (l) (m) (n) (o) (p) (q) (r) Total
EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m
Liabilities
Deposits by
banks 20,428 - - - - - - - - 20,428
Customer
accounts 50,151 - - - - - - - - 50,151
Trading
portfolio
liabilities - - - 332 - - - - - 332
Derivative
financial
instruments - - - 1,475 223 843 - - - 2,541
Investment
contract
liabilities 2,422 - - - - - - - - 2,422
Debt
securities in
issue 11,805 - - - - - - - - 11,805
Insurance
contract
liabilities 864 - - - - 601 - - - 1,465
Current
taxation 175 - - 22 - - - - - 197
Other
liabilities 3,388 - - (1,807) - - 12 - 1,593
Accruals and
deferred income 913 (26) - - (151) - - - (36) 700
Retirement
benefit
liabilities 886 - - - - - - - - 886
Provisions for
liabilities and
charges 122 - - - - - - - - 122
Deferred
taxation 52 (20) 27 5 - (26) - - 38
Subordinated
liabilities 2,765 - - - - - - - (587) 2,178
Total
liabilities 93,971 (46) - 49 77 1,444 (26) 12 (623) 94,858
Share capital 294 - - - - - - - - 294
Share premium
account 1,693 - - - - - - - - 1,693
Other equity
interests 182 - - - - - - - 588 770
Reserves 954 - - 136 254 - (185) - - 1,159
Profit and
loss account 2,804 (65) 139 137 (216) - - - 35 2,834
Shareholders'
equity 5,927 (65) 139 273 38 - (185) - 623 6,750
Equity and
non-equity
minority
interests 1,211 - - - - - - - - 1,211
in subsidiaries
Total
shareholders'
equity
including
minority
interests 7,138 (65) 139 273 38 - (185) - 623 7,961
Total
liabilities,
shareholders'
equity and
minority
interests 101,109 (111) 139 322 115 1,444 (211) 12 - 102,819
Reconciliation of consolidated preliminary income statement Appendix 6
(unaudited)
Half-year ended 30 June 2004
Irish GAAP Consol- Associated Finance Software Taxation Intangible Dividends Share Employee IFRS
idation under- leases assets & based benefits
takings goodwill payments & other
(a) (b) (c) (d) (f) (h) (i) (j)
EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m
Interest and similar
income 1,826 7 - 1 - - - - - 4 1,838
Interest expense and
similar charges 849 21 - - - - - - - 11 817
Net interest income 977 28 - 1 - - - - - 15 1,021
Other finance income 9 - - - - - - - - (9) -
Dividend income 17 21 - - - - - - - - 38
Fees and commissions
income 486 21 - - - - - - - - 507
Fees and commissions
expense (63) (2) - - - - - - - - (65)
Dealing profits 40 63 - - - - - - - - 103
Other operating income 105 38 - - - - - - - (1) 142
Other income 585 141 - - - - - - - (1) 725
Total operating income 1,571 169 - 1 - - - - - 5 1,746
Insurance claims - 156 - - - - - - - - 156
Administrative expenses 819 13 - - (6) - - - 2 5 833
Depreciation of property,
plant and equipment 61 - - - (29) - - - - - 32
Amortisation/impairment of
intangible assets
& goodwill 15 - - - 32 - (15) - - - 32
Total operating expenses 895 13 - - (3) - (15) - 2 5 897
Group operating profit
before provisions 676 - - 1 3 - 15 - (2) - 693
Impairment loss on
loans and advances (55) - - - - - - - - - (55)
Provisions for
contingent liabilities
and commitments (8) - - - - - - - - - (8)
Amounts written off
fixed assets - - - - - - - - - - -
Group operating profit 613 - - 1 3 - 15 - (2) - 630
Share of results of
associates and
joint ventures 98 - (31) - - (2) - - (3) - 62
Amortisation of goodwill
on acquisition of
associates (26) - - - - - 26 - - - -
Profit on disposal of
property 2 - - - - - - - - - 2
Profit on disposal of
business 12 - - - - - - - - - 12
Group profit before
taxation 699 - (31) 1 3 (2) 41 - (5) - 706
Taxation 175 - (31) - 1 - - - - - 145
Group profit after
taxation 524 - - 1 2 (2) 41 - (5) - 561
Profit attributable to
minority interests 17 - - - - - - - - - 17
Preference dividends 2 - - - - - - - - - 2
19 - - - - - - - - - 19
Profit attributable to
shareholders 505 - - 1 2 (2) 41 - (5) - 542
Reconciliation of consolidated preliminary balance sheet (unaudited) Appendix 6
As at 30 June 2004
Irish GAAP Consol- Asso- Finance Software Taxation Intangible Dividends Share Employee IFRS
30 June idation ciated Leases assets & based benefits & 30 June
2004 under goodwill payments other 2004
takings
(a) (b) (c) (d) (f) (h) (i) (j)
EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m EUR m
Assets
Cash and balances
at central banks 599 - - - - - - - - - 599
Items in course of
collection 625 - - - - - - - - - 625
Central government bills
and other eligible bills 153 - - - - - - - - - 153
Loans and advances to
banks 2,741 - - - - - - - - - 2,741
Loans and advances to
customers 58,502 876 - (120) - - - - - - 59,258
Securitised assets 205 (205) - - - - - - - - -
Debt securities 23,974 254 - - - - - - - - 24,228
Equity shares 178 1,292 - - - - - - - - 1,470
Interests in
associated
undertakings 1,435 - (5) - - (8) 31 - 6 - 1,459
Intangible assets
and goodwill 406 - - - 113 - 15 - - - 534
Property, plant and
equipment 786 50 - - (81) - - - - - 755
Other assets 1,471 346 - - (13) 20 - - - - 1,824
Deferred taxation 179 - - - - (146) - - - 133 166
Prepayments and
accrued income 813 - - - - - - - 2 - 815
Long term assurance
business attributable
to shareholders 426 (426) - - - - - - - - -
Long term assurance
business attributable
to policyholders 3,057 (3,057) - - - - - - - - -
Total assets 95,550 (870) (5) (120) 19 (134) 46 - 8 133 94,627
Liabilities
Deposits by banks 23,838 - - - - - - - - - 23,838
Customer accounts 48,606 (866) - - - - - - - - 47,740
Investment contract
liabilities - 2,344 - - - - - - - - 2,344
Debt securities in
issue 6,826 - - - - - - - - - 6,826
Insurance contract
liabilities - 733 - - - - - - - - 733
Current taxation - 1 - - - 208 - - - - 209
Other liabilities 3,628 - - (120) - (178) - (181) - 17 3,166
Accruals and deferred
income 732 - - - - - - - (2) 4 734
Retirement benefit
liabilities 448 - - - - - - - - 176 624
Provisions for
liabilities and charges 115 - - - - - - - - - 115
Deferred taxation 138 32 - - 3 (117) - - 1 - 57
Subordinated
liabilities 2,170 - - - - - - - - - 2,170
Long term assurance
business attributable
to policyholders 3,114 (3,114) - - - - - - - - -
Total liabilities 89,615 (870) - (120) 3 (87) - (181) (1) 197 88,556
Share capital 293 - - - - - - - - - 293
Share premium account 1,694 - - - - - - - - - 1,694
Other equity interests 203 - - - - - - - - - 203
Reserves 989 - - - - (24) - - - - 965
Profit and loss
account 2,576 - (5) - 16 (23) 46 181 9 (64) 2,736
Shareholders' equity 5,755 - (5) - 16 (47) 46 181 9 (64) 5,891
Equity and non-equity
minority interests in
subsidiaries 180 - - - - - - - - - 180
Total shareholders'
equity including
minority interests 5,935 - (5) - 16 (47) 46 181 9 (64) 6,071
Total liabilities,
shareholders' equity
and minority
interests 95,550 (870) (5) (120) 19 (134) 46 - 8 133 94,627
Consolidated pro-forma income statement Appendix 7
Pro-forma Pro-forma
IFRS IFRS
year half-year
31 December 30 June
2004 2004
EUR m EUR m
Net interest income 2,254 1,080
Other income 1,348 669
Total operating income 3,602 1,749
Insurance claims 309 156
Total operating expenses 1,893 896
Provisions 133 63
Group operating profit 1,267 634
Share of operating profit of associated undertakings 132 62
Profit on disposal of property 9 2
Profit on disposal of businesses 17 12
Group profit on ordinary activities before taxation 1,425 710
Taxation on ordinary activities 264 139
Group profit on ordinary activities after taxation 1,161 571
Profit attributable to minority interests 31 17
Dividends on non-equity instruments 47 25
78 42
Profit attributable to the ordinary shareholders of Allied Irish Banks, p.l.c. 1,083 529
Pro-forma earnings per EUR 0.32 ordinary share - basic 127.1c 62.4c
Summarised IFRS segmental pro-forma information Appendix 7
Year 31 December 2004
AIB Bank AIB Bank Capital Poland Group Total
ROI GB&NI Markets
Segmental information EUR m EUR m EUR m EUR m EUR m EUR m
Operations by business segments
Net interest income 1,207 447 396 180 24 2,254
Other income 643 142 345 180 38 1,348
Total operating income 1,850 589 741 360 62 3,602
Insurance claims 309 - - - - 309
Total operating expenses 839 303 403 245 103 1,893
Provisions 44 13 29 29 18 133
Group operating profit/(loss) 658 273 309 86 (59) 1,267
Share of operating (loss)/profit of
associated undertakings (1) - 4 1 128 132
Profit on disposal of property 7 1 - 1 - 9
Profit on disposal of businesses - - 4 13 - 17
Group profit on ordinary activities
before taxation 664 274 317 101 69 1,425
Half-year 30 June
2004
AIB Bank AIB Bank Capital Poland Group Total
ROI GB&NI Markets
Segmental information EUR m EUR m EUR m EUR m EUR m EUR m
Operations by business segments
Net interest income 585 215 192 84 4 1,080
Other income 308 71 162 91 37 669
Total operating income 893 286 354 175 41 1,749
Insurance claims 156 - - - - 156
Total operating expenses 406 150 185 118 37 896
Provisions 28 (3) 17 21 - 63
Group operating profit 303 139 152 36 4 634
Share of operating profit of
associated undertakings - - 3 - 59 62
Profit on disposal of property - 1 - 1 - 2
Profit on disposal of businesses - - - 12 - 12
Group profit on ordinary activities
before taxation 303 140 155 49 63 710
Reconciliation of pro-forma consolidated Appendix 7 income statement
Year 31 December 2004
IFRS EIR Insurance Financial IFRS
Audited instruments pro-forma
EUR m EUR m EUR m EUR m EUR m
Net interest income 2,134 73 - 47 2,254
Other income 1,474 (102) (24) - 1,348
Total operating income 3,608 (29) (24) 47 3,602
Insurance claims 309 - - - 309
Total operating expenses 1,894 (1) - - 1,893
Provisions 133 - - - 133
Group operating profit/(loss) 1,272 (28) (24) 47 1,267
Share of operating profit/(loss) of
associated undertakings 132 - - - 132
Profit on disposal of property 9 - - - 9
Profit on disposal of businesses 17 - - - 17
Group profit on ordinary activities
before taxation 1,430 (28) (24) 47 1,425
Half-year 30 June 2004
IFRS EIR Insurance Financial IFRS
Unaudited instruments pro-forma
EUR m EUR m EUR m EUR m EUR m
Net interest income 1,021 35 - 24 1,080
Other income 725 (54) (2) - 669
Total operating income 1,746 (19) (2) 24 1,749
Insurance claims 156 - - - 156
Total operating expenses 897 (1) - - 896
Provisions 63 - - - 63
Group operating profit/(loss) 630 (18) (2) 24 634
Share of operating profit of
associated undertakings 62 - - - 62
Profit on disposal of property 2 - - - 2
Profit on disposal of businesses 12 - - - 12
Group profit on ordinary activities
before taxation 706 (18) (2) 24 710
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorised.
ALLIED IRISH BANKS, p.l.c.
(Registrant)
Date 16 June, 2005 By: ___________________
Gary Kennedy
Group Director, Finance,
Risk and Enterprise
Technology
Allied Irish Banks, p.l.c.