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 20 February, 2008
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- ________
Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB)
HIGHLIGHTS - AIB GROUP ANNUAL RESULTS 2007
Basic earnings per share EUR 218.0c
less profit on disposal/development of property(1) EUR (12.1c)
adjust for hedge volatility(2) EUR -
Adjusted basic earnings per share EUR 205.9c up 13%(3)
Divisional operating profit performance(4)
- AIB Bank ROI up 14%
- Capital Markets up 6%
- AIB Bank UK up 20%
- Poland up 29%
- M&T US$ contribution down 7%
Income/cost gap +3%
Cost income ratio down 1.7% to 51.8%
Bad debt provision charge 0.09%, down from 0.12% in 2006
Return on equity 21.8%
Tier 1 capital ratio 7.5%
Total dividend of EUR 79.0c, up 10%
AIB Group Chief Executive Eugene Sheehy said:
'AIB delivered a strong performance in 2007, despite adverse changes in
worldwide banking. This performance reflects the hard work, commitment and
loyalty of our people. We are serving a growing number of customers in our high
quality domestic and international franchises. The broad base and resilience of
our business is a hallmark of AIB which positions us to deliver profitable
growth in the more challenging operating environment for 2008'.
(1) Includes construction contract income (EUR 48 million after tax) and
profit on sale of 22 branches in the Republic of Ireland
(EUR 58 million after tax).
(2) The impact of hedge volatility (hedging ineffectiveness and derivative
volatility) was negligible in 2007.
(3) A 13% increase compared with EUR 182.8c for the year to December 2006
(see note 15 of this release).
(4) Operating profit excludes profit from disposal of property/businesses,
construction contract income and associated undertakings. The percentage
increase excludes the impact of exchange rate movements on the translation of
foreign locations' profit.
Allied Irish Banks, p.l.c.
Dividend
The Board is recommending a final dividend of EUR 51.2c per share payable on 23
April 2008 to shareholders on the Company's register of members at the close of
business on 29 February 2008. The final dividend, together with the interim
dividend of EUR 27.8c per share, amounts to a total dividend of EUR 79.0c per
share, an increase of 10% on 2006.
For further information please contact:
John O'Donnell Alan Kelly Catherine Burke
Group Finance Director General Manager, Group Finance Head of Group Corporate Relations
Bankcentre Bankcentre Bankcentre
Dublin Dublin Dublin
353-1-660-0311 353-1-660-0311 353-1-660-0311
Ext. 14412 Ext. 12162 Ext. 13894
Forward-looking statements
A number of statements we make in this document will not be based on historical
fact, but will be 'forward-looking' statements within the meaning of the United
States Private Securities Litigation Reform Act of 1995. Actual results may
differ materially from those projected in the 'forward-looking' statements.
Factors that could cause actual results to differ materially from those in the '
forward-looking' statements include, but are not limited to, global, national,
regional economic conditions, levels of market interest rates, credit and other
risks of lending and investment activities, competitive and regulatory factors
and technology change. Any 'forward-looking' statements made by or on behalf of
the Group speak only as of the date they are made.
Financial highlights
for the year ended 31 December 2007
31 December 31 December
2007 2006
EURm EURm
Results
Total operating income 4,868 4,326
Operating profit 2,248 1,908
Profit before taxation - continuing operations 2,508 2,615
Profit attributable to equity holders of the parent 1,949 2,185
Per EUR 0.32 ordinary share
Earnings - basic (note 14(a)) 218.0c 246.8c
Earnings - diluted (note 14(b)) 216.4c 244.6c
Dividend 79.0c 71.8c
Dividend payout 36% 29%
Net assets EUR 10.61 EUR 9.28
Performance measures
Return on average total assets 1.21% 1.63%
Return on average ordinary shareholders' equity 21.8% 29.0%
Balance sheet
Total assets 177,862 158,526
Ordinary shareholders' equity 9,330 8,108
Loans and receivables to banks and customers 137,068 120,015
Deposits(1) 153,563 136,839
Capital ratios(2)
Tier 1 capital 7.5% 8.2%
Total capital 10.1% 11.1%
(1) Deposits by banks, customer accounts and debt securities in issue.
(2) The final dividend of EUR 451m has been taken into account in the
calculation of the Tier 1 and Total capital ratios. The Financial Regulator
issued a requirement that a Prudential Filter be applied to proposed final
dividends with effect from July 2007. If applied at 31 December 2006, the Tier 1
and Total capital ratios would be 7.9% and 10.8% respectively.
Allied Irish Banks, p.l.c.
Group Headquarters &
Registered Office
Bankcentre, Ballsbridge
Dublin 4, Ireland
Telephone (01) 6600311
Registered number 24173
Consolidated income statement
for the year ended 31 December 2007
2007 2006
Notes EURm EURm
Interest and similar income 3 9,340 6,928
Interest expense and similar charges 4 5,922 3,929
Net interest income 3,418 2,999
Dividend income 5 31 23
Fee and commission income 6 1,453 1,235
Fee and commission expense 6 (197) (161)
Net trading income 7 74 173
Other operating income 8 89 57
Other income 1,450 1,327
Total operating income 4,868 4,326
Administrative expenses 9 2,376 2,174
Amortisation of intangible assets 60 53
Depreciation of property, plant and equipment 85 87
Total operating expenses 2,521 2,314
Operating profit before provisions 2,347 2,012
Provisions for impairment of loans and receivables 106 106 118
Provisions for liabilities and commitments (8) (15)
Amounts written off financial investments available for 1 1
sale
Operating profit 2,248 1,908
Associated undertakings 128 167
Profit on disposal of property 10 76 365
Construction contract income 11 55 96
Profit on disposal of businesses 12 1 79
Profit before taxation - continuing operations 2,508 2,615
Income tax expense - continuing operations 13 442 433
Profit after taxation - continuing operations 2,066 2,182
Discontinued operation, net of taxation 1 - 116
Profit for the period 2,066 2,298
Attributable to:
Equity holders of the parent 1,949 2,185
Minority interests in subsidiaries 117 113
2,066 2,298
Basic earnings per share - continuing operations 14(c) 218.0c 233.5c
Basic earnings per share - discontinued operations - 13.3c
Total 14(a) 218.0c 246.8c
Diluted earnings per share - continuing operations 14(d) 216.4c 231.4c
Diluted earnings per share - discontinued operations - 13.2c
Total 14(b) 216.4c 244.6c
Consolidated balance sheet
as at 31 December 2007
31 December 31 December
2007 2006
EURm EURm
Assets
Cash and balances at central banks 1,264 989
Treasury bills and other eligible bills 15 196
Items in course of collection 383 527
Trading portfolio financial assets 16 8,256 8,953
Derivative financial instruments 22 4,557 2,890
Loans and receivables to banks 9,465 12,900
Loans and receivables to customers 17 127,603 107,115
Financial investments available for sale 19 20,969 19,665
Interests in associated undertakings 1,682 1,792
Intangible assets and goodwill 636 550
Property, plant and equipment 608 593
Other assets 786 1,117
Current taxation 2 17
Deferred taxation 254 256
Prepayments and accrued income 1,143 927
Disposal group and assets classified as held for sale 239 39
Total assets 177,862 158,526
Liabilities
Deposits by banks 30,389 33,433
Customer accounts 20 81,308 74,875
Trading portfolio financial liabilities 194 191
Derivative financial instruments 22 4,142 2,531
Debt securities in issue 41,866 28,531
Current taxation 181 112
Deferred taxation 60 -
Other liabilities 1,473 1,757
Accruals and deferred income 1,808 1,410
Retirement benefit liabilities 423 937
Provisions for liabilities and commitments 74 93
Subordinated liabilities and other capital instruments 4,605 4,744
Disposal group classified as held for sale 161 -
Total liabilities 166,684 148,614
Shareholders' equity
Share capital 294 294
Share premium 1,693 1,693
Other equity interests 497 497
Reserves 327 543
Profit and loss account 7,016 5,578
Shareholders' equity 9,827 8,605
Minority interests in subsidiaries 1,351 1,307
Total shareholders' equity including minority interests 11,178 9,912
Total liabilities, shareholders' equity and minority interests 177,862 158,526
Condensed statement of cash flows
for the year ended 31 December 2007
Consolidated statement of cash flows 31 December 31 December
2007 2006
EURm EURm
Net cash flows from operating activities 622 8,645
Investing activities
Net increase in financial investments available for sale (3,331) (2,477)
Additions to property, plant and equipment (128) (144)
Disposal of property, plant and equipment 105 489
Additions to intangible assets (138) (87)
Disposal of investment in associated undertaking 5 -
Disposal of investment in subsidiaries and businesses 1 268
Dividends received from associated undertakings 56 44
Cash flows from investing activities (3,430) (1,907)
Financing activities 48
Re-issue of treasury shares 49 -
Issue of subordinated liabilities 128 1,008
Issue of perpetual preferred securities - (196)
Interest paid on subordinated liabilities (254) (587)
Equity dividends paid on ordinary shares (651) (38)
Dividends on other equity interests (38) (82)
Dividends paid to minority interests (82)
Cash flows from financing activities (848) 153
Net (decrease)/increase in cash and cash equivalents (3,656) 6,891
Analysis of changes in cash 14,355 7,670
At 1 January (3,656) 6,891
Net cash flow before the effect of exchange translation (272) (206)
adjustments Effect of exchange translation adjustments
At 31 December 10,427 14,355
Consolidated statement of recognised income and expense
2007 2006
EURm EURm
Foreign exchange translation differences (290) (149)
Net change in cash flow hedges, net of tax (37) (283)
Net change in fair value of available for sale securities, net of (191) (13)
tax
Net actuarial gains in retirement benefit schemes, net of tax 393 200
Net other losses relating to the period (22) (47)
Income and expense recognised (147) (292)
Profit for the period 2,066 2,298
Total recognised income and expense for the period 1,919 2,006
Attributable to:
Equity holders of the parent 1,793 1,859
Minority interests in subsidiaries 126 147
Total recognised income and expense for the period 1,919 2,006
Condensed consolidated reconciliation of movements in shareholders' equity
2007 2006
EURm EURm
Profit attributable to equity holders of the parent 1,949 2,185
Dividends on ordinary shares (651) (587)
Dividends on other equity interests (38) (38)
Share based payments 25 30
Actuarial gains recognised in retirement benefit schemes 393 200
Other recognised losses relating to the period (527) (471)
Other recognised losses in associated undertakings (22) (47)
Ordinary shares reissued 83 87
Net movement in own shares 10 77
Net additions to shareholders' equity 1,222 1,436
Opening shareholders' equity 8,605 7,169
Closing shareholders' equity 9,827 8,605
Shareholders' equity:
Ordinary shareholders' equity 9,330 8,108
Other equity interests 497 497
9,827 8,605
Commentary on results
Earnings per share
The table below shows the basic earnings per share excluding profit on disposal/
development of property(1), profit on disposal of businesses(2) and adjusting
for hedge volatility(3).
Earnings per share Year Year % change
2007 v 2006
2007 2006
Basic - continuing operations 218.0c 233.5c -7
Basic - discontinued operations - 13.3c -
Basic - total 218.0c 246.8c -12
less profit on disposal/development of property(1) (12.1c) (42.8c) -
less profit on disposal of businesses(2) - (21.7c) -
adjust for hedge volatility(3) - 0.5c -
Adjusted basic earnings per share 205.9c 182.8c 13
Rates of exchange
A significant proportion of the Group's earnings are denominated in currencies
other than the euro. As a result, movements in exchange rates can have an impact
on earnings growth. In 2007, the US dollar and Polish zloty effective rates
weakened relative to the euro by 8% and 1% respectively and sterling
strengthened relative to the euro by 1%, compared with the year to December
2006.
The following table shows the average accounting rates and average effective
rates for both periods. The average effective rates include the impact of
currency hedging activities.
Average Average Average Average
accounting rates accounting rates effective rates effective
rates
2007 2006 2007 2006
US dollar 1.37 1.26 1.32 1.21
Sterling 0.69 0.68 0.68 0.69
Polish zloty 3.78 3.90 3.88 3.85
(1) 2007 includes construction contract income (EUR48 million after tax) and
profit on sale of 22 branches in the Republic of Ireland (EUR58 million after
tax). 2006 includes construction contract income (EUR82 million after tax) and
profit on disposal of property (EUR290 million after tax).
(2) Profit on disposal of Ark Life discontinued operation (EUR112 million
after tax), profit from the sale of 50% of AIB/BNY Securities Services (Ireland)
Limited to the Bank of New York Company (EUR51 million after tax) and the
transfer of the management of certain investment contracts to Aviva as part of
the disposal of Ark Life (EUR26 million after tax).
(3) Hedge volatility (hedging ineffectiveness and derivative volatility) had
a negligible impact in 2007. The 2006 impact was a decrease of EUR4 million to
profit before taxation for the year (EUR4 million after tax).
Commentary on results
Basis of presentation
Underlying percentage change The growth percentages are shown on an underlying
basis, i.e. adjusted for the impact of exchange rate movements on the
translation of foreign locations' profit and excluding hedge volatility (hedging
ineffectiveness and derivative volatility).
Strong growth in operating income, up 12%
Total operating income
Total income increased by 12% to EUR4, 868 million.
Year Year Underlying
2007 2006 % change
Total operating income EURm EURm 2007 v 2006
Net interest income 3,418 2,999 14
Other income 1,450 1,327 9
Total operating income 4,868 4,326 12
Commentary on results
Net interest income
Net interest income increased by 14% to EUR3,418 million in the year to December
2007. The key drivers were strong loan growth in the Republic of Ireland and
strong loan and deposit growth in the UK, Poland and Corporate Banking. Loans to
customers increased by 23% and customer accounts increased by 12% on a constant
currency basis since 31 December 2006 (details of loan and deposit growth by
division are contained on page 14 of this release).
Average interest earning assets Year Year %
2007 2006 change(1)
2007 v 2006
EURm EURm
Average interest earning assets 159,570 132,542 20
(1) This particular analysis is not adjusted for the impact of exchange rate movements.
Year Year Basis
2007 2006 point
Net interest margin % % change
Group net interest margin 2.14 2.26 -12
The domestic and foreign margins for 2007 are reported on page 38 of this
release.
AIB Group manages its business divisionally on a product margin basis with
funding and groupwide interest exposure centralised and managed by Global
Treasury. While a domestic and foreign margin is calculated for the purpose of
statutory accounts, the analysis of net interest margin trends is best explained
by analysing business factors as follows:
The Group net interest margin amounted to 2.14%, a decrease of 12 basis points
compared with 2006. The margin reduction was due to a combination of the
following factors:
(a) customer loans increasing at a faster rate than customer deposits.
(b) a changing mix of products where stronger volume growth has been achieved in
lower margin products; corporate loans and prime rate advances on the lending
side and term deposits and other lower margin products on the deposit side.
(c) competitive pressures on loan and deposit pricing.
(d) higher funding costs experienced in the period.
The margin reduction continues to be impacted by average customer loans
increasing at a greater rate than average customer deposits compared with 2006.
While this strong lending growth generated good incremental profit, the funding
impact resulted in a reduction in the overall net interest margin calculation
when net interest income is expressed as a percentage of average interest
earning assets.
While it is difficult to disaggregate trends in product margins between mix and
competitive factors, competitive pricing behaviour did impact loan and deposit
margins. The Group's new business lending continued to meet targeted return on
capital hurdles.
Both loan and deposit margins were broadly stable while higher funding costs had
a 1 basis point impact on the overall margin. The reinvestment of customer
account funds had a close to neutral effect on the net interest margin in 2007.
Commentary on results
Banking fees and commissions up 12%
Investment banking and asset management fees up 33%
Trading income affected by global market dislocation
Other income
Other income was up 9% to EUR 1,450 million since the year to December 2006.
Year Year Underlying
2007 June 2006 % change
Other income EURm EURm 2007 v 2006
Dividend income 31 23 32
Banking fees and commissions 1,029 921 12
Investment banking and asset management 424 314 33
fees
Fee and commission income 1,453 1,235 17
Fee and commission expense (197) (161) 21
Trading income 62 167 -64
Currency hedging profits 12 10 -
Hedge volatility - (4) -
Net trading income 74 173 -64
Other operating income 89 57 55
Total other income 1,450 1,327 9
Other income growth of 9% was resilient in the face of turbulent market
conditions in the second half-year.
Dividend income increased by 32% mainly reflecting growth in dividends from
investments held by the Polish business.
Total fee and commission income increased by 17%, with banking fees and
commissions up 12% and investment banking and asset management fees up 33%. The
12% increase in banking fees and commissions reflects increased business and
transaction volumes in AIB Bank Republic of Ireland and Corporate Banking and
good growth in credit card revenue in Ireland.
Investment banking and asset management fees increased by 33% driven by
particularly strong performances in Asset Management in Poland and BZWBK's
brokerage operation and very good growth in Goodbody Stockbrokers.
Trading income was affected by global market dislocation effects. Asset value
writedowns in markets have been indiscriminate with current mark to market
values less than their par values. Where assets are deemed or classified as
trading, the accounting convention is to fair value these assets, using bid
prices, through other income in the income statement. The market dislocation
particularly impacted the traded credit portfolio in Global Treasury with
writedowns of EUR 92 million recorded in the second half of 2007. Also reflected
in trading income is a mark to model charge to income of EUR 25 million (US$ 35
million) in relation to positions held in subprime (portfolio US$ 483 million/
EUR328 million), a further EUR 11 million in relation to Collaterised Debt
Obligation ('CDO') / Collaterised Loan Obligation ('CLO') exposures and EUR 3
million for other asset backed securities (EUR 39 million for the total
structured securities portfolio) which by their nature require writedowns in
value to be reflected through fair value to other income in the income statement
rather than by provisioning. In summary, values ascribed to the structured
securities (EUR 39 million charge to income) and trading portfolios (EUR 92
million writedown in the second half of 2007) have resulted in a mark to model/
market reduction for 2007 of EUR 131 million. Trading income excludes interest
payable and receivable arising from trading activities, which is included in net
interest income. Accordingly, the above trading income does not reflect the full
extent of trading activities, which are largely in Global Treasury. Interest
income in Global Treasury increased slightly compared with 2006.
The increase in other operating income mainly relates to a EUR 40 million profit
on the sale of a trade investment in Investment Banking.
Other income as a percentage of total income was 29.8% compared with 30.7% for
2006.
Commentary on results
Higher productivity - cost income ratio decreases by 1.7% to 51.8%
Income/cost gap +3%
Significant progress with our single enterprise agenda
Completion of preparation for regulatory programmes
Total operating expenses
Operating expenses increased by 9% compared with 2006.
Year Year Underlying
Operating expenses 2007 2006 % change
EURm EURm 2007 v 2006
Personnel expenses 1,615 1,502 8
General and administrative expenses 761 672 13
Depreciation(1)/amortisation(2) 145 140 3
Total operating expenses 2,521 2,314 9
Operating expenses increased by 9% reflecting increases in business activity and
volumes. The increase in costs reflects normal inflationary increases and
continuing investment in various programmes to develop capabilities to benefit
from the ongoing business opportunities and to position the business for
long-term growth and development. This has included investment in people,
locations and the continuation of our programme to build common operating
systems in line with our single enterprise agenda.
Significant progress has been made on our single enterprise approach to
operations and technology and we have reached a point at which the level of
further investment spending will moderate. The Group has addressed major
regulatory changes (including Sarbanes Oxley and Basel II) and the completion of
the preparation for these regulatory changes will slow the rate of future cost
growth. Cost growth decelerated in the second half-year due to the non
recurrence of the step up in regulatory driven and performance related
remuneration costs incurred in the second half of 2006.
Personnel expenses were up 8% due to the introduction of new salary structures,
normal wage increases and investment in developing our operating systems.
General and administrative expenses were up 13% including costs associated with
preparation for AIB's Basel II application to the Financial Regulator, costs
relating to the building of common operating systems, rental costs arising from
the sale and leaseback arrangements for the Bankcentre and branch network (22
branches sold in 2007, 11 sold in 2006) and normal inflationary increases.
Depreciation/amortisation increased by 3%.
Productivity improved with the cost income ratio reducing by 1.7% to 51.8% from
53.5% in 2006.
(1) Depreciation of property, plant and equipment.
(2) Amortisation of intangible assets.
Commentary on results
Provision charge lower at 9 basis points reflecting strong asset quality
Reduction in impaired loans as a percentage of loans to 0.8%
Provisions
Total provisions were EUR 99 million, down from EUR104 million in 2006.
Year Year
2007 2006
Provisions EURm EUR EURm
Provisions for impairment of loans and receivables 106 1118
Provisions for liabilities and commitments (8) (15)
Amounts written off financial investments available 1 1
for sale
Total provisions 99 104
31 December 2007 As a % of 31 December 2006 As a % of
impaired loans at impaired loans at
loans 31 December loans 31 December
Impaired loans by division EURm 2007 EURm 2006
AIB Bank ROI 511 0.7 366 0.6
Capital Markets 77 0.3 130 0.6
AIB Bank UK 274 1.1 205 0.9
Poland 187 2.8 232 4.9
AIB Group 1,049 0.8 933 0.9
The provision for impairment of loans and receivables was EUR 106 million
compared with EUR 118 million in 2006, representing a charge of 0.09% of average
loans compared with 0.12% in 2006. The lower charge reflects strong asset
quality and good recoveries. Impaired loans as a percentage of total customer
loans decreased from 0.9% at 31 December 2006 to 0.8% at 31 December 2007 with
the total provision coverage for impaired loans at 71% compared with 76% in
2006.
In AIB Bank Republic of Ireland asset quality continues to be strong. Impaired
loans as a percentage of total customer loans were 0.7% at 31 December 2007
compared with 0.6% in 2006. The provision charge was 0.16% of average loans
compared with 0.15% in 2006.
In Capital Markets there were net provision recoveries of EUR 18 million during
2007, compared with credit provisions of EUR 5 million in 2006. The provision
recoveries equated to 0.08% of average loans compared with a provision charge of
0.02% in 2006. The recoveries during the first half of the year reflected the
benign credit environment and strong liquidity in the corporate market in the
early part of 2007. Impaired loans reduced to 0.3% from 0.6% of total customer
loans at 31 December 2006. The impact of market conditions on certain exposures
held by Capital Markets in its structured securities portfolio is reflected by
way of a EUR 39 million writedown in the fair value through the other income
category in the income statement rather than provisions.
In the UK division, the provision charge reduced to 0.08% of average loans from
0.13% in 2006 and impaired loans were 1.1% of total customer loans compared with
0.9% at 31 December 2006.
The provision charge in Poland decreased to 0.03% of loans from 0.23% in 2006.
Asset quality continues to improve with the ratio of impaired loans as a
percentage of customer loans declining to 2.8% from 4.9% at 31 December 2006.
There was a net credit in provisions for liabilities and commitments of EUR 8
million in 2007 compared with a net credit of EUR 15 million in 2006, while
provisions for amounts written off financial investments were EUR 1 million in
2007, the same as 2006.
Commentary on results
Loans up 23%; deposits up 12%
Effective tax rate at 17.6%
Associated undertakings
The profit in 2007 was EUR 128 million compared with EUR 167 million in 2006 and
mainly reflects AIB's 24.6% average share of the income after taxation of M&T
Bank Corporation and income after taxation from Hibernian Life Holdings Ltd, the
joint venture in Life and Pensions with Hibernian. M&T's contribution of US$ 166
million (EUR 120 million) was down 7% relative to the year to December 2006
contribution of US$ 177 million (EUR 141 million). The performance of M&T in
2007 was affected by unprecedented turbulence in the financial markets and in
particular, the US residential real estate sector. M&T has taken the necessary
actions to appropriately provide for this portfolio. Separate to this, M&T
experienced good growth in its commercial and property books and has
successfully integrated Partners Trust Financial Group and First Horizon
National Corporation branches into the M&T network. The contribution of M&T to
AIB Group's 2007 performance was also impacted by a weakening in the US dollar
rate relative to the Euro in 2007.
AIB Group profit in 2007 also included EUR 1 million from the disposal of
investments in associated undertakings compared with EUR 8 million in 2006.
Balance sheet
Total assets amounted to EUR 178 billion at 31 December 2007 compared to EUR 159
billion at 31 December 2006. Adjusting for the impact of currency, total assets
were up 15% and loans to customers were up 23% since 31 December 2006 while
customer accounts increased by 12%. Risk weighted assets excluding currency
factors increased by 17% to EUR 139 billion.
Risk weighted assets, loans to customers and customer accounts (excluding
currency factors)
Risk weighted Loans to Customer
assets customers accounts
% change December 2007 v December 2006 % change % change % change
AIB Bank Republic of Ireland 20 20 3
Capital Markets 11 30 23
AIB Bank UK 17 20 17
Poland 28 39 26
AIB Group 17 23 12
Assets under management
Assets under management in the Group amounted to EUR 19 billion at 31 December
2007 compared with EUR 17 billion at 31 December 2006.
Income tax expense
The taxation charge was EUR 442 million, compared with EUR 433 million in 2006.
The effective tax rate was 17.6% compared with 16.6% in the year to December
2006. The taxation charge excludes taxation on share of results of associated
undertakings. Share of results of associated undertakings is reported net of
taxation in the Group profit before taxation. The effective tax rate is
influenced by the geographic mix of profits, which are taxed at the rates
applicable in the jurisdictions where we operate.
Commentary on results
Return on equity 21.8%
Return on equity and return on assets
The return on equity was 21.8%, compared to 29.0% in 2006. The return on assets
was 1.21%, compared to 1.63% in 2006.
Capital ratios
A strong capital position was reflected in a Tier 1 ratio of 7.5% and a total
capital ratio of 10.1%.
Global market dislocation
In the second half of 2007, debt and equity markets experienced a period of
market turmoil. This adjustment was triggered principally by global concerns
over exposures to US subprime mortgages and lending. A consequence of this event
was the reduction of liquidity in debt markets and an increase in its cost where
available. The following commentary outlines the impact on our funding and asset
portfolios.
Funding
In conditions where access to term debt is severely curtailed for all banks, AIB
is in a relatively strong position. Our activities in the term senior debt and
unsecured interbank markets in the first half of 2007 and availability of
funding to us since then through a range of current funding programmes has
positioned us well. Our most significant source of funding at 48% of our total
requirement, is our solid, highly predictable retail and business customer
deposit base comprising c. 2 million customers. These deposits, when combined
with wholesale funding that matures after the end of June 2008 provide funding
that is 94% of our total customer loans. Wholesale funding with a remaining
maturity of over 1 year is c 20 billion, representing 78% of total term funding.
In addition, at 31 December 2007 we held EUR 31 billion in qualifying liquid
assets which supports a significant excess over both the regulatory requirement
and our own higher internal policy level. Net unsecured interbank deposits are
less than 8% of our total funding. In summary, we have solid, well diversified
sources of funding that are sufficient to support our planned business growth.
The cost of funding has increased but did not have a significant effect on our
2007 performance.
Asset portfolios
There are three distinct portfolios affected by the market dislocation. Two are
managed by Global Treasury and one by Corporate Banking.
Trading portfolio financial assets (managed by Global Treasury)
Global Treasury manages a trading portfolio principally comprising bank bonds
and collateralised prime residential mortgage obligations. Asset value
writedowns in current markets have been indiscriminate with current mark to
market values less than their par values. Where assets are deemed or classified
as trading, the accounting convention is to fair value these assets, using bid
prices, through other income in the income statement.
Based on quoted prices at 31 December 2007 Global Treasury recorded a second
half-year valuation writedown of EUR 92 million in relation to the traded credit
portfolio.
Available for sale portfolio (managed by Global Treasury)
Global Treasury also manages the significant majority of AIB's "financial
investments available for sale" portfolio of EUR 21 billion. This portfolio
consists of high quality assets (also held for liquidity management purposes)
that have not suffered impairment. The accounting convention is to fair value
these assets through the equity account and not the income statement. We have
applied the same approach to valuation as outlined for our trading portfolio
financial assets and the writedown to equity across our business is EUR 177
million (after tax) which does not affect our regulatory capital calculation.
Commentary on results
Structured securities portfolio (managed by Corporate Banking)
Our total credit exposure to US subprime mortgages is low. We have two
portfolios:
- US$ 188 million (c 128 million) whole loans/not tranched portfolio
- US$ 293 million (c 199 million) asset backed securities portfolio
The whole loans were purchased in 2007 from a top US originator and comprise
collateral selected by AIB and purchased in April and July after extensive due
diligence and are performing well.
The subprime asset backed securities portfolio is marked to model and for 2007
we have taken a charge to income of EUR 25 million (US$ 35 million) which we
consider an appropriate market adjustment.
In relation to other asset backed securities, we have taken a charge to income
at EUR 3 million in 2007.
Other CDO/CLO exposures total EUR 550 million and for 2007 we have taken a
charge to income of EUR 11 million in relation to these exposures. We have no
exposure to conduits or structured investment vehicles (SIVs), either directly
or through backstop facilities.
The total charge to income reflected in the income statement for the total
structured securities portfolio is a EUR 39 million (including the EUR 25
million/US$ 35 million quoted above for the subprime mortgages) mark to model/
market charge in relation to positions held in these portfolios.
The quality of these portfolios remains strong.
To summarise the impacts of market dislocation on our 2007 performance:
Portfolio Treatment/Impact Valuation Method
Trading portfolio financial EUR 92 million writedown reflected in Quoted prices(1)
assets income statement in H2 2007 in relation to
traded credit portfolio
Available for sale portfolio EUR 177 million (after tax) writedown taken to Quoted prices(1)
equity account
Structured securities EUR 39 million charge reflected in income statement Mark to model/market
portfolio in H2 2007 (including EUR 25 million /US$ 35 million
regarding subprime exposure)
The above charges reflect the accounting convention to fair value these assets
and the charges are all unrealised losses
(1) Quoted prices in relation to debt securities and quoted/unquoted prices in
relation to equity shares.
Outlook - low single digit EPS growth expected in 2008
2008 Outlook
Our approach and performance are founded on delivering products and services to
a broad base of customers in our diverse geographies and sectors. This focus is
expected to underpin solid, predictable revenues that will continue to grow at a
faster rate than costs. Asset quality is expected to remain good although bad
debt provisions are expected to rise from the very low level in 2007 due to
lower economic growth and a more difficult operating environment. Based on these
factors, we are targeting low single digit growth in 2008 adjusted basic
earnings per share compared to the adjusted basic earnings per share of EUR
205.9c in 2007.
Divisional commentary
AIB Bank Republic of Ireland profit of EUR 1,094 million was up 13%
Very strong product volume and revenue growth
Cost income ratio decreases to 48%
AIB Bank Republic of Ireland Retail and commercial banking operations in
Republic of Ireland, Channel Islands and Isle of Man; AIB Finance and Leasing;
Card Services; Wealth Management and share of Hibernian Life Holdings Limited,
AIB's venture with Hibernian Life and Pensions Limited.
Year Year Underlying
2007 2006 % change
AIB Bank Republic of Ireland income statement EURm EURm 2007 v 2006
Net interest income 1,777 1,581 12
Other income 490 434 13
Total operating income 2,267 2,015 13
Personnel expenses 716 675 6
General and administrative expenses 320 270 19
Depreciation / amortisation 52 55 -7
Total operating expenses 1,088 1,000 9
Operating profit before provisions 1,179 1,015 16
Provisions for impairment of loans and receivables 104 78 34
Provisions for liabilities and commitments - (4) -
Amounts written back financial investments for sale - (1) -
Total provisions 104 73 43
Operating profit 1,075 942 14
Associated undertakings 7 18 -63
Profit on disposal of property 12 6 97
Profit before taxation - continuing operations 1,094 966 13
Against a less buoyant economic backdrop, AIB Bank Republic of Ireland reported
a very satisfactory increase in profit before tax of 13% benefiting from well
diversified revenue growth and good cost management across the division.
Operating income was up 13% and operating expenses were up 9% with the operating
income/cost gap at +4%. This strong and profitable performance was built on
AIB's continuing progress in developing its product, service and relationship
offering for customers - a combination that is building a very differentiated
brand in the marketplace. AIB continued to compete aggressively to protect and
increase market share through the delivery of market leading products and
service standards. Period end loans increased by 20% since 31 December 2006 and
customer deposits grew by 3%. Loan demand remained good, with growth in business
lending particularly strong. AIB successfully defended its share of the deposit
market which saw final SSIA funds maturing. Operating expenses increased by 9%
while operating leverage remained positive. Growth of 6% in personnel expenses
mainly reflects higher staff numbers and salary inflation. General and
administrative expenses were up by 19% with the key cost drivers being higher
advertising spend and continuing investment in the branch network and
streamlining back-office activities. The strong operating performance resulted
in a reduction in the cost income ratio from 49.6% to 48.0%.
AIB Bank Republic of Ireland continues to adopt a conservative approach to
credit management and credit quality remains strong with the provision charge
for the year to December 2007 at 0.16% of average loans compared with 0.15% in
the year to December 2006.
Retail Banking reported another strong year with good growth in business and
mortgage lending, while growth in personal lending was impacted by the effect of
maturing SSIAs on credit demand. The wealth management proposition was developed
further during 2007 and resulted in very strong growth in investment product
sales with strong product offerings from both AIB Private Banking and Hibernian
Life Holdings. Sales of life and pensions through the bank channel has produced
Annual Premium Equivalent ("APE") growth of 34% in the year to December 2007,
which represents significant outperformance over the market. Profit growth in
AIB Card Services was strong benefiting from good growth in cardholder balances
and merchant turnover while AIB Finance & Leasing also reported good growth in
average balances with resultant benefit to the revenue line.
Divisional commentary
Capital Markets division profit of EUR 532 million was down 8%. Operating profit
up 6%.
Good operating profit growth after charging significant mark to market
writedowns
Continued strong growth across our international corporate banking business
Exceptional profit growth across key Investment Banking units
Strong growth in our Customer Treasury business offset by exceptionally
difficult wholesale trading environment
Capital Markets Corporate Banking, Global Treasury and Investment Banking.
Year Year Underlying
2007 2006 % change
Capital Markets income statement EURm EURm 2007 v 2006
Net interest income 586 490 21
Other income 389 464 -15
Total operating income 975 954 4
Personnel expenses 328 302 9
General and administrative expenses 118 123 -2
Depreciation / amortisation 14 13 10
Total operating expenses 460 438 6
Operating profit before provisions 515 516 2
Provisions for impairment of loans and receivables (18) 5 -
Provisions for liabilities and commitments 2 1 91
Amounts written off financial investments available for 1 2 -63
sale
Total provisions (15) 8 -
Operating profit 530 508 6
Associated undertakings - 2 -
Profit on disposal of businesses 2 79 -98
Profit before taxation 532 589 -8
Capital Markets profit before taxation of EUR 532 million fell by 8% on 2006(1).
Excluding the impact of disposals of businesses and income from associated
undertakings, operating profit increased by 6%. This operating profit growth was
achieved after incurring mark to market writedowns of EUR 92 million in the
second half of 2007 in the traded credit portfolio and writedowns of EUR39
million in the value of the structured securities portfolio, including subprime
mortgages. This strong underlying result was driven by significant growth in
business volumes, tight cost control and superior credit management.
Corporate Banking continued to experience significant deal momentum during 2007
with profit before provisions up 10% and profit before taxation up by 19%. Loan
volumes grew by 30% reflecting strong underlying demand both domestically and
across all of the division's international business lines. Asset quality remains
strong, reflecting the quality and strength of the division's franchise together
with management's vigorous approach to credit management. We have recognised the
impact of market dislocation, including downgrades, on the division's structured
securities portfolio which includes subprime mortgages by writing down the value
of those assets by EUR 39 million.
New corporate banking overseas offices continued to generate additional income
streams, leveraging off the division's focus on a small number of core sectors.
Margins remain robust and continue to be actively managed against a backdrop of
increasingly volatile and competitive markets. The average margin earned on the
division's loan portfolio has again increased year on year.
Global Treasury was negatively impacted by the exceptional events experienced in
credit and interbank markets during the second half of the year with a
break-even profit position recorded in 2007. The traded credit portfolio,
comprising principally of bank bonds and collateralised prime residential
mortgage obligations, which is subject to mark to market accounting, was written
down by EUR 92 million in the second half of 2007 as widening credit spreads
impacted market prices across all asset classes. This portfolio has an average
life of 2.9 years and management is satisfied the underlying assets will redeem
at par value on maturity. Notwithstanding the extent of market volatility,
Customer Treasury business generated 35% income growth in Ireland, Britain and
Poland, driven by strong core business deal flow, particularly in foreign
exchange, derivatives and structured products.
Investment Banking generated exceptional growth with operating profit up 115% on
2006. Asset management continued to be a key income contributor, underpinned by
strong growth in volumes and new product initiatives both in Ireland and Poland.
In Ireland, stockbroking activities, structured product initiatives, corporate
advisory services and financial outsourcing activities all contributed strongly
to the exceptional level of growth. The outturn was also buoyed by profit of EUR
40 million from the sale of a trade investment. Excluding this gain, Investment
Banking operating profits were ahead of 2006 by 50%.
Total operating expenses increased by 6% while general and administrative costs
fell by 2%, reflecting management's continued focus on cost containment. The
cost income ratio was 47.1% compared with 45.9% in 2006.
(1) The year to December 2006 included EUR 26 million profit on disposal of
business arising from the transfer by Ark Life of the management of certain
investment contracts to Aviva, as part of the Ark Life disposal, and also
included EUR 51 million arising from the sale of our 50% share of AIB/BNY
Security Services Ireland Limited to the Bank of New York Company.
Divisional commentary
AIB Bank UK division profit was up 20% to EUR 452 million
Strong double digit growth in profit before taxation
Cost income ratio improves by 1.8% to 44.1%
Strong growth in both businesses, driven by success in business banking
Year Year Underlying
2007 2006 % change
AIB Bank UK income statement EURm EURm 2007 v 2006
Net interest income 685 593 16
Other income 156 154 2
Total operating income 841 747 13
Personnel expenses 257 238 9
General and administrative expenses 102 94 10
Depreciation / amortisation 12 11 1
Total operating expenses 371 343 9
Operating profit before provisions 470 404 17
Provisions for impairment of loans and receivables 18 26 -31
Provisions for liabilities and commitments - - -
Total provisions 18 26 -31
Operating profit 452 378 20
Profit on disposal of property - 1 -
Profit before taxation 452 379 20
AIB Bank UK reported strong business performance in 2007 with profit before
taxation increasing by 20%, built on well managed growth on both sides of the
balance sheet, in both First Trust Bank in Northern Ireland and in Allied Irish
Bank (GB) in Britain. Loans and deposits increased by 20% and 17% respectively
since 31 December 2006, resulting in a net interest income increase of 16%, with
customer deposits growing very strongly across both personal and business
current accounts, particularly in Britain. This strong growth has been achieved
in the context of a continued emphasis on margin management and on maintaining
good credit quality. The provision for impairment of loans and receivables was
down by EUR 8 million when compared against 2006, representing 0.08% of average
loans, compared to 0.13% in 2006 and reflects recoveries of previously provided
provisions. Costs increased by 9% reflecting a combination of increased
performance-linked remuneration, investment in front line staff and upgrading
enterprise technology platforms. Overall cost management remains a key focus,
contributing to a further improvement in the cost income ratio from 45.9% to
44.1%.
Allied Irish Bank (GB), which focuses mainly on business banking, reported
strong profit growth of 20% to EUR 249 million in 2007. This growth was driven
by strong growth in deposit balances, which increased by 23% since 31 December
2006. Strong deposit growth has been a continued feature of Allied Irish Bank
(GB) strategy in recent years. Lending balances increased by 18% since 31
December 2006, complemented by strong levels of loan origination fee income,
further contributed to the increase in revenue, with interest margins being well
managed and maintained over the year. Costs increased by 12%, reflecting a
combination of increasing investment in staff and upgrading of the corporate and
business banking technology infrastructure. The strong income growth has been
reflected in an improvement in the cost income ratio from 44.1% to 43.3%. The
level of bad debt provisioning fell significantly relative to last year, as a
result of lower levels of specific provisioning and significant recoveries,
resulting in a provision charge of 0.10% of average loans, compared with 0.17%
in 2006.
First Trust Bank increased profit before tax by 20% to EUR 203 million, with the
profit growth reflecting strong growth in business banking, particularly in the
first half of 2007. Loan and deposit balances were up 23% and 8% respectively
since 31 December 2006, which together with strong loan origination fee income,
drove an increase in net interest income of 16%. Costs increased by 5%
reflecting the impact of increased investment in marketing initiatives and also
in the corporate and business banking technology infrastructure. The cost income
ratio improved significantly from 48.2% to 45.0% reflecting a continued focus on
efficiency. Credit quality remained strong with the provision charge of 0.04% of
average loans compared with 0.07% in 2006. The period also saw the introduction
of a new personal current account "The Plus Account" for First Trust Bank, which
offers customers the opportunity of earning credit interest and the opportunity
of free transaction banking.
Divisional commentary
Poland division profit was EUR 269 million, up 26%
Significant profit increase
Very strong loan growth momentum
Exceptional growth in mutual funds
Poland Bank Zachodni WBK ('BZWBK'), in which AIB has a 70.5% shareholding,
together with its subsidiaries and associates. BZWBK Wholesale Treasury and
Capital Markets' share of certain Investment Banking subsidiaries results are
reported in Capital Markets division.
Year Year Underlying
2007 2006 % change
Poland income statement EURm EURm 2007 v 2006
Net interest income 308 236 27
Other income 371 302 19
Total operating income 679 538 22
Personnel expenses 217 170 24
General and administrative expenses 160 120 30
Depreciation / amortisation 33 40 -20
Total operating expenses 410 330 21
Operating profit before provisions 269 208 25
Provisions for impairment of loans and receivables 2 9 -84
Provisions for liabilities and commitments (1) (2) -77
Total provisions 1 7 -86
Operating profit 268 201 29
Associated undertakings 1 6 -91
Profit before taxation 269 207 26
AIB Poland division has reported another very strong year's performance with
profit before taxation increasing by 26% and operating profit up 29%.This has
been achieved through continued momentum across the various business lines of
the division, leading to increases in volumes and business activity against a
background of significant investment being made to realise strategic objectives.
Total operating income increased by 22% with net interest income increasing by
27%. Demand for credit has been exceptionally strong in 2007 with total loans
increasing by 39% since 31 December 2006. Business lending growth of 32%
outperformed the growth of business lending in the marketplace. Volume growth is
well diversified across the corporate, SME and leasing portfolios. Personal
lending continues to grow rapidly with mortgage lending growth of 43% and other
personal lending growth of 47%. Customer deposits increased by 26% since 31
December 2006, achieved through balanced growth on both business and personal
deposits, supported in particular by a successful marketing campaign in the
fourth quarter. Overall deposit margins have improved as interest rates
increased during the year.
Other income increased by 19%. Asset management income increased by 66%, driven
by increases in balances in mutual funds of 32% and continued favourable
portfolio mix. A strong second place in the market has been retained with market
share at 16.8%. The brokerage business had an excellent year with higher levels
of turnover and successes in the primary market. Business momentum in 2007 has
resulted in good growth in foreign exchange, e-business and payments, dividends
and fees.
Operating expenses increased by 21%. This reflects the business decision to
expand and optimise opportunities in the Polish market place. Branch network
development continues with 34 new branches opened in 2007. Personnel expenses
growth was 24%, driven by higher staff numbers, higher basic salaries and
enhanced incentive schemes. Significant investments are being made in supporting
the business, which resulted in general and administrative expenses increasing
by 30%. Specifically this includes increased spending on marketing and promoting
the brand and strategic products, IT development spend and costs related to
branch expansion. The cost income ratio was 60.4%, down from 61.1% in 2006.
Impaired loans as a percentage of total loans continued to show significant
improvement with the ratio at 2.8% compared with 4.9% at 31 December 2006.
Recoveries throughout the year in a very favourable credit environment have led
to an overall provision charge as a percentage of average loans to 0.03%
compared with 0.23% in 2006.
Divisional commentary
Group
Group includes interest income earned on capital not allocated to divisions, the
funding cost of certain acquisitions, hedging in relation to the translation of
foreign locations' profit, unallocated costs of central services, the
contribution from AIB's average share of approximately 24.6% in M&T Bank
Corporation ('M&T') and profit on disposal of property.
Year Year
2007 2006
Group income statement EURm EURm
Net interest income 62 99
Other income / (loss) 44 (27)
Total operating income 106 72
Personnel expenses 96 117
General and administrative expenses 62 65
Depreciation / amortisation 34 21
Total operating expenses 192 203
Operating profit/(loss) before provisions (86) (131)
Provisions for impairment of loans and receivables - -
Provisions for liabilities and commitments (9) (10)
Amounts written off financial investments available for sale - -
Total provisions (9) (10)
Operating loss (77) (121)
Associated undertaking 120 141
Profit on disposal of property 64 358
Construction contract income 55 96
Profit/(loss) on disposal of businesses (1) -
Profit before taxation 161 474
Group reported a profit of EUR 161 million for the year to December 2007
compared with a profit of EUR 474 million in 2006. The result for both years
includes profit on disposal of property and construction contract income (see
below for detail). The operating loss was EUR 77 million compared with a loss of
EUR 121 million in 2006.
Net interest income decreased from EUR 99 million in 2006 to EUR 62 million in
2007. Other income/(loss) includes hedging profits/(losses) in relation to
foreign currency translation hedging and hedge volatility (hedging
ineffectiveness and derivative volatility). Total income was up from EUR 72
million in 2006 to EUR 106 million in 2007.
Total operating expenses decreased from EUR 203 million in 2006 to EUR 192
million in 2007. A higher depreciation/amortisation charge reflects project and
investment spend in recent years.
AIB's share of M&T after-tax profit for 2007 amounted to EUR 120 million. On a
local currency basis, M&T's net income of US$ 654 million in 2007 was down 22%
while M&T's contribution to AIB of US$ 166 million was down 7% relative to 2006
(US$ 177 million). The differential in percentages was mainly due to the bank's
application of IFRS to M&T's US GAAP numbers in 2006 which gave a lower result
due to the movement of previously unallocated credit provisions to specific
provisions in M&T's books (which were classified as specific provisions under
IFRS and reduced the M&T 2006 profit reported in AIB's books by EUR 15 million).
The M&T euro contribution to AIB Group performance was impacted by the weakening
in the US dollar rate relative to the euro in 2007. M&T's 2007 performance was
affected by unprecedented turbulence in the financial markets and in particular,
in the US residental real estate sector.
Profit on disposal of property in 2007 includes profit on the sale of 22
branches in the Republic of Ireland (EUR 64 million before tax). Construction
contract income of EUR 55 million reflects the profit earned from the
development of Bankcentre, based on the stage of completion. Profit on disposal
of property in 2006 includes profit on disposal of the existing Bankcentre
building (EUR 256 million before tax), profit on the sale of 11 branches in the
Republic of Ireland (EUR 73 million before tax) and profit on disposal of
Donnybrook House (EUR 29 million before tax). Construction contract income of
EUR 96 million reflects the profit earned from the new development at
Bankcentre, based on the stage of completion.
Basis of preparation
There are no significant changes to the accounting policies described on pages
47 to 61 in the 2006 Annual Report.
Notes to the accounts
Notes to the accounts can be found on the AIB Group website at www.aibgroup.com/
investorrelations
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 20 February, 2008 By: ___________________
John O'Donnell
Group Director, Finance,
Risk and Enterprise
Technology
Allied Irish Banks, p.l.c.