Bank of Ireland(Governor&Co)
31 May 2007
Bank of Ireland Group
Preliminary Announcement of Results
For the year to 31 March 2007
Thursday 31 May 2007
Performance Highlights
Year ended Year ended % Change
31 March 2007 31 March 2006
Restated*
Group Profitability (€ Million)
Profit before tax (PBT) 1,958 1,524 28
Non-core items:
Deduct:
• Gain on disposal of business activities/property (358) (176)
• Gross-up for policyholder tax in the Life business (19) (69)
Add:
• Hedge ineffectiveness on transition to IFRS 2 7
• Investment return on treasury shares held for
policyholders 68 75
• Cost of restructuring programme 49 32
Underlying profit before tax 1,700 1,393 22
Per Unit of €0.64 Ordinary Stock (€ cent)
Basic earnings per share 172.2 128.5 34
Underlying earnings per share 144.6 118.5 22
Dividend 60.4 52.5 15
Divisional Pre-tax Profit Performance (€ Million)**
Retail Republic of Ireland 698 550 27
Bank of Ireland Life 148 134 10
Capital Markets 572 471 21
UK Financial Services 441 349 26
Group Centre (159) (111) 43
Underlying profit before tax 1,700 1,393 22
Group Performance**
Net interest margin (%) 1.77 1.79
Cost/income ratio (%) 54 57
Cost/income jaws (%) 7 5
Impaired loan loss charge 9bps 11bps
Return on equity (%) 23 24
Balance Sheet
Total stockholders' equity (€ Million) 6,724 5,186 30
Total assets (€ Billion) 189 162 17
Total lending (€ Billion) 130 107 21
Total customer accounts (€ Billion) 72 62 16
Capital
Tier 1 ratio (%)*** 8.2 7.5
Total capital ratio (%) *** 11.8 11.4
Risk-weighted assets (€ Billion) 112.9 97.5 16
* Restated for change in accounting policy - see page 23
** Based on underlying performance, which excludes the impact of non-core items
above.
*** The Financial Regulator has issued a requirement that a Prudential Filter be
applied to proposed final dividends with effect from July 2007. If the proposed
final dividend was deducted the tier 1 ratio and total capital ratio for the
year ended 31 March 2007 would have been 7.9% and 11.5% respectively. This
requirement is already in force for Interim Dividends.
Preliminary Statement for the year to 31 March 2007
'We have delivered an excellent performance driven by the continuing successful
implementation of our clear and focussed strategy. We are driving growth across
all Divisions and delivering cost savings significantly ahead of schedule in our
efficiency programme. Bank of Ireland is a revitalised organisation.'
Brian Goggin, Bank of Ireland Group Chief Executive, commented
Group Performance Highlights*
• Excellent underlying Group profit before tax (PBT) growth of 22%
• Growth & investment strategies delivering strong performance across
all Divisions
• Strategic Transformation Programme significantly ahead of schedule
• Strong volume growth across the Group: loans +21% and resources +16%
• Group income increased by 13% benefiting from strong volume growth and
a slowing rate of margin attrition
• Cost growth well contained at 6%:
o Significant improvement in our efficiency ratio - cost/income
ratio down 3% to 54%
o Excellent cost / income jaws performance of 7%
• Asset quality remains excellent - impairment charge of 9bps
• Strong Capital ratios:
o Total capital ratio 11.8%
o Tier 1 capital ratio 8.2%
o Equity tier 1 ratio 5.2%
Divisional Highlights*
• In Retail Republic of Ireland: PBT +27%
o Excellent business momentum with strong growth in resources and
lending
o Mortgages, Business Banking and Private Banking all delivering
strong performances
o Significant efficiency gains resulting in improved cost / income
performance
• In Life: Operating profit +29%
o Exellent sales growth and effective cost-control driving
performance
o PBT growth of 10% reflecting impact of significant positive
investment variance in prior year
• In Capital Markets: PBT +21%
o A particularly strong performance from Corporate Banking PBT +56%
o Investment in expanding our international franchise driving
strong and sustainable growth
o Arrangement fees and some loan loss provision write-backs during
the period contributing to this performance
o Strong performance delivered by Global Markets against a backdrop
of challenging markets PBT +7%
o Asset Management performed in line with expectations PBT -22%
• In UKFS: PBT +26%
o Return from investment strategies continuing to deliver excellent
performance
o Business Banking a key driver of performance PBT +37% - with
excellent growth in loans and resources
o Mortgage Business PBT +8% - driven by strong growth in
specialist lending
o UK Post Office relationship progressing well
- Post Office Financial Services (POFS) reached break-even in
the second half of the financial year
- First Rate Exchange Services (FRES) performed well in
challenging market conditions.
*Note: based on underlying performance which excludes the impact of non-core
items
Forward-looking statement
This statement contains certain forward-looking statements within the meaning of
Section 21E of the US Securities Exchange Act of 1934 and Section 27A of the US
Securities Act of 1933 with respect to certain of the Bank of Ireland Group's ('
the Group') plans and its current goals and expectations relating to its future
financial condition and performance and the markets in which it operates. These
forward looking statements can be identified by the fact that they do not relate
only to historical or current facts. Forward-looking statements sometimes use
words such as 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', '
plan', 'goal', 'believe', or other words of similar meaning. Examples of
forward-looking statements include among others, statements regarding the
Group's future financial position, income growth, business strategy, projected
costs, estimates of capital expenditures, and plans and objectives for future
operations. Because such statements are inherently subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Such risks and uncertainties
include but are not limited to risks and uncertainties relating to profitability
targets, prevailing interest rates, the performance of the Irish and UK
economies and the international capital markets, the Group's ability to expand
certain of its activities, competition, the Group's ability to address
information technology issues and the availability of funding sources. The Bank
of Ireland Group does not undertake to release publicly any revision to these
forward-looking statements to reflect events, circumstances or unanticipated
events occurring after the date hereof.
For further information please contact:
John O'Donovan Geraldine Deighan Dan Loughrey
Chief Financial Officer Head of Group Investor Relations Head of Group Corporate
Communications
Tel: 353 1 632 2054 Tel: 353 1 604 3501 Tel: 353 1 604 3833
Bank of Ireland will host a results presentation at 9.00am today, 31 May 2007 at
the following venues:
Bank of Ireland Head Office, Lower Baggot Street, Dublin 2
UBS Investment Bank, 1 Finsbury Avenue, London EC2M 2PP
This presentation will be simultaneously webcast on our website:
www.bankofireland.ie/investor
Overview
Bank of Ireland Group has delivered an excellent performance in the year to 31
March 2007. Group profit before tax (PBT) is up 28% to €1,958m and basic
earnings per share up 34% to 172.2c. Excluding non-core items, Group underlying
PBT and EPS are both up 22% to €1,700m and 144.6c respectively. This performance
has been achieved by the excellent execution of our clear and focussed strategy
of driving growth from our leading Irish franchise, growing our businesses in
the UK and building our international niche, skill-based businesses.
Ireland's positive macroeconomic and demographic backdrop continues to support
the very strong performance in our Retail and Life businesses with profit growth
of 27% (PBT) and 29% (Operating profit) respectively. The economic outlook
remains positive and we expect GDP growth to outpace that of the eurozone
average over the medium term. We compete from a position of real strength in our
core market: we have the leading distribution platform; the broadest product
offering; a relentless focus on customer service; and highly committed
employees. Collectively, these translate into a sustainable competitive
advantage and provide us with the capability to drive further growth in a
competitive marketplace.
In the UK we have successfully restructured our businesses and now have a clear
focus on three areas with significant growth potential: business banking,
mortgages and consumer financial services. This clear focus, combined with our
continued investment in the Division, has resulted in an excellent performance
with UK Financial Services PBT growth of 26% to £299m. Business Banking has
been a key contributor to this performance delivering very strong loan and
resource growth. In Mortgages, we continue to build our specialist lending
portfolios. In Consumer Financial Services, we continue to build on our
successful relationship with the UK Post Office. POFS reached breakeven in the
second half of the financial year and by May 2007 had in excess of 1 million
customers - through First Rate Exchange Services (FRES), we remain the leading
provider of personal foreign exchange services with a market share of 30%.
Capital Markets delivered an excellent performance with PBT growth of 21% to
€572 million. Corporate Banking delivered particularly strong results as we
continued our geographic expansion in the UK, the US and Continental Europe.
Strong growth in customer income was a particular feature in Global Markets. Our
asset management business made progress in its turnaround phase with performance
in the business in line with expectations. In October 2006, the Group completed
the sale of its 90.444% shareholding in J&E Davy Holdings Limited (Davy, the
Group's stockbroking business) with a profit on disposal of €229m.
A priority for the Group during the year was to strengthen our capital position.
We achieved this through the successful execution of mortgage securitisations
and the sale and leaseback of 36 of our retail branches in Ireland. Active
capital management remains a core focus and continues to support the growth in
our business.
As we invest to deliver on our strategic growth agenda, our focus on cost
control remains strong. The Strategic Transformation Programme, launched in
March 2005, was designed not only to remove significant costs from the business,
but also to embed a culture within the organisation where operational efficiency
in the middle and back office would support our ambitious growth objectives.
This is based on achieving economies of scale and building capability by
centralising certain activities and outsourcing others.
On the launch of the Strategic Transformation Programme in March 2005 we set a
cumulative annualised savings target of €120 million to be achieved by March
2009. In the year to 31 March 2007, we have delivered cost savings of €95
million against a target of €75 million. Our Group cost / income ratio was
reduced by 3 percentage points to 54%. We expect to achieve annualised savings
of €140 million by March 2008 and thus complete the Strategic Transformation
Programme at that date, one year ahead of schedule. This programme has
fundamentally changed and strengthened our business providing us with an
efficient platform to drive sustainable profitable growth. The central elements
of this programme - efficiency, capability and scalability are being embedded in
the culture of Bank of Ireland and will enable the Group to achieve a cost /
income ratio of mid 40s percentage points in the medium term.
A significant contributor to our efficiency gains has been the introduction of
our new business model under which we have:
• Consolidated and standardised similar activities into a single
manufacturing function now employing in excess of 4,500 staff. Activities
include credit operations, contact centres, payments, IT and banking services;
and
• Consolidated support functions into single Group-wide centres of
excellence. Activities include human resource management, finance, legal
services and corporate communications.
A key enabler in this process has been the outsourcing of a number of activities
including facilities management, procurement, and learning.
Bank of Ireland Group has made considerable progress in recent years in the
implementation of a clear and focussed strategy. We have launched our new
operating model, we have further strengthened our domestic franchise in Ireland,
we have revitalised our UK Financial Services Division, and we are successfully
developing our international growth platforms. As we stand today, Bank of
Ireland Group is a much strengthened, re-focused and re-energised organisation.
Based on the progress we have made and positive economic indicators in our main
markets we see significant potential for further enhanced growth, in particular
the opportunity for accelerated growth from our international businesses as a
result of our ongoing investment.
To maximise this potential we have set out a number of strategic priorities for
the Group:
• To drive further growth from our leading Irish franchise
• To significantly reposition the geographic earnings profile of the
Group increasing the profit contribution from our international
businesses to over 50%
o Grow the United Kingdom as our second core market
o Drive significant international expansion in our niche
skill based businesses with a particular US focus
• Maximise efficiency from our new business model
Based on the successful implementation of these strategic priorities we are
confident that we will deliver a strong and sustained earnings performance over
the medium term.
Outlook to March 2008
Looking to the year ahead, the economic conditions in our major markets remain
positive and supportive of business growth. We remain confident that our strong
franchise in Ireland will enable us to continue to meet the challenges of a
competitive marketplace. We expect to see continued growth in both our
revitalised UK business and our other international operations. During the year
we will continue to invest in our business to support continuing growth into the
future. We will maintain our relentless focus on costs and expect further
efficiencies to be achieved in our drive to further reduce our cost / income
ratio. We remain vigilant to any indications of a change in the credit
environment which remains exceptionally benign. We are guiding a low double
digit percentage growth in underlying EPS for the year to 31 March 2008 (from a
base of 144.6 cent for the year to 31 March 2007).
Divisional Performance
Divisional Profit Before Tax
31 March 2007 31 March 2006 % Change
Restated*
€m €m
Retail Republic of Ireland 698 550 27
Bank of Ireland Life 148 134 10
Capital Markets 572 471 21
UK Financial Services 441 349 26
Group Centre (159) (111) 43
Underlying profit before tax 1,700 1,393 22
Non-core items 258 131
Profit before tax 1,958 1,524 28
*Restated for change in accounting policy - see page 23
Retail Republic of Ireland
Retail Republic of Ireland incorporates our Mortgage, Consumer Banking, Business
Banking and Private Banking activities in the Republic of Ireland.
Retail Republic of Ireland delivered an excellent performance for the year to
March 2007 with PBT growth of 27%. Our unrivalled distribution, the scope of our
product range and our commitment to service excellence continue to underpin our
leading franchise. In a competitive marketplace we have retained our leading
position as the number one provider of mortgages in Ireland. In Business Banking
we successfully targeted the fast growing SME and start-up segments with a
competitive offering that has driven growth and enabled us to strengthen our
competitive position in this market. We continue to drive very significant
growth from our Private Banking business.
Retail Republic of Ireland: Income Statement
31 March 2007 31 March 2006 % Change
€m €m
Net interest income 1,311 1,119 17
Other income 377 356 6
Total operating income 1,688 1,475 14
Total operating expenses 927 871 6
Operating Profit before impairment losses 761 604 26
Impairment losses on loans and advances 63 54 17
Profit before tax 698 550 27
Net interest income increased by 17% driven by strong volume growth and a
further reduction in the rate of margin attrition. The rate of margin attrition
was considerably less than in recent years as the returns achieved on customer
resources improve in a rising interest rate environment. Loan growth year on
year was an excellent 25%. Loan book growth in Business Banking was particularly
strong at 33% reflecting our continuing focus on increasing our share of this
high growth sector. Through our advice-led products, distribution capability and
service focus we maintained our leading position in mortgages with book growth
of 22%, in line with the market. Rising interest rates have contributed to
slowing of new business volumes in the residential property market. Personal
lending has shown strong growth of 19%. Resources growth was 11% having slowed
towards the year-end in line with the market.
Other income is up 6%. Substantial growth in credit card income and Private
Banking fees offset a reduction in current account fee income associated with
our personal current account free banking offer.
The continuing successful implementation of the Strategic Transformation
Programme and new business model has enabled us to control costs. Our Group
Manufacturing function is driving consolidation and standardisation in order to
deliver productivity improvements. In particular, the consolidation of our
customer contact, credit operations and back-office processing has improved the
operating leverage in the business, resulting in restrained cost growth of 6%
and a favourable cost / income jaws of 8%. The cost / income ratio declined
significantly by 4% to 55%.
Asset quality remains excellent across our retail business. The impairment
losses on loans and advances were €63 million or 14bps as a percentage of
average advances. This compares to €54 million or 15bps for March 2006.
Bank of Ireland Life
Bank of Ireland Life, the Group's life and pensions business, performed very
strongly during the year with buoyant new business sales across all distribution
channels contributing to further market share gains. Operating profit grew by
29% to €146 million.
Bank of Ireland Life achieved excellent growth in sales with a 27% increase on
an annual premium equivalent basis. Growth in single premium business was
particularly impressive with a 46% increase. Market share increased by one
percentage point to 26%. The favourable economic and demographic backdrop
ensures the outlook remains positive.
IFRS Performance
31 March 2007 31 March 2006 % Change
€m €m
Operating Income 250 208 20
Operating Costs 104 95 9
Operating profit 146 113 29
Investment variance 2 17
Discount rate change - 4
Profit before tax 148 134 10
Operating profit grew by an impressive 29% on the back of strong sales and good
cost control. Against this backdrop the operating cost / income ratio fell from
46% to 42%. Growth in profit before tax at 10% primarily reflects the impact of
the significant positive investment variance in the prior year.
Embedded Value Performance
The alternative method of presenting the performance of our Life business is on
an Embedded Value basis. Under this approach, Bank of Ireland Life also shows a
strong performance with operating profit up 21% to €175 million. The value of
new business has grown particularly strongly with improved margins, reflecting
the economies of scale from higher volumes and good cost control. Profit before
tax is lower due to the impact of the significant positive investment variance
in the prior year.
31 March 2007 31 March 2006 % Change
€m €m
New business profits 114 78 46
Existing business profits
- Expected return 83 71 17
- Experience variance 14 20 (30)
- Assumption changes - 8
Inter-company payments (36) (32)
Operating profit 175 145 21
Investment variance 2 51
Discount rate change - 8
Profit before tax 177 204 (13)
Note: Embedded Value at March 2007 was €1.26 billion
The key assumptions used in the Embedded Value calculation are a discount rate
of 7.5% (2006: 7.5%), growth rate on unit-linked assets of 5.5% (2006: 5.5%) and
the rate of tax to be levied on shareholder profits of 12.5% (2006: 12.5%).
Actuarial assumptions are also required in relation to mortality, morbidity and
persistency rates and these have been derived from the company's experience.
Capital Markets
Capital Markets comprises Corporate Banking, Global Markets, Asset Management
and IBI Corporate Finance. Profit before tax in Capital Markets increased by 21%
to €572 million for the year to March 2007.
Capital Markets: Income Statement
% Change excluding
impact of IAS 39 &
31 March 2007 31 March 2006 % Change acquisitions/
€m €m disposals
Net interest income 671 461 46 35
Other income 378 458 (17) 2
Total operating income 1,049 919 14 20
Total operating expenses 456 425 7 13
Operating profit before impairment 593 494 20 25
losses
Impairment losses on loans and advances 21 23 (9) (9)
Profit before tax 572 471 21 27
The Divisional performance during the period is not directly comparable with the
prior period as the disposal of Davy in October 2006, the acquisition of
Guggenheim Advisors in January 2006, and the establishment of our joint venture
with private equity firm Paul Capital in June 2006 impacts on the year on year
analysis of income and cost growth.
Total operating income rose by 14% to €1,049 million for the year to 31 March
2007. Excluding the trading impact of acquisitions and disposals, total
operating income increased by 20% driven by strong lending volumes, higher
margins and significant loan arrangement fee income in Corporate Banking.
The growth in net interest income and other income is distorted by the trading
impact of acquisitions and disposals as outlined above together with the
classification of certain interest expense under IAS 39 which relates to the
designation of certain financial instruments under the fair value option.
Excluding both of these factors, net interest income grew by 35% and other
income grew by 2%.
The 35% growth in net interest income was driven by a 22% increase in average
loans and improved margins in Corporate Banking reflecting changes in the mix of
the loan book. Strong growth in arrangement fees in Corporate Banking was offset
by the reduced revenues from Asset Management resulting in other income growth
of 2%.
Total operating expenses increased by 7% to €456m. Excluding the trading impact
of acquisitions and disposals, total operating expenses increased by 13%. There
were three main drivers of operating expenses within the Division; investment
costs, staff related costs and compliance costs. Investment costs in Corporate
Banking and Global Markets added 3% to total cost growth with the continued
expansion of our activities in the UK, the US, and Continental Europe. Increased
staff costs across the Division arising from salary inflation and performance
related pay added 6% to total operating expenses. Compliance costs arising from
requirements under Basel II, Sarbanes-Oxley and the new Liquidity regime added a
further 1% to the operating costs of the Division. The remaining 3% was driven
by volume related growth and inflation.
Credit quality remains excellent with impairment losses on loans and advances of
€21million or 9bps when expressed as a percentage of the average loans. This
compares to €23 million or 12bps in the prior year. Corporate Banking continues
to benefit from the benign credit environment and in addition a number of loan
loss provision write-backs during the year.
Capital Markets: Business Unit Profit Before Tax
31 March 2007 31 March 2006 % Change
€m €m
Corporate Banking 332 213 56
Global Markets 144 134 7
Asset Management 66 85 (22)
Other 30 39 (23)
Profit before tax 572 471 21
Corporate Banking delivered particularly strong profit growth of 56% for the
year. This excellent performance was driven by strong lending growth, improved
net interest margin arising from a change in lending mix, an exceptionally
benign credit environment and the write-back of loan loss provisions of €26
million. While we continued to invest in our Corporate Banking activities during
the year, income increased significantly more than costs resulting in a strong
cost / income jaws performance.
The geographic focus of our Corporate Banking activities extends from Ireland to
our growing presence in the UK, Continental Europe and the US. During the year
we continued to build on this geographic platform. We have retained our leading
position in Ireland and delivered significant international growth across our
lending portfolios in our chosen segments: project finance, acquisition finance,
specialist finance including media, property finance and comprehensive asset
based lending. Increasingly we are taking lead roles in arranging and
structuring transactions thereby generating significant fee earning
opportunities across our portfolios. We actively manage the risk in these
portfolios through diversification by geography and segment, and through modest
holds in each of our transactions.
Our results demonstrate clearly that we are delivering on our strategy in
Corporate Banking: to drive growth from our leading domestic franchise and to
broaden our international business by focusing on niche skills based activities.
Our Global Markets business delivers a comprehensive range of risk management
products to the Group's customer base and acts as Treasurer for the Group.
Profit for the year increased by 7% reflecting a strong performance in our
customer businesses globally and a very satisfactory performance overall given
the challenging trading conditions that existed with interest rates increasing
in the three major economies in which we operate. Our focus continues to be on
developing the geographic expansion of our activities with the opening of a
customer treasury and funding unit in Stamford, Connecticut in October 2006. We
continue to build on our technical skills and capability and are working very
closely with other Group businesses to help deliver an extensive and fully
integrated service to our customers.
Our Asset Management businesses comprises Bank of Ireland Asset Management
(BIAM), Bank of Ireland Securities Services (BoISS), Iridian Asset Management,
Guggenheim Advisors (71.5%) and the 50% joint venture we established with
private equity firm Paul Capital in June 2006, Paul Capital Investments. Profit
before tax for the year to 31 March 2007 was €66m, a decrease of 22% over the
prior year. Fund outflows from BIAM have slowed with funds under management at
the year end of €43.7bn compared to €45.1bn at 31 March 2006. The focus within
the business over the last year has been on product diversification, turning
around the investment performance in BIAM and the integration of newly acquired
businesses.
In the year to 31 March 2007 IBI Corporate Finance had a satisfactory
performance. In October 2006, the Group completed the sale of its 90.444%
shareholding in Davy.
UK Financial Services (Sterling)
UK Financial Services (UKFS), which incorporates Business Banking, our Mortgage
business and our Consumer Financial Services joint ventures with the UK Post
Office, delivered an excellent performance during the year demonstrating the
success of our restructuring and investment programmes over the past number of
years. Profit before tax increased by 26% to £299 million.
UKFS: Income Statement
% Change excluding
impact of IAS 39 &
31 March 2007 31 March 2006 disposals
£m £m % Change
Net interest income 531 493 8 16
Other income 118 91 30 16
Total operating income 649 584 11 16
Total operating expenses 337 329 2 12
Operating Profit before impairment losses 312 255 22 21
Impairment losses on loans and advances 13 17 (24) (24)
Profit before tax 299 238 26 27
The Divisional performance during the year is not directly comparable with the
prior period as the disposal of the Bristol & West branch network in September
2005 impacts the year on year analysis of income and cost growth.
Total operating income, excluding the trading impact of the Bristol & West
branch network, rose by 16% to £649 million. The growth in net interest income
and other income is distorted by the trading impact of disposals as outlined
above together with the classification of certain interest expense under IAS 39
which relates to the designation of certain financial instruments under the fair
value option. Excluding both of these factors, net interest income grew by 16%
and other income grew by 16%. Net interest income growth is due to strong volume
growth for both lending up 18%, and resources up 47%. Competitive dynamics and
increases in UK interest rates resulted in margin attrition during the year,
especially in the standard mortgage market. Within the mortgage book there has
been stronger growth in the specialist sectors and this has helped overall
margins. In addition, lending margins in business banking have been stable
especially in the second half of the year. Other income growth was primarily
driven by strong customer acquisition and industry leading renewal levels in
POFS in both car and home insurance.
Operating expenses, excluding the trading impact of the Bristol & West branch
network increased by 12% to £337 million resulting in a favourable operating
leverage with positive cost/income jaws of 4%. The drivers of cost growth were
the continued investment in Business Banking which is driving growth, higher
variable operating and marketing costs in POFS to support sales and servicing
activities of this rapidly growing business together with increased regulatory
costs.
Impairment losses on loans and advances are lower than the prior year due to
continued excellent asset quality. The loan loss charge for the year expressed
as a percentage of average loans was 4bps compared to 5bps in the prior year.
UKFS: Business Unit Profit Before Tax 31 March 2007 31 March 2006 % Change
£m £m
Mortgages 145 134 8
Business Banking 156 114 37
Consumer Financial Services: 24 8 200
• POFS (8) (22) 64
• FRES (post tax) 30 28 7
• ATM & Other Post Office related activities 2 2 -
Bristol & West branch network - (3) -
Other* (26) (15) (73)
Profit before tax 299 238 26
* Note: includes the amortisation of intangible assets associated with the UK
Post Office Financial Services (March 2007: £8 million, March 2006: £8 million).
The Mortgage business delivered profit before tax of £145 million, an increase
of 8% for the year. Profit growth was negatively impacted by three base rate
increases during the year together with a change in regulation relating to
mortgage exit fees. The residential mortgage book increased by 10% to £24
billion with particularly strong growth in both the self-certified and
buy-to-let specialist portfolios, which increased 18% and 16% respectively.
Total operating income growth was 6% as margin attrition impacted net interest
income whilst cost growth was contained to 3% over the prior year. Credit
performance remains excellent with our arrears levels significantly below the
industry average.
The performance of Business Banking was exceptionally strong with profit before
tax increasing by 37% to £156 million on the back of 34% increase in the loan
book year on year. This excellent momentum in the business has resulted from our
continuing investment in people and capability. This has delivered significant
operational leverage with total operating income and costs growing by 22% and
13% respectively. Asset quality remains strong.
Bank of Ireland has an extensive relationship with the UK Post Office providing
a variety of consumer financial services products - First Rate Exchange Services
(FRES) provides personal foreign exchange services and Post Office Financial
Services (POFS) provides a range of retail products including savings,
insurance, and credit cards. This latter contract has been extended to 2020. In
addition, the Group is now rolling out an extensive ATM infrastructure across
the Post Office network.
Profit before tax for FRES grew by 8% to £86 million whilst the Group's share of
FRES after tax profit increased by 7% to £30 million which was a satisfactory
performance in very challenging trading conditions within the travel market
throughout the year. FRES continues to grow and with a 30% market share, is the
leading provider of personal foreign exchange services in the UK market. The
pace of growth in POFS increased in the year, sales almost doubling from 347,000
products in the prior year to 668,000 in the year to March 2007 with the
strongest growth in insurance and savings products. In May 2007, the business
has over 1 million customers. The start-up losses in this venture continue to
decline, down to £8 million in the year to March 2007 compared to a loss of £22
million in the prior year and encouragingly the business delivered a break-even
result for the second half of 2006/07 and is positioned for profitable growth.
Group Centre
Group Centre, which comprises earnings on surplus capital, unallocated support
costs and some smaller business units, had a net cost of €159 million in the
year to 31 March 2007, compared to €111 million in the year to 31 March 2006.
The key drivers behind the increase in net cost are increased compliance
expenditure €25m, higher funding cost on debt raised €15m and a one-off
Government led social finance contribution €6m.
Review of Group Performance
31 March 2007 31 March 2006
Restated* % Change
€m €m
Net interest income 2,757 2,307 20
Other income 1,112 1,132 (2)
Total operating income (net of insurance claims) 3,869 3,439 13
Operating expenses 2,110 1,988 6
Impairment losses on loans and advances 103 103 -
Share of associates and joint ventures (post-tax) 44 45 (2)
Underlying profit before tax 1,700 1,393 22
Non-core items:
Add:
• Gain on disposal of business activities/property 358 176
• Gross-up for policyholder tax in the Life business 19 69
Deduct:
• Hedge ineffectiveness on transition to IFRS (2) (7)
• Investment return on treasury shares held
for policyholders (68) (75)
• Cost of restructuring programme (49) (32)
Profit before tax 1,958 1,524 28
Taxation 306 303 1
Minority interest 1 (9)
Dividends on other equity interests 15 13
Profit attributable to ordinary stockholders 1,636 1,217 34
Basic EPS cents per share 172.2c 128.5c 34
Underlying EPS cents per share** 144.6c 118.5c 22
*Restated for change in accounting policy - see page 23
** Excludes the impact of non-core items after tax of €225m (2006: €66m)
The following commentary is based on the Group's performance excluding the
impact of non-core items. A reconciliation of the impact of these non-core items
on the income statement line items is shown on pages 16 and 17 of this document.
Analysis of the Group's financial performance is distorted by the trading impact
of acquisitions and disposals in the current and prior period. In the year to
March 2006, we disposed of the Bristol and West branch network (September 2005)
and we acquired Guggenheim Advisors (January 2006). In the year to 31 March
2007, we disposed of Davy (October 2006) and we established our joint venture
with the private equity business, Paul Capital (June 2006).
Income
Total income increased by 13% to €3,869 million driven by strong volume
increases in both lending and resources across the Group, together with the
excellent performance from our fee-earning activities in our Life business,
Retail Republic of Ireland, UK Financial Services and Capital Markets. Total
income after adjusting for the trading impact of acquisitions and disposals
increased 15% year on year.
Total Income
31 March 2007 31 March 2006 % Change
€m €m
Total operating income 3,869 3,439 13
Trading impact of acquisitions/disposals (122) (179)
Total income excluding trading impact of
acquisitions and disposals 3,747 3,260 15
The growth in net interest income and other income is distorted by the trading
impact of acquisitions and disposals as outlined above during the current and
prior periods together with the classification of certain interest expense under
IAS 39. Excluding both these factors, net interest income grew by 19% to €2,635
million and other income grew by 6% to €1,112 million.
Net Interest Income
31 March 2007 31 March 2006 % Change
€m €m
Net interest income 2,757 2,307 20
Trading impact of acquisitions/disposals - (20)
IAS 39 impact (122) (78)
Net interest income excluding trading impact of
acquisitions and disposals, IAS 39 impact 2,635 2,209 19
The excellent performance in net interest income was driven by the continued
strong growth in loans and resources across the Group. Customer lending
increased by 21% and resources grew by 16%. A number of drivers contributed to
this volume growth: the continuing favourable economic backdrop to our
activities in Ireland and the UK; the strength of our franchise in Ireland,
supported by the scale of our multi-channel distribution; together with the
benefits from our investment in business banking in Ireland and the UK, and
Corporate Banking.
Other Income
31 March 2007 31 March 2006 % Change
€m €m
Other income 1,112 1,132 (2)
Trading impact of acquisitions/disposals (122) (159)
IAS 39 impact 122 78
Other income excluding trading impact of acquisitions
and disposals, IAS 39 impact 1,112 1,051 6
The drivers of other income growth include: new business sales in our Life
business, Private Banking and POFS; growth in the level of arrangement fees
earned in Corporate Banking as we increase our role as arranger of debt
structures; and increased activity in our credit card businesses. This growth in
other income was partially offset by reduced income from BIAM and a significant
positive investment variance and change in the discount rate in the prior period
in the Life business.
Group Net Interest Margin
31 March 2007 31 March 2006 Change
Average interest earning assets (€billion) 156 129 21%
Group net interest margin (%) 1.77 1.79 (2bps)
IAS impact on Group Net Interest Margin (%)
Net interest margin excluding impact of IAS 39 1.69 1.73 (4bps)
IAS impact 0.08 0.06 2bps
Group Net Interest Margin 1.77 1.79 (2bps)
The Group net interest margin decreased by 2bps to 1.77% for the year to 31
March 2007 from 1.79% for the year to 31 March 2006. Group net interest margin
is increased by the classification of certain interest expense under IAS 39
which relates to the designation of certain financial instruments under the fair
value option. Excluding the impact of IAS 39 in the current and prior period,
margin attrition was 4 basis points.
The pace of margin attrition has slowed significantly as rising interest rates
and changing product mix continue to impact positively. The drivers of attrition
over the year are primarily balance sheet structure where the rate of loan
growth outpaces resources, and product margins where competition has impacted on
mortgage pricing.
Operating Expenses
Total Operating Expenses increased by 6%, or by 9% excluding the trading impact
of acquisitions and disposals.
Efficiency improvements remain a core focus and we continue to make significant
progress in this regard. Our cost/income ratio continues to improve with a
further reduction of 3 percentage points from 57% in March 2006 to 54% in March
2007.
Total Operating Expenses
31 March 2007 31 March 2006 % Change
€m €m
Operating expenses 2,110 1,988 6
Trading impact of acquisitions/disposals (91) (138)
Operating expenses excluding the trading impact of
acquisitions and disposals 2,019 1,850 9
The main drivers of total operating expenses (excluding the trading impact of
acquisitions and disposals) were:
• Investment costs of 2% relating to the development of our Global Markets
and Corporate Banking activities in Europe and the United States together with
the costs associated with the continuing development of POFS.
• Compliance costs of 2% associated with the Sarbanes-Oxley and Basel II
programmes.
• Business as usual cost growth of 8% where 3% is due to volume growth and
performance related compensation. The remaining 5% is due to inflation.
• Cost savings of (3%) arising from the continued successful implementation
of the Strategic Transformation Programme.
We are significantly ahead of schedule in the implementation of the Strategic
Transformation Programme. In the current year to 31 March 2007 we have achieved
savings of €95 million against our stated target of €75 million.
During the year, we have continued the implementation of our streamlined
operating model which is consolidating middle and back office and support
activities to drive productivity improvements. These include, the consolidation
of contact centres and credit operations in our Group Manufacturing function,
and the consolidation of credit underwriting in our UK mortgage business, all of
which are well advanced and provide scale efficient operations to the Group.
Our Group Manufacturing function is consolidating a further range of back office
activities in our operating divisions in order to drive further productivity
improvements. We also successfully completed the outsourcing of procurement,
learning, and facilities management during the year, and are further
streamlining group support functions.
Impairment of Loans and Advances
The credit environment remains exceptionally benign and the economic backdrop to
our activities, in particular in our main markets in Ireland and the United
Kingdom remains positive.
The impairment charge for the year amounts to €103m or 9bps when expressed as a
percentage of average loans (March 2006: €103m and 11bps). Impairment losses on
loans and advances are at historically low levels. Loan losses have benefited
from some provision write-backs during the year, in particular write-backs in
Corporate Banking amounting to €26m.
Total balance sheet provisions were €428m at 31 March 2007 compared with €360m
at 31 March 2006 representing a coverage ratio of 44%.
Asset Quality
31 March 2007 31 March 2006 % Change
Impairment losses on loans and advances €103m €103m -
Impairment charge on loans and advances 9bps 11bps -
Total average customer advances €116bn €93bn 25
Impaired loans €968m €796m 22
Impairment provision € 428m €360m 19
Coverage ratio 44% 45% -
Share of Associates and Joint Ventures
Profit after tax from associated undertakings and joint ventures decreased
marginally by 2% to €44 million.
Balance Sheet - Capital and Funding
Total assets increased by 17% from €162 billion to €189 billion in the year to
31 March 2007. Customer lending increased by 21% and total resources increased
by 16%. Pre-securitisation, risk-weighted assets grew by 21%.
Post-securitisation, risk weighted assets grew by 16% from €98 billion to €113
billion.
% Growth March 2007 over March 2006
Risk Weighted Customer Lending Resources
Assets
Retail Republic of Ireland 26 25 11
Capital Markets 21 17 9
UK Financial Services 21 18 47
Group 21 21 16
Capital
Our capital position has been enhanced during the year by the successful
implementation of a range of capital management initiatives including the sale
and leaseback of 36 retail branches in Ireland together with the securitisation
of a portion of the Irish and UK mortgage books. In addition, the profit on the
disposal on Davy also made a positive contribution. Our total capital ratio and
tier 1 ratio increased from 11.4% and 7.5% at 31 March 2006 to 11.8% and 8.2%
respectively at 31 March 2007. The equity tier 1 ratio increased from 4.8% to
5.2% over the same period.
During the year the Group raised £500 million (€736 million) of non-equity tier
1 capital and €750m of lower tier 2 capital.
The Group completed two mortgage securitisations during the year that had the
impact of reducing risk-weighted assets by €5.5 billion as at 31 March 2007.
Kildare Securities is a €2.95bn securitisation from the ICS mortgage book in
Ireland and Brunel Securities is a £5.5bn (€8bn) securitisation from the Bristol
& West mortgage book in the UK.
The Group's capital position remains strong and our active approach to capital
management provides us with adequate capital to support our business plans going
forward.
We are well advanced in our preparations to submit our application to the
Financial Regulator for qualification under the Basel II Foundation Internal
Ratings Based approach in mid 2007 under Pillar 1 along with our assessment of
capital adequacy under Pillar 2. In common with many other diversified financial
services organisations, we anticipate a modest reduction in our minimum capital
requirements under Basel II.
Funding
The level of wholesale funding during the year increased from €69bn at 31 March
2006 to €80bn at 31 March 2007. As a percentage of total balance sheet assets
(excluding Bank of Ireland Life assets held on behalf of policyholders) the
level of wholesale funding remained unchanged at 46%. Our funding strategy
remains to maximise the diversification of our funding across maturity, investor
type, and geography. Investor demand remains strong for Bank of Ireland paper.
Dividend
The Court has recommended a final dividend of 39.4 cent per unit of stock in
respect of the year ending 31 March 2007. The recommended final dividend
together with the interim dividend of 21 cent results in a total dividend of
60.4 cent per unit of stock for the year ended 31 March 2007, an increase of 15%
on the prior year.
Return on Equity
Return on equity, excluding the impact of non-core items (set out on pages 16
and 17) was 23% for the year to 31 March 2007 compared to 24% in the year to 31
March 2006.
Effective Tax Rate
The Group taxation charge was €306m for the year ended 31 March 2007, compared
to €303m for the prior year. The effective tax rate was 15.6% compared to 19.9%
(restated for change in accounting policy) for year ending 31 March 2006. The
change in the tax rate was affected by the disposal of Davy, the abolition of
the Bank Levy in December 2005 and the reduced gross-up for policyholder tax in
the Life business.
Income Statement March 31, 2007 - Business Segments
Year ended March 31, 2007
Net Insurance Other Total Insurance Total Operating Impairment Share of Profit
Interest net Income Income Claims income, expenses losses on income before
Income premium net of loans & from taxation
income insurance advances associates
claims
€m €m €m €m €m €m €m €m €m €m
Retail Republic of
Ireland 1,311 - 377 1,688 - 1,688 (927) (63) - 698
BOI Life (5) 2,155 307 2,457 (2,205) 252 (104) - - 148
Capital Markets 671 - 379 1,050 - 1,050 (456) (21) (1) 572
UK Financial Services 784 - 129 913 - 913 (497) (20) 45 441
Group Centre (4) 33 (55) (26) (8) (34) (126) 1 - (159)
Group - underlying 2,757 2,188 1,137 6,082 (2,213) 3,869 (2,110) (103) 44 1,700
Sale of business
activities/property - - 358 358 - 358 - - - 358
Gross up of
policyholder tax
in the Life business - - 19 19 - 19 - - - 19
Investment return on
treasury shares for
policyholders - - (68) (68) - (68) - - - (68)
Hedge ineffectiveness
on transition to IFRS - - (2) (2) - (2) - - - (2)
Restructuring
programme - - - - - - (49) - - (49)
Group - total 2,757 2,188 1,444 6,389 (2,213) 4,176 (2,159) (103) 44 1,958
This reconciliation shows the Group and Divisional underlying income statements
with a reconciliation of the impact of the non-core items in arriving at the
Group Total Income Statement.
Income Statement March 31, 2006 (Restated*) - Business Segments
Year ended March 31, 2006
Net Insurance Other Total Insurance Total Operating Impairment Share of Profit
Interest net Income Income Claims income, expenses losses on income before
Income premium net of loans & from taxation
income insurance advances associates
claims
€m €m €m €m €m €m €m €m €m €m
Retail Republic of
Ireland 1,119 - 351 1,470 - 1,470 (871) (54) 5 550
BOI Life 8 1,264 612 1,884 (1,655) 229 (95) - - 134
Capital Markets 461 - 458 919 - 919 (425) (23) - 471
UK Financial
Services 722 - 94 816 - 816 (481) (26) 40 349
Group Centre (3) 34 (15) 16 (11) 5 (116) - - (111)
Group - underlying 2,307 1,298 1,500 5,105 (1,666) 3,439 (1,988) (103) 45 1,393
Sale of business
activities/property - - 176 176 - 176 - - - 176
Gross up of
policyholder tax
in the Life
business - - 69 69 - 69 - - - 69
Investment return on
treasury shares for
policyholders - - (75) (75) - (75) - - - (75)
Hedge ineffectiveness
on transition to IFRS - - (7) (7) - (7) - - - (7)
Restructuring
programme - - - - - - (32) - - (32)
Group - total 2,307 1,298 1,663 5,268 (1,666) 3,602 (2,020) (103) 45 1,524
*Restated for change in accounting policy - see page 23
This reconciliation shows the Group and Divisional underlying income statements
with a reconciliation of the impact of the non-core items in arriving at the
Group Total Income Statement.
Consolidated Income Statement
for the year ended 31 March 2007
Notes
2007 2006
Restated*
€m €m
Interest Income 2 8,137 5,954
Interest Expense 2 (5,380) (3,647)
Net Interest Income 2,757 2,307
Insurance net premium income 2,188 1,298
Fees and commissions income 898 912
Fees and commissions expense (160) (170)
Net trading income (70) 30
Life assurance investment income and gains 3 247 599
Other operating income 4 199 116
Profit on disposal of business activity 5 243 176
Profit on sale of property 87 -
Total Operating Income 6,389 5,268
Increase in insurance contract liabilities and claims paid (2,213) (1,666)
Total Operating Income, net of Insurance Claims 4,176 3,602
Total Operating Expenses 6 (2,159) (2,020)
Operating Profit before Impairment Losses 2,017 1,582
Impairment losses (103) (103)
Operating Profit 1,914 1,479
Share of profit of associated undertakings and joint ventures 44 45
Profit before Taxation 1,958 1,524
Taxation 8 (306) (303)
Profit for the Period 1,652 1,221
Attributable to minority interests 1 (9)
Attributable to stockholders 1,651 1,230
Profit for the Period 1,652 1,221
Earnings per unit of €0.64 ordinary stock 9 172.2c 128.5c
Diluted earnings per unit of €0.64 ordinary stock 9 171.0c 127.6c
* Restated for change in accounting policy - see page 23
Richard Burrows George Magan Brian J Goggin John B Clifford
Governor Deputy Governor Group Chief Executive Secretary
Consolidated Balance Sheet as at 31 March 2007 Notes
2007 2006
Restated*
ASSETS €m €m
Cash and balances at central banks 362 287
Items in the course of collection from other banks 811 930
Central government and other eligible bills 11 8
Trading securities 520 620
Derivative financial instruments 2,849 2,085
Other financial assets at fair value through P/L 12,707 10,438
Loans and advances to banks 7,210 12,188
Available-for-sale financial assets 33,449 28,205
Loans and advances to customers 10 125,048 101,246
Interest in associated undertakings 26 21
Interest in joint ventures 73 75
Assets classified as held for sale 83 -
Intangible assets - Goodwill 347 375
Intangible assets - Other 596 590
Investment property 1,142 807
Property, plant and equipment 665 860
Deferred tax assets 12 25 30
Other assets 2,889 3,447
Total assets 188,813 162,212
EQUITY AND LIABILITIES
Deposits by banks 20,405 32,312
Customer accounts 11 72,277 61,710
Items in the course of transmission to other banks 243 284
Derivative financial instruments 2,935 1,647
Liabilities to customers under investment contracts 6,736 6,650
Debt securities in issue 59,523 36,814
Insurance contract liabilities 7,190 5,192
Other liabilities 3,983 4,711
Deferred tax liabilities 12 278 207
Provisions 87 153
Retirement benefit obligations 13 590 808
Subordinated liabilities 7,808 6,493
Total liabilities 182,055 156,981
Equity
Share capital 15 663 663
Share premium account 16 771 767
Retained profit 16 4,672 3,188
Other reserves 16 905 803
Own shares held for the benefit of life assurance policyholders (287) (235)
Stockholders' equity 6,724 5,186
Minority interests 34 45
Total equity 6,758 5,231
Total equity and liabilities 188,813 162,212
* Restated for change in accounting policy - see page 23
Richard Burrows George Magan Brian J Goggin John B Clifford
Governor Deputy Governor Group Chief Executive Secretary
Statement of Recognised Income and Expense
for the year ended 31 March 2007
The Group
2007 2006
Restated*
€m €m
Net gain on property revaluation/reclassification 18 187
Net change in cash flow hedge reserve 135 (7)
Net change in Available-for-Sale reserve (49) (104)
Net actuarial gains/losses in defined benefit pension schemes 190 113
Foreign exchange translations 49 (17)
Income/expense recognised in equity 343 172
Profit for the period 1,652 1,221
Total recognised income/expense for the year 1,995 1,393
Attributable to:
Equity holders of the parent 1,994 1,402
Minority interests 1 (9)
1,995 1,393
Effect of change in accounting policy adjusted against retained earnings 2007 2006
€m €m
Equity holders of the parent - (90)
Minority interests - -
- (90)
* Restated for change in accounting policy - see page 23
Richard Burrows George Magan Brian J Goggin John B Clifford
Governor Deputy Governor Group Chief Executive Secretary
Cash Flow Statement
For the year ended 31 March 2007
The Group
Cash flows from operating activities 2007 2006
Restated*
€m €m
Profit before taxation 1,958 1,524
Share of profit of associated undertakings and joint ventures (44) (45)
Profit on disposal of business activity (243) (176)
Profit on disposal of property (87) (4)
Depreciation and amortisation 151 166
(Increase)/decrease in prepayments and accrued income (292) 61
Increase in accruals and deferred income 323 132
Provisions for impairment of loans and advances 103 103
Loans and advances written off net of recoveries (34) (64)
Revaluation of investment property (96) (53)
Profit on disposal of investment property (6) (49)
Interest expense on subordinated liabilities and other capital 381 256
instruments
Profit on disposal of available-for-sale financial instruments (10) (4)
Charge for share based payments 12 11
Amortisation of premiums and discounts (52) (98)
Amortisation of debt issue expenses 5 2
Cash flows from operating activities before changes in operating
assets and liabilities 2,069 1,762
Net (decrease)/increase in deposits by banks (11,810) 11,484
Net increase in customer accounts 9,988 1,852
Net increase in loans and advances to customers (22,736) (21,925)
Net decrease/(increase) in loans and advances to banks 3,035 (1,574)
Net (increase)/decrease in non investment debt & equity (68) 499
securities
Net increase/(decrease) in derivative financial instruments 621 (340)
Net (increase)/decrease in assets at fair value through P/L (2,317) (2,390)
Net increase/(decrease) in items in course of collection 83 (319)
Net increase in debt securities in issue 22,624 15,604
Net decrease/(increase) in other assets 191 (571)
Net increase/(decrease) in other liabilities 1,771 2,763
Effect of exchange translation and other adjustments 1 (20)
Net cash inflow from operating assets and liabilities 1,383 5,063
Net cash inflow from operating activities before taxation 3,452 6,825
Taxation paid (272) (230)
Net cash inflow from operating activities 3,180 6,595
Investing activities (note a) (5,792) (7,391)
Financing activities (note b) 709 1,762
(Decrease)/increase in cash and cash equivalents (1,903) 966
Opening cash and cash equivalents 6,162 5,217
Effect of exchange translation adjustments 38 (21)
Closing cash and cash equivalents 4,297 6,162
* Restated for change in accounting policy - see page 23
Cash Flow Statement (continued)
The Group
2007 2006
Restated*
(a) Investing activities €m €m
Net increase in financial investments (5,865) (7,217)
Additions to tangible fixed assets (57) (50)
Disposal of tangible fixed assets 257 60
Additions to intangible fixed assets (109) (106)
Disposal of intangible fixed assets - 8
Purchase of investment property (263) (353)
Disposal of investment property 30 151
Purchase of assets held for sale (10) -
Disposal of business activities 323 227
Cash balances of subsidiary disposed of (122) -
Acquisition of Group undertaking - (120)
Dividends received from joint ventures 68 25
(Increase)/decrease in investments in associated (4) 1
undertakings
Deferred consideration paid (19) (18)
Net cash balances of Group undertakings - 1
acquired
Acquisition of Joint Venture (21) -
Cash flows from investing activities (5,792) (7,391)
(b) Financing activities
Re issue of Treasury stock and issue of 133 48
ordinary stock
Issue of new subordinated liabilities 1,479 2,414
Interest paid on subordinated liabilities (361) (233)
Equity dividends paid (524) (448)
Dividends on other equity interests (15) (13)
Dividends paid to minority interests (3) (6)
Cash flows from financing activities 709 1,762
* Restated for change in accounting policy - see page 23
Richard Burrows George Magan Brian J Goggin John B Clifford
Governor Deputy Governor Group Chief Executive Secretary
Accounting Policies
The Group accounting policies have not changed in the preparation of these
accounts with the exception of:
Change in method of Assessing Materiality
During the year, the Group changed its method of assessing materiality. The
Group previously considered the materiality of misstatements based on the amount
of the misstatement originating in the current year income statement. The Group
has now decided to consider the effect of any misstatements based on both;
(1) the amount of the misstatement originating in the current year income
statement, and;
(2) the effects of correcting the misstatement existing in the balance sheet
at the end of the current year irrespective of the year in which the
misstatement originated.
The Group considers that this change of policy provides more relevant financial
information as it prevents the accumulation of misstatements in the balance
sheet. As a result of this change, the Group has revised its prior year
financial statements for the adjustments set out below, which under the previous
method of quantifying misstatements, would have been considered immaterial.
IFRS requires that Bank of Ireland shares held by the Group, including those
held by BOI Life are classified as treasury shares and accounted for as a
deduction from equity. Any changes in the value of treasury shares held are
recognised in equity at the time of disposal and dividends are not recognised as
income or distributions. In prior years, the Group did not apply this treatment
to the investment return on shares in Bank of Ireland held by BOI Life. Rather
it recognised investment return on Bank of Ireland shares held in BOI Life on
the grounds that such investment return legally accrues to the unit-linked
policyholders and accordingly is matched by an increase in liabilities in the
income statement. The Group believes that application of the requirements of
IFRS for treasury shares held by BOI Life for the benefit of policyholders
creates an artificial loss and does not present fairly the legal and economic
consequences of such transactions. However the Group accepts that this
accounting is the basis which is currently required under IFRS and consistent
with the adoption of a materiality policy that considers the effect of
correcting a cumulative balance sheet misstatement on the current year income
statement, that it is now appropriate to adjust for this requirement under IFRS.
The adjustments below relate to the holding of Bank of Ireland shares by BOI
Life for the benefit of unit-linked policyholders that must be accounted for as
treasury shares under IAS 32.
In the income statement there are two adjustments to the prior year, 31 March
2006, income statement. Life assurance investment income and gains has been
reduced by €26m from €625m, as previously reported to 31 March 06, to €599m.
Other operating income has been reduced by €49m from €165m to €116m. As a result
Profit before tax was €75m lower, down from €1,599m to €1,524m.
Basic earnings per share were reduced by 7.9c from 136.4c to 128.5c while
diluted earnings per share were similarly reduced from 135.4c to 127.6c. In the
balance sheet as at 31 March 2006, Assets at fair value through profit & loss
were reduced by €142m from €10,580m to €10,438m and retained earnings reduced by
the same amount from €3,330m to €3,188m. The impact of the changes described
above on retained profit as at 31 March 2005 was €90m.
Notes to the Financial Statements
The accounts in this preliminary announcement are not the statutory accounts of
the Bank and a copy of which is required to be annexed to the Bank's annual
return to the Companies Registration Office in Ireland. A copy of the statutory
accounts required to be annexed to the Bank's annual return in respect of the
year ended 31 March 2006 has in fact been so annexed. A copy of the statutory
accounts in respect of the year ended 31 March 2007 will be annexed to the
company's annual return for 2007. The auditors of the company have made a
report, without any qualification on their audit of the statutory accounts of
the company in respect of the year ended 31 March 2006. The directors approved
the Bank's statutory accounts for the year ended 31 March 2007 on 30 May 2007
and the auditors have made a report without any qualification on their audit of
those statutory accounts.
1 Segmental Reporting
The segmental analysis of the Group's results and financial position is set out
below by business class and by geographic segment. For the geographic analysis
Ireland (excluding Northern Ireland) includes profits generated in the
International Financial Services Centre. Revenue is defined as gross interest
income, non interest income, insurance net premium income, net of insurance
claims and income from associates and joint ventures. The Group has five
business classes detailed in the table below. During the year Wholesale
Financial Services and Asset Management Services divisions were combined to form
the Capital Markets Division. Prior year results have been adjusted to reflect
this change.
The analysis of results by business class is based on management accounts
information. Transactions between the business segments are on normal
commercial terms and conditions. Internal charges and transfer pricing
adjustments have been reflected in the performance of each business. Revenue
sharing agreements are used to allocate external customer revenues to a business
segment on a reasonable basis.
1 Segmental Reporting (continued)
Business Segments
Year ended Retail BOI Life Capital UK Group Eliminations Group
31 March 2007 Republic Markets Financial Centre
of Ireland Services
€m €m €m €m €m €m €m
Net interest income/expense 1,311 (5) 671 784 (4) - 2,757
Insurance net premium income - 2,155 - - 33 - 2,188
Other income 377 326 379 129 (93) - 1,118
Profit on disposal of business activities/ 87 - - 6 233 - 326
property
Total income 1,775 2,476 1,050 919 169 - 6,389
Insurance claims - (2,205) - - (8) - (2,213)
Total income, net of insurance claims 1,775 271 1,050 919 161 - 4,176
Operating expenses (852) (100) (439) (458) (159) - (2,008)
Depreciation and amortisation (75) (4) (17) (39) (16) - (151)
Impairment losses (63) - (21) (20) 1 - (103)
Income from associates and joint ventures - - (1) 45 - - 44
Profit before taxation 785 167 572 447 (13) - 1,958
Profit on disposal of business activities - - - (6) (233) - (239)
Profit on disposal of property (87) - - - - - (87)
Gross up of policyholder tax in the Life - (19) - - - - (19)
business
Investment return on treasury shares held - - - - 68 - 68
for policyholders
Hedge ineffectiveness on transition to IFRS - - - - 2 - 2
Sale of Head Office - - - - (32) - (32)
Restructuring programme - - - - 49 - 49
Group profit before tax excluding the 698 148 572 441 (159) - 1,700
impact of above items
Total assets 98,599 14,908 167,336 73,503 30,801 (196,334) 188,813
Total liabilities 96,758 14,769 165,841 71,143 29,878 (196,334) 182,055
Capital expenditure 54 7 18 58 29 - 166
The profit to the Group on disposal of Davy's was €229m. Attributed to the gain
on disposal was €4m relating to cost incurred for internal work completed and
charged against the sale by other Divisions. This charge out is priced on an
arms length basis and has been eliminated on consolidation. See note 5.
1 Segmental Reporting (continued)
Business Segments
Year ended Retail
31 March 2006 Republic UK
Restated* of BOI Capital Financial Group
Ireland Life Markets Services Centre Eliminations Group
€m €m €m €m €m €m €m
Net interest income 1,119 8 461 722 (3) - 2,307
Insurance net premium income - 1,264 - - 34 - 1,298
Other income 351 681 458 94 (97) - 1,487
Profit on disposal of business activities - - - 176 - - 176
Total income 1,470 1,953 919 992 (66) - 5,268
Insurance claims - (1,655) - - (11) - (1,666)
Total income, net of insurance claims 1,470 298 919 992 (77) - 3,602
Operating expenses (790) (92) (404) (448) (120) - (1,854)
Depreciation and amortisation (81) (3) (21) (33) (28) - (166)
Impairment losses (54) - (23) (26) - - (103)
Income from associates and joint ventures 5 - - 40 - - 45
Profit before taxation 550 203 471 525 (225) - 1,524
Sale of business activities - - - (176) - - (176)
Gross up of policyholder tax in the Life - (69) - - - - (69)
business
Investment return on treasury shares held - - - - 75 75
for policyholders
Hedge ineffectiveness on transition to - - - - 7 - 7
IFRS
Restructuring programme - - - - 32 - 32
Group profit before tax excluding the 550 134 471 349 (111) - 1,393
impact of above items
Total assets 77,935 12,326 139,680 54,580 19,391 (141,700) 162,212
Total liabilities 76,320 12,210 138,402 52,501 19,248 (141,700) 156,981
Capital expenditure 55 - 36 58 30 - 179
* Restated for change in accounting policy - see page 23
Capital expenditure comprises additions to property and equipment and intangible
assets including additions resulting from acquisitions through business
combinations.
1 Segmental Reporting (continued)
Geographical Segments
31 March 2007
United Rest of Inter-segment
Ireland Kingdom World Revenue Total
€m €m €m €m €m
Revenue 7,398 4,646 327 (2,611) 9,760
Profit before taxation 1,603 314 41 - 1,958
United Rest of
Ireland Kingdom World Eliminations Total
€m €m €m €m €m
Total assets 168,843 84,268 5,002 (69,300) 188,813
Capital expenditure 99 58 9 - 166
31 March 2006 (Restated*)
United Rest of Inter-segment
Ireland Kingdom World Revenue Total
€m €m €m €m €m
Revenue 5,252 3,861 234 (1,883) 7,464
Profit before taxation 1,003 478 43 - 1,524
United Rest of
Ireland Kingdom World Eliminations Total
€m €m €m €m €m
Total assets 143,342 63,680 3,885 (48,695) 162,212
Capital expenditure 95 58 26 - 179
* Restated for change in accounting policy - see page 23
2 Net Interest Income
The Group
2007 2006
€m €m
Interest and similar income
Loans and advances to banks 292 238
Loans and advances to customers 6,272 4,576
Financial assets - available for sale 1,342 934
Finance leasing 222 197
Other 9 9
Total interest income 8,137 5,954
Interest expense and similar charges
Interest on subordinated liabilities 370 250
Other interest payable 5,010 3,397
Total interest expense 5,380 3,647
3 Life Assurance Investment Income and Gains The Group
2007 2006
€m €m
Life assurance investment income and gains 275 625
Elimination of investment return of treasury shares held for the benefit of (28) (26)
policyholders
247 599
4 Other Operating Income The Group
2007 2006
Restated*
€m €m
Profit on disposal of financial assets - available for sale 10 4
Other insurance income 176 151
Elimination of the investment return on treasury shares held on (40) (49)
behalf of policyholders
Gain on sale of Head Office premises 32 -
Other income 21 10
199 116
* Restated for change in accounting policy - see page 23
5 Profit on Disposal of Business Activities
To 31 March 2007:
On 21 April 2006 the Group completed the sale of Enterprise Finance Europe GmbH
for a consideration of €10m giving rise to a profit on disposal of €8m. Costs
incurred on disposal were €1m.
On 31 October 2006 the Group completed the sale of its 90.444% equity stake in
Davy Stockbrokers to the management and staff of Davy.
€m
Carrying value of net assets at date of disposal 84
Cost of disposal 3
Gain on disposal 229
Cash consideration received 316
5 Profit on Disposal of Business Activities (continued)
In addition, €6m was written back to the Group profit and loss account in relation to costs
provided at 31 March 2006 against anticipated expenses in exiting certain contracts relating to
the disposal of the Bristol & West branch network.
To 31 March 2006:
On 21 September 2005 the Group disposed of the Bristol & West branch network.
€m
Carrying value of net tangible assets 8
Cost of disposal 43
Gain on disposal of branch operations 176
Cash consideration received 227
6 Total Operating Expenses The Group
2007 2006
€m €m
Administrative expenses
- Staff costs 1,244 1,167
- Other administrative expenses 764 687
Depreciation
- Intangibles 97 106
- Property, plant and equipment 54 60
2,159 2,020
7 Staff Numbers
In the year ended 31 March 2007 the average full time equivalents was 15,952
(2006:16,190), categorised as follows in line with the business classes as
stated in Note 2.
2007 2006
Retail Republic of Ireland 8,451 7,987
BOI Life 1,100 1,063
Capital Markets 1,986 2,091
UK Financial Services 3,415 3,930
Group Centre 1,000 1,119
15,952 16,190
8 Taxation
The Group
2007 2006
€m €m
Current Tax
Irish Corporation Tax
Current Year 244 191
Prior Year 12 8
Double Taxation Relief (30) (20)
Foreign Tax
Current Year 98 86
Prior Year 3 (3)
327 262
Deferred Tax
Origination & reversal of temporary differences (21) 41
Charge for the year 306 303
9 Earnings per Share
The calculation of basic earnings per unit of €0.64 Ordinary Stock is based on the profit attributable to
Ordinary Stockholders divided by the weighted average Ordinary Stock in issue excluding Treasury stock and
own shares held for the benefit of life assurance policyholders.
The Group
2007 2006
Restated*
Basic €m €m
Profit attributable to stockholders 1,651 1,230
Dividends on other equity interests (15) (13)
Profit attributable to Ordinary Stockholders 1,636 1,217
Weighted average number of shares in issue excluding Treasury stock and own shares
held for the benefit of life assurance policyholders 950m 947m
Basic earnings per share 172.2c 128.5c
The diluted earnings per share is based on the profit attributable to Ordinary Stockholders divided by the
weighted average Ordinary Stock in issue excluding Treasury stock and own shares held for the benefit of
life assurance policyholders adjusted for the effect of all dilutive potential Ordinary Stock.
2007 2006
Restated*
Diluted €m €m
Profit attributable to stockholders 1,651 1,230
Dividends on other equity interests (15) (13)
Profit attributable to Ordinary Stockholders 1,636 1,217
Weighted average number of shares in issue excluding Treasury stock and own shares
held for the benefit of life assurance policyholders 950m 947m
Effect of all dilutive potential Ordinary Stock 7m 7m
957m 954m
Diluted earnings per share 171.0c 127.6c
* Restated for change in accounting policy - see page 23
10 Loans and Advances to Customers
The Group
2007 2006
€m €m
Loans and advances to customers 121,933 98,497
Loans and advances to customers - finance leases and hire purchase receivables 3,543 3,108
Gross loans and advances 125,476 101,605
Less allowance for losses on loans and advances (428) (359)
125,048 101,246
10 Loans and Advances to Customers (continued)
The Group
Allowance for losses on loans and advances to customers and 2007 2006
banks €m €m
Movement in allowance for losses on loans and advances as
follows:
Opening balance 360 319
Exchange adjustments 1 (1)
Charge against profits 104 100
Amounts written off (53) (85)
Recoveries 19 21
Other movements (3) 6
Closing balance 428 360
Of which relates to:
Loans and advances to customers 428 359
Loans and advances to banks - 1
428 360
11 Customer Accounts
The Group
2007 2006
€m €m
Current accounts 16,932 15,876
Demand deposits 25,393 18,344
Term deposits and other products 27,333 25,877
Other short term borrowings 2,619 1,373
Securities sold under agreement to repurchase - 240
72,277 61,710
12 Deferred Tax
The Group
2007 2006
€m €m
The movement on the deferred tax account is as follows
Opening balance 177 143
Income Statement Charge for Year (21) 41
Available for Sale Securities - Transferred to reserves (8) (15)
Cash Flow Hedges - Transferred to reserves 53 (1)
Revaluation/reclassification of Property during year 16 25
Pension 21 18
Other Movements 15 (34)
Closing balance 253 177
13 Retirement Benefit Obligations
The Group operates a number of defined benefit and defined contribution schemes
in Ireland and overseas. The defined benefit schemes are funded and the assets
of the schemes are held in separate trustee administered funds. The most
significant defined benefit scheme is the 'Bank of Ireland Staff Pension Fund'
which accounts for approximately 80% of the pension liability on the Group
balance sheet.
In determining the level of contributions required to be made to each scheme and
the relevant charge to the income statement the Group has been advised by
independent actuaries, Watson Wyatt(Ireland) Limited. The last formal valuation
using the projected unit method was carried out on 31 March 2007. The projected
unit method measures liabilities taking account of the projected future levels
of pensionable earnings at the time of commencement of benefits i.e. at normal
retirement date. The valuation disclosed that the assets after allowing for
expected future increases in earnings and pensions represented 108% of the
benefits that have accrued to members. The actuary has recommended that the
existing funding programme be maintained until the results of the next formal
valuation of the fund, which will be made as at 31 March 2007, are available.
The financial assumptions used in deriving the valuation are set out in the
table below.
Financial assumptions 2007 2006
% pa % pa
Irish Schemes
Inflation rate 2.25 2.10
Discount rate 4.95 4.60
Rate of general increase in salaries 3.38* 3.26*
Rate of increase in pensions in payment 3.08* 2.93*
Rate of increase to deferred pensions 2.25 2.10
UK Schemes
Inflation rate 3.00 2.75
Discount rate 5.30 4.95
Rate of general increase in salaries 4.22* 3.97*
Rate of increase in pensions in payment 3.58* 3.33*
Rate of increase to deferred pensions 3.00 2.75
* Allows for additional 0.5% for 5 years beginning 1 April 2005 for Staff Pension Fund
Mortality assumptions
The Mortality assumptions used in estimating the actuarial value of the
liabilities for the Bank of Ireland Staff Pension Fund are the same as those
adopted in the formal actuarial valuation at 31 March 2004. A complete actuarial
review of mortality experience will be carried out between 1 April 2007 and 30
September 2007.
Post-retirement mortality assumptions (Main Scheme) 2007 2006
Longevity at age 60 for current pensioners (years)
Males 22.3 22.3
Females 25.3 25.3
Longevity at age 60 for future pensioners (years)
Males 24.5 24.5
Females 27.5 27.5
13 Retirement Benefit Obligations (continued)
The expected long term rates of return and market value of assets of the
material defined benefit plans on a combined basis as at 31 March 2007 and 31
March 2006 were as follows:
2007 2006
Expected long Market Value Expected Market Value
term rate of long term
return rate of return
% €m % €m
Equities 7.4 3,014 7.5 2,687
Bonds 4.35 953 4.2 860
Property 5.7 457 6.5 487
Cash 4.1 81 3.3 36
Total market value of schemes assets 6.5 4,505 6.6 4,070
Actuarial value of liabilities of
funded schemes (5,082) (4,866)
Aggregate deficit in schemes (577) (796)
Unfunded schemes (10) (12)
Net pension deficit (587) (808)
The liability to defined contribution schemes at 31 March 2007 was €3m. The
pension scheme assets within equities included Bank of Ireland shares amounting
to €69m (31 March 2006: €58m) and property occupied by Group companies to the
value of €50m (31 March 2006: €150m).
Analysis of the amount recognised in Statement of Recognised Income and Expense (SORIE)
2007 2006
€m €m
Actuarial gain/(loss) on scheme assets 144 401
Experience gain/(loss) on liabilities (126) (46)
Gain/(loss) on change of assumptions (financial and demographic) 211 (224)
Currency (loss) (16) -
Total gains/(losses) recognised in the SORIE during the year before 213 131
adjustment of tax
Cumulative amount of gains/(losses) recognised in SORIE to end of year (118) (331)
Defined benefit pension plans 2007 2006 2005
€m €m €m
Present value of obligations 5,092 4,878 4,341
Scheme assets 4,505 4,070 3,417
Deficit within schemes 587 808 924
Sensitivity analysis for each of the assumptions used to measure the scheme
liabilities, showing the increase in defined benefit obligations at 31 March
2007.
Factor Change in assumption BOI Staff Pension Fund
Impact in scheme liabilities
Discount rate Decrease 0.1% Increase 2.2%
Rate of Inflation Increase 0.1% Increase 2.2%
Rate of salary growth Increase 0.1% Increase 0.8%
Life expectancy Increase by 1 year Increase 2.9%
While the table above shows the impact of an individual assumption change, a
change in one assumption could impact on other assumptions due to the
relationship between assumptions.
14 Contingent Liabilities and Commitments
The tables below give, for the Group, the contract amounts and risk
weighted amounts of contingent liabilities and commitments. The maximum
exposure to credit loss under contingent liabilities and commitments is the
contract amount of the instrument in the event of non-performance by the other
party where all counter claims, collateral or security proved worthless. The
risk weighted amounts have been calculated in accordance with the Irish
Financial Services Regulatory Authority guidelines implementing the Basel
agreement on capital adequacy (i).
The Group
2007 2006
Risk Risk
Contract Weighted Contract Weighted
Amount Amount Amount Amount
The Group - Contingent Liabilities €m €m €m €m
Acceptances and endorsements 39 24 37 21
Guarantees and assets pledged as collateral security
- Assets pledged - - - -
- Guarantees and irrevocable letters of credit 1,719 1,540 1,354 1,321
Other contingent liabilities 745 302 675 327
2,503 1,866 2,066 1,669
The Group - Commitments
Sale and option to resell transactions - - - -
Other commitments
- Documentary credits and short-term trade-related 176 34 160 36
transactions
- Forward asset purchases, forward deposits placed and forward
sale and repurchase agreements - - - -
- Undrawn note issuance and revolving underwriting facilities 758 163 409 -
- Undrawn formal standby facilities, credit lines and other
commitments to lend
- irrevocable with original maturity of over 1 year 10,847 5,208 8,006 3,790
- revocable or irrevocable with original maturity of 1 year 24,232 - 22,362 -
or less (ii)
36,013 5,405 30,937 3,826
(i) Under the Basel agreement, a credit conversion factor is applied to the
contract amount to obtain the credit equivalent amount, which is then risk
weighted according to counterparty.
(ii) Undrawn loan commitments which are unconditionally cancellable at any time
or which have a maturity of less than one year have a risk weighting of zero.
15 Share Capital, Share Premium and Treasury Stock
Capital Stock
The Bank
Authorised 2007 2006
€m €m
1,500m units of €0.64 of Ordinary Stock 960 960
8m units of Non-Cumulative Preference Stock of US$25 each 150 165
100m units of Non-Cumulative Preference Stock of Stg£1 each 147 144
100m units of Non-Cumulative Preference Stock of €1.27 each 127 127
100m units of Undesignated Preference Stock of US$0.25 each 19 21
100m units of Undesignated Preference Stock of Stg£0.25 each 37 36
100m units of Undesignated Preference Stock of €0.25 each 25 25
1,465 1,478
2007 2006
Allotted and fully paid €m €m
611 607
955.4m units of €0.64 of Ordinary Stock 45 49
70.2m units of €0.64 of Treasury Stock 3 3
1.9m units of Non-Cumulative Preference Stock of Stg£1 each 4 4
3.0m units of Non-Cumulative Preference Stock of €1.27 each 663 663
The weighted average Ordinary Stock in issue at 31 March 2007, used in the
earnings per unit of Ordinary Stock calculation, excludes the Treasury Stock
which does not represent Ordinary Stock in issue. Treasury shares do not rank
for dividend and while own shares held for the benefit of life assurance
policyholders legally rank for dividend they do not accrue in the Group
financial statements.
16 Reserves and Retained Earnings
The Group
2007 2006
Restated*
€m €m
Stock premium account
Opening balance 767 767
Premium on issue of stock 4 -
Closing balance 771 767
Capital reserve
Opening balance 359 311
Transfer from retained profit 70 48
Closing balance 429 359
Retained profit
Opening balance previously reported 3,188 2,392
Impact of change in accounting policy* - (90)
Revised opening balance 3,188 2,302
Profit for period attributable to stockholders 1,651 1,230
Equity dividends (524) (448)
Dividends on other equity interests (15) (13)
Transfer to capital reserves (70) (48)
Profit retained 1,042 721
Reissue of treasury stock 129 48
Transfer from revaluation reserve 108 4
Transfer from share based payments reserve 15 -
Actuarial gains/(losses) on pension funds 190 113
Closing balance 4,672 3,188
Share based payments reserve
Opening balance 27 16
Charge to the income statement 12 11
Transfer to retained profit (15) -
Closing balance 24 27
Foreign exchange reserve
Opening balance (125) (108)
Exchange adjustments during year 49 (17)
Closing balance (76) (125)
* Restated for change in accounting policy - see page 23
16 Reserves and Retained Earnings (continued)
The Group
2007 2006
€m €m
Revaluation reserve
Opening balance 342 159
Transfer to revenue reserve on sale of property (108) (4)
Revaluation of property 34 212
Deferred tax on revaluation/reclassification of (16) (25)
property
Closing balance 252 342
Available for sale reserve
Opening balance 26 130
Net changes in fair value (57) (115)
Deferred tax on fair value changes 8 15
Profit/loss on disposal (10) (4)
Closing balance (33) 26
Cash flow hedge reserve
Opening balance 60 67
Net changes in fair value 188 (8)
Deferred tax of fair value changes (53) 1
Closing balance 195 60
Other equity reserve
Opening balance 114 114
Movement during period - -
Closing balance 114 114
17 Acquisitions
Paul Capital Investments:
On 20 June 2006 the Bank entered into a joint venture partnership with Paul
Capital Partners, a leading US private equity specialist, establishing Paul
Capital Investments LLC which provides private equity fund of funds products and
advisory services to institutional and other investors worldwide. The
consideration at the time of acquisition was US$25m. The acquisition is
currently being accounted for as a joint venture using the equity method of
accounting.
Guggenheim Advisors:
On 20 January 2006 the Bank acquired a 71.5% interest in Guggenheim Advisors.
The final cash consideration for the transaction was US$148m, which was reported
last year as being dependent on the performance of the business to 1 April 2006
and 1 August 2006. This is $3m higher than the anticipated consideration of
$145m as reported last year. Goodwill has been adjusted accordingly.
Guggenheim Advisors management and Guggenheim partners both retain holdings in
the company and these holdings are subject to put and call arrangements in the
medium term on an agreed basis. These options if exercised are required to be
settled in stock in the Governor and Company. In accordance with the Group's
accounting policy in respect of transactions of this nature with minorities no
liability has been recognised for these options.
18 Rates of Exchange
The principal rates of exchange used in the preparation of the accounts are as
follows:
31 March 2007 31 March 2006
Average Closing Average Closing
€/US$ 1.2912 1.3318 1.2126 1.2104
€/Stg£ 0.6783 0.6798 0.6826 0.6964
Average Balance Sheet and Interest Rates
The following tables show the average balances and interest rates of interest
earning assets and interest bearing liabilities for each of the years ended 31
March 2007 and 2006. The calculations of average balances are based on daily,
weekly or monthly averages, depending on the reporting unit. The average
balances used are considered to be representative of the operations of the
Group.
Year Ended Year Ended
31 March 2007 31 March 2006
Average Average
Balance Interest Rate Balance Interest Rate
€m €m % €m €m %
ASSETS
Loans to banks
Domestic offices 7,625 259 3.4 9,268 226 2.4
Foreign offices 726 33 4.5 238 12 5.0
Loans to customers(1)
Domestic offices 62,584 3,354 5.4 49,969 2,309 4.6
Foreign offices 53,133 3,140 5.9 43,106 2,464 5.7
Central government and other eligible
bills
Domestic offices - - - 126 1 0.8
Foreign offices - - - - - -
Debt Securities
Domestic offices 30,368 1,283 4.2 24,380 869 3.6
Foreign offices 1,414 59 4.2 1,518 64 4.2
Other financial assets at fair value
through P/L
Domestic offices 29 - - 152 1 0.7
Foreign offices 276 13 4.7 232 10 4.3
Total interest-earning assets
Domestic offices 100,606 4,896 4.9 83,895 3,406 4.1
Foreign offices 55,549 3,245 5.8 45,094 2,550 5.7
Net swap interest - 7 - - 34 -
156,155 8,148 5.2 128,989 5,990 4.6
Allowance for impairment losses (391) - - (341) - -
Non interest earning assets(2) 22,146 - - 18,615 - -
Total Assets 177,910 8,148 4.6 147,263 5,990 4.1
Percentage of assets applicable to foreign
activities 32.5% 31.8%
Average Balance Sheet and Interest Rates (continued)
Year Ended Year Ended
31 March 2007 31 March 2006
Average Average
Balance Interest Rate Balance Interest Rate
€m €m % €m €m %
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits by banks
Domestic offices 12,526 294 2.3 8,201 178 2.2
Foreign offices 15,318 772 5.0 10,878 534 4.9
Customer accounts
Domestic offices 31,389 880 2.8 35,817 746 2.1
Foreign offices 25,331 1,129 4.5 20,579 839 4.1
Debt securities in issue
Domestic offices 36,214 1,609 4.4 23,800 827 3.5
Foreign offices 6,914 326 4.7 6,393 301 4.7
Subordinated liabilities
Domestic offices 3,722 167 4.5 2,955 120 4.1
Foreign offices 3,357 214 6.4 2,284 137 6.0
Total interest bearing liabilities
Domestic offices 83,851 2,950 3.5 70,773 1,871 2.6
Foreign offices 50,920 2,441 4.8 40,134 1,811 4.5
134,771 5,391 4.0 110,907 3,682 3.3
Non interest bearing liabilities
Current accounts 11,958 - - 10,578 - -
Other non interest bearing liabilities 25,069 - - 20,987 - -
(2)
Stockholders equity 6,112 - - 4,791 - -
Total liabilities and stockholders' 177,910 5,391 3.0 147,263 3,682 2.5
equity
Percentage of liabilities applicable
to foreign activities 32.5% 31.8%
(1) Loans to customers include non-accrual loans and loans classified as
problem loans.
(2) The balance sheets of the life assurance companies have been
consolidated and are reflected under 'Non interest earning assets' and 'Other
non interest bearing liabilities'.
Capital Adequacy Data
The following table shows the components and basis of calculation of the Group's
Tier 1 and Total Capital ratios .
31 March 31 March
2007 2006
Capital Base €m €m
Ordinary Share capital 656 656
Eligible reserves 5,539 3,941
Equity minority interests in subsidiaries 34 45
Preference stock and preference shares 65 65
Bristol & West preference shares 74 72
Perpetual preferred securities 3,319 2,516
Regulatory adjustments (net) (379) 39
Total Tier 1 capital 9,308 7,334
Revaluation reserves - property and other 647 690
IBNR provisions 134 127
Subordinated perpetual debt capital 294 431
Subordinated dated debt capital 3,995 3,405
Less supervisory deductions (32)
Total Tier 2 capital 5,038 4,653
Tier 1 and Tier 2 capital 14,346 11,987
Supervisory deductions (1,019) (870)
Total Capital 13,327 11,117
Risk weighted assets
Banking book
On balance sheet 103,982 87,424
Off balance sheet 5,986 5,974
109,968 93,398
Trading book
Market risks 2,570 3,708
Counterparty and settlement risks 402 404
2,972 4,112
Total risk weighted assets 112,940 97,510
Capital ratios
Tier 1 8.2% 7.5%
Equity Tier 1 5.2% 4.8%
Total 11.8% 11.4%
Consolidated Income Statement
for the year ended 31 March 2007
(Euro, US$ & STG£) €m US$m(1) Stg£m(1)
Interest Income 8,137 10,837 5,532
Interest Expense (5,380) (7,165) (3,658)
Net Interest Income 2,757 3,672 1,874
Insurance net premium income 2,188 2,914 1,487
Fees and commissions income 898 1,196 610
Fees and commissions expense (160) (213) (108)
Net trading income (70) (93) (47)
Life assurance investment income and gains 247 329 168
Other operating income 199 265 135
Profit on disposal of business activity 243 324 165
Profit on sale of property 87 115 59
Total Operating Income 6,389 8,509 4,343
Increase in insurance contract liabilities and claims paid (2,213) (2,947) (1,504)
Total Operating Income, net of Insurance Claims 4,176 5,562 2,839
Total Operating Expenses (2,159) (2,876) (1,468)
Operating Profit before Impairment Losses 2,017 2,686 1,371
Impairment losses (103) (137) (70)
Operating Profit 1,914 2,549 1,301
Share of profit of associated undertakings and joint ventures 44 59 30
Profit before Taxation 1,958 2,608 1,331
Taxation (306) (408) (208)
Profit for the Period 1,652 2,200 1,123
Attributable to minority interests 1 1 1
Attributable to stockholders 1,651 2,199 1,122
Profit for the Period 1,652 2,200 1,123
(1) Converted at closing exchange rates.
Consolidated Balance Sheet as at 31 March 2007
(Euro, US$ & STG£)
€m US$m(1) Stg£m(1)
ASSETS
Cash and balances at central banks 362 482 246
Items in the course of collection from other banks 811 1,080 551
Central government and other eligible bills 11 15 7
Trading securities 520 693 353
Derivative financial instruments 2,849 3,794 1,937
Other financial assets at fair value through P/L 12,707 16,923 8,638
Loans and advances to banks 7,210 9,602 4,901
Available-for-sale financial assets 33,449 44,547 22,739
Loans and advances to customers 125,048 166,539 85,008
Interest in associated undertakings 26 35 18
Interest in joint ventures 73 97 50
Assets classified as held for sale 83 111 56
Intangible assets - Goodwill 347 462 236
Intangible assets - Other 596 794 405
Investment property 1,142 1,521 776
Property, plant & equipment 665 886 452
Deferred tax asset 25 33 17
Other assets 2,889 3,847 1,965
Total assets 188,813 251,461 128,355
EQUITY AND LIABILITIES
Deposits by banks 20,405 27,175 13,871
Customer accounts 72,277 96,259 49,134
Items in the course of transmission to other banks 243 324 165
Derivative financial instruments 2,935 3,909 1,995
Liabilities to customers under investment contracts 6,736 8,971 4,579
Debt securities in issue 59,523 79,273 40,464
Insurance contract liabilities 7,190 9,576 4,888
Other liabilities 3,983 5,305 2,708
Deferred tax liabilities 278 370 189
Provisions 87 116 59
Retirement benefit obligations 590 785 401
Subordinated liabilities 7,808 10,398 5,308
Total liabilities 182,055 242,461 123,761
Equity
Share capital 663 883 451
Share premium account 771 1,027 524
Retained profit 4,672 6,222 3,176
Other reserves 905 1,205 615
Own shares held for the benefit of life assurance (287) (382) (195)
policyholders
Stockholders' equity 6,724 8,955 4,571
Minority interests 34 45 23
Total equity 6,758 9,000 4,594
Total equity and liabilities 188,813 251,461 128,355
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