RNS Number:4313I
Irish Life & Permanent PLC
05 September 2006
IRISH LIFE & PERMANENT PLC
Interim Report
Six months to 30 June 2006
Presentation of Information
Statutory Basis (IFRS)
The Stock Exchange requires that the six months to June 2006 interim financial
information of the group be prepared in accordance with the recognition and
measurement principles of International Financial Reporting Standards as adopted
for use within the EU ("IFRS").
The statutory basis applies IFRS to all operations including the application of
IFRS 4 'Insurance Contracts' to the group's life assurance operations. IFRS 4
allows insurance contracts to continue to be accounted for under previous GAAP
as adjusted for any changes which results in more relevant and reliable
information. As a consequence of this the results for the group's insurance
contracts continue to be prepared under the embedded value methodology as
described below.
The six months 2005 interim financial information published in September 2005
was prepared in accordance with the recognition and measurement principles that
were expected to be applied for the full year 2005 results on first time
adoption of IFRS. The comparative six months 2005 results shown in this
announcement include minor changes to those previously published arising from
the refinement of these bases in the second half of 2005 prior to their
application to the full year financial statements. These changes are set out in
Note 1 to the statutory basis results.
The statutory basis accounts are included on pages 29 to 37.
Embedded Value Basis (EV)
The EV basis shows the results of the group's life assurance operations
(including both insurance and investment contracts) prepared in accordance with
the European Embedded Value (EEV) Principles issued in May 2004 by the European
Chief Financial Officers' Forum. In October 2005 the CFO Forum published
Additional Guidance on EEV Disclosure applicable for financial reporting in the
year ending 31 December 2006 which has been reflected in this interim financial
information. This did not require any adjustments to 2005 published interim
financial information.
The results of all other operations are prepared in accordance with IFRS.
The group has focused on the EV basis, as it believes that EV is a more
realistic measure of the performance of life businesses than the statutory IFRS
basis. The EV basis is used throughout the group to assess performance, and it
is also the measure most commonly used by the investment community to assess the
performance of life businesses.
The EV basis results are included on pages 4 to 26.
Financial Highlights
6 months ended 30 June 2006 (Unaudited)
H1 06 H1 05 Growth
EV Basis %
Profit after tax Euro202m Euro220m (8)
EPS 74.0 cent 81.5 cent (9)
Operating profit before tax Euro242m Euro196m 23
Operating profit EPS 81.3 cent 62.3 cent 30
Life and investment new business
- APE Euro358m Euro260m 38
- PVNBP Euro2.8bln Euro1.9bln 46
Statutory Basis
Profit after tax Euro130m Euro186m (30)
EPS on continuing activities (fully diluted) 48.4 cent 69.2 cent (30)
New loans issued Euro6.4bln Euro4.2bln 52
Lending book Euro29.9bln Euro23.3bln 28
Mortgage loan book (Ireland) Euro20.4bln Euro15.7bln 30
Interim dividend 20.1cent 17.7 cent 13
Commenting on the results, David Went, Group Chief Executive, said: "There is a
terrific momentum now in each of our key business units which has helped
generate this excellent set of results. The life and fund management businesses
have continued to outperform their markets while the mortgage business of
permanent tsb, has enjoyed a terrific bounce from what was a relatively weak
performance in the first half of last year. All the key indicators for the rest
of the year remain positive and we have great confidence the coming months will
see us build on this performance and return a very strong set of results for the
year as a whole."
Embedded Value Basis
Commentary on Results EV basis
Consolidated Income Statement - EV Basis
For the 6 months ended 30 June 2006 (Unaudited)
6 months to 6 months to 12 months to
30 June 2006 30 June 2005 31 Dec 2005
Eurom Eurom Eurom
Operating profit on continuing operations
Insurance and Investment Business 134 109 222
Banking 90 66 148
Other (1) (3) (4)
223 172 366
Share of associate 19 24 54
Operating profit before tax on continuing operations 242 196 420
Short-term investment fluctuations 1 42 94
Effect of economic assumption changes (29) 30 13
Other credits - 2 4
Profit before tax 214 270 531
Taxation (11) (19) (16)
Government levy - (6) (12)
Total profit after tax before discontinued operations 203 245 503
Loss after tax on discontinued operations - (24) (26)
203 221 477
Minority interest (1) (1) (2)
Total profit after tax attributable to equityholders 202 220 475
Overview
Total profit after tax, before discontinued operations, for the half year was
Euro203m compared to Euro245m for the first half of 2005. The outcome principally
reflects strong growth in operating profit - up 23% in the period - offset by
the impact on the embedded value of the group's life business of rising interest
rates and weaker than expected investment markets in comparison with the first
half of 2005.
At the operating level profits increased by 23% to Euro242m compared to Euro196m in
the first six months of 2005. Operating profits in the group's core banking and
life assurance business grew 30% to Euro223m from Euro172m in the prior year period
driven by a 44% growth in new business contribution to Euro65m on the life side,
and growth of 36% in the group's banking profits which increased to Euro90m from
Euro66m. The 2005 outturn in the bank included trading losses of Euro7m which
compares to a trading profit of Euro6m in first half 2006. Excluding this trading
profit turnaround the underlying level of profit growth in the bank was 23% and
reflects strong growth in risk assets, particularly mortgage assets, on foot of
very buoyant new business volumes.
The post tax contribution from the group's interest in Allianz (Ireland), a
general insurance business, reduced from Euro24m in 2005 to Euro19m in the current
period. The reduction was due to a sharp fall in the investment return earned
on the company's bond portfolio in the period - reflecting weak bond markets -
partly offset by prior year reserve releases which contributed to an improved
underwriting result.
The "Short term investment fluctuations" reflect the impact of actual versus
assumed investment returns on the embedded value of the group's life assurance
operations. The outcome for the first six months of 2006 was just Euro1m compared
with Euro42m in the first half of 2005. This reflects the relatively weaker
markets in the first half of 2006 compared to the prior year when returns
significantly exceeded the embedded value assumptions.
The first half 2006 outcome includes a negative Euro29m arising from changes in the
economic assumptions used to calculate the life assurance embedded value. This
principally relates to the impact of an increase in the risk discount rate used
to compute the embedded value from 6.5% to 7.3% arising from increases in medium
term euro gilt rates. In the first half 2005 changes in economic assumptions
had a Euro30m positive impact reflecting a reduction in the risk discount rate from
6.7% to 6.1%. (At year end this had increased to 6.5%).
The taxation charge of Euro11m reflects a reduced effective tax rate when compared
to the first half 2005 as a result of the release of deferred tax provision on
property capital allowances which are no longer required combined with the
positive tax impact on the economic variance recorded in the period.
The bank levy of Euro12m per annum which has been a feature of the group's tax
charge for the past three years has been abolished and therefore does not
feature in first half 2006.
The first half 2005 outcome included a loss after tax of Euro24m incurred on the
disposal of City of Westminster Assurance, a closed life business in the UK. No
similar disposals occurred in the first half 2006.
The total profit after tax for the six months ended 30 June 2006 was Euro202m
compared to Euro220m in the first half 2005.
Banking Business
The results of the group's banking business for the 6 months to 30 June 2006 are
set out below.
6 months to 6 months to 12 months to
30 June 2006 30 June 2005 31 Dec 2005
Eurom Eurom Eurom
Net interest income 199 184 377
Other income 23 20 40
Trading income 6 (7) (4)
228 197 413
Administrative expenses (134) (127) (255)
Impairment provisions (7) (6) (12)
Operating profit before tax 87 64 146
Investment gains 3 2 13
Restructuring costs - - (11)
90 66 148
The pretax profit generated by the group's banking business in the first half
2006 was Euro90m a 36% increase on the 2005 outturn.
As noted previously the 2005 half year outcome included trading loses of Euro7m
arising from the impact of IFRS transition compared to a trading profit of Euro6m
in first half 2006. Adjusting for this turnaround the underlying level of
profit growth in the banking operations was 23%.
Net interest income rose 8% to Euro199m from Euro184m driven by strong growth in new
lending volumes and current account balances which offset the impact of
increased levels of wholesale funding and mortgage back book repricing on the
net interest margin.
The net interest margin for the 6 months ended 30 June 2006 was 1.19% compared
to a margin of 1.29% reported for the full year 2005 and 1.34% for the first
half 2005. In addition to the ongoing impact of increased levels of wholesale
funding, the net interest margin was negatively impacted by basis risk in the
Irish mortgage portfolio as interest rates increased and margins contracted in
the Irish and UK operations. Due to pricing issues in the first half 2006 a
decision was taken to reduce the Irish back book margin in order to position the
bank more competitively in a rising interest rate environment. Most of the
impact of this repricing was offset by a widening of liability spreads as euro
interest rates increased.
Total loans and advances to customers at 30 June 2006 were Euro29.9bln an increase
of 14% on balances outstanding at 31 December 2005 (Euro26.2bln) and a 28% increase
on outstanding balances at 30 June 2005 (Euro23.3bln). The growth in balances over
the principal business lines was as follows:
30 June 31 Dec Growth
2006 2005
Eurobln Eurobln %
Mortgage lending ROI * 20.4 17.8 15
Consumer finance 1.9 1.6 18
Commercial lending 1.7 1.4 17
24.0 20.8 15
Mortgage lending - UK (#Stg) * 4.1 3.7 11
Total lending - Eurom 29.9 26.2 14
The Irish residential market continued to be extremely buoyant during the first
half of 2006. Total gross new mortgages issued were Euro4.2bln a 70% increase on
the Euro2.5bln issued in the first half 2005. Residential mortgage balances
outstanding increased 15% to Euro20.4bln compared to Euro17.8bln outstanding at 31
December 2005. The UK mortgage market was extremely competitive with Capital
Home Loans, the group's centralised mortgage lender, issuing Stg#681m of new
mortgage loans compared to Stg#671m in the first half 2005. Mortgage balances
in the UK increased 11% to Stg#4.1bln compared to Stg#3.7bln at 31 December
2005.
New consumer finance loans issued were Euro0.8bln an increase of 39% over the first
half of 2005 (Euro0.6bln) with the consumer finance portfolio growing 18% to
Euro1.9bln compared to 31 December 2005 (Euro1.6bln). Reflecting a renewed focus in
the area commercial lending new business at Euro349m compares to Euro127m in the first
half last year, an increase of 175%. The commercial loan portfolio at 30 June
2006 was Euro1.7bln compared to Euro1.4bln at 31 December 2005, an increase of 17%.
Customer account balances were Euro12.8bln (31 December 2005 Euro12.8bln). The bank's
current account acquisition strategy continues to be extremely successful with
44,000 new current accounts opened in the first six months of 2006 following on
from the 67,000 new current accounts opened in the year ended 2005. Current
account balances increased 6% to Euro2.3bln compared to Euro2.2bln at 31 December
2005.
Other income at Euro23m for the half year 2006 is 15% ahead of the 2005 outcome of
Euro20m principally driven by increased fee income and Visa commissions.
Other income excludes any contribution from bancassurance sales, the earnings
from which, in line with the group's accounting policies, are included in the
pre-tax profit reported in the group's life assurance activities. Sales of life
and pensions products in the bank in the first half 2006 were Euro39m, an increase
of 39% on the first half 2005 (Euro28m). The pre-tax operating profit achieved on
the bancassurance book of life business was Euro28m in the first half 2006, up 33%
on first half 2005 of Euro21m.
Trading income in the first half 2006 was a positive Euro6m compared to a negative
Euro7m in first half 2005. The 2005 outcome arose due to certain positions taken
in financial instruments which fell to be accounted on a mark to market basis.
These positions were closed out in the first half of that year. The losses
arising could not be offset against gains of Euro12m which arose in the closing of
certain interest rate positions as part of the transition of the balance sheet
to meet the hedging requirements of IAS 39 as these gains fell to be amortised
to net interest income over the next 3 years.
Administration expenses increased 6% to Euro134m from Euro127m reflecting growth in
the business. Cost management continues to be a focus for the bank.
Impairment provisions at Euro7m for the first half 2006 compare to Euro6m for the
prior year period and reflects underlying growth and the excellent credit
quality which prevails within all of the group's loan portfolios. Provisions
held continue to be conservative with reserves of Euro55m compared to arrears of
Euro38m.
Investment gains of Euro3m represent a gain on the disposal of an investment
property while the prior year outcome of Euro2m represents a revaluation gain.
Insurance and Investment Business (EV Basis)
The results of the group's insurance and investment business for the six months
to 30 June 2006 are set out below.
6 months to 6 months to 12 months to
30 June 2006 30 June 2005 31 Dec 2005
Eurom Eurom Eurom
New business contribution 65 45 94
Contribution from in-force business
Expected return
In-force 46 38 74
Net worth 10 10 20
Experience variances 8 9 15
Assumption changes 5 7 19
69 64 128
Operating profit before tax 134 109 222
The operating profit before tax on the group's life business for the 6 months
ended 30 June 2006 was Euro134m a 23% increase on the corresponding period in 2005.
This principally reflects a 44% increase in the new business contribution
which increased to Euro65m from Euro45m.
The expected return on the in-force book increased 21% to Euro46m due to strong
growth in the portfolio. The expected return on net worth, which relates to
earnings on shareholder assets calculated by reference to the assumed long-term
rate of return on equities property and bonds and the actual return on
short-term cash was in line with the previous half year at Euro10m.
Experience variances continued to be positive at Euro8m compared to Euro9m in 2005
with continued strong risk experience achieved on both mortality and morbidity.
Assumption changes largely relating to expense productivity gains were a
positive Euro5m compared to Euro7m in 2005. The assumptions underlying the embedded
value continue to be conservative.
New Business
The new business contribution in the half year 2006 increased 44% to Euro65m from
Euro45m in 2005. This outcome was driven by a 35% increase in life new business
sales (excluding ILIM) to Euro249m on an APE basis in 2006 (46% on a PVNBP basis)
combined with an increase in new business margins and a favourable product mix.
Overall new business margins, excluding ILIM were 21.8% compared to 20.0% for
the half year 2005. Including ILIM new business margins were 18.1% compared to
17.3% at the half year 2005 made up as follows:-
30 June 30 June
2006 2005
% %
Life 21.8 20.0
Investment (ILIM) 9.6 10.7
18.1 17.3
The increase in margins reflects the high volume of new business sales combined
with a favourable product and distribution mix. The reduction in investment
margins is largely due to the mix of business.
APE1 sales in the group's principal life businesses are summarised below:
30 June 30 June Growth
2006 2005
Eurom Eurom %
Retail Life 135 102 32
Corporate Life 98 74 32
Irish Life International 16 9 78
249 185 35
Investment (ILIM) 109 75 45
358 260 38
When calculated on the basis of present value of new business premiums ("PVNBP")
margins including ILIM were broadly flat at 2.3% in the first half 2006 (2005 :
2.4%).
The PVNBP margin is calculated as follows:
30 June 30 June
2006 2005
% %
Life 3.3 3.2
Investment (ILIM) 1.0 1.1
2.3 2.4
PVNBP2 sales in each of the group's principal life businesses are set out below:
30 June 30 June Growth
2006 2005
Eurom Eurom %
Retail Life 943 661 43
Corporate Life 568 395 44
Irish Life International 163 92 77
1,674 1,148 46
Investment (ILIM) 1,089 750 45
2,763 1,898 46
Retail Life
Reflecting buoyant demand Retail life sales increased 32% on an APE basis (43%
on a PVNBP basis) in the first half 2006 to Euro135m from Euro102m in the first half
2005.
Sales were strongly ahead across all distribution channels and product lines
with growth in investments (up 77%), protection products (up 32%) and single
premium pensions (up 28%) being particularly strong. A notable feature of the
first half investment sales performance was a very significant demand for
property bonds.
Corporate Life
The continued buoyant labour market in Ireland, with strong growth in employment
and salaries provided a very favourable backdrop for the group's Corporate Life
business in the first half of 2006. New Business sales on an APE basis were up
32% to Euro98m from Euro74m in 2005 (PVNBP growth was 44%) led by strong growth in
defined contribution increments in particular. Sales of personal retirement
bonds and annuities were also very strong.
Investment Management
On foot of continued excellent fund management performance ILIM generated gross
inflows of Euro1.1bln in the first half of 2006. This compares with Euro750m of gross
inflows in the first half 2005 representing an increase of 45%. As a result of
these strong new business inflows group funds under management grew 6% to
Euro28.1bln from Euro26.4bln at 31 December 2005.
Capital and Liquidity
The group's capital and liquidity ratios remained strong at 30 June 2006. The
Tier 1 and total capital ratios were 11.2% (31 December 2005: 12.6%) while the
liquidity ratio within the group's banking business was 26% (31 December 2005:
26%). The solvency margin in Irish Life Assurance plc, the group's principal
life assurance business was covered 1.7 times by available assets (31 December
2005 1.7 times).
Dividend
The directors have declared an interim dividend of 20.1 cent per share for the
first six months of 2006. This compares to an interim dividend paid in 2005 of
17.7 cent per share. The dividend will be paid on 15 November 2006 to
shareholders on the register as at 6 October 2006. The ex dividend date is 4
October 2006.
For further information contact:
Name Telephone No. Mobile No. Email address
Barry Walsh 353 1 7042678 087 681 8157 barry.walsh@irishlife.ie
David McCarthy 353 1 8563050 087 256 7292 david.mccarthy@irishlife.ie
Media:
Ray Gordon 353 1 6788099 087 241 7373 ray@mrpakinman.ie
Basis of Preparation - EV Basis interim financial information
Earnings generated by the group's life assurance operations are prepared in
accordance with the European Embedded Value (EEV) Principles issued in May 2004
by the European Chief Financial Officers' Forum. For businesses other than life
assurance the results have been prepared based on the recognition and
measurement principles of IFRS issued by the IASB and adopted by the EU which
were effective at 30 June 2006.
IFRS 4 brings into force phase 1 of the International Accounting Standard
Board's ("IASB") insurance accounting project. In view of the phased
implementation of IFRS for insurance business, the group believes that
shareholders will continue to place considerable reliance on embedded value
information relating to the life assurance business as a whole. The statutory
interim financial information includes insurance contracts written in the life
assurance business based on embedded value earnings calculated using the EEV
principles developed by the European CFO forum. The methodology produces an
Embedded Value (EV) as a measure of the consolidated value of shareholders'
interests in the business covered by the EEV Principles. The EV basis interim
financial information extends these principles to investment contracts written
in the life assurance business.
For all business other than "covered business", the EV interim financial
information incorporates the same values and earnings included in the statutory
interim financial information, determined using the IFRS bases. The EV interim
financial information also reclassifies and summarises the information included
in the interim statutory financial information and restates policyholders
liabilities in respect of own shares consistent with the recognition of the
asset.
The EEV Principles are applied to value "covered business" as defined by the
Principles. This includes individual and group life assurance and investment
contracts, pensions and annuity business written in Irish Life Assurance plc,
Irish Life International Limited and City of Westminster Assurance Company
Limited up to the date of its disposal, and the investment management business
written in Irish Life Investment Managers Limited.
In the EV interim financial information, the same valuation approach is applied
to both insurance and investment contracts within the covered business.
The Directors acknowledge their responsibility for the preparation of the
supplementary EV basis information.
The methodology applied to produce the EV basis for the period to 30 June 2006
is consistent with the methodology used to produce the EV information for the
year ended 31 December 2005.
December 2005 comparatives have been restated to reflect a consistent
classification of derivative assets and liabilities balances between the EV
basis interim financial information and statutory basis interim financial
information.
EV basis interim financial information is unaudited, however, KPMG, the group's
auditor, has reviewed the EV basis interim financial information.
Embedded Value
Embedded Value (EV) is the present value of shareholders' interests in the
earnings distributable from assets allocated to the covered business after
sufficient allowance is made according to the EEV Principles for the aggregate
risks in the covered business. The EV consists of the following components:
- free surplus allocated to the covered business
- required capital, less the cost of holding required capital
- present value of future shareholder cash flows from in-force covered
business (PVIF), including an appropriate deduction for the time value of
financial options and guarantees.
The value of future new business is excluded from the EV.
The cost of holding required capital is defined as the difference between the
amount of the required capital and the present value of future releases,
allowing for future investment returns, of that capital.
Free Surplus and Required Capital
Free surplus is defined as the market value of assets in the covered business
less supervisory liabilities less required capital. It is the market value of
any capital and surplus allocated to, but not required to support, the in-force
covered business at the valuation date.
The level of required capital reflects the amount of assets attributed to the
covered business in excess of that required to back regulatory liabilities whose
distribution to shareholders is restricted. The EEV Principles require this
level to be at least the level of solvency capital at which the local
supervisory authority is empowered to take action and any further amount that
may be encumbered by local supervisory restrictions. In light of this the
Directors have set the level of required capital to be 150% of the regulatory
minimum solvency margin requirement at the valuation date, including the
additional margin required under the Solvency 1 rules. The Directors consider
this to be a conservative level of capital to manage the covered business,
allowing for the supervisory basis for calculating liabilities, the insurance
and operational risks inherent in the underlying products and the methods used
to value financial options and guarantees included in those products.
New Business
New business premiums reflect income arising from the sale of new contracts
during the reporting period. Increases to premiums that are generated by
policyholders at their discretion are included in new business as they occur.
Increases to renewal premiums on group pension contracts are treated as new
business premiums.
The new business contribution is the present value of future shareholder
cashflows arising from the new business premiums written in the period less a
deduction if relevant for the time value of financial options and guarantees.
The contribution makes full allowance for the associated amount of required
capital and includes the value of expected renewals on new contracts.
The EEV Principles require a measure of the present value of future new business
premiums (PVNBP) to be calculated and expressed at the point of sale. The PVNBP
is equivalent to the total single premiums plus the discounted value of regular
premiums expected to be received over the term of the contracts using the same
economic and operating assumptions used for calculating the new business
contribution. The new business margin reported under EEV is defined as the
ratio of the new business contribution to PVNBP.
Projection Assumptions
Projections of future shareholder cash flows expected to emerge from covered
business are determined using realistic assumptions for each component of cash
flow and for each policy group. Future economic and investment return
assumptions are based on period end conditions. The assumed discount and
inflation rates are consistent with the investment return assumptions.
The assumptions for demographic elements, including mortality, morbidity,
persistency and expense experiences, reflect recent operating experiences and
are reviewed annually. Allowance is made for future improvements in annuitant
mortality based on experience and externally published data. Favourable changes
in operating experience are not anticipated until the improvement in experience
has been observed.
All costs relating to the covered business are allocated to that business. The
expense assumptions used for the projections therefore include the full cost of
servicing the business. The costs include future depreciation charges in
respect of certain property and equipment included in the free surplus. Certain
group costs allocated to the life company are not included within the cash flow
projections and are accounted for on an annual basis in the other group results.
Risk Discount Rate
The risk discount rate is a combination of a base risk-free rate and a risk
margin, which reflects the residual risks inherent in the covered business,
after taking account of prudential margins in the supervisory liabilities, the
required capital and the specific allowance for financial options and
guarantees.
The Group has adopted a bottom-up approach to the determination of the risk
discount rate. Each element of risk is assessed in turn and a cost is reflected
as an addition to the base risk-free discount rate. The risk discount rate
derived in this way reflects the risk of volatility associated with the cash
flows in the embedded value model.
The key assumptions are set out in note 15.
The market risk margin neutralises the effect of assuming future investment
returns in excess of the base risk-free rate.
The non-market risk margin is based on an estimate of the impact of each of the
following risks - mismatch risk, credit risk, demographic risks including
mortality, morbidity, persistency and expense risks, operational risk and
liquidity risk.
An allowance is made for the diversification effect in that each of the risks is
not expected to occur simultaneously. Financial options and guarantees are
explicitly valued using a market-consistent approach and no further risk
allowance is included for these in the risk discount rate. The non-market risk
margin was determined by the Directors following a review of the estimates
emerging from the above exercise.
Financial Options and Guarantees
Under the EEV Principles an allowance for the time value of financial options
and guarantees ("FOG") is required where a financial option exists which is
exercisable at the discretion of the policyholder. The time value of an option
reflects the additional value inherent in the option due to the potential for
the option to increase in value prior to its expiry date, usually due to
movements in the market value of assets. The value of an option based on market
conditions at the date of the valuation is referred to as the intrinsic value.
Allowance is made for the intrinsic value of FOGs in the supervisory liabilities
and the cost is reflected in the PVIF. An explicit deduction is made to the
PVIF to allow for the impact of future variability of investment returns on the
cost of FOGs (time value). The time value of FOGs is calculated using
stochastic models calibrated on a market consistent basis.
The main financial options and guarantees and the assumptions used to value them
are described in note 15.
Service Companies
All services relating to the covered business are charged on a cost recovery
basis.
Tax
The projections include on a discounted basis all tax that is expected to be
paid under covered business under current legislation, including tax that would
arise if surplus assets within the covered business were eventually to be
distributed.
Analysis of Profit
The profit from the covered business is analysed into three main components:
* New business contribution
The contribution from new business written in the period is calculated as at the
point of sale using assumptions applicable at the start of the period. This is
then rolled forward to the end of the financial period using the risk discount
rate applicable at the start of the reporting period.
* Profit from existing in-force business
The profit from existing business is calculated using opening assumptions and
comprises:
- Interest at the risk discount rate on the value of in-force business
allowing for the timing of cash-flows ("expected return");
- Experience variances: when calculating embedded values it is necessary to
make assumptions regarding future experiences including persistency (how
long policies will stay in force), risk (mortality and morbidity), future
expenses and taxation. Actual experience may differ from these assumptions.
The impact of the difference between actual and assumed experience for the
period is reported as experience variances;
- Operating assumption changes: the assumptions on which embedded values are
calculated are reviewed regularly. Where it is considered appropriate in
the light of current or expected experience to change any assumptions
regarding expected future experience, the impact on total value of in-force
business of any such change is reported as an "operating assumption change".
* Expected investment return
The expected investment earnings on the net assets attributable to shareholders
are calculated using the future investment return assumed at the start of the
period.
Two further items make up the total profit arising from the covered business:
* Short term investment fluctuations
This is the impact on the EV of differences between the actual investment return
and the expected investment return assumptions assumed at the start of the
period.
* Effect of economic assumption changes
This is the impact on the EV of changes in external economic conditions
including the effect changes in interest rates have on risk discount rates and
future investment return assumptions.
Consolidated Interim Income Statement - Embedded Value Basis (Unaudited)
Six months to 30 June 2006
Notes 6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Operating profit on continuing operations
Insurance & investment business 134 109 222
Banking 90 66 148
Other (1) (3) (4)
223 172 366
Share of associate 19 24 54
Operating profit before tax on continuing operations 1 242 196 420
Short-term investment fluctuations 1 42 94
Effect of economic assumption changes (29) 30 13
Other credits 2 - 2 4
Profit before tax 214 270 531
Taxation 5 (11) (25) (28)
Profit for the period on continuing operations 203 245 503
Loss after tax on discontinued operations 3 - (24) (26)
Profit for the period 203 221 477
Attributable to
Equityholders 202 220 475
Minority interest 1 1 2
203 221 477
Earnings per share including own shares held for the
benefit of life assurance policyholders (cent) 13 74.0 81.5 175.7
Operating earnings per share including own shares held for 13 81.3 62.3 135.4
the benefit of life assurance policyholders (cent)
Consolidated Interim Balance Sheet - Embedded Value Basis (Unaudited)
As at 30 June 2006
Notes 30 June 30 June 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Restated
Assets
Cash and other receivables 466 289 299
Investments 25,759 21,415 24,104
Loans and receivables to banks 6,439 5,100 6,421
Loans and receivables to customers 11 29,907 23,721 26,340
Interest in associated undertaking 157 152 167
Reinsurance assets 1,927 1,959 2,023
Shareholder value of in-force business 1,182 999 1,103
Net post retirement benefit assets 71 67 71
Goodwill and other intangible assets 264 257 258
Property and equipment 421 326 404
Other debtors and prepayments 511 555 426
Total assets 67,104 54,840 61,616
Liabilities
Customer accounts 12,833 11,791 12,808
Deposits by banks 3,800 1,493 2,281
Debt securities in issue 15,747 13,109 15,226
Non-recourse funding 4,159 2,146 2,232
Derivative liabilities 350 277 359
Insurance contract liabilities 3,905 3,764 4,082
Investment contract liabilities 21,211 17,889 19,806
Outstanding insurance and investment claims 127 109 110
Net post retirement benefit liability 157 175 158
Deferred taxation 28 20 25
Other liabilities and accruals 598 554 404
Subordinated liabilities 1,326 1,057 1,385
Total liabilities 64,241 52,384 58,876
Equity
Share capital 88 86 87
Share premium 108 58 74
Retained earnings 2,511 2,243 2,440
Capital reserves 219 130 203
Own shares held for the benefit of life assurance (76) (72) (76)
policyholders
Shareholders' equity 7 2,850 2,445 2,728
Minority interest 13 11 12
Total equity 2,863 2,456 2,740
Total liabilities and equity 67,104 54,840 61,616
Consolidated Interim Statement of Recognised Income and Expense - Embedded Value Basis (Unaudited)
Six months to 30 June 2006
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Revaluation of property & equipment - 1 71
Change in value of available for sale financial assets 1 (1 ) -
Deferred tax - - (12 )
Net amount recognised directly in equity 1 - 59
Profit for the period 203 221 477
Total recognised income and expense for the period 204 221 536
Attributable to
Equityholders 203 220 534
Minority interest 1 1 2
204 221 536
Consolidated Interim Reconciliation of Shareholders' Equity - Embedded Value Basis
Six months to 30 June 2006
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Shareholders' equity at start of period 2,728 2,329 2,329
Income and expenses attributable to equityholders 203 220 534
Movement in cost of own shares held for the benefit of life - (8) (12)
assurance policyholders
Dividends paid (117) (104) (152)
Issue of share capital 35 6 23
Change in share based payment reserves 1 2 6
Shareholders' equity at end of period 2,850 2,445 2,728
Notes to the 2006 EV basis interim financial information
Six months to 30 June 2006
1. Operating Profit before tax
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Insurance & investment business
New business contribution 65 45 94
Profit from existing business
- Expected return 46 38 74
- Experience variances 8 9 15
- Operating assumption changes 5 7 27
Development expenditure - - (8)
Expected investment return 10 10 20
Operating profit before tax 134 109 222
Banking
Net interest income 199 184 377
Non-interest income 23 20 40
Trading Income 6 (7) (4)
228 197 413
Administrative expenses including depreciation (134) (127) (255)
Impairment losses on loans and receivables (7) (6) (12)
87 64 146
Investment return 3 2 13
Restructuring costs - - (11)
Operating profit before tax 90 66 148
Other activities
Non-interest income 29 22 46
Administrative expenses including depreciation (30) (25) (50)
Operating loss before tax (1) (3) (4)
Share of associate 19 24 54
Total operating profit before tax 242 196 420
2. Other Credits
Disposal of property and equipment
In 2005 the group disposed of a number of properties occupied by the group
and realised a profit before tax of Euro4m. (June 2005 Euro2m).
3. Discontinued Operations
On 2 June 2005 the group disposed of its UK life assurance subsidiary, City of
Westminster Assurance Company Limited. The net proceeds were Euro63m, this compares
to a carrying value at date of disposal of Euro91m. The results for the period to
disposal (Euro2m) together with the loss on disposal are shown in the income
statement as discontinued operations.
4. Life and investment new business
6 months 6 months 12 months
Life business (continuing operations) to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Present value of new business premiums
(PVNBP)
Single premium 911 534 1,313
Regular premium 158 131 255
Regular premium capitalisation factor 4.8 4.7 4.9
PVNBP 1,674 1,148 2,571
Annual premium equivalent (APE) 249 185 388
New business contribution 55 37 79
New business margin
PVNBP 3.3% 3.2% 3.1%
APE 21.8% 20.0% 20.4%
ILIM
Present value of new business premiums 1,089 750 1,319
(PVNBP)
Annual premium equivalent (APE) 109 75 132
New business contribution 10 8 15
New business margin
PVNBP 1.0% 1.1% 1.1%
APE 9.6% 10.7% 11.4%
Total
Present value of new business premiums 2,763 1,898 3,890
(PVNBP)
Annual premium equivalent (APE) 358 260 520
New business contribution 65 45 94
New business margin
PVNBP 2.3% 2.4% 2.4%
APE 18.1% 17.3% 18.1%
5. Taxation
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Life operations
Operating profit (10) (12) (16)
Short term investment fluctuations (1) 12 31
Economic assumptions 10 (8) (5)
(1) (8) 10
Banking
Operating profit (10) (10) (26)
Other operations - - -
Sale of property and equipment - (1) -
(11) (19) (16)
Government levy on financial institutions - (6) (12)
(11) (25) (28)
6. Analysis of profit after tax on continuing activities
6 months to 30 June 2006
Gross Tax Net
Eurom Eurom Eurom
Operating profit
Insurance and investment business 134 (10) 124
Banking 90 (10) 80
Other (1) - (1)
Share of associate 19 - 19
242 (20) 222
Short term investment fluctuations 1 (1) -
Effect of economic assumption changes (29) 10 (19)
214 (11) 203
7. Shareholders' Equity
30 June 30 June 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Insurance and investment business 1,883 1,690 1,853
Banking 659 455 561
Other activities 42 33 37
Associate undertakings 157 152 167
Goodwill 198 198 198
2,939 2,528 2,816
Minority interest (13) (11) (12)
Deduction in respect of own shares held for the (76) (72) (76)
benefit of life assurance policyholders
Shareholders' equity 2,850 2,445 2,728
Insurance and investment assets are analysed as follows
30 June 30 June 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Property 159 76 80
Equities 10 14 10
Debt securities 4 - 4
Deposits 571 503 613
Other assets and liabilities (43) 98 43
701 691 750
Shareholders' value of in-force business 1,182 999 1,103
1,883 1,690 1,853
Analysis of movement in shareholders' equity attributable to insurance and investment business
6 months to 30 June 2006
Net Worth VIF Total
Eurom Eurom Eurom
Shareholders' equity as at 1 January 2006 750 1,103 1,853
Operating profit after tax on continuing 18 106 124
operations
Short term investment fluctuations 9 (9) -
Effect of economic assumption changes (1) (18) (19)
Capital movements (75) - (75)
Shareholders' equity as at 30 June 2006 701 1,182 1,883
The shareholders' equity as at 30 June 2006 (Dec. 2005) includes required
capital of Euro544m (Euro535m) within the net worth. The shareholders' value of
in-force is net of a deduction of Euro119m (Euro123m) in respect of the cost of
maintaining the required capital and net of a deduction of Euro32m (Euro31m) in
respect of the time value of financial option and guarantee costs.
7. Shareholders' Equity (continued)
Analysis of insurance and investment operating profit after tax
6 months to 30 June 2006
Net Worth VIF Total
Eurom Eurom Eurom
New business contribution (76) 130 54
Profit from existing business
- Expected return 89 (45) 44
- Experience variances (4) 16 12
- Operating assumption changes - 5 5
- Expected investment return 9 - 9
Operating profit after tax 18 106 124
8. Interest receivable and similar income
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Loans and receivables to customers 494 343 771
Loans and receivables to banks 70 59 113
Debt securities and other fixed income securities 37 40 89
Lease and instalment finance 42 33 67
643 475 1,040
Inter-group charges eliminated on consolidation (8) (2) (8)
635 473 1,032
9. Management expenses
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Administrative expenses 242 220 470
Depreciation 13 14 25
Software amortisation 8 5 15
263 239 510
Analysed as follows:
Banking operations
Operational 134 127 255
Restructuring costs - - 11
Life and investment operations
Administrative 99 87 186
Development expenditure 8
Other operations (includes corporate costs) 30 25 50
263 239 510
10. Provision for impairment of loans and receivables
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
At start of the period 52 47 46
Charged against income statement 7 6 12
Amounts written off (4) (3) (6)
At end of the period 55 50 52
At end of period
Specific 35 31 32
Collective 20 19 20
55 50 52
11. Loans and receivables to customers
30 June 30 June 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Residential mortgage loans 26,359 20,546 23,188
Commercial mortgage loans 1,661 1,246 1,415
Finance lease, instalment finance and term loans 1,881 1,509 1,617
29,901 23,301 26,220
Money market funds 152 352 150
Deferred fees, discounts and fair value adjustments 157 203 155
30,210 23,856 26,525
Inter-group loans and receivables (303) (135) (185)
29,907 23,721 26,340
12. Funds Under Management
30 June 30 June 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Funds managed on behalf of unit-linked policyholders 21,710 18,051 20,084
Funds managed on behalf of non-linked policyholders 2,341 2,400 2,559
24,051 20,451 22,643
Off-balance sheet funds 4,094 3,926 3,791
28,145 24,377 26,434
13. Earnings per share
As permitted under Irish Legislation the group's life assurance subsidiary
holds shares in Irish Life & Permanent plc for the benefit of policyholders.
Under accounting standards these are required to be deducted from the total
number of shares in issue when calculating EPS. In view of the fact that Irish
Life & Permanent plc does not hold the shares for its own benefit, EPS based on
a weighted average number of shares in issue is disclosed.
The calculation is set out below:
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Weighted average ordinary shares in issue and ranking for
dividend excluding own shares held for the benefit of life
assurance policyholders 265,218,470 262,604,139 262,813,871
Weighted average ordinary shares held for the benefit of
life assurance policyholders 7,823,913 7,340,402 7,524,588
Weighted average ordinary shares in issue and ranking for
dividend including own shares held for the benefit of life
assurance policyholders
273,042,383 269,944,541 270,338,459
Profit for the period attributable to equityholders Euro202m Euro220m Euro475m
EPS including own shares held for the benefit of life
assurance policyholders 74 cent 81.5 cent 175.7 cent
Operating profit after tax for the period Euro222m Euro168m Euro366m
Operating EPS including own shares held for the benefit of
life assurance policyholders 81.3 cent 62.3 cent 135.4 cent
14 Reconciliation of Shareholders' equity on Statutory basis to EV basis
As at 30 June 2006
Net worth VIF Total
Eurom Eurom Eurom
Statutory shareholders' equity excluding minority interest 1,551 600 2,151
as at 30 June 2006
Change insurance shareholder value of in-force to post tax 99 (99) -
Shareholder value of in-force on investment contracts - 710 710
Changes in presentation of cost of FOGs 24 (24) -
Deferred front end fees on investment contracts 143 - 143
Deferred acquisition costs on investment contracts (179) - (179)
Restatement of investment liabilities to regulatory basis (49) - (49)
Unwind own shares statutory adjustment 66 - 66
Change in the basis of deferred tax provisioning 5 (8) (3)
Deferred tax on above adjustments 11 - 11
EV basis shareholders' equity excluding minority interest 1,671 1,179 2,850
as at 30 June 2006
Notes to the 2005 EV basis interim financial information
Six months to 30 June 2006
15. EV Assumptions
Principal economic assumptions
The assumed future pre-tax returns on fixed interest securities are set by reference to gross redemption
yields available in the market at the end of the reporting period. The risk free rate of return used
for the risk discount rate is based on the yield available for the effective duration of the future
cash-flows underlying the PVIF. The corresponding return on equities and property is equal to the risk
free rate assumption plus the appropriate risk premium. An asset mix based on the assets held at the
valuation date within policyholder funds has been assumed within the projections.
30 June 30 June 31 Dec
2006 2005 2005
Equity risk premium 3.0% 3.0% 3.0%
Property risk premium 2.0% 2.0% 2.0%
Risk free rate 4.0% 2.9% 3.2%
Non market risk margin 2.1% 2.1% 2.1%
Market risk margin 1.2% 1.1% 1.2%
Risk discount rate 7.3% 6.1% 6.5%
Investment return
- Fixed interest 3.1% - 4.4% 2.1% - 3.8% 2.5% - 3.6%
- Equities 7.0% 5.9% 6.2%
- Property 6.0% 4.9% 5.2%
Expense inflation 3.9% 3.5% 3.6%
Other assumptions
The assumed future mortality and morbidity assumptions are based on published tables of rates, adjusted
by analyses of recent operating experience. Persistency assumptions are set by reference to recent
operating experience. The management expenses attributable to life assurance business have been
analysed between expenses relating to the acquisition of new business and the maintenance of business
in-force. No allowance has been made for future productivity improvements in the expense assumptions.
Projected tax has been determined assuming current tax legislation and rates. Deferred tax on the
release of the retained surplus in the Life Business is allowed for in the PVIF calculations.
EV results are computed on a before and after tax basis.
Treatment of financial options and guarantees (FOGs)
The main options and guarantees for which FOG costs have been determined are
(a) Investment guarantees on certain unit-linked funds, where the unit returns to policyholders are
smoothed subject to a minimum guaranteed return (in the majority of cases the minimum guaranteed
change in unit price is 0%, usually representing a minimum return of the original premium). An
additional management charge is levied on policyholders investing in these funds, compared to
similar unit-linked funds without this investment guarantee. This extra charge is allowed for in
calculating the time value of FOG cost;
(b) Guaranteed Annuity Rates on a small number of products;
(c) Return of Premium death guarantees on certain unit-linked single premium products;
(d) Guaranteed benefits for policies in the closed with-profit fund.
Notes to the 2005 EV basis interim financial information
Six months to 30 June 2006
15. EV Assumptions (./...contd)
The main asset classes relating to products with options and guarantees are
European and International equities, Property, and government bonds of various
durations.
The Deloitte's TSM Streamline Market Consistent model is used to derive the cost
of FOGs. The model is calibrated to the yield curve and to the market prices of
equity options. Ten years of historical weekly data are used to derive the
correlation between the returns of different asset classes.
The model uses the difference between two inverse Gaussian distributions to
model the returns on each asset class. This allows the model to produce
fat-tailed distributions, and provides a good fit to historical asset return
distributions.
Statistics relating to the model used as at 30 June 2006 are set out in the
following table:
10-Year Return 20-Year Return
Mean1 StDev2 Mean StDev
European Assets (euro)
Bonds 4.1% 1.8% 4.4% 4.1%
Equities, Property 4.1% 22.2% 4.4% 23.0%
UK Assets (Sterling)
Bonds 4.7% 2.4% 4.5% 5.2%
Equities 4.7% 20.3% 4.5% 21.5%
1. The Market Consistent nature of the model means that that all asset classes
earn the risk free rate. No value is added by investing in riskier
assets with a higher expected rate of return. The Means quoted above reflect
this.
2. Standard Deviations are calculated by accumulating a unit investment for n
years in each simulation, taking the natural logarithm of the result,
calculating the variance of this statistic, dividing by n and taking the
square root. The results are comparable to implied volatilities quoted in
investment markets.
16. The EV basis interim financial information (which is unaudited) was approved
by the Board of Directors on 4 September 2006.
Independent review report to Irish Life & Permanent plc
Introduction
We have been engaged by the Company to review the Embedded Value ("EV") basis
supplementary financial information for the six months ended 30 June 2006 set
out on pages 11 to 26. The supplementary financial information has been
prepared in accordance with the EV Principles issued in May 2004 by the CFO
Forum using the methodology and assumptions set out on pages 11 to 14. The
supplementary financial information should be read in conjunction with the
Group's interim IFRS financial information which is set out on pages 30 to 37.
We have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the supplementary financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Irish Stock Exchange. Our review has been undertaken so that we
might state to the Company those matters we are required to state to it in this
report and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The Interim Report, including the EV basis supplementary financial information
contained therein, is the responsibility of and has been approved by the
directors. The directors have accepted responsibility for preparing the
supplementary financial information in accordance with the EV Principles and for
determining the assumptions used in the application of those principles.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in Ireland and the United Kingdom. A review consists principally of
making enquiries of management and applying analytical procedures to the
supplementary financial information and underlying financial data and, based
thereon, assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with International Standards of
Auditing (UK and Ireland) and therefore provides a lower level of assurance than
an audit. Accordingly, we do not express an audit opinion on the EV basis
supplementary financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the EV basis supplementary financial information as presented
for the six months ended 30 June 2006.
KPMG
Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1 4 September 2006
Statutory Basis
Commentary on Statutory Results
Statutory profits after tax, attributable to equityholders, on continuing
activities for the six months to June 2006 are Euro130m, a reduction of 30% on the
restated June 2005 return of Euro186m.
The EV information set out on pages 4 to 26 employs the embedded value
methodology for all of the group's insurance and investment business. The
statutory results use embedded value for insurance contracts only, with
investment contracts being accounted under IFRS. Banking and other businesses
are accounted for under the same basis in both statutory and EV results.
The statutory basis profits include the effects of economic variances on the
insurance business. These were negative Euro21m in the six months to June 2006
compared to a positive return of Euro22m in the corresponding period in 2005, a
negative change of Euro43m.
The first half 2006 outcome includes a charge of Euro11m in respect of the uplift
in the value of shares held for the benefit of policyholders. This reflects the
growth in value of Irish Life & Permanent shares during 2006 which increases
policyholder liabilities but under IFRS the corresponding increase in the asset
is not recognised. The corresponding charge to June 2005 was Euro5m and Euro28m for
the full year 2005.
The after tax profit on continuing operations reflects strong new business
growth in both the banking and life businesses combined with tight cost control.
In the banking business total loan balances outstanding increased 14% to
Euro29.9bln (Dec 2005: Euro26.2bln) with total new loans issued of Euro6.4bln (June 2005:
Euro4.2bln).
In the life business new business written (including fund flows into ILIM) on an
APE basis increased by 38% to Euro358m (June 2005: Euro260m). Gross inflows into ILIM
were Euro1.1bln compared to Euro750m to June 2005. The group enjoyed significant
growths in new business on both insurance and investment contracts which is
reflected in the 21% growth in premiums on insurance contracts from Euro269m in
2005 to Euro325m in 2006. However, the growth in new business experienced on the
investment contracts served to depress the reported 2006 statutory profits by
Euro32m due to the manner in which revenues and sales costs are treated under IFRS
for investment contracts.
The change in insurance contract liabilities shows a reduction of Euro150m in 2006
compared to an increase of Euro283m in 2005. This is mainly due to an increase in
medium to long-term Euro interest rates and is compensated by a corresponding
reduction in the investment return. The change in investment contract
liabilities has decreased 78% to Euro327m (June 2005 Euro1,474m) due to lower market
growth in the six months to June 2006 compared to 2005. This is also reflected
in the reduction in the investment return which was Euro257m in the six months to
30 June 2006 compared to Euro1,631m in the period to June 2005.
Administrative expenses increased 10% to Euro242m from Euro220m in 2005. This
principally reflects the increase in costs associated with the buoyant new
business issued.
The post-tax profits achieved in Allianz, a general insurance business in which
the group has a 30% interest, were Euro19m, which is down on the 2005 level of Euro24m
due to a sharp fall in the investment return due to weak bond markets partly
offset by prior year reserve releases which contributed to an improved
underwriting result.
Basis of Preparation - Statutory interim financial information
The unaudited 2006 statutory interim financial information on pages 31 to 37 has
been prepared using the accounting policies adopted by the group in its last set
of consolidated financial statements. The interim results are prepared in
accordance with the recognition and measurement principles of the IFRS issued by
the International Accounting Standards Board and adopted by the EU which apply
at 30 June 2006.
IFRS 4 brings into force phase 1 of the IASB's insurance accounting project. In
view of the phased implementation of IFRS for insurance business, the group
believes that shareholders will continue to place considerable reliance on
embedded value information relating to the life assurance business as a whole.
The statutory financial information includes insurance contracts written in the
life assurance business based on embedded value earnings calculated using the
EEV principles developed by the European CFO forum. The EV basis financial
information on pages 11 to 26 extends these principles to investment contracts
written in the life assurance business.
The 2006 statutory interim financial information has been prepared on a
consistent basis with 31 December 2005 financial statements and 30 June 2005
interim financial information except as outlined in note 1.
Estimates and assumptions
Certain amounts recorded include estimates and assumptions made by management
about insurance liability reserves, investment valuations, interest rates,
demographic and other factors. Actual results may differ from the estimates
made.
Consolidated Interim Income Statement - Statutory Basis (Unaudited)
Six months to 30 June 2006
Notes 6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Restated
Interest receivable 635 473 1,032
Interest payable (442) (295) (666)
193 178 366
Fees and commission income 35 30 63
Fees and commission expenses (51) (33) (73)
Trading (expense) / income 6 (7) (4)
Premiums on insurance contracts 325 269 484
Reinsurers' share of premiums on insurance contracts (99) (73) (159)
Investment return 257 1,631 3,527
Fees from investment contracts and fund management 128 94 218
Change in shareholders' value of in-force business 54 55 76
Profit on the sale of property and equipment - 2 4
Operating income 848 2,146 4,502
Claims on insurance contracts (211) (180) (383)
Reinsurers' share of claims on insurance contracts 62 48 108
Change in insurance contract liabilities 150 (283) (419)
Change in reinsurer's share of insurance contracts liabilities (100) 195 231
Change in investment contract liabilities (327) (1,474) (3,134)
Administrative expenses (242) (220) (470)
Depreciation and amortisation
Property and equipment (13) (14) (25)
Intangible assets - software (8) (5) (15)
Investment expenses (15) (9) (16)
Provision for impairment losses on loans and receivables (7) (6) (12)
Operating expenses (711) (1,948) (4,135)
Operating profit 137 198 367
Share of profits of associated undertakings 19 24 54
Profit before taxation on continuing activities 156 222 421
Taxation (25) (38) (69)
Profit for the period on continuing activities 131 184 352
Profit from discontinued activities - 3 1
Profit for the period on continuing activities 131 187 353
Attributable to
Equityholders 130 186 353
Minority interest 1 1 -
131 187 353
Earnings per share (basic)
Continuing activities 49.0 69.7 133.9
Discontinued activities - 1.1 0.4
4 49.0 70.8 134.3
Earnings per share (diluted)
Continuing activities 48.4 69.2 132.9
Discontinued activities - 1.1 0.4
4 48.4 70.3 133.3
Consolidated Interim Balance Sheet - Statutory Basis (Unaudited)
As at 30 June 2006
Notes 30 June 30 June 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Restated
Assets
Cash and balances with central banks 204 163 162
Items in course of collection 262 126 137
Financial assets
- Debt securities 9,119 7,802 8,530
- Equity shares 13,523 11,591 12,782
- Derivative assets 452 133 493
- Loans and receivables to customers 29,907 23,721 26,340
- Loans and receivables to banks 6,439 5,100 6,421
Investment properties 2,665 1,889 2,300
Reinsurance assets 1,927 1,959 2,023
Prepayments and accrued income 394 413 341
Interest in associated undertakings 157 152 167
Property and equipment 421 326 404
Shareholder value of -inforce business 600 526 546
Goodwill and intangible assets 264 257 258
Deferred acquisition costs 186 172 182
Net post retirement benefit asset 71 67 71
Other assets 117 141 85
Total assets 66,708 54,538 61,242
Liabilities
Financial liabilities
- Deposits by banks 3,800 1,493 2,281
- Customer accounts 12,833 11,791 12,808
- Debt securities in issue 15,747 13,109 15,226
- Non-recourse funding 4,159 2,146 2,232
- Derivative liabilities 350 277 359
- Investment contract liabilities 21,236 17,863 19,798
Insurance contract liabilities 3,905 3,764 4,082
Outstanding insurance and investment claims 127 109 110
Accruals and deferred income 322 127 167
Other liabilities 244 379 203
Current tax liabilities 31 48 34
Deferred tax liabilities 161 148 157
Net post retirement benefit liability 157 175 158
Deferred front end fees 150 173 159
Subordinated liabilities 1,326 1,057 1,385
Total liabilities 64,548 52,659 59,159
Equity
Share capital 5 88 86 87
Share premium 5 108 58 74
Retained profits 5 1736 1,597 1,711
Other reserves 5 219 130 203
Equity excluding minority interest 2,151 1,871 2,075
Minority interest 5 9 8 8
Total equity including minority interest 2,160 1,879 2,083
Total liabilities and equity 66,708 54,538 61,242
Consolidated Interim Statement of Recognised Income and Expense
Statutory Basis (Unaudited)
Six months to 30 June 2006
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Notes Eurom Eurom Eurom
Revaluation of property & equipment 5 19 6 86
Change in value of available for sale financial 5 1 (1) -
assets
Deferred tax - - (12)
Net amount recognised directly in equity 20 5 74
Profit for the period 131 187 353
Total recognised income and expense for the 151 192 427
period
Transition adjustment at 1 January 2005 arising 2
from IAS 32, IAS 39 and IFRS 4
- Available for sale reserve - (1) (1)
- Distributable reserves - 128 128
- Non distributable reserves - (480) (480)
- Minority interest - (3) (3)
Total recognised income and expense for the 151 (164) 71
period including transition adjustment
Attributable to :
Equityholders 150 (165) 74
Minority interest 1 1 (3)
Total recognised income and expense for the 151 (164) 71
period including transition adjustment
Condensed Consolidated Interim Cashflow Statement - Statutory Basis (Unaudited)
Six months to 30 June 2006
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
Eurom Eurom Eurom
Net cashflows from operating activities 502 (181) (397)
Investing activities
Purchase of property and equipment (14) (20) (35)
Sale of property and equipment 3 6 15
Purchase of intangible assets (5) (11) (23)
Sale of City of Westminster Assurance Company Limited - 69 63
Acquisition of subsidiary (10) - -
Dividends received from associated undertaking 29 8 23
Net cashflows from investing activities 3 52 43
Financing activities
Issue of ordinary share capital 35 6 23
Issue of new subordinated liabilities - 74 392
Interest paid on subordinated liabilities (44) (35) (48)
Equity dividends paid (117) (104) (152)
Net cashflows from financing activities (126) (59) 215
Increase / (decrease) in cash and cash equivalents 379 (188) (139)
Analysis of changes in cash and cash equivalents
Cash and cash equivalents at start of period 556 694 694
Net cashflow before effect of exchange translation adjustments 379 (188) (139)
Effect of exchange translation adjustments - 1 1
Cash and cash equivalents at end of period 935 507 556
Note to the 2006 Interim Statement - Statutory basis
Six months to 30 June 2006
1. Amendments to previously published Interim 2005 statements
As indicated in the 2005 interim report, certain IFRS were still subject to
change and to the issue of additional interpretation. The comparative six
months 2005 results shown in this announcement include changes to those
previously published arising from the refinement of these IFRS bases in the
second half of 2005 prior to their application to the full year financial
statements. In particular the calculation and presentation of taxation for life
assurance business remained under discussion by the industry. Where these
discussions have given rise to a different interpretation, results for the six
months to June 2005 have been restated to reflect the outcome of these
discussions and are now consistent with December 2005 results. The net impact
of the change is as follows:
30 June 2005
As previously Revised
Published
Eurom Eurom
Profit for the period attributable to equityholders 171 186
Shareholders' equity at 1 January 2005 1,829 1,783
Shareholders' equity at 30 June 2005 1,901 1,871
2. Reconciliation of Opening Shareholders' Equity
The group adopted IAS 32, IAS 39 and IFRS 4 with effect from 1 January 2005. The
impact on opening shareholders equity of these changes is as follows
Eurom
Shareholders' equity at 31 December 2004 2,136
IAS 39
Impairment provisions 50
Effective yield 77
Available for sale 3
130
IFRS 4
Deferred acquisition costs 182
Deferred front end fees (203)
Shareholders' value of in-force business on investment contracts (619)
Other reserve changes 67
Deferred tax 87
(486)
Minority share of IFRS adjustments 3
Shareholders' equity at 1 January 2005 1,783
3. Discontinued Activities
On 2 June 2005 the group disposed of its UK life assurance subsidiary City of
Westminster Assurance Company Limited. The proceeds net of costs were Euro63m, the
profit after tax for the period up to the date of disposal was Euro3m, the loss on
disposal was Euro2m.
4. Earnings per share 6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2006 2005 2005
(a) Basic EPS
Weighted average ordinary shares in issue and 265,218,470 262,604,139 262,813,871
ranking for dividend
Profit for the year attributable to equityholders
Continuing operations Euro130m Euro183m Euro352m
Discontinued operations Euro0m Euro3m Euro1m
Total Euro130m Euro186m Euro353m
EPS
Continuing operations 49.0 69.7 133.9
Discontinued operations - 1.1 0.4
Total 49.0 70.8 134.3
(b) Fully diluted EPS
Weighted average of potential dilutive ordinary 3,365,278 1,987,836 2,071,187
shares arising from the group's share option schemes
Weighted average number of ordinary shares used in 268,583,748 264,591,975 264,885,058
the calculation of fully diluted EPS
Fully diluted EPS
Continuing operations 48.4 69.2 132.9
Discontinued operations - 1.1 0.4
Total 48.4 70.3 133.3
Note to the 2006 Interim Statement - Statutory basis
Six months to 30 June 2006
5. Reconciliation of movement in capital and reserves
Share Share Revaluat-ion Available Other Revenue Total Minority Total
capital premium reserve for sale capital reserves excluding interest including
reserve reserves minority minority
interest interest
As at start of 87 74 189 (1) 15 1,711 2,075 8 2,083
period
Issue of share 1 34 - - - - 35 - 35
capital
Profit for the - - - - - 130 130 1 131
period
Revaluation gains - - 19 - - - 19 - 19
Change in value - - - 1 - - 1 - 1
of available for
sale financial
assets
Transfer between - - (5) - - 5 - - -
reserves
Change in own - - - - - 7 7 - 7
shares at cost
Equity settled - - - - 1 - 1 - 1
transactions
Dividends paid - - - - - (117) (117) - (117)
As at end of 88 108 203 - 16 1,736 2,151 9 2,160
period
6. The statutory basis interim financial information (which is unaudited)
was approved by the Board of Directors on 4 September 2006.
Independent review report to Irish Life & Permanent plc
Introduction
We have been engaged by the Company to review the International Financial
Reporting Standards ("IFRS") basis financial information for the six months
ended 30 June 2006 set out on pages 30 to 37. We have read the other
information contained in the Interim Report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Irish Stock Exchange. Our review has been undertaken so that we
might state to the Company those matters we are required to state to it in this
report and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The Interim Report, including the IFRS basis financial information contained
therein, is the responsibility of and has been approved by the directors. The
directors are responsible for preparing the Interim Report in accordance with
the Listing Rules which require that the accounting policies and presentation
applied to the interim figures should be consistent with those applied in
preparing the preceding annual financial statements except where any changes,
and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in Ireland and the United Kingdom. A review consists principally of
making enquiries of management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with International Standards of
Auditing (UK and Ireland) and therefore provides a lower level of assurance than
an audit. Accordingly, we do not express an audit opinion on the IFRS basis
financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the IFRS basis financial information as presented for the six
months ended 30 June 2006.
KPMG
Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1
4 September 2006
--------------------------
* including securitised mortgages
(1) Ape sales are calculated as annual value of regular premiums plus 10% of the
value of single premiums.
2 PVNBP sales are calculated as total single premiums plus the discounted value
of regular premiums expected to be received over the term of the contracts.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LZLFBQKBFBBQ
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