Final Results - Part 2
March 05 2003 - 2:01AM
UK Regulatory
RNS Number:2995I
Irish Life & Permanent PLC
5 March 2003
Notes to the Preliminary Announcement
1. Changes in Accounting Policies & Presentation of Information
The accounting polices are unchanged from those outlined on pages 39 to 41 of
the 2001 annual report with the exception of the group's accounting policy for
deferred taxation where the group has adopted "FRS19 Deferred Taxation" which
applies to all accounting periods ending on or after 23 January 2002. Prior to
the adoption of FRS19, deferred tax was provided in respect of timing
differences only to the extent that there was a reasonable probability that a
liability or asset would crystallise. Under FRS19 deferred tax is provided on
all timing differences with deferred tax assets being recognised when it is
likely that they will be recovered. Prior year results have been restated to
reflect this change. The net impact of the change is
* an increase in deferred taxation attributable to banking and other
activities of Euro9.9m
* an increase in the carrying value of the group's associated company of
Euro2.8m
The corresponding effect on opening reserves is Euro7.1m at 31 December 2001. Tax
on profit on ordinary activities for 2001 has been increased by Euro1.0m.
The group has also adopted the Association of British Insurer's guidance on
accounting for life assurance profits (Achieved Profits). This does not impact
on the reported profit and loss of the group. There are no changes to the
primary financial statements but there are a number of presentational changes in
the notes analysing the profit for the year. The significant changes include
* Results of life operations are presented gross of tax
* Contribution from new business is calculated as the contribution to profit
in the accounting period from new business written in the period. Previously
the new business contribution was calculated at the point of sale and
profits after point of sale were included as part of the contribution from
existing business.
* The guidance distinguishes between the expected investment return on
assets backing the long-term life assurance business and the shareholders
net worth in the life business, and the actual return which may be more or
less than that expected due to short term fluctuations in investment
returns. In terms of presentation, variances resulting from the disparity
between expected and actual investment returns, such as the unit-linked
management fee variances, will be included under the heading "Short term
fluctuations in investment returns". This is shown as a deduction from, or
addition to the total contribution for the period.
Note 17 to the preliminary announcement shows a reconciliation of the
presentation of the 2001 results under the guidance to the previous reported
presentation.
2. Post Balance Sheet Event - Disposal of US Business
On 28 February 2003 the Group announced that it had reached agreement on the
sale of its remaining operating business in the US, Guarantee Reserve Life
Insurance Company. This company, which is focused on the US final expense market
is to be acquired by Reassure America Life Insurance Company a wholly owned
subsidiary of Swiss Re Life & Health America Inc.
The consideration, which is payable in cash, is $121.0m adjusted for any change
in the capital and surplus of the company from 30 June 2002 to the date of
completion of the transaction. This compares to a carrying value in the Group's
accounts of $176.0m at 31 December 2002.
The transaction, which is subject to US regulatory approval is expected to
complete in the second quarter 2003. In accordance with generally accepted
accounting practice the financial outcome of this transaction will be reflected
in the Group financial statements in 2003.
3. Analysis of the profit and loss account : supplementary information
The profit before tax includes the results of the life business on an embedded
value (achieved profits) basis and reflects the impact of investment market
fluctuations on the group's results. The following analyses show :
(a) The contribution from the group and associate companies on the basis of an
assumed longer term level of investment return on the assets of the group's
life and the associated's general insurance business and before goodwill
and other charges/credits.
(b) An analysis of the components of the embedded value of the life business.
(a) Contribution before short term investment fluctuations, goodwill and other
charges/credits
2002
Ireland UK USA Total
Eurom Eurom Eurom Eurom
Life assurance activities (b) 204.9 15.1 5.1 225.1
Banking and other activities 74.3 23.1 - 97.4
Other investment earnings 3.8 - - 3.8
Group Contribution 283.0 38.2 5.1 326.3
Share of associate's contribution 29.0 - - 29.0
Total Contribution (Group & Associate) 312.0 38.2 5.1 355.3
2001
Ireland UK USA Total
Eurom Eurom Eurom Eurom
Life assurance activities 174.4 20.8 (37.9) 157.3
Banking and other activities 70.5 20.6 - 91.1
Other investment earnings 15.2 - - 15.2
Group Contribution 260.1 41.4 (37.9) 263.6
Share of associate's contribution 6.8 - - 6.8
Total Contribution (Group & Associate) 266.9 41.4 (37.9) 270.4
The total contribution is reconciled to the profit and loss account as follows:
2002 2001
Eurom Eurom
Total Contribution (Group & Associate) 355.3 270.4
Short term investment fluctuations
Life assurance (96.7) (43.3)
Share of associates (33.0) (14.0)
Goodwill amortisation (11.7) (14.8)
Effect of economic assumption changes on life assurance profits 20.8 (6.2)
Other charges/credits 123.5 (113.0)
Profit before tax 358.2 79.1
3. Analysis of the profit and loss account : supplementary information
(continued)
(b) Analysis of contribution from life assurance activities
2002
Ireland UK USA Total
Eurom Eurom Eurom Eurom
New business contribution 58.2 2.9 (0.3) 60.8
Contribution from existing business
Unwind of discount rate 83.4 8.3 19.2 110.9
Experience variances 26.5 5.2 (3.1) 28.6
Operating assumption changes 24.5 (2.3) (13.0) 9.2
Expected investment returns 4.1 1.0 2.3 7.4
Other Income 8.2 - - 8.2
Contribution from life assurance activities 204.9 15.1 5.1 225.1
Short term fluctuations in investment returns (86.1) (8.4) (2.2) (96.7)
Effect of economic assumption changes 14.4 2.3 4.1 20.8
Life Assurance achieved profits 133.2 9.0 7.0 149.2
2001
Ireland UK USA Total
Eurom Eurom Eurom Eurom
New business contribution 57.9 2.5 2.8 63.2
Contribution from existing business
Unwind of discount rate 74.6 8.5 16.5 99.6
Experience variances 17.4 6.5 (10.2) 13.7
Operating assumption changes 14.1 2.0 (51.5) (35.4)
Expected investment returns 0.4 1.3 3.2 4.9
Other Income 10.0 - - 10.0
Contribution from continuing activities 174.4 20.8 (39.2) 156.0
Contribution from discontinued US operations - - 1.3 1.3
Contribution from life assurance activities 174.4 20.8 (37.9) 157.3
Short term fluctuations in investment returns (37.2) (5.8) (0.3) (43.3)
Effect of economic assumption changes (1.1) (0.9) (4.2) (6.2)
Life Assurance achieved profits 136.1 14.1 (42.4) 107.8
4. Analysis of shareholder net assets
2002 2001
Eurom Eurom
Life assurance
Ireland 1,269.6 1,126.6
UK 91.6 88.7
US 167.8 164.7
1,529.0 1,380.0
Banking and other activities
Ireland 58.3 162.5
UK 46.5 66.7
104.8 229.2
Associated company 55.0 59.9
Attributable to goodwill
Banking and other activities 179.3 189.1
Life assurance activities 32.1 31.7
211.4 220.8
1,900.2 1,889.9
Life assurance assets are analysed as follows:
2002 2001
Eurom Eurom
Shareholders' net assets (life assurance activities)
Property 100.2 109.8
Equities 28.0 31.7
Fixed interest 24.9 7.0
Deposits 309.9 296.4
Other assets 95.4 (91.0)
Solvency capital attributable to shareholders (268.4) (254.2)
290.0 99.7
Shareholders' value of in-force business 1,239.0 1,280.3
1,529.0 1,380.0
The value of in-force business includes the solvency capital
attributable to shareholders Euro268.4m (2001: Euro254.2m). The value of
in-force has been reduced by minority interests of Euro1.4m (2001: Euro3.3m).
Shareholders' value of in-force is net of a deduction of Euro48.0m (2001:
Euro39.9m) in respect of the cost of maintaining the solvency margin.
5. Other Charges/Credits
(a) Sale of Industrial Branch business
The disposal of the group's industrial branch business to Royal Liver Assurance
was subject to a number of conditions including the sanction of the Courts in
Ireland and approval by the Delegates of Royal Liver Assurance. These conditions
were all satisfied and the transfer of Industrial Branch assets took place with
effect from 28 February 2002. In consideration for the asset transfer, Royal
Liver assumed all of the Industrial Branch liabilities and paid the group Euro23.5m
for the business and infrastructure and Euro153.5m for the assets transferred. The
contribution to the embedded value of the group as a result of this transaction
is Euro103.2m before taxation and after transaction costs.
(b) Disposal of fixed assets
As part of the integration and restructuring of the group's banking operations
the group disposed of a number of branch properties, the profit realised on
these sales was Euro30.3m.
(c) Integration and restructuring of banking operations
The integration and restructuring of the group's banking operations constitutes
a fundamental change in the nature and operation of the business. Provision was
made for the estimated cost of the restructuring in 2001 (Euro63.0m). The estimate
was revised during 2002 and a further Euro10.0m provided.
(d) Disposal of US business
The group disposed of its annuity businesses in the US in 2001, the loss on the
disposal of these businesses was Euro50.0m.
6. New life assurance business
2002 2001
Eurom Eurom
Full value
Ireland
Recurring 247.4 206.4
Single 1,667.4 1,248.1
USA
Recurring 57.6 82.1
Single - 161.1
United Kingdom:
Recurring 1.8 2.4
Single 16.5 13.9
1,990.7 1,714.0
Annual premium equivalent
Ireland 414.1 331.2
USA 57.6 98.2
UK 3.5 3.8
475.2 433.2
Annual premium equivalent is calculated by weighting single premium
business written at 10% of premium and annual premium business at 100% of
premium.
7. Interest receivable and similar income
2002 2001
Eurom Eurom
Loans and advances to customers 613.7 652.8
Loans and advances to credit institutions 84.7 132.5
Debt securities - investments 65.4 53.7
Lease and instalment finance 66.5 68.5
830.3 907.5
8. Investment return
a) Attributable to banking and other activities
2002 2001
Eurom Eurom
Investment income - 0.1
Realised gains 3.8 15.1
3.8 15.2
2002 realised gains comprise of Euro3.8m profit on the sale of equities (2001:
Euro5.6m). 2001 realised gains also included Euro9.5m on the disposal of
investment property.
b) Attributable to life assurance activities
2002 2001
Eurom Eurom
Income from investments 517.1 686.2
Realised and unrealised gains and losses (2,299.0) (1,041.0)
Investment expenses and charges (16.8) (17.3)
(1,798.7) (372.1)
9. Operating and administrative expenses
2002 2001
Eurom Eurom
(a) Attributable to banking and other activities
Banking operating expenses 232.8 195.3
Corporate costs 7.5 6.4
Other activities 4.1 3.6
244.4 205.3
(b) Attributable to life assurance activities
Life assurance operating expenses 235.9 292.1
Acquisition expenses 100.7 125.9
Corporate costs 4.7 3.2
Euro conversion costs - 6.5
341.3 427.7
10. Provision for bad and doubtful debts
2002 2001
Eurom Eurom
At 1 January 77.7 40.9
Charged to the profit and loss account 13.3 11.7
Arising on acquisition of TSB - 30.3
Amounts written off (5.4) (5.2)
At 31 December 85.6 77.7
The closing balance is made up as follows:
Specific 36.1 26.8
General 49.5 50.9
Total 85.6 77.7
The analysis of the group's provisions for bad and doubtful debts by
category of loans and advances to customers is as follows:
2002
Specific General Total
Eurom Eurom Eurom
Residential mortgage loans 1.7 28.1 29.8
Commercial mortgage loans 8.4 8.8 17.2
Other loans 26.0 12.6 38.6
Closing provision at 31 December 2002 36.1 49.5 85.6
2001
Specific General Total
Eurom Eurom Eurom
Residential mortgage loans 1.8 26.7 28.5
Commercial mortgage loans 6.9 8.8 15.7
Other loans 18.1 15.4 33.5
Closing provision at 31 December 2001 26.8 50.9 77.7
11. Taxation
(a) Tax attributable to life assurance activities
Tax attributable to life assurance is analysed below and includes amounts
in respect of policyholders and the tax on the change in shareholders'
value of in-force business which is calculated with reference to the
effective corporation tax rate applicable in each of the relevant
territories.
2002 2001
Eurom Eurom
Corporation taxation 7.3 26.2
Overseas tax 5.9 1.0
Deferred taxation 16.6 (4.0)
Duties and levies 3.5 5.1
Tax on change in shareholders' value of in-force 34.1 (1.6)
business
67.4 26.7
(b) Tax attributable to profit on ordinary activities is analysed as follows:
2002 2001
Eurom Eurom
Tax attributable to profit on life assurance activities 44.2 2.7
(i)
Corporation tax on banking and other activities 21.4 20.8
Deferred taxation on banking and other activities (ii) (2.6) (2.5)
Tax attributable to group's share of profits of
associated undertakings - 0.9
Tax on disposal of Industrial Branch business 4.7 -
Tax on disposal of properties 2.4 -
Tax on integration & restructuring of the group's banking operations (1.6) (11.7)
Tax arising on disposal of US businesses - 19.5
68.5 29.7
(i) The life taxation charge for 2002 of Euro44.2m includes an exceptional
charge of Euro30.3m relating to the write down in the value of unrelieved tax
losses. In the light of the falls in investment markets and allowing for
the lower assumed rates of investment return going forward the
recoverability of any tax relief on unrelieved losses is uncertain. The tax
value of these unrelieved losses has therefore been written down in full in
2002.
(ii) Deferred taxation on banking and other activities includes a prior
year adjustment in 2001 of Euro1.0m (see note 1).
12. Earnings per share
2002 2001
(a) Basic EPS
Profit for the financial year after taxation Euro290m Euro48.6m
Weighted average ordinary shares in issue and ranking for 274,781,303 284,561,462
dividend
EPS 105.5 cent 17.1 cent
(b) Fully diluted EPS
Weighted average of potential dilutive ordinary
shares arising from the group's share option schemes 1,186,459 1,517,870
Weighted average number of ordinary shares used
in the calculation of fully diluted EPS 275,967,762 286,079,332
Fully diluted EPS 105.1 cent 17 cent
(c) EPS based on total contribution
Per Share Per Share
Eurom cent Eurom cent
Earnings as reported above 290.0 105.5 48.6 17.1
Adjustments
Short term investment fluctuations 129.7 47.2 57.3 20.1
Goodwill amortisation 11.7 4.3 14.8 5.2
Profit on the disposal of property (30.3) (11.0) - -
Restructuring costs 10.0 3.6 63.0 22.1
Contribution to embedded value arising on (103.2) (37.6) - -
disposal of Industrial Branch Business
Loss on disposal of businesses - - 50.0 17.6
Effect of economic assumption changes on life (20.8) (7.6) 6.2 2.2
assurance profit
Tax relating to the adjustments 30.2 11.0 5.1 1.8
Minority interest (0.3) (0.1) 0.8 0.3
Total contribution 317.0 115.3 245.8 86.4
Weighted average ordinary shares in issue and ranking for 274,781,303 284,561,462
dividend
EPS based on total contribution 115.3 cent 86.4 cent
The EPS based on total contribution is presented to illustrate the
underlying movement in earnings of the group and as such excludes short
term investment fluctuations, items of an exceptional nature, goodwill
amortisation and minority interests.
13. Called up share capital, share premium, merger reserve and other capital reserves
Number of Share Share Merger Capital
Shares Capital Premium Reserve Reserves
Eurom Eurom Eurom Eurom
At 1 January 2002 278,918,907 89.3 44.9 (21.2) 24.7
Shares issued during the year 856,674 0.2 4.5 - -
Shares repurchased and cancelled (10,676,765) (3.4) - - 3.4
At 31 December 2002 269,098,816 86.1 49.4 (21.2) 28.1
During 2002 the group purchased on market 10,676,765 shares with a nominal
value of Euro3.4m for a total consideration of Euro150.0m. These shares were
subsequently cancelled and the cost has been written off to reserves. The
nominal value of the shares acquired has been transferred to a capital
reserve.
During 2002 the company issued 856,674 ordinary shares of Euro0.32 each with a
nominal value of Euro0.2m for cash of Euro4.7m as a result of the exercise of
options under the group's share options schemes.
The merger reserve is the difference between the shares issued by Irish
Permanent plc and the nominal value of the issued share capital of Irish
Life plc on the merger of the companies.
Capital reserves represents the share premium (Euro20.7m) of Irish Life plc at
the date of the merger and Euro7.4m capital redemption reserve arising from
the repurchase and cancellation of shares.
14. Revenue reserves
Profit and loss Non-distributable
account reserves
2002 2001 2002 2001
Eurom Eurom Eurom Eurom
At 1 January 397.9 452.4 1,354.3 1,415.0
Profit retained for the year 290.0 48.6 - -
Dividends (128.0) (120.6) - -
Transfer (to)/from non-distributable reserves (117.5) 74.4 117.5 (74.4)
Goodwill on disposal of businesses written back
through profit and loss account - - - 16.2
Exchange adjustment on net investment in
overseas subsidiaries - - (6.4) (2.5)
442.4 454.8 1,465.4 1,354.3
Shares repurchased and cancelled (150.0) (121.5) - -
Shares repurchased during the year - (2.3) - -
Re-issue of shares held as treasury shares - 66.9 - -
At 31 December 292.4 397.9 1,465.4 1,354.3
Profit arising on life assurance activities are treated as
non-distributable until declared as surpluses by the appointed
actuaries.
15. Value of in-force business
The principal assumptions used in the calculation of shareholders' value
of in-force business include the following:
Ireland US UK
31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec
2002 2001 2002 2001 2002 2001
% % % % % %
Risk discount rate 7.50 8.50 9.00 10.00 7.50 8.25
Investment returns
Fixed Interest 3.3 to 4.9 3.3 to 5.5 3.8 to 5.8 5.1 to 6.2 4.50 5.00
Equities & Property 5.75 7.00 n/a n/a 6.25 7.30
Expense inflation 4.00 4.50 3.00 3.00 2.25 2.50
16. Foreign currency translation
The principal rates of exchange used in the preparation of the
financial statements are as follows:
(a) Closing rate
2002 2001
Euro / Stg# 0.6505 0.6085
Euro / US$ 1.0487 0.8813
(b) Average rate
2002 2001
Euro / Stg# 0.6299 0.6193
Euro / US$ 0.9516 0.8915
17. Restatement of 2001 profit and loss account : supplementary information
The presentation of the life assurance results for 2001 has been restated in line with the ABI
guidance on Achieved Profits. The notes below outline:
(a) Life assurance profits as reported in 2001 and the adjustments necessary to arrive at the
presentation of life assurance profits in accordance with the guidance.
(b) Total profits of the group in 2001 before and after taxation.
(a) Contribution from life assurance activities
Ireland
As Change Revised Tax Gross Pre Tax
Reported arising post tax Up Profit
Eurom Eurom Eurom Eurom Eurom
New business contribution 46.1 4.6 50.7 7.2 57.9
Contribution from existing business
Unwind of discount rate 79.4 (5.9) 73.5 1.1 74.6
Experience variances 25.5 (8.3) 17.2 0.2 17.4
Unit Linked management fee variance (24.5) 24.5 - - -
Operating assumption changes - 13.9 13.9 0.2 14.1
Expected investment returns 0.5 (0.1) 0.4 - 0.4
Other Income - 8.0 8.0 2.0 10.0
Contribution from life assurance 127.0 36.7 163.7 10.7 174.4
activities
Short-term fluctuations in investment - (36.7) (36.7) (0.5) (37.2)
returns
Effect of economic assumption changes (1.1) - (1.1) - (1.1)
Life Assurance achieved profits 125.9 - 125.9 10.2 136.1
Taxation (10.2)
125.9
UK
As Change Revised Tax Gross Pre Tax
Reported arising post tax Up Profit
Eurom Eurom Eurom Eurom Eurom
New business contribution 2.1 0.1 2.2 0.3 2.5
Contribution from existing business
Unwind of discount rate 7.4 (0.1) 7.3 1.2 8.5
Experience variances 7.3 (1.7) 5.6 0.9 6.5
Unit Linked management fee variance (5.0) 5.0 - - -
Operating assumption changes - 1.7 1.7 0.3 2.0
Expected investment returns 1.1 - 1.1 0.2 1.3
Contribution from life assurance 12.9 5.0 17.9 2.9 20.8
activities
Short-term fluctuations in investment - (5.0) (5.0) (0.8) (5.8)
returns
Effect of economic assumption changes (0.8) - (0.8) (0.1) (0.9)
Life Assurance achieved profits 12.1 - 12.1 2.0 14.1
Taxation (2.0)
12.1
17. Restatement of 2001 profit and loss account : supplementary information
(continued)
(a) Contribution from life assurance activities
(continued)
USA
As Change Revised Tax Gross Pre Tax Profit
Reported arising post tax Up
Eurom Eurom Eurom Eurom Eurom
New business contribution 1.1 1.1 2.2 0.6 2.8
Contribution from existing business
Unwind of discount rate 14.9 (1.8) 13.1 3.4 16.5
Experience variances (48.8) 40.7 (8.1) (2.1) (10.2)
Unit Linked management fee
variance
Operating assumption changes - (40.7) (40.7) (10.8) (51.5)
Expected investment returns 1.6 0.9 2.5 0.7 3.2
Contribution from continuing (31.2) 0.2 (31.0) (8.2) (39.2)
activities
Contribution from discontinued 1.6 - 1.6 (0.3) 1.3
activities
Contribution from life assurance (29.6) 0.2 (29.4) (8.5) (37.9)
activities
Short-term fluctuations in investment - (0.2) (0.2) (0.1) (0.3)
returns
Effect of economic assumption changes (3.3) - (3.3) (0.9) (4.2)
Life Assurance achieved profits (32.9) - (32.9) (9.5) (42.4)
Taxation 9.5
(32.9)
17. Restatement of 2001 profit and loss account : supplementary information
(b) Analysis of the profit and loss account
Pre-tax Tax Post Tax
Eurom Eurom Eurom
Ireland
Banking & Other Activities 70.5 (10.9) 59.6
Life Assurance Activities 174.4 (10.7) 163.7
Other Investment Earnings 15.2 (1.4) 13.8
260.1 (23.0) 237.1
UK
Banking & Other Activities 20.6 (6.0) 14.6
Life Assurance Activities 20.8 (2.9) 17.9
41.4 (8.9) 32.5
US
Life Assurance Activities (37.9) 8.5 (29.4)
Group Contribution 263.6 (23.4) 240.2
Share of associated company 6.8 (1.2) 5.6
Total Contribution (Group & Associate) 270.4 (24.6) 245.8
Short term investment fluctuations
Life assurance activities (43.3) 1.4 (41.9)
Share of associated company (14.0) 0.3 (13.7)
Goodwill amortisation (14.8) - (14.8)
Effect of economic assumptions changes on life assurance (6.2) 1.0 (5.2)
activities
Other charges
Restructuring charges (63.0) 11.7 (51.3)
Loss on the disposal of US businesses (50.0) (19.5) (69.5)
Total Profit 79.1 (29.7) 49.4
18. Segmental Analysis
2002 2001
Eurom Eurom
Interest Income
Ireland 737.7 823.9
UK 92.6 83.6
830.3 907.5
Net Interest Income
Ireland 297.5 255.0
UK 27.7 25.4
325.2 280.4
Gross premium written
Ireland 2,561.6 2,105.2
UK 90.0 93.0
US 155.3 386.7
2,806.9 2,584.9
Profit on operating
activities before tax
Banking and other
activities
Ireland 78.1 85.7
UK 23.1 20.6
101.2 106.3
Life assurance
activities
Ireland 133.2 136.1
UK 9.0 14.1
US 7.0 (42.4)
149.2 107.8
Goodwill amortisation (11.7) (14.8)
238.7 199.3
Total Assets
Banking and other
activities
Ireland 17,515.3 15,517.0
UK 830.8 1,066.7
18,346.1 16,583.7
Life Assurance
Activities
Ireland 14,326.9 15,624.5
UK 1,119.9 1,407.4
USA 444.3 573.3
15,891.1 17,605.2
Goodwill 211.4 220.8
34,448.6 34,409.7
19. The financial information set out above does not constitute the company's
statutory accounts for the year ended 31 December 2002. The statutory
accounts for 2002 will be finalised on the basis of the financial
information presented by the directors in the preliminary announcement and
will be delivered to the register of companies following the company's
annual general meeting. The accounting policies applied are unchanged, with
the exception of the changes set out in note 1 of this report, from those
outlined on pages 39 to 41 of the 2001 annual report.
5 March, 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
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