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| Denis Casey, Group Chief Executive |
Irish Life & Permanent plc today issued trading statement ahead of its closed period for the six months to June 30th 2007.
IL&P says that the the Irish economy continues to perform strongly with robust consumer demand, rising incomes and continued employment growth. This is a very supportive backdrop for the group’s businesses. Expectations for the year are for consumer expenditure growth of over 7% which, coupled with employment growth of 3-4%, is expected to translate into annual GDP growth of circa 5%.
The group said that its life and pensions business is enjoying extremely buoyant trading conditions
– in part boosted by SSIA maturities – and volumes are expected to be very strongly ahead in the six months to end June. Irish Life Investment Managers expects to receive, once again, record inflows in the period.
The group’s banking business, while seeing lower levels of new Irish residential lending as the property market slows from its record high, will see overall gross new lending on par with the previous half-year and will deliver strong growth in its loan book. The bank continues to acquire record numbers of new current account customers.
Sales
Banking Business
Loan book growth for the first six months of the year will exceed 20% year on year with all lending activities contributing to this growth.
The Irish residential mortgage book is expected to see growth of about 20% on foot of new lending of circa €3.4bn [2006: €4.2bn].
Capital Home Loans, the group’s UK mortgage company, is experiencing very strong new lending growth and the loan book at end June is expected to show growth of about 30% year on year.
Both consumer finance and commercial lending are performing well and the group expects those loan balances grow in line with, or ahead of, overall loan book growth.
IL&P says that a major strategic focus of the bank has been the acquisition of new customers through its current / checking account offering. It expects to have opened over 34,000 new current accounts in the first six months of the year and are on target to open in excess of 60,000 accounts for the full year. Current account balances are expected to show low teens percent growth year on year.
Life Business
Life sales* in Ireland (excluding investment sales by ILIM) are expected to grow in excess of 35% for the half year. As well as strong sales of investment bonds the Retail Life division is enjoying tremendous growth in pension sales. Protection sales are expected to grow more modestly than in the previous period reflecting slower mortgage activity in the half year. Sales in the Corporate Life division continue to benefit from employment and income growth with defined contribution sales
– new schemes and increments – well ahead.
Institutional inflows into ILIM, the group’s fund management business, for the first six months of 2007 will be over €2 billion, exceeding the €1.9bn of inflows for the full year in 2006.
*APE (annual premium equivalent ) basis
Earnings
Banking Business
Bank revenues for the first half are expected to show mid-teens percent growth on the back of strong growth in net interest income. This reflects, firstly, the growth in the loan book and, secondly, margin development in the first six months which is expected to be in line with guidance.
Low teens cost growth in the first half reflects expenditure associated with investment in additional capacity in CHL and in the retail network to cope with the SSIA workload. This is expected to moderate over the full year. Credit quality remains excellent and the increase in the impairment provisions for the half year will be well behind the growth in the loan book.
Pre-tax banking operating profit growth for the first half is expected to be in the high teens percent.
Life Business
IL&P expects to see growth in new business earnings of almost 25% for the first six months on foot of the strong sales performance. The sales out-performance is principally in investments and pensions and as a result the new business margin on life sales (ex-ILIM) is expected to be marginally below the guidance of 20%. The exceptional level of inflows into ILIM in the first half includes a number of very large ticket mandates which produce a lower overall margin mix for that business in the period.
The existing book of in-force life business is expected to deliver strong earnings growth in the first half. This reflects both the unwind of the value of in-force
– a higher opening value at a higher risk discount rate – and assumption changes reflecting positive operational experience.
Pre-tax life operating profit* growth for the first half is expected to be in the region of 35%.
With investment returns year to date exceeding embedded value assumptions the investment impact ("short term investment fluctuations") was, as of mid-June, running at circa €40m positive. Medium term interest rates are currently ahead of the start of the year and this will feed into a higher risk discount rate at the half year. The resultant economic assumptions impact is currently estimated to be circa €30m negative but is sensitive to movements in the yield curve.
* Embedded value basis (An embedded value is an estimate of the economic value of the company, excluding any goodwill that may be attributed to the value of future new business).
Associated Business
Allianz (Ireland), which carries on non-life insurance and in which the group has a 30% interest, is expected to deliver first half earnings broadly in line with the prior year, reflecting a lower underwriting result compensated by the investment gain arising on the disposal of its head office premises.
Outlook
With a very strong first six months, IL&P says 2007 promises to be an excellent year for the group.
"We expect the momentum in our life business to carry into the second half, albeit without the benefit of SSIA maturities, and for our banking business to continue to make good progress with overall loan book growth in the mid to high teens.
Our expectation is for high teens growth for the year in pre-tax operating profit from our core life and banking business, up from previous guidance of low to mid-teens growth," the statement concluded.
The 2007 interim results announcement will take place on Wednesday 29th August 2007.
