AIB 2003 cover 22/3/04 4:44 PM Page 1 Allied Irish Banks, p.l.c. Annual Report and Accounts 2003 Report & Accounts 20032003 AIB Group Bankcentre PO BOX 452 Dublin 4 Ireland Tel. +353 (0) 1 660 0311 www.aibgroup.com This is the new-style report and accounts document from AIB. The Chairman’s statement is on pages 8/9 and the Group Chief Executive’s review starts on page 12. It includes for the first time statements on Corporate and Social Responsibility, on page 16, and AIB and its people, on page 17. For the latest information, please visit our websites listed opposite. 3 4 Contents 7 Financial highlights 8 Chairman’s statement 10 AIB Board/Executive Committee 12 Group Chief Executive’s review 15 AIB at a glance 16 Corporate and Social Responsibility 17 AIB and its people 19 Performance review 37 Financial review 48 Report of the Directors 50 Corporate Governance 54 Accounting policies 59 Consolidated profit and loss account 61 Consolidated balance sheet 62 Balance sheet Allied Irish Banks, p.l.c. 63 Consolidated cash flow statement 64 Reconciliation of movements in shareholders’ funds 64 Note of historical cost profits and losses 65 Notes to the accounts 140 Statement of Directors’ responsibilities in relation to the Accounts 141 Independent auditors’ report 143 Additional financial information 145 Accounts in sterling, US dollars and Polish zloty 146 Five year financial summary 148 Principal addresses 150 Additional information for shareholders 154 Financial calendar 155 Index 5 Forward-Looking Information. This document contains certain forward- looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of the Group and certain of the plans and objectives of the Group. In particular, among other statements, certain statements in the Chairman’s statement, the Group Chief Executive’s review, the Performance review and the Financial review with regard to management objectives, trends in results of operations, margins, risk management, competition and the impact of International Accounting Standards are forward-looking in nature. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the potential business risks resulting from changes in economic conditions globally and in the regions in which the Group conducts its business, changes in fiscal or other policies adopted by various governments and regulatory authorities, the effects of competition in the geographic and business areas in which the Group conducts its operations, the ability to increase market share and control expenses, the effects of changes in taxation or accounting standards and practices, acquisitions, future exchange and interest rates and the success of the Group in managing these events. AIB cautions that the foregoing list of important factors is not exhaustive. Investors and others should carefully consider the foregoing factors and other uncertainties and events when making an investment decision based on any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Report may not occur. 6 Financial highlights for the year ended 31 December 2003 2002 2001 2003 Restated(1) Restated(1) € m € m € m Results Total operating income 3,176 3,927 3,751(2) Group profit before taxation 1,011 1,372 1,366(2) Profit attributable 677 1,034 484 Profit retained 174 560 41 Per € 0.32 ordinary share Earnings – basic 78.8c 119.1c 56.2c Earnings – adjusted (note 21) 109.5c 122.7c 108.6c Earnings – diluted 78.4c 117.9c 55.9c Dividend 54.00c 49.06c 43.80c Dividend cover – times 1.5 2.4 1.3 Net assets 587c 471c 514c Performance measures Return on average total assets 0.90% 1.24% 1.23%(2) Return on average ordinary shareholders’ equity 14.5% 23.7% 20.4%(2) Return on average ordinary shareholders’ equity - tangible(3) 20.0% 27.4% 24.7% Balance sheet Total assets 80,960 85,821 89,061 Shareholders’ funds: equity interests 4,942 4,180 4,554 Loans etc 53,326 58,483 57,445 Deposits etc 66,195 72,190 72,813 Capital ratios Tier 1 capital 7.1% 6.9% 6.5% Total capital 10.4% 10.1% 10.1% (1) The accounts for the years ended 31 December 2002 and 2001 have been restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own shares and UITF Abstract 38 - Accounting for ESOP Trusts (Accounting policies - page 54). (2)Adjusted to exclude the exceptional foreign exchange dealing losses in 2001 (note 8(b)). (3)Tangible shareholders’ equity excludes capitalised goodwill of € 1.4 billion at 31 December 2003 (2002: € 0.5 billion; 2001: € 0.5 billion). In addition, profit attributable has been adjusted to exclude goodwill amortisation of € 72.6 million at 31 December 2003 (2002: € 31.7 million; 2001: € 30.9 million) in arriving at return on average ordinary shareholders’ equity - tangible. Allied Irish Banks, p.l.c. Group Headquarters & Registered Office Bankcentre, Ballsbridge Dublin 4, Ireland Telephone +353 1 660 0311 Registered number 24173 7 AIB's total dividend in 2003 represents a rise of 10% on 2002 and reflects the AIB Board's confidence in the company's future earnings prospects. Over the past five years, compound growth in AIB's dividend was 14%. Chairman’s statement 2003 was a year of change for AIB.A series launched a significant share buyback programme of major deals were completed and there was which saw the group purchase 60.8 million of its the challenge of operating in an economic own shares. environment where our base currency, the euro, Changes in the board strengthened against the US dollar, sterling and There were some changes to the AIB Board in Polish zloty.All this led to a negative impact on 2003. I took over as chairman of AIB Group last some of our headline profit figures. November. I want to record my appreciation of Dividend the contribution made by Lochlann Quinn who I am pleased to report that the underlying story was an outstanding chairman of AIB over the past was very different with a positive operating six years. He provided exemplary leadership when performance across the group.This was the the Allfirst fraud occurred in 2002 – a time of real background to the AIB Board’s decision in challenge for the group. Lochlann oversaw the setting the level of this year’s dividend.We are transformation of AIB’s US interests over the last recommending a final dividend of EUR 35.0c per two years and set a consistently high standard in share payable on 30 April 2004 to shareholders on the conduct of board business throughout his the company’s register of members at the close of time as chairman. business on 5 March 2004. Earlier in 2003, three new members joined the This dividend, when taken with the interim AIB Board. In February, Colm Doherty, Managing dividend of EUR 19.0c, means AIB’s total Director,AIB Capital Markets and Aidan dividend in 2003 is EUR 54.0c.This is a rise of McKeon, Managing Director,AIB Group (UK) 10% on 2002 and reflects the AIB Board’s p.l.c., were appointed. In April, Robert Wilmers, confidence in the company’s future earnings Chairman, President and CEO of M&T Bank prospects. Over the past five years, compound Corporation, joined the board after AIB acquired growth in AIB’s dividend was 14%. its strategic stakeholding in M&T. Share buyback The Combined Code The M&T transaction saw AIB receive almost As you may know, Sir Derek Higgs, a member of US $900 million in cash.The AIB Board decided the AIB Board since 2000, was the author of a to return capital to shareholders and not to retain report on the role and effectiveness of non- it. So between April and November 2003 AIB executive directors for the British Government. 8 Total dividend EUR 54.0c AIB's performance so far in 2004 has been strong - good growth in business volumes is expected to continue. Sir Derek’s report informed key changes to the In the US, business investment is set to grow Combined Code: Principles of Good Governance and strongly in 2004 with consumer spending Code of Best Practice which came into effect on 1 remaining buoyant.The Polish economy is set to January this year.AIB is in the process of adopting bounce back strongly with industrial output the new code and this has led to changes in the expanding rapidly, driven by good export board committees. John B McGuckian has been demand. In the Republic of Ireland, GDP is set to appointed the senior independent non-executive hit around 4% this year, up from around 2% in director. For more information, see the full 2003. Meanwhile, inflation is falling and should corporate governance statement on page 50. average 2% in 2004. Domestic demand is very strong in the UK with its manufacturing and Risk management export sectors doing well. GDP could rise to 3% During 2003,AIB made considerable progress in while inflation should remain below 2%. improving its risk management structure.This process has been led by Shom Bhattacharya AIB’s performance so far in 2004 has been strong who joined AIB as Group Chief Risk Officer in – good growth in business volumes is expected December 2002 from JP Morgan Private Bank to continue.