AIB Group plc

Good morning and welcome to AIB Group's annual results presentation. This morning I will outline some of our key highlights from 2023 and the strategic cycle which has recently concluded. Our CFO, Donald Galvin, will bring us through the 2023 outturn and then we'll spend some time outlining our priorities, ambitions and targets for our next cycle to the end of 2026 before we open to the floor for questions. 2023 was the most successful year in the history of AIB. The results we report on this morning reflect not only a supportive economic backdrop and a normalised monetary policy environment, but are also underpinned by the consequences of deliberate management actions taken in recent years to transform and strengthen our business in the interests of all our stakeholders. Over the past few years, through ambition, determination, and delivery, we reshaped our business. We expanded our range of products and services. We integrated new enterprises and portfolios. We opened a record number of new accounts. We dealt conclusively and comprehensively with legacy items which had overshadowed us for so long. We put sustainability at the very heart of our business model. We returned the group to majority private ownership. And we transformed our balance sheet, which is now one of the strongest in Europe. Our profit in 2023 exceeded €2 billion, which equips us to propose total distributions of €1.7 billion, while maintaining a robust capital position with a fully loaded CET1 ratio at end 2023 of 15.8%, with non-performing exposures falling below 3% of gross loans. On the back of a very successful three-year strategy cycle, we are confident in our ability to deliver for our stakeholders over the years ahead, as outlined by our new medium-term targets, with 2026 costs below €2 billion and a cost-income ratio of less than 50%, a CET1 target of greater than 14% and a return on tangible equity of 15%. Our purpose is empowering people to build a sustainable future. It captures our strategy and our ambition, and we'll already have solid progress to report here. As 2023 drew to a close, we comfortably exceeded our Climate Action Fund, which has now been tripled to €30bn by 2030. We're making good progress in deploying capital to support the transition to a greener future, with green lending accounting for 30% of new lending in 2023, while we're making great strides in reducing our own carbon impact with our virtual corporate power purchase agreement now live. That agreement will generate electricity equivalent to 80% of the group's needs and is an important development in the realisation of our carbon neutrality ambition for 2030. Already, off a 2019 base, we have reduced our own carbon emissions by 49%. Our reputation in this space is the foundation for ongoing ESG bond issuance, with €5.75 billion raised in ESG bonds already and more to come. Alongside our medium-term financial targets, the performance of our business will be measured by the deployment of our €30 billion Climate Action Fund, a target of more than €6 billion in new lending by 2026 to help our customers buy their first home, and through a resolute commitment to maintaining inclusion and diversity at board, executive committee and management levels across the group. The Irish government has made good progress in meeting its stated strategic objective of reducing its shareholding in AIB. Through the combined impact of an ongoing trading plan, accelerated book bills and a directed buyback, the state's shareholding in our business has fallen from 57% at the end of 2022 to its current level of 39.98%. Thanks to very strong organic capital generation, we are equipped to deliver a 345% increase in total distributions. For 2023, we're proposing a cash distribution to all our shareholders of €696 million, which is equivalent to 26.6 cents per share, an increase of over 300% over the 2022 cash dividend. In addition, we have received regulatory approval for a further distribution of €1 billion and we are in advanced discussions with the Department of Finance on a directed buyback. As this proposed distribution exceeds 5% of our market cap, it will require shareholder approval and we intend seeking that required approval at our AGM on 2 May. Successful execution of this proposed distribution would have the effect of reducing the state's shareholding in AIB by some 6%, leaving the Irish government's holding in AIB at less than 34% post our proposed directed buyback. Given our confidence in the ability of AIB to continue to deliver strong profitability and organic capital generation, we believe that we have the capacity to announce further significant distributions over the years ahead as we move towards an appropriate CET1 target. This is a management team that proves by doing. Our business is strong and robust, and we will keep it that way in the interests of all our stakeholders. I now hand over to Donal who will bring us through the details of our financial performance in 2023.

Thank you very much, Colin. Good morning, everyone. Thank you for joining us. I'm very happy to be able to deliver the details of AIB's financial performance for 2023, which was a really exceptional year. Our profit after tax was over 2 billion euros. We had a return on tangible equity of 25.7% and 190% growth in earnings per share to 75.7 cents. Our total income of 4.7 billion euros is up 64%. That's made up of an increase in interest income of around 83% and an increase in other income of around 13%. Our costs are up 10% to 1.826 million euros and we end of the year with a cost income ratio of 39%. Our gross loans of 67 billion euros increased by 9% year on year and that's really made up of two components. Organic growth or new lending of 12.3 billion euros and inorganic growth of around 4.7 billion euros incorporating a lot of the Ulster Bank loan migrations. Asset quality remains very strong. We ended the year with an MPE ratio of less than 3%, which was something we had targeted for a period of time. So we're very happy with that. And we have a really strong funding position. Throughout the year, our customer accounts increased by around 2.4 billion euros to end the year at 104.8 billion euros. And we issued 2.4 billion euros of MRL bonds to exceed our ratio of 29.7 by a couple of percentage points. Our capital is very strong at 15.8%, which allows us to propose distributions for 2023 of 1.7 billion euros. At 64.8 cents per share, and that's up from 381 million euros in 2022, representing an 82% payout ratio. We've decided to split this between a cash dividend of around 700 billion euros, and we've received regulatory approval for a share buyback of a billion euros. If we look at the income statement, I don't really want to repeat myself with respect to some of the key highlights. I'll just draw your attentions to the bank levies and regulatory fees. They were 185 million euros for 2023, some increased payouts for the domestic deposit guarantee scheme. But we do think for 2024 and beyond, levies and fees are going to reduce down to a level of around 145 million euros. Exceptional costs were €150 million for 2023, broadly split in two, €80 million relating to some legacy items, which I would have talked to previously, and €70 million relating to strategic items, which is really the cost to onboard some of the Ulster Bank assets. Looking at the key financial metrics, all very strong. Earnings per share, 75.7 cents, and that supports a dividend per share of 64.8 cents. Exceptional items for 2024, down from 23, looks like around 100 million euros at the moment. In terms of net interest income, really large increase year on year, up 83%. I'll just try and talk you through some of the moving parts here. On the liability side, increased costs of 519 million euros. 186 million euros of this would be related to paying out interest to depositors. And the remainder of around 333 million euros is really related to more wholesale debt and MRL costs. On the customer loan side, obviously we had an increase as assets are increasing, a benefit of €434 million. And I've tried to just split out here the benefits from assets repricing and also versus the cost of the structural hedging program, which we'll come on to later. Investment securities and excess balances with the CBI, obviously very rate-dependent, benefiting from that sharp upward movement in rates. Very strong increase of €520 million and €1.3 billion. So year-to-year, a strong increase in NIM and really strong interest income performance. I think on the interest income outlook, a number of different ingredients here. Let me start off by talking through the interest rate outlook as we see it. 2023, a really volatile year, I would say, for interest rates. But we do think that the euro curve is now stabilising somewhat. As we look to 2024, we imagine an ECB deposit rate of 2.75%, with the first cut expected from the ECB in June, and then a straight line to that 2.75% level at 2024. And then as it pertains to our medium-term targets for 2026, we see an ECB deposit rate of 2.25%. With respect to NII resilience, certainly it helps now that we have better line of sight on the Euro rate environment. Obviously, one of the key components in net interest income, it's going to be in that deposit area and that transition from shorter data deposits into more longer data deposits that we would have expected to see happening in 2023, and indeed we did. and how that actually plays out as we go into 2024. So for 2023, the deposit beta was less than 10%, and as we go into 2024, we do imagine that more of our customers are going to move into these term accounts, and we believe that the deposit beta for 2024 is going to be less than 20%. I'll come on to our liability base later, but we really have a very granular type of liability base. Within our overall customer accounts, 92% are in Ireland and 8% are in the UK, and around 70% of all of our balances in personal and business are less than a million euros. Another key part of the NII outlook and the resilience is around our structural hedge program. We would have talked about this at the half year, and we have seen further increases in the structural hedge nominals between 22 and 23. Obviously, we've increased that significantly from 20.6 up to 34.3 billion euros, and then sterling from 3.5 up to 4.6 billion euros. So at December 23, the exit received fixed yield was 2.3% in euros and around 2% in sterling. And we also saw an increase in our fixed rate assets. And that's really driven by a customer's preference of fixed rate mortgages. So you can see an increase from 17.6 up to 19.6 billion euros. These are all fixed rate mortgages that we don't hedge. So we incorporate these in our thinking around the structural hedge. So just to look year on year at what has happened here, we've increased the average life of our Euro hedge from 3.7 years up to 4.2 years. You can see the average received fixed yield on Euros has increased from 1.2 up to 2 billion Euros. That's obviously because €6 billion of hedge would have matured throughout 2023 and was replicated with higher levels. In sterling, it's a much more longer-dated, it's a much more formulaic type of approach, so you will see that change over time, but at a slower rate, I would say, than the euro side. So looking at those deposit betas, looking at the structural hedge program, plus the fixed rate assets, we believe that we have significantly extended the duration and really given a lot of resilience to the underlying net interest income. So for 2024, our expectation for NII is going to be greater than €3.65 billion. In terms of other income, Colin would have talked about the enlarged group, enlarged customer base, and we're really seeing the benefits of it here as we look through all of our customer accounts. So our fees and commissions are up 45 million euros, or 8%. The main movers in that are our customer accounts are up 6%. a byproduct of having a larger customer base. Card income is up 31%. More people paying for things through cards as opposed to through cash, which is an ongoing theme. And then customer-related foreign exchange is up around 5%. In other non-interest income items, throughout 2023, we've obviously been reflecting the valuation effect of the forward contract of Ulster Bank loans, which haven't yet been onboarded. So I think for 2023, we'll see the end of this particular effect, as all of the assets have now been onboarded onto the balance sheet. But for 2024, we expect other income to be greater than €700 million, really underpinned by that strong fees and commission line, with some upside, I would say, on the other non-interest income areas, which we tend to get a little bit more clarity on as the year progresses. Costs, 1.826, up 10%. Headcount, up 10%. I'm just going to try and run you through some of the main moving parts on this. Our staff costs were up 16%. A large inflationary effect there. An increase in FTEs from onboarding various staff from inorganic activities and indeed managing the onboarding or the welcoming of new customers to the bank. We've also incorporated between 23 and into 24 the costs for health benefits for all of our staff and variable pay for all of our staff, which is a really welcome addition. G&A is up 10%, and that really is, again, driven by inflationary effect from third-party suppliers, etc., which are related to just servicing the enlarged group. Our depreciation costs are pretty stable year on year, and that's just a reflection of the fact that we've been investing a fairly consistent amount over the last number of years, not increasing it. So that was really just flatlining now over the next number of years. With respect to the FTEs, they're up 10% throughout 2023, and you can see the point-to-point analysis here on the left. And 2% of this is related to Ulster Bank staff who joined us, along with the customers and the loans. And 6% is related to staff really needed to serve the enlarged customer base. So that's not just Ulster Bank loan acquisitions. There was a huge surge, I would say, in current accounts opened as two of five banks left the country. And indeed, we want to make sure that we're able to manage these relationships very well in the coming years. And then an additional 2% from the enlarged group, we've invested significantly in our risk management, our internal audit, or our second and third line areas. really to manage the overall enterprise risk of the organisation, given that it is a little bit larger. For 2024, a number of cost considerations. Variable pay, we would have adjusted for around half of that cost in 2023. That's going to flow into 2024, and I think I would have provided that number earlier. We do see the inflationary environment now is normalizing. The last three years has been an unusually high inflationary environment. But as we look into 24 and indeed beyond, we think that that's going to normalize quite significantly, obviously in line with ECB monetary policy. Strategic initiatives, Colin would have talked, or will talk to later, some of the key strategic initiatives. We will continue to invest approximately €300 million per annum to ensure that we're able to deliver on all of our strategic objectives, and that is obviously going to have a flow-through into the cost base. So for full year 2024, we expect costs to increase by 6% to 7%. For 2023, we had an ECL charge of 172 million euros, which is a 27 basis points cost of risk, leaving us with a 2.3% ECL cover rate. Within that, I would say there's two moving parts. We had a large charge of 327 million euros. That's primarily driven by our forward-looking approach, particularly in sectors such as commercial real estate offices. And then we had writebacks of around 155 million euros, primarily in the corporate and SME world. And these were in the industries and areas which were really negatively impacted by COVID. So bars, restaurants, hotels, really in the leisure space. They had a really strong 2023. So we had a writeback of 155 million euros. So net leaves us with a 27 basis points cost of risk charge. With respect to Stage 2 loans, €7.7 billion. They increased by around €1.6 billion in the year. A couple of moving parts here as ever. A €1.4 billion increase in property exposures to €2.8 billion. That's actually a reduction from the half year, but we're really... where we would have moved all of our CRE office spaces into Stage 2, subject to review. Post that analysis, a large portion of those have moved back to Stage 1, but overall we're still keeping a very close eye on that area. We had an increase of €1.2 billion in mortgages to €2.4 billion, and that was on the back of a redeveloped IRB mortgage model. And then we had a reduction of around €1 billion in the corporate and SME portfolio to €2.3 billion, and that's really related to what I talked about earlier for the strong performance in those COVID-impacted sectors. Overall, we end with a stock of 1.5 billion euros at the end of the year, and that's a cover rate of around 2.3%. So as we go into 2024, we feel we're very strongly provided. We have a good line of sight on all of the areas that we think there could be variability, and we're comfortable to guide a cost of risk of between 20 and 30 basis points for 2024, and believe we'll be at the lower end of that range. On the balance sheet overall, it feels like for 23 and into 24, we're going to have a more stable balance sheet. Since COVID, we had initially a liability-driven growth in the balance sheet. And then through 22 and 23, we had a lot of inorganic asset take on. I think 24 and beyond will have a much more straightforward balance sheet trajectory. And I will be able to talk through some of the key parts of that later. We had net loans of 65.5 billion euros. I'll just talk through some of the moving parts here. We had new lending on the year of 12.3 billion euros. We had redemptions of 10.3 billion euros. So net growth on an organic basis. We had the take-on of 4.7 billion euros of Ulster Bank loans. We had a reduction in our balance sheet of around a billion euros relating to NPE's reductions and repayments, and then some other minor movements. So overall, an increase in balance sheet of around 9%. If I look at the different asset classes, the story for 2023, you can see our mortgage lending was down around 13%, primarily driven by the fact that the Irish mortgage market was slightly smaller due to the fact that the switchers weren't as prevalent in the market. In property, overall, our new lending was down around 26%, reflecting a reduced appetite for new originations, where we're really just focusing with existing borrowers and helping them refinance on their transactions. Personal lending, very strong, up 23%. We think that this is really an effect of two of five players leaving the market and AIB maintaining its market share, but really strong performance there. And then in corporate and SME, up 18%. Corporate was strong. I would say SME was, as ever, fairly flat. And the large increase was primarily in our project finance energy portfolio, which continues to grow on an annual basis and will do in the future, but we will talk to that later. In terms of loan book growth, I think this is important for understanding our trajectory, whether it be on loans or on risk-weighted assets. 23 into 24 probably see loan growth around 2%, but over the three-year period of our financial plan, probably see growth more around 3% on a CAGR basis. We do think from 2024 into 2025 that we will see the Irish mortgage market come back or increase in size, depending on where the ECB rate curve eventually settles. But overall, 2024, we expect 2% long growth. Our funding and capital position is really strong. You can see wholesale funding, equity, year-on-year significant increase. Customer accounts, really a big theme, an increase year-on-year in our overall customer accounts. What I've tried to do here on the right-hand side is break out the types of deposit products we have and just shine a light on some of the changes. What we have seen in 2023, particularly in the second half, is that increase from shorter-term products into those longer-term products represented here as time. So we do think that that flow into term is going to continue, but I would have given you the guidance earlier on around the deposit basis. I would have talked about the granular nature of the book, the fact that the bulk of our liabilities is really in the retail and SME space. And I would say total insured deposits, which represent balances less than 100,000 euros, would be 53% of our overall portfolio. So LDR, strong at 63. LCR, 199%. Net stable funding ratio, 159%. So all very strong metrics. With respect to capital, we had very strong organic capital generation in 2023 to finish the year with a CET1 of 15.8%. I'm just going to break out the movements year on year between equity and RWA movements. So on the equity side, we had a 370 basis points organic capital generation. We've taken off 130 basis points for the cash dividend, 180 basis points for the buyback, and then we had a benefit of around 50 basis points from our deferred tax asset. Looking at risk-weighted assets, we had an impact of around 120 basis points, or €4.1 billion of RWAs, 50 basis points of that related to the tracker mortgage acquisition, around 40 basis points of that related to an approved IRB model implementation, and around 50 basis points of that is due to an increase in operational risk, which is really just a by-product formulae-wise due to higher income. And we had some other RWA benefits of around 20 basis points that we're always working on. So overall, CET1, 15.8%, comfortably above our SHREP of 11.13%. And worth noting in the year that we had a small reduction in our P2R from 2.75% down to 2.6% for 2024. So there are the 23 results. I'll hand it back to Colin.

Thank you, Donal. The strategic cycle that concluded at the end of last year was the most successful in our history, which saw us transforming the group, building a stronger and more resilient base for future development. At the end of 2020, we laid out a plan against a deeply uncertain external backdrop to transform our business through a series of self-help measures by modernising our ways of working, putting sustainability at the centre of our strategy and through ongoing digitalisation. This, allied with the group's capital strength and our own corporate development initiatives, positioned us strongly to benefit from unprecedented changes in the Irish banking landscape. Today, our business is transformed with our product suite complete and more customers, 3.3 million in our core markets than ever before. We've grown our performing loan book carefully and prudently through organic activity and targeted acquisitions, while also reducing our non-performing exposures to less than 3% of gross loans. And we've delivered a truly exceptional ROTE performance well ahead of plan in 2023 of more than 25%. These actions, results and developments now present us with an opportunity to look to the future with confidence as we seek to build an ever stronger AIB. The Irish economic outlook remains supportive of our business ambitions and plans. Growth in modified domestic demand is expected to hover around the 2% level in real terms over the next three years, underpinned by low unemployment and record numbers of people at work. Real disposable income growth is seen to be supported by an accommodative fiscal position and easing inflation readings. Meanwhile, household balance sheets remain healthy with leverage continuing to moderate with deposit levels remaining elevated. Housing output, a key driver of our mortgage business, continues to build with completions forecast to remain on an upward trajectory over the next three years while our own PMIs point to ongoing corporate expansion. The economic outlook augurs well for our ability to generate solid, sustainable profits over the years ahead. Today AIB is Ireland's leading financial services group across all our key business lines with our products and services being delivered to our exceptional customer franchise through multiple brands which are united by our common purpose. More and more of what we bring to our customer base is delivered through our digital channels which continue to grow and develop on the back of a multi-year approach to investment and evolving customer preferences with 78% of our key products now sold digitally. At the same time, we will continue to operate the largest branch network of any bank in Ireland, emphasising our desire to be physically present for our customers when they need us and our embeddedness in the communities which we serve. We will maintain this critical underpinning for our future success through prudent underwriting, appropriate pricing and an ongoing improvement in our delivery capabilities. Our purpose is to empower people to build a sustainable future and this continues to be underpinned by five strategic pillars. Customer first, simple and efficient, risk and capital, talent and culture, and sustainable communities. We have three strategic priorities for the next cycle. Customer first, greening the loan book, and operational efficiency. And those priorities will guide the group as we work to deliver our three medium-term financial targets, not least the North Star of a ROTI of 15%. Focusing on customer first, over the past five years we've seen a remarkable increase in the number of people who choose to bank with us, while more and more of our customers are active on our digital platforms. We were delighted to welcome 49% of the flow of customer migrations on foot of the departures of Ulster Bank and KBC, which is a clear reflection of the strength of our multi-channel digitally led approach. Supported by ongoing investment in data and analytics, as well as a broadening of our propositions, we will develop an even greater understanding of our customers and their needs, and that understanding will see us delivering more proactive, seamless banking services to our customers in the way that they want. At the same time, we will continue to green our loan book, building on our well-established and externally recognised ESG credentials. We have existing commitments to become net neutral in our own business by 2030, while at least 70% of all new lending will be green or transitional in nature by that date. We have established a new business segment, Climate Capital, which will play a central role in our loan book growth over the years ahead and which will enable us to be a market leader in financing energy transition and ESG infrastructure in selected, developed markets and proven technologies. The scale of the opportunity here is unprecedented and it will allow us to continue to be highly selective and disciplined in terms of the risks and projects which we choose to put on our balance sheet. We have the experienced team, the available capital and the track record to make our green ambition a reality over the coming years. Since 2019, we have successfully deployed €11.6 billion to support the transition and we have, as mentioned earlier, increased our Climate Action Fund to €30 billion. Our third strategic priority is centered on operational efficiency and resilience. We will continue to invest across our business to ensure that we deliver our products and services quicker, more safely, and with less unnecessary complexity. This will have benefits not only in terms of customer experience, but also in terms of our cost to serve, and is manifest in our plans for customer delivery, technology, credit management and risk measurement, the agility and flexibility of our operations, and of course, our people strategy. We are already proven by doing in this area, and we are now building on and accelerating the progress we have made to date. And there are two particular initiatives that I would like to update you on this morning. We've been working on our business credit transformation program over the past number of years, and we're now beginning to reap its benefits. By modernizing and digitalizing our credit mechanisms, we are now making data-driven, risk-informed credit decisions more quickly and more robustly than ever before. This has clear benefits for our customers, but also for our own operational efficiency as we move away from time-consuming, outdated manual approaches. We ran a pilot for SME lending in the closing weeks of last year and we are now live in the market and very pleased with how this new approach is landing with our customers and our colleagues. Thanks to this transformative investment, credit facilities for SMEs from origination to cash are now delivered in hours rather than weeks. We've also started to develop a next-generation mobile app, an online banking experience for personal customers, with further enhancements also planned for our business mobile app, which we launched successfully in 2023. Both will empower customers through greater personalisation and self-service within an integrated channel experience, and will deliver those improvements on a phased, steady basis throughout this year and next. We've been progressively and successfully modernising our technology over many years now, and we're committed to maintaining that progressive approach over the years ahead with planned investment of €300 million per annum out to the end of 26. This investment will allow us to continue to enhance customer experience and loyalty, maintain a secure and resilient platform across our businesses, while exploiting the potential offered by AI to build better, more intuitive, more responsive, more cost-effective and more tailored services for our customers and for our colleagues. The velocity of change has never been greater and we will ensure that AIB reaps the potential of that change in the interests of all our stakeholders while maintaining the reliable and secure infrastructure that is vital to our safety and our stability. We have delivered an exceptional financial performance in 2023 and we believe that AIB is now more strongly positioned than at any other point in its history. Our achievements to date, supported by the robust Irish economy and a resilient balance sheet, provide the platform on which we will build an even stronger AIB over the years ahead, focus on delivering an exceptional customer experience, financing the green transition, while driving ever greater operational efficiency and resilience through our business. We look forward to confidence and ambition and we will deliver for all our stakeholders and we'll do that progressively and sustainably. We will continue to prove by doing for our customers, our shareholders and the well-being of the communities that we serve. That is our way, that's our track record and that's our ongoing commitment. I'll go back to Donal now for the financial targets and outlook.