W2D-007 Financial prospectus-0.txt
Conversion

On 21 September, 1994, Irish Permanent Building Society was converted from a building society to a public limited company called Irish Permanent plc. The entire business, property, rights and liabilities of the Society were vested in the Company on that date. Conversion took place in accordance with the terms of the Conversion Scheme, which was overwhelmingly approved by members at the Annual General Meeting on 23 March, 1994. It was the first Irish building society to take advantage of the Building Societies Act, 1989 enabling building societies to convert into public limited companies. Irish Permanent, which continues to be regulated by the Central Bank, now holds a banking licence.

Some 45,333,300 Free Shares had been validly claimed by 12 August, 1994 and were issued on Conversion to Qualifying Savers and Qualifying Borrowers. According to the records of the Company, a further 20,970,600 Free Shares may fall to be issued pursuant to claims under the Conversion Scheme. Such claims must be received by Irish Permanent on or before 21 September, 1997.

The Directors estimate that a maximum of 4,533,330 additional Free Shares may be issued as loyalty bonuses to persons of their nominees who validly claimed their Free Shares by 12 August, 1994 and who continue to hold their Free Shares on certain future dates.

Under the terms of the Conversion Scheme, a cash distribution is payable to certain former members of the Society. The Directors estimate that the cash distribution, which will be charged against reserves and will have no effect on the future dividend policy of the Group, will amount to approximately £ 2.6 million in total.

Under the terms of the Conversion Scheme, the Board has adopted the Employee Share Ownership Plan and the Share Option Scheme.

Offer structure

The Offer comprises 30,800,000 Ordinary Shares which are being offered at a price of 180 pence per Share. Of these Shares, 27,768,500 Shares are being offered on behalf of Irish Permanent and the balance is being offered on behalf of those persons who by 12 August, 1994 had validly requested the sale of their entitlements to Free Shares on their Free Share Claim Forms.

Under the Offer, 16,400,000 Offer Shares are being placed firm with institutional investors and 14,400,000 Offer Shares are being placed subject to recall to satisfy valid applications from Qualifying Persons. Of the Offer Shares being placed subject to recall, 1,440,000 Shares (being 10 per cent.) are being reserved to satisfy preferential applications from Qualifying Employees (other than Directors).

The Offer has been underwritten in full by West Merchant Bank Limited, IBI Corporate Finance Limited, Riada Corporate Finance Limited and Hoare Govett Corporate Finance Limited at the Offer Price. The stockbrokers to the Offer are Riada Stockbrokers Limited and Hoard Govett Corporate Finance Limited.

In connection with the Offer, West Merchant Bank Limited may effect transactions on The Stock Exchange which stabilise or maintain the market price of the Shares at a level which might not otherwise prevail on that Exchange. Such stabilising, if commenced, may be discontinued at any time and, in any event, must be discontinued by close of business on the 30th day after the date of Flotation. West Merchant Bank Limited may only effect such stabilising in accordance with all applicable laws and regulations.

The business

Irish Permanent is a leading retail financial services group in the Republic of Ireland. Its products include mortgages, savings, investments, life assurance and pensions and other retail financial services.

At 31 December, 1993, Irish Permanent was the largest building society in the Republic of Ireland measured in terms of total assets, profits and reserves. At that date, its total assets of £ 2.7 billion (including mortgage loans of £ 1.9 billion) represented approximately 35 per cent. of the total assets of £ 7.8 billion of all Irish building societies. Irish Permanent is the fourth largest banking group in the Republic of Ireland measured in terms of total assets at 31 December, 1993 and, in the view of the Directors, continues to be the leading provider of residential mortgage finance.

In 1992 and 1993, Irish Permanent was the leading mortgage lender in the Republic of Ireland. With new mortgage advances of some £ 323 million in 1993, it achieved a market share of approximately 24 per cent. in that year. The total of residential mortgage loans outstanding for all credit institutions reporting to the Central Bank in the Republic of Ireland at 31 December, 1993 amounted to approximately £ 7.3 billion. Irish Permanent's residential mortgage portfolio of approximately £ 1.7 billion at that date represented some 23 per cent. of such loans. Statistics are, however, not available on the total residential mortgage loans outstanding by all lenders in the market. At 31 December, 1991, 1992 and 1993 respectively, Irish Permanent had a market share of interest-bearing saving balances in the Republic of Ireland in the range of 6-7 per cent.

Competitive strengths

Irish Permanent's major competitive strengths which, in the view of the Directors, constitute a sound basis for the Group's development following flotation, include: a substantial customer base comprising over 79,000 mortgage accounts and over 590,000 savings and deposit accounts; an extensive distribution network comprising 93 branches and 100 agencies in the Republic of Ireland, Northern Ireland and Great Britain, and a banking subsidiary in the Isle of Man; a range of complementary mortgage, savings, investments, life assurance and pension products; an experienced and innovative management team; nationally recognised and respected brand names; a committed staff providing a high standard of customer service; strict credit control procedures and prudent lending policies, which have historically resulted in a low level of loan losses; access to the equity and debt capital markets, in the latter case facilitated by the investment grade long term debt rating, A2, as assigned to Irish Permanent by Moody's Investors Service; and a strong capital base and balance sheet which should facilitate a significant expansion of both current and new activities.

Distribution network

Irish Permanent has an extensive network of branches and agencies for the distribution of its products and services in the Republic of Ireland. The branch network provides the major point of contact with the majority of Irish Permanent's customers and is the principal outlet for Irish Permanent's mortgage, saving and money transmission products and services.

Prudential Life of Ireland

On 30 June, 1994, Irish Permanent acquired Prudential Life of Ireland, a significant life assurance and pensions business in the Republic of Ireland, at a cost of £ 31.9 million (including acquisition costs) out of existing liquid resources. The fair value, including embedded value, of Prudential Life of Ireland at that date amounted to £ 29.8 million. The goodwill of £ 2.1 million so arising was written off against the reserves of Irish Permanent at 30 June, 1994. No contribution from Prudential Life of Ireland is included in the consolidated profit and loss account of the Group for the six months ended 30 June, 1994. The assets and liabilities of Prudential Life of Ireland are included in the consolidated balance sheet of the Group at 30 June, 1994.

Prudential Life of Ireland develops, markets and underwrites life assurance policies, pension policies and certain other products, including single premium products, in the Republic of Ireland. Its life assurance products are mainly regular premium unit-linked life assurance protection and savings policies.

In the year ended 31 December, 1993 and the six months ended 30 June, 1994, Prudential Life of Ireland generated embedded value after tax earnings of £ 4.2 million and £ 2.4 million respectively. Statutory earnings after tax for the same periods were £ 2.5 million and £ 1.2 million respectively.

The Directors intend to account for Prudential Life of Ireland in the accounts of the Group using the embedded value method, but will, also, provide information on statutory earnings. The Directors consider that the embedded value earnings of Prudential Life of Ireland may exhibit greater volatility than the earnings for Irish Permanent's banking business.

Further information on the accounting for the life assurance business of Prudential Life of Ireland is set out in the "Guide to certain life assurance technical terms" and on page 35 of the Listing Particular. The assumptions made by the Directors in calculating embedded values for Prudential Life or Ireland are set out in the letter from Bacon Woodrow in Part IV of the Listing Particulars.

Guinness Mahon

On 31 August, 1994, Irish Permanent acquired Guinness Mahon at a cost of £ 2.1 million and losses before tax of £ 56,000. At 31 December, 1993, Guinness Mahon had total assets of £ 99 million, of which £ 67 million were liquid assets. Customer accounts at that date amounted to £ 70 million.

Irish Permanent intends to provide private banking services through Guinness Mahon.

Restrictions on shareholdings

In compliance with the Act, the Articles restrict any person from having an interest in 15 per cent. or more of the Company's issued share capital for a period of five years from the date of Conversion. In addition, the Central Bank must approve any transaction involving the acquisition by a person or persons acting in concert of 10 per cent. or more of the voting rights of Shares of Irish Permanent.

Outlook for 1994

In 1994, Irish Permanent has continued to write profitable mortgages business without relaxing its stringent lending criteria. However, greater competition in the residential mortgage market has resulted in a lower market share for new business and lower net interest margins for the Group. Although trends since 30 June, 1994 lead the Directors to believe that the second half of the year will, as in previous years, reflect a greater level of lending activity, the Directors anticipate that the net interest margin and the results for this period will continue to reflect the competitive situation.

Irish Permanent's performance in retail savings is ahead of budget. Special Savings Accounts and the recently launched Irish Permanent Savings Certificates have proved particularly attractive to investors. As a result of these and other product developments, the Directors are confident that 1994 will show a satisfactory increase in retail deposits.

Prudential Life of Ireland and Guinness Mahon will make their first contributions to Group results in the second half of 1994. Prudential Life of Ireland repriced its product range in the early part of the year and is maintaining satisfactory market share. The Directors believe that recent trends in this business indicate that Prudential Life of Ireland will make a satisfactory contribution to Group results in 1994. The Directors believe that the embedded value earnings of Prudential Life of Ireland may be more volatile than the earnings from Irish Permanent's banking business. The pre-tax results of Prudential Life of Ireland will be accounted for as "Other operating income" and will, therefore, have a beneficial impact on the Group's cost:income ratio. The Directors expect that Guinness Mahon will report a small loss in 1994. They are, however, confident that Guinness Mahon can be returned to profitability in 1995.

The Directors continue to monitor costs closely and expect that operating costs in the second half will be broadly at the same level as in the first half. They continue to target a cost:income ratio of 50 per cent. or below by 1998.

On the basis of the taxation charge provided in the six months ended 30 June, 1994 and the outlook for the year, the Directors expect that the taxation charge for 1994 will be materially below the standard rate of corporation tax of 40 per cent..

In the light of results for the six months ended 30 June, 1994 and trading since that date, the Directors believe that the outcome for 1994 will be satisfactory.

Dividends

On the basis of current expectations and in the absence of unforeseen circumstances, the Directors intend to recommend a final dividend of 6 pence per Share (net) for the year ending 31 December, 1994. This is not a profit forecast. No interim dividend has been or will be paid in respect of the current financial year. It is intended that the first dividend paid by Irish Permanent will be the recommended final dividend forecast above. This is expected to be paid in April 1995.

For subsequent financial years, the normal policy of the Directors will be to pay interim dividends in October and final dividends in April in proportions of approximately one-third and two-thirds, respectively, of the total annual dividend.

On the basis of the above expectations, the annualised dividend for 1994 would be 9 pence per Share (net), equivalent to 12 pence per Share inclusive of the related tax credit at the current rate. This annualised dividend represents a gross yield, at the Offer Price, of approximately 6.67 per cent..

The Directors intend, in the absence of unforeseen circumstances, to pursue a progressive dividend policy which should produce real increases in dividends per Share subject to real growth in underlying profitability. In determining dividend policy, the Directors will have particular regard to the stability of the gross dividend taking into account the related tax credit.
