IL&P in profits warning as sales drop 40 per cent

Irish Life & Permanent (IL&P) has issued a profits warning to the market following an almost 40 per cent fall in sales of life and pensions products in the first quarter of 2003. Siobhán Creaton, Finance Correspondent, reports.

In a statement the group noted the more than 40 per cent slump in sales across the Republic's life assurance market stating that it had fared only marginally better. Speaking to The Irish Times, finance director, Mr Peter Fitzpatrick, said the percentage decline in sales during that period was in the "high 30s".

Irish Life is the dominant force in the Irish life assurance market and a sharp decline in sales would significantly affect its profit for the first three months of this year. Its Irish Permanent bank is the biggest lender of residential mortgages and is continuing to benefit from strong demand for mortgages, it added.

Analysts suggest the better performance of its banking operations will not be sufficient to offset depressed contributions from the life business and some indicated that other financial institutions could be forced to post similar warnings.

Irish Life & Permanent shares dropped sharply on the Dublin market on foot of the announcement but recovered in later trading. The shares slipped to a low of Eur 9.60 but gained support from buyers to end at Eur 9.77, some 38 cents weaker overall.

Mr Fitzpatrick described the initial downward spiral in the share price as "an over reaction" to the statement and that it was not encouraging analysts to change their view of the group's profits based on the first quarter performance.

"Maybe it was the first time that some people learned that the Irish market was off by more than 40 per cent in the first quarter but much of this was due to seasonal factors and the Special Savings Incentive Account (SSIA)scheme," he said.

The company has blamed the change in the tax year to the end of December for much of the fall-off in sales of single premium pensions, which had tended to be strong in September. Mr Fitzpatrick said that in some cases people who would normally put money into a pension were waiting to gauge the new Personal Retirement Savings Account (PRSAs) launched this year.

The wider savings industry has also been depressed following the surge in the numbers of people who availed of the State-backed savings scheme last year.

The statement reported that the demand for residential mortgages had remained "exceptionally strong" and was running ahead of last year's levels.

Mr Fitzpatrick would not put a precise figure on the increase achieved but suggested it had taken its full share of the more than 30 per cent rise in mortgage growth in the first quarter recorded by the Central Bank of Ireland. The company will issue a trading statement in June and issue further guidance on its performance for 2003 then, he said.

Mr Len Riddell, financial analysts at Goodbody Stockbrokers, said that he would be significantly downgrading his earnings forecasts for the group following yesterday's statement. He had been forecasting earnings per share growth of Eur 1.20 but will be reducing it by about 20 per cent.

Mr David Odlum of NCB Stockbrokers, said it had already adjusted its earnings per share forecasts to Eur 1.05 to reflect the troubles in the life assurance sector and would not be making any further revisions at the moment.

Mr Riddell suggested that Bank of Ireland and AIB's life assurance arms will also have been experiencing a drop in sales and that this could trigger a worsening outlook for these banks. Bank of Ireland is more exposed with its life assurance business contributing more than 10 per cent of profits and could result in a 2 per cent downward revision in earnings.

AIB's life assurance arm, Ark Life, has been performing poorly so analysts will have already factored this into their figures and so any revisions would be smaller, according to Mr Riddell.

Last week, the ratings agency Standard & Poor's downgraded its outlook for Irish Life & Permanent from stable to negative to reflect the impact of depressed investment markets on the group.