Irish Life & Permanent has signalled that it will deliver at least 10 per cent growth in post-tax profits for 2002 although its profit margins weakened during the year.

In a pre-closing statement, the life assurance and banking group said it benefited from the Government-backed Special Savings Incentive Accounts (SSIA) scheme and strong demand for residential mortgages.

The weaker performance of investment markets will affect its operating profits but the group believes that growth of more than 10 per cent can be achieved for its Irish and UK businesses. The group said that the overall outlook for the business remains positive.

The statement was broadly in line with market expectations that the group would be hit by falling stock markets. Its share price fell 14 cents in Dublin yesterday to €10.27 following the statement.

Some brokers have reduced their earnings forecasts. NCB had been forecasting operating profits for 2002 and 2003 of €217 million and €327 million but has reduced these to €184 million and €294 million respectively. Its broker, Davy, was less optimistic reducing 2002 operating profits forecasts from €215 million to between €165 million and €170 million.

The group said that during the past 12 months it enjoyed strong growth in new business in its life products but as investors adopted a more cautious stance, most were lower margin savings policies. Further pressure was exerted on its margins by the higher levels of wholesale funding required to meet the growth in demand for mortgage finance.

Declining investment markets also adversely hit its earnings with the value of unit-linked funds reduced and the return from its associate company, Allianz-Irish Life. Its capital base remained strong though and allowed it to complete a €150 million share buy-back programme.

In Ireland, total life assurance sales increased by over 20 per cent. Its retail and corporate divisions expect sales growth of 13 per cent and 10 per cent respectively, while Irish Life Investment Managers expects to almost double its investment sales.

The retail business was boosted in the first half of the year by the SSIA scheme and while the momentum waned in the third quarter it picked up in the final months of this year, according to the statement. New business margins are expected to come in at around 12 per cent for the year down from 14.8 per cent in 2001. In ILIM the margin will decline from 8.3 per cent to 6 per cent due to the higher proportion of large ticket transactions, it said.

The falling investment markets will impact on its unit-linked management fee variance which the group estimates will be between €90 million and €95 million.

Its banking business achieved further growth in its loan book which is expected to be in the order of 14 per cent for the year. This was mainly driven by new mortgage lending which should rise by 25 per cent with the mortgage book expected to grow by 16 per cent.

The group, which is the biggest mortgage lender, expects to maintain its share of the market. Other new lending is expected to grow by 11 per cent in Ireland.

In Britain, Capital Home Loans traded strongly with its book set to show growth of about 16 per cent.

Costs increased by about 3 per cent, down from 7 per cent at the half-year stage.

During 2002 the group was focused on the integration of Irish Permanent and TSB. As part of this process it reduced its branch network with the sale of surplus premises yielding a profit of more than €30 million.

The group had targeted cost synergies of €27 million from the merger and expects this will be achieved by the end of 2003. Further cost synergies of €2 million were also identified.

The cost of achieving these additional cost synergies combined with a revised estimate of original integration costs will lead to an additional exceptional charge of €10 million.