ING Group Operating Net Profit Increases 33.0% in 2004

 

Operating net profit increases 33.0% to EUR 5,389 million

Net profit increases 47.6% to EUR 5,968 million (EUR 2.80 per share)

Operating net profit from Banking rises 55.6%, led by ING Direct, Wholesale Banking

Operating net profit from Insurance rises 19.0%, led by Asia/Pacific, Americas

After tax, RAROC Banking increases to 14.8% and IRR Insurance increases to 12.1%

Value of new Life Insurance business rises 43.6% to EUR 632 million

Debt/equity ratio of ING Group improves to 9.9% from 14.4% at year-end 2003

Total dividend proposed at EUR 1.07 per share, up from EUR 0.97 per share in 2003

Final dividend to be paid out fully in cash

 

"In the past year we have seen some significant changes at ING," said Michel Tilmant, Chairman and CEO. "The new Executive Board took a critical look at the businesses within the Group and sold many units that either did not fit in our strategy, or did not meet our criteria for economic returns. That divestment programme is now largely completed. However, portfolio management is a continuous process, and the Group will continue to allocate capital with the aim of strengthening ING's returns and growth."

 

"In all, the financial results in 2004 were encouraging. Operating net profit reached an historic high. Total operating income increased 10.6% excluding the impact of acquisitions, divestments, and currency effects. The insurance business lines posted strong growth in premium income, while product-pricing was adjusted to increase returns on new business. The banking business lines continued to benefit from lower risk costs, and operating income showed a solid increase, despite pressure on interest rates in the past year. Although we saw some one-offs and non-recurring expenses in the fourth quarter, underlying costs were contained, except at Nationale-Nederlanden, where we continued to invest deliberately to meet the structural improvements required."

 

"The divestments enabled us to improve the debt/equity ratio to 9.9% at the end of 2004, in line with our 10% target. Sales completed in 2004 resulted in a release of EUR 1.5 billion in regulatory capital that will be invested to support the growth of businesses such as ING Direct, the activities in developing markets such as Asia and Central Europe, and the retirement services business such as in the U.S."

 

"With our capital position strengthened, we have decided to change to a full cash dividend, starting with the final dividend for 2004. In 2005, we will focus on execution to increase value creation for our shareholders."

 

 

Table 1. ING Group key figures
	Full Year			Fourth Quarter
In EUR million	2004	2003	%	2004	2003	%
Operating profit before tax:
- Insurance Europe	1,733	1,791	-3.2	522	556	-6.1
- Insurance Americas	1,669	1,310	27.4	699	362	93.1
- Insurance Asia/Pacific	751	411	82.7	120	107	12.2
- Other	-148	-26		-73	-15
Insurance operating profit before tax	4,005	3,486	14.9	1,268	1,010	25.5
- Wholesale Banking	1,932	1,272	51.9	243	146	66.4
- Retail Banking	1,170	1,058	10.6	162	340	-52.4
- ING Direct	432	151	186.1	112	58	93.1
- Other	-120	-110		38	-22
Banking operating profit before tax	3,414	2,371	44.0	555	522	6.3
Total operating profit before tax	7,419	5,857	26.7	1,823	1,532	19.0
Taxation	1,758	1,460	20.4	380	379	-0.3
Third-party interests	272	344	-20.9	62	112	-44.6
Operating net profit*	5,389	4,053	33.0	1,381	1,041	32.7
- of which Insurance	2,985	2,508	19.0	905	698	29.7
- of which Banking	2,404	1,545	55.6	476	343	38.8
Capital gains/losses on shares	579	-10		150	-5
Net profit	5,968	4,043	47.6	1,531	1,036	47.8
Net profit per share (in EUR)	2.80	2.00	40.0	0.70	0.50	40.0
Key figures
Operating net return on equity	22.9%	21.5%
Debt/equity ratio	9.9%	14.4%
Total staff (average FTEs)	113,000	115,200

    *  Operating net profit = net profit excluding realised capital gains/losses on shares

 

Operating net profit rose 33.0% to EUR 5,389 million in 2004, led by a strong performance at ING's banking operations, notably ING Direct and Wholesale Banking, mainly as a result of higher income and historically low risk costs. The insurance operations also posted a healthy growth, driven by the life insurance activities in Asia/Pacific and the core U.S. businesses, and continued strong non-life results, led by Canada. Excluding one-off items, operating net profit increased 36.2% to EUR 5,050 million, up from EUR 3,707 million in 2003.

 

Net profit rose 47.6% to EUR 5,968 million, lifted by EUR 579 million in realised capital gains on equities in 2004 compared with realised capital losses on equities of EUR 10 million in 2003. The high level of capital gains on shares, most of which were realised in the second half of 2004, is mainly due to a decision to sell part of the Dutch equity portfolio to reduce volatility of the solvency ratios.

 

Net profit per share rose 40.0% to EUR 2.80, compared with EUR 2.00 in 2003. The increase in earnings per share lagged growth in total net profit due to an increase in the average number of shares outstanding as a result of ING's dividend policy, which allowed investors to receive the dividend in cash or stock. Dilution of earnings per share was limited in 2004 because ING stopped issuing shares to fund the cash portion of the dividend payment, starting with the interim dividend 2004. Beginning with the final dividend 2004, ING plans to reduce dilution further by converting to a full cash dividend. (See Section 1.3)

 

Operating net profit from insurance increased 19.0% to EUR 2,985 million, lifted by higher results in Asia/Pacific and the Americas and a lower effective tax rate. Total operating profit before tax from insurance rose 14.9% to EUR 4,005 million. Insurance Asia/Pacific posted an 82.7% increase in operating profit before tax to EUR 751 million, including a one-off gain of EUR 219 million from the sale of ING's stake in its Australian non-life insurance joint-venture in the second quarter of 2004. Excluding that gain, operating profit before tax from Insurance Asia/Pacific increased 29.4% to EUR 532 million from EUR 411 million in 2003. Insurance Americas posted a 27.4% increase in operating profit before tax to EUR 1,669 million, driven by the core life insurance business in the U.S. and strong non-life results in Canada. Excluding one-off items, currency effects and the transfer of investment management activities from banking to insurance in 2004, operating profit before tax from Insurance Americas increased 47.4%. Insurance Europe posted a 3.2% decline in operating profit before tax to EUR 1,733 million, mainly as a result of lower one-off gains on old reinsurance business and the gain on the sale of the Italian life insurance business in 2003. Excluding one-off items and the transfer of a real estate portfolio, the operating profit before tax from Insurance Europe increased 4.6% to EUR 1,722 million. Other Insurance results include part of the one-off gains on old reinsurance activities, the currency hedge result, and interest on core debt, which have not been allocated to the different insurance business lines. Excluding one-off items, total operating net profit from insurance increased 23.4% to EUR 2,588 million in 2004, up from EUR 2,097 million in 2003.

 

Operating net profit from banking rose 55.6% to EUR 2,404 million, lifted by higher profit from all three business lines and some large releases of redundant tax provisions in the fourth quarter of 2004. Total operating profit before tax from the banking operations rose 44.0% to EUR 3,414 million. Wholesale Banking posted a 51.9% increase in operating profit before tax, fully driven by a sharp decline in risk costs. A decrease in income, caused by one-off losses on divestments, was largely compensated by lower operating expenses. Excluding one-off items and the transfer of activities between insurance and banking, operating profit before tax from Wholesale Banking increased 57.0% to EUR 2,240 million. Operating profit before tax from Retail Banking increased 10.6%, driven by higher income and slightly lower risk costs, particularly in the Netherlands and Poland. Pre-tax profit in Belgium declined 31.4%, mainly due to non-recurring expenses and risk costs in the fourth quarter of 2004, despite a 12.1% increase in operating income in 2004. Operating profit before tax from ING Direct jumped to EUR 432 million from EUR 151 million in 2003, mainly due to higher interest income driven by the continued strong growth in funds entrusted. Other results consist mainly of interest expenses that are not allocated to the different business lines. Excluding one-off items, total operating net profit from banking rose 52.9% to EUR 2,462 million, from EUR 1,610 million in 2003.

 

One-off items had a positive net impact of EUR 339 million on profit in 2004, which was balanced by a positive impact of EUR 346 million from one-off items in 2003. Gains and losses related to ING's various divestments in 2004 resulted on balance in a net gain of EUR 74 million. Restructuring provisions for ING BHF-Bank and Wholesale Banking, had a total negative net impact of EUR 64 million. Other one-off items included a gain of EUR 92 million on old reinsurance activities and EUR 237 million from releases of redundant tax provisions. In 2003, one-off items included EUR 107 million in gains on the sales of ING's life insurance unit in Italy and ING's stake in the Seguros Bital joint venture in Mexico, a restructuring provision of EUR 65 million for Wholesale Banking, a EUR 57 million release of catastrophe provisions, and a gain of EUR 247 million on old reinsurance activities.  (See Appendix 2 for a specification of one-off items).

 

The weakening of most currencies against the euro had a negative impact of EUR 86 million on net profit. That was offset by a gain of EUR 188 million after tax on the U.S. dollar hedge, compared with a gain of EUR 119 million on the hedge in 2003. From 2005, ING no longer has hedges in place for the U.S. dollar.

 

Fourth-quarter operating net profit rose 32.7% to EUR 1,381 million from EUR 1,041 million in the fourth quarter of 2003. Operating net profit from insurance increased 29.7% to EUR 905 million, led by Insurance Americas, which posted a 93.1% increase in operating profit before tax, boosted by the gain on the initial public offering (IPO) in Canada and strong life insurance results in the U.S. Excluding one-off items, operating profit before tax from Insurance Americas rose 39.9% in the fourth quarter to EUR 445 million. Operating profit before tax from Insurance Asia/Pacific increased 12.2%, due in part to the release of reserves at the Australian life insurance business. At Insurance Europe, operating profit before tax declined 6.1% due to a one-off gain on the sale of the Italian life insurance business in 2003 and lower profit in Belgium and the rest of Europe, which offset an increase in the Netherlands. Operating net profit from banking increased 38.8% to EUR 476 million, mainly due to the release of EUR 112 million redundant tax provisions. Operating profit before tax from banking rose 6.3% to EUR 555 million, as higher results from Wholesale Banking and ING Direct more than offset a decline at Retail Banking. Wholesale Banking posted a 66.4% increase in operating profit before tax, despite a loss on the sale of parts of ING BHF-Bank and a restructuring provision, due to lower risk costs and lower operating expenses. ING Direct's operating profit before tax almost doubled to EUR 112 million from EUR 62 million, while Retail Banking posted a 52.4% drop in operating profit before tax in the fourth quarter, as a result of a loss in Belgium mainly due to non-recurring operating expenses and risk costs. Excluding one-off items, total operating net profit rose 43.1% to EUR 1,255 million from EUR 877 million in the fourth quarter of 2003. Total net profit of ING Group increased 47.8% in the fourth quarter to EUR 1,531 million, including EUR 150 million in realised capital gains on equities, compared with EUR 5 million in realised losses on equities in the fourth quarter of 2003.

 

Compared with the previous quarter, operating net profit rose 13.9% to EUR 1,381 million from EUR 1,212 million in the third quarter of 2004. The increase was driven by a 48.1% increase in operating net profit from insurance, which included a gain of EUR 249 million on the IPO in Canada, higher realised capital gains on the sale of real estate, higher gains on the private equity portfolio in the U.S. and improved technical life results. Operating net profit from banking declined 20.8% to EUR 476 million in the fourth quarter, from EUR 601 million in the third quarter of 2004, as a result of one-off items as well as lower income and higher operating expenses. Excluding the gain on the sale of CenE Bankiers in the third quarter and the loss on the sale of parts of ING BHF-Bank in the fourth quarter, income rose mainly because of higher interest results and other income. Excluding restructuring provisions in both periods, operating expenses increased 8.3%, mainly in the Netherlands and Belgium for both Retail Banking and Wholesale Banking, due to higher IT expenses, marketing costs, external staff costs and higher bonuses. Excluding one-off items, total operating net profit from ING Group increased 6.1% from EUR 1,183 million in the third quarter to EUR 1,255 million in the fourth quarter.

 

 

Table 2. Key Balance Sheet Figures
In EUR billion	31 December 2004	31 December 2003	FY % Change	30 September 2004	4Q % Change
Shareholders' equity	25.9	21.3	21.2	24.6	4.9
- insurance operations	13.9	12.0	15.8	13.5	3.0
- banking operations	16.0	16.7	-4.2	17.6	-9.1
- eliminations*	-4.0	-7.4		-6.5
Total assets	866.1	778.8	11.2	865.4	0.1
Operating net return on equity	22.9%	21.5%		23.2%
- insurance operations	22.6%	22.7%		21.4%
- banking operations	15.8%	11.1%		17.1%

* own shares, subordinated loans, third-party interests, debenture loans and other eliminations

 

On 31 December 2004, ING's shareholders' equity amounted to EUR 25.9 billion, an increase of EUR 4.6 billion, or 21.2%, compared with year-end 2003. Net profit from the year 2004 added EUR 6.0 billion to shareholders' equity and revaluations added EUR 1.1 billion. That was offset by EUR -0.9 billion in realised capital gains that were released through the profit & loss account, the interim cash dividend of EUR -0.4 billion and exchange rate differences of EUR -1.0 billion. The shareholders' equity of the banking operations decreased by EUR 1.6 billion compared with the end of the third quarter 2004, due to the transfer of preference shares (Tier 1 notes) to subordinated debt, which had no impact on solvency.

 

The debt/equity ratio of ING Groep N.V. improved to 9.9% from 14.4% at the end of 2003 and 11.4% at the end of the third quarter of 2004. The improvement was caused by a EUR 4.9 billion increase in the Group capital base, excluding third-party interests, due to retained earnings and the issue of hybrid securities in June as well as a EUR 1.0 billion decrease in core debt. The capital coverage ratio for ING's insurance operations increased to 210% of regulatory requirements at the end of December, compared with 180% at year-end 2003 and 185% at the end of September 2004. The Tier-1 ratio of ING Bank N.V. stood at 7.71% on 31 December 2004, up from 7.59% at the end of 2003 and 7.61% at the end of the third quarter of 2004. The solvency ratio (BIS ratio) for the bank improved to 11.47% from 11.34% at the end of 2003. Compared with year-end 2003, total risk-weighted assets rose by EUR 22.8 billion, or 9.1%, to EUR 274.1 billion, almost fully caused by the growth of ING Direct. An increase at Retail Banking was largely offset by a decrease at Wholesale Banking, due to divestments.

 

The operating net return on equity increased to 22.9% in 2004 from 21.5% in 2003. The operating net return on equity of the insurance operations was 22.6% in 2004, little changed from 2003, while the operating net return on equity from banking rose to 15.8% from 11.1%.

 

Assets under management increased 6.3% in 2004 to EUR 491.9 billion compared with EUR 462.7 billion at the end of 2003. The EUR 29.2 billion increase resulted from a net inflow of EUR 26.5 billion and higher stock markets (+EUR 25.3 billion). That was partially offset by  a stronger euro (- EUR 16.1 billion) and divestments (- EUR 6.5 billion), notably the sales of Delta Asset Management, CenE Bankiers, Baring Private Equity Partners, and the exit of the individual reinsurance business in the U.S.

 

At the Annual General Meeting of Shareholders on 26 April 2005, ING will propose a total dividend for 2004 of EUR 1.07 per (depositary receipt for an) ordinary share, up from EUR 0.97 per (depositary receipt for an) ordinary share in 2003. Taking into account the interim dividend of EUR 0.49 made payable in September 2004, the final dividend will amount to EUR 0.58 per (depositary receipt for an) ordinary share to be paid fully in cash. ING's shares will be quoted ex-dividend as of 28 April 2005 and the dividend will be made payable on 4 May 2005.

 

Following the introduction of International Financial Reporting Standards (IFRS) - which is expected to increase volatility in net profit - ING intends to pay dividends in relation to the longer-term underlying development of profit.

 

 

All figures compare full-year 2004 with full-year 2003 unless otherwise stated.
Press conference: 17 February, 9:30 a.m. CET at ING House, Amsterdam. Presentation & webcast www.ing.com Analyst presentation: 17 February, 11:15 a.m. CET at ING House, Amsterdam. Presentation & webcast www.ing.com Analyst conference call: 17 February, 4 p.m. CET.  Listen in:  NL +31 45 631 6910  UK. +44 20 8400 6356  U.S. +1 303 262 2131 Analyst presentation in London: 18 February, 11 a.m. U.K. time at 60 London Wall. Webcast at www.ing.com Analyst conference call on Embedded Value: 18 February, 3 p.m. U.K. time / 4 p.m. CET Listen in:   NL +31 45 631 6910   U.K. +44 20 8400 6356   U.S. +1 303 262 2131
Media relations +31 20 541 6522	Investor relations +31 20 541 5571