AMSTERDAM, Netherlands, Nov. 10, 2005 (PRIMEZONE) -- ING Group:
-- Key growth engines continue to drive strong results across
the Group
-- Earnings per share rise 20% to EUR 2.47 from EUR 2.06
-- Underlying profit before tax increases 17% to EUR 6,360 million
-- Value of new life insurance business in developing markets up
34%, driven by Asia
-- Strong growth of retirement services and pensions in U.S. and
Central Europe
-- Higher returns due to focus on value creation: RAROC after tax
22.8%, IRR 12.8%
-- ING Direct profit rises 41% in third quarter from second as
interest margin improves
Chairman's statement: "ING posted strong profit growth, driven by a solid performance of the underlying business due to our continued focus on improving execution and investing for growth and value creation. Underlying results in the third quarter were particularly strong, resulting in a record profit," said Michel Tilmant, Chairman of the Executive Board.
"Our three growth engines continued to show solid growth. ING Direct's profit grew 41% in the third quarter from the second quarter as the interest margin improved and robust growth continued in both savings and mortgages. The life insurance activities in developing markets, in particular Central Europe and Asia, posted strong growth in both premium income and the value of new business, accounting for 42% of the total new business value of the Group. The retirement services business in the U.S. posted good growth in earnings by focusing on the most attractive market segments, and the pension fund assets in Central Europe grew by 33%."
"ING's businesses in the mature markets also made a solid contribution to profit growth. The retail banking activities in the Netherlands and Belgium both posted sharp increases, driven by growth in savings and mortgages. The wholesale banking activities showed top-line growth while continuing to benefit from low risk costs in a benign credit environment. Profit from the U.S. life businesses grew strongly, driven by asset growth and higher margins."
"We continue to focus our attention on controlling underlying expenses, and have taken steps to improve efficiency in mature markets, resulting in some one-time costs. We announced an efficiency programme at Nationale-Nederlanden in May, and in the third quarter we took steps to streamline our IT organisation in the Benelux. Further measures were announced last week, including outsourcing and a reduction of internal and third-party staff. Combined, those measures are expected to reduce annual expenses by more than EUR 460 million in the coming years."
"The strong underlying performance of the business was underpinned by favourable market conditions, including investment gains and historically low credit losses both for bank lending and fixed-income investments. We see no sign yet of a deterioration in the credit environment, however risk costs are expected to gradually return to normal levels. We remain positive about results for the remainder of the year, barring unforeseen circumstances in financial markets."
1.1 ING Group
Group key figures
Nine Third
Months Quarter
In
EUR 2005 2004 Change 2005 2004 Change
million
Underlying
profit
before
tax1:
- Insurance 1,460 1,247 17.1 465 397 17.1
Europe % %
- Insurance 1,555 1,184 31.3 569 395 44.1
Americas % %
- Insurance 339 361 -6.1 114 97 17.5
Asia/Pacific % %
- Other2 -397 -93 -44 253
Underlying
profit before 2,957 2,699 9.6 1,104 1,142 -3.3
tax from % %
Insurance
- Wholesale 1,774 1,555 14.1 568 471 20.6
Banking % %
- Retail 1,309 994 31.7 501 350 43.1
Banking % %
- ING 433 317 36.6 179 114 57.0
Direct % %
- Other3 -113 -131 -3 -85
Underlying
profit before 3,403 2,735 24.4 1,245 850 46.5
tax from % %
Banking
Total
underlying 6,360 5,434 17.0 2,349 1,992 17.9
profit % %
before tax
Special _ 296 _ 67
items
1. Underlying profit before tax is a non-GAAP measure for profit before tax excluding divestments and special items as specified in Appendix
2. 2. Other insurance results are mainly interest on core debt and gains on equity investments that are not allocated to the three business lines
3. Other banking results consist mainly of interest expenses that are not allocated to the business lines
4. 2004 figures are full-year on ING GAAP basis; 2005 figures exclude revaluation reserves for available-for-sale securities
5. Comparable figure is based on IFRS at 1 January 2005
Nine-month profit
Underlying profit before tax increased 17.0% to EUR 6,360 million in the first nine months of 2005, with strong growth and higher returns in both banking and insurance as the company continues to focus on execution and value creation. Profit growth was driven by the three key growth engines -- insurance in emerging markets, ING Direct, and retirement services -- as well as strong growth in the home markets in the Benelux.
Underlying profit before tax from insurance increased 9.6% to EUR 2,957 million, driven by growth in developing markets in Central Europe and Asia, as well as higher results in the U.S., and continued strong underwriting results from the non-life insurance businesses in Canada and the Netherlands. Growth was somewhat offset by high realised gains on equities in 2004 which are reported under the Other insurance line. Underlying profit before tax from banking rose 24.4% to EUR 3,403 million, driven by strong commercial growth at ING Direct, growth in savings and mortgages at Retail Banking, continued low risk costs, particularly at Wholesale Banking, and an improvement in the cost/income ratio from 67.1% to 63.1%.
Insurance
Insurance Europe posted a 17.1% increase in underlying profit before tax to EUR 1,460 million, driven by a 42.6% increase in profit in Central Europe, as well as favourable underwriting results at the non-life businesses in the Netherlands and Belgium, and a 10.6% increase in investment income, particularly in the Netherlands.
Insurance Americas posted a 31.3% increase in underlying profit before tax to EUR 1,555 million, driven by strong growth in the U.S. and Canada. Profit from the U.S. life businesses was up 35.5%, driven by annuities and retirement services due to improved margins and strong growth in assets. The non-life insurance operations in Canada also continued to benefit from strong underwriting results and the purchase of the Allianz Canada business.
Insurance Asia/Pacific posted a 6.1% decline in underlying profit before tax to EUR 339 million due to a decision to apply the full profit in Taiwan of EUR 143 million to strengthen reserves as a result of the low interest rate environment. That offset strong growth elsewhere in the region, particularly South Korea and Australia. Excluding reserve strengthening in Taiwan for both periods, profit for Insurance Asia/Pacific increased 10.6% to EUR 482 million.
Other
Insurance results declined to EUR -397 million from EUR -93 million in the first nine months of 2004, due to high realised gains on equities in the year-earlier period. Results in the first nine months of 2004 included EUR 436 million in realised gains on equities compared with EUR 176 million in the same period of 2005. That was partially compensated by lower interest expenses on core debt which is not allocated to the business lines.
Banking Wholesale
Banking posted a 14.1% increase in underlying profit before tax to EUR 1,774 million, driven by historically low risk costs, which were supported by releases of provisions as a result of the benign credit environment. Income also increased, particularly from Structured Finance and Leasing. The international activities outside the Benelux posted a sharp improvement, driven by higher results in the U.K., Central & Eastern Europe and the Americas. ING Real Estate's profit rose 12.2%.
Retail Banking's underlying profit before tax increased 31.7% to EUR 1,309 million, driven by strong growth in the Benelux. The business in the Netherlands benefited from strong mortgage sales as well as prepayment penalties on mortgages as people refinanced to take advantage of low interest rates. Higher profit from Belgium was driven by growth in savings and current accounts as well as the purchase of Mercator Bank, while ING Bank Slaski in Poland benefited from lower risk costs due to an improvement in the quality of the credit portfolio.
ING Direct posted a 36.6% increase in profit before tax to EUR 433 million, driven by strong growth in income in the third quarter due to an improvement in the interest margin after client rates were adjusted following declines in capital market interest rates in the second quarter. Profit rose 40.9% in the third quarter from the second, supported by client-rate adjustments which improved the interest margin by 10 basis points to 0.87%. Funds entrusted and the number of customers continued to grow in the third quarter, despite the rate adjustments, adding 647,000 clients and EUR 6.3 billion in funds entrusted. The mortgage portfolio grew by EUR 5.2 billion to EUR 48.1 billion.
Divestments & special items
Divestments resulted in a pre-tax gain of EUR 349 million in the first nine months of 2005 compared with a loss of EUR 30 million in the same period last year. Divested units contributed EUR 26 million to profit before tax in the first nine months this year compared with EUR 170 million in the year-earlier period. Special items refer to a gain of EUR 200 million on the U.S. dollar hedge and a EUR 96 million gain on old reinsurance business, both in 2004. Including the impact of divestments and special items, total profit before tax increased 14.7% to EUR 6,735 million. (See Appendix 2 for a full specification of gains and losses on divestments and special items.)
Taxes & net profit
The effective tax rate declined to 17.4% in the first nine months of 2005 from 22.4% in the first nine months last year due to a lower statutory tax rate in the Netherlands, high tax-exempt gains on divestments, as well as net releases from tax provisions of EUR 305 million compared with EUR 100 million in net releases in the first nine months of 2004. The effective tax rate for the full year 2005 is expected to be below 20%. Net profit for the first nine months increased 23.5% to EUR 5,370 million, and net profit per share rose 20.0% to EUR 2.47 from EUR 2.06.
Currency impact
Currency rate differences had a positive impact of EUR 29 million on net profit and EUR 39 million on total profit before tax as a lower average rate for the U.S. dollar and some related currencies was more than offset by higher rates for other currencies, notably the Polish zloty.
Impact of IFRS
The 2004 figures have been restated to comply with IFRS. However, as permitted under IFRS 1, the 2004 comparatives exclude the impact of IAS 32, 39 and IFRS 4, which ING implemented from 1 January 2005. In the first nine months of 2005, IAS 32, 39 and IFRS 4 had an estimated total positive impact of EUR 307 million on total profit before tax of ING Group, or EUR 265 million after tax. The estimated impact on the insurance operations was EUR 127 million before tax in the first nine months, mainly due to realised gains on the sale of bonds and the revaluation of embedded derivatives, which were offset by the absence of amortised income from gains on fixed interest securities, and negative valuation changes on fixed-income investment derivatives. The estimated impact on the banking operations was EUR 180 million, mainly due to valuation adjustments on non-trading derivatives, prepayment penalties, and fair value changes on designated assets and liabilities. As anticipated, the application of IAS 32, 39 and IFRS 4 has led to increased volatility, particularly quarter-to-quarter. The three standards had a total positive impact of EUR 242 million before tax in the third quarter of 2005, compared with a negative impact of EUR 24 million in the second quarter, and a positive impact of EUR 89 million in the first quarter. The swing in the third quarter was caused mainly by the negative valuation changes on fixed-income investment derivatives and core debt swaps in the insurance operations, and the valuation result on non-trading derivatives in the banking operations.
Third-quarter profit
Underlying profit before tax rose 17.9% to EUR 2,349 million compared with EUR 1,992 million in the third quarter of 2004, driven by strong results from all six business lines. Underlying profit from Insurance Europe grew 17.1% due to strong growth in Central Europe and higher results in the Netherlands, supported by gains on private equity and the revaluation of derivatives and real estate under IFRS. Insurance Americas posted a 44.1% increase, driven by strong results in the U.S. life businesses and continued strong underwriting results at the Canadian non-life business. Profit from Insurance Asia/Pacific increased 17.5%, mainly due to higher results in South Korea and Australia, which was partially offset by reserve strengthening in Taiwan. Total underlying profit from insurance declined 3.3% as a result of EUR 348 million in realised gains on equities in the year-earlier period, compared with EUR 50 million in the third quarter of 2005, which are reported under Other. Excluding those gains, total profit from insurance rose 36.2%. Wholesale Banking posted a 20.6% increase in underlying profit, due to higher income and the release of loan loss provisions in the third quarter of 2005. Retail Banking profit climbed 43.1%, driven by growth in mortgages and savings in the Benelux and a sharp improvement of results in Poland due to lower risk costs. ING Direct's profit climbed 57.0%, driven by continued strong commercial growth in both savings and mortgages. Total underlying profit before tax from banking increased 46.5%. Divestments resulted in a gain of EUR 4 million in the third quarter of 2005 and a loss of EUR 165 million in the same quarter last year. Divested units also posted a loss of EUR 10 million in the third quarter of 2004. Special items include EUR 67 million in the year-earlier period from a gain the U.S. dollar hedge. Including those items, total profit before tax increased 24.9% to EUR 2,353 million. The effective tax rate increased to 17.1% from 13.9% in the year-earlier period. Net profit rose 20.8% to EUR 1,878 million. Excluding the impact of divestments and special items, profit on a net basis increased 19.7% to EUR 1,710 million, the highest quarterly result to date, supported in part by the positive impact of IFRS. (See Appendix 3 for a specification of divestments and special items in the third quarter.)
Third quarter vs. second quarter
Underlying profit before tax rose 28.2% to EUR 2,349 million from EUR 1,833 million in the second quarter of 2005, driven by higher profit from both insurance and banking as well as a positive swing from IFRS-related items as outlined above. Total underlying profit from insurance increased 27.3% to EUR 1,104 million from EUR 867 million, due to a sharp increase at Insurance Asia/Pacific from EUR 54 million to EUR 114 million. Insurance Americas posted a 3.6% increase to EUR 569 million, while Insurance Europe posted a 5.1% decline in underlying profit to EUR 465 million. Other insurance results improved strongly from EUR -226 million to EUR -44 million, due to EUR 116 million lower interest expenses on outstanding debt and EUR 66 million higher realised gains on shares. Total underlying profit before tax from banking climbed 28.9% to EUR 1,245 million, led by a 40.9% increase at ING Direct to EUR 179 million. Wholesale Banking rose 18.1% to EUR 568 million, and Retail Banking posted a 21.0% increase to EUR 501 million. Other banking results improved to EUR -3 million from EUR -56 million. Divestments contributed a gain of EUR 4 million in the third quarter and a loss of EUR 26 million in the second quarter. Including those items, total profit before tax increased 30.2% to EUR 2,353 million from EUR 1,807 million. Net profit rose 21.1% to EUR 1,878 million from EUR 1,551 million, and net profit per share rose to EUR 0.86 from EUR 0.72. (See Appendix 4 for an overview of quarterly profit developments including the impact of divestments and special items.)
1.2 Balance Sheet & Capital and reserves
Key Balance Sheet Figures
30 1 9M 30 June 3Q
In EUR billion September January Change 2005 Change
2005 2005
Capital and
reserves 35.4 28.3 25.0% 35.3 0.2%
- insurance operations 19.4 15.3 26.8% 18.6 4.3%
- banking operations 20.6 17.2 19.8% 21.2 -2.8%
- eliminations1 -4.6 -4.2 -4.5
Total
assets
1,134.5 964.5 17.6% 1,107.1 2.5%
Net return
on capital
and
reserves2 26.7% 25.4% 25.7%
- insurance
operations 21.5% 27.0% 19.7%
- banking
operations 24.0% 15.8% 24.0%
1. Own shares, subordinated loans, third-party interests, debenture loans and other eliminations
2. The comparable figures shown under 1 January 2005 are FY 2004 figures based on net profit and average capital and reserves under ING GAAP; 2005 figures are annualised
Capital and reserves On 30 September 2005, ING's capital and reserves amounted to EUR 35.4 billion, an increase of EUR 7.1 billion, or 25.0%, compared with 1 January 2005. The increase was driven by the addition of net profit from the first nine months of 2005 (EUR 5.4 billion), unrealised revaluations of debt securities (EUR 1.0 billion net after transfer of deferred profit sharing to insurance liabilities), unrealised revaluations on equities (EUR 1.4 billion), exchange rate differences (EUR 1.7 billion) and a change in cash-flow/net investment hedge reserve (EUR 0.8 billion). That was offset mainly by the cash dividend payment (EUR -2.5 billion).
Capital ratios
The debt/equity ratio of ING Groep N.V. improved to 9.9% from 10.9% at 1 January 2005. The improvement was mainly due to the above-mentioned EUR 7.1 billion increase in the Group capital and reserves (excluding third-party interests). That was partially offset by an increase of EUR 0.4 billion in core debt. The capital coverage ratio for ING's insurance operations increased to 246% of EU-regulatory requirements at the end of September, compared with 201% at 1 January 2005. The Tier-1 ratio of ING Bank N.V. stood at 7.21% on 30 September 2005, up from 7.00% on 1 January 2005. The solvency ratio (BIS ratio) for the bank improved to 10.83% at the end of September from 10.59% on 1 January 2005. Total risk-weighted assets increased by EUR 39.8 billion, or 14.5%, to EUR 313.9 billion, driven by growth in all three banking business lines.
Return on capital and reserves
The net return on capital and reserves increased to 26.7% in the first nine months of 2005 from 25.4% for full-year 2004. The insurance operations posted a 21.5% net return on capital and reserves in the first nine months of 2005, compared with 27.0% for full-year 2004, while the banking operations posted an increase to 24.0% from 15.8%. The comparable figures for net return on capital and reserves are based on net profit and average capital and reserves under ING GAAP, while the 2005 figures are based on IFRS.
Assets under management
Assets under management increased 17.8% to EUR 538.0 billion at the end of September from EUR 456.8 billion at the end of 2004, excluding the impact of divestments and restatements. The increase was driven by a net inflow of EUR 23.1 billion, the impact of higher currencies (EUR 32.6 billion) and higher stock markets (EUR 25.5 billion). Including the impact of divested units and a restatement due in part to IFRS, which had a combined effect of EUR 35.1 billion, total assets under management increased 9.4%.
All figures compare first nine months 2005 with first nine months 2004 unless otherwise stated. Comparable figures for 2004 exclude IAS 32, 39 and IFRS 4. Press conference call: 10 November, 9:30 a.m. CET. Presentation at www.ing.com Listen in: NL +31 20 796-5001 UK +44 207-154-2666 Analyst presentation: 10 November, 11:15 a.m. CET, ING House, Amsterdam. Presentation & webcast www.ing.com Analyst call: 10 November, 4 p.m. CET. Listen in: NL +31 20-794-8504 UK +44 207-190-1595 US +1 303-262-0078
The full report including tables can be downloaded from the following link: http://hugin.info/130668/R/1020366/160718.pdf