SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For February 19, 2004
ING GROEP N.V.
Amstelveenseweg 500
1081-KL Amsterdam
The Netherlands
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
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Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
Page 1 of 36
This Report contains a copy of the following:
(1) The Press Release issued on February 19, 2004
Page 2 of 36
[ING GROUP LOGO]
PRESS RELEASE
Amsterdam, 19 February 2004
ING GROUP REPORTS ON FULL YEAR 2003
BANKING RESULTS LEAD THE WAY TO FIRM PROFIT GROWTH
o OPERATING NET PROFIT UP 18.1% FROM 2002 TO EUR 4,053 MILLION; PER SHARE EUR
2.00 (+13.1%)
o BANKING OPERATING NET PROFIT UP 72.6% TO EUR 1,545 MILLION INSURANCE
OPERATING NET PROFIT DOWN 1.2% TO EUR 2,508 MILLION
o TOTAL NET PROFIT DOWN 10.2% TO EUR 4,043 MILLION
o TIER-1 RATIO BANK IMPROVES FROM 7.31% TO 7.59% CAPITAL-COVERAGE RATIO
INSURANCE IMPROVES FROM 169% TO 180%
o FOURTH-QUARTER OPERATING NET PROFIT UP 44.6% FROM FOURTH QUARTER 2002
o TOTAL DIVIDEND EUR 0.97, EQUAL TO 2002
CHAIRMAN'S STATEMENT
"The year 2003 was successful for ING. We were able to benefit from the
rebounding equity markets and the improved economic conditions, notably in the
US," said Ewald Kist, chairman of the Executive Board. "Operating net profit
from banking jumped 72.6%, thanks to substantially lower risk costs, a higher
interest result and tight cost control. ING Direct contributed EUR 151 million
to group profit, well ahead of plan. The global low interest rate environment,
the strong euro and a higher tax burden adversely affected operating net profit
from insurance, which decreased slightly. Nevertheless, our life-insurance
operations in the US and Asia managed to post double-digit profit growth in
local currencies. During the course of 2003, we took a number of measures to
strengthen the capital base, which resulted in strongly improved ratios for both
our insurance and banking operations."
OUTLOOK 2004
The Executive Board is cautiously optimistic about the outlook for 2004. In the
year ahead, ING will continue to leverage its existing strengths in both mature
and developing markets. The Executive Board considers it premature at this stage
to make a profit forecast for 2004.
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Please refer to www.ing.com/group 'press room' or 'investor relations' for additional information on the Annual Results 2003
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PRESS CONFERENCE ON 19 FEBRUARY 2004 AT 10.00 AM CET, ANALYST CONFERENCE CALL ON 20 FEBRUARY 2004 AT 3.30 PM CET
AT ING HOUSE, AMSTELVEENSEWEG 500, AMSTERDAM Listen in via:
o The Netherlands: +31 45 631 6910
Live webcast via a direct link at www.ing.com/group o United Kingdom: +44 208 400 6356
----------------- o North America: +1 303 262 2130
Press presentation available at Live webcast via a direct link at www.ing.com/group
http://press.ing.comhttp://press.ing.com/ -----------------
----------------------------------------- Analyst presentation available via
http://investors.ing.comhttp://www.ing.com/group
------------------------------------------------
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MEDIA RELATIONS: +31 20 541 5446 INVESTOR RELATIONS: +31 20 541 5462 INTERNET: www.ing.com/group
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Page 3 of 36
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TABLE 1. KEY PROFIT AND LOSS FIGURES ING GROUP
2002 2003 % % Q4 Q4 %
change organic** 2002 2003 change
in EUR x million change
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Operating net profit*
- insurance operations 2,538 2,508 -1.2 2.7 675 698 3.4
- banking operations 895 1,545 72.6 66.5 45 343 n.a.
------ ------ ------ ------
Operating net profit* 3,433 4,053 18.1 20.9 720 1,041 44.6
Capital gains/gain JV with ANZ 1,067 -10 202 -5
------ ------ ------ ------
Net profit 4,500 4,043 -10.2 922 1,036 12.4
Total operating income 76,101 69,073 -9.2 1.9 18,300 17,451 -4.6
- insurance operations 64,917 57,560 -11.3 1.2 15,752 14,572 -7.5
- banking operations 11,201 11,680 4.3 7.2 2,554 2,984 16.8
Total operating expenses 13,501 13,081 -3.1 3.0 3,204 3,531 10.2
- insurance operations 5,203 4,897 -5.9 6.5 1,271 1,339 5.4
- banking operations 8,298 8,184 -1.4 1.0 1,933 2,192 13.4
in EUR
Operating net profit* per share 1.77 2.00 13.1 15.8 0.37 0.50 35.1
Net profit per share 2.32 2.00 -14.0 0.47 0.50 6.4
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* Operating net profit = net profit excluding realised capital gains on shares (2002 and 2003) and excluding the
non-operating gain from the ANZ transaction in 2002.
** Organic = excluding currency-rate differences and acquisitions/divestments
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All comparable figures in this press release relate to full year 2003 versus
full year 2002, unless indicated otherwise. To improve comparability and to
enable a clear insight in business performance, all further figures in this
press release are excluding realised capital gains on shares in 2002 and 2003
and excluding the non-operating part (EUR 247 million) of the profit from the
ANZ transaction in 2002, unless indicated otherwise.
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GROUP OPERATING NET PROFIT INCREASES SUBSTANTIALLY
The positive trend already visible in the first nine months of 2003 continued in
the fourth quarter, resulting in a full-year operating net profit of EUR 4,053
million, up 18.1% from 2002. Currency-rate differences, despite the mitigating
effect of the US-dollar hedge, had a negative impact of EUR 49 million.
Excluding currency-rate differences and acquisitions/divestments, operating net
profit increased by 20.9%.
Net profit over 2003 fell EUR 457 million, or 10.2%, to EUR 4,043 million,
mainly due to the absence of net realised capital gains on shares in 2003 as a
result of a policy change. In 2002, net profit included EUR 820 million of net
realised capital gains on shares compared with a net realised loss of EUR 10
million in 2003. In addition, 2002 net profit included a EUR 247 million
non-operating profit on the sale of 49% of ING's life and mutual-fund operations
in Australia to the joint venture with ANZ.
Fourth-quarter operating net profit increased 44.6% from the same quarter in
2002. This firm increase can be fully attributed to a more than seven-fold
increase of the operating net profit from banking as a result of a higher income
and a substantially lower addition to the provision for loan losses compared
with the difficult fourth quarter of 2002. Net profit in the fourth quarter of
2003 increased by 12.4% compared with the fourth quarter of 2002.
The further recovery of the most important stock market indices in the fourth
quarter of 2003 resulted in a positive balance of more than EUR 0.9 billion in
the revaluation reserve shares as of 31 December 2003. This revaluation reserve
includes unrealised gains and losses on shares in ING's equity portfolio. On 17
February 2004, the revaluation reserve shares amounted to
Page 4 of 36
approximately EUR 1.4 billion. The revaluation reserve real estate amounted to
EUR 1.0 billion at year-end 2003, a decrease of EUR 0.2 billion compared with
year-end 2002 as a result of sales in 2003.
INSURANCE PROFITS SHOW MINOR DECREASE
Operating net profit from the insurance operations decreased from EUR 2,538
million in 2002 to EUR 2,508 million in 2003 (-1.2%). The strengthening of the
euro against other (major) currencies had a negative impact of EUR 92 million
despite the mitigating effect of the dollar hedge. Excluding the impact of the
strong euro, operating net profit from insurance rose 2.7%. Operating profit
before tax increased 10.0% compared with 2002.
Life insurance profit before tax decreased 4.8% from EUR 2,603 million in 2002
to EUR 2,478 million in 2003. Explanatory factors behind this decrease are
substantially lower one-off gains, pressure on interest and dividend income and
the negative impact of the strong euro. On the positive side, lower investment
losses, higher stock-market indices, higher realised capital gains on real
estate, and ongoing cost control contributed to the life insurance profit before
tax. Performance in the US, Belgium and the majority of developing markets in
Eastern Europe and Asia improved while the Dutch results declined somewhat.
Non-life insurance profit before tax continued on its growth path, increasing
from EUR 567 million in 2002 to EUR 1,008 million in the reporting year
(+77.8%). On a comparable basis, excluding a one-off gain of EUR 231 million
from old reinsurance activities as well as excluding the impact of currency
fluctuations, non-life profit before tax increased by 53.0%.
Total premiums decreased by 12.9% to EUR 45,519 million. Excluding the impact of
the strong euro, premium growth was flat as a result of continued efforts to
properly balance profitability and market share. In the Netherlands, life
premiums grew by 13.3%.
Despite strict cost control in all regions total operating expenses increased
organically by 6.5% as a result of an increase in pension costs, higher expenses
to reduce backlogs and to improve the service level in the Netherlands, one-time
reorganisation and IT outsourcing expenses in the US, as well as the growth of
developing-market activities.
BANKING PROFITS RISE SUBSTANTIALLY
Operating net profit from the banking operations increased by 72.6% to EUR 1,545
million in 2003, mainly driven by a higher interest result, lower expenses and
lower loan-loss provisions. One-off items had a small mitigating effect on the
improvement (-EUR 34 million in 2002 versus -EUR 65 million in 2003, see table 3
on page 8).
Profit before tax rose by EUR 903 million or 61.5%. Total income growth of 4.3%
(organically +7.2%) was caused by a EUR 469 million higher interest result
thanks to increased volumes (notably at ING Direct) and a higher average
interest margin in the Netherlands.
Operating expenses decreased by 1.4% (organically, +1.0%) despite higher pension
expenses, the impact of the collective labour agreement in the Netherlands as
well as the ongoing expansion of ING Direct. Compared to the third quarter 2003,
operating expenses in the fourth quarter rose by EUR 152 million to EUR 2,192
million. This exceptionally high expense level is due to a number of
non-recurrent expenses including the accelerated depreciation of capitalised
software especially in the fourth quarter, a catch-up in bonus accruals and
higher marketing costs. The addition to the provision for loan losses decreased
by EUR 310 million to EUR 1,125 million, which is equal to 46 basis points of
average credit-risk weighted assets, compared with 59 basis points in 2002.
Page 5 of 36
Currency-rate fluctuations impacted operating net profit by +EUR 43 million,
mainly as a result of a US dollar-denominated loss in the fourth quarter of 2002
(NCFE).
The efficiency ratio banking (excluding ING Direct and restructuring provisions)
improved from 71.0% in 2002 to 68.4% in 2003. The pre-tax RAROC figure of ING's
banking operations (excluding ING Direct) increased significantly to 17.6% from
13.2% for the full year 2002.
ING Direct reported an operating profit before tax of EUR 151 million compared
to a loss of EUR 48 million in 2002. In the fourth quarter of 2003, ING Direct's
operating profit before tax amounted to EUR 58 million.
PROFIT CONTRIBUTION FROM ASSET MANAGEMENT CONTINUES TO GROW
The functional operating profit before tax from asset management activities grew
strongly by 63.9% to EUR 431 million. This figure is derived by breaking out the
asset management profit contribution from the insurance and banking results. In
2003, asset management activities accounted for 7% of ING Group's operating
profit before tax.
Assets under management increased from EUR 449 billion at the end of 2002 to EUR
463 billion at the end of 2003 (+EUR 14 billion or +3.1%). ING changed its
definition of assets under management to conform more closely to industry
practice. This restatement led to a net increase of EUR 9 billion. Furthermore,
net inflow of EUR 11 billion and the effect of higher stock markets (+EUR 32
billion) were partly offset by currency rate differences (-EUR 38 billion). All
regional units of ING Investment Management as well as ING Real Estate
contributed to the EUR 11 billion net inflow.
SHAREHOLDERS' EQUITY INCREASES
On 31 December 2003, shareholders' equity amounted to EUR 21.3 billion, an
increase of EUR 3.0 billion or 16.9% compared with year-end 2002 (see table 2
below). The full-year net profit added EUR 4.0 billion to shareholders' equity
whereas revaluations accounted for an increase of EUR 0.3 billion. Exchange-rate
fluctuations adversely impacted shareholders' equity by -EUR 1.2 billion.
Shareholders' equity per share increased from EUR 9.14 at year-end 2002 to EUR
10.08 at the end of 2003.
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TABLE 2. KEY BALANCE-SHEET FIGURES ING GROUP
Year-end YEAR-END %
In EUR x billion 2002 2003 change
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Shareholders' equity 18.3 21.3 16.9
- insurance operations 10.8 12.0 11.1
- banking operations 15.8 16.7 5.7
- eliminations* -8.3 -7.4
Total assets 716.4 778.8 8.7
Operating net return on equity 17.4% 21.5%
- insurance operations 18.6% 22.7%
- banking operations 6.5% 11.1%
Total assets under management 449.0 462.7 3.1
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* Own shares, subordinated loans, third-party interests, debenture loans and
other eliminations.
DIVIDEND
For 2003, a total dividend of EUR 0.97 per (depositary receipt for an) ordinary
share will be proposed to the Annual General Meeting of Shareholders on 27 April
2004. Taking into account the interim dividend of EUR 0.48 made payable in
September 2003, final dividend will amount to EUR 0.49 per (depositary receipt
for an) ordinary share. Although distributable net profit in
Page 6 of 36
2003 was lower than in 2002 due to the discontinuation of the policy to realise
fixed and pre-determined amounts of capital gains, dividend was kept at 2002
level. Temporarily, this will result in a higher payout ratio. The payout ratio
as a percentage of distributable net profit will be 48.5% (2002: 44.1%).
The ING share will be quoted ex-dividend as from 29 April 2004. From 29 April to
18 May inclusively, holders of (depositary receipts for) ordinary shares can
decide to take up final dividend 2003 either in cash or in (depositary receipts
for) ordinary shares. The exchange ratio stock/cash will be announced on 28 May
2004 after closing of the Euronext Amsterdam Stock Exchange. The exchange ratio
will be based on the weighted average share price over the period of 24 May to
28 May inclusively. The final dividend will be made payable in stock or cash on
4 June 2004. ING intends to fully fund the cash element by selling the bearer
depositary receipts that would have been issued if stock was chosen instead of
cash. The value of the dividend in cash will be 0 to 4% lower than the dividend
in stock.
KEY STRATEGIC DEVELOPMENTS
STRENGTHENING THE CAPITAL BASE
o Following the sharp decline of stock markets in 2002 and early 2003, ING
took a series of measures to strengthen its capital base during the course
of 2003. An optional stock dividend was re-introduced and ING sold part of
its equity and real estate holdings to reduce debt. ING also successfully
issued two new subordinated perpetual loans in Europe and the US.
o As a result of these measures, the capital base of ING Verzekeringen N.V.
increased to EUR 15.8 billion at the end of December, which is 180% of the
legally required level (end of September 2003: 178%; year-end 2002: 169%).
The tier-1 ratio of ING Bank N.V. was 7.59% at the end of December 2003, an
improvement of 28 basis points compared to year-end 2002 (7.31%) and up 15
basis points from the end of September (7.44%). ING Groep N.V.'s
debt/equity ratio improved to 14.4% (end of September 2003: 19.5%; year-end
2002: 19.9%).
o To protect the capital levels from further stock market declines, ING also
hedged EUR 4.0 billion of its Dutch equity portfolio at the beginning of
2003 by means of a cost-neutral collar. As a result of rising stock
markets, EUR 4.4 billion of the Dutch equity portfolio is currently
protected with put options against a potential decline. However, to open
the upside potential in the equity portfolio, the total amount of written
call options has been reduced to EUR 0.7 billion.
OPTIMISING THE EXISTING PORTFOLIO
o ING took several steps in 2003 to optimise its business portfolio and focus
on the markets and products where it can achieve a leading market position.
This process of streamlining the existing portfolio will continue in 2004.
o ING sold Fatum in the Netherlands Antilles and Aruba to Guardian Holdings
Limited and ING Aetna Life (Indonesia) to Manulife Indonesia. The agent
network of ING Sviluppo and the affiliated Italian life-insurance,
asset-management, retail and private-banking activities were sold to
UniCredito and Aviva. Agreement was also reached to sell Baring Private
Equity Partners in a management buyout.
o In February 2004, ING entered into a period of exclusive due diligence with
Macquarie Bank (Australia) with regard to the sale of ING's equity-sales,
trading, research and equity capital-markets businesses across Asia.
DEVELOPING ING'S SPECIAL SKILLS
o ING Direct continues to beat expectations with regard to the growth of
funds entrusted and the client base. Compared with year-end 2002 funds
entrusted grew by 80% from EUR 55.2
Page 7 of 36
billion to EUR 99.4 billion at the end of December 2003. ING Direct had 8.5
million clients at the end of December 2003, compared with 5.0 million
clients at year-end 2002, an increase of 69%. Combined, the eight ING
Direct units posted a profit before tax of EUR 151 million, up from a loss
of EUR 48 million in 2002.
o Insurance operations in developing markets showed an organic growth in
premium income (excluding exchange-rate fluctuations) of 10.9% and an
increase in organic operating profit before tax of 12.8%. Especially the
Asian life operations continued on their steady growth path. Organic
premium income in the Asian developing markets grew by 24.3% resulting in a
12.7% increase in organic operating profit before tax.
Page 8 of 36
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DETAILED INFORMATION ON 2003 RESULTS
On the following pages, more detailed information on 2003 results will be given.
After a discussion of the Group figures, the results will be viewed from two
different reporting angles: the regulatory angle insurance/banking and the
managerial angle of Executive Centres. Additional information can be found in
the appendices.
As stated before: to enable a clear insight in business performance, all further
figures in this press release are excluding realised capital gains on shares in
2002 and 2003 and excluding the non-operating part (EUR 247 million) of the
profit from the ANZ transaction in 2002.
All comparable figures in this press release relate to full year 2003 versus
full year 2002, unless indicated otherwise.
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1. GROUP RESULT
INCOME
Total operating income decreased by 9.2% to EUR 69,073 million. Organically,
total income increased by 1.9% in spite of difficult market conditions
(insurance +1.2%, banking +7.2%).
EFFICIENCY
Total operating expenses decreased 3.1% from EUR 13,501 million in 2002 to EUR
13,081 million in 2003. Organically, there was a 3.0% increase in operating
expenses. This indicates that ongoing cost control measures as well as the many
restructuring and integration efforts were offset by a growth in expenses. This
expense growth was a result of the ongoing expansion of ING Direct and the
insurance operations in developing markets, higher pension costs, accelerated
depreciation of capitalised software, higher expenses to reduce backlogs and to
improve the service level at ING's Dutch insurance operations, and the new
collective labour agreement in the Netherlands.
The total number of staff (full-time equivalents) decreased by 1,900 to 114,300
at the end of December 2003. Ongoing restructuring, integration and cost
containment programmes have led to a reduction of the workforce in the banking
units within ING Europe and the insurance units within ING Americas (mainly US,
Chile, and Argentina) in 2003. ING Direct attracted some 1,700 new staff
(including Entrium) to handle the strong growth of its businesses. Total staff
at the insurance operations in a number of developing markets as well as Canada
increased, too.
PROFIT
Operating net profit increased by 18.1% to EUR 4,053 million. Operating net
profit per share was up 13.1% at EUR 2.00. Operating profit before tax increased
by 26.3% to EUR 5,857 million. The effective tax rate increased from 18.8% in
2002 to 24.9% in 2003 mainly due to higher tax-exempt gains as well as the
release of a tax provision in insurance in 2002.
ONE-OFF ITEMS
One-off items had a considerable impact on operating net profit in both 2002
(+EUR 373 million) and 2003 (+EUR 346 million). Please refer to table 3 on page
8 for further details.
CURRENCY RATE FLUCTUATIONS
During 2003, the value of the euro strengthened against most currencies. The
impact on operating net profit was a negative EUR 49 million. This figure
includes the mitigating effect of the US dollar hedge result of EUR 119 million
after tax versus EUR 55 million in the same period last year. ING has hedged the
expected profits in US dollar and US dollar-linked currencies for 2004 and 2005.
On the insurance side, profits were hedged at a EUR/USD exchange rate of 0.922
for 2004 and 1.253 for 2005. On the banking side, the EUR/USD exchange rates
were 1.222 for 2004 and 1.253 for 2005.
Page 9 of 36
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TABLE 3. ONE-OFF ITEMS
in EUR x million 2002 2003
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Before tax After tax Before tax After tax
INSURANCE OPERATIONS 448 407 506 411
Operating gain on the ANZ transaction 222 222
Surrender gain group life contract 120 79
Release contingency provision 106 106
Gain from old reinsurance activities 303 247
Gain on sale Sviluppo/Seguros Bital 115 107
Release catastrophe provision 88 57
BANKING OPERATIONS -34 -34 -82 -65
Profit on the sale of Cedel shares 94 94
Restructuring provisioning -128 -128 -82 -65
---- ---- --- ---
TOTAL 414 373 424 346
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RETURN ON EQUITY
The operating net return on equity increased from 17.4% in 2002 to 21.5% in
2003. The return on equity of the insurance operations was 22.7% against 18.6%
for 2002. The return on equity of the banking operations increased from 6.5% in
2002 to 11.1% in 2003. The risk-adjusted return on capital (RAROC) of ING's
banking operations was 17.6% compared with 13.2% for 2002 (pre-tax and excluding
ING Direct).
FOURTH QUARTER 2003 VERSUS FOURTH QUARTER 2002
Compared with the same quarter last year, operating net profit in the fourth
quarter of 2003 increased by 44.6% to EUR 1,041 million. Operating net profit of
the banking operations rose substantially by EUR 298 million to EUR 343 million
mainly as a result of a lower addition to the provision for loan losses and a
rise in income. However, operating expenses in the fourth quarter 2003 were
substantially higher (EUR 259 million) compared with the fourth quarter 2002.
The operating net profit of the insurance business increased by 3.4%. A higher
effective tax rate had a negative impact on this development. In the Netherlands
both life and non-life results improved, as a result of higher realised capital
gains on real estate, partly offset by lower interest and dividend income and
higher operating expenses. In North America, non-life results were higher
whereas the life results were somewhat lower. The decrease in life results was,
on balance, due to deteriorated investment income and the release of a
contingency provision from prior acquisitions in 2002 (EUR 106 million), partly
compensated by lower investment losses.
FOURTH QUARTER 2003 VERSUS THIRD QUARTER 2003
Fourth quarter operating net profit increased by 10.3% to EUR 1,041 million
compared to the third quarter of 2003. Operating net profit of the insurance
operations improved by 28.1% to EUR 698 million. This was mainly caused by the
impact of one-offs in the fourth quarter 2003 (release catastrophe provision and
the realised gain on the sale of ING Sviluppo/Seguros Bital). Excluding these
one-offs operating net profit of the insurance operations decreased slightly by
2% on balance thanks to higher life profits in the United States and non-life
profits in Australia against lower non-life results in Canada, especially
because of seasonal effects in motor insurance. Operating net profit of the
banking operations decreased by EUR 56 million to EUR 343 million. Higher risk
costs and operating expenses, only partly mitigated by a higher income and lower
effective tax rate, were the main reasons for this development.
Page 10 of 36
2.1 INSURANCE OPERATIONS
OPERATING NET PROFIT
Operating net profit 2003 from insurance decreased by EUR 30 million (-1.2%) to
EUR 2,508 million. One-off items amounting to EUR 407 million in 2002 versus EUR
411 million in 2003 hardly affected the development of operating net profit.
However, currency rate exchange differences of EUR 92 million had a substantial
negative impact on operating net profit in 2003. Excluding one-off items and
currency rate differences operating net profit improved by 3.0%. The effective
tax rate increased from 17.0% in 2002 to 24.7% in 2003 mainly because of the
release of a tax provision in 2002 and lower tax-exempt gains in 2003.
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TABLE 4. PREMIUM INCOME AND OPERATING PROFIT BEFORE TAX OF THE INSURANCE OPERATIONS
%
% organic*
in EUR x million 2002 2003 change change
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PREMIUM INCOME 52,284 45,519 -12.9 0.0
Life insurance 44,367 38,231 -13.8 -0.8
Non-life insurance 7,917 7,288 -7.9 4.2
OPERATING PROFIT BEFORE TAX 3,170 3,486 10.0 15.3
Life insurance 2,603 2,478 -4.8 -2.8
Non-life insurance 567 1,008 77.8 100.0
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* Organic = excluding currency rate differences and acquisitions/divestments
PREMIUM INCOME
Due to the uncertainty of consumers about the economic climate and fierce
competition in the main insurance markets, organic premium growth was flat. Life
premiums in the Dutch and Belgian life market showed a double-digit growth.
Excluding guaranteed investment contracts (GICs), premium income in the United
States dropped organically by 7.4%, mainly due to lower sales of fixed
annuities. Overall, ING will continue its policy to better balance profitability
and market share. Total premiums in the developing markets in local currencies
showed a good growth of 10.9%.
EXPENSES
Total operating expenses decreased by 5.9%. Organically, total operating
expenses grew by 6.5% despite strict cost control, mainly because of higher
pension costs, additional expenses with regard to the improvement of the service
level of the Dutch operations, implementation costs of shared service centres,
reorganisation costs in the US and Poland and increased claim handling expenses
in some business units. Excluding one-off costs related to the reorganisation
and outsourcing, expenses in the United States were flat despite higher pension
costs.
OPERATING PROFIT BEFORE TAX
The operating profit before tax increased by 10.0% to EUR 3,486 million. The
stronger euro impacted this result by -EUR 122 million (including the positive
effect from the US dollar hedge). Realised capital gains on real estate
investments amounted to EUR 477 million against EUR 353 million in 2002.
The main drivers for the 4.8% decrease in life insurance profit before tax were
lower one-off items (2002: EUR 448 million, 2003: EUR 269 million) as well as
negative currency-rate differences amounting to EUR 59 million. Excluding these
two items the life result improved by 5.9%. This improvement was caused by lower
investment losses, higher capital gains on real estate, the impact of rebounded
indices on the American stock markets resulting in a favourable DAC unlocking,
partly offset by lower interest and dividend income.
Page 11 of 36
The non-life insurance profit before tax was above EUR 1 billion for the first
time, a growth of EUR 441 million compared to 2002. Even excluding the effect of
one-off items in 2003 (+EUR 237 million) and the strong euro (-EUR 63 million)
the profit increase was exceptionally high (+53%). All the operations
contributed to this growth. Especially the developments in the Netherlands,
Belgium, Canada and Australia were favourable.
CREDIT-RELATED LOSSES
Credit-related investment losses at the insurance operations decreased strongly
from EUR 664 million (50 basis points of total fixed interest securities) in
2002 to EUR 163 million (13 basis points) in 2003. The losses in the US life
operations in the fourth quarter 2003 amounted to only EUR 1 million compared to
EUR 155 million in the fourth quarter of 2002.
COMBINED RATIO
The combined ratio of the non-life operations improved from 102% in 2002 to 98%
in 2003.
CAPITAL BASE
End of December 2003, the capital base of ING Insurance amounted to EUR 15.8
billion, 180% of the legally required level of EUR 8.8 billion.
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TABLE 5. GEOGRAPHICAL BREAKDOWN OF PREMIUM INCOME AND OPERATING PROFIT BEFORE TAX FROM INSURANCE OPERATIONS
PREMIUM INCOME OPERATING PROFIT BEFORE TAX
2002 2003 % % 2002 2003 % %
change organic change organic
in EUR x million change change
---------------------------------------------------------------------------------------------------------------------
The Netherlands 6,786 7,429 9.5 9.5 1,391 1,471 5.8 5.8
Belgium 2,335 2,568 10.0 10.0 74 109 47.3 47.3
Rest of Europe 1,618 1,404 -13.2 -9.9 155 230 48.4 57.5
North America 30,699 24,314 -20.8 -5.6 820 802 -2.2 3.4
Latin America* 3,293 2,338 -29.0 -5.4 307 292 -4.9 23.6
Asia 6,035 5,950 -1.4 14.5 245 280 14.3 15.8
Australia 1,763 1,644 -6.7 20.9 329 176 -46.5 -46.0
Other -245 -128 -151 126
------ ------ ----- -----
TOTAL 52,284 45,519 -12.9 0.0 3,170 3,486 10.0 15.3
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* Latin America = South America, including Mexico.
THE NETHERLANDS
Life premiums in the Netherlands increased by 13.3% to EUR 5,582 million, mainly
due to higher sales of both individual and group life single premiums. Non-life
premiums decreased slightly by 0.6% to EUR 1,847 million, mainly in loss of
income/accident.
Life insurance profit before tax in the Netherlands decreased by EUR 26 million
to EUR 1,212 million (-2.1%). Reasons for this decrease are lower interest
income and lower dividend income mainly as a consequence of measures to
strengthen ING's capital base and to reduce core debt. Higher realised capital
gains on real estate partly offset these effects. In addition, operating
expenses were higher, among others due to higher pension costs as well as
expenses to reduce backlogs and improve the service level at
Nationale-Nederlanden. The result on mortality and morbidity improved. Total
one-offs amounted to EUR 160 million in 2003 versus EUR 120 million in 2002.
Non-life insurance profit before tax increased from EUR 153 million in 2002 to
EUR 259 million in 2003 (69.3%). Especially the result of loss of
income/accident rose strongly, mainly as a result of a favourable run-off of
outstanding claims from former years and the release of a redundant insurance
provision. The results from motor insurance also developed favourably.
Page 12 of 36
BELGIUM
Life premiums in Belgium and Luxembourg rose by 10.0% to EUR 2,257 million. High
single premium production compensated for the drop in unit-linked production.
The strong premium growth in recent years has resulted in a top-five position
for ING Insurance in the Belgian life insurance market. The life insurance
profit before tax was up EUR 14 million (+19.4%) to EUR 86 million, especially
driven by the strong retail result on universal life products.
Premium rate increases and an improved claims ratio in both the retail and the
wholesale business led to a huge improvement of the non-life profit before tax
by EUR 21 million to EUR 23 million for the full year 2003.
REST OF EUROPE
Life premium income in local currencies was down 10.5% to EUR 1,360 million,
mainly caused by a lower production in Italy, Spain and Poland. Premium growth
in the other European markets was satisfactory. Life profit before tax improved
by 47.7% to EUR 220 million, including a gain on the sale of ING Sviluppo.
Almost all operations in Eastern Europe as well as Greece and Spain posted
higher results than in 2002.
Non-life profit before tax amounted to EUR 10 million in 2003, up EUR 4 million
from the previous year.
UNITED STATES
The US businesses reported operating profit before tax of EUR 502 million, an
increase of 19.5% or EUR 82 million over the prior full-year period (exclusive
of currency-exchange impacts, currency hedging gains and the 2002 release of
contingent provisions from prior acquisitions of EUR 106 million). Results
include Group financing costs of EUR 334 million. Asset growth supported by
sales and improving equity markets, along with improved credit experience and
continued expense management, helped drive results. However, a sustained low
interest rate environment and unfavourable reinsurance mortality softened
results.
Separate account assets under management grew 28.2%, organically. The S&P 500
index - which closely correlates with US equity related businesses - increased
11.6% in the fourth quarter and 26.4% for the year. This contrasts sharply with
2002, when the S&P dropped 23.4% and more conservative DAC assumptions for
market returns were implemented. In the fourth quarter of 2003, the long-term
growth assumption was lowered again resulting in a modest DAC charge. These
factors improved operating profit before tax by EUR 301 million compared to 2002
(exclusive of currency exchange impacts), due in large part to the high DAC
charges and guaranteed benefit costs in 2002.
Active credit management along with an improving economy drove a substantial
reduction in credit losses. Gross credit related investment losses were EUR 134
million, or 21 basis points annualised, in 2003, compared to 80 basis points
annualised in 2002. Offsetting the favourable trend in credit losses was the
impact of the lower interest rates. Low interest rates and credit losses
combined to reduce 2003 operating profit before tax by EUR 102 million compared
to a year ago (at constant exchange rates).
The residential mortgage backed securities portfolio is particularly sensitive
to interest rate movements and experienced record levels of prepayments in 2003.
The total portfolio yield after credit losses was 5.90% and 6.38% during 2003
and 2002, respectively. In response to the declining interest rates and
portfolio yields, certain crediting actions were taken. Notwithstanding the
combination of improved credit losses and rate crediting actions, composite
margins (after credit-related investment losses) fell from 1.60% in 2002 to
1.28% in 2003.
Page 13 of 36
The US businesses continue to benefit from a lower expense structure resulting
from the 2001 reorganisation. Headcount decreased 5.8% during 2003 reflecting a
continued focus on operational efficiencies. The impact of these headcount
reductions was offset by one-time costs and higher benefit costs. One-time items
include costs related to legal entity consolidation, reorganisation and
outsourcing initiatives totalled EUR 41 million. As announced in December 2003,
ING entered into a strategic agreement with IBM to outsource information
technology infrastructure services and expects to realise significant savings
over the 7-year contract term.
The reinsurance business reported operating profit before tax of EUR 50 million
compared to EUR 124 million in 2002 (at constant exchange rates). The reduction
in 2003 was due in large part to unusually high mortality claims in the third
quarter.
Total full-year US gross premiums excluding guaranteed investment contracts
declined 7.4% from 2002. However, premiums across many product lines increased
during the course of 2003, particularly in the fourth quarter. Excluding
guaranteed investment contracts, gross premiums increased 11.2% over last year's
fourth quarter, supported by a 42.9% increase in variable annuities and a 9.0%
increase in retirement services. While fixed annuity premiums increased 15.2%
over the fourth quarter of 2002, a low interest rate environment and continued
focus on sound pricing resulted in substantially lower full-year fixed annuity
premiums.
CANADA
Canada delivered a record combined ratio of 94.9% in 2003 improving from 97.7%
in 2002. Strong underwriting performance combined with organic premium growth of
10.9% delivered firm operating profits before tax of EUR 163 million, a growth
of 49.6% at constant exchange rates.
LATIN AMERICA
In aggregate, the Latin America businesses reported operating profits before tax
of EUR 292 million, an increase of EUR 56 million over the prior year at
constant exchange rates. This includes a gain from the sale of the Seguros Bital
joint venture in Mexico. Mexico and Brazil reported higher operating profits
before tax, which were dampened by lower results in Argentina and the impact of
divestitures for EUR 13 million.
ASIA
In Asia, the operating profit before tax increased 15.8% at constant exchange
rates, though results were negatively impacted by the decline of all major Asian
currencies against the euro in 2003. Including exchange-rate fluctuations,
operating profit before tax increased 14.3% to EUR 280 million, helped by active
cost management and favourable claims experience. The main contributors to this
growth in profit were Korea and Japan. Results from Japan increased mainly due
to sales of more profitable products and a favourable claims environment. Total
premium income in Asia grew 14.5% in local currencies. In Korea, premium income
increased 54.9% at constant currency rates. Businesses in the developing markets
of China, India and Thailand also posted substantial increases. Results from
Taiwan were lower, mainly because of an addition of EUR 50 million to the
provision against a prolonged low interest rate environment. Excluding this
provision and at constant exchange rates, profit increased.
AUSTRALIA
Operating profit before tax from Australia increased 64.5%, excluding a one-off
gain of EUR 222 million in 2002 from the formation of the joint venture with
ANZ. Including the ANZ gain, operating profit before tax dropped 46.5% to EUR
176 million. The non-life insurance business performed particularly well,
reflecting the continuing strong underwriting environment, higher premium rates
and favourable claims experience. In addition, in the Australian life/wealth
joint
Page 14 of 36
venture with ANZ, favourable capital investment earnings and tight cost
control offset lower fees from assets under management due to industry-wide weak
fund flows.
OTHER
Result improved mainly due to the unallocated one-off gain from old reinsurance
activities.
VALUE OF NEW BUSINESS AND EMBEDDED VALUE OF ING'S LIFE OPERATIONS
The value of new life business written in 2003 was EUR 440 million, compared to
EUR 519 million in 2002. The decrease is primarily due to lower sales and lower
pricing targets, which are attributable to lower interest rates. As in 2002, ING
Asia/Pacific generated more than half of the total value of new business created
by the group, indicating the strong future earnings potential of the businesses
in the region. During 2003 ING invested EUR 1,479 million to write new life
insurance business. The overall rate of return expected on this investment is
10.9%. This compares to an overall return of 11.5% in 2002. The expected
internal rate of return in developing markets is 15.3%. All reported internal
rates have been adjusted to be consistent with the 7.5% discount rate used in
the Netherlands.
At the end of 2003, the total embedded value of ING's life insurance operations
was EUR 21.7 billion compared with EUR 23.3 billion at year-end 2002. The
primary reasons for the decline are currency effects and changes to future
assumed investment returns (see appendix 8).
2.2. BANKING OPERATIONS
OPERATING NET PROFIT
Operating net profit of the banking operations grew strongly by 72.6% from EUR
895 million in 2002 to EUR 1,545 million in 2003. The operating net profit in
the fourth quarter of 2003 amounted to EUR 343 million, a decrease of EUR 56
million compared with the third quarter 2003. However, a substantial improvement
compared with the very poor net profit in the corresponding quarter of 2002
(only EUR 45 million mainly due to very high risk costs).
--------------------------------------------------------------------------------
TABLE 6. OPERATING PROFIT BEFORE TAX OF THE BANKING OPERATIONS
%
in EUR x million 2002 2003 change
------------------------------------------------------------------------------
Interest result 7,646 8,115 6.1
Income from securities and participating interests 201 154 -23.4
Commission 2,615 2,464 -5.8
Results from financial transactions 454 562 23.8
Other results 285 385 35.1
------ ----- ---
TOTAL INCOME 11,201 11,680 4.3
Personnel expenses 4,787 4,694 -1.9
Other expenses 3,511 3,490 -0.6
------ -----
TOTAL OPERATING EXPENSES 8,298 8,184 -1.4
GROSS RESULT 2,903 3,496 20.4
Additions to the provision for loan losses 1,435 1,125 -21.6
------ ----
OPERATING PROFIT BEFORE TAX 1,468 2,371 61.5
EFFICIENCY RATIO* 71.0% 68.4%
--------------------------------------------------------------------------------
* Excluding ING Direct and restructuring provisions
OPERATING PROFIT BEFORE TAX
The operating profit before tax of the banking operations improved by EUR 903
million (+61.5%) to EUR 2,371 million. Next to a EUR 310 million lower addition
to the provision for loan losses (in 2002 high among others due to the National
Century Financial Enterprises provisioning in the fourth quarter of 2002), gross
result increased strongly by EUR 593 million or
Page 15 of 36
20.4%. Although 2002 income was boosted by an exceptional one-off gain of EUR 94
million on the sale of Cedel-shares, total income in 2003 rose by EUR 479
million or 4.3%. The increase was on balance caused by a EUR 469 million higher
interest result as a result of increased volumes (notably ING Direct) and a
higher average interest margin in the Netherlands. Total expenses decreased by
EUR 114 million or 1.4%. Included in the expenses are restructuring provisions
of respectively EUR 128 million in 2002 (for the international wholesale banking
activities) and EUR 82 million in 2003 (whereof EUR 30 million for ING BHF-Bank,
EUR 15 million for ING Bank France and EUR 37 million for the international
wholesale banking activities).
Both income and expenses were furthermore affected by the appreciation of the
euro against most currencies. Excluding currency fluctuations and the
acquisition of Toplease and ING Vysya Bank in 2002, operating profit before tax
rose organically by 59.1% (income +7.2%, expenses +1.0%). Also excluding
aforementioned one-offs, the operating profit before tax improved by 60.9%.
Most banking units reported improved results. The operating result before tax of
ING Direct turned from a loss of EUR 48 million in 2002 to a profit of EUR 151
million this year, whereof EUR 58 million in the fourth quarter of 2003.
Although slightly improved compared to prior year, the result of ING BHF-Bank is
still far from break-even, mainly due to continued high risk costs.
FOURTH QUARTER 2003 VERSUS THIRD QUARTER 2003
Compared to the third quarter 2003 (EUR 639 million), operating profit before
tax in the fourth quarter decreased by EUR 117 million to EUR 522 million
(-18.3%). Total income rose by EUR 65 million. This was more than offset by EUR
152 million higher expenses, notably accelerated depreciation of capitalised
software, higher bonus accruals and a further increase of ING Direct expenses.
The addition to the provision for loan losses increased by EUR 30 million to EUR
270 million (annualised 44 basis points of average credit risk weighted assets).
INTEREST RESULT
Compared to 2002 the interest result increased substantially by EUR 469 million
or 6.1% to EUR 8,115 million, due to a higher average balance sheet total,
notably caused by the continued strong growth of ING Direct (with an interest
margin of approximately 1%). In the Netherlands the interest margin improved by
13 basis point to 2.00%, mainly due to higher product margins. The total
interest margin, however, decreased by 4 basis points to 1.58%. This is fully
caused by the increased stake of the balance sheet total outside the Netherlands
(mainly triggered by ING Direct), with a substantially lower interest margin
than within the Netherlands.
BANK LENDING
At the end of December 2003, bank lending was EUR 8.2 billion or 2.9% higher
compared to year-end 2002. At constant exchange rates the increase was 4.9%.
Corporate bank lending decreased by EUR 5.4 billion, while personal lending rose
by EUR 13.4 billion (mainly residential mortgages). After the strong growth of
bank lending in the third quarter by EUR 16.0 billion, bank lending in the
fourth quarter decreased by EUR 11.5 billion mainly due to the repayment of some
short term loans granted in the third quarter and the further depreciation of
most currencies against the euro (effect -EUR 2.6 billion).
FUNDS ENTRUSTED
Funds entrusted to and debt securities of the banking operations rose by EUR
58.0 billion or 18.1% to EUR 377.8 billion at the end of 2003 to a large extent
caused by the continued strong growth of ING Direct.
Page 16 of 36
INCOME FROM SECURITIES AND PARTICIPATING INTERESTS
Income from securities and participating interests dropped from EUR 201 million
in 2002 to EUR 154 million. Last years' figure included an exceptional profit of
EUR 94 million on Cedel shares.
COMMISSION
Total commission decreased by EUR 151 million or 5.8%. Commission from
securities business dropped by EUR 66 million (-9.0%) due to the lower activity
level on the stock markets. The continued reluctance of (private) clients to
invest in securities also led to a decline in management fees (-13.7%) and
brokerage and advisory fees (-25.9%). Funds transfer commission and insurance
broking commission were slightly lower. The 23.1% increase in 'other' commission
can be mainly attributed to the international wholesale banking units.
------------------------------------------------------------------------
TABLE 7. COMMISSION
%
In EUR x million 2002 2003 change
------------------------------------------------------------------------
Funds transfer 592 587 -0.8
Securities business 731 665 -9.0
Insurance broking 117 115 -1.7
Management fees 688 594 -13.7
Brokerage and advisory fees 197 146 -25.9
Other 290 357 23.1
----- ------ -----
TOTAL 2,615 2,464 -5.8
------------------------------------------------------------------------
RESULTS FROM FINANCIAL TRANSACTIONS
On balance, results from financial transactions increased by EUR 108 million
(+23.8%) but there are strong fluctuations between the separate lines, which are
to a large extent interrelated. The increase of the total results from financial
transactions can be mainly attributed to ING BHF-Bank, ING Furman Selz (mainly
lower losses on seed capital) and ING Bank Netherlands. The two main
contributors to the results from financial transactions (i.c. the international
wholesale banking units and ING Belgium) both realised only slightly higher
results compared to 2002.
The strong decrease of the results from currency trading was more than
compensated by higher other results from financial transactions, especially
related results from derivatives trading.
------------------------------------------------------------------------
TABLE 8. RESULTS FROM FINANCIAL TRANSACTIONS
%
in EUR x million 2002 2003 change
------------------------------------------------------------------------
Result from securities trading portfolio 201 226 12.4
Result from currency trading portfolio 242 46 -81.0
Other 11 290 n.a.
--- --- -----
TOTAL 454 562 23.8
------------------------------------------------------------------------
OTHER RESULTS
Compared to 2002, Other results rose by EUR 100 million or 35.1% to EUR 385
million, to a large extent caused by higher results from real estate (especially
in the fourth quarter of 2003). It should be noted that Other results in 2002
were relatively low due to one-off losses relating to operational problems in
car leasing and securities brokerage at ING Bank.
TOTAL OPERATING EXPENSES
Total operating expenses decreased by EUR 114 million (-1.4%) to EUR 8,184
million. Organically, i.e. excluding currency fluctuations and the consolidation
of Toplease and ING Vysya Bank, expenses increased by EUR 84 million or 1.0%.
Also abstracted from the restructuring provisions created in 2002 and 2003 (EUR
128 million and EUR 82 million respectively) and the continuously expanding ING
Direct (expenses rose by EUR 214 million at
Page 17 of 36
comparable exchange rates) expenses decreased by 1.2%. However, compared to the
reported 5.9% decrease in the first nine months of 2003 a modest decrease. The
slow-down in cost reduction was fully caused by an exceptionally high level of
expenses in the fourth quarter (EUR 2,192 million against EUR 2,040 million in
the third quarter). This was a result of a number of non-recurrent expenses
including accelerated depreciation of capitalised software, higher bonus
accruals and higher marketing costs. On a comparable basis, i.e. organically and
excluding restructuring provisions and ING Direct, personnel expenses decreased
by EUR 62 million or 1.4%. A reduction of the average headcount by 3,400
full-timers, lower stock option expenses and lower expenses for third-party
staff more than offset the impact of the collective labour agreement and higher
pension costs. Other expenses were 0.8% lower.
EFFICIENCY RATIO
Excluding the expanding ING Direct operations and restructuring provisions, the
efficiency ratio (total operating expenses as a percentage of total income)
improved from 71.0% in 2002 to 68.4% in 2003. As from 2004, ING Direct will no
longer be excluded. The comparable 2003 efficiency ratio (i.e. including ING
Direct but excluding restructuring provisions) is 69.4%.
ADDITIONS TO THE PROVISION FOR LOAN LOSSES
In 2003, the total addition to the provision for loan losses amounted to EUR
1,125 million, a decrease of EUR 310 million compared to the high level in 2002
(EUR 1,435 million). The addition equalled 46 basis points of average credit
risk weighted assets, against 59 basis points in 2002. In the fourth quarter
2003, ING Bank added EUR 270 million to the provision for loan losses, a EUR 30
million increase compared to the third quarter 2003. Included in the fourth
quarter addition are a provision for Parmalat and an extra addition for NMB
Heller's credit portfolio.
RISK ADJUSTED RETURN ON CAPITAL
The Risk adjusted Return on Capital (RAROC) measures performance on a
risk-adjusted basis. RAROC is calculated as the economic return divided by
economic capital. The economic returns of RAROC are based on the principles of
valuation and calculation of results applied in the annual accounts. The credit
risk provisioning is replaced by statistically expected losses reflecting
average credit losses over the entire economic cycle. ING Group continues to
develop and refine the models supporting the RAROC calculations. ING Direct -
with a RAROC of 14.1% in 2003 - is still excluded in the following overview:
--------------------------------------------------------------------------------
TABLE 9. RAROC BANKING OPERATIONS, EXCLUDING ING DIRECT
RAROC (pre-tax) Economic capital
in % in EUR x billion
2002* 2003 2002* 2003
--------------------------------------------------------------------------------
MC Netherlands 38.4 43.5 4.8 4.5
MC South West Europe 17.0 21.8 3.4 3.1
MC Germany -3.5 -3.4 1.4 1.4
MC Central Europe 9.5 11.2 1.0 0.8
MC UK/Americas/Asia -0.4 7.2 3.1 1.9
Other -64.9 -46.5 0.8 1.1
---- ----
TOTAL BANKING OPERATIONS 13.2 17.6 14.5 12.8
Wholesale 10.1 12.5 11.8 10.0
Retail 26.4 35.8 2.7 2.8
--------------------------------------------------------------------------------
* Restated following a redefinition of the corporate line.
The total (pre-tax) RAROC of ING's banking operations (excluding ING Direct) was
17.6%, a strong improvement compared to 2002 (13.2%) and only slightly below the
hurdle of 18.5%.
Page 18 of 36
Next to a higher economic return, the improvement was caused by lower economic
capital, due to a methodology refinement for business and operational risk, as
well as lower credit and transfer risk capital. Compared to 2002, the RAROC of
the wholesale activities improved by 2.4%-point to 12.5%. The already good RAROC
of the retail activities improved further from 26.4% in 2002 to 35.8% in 2003.
CAPITAL ADEQUACY
At year-end 2003, the tier-1 ratio of ING Bank N.V. was 7.59%, an improvement of
28 basis points compared to year-end 2002 (7.31%). The solvency ratio (BIS
ratio) improved from 10.98% to 11.34%. Despite the strong growth of ING Direct,
total risk-weighted assets increased only modestly from EUR 247.3 billion at
year-end 2002 to EUR 251.3 billion at the end of 2003, supported by the
depreciation of the US-dollar and a EUR 3.8 billion increase of securitisations.
--------------------------------------------------------------------------------------------------------------------
TABLE 10. GEOGRAPHICAL BREAKDOWN OF OPERATING INCOME AND OPERATING PROFIT BEFORE TAX FROM BANKING ACTIVITIES
OPERATING INCOME OPERATING PROFIT BEFORE TAX
% %
in EUR x million 2002 2003 change 2002 2003 change
----------------------------------------------------------------------------------------------------------------
The Netherlands 4,982 5,270 5.8 1,510 1,588 5.2
Belgium 2,044 2,012 -1.6 613 478 -22.0
Rest of Europe 2,773 2,997 8.1 -311 -15 n.a.
North America 536 731 36.4 -509 110 n.a.
Latin America* 315 162 -48.6 74 118 59.5
Asia 436 376 -13.8 38 38 0.0
Australia 107 132 23.4 55 60 9.1
Other 8 0 -2 -6
------ ------ ----- -----
TOTAL 11,201 11,680 4.3 1,468 2,371 61.5
----------------------------------------------------------------------------------------------------------------
* Latin America = South America, including Mexico.
GEOGRAPHICAL BREAKDOWN BANKING
Operating profit before tax in the Netherlands increased by 5.2%. Higher income
(+5.8%, mainly interest) was partly offset by higher expenses (+2.8%) and higher
risk costs (among others at NMB Heller). Operating profit before tax in Belgium
decreased by 22.0%. Besides higher risk costs and increased expenses, total
income decreased slightly (-1.6%). However, excluding the exceptional profit on
Cedel shares realised in 2002, of which EUR 64 million was booked in Belgium,
income rose by 1.6%.
Although strongly improved, the operational result before tax in the Rest of
Europe is still negative. Especially the performance in Germany (ING BHF-Bank)
and Poland (ING Bank Slaski) was disappointing. The results of ING Direct, ING
Real Estate and the international wholesale banking units in this geographical
region improved considerably. In the fourth quarter of 2003 the operating profit
before tax was EUR 71 million.
In North America operating result before tax turned from a loss of EUR 509
million in 2002 to a profit of EUR 110 million in 2003. The strong improvement
is mainly caused by substantially lower risk costs (which were exceptionally
high in 2002 among others due to NCFE-provisioning) and higher income (mainly
ING Direct, ING Furman Selz and ING Real Estate). The increase of the operating
profit before tax in Latin America was entirely caused by lower risk costs
(which were high in 2002 due to Argentina provisioning). The strong decrease in
income of 48.6% was partly compensated by lower expenses.
In Asia, operating profit before tax remained unchanged. The lower income level
was fully compensated by lower expenses and a release of loan loss provisions.
The operating profit before tax in Australia improved further mainly due to ING
Direct.
Page 19 of 36
3. RESULTS BY EXECUTIVE CENTRE
-----------------------------------------------------------------------------
TABLE 11. OPERATING PROFIT BEFORE TAX BY EXECUTIVE CENTRE
% organic*
in EUR x million 2002 2003 change change
-----------------------------------------------------------------------------
ING Group 4,638 5,857 26.3 30.3
- ING Europe 3,242 4,305 32.8 32.0
- ING Americas 1,043 1,086 4.1 17.5
- ING Asia/Pacific 603 453 -24.9 -23.6
- Other -250 13
-----------------------------------------------------------------------------
* Organic = excluding currency rate differences and acquisitions/divestments
ING EUROPE
ING Europe not only includes all of ING's European operations, but also the ING
Direct businesses in Australia, Canada and the United States as well as the
wholesale banking business outside Europe. Since the beginning of 2003, the
asset management business units ING Real Estate, Baring Asset Management, ING
Trust, Parcom and Baring Private Equity Partners (previously part of ING Asset
Management) have also been part of ING Europe. The 2002 results per executive
centre have been restated accordingly.
The strong improvement of the operating profit before tax is mainly attributable
to substantial higher banking results (+58.3%). Main drivers for this
development were lower risk costs, a higher interest result and higher income
from real estate. Furthermore, expenses were well under control despite an
occasional rise in the fourth quarter of 2003. Banking operations in the
Netherlands and Belgium as well as ING Direct performed very well. However, the
results in Germany (ING BHF-Bank) and Poland (ING Bank Slaski) are still far
below target. The efficiency ratio (excluding ING Direct and restructuring
expenses) improved from 69.8% to 67.4% year-on-year.
The insurance result improved by 8.8% although it was negatively affected by
one-off items. Pressure on investment income and higher expenses resulted in
lower life results in the Netherlands. The life operations in Belgium and
Poland, however, performed well. The non-life results on the home markets in the
Netherlands and Belgium developed very favourably. Operating profit before tax
from the newly included asset management businesses showed a strong increase of
38.8% to EUR 336 million.
ING Direct continued its excellent performance. An operating loss before tax of
EUR 48 million in 2002 was turned into an operating profit before tax of EUR 151
million this year. The main drivers of this success were the interest result as
well as the increasing number of customers and funds entrusted. The operations
in Canada, Australia, USA, Spain and Germany reported profits.
---------------------------------------------------------------------------------------------------------------
TABLE 12. ING DIRECT NUMBER OF CLIENTS FUNDS ENTRUSTED
x 1,000 in EUR x billion
Year-end YEAR- Year-end YEAR-
2002 END % 2002 END %
2003 change 2003 change
*As from August 2003 including Entrium
---------------------------------------------------------------------------------------------------------------
Canada 684 905 32.3 5.1 7.0 37.3
Spain 610 753 23.4 6.0 7.9 31.7
Australia 475 719 51.4 4.1 6.9 68.3
France 270 339 25.6 6.3 7.6 20.6
USA 864 1,399 61.9 8.9 12.8 43.8
Italy 244 379 55.3 4.5 7.6 68.9
UK 305 11.5
Germany* 1,894 3,735 97.2 20.3 38.1 87.7
----- ----- ---- ----
TOTAL 5,041 8,534 69.3 55.2 99.4 80.1
---------------------------------------------------------------------------------------------------------------
Page 20 of 36
ING AMERICAS
ING Americas achieved operating performance of EUR 1,086 billion (+4.1%).
Excluding the impact of currency hedge gain, exchange rates and one-off items,
operating profit before tax increased 28.9% over the prior year to EUR 905
million. Performance was driven by the improving economy, lower credit related
investment losses, an increase in assets under management and strong
underwriting and premium growth in the Canadian property and casualty business.
Operating profit before tax was reduced by the impact of lower interest rates
causing margin compression and lower fixed annuity sales as well as unfavourable
mortality in the reinsurance business. Growth in the property and casualty
businesses and higher benefit costs combined with one-time US costs increased
total expenses 2.9% over 2002. Excluding the US one-time costs, total expenses
increased only 1.1%.
The currency hedge program contributed EUR 138 million compared to EUR 85
million reported a year ago. The stronger euro had an unfavourable impact of EUR
150 million on ING Americas results. One-off items for 2003 include a fourth
quarter gain associated with the divestment of the Seguros Bital joint venture
in Mexico. One-off items in 2002 totalled EUR 106 million related to the release
of contingent provisions from prior acquisitions.
ING ASIA/PACIFIC
ING Asia/Pacific reported a 18.9% increase in operating profit before tax,
excluding a one-off gain of EUR 222 million in 2002 from the transaction with
ANZ. Including that gain, operating profit before tax was down 24.9% to EUR 453
million. Higher earnings were driven by the life and non-life businesses in
Australia and the life operations in Korea and Japan. Offsetting these positive
developments was the lower attributable result from the shareholdings in the two
banks that form part of ING Asia/Pacific. ING also sold its share of the AnShin
Card Services Company (Taiwan) in July 2003 and the life business in Indonesia
in November 2003 to put more emphasis on its core activities in Asia. As in
2002, ING Asia/Pacific generated more than half of the total value of new
insurance business created by the group, indicating the strong future earnings
potential of the businesses in the region. The value of new business and profit
generation was particularly strong considering the difficult economic
environment in Asia in the first half of 2003, the effects of the low interest
rate environment and the appreciation of the euro.
OTHER
The result that is not included in either of the Executive Centres improved
mainly as a result of the unallocated one-off gain from old reinsurance
activities.
----------------
The accounting principles applied in this document correspond with those applied
in ING Group's Annual Accounts 2002.
Certain of the statements contained in this release are statements of future
expectations and other forward-looking statements. These expectations are based
on management's current views and assumptions and involve known and unknown
risks and uncertainties. Actual results, performance or events may differ
materially from those in such statements due to, among other things, (i) general
economic conditions, in particular economic conditions in ING's core markets,
(ii) performance of financial markets, including emerging markets, (iii) the
frequency and severity of insured loss events, (iv) mortality and morbidity
levels and trends, (v) persistency levels, (vi) interest rate levels, (vii)
currency exchange rates, (viii) general competitive factors, (ix) changes in
laws and regulations, and (x) changes in the policies of governments and/or
regulatory authorities. ING assumes no obligation to update any forward-looking
information contained in this document.
APPENDICES
1. Key figures
2. Consolidated profit and loss account 2003 vs. 2002
3. Consolidated profit and loss account, fourth quarter 2003 vs. 2002
4. Consolidated balance sheet and changes in shareholders' equity
5. Condensed consolidated statement of cash flows
6. Additional information: quarterly results, geographical breakdown, realised
capital gains on real estate and bank lending
7. Assets under management
8. Additional embedded value information
9. Consolidated balance sheet ING Verzekeringen N.V.
10. Consolidated balance sheet ING Bank N.V.
11. Information for shareholders
Page 21 of 36
APPENDIX 1. KEY FIGURES
1999 2000 2001 2002 2003
---------------------------------------------------------------------------------------------------------------
BALANCE SHEET (EUR x billion)
Total assets 493 650 705 716 779
Shareholders' equity 35 25 22 18 21
ASSETS UNDER MANAGEMENT (EUR x billion) 345 503 513 449 463
MARKET CAPITALISATION (EUR x billion) 58 83 57 32 39
OPERATING INCOME (EUR x million)
Insurance operations 29,079 37,452 62,464 64,917 57,560
Banking operations 9,876 11,302 11,111 11,201 11,680
OPERATING EXPENSES (EUR x million)
Insurance operations 3,799 5,023 5,583 5,203 4,897
Banking operations 7,291 8,273 8,186 8,298 8,184
ADDITIONS TO THE PROVISION FOR LOAN/INVESTMENT
LOSSES (EUR x million) 580 400 907 2,099 1,288
PROFIT (EUR x million)
Insurance operations 1,759 2,307 2,792 3,170 3,486
Banking operations 1,981 2,605 2,170 1,468 2,371
------ ------ ------ ------ ------
Operating profit before tax 3,740 4,912 4,962 4,638 5,857
Operating net profit 2,665 3,388 3,539 3,433 4,053
Net realised capital gains/losses 564 620 713 820 -10
Non-operating net profit 1,693 7,976 325 247
------ ------ ------ ------ ------
Net profit 4,922 11,984 4,577 4,500 4,043
Distributable net profit 3,537 4,901 4,252 4,253 4,043
FIGURES PER ORDINARY SHARE OF EUR 0.24 NOMINAL VALUE
Operating net profit 1.38 1.76 1.83 1.77 2.00
Net profit 2.56 6.27 2.37 2.32 2.00
Distributable net profit 1.84 2.56 2.20 2.20 2.00
Dividend 0.82 1.13 0.97 0.97 0.97
Shareholders' equity 17.90 13.04 11.03 9.14 10.08
RATIOS (in %)
ING Group
Operating return on equity (ROE) 8.4 10.3 15.3 17.4 21.5
Operating net profit growth 67 27 4 -3 18
Dividend pay-out ratio 44.4 43.9 44.1 44.1 48.5
Insurance operations
Combined ratio 107 104 103 102 98
Capital coverage ratio 509 235 180 169 180
Banking operations
BIS ratio ING Bank 10.38 10.75 10.57 10.98 11.34
Tier-1 ratio ING Bank 7.02 7.22 7.03 7.31 7.59
Efficiency ratio (1) 73.6 72.1 71.7 71.0 68.4
EMPLOYEES (average number) 86,040 92,650 112,000 113,060 115,200
(1) Excluding ING Direct
Page 22 of 36
APPENDIX 2. CONSOLIDATED PROFIT AND LOSS ACCOUNT 2003 VS. 2002
INSURANCE BANKING TOTAL* % CHANGE
OPERATIONS OPERATIONS
in EUR x million 2002 2003 2002 2003 2002 2003
-------------------------------------------------------------------------------------------------------------------------
Premium income 52,284 45,519 52,284 45,519 -12.9
Income from investments of the insurance
operations 10,506 9,721 10,433 9,503 -8.9
Interest result banking operations 7,646 8,115 7,702 8,166 6.0
Commission 1,345 1,313 2,615 2,464 3,960 3,777 -4.6
Other income 782 1,007 940 1,101 1,722 2,108 22.4
------ ------ ------ ------ ------ ------
TOTAL OPERATING INCOME 64,917 57,560 11,201 11,680 76,101 69,073 -9.2
Underwriting expenditure 54,575 47,723 54,575 47,723 -12.6
Other interest expenses 1,305 1,291 1,288 1,124 -12.7
Operating expenses 5,203 4,897 8,298 8,184 13,501 13,081 -3.1
Additions to the provision for loan
losses/investment losses** 664 163 1,435 1,125 2,099 1,288 -38.6
------ ------ ------ ------ ------ ------
TOTAL OPERATING EXPENDITURE 61,747 54,074 9,733 9,309 71,463 63,216 -11.5
OPERATING PROFIT BEFORE TAX 3,170 3,486 1,468 2,371 4,638 5,857 26.3
Taxation 540 861 333 599 873 1,460 67.2
Third-party interests 92 117 240 227 332 344 3.6
------ ------ ------ ------ ------ ------
OPERATING NET PROFIT 2,538 2,508 895 1,545 3,433 4,053 18.1
OPERATING NET PROFIT 2,538 2,508 895 1,545 3,433 4,053 18.1
Capital gains shares 820 -10 820 -10
Gain on joint-venture ANZ 247 247
------ ------ ------ ------
NET PROFIT 3,605 2,498 895 1,545 4,500 4,043 -10.2
* Including intercompany eliminations.
** In order to increase transparency, investment losses of the insurance operations are specified separately in the line
Addition to the provision for loan losses/investment losses. All figures have been restated accordingly.
Page 23 of 36
APPENDIX 3. CONSOLIDATED PROFIT AND LOSS ACCOUNT FOURTH QUARTER 2003 VS. 2002
INSURANCE BANKING TOTAL* % CHANGE
OPERATIONS OPERATIONS
in EUR x million FOURTH QUARTER FOURTH QUARTER FOURTH QUARTER
2002 2003 2002 2003 2002 2003
-----------------------------------------------------------------------------------------------------------------------
Premium income 12,573 11,352 12,573 11,352 -9.7
Income from investments of the insurance
operations 2,680 2,588 2,660 2,468 -7.2
Interest result banking operations 2,063 2,056 2,077 2,071 -0.3
Commission 314 335 622 654 936 989 5.7
Other income 185 297 -131 274 54 571 n.a.
------ ------ ----- ----- ------ ------
TOTAL OPERATING INCOME 15,752 14,572 2,554 2,984 18,300 17,451 -4.6
Underwriting expenditure 13,164 11,875 13,164 11,875 -9.8
Other interest expenses 373 340 367 235 -36.0
Operating expenses 1,271 1,339 1,933 2,192 3,204 3,531 10.2
Additions to the provision for loan
losses/investment losses** 172 8 510 270 682 278 -59.2
------ ------ ----- ----- ------ ------
TOTAL OPERATING EXPENDITURE 14,980 13,562 2,443 2,462 17,417 15,919 -8.6
OPERATING PROFIT BEFORE TAX 772 1,010 111 522 883 1,532 73.5
Taxation 75 277 3 102 78 379 n.a.
Third-party interests 22 35 63 77 85 112 31.8
------ ------ ----- ----- ------ ------
OPERATING NET PROFIT 675 698 45 343 720 1,041 44.6
OPERATING NET PROFIT 675 698 45 343 720 1,041 44.6
Capital gains 202 -5 202 -5
------ ------ ------ ------
NET PROFIT 877 693 45 343 922 1,036 12.4
* Including inter-company eliminations.
** In order to increase transparency, investment losses of the insurance operations will be specified separately in the
line Addition to the provision for loan losses / investment losses. All figures have been restated accordingly.
Page 24 of 36
APPENDIX 4. CONSOLIDATED BALANCE SHEET ING GROEP N.V.
in EUR x million 31 DECEMBER 2002 31 DECEMBER 2003 % CHANGE
-----------------------------------------------------------------------------------------------
Assets
Tangible fixed assets 1,415 1,311 -7.3
Participating interests 2,883 3,167 9.9
Investments 297,581 335,003 12.6
Lending 284,448 292,556 2.9
Banks 45,682 61,060 33.7
Cash 11,421 11,738 2.8
Other assets 51,186 53,473 4.5
Accrued assets 21,754 20,463 -6.0
------- -------
TOTAL 716,370 778,771 8.7
Equity and liabilities
Shareholders' equity 18,254 21,331 16.9
Preference shares of Group companies 2,146 1,783 -16.9
Third-party interests 1,959 1,730 -11.7
------- -------
Group equity 22,359 24,844 11.1
Subordinated loan 2,412 3,252 34.8
------- -------
Group capital base 24,771 28,096 13.4
General provisions 3,489 2,740 -21.4
Insurance provisions 195,831 198,035 1.1
Funds entrusted to and debt securities of
the banking operations 319,824 377,824 18.1
Banks 96,267 102,115 6.1
Other liabilities 65,397 61,123 -6.5
Accrued liabilities 10,791 8,838 -18.1
------- -------
TOTAL 716,370 778,771 8.7
CHANGES IN SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY AS PER 31 DECEMBER 2001 / 2002 21,514 18,254
in EUR x million
Net profit 4,500 4,043
Revaluations (after tax) -3,444 335
Realised capital gains transferred to P&L account -1,040 10
Write-off of goodwill -1,176 -145
Exchange rate differences -1,041 -1,196
Exercise of warrants and stock options -2
Issue of shares 925
Changes in ING Groep N.V. shares held by group companies 822 50
Dividend paid -1,969 -943
Other 90 -2
------ ------
SHAREHOLDERS' EQUITY AS PER 31 DECEMBER 2002 / 2003 18,254 21,331
Page 25 of 36
APPENDIX 5. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
in EUR x million 2002 2003
--------------------------------------------------------------------------------
Net cash flow from operating activities 39,222 46,979
Investments and advances:
- participating interests -1,584 -658
- investments in shares and property -8,805 -6,599
- investments in fixed-interest securities -295,121 -326,438
- other investments -262 -507
Disposals and redemptions:
- participating interests 276 911
- investments in shares and property 11,361 8,377
- investments in fixed-interest securities 260,725 273,769
- other investments 41 158
Net investment for risk of policyholders 6,813 -14,571
-------- --------
Net cash flow from investing activities -26,556 -65,558
Subordinated loans of Group companies 3,651 1,181
Bonds, loans taken up and deposits by reinsurers 419 -221
Private placements of ordinary shares 438 44
Issue of shares 901
Changes in shares ING Groep N.V. 653 -5
Cash dividends -1,977 -927
-------- --------
Net cash flow from financing activities 3,184 973
Net cash flow 15,850 -17,606
Cash at beginning of year 4,681 21,031
Exchange rate differences 499 3,913
-------- --------
CASH AT END OF PERIOD 21,030 7,338
In this summary, cash comprises the following items:
Short-dated government paper 8,398 6,521
Banks, available on demand 1,211 -10,921
Cash and bank balances and call money 11,421 11,738
-------- --------
CASH AT END OF PERIOD 21,030 7,338
Page 26 of 36
APPENDIX 6. ADDITIONAL INFORMATION
QUARTERLY RESULTS*
2002 2002 2002 2002 2003 2003 2003 2003
in EUR x million Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
---------------------------------------------------------------------------------------------------------------------
Life 660 697 600 646 445 702 569 762
Non-life 120 154 167 126 167 382 211 248
----- ----- ----- ---- ----- ----- ----- -----
Total insurance operations 780 851 767 772 612 1,084 780 1,010
Total banking operations 546 537 274 111 596 614 639 522
----- ----- ----- ---- ----- ----- ----- -----
OPERATING PROFIT BEFORE TAX 1,326 1,388 1,041 883 1,208 1,698 1,419 1,532
OPERATING NET PROFIT 931 1,013 769 720 902 1,166 944 1,041
of which:
Insurance operations 582 661 620 675 504 761 545 698
Banking operations 349 352 149 45 398 405 399 343
OPERATING NET PROFIT PER ORDINARY SHARE 0.48 0.52 0.40 0.37 0.46 0.58 0.46 0.50
* Excluding capital gains/negative value adjustments shares and the gain on the joint venture with ANZ.
GEOGRAPHICAL BREAKDOWN OF OPERATING INCOME AND OPERATING PROFIT BEFORE TAX
OPERATING INCOME* OPERATING PROFIT BEFORE TAX
% %
in EUR x million 2002 2003 change 2002 2003 change
----------------------------------------------------------------------------------------------------------
The Netherlands 15,933 17,448 9.5 2,901 3,059 5.4
Belgium 4,684 4,959 5.9 687 587 -14.6
Rest of Europe 4,804 4,841 0.8 -156 215 n.a.
North America 37,482 29,882 -20.3 311 912 193.2
Latin America** 4,255 3,070 -27.8 381 410 7.6
Asia 7,059 6,954 -1.5 283 318 12.4
Australia 2,275 2,024 -11.0 384 236 -38.5
Other 445 632 42.0 -153 120 n.a.
------ ------ ----- ----- ----- -----
76,937 69,810 -9.3 4,638 5,857 26.3
Income between areas -836 -737 n.a.
------ ------
TOTAL 76,101 69,073 -9.2 4,638 5,857 26.3
* After eliminations.
** Latin America = South America, including Mexico.
SPECIFICATION OF REALISED CAPITAL GAINS ON REAL ESTATE
%
in EUR x million 2002 2003 CHANGE
--------------------------------------------------------- -------------
Life insurance 331 469 41.7
Non-life insurance 22 8 -63.6
--- ---
Total before taxation 353 477 35.1
Taxation/third parties 133 156 17.3
--- ---
NET 220 321 45.9
Page 27 of 36
APPENDIX 6. ADDITIONAL INFORMATION (CONTINUED)
BANK LENDING
in EUR x billion 31 DECEMBER 2002 31 DECEMBER 2003 % CHANGE
--------------------------------------------------------------------------------
- Public authorities 14.2 14.9 4.9
- Other corporate 166.8 160.7 -3.7
----- -----
Total corporate 181.0 175.6 -3.0
- Mortgages 92.5 104.2 12.6
- Other personal 15.7 17.4 10.8
----- -----
Total personal 108.2 121.6 12.4
Provisions for bank lending -4.8 -4.6
TOTAL BANK LENDING 284.4 292.6 2.9
Page 28 of 36
APPENDIX 7. ASSETS UNDER MANAGEMENT
ASSETS UNDER MANAGEMENT BY CLIENT CATEGORY
in EUR x billion 31 DECEMBER 2002 31 DECEMBER 2003 % change
--------------------------------------------------------------------------------
Private clients 161.1 187.9 16.6
Institutional clients 128.9 125.6 -2.6
----- -----
Third parties 290.0 313.5 8.1
Internal clients 159.0 149.2 -6.2
----- -----
Total 449.0 462.7 3.1
Share of third parties 64.6% 67.8
ASSETS UNDER MANAGEMENT BY ASSET CLASS (Pie Chart)
31 December 2002 31 December 2003
--------------------------------------------------------------------------------
Equity 34% 35%
--------------------------------------------------------------------------------
Fixed Income 57% 51%
--------------------------------------------------------------------------------
Real Estate 6% 6%
--------------------------------------------------------------------------------
Cash 3% 8%
--------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT BY EXECUTIVE CENTRE
in EUR x billion 31 DECEMBER 2002 31 DECEMBER 2003 % change
------------------------------------------------------------------------------
EC Europe 235.1 252.6 7.4
EC Americas 176.6 167.0 -5.4
EC Asia/Pacific 37.3 43.1 15.5
----- -----
Total 449.0 462.7 3.1
Page 29 of 36
APPENDIX 8. ADDITIONAL EMBEDDED VALUE INFORMATION
NEW BUSINESS PRODUCTION AND VALUE BY REGION
The value of new life business written in 2003 was EUR 440 million, compared to
2002 level of EUR 519 million. The decrease is primarily due to lower sales and
lower pricing targets, which are attributable to lower interest rates. During
2003 ING invested EUR 1,479 million to write new life insurance business. The
overall rate of return expected on this investment is 10.9%. This compares to an
overall return of 11.5% in 2002. The expected internal rate of return in
developing markets is 15.3%.
VALUE OF NEW BUSINESS
-------------------------------------------------------------------------------------------------------------------
New production 2002 NEW PRODUCTION 2003
annual single IRR * value annual single IRR * value
premium premium in % premium premium in %
In EUR x million
-------------------------------------------------------------------------------------------------------------------
Americas 1,807 17,010 9.8 132 1,632 14,622 9.0 94
Asia/Pacific 1,109 1,737 15.4 280 985 1,588 14.7 252
Central Europe 165 150 12.8 26 122 58 14.7 29
Netherlands 191 909 8.6 12 161 1,220 8.0 11
South West Europe 72 1,789 19.0 69 58 1,836 19.1 55
----- ------ ---- --- ----- ------ ---
TOTAL 3,344 21,595 11.5 519 2,958 19,325 10.9 440
-------------------------------------------------------------------------------------------------------------------
* IRR = internal rate of return adjusted for expected currency movements
relative to the euro.
The value of new business fully reflects acquisition expense overruns, which
represent the excess of the costs of acquiring new business over the expense
allowances provided in product pricing. Such overruns may exist while new
operations are achieving scale, while several businesses are integrating into
one, or during a year when sales are lower than anticipated. During 2003,
after-tax acquisition expense overruns were EUR 78 million, compared to EUR 133
million in 2002. The overall internal rate of return for ING's life business is
11.7% excluding acquisition expense overruns.
EMBEDDED VALUE
EMBEDDED VALUE OF THE LIFE OPERATIONS
------------------------------------------------------------------------------
In EUR x million 2002 2003
------------------------------------------------------------------------------
Free surplus 1,526 2,500
Value of in-force business 21,753 19,223
------ ------
EMBEDDED VALUE 23,279 21,724
------------------------------------------------------------------------------
EMBEDDED VALUE PER EXECUTIVE/MANAGEMENT CENTRE
------------------------------------------------------------------------------
In EUR x million 2002 2003
------------------------------------------------------------------------------
ING Americas 9,122 8,304
ING Asia/Pacific 2,364 1,917
Central Europe 1,253 1,412
Netherlands 9,476 9,003
Southwest Europe 1,064 1,088
------ ------
EMBEDDED VALUE 23,279 21,724
------------------------------------------------------------------------------
The primary reason for the decline in the ING Americas embedded value is the
decline in the US dollar relative to the euro. For ING Asia/Pacific, currency
effects and changes to future assumed investment returns negatively impacted the
change in embedded value for 2003. Embedded value in the Netherlands was also
negatively impacted by lower future assumed investment returns.
Page 30 of 36
APPENDIX 8. ADDITIONAL EMBEDDED VALUE INFORMATION (CONTINUED)
MOVEMENT ANALYSIS
------------------------------------------------------------------------------
in EUR x million
------------------------------------------------------------------------------
REPORTED EMBEDDED VALUE 2002 23,279
Investment return on free surplus 386
Value of new business 440
Required return 1,642
Financial variances 64
Operational variances -56
Discount rate changes 556
Assumption changes -2,612
Currency effects -1,800
(Dividends) and capital injections -16
Other -161
------
ENDING EMBEDDED VALUE 2003 21,724
------------------------------------------------------------------------------
The major factors for each of these changes in 2003 are as follows:
o Investment income on free surplus of EUR 386 million primarily reflects
equity returns in the Netherlands.
o New sales in 2003 contributed EUR 440 million to the embedded value.
o The required return of EUR 1,642 million is the rollup of the discount rate
on the beginning value of inforce business and on the value of new
business.
o Financial variances in 2003 totalled EUR 64 million. Separate account
growth in the US and favourable equity returns in the Netherlands were
offset by unfavourable returns on fixed income securities in the
Netherlands.
o Operational variances reduced embedded value by EUR 56 million over 2003.
This is the net impact of mortality, morbidity, expense, persistency, and
other variances. There is no material single element in these variances.
o Assumption changes reduced value by EUR 2,612 million. Major assumption
changes included lower future investment returns in the Benelux, and also
lower future separate account growth rates in the US.
o Discount rates decreased to reflect ING's weighted average cost of capital.
This increased the embedded value by EUR 556 million.
The embedded value results are based on a single deterministic projection, which
means that a single view of the future is reflected in the reported embedded
value results. Deterministic projections may not fully reflect the cost
associated with financial options and guarantees within the life insurance
products.
Certain business units have included the cost of options and guarantees in the
reported results. The major businesses for which these costs are already
directly included are variable annuities with guaranteed benefits sold in the US
and Japan, Australia's life insurance business, and the majority of contracts in
the Benelux.
For the remaining business units, an estimate was made using stochastic testing
and other techniques in order to provide insight into these costs. The total
estimated additional reduction in value at 31 December 2003 relating to
financial options and guarantees is EUR 270 million. This cost is not included
in the reported embedded value, and Watson Wyatt has not reviewed the
determination of the EUR 270 million figure.
Page 31 of 36
APPENDIX 8. ADDITIONAL EMBEDDED VALUE INFORMATION (CONTINUED)
NEW BUSINESS PRODUCTION AND VALUE IN DEVELOPING MARKETS, BY REGION
--------------------------------------------------------------------------------------------------------------
New production 2002 NEW PRODUCTION 2003
in EUR x million annual single value IRR* annual single value IRR*
premium premium in% premium premium in %
--------------------------------------------------------------------------------------------------------------
Americas 20 175 - 8 5.5 49 77 -6 4.8
Asia/Pacific 811 59 228 16.9 681 142 204 16.9
Central Europe 132 52 21 12.4 107 53 24 13.9
--- --- --- --- --- ---
TOTAL 963 286 241 15.0 838 272 222 15.3
--------------------------------------------------------------------------------------------------------------
*IRR = internal rate of return adjusted for expected currency movements relative
to the euro.
The countries included as developing markets are:
- Americas: Argentina, Chile, Mexico;
- Asia/Pacific: China, Hong Kong, India, Korea, Malaysia, Thailand, Taiwan;
- Central Europe: Czech Republic, Hungary, Poland, Romania, Slovakia.
Note that Hong Kong was added in 2003, and the 2002 values have been updated to
reflect this.
INDEPENDENT OPINION
Watson Wyatt, an international actuarial consultancy firm, has reviewed the
methodology and assumptions used by ING in the calculation of the embedded value
of the life insurance business at 31 December 2003 and the value of new business
written during 2003. All material business units in the Americas, Asia/Pacific
and Europe were covered by the review.
Watson Wyatt has concluded that the methodology adopted is appropriate and that
the assumptions used are reasonable overall.
Watson Wyatt has performed limited high level checks on the results of the
calculations and has discovered no material issues. Watson Wyatt has not,
however, performed detailed checks on the models and processes used.
Page 32 of 36
APPENDIX 9. CONSOLIDATED BALANCE SHEET ING VERZEKERINGEN N.V.
in EUR x million 31 DECEMBER 2002 31 DECEMBER 2003 % CHANGE
--------------------------------------------------------------------------------
Assets
Tangible fixed assets 382 315 -17.5
Participating interests 1,143 1,590 39.1
Investments 214,807 216,228 0.7
Cash 3,221 1,848 -42.6
Other assets 8,652 7,935 -8.3
Accrued assets 13,605 12,668 -6.9
------- -------
TOTAL 241,810 240,584 -0.5
Equity and liabilities
Shareholders' equity 10,827 12,011 10.9
Third-party interests 1,163 1,187 2.1
Subordinated loans 2,727 2,647 -2.9
------- -------
Group equity 14,717 15,845 7.7
General provisions 2,197 1,665 -24.2
Insurance provisions 195,831 198,035 1.1
Other liabilities 27,355 23,973 -12.4
Accrued liabilities 1,710 1,066 -37.7
------- -------
TOTAL 241,810 240,584 -0.5
Page 33 of 36
APPENDIX 10. CONSOLIDATED BALANCE SHEET ING BANK N.V.*
%
in EUR x million 31 DECEMBER 2002 31 DECEMBER 2003 CHANGE
--------------------------------------------------------------------------------
Assets
Cash 8,782 10,135 15.4
Short-dated government paper 8,398 6,521 -22.4
Banks 45,682 61,060 33.7
Loans and advances 284,638 293,987 3.3
Interest-bearing securities 99,994 140,032 40.0
Shares 8,020 8,882 10.7
Other participating interests 1,845 1,613 -12.6
Property and equipment 6,184 5,720 -7.5
Other assets 5,919 4,581 -22.6
Accrued assets 7,649 9,063 18.5
------- -------
TOTAL 477,111 541,594 13.5
Equity and liabilities
Banks 96,267 102,115 6.1
Funds entrusted 247,115 307,793 24.6
Debt securities 75,493 72,372 -4.1
Other liabilities 17,636 17,400 -1.3
Accrued liabilities 8,759 8,815 0.6
General provisions 1,597 1,412 -11.6
------- -------
446,867 509,907 14.1
Fund for general banking risks 1,233 1,281 3.9
Subordinated liabilities 13,175 14,516 10.2
Shareholders' equity 14,664 14,868 1.4
Third-party interests 744 553 -25.7
Capital and reserves of Stichting Regio Bank 428 469 9.6
------- -------
Group equity 15,836 15,890 0.3
Group capital base 30,244 31,687 4.8
------- -------
TOTAL 477,111 541,594 13.5
* The accounting principles applied in this balance sheet correspond with those
applied in ING Bank N.V.'s Annual Accounts 2003.
Page 34 of 36
APPENDIX 11. INFORMATION FOR SHAREHOLDERS
SHARES AND WARRANTS
The average number of shares used for the calculation of net profit per share
for 2003, was 2,014.4 million (1,928.0 million for 2002). The number of
(depositary receipts for) ordinary shares of EUR 0.24 nominal value outstanding
at the end of December 2003 was 2,115.9 million (including 28.1 million own
shares to cover outstanding options for ING personnel). The number of
(depositary receipts for) "A" preference shares of EUR 1.20 nominal value
outstanding at the end of December 2003 was 87.1 million. Until 1 January 2004,
the dividend on these preference shares will amount to EUR 0.2405. The dividend
percentage for the period from 1 January, 2004 to 1 January 2014 has been set at
4.65%. The dividend will amount to EUR 0.1582 per year until 1 January 2014. The
adjusted dividend will be paid for the first time in 2005
On 5 January 1998, 17.2 million ING Group warrants B were issued. With an
additional payment of the exercise price of EUR 49.92 one warrant B entitles the
holder to two ING Group depositary receipts up to 5 January 2008. The number of
warrants B outstanding at the end of December 2003 was 17.2 million.
In 2003, the turnover of (depositary receipts for) ordinary shares on the
Euronext Amsterdam Stock Market was 2,863.5 million (purchases and sales). The
highest closing price was EUR 19.06, the lowest EUR 8.70; the closing price at
the end of December 2003 was EUR 18.49.
LISTING
The (depositary receipts for) ordinary shares ING Group are quoted on the
exchanges of Amsterdam, Brussels, Frankfurt, Paris, New York (NYSE) and the
Swiss exchange. The (depositary receipts for) preference shares and warrants B
are quoted on the Euronext Amsterdam Stock Market. Warrants B are also quoted on
the exchange of Brussels. Options on (depositary receipts for) ordinary shares
ING Group are traded at the Euronext Amsterdam Derivative Markets and the
Chicago Board Options Exchange.
RATING
ING Groep N.V. and ING Verzekeringen N.V. were downgraded by Standard & Poor's
from AA- to A+ with a stable outlook on 21 November 2002. Moody's downgraded ING
Groep N.V. and ING Verzekeringen N.V. from Aa2 to Aa3 on 8 April 2003. Both
Moody's and Standard & Poor's reconfirmed the rating (respectively Aa2 and AA-
with a stable outlook) for ING Bank N.V. in the reporting year.
IMPORTANT DATES IN 2004*:
o 15 March 2004: publication Annual Report 2003 on the Internet
o 24 March 2004: publication Annual Report 2003
o 27 April 2004: Annual General Meeting of Shareholders, Circustheater,
The Hague
o 13 May 2004: publication results first three months 2004
o 5 August 2004: publication results first six months 2004
o 4 November 2004: publication results first nine months 2004
* All dates shown are provisional.
Page 35 of 36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ING Groep N.V.
(Registrant)
By: /s/ H. van Barneveld
---------------------
H. van Barneveld
General Manager Corporate Control & Finance
By: /s/C.F. Drabbe
---------------------
C.F. Drabbe
Assistant General Counsel
Dated: February 19, 2004
Page 36 of 36