All major country units contributed to strong growth in earnings
Income before realized gains and losses on shares and real estate increased 36% to EUR 1,378 million (46% at constant exchange rates)
Net income increased to EUR 1,238 million compared to EUR 764 million in 2003
Revenue generating investments amounted to EUR 306 billion, an increase of 8% from the beginning of 2004
Today, Aegon reported higher results for the first nine months of 2004 demonstrating its continued focus on profitable growth and commitment to its core businesses in life, pensions, savings and investment products. During the first nine months, Aegon expanded its activities by establishing new operations and distribution agreements in both existing and newly developing markets. In Spain, the partnership with CAM has made an encouraging start. The activities in Slovakia have shown a promising first year and Aegon has just launched a pension fund company to broaden its activities. The national cooperation agreement with the Agricultural Bank of China, which was announced recently, is an important step in enhancing the multi-channel distribution platform in China. In addition, Aegon sold the majority of the non-core Transamerica Finance Corporation (TFC) businesses, in early 2004 and late 2003, and recently closed the sale of TFC's maritime container leasing company. Aegon expects to sell TFC's European trailer leasing business by the end of 2004.
"Aegon's strong nine-months earnings demonstrate our commitment to managing our business for profitability, maintaining our franchise value and delivering products that serve evolving customer needs", said Aegon's Chairman of the Executive Board Donald J. Shepard. "This strategy has yielded profitable growth in all of our major country units."
Note: 2003 financial data have been adjusted for the change in accounting principles related to the discontinuance of the indirect income method for recognizing gains and losses on shares and real estate and the adoption of SOP 03-1. For details, please refer to page 21 and 22 of the full press release and/or to our Q1 2004 earnings release for a reconciliation of 'as reported' to 'as adjusted'. Included in this report are financial measures, pre-tax as well as after-tax, that exclude realized gains and losses on shares and real estate. Net income before realized gains and losses on shares and real estate is a non-GAAP measure. Management uses this non-GAAP measure, in addition to GAAP measures, as an indicator of Aegon's financial performance and believes that the presentation of this measure provides useful and important information to analysts and investors. This non-GAAP measure should be seen as part of a range of supplementary measures, that assist in achieving greater transparency and understanding of insurance reporting and can help investors and analysts in comparing Aegon with its peers. Reconciliation of this measure to the most comparable GAAP measure is provided on page 23 of the full press release.
Income before realized gains and losses on shares and real estate increased 36% to EUR 1,378 million for the first nine months of 2004 (46% on a constant currency exchange rate basis). All country units contributed favorably to the increase, which, compared to the same period in the prior year, was positively influenced by improved credit and equity markets, higher product spreads and an increasing in-force block of business.
Net income before realized gains and losses on shares and real estate increased 4% to EUR 976 million for the first nine months of 2004 (13% on a constant currency exchange rate basis). The increase reflects the strong contribution to earnings by Aegon's country units, which more than offset the lower income from Transamerica Finance Corporation (a net loss of EUR 19 million compared to a net profit of EUR 212 million for the first nine months of 2003). Net income, which includes realized gains and losses on shares and real estate, increased to EUR 1,238 million for the first nine months of 2004.
Commissions and expenses increased 13% to EUR 4,323 million for the first nine months of 2004. Total operating expenses were 12% higher than in the same period last year at EUR 2,300 million. When adjusting for the consolidation of the remaining TFC activities, operating expenses were slightly lower (4% higher on a constant currency exchange basis). This includes additional employee pension expense, post retirement benefits costs and increased regulatory and compliance costs. Expense management remains an integral part of Aegon's strategy to focus on profitability.
In the Americas, income before realized gains and losses on shares and real estate increased by 37% to USD 1,463 million (EUR 1,194 million). The Americas represented 66% of income generated by the country units. The main factors driving the improvement in results were lower bond defaults, improved equity markets and increased product spreads relative to the first nine months of last year.
Standardized new life production increased 5% to USD 784 million (EUR 640 million) during the first nine months on a comparable basis to the same period in 2003. Standardized new life production in the first nine months of 2004 was particularly strong in traditional life products sold through the agency channel and in the reinsurance operations. This was partly offset by lower Company-Owned Life Insurance sales.
In the Netherlands, income before realized gains and losses on shares and real estate rose 35% to EUR 263 million compared to EUR 195 million in the same period last year. The Netherlands represented 22% of income generated by the country units. The increase in income before realized gains and losses on shares and real estate in the Netherlands was primarily driven by higher interest results. Standardized new life production was 19% lower than in the comparable period last year.
In the United Kingdom, income before realized gains and losses on shares and real estate increased 20% to GBP 110 million (EUR 163 million). The UK represented 8% of income generated by the country units. The increase in earnings mainly reflects higher policy fee income, related to an average 13% higher FTSE level in the first nine months of 2004 compared to the same period in 2003. Standardized new life production increased 5% to GBP 493 million (EUR 734 million). This reflects growth in the core individual and group pensions businesses, partly offset by a fall in asset management institutional sales.
Income before realized gains and losses on shares and real estate in Other countries increased 39% to EUR 85 million and represented 4% of income generated by the country units. The increase in earnings reflects strong improvements in both life and non-life insurance, particularly in Spain.
Shareholders' equity at September 30, 2004, amounted to EUR 15,025 million, an increase of EUR 1,058 million compared to December 31, 2003. At September 30, 2004, shareholders' equity represented 72% of Aegon's total capital base, which exceeds the target of at least 70%. In July of 2004, Aegon successfully completed the issuance of EUR 500 million and USD 250 million in Perpetual Capital Securities. This issue was reopened and the amount outstanding was increased to EUR 950 million and USD 500 million in October 2004. The proceeds of the issue will be used to refinance maturing senior debt. These transactions further strengthen the quality of Aegon's capital base.
Local currencies and constant currency exchange rates
This press release contains certain information about our results and financial condition in USD for the Americas and in GBP for the United Kingdom because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about us presented in euro, which is the currency of our primary financial statements.