Throughout the preceding year, we have continued to focus on profitably growing our core lines of business and we are particularly pleased that all of Aegon's major country units contributed to the improved results for 2004.
- Income before realized gains and losses on shares and real estate increased 22% to EUR 1,783 million (30% at constant exchange rates)
- Net income increased to EUR 1,663 million compared to EUR 1,033 million in 2003
- Proposed final dividend of EUR 0.21, a 5% increase
"Throughout the preceding year, we have continued to focus on profitably growing our core lines of business and we are particularly pleased that all of Aegon's major country units contributed to the improved results for 2004. The more favorable economic environment has enhanced the growth prospects for our business. Aegon improved its capital strength over the last year and further expanded its broad multi-channel distribution capabilities. We are confident that Aegon's companies throughout the Americas, Europe and Asia are well-positioned to serve the developing needs of our customers", said Aegon's Chairman of the Executive Board Donald J. Shepard.
Aegon reported higher results for the year 2004, driven by a broad-based improvement in profitability across the entire group. During the past year, Aegon's core operations were strengthened by new distribution agreements and enhanced strategic cooperations. Examples of this include the successful start of the partnership with Caja de Ahorros del Mediterráneo in Spain, the national cooperation agreement with the Agricultural Bank of China and the expansion of the activities and partnership in France through the increased stake in La Mondiale Participations. In line with Aegon's commitment to its core business, Aegon concluded the divestiture of the non-core Transamerica Finance Corporation (TFC) operations. During the year, the largest part of the remaining businesses, the finance and container leasing operations, were sold. With the recent announcement of the signing of the agreement for the sale of the European trailer business this disposal program will be completed.
View the Highlights Q4 2004.
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 the full press release and/or to our Q1 2004 earnings release for a reconciliation of ‘as reported’ to ‘as adjusted’.
In 2004, standardized new life production showed an increase in the Americas, particularly reflecting ongoing growth in the agency channel and expanded relationships with banks. Life production in the United Kingdom also increased, demonstrating consistent growth in the core pension business. During the fourth quarter, life production in the Netherlands and Taiwan showed marked improvement over the previous quarters of the year, although it did not keep pace with 2003 levels. Variable annuity production in the Americas showed similar improvement in the fourth quarter.
The Executive Board will propose a 2004 dividend of EUR 0.42 per common share, representing a 5% increase compared to the prior year. Taking into consideration the interim dividend paid in September 2004, the proposed final dividend amounts to EUR 0.21 per common share. This reflects the improvement in cash flows from the business, Aegon's continued capital strength and confidence in its business.
Income before realized gains and losses on shares and real estate increased 22% to EUR 1,783 million in 2004 (30% on a constant currency exchange rate basis). The increase, to which all major country units contributed, mainly reflects improved credit and equity markets and actions taken by management to improve product spreads and overall profitability. Income before realized gains and losses on shares and real estate in the fourth quarter of 2004, which includes a one-off charge totaling EUR 64 million (USD 80 million) related to reinsurance business in the US, decreased by 10% to EUR 405 million when compared to EUR 449 million in the same period in 2003. The decline primarily reflects exchange rate differences and the results from TFC, which has been consolidated as of the beginning of 2004.
Net income before realized gains and losses on shares and real estate and before exceptional items increased 9% to EUR 1,386 million in 2004 (17% on a constant currency basis). This increase reflects considerable improvement in results from Aegon's country units, more than offsetting the lower income from the TFC operations that remained in 2004 (a net loss of EUR 20 million compared to a net profit of EUR 218 million in 2003). Net income, which includes realized gains and losses on shares and real estate and an EUR 218 million exceptional charge, increased to EUR 1,663 million compared to EUR 1,033 million in 2003. The exceptional charge relates to the agreement with Dexia that resolved the dispute over the sale of Labouchere to Dexia in 2000. The effective tax rate declined to 24% in 2004 from 32% in 2003 primarily reflecting higher realized gains on tax preferred investments in the Netherlands and a one-time reduction in taxes in the United States.
Commission and expenses increased 8% to EUR 5,756 million in 2004. Total operating expenses were 10% higher than in 2003 at EUR 3,111 million. However, EUR 291 million of the increase was caused by the consolidation of the remaining TFC activities in 2004. Excluding this effect, operating expenses were level with 2003 (5% higher on a constant currency exchange rate basis). The main factors impacting expenses include, additional employee pension expense, post retirement benefits costs and increased regulatory and compliance costs, offset by expense savings in operating units.
Revenue generating investments amounted to EUR 296 billion on December 31, 2004. This represents an increase of 4% over the prior year. At constant currency exchange rates the increase amounted to 9%.
In the Americas, income before realized gains and losses on shares and real estate increased by 29% to USD 1,931 million (EUR 1,553 million). The Americas represented 69% of income before realized gains and losses on shares and real estate generated by the country units. Driving the improvement were lower bond defaults, improved equity markets and improved product spreads. Standardized new life production increased 5% to USD 1,087 million (EUR 874 million) on a comparable basis to 2003.
In the Netherlands, income before realized gains and losses on shares and real estate rose 16% to EUR 352 million. The Netherlands represented 16% of income before realized gains and losses on shares and real estate generated by the country units. The increase in earnings in the Netherlands is primarily driven by lower additions to provisions for guarantees and financial risks and higher technical results. Standardized new life production decreased 17% to EUR 227 million.
In the United Kingdom, income before realized gains and losses on shares and real estate increased 16% to GBP 151 million (EUR 222 million). The UK represented 10% of income before realized gains and losses on shares and real estate generated by the country units. The increase in earnings primarily reflects higher policy fee income related to an average 12% higher FTSE level compared to 2003. Standardized new life production increased 4% to GBP 662 million (EUR 976 million), reflecting the consistent growth achieved in the pensions business, partially offset by lower asset management institutional sales.
Income before realized gains and losses on shares and real estate in Other countries increased 43% to EUR 109 million. Other countries represented 5% of income before realized gains and losses on shares and real estate generated by the country units. The increase in earnings primarily reflects a strong improvement in non-life insurance results in Spain.
Shareholders' equity at December 31, 2004, amounted to EUR 14,413 million, an increase of EUR 466 million compared to December 31, 2003. At December 31, 2004, shareholders' equity represented 72% of Aegon's total capital base, exceeding the target of at least 70%. The quality of Aegon's capital base was further strengthened in 2004 by the issuance of EUR 950 million and USD 500 million in Junior Perpetual Capital Securities, the proceeds of which were used to refinance senior debt.