Group results
Total net profit rose by 20.1% to EUR 9,241 million. Underlying net profit, which is defined as total net profit excluding the impact of divestments and special items, rose by 19.4% to EUR 9,172 million, including the net gain on the sale of stakes in ABN AMRO and Numico of EUR 2,087 million. Earnings per share (EPS) rose to EUR 4.32 from EUR 3.57. Underlying profit before tax rose by 12.4%. The high tax exempt gains on equity investments resulted in a reduction in the effective tax rate from 19.2% in 2006 to 13.9% in 2007.
Robust commercial growth
Although the turmoil in credit markets in the second half of 2007 made the business environment even more challenging, the commercial growth remained robust, both in insurance as well as in banking. The life insurance business in developing markets showed strong sales, reflected in a rise of 57.3% in the value of new business and of 23.1% in new sales (annual premium equivalent ‘APE’). ING Direct attracted almost 2.8 million new customers in 2007. Residential mortgages grew from EUR 69 billion, end of 2006, to EUR 97 billion, end of 2007. Total funds entrusted decreased EUR 4.4 billion due to a decrease in the UK of EUR 14 billion. At ING Direct UK measures are taken to reposition the business, among others targeting for less rate-sensitive clients. Growth in mature markets is shown in the Benelux, where loans and advances to customers increased by EUR 39 billion, of which EUR 12 billion came from the transfer of mortgages from Nationale-Nederlanden.
Improved returns
ING focuses on balancing growth and returns to maximise value creation. Efficient capital allocation and pricing discipline received continued attention. The underlying after-tax risk-adjusted return on capital (RAROC) of the Banking operations improved to 22.3% from 20.5%, reflecting lower tax charges. The internal rate of return on new life insurance sales improved from 13.3% in 2006 to 14.3% in 2007.
Expenses under control
Investing in profitable and sustainable future growth is a priority for ING. Operating expenses remained under control, with continued investments in new growth initiatives. Total operating expenses increased by 7.8% and underlying operating expenses (i.e. excluding the impact of divestments and special items) grew by 5.9%. The underlying cost/income ratio within the bank deteriorated to 65.2% from 63.5% in 2006, as a result of the investments in growth businesses. On the insurance side, expenses related to traditional life products increased to 14.3% from 13.3% in 2006, measured as a percentage of gross premiums, mainly due to investments in growth in Central Europe and Asia/Pacific. Expenses related to asset driven insurance products rose to 0.76% from 0.75%, as a percentage of assets under management.
Attractive increase in dividend
At the annual General Meeting of Shareholders on 22 April 2008, ING will propose a total dividend for 2007 of EUR 1.48 per (depositary receipt for an) ordinary share, up from EUR 1.32 in 2006. Taking into account the interim dividend of EUR 0.66 made payable in August 2007, the final dividend will amount to EUR 0.82 to be paid fully in cash. ING’s shares will be quoted ex-dividend as of 24 April 2008 and the dividend will be paid on 5 May 2008 (NYSE Euronext) and 12 May, 2008 (NYSE) respectively.
Strong capital position
The capital position of ING Group remained robust during 2007. All major capital ratios met their target as at year-end 2007. The debt/equity ratio of ING Group increased to 9.53% compared with 9.01% at the end of 2006. The debt/equity ratio of Insurance ended the year at 13.63% slightly down from 14.15% at year-end 2006. The Tier-1 ratio of ING Bank stood at 7.39% at the end of 2007, down from 7.63%. The solvency ratio (BIS ratio for the bank) decreased from 11.02% to 10.32%. The Tier-1 ratio under Basel II as of 1 January 2008 is approximately 9.9% and the BIS ratio is approximately 13.8%. These numbers are preliminary as ING Bank will only report under Basel II as of the first quarter of 2008. The target Tier-1 ratio for ING Bank will remain unchanged at 7.20% under Basel II. ING looks increasingly at available financial resources (AFR) and economic capital (EC) employed when managing capital. The target is that ING Group AFR should be at least 120% of ING Group EC. AFR Group at year-end was EUR 49.7 billion compared to EC Group of EUR 36.0 billion after diversification, resulting in an AFR/EC Group ratio of 138%.
Share buy-back
ING’s EUR 5.0 billion share buy-back is continuing on track and is expected to be completed by June 2008. At the end of December 2007, 55.9% of the buy-back had been completed. The shares that have been repurchased are held in treasury until shareholder approval is gained to cancel those shares.
Divestments and special items
Divestments resulted in a gain after tax of EUR 407 million in 2007 compared with a loss of EUR 85 million in 2006. The impact from operations from divested units on total profit after tax in 2007 was EUR 32 million, versus EUR 96 million a year earlier. Special items in 2007 of EUR 369 million were related to restructuring provisions in Wholesale and Retail Banking, the provision for combining ING Bank and Postbank and the hedge on the purchase price of Oyak Bank. The impact from divestments and special items is excluded in the underlying profit.
