Registered principal office: 25, Avenue Matignon - 75008 Paris Registered with the Paris Trade and Company Registry under number 572.093.920 RCS Paris
• Selective acquisition strategy delivering results - MONY integration well on track - Advest sale reduces MONY goodwill by 31% and should strongly enhance returns - Recent acquisitions of Framlington and Seguro Directo should further complement the growth potential of AXA Investment Managers and AXA Portugal 1 At constant exchange rates 2 At constant scope and exchange rates 3 At constant scope and exchange rates 4 Excluding AC Cash Management Services 5 At constant exchange rates 6 Including, fair value of invested assets recorded through shareholders’ equity, unrealized gains on Alliance Capital and unrealized gains on loans and real estate which are not recorded in shareholders’ equity
LIFE & SAVINGS. Life & Savings underlying earnings increased by 22%, to Euro 972 million, notably driven by fees & revenues and technical margin, which more than compensated for a continued low interest rate environment. As expected, the US benefited from Euro 61 million incremental earnings stemming from the MONY acquisition. Japan's underlying earnings included non recurring elements for a net impact of Euro 47 million including a positive tax impact (Euro 188 million) reflecting the improvement in recoverability of tax losses carried forward, partly offset by additional VBI9 and DAC10 amortization due to a change in future investment assumptions (Euro -136 million). In addition to these elements, the main contributors to the Life & Savings' strong performance were France and the US.
Life & Savings operations (€+43 million to €41 million) were positively impacted by: • Higher profit and loss on change in fair value of underlying assets within consolidated mutual funds accounted for under fair value option (€+16 million), of which €+11 million in France
(iv) Partly offset by lower result of exceptional operations (€-99 million to €27 million) Half-Year 2005 exceptional operations (€27 million) related to the realized capital gains on the sale of AXA Assistance participation in CAS (€23 million), of Alliance Capital Cash Management activity (€3 million - €9 million before tax and minority interest), and of BIA in AXA Bank Belgium (€2 million).
Exceptional operations (including discontinued operations) 0 -7 Goodwill and other related intangible impacts -4 0 NET INCOME 1 223 975 (a) before intercompany transactions
Fees and revenues increased by €45 million or €49 million on a constant exchange rate basis to €212 million, due to (i) €33 million increase in loadings on premiums on life and pension products mainly
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 40 -27
Income tax decreased by €11 million both on current and constant exchange rate basis to a tax benefit of €15 million, partly due to lower taxable profits and partly due to differing profit profiles by entity.
Net income increased by €27 million, or €36 million at constant exchange rate, to €236 million following the improvement in adjusted earnings by €43 million partly offset by a €7 million decrease of gains on fair valued invested assets in 2005 (€27 million in 2005 versus €22 million in 2004, before tax, DAC and VBI reactivity and minority interests).
Underlying investment margin 61 64 Underlying fees & revenues 68 61 Underlying technical margin 25 21 Underlying expenses -90 -94 Underlying amortization of VBI -1 -1 Underlying operating earnings before tax 64 51 Underlying income tax expenses / benefits -21 -10 Minority interests 0 0 Underlying earnings group share 42 41 Net capital gains attributable to shareholders net of income tax 21 55 Adjusted earnings group share 63 95 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 1 -7
Adjusted earnings decreased by €32 million to €63 million mainly driven by reduced capital gains (€-34 million to €21 million).
UNDERLYING EARNINGS 92 97 Net realized capital gains attributable to shareholders 13 4
Adjusted earnings and net income decreased by €3 million on a constant exchange rate basis to €39 million as a result of the reduction in underlying earnings (€-1 million) and in net capital gains (€-3 million to €2 million) following the increase in the corporate spread for the US corporate bonds.
Underlying earnings increased by €16 million in 2005 to €161 million, driven by an improved combined ratio and a higher investment income.
TOTAL 1 142 730 Intercompany transactions -2 0 Contribution to consolidated gross revenues 1 139 730
Expense ratio improved by 0.8 point to 29.0% due to lower contingent commissions paid to brokers partly offset by increased employee expenses.
Underlying earnings increased by €3 million to €13 million thanks to higher dividend income from the equity portfolio and a slight improvement of the combined ratio (-0.3 point at 101.0%).
Underlying operating earnings before tax 82 86 111 Underlying income tax expenses / benefits -28 -11 -23 Underlying earnings net of tax 54 75 87 Net income from investment in affiliates and associates 1 0 1
UNDERLYING EARNINGS 154 123 Net realized capital gains attributable to shareholders 5 2
Tax expenses increased by €7 million, broadly in line with the growth in taxable earnings.
The tables below present the revenues and the net income for the Other Financial Services segment for the periods indicated: HY HY (in euro million) 2005 2004 AXA Banque (France) 53 41 AXA Bank (Germany) 14 14 AXA Bank (Belgium) 164 140 Other 2 8
In the first half of 2005, the Group demonstrated its capacity to deliver very strong earnings growth in Life & Savings, Property & Casualty and Asset Management. Management currently expects the financial market environment to remain good for Life & Savings and Asset Management, and more particularly for higher margin unit-linked products in a context of low interest rates.
Underlying Operating earnings before tax corresponds to the income derived from operations, before tax, minority interest, and goodwill and other related intangible impact.
Net technical margin includes: (i) Earned premiums, net of reinsurance (cession / retrocession and covers) (ii) Claims charge all accident years, net of reinsurance, including major losses, (iii) Commissions (fixed commissions, sliding scale commissions as well as profit commissions),
1.2.4. Report of Independent Auditors on the limited review of interim financial statements
The Management Board of AXA (following a meeting of the Supervisory Board) and the Board of Directors of FINAXA met on June 29, 2005 and approved the terms and conditions of the merger of FINAXA into AXA.
30 These mergers aim at simplifying the completion of the capital reduction of AXA that will take place after the AXA-FINAXA merger.
Life & Savings new business increased by 8% to Euro 3,770 million driven by all of our major operations with the only exception of Germany. Unit-linked new business increased by 17% to represent 45% of total Life & Savings APE, compared to 43% in the first nine months of 2004.
Chairman or director of various companies 1982 – 1987 Chairman and Chief Executive Officer of Compagnie Financière
Mme Dominique Reiniche 1978 – 1981 Assistant Product Manager - Procter & Gamble 1981 – 1983 Product Manager - Procter & Gamble 1983 – 1986 Associate Advertising Manager - Procter & Gamble 1986 – 1992 Marketing & Strategy Manager – Kraft Jacobs Suchard 1992 – 1994 Marketing & Responsable "Compte-clé" Manager – Coca-Cola Entreprise 1994 – 1997 Commercial & Operational Marketing Manager – Coca-Cola Entreprise 1997 – 1998 Assistant Chief Executive Officer – Coca-Cola Entreprise 1998 – 2002 Chairman and Chief Executive Officer – Coca-Cola Entreprise 2002 – 2003 Vice-Chairman of Coca Cola Enterprises – Europe Group Since January 2003 Chairman of Coca-Cola Enterprises – Groupe Europe
Ezra Suleiman Professor of Politics and Chair of the Committee for European Studies, Princeton University (US)
48 Special indicator – see method of calculation on p. 79
Except as disclosed in this update of the Annual report and/or in the 2004 Annual Report, neither the Company nor any of its consolidated subsidiaries is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) in the 12 months preceding the date of this document which may have, or in such period have had, a significant effect on the financial position or profitability of the Company and/or the Group.
The financial information contained in this update is discussed in a report issued by the statutory auditors and reprinted on page 86.
PRICEWATERHOUSECOOPERS AUDIT: 63, rue de Villiers – 92208 Neuilly-sur-Seine, represented by Yves Nicolas and Eric Dupont, first appointed on February 28, 1989. The current appointment is for a term of 6 years, until the annual general meeting of the shareholders called to approve the financial statements for the fiscal year 2005.
Jean Louis Simon : 39, rue de Wattignies – 75012 Paris, first appointed on April 21, 2004. The current appointment is for a period of 6 years, until the annual general meeting of the shareholders called to approve the financial statements for the fiscal year 2009.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT ............................................................... 3 NOTE 1 : FIRST TIME ADOPTION ......................................................................................................................................... 3 1.1. Impact of transition to IFRS..................................................................................................................................3 1.1.1. Accounting principles ..........................................................................................................................................................3 1.1.2. First Time application impacts at January 1st 2004 ..............................................................................................................3 1.1.3. First-time application impacts at June 30, 2004 and December 31, 2004 ............................................................................3 1.2. Full year 2004 IFRS information...........................................................................................................................3 1.2.1. Scope of consolidation .........................................................................................................................................................3 1.2.2. Segment information (statement of income and balance sheet) ...........................................................................................3 1.2.3. Goodwill ..............................................................................................................................................................................3 1.2.4. Value of purchased life business in force.............................................................................................................................3 1.2.5. Deferred acquisition costs and equivalent ............................................................................................................................3 1.2.6. Investments ..........................................................................................................................................................................3 1.2.7. Investments in associates (equity method) ...........................................................................................................................3 1.2.8. Receivables ..........................................................................................................................................................................3 1.2.9. Cash and cash equivalents....................................................................................................................................................3 1.2.10. Shareholders’ equity, minority interests and other equity...............................................................................................3 1.2.11. Liabilities arising from insurance and investment contracts ...........................................................................................3 1.2.12. Provisions for risks and charges......................................................................................................................................3 1.2.13. Financing debt ................................................................................................................................................................3 1.2.14. Other debts (excluding financing debts) .........................................................................................................................3 1.2.15. Tax..................................................................................................................................................................................3 1.2.16. Derivative instruments ....................................................................................................................................................3 1.2.17. Revenues by segment and net revenues from banking activities ....................................................................................3 1.2.18. Technical results by segment ..........................................................................................................................................3 1.2.19. Net investment result excluding financing expenses.......................................................................................................3 1.2.20. Net result of reinsurance ceded.......................................................................................................................................3 1.2.21. Financing debt expenses .................................................................................................................................................3 1.2.22. Expenses by type ............................................................................................................................................................3 1.2.23. Staff expenses .................................................................................................................................................................3 1.2.24. Consolidated statement of cash flows .............................................................................................................................3 1.2.25. Net income per ordinary share ........................................................................................................................................3 1.2.26. Related party transactions ...............................................................................................................................................3 1.2.27. Contingent assets and liabilities and unrecognized contractual commitments ................................................................3
Assets held for sale and relating to discontinued operations 193 62 0 0
Net cash related to sales and purchases of tangible and intangible assets (77) (41) Net cash provided by investing activities (7 974) (7 211)
Capital in excess of nominal value 25 25 Including Proceeds from shares issued - Equity - share based compensation (5) (5) Change in scope of consolidation (2) - - (0) - (2) 86 Treasury shares (12) (12) Equity component of compound financial instruments - Super subordinated debt 250 250 Accrued interests - Super subordinated debt (14) (14)
Note 1 : First time adoption 1.1. Impact of transition to IFRS
Investments from banking and other activities (6) 8 100 1 430 9 530 Investments in associates - Equity method 1 254 (909) 345 Reinsurer's share in insurance and investment contracts liabilities 8 489 0 8 489
IFRS (*) French GAAP information is presented under the IFRS presentation format (1) Balance shown gross of tax (2) Balance gross of unearned revenue reserve and unearned fee reserve (3) Financial assets excluding loans and assets backing contracts where the financial risk is borne by policyholders Includes fixed maturities, equities, controlled and non controlled investment funds
TOTAL MINORITY INTERESTS AND SHAREHOLDERS' EQUITY 25 870 (693) 25 177 Liabilities arising from insurance contracts 246 560 (29 706) 216 853 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (1) (7) 101 004 (36 001) 65 003 Total liabilities arising from insurance contracts (2) 347 564 (65 707) 281 857 Liabilities arising from investment contracts with discretionary participating feature - 31 401 31 401 Liabilities arising from investment contracts with no discretionary participating feature - 936 936 Liabilities arising from investment contracts where the financial risk is borne by policyholders (3) - 34 458 34 458 Total liabilities arising from investment contracts (2) - 66 795 66 795 Unearned revenues and unearned fees reserves - 1 646 1 646 Liabilities arising from policyholder's participation (4) 13 037 2 051 15 087 Derivatives relating to insurance and investment contracts - (28) (28) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 360 600 4 756 365 357 Provisions for risks and charges 4 964 2 182 7 146
Pursuant to the IAS 39 amendment published by the IASB on June 16, 2005, companies have the option, at first recognition of financial assets and liabilities, to recognize them at fair value with change in fair value recorded in the statement of income (recognize them at "fair value through profit and loss"). The Group has used this option mainly in the following cases: - assets backing liabilities resulting from contracts where the financial risk is borne by policyholders - securities held by consolidated investment entities under a Group risk management policy - certain assets covered by hedging strategies implemented by the Group and for which hedge accounting in the meaning of IAS 39 is not used - Debt held by newly-consolidated Collateralised Debt Obligations (CDOs) are also stated at fair value with change in fair value recorded in profit and loss. This has a limited impact, since the corresponding assets are also recognized at fair value through profit and loss. This debt appears under Other debt instruments issued and bank overdrafts.
The adoption of these principles induces that most invested assets are recognized at fair value. No investment has been classified in the held-to-maturity securities category, and only loans are recognized at amortized cost. The increase in invested assets resulting from the reevaluation of available-for-sale assets amounted to €11,880 million at January 1, 2004. The impact on reserves relating to the change in fair value of available-for-sale financial assets, - net of tax, policyholder bonuses where applicable, and additional depreciation of VBI and DACs, is €4,213 million including the impact on consolidated funds and €4,091 million excluding the impact on these funds.
At the same time, VBI relating to investment contracts without discretionary participation was reduced by €378 million in the opening balance sheet.
The reconciliation between shareholders’ equity reported at June 30, 2004 under French GAAP and shareholders’ equity at the same date under IFRS is as follows: The reconciliation between shareholders’ equity reported at December 31, 2004 under French GAAP and opening shareholders’ equity at the same date under IFRS is as follows: (million euros) French GAAP IFRS FTA impact IFRS
Actuarial gains and losses recorded against opening shareholders' equity are no longer amortized through the statement of income (Administrative expenses). New actuarial gains and losses generated since January 1, 2004 are recognized in a specific component of shareholders' equity. This new reserve totalled €-301 million net at the end of 2004.
Fees and charges relating to investment contracts with no participating feature 417 - - - - - - 417
N.B.: gross value is net of cumulative amortization booked under French GAAP at December 31, 2003.
Life deferred acquisition costs and equivalent net carrying value as at 1st january, 2004 10 260 499
The value of life DACs and equivalent, net of amortization and reserves for unearned revenues and fees, was as follows: (million euros) Deferred Acquisition Costs Life (1)
- Fair values of mortgages, policy loans and other loans are estimated by discounting future contractual cashflows using interest rates at which loans with similar characteristics and credit quality would be originated. Fair values of doubtful loans are limited to the estimated fair value of the underlying collateral, if lower than the estimated discounted cash-flows.
Fixed maturities held for trading 4 4 0,00% 1 620 1 620 14,29% 1 624 1 624 0,4%
Equity securities held for trading 258 258 0,07% 96 96 0,85% 354 354 0,1%
Fair value (1) Investment properties 2 011 Equity securities and controlled investment funds 90 146 Fixed maturities 14 945
Liabilities arising from insurance contracts where the financial risk is borne by the policyholders 73 578 73 578
TOTAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS - NET OF REINSURANCE CEDED 71 659 0 0 71 659
(UL) - Liabilities arising from contracts where financial risk is borne by policyholders : Investment contract with DPF measured according to existing accounting policies (3) 8 436 Features in investment contracts with DPF measured at current value (2) 0 Investment contract with no DPF measured at current unit value (4) 30 691
Comments on provisions relating to employee benefits are presented in note 1.2.23 “Staff expenses”.
At December 31, 2004, restructuring provisions totalled €231 million, including €151 million in the United States - booked mainly at the time of the MONY acquisition - €49 million in Germany relating to AXA Versicherung and €11 million at AXA RE, relating to the job protection plan set up in 2003.
(a) Other debt instruments issued, notes and bank overdrafts, by issuance
Carrying value Fair Value Debt instrument issued at cost 596 600 Debt instrument issued held as trading - Debt instrument issued designated as at fair value through P&L 1 600 1 600
Total - derivatives instruments relating to insurance and investment contracts (35) 3 (32)
Derivatives instruments relating to financing debt, and other financial liabilities subject to hedge accounting (919) 10 (909)
Assets backing contracts where the financial risk is borne by policyholders 234 - 10 543 - 10 778
The assumptions for each plan are consistent with the economic features of the countries in which the liabilities lie. The weighted-average assumptions used by AXA for pension plans in the principal regions in which AXA operates are as follows: Europe North America
In addition, in accordance with IAS 19 a category of assets referred to as “separate assets” are also recorded in the balance sheet. IFRS created the concept of separate assets which are assets that are not allowed to offset the PBO. Separate assets are insurance contracts issued by AXA which support the defined benefit pension plans. The accounting consequence of these separate assets is a potential increase in the accrued liability or decrease in the prepaid asset, offset by this new “separate asset”. These assets are shown separately in the following table. The most significant amount of separate assets relates to our US pensions plans whose funds are largely invested in separate account (unit-linked) insurance contracts issued by AXA Equitable. These funds are dedicated to the specific insurance contracts and are not available to general creditors, so their economic nature is no different from plan assets. Because the separate account assets are available to the pension plan through an insurance contract IFRS requires their categorization as separate assets despite their economic nature. AXA Group has decided to use the SORIE option that was introduced by the last amendment to IAS19. Under the SORIE option, actuarial gains and losses are recognised in full in the period in which they occurred outside profit or loss and are presented on a separate line of the Statement Of Recognised Income and Expense in equity.
The net periodic benefit cost, that is, the annual expense for employee benefits recorded in the income statement, for the year ended December 31, 2004 is presented below: (in euro millions) 2004 2004 Service cost 180 5 Interest cost 461 30 Expected return on plan assets -363 0 Expected return on separate assets -18 0 Amortization of unrecognised amounts 5 0 Settlement/Curtailment and Employee contribution 1 -2 Net periodic benefit cost 265 33
The US Holding Company can grant options to purchase AXA ADRs. The options are issued at the fair market value of the AXA ADRs on the date of grant. Options granted prior to 2004 vested over a 3 year period with one third vesting on each anniversary date, however, beginning with new grants in 2004, new stock option awards generally vest over 4 year period with one third vesting on each of the second, third and fourth anniversaries of the grant. Options currently issued and outstanding have a 10-year contractual term from their date of grant.
- €347 million of loans of securities to third parties by French life insurance companies. The increase of €217 million reflected the growth observed in this business.
AXA has issued the following subordinated convertible debt instruments (i) €1,524 million 2.5% issued in February 1999 and due in 2014, and (ii) €1,099 million 3.75% issued in February 2000 and due in 2017. At maturity, if such debt instruments are not converted into ordinary shares of AXA, they will be redeemed by AXA at a price in excess of the original issue price per note. This difference totalled €1,049 million at December 31, 2004 after the allocation of a €245 million provision since December 31, 2002.
These interim financial statements are compliant with IAS 34, Interim Financial Reporting, and are covered by IFRS 1, First Time Adoption of IFRS, as part of the period covered by the first IFRS financial statements for the year ended 31 December 2005 and with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these interim financial statements (July 2005).
Intra group transactions: Intra group transactions, including internal dividends, balances and gains or losses on intra group transactions are eliminated: • in full for a wholly owned subsidiaries and • to the extent of AXA’s interest for associates and joint ventures proportionally consolidated.
Classification: Depending on the intention and ability to hold the invested assets, they are classified in the following categories: - assets held to maturity, accounted for at amortized cost; - loans & receivables (including unquoted debt instruments) accounted for at amortized cost; - trading assets and assets designated (option) at fair value with change in fair value through profit or loss; - available for sale assets accounted for at fair value with changes in fair value in shareholder’s equity.
Change in tangible assets impairment 2 22 0 (0) 0 - - 25
AXA Euro Medium Term Notes, 6.0% due through 2013, and BMTN 918 1 183
Loans at fair value through profit and loss 374 0 3 377 0 0 0 0 374 0 3 377