Aegon NV (AEG)

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AEGON N.V. (AEG)

Q4 2012 Earnings Call

February 15, 2013 3:00 AM ET

Executives

Alexander Wynaendts – Chairman and CEO

Darryl Button – EVP and CFO

Analysts

Farooq Hanif – Citigroup

Ashik Musaddi – JPMorgan

Farquhar Murray – Autonomous

Jan Willem Weidema – ABN AMRO

Hans Pluijgers – Cheuvreux

Paul De’Ath – RBC

Robin Buckley – Deutsche Bank

William Elderkin – Goldman Sachs

David Andrich – Morgan Stanley

François Boissin – BNP Paribas

Gordon Aitken – RBC

Presentation

Operator

Ladies and gentlemen, thank you for holding. Welcome to the AEGON’s Fourth Quarter 2012 Results Conference Call for Analysts and Investors. Throughout today’s presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

I will now hand the conference over to Mr. Alexander Wynaendts. Please go ahead, sir.

Alexander Wynaendts

Good morning, and thank you for joining us today for this review of AEGON fourth quarter and full year 2012 results. And today also with me are, Jan Nooitgedagt, the CFO; Darryl Button, the Head of our Corporate Financial Center; and of course, Willem van den Berg, Head of Investor Relations.

Before turning to the presentation, let me remind you to take a moment to review our disclaimer on forward-looking statements which is at the end of this presentation. We look forward to your questions after the presentation.

As you have seen, we have issued two announcements today. The first of course is our fourth quarter results. Again, our businesses generated strong growth in sales and earnings. At the same time, we have maintained a strong capital position and our businesses continued to generate healthy cash flows. This has allowed us to propose an increased final 2012 dividend of €0.11 per share.

The second announcement is the agreement we have reached with the Vereniging Aegon, also known as the association to cancel all of AEGON’s preferred shares of which the association is a sole owner. I would like to first highlight the details of this agreement before turning to our fourth quarter results.

I’m now turning to slide 3. We believe that we have reached a balanced agreement with the association to cancel all of our AEGON’s preferred shares and in the manner that minimizes the impact on existing common shareholders. This transaction will result in a simplified capital structure for AEGON while enabling the company to maintain a high-quality capital base on the new European solvency requirements. And at the same time, it will allow the association to substantially reduce its debt.

All of the preferred shares will be changed for cash and common shares. The value of all preferred shares, which have a book value of €2.1 billion has been determined at €1.1 billion. The association has also agreed to give up its preferential status. The result of the transaction, the number of common shares outstanding will increase by approximately 7%. However, the diluted effect on earnings per share is limited to 3% as there will be no preferred dividend payments following the transaction.

We recognize the importance of minimizing dilution for existing shareholders and we will take that into account in management actions going forward.

Turning to slide 4, and this agreement has clear benefits for AEGON and its stakeholders as highlighted on this slide. Just to name a few, over the years, voting right of the association and economic ownership in AEGON have grown apart and these are being brought back in line again. Also, no single shareholder will have an economic preferential status and the ending of the payment of preferred dividend will improve the interest coverage ratio of AEGON.

The new capital structure will enable the company to maintain a high-quality capital base under the new European solvency rules by allowing our hybrid capital to be classified as Tier 1. From the perspective of the association, the agreement allows for substantial reduction of its debt. And although the association will relinquish its preferred economic status, it maintains a sizeable holding of common shareholders in the company. To maintain its special course in vote rights, a new class of common shares will be created, common shares B. Effectively, these shares will replace existing preferred shares B which we cancelled too. And all in all, we therefore believe that this is balanced outcome for all stakeholders.

Now turning to slide 5, here I’d like to give you a bit more detail on the transaction. The preferred shares had a book value of €2.1 billion which is the amount that the association paid back to AEGON in 2002. We’ve agreed on a fair value of the preferred shares of €1.1 billion which is based on the discounted value of future cash flows. This fair value will be paid in €400 million of cash, €83 million of preferred dividends, and the remaining €655 million is converted into common shares and the new class of shares, common shares B.

The transaction is slightly EPS dilutive and declared low level of the ECB financing rate which determines the level of the preferred dividends. However, the ECB financing rate would only be 2% to 3% higher effect of the transaction will become EPS neutral as a preferred dividend within approximately double from its current level.

Currently, our shareholders’ equity consists of two elements; common shareholders’ equity and equity related to the preferred shares. As shown on the slide, equity related to the preferred shares is effectively transferred to common shareholders’ equity. The resulting increase in common shareholders’ equity is partly offset by the cash payment by AEGON to the association of €400 million.

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