27 Apr 2005
Egg plc Q1 2005 Financial Results and New Business Figures
“Operating profit was £10 million for the core UK business on the new IFRS basis of reporting, which is consistent with the plans we outlined in our preliminary results announcement. The overall Group profit was £5 million in the quarter.
“Egg’s UK credit card business has performed well, with balance growth in excess of £200 million and good acquisition of new accounts, a result that compares favourably to an industry-wide reduction in credit card balances in January and February. As planned, personal loan sales have reduced in the period from the record levels seen in 2004 following our actions to tighten our lending criteria.
“Strong acquisition and balance growth on cards has had a negative short-term impact on revenue due to the funding cost of the introductory offers, which is now recognised up front under IFRS. Revenues were also impacted by our deliberate reduction in personal loan sales volumes and hence the lower income generated from selling associated insurances. Costs continue to be well controlled and we have also delivered a further improvement in unit marketing acquisition costs this quarter. We are close to completing a restructuring that will align our cost base to our strategy which is re-focused on the core UK business. To that end we have incurred £6 million of restructuring costs in Q1 and expect a further £4 million to be recognised in Q2 on completion of the review.
“Credit quality remains strong in the card book and the increasing provisions reflect the good growth we have seen in balances. Within the personal loan book the quality of new business written this quarter has improved following the changes to our lending criteria and we expect this to lead to the loans impairment charge reducing in the second half of the year.
“Overall the result for the period was in line with our expectations and we remain confident that operating profit will grow strongly over the remainder of the year.”
Paul Gratton, CEO, Egg plc
Highlights:
Analysis of Group Income Statement (adopted IFRS Basis):
|
Q1 2005
£m |
Q1 2004 (i)
£m |
| Egg UK |
9.9 |
15.7 |
| Egg France (ii) |
4.8 |
(15.6) |
| Subsidiaries/Associates/JV's (iii) |
(3.4) |
(0.4) |
| Transaction Costs |
- |
(1.3) |
| Restructuring Costs |
(6.3) |
(2.3) |
| Group Loss before Tax |
5.0 |
(3.9) |
(i) UK GAAP comparatives restated to IFRS basis (excluding IAS 32 and IAS 39 which are only effective from 1 January 2005).
(ii) Profit in 2005 reflects release of surplus in the provision for exit costs (£3.5 million) and foreign exchange gains (£1.3 million).
(iii) Q1 2005 includes Funds Direct exit cost provision of £3.3 million.
Group
- Group operating income up 6% to £125 million (Q1 2004: £119 million)
- Group profit before tax of £5.0 million (Q1 2004: £3.9 million loss)
- Retained profit after tax of £8.2 million (Q1 2004: £4.7 million retained loss)
- Group earnings per share of 1.1p (Q1 2004: 0.6p loss per share)
- Total group assets of £12.3 billion (Q1 2004: £11.2 billion)
UK
- Egg UK delivered a Q1 operating profit of £9.9 million (Q1 2004: £15.7 million)
- Net interest margin was 2.43% (Q1 2004: 2.54%)
- Cost/Income ratio was 45% (Q1 2004: 52%)
- Unsecured lending balances grew by £277 million (Q1 2004: £238 million) leading to period end balances of £6.5 billion (Q1 2004: £5.0 billion)
- Personal loan drawdowns were £442 million (Q1 2004: £563 million)
Other
- Exit costs of Egg France now expected to be €165 million and thus €5 million (£3.5 million) of the provision has been released.
- Decision taken to raise exit costs provision of £3.3 million for Funds Direct in the period.
Chief Executive Paul Gratton said:
“Operating profit was £10 million for the core UK business on the new IFRS basis of reporting, which is consistent with the plans we outlined in our preliminary results announcement. The overall Group profit was £5 million in the quarter.
“Egg’s UK credit card business has performed well, with balance growth in excess of £200 million and good acquisition of new accounts, a result that compares favourably to an industry-wide reduction in credit card balances in January and February. MasterCard continues to perform well and contribute to the good growth rates seen over the past three quarters. As planned, following our tightening of lending criteria, personal loan sales have reduced in the first quarter from the record levels seen in 2004.
“Revenues in the UK in the quarter at £125 million were up 4% compared to the run-rate in Q1 through Q3 last year but fell compared to our record performance in Q4 2004. This was expected given the funding cost of our incentive offers on new cards and the fact that personal loans generate significant up front income in terms of the commission earned from selling associated insurances.
“Costs continue to be well controlled and we have also delivered a further improvement in unit marketing acquisition costs this quarter. In total, costs were £56 million this quarter as compared to £62 million in the same period last year and £66 million in Q4 2004. We are close to completing a restructure that will align our cost base to our strategy which is re-focused on the core UK business. As we have announced separately today this process includes changes to our Board structure and to the responsibilities of our Executive Directors and Company Secretary. We have incurred £6 million of restructuring costs in Q1 and expect a further £4 million to be recognised in Q2 on completion of the review. We expect annualised savings to reach £12 million.
“Credit quality remains strong in the card book and the increasing provisions reflect the good growth we have seen in balances. Within the personal loan book the quality of new business written this quarter has improved following the changes to our lending criteria and we expect this to lead to the loans bad debt charge reducing in the second half of the year.
“Our exit from France is complete with closure costs now expected to be €5 million (£3 million) lower than our original provision. In addition the Board has taken the prudent decision to provide £3 million against the full exit costs of Funds Direct.
“Overall the result for the period was in line with our expectations and we remain confident that operating profit will grow strongly over the remainder of the year.”
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