22 Jul 2004

Egg plc Results for the Six Months to 30 June 2004

“The Group made a profit of £1 million in the second quarter leading to an overall loss before tax for the first half of 2004 of £4 million down from a loss of £23 million in the same period last year.

The UK business has delivered a sound performance in the first half of the year despite increased competition and rising interest rates. We achieved a profit of £35 million and we grew our customer base by a further 292,000 giving us a total of almost 3.5 million. Unsecured lending balances continued to grow strongly, with record personal loan drawdowns of over £1.1 billion in the first six months.

“As we announced last week, we have begun to take the necessary steps to withdraw from the French market. We will ensure that this process is effected as sensitively, respectfully and efficiently as possible for our people, our customers and our shareholders.

“Looking forward we are focused on our successful UK business. Research indicates Egg’s existing customers have an exceptionally high propensity to buy further products from us. We plan to invest further in our brand, in targeted acquisition and in our cross-sales capability in the second half of the year to augment our core strengths and drive additional value from our customer base.”

Paul Gratton, CEO, Egg plc

Highlights:

Analysis of Group Profit and Loss Account:

H1 2004 H1 2003
£m £m
Egg UK Operating Profit 34.5 36.7
Egg France Operating Loss (32.2) (48.7)
Other International - (2.8)
Subsidiaries/Associates/JV's (1.7) (2.8)
Transaction Costs (2.6) -
Restructuring Costs (2.1) (5.2)
Group Loss before Tax (4.1) (22.8)

Group

  • Group operating income up 21% to £242.3 million (H1 2003: £200.9 million)
  • Group loss before tax of £4.1 million (H1 2003: £22.8 million)
  • Group loss per share was 0.3p (H1 2003: 3.0p)
  • Total group assets of £12.2 billion (H1 2003: £11.2 billion)

UK

  • Egg UK delivered an operating profit of £34.5 million (H1 2003: £36.7 million)
  • 292,000 net new customers acquired in the first half year (H1 2003: 340,000)
  • Unsecured lending balances grew by £559 million (H1 2003: £650 million) leading to period end balances of £5.35 billion (30 June 2003: £3.95 billion)
  • Strong sales growth in personal loans with drawdowns of £1,137 million, up 60% on H1 2003 (£711 million)
  • Credit quality remains strong and benchmarks continue to show Egg’s card portfolio significantly outperforming industry norms

France

  • Operating loss of £32.2 million (€47.6 million) for H1 reduced from £48.7 million (€72.1 million) in H1 2003
  • Costs to exit the French market estimated at £113 million (€170 million) pre tax

Chief Executive Paul Gratton said:

“The Group made a profit of £1 million in the second quarter leading to an overall loss before tax for the first half of 2004 of £4 million, down from a loss of £23 million in the same period last year.

“The UK business has delivered a sound performance in the first half of the year despite increased competition and rising interest rates. We achieved a profit of £35 million and we grew our customer base by a further 292,000 giving us a customer base of almost 3.5 million.

“Within unsecured lending in the UK we have seen strong net lending growth of £559 million in the first half taking total balances to £5.35 billion up 12% on last year end. Cross selling personal loans into our credit card customer base remains highly successful, delivering record sales volumes with over £1.1 billion disbursed in the first six months this year.

“Revenues are growing steadily quarter on quarter and have increased some 19% on the same period last year. Net interest income reduced slightly in the second quarter given the increased pressure on interest-bearing balance growth and margins created by competition and rising base rates respectively. Other income was almost £50 million in Q2 and has been growing strongly this year, primarily due to sales of protection policies for balances outstanding on loans and cards. We are keeping tight control on costs and credit quality remains good with provision levels reflecting the continuing growth in the unsecured lending portfolio, the stage in the life cycle of the card and loan books and the increasing proportion of personal loans in the book.

“In France, as we announced last week, we have begun to take the necessary steps to withdraw from the market. Our search for a strategic partner, which was started in October last year, was superseded by Prudential considering proposals for its shareholding in Egg and therefore throughout the first half of the year we have been managing discretionary expenditure tightly as we await the conclusion of that process. This is reflected in the significant reduction in losses in the first half. We expect the pre-tax cost of closing Egg France to be approximately €170 million (£113 million).

“We are focused on our successful UK business. Research indicates Egg’s existing customers have an exceptionally high propensity to buy further products from us. We plan to invest further in our brand, in targeted acquisition and in our cross sales capability during the second half augmenting our core strengths and seeking to drive additional value from our customer base. In addition we will be undertaking a review of our cost base to ensure it is focused on our key priorities.

“Egg remains intent on helping people understand and manage their money more effectively through relevant innovation in technology. Egg Money Manager, our account aggregation service, now has almost 250,000 registered users, making us the largest aggregation provider in Europe.

“With the arrival of Chip and PIN in the UK, Egg has recently launched PIN Browser, believed to be a world first, which offers a secure means for Egg customers to view their PIN number online using leading-edge technology. This unique service will enable customers to access their PIN number at any time and also reduce the administration process and therefore resource that would otherwise have to be provided.

“Looking forward we expect strong competition and margin pressure to remain a feature of the UK credit card market for the foreseeable future. However we are confident that the Egg brand, our strong relationship with our customers, our ability to segment and target the right consumers with our marketing, our dominance in the digital channel and our increasing ability to cross sell additional products leaves us well positioned for further success in this market.

“Egg remains well capitalised and the Board believes that future retained profits at group level and other capital management options available to Egg should enable us to grow the business in line with our plans and maintain our tier 1 capital ratio in our target range of 7% to 9%.

“The past six months have been difficult for Egg with the uncertainty created by the potential sale of the group. However we are unwavering in our belief in Egg’s potential and the assets we have built. We enter the second half of the year with confidence and look forward to further developing our UK business.”

To download the full press release in PDF format click here.

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