26 Oct 2005

Egg plc Results for the Nine Months to 30 September 2005

“These results represent a solid performance by Egg at a time when the unsecured lending market remains highly competitive and is seeing much lower levels of growth and increased levels of bad debts emerging at this point in the cycle.

“We have been participating in Prudential’s ongoing strategic review and we are looking forward to working more closely together. Clearly, there are exciting opportunities provided by our complementary customer bases, brands and product offerings for the further benefit of both our customers and shareholders.”

Paul Gratton, CEO, Egg plc

Highlights:

Analysis of Group Income Statement (adopted IFRS Basis):
  9 months to 30 Sep 2005 9 months to 30 Sep 2004 (i)
  £m £m
Egg UK 40.9 49.7
Egg France (ii) 4.7 (147.3)
Subsidiaries/Associates/JV's (iii) (2.9) (2.0)
Transaction Costs - (3.7)
Restructuring Costs (9.9) (2.1)
Group Profit/(Loss) before Tax (including discontinued activities) 32.8 (105.4)

(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 (£1.5 million).
(iii) Q1 2005 includes Funds Direct exit cost provision of £3.3 million.

Group

  • Operating income up 9% to £389 million (Q3 2004: £357 million)
  • Operating costs were unchanged at £181 million (Q3 2004: £181 million)
  • Impairment losses were up 36% at £177 million (2004: £130 million)
  • Group profit before tax (including discontinued activities) of £33 million (Q3 2004: £106 million loss)
  • Retained profit after tax of £22 million (Q3 2004: £72 million retained loss)
  • Group earnings per share of 2.7p (Q3 2004: 8.7p loss per share)
  • Total group assets of £11.1 billion (Q3 2004: £12.1 billion)

UK

  • Egg UK delivered a nine month operating profit of £41 million (Q3 2004: £50 million)
  • Net interest margin was 2.50% (Q3 2004: 2.42%)
  • Cost/Income ratio was 44% (Q3 2004: 50%)
  • Card balances grew by £14 million (Q3 2004: £291 million) leading to period end balances of £3.6 billion (Q3 2004: £3.3 billion)
  • Personal loan drawdowns were £1.3 billion (Q3 2004: £1.6 billion)

Chief Executive Paul Gratton said:

“Operating profit in the third quarter was £18 million for the core UK business on the new IFRS basis of reporting leading to year to date profit of £41 million. The overall Group profit, including discontinued activities, was £33 million for the nine months ended 30 September 2005.

“Revenues in the UK for the nine months to 30 September were £389 million. Q3 revenues at £138 million were up 10% on the second quarter. This increase was driven by higher net interest income which is up over 20% this quarter. This is explained by the improvement in card yield due to changes in pricing in the portfolio and incentive offers making up a smaller percentage of the book this quarter as we have focused on retaining valuable interest bearing balances and reduced our short term focus on acquisition at this point in the cycle. Other operating income was 3% lower quarter on quarter at £53 million. Commission income on selling associated insurance on loans reduced on previous quarters due to lower personal loan sales volumes with lower penetration rates.

“The cost/income ratio has remained stable at 44% this quarter despite the planned increase in costs compared to Q2 2005.

“The impairment charge increased in the third quarter, up 3% to £60 million. We continue to see an improvement in the underlying metrics on the loan book from the changes we made to our scorecard in December 2004 but at this stage in the cycle the card book is generating a higher charge. The 12 month lagged impairment charge for the unsecured lending portfolio remained flat at 4% this quarter. We continue to anticipate this metric will improve in the fourth quarter, however this improvement will be less than we had expected at the half year. As a result the Q4 charge is likely to be slightly higher than Q3.

“Overall we believe these results represent a solid performance by Egg at a time when the unsecured lending market remains highly competitive and is seeing much lower levels of growth and increased levels of bad debts emerging at this point in the cycle.

“We have been participating in Prudential’s ongoing strategic review and we are looking forward to working more closely together. Clearly, there are exciting opportunities provided by our complementary customer bases, brands and product offerings for the further benefit of both our customers and shareholders.”

To download the full results in PDF format click here.

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).