19 Feb 2001
Egg plc 2000 Preliminary Results (Full Year to 31 December 2000)
Not for Release until 07.00h Monday, 19th February 2001
"We will continue to develop our key strategic assets and leverage our first mover advantage to deliver a sustainable and profitable business for our shareholders. We have the strength of proposition, speed of delivery and stamina of management team to ensure Egg will be a winner in the digital economy."
(Paul Gratton - Chief Executive)
Financial Highlights:
- Operating Income up 375% to £93.2m
- Retail assets grew 84% to £3.8 billion
- Pre-tax loss on plan at £155.3m (1999: £149.7m)
- Loss per share 15.1p (1999: 18.1p)
- On track to breakeven during Q4 2001
Business Highlights:
- Customer base up 70% to 1.35m at year-end
- Brand awareness increased to 88% (1999: 63%)
- Product portfolio strengthened with launch of Egg Invest, Egg Insure, Boots Card and the imminent launch of Mortgage Supermarket
- Egg.com most frequently visited financial services site
- Egg Card fastest growing credit card in UK
- Egg Shop now second busiest online retail site in UK
- Cross buying in Q4 totalled 97,000 products, giving year end total of 397,000
- Strong customer growth continues: over 100,000 net new customers acquired to date in 2001
Egg plc, the UK's leading online financial services company, announced today that it remains bang on track to break even during the final quarter of 2001. Losses of £155.3m were in keeping with plans laid out at the time of the IPO.
Commenting on the results, Chief Executive, Paul Gratton, said:
"This has been an important and successful year for Egg. In the last 12 months, we have continued to strengthen and consolidate our position within the market place. We have an outstanding customer base fast approaching 1.5 million (1.35 million at year end), to whom we are able to offer a wide range of financial products. Our highly distinctive brand has attained awareness levels of 88% and egg.com is the most visited financial services website (source: Jupiter MMXI, November 2000).
"We have achieved significant revenue growth, with total revenues more than quadrupling to £93.2m. Our full year pre-tax loss of £155.3m (1999: £149.7m) is in line with our expectations, and we remain on track to break even during the fourth quarter of this year.
"The Egg Card has been hugely successful this year and, including customers acquired through our innovative partnership with Boots, we had 745,000 card customers at year-end. In addition, customers are proving loyal to the brand once their incentive period ends and over the year we have consistently seen higher than industry average monthly spending and balances. I am pleased to report that the credit card book now exceeds £1 billion.
"Our range of offerings and services has been strengthened considerably this year with a regular flow of best-of-breed products being made available to customers. Cross-buying within our core customer base has been encouraging, with some 97,000 products being cross-bought during the last quarter alone with very little direct advertising or marketing spend. We see this as an area ripe for development within the coming year."
Outlook
"Moving forward, we are encouraged by the opportunities in the marketplace. A recent study by MORI estimates that some 23 million people will be online by the middle of 2001 and 14 million are expecting to use a new technology product for the first time.
"2001 has started well, with over 100,000 customers acquired so far this year. We have just launched our innovative ISA campaign and we are pleased with the early response. We will shortly be launching our online mortgage "supermarket" which will build on the principles of our existing investment and insurance supermarkets, bringing best-of-breed suppliers to our customers together with competitive pricing. In tandem with this, we continue to develop and invest in making all of our communications channels easy, reliable and secure. We take our position as market leader and innovator seriously, and consequently we are committed to continuing to build confidence in the digital financial world.
"We fully intend to become a global business. We announced at the time of the IPO our aspiration to expand outside the UK within 12 months and we remain confident that this is achievable. We are currently exploring commercial partnerships with a number of significant European businesses.
"We will continue to develop our key strategic assets and leverage our first mover advantage to deliver a sustainable and profitable business for our shareholders. We have the strength of proposition, stamina of management team and speed of delivery to ensure Egg will be a winner in the digital economy."
Business Performance:
Customer Acquisition
Egg acquired 559,000 net new customers in 2000 leading to a year-end total of 1.35 million customers acquired since launch of the brand in October 1998. This gives Egg a critical mass of customers to build on as the business moves into profitability.
Banking
Egg saw strong growth in retail assets in 2000 with balances up 84% from £2.1 billion to £3.8 billion mainly on the back of the credit card portfolio.
Egg Card proved a compelling proposition for customers and when combined with the balances on the co-branded Boots card, the year end total for credit cards quadrupled to £929 million (1999: £228 million).
Egg Personal Loans total drawdowns grew by 74% to £347m (1999: £199m), reflecting additional marketing effort and targeted cross sales to Egg Card customers.
Mortgages had a successful year with the book growing by 48% to £2.4 billion. The online Internet application facility has continued to be very successful, accounting for a significant proportion of the £1 billion of loans drawn down over the year.
Whilst the number of Egg deposit customers continued to grow in 2000 by 50,000 to 621,000, we saw a decrease in overall balances of £850 million. The rate of outflow reported in Q3 slowed markedly during Q4 and December 2000 saw a net inflow of £31 million, giving a year-end figure of £6.7 billion.
Intermediation
Egg Invest gives access to leading investment brands and competitive pricing whilst providing Egg with an annuity style revenue stream as it builds funds under management. Volumes have been modest to date with £42 million funds under administration at year-end. These volumes reflect the seasonality in this business with over 90% of all unit trusts being sold during the ISA buying season at tax year- end. We have recently launched a compelling new ISA proposition, supported by a major promotional campaign to capitalise on the 2001 ISA season.
Launched in June, Egg Insure, which offers access to leading insurers, is an online supermarket that allows customers to compare costs across insurance providers. This is primarily a cross sale product into our customer base and we will develop this further in the coming months adding to the motor and home insurances currently available.
Egg Shop now has a searchable product database of 4.5 million products and has established itself as the second busiest retail site in the UK. We have seen rapid revenue growth over the second half of the year in particular with the full year total reaching almost £1m.
The development of Egg's multi-channel distribution capability continued this year. In addition to being available through the Internet and telephone Egg can now be accessed via WAP and shortly through Sky's Open digital TV network. The relationship with Boots gives us a sales presence in Boots' stores, together with account servicing through Boots in-store kiosks.
Financial Review
The loss before tax for the year of £155.3 million (1999: £149.7 million) was in line with expectations laid out in our prospectus and reflects the significant investment in brand, marketing and development as Egg has built on its first-mover advantage and acquired 559,000 net new customers.
Egg achieved strong revenue growth with operating income earned of £93.2 million (1999: £19.7 million). Net interest margin tripled in the year reaching 1.06% (1999: 0.34%). Other income also grew strongly, primarily reflecting fees and commissions earned from the larger banking book, especially credit cards and personal loans.
The operational and administrative functions have absorbed the significant increases in business volumes, with only a modest increase in costs to £108.4 million (1999: £101.0 million) reflecting greater efficiencies in banking operations and economies of scale on overheads.
Investment in brand and marketing was significantly increased to £50.7 million (1999: £21.7 million) as Egg further established its brand and increased its customer base by more than 70%.
Development costs also increased as Egg introduced the intermediation and portal businesses whilst completing the framework of its core banking business. Egg added new products such as Egg Invest, Egg Insure, share dealing and the Boots powered by Egg credit card in addition to building two new distribution channels, namely WAP and digital TV.
Depreciation increased in line with the capital expenditure for the period. It also reflects the amortisation of goodwill on the acquisition of a minority stake in IFonline plc.
The charge for bad and doubtful debt provisions rose to £37.2 million in accordance with our expectations (1999 - £8.9 million) reflecting the significant growth in retail assets and the change in mix of the book between secured and higher margin unsecured lending.
Egg purchased a 39.6% stake in IFonline plc for £15 million during the year. IFonline operates a business-to-business internet mortgage transaction processing service for financial intermediaries and mortgage product providers and provides the platform for Egg's new mortgage supermarket. The £1.7m charge reflects Egg's share of the IFonline plc losses for the period from purchase to year-end.
The tax credit for the year was £39.7 million, an effective rate of 26%. Egg's tax losses will be surrendered to Prudential plc group companies with Egg being fully reimbursed for the full amount of £39.7 million.
Shareholders' funds at 31 December 2000 were £524.0 million (1999 - £466.9 million). The principal elements in the movement on shareholders' funds during the year were the proceeds of £150 million from the issue of ordinary shares in the IPO and the retained losses of £115.6 million. In addition, £22m of capital was injected into the business prior to the IPO. The loss per share improved to 15.1p (1999 - 18.1p). No dividend is proposed.
ends
To download the full version of the Preliminary results as a pdf please click here.