23 Feb 2005

Egg plc Preliminary Results 2004 (Full Year to 31 December 2004)

“In the core UK business Egg made an operating profit of £74 million for the twelve months to 31 December 2004 compared to the £73 million profit for the same period last year. Increased competition in the credit card and personal loan markets, rising interest rates and the uncertainty created by the potential sale of Prudential’s stake in Egg adversely impacted performance in the first half of 2004 but we are encouraged by a good recovery in the second half. In Q4 2004 we delivered an operating profit of £20 million and saw unsecured lending balances grow strongly again with our new MasterCard proposition, helping us to increase our share of the credit card market to 6%.

“As we said in October, Egg people are now firmly focused on the future development of our core UK business and 2004 has seen us take action consistent with that focus. Following our decision to withdraw from the French market we can report that the exit process is ahead of schedule and we expect total costs will be in line with our provision of £113 million. In addition we sold our investments business to Fidelity at a small loss, which will release approximately £20 million of capital back to our core banking business in 2005 and lastly, in conjunction with Prudential, we have put Funds Direct, our investment wrap platform business, up for sale and booked a £17 million impairment charge in the year end accounts against the full carrying value of the underlying assets. The Group result for the full year reflecting these actions is a loss before tax of £107 million.

“We are looking forward to 2005 and beyond with confidence. We will continue to secure the value inherent in our existing unsecured lending business. In addition, given the strong brand consideration that exists among both our customers and the wider UK population, we are in the process of broadening our product range and are delighted with our initial success in sales of general insurance policies.”

Paul Gratton, CEO, Egg plc

Highlights:

(i) Includes both the operating loss before tax of £35.0 million for the period from 1 January 2004 to 13 July 2004, the date on which Egg announced its intention to withdraw from the French market and the total provision raised for the estimated costs of exiting the French market of £112.8 million.

(ii) Includes Funds Direct exceptional impairment charge of £17 million

Group

• Group operating income up 19% to £505 million (2003: £424 million)
• Group loss before tax of £107 million (2003: £34 million loss)
• Group loss per share was 11.1p (2003: 4.0p)
• Total group assets of £12.0 billion (2003: £11.7 billion)

UK

• Egg UK delivered a Q4 operating profit of £20 million (Q4 2003: £16 million) leading to full year operating profit of £74 million (2003: £73 million)
• Return on equity was 13.0% (2003: 11.4%)
• Net interest margin was 2.5% (2003: 2.5%)
• Cost/Income ratio was 48% (2003: 53%)
• Unsecured lending balances grew by £1.4 billion (2003: £1.5 billion) leading to period end balances of £6.2 billion (2003: £4.8 billion)
• Personal loan drawdowns were £2.2 billion, up 30% on 2003 (£1.7 billion)
• MasterCard launched in June 2004 with year end balances of almost £140 million
• Credit quality remains good and benchmarks continue to show Egg’s card portfolio significantly outperforming industry norms

France

• Unsecured lending, savings and brokerage businesses have all been sold
• Exit expected to be completed within the £113 million (€170 million) provision.

Chief Executive Paul Gratton said:

“Our core UK business has delivered a good set of results with a particularly encouraging performance in the second half of 2004. We made an operating profit of £74 million for the twelve months to 31 December 2004 compared to the £73 million profit for the same period last year. This represents a solid result considering the increased competition and rising interest rates that have impacted the credit card and personal loan markets and the uncertainty created by the potential sale of Prudential’s stake in Egg.

“We have seen strong net growth in unsecured lending of £1.4 billion in the twelve months taking total balances to £6.2 billion up 30% on last year end. The successful cross selling of personal loans into our credit card customer base has been complemented by the MasterCard proposition launched in June, which is proving popular and has now achieved almost £140 million in balances.

“Revenues in the UK in 2004 of £497 million grew by almost 20% compared to the previous year, with non-interest income providing the majority of the increase. Margins were under pressure throughout the year from both increased competition, especially in the first half, and rising base rates. Against this background we were pleased that net interest income grew by almost 10% year on year. Other income grew impressively, up 34% to £209 million, with a particularly strong showing in the final quarter. Record loan disbursements and good card balance growth, with associated revenue from cross sales of insurances, were the main factors in this result. We are keeping tight control on costs and credit quality remains good with increased 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.

"The Group result for the full year is a loss before tax of £107 million, which includes £148 million incurred in respect of Egg France. Following our decision to withdraw from that market we have sold the unsecured lending, savings and brokerage portfolios and we have now closed the current account business in 2005. Our expectations with regard to the total exit costs remain unchanged. In addition, consistent with our stated intention to focus on our successful UK business we have sold our investments business to Fidelity at a small loss, which will release approximately £20 million of capital back to our core banking business in 2005 and we have, in conjunction with Prudential, put Funds Direct, our investment wrap platform business, up for sale and booked a £17 million impairment charge in Q4 2004 against the full carrying value of the underlying assets.

Outlook

“Looking forward we have a highly attractive unsecured lending portfolio with the opportunity to grow it further and deliver healthy returns. In addition we will be building on our strong relationship with our customers and the encouraging levels of their consideration to buy other products from Egg as evidenced by the strong growth in general insurance cross sales in the fourth quarter. To this end we will look to offer a broader range of products and services in 2005 and beyond.”

To download the full results in PDF format click here.