Group News Releases

Egg plc Preliminary Results 2003 (Full Year to 31 December 2003)

23 Feb 2004

“The performance underlying the Group loss of £34 million reflects a year of two extremes.

However, in France, as previously reported the underlying business performance has been very disappointing. Whilst we still believe there is a significant market opportunity for a consumer-sided financial services business in France we clearly underestimated the level of investment required to deliver a scale business. As we explained last October we do not believe that it is appropriate for Egg to pursue this opportunity on a standalone basis. The search for a strategic partner has since been superseded by Prudential considering proposals for its shareholding in Egg. In the meantime we are managing discretionary expenditure tightly in Egg France as we await the conclusion of this process.”

Paul Gratton, CEO, Egg plc

Highlights:

Analysis of Group Profit and Loss Account

Group

• Group operating income up 30% to £424 million (2002: £327 million)
• Group loss before tax of £34 million (2002: £17 million)
• Group loss per share 4.0p (2002: 2.3p)
• Total group assets of £11.7 billion (2002: £10.6 billion)

UK

• Egg UK more than doubled operating profit to £73 million (2002: £35 million)
• The Q4 profit before tax was £16 million (Q3 2003: £20 million) but this included £9 million of one-off adverse items in the fourth quarter
• Egg UK customer base now at 3.2 million, achieving record growth of 635,000 net new customers acquired in 2003 (2002: 610,000)
• Unsecured lending balances grew by £1.5 billion (2002: £0.9 billion) leading to period end balances of £4.8 billion (Cards: £3.0 billion, Personal Loans: £1.8 billion)
• Record sales growth in personal loans with drawdowns of £1.7 billion year to date, more than double the levels achieved in 2002 (£0.8 billion)
• In 2003 Egg took 10% of the net increase in UK credit cards and 12% of the net growth in the UK personal loan market
• Credit quality remains strong with card delinquency levels still well below industry average

France

• Operating loss of £89 million (€128 million) in 2003
• Card balances growing to €171 million, up 36% on Q3 2003
• 66,000 cards in issue with 80% of card balances now revolving
• Total customers now reached 130,000

Chief Executive Paul Gratton said:

“The UK business has performed impressively in 2003. Profits have more than doubled and it was a record year for customer acquisition. Both these results were delivered against the backdrop of increasing competition and demonstrate the ability of our brand and marketing effort to differentiate the Egg offering and target the right people to whom our proposition appeals. This was achieved at an extremely low marketing acquisition cost of £33 per card, including brand spend, some 40% of the acquisition cost of our direct competitors and 74% of the industry average. We now have a proven track record of delivering both sustained profitability and rapid growth in the UK.

“Within unsecured lending in the UK we have continued to grow our market share of card balances to almost 6%, taking 10% of the net growth in the UK credit card market, while at the same time successfully cross selling record volumes of personal loans where we have taken 12% of the net growth in the UK personal loans market. Net lending growth was an impressive £1.5 billion, an increase of 60% on 2002 levels, taking total balances to almost £5 billion. Card balances now exceed £3 billion and at £1.8 billion, loan balances are an increasingly significant part of our business.

“The record UK operating profit of £73 million demonstrates the benefits of Egg’s business model continuing to emerge. Revenues grew almost 30% on the back of record sales volumes and increases in lending balances while expenses were held relatively flat. This led to our cost-income ratio improving to 51%, well on track to exceed our stated target of 40% by 2005. Credit quality remains strong with the card portfolio continuing to have significantly lower arrears rates than the industry average. We are particularly pleased that this strong profit performance has been achieved in a year where we invested heavily in growing the customer base and developing our business.

“In Egg France, as previously reported, business performance has been very disappointing. Whilst we still believe there is a significant market opportunity for a consumer-sided financial services business in France we clearly underestimated the level of investment required to deliver a scale business. As we explained last October we do not believe that it is appropriate for Egg to pursue this opportunity on a standalone basis. The search for a strategic partner has since been superseded by Prudential considering proposals for its shareholding in Egg. In the meantime we are managing discretionary expenditure tightly in Egg France as we await the conclusion of this process."

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