Egg cracks market with first profit

ONLINE bank Egg pledged to put three years of losses in Britain behind it as it became the first internet financial group in Europe to post a full quarter's profits.

Although a plan to spend £100m over three years on developing its fledgling French operation is expected to take the group back into the red for the whole year, Egg today said it now expected its core British operation to remain in the black.

Egg posted a pre-tax profit in the quarter to 31 March of £2.4m against a deficit of £37.9m. The shares, floated at 160p in June 2000 as a spin-off from Prudential, climbed 15 1/4p to 182 1/4p.

Chief executive Paul Gratton said further revenue growth and a flattening cost base should see Egg's core British operation remain firmly in the black. 'We are sustainably profitable in the UK,' Gratton said. 'We have had a good start to the second quarter. The repositioning of the online savings offer, including new guarantee and bond products has had excellent uptake from consumers. Combined with continuing growth in card customers this has resulted in 50,000 new customers acquired in the first three weeks of the second quarter,' he said.

Its popular Egg credit card with its zero percent balance transfer offer is again the crucial engine of Egg growth, but also now a driver of profit as customers are staying with the group even after the annual rate on the card moves up to 12.9%.

Egg said it secured 157,000 new customers in the first quarter, taking its total number of clients to 2.1m and giving it a share of about 4% of Britain's credit card debt. Operating income grew 102% to £74m and the group said its strong performance here was likely to continue.

Improved savings offerings and sales of other financial products lifted average revenue per customer to £145 from £133 three months ago, and its net interest margin, or the difference between Egg borrowing to lending costs, widened to 2.67% from 1.47%. Credit quality remains high with bad loans steady at 2.11% of the portfolio.

The main concern among analysts is how the group handles the expansion of its £5m French acquisition Zebank. Egg, which declined to comment on Zebank, has earmarked about £50m for expansion there this year and is already incurring costs rebranding and developing its technology for a push into international markets.