26th Oct 2005 07:05
Egg PLC26 October 2005 Under Embargo until 07.05h, 26th October 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 unsecuredlending market remains highly competitive and is seeing much lower levels ofgrowth 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 arelooking forward to working more closely together. Clearly, there are excitingopportunities provided by our complementary customer bases, brands and productofferings 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 9 months to 30 Sep 2005 30 Sep 2004 (i) £m £mEgg UK 40.9 49.7Egg 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 discontinuedactivities) 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 businesson the new IFRS basis of reporting leading to year to date profit of £41million. The overall Group profit, including discontinued activities, was £33million for the nine months ended 30 September 2005. "Revenues in the UK for the nine months to 30 September were £389 million. Q3revenues at £138 million were up 10% on the second quarter. This increase wasdriven by higher net interest income which is up over 20% this quarter. This isexplained by the improvement in card yield due to changes in pricing in theportfolio and incentive offers making up a smaller percentage of the book thisquarter as we have focused on retaining valuable interest bearing balances andreduced our short term focus on acquisition at this point in the cycle. Otheroperating income was 3% lower quarter on quarter at £53 million. Commissionincome on selling associated insurance on loans reduced on previous quarters dueto lower personal loan sales volumes with lower penetration rates. "The cost/income ratio has remained stable at 44% this quarter despite theplanned increase in costs compared to Q2 2005. "The impairment charge increased in the third quarter, up 3% to £60 million. Wecontinue to see an improvement in the underlying metrics on the loan book fromthe changes we made to our scorecard in December 2004 but at this stage in thecycle the card book is generating a higher charge. The 12 month laggedimpairment charge for the unsecured lending portfolio remained flat at 4% thisquarter. We continue to anticipate this metric will improve in the fourthquarter, however this improvement will be less than we had expected at the halfyear. 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 timewhen the unsecured lending market remains highly competitive and is seeing muchlower levels of growth and increased levels of bad debts emerging at this pointin the cycle. "We have been participating in Prudential's ongoing strategic review and we arelooking forward to working more closely together. Clearly, there are excitingopportunities provided by our complementary customer bases, brands and productofferings for the further benefit of both our customers and shareholders." Overview of Group ResultsSummary Income Statement by quarter (adopted IFRS basis) (unaudited) Q3 2005 Q2 2005 Q1 2005 Q4 2004 Q3 2004 UK £m £m £m £m £m Net Interest Income (Note 2) 84.7 71.2 66.5 73.3 70.4Other Operating Income (Note 2) 53.4 55.2 58.1 66.3 48.3 Egg UK Operating Income 138.1 126.4 124.6 139.6 118.7Operational and Administrative Expenses (41.1) (36.9) (37.1) (40.7) (39.2)Brand and Marketing Costs (6.2) (8.4) (8.1) (12.4) (9.0)Development Costs (4.3) (2.8) (3.7) (6.2) (5.2)Depreciation and Amortisation (8.6) (6.9) (6.9) (7.1) (4.3)Impairment Losses on Loans and Advances to Customers (60.0) (58.3) (58.9) (52.8) (47.1) Egg UK Operating Profit 17.9 13.1 9.9 20.4 13.9FranceNet Interest Income 0.1 0.1 (0.3) 0.8 1.8Other Operating Income (0.3) (0.4) 1.3 (7.0) 0.9 Egg France Operating Income (0.2) (0.3) 1.0 (6.2) 2.7Operational and Administrative Expenses (0.3) (3.5) (9.0) (10.1) (8.5)Brand and Marketing Costs - - - - -Development Costs - - - - -Depreciation and Amortisation - 1.0 - (0.4) (3.1)Impairment Losses on Loans and Advances to Customers - - (0.3) (5.8) (3.9) Utilisation of Exit Cost Provision 0.2 3.0 9.6 15.8 10.1Egg France Operating (Loss)/Profit (0.3) 0.2 1.3 (6.7) (2.7)Subsidiaries/Associates/JV's 0.2 0.3 (3.4) (17.6) (1.0)Transaction Costs - - - (2.7) (1.1)Provision for France Exit Costs - - 3.5 - (112.8)Restructuring Costs - (3.6) (6.3) (3.0) - Group Profit/(Loss) Before Tax (including 17.8 10.0 5.0 (9.6) (103.7)discontinued activities) Note 1: All comparatives for 2004 have been restated to adopted IFRS basis(excluding the impact of IAS 32 and IAS 39, which only came into effect from 1January 2005). Note 2: Figures for Q1 and Q2 2005 include a reclassification between NetInterest Income and Other Operating Income compared to previous resultsannouncements reflecting the continuous development of IFRS and industrypractice around the treatment of certain fees.Commentary on Summary Income Statement Egg UK Revenues Net interest income in Q3 2005 was up strongly at £84.7 million (Q2 2005: £71.2million). The 19% increase has resulted from the fact that interest bearingbalances now make up a higher proportion of the card book due to the profile ofacquisition this year and the changes in card pricing in August. This has ledto an improvement in the yield on credit cards to 11.4% for the third quarter ona stand alone basis (9.9% at 30 September 2005 on rolling 12 month basis)compared to 10.1% for Q2 (9.4% at 30 June 2005 on 12 month rolling basis asrestated). The rolling annual net interest margin for the business as a wholegrew to 2.50% at 30 September from 2.32% for 30 June (as restated). Other operating income in Q3 2005 was down 3% at £53.4 million (Q2 2005: £55.2million). Commission income earned from sales of associated insurances on ourloan book declined this quarter as penetration rates fell further on a smallervolume of loan sales. We continue to put the quality of loan business we arewriting ahead of volumes, and at current penetration rates on associatedinsurances we will continue to focus on ensuring we have the optimum credit andvalue based scoring in place. Offsetting the impact of lower penetration rateswas approximately £4 million of benefit this quarter from revised commissionrates on the associated insurance products which related to business written inthe first half of the 2005. Elsewhere in other operating income we arereporting £0.1 million of unrealised losses on derivatives in Q3 from theadoption of fair value accounting under IAS 39 (Q2 2005: £2.2 million unrealisedgain) which is purely a timing difference given no gain or loss is expected overthe life of the derivatives as they are economic hedges and will not be traded.Cumulatively to the end of September 2005 we now report a £1.6 millionunrealised gain. Costs The increase in operational and administrative costs at £41.1 million for thequarter (Q2 2005: £36.9 million) is primarily driven by greater investment inthe credit function at this point of the cycle and due to the fact that theannual pay review is effective from 1 July. Brand and marketing costs were £6.2 million (Q2 2005: £8.4 million). We reducedexpenditure as normal in the third quarter as seasonally it is the weakestquarter to acquire cards. We have just launched our new Egg Money propositionand will be investing further in our brand as well in Q4 which will result in a£5 million increase in brand and marketing costs over Q3 levels. Development costs were £4.3 million for the quarter, an increase over Q2 2005(£2.8 million). This primarily reflects the development costs for Egg Money andother new propositions in the pipeline. Depreciation and amortisation at £8.6 million was up 25% on Q2 (£6.9 million).This was due to the fact that we recognised a one-off accelerated depreciationcharge of £1.5 million on some software assets following a periodic impairmentreview of the fixed asset register. Impairment for Losses on Loans and Advances to Customers The Q3 charge for impairment of £60.0 million was slightly up on Q2 (£58.3million). The impairment charge as a percentage of 12 month lagged assets in theoverall unsecured portfolio remained consistent at 4.0% (Q2 2005: 4.0%). We hadexpected to see this reduce slightly over the second half as the benefit of thedecisions we took to alter the loans scorecard in December 2004 flowed through.This has indeed materialised with the 12 month lagged metric for loans fallingfrom 6.1% at 30 June 2005 to 5.3% at 30 September 2005 in line with our plans.However we have experienced a small increase in card delinquency levels aboveour previous expectations and the equivalent card metrics are 2.6% at 30 June2005 and 3.0% at 30 September 2005. Based on this trend we now expect the Q4impairment charge to be higher than Q3. Egg France and Provision for Exit Costs We still expect our revised provision to be adequate and the only net movementin the Egg France profit and loss account this quarter is a small exchange lossof £0.3 million. Subsidiaries/Associates/JV's In Q3 the net profit was £0.2 million. The £2.9 million net loss year to dateprimarily reflects the exit costs provision in respect of Funds Direct raised inQ1 2005. In October we completed the sale of Funds Direct to IFA Wrap Limited. Restructuring Costs We completed our review of our total cost base, and in particular the overheadfunctions in the first half and incurred a cost of £9.9 million to restructureour activities. The estimated annual savings resulting from this reorganisationare £12 million. Egg UK Product Information 30 Sep 30 Sep 31 Dec 2005 2004 2004 Product balances £m £m £m Egg Card 3,592 3,306 3,578Egg Personal Loans 2,798 2,403 2,618 Total Unsecured Lending 6,390 5,709 6,196 Egg Mortgages 1,075 1,117 1,102Prudential Mortgages 495 632 591 Total Secured Lending 1,570 1,749 1,693 Egg Savings 5,735 6,022 6,215Prudential Savings 120 125 121 Total Retail Liabilities 5,855 6,147 6,336 Unsecured Lending Egg's emphasis has been on managing its existing card customer base and drivingan improved return from the book. This has generated the encouraging trendwithin the book where interest bearing balances are up approximately £250million over the nine months. With balances on 0% offers falling byapproximately the same amount, the overall growth in the nine months was £14million. This revised mix of balances, along with the re-price in August, whichhas had no impact on underlying attrition trends, has led to the improvement incard yields highlighted earlier. Credit card balances reduced in the thirdquarter by £177 million reflecting the fact that Egg has intentionally not beenacquiring new customers at the same rate as historically and this quarter sawthe natural outflow of balances that were acquired in Q1 2005 on six monthincentive offers. Personal loan disbursements were £431 million for Q3 2005 (Q2 2005: £453million). Net balance growth was £45 million this quarter. While this is areduction on the record loan volumes achieved last year (Q3 2004: Disbursements- £496 million) it is consistent with our plans and risk appetite and reflectsour decision, indicated previously in our preliminary results announcement, totighten lending criteria this year. Savings Q3 2005 saw a net outflow on Egg deposits of £480 million (Q2 2005: £333 millionoutflow). Retail liabilities are primarily an element within Egg's overallfunding strategy rather than an acquisition product. Given our strong liquidityposition we withdrew our bonus account offering in Q2 and have seen outflows inline with previous experience. Other Products The Prudential branded mortgage book continues in run-off and the Egg book alsocontracted by £52 million in Q3 reflecting the fact that we are not currentlypromoting this product. The Egg Insure business acquired 25,000 new policies in Q3, consistent with theseasonal performance in Q3 2004. Egg Money Manager now has almost 100,000 new registered users this year with afurther 28,000 signing up in Q3. Capital Capital ratios for Egg Banking plc at 30 September 2005 were 9.5% (tier 1) and15.8% (total) (30 September 2004: 9.3% (tier1) and 15.6% (total)). On aconsolidated basis the total capital ratio was 14.1% (30 September 2004: 14.4%). Independent review report to Egg plc Introduction We have been engaged by the company to review the financial information set outon pages 11 to 29 and we have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the companyfor our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes, and the reasonsfor them, are disclosed. As disclosed on page 11 to the financial information, the next annual financialstatements of the group will be prepared in accordance with IFRS's adopted foruse in the European Union. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the directors currently intend to usein the next annual financial statements. There is, however, a possibility thatthe directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with those IFRSs adopted for use by the European Union. This isbecause, as disclosed on page 11, the Directors have anticipated that certainStandards, which have yet to be formally adopted for use in the European Union,will be so adopted in time to be applicable to the next annual financialstatements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4Review of interim financial information issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the nine monthsended 30 September 2005. KPMG Audit PlcChartered Accountants 25 October 2005 FINANCIAL INFORMATION Financial results prepared in accordance with International Financial ReportingStandards adopted for use in the European Union for the nine months ended 30September 2005. Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the Group for the year ended 31 December 2005 beprepared in accordance with IFRS adopted by the EU (adopted IFRS). The financial information has been prepared on the basis of recognition andmeasurement requirements of IFRS in issue that are either endorsed by the EU andeffective, or are expected to be endorsed and effective at 31 December 2005, theGroup's first annual reporting date at which they are required to use adoptedIFRS. Based on these adopted and unadopted IFRSs, the Directors have madeassumptions about the accounting policies to be applied, as detailed in thedescription of accounting policies set out below. In particular the directors have assumed that the amendment to IAS 19 'EmployeeBenefits - Actuarial Gains and Losses' issued by the IASB will be fully adoptedby the EU and therefore available for use in the annual IFRS FinancialStatements for the year ended 31 December 2005. In respect of financial instruments, the Group's policy has been to adopt IAS 32'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' from 1 January 2005, except asrestricted by the European Commissions Accounting Regulatory Committee.Comparatives for 2004 have not been restated to reflect the requirements of IAS32 and IAS 39 and, as permitted by IFRS 1, are accounted for under UK GAAP inaccordance with the accounting policies set out in the annual financialstatements for the year ended 31 December 2004. In addition, the adopted IFRSs that will be effective or available for voluntaryearly adoption in the annual financial statements for the year ended 31 December2005 are still subject to change and to the issue of additional interpretationsand therefore cannot be determined with certainty. Accordingly, the accountingpolicies for the annual period that are relevant to this interim financialinformation will be determined only when the annual financial statements areprepared for the year ended 31 December 2005. The comparative figures for the financial year ended 31 December 2004 are notthe Group's statutory accounts for that financial year. Those accounts, whichwere prepared under UK GAAP in accordance with the Companies Act 1985, have beenreported on by the Company's auditors and delivered to the registrar ofcompanies. The report of the auditors was unqualified and did not containstatements under section 237(2) or (3) of the Companies Act 1985. A description of the significant accounting policies applied in preparing thefinancial information contained in this report has been included in Note 1 ofthe Notes to the Financial Information below. Transitional arrangements On transition to IFRS, an entity is generally required to apply IFRSretrospectively, except where an exemption is available under IFRS 1 'First-timeAdoption of International Financial Reporting Standards'. The following is asummary of the key elections from IFRS 1 that were made by the Group: • The Group has elected to adopt the IFRS 1 exemption in relation to business combinations and will only apply IFRS 3 'Business Combinations' prospectively from 1 January 2004. As a result, the balance of goodwill under UK GAAP as 31 December 2003 will be deemed the cost of goodwill at 1 January 2004. • The Group has elected to adopt the IFRS 1 option to reset foreign currency cumulative translation reserves to zero on transition to IFRS. Furthermore, the Group has adopted the exemption in IFRS 1 to not preparecomparative information in accordance with IAS 32 'Financial Instruments:Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition andMeasurement'. These standards will therefore only apply from 1 January 2005 andin the comparative figures for the year ended 31 December 2004, financialinstruments will continue to be accounted for on a UK GAAP basis. The Group hasalso elected to adopt IFRS 5 'Non-current Assets Held for Sale and DiscontinuedOperations' from 1 January 2005. Consolidated income statement (unaudited) Nine months Three months Nine months Three months Year ended ended 30 Sept ended 30 Sept ended 30 ended 30 31 Dec 2004 2005 2005 Sept 2004 Sept 2004 (Restated)1 (Restated)1 (Restated)1 Notes £m £m £m £m £mContinuing operations:Interest income 693.9 207.9 664.3 231.2 902.8Interest expense (471.5) (123.2) (450.0) (161.4) (615.4) Net interest income 222.4 84.7 214.3 69.8 287.4Fee and commission income 170.3 57.9 156.8 51.0 220.7Fee and commission expense (15.2) (5.8) (18.9) (4.1) (25.2) Net fee and commission income 155.1 52.1 137.9 46.9 195.5Net trading income 9.2 (0.1) - - -Other operating income 2.4 1.4 4.9 1.5 14.7 Operating income 389.1 138.1 357.1 118.2 497.6Administrative expenses - personnel expenses (66.2) (19.8) (66.6) (22.4) (92.7)- depreciation and amortisation (22.4) (8.6) (15.0) (3.1) (22.2) - other administrative expenses (92.4) (31.8) (99.7) (32.1) (139.3) (181.0) (60.2) (181.3) (57.6) (254.2) Impairment losses on loans and advances to customers 2 (177.2) (60.0) (129.6) (47.2) (182.4) Operating profit 30.9 17.9 46.2 13.4 61.0Share of operating profit of joint venture 0.1 0.2 0.4 0.1 0.3Share of associate profits/(losses) 0.2 0.2 (0.2) - (0.4) Profit on continuing ordinary activities before tax 31.2 18.3 46.4 13.5 60.9 Tax charge on profit on continuing 3 (10.5) (6.8) (12.4) (0.9) (24.7)ordinary activities Profit on continuing ordinary activities after tax 20.7 11.5 34.0 12.6 36.2 Discontinued operations:Profit/(loss) on discontinued ordinary activities after tax 4 1.1 (0.4) (106.2) (84.5) (137.2) Retained profit/(loss) for the period 21.8 11.1 (72.2) (71.9) (101.0) (1) The comparative results for the nine months ended 30 September 2004, thethree months ended 30 September 2004 and the year ended 31 December 2004 havebeen restated to reflect the adoption of International Financial ReportingStandards, as explained on pages 11 and 12. A reconciliation of the incomestatement, balance sheet and cash flow statement for the period ended 30September 2004 with UK GAAP, in accordance with which the comparatives werepreviously prepared, is shown in Appendix 1. A reconciliation of the incomestatement, balance sheet and cash flow statement for the year ended 31 December2004 was shown in Appendix 1 of our Press Release on the results for the threemonths ended 31 March 2005 issued on 27 April 2005. Consolidated income statement (unaudited) (continued) Nine months Three months Nine months Three months Year ended ended 30 ended 30 Sept ended 30 Sept ended 30 Sept 31 Sept 2005 2005 2004 2004 Dec 2004 (Restated)* (Restated)* (Restated)* Notes £m £m £m £m £mAttributable to:Equity holders of the parent 22.6 11.2 (71.9) (71.8) (99.7)Minority interests (0.8) (0.1) (0.3) (0.1) (1.3) Pence per Pence per Pence per Pence per Pence per share share share share shareConsolidated earnings/(loss) per shareBasic 5 2.7 1.4 (8.7) (8.7) (11.3)Diluted 5 2.7 1.4 (8.7) (8.7) (11.3) Continuing earnings per shareBasic 5 2.5 1.4 4.2 1.6 4.6Diluted 5 2.5 1.4 4.2 1.6 4.6 * See note (1) on page 13 Consolidated balance sheet (unaudited) 30 Sept 30 Sept 31 Dec 2005 2004 2004 (Restated)* (Restated)* Notes £m £m £mAssetsCash and balances with central banks 7.3 14.2 14.0Loans and advances to banks 689.2 416.4 615.9Securities purchased under agreement to resell 200.6 1.4 319.4Investment securities 2,237.4 3,909.1 3,119.7Derivative financial instruments 42.6 10.7 16.0Loans and advances to customers 7,667.5 7,353.5 7,642.0Prepayments and accrued income 7.9 80.7 58.3Investments in joint venture and associate 10.5 6.5 6.3Property, plant and equipment 45.1 51.2 48.0Intangible assets 40.7 59.1 49.0Deferred tax 35.6 23.8 28.9Other assets 95.3 127.0 130.6 Total assets 11,079.7 12,053.6 12,048.1 * See note (1) on page 13 Consolidated balance sheet (unaudited) (continued) 30 Sept 30 Sept 31 Dec 2005 2004 2004 (Restated)* (Restated)* Notes £m £m £mLiabilitiesDeposits by banks 2,682.1 2,481.2 2,352.0Securities sold under agreements to repurchase - 531.1 130.5Customer accounts 5,958.0 6,570.3 6,607.4Investment securities in issue 1,399.8 1,127.5 1,806.5Derivative financial instruments 69.5 13.0 17.5Other liabilities 67.7 219.2 110.5Accruals and deferred income 75.1 197.7 215.0Provisions for liabilities and charges 1.8 96.5 16.8Subordinated liabilities - Dated loan capital 476.3 450.8 450.8 Total liabilities 10,730.3 11,687.3 11,707.0 Shareholders' equityCalled up share capital 6 412.2 412.2 412.2Share premium account 6 - 111.0 111.0Capital reserve 6 - 359.7 359.7Other reserves 6 (2.4) (3.3) (0.5)Accumulated losses 6 (59.5) (514.2) (541.2)Total equity attributable to the equity holders of the parent 350.3 365.4 341.2Minority interests (equity) (0.9) 0.9 (0.1) Total equity 349.4 366.3 341.1 Total equity and liabilities 11,079.7 12,053.6 12,048.1 * See note (1) on page 13 Consolidated statement of changes in equity (unaudited) Attributable to equity holders of the Group Minority Total Called up Share Capital Other Accumulated interest share premium reserve reserves losses capital account £m £m £m £m £m £m £mChanges in equity for thenine months ended 30 Sept2004:Balance at 1 January 2004 aspreviously reported under UKGAAP 410.3 107.5 359.7 - (445.1) 1.2 433.6 Changes upon transition to - - - - 0.5(1) - 0.5IFRS Restated balance under IFRS 410.3 107.5 359.7 - (444.6) 1.2 434.1 Exchange differences onforeign currency translations - - - (3.3) - - (3.3) Net gain recognised directlyin equity - - - (3.3) - - (3.3) Loss for the period - - - - (71.9) (0.3) (72.2) Total recognised income andexpense for the period - - - (3.3) (71.9) (0.3) (75.5) Increase in share capital 1.9 - - - - - 1.9Increase in share premium - 3.5 - - - - 3.5Share-based paymentadjustment to reserves - - - - 1.5 - 1.5Awards under incentive schemes - - - - 0.8 - 0.8 Balance at 30 Sept 2004 412.2 111.0 359.7 (3.3) (514.2) 0.9 366.3 Changes in equity for theyear ended 31 December 2004:Balance at 1 January 2004 asrestated under IFRS 410.3 107.5 359.7 - (444.6) 1.2 434.1 Exchange differences onforeign currency translations - - - (0.5) - - (0.5) Net loss recognised directlyin equity - - - (0.5) - - (0.5) Loss for the year - - - - (99.7) (1.3) (101.0) Total recognised expense forthe year - - - (0.5) (99.7) (1.3) (101.5) Increase in share capital 1.9 - - - - - 1.9Increase in share premium - 3.5 - - - - 3.5Share-based paymentadjustment to reserves - - - - 2.3 - 2.3Awards under incentive schemes - - - - 0.8 - 0.8 Balance at 31 December 2004 412.2 111.0 359.7 (0.5) (541.2) (0.1) 341.1 Consolidated statement of changes in equity (unaudited) (continued) Attributable to equity holders of the Group Minority Total Called up Share Capital Other Accumulated Interest share premium reserve reserves losses capital account £m £m £m £m £m £m £mChanges in equity for thenine months ended 30 Sept2005:Balance at 31 December 2004 412.2 111.0 359.7 (0.5) (541.2) (0.1) 341.1Changes in accounting policy(adoption of IAS 32 and IAS 39) - - - (0.9) (14.4) - (15.3) Restated balance 412.2 111.0 359.7 (1.4) (555.6) (0.1) 325.8 Available-for-saleinvestments: Valuation gains taken toequity - - - 3.5 - - 3.5 Cash flow hedges: Losses taken to equity (5.7) (5.7) Exchange differences onforeign currency translations - - - 1.2 - - 1.2 Net loss recognised directly in equity - - - (1.0) - - (1.0) Profit/(loss) for the period - - - - 22.6 (0.8) 21.8 Total recognised income and expense for the period - - - (1.0) 22.6 (0.8) 20.8 Adjustments to share premiumand capital reserve due tocapital reconstruction - (111.0) (359.7) - 470.7 - - Share-based paymentadjustment to reserves - - - - 2.8 - 2.8 Balance at 30 September 2005 412.2 - - (2.4) (59.5) (0.9) 349.4 Consolidated cash flow statement (unaudited) Nine months ended 30 Nine months ended Year ended 31 Dec Sept 2005 30 Sept 2004 2004 (Restated)* (Restated)* Note £m £m £mCash flows from operating activitiesContinuing operations:Operating profit before taxation 30.9 46.2 61.0Adjusted for:Depreciation, impairment and amortisation 22.4 42.1 25.1Impairment losses on loans and advancesto customers 65.3 52.3 70.1 Gain on sale of investment securities - (1.6) (7.5)Share schemes adjustment in reserves 2.8 3.4 3.3Net (increase)/decrease in operatingassets:Loans and advances to banks 18.8 (201.1) 54.8Derivative financial instruments (11.9) - -Loans and advances to customers (66.7) (583.2) (1,115.6)Securities purchased under agreement to resell 119.5 (1.4) (319.4)Accrued income and prepayments 0.4 35.5 16.9Other assets 162.9 41.2 99.4Net increase/(decrease) in operatingliabilities:Deposits by banks 148.0 988.7 772.3Securities sold under agreements to repurchase (131.0) (298.1) (698.7)Customer accounts (462.7) 118.6 (53.0)Investment securities in issue (434.0) (295.5) 383.6Accruals and deferred income (9.0) 0.8 29.6Derivative financial instruments 19.5 - -Other liabilities (310.1) (12.8) (133.6)Subordinated liabilities 24.4 - -(Taxation paid)/tax refund received (0.7) (8.5) 14.1Net cash outflow from continuingoperating activities (811.2) (73.4) (797.6) Discontinued operations: Net cash (outflow)/inflow fromdiscontinued operating activities (5.6) (53.8) 76.2 Total net cash outflow from operating activities (816.8) (127.2) (721.4) * See note (1) on page 13 Consolidated cash flow statement (unaudited) (continued) Nine months ended 30 Nine months ended 30 Year ended 31 Dec Sept 2005 Sept 2004 2004 (Restated)* (Restated)* Note £m £m £mCash flows from investing activitiesContinuing operations:Purchase of property, plant and equipment (6.7) (25.7) (13.1)Disposal of property, plant and equipment 1.0 1.9 -Purchase of software intangibles (14.2) (34.1) (37.7)Disposal of software intangibles 4.7 - -Purchase of investment securities (5,751.7) (4,202.7) (6,447.5)Disposal of investment securities 6,651.2 4,472.8 7,435.3Net cash inflow/(outflow) fromcontinuing investing activities 884.3 212.2 937.0 Discontinued operations:Net cash inflow from discontinuedinvesting activities 0.2 34.1 90.6 Total net cash inflow/(outflow)inflowfrom investing activities 884.5 246.3 1,027.6 Cash flows from financing activitiesContinuing operations: Proceeds from issue of share capital - 5.4 5.4 Net cash inflow from continuingfinancing activities - 5.4 5.4 Discontinued operations: Net cash inflow from discontinuedfinancing activities - - - Total net cash inflow from financing activities - 5.4 5.4 Increase/(decrease) in cash and cashequivalents in the period 67.7 124.5 311.6 Cash and cash equivalents at thebeginning of the period 7 627.6 322.9 322.9 Exchange adjustments 1.2 (2.1) (6.9) Cash and cash equivalents at the end ofthe period 7 696.5 445.3 627.6 * See note (1) on page 13 NOTES TO THE FINANCIAL INFORMATION 1. Significant accounting policies The accounting policies are unchanged from those set out in our previous InterimResults announcement for the six months ended 30 June 2005 published on 27 July2005. 2. Impairment losses on loans and advances to customers Group operating profit is stated after charging impairment losses on loans andadvances to customers of £177.5 million (30 September 2004 on a UK GAAP basis:£143.9 million). The impairment losses on loans and advances to customers at 30September 2005 have been calculated on the basis of IAS 39. The balances at 30September 2004 and 31 December 2004 were calculated on the basis of UK GAAP asexplained in the principal accounting policies in the 2004 annual report. Continuing Discontinued Total £m £m £mBalance at 31 December 2004 under UK GAAP 249.4 0.9 250.3IAS 39 transition adjustments (3.3) - (3.3)IFRS reclassification 7.7 - 7.7Revised balance at 1 January 2005 under IFRS 253.8 0.9 254.7Amounts written off (111.9) (1.2) (113.1)New and additional allowances 177.2 0.3 177.5Net charge against allowances 65.3 (0.9) 64.4Balance at 30 September 2005 319.1 - 319.1 Allowances at 30 September 2005 were 4.0% of advances to customers (30 September2004: 3.3%). 3. Tax The taxation charge assumes a UK corporation tax rate of 30% (2004: 30%) andcomprises: Nine months ended Nine months ended 30 Year ended 31 30 Sept 2005 Sept 2004 Dec 2004 (Restated)* (Restated)* £m £m £m Tax charge on profit on continuing ordinary 10.5 12.4 24.7activities * See note (1) on page 13 4. Discontinued operations The following is an analysis of the profit/(loss) on ordinary activities aftertax for discontinued operations (represented by Egg France and Funds Direct). Nine months Three months Nine months Three months Year ended ended 30 Sept ended 30 ended 30 Sept ended 30 Sept 31 Dec 2004 2005 Sept 2005 2004 2004 (Restated)* (Restated)* (Restated)* £m £m £m £m £m Net interest (expense)/income (0.1) 0.1 5.6 2.3 6.4Other operating income/(expense) 0.8 (0.2) 1.2 1.1 (6.0) Operating income 0.7 (0.1) 6.8 3.4 0.4Administrative expenses (13.4) (0.8) (34.9) (9.6) (45.6)Depreciation and amortisation 1.0 - (16.4) (14.2) (7.1)Impairment of goodwill and fixed assets re Funds Direct - - - - (16.6)Impairment losses on loans and advances to customers (0.3) - (14.3) (3.8) (20.1)Utilisation of provision for loss on termination of discontinued operations 13.4 0.4 19.7 19.7 25.9 Operating profit/(loss) 1.4 (0.5) (39.1) (4.5) (63.1)Release/(provision) for loss on termination of discontinued operations 0.2 - (112.8) (112.8) (112.8) Profit/(loss) on discontinued ordinary activities before tax 1.6 (0.5) (151.9) (117.3) (175.9) Tax (charge)/credit on profit/(loss) on ordinary activities (0.5) 0.1 45.7 32.8 38.7 Retained profit/(loss) attributable to discontinued operations 1.1 (0.4) (106.2) (84.5) (137.2) * See note (1) on page 13 5. Earnings per share The consolidated earnings/(loss) per share is calculated by dividing theretained profit/(loss) attributable to the Group for the financial period by theweighted average of ordinary shares in issue during the period. The continuingearnings per share was calculated by dividing the profit after tax attributableto continuing operations for the financial period by the weighted average ofordinary shares in issue during the period. The discontinued earnings/(loss) per share for the nine months and three monthsended 30 September 2005 is as follows: Nine months Three months Nine months Three months Year ended ended 30 Sept ended 30 Sept ended 30 Sept ended 30 Sept 31 Dec 2004 2005 2005 2004 2004 (Restated)* (Restated)* (Restated)*Discontinued operations:Basic earnings/(loss) per share (pence) 0.2 0 (12.9) (10.3) (15.9)Diluted earnings/(loss) per share 0.2 0 (12.9) (10.3) (15.9)(pence) * See note (1) on page 13 The discontinued earnings/(loss) per share was calculated by dividing theretained profit or loss attributable to discontinued operations for thefinancial period by the weighted average of ordinary shares in issue during theperiod. 6. Capital Reconstruction In accordance with the resolution agreed by the Annual General Meeting on 16 May2005, Egg plc applied to the High Court to undertake a capital reconstructioneliminating the Share Premium account and Capital Reserve to reduce accumulatedlosses. This capital reconstruction was complete at 30 September 2005 andaccordingly the capital situation of the Group as at 31 December 2004 and as at30 September 2005 is as follows: 30 Sept 2005 31 Dec 2004 (Restated)* Shareholders' equity £m £m Called up share capital 412.2 412.2 Share premium account - 111.0 Capital reserve - 359.7 Other reserves (2.4) (0.5) Accumulated losses (59.5) (541.2) Shareholders' equity 350.3 341.2 * See note (1) on page 13 7. Cash and cash equivalents As at 1 January Cash flow(2) As at 30 Sept 2005 2005 (Restated)* £m £m £m Cash 14.0 (6.7) 7.3Loans and advances to other banks payable on demand 344.2 102.0 446.2Cash equivalents 269.4 (26.4) 243.0 627.6 68.9 696.5 As at 1 January 2004 Cash flow As at 30 Sept 2004 (Restated)* (Restated)* (Restated)* £m £m £m Cash 13.3 0.9 14.2Loans and advances to other banks payableon demand 146.6 (55.6) 91.0 Cash equivalents 163.0 177.1 340.1 322.9 122.4 445.3 As at 1 January Cash flow As at 31 December 2004 2004 (Restated)* (Restated)* (Restated)* £m £m £m Cash 13.3 0.7 14.0Loans and advances to other banks payableon demand 146.6 197.6 344.2Cash equivalents 163.0 106.4 269.4 322.9 304.7 627.6 * See note (1) on Page 13 7. Cash and cash equivalents (continued) The cash balance at 30 September 2005, 31 December 2004 and 30 September 2004relates solely to a cash ratio deposit, held with the Bank of England. 8. Segmental information The Group is organised into two main business segments: (i) Retail Financial Services ("Retail") - is responsible for all customerfocused products and services. It includes credit cards, consumer loans,mortgages, savings and insurance products. (ii) Treasury and Balance Sheet Management ("Wholesale") - is responsible forasset and liability management across the Group's overall balance sheet. Inparticular it manages the Group's capital and liquidity positions as well asmanaging market and currency risks. In determining how to allocate income and costs between these two segments, theGroup uses a transfer pricing methodology. Given its responsibility for management of the overall balance sheet, capitaland liquidity the Wholesale segment effectively charges or pays a net transferprice depending on whether it is funding or investing the net balancetransferred from the Retail balance sheet each day. This net transfer price ismarket based and adjusted firstly to take account of liquidity requirements andsecondly for derivatives used to manage the interest rate risk within the Retailbalance sheet. The cost of the debt capital held by the Group is split between Retail andWholesale according to the proportion of risk weighted assets held within eachsegment. The balance of the risk weighted assets is currently calculatedaccording to the Basel 1 definitions. The net return on investing the equity capital including the costs of thevarious capital management techniques currently in use by the Group includingcredit card securitisation and credit default swaps is earned by Treasury andfor segmental reporting purposes is also split between Retail and Wholesaleaccording to the proportion of risk weighted assets held within each segment . 8. Segmental information (continued) All external customer revenues and expenses are allocated to Retail as are themajority of the Group's operating costs and the investment in brand andmarketing. The costs allocated to the Wholesale segment are directlyattributable to its lines of business. As the Group has disposed of its French business, it no longer considersdisclosure along geographical segmentation lines to be appropriate. Theresults, cash flows, assets and liabilities relating to the French business areincluded within discontinued operations. Retail Wholesale Total £m £m £mNine months ended 30 Sept 2005Continuing operations:Net interest income 218.7 3.7 222.4Operating profit 27.8 3.1 30.9 Discontinued operations:Net interest expense (0.1) - (0.1)Operating profit 1.4 - 1.4 Three months ended 30 Sept 2005Continuing operations:Net interest income 83.3 1.4 84.7Operating profit 17.5 0.4 17.9 Discontinued operations:Net interest income 0.1 - 0.1Operating loss (0.5) - (0.5) Year ended 31 December 2004Continuing operations:Net interest income 280.3 7.1 287.4Operating profit 55.6 5.4 61.0Discontinued operations:Net interest income 6.4 - 6.4Operating loss (63.1) - (63.1) 8. Segmental information (continued) Retail Wholesale Total £m £m £mNine months ended 30 Sept 2004Continuing operations:Net interest income 209.3 5.0 214.3Operating profit 43.6 2.6 46.2 Discontinued operations:Net interest income 5.6 - 5.6Operating loss (39.1) - (39.1) Three months ended 30 Sept 2004Continuing operations:Net interest income 68.3 1.5 69.8Operating profit 12.8 0.6 13.4 Discontinued operations:Net interest income 2.3 - 2.3Operating loss (4.5) - (4.5) APPENDICES UK GAAP TO IFRS RECONCILIATIONS Appendix 1 contains the reconciliations from UK GAAP to IFRS of the: • income statement for • the nine months ended 30 September 2004, and • the three months ended 30 September 2004; • balance sheet as at • 30 September 2004; and • cash flow statement for • the nine months ended 30 September 2004. Explanations have also been provided for key reconciling items. In presentingthe financial statements and the reconciliations contained in this document, theGroup has applied IAS 1 'Presentation of Financial Statements', and for the cashflow statement, IAS 7 'Cash Flow Statements'. Therefore certainreclassifications have been made to comply with these standards, and whereapplicable, other standards, to ensure compliance with the presentationrequirements of IFRS. Reconciliations from UK GAAP to IFRS of the: • income statement for • the three months ended 31 March 2004, and • the year ended 31 December 2004; • balance sheet as at • 31 March 2004, • 31 December 2004, • 1 January 2005 (to reflect the adoption of IAS 32 and IAS 39); and • cash flow statement for • the three months ended 31 March 2004, and • the year ended 31 December 2004 are contained in the Press Release on the results for the three months ended 31March 2005. 1. EXPLANATION OF KEY IMPACTS OF TRANSITION FROM UK GAAP TO IFRS (a) IFRS 2 Share-based Payment In accordance with IFRS 2, the Group is required to recognise a fair valuecharge for all share-based payments granted after 7 November 2002, includingSave-As-You-Earn schemes. The fair values are to be determined at the date ofgrant using option valuation models and for this purpose, the Group is using theBlack-Scholes model for all Save-As-You-Earn schemes and the Present EconomicValue (binomial) model for the Restricted Share Plans (RSPs) and the Group'sother option schemes. The fair value charge is spread over the relevant vestingperiod and adjusted for lapses, with the number of shares expected to lapseestimated at each balance sheet prior to the vesting date. The only exceptionis where the share-based payment has vesting outcomes attached to market basedperformance conditions such as in the case of some of the RSPs. Under thesecircumstances, additional modelling is required to take into account thesemarket based performance conditions which effectively estimate the number ofshares expected to vest. No subsequent adjustment is then made to the fairvalue charge for shares that do not vest in the event that these performanceconditions are not met. (b) IFRS 3 Business Combinations Under IFRS 3, goodwill is considered to be an intangible asset under IFRS and istherefore not amortised. Instead it is carried at cost and assessed annuallyfor impairment or also when there are indicators of impairment. Under IFRS 1, an exemption is available in the standard which provides an entitywith an option not to retrospectively apply IFRS 3. The Group has elected toadopt this exemption, and accordingly the impact of this will be to deem the UKGAAP balance of goodwill at the date of transition to IFRS (1 January 2004) asbeing the cost of goodwill for IFRS purposes. Restatements prior to this dateare not required. For the purposes of restating 2004 to an IFRS basis, allgoodwill amortisation charges were removed, including those charges recognisedby our associate for which we have equity accounted. These charges were postedin the associate line. 1. EXPLANATION OF KEY IMPACTS OF TRANSITION FROM UK GAAP TO IFRS (Continued) (c) IAS 12 Income Taxes The income tax credit relates to the recognition of a deferred tax asset onshare schemes in accordance with IAS 12. The amount of the deferred tax isbased on the amount expected to be tax assessable to the employee (taxdeductible for the company) which is the market price of the share at vestingless any amounts payable by the employee (intrinsic value). As a consequence,there is not necessarily any correlation between the amounts recognised fordeferred tax under IAS 12 and the amounts charged as the fair value charge under IFRS 2. Theamount of deferred taxes is also recognised over the relevant vesting period. IAS 12 requires that deferred tax assets and liabilities be recognised ontemporary differences, subject to the assessment of recoverability on a 'probable' basis. In applying the requirements of the standard, the only areawhich gave rise to a deferred tax adjustment for the Group in 2004 was in thearea of share-based payments as described above. (d) IAS 38 Intangible Assets IAS 38 requires that software which is not an integral part of the relatedhardware be classified as an intangible asset rather than as a tangible fixedasset. For this purpose, we have reclassified the net book value of certainsoftware from tangible to intangible assets. IAS 38 also requires that costsdirectly attributable to software development be capitalised and amortised overthe software's useful life, subject to it meeting the future economic benefitscriteria. In applying these specific criteria under IAS 38, the Group did notidentify any such further costs to be capitalised under transition to IFRS.Accordingly, the only adjustment on transition to IFRS was a balance sheetreclassification. 2. UK GAAP TO IFRS RECONCILIATIONS - INCOME STATEMENT 2A. Reconciliation of the Income StatementFor the nine months ended 30 Sept 2004 UK GAAP on Reclassifications IFRS 2 IFRS 3 IAS 12 Total Effect Restated an IFRS Share-based Business Income of under IFRS format Payments Combinations Taxes Transition (unaudited) to IFRS £m £m £m £m £m £m £mContinuing operations:Interest income 664.3 - - - - - 664.3Interest expense (450.0) - - - - - (450.0) Net interest income 214.3 - - - - - 214.3Fee and commission income 156.8 - - - - - 156.8Fee and commission expense (18.9) - - - - - (18.9) Net fee and commission income 137.9 - - - - - 137.9Other operating income 4.9 - - - - - 4.9 Operating income 357.1 - - - - - 357.1Administrative expenses - personnel expenses - (63.2) (3.4) - - (66.6) (66.6) - depreciation and amortisation (15.0) - - - - - (15.0) - other administrative expenses (162.9) 63.2 - - - 63.2 (99.7) (177.9) - (3.4) - - (3.4) (181.3) Impairment losses on loans andadvances to customers (129.6) - - - - - (129.6) Operating profit 49.6 - (3.4) - - (3.4) 46.2Share of operating profit of joint venture 0.4 - - - - - 0.4Share of associate losses (0.9) - - 0.7 - 0.7 (0.2) Profit on continuing ordinary activities before tax 49.1 - (3.4) 0.7 - (2.7) 46.4 2A. Reconciliation of the Income StatementFor the nine months ended 30 Sept 2004 (continued) UK GAAP on Reclassifications IFRS 2 IFRS 3 IAS 12 Total Effect Restated an IFRS Share-based Business Income of under IFRS format Payments Combinations Taxes Transition (unaudited) to IFRS £m £m £m £m £m £m £mTax charge on profit on continuing ordinary activities (12.4) - - - - - (12.4)Profit on continuing ordinary activities after tax 36.7 - (3.4) 0.7 - (2.7) 34.0 Discontinued operations: Loss on discontinued ordinary activities after tax (106.7) - - 0.5 - 0.5 (106.2) Retained loss for the period (70.0) - (3.4) 1.2 - (2.2) (72.2) 2. UK GAAP TO IFRS RECONCILIATIONS - INCOME STATEMENT 2B. Reconciliation of the Income StatementFor the three months ended 30 Sept 2004 UK GAAP on Reclassifications IFRS 2 IFRS 3 IAS 12 Total Effect Restated an IFRS Share-based Business Income of under IFRS format Payments Combinations Taxes Transition (unaudited) to IFRS £m £m £m £m £m £m £mContinuing operations:Interest income 231.2 - - - - - 231.2Interest expense (161.4) - - - - - (161.4) Net interest income 69.8 - - - - - 69.8Fee and commission income 51.0 - - - - - 51.0Fee and commission expense (4.1) - - - - - (4.1) Net fee and commission income 46.9 - - - - - 46.9Other operating income 1.5 - - - - - 1.5 Operating income 118.2 - - - - - 118.2Administrative expenses - personnel expenses - (17.6) (4.8) - - (22.4) (22.4) - depreciation and amortisation (3.1) - - - - - (3.1) - other administrative expenses (49.7) 17.6 - - - 17.6 (32.1) (52.8) - (4.8) - - (4.8) (57.6) Impairment losses on loans andadvances to customers (47.2) - - - - - (47.2) Operating profit 18.2 - (4.8) - - (4.8) 13.4Share of operating profit of joint venture 0.1 - - - - - 0.1Share of associate losses (0.1) - - 0.1 - 0.1 - Profit on continuing ordinary activities before tax 18.2 - (4.8) 0.1 - (4.7) 13.5 2B. Reconciliation of the Income Statement For the three months ended 30 Sept 2004 (continued) UK GAAP on Reclassifications IFRS 2 IFRS 3 IAS 12 Total Effect Restated an IFRS Share-based Business Income of under IFRS format Payments Combinations Taxes Transition (unaudited) to IFRS £m £m £m £m £m £m £mTax charge on profit on continuing (0.7) - - - (0.2) (0.2) (0.9)ordinary activitiesProfit on continuing ordinary activities after tax 17.5 - (4.8) 0.1 (0.2) (4.9) 12.6Discontinued operations:Loss on discontinued ordinary activities after tax (84.6) - - 0.5 (0.4) 0.1 (84.5)Retained loss for the period (67.1) - (4.8) 0.6 (0.6) (4.8) (71.9) 3. UK GAAP TO IFRS RECONCILIATIONS - BALANCE SHEET 3A. Reconciliation of the Balance SheetAs at 30 September 2004 UK GAAP on an IFRS Restated IFRS format adjustments under IFRS (unaudited) £m £m £mAssetsCash and balances with central banks 14.2 - 14.2Loans and advances to banks 416.4 - 416.4Securities purchased under agreement to resell 1.4 - 1.4Investment securities 3,909.1 - 3,909.1Derivative financial instruments - 10.7 10.7Loans and advances to customers 7,353.5 - 7,353.5Prepayments and accrued income 80.7 - 80.7Investments in joint venture and associate 5.8 0.7 6.5Property, plant and equipment 107.9 (56.7) 51.2Intangible assets 1.9 57.2 59.1Deferred tax 23.3 0.5 23.8Other assets 137.7 (10.7) 127.0 Total assets 12,051.9 1.7 12,053.6 LiabilitiesDeposits by banks 2,481.2 - 2,481.2Securities sold under agreements to repurchase 531.1 - 531.1Customer accounts 6,570.3 - 6,570.3Investment securities in issue 1,127.5 - 1,127.5Derivative financial instruments - 13.0 13.0Other liabilities 232.2 (13.0) 219.2Accruals and deferred income 197.7 - 197.7Provisions for liabilities and charges 96.5 - 96.5Subordinated liabilities- Dated loan capital 450.8 - 450.8 Total liabilities 11,687.3 - 11,687.3Shareholders' equityCalled up share capital 412.2 - 412.2Share premium account 111.0 - 111.0Capital reserve 359.7 - 359.7Other reserves - (3.3) (3.3)Accumulated losses (519.2) 5.0 (514.2) Total equity attributable to the equity holdersof the parent 363.7 1.7 365.4 Minority interests (equity) 0.9 - 0.9 Total equity 364.6 1.7 366.3 Total equity and liabilities 12,051.9 1.7 12,053.6 4. UK GAAP TO IFRS RECONCILIATIONS - CASH FLOW STATEMENT The most significant adjustment to the cash flow statement under IFRS is anadjustment to reclassify certain amounts from loans and advances to cash andcash equivalents. Presentation of a cash flow statement on an IFRS basis doesnot affect the underlying cash flows of the business. 4A. Reconciliation of the Cash Flow StatementFor the nine months ended 30 September 2004 UK GAAP on an IFRS Restated under IFRS format adjustments IFRS (unaudited) £m £m £mCash flows from operating activitiesContinuing operations:Operating profit before taxation 49.6 (3.4) 46.2Adjusted for:Depreciation, impairment and amortisation 42.1 - 42.1Impairment losses on loans and advances tocustomers 52.3 - 52.3Gain on sale of investment securities (1.6) - (1.6)Share schemes adjustment in reserves - 3.4 3.4Net (increase)/decrease in operating assets:Loans and advances to banks (145.5) (55.6) (201.1)Loans and advances to customers (583.2) - (583.2)Securities purchased under agreement to resell (1.4) - (1.4)Accrued income and prepayments 35.5 - 35.5Other assets 41.2 - 41.2Net increase/(decrease) in operating liabilities: 988.7 - 988.7Deposits by banksSecurities sold under agreements to repurchase (298.1) - (298.1)Customer accounts 118.6 - 118.6Investment securities in issue (295.5) - (295.5)Accruals and deferred income 0.8 - 0.8Other liabilities (12.8) - (12.8)Taxation paid (8.5) - (8.5) Net cash outflow from continuing operatingactivities (17.8) (55.6) (73.4) Discontinued operations:Net cash outflow from discontinued operatingactivities (53.8) - (53.8) Total net cash outflow from operating activities (71.6) (55.6) (127.2) 4A. Reconciliation of the Cash Flow Statement For the nine months ended 30 September 2004 (continued) UK GAAP on an IFRS Restated under IFRS format adjustments IFRS (unaudited) £m £m £mCash flows from investing activitiesContinuing operations:Purchase of property, plant and equipment (25.7) - (25.7)Disposal of property, plant and equipment 1.9 - 1.9Purchase of software intangibles (34.1) - (34.1)Purchase of investment securities (4,202.7) - (4,202.7)Disposal of investment securities 4,472.8 - 4,472.8 Net cash inflow from continuing investingactivities 212.2 - 212.2 Discontinued operations: Net cash inflow from discontinued investingactivities 34.1 - 34.1 Total net cash inflow from investingactivities 246.3 - 246.3 Cash flows from financing activitiesContinuing operations:Proceeds from issue of share capital 5.4 - 5.4 Total net cash inflow from financingactivities 5.4 - 5.4 Increase/(decrease) in cash and cashequivalents in the period 180.1 (55.6) 124.5 Cash and cash equivalents at the beginningof the period 159.9 163.0 322.9 Exchange adjustments (2.1) - (2.1) Cash and cash equivalents at the end of theperiod 337.9 107.4 445.3 Average Balance Sheet (UK Business Only) (£m, except percentages) 30 September 30 September 31 December 2005 2004 2004 Avg. Avg. Avg. Avg. Avg. Avg. Balance Rate % Balance Rate % Balance Rate %AssetsWholesale assets 3,658 4.44 4,302 4.85 4,212 4.51Mortgages 1,676 5.37 1,920 4.91 1,835 5.09Personal loans 2,675 6.92 2,009 7.39 2,228 7.25Credit cards 3,663 9.93 3,046 9.02 3,175 9.61Total average interest-earning assets 11,672 6.86 11,277 6.44 11,450 6.55Fixed and other assets 208 328 339Total assets 11,880 11,605 11,789LiabilitiesCustomer accounts 6,322 4.39 6,357 3.61 6,280 3.90Wholesale liabilities and subordinated debt 4,626 4.59 4,277 4.09 4,540 4.67Total average interest-bearing 10,948 4.47 10,634 3.81 10,820 4.22liabilitiesOther liabilities 455 444 450Total liabilities 11,403 11,078 11,270Total equity 469 508 519Total equity and liabilities 11,872 11,586 11,789 Note: The above analysis represents interest earned or borne on on-balance sheetassets and liabilities only. In each case the average balances and yields havebeen calculated on a 12-month rolling basis. The figures for Q3 2005 are compiled on an IFRS basis including the effect ofIAS 32 and IAS39 and as such are no longer comparable to the prior period andprior year figures. In addition the revised classification of items between netinterest income and other operating income as per Note 2 on Page 4 means themargins and yields presented for Q1 and Q2 2005 will have changed. Average Yields (UK Business Only) 30 September 30 September 31 December 2005 2004 2004 Average rate % Average rate % Average rate % Interest income as a percentage of average 6.86 6.44 6.55 interest-earning assetsInterest expense as a percentage of average 4.47 3.81 4.22 interest-bearing liabilitiesInterest spread 2.39 2.64 2.33Net interest margin (includes interest on off-balance sheet items) 2.50 2.42 2.51 Note: This press release contains certain forward-looking statements with respect tothe financial condition, results of operations, and businesses of the Egg Group.These statements and forecasts involve risk and uncertainty because theyrelate to events that depend upon circumstances that will occur in the future.There are a number of factors that could cause actual results or developments todiffer materially from those expressed or implied by these forward-lookingstatements and forecasts. The statements have been made with reference toforecast price changes, economic conditions and the current regulatoryenvironment. Nothing in this press release should be construed as a profitforecast. Ends For further information: Media: Egg Press Office (main number): 020 7526 2600 Emma Byrne: 020 7526 2565 / mobile: 07775 657 241 Analysts / Investors: Kieran Coleman: 020 7526 2648 / mobile: 07711 717 358 -------------------------- (1) The adjustment relates to deferred tax on share-based payments. (2) The movement in cash flow includes FX movements. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Prudential