City cautious on international expansion as Egg losses narrow
23 July 2002 | 3162 views | 0
UK Internet bank Egg is reporting a small loss and the recruitment of 205,000 net new customers in the second quarter, as its total customer base rises to 2.3 million.
Egg turned in Q2 losses of £1.2 million after reporting its first profit in the previous quarter. The return to the red follows Egg's acqusition of French stand-alone unit Zebank, and an increased spend on international development and marketing activities. However, losses have narrowed considerably from the £25.5 million reverse reported in Q2 last year.
Within the UK business, Egg reported a pre-tax profit of £8.7 million during the six months to 30 June (H1 2001: £61.7 million loss) - above analyst estimates. Savings balances at Egg grew by £1.6 billion, with a new interest offering reversing the £0.7 billion outflow recorded in the first half last year.
"We have had another strong half year for customer growth with 362,000 net new customers acquired taking our total to over 2.3 million," says Egg CEO Paul Gratton.
He says the result reflects the success of the recent refresh of the Egg brand, with a Q2 TV advertising campaign delivering 205,000 net new customers for the quarter. He adds: "Even after this strategic investment in brand and marketing spend, our UK business delivered growing profits in Q2 and we remain confident that this trend will continue as we move into the second half of the year."
Provisions for bad debt rose to £20.6 million during the second quarter, up from £16.4 million a year ago, as the company won 5% market share of UK card balances. Gratton is confident about credit quality: "Whilst we continue to monitor credit performance closely, we are happy with the credit quality of our card portfolio and our proposition continues to attract upmarket customers."
Given the individual success of Egg Card, the company is to discontinue the co-branded Advantage loyalty credit card set up with UK high street pharmacist Boots with effect from the end of October. The 104,000 existing customers will be offered a separate Egg branded credit card and a Boots Advantage loyalty card.
Internationally, the company has invested £2 million on research and development in the year to date, mainly on building new functionality into its investments platforms. A further £5.5 million relates to Egg France including operating losses of Zebank for the month of June following completion of the acquisition.
Costs of the international division are set to grow significantly in the second half as Egg gears up for launch in France later in the year.
Egg plans to spend £100 million over the next three years to establish its brand in the French market. As a result, some City analysts are suggesting that investors should take a profit and sell the bank's stock now.