Egg edges towards profitability

Egg's campaign to win new customers seems to have worked

Internet bank Egg has narrowed its losses by 21% in the first six months of the year.

The bank ran up pre-tax losses of £63.4m in the first half of the year compared to £80.7m in the same period a year ago.

It's becoming less expensive to acquire customers

Paul Gratton
Egg boss

The results were better than expected, with analysts expecting a loss of £65-70m.

It said 370,000 net new customers were signed up during the six month period, a 19% rise on the first half of the previous year.

Egg says it is on target to break even at some point during the last three months of the year.

But chief executive Paul Gratton declined to comment on when the bank would enter a period of sustainable profitability.

Cross-selling

Mr Gratton said that the timeframe for making a sustainable profit was largely a factor of the bank's decision on how fast the directors chose to grow the bank.

Egg now has 1.7 million people using its financial services.

"We're very pleased with the rate of customer growth, we've acquired more customers than in any other period so far, and this is despite the fact that marketing efforts have decreased," said Mr Gratton.

Egg customers, 30 June 2001

Credit Card
1,125,982

Personal loans
91,566

Mortgages
22,496

Egg Invest
31,796

Deposits
625,471

Egg Insure
15,534

Total
1,720,881

The bank did not say how many customers have taken their banking away from Egg during the first six months of the year.

Credit cards remain the principal acquisition product.

And the bank notes that 89% of customers kept their credit card account, even after the bargain offers designed to draw in customers had expired.

"This is even better than we thought," said Mr Gratton, who also noted that it has become less expensive to acquire customers.

Egg Invest has also performed well, trebling in size since the start of the year to reach 32,000 customers.

Mortgage blues

But Egg's foray into the mortgage market has been less successful, with Egg branded mortgage sales down to £164m compared with £318m the previous year.

Mr Gratton said it had decided not to compete aggressively in a highly competitive market, and would primarily market mortgages as part of its cross-selling strategy.

Cross-selling - where each customer is encouraged to hold multiple Egg products - is a key to Egg's strategy to reach profitability.

The ratio of cross selling has increased to 1.36 - in other words a third of customers hold another product, up from 1.09 last year.

The bank aims to achieve a ratio of 1.5 in the medium term.

International expansion

The company said that its alliance with Microsoft to distribute financial services was a first step towards establishing an international presence.

Mr Gratton highlighted France and Germany as the key areas of interest for a future partnership, but also mentioned the potential of Spain and Italy.

The bank was partially floated by parent company Prudential in June last year.

After slumping in late 2000, its shares have outperformed the UK banking sector by about 40% so far this year and risen by 36% since January.

Shares in Egg were a 1p higher at 163p at 0945 in London (0845 GMT). That is 3p above the float price.