Interim Results - Part 1

WOOLWICH PLC
29 July 1999


PART 1

                      1999 INTERIM RESULTS HIGHLIGHTS

DELIVERING PROFITABLE GROWTH

RESULTS

Profit before tax and interest on capital up 12.1% to £188.9m (£168.5m: H1
1998)
Profit before tax up 4.1% to £250.3m (£240.4m: H1 1998)
Earnings per share up 8.0% to 10.8p per share
Post-tax return on average equity up to 19.4% from 16.7%

TRADITIONAL BUSINESSES

Net interest margin maintained at 2.00% (2.02%: H1 1998)
UK net lending up £795m to £1,025m
UK mortgage market net share estimated at 5% (1.5%: H1 1998)
Total net mortgage lending up to £1,060m and gross lending £3,190m

GROWTH BUSINESSES

Total non-interest income up by 35% on a continuing basis, now 28.8% of
operating income (26.2%: H1 1998)
Life assurance and pensions income up by 45.5% to £21.1m
IFA income up by 101.6% to £24.6m (£12.2m: H1 1998)

DEVELOPMENT

Major investment of £14.4m in Global Home Loans, Open Plan Services and
FirstPlus

CAPITAL AND DIVIDENDS

Interim dividend up 11.4% to 3.9p per share
Continuation of share buy-back programme confirmed

Commenting on the results, Woolwich Group Chief Executive, John Stewart said:
'Over the last six months we have delivered profitable growth as shown by
excellent growth in lending and non-interest income and a 12% growth in
trading profit.  At the same time we have made significant investment in new
businesses such as Open Plan Services, the joint venture with Countrywide and
FirstPlus.  Our recently announced joint venture with Littlewoods will nearly
double our customer reach.  We are now making real progress in transforming
the business.'


SUMMARY OF RESULTS

                                         Half Year to 30 June       Year to 31
                                                                      December
                                                                          1998
Financial Performance                      1999           1998
Profit before tax*          (£m)          250.3          240.4           505.1
Profit before tax and       
interest on capital*        (£m)          188.9          168.5           363.4
Earnings per share*         (p)            10.8           10.0            21.2
Basic earnings per share    (p)            10.8           10.0            20.6
Post-tax return on average  
equity*                     (%)            19.4           16.7            18.6
Post-tax return on average  
risk weighted assets*       (%)            2.14           2.19            2.22
Net interest margin on      
total assets                (%)            2.00           2.02            2.02
Net interest margin on      
interest earning assets     (%)            2.10           2.11            2.15
Net interest spread         (%)            1.79           1.65            1.67
Customer spread             (%)            2.06           2.08            2.12
Non-interest income         (£m)          133.3          113.5           266.7
Cost to income ratio*       (%)            42.9           42.8            42.7

Dividend
Ordinary dividends per      
share                       (p)             3.9            3.5            10.6
Special dividend per share  (%)             -              -              15.0

Customer lending
UK gross lending            (£m)        3,117.3        1,842.0         4,681.7
UK net lending              (£m)        1,024.7          230.0         1,128.8
Continental gross lending   (£m)          454.4          221.9           570.7
Continental net lending     (£)           287.3          105.3           295.6
Market share UK gross       
mortgage lending**          (%)             5.4            4.4             4.9
Market share UK net         
mortgage lending**          (%)             5.0            1.5             3.7
Asset share UK mortgages**  (%)             5.4            5.4             5.4

Retail savings
Customer balances           (£m)       21,102.8       21,867.1        21,821.8
Funds under management      (£m)          2,582          1,856           2,057
Market share retail         
deposit balances**          (%)             3.3            3.6             3.5


Risk asset ratios
Total capital ratio         (%)            14.3           17.3            14.6
Tier 1 ratio                (%)            10.8           13.3            10.9


*Excludes loss on disposal of Woolwich Property Services Limited in 1998
** Total market for half year to 30 June 1999 estimated                       
                                                                   

CHIEF EXECUTIVE'S REVIEW


Summary

In the half year to 30 June profit before tax and interest on capital grew by
12.1% to £188.9m from £168.5m. Headline earnings per share grew by 8.0% to
10.8p compared with 10.0p. The Company has declared an interim dividend of
3.9p per share, an increase of 11.4% over 1998 which will be paid on 11
October 1999 to shareholders on the register at 27 August 1999. 

In our traditional markets we experienced lower interest rates and intense
competition, especially from new entrants. Against this background Woolwich
performed well, competing vigorously with good lending volumes at profitable
rates. The net interest margin on total assets was successfully maintained at
2.00% with net interest spread increasing from 1.67% at year end to 1.79% in a
period which experienced successive interest rate reductions. 

Growth in new business areas has continued unabated with an underlying 35%
increase in income over the period. The ability to grow non-interest income
will become increasingly important in a low interest rate environment. As a
result of targeted investment in our IFA business, its income doubled to
£24.6m.

Over the period, the results of our Open Plan Services pilot continued to
excite us and the interest shown in the joint venture with Countrywide
confirmed our confidence in its potential. Moreover, FirstPlus has proved an
excellent acquisition, doubling its business over the last six months. During
the period, significant investment took place in these new business operations
the benefits of which will come on stream in future years, with £14.4m
invested in total. We are confident that not only will these investments
improve Woolwich's positioning in a fast changing financial services market
but also that they will help deliver superior returns in the future.  The
announcement on 12 July of a joint venture with Littlewoods to provide banking
services to a customer base of 3.5m people is a further step towards this
strategic goal. 

Strategy

Woolwich's objective is to provide tailored personal financial services to an
extensive set of individual customers. Our focus is on developing distribution
capabilities and the effective management of our customers' money. This will
be achieved by maximising income from traditional businesses through
progressive improvements in every aspect of their operation. We will
simultaneously invest in building new income streams and developing an
integrated service which can be delivered through a wide range of channels to
meet the specific requirements of our customers.

TRADITIONAL BUSINESS AREAS

Despite competition from new entrants seeking market share, the Woolwich
maintained its interest margin. Woolwich took a competitive stance in the
market place, but struck a balance between volume and profit both in the very
competitive savings market and in the lending market, where it refused to be
drawn into making loans at negative margins in order to keep up market share. 

The net interest margin on total assets was 2.00% compared with 2.02% in 1998.
UK net mortgage lending more than quadrupled compared with the same period
last year and held the gains in lending levels achieved in the second half of
1998 due to innovative product design, including the Open Plan flexible
mortgage product. As a result interest income grew by 3.1% compared with the
first half of 1998.


UK Lending

Against the background of a healthy housing market, Open Plan continued to be
successful in both direct and intermediary distribution channels. Woolwich's
position as the provider of the leading flexible mortgage product was a major
factor in holding market share against significant competitive forces. Net
mortgage lending at £773m represented some 5.0% of the market compared with
1.5% in the same period last year. 

Open Plan borrowing has materially contributed to both an increase in the size
of average advance and a reduction in overall loan to value ratios.

Total consumer credit net lending increased more than fourfold, from £58m in
the first half of 1998 to £252m in the period. Consumer credit balances rose
by 296% from a year ago and by 80% from the commencement of the year to reach
£567m. An outstanding contribution was made by FirstPlus which was acquired in
October of last year. Having grown 57% by year end it grew a further 119% by
30 June 1999, with balances totalling £161m. Underwriting criteria remain
cautious and as a result the quality of the book is high. Total unsecured
lending represents only 2% of lending balances and strong further growth is
anticipated.

Credit Quality

The underlying credit quality of the Woolwich's loans portfolio remains
excellent. Figures for mortgage arrears and possessions continued to reduce in
both volume and value terms. 

UK mortgage balances in arrears declined as a percentage of the book from
2.66% at 30 June 1998 to 2.14% by 31 December 1998, to a level of 1.87% at 30
June 1999. Properties in possession declined, with a balance of £29.2m
compared with £34.2m a year ago. The charge for UK mortgage provisions
increased by £0.6m to £1.9m from the first half of 1998, primarily due to the
lower number of accounts in arrears, which resulted in a lower level of write
back from house price increases.

European credit quality also improved continuously over the last year with the
percentage of mortgage balances 2.5% or more in arrears down from 2.83% in
France and 2.77% in Italy a year ago to 2.20% and 1.70% respectively in June
this year. The charge for Continental European provisions rose by £1.3m to
£1.5m, due mainly to the effect of the running off of the Midland Bank
mortgage book and its associated provisions and continued lending growth in
these countries.

Personal unsecured lending arrears are significantly below the industry
average and FirstPlus arrears are negligible.

The provision charge for the period rose by £6.5m to £13.7m with prudent
provisioning for our UK consumer credit accounting for £4.6m of the total
increase. 

Cash-based Savings

Over the last six months, the loss-leading pricing of the new entrants,
together with significant maturities of older, higher fixed rate bonds made it
important that we struck the correct balance between volumes and margins.
Whilst we therefore experienced outflows, we saw a very slight decline in our
liabilities margin.

In the cash-based savings market Woolwich achieved differentiation by offering
untiered rates and highly efficient debit card based access methods to provide
added value to customers. The customers of the highly competitive Card Saver
product rose to 537,000 and this now accounts for over £2bn of balances.

Not surprisingly, in a low interest rate environment, customers have been
increasingly attracted to equity based savings and the Woolwich is well placed
to satisfy this appetite. For example, circa 60% of our unit trust inflows
came from existing customers.

GROWTH BUSINESS AREAS

The growth in our new business areas is the barometer of our success in
diversifying our income streams.  Particular success was achieved in the areas
of independent financial advice, retail banking and life assurance. 

Independent Financial Advice

The independent financial advice business established in 1989 has shown strong
growth in recent years with annual revenues rising from £13.5m in 1996 to
£26.0m last year. The Group's income from independent financial advice in the
first six months of the year doubled over the comparable period in 1998 to
£24.6m. Income growth was driven by a 28% improvement in earnings per adviser
as productivity increased and by outstanding success in equity based products.
In a market where the attraction of good quality advisers can be difficult,
the IFA business increased the number of advisers by 62 to 199, from June
1998.  

Long Term Savings

Total funds under management grew by 26% in the period to £2.6bn while income
from unit trust and PEP activity rose by 24% to £15.6m. The number of accounts
under management in the unit trust business increased by 28% to 339,000. In
addition to our unit trust sales, since the end of the tax year we have
focused on maxi ISAs with equity content and strong positive revenue element.
Woolwich has gained volume in this market while retaining positive margin. We
have avoided competing in the inherently unprofitable cash-based mini ISA
market. 

Income from life assurance and pensions rose by 46% to £21.1m. 

General Insurance

Woolwich has reacted to continuing margin declines in mortgage-related
business by developing the sales of non-mortgage related products. As a
result, general insurance income increased by 9%. Payment protection insurance
related to the rapid growth in unsecured lending has been a strong component
of the income increase.

INVESTING FOR THE FUTURE

Investment in new business ventures is now accelerating. This investment
includes Global Home Loans, the development of the Open Plan Services pilot
and the rapid build up of our consumer finance business which was strengthened
by the acquisition in 1998 of FirstPlus. Total investment in new business
ventures during the period was £14.4m. The recently announced joint venture
with Littlewoods is a further demonstration of our commitment to investing in
the future. 

Global Home Loans (GHL)

Rapid progress has been made on the development of Woolwich's joint venture, 
known as GHL, with US based Countrywide Credit Industries Inc. GHL will bring
the highest standards of US processing to the UK mortgage market. The
conversion programme anticipates pilot mortgage origination by the end of
August and servicing during September. The switch over of the flow of new
Woolwich mortgages will then bed in with five service centres being converted
in the remainder of 1999 and the remaining five service centres by the end of
March 2000. The transfer of Woolwich's existing mortgage book onto GHL's
systems will commence in the fourth quarter of 1999. It is expected that just
under one half of the book will be converted by year end and the remainder by
the first half of the year 2000.

A considerable number of enquiries have been received to make use of GHL's
services. It is likely that the first third party processing will take place
during 2000. The joint venture anticipates reaching break even during 2000 and
generating profits thereafter. The product offering is proving very attractive
and development planning is taking account of substantial levels of external
demand for GHL's services.

Open Plan Services

The Open Plan Services pilot represents Woolwich's prototype of a new approach
to banking which offers customers an integrated service spanning the full
range of financial needs. It combines planning and advice with savings,
borrowing and protection products provided through branch, telephone and
internet channels. 

Data analysis of this expanding base has demonstrated that, in a competitive
environment in which customer loyalty cannot be taken for granted, the
tangible benefits of integration which Open Plan Services offers acts as a
disincentive to rate-driven switching. Market surveys of the users confirm the
strong appeal of the concept, their overall satisfaction with the service and
their willingness to recommend it to others. 

Since its first announcement at the time of the year end results, the numbers
in the pilot have grown from 1,400 to 11,000 with customers purchasing on
average over three products, twice the industry average. Detailed appraisal
work is now underway to evaluate the options for roll-out.

Costs

During the period, expenses increased from £185.3m to £198.6m, including the
investment in our new businesses and our growth businesses.

In addition to the £14.4m invested in new businesses, an incremental £8.0m was
invested in growing non-interest income and was rewarded by a 35% increase in
revenue. We invested at this level whilst maintaining our cost income ratio at
42.9%. We will continue to focus on cost efficiencies in our traditional
businesses as we continue to expand volumes.

Capital

The Woolwich remains well capitalised and, therefore, we have been seeking to
maximise shareholder value by the prudent return of capital to shareholders.
The return of capital in 1999 has been achieved through a combination of a
special dividend (15p per share paid in May amounting to £236m) and a
continuing programme of share re-purchases. During 1999 Woolwich re-purchased
15m shares at a cost of £61m, bringing the total re-purchase of shares since
the commencement of the programme in August 1998 to 46m shares at a cost of
£164m. The total return of capital by both special dividend and share
re-purchase now stands at £506m. 

Income earned on capital balances was affected both by lower interest rates
over the period and by a reduction in the capital balances as a result of
Woolwich's programme of returning surplus capital to shareholders. This has
had an adverse effect of some £10.5m in the first half of 1999, compared with
the same period in 1998. 

The Board intends to continue with its programme of share buy-back, subject to
market conditions and upon advantageous terms to shareholders during the
remainder of the year.

Continental Europe

Total income from Continental Europe increased by 22% in sterling terms over
the equivalent period in 1998. This was a substantial achievement in the face
of strong margin pressures in both countries. In local currency terms Italian
revenues increased by 31% and French revenues by 7%.

Both businesses continue to grow at very high rates with net lending up by 51%
over the second half of last year. Growth is being achieved in markets which
continue to yield a better asset spread than the domestic UK mortgage business
and advances to customers in Continental Europe are now 8% of our total
mortgage book.

The businesses in both countries are gearing up for a further phase of
expansion with additional staff and new systems being the primary drivers for
an increase in operating expenses of £2.7m. 

Treasury Services

The continuing strength of the Treasury performance has seen income grow to
£22.2m in the first half from a base of £11.5m a year previously and from
£15.6m in  the second half of 1998. The key to this increase has been our
approach to balance sheet management which is charged with building
sustainable income flows to take advantage of medium term interest rate
trends. In addition a satisfactory contribution to the first half has been
made from the short term interest rate volatility through the trading
activities which commenced in late 1998. A further source of benefit to the
first half performance has been the opportunity to introduce more flexibility
into our liquidity management through diversifying the stock of liquid assets.

In support of the growth in lending throughout the Group, Treasury has
increased the utilisation of the US$ commercial paper programme and raised
senior debt in both US dollars ($600m) and sterling (£250m). In July, Woolwich
made its debut in the Euro Capital Markets in order to raise lower Tier 2
capital through a Euro 250 million 12 year note issue. Additionally the Euro
commercial paper and certificate of deposit programme has been reintroduced to
service European mainland customers.

Outlook

Recent years have seen the progressive intensification of competition in
retail banking with long term erosion of the margins available in the market
place. In addition to existing providers, the sector has been the focus of
increased attention from the major banks and, more recently, from competitors
from outside the banking sector. Furthermore, the sector now faces a period of
intense scrutiny with the likelihood of changes to regulation. Woolwich's
approach will continue to be a positive one and we see the possibility of
competitive advantage in our drive towards integrated products which offer
genuine economic benefits which work with, rather than against, the thrust of
the review.

Against this backdrop the Woolwich has developed smart products, such as Card
Saver and Open Plan borrowing, which offer real value to the customer. These
are not only differentiated but also more difficult to copy and less price
sensitive. In addition our proven cross-selling ability will become
increasingly valuable in a low interest rate environment as all banks seek to
diversify their income streams.

However the real leaps forward will be as a result of changing the nature of
what we do. The more we learn about GHL and Open Plan Services the more
confident we are that these developments will leave us well placed to deliver
significant shareholder value.        


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