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Halifax PLC (59NB)

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Thursday 25 July, 2002

Halifax PLC

Interim Results - Halifax plc

Halifax PLC
25 July 2002

                                    (Page 1)

Contents



Introduction                                                                                               2




Review of Results and Business Performance                                                                 2




Financial and Other Information                                                                            4




Basis of Preparation                                                                                       8




Independent Review Report by KPMG Audit Plc to Halifax plc                                                10




Advertisement                                                                                             11




Timetable and Contacts                                                                                    11



                                    (page 2)

Introduction

The Directors present the consolidated interim results of Halifax plc for the
six months to 30 June 2002.  On 1 July 2002, Halifax plc transferred from being
a subsidiary undertaking of Halifax Group plc to being a directly held
subsidiary undertaking of HBOS plc.  A comprehensive review of the performance
of the HBOS Group is presented in the interim results announcement of HBOS plc.
A review of the performance of the Halifax plc group is presented below.

Halifax plc has listed preference shares originally issued as part of the
consideration for the acquisition of the business of Birmingham Midshires
Building Society in 1999.  These preference shares represent the only listed
shares of Halifax plc.

Review of Results and Business Performance

Financial Performance

Halifax plc group profit before tax and exceptional items was £628m for the six
months ended 30 June 2002.

Dividends on ordinary shares of £1,043m and dividends of £24m on the
non-cumulative preference shares are reflected in the profit and loss account.

On 1 June 2002, the majority of the Treasury assets and liabilities of Halifax
plc were transferred to HBOS Treasury Services plc, a fellow subsidiary
undertaking of HBOS plc, at book value.  Funding of Halifax plc activities,
following this transfer, will be predominantly from Halifax plc's Retail Banking
accounts and from HBOS Treasury Services plc.

Halifax plc has strong credit ratings (AA S&P, Aa2 Moody's for senior debt at
the authorised bank level).

The five business sectors of the HBOS Group comprise Retail Banking, Insurance &
Investment, Corporate Banking, Business Banking and Treasury.  The business
activities of the Halifax plc group are predominantly within the Retail Banking
business sector of the HBOS Group to the extent that other activities are
immaterial.  Accordingly, in the opinion of the Directors, Halifax plc group has
one class of business and therefore no segmental analysis has been presented.

Business Performance

Total loans and advances to customers increased by 6.9% to £129.4bn, largely
reflecting a strong performance from the mortgage lending business.

The net interest margin for the first half was 1.53% (1.60% H1 2001).

The strong sales performance in the first half of last year has been bettered
with a total of 533,000 new bank accounts.


                                    (page 3)


New credit card launches in the first half of 2002 have helped sales of card
accounts to increase to 511,000 and balances to grow by 26% to £2.5bn.

The year on year growth in unsecured personal loans sales is 41%.  Balances have
also grown by 17%.

Balances across the Savings and Banking product range grew by £2.8bn in the
first half of 2002 (£3.5bn H1 2001).

Intelligent Finance ('IF') had a strong first half performance and after only 18
months of trading has become the largest and fastest growing UK direct bank in
balance terms.  Customer advances now exceed £9bn with customer deposits of
almost £3bn.  IF is now recording positive net interest income on a monthly
basis.

Operating expenses (excluding exceptional items) have increased by 7.2% compared
to the first half of 2001.

Overall for the Halifax plc group, mortgage credit quality, as measured by
arrears performance and closing provisions as a percentage of closing advances,
improved.  In the first half mortgages arrears declined from 1.09% to 0.92% and
total mortgage provisions as a percentage of closing advances declined to 0.25%
from 0.27% as at 31 December 2001.  For the unsecured portfolio, despite the
significant growth in balances, credit quality has remained stable.

Prospects


As the business activities of the Halifax plc group are predominantly within the
Retail Banking business sector of the HBOS Group, the prospects for the Halifax
plc group align with those of the HBOS Retail Banking business sector.  Those
prospects are summarised from the HBOS interim results announcement as follows:

Retail Banking is on track to deliver against all our published targets for
2002.  Whilst we have continued to deliver extraordinary volume growth, all key
credit quality indicators remain strong.

This combination of volume growth, strong credit quality and tight cost control
will provide the Retail Bank with an excellent platform for profit growth in the
second half of 2002 and beyond.


                                    (page 4)




Financial and Other Information

The results incorporated in the primary statements and the financial analysis
below have been prepared using the basis outlined in the Basis of Preparation
section.

Consolidated Profit and Loss Account

                                                      Six months                 Year to
                                                      to 30 June             31 December
                                                 2002             2001              2001
                                          (Unaudited)      (Unaudited,       (Restated)*
                                                            restated)*
                                                   £m               £m                £m
Operating income                                1,536            1,394             2,858



Continuing operations                           1,536            1,355             2,819
Discontinued operations                              -              39                39      Note 1

Operating expenses                               (861)            (768)           (1,602)     Note 2

Provisions for bad                                (89)             (51)             (115)     Note 3
  and doubtful debts
                                                  ____             ____              ____

Operating profit                                  586              575             1,141


Continuing operations                             586              552             1,118
Discontinued operations                              -              23                23      Note 1

Share of operating profit
  in joint ventures                                 4                3                 7
                                                  ____             ____              ____

Profit on ordinary activities
  before tax                                      590              578             1,148
Tax on profit on ordinary activities             (172)            (164)             (350)     Note 4
                                                  ____             ____              ____

Profit on ordinary activities after               418              414               798
tax
Equity minority interests                          (1)               -                 -
                                                  ____             ____              ____

Profit attributable to shareholders               417              414               798
Ordinary dividends                             (1,043)               -              (421)     Note 6
Non-equity dividends                              (24)             (24)              (49)
                                                  ____             ____              ____

Transfer (from)/to reserves                      (650)             390               328
                                                  ____             ____              ____

Profit before tax and
  exceptional items                                628              578             1,190
                                                  ____             ____              ____

*See Basis of Preparation

There were no material gains or losses in any of the periods under review other
than the profit shown above.


                                    (page 5)


Note 1 - Discontinued Operations

On 1 April 2001, Halifax plc transferred its subsidiary, Halifax General
Insurance Services Limited, to Halifax Group plc for consideration of £38m.
This transaction gave rise to neither a gain nor a loss in the consolidated
accounts of Halifax plc.

The annual contribution to the group's results from this activity in previous
years was material.  This activity was therefore reported as a separate business
segment to the date of transfer and regarded as a discontinued activity for
Halifax plc's accounts in the year to 31 December 2001.

Note 2 - Exceptional Items

Exceptional costs have been charged as follows:

                                                                  6 months       6 months       Year to
                                                                to 30.6.02     to 30.6.01      31.12.01

                                                                        £m             £m            £m

Merger integration costs included within Operating expenses            (38)              -          (42)

Tax effect                                                              11               -           11




The merger integration costs cover the costs of integration and reorganisation
following the merger with Bank of Scotland Group in September 2001.

Note 3 - Provisions for Bad and Doubtful Debts

Provisions                                                  Specific           General              Total
                                                                  £m                £m                 £m
At 1 January 2002                                                416               222                638
Amounts written off during the period                            (79)               (2)               (81)
Charge for the period:
- provisions                                                      89                 4                 93
- recoveries                                                      (4)                -                 (4)
                                                                  85                 4                 89
At 30 June 2002                                                  422               224                646

Note 4 - Taxation

The effective rate of corporation tax for the half year ended 30 June 2002 is
29.2% (H1 2001 28.4%) compared to an actual corporation tax rate for the period
of 30% (H1 2001 and full year: 30%).  The difference is principally due to a
release of prior year provisions partially offset by normal non-allowable
expenditure.


                                    (page 6)

Note 5 - The Equitable Life Assurance Society

On 1 March 2001, the operating assets, sales force and unit linked and
non-profit business of The Equitable Life Assurance Society ('The Equitable')
were acquired by the Halifax Group plc group for £507m (including costs of
acquisition).

A fully collateralised loan facility of £251m was also granted by Halifax plc to
The Equitable of which £250m had been advanced.

On 11 January 2002, The Equitable's guaranteed annuity rate and non-guaranteed
annuity rate policy holders voted in favour of a scheme of arrangement to
compromise their respective claims against the with-profits fund.  Following
Court approval, the scheme became effective on 8 February 2002.  Under the terms
of the loan facility, as a result of the scheme having become effective before 1
 March 2002, the requirement for The Equitable to repay the £250m loan was
waived.  This amount has been accounted for as dividends payable to Halifax
Group plc.

Note 6 - Ordinary Dividends

Ordinary dividends reflected in the Profit and loss account comprise:

                                           Notes              6 months to     6 months to      Year to
                                                                  30.6.02         30.6.01     31.12.01
                                                                       £m              £m           £m
In the ordinary course of business                                    367               -          421
Following the transfer of the
  majority  of Treasury assets                     (a)                426               -            -
Loan waived re The Equitable                       (b)                250               -            -
                                                                    _____            ____         ____

                                                                    1,043               -          421
                                                                    _____            ____         ____



Notes


(a)    Dividend paid to transfer excess regulatory capital to HBOS plc to optimise Group capital efficiency,
       following the transfer of the majority of Treasury assets to a fellow subsidiary undertaking of HBOS
       plc.


(b)    Dividend in specie to former intermediate parent undertaking (see note 5).



                                    (page 7)


Consolidated Balance Sheet


                                                    As at 30 June 2002       As at 31 Dec 2001
                                                           (Unaudited)             (Restated)*
                                                                    £m                      £m

Cash and balances at central banks                                 162                     233
Treasury bills and other eligible bills                            114                   3,566
Loans and advances to banks                                     12,358                   8,467
Loans and advances to customers                                129,391                 121,008
Less: non-returnable finance                                   (3,475)                       -         Note 1
                                                               125,916                 121,008
Debt securities                                                  8,613                  32,701
Other assets                                                     3,203                   5,496
                                                                ______                  ______

Total assets                                                   150,366                 171,471
                                                                ______                  ______

Deposits by banks and customers                                125,788                 121,237
Other liabilities                                               18,847                  43,886
Equity minority interests                                           33                       -
Shareholders' funds (including
  non-equity interests):
  Called up share capital
  -  Ordinary shares                                               487                     487
  -  Preference shares                                             800                     800
  Other reserves                                                   143                     143
  Profit and loss account                                        4,268                   4,918
                                                                 5,698                   6,348
                                                                ______                  ______

Total liabilities                                              150,366                 171,471
                                                                ______                  ______

*See Basis of Preparation

Note 1 - Loans and Advances to Customers

On 15 June 2002, Halifax plc securitised £3.5bn of residential mortgages as part
of its ongoing funding programme.  This involved establishing a £10.1bn master
trust (Permanent Mortgage Trustees Limited).  The beneficial interest in respect
of 34% of each of the mortgages was transferred to Permanent Funding No 1
Limited for £3.5bn.  The financing for this arrangement was provided by
Permanent Financing No 1 Limited through the issue of mortgage backed bonds.


                                    (page 8)

Reconciliation of Movements in Shareholders' Funds

                                                               Six months                Year to
                                                               to 30 June            31 December
                                                           2002           2001              2001
                                                    (Unaudited)    (Unaudited,       (Restated)*
                                                                    restated)*
                                                             £m             £m                £m
Profit attributable to shareholders                         417            414               798
Dividends                                                (1,067)           (24)             (470)
                                                           (650)           390               328
Foreign currency translation difference
  on subsidiary undertaking                                   -             (1)                -
Net (reduction in)/addition to
  shareholders' funds                                      (650)           389               328
Opening shareholders' funds*                              6,348          6,020             6,020
Closing shareholders' funds                               5,698          6,409             6,348



*See Basis of Preparation

Basis of Preparation

In the current half year, Halifax plc has implemented FRS 19 'Deferred Tax'.
The cumulative impact on the taxation charge relating to previous years has been
recognised in the accounts as a prior period adjustment and comparative figures
for June 2001 and December 2001 have been restated.  The effect of implementing
this new financial reporting standard has been to reduce the taxation charge by
£1m for the six months ended 30 June 2001 and £2m for the year to 31 December
2001; and to increase profit and loss account reserves at 1 January 2001, 30
June 2001 and 31 December 2001 by £15m, £1m and £2m, respectively.

For the six months ended 30 June 2001, the Intelligent Finance result of £72m
was categorised as an exceptional item within Operating expenses in the profit
and loss account, being substantially expenses incurred in setting up the
business.  Since that date, Intelligent Finance has been treated as ongoing
business and the half year comparative has been brought into line with this
disclosure to aid comparability of the components of operating profit.

All other accounting policies remain unchanged from those stated in the 2001
Annual Report and Accounts.

No material changes to the accounting policies and practices of Halifax plc
arose as a consequence of the merger of Halifax Group plc and Bank of Scotland
Group on 10 September 2001. Certain changes were made to presentation, none of
which had a material effect.


                                    (page 9)

Statutory Accounts

The financial information included in this announcement is unaudited and does
not constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985 ('the Act').  The statutory accounts of Halifax plc for the
year ended 31 December 2001 have been filed with the Registrar of Companies for
England and Wales.  The Auditors have reported on those accounts; their report
was unqualified and did not contain a statement under Section 237 (2) or 237 (3)
of the Act.


                                   (page 10)

Independent Review Report by KPMG Audit Plc to Halifax plc

Introduction

We have been instructed by the Company to review the financial information set
out on pages 4 to 9 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors.  The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where they
are to be changed in the next annual accounts in which case any changes, and the
reasons for them, are to be disclosed.


Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom.  A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed.  A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit.  Accordingly, we do
not express an audit opinion on the financial information.

Review conclusion

On the basis of our review, we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2002.

KPMG Audit Plc
Chartered Accountants
Leeds
24 July 2002


                                   (page 11)



Advertisement


A summary of this announcement will appear as an advertisement in the Financial
Times on 26 July 2002.

Timetable and Contacts


Timetable for preference dividends

31 July 2002                             Ex-dividend date

2 August 2002                            Record date

16 September 2002                        Payment of preference share dividend





Contacts

Investor Relations                       Charles Wycks
                                         Director of Investor Relations
                                         (020) 7905 9600
                                         charleswycks@HBOSplc.com

                                         John Hope
                                         Director, Investor Relations
                                         (020) 7905 9600
                                         johnhope@HBOSplc.com

Press Office                             Shane O'Riordain
                                         Director of Communications
                                         (020) 7905 9600
                                         07770 544585 (mobile)
                                         shaneo'riordain@HBOSplc.com

                                         Mark Hemingway, Head of Media Relations
                                         07831 390751 (mobile)







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