Final Results - Year Ended 31 Dec 1999, Part 1

Woolwich PLC
16 February 2000



PART ONE

WOOLWICH  PLC RESULTS ANNOUNCEMENT FOR THE YEAR TO  31  DECEMBER
1999


CONTENTS

1999 results highlights

Summary of results

Chief Executive's Review

Summarised profit and loss account

Segmental profit and loss account

Profit before tax and interest on capital

Net interest income

Non-interest income

Other operating expenses

Taxation

Loans and advances to customers

Capital expenditure

Deferred mortgage incentives costs

Capital structure

Consolidated profit and loss account

Consolidated balance sheet

Statement of consolidated total recognised gains and losses

Reconciliation of movements in shareholders' funds

Dividends per share

Consolidated cash flow statement

Segmental balance sheet

Shareholder information

Basis of preparation

Financial calendar and contacts



WOOLWICH PLC: 1999 RESULTS HIGHLIGHTS

DELIVERING WITH TECHNOLOGY


RESULTS HIGHLIGHTS

-  Profit before tax and interest on capital up 13.4% to £412.2m
(£363.4m: 1998)
- Headline profit before tax up 5.0% to £530.3m (£505.1m: 1998)
- Headline earnings per share up 8.5% to 23p per share
- Post-tax return on equity up to 20.3% from 18.6%
- Cost income ratio down to 42.1% (42.7%: 1998)
- Final ordinary dividend of 8.1p, total for year 12.0p up 13.2%

BUSINESS PERFORMANCE
-  Net  interest  margin  on total assets  maintained  at  1.98%
(2.02%: 1998)
- UK net lending up 78% to £2,013.6m (£1,128.8m: 1998)
- UK mortgage market net share up to 4.1% (3.7%: 1998)
- European net lending up 93% to £569.3m (£295.6m: 1998)
- Underlying non-interest income up by 30% to £312m
-  Revenues from independent financial advice up 98%  to  £51.4m
(£26.0m: 1998)
-  Life  assurance  and pensions income  up  by  48%  to  £51.3m
(£34.7m: 1998)
-  UK  consumer credit net lending up 146% to £449.9m  (£183.0m:
1998)
- Unit trust revenues up 34% to £33.3m (£24.8m: 1998)
- GHL mortgage processing development project on target

TECHNOLOGY
- Launch of UK's first WAP phone banking service
- Open Plan infrastructure development proceeds rapidly
- Web bank completes first full year of operation
-  Middleware now linking bank, telephone, internet, digital  TV
and WAP distribution channels to a full range of products


Commenting on the results, Woolwich Group Chief Executive,  John
Stewart said:

'This  is  an excellent set of results. 2000 will be a watershed
year  for banking as there will be a shakeout based on how banks
deal  with  the new technologies and there will be  winners  and
losers.  We  have  chosen  a different route  from  most  banks,
integrating the new channels across the business and we  have  a
clear lead we intend to exploit.'

SUMMARY OF RESULTS

                                                1999      1998
Financial Performance                                         
Profit before tax*                   (£m)      530.3     505.1
Profit before tax and interest on    (£m)      412.2     363.4
capital*
Earnings per share*                   (p)       23.0      21.2
Basic earnings per share              (p)       22.5      20.6
Post-tax return on average equity*    (%)       20.3      18.6
Post-tax return on average risk       (%)       2.20      2.22
weighted assets*
Net interest margin on total assets   (%)       1.98      2.02
Net interest margin on interest       (%)       2.09      2.15
earning assets
Net interest spread                   (%)       1.78      1.67
Customer spread                       (%)       2.11      2.12
Non-interest income                  (£m)      312.4     266.7
Cost to income ratio*                 (%)       42.1      42.7
                                                              
Dividend                                                      
Ordinary dividends per share          (p)       12.0      10.6
                                                              
Customer lending                                              
UK gross lending                     (£m)    6,819.9   4,681.7
UK net lending                       (£m)    2,013.6   1,128.8
Continental gross lending            (£m)      917.8     570.7
Continental net lending              (£m)      569.3     295.6
Market share UK gross mortgage        (%)        5.3       4.9
lending
Market share UK net mortgage          (%)        4.1       3.7
lending
Asset share UK mortgages              (%)        5.3       5.4
                                                              
Retail savings                                                
Customer balances                    (£m)   20,061.3  21,821.8
Funds under management               (£m)      2,859     2,057
Market share retail deposit           (%)        3.1       3.5
balances**
                                                              
Risk asset ratios                                             
Total capital ratio                   (%)       14.3      14.6
Tier 1 ratio                          (%)       10.3      10.9

* Excludes cost of restructuring in 1999 and loss on disposal of
Woolwich Property Services Limited in 1998

**1999 market share based on industry estimates

CHIEF EXECUTIVE'S REVIEW


SUMMARY

The  Woolwich Group increased headline underlying profit  before
tax and interest on capital by 13% and pre-tax profits by 5%  to
£530.3m. Headline earnings per share rose by 8.5% to 23.0p  from
21.2p while return on equity increased from 18.6% to 20.3%.  The
directors  have recommended a final dividend of 8.1p  per  share
which  together  with the interim dividend declared  during  the
year will give a total ordinary dividend of 12.0p per share  for
the year. It is proposed that the final dividend will be paid on
8  May 2000 to shareholders registered on 24 March 2000, subject
to  shareholders' approval at the Annual General Meeting  on  12
April 2000.

The Woolwich performed strongly in its traditional markets in  a
year which saw further intensification of competition. The first
half of 1999 was dominated by the activities of new entrants and
the  second  half  by price-based competition  from  traditional
market  participants intent on regaining market share.  In  this
environment  The  Woolwich competed successfully  and  used  its
differentiated  products  to strike a sensible  balance  between
business  volumes and margins. The success of this is  indicated
by  the  net  interest margin on total assets which was  broadly
maintained at 1.98% in 1999 compared with 2.02% last year, while
net  interest  spread rose to 1.78%. The year saw  The  Woolwich
achieve  good  market shares and excellent net lending  volumes,
while  further increasing its diversification with  non-interest
income  up to 32% of Group income. Excellent growth in  personal
lending  was  also  achieved, while  maintaining  strong  credit
quality  throughout the business. Investment in new technologies
and  new business areas accelerated during the year and a number
of  partnerships were announced in areas of high potential  with
partners  Littlewoods, Countrywide, Nokia, Marsh & McLennan  and
Gabetti.

STRATEGY

Since  the  time of its flotation in 1997 Woolwich strategy  has
been   focused  on  adapting  to  the  new  world  of   multiple
distribution outlets beyond the traditional branch.  Central  to
these efforts has been the belief that the winners will be those
organisations   who   blend  the  new  technologies   with   the
traditional business to provide integrated solutions which  meet
customer needs. The past year has seen an intensification of the
pace  of change in retail banking. Early new entrants were based
on telephone systems with conventional banking back offices. Now
a  shift  is  taking place towards internet based services  with
significantly  lower  costs. Internet  banking  will  allow  for
multiple access modes - personal computers, interactive TV,  and
increasingly,  mobile  telephones now  that  WAP  technology  is
allowing  internet  access.  This  shift  has  strengthened  our
conviction  that  our  strategy of  providing  fully  integrated
financial services continues to be the right one.

In   future,  banks  will  have  to  be  customer-centric,   and
technology  - the internet in particular - is what allows  banks
to  provide customers with the personalised financial  solutions
they  desire.  Partners like Intel, Microsoft  and  Unisys  have
helped  provide  the technology which has given The  Woolwich  a
distinct  advantage  over competitors.  Recent  agreements  with
Nokia  and Vodafone to facilitate banking via mobile phones  are
also reminders of the technological edge Woolwich enjoys.

It  is  also technology which allows banks to use the  extensive
customer information they have to anticipate customer needs  and
deliver a personalised banking service. Previously this sort  of
customised service was only available to a very limited customer
set,  but  now there is the potential to offer this  on  a  mass
scale.  The banks which get this right will be the winners  with
customers  and investors alike. The past year has seen  Woolwich
make extensive progress towards making this vision a reality and
today  all  of our Open Plan customers can access all  of  their
products  with  The  Woolwich through all  of  our  distribution
channels. Provided over branch, telephone and internet  channels
at  present,  the  software architecture can  absorb  additional
products  and  channels as they become available  with  WAP  and
digital television going live in 2000. The Woolwich has been the
leader  in  delivering personalised banking  through  technology
adopting  a  distinctly  different approach  from  most  of  our
competitors. We believe this approach will provide real  benefit
to  our  customers  as  the ability to  deliver  these  customer
benefits becomes ever more vital.

Open  Plan  services are evidence that 'changing the  nature  of
what  we do' remains at the heart of Woolwich strategy.  But  we
have  made  other  progress  in this  area  too  such  as  joint
ventures,  Sedgwick  and Littlewoods, which respectively  helped
develop  our IFA business and brought us access to a substantial
number  of  additional customers. There have also been  pleasing
advances  in  our  general  insurance  and  long  term   savings
businesses. All of these remain important growth areas in future
for The Woolwich.

At the same time, 'doing what we currently do better' remains  a
critical imperative. The past year also saw important strides in
this  area. Notable was the Global Home Loans initiative,  which
has  significantly  improved our mortgage processing  capability
and  will allow us to develop a business for third parties.  Our
overall  approach  will  remain that we  should  use  innovative
products   to   preserve  margins  and  grow   lending   without
compromising credit quality.

OPEN PLAN

Open  Plan  is the name we give to a growing range of integrated
products  and services designed to provide personal banking  and
financial  services  on  a mass scale by  means  of  automation.
Through  integration  it is possible to provide  customers  with
increased  convenience  and greater financial  efficiency.  This
service  is delivered across the full range of conventional  and
new  electronic  methods  of distribution  and  added  value  is
created  for  both  customer and bank in a  market  increasingly
dominated by commoditised products sold on price.

The  pilot,  which  was  announced at  the  preliminary  results
meeting of 17 February 1999, grew to 44,000 customers by the end
of the year. The results of the pilot scheme indicated a product
take  up by customers of over three products per customer, in  a
market  where 1.5 is the norm, generating a significant increase
in  revenue. We are confident that the service offered  is  such
that  it  will  attract customer appetite and  we  anticipate  2
million customers will be actively using the service by the  end
of  2002. On the basis of current plans, the effect of the  Open
Plan  technology investment on our expenses is  expected  to  be
approximately £30m in both 2000 and 2001.  The operational costs
of  acquiring and servicing new customers are anticipated to  be
broadly  covered by income this year and increasingly outweighed
by income generated thereafter, as customer numbers rise.

GLOBAL HOME LOANS (GHL)

GHL is The Woolwich's joint venture with the US mortgage company
Countrywide   Credit   Industries  Inc.  Using   processes   and
technology proven in the US market, GHL offers the potential  to
become  one of the few third party mortgage servicers in  Europe
with a dominant position in its market.

Over  the  past several months the infrastructure  necessary  to
support the joint venture's activities has been established,  in
line  with  plan,  and  all  of Woolwich's  mortgage  processing
centres   have  been  transferred  with  their  staff   to   GHL
management. A tranche of Woolwich mortgages were transferred  to
GHL  prior  to  the  Year 2000 systems freeze  and  work  is  on
schedule to transfer the rest of Woolwich mortgages to  GHL  for
servicing by the end of the first half of 2000.

GHL's  strategy is to be one of the handful of successful  large
scale  mortgage processing services which will emerge in Europe.
It  is  intended  to  begin to market GHL's  services  to  other
lenders during 2000 and considerable interest has been expressed
by a number of lenders from both UK and continental Europe.

During  1999  the  establishment  of  GHL  required  significant
investment  in  terms of costs and people but the  operation  is
expected  to  provide a positive contribution during  2000  with
profits growing rapidly thereafter.

PARTNERSHIPS

The  Woolwich  made  good  progress in developing  a  number  of
alliances   aimed  at  increasing  the  effectiveness   of   its
technology  and market strategies. In July a joint venture  with
Littlewoods  was announced which provides access to 3.5  million
home shopping customers with ongoing financial relationships and
known credit status. The initial phase went live in October  and
reached its customer target by year end.

In  November The Woolwich announced a 50:50 joint venture in the
business  of Sedgwick Independent Financial Consultants Limited.
This  will  bring  together the second and  fourth  largest  IFA
businesses  in  the UK and extend our coverage in the  corporate
and  professional  advisory area. Sedgwick provide  services  to
over 100,000 clients and we see the advisory business as one  of
the key elements of our future business model.

In  October  The Woolwich announced its alliance with  Nokia  to
provide  the first banking application of WAP enabled phones  in
the  UK. Earlier this month The Woolwich announced a partnership
with  Vodafone as airtime provider for the same initiative. Each
of these partners is the leader in its field and their choice of
The Woolwich reflects upon the quality of our technology and its
integration into our strategy. Mobile phone internet  users  are
forecast  to  outstrip  PC  internet  users  and  we  intend  to
capitalise on these developments through ongoing partnerships.


UK LENDING

Against  a very competitive mortgage market the first  half  saw
the  arrival  of  further new entrants establishing  significant
market  shares from a zero lending base using price as  the  key
tool  to  achieve  sales. The impact on market shares  of  these
arrivals   forced  retaliatory  discounting   by   the   largest
established players in the market. The Woolwich stood aside from
predatory  pricing, using its innovative products  such  as  the
Open  Plan  borrowing facility to differentiate  its  offerings,
allowing  it  to achieve good volumes at profitable margins.  In
this  market  The Woolwich continued to tailor its  products  to
individual  customer needs and achieved good net  volumes  while
maintaining  margin. For example Woolwich was  first  to  market
with  its  launch of a base rate tracker mortgage. As a  result,
while  over  the  year  as  a whole redemptions  and  repayments
increased  by 29% to £4,449m, the increase of UK gross  mortgage
advances  by  37%  to  £6,012m resulted in  a  very  strong  net
mortgage lending performance, up by 65% to £1,564m.

The  Woolwich continued to focus on growing its consumer  credit
business with an increase in net lending of 146% to £450m  -  an
excellent  performance. The FirstPlus partially secured  lending
business  had an outstanding year with net lending of £203m  and
unsecured personal loans also grew strongly by 51% over the  net
lending  achieved in 1998. Credit quality in both books  remains
strong.

A   major  contribution  to  maintaining  the  quality  of   our
residential mortgage portfolio is made by the services  provided
by  Woolwich's surveying business, part of our property services
business, which trades as Ekins. The number of surveys completed
in-house  in  1999  increased by 14% to over 106,000  cases  and
total fee income rose to £21.5m, an increase of 12%.

CREDIT QUALITY

Over the year there was a further improvement in the quality  of
Woolwich's loan portfolio from an already high base. UK mortgage
balances  in  arrears as a percentage of the book declined  from
2.14%  at  the  commencement of the year to 1.75% by  year  end.
Meanwhile  the  number of residential properties  in  possession
fell by 32% from 498 to 339.

During   the   year   the  quality  of  new   lending   improved
significantly helped by the effects of the Open Plan mortgage in
attracting  lower loan to value business. A general increase  in
house  prices  during the year and the continuing  reduction  in
arrears  levels maintained the charge for UK mortgage provisions
at  the  very low levels experienced in 1998. In the UK consumer
credit  business  (predominantly FirstPlus and personal  loans),
the success in increasing balances over the year led to a volume
related  increase  in  provisioning.  The  provisioning   policy
remains very conservative, particularly for FirstPlus as we gain
experience  of  the  book. The change in mix  towards  partially
secured  FirstPlus  products  resulted  in  the  percentage   of
provision  balances  to gross loans and advances  reducing  from
6.5% to 4.8% over the period.

CASH-BASED SAVINGS

In  a low interest rate environment customers naturally look for
potentially  greater  returns  on  their  savings,  moving  from
deposit  to  equity  based  products.  The  Woolwich,  with  its
successful  unit  trust,  life and IFA operations  succeeded  in
helping  its customers meet these broader savings and investment
needs.

During  1999, therefore, The Woolwich helped its customers  move
an  estimated  £1bn from Woolwich deposit accounts  to  products
offered  by  its  life,  unit trust and IFA  companies,  thereby
strengthening the relationship with the customers.

In the deposit market, competition remained fierce. The Woolwich
maintained its position of not offering loss making products  to
short-term  customers but instead continued to offer competitive
fixed and variable rate products with a wide market appeal.

Customer  balances were affected by high levels  of  fixed  rate
bond maturities although these were written at historically high
rates.  At  the same time new fixed rate bond sales were  strong
and  Card Saver, the innovative, multi-function savings  product
saw its balances increase by 46% to £2.4bn.

Fee  income  from cash-based savings products  rose  by  32%  to
£42.9m.  This includes fees from the developing current  account
business  and  income from card-based accounts as well  as  fees
from the sharedealing service.

CONTINENTAL EUROPE

Our  continental businesses continue to grow strongly, with  net
advances achieved of £569m.  In France net lending rose 131%  to
£259m  in  spite of the continuing run-off of the  Midland  Bank
mortgage  book  while in Italy net lending  rose  69%  to  £310m
reflecting  continued  strong  organic  growth.  In  total,  net
lending in Continental Europe in 1999 was up 93% on 1998. Credit
quality continued to improve in both France and Italy.

The  Woolwich  has recently announced that it will  take  a  20%
stake in the Gabetti Group, which will secure and develop on  an
exclusive basis the depth of our existing relationship with  our
principal mortgage introducer in the Italian mortgage market.

In  local currency terms total income from the Italian operation
increased by 31% in 1999 and that of our French operation by 9%.
These   results  were  achieved  in  markets  that  are   highly
competitive, with similar margin pressures being experienced  as
in the UK.


INDEPENDENT FINANCIAL ADVICE

Woolwich's independent financial advisory business has continued
its  excellent performance with income almost doubling  to  over
£51m.  Building  on  a  number of years of  strong  growth  1999
represented a real step change in performance, with the  success
of  our adviser recruitment campaign lifting the advisory  force
to 215 coupled with a significant improvement in productivity of
43%  as  measured  by earnings per adviser. The  Sedgwick  joint
venture will provide a substantial boost in this rapidly growing
business sector.

LONG TERM SAVINGS

Total funds under management grew to £2.9bn at 31 December 1999,
an  increase  of  39%  over the year.  Unit  trust  funds  under
management  increased by £601m to £2.2bn,  with  the  number  of
accounts rising by 16% to 342,000. These factors contributed  to
a 34% increase in income from unit trust activity to £33.3m. Our
long  term  savings businesses have attracted significant  flows
from our retail savings products.

Life  assurance  and pension income grew by 48% during  1999  to
£51.3m, with funds under management rising to £659m, an increase
over 1998 of 44%. The Guaranteed Equity Bond proved particularly
popular with savers.

GENERAL INSURANCE

The  sales  of mortgage related policies have been 5% higher  in
1999  than  achieved in 1998, principally resulting from  higher
mortgage lending volumes. However, this business remains subject
to  competitively induced margin pressures and so we  have  made
considerable  efforts to secure non-mortgage  related  business.
This was very successful with an  increase of 39% over the year.
Of  particular  note  is  the  very  rapid  growth  of  creditor
insurance  linked  to  personal  loans,  with  sales  more  than
trebling during the year. Overall, income from general insurance
activities increased by some 11% to £63.5m in 1999.


COSTS

During  the second half of the year Woolwich focused on  driving
down its cost base in traditional business areas and as part  of
this announced a reorganisation in October. At the same time  as
reducing  costs in traditional business areas Woolwich  invested
in  new  ventures including the development of GHL,  Littlewoods
and  Open  Plan  as  well as the rapid growth of  FirstPlus  and
independent financial advice business.

Costs net of the redundancy programme announced in October 1999,
rose  by 3.8% to £411m while the cost income ratio dropped  from
42.7%  to 42.1%. The total expenses included £28m investment  in
the  development of new activities including the joint  ventures
with Littlewoods and Countrywide, the establishment of FirstPlus
and  the  setting up of Open Plan. A further £13m was  spent  in
areas  of  rapid business expansion particularly the independent
financial   advisory  business  and  Woolwich  personal   loans.
Excluding  our investment in new businesses and the discontinued
Woolwich Property Services, the corresponding cost income ratios
were 40.9% in 1998 and 40.0% during 1999.

Staff  numbers  during the year decreased by 532 reflecting  the
redundancy programme announced in October 1999 and the  transfer
of  service  centre  staff  to  GHL  shortly  before  year  end,
partially  offset  by  the  growth of  new  businesses  such  as
FirstPlus, the IFA business, Continental Europe and Open Plan.

CAPITAL

The  Woolwich  plans  and  manages its  capital  base  with  the
objective  of  maximising  shareholder  value.  In  pursuit   of
improving  the efficiency of our capital base we have undertaken
a  programme of returning capital to shareholders, amounting  to
£564m over the last two years. During 1999 this was by means  of
a  special dividend of 15p per share (£236m) and a programme  of
share  buy-backs of £121m. This return of capital combined  with
lower  interest  rates  during the year resulted  in  income  on
capital being £24m less than in 1998. We are also continuing  to
enhance the mix and flexibility of our capital resources and  in
July  The  Woolwich raised Euro 250m (£164m) subordinated  debt,
which is a cost effective Tier 2 instrument.

Going  forward  The  Woolwich believes  that  the  best  way  of
creating   shareholder  value  is  through  expanding   business
volumes. While The Woolwich remains well capitalised at the  end
of  1999  (with  solvency and Tier 1 ratios of 14.3%  and  10.3%
respectively), we are confident that the success  of  Open  Plan
and the associated growth in assets that this will entail is the
most effective way to deploy the capital resources available  to
the  Group  to  enhance  returns for  shareholders.  It  is  our
intention  to  continue  to return to  shareholders  capital  in
excess of that required for developing the business during  2000
by  means of the re-purchase and cancellation of shares  subject
to market conditions.

Securitisation  is  likely to become a key  feature  of  the  UK
mortgage market over the next few years and The Woolwich intends
to  use  this mechanism in the course of the year 2000  to  help
manage its balance sheet and ongoing requirements for regulatory
capital.

TREASURY SERVICES

Treasury  performance has been excellent, with  income  for  the
year  at £37.2m up from £27.1m in 1998. Effective balance  sheet
management to build and sustain income flows and take  advantage
of  medium  term  interest rate movements remained  the  key  to
performance, with a particular focus on the development of fixed
rate  deposit  products to service customers as  interest  rates
expectations  rose  in  the  UK. The  trading  activities  which
commenced in late 1998 generated a satisfactory contribution for
the  full year at a level commensurate with a very prudent  risk
management policy.

In  line  with Group Funding requirements, Treasury  diversified
its  sources  via debut issues within the Euro commercial  paper
programme  initiated in the year and the raising of senior  debt
in  both  US dollars ($300m) and sterling (£400m) in the  second
half. The Group liquidity strategy over the millennium year  end
was  successfully  managed to the extent  that  volatile  market
conditions  had no discernible impact on the Group's operational
performance.


REGULATION

The   outlook  for  regulation  is  changing  with  HM  Treasury
announcement  that mortgage regulation will  be  placed  in  the
hands  of  the Financial Services Authority and the  Cruickshank
review of banking as a whole due for release in the near future.
As  a mortgage lender in the forefront of good practice Woolwich
supports  the  rationalisation of  regulation  in  the  mortgage
field. Open Plan lending should benefit from the proposed change
to  bring  first mortgages under the FSA regime, as this  should
mean  that the supplementary lending will no longer be regulated
by  the  Consumer  Credit Act. This will  simplify  the  process
enormously, making it much easier for customers and consequently
more attractive to them.


OUTLOOK

The year 2000 will be a watershed year for banking. 1999 saw the
emergence of substantial new entrants using direct channels  met
by  the vigorous response of the existing participants and  over
the  next  two years there will be profound changes to  the  way
that  we  do  banking. This process will result in  winners  and
losers, depending upon how banks deal with the new technologies.

The Woolwich is well placed in this environment as we have taken
a  different  route from many of our competitors, combining  the
best  of  old and new. We have invested in developing  the  full
range  of  e-commerce  channels,  integrating  them  across  the
existing  brand and business. This means significant changes  to
the  way  products are priced and delivered, with  consequential
changes to back office processing. Woolwich is now investing  to
make  these  profound  changes and to carry  their  implications
right through the business. The key integrating components to do
this  are already in place and working. The challenge is now  to
scale  up  the  customer  base  to  which  this  proposition  is
delivered,  to rebuild the processing service that  supports  it
and  to  exploit the advantage that this approach  gives  us  by
broadening the range of products we deliver.

Our culture embraces the opportunities created by change and  we
do  not  underestimate  the challenges confronting  the  banking
industry.  However we have a record of innovation and  this  has
resulted  in  a  combination  of  products,  manufacturing   and
distribution systems, developed today, that means  we  face  the
future with confidence.


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