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Virgin Money: Results for the half-year to 30 June 2015

28/07/2015

Financial highlights

  • Underlying profit before tax increased by 37 per cent to £81.8 million, from £59.7 million in H1 2014.
  • Underlying net interest margin grew by 22 basis points to 1.65 per cent, from 1.43 per cent in H1 2014.
  • Underlying cost:income ratio improved to 62.2 per cent, from 66.7 per cent in H1 2014.
  • Underlying return on tangible equity grew by 2.6 percentage points to 10.2 per cent, from 7.6 per cent in H1 2014.
  • Underlying return on assets grew by 12 basis points to 0.40 per cent, from 0.28 per cent in H1 2014.
  • Statutory profit before tax was £55.0 million in H1 2015, compared to £6.7 million in H1 2014.
  • An interim dividend of 1.4 pence per ordinary share to be paid in October 2015.

Continued growth in mortgage, credit card and retail deposit balances

  • Mortgage balances increased to £23.6 billion, up 8 per cent from FY 2014.
  • Gross mortgage lending of £3.6 billion, 44 per cent higher than H1 2014. Net lending of £1.7 billion in H1 2015.
  • Gross lending market share of 3.8 per cent and net lending market share of 20.5 per cent at the end of May 2015, the last month for which data is available.
  • Credit card balances stood at £1.1 billion at H1 2015, after the successful migration of the credit card business in March 2015.
  • Retail deposit balances increased to £22.8 billion, up 3 per cent from FY 2014.

Maintained focus on a high-quality balance sheet, underpinned by strong capital ratios and a prudent risk appetite

  • Mortgage loans over three months in arrears of 0.25 per cent compared with the latest industry average of 1.3 per cent.
  • Card balances two or more payments in arrears of 1.59 per cent.
  • Cost of risk flat compared to H2 2014 at 12 basis points.
  • Fully-loaded Common Equity Tier 1 ratio of 18.7 per cent at H1 2015.
  • Total capital ratio of 21.7 per cent at H1 2015.
  • Leverage ratio of 4.1 per cent at H1 2015.

New developments during the first half of the year

  • 675,000 credit card accounts successfully migrated to Virgin Money’s own platform in March 2015.
  • Full national roll-out of the Virgin Essential Current Account completed.
  • Three new investment funds launched offering improved customer choice.
  • Wholesale funding diversified through successful issuance of £300 million Medium Term Notes and £750 million of Residential Mortgage Backed Securities.

Reconciliation to statutory profit is shown below

Jayne-Anne Gadhia, Chief Executive Officer said:

“I am pleased to report a 37 per cent increase in underlying profit for the first half of 2015. This was driven by balance sheet growth, strong improvement in our net interest margin and effective cost management.

We continued to increase our share of the mortgage market while protecting the quality of our book. Gross mortgage lending increased by 44 per cent to £3.6 billion in the first half of the year, representing a 3.8 per cent market share of gross lending and a 20.5 per cent share of net lending to the end of May.

In our credit card business we successfully completed the migration of the credit cards acquired from MBNA to our own platform and launched our new range of cards to customers. This puts us in a strong position to grow our credit card business to our target of £3 billion of credit card balances by the end of 2018.

We remain focused not only on delivering growth but also generating sustainable returns to shareholders. As such, we are pleased to announce that, after taking into consideration our strong performance in the first half of the year and the growth prospects of the company, the Board has declared an interim dividend of 1.4 pence per share.”

Outlook and guidance

Virgin Money has performed strongly in the first half of the year with mortgage growth, net interest margin and RoTE all performing ahead of expectations.

Competition in the mortgage market, reflected in asset spread compression, remains a headwind in the second half of the year. We will protect spread by a continued focus on managing volumes.

The credit card business is now fully operational on Virgin Money’s own platform and new business has been strong since the successful migration. This means we are well positioned to meet our target of £3 billion of credit card balances by the end of 2018.

We remain confident that will deliver a full-year net interest margin slightly ahead of our guidance of up to 160 basis points in 2015.

Cost flexibility remains an opportunity to drive returns in the medium term. We will continue to deliver on our cost efficiency targets and are well positioned to achieve a cost:income ratio of no more than 50% as planned in 2017.

The unexpected addition of the bank surcharge is expected to slow our progress to mid-teens returns on tangible equity and we now expect to achieve this by the end of 2017.

Current account, digital and SME development give us significant potential and opportunity to drive the growth of the business.

We have the brand, the capability and the flexibility to adapt to market conditions and to pursue new opportunities and, importantly, we have the capital to support our growth ambitions.

I am delighted that we have delivered strongly against the objectives set out at IPO and believe that the dividend the Board has declared today is evidence of this.


UNDERLYING BASIS - CONSOLIDATED INCOME STATEMENT

 Half-year
to 30 June
2015
£ million
Half-year
to 30 June
2014
£ million
Change
%
Half-year
to 31 Dec
2014
£ million
Change
%
Net interest income220.3172.927193.214
Other income34.140.6(16)31.58
Total income254.4213.519224.713
Costs(158.3)(142.5)11(158.7)-
Impairments(14.3)(11.3)27(4.5)218
Underlying profit before tax81.859.73761.533

CONSOLIDATED BALANCE SHEET

 At 30 June
2015
£ million
At 30 June
2014
£ million
Change
%
At 31 Dec
2014
£ million
Change
%
Assets     
Cash and balances at central banks687.1888.6(23)851.3(19)
Loans and receivables25,362.221,501.01823,822.26
Available-for-sale financial assets1,405.61,313.771,539.6(9)
Other326.9441.7(26)323.71
Total assets27,781.824,145.01526,536.85
Liabilities and equity     
Deposits from banks743.2576.329846.7(12)
Customer deposits22,971.821,112.8922,365.73
Debt securities in issue2,338.9881.71651,594.147
Other416.8629.0(34)477.2(13)
Provisions24.823.949.3167
Total liabilities26,495.523,223.71425,293.05
Total equity1,286.3921.3401,243.83
Total liabilities and equity27,781.824,145.01526,536.85

KEY RATIOS

 Half-year
to 30 June
2015
Half-year
to 30 June
2014
ChangeHalf-year
to 31 Dec
2014
Change
Net interest margin1.65%1.43%22bps1.56%9bps
Cost:income ratio62.2%66.7%(4.5)pp70.6%(8.4)pp
Cost of risk10.12%0.11%1bp0.12%-
Statutory basic earnings per share (pence)8.6p(4.0)p(315)%3.4p153%
Tangible net asset value per share2£2.44£2.344%£2.363%
Loan-to-deposit ratio107.3%99.6%7.7pp102.8%4.5pp
Common Equity Tier 1 ratio18.7%14.4%4.3pp19.0%(0.3)pp
Leverage ratio4.1%3.8%0.3pp4.1%-
Return on tangible equity310.2%7.6%2.6pp7.9%2.3pp

1 Defined as impairment charges divided by average gross balances for the given period, excluding debt sale in H2 2014
2 H1 2014 has been normalised to take into account primary capital raised on IPO
3 Annualised
Key ratios are presented on an underlying basis except where stated

RECONCILIATION TO STATUTORY PROFIT

 Half-year
to 30 June
2015

£ million
Half-year
to 30 June
2014
£ million
Change
%
Half-year
to 31 Dec
2014
£ million
Change
%
Underlying profit before tax81.859.73761.533
Additional Northern Rock consideration-(26.0)(100)(10.0)(100)
Costs associated with IPO(6.5)(5.8)12(18.1)(64)
Strategic transaction costs(4.8)(4.6)4(6.3)(24)
FSCS levy(15.5)(16.6)(7)0.2>100
Statutory profit before tax55.06.772127.3101


Enquiries:

FTI Consulting
John Waples
+44 (0) 7717 814 520
john.waples@fticonsulting.com

Virgin Money Press Office
0191 279 4676
press.office@virginmoney.com

Virgin Money Investor Relations
Adam Key
020 7111 1311
adam.key@virginmoney.com

NOTES TO EDITORS

About Virgin Money

  • Virgin Money provides savings, mortgages, credit cards, current accounts, pensions, investment and insurance products
  • Virgin Money’s business ambition is to make “everyone better off” – this philosophy underpins the approach to business by offering good value to customers, treating employees well, making a positive contribution to society and delivering a profit to shareholders.
  • Virgin Money is the official sponsor of the London Marathon, the biggest annual one-day fundraising event in the world. Virgin Money has helped London Marathon runners raise over £¼ billion, including funds raised through Virgin Money Giving its not-for-profit online fundraising service, since 2010.



Forward looking statements

This document contains certain forward looking statements with respect to the business, strategy and plans of Virgin Money Group and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about Virgin Money Group’s or its directors’ and/or management’s beliefs and expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future. Factors that could cause actual business, strategy, plans and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements made by the Group or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; inflation, deflation, interest rates and policies of the Bank of England, the European Central Bank and other G8 central banks; fluctuations in exchange rates, stock markets and currencies; changes to Virgin Money’s credit ratings; changing demographic developments, including mortality and changing customer behaviour, including consumer spending, saving and borrowing habits; changes in customer preferences; changes to borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues; technological changes; natural and other disasters, adverse weather and similar contingencies outside Virgin Money’s control; inadequate or failed internal or external processes, people and systems; terrorist acts and other acts of war or hostility and responses to those acts; geopolitical, pandemic or other such events; changes in laws, regulations, taxation, accounting standards or practices; regulatory capital or liquidity requirements and similar contingencies outside Virgin Money’s control; the policies and actions of governmental or regulatory authorities in the UK, the European Union, the US or elsewhere; the implementation of the EU Bank Recovery and Resolution Directive and banking reform, following the recommendations made by the Independent Commission on Banking; the ability to attract and retain senior management and other employees; the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets; market relating trends and developments; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints; changes in competition and pricing environments; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services and lending companies; and the success of Virgin Money in managing the risks of the foregoing. Any forward-looking statements made in this document speak only as of the date they are made and it should not be assumed that they have been revised or updated in the light of new information of future events. Except as required by the Prudential Regulation Authority, the Financial Conduct Authority, the London Stock Exchange plc or applicable law, Virgin Money expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any change in Virgin Money’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Virgin Money Holdings (UK) plc - Registered in England and Wales (Company No. 03087587). Registered Office - Jubilee House, Gosforth, Newcastle upon Tyne NE3 4PL.