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Virgin Money Group: Results for the half-year to 30 June 2016

26/07/2016

  • Virgin Money maintains momentum with continued strong lending growth
  • Underlying profit before tax increased by 53 per cent to £101.8 million, from £66.4 million in H1 2015
  • Underlying return on tangible equity improved to 12.2 per cent from 9.5 per cent in H1 2015
  • An interim dividend of 1.6 pence per ordinary share to be paid in September 2016
  • Overall Net Promoter Score increased to +28 from +19 in H2 2015 as more customers than ever before would recommend Virgin Money

Financial Highlights

  • Underlying profit before tax increased by 53 per cent to £101.8 million, from £66.4 million in H1 2015.
  • Underlying net interest margin of 1.60 per cent, in line with previous guidance.
  • Underlying return on tangible equity improved to 12.2 per cent from 9.5 per cent in H1 2015.
  • Underlying cost:income ratio improved to 58.8 per cent, from 68.3 per cent in H1 2015.
  • Statutory profit before tax was £93.7 million in H1 2016, compared to £55.0 million in H1 2015.

Continued growth across our core businesses

  • Mortgage balances increased to £27.7 billion, 9 per cent higher than FY 2015.
  • Gross mortgage lending of £4.3 billion, 19 per cent higher than H1 2015. Net lending of £2.2 billion in H1 2016, 29 per cent higher than H1 2015.
  • Gross lending market share of 3.6 per cent and net lending market share of 12.7 per cent at the end of May 2016, the last month for which data is available.
  • Mortgage book comprised 82 per cent residential and 18 per cent buy-to-let mortgages at the end of June 2016.
  • Credit card balances increased to £2.1 billion at the end of June 2016, 31 per cent higher than FY 2015.
  • Retail deposit balances increased to £27.1 billion at the end of June 2016, 8 per cent higher than FY 2015.

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

  • Strong capital base, with a Common Equity Tier 1 ratio of 15.3 per cent at H1 2016.
  • Total capital ratio of 17.5 per cent and a leverage ratio of 3.8 per cent at H1 2016.
  • Whole book mortgage arrears held at low levels, with loans over three months in arrears of 0.16 per cent compared with the latest industry average of 1.04 per cent.
  • Low credit card arrears maintained, with credit card balances two or more payments in arrears of 0.79 per cent, compared with the latest industry average of 2.5 per cent.

Reconciliation to statutory profit is shown below

Impact of the EU Referendum

Virgin Money is in a strong position to deal with a period of post-referendum uncertainty. Since the vote to leave the EU we have experienced continued strong customer demand and no evidence of changes in customer behaviour.

Following the EU Referendum outcome market commentators have suggested that the mortgage market could slow and that unemployment could rise.

It is also possible that Bank Base Rate (BBR) could be reduced and stay low for a long period of time.

As a result we anticipate some adjustments to our financial outlook as follows:

Guidance

  • Net interest margin (NIM) of up to 160 basis points for 2016, depending on the timing of any BBR reduction.
  • We expect continued progress in our return on tangible equity (RoTE) and anticipate solid double digit RoTE for 2017.
  • All other guidance, including asset volumes and cost:income ratio remains unchanged.

Jayne-Anne Gadhia, Chief Executive said:

"I am delighted to report that it has been an excellent first half for Virgin Money. We continued to grow the business strongly and have delivered a 53 per cent increase in underlying profit as a result of our increased share of the mortgage market and the continued success of our credit card business. I am particularly pleased that more customers than ever before would recommend Virgin Money to their friends and family with our overall Net Promoter Score increasing to +28 in the first half of the year.

After taking into consideration our strong performance in the first half of the year and the prospects for the company, we are pleased to announce that the Board has declared an interim dividend of 1.6 pence per share in respect of the half year.

Since the vote to leave the EU we have experienced continued strong customer demand and no evidence of changes in customer behaviour. Virgin Money is in a strong position to deal with a period of post-referendum uncertainty as a low-risk retail bank with a high-quality asset base and unburdened by legacy conduct issues.

We remain on track to achieve our target of £3 billion of high-quality credit card balances by the end of 2017 and remain focused on maintaining the high quality of our mortgage business. We look to the future with confidence and will continue to drive our customer-focused strategy of growth, quality and returns."

Outlook

We were delighted that Virgin Money continued to perform strongly in the first half of the year with growth in mortgages, credit cards and savings, as well as earnings performing in line with expectations.

Virgin Money is a strong, customer-focused, low risk retail bank, unburdened by legacy conduct issues. We have a strong capital base and excellent asset quality. The focus on maintaining a high-quality balance sheet is supported by our prudent risk appetite and robust approach to risk management. As a result, the Group is well placed to navigate an uncertain economic outlook and a lower for longer interest rate environment.

Against this backdrop we will continue to protect our strong capital position and fund growth in the most cost efficient way, optimising volume and asset mix. We will continue to ensure we grow assets at the right price and quality.

Our mortgage book remains high quality, with no exposure to commercial property, and is comprised of 82 per cent residential and 18 per cent buy-to-let mortgages. The average loan-to-value of our retail mortgage portfolio was 55.4 per cent at H1 2016. We will continue to focus on maintaining the high quality of our mortgage business.

We entered the second half of the year with a strong mortgage pipeline and we expect to achieve a market share of annual gross mortgage lending at the higher end of our 3.0–3.5 per cent target range.

Our credit card business continued to grow strongly in H1 2016. We will continue to protect the prime quality of our credit card book and expect to reach our target of £3 billion of credit card balances by the end of 2017.

Our strategy is focused on creating a business that can continue to grow, maintaining our excellent asset quality and successfully delivering sustainable shareholder returns through the economic cycle. As part of this, we have decided that it is prudent to defer our SME and unsecured lending plans and focus investment on enhancing our digital capability.

We expect continued progress in our return on tangible equity and anticipate solid double digit RoTE for 2017.

We are pleased to announce that, after taking into consideration our strong performance in the first half of the year and the prospects of the company, the Board has declared an interim dividend of 1.6 pence per share.

To conclude, we are delighted that we have delivered strongly against our objectives in H1 2016 and I would like to thank our Virgin Money colleagues for their hard work and achievements so far this year. We will continue to put customers at the heart of everything we do and look to the future with confidence.

UNDERLYING BASIS - CONSOLIDATED INCOME STATEMENT

Half-year to
30 Jun 2016
£ million
Half-year to
30 Jun 2015
£ million1
Change %Half-year to
31 Dec 2015
£ million
Change %
Net interest income252.2220.314235.87
Other income37.434.2933.213
Total income289.6254.514269.08
Costs(170.4)(173.8)(2)(158.7)7
Impairment(17.4)(14.3)22(16.0)9
Underlying profit before tax101.866.45394.38

1The FSCS levy was previously excluded from underlying performance measures, but is now included as it is considered to be a recurring cost to the Group.

CONSOLIDATED BALANCE SHEET

Half-year to
30 Jun 2016
£ million
Half-year to
30 Jun 2015
£ million
Change %Half-year to
31 Dec 2015
£ million
Change %
Assets
Cash and balances at central banks784.3687.114888.6(12)
Loans and receivables30,865.125,362.22227,724.611
Available-for-sale financial assets1,046.71,405.6(26)1,296.9(19)
Other451.9326.938318.942
Total assets33,148.027,781.81930,229.010
Liabilities and equity
Deposits from banks1,016.5743.2371,298.7(22)
Customer deposits27,128.422,971.81825,144.98
Debt securities in issue2,948.22,338.9262,039.445
Other673.8416.862397.370
Provisions15.824.8(36)8.488
Total liabilities31,782.726,495.52028,888.710
Total equity1,365.31,286.361,340.32
Total liabilities and equity33,148.027,781.81930,229.010

KEY RATIOS

Half-year to
30 Jun 2016
£ million
Half-year to
30 Jun 2015
£ million
Change %Half-year to
31 Dec 2015
£ million
Change %
Net interest margin%1.601.65(5)bps1.65(5)bps
Cost:income ratio1%58.868.3(9.5)pp59.0(0.2)pp
Cost of risk2%0.120.12-0.12-
Underlying earnings per sharep15.511.436%15.41%
Tangible net asset value per share£2.582.4414p2.544p
Loan-to-deposit ratio%109.6107.32.3pp107.52.1pp
Common Equity Tier 1 ratio%15.318.7(3.4)pp17.5(2.2)pp
Leverage ratio%3.84.1(0.3)pp4.0(0.2)pp
Return on tangible equity3%12.29.52.7pp12.3(0.1)pp

1Including FSCS levy.
2Defined as impairment charges net of debt recoveries divided by average gross balances for the period.
3FSCS levy included in H1.
Key ratios are presented on an underlying basis except where stated. Capital ratios include verified profit for H1 2016.

RECONCILIATION TO STATUTORY PROFIT

       
Half-year to
30 Jun 2016
£ million
Half-year to
30 Jun 2015
£ million
Change %Half-year to
31 Dec 2015
£ million
Change %
Underlying profit before tax101.866.45394.38
IPO share based awards(1.4)(6.5)(4.0)
Strategic items1.7(4.8)(3.3)
Compensation for senior leavers(3.3)-(3.7)
Fair value losses on financial instruments(5.1)(0.1)(0.3)
Statutory profit before tax93.755.07083.013

Enquiries:

Virgin Money Press Office
Brian Giles / Simon Hall
0191 279 4676 or press.office@virginmoney.com

FTI Consulting
John Waples / Mitch Barltrop
07717 814520 / 020 3727 1039
john.waples@fticonsulting.com / mitch.barltrop@fticonsulting.com

Virgin Money Investor Relations
Adam Key / Frederik Verpoest
020 7111 1311 / 0207 111 1310
adam.key@virginmoney.com / frederik.verpoest@virginmoney.com

NOTES TO EDITORS

About Virgin Money

  • Virgin Money offers savings, mortgages, credit cards, current accounts, currency services, pensions, investments and protection products to over 3 million customers across the UK.
  • Virgin Money’s business ambition is to make “everyone better off” – this philosophy underpins our approach to business by offering good value to customers, treating employees well, making a positive contribution to society and delivering a profit to shareholders
  • More than 11,500 charities have registered with Virgin Money Giving and, by the end of 2015, over £420 million had been raised for charity through the service since its launch in 2009, resulting in an estimated £13 million more raised for charity because of its not-for-profit model.

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; the ability to access sufficient sources of capital, liquidity and funding when required; changes to Virgin Money’s credit ratings; the ability to derive cost savings; 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, the potential for one or more countries to exit the European Union (EU) (including the UK following its EU referendum vote to leave the EU) or the Eurozone, and the impact of any sovereign credit rating downgrade or other sovereign financial issues; technological changes and risks to cyber security; 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 EU, the US or elsewhere including the implementation and interpretation of key legislation and regulation; the ability to attract and retain senior management and other employees; the extent of any future impairment charges or write–downs caused by, but not limited to, 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 of 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.