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Virgin Money Group: Results for the half-year to 30 June 2017

25/07/2017

Business highlights

  • Underlying profit before tax up 26 per cent to £128.6 million and return on tangible equity increased to 13.3 per cent
  • Disciplined approach to lending growth and high underwriting standards delivered 7 per cent growth in customer loan balances - low cost of risk stable at 0.13 per cent
  • Recognised as Britain’s most trusted bank1 and overall Net Promoter Score (NPS) improved to +39, making Virgin Money one of the leading UK retail banks for customer satisfaction
  • Virgin Money to become Virgin Atlantic’s UK retail financial services partner in 2018. The partnership will offer customers a range of benefits, including Flying Club miles

Excellent financial performance

  • Underlying profit before tax increased to £128.6 million, from £101.8 million in H1 2016.
  • Statutory profit before tax increased to £123.8 million, compared to £93.7 million in H1 2016.
  • Net interest margin of 1.59 per cent, in line with guidance.
  • Return on tangible equity increased to 13.3 per cent, from 12.2 per cent in H1 2016.
  • Cost:income ratio reduced to 53.9 per cent, from 58.8 per cent in H1 2016.
  • Common Equity Tier 1 ratio of 13.8 per cent and leverage ratio of 3.9 per cent.
  • Interim dividend of 1.9 pence per ordinary share to be paid in September 2017.

Jayne-Anne Gadhia, Chief Executive said:

“The momentum of the business demonstrates the strength of our strategy and the focus we have on serving our customers. Our drive to maintain excellent asset quality, deliver customer satisfaction and retention, combined with continuing operational leverage, helped deliver a 26 per cent increase in underlying profit before tax to £128.6 million.

In line with our ambition to make ‘everyone better off’, our continued focus on delivering excellent customer service led to new highs in customer satisfaction with our overall Net Promoter Score improving to +39, making us one of the best-rated retail banks in the UK.

Our deposit franchise is flourishing, we have maintained our stringent focus on the prime segment of the credit card market, and continue to deliver high-quality mortgage lending growth.

We are delighted to announce our new partnership with Virgin Atlantic which will offer an exceptional experience for Flying Club members. With our shared brand and closely aligned values, we expect this to create a valuable strategic partnership for the business.

The development of our digital banking platform, in collaboration with 10x Future Technologies, is progressing to time and budget and we believe will be transformational for the business.

We will continue to drive growth, quality and returns, put customers at the heart of everything we do, and we remain on track to sustain a solid double-digit return on tangible equity (RoTE) in 2017."

1 The RepTrak survey is the result of more than 35,000 interviews with the UK general public (in Q1 2017) by the Reputation Institute.


Continued growth in customer balances

  • Retail deposit balances increased to £29.6 billion, 5 per cent higher than FY 2016.
  • Mortgage balances increased to £31.8 billion, 7 per cent higher than FY 2016.
  • Gross mortgage lending of £4.3 billion and net lending of £2.1 billion.
  • Gross mortgage market share of 3.5 per cent at the end of May 2017 and net lending share of 11.9 per cent.
  • Credit card balances increased to £2.8 billion, 13 per cent higher than FY 2016.


Maintained focus on a high-quality balance sheet, underpinned by strong capital ratios

  • Strong capital base, with a Common Equity Tier 1 ratio of 13.8 per cent.
  • Total capital ratio of 18.4 per cent and a leverage ratio of 3.9 per cent.
  • Mortgage arrears held at low levels, with loans over three months in arrears of 0.15 per cent unchanged from FY 2016 and well below the latest industry average of 0.91 per cent.
  • Low credit card arrears maintained, with credit card balances two or more payments in arrears of 0.82 per cent, compared to 0.78 per cent at FY 2016 and the latest industry average of 2.4 per cent.


Differentiated business model continues to deliver for all stakeholders

  • Customers: Two million visitors have now experienced the Virgin Money Lounges - a unique concept in UK retail banking. The Lounges deliver excellent customer satisfaction ratings with a NPS of +86.
  • Communities: Helped charities raise over £56 million in H1 2017 through Virgin Money Giving, Virgin Money's not-for-profit online donation service.
  • Corporate partners: Virgin Money to become Virgin Atlantic’s retail financial services partner in the UK from 2018. The partnership will offer customers a range of benefits, including Flying Club miles and Virgin Group discounts.
  • Corporate partners: Our digital banking platform, being developed in collaboration with 10x Future Technologies, is on time and budget and meeting our expectations in every respect.


Outlook

Despite uncertainty relating to Brexit, we continue to experience a strong UK economy. Unemployment is at an all-time low which is positive for our business and consumers.

The UK housing market is expected to remain resilient, however, in the near term there may be some areas of weakness to be navigated. The growth in new homes represents an opportunity which we expect to take advantage of through our new build, shared ownership and custom build propositions. We remain vigilant about the potential for certain regions to see house price weakness and will continue to manage this through strict application of our existing lending policies and risk appetite. Mortgage spreads are expected to continue to face some pressure, however, we expect to see this alleviate as the Term Funding Scheme (TFS) is withdrawn and funding models normalise across the market.

We are committed to protecting the prime quality of our credit card book to maintain resilience through the economic cycle. We continue to expect to reach £3 billion of credit card receivables, with no deterioration of asset quality, by the end of 2017.

We are pleased with current progress on Other Operating Income, which we expect to remain above 10 percent of total income for the full year.

We have reduced travel insurance business in H1 2017 as some pricing has become uneconomic. Our optimism in the insurance segment remains however, as progress with life insurance has been strong and we expect to enter further insurance partnerships in the months ahead.

As a consequence of our stringent focus on asset quality, and on the assumption of a continued stable macro-economic environment, we expect the full year cost of risk to be only marginally higher than H1 2017.

Our continued tight control over costs combined with ongoing efficiency improvements mean that we remain on track to exit 2017 with a cost:income ratio of 50 per cent.

We are pleased to be able to build on our funding franchise. In the wholesale markets we are planning for a further RMBS issuance in the second half of the year and the authorisation of our covered bond programme gives us the opportunity to diversify our funding further.

Our capital ratios remain robust and position us well for growth.

Our retail franchise remains very strong and we expect to see a continued reduction in our overall cost of funds. It is our intention to draw further from the TFS before the withdrawal of the scheme taking total drawing within previous guidance of between £5 billion and £6 billion.

We remain confident of sustaining a solid double-digit RoTE in 2017. However, our decision to accelerate TFS drawings means we anticipate full year NIM to be towards the lower end of our previous guidance of 157-160 basis points.

As we look beyond 2017, we have a number of significant and value accretive developments underway that we are excited about.

We remain confident about the organic growth in our existing plans. While we have always said we will review any M&A opportunities as they arise, the quality of our organic plan continues to set a very high bar against which we would assess any investment.

We continue to develop our product range. Our savings and investment franchise is growing ahead of our expectations and the arrival of a dedicated team, led by John Tracy, formerly CEO of TD Direct, gives us confidence in the development of this part of the business.

We are delighted to announce our strategic partnership with Virgin Atlantic which presents a real opportunity for the business.

We remain excited by the development of our digital banking platform. It is our expectation that we will be launching a digital bank on time and on budget towards the end of 2018. This development will increase our customer reach and our access to low cost retail funding.

To conclude, we are delighted that we have delivered strongly against our objectives in H1 2017 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.


Consolidated Income Statement

Half-year
to 30 Jun
2017
£ million
Half-year
to 30 Jun
2016
£ million


Change
%
Half-year
to 31 Dec
2016
£ million


Change
%
Net interest income288.5252.214266.88
Other income38.737.4330.527
Total income327.2289.613297.310
Costs(176.4)(170.4)4(165.6)7
Impairment(22.2)(17.4)28(20.2)10
Underlying profit before tax128.6101.826111.515

Consolidated Balance Sheet

At
30 Jun
2017
£ million
At
30 Jun
2016
£ million


Change
%
At
31 Dec
2016
£ million


Change
%
Assets
Cash and balances at central banks3,677.0784.3369786.3368
Loans and receivables35,206.730,865.11433,003.47
Available-for-sale financial assets1,046.71,046.7-
858.822
Other386.0451.9(15)407.1(5)
Total assets40,316.433,148.02235,055.615
Liabilities and equity
Deposits from banks6,124.71,016.55032,132.5187
Customer deposits29,564.227,128.4928,106.35
Debt securities in issue2,298.82,948.2(22)2,600.0(12)
Other577.5673.8(14)537.87
Provisions13.215.8(16)8.555
Total liabilities38,578.431,782.72133,385.116
Total equity1,738.01,365.3271,670.54
Total liabilities and equity40,316.433,148.02235,055.615

Key Ratios

Half-year
to 30 Jun
2017
£ million
Half-year
to 30 Jun
2016
£ million



Change
Half-year
to 31 Dec
2016
£ million



Change
Net interest margin%1.591.60(1)bp1.59-
Cost:income ratio%53.958.8(4.9)pp55.7(1.8)pp
Cost of risk%0.130.121bp0.13-
Statutory basic earnings per sharep17.714.126%15.216%
Tangible net asset value per share£2.842.5826p2.7311p
Common Equity Tier 1 ratio%13.815.3(1.5)pp15.2(1.4)pp
Leverage ratio%3.93.80.1pp4.4(0.5)pp
Return on tangible equity%13.312.21.1pp12.90.4pp

Key ratios are presented on an underlying basis except where stated. Capital ratios include verified profit for H1 2017.


Reconciliation to Statutory Profit

Half-year
to 30 Jun
2017
£ million
Half-year
to 30 Jun
2016
£ million


Change
%
Half-year
to 31 Dec
2016
£ million


Change
%
Underlying profit before tax128.6101.826111.515
IPO share based payments(0.6)(1.4)(0.6)
Strategic items(5.5)1.7(4.1)
Simplification costs-
(3.3)(2.3)
Fair value gains/(losses)
on financial instruments
1.3(5.1)(3.8)
Statutory profit before tax123.893.732100.723


Enquiries:

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

FTI Consulting

John Waples / Mitch Barltrop
07717 814520 / 07807 296032
john.waples@fticonsulting.com / mitch.barltrop@fticonsulting.com

Virgin Money Investor Relations

Adam Key
020 7111 1311 or adam.key@virginmoney.com

NOTES TO EDITORS

An infographic showing key highlights from the first half of 2017 is available at https://virg.in/H12017 opens in a new window

About Virgin Money

  • Virgin Money offers savings, mortgages, credit cards, current accounts, currency services, pensions, investments and protection products to 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 13,000 charities have registered with Virgin Money Giving and, by the end of June 2017, over £560 million had been donated to charities through the service since its launch in 2009, resulting in an estimated £17.9 million more donated to charities 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, business and political 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 exit by the UK from the European Union (EU) and the potential for one or more other countries to exit the Eurozone or EU, 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, including as a result of the exit by the UK from the EU, 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 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.