Virgin Money Group Results for 2017
Full year highlights
- Underlying profit before tax increased by 28 per cent to £273.3 million
- Return on tangible equity strengthened to 14.0 per cent
- Common Equity Tier 1 ratio of 13.8 per cent with potential for risk-weighted asset model improvement
- Strategic initiatives on track – SME deposit gathering commenced in January; digital bank beta-testing expected in H2 2018
- Disciplined approach to lending growth and consistently high underwriting standards delivered a 14 per cent increase in total customer loan balances and a low and stable cost of risk at 13 basis points
- Total income increased by 13.5 per cent to £666.0 million, from £586.9 million in 2016
- Cost:income ratio improved to 52.3 per cent, from 57.2 per cent in 2016. Exited 2017 with a ratio of 49.4 per cent in the fourth quarter
- Statutory profit after tax increased by 37 per cent to £192.1 million, compared to £140.1 million in 2016
- Profit attributable to equity shareholders increased to £167.3 million, from £130.0 million in 2016
- Statutory basic earnings per share increased to 37.8 pence, compared to 29.4 pence in 2016
- Recommended final dividend of 4.1 pence per ordinary share, resulting in a total dividend for the year of 6.0 pence per ordinary share - an increase of 17.6 per cent compared to 2016
- Total capital ratio of 18.1 per cent and leverage ratio of 3.9 per cent
- Tangible net asset value per share increased by 9 per cent to £2.97, from £2.73 in 2016
- Total net interest margin (NIM) of 157 basis points as guided; banking NIM of 172 basis points as guided
- Customer advocacy reached record highs with an overall Net Promoter Score of +40, up from +29 in 2016
Jayne-Anne Gadhia, Chief Executive said:
“I am delighted to report that our customer-focused strategy of growth, quality and returns continued to drive strong financial and operational performance in 2017. We generated market-beating growth across our core products as we continued to capture high-quality market share in mortgages and credit cards. We maintained our uncompromising focus on asset quality and we continued to improve our operating leverage.
In doing so, we met or exceeded all of our financial targets for the year. Underlying profit before tax increased by 28 per cent to £273.3 million and return on tangible equity improved to 14.0 per cent. We continue to experience robust customer demand and stable customer behaviour in a resilient housing market, and we expect to maintain solid double-digit returns in 2018.
We remain focused on providing our customers with good value, straightforward products and achieved a significant increase in overall customer advocacy in 2017. More customers than ever before would recommend Virgin Money to their friends and family, with our overall Net Promoter Score (NPS) increasing to +40, up from +29 in 2016. That continues to make Virgin Money one of the best-rated UK retail banks.
We refreshed our strategy during the year to address and capture the strategic opportunities arising from the technological and regulatory changes shaping UK retail banking. Broadening our customer appeal through the development of our SME and digital bank propositions will provide access to a wider pool of UK retail banking revenues and further diversify our funding base.
The strength of the business, our customer-focused strategy and our new strategic initiatives position us well to continue growing profitably while serving and growing our customer base.”
Continued growth in customer balances
- Retail deposit balances increased by 10 per cent to £30.8 billion, from £28.1 billion in 2016.
- Mortgage balances increased by 13 per cent to £33.7 billion, from £29.7 billion in 2016.
- Gross mortgage market share of 3.3 per cent, in the upper half of our guided range, and net lending share of 8.9 per cent.
- Credit card balances increased to £3.0 billion, from £2.4 billion in 2016.
Maintained balance sheet strength and asset quality
- Strong capital generation supported the growth of our lending portfolios together with ongoing investment in both our core business and the build of our digital bank. As a result, our Common Equity Tier 1 (CET1) ratio was 13.8 per cent, our total capital ratio was 18.1 per cent and our leverage ratio was 3.9 per cent at the end of 2017.
- During 2017, analysis of our mortgage risk-weight models identified the potential for reductions to average risk-weights for the portfolio. Any material changes would require regulatory approval but the analysis reinforces the strength of current capital ratios.
- Customer lending continued to be underpinned by consistently high underwriting standards and resulted in a low and stable cost of risk at 13 basis points.
- The high quality of our mortgage business continued to be reflected in low arrears levels. Secured 3 month+ arrears levels were 0.12 per cent, compared to 0.15 per cent in 2016, and significantly below the latest UK Finance industry average of 0.82 per cent.
- The cost of risk in our credit card business improved by 19 basis points to 1.51 per cent, from 1.70 per cent in 2016. This reflected our continued focus on the highest quality customer segment, a rigorous approach to underwriting and the relatively benign economic environment.
Continued to deliver for all stakeholders
- Customers: Total customer numbers increased to 3.34 million and the proportion of new product sales to existing customers increased to 12.2 per cent, compared to 10.7 per cent in 2016. We further improved customer advocacy with our overall Net Promoter Score (NPS) increasing to +40, up from +29 in 2016.
- Colleagues: We maintained strong colleague engagement with an overall engagement score of 76 per cent. We were accredited as a Best Employer for Race by Business in the Community, and in January 2018 we entered Stonewall’s Top 100 employer index for LGBT+ inclusivity. Our mean gender pay gap reduced by 10 per cent, to 32.5 per cent in 2017. As we make further progress towards achieving 50:50 gender balance throughout the business by the end of 2020, our gender pay gap will continue to reduce.
- Communities: More than £600 million has been donated to charities through Virgin Money Giving, our not-for-profit online donation service, since its launch in 2009, £95 million of which was donated in 2017. The Virgin Money Foundation awarded grants of nearly £3 million in 2017 to organisations working in areas such as housing, employability and financial inclusion.
- Corporate partners: We continue to work closely with our intermediary partners to drive our mortgage business and were delighted to be awarded the prestigious ‘Best Lender for Partnership with Mortgage Club’ at the L&G Mortgage Club annual awards for the third year running. In 2017 we announced a new partnership with BGL Group to provide our new life insurance proposition, which has performed well in its first year since launch.
2018 outlook and guidance
- Our central planning scenario for the year assumes a continuation of resilient economic conditions and modest economic growth.
- We expect to maintain solid double-digit returns and a progressive dividend in 2018.
- We expect to grow mortgage balances at a single digit percentage rate during 2018.
- The product mix of our credit card business will continue to evolve more towards retail spend cards with the launch of Virgin Atlantic Airways affinity products in 2018. Growth in credit card balances will be in single digits for the year.
- We anticipate a banking NIM in the range of 165-170 basis points for the year. As a result of lower front book spreads in the mortgage market our current expectation for banking NIM is at the lower end of that range.
- Since year end, the remaining Funding for Lending Scheme (FLS) drawings of £2.0 billion were repaid in full and Term Funding Scheme (TFS) drawings were extended to £6.4 billion.
- Our lending discipline will support asset quality and, including the impact of IFRS 9, we expect our cost of risk to be less than 20 basis points in 2018.
- Investment in our core business and strategic priorities will total £100 million in 2018. Despite this investment, we will maintain a CET1 ratio of around 13 per cent.
- We will continue to manage costs tightly and drive operating leverage through the business. As a result we expect a cost:income ratio of no more than 50 per cent in 2018.
- We are preparing our business case for the RBS alternative remedies package. We have the brand, the relationships and the capability to compete strongly in the SME market and look forward to participating in the process.
- We will continue to make progress with our SME banking roll-out and the development of our digital bank. Over time, these initiatives will significantly increase the breadth of our proposition, drive enhanced returns and support sustainable value creation for shareholders over the longer term.
Consolidated Income Statement
Consolidated Balance Sheet
|Banking net interest margin||%||1.72||1.75||(3)bps|
|Net interest margin||%||1.57||1.60||(3)bps|
|Cost of risk||%||0.13||0.13||-|
|Statutory basic earnings per share||p||37.8||29.4||8.4 pence|
|Tangible net asset value per share||£||2.97||2.73||24 pence|
|Total Capital Ratio||%||18.1||20.4||(2.3)pp|
|Common Equity Tier 1 ratio||%||13.8||15.2||(1.4)pp|
|Return on tangible equity||%||14.0||12.4||1.6pp|
Reconciliation to Statutory Profit
|Underlying profit before tax||273.3||213.3||28.1|
|IPO share based payments||(0.9)||(2.0)|
|Fair value losses on financial instruments||(3.3)||(8.9)|
|Statutory profit before tax||262.6||194.4||35.1|
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.
- Over 13,900 charities have registered with Virgin Money Giving and, by the end of 2017, over £600 million had been donated to charities through the service since its launch in 2009, resulting in an estimated £19 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 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 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 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.