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Virgin Money Group: Results for the half-year to 30 June 2018

26/07/2018

Financial highlights

  • Underlying profit before tax increased by 10 per cent to £141.6 million, from £128.6 million in H1 2017
  • Statutory profit before tax increased to £127.2 million, compared to £123.8 million in H1 2017
  • Underlying total income increased by 5 per cent to £343.0 million, from £327.2 million in H1 2017
  • Return on tangible equity of 14.2 per cent
  • Banking net interest margin of 164 basis points
  • Cost:income ratio of 49.9 per cent
  • Continued low cost of risk at 0.16 per cent under IFRS 9
  • Common equity tier 1 ratio of 16.3 per cent and leverage ratio of 3.8 per cent
  • Interim dividend of 2.3 pence per ordinary share to be paid in September 2018

Business update

  • Disciplined approach to growth across our core markets
  • SME savings franchise on track to deliver £500 million of new SME deposits by the end of 2018
  • Virgin Atlantic partnership off to an excellent start with applications significantly ahead of expectations
  • Joint venture with Aberdeen Standard Investments announced in March 2018 – new investment proposition planned for 2019
  • Development of digital banking platform progressing well
  • Strong customer satisfaction maintained with an overall Net Promoter Score (NPS) of +37
  • Further improvement in our mean gender pay gap, with a 9 per cent reduction between April 2017 and April 2018 to 29.7 per cent

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 during the first half of the year. We also made good progress in delivering on our strategic initiatives.

“As a result of our disciplined approach to growth across our core markets and rigorous management of our cost base, underlying profit before tax was up 10 per cent to £141.6 million, our cost:income ratio improved to 49.9 per cent and our return on tangible equity was strong at 14.2 per cent.

“We continue to maintain a strong balance sheet, as shown in our common equity tier 1 ratio of 16.3 per cent. This benefited from recent changes to our capital models to ensure they fully reflected the excellent credit quality of our lending portfolios.

“Our SME savings franchise gathered real momentum and is on track to deliver £500 million of new deposits by the end of 2018. Our partnership with Virgin Atlantic has got off to a flying start and the development of our digital banking platform is progressing well.

“We remain focused on providing our customers with good value, straightforward products and an overall Net Promoter Score (NPS) of +37 continues to make Virgin Money one of the best-rated UK retail banks for customer satisfaction.

“I am delighted that we have continued to improve our gender pay gap, which reduced by a further 9 per cent over the last year. We remain committed to achieving 50:50 gender balance throughout the company by the end of 2020.

“The recommended offer made by CYBG for Virgin Money in June reflects confidence in our strategy, our track record of delivery and the complementary models of the two businesses and will accelerate the delivery of our strategic objectives.”


Outlook

Our central planning scenario for the rest of the year assumes a continuation of resilient economic conditions. We expect to deliver continued strong performance for the full year including a common equity tier ratio of around 15.5 per cent, before the benefit, estimated at around 40 basis points, expected to arise from the proposed joint venture with Aberdeen Standard Investments. We continue to deliver on our 2018 guidance and now anticipate a banking net interest margin for the full year 2018 of around 162 basis points, recognising continued pressure on mortgage spreads and our card income adjustment. All other guidance for 2018 remains unchanged and we look forward to the second half of the year with confidence, as we continue to drive strong returns for our shareholders.


Summary Income Statement

Half- year
to 30 Jun
2018
£ million
Half- year
to 30 Jun
2017
£ million


Change
%
Half- year
to 31 Dec
2017
£ million


Change
%
Net interest income303.1288.55.1306.1(1.0)
Other income39.938.73.132.722.0
Total income343.0327.24.8338.81.2
Costs(171.0)(176.4)3.1(172.1)(0.6)
Impairment1(30.4)(22.2)36.9(22.0)38.2
Underlying profit before tax141.6128.610.1144.7(2.1)
Reconciling items between underlying and
statutory profit before tax
(14.4)(4.8)200.0(5.9)144.1
Statutory profit before tax127.2123.82.7138.8(8.4)
Taxation(33.7)(33.3)1.2(37.2)(9.4)
Statutory profit after tax93.590.53.3101.6(8.0)
Distributions to Additional Tier 1 security holders (net of tax)(12.5)(12.4)0.8(12.4)0.8
Profit attributable to equity shareholders81.078.13.789.2(9.2)
Basic earnings per share - statutory
(pence)
18.317.13.420.2(9.4)

1 The impairment charge in the half-year to 30 June 2018 reflects impairment charges on an expected credit loss basis in accordance with IFRS 9. The comparative figures reflect impairment charges on an incurred credit loss basis, as previously reported under IAS 39.


Consolidated Balance Sheet

At
30 Jun
2018
£ million
At
30 Jun
2017
£ million


Change
%
At
31 Dec
2017
£ million


Change
%
Assets
Cash and balances at central banks4,164.23,677.013.22,579.061.5
Loans and advances to banks309.0522.3(40.8)359.4(14.0)
Loans and advances to customers37,176.034,683.97.236,740.21.2
- of which secured34,035.631,927.56.633,716.10.9
- of which unsecured3,140.42,756.413.93,024.13.8
Financial instruments at fair value through
other comprehensive income
1,638.3----
Available-for- sale financial assets-1,046.7(100.0)1,051.8(100.0)
Disposal group assets held for sale19.7----
Other388.9386.50.6377.43.0
Total assets43,696.140,316.48.441,107.86.3
Liabilities and equity
Deposits from banks7,083.46,124.715.75,379.031.7
Customer deposits31,445.629,564.26.430,808.42.1
Debt securities in issue2,939.22,298.827.92,736.97.4
Disposable group liabilities held for sale3.0----
Other363.7590.7(38.4)358.61.4
Total liabilities41,834.938,578.48.439,282.96.5
Total equity1,861.21,738.07.11,824.92.0
Total liabilities and equity43,696.140,316.48.441,107.86.3


Key Metrics

Half-year
to 30 Jun
2018
£ million
Half- year
to 30 Jun
2017
£ million



Change
Half- year
to 31 Dec
2017
£ million



Change
Banking net interest margin%1.641.72(8)bps1.72(8)bps
Cost:income ratio%49.953.9(4.0)pp50.8(0.9)pp
Cost of risk1%0.160.133bps0.124bps
Statutory basic earnings per sharep18.317.70.6p20.2(1.9)p
Tangible net asset value per share£2.972.8413p2.97-
Total capital ratio%21.118.42.7pp18.13.0pp
Common equity tier 1 ratio%16.313.82.5pp13.82.5pp
Leverage ratio%3.83.9(0.1)pp3.9(0.1)pp
Return on tangible equity%14.213.30.9pp14.7(0.5)pp

1 The cost of risk in the half-year to 30 June 2018 reflects impairment charges on an expected credit loss basis in accordance with IFRS 9. The comparative figures reflect impairment charges on an incurred credit loss basis under IAS 39, as previously reported in 2017.

Key ratios are presented on an underlying basis except where stated. Capital ratios include verified profit for H1 2018.


Reconciliation to Statutory Profit

Half-year
to 30 Jun
2018
£ million
Half- year
to 30 Jun
2017
£ million


Change
%
Half- year
to 31 Dec
2017
£ million


Change
%
Underlying profit before tax141.6128.610.1144.7(2.1)
Strategic items(11.6)(5.5)(1.0)
Fair value gains/(losses)
on financial instruments
(2.8)1.3(4.6)
IPO share based payments-(0.6)(0.3)
Statutory profit before tax127.2123.82.7138.8(8.4)


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 / 020 3727 1039
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

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 14,500 charities have registered with Virgin Money Giving and by the end of June 2018, over £660 million had been donated to charities through the service since its launch in 2009, resulting in an estimated £20.6 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.

Note: The information in this announcement relates to Virgin Money as a standalone business and does not take into account the impact of the offer for Virgin Money from CYBG PLC which was announced on 18 June 2018.

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