14
May 2024
Virgin Money UK PLC (the "Group", or the "Company, or "Virgin
Money")
H1
2024 Trading Update
As previously announced, the boards
of directors of Virgin Money UK PLC and Nationwide Building Society
(Nationwide) have agreed the terms of a recommended cash
acquisition of Virgin Money by Nationwide to be effected by means
of a scheme of arrangement (Scheme). Further to the update set out
in the Scheme Document published by the Company on 22 April 2024 in
connection with the proposed acquisition, the Virgin Money Board
recently finalised the appointment of Ernst & Young LLP (EY) as
Virgin Money's auditors, following PricewaterhouseCoopers LLP
giving notice that they would be resigning in light of potential
conflicts arising from the possible acquisition. The Group will
announce its Interim results for the six-month period ending 31
March 2024 on 13 June 2024, following the conclusion of EY's
review. Additionally, the Company provides the following unaudited
update on trading in H1 2024, ahead of the shareholder meetings to
approve the Scheme and related matters, which are scheduled to be
held on 22 May 2024.
This announcement is not a
preliminary statement of Interim results. Due to the results
presented in this update not having been subject to final review by
the Company's auditors as would be required for a preliminary
statement of Interim results, adjustments could arise from the
finalisation of the review. The announcement therefore contains
some details that remain subject to finalisation of the review,
which is reflected in the use of ranges for some quoted financial
metrics. At this point, Virgin Money UK PLC confirms it is not
aware of, nor been notified of, any matter which may result in the
need to make a change to the information in this update in
connection with EY's review.
David Duffy,
CEO:
"Over the first six months, we have
continued to deliver on our strategic ambitions in line with
expectations. While we expect there to be headwinds through the
second half of the year, we remain well placed to deliver growth in
our target segments."
H1
2024 Trading update - performance in line with
expectations
Overview
The Group has delivered continued
business momentum during H1, supported by ongoing strategic
execution, with trading in Q2 broadly as anticipated. The Group
believes the acquisition of Virgin Money by Nationwide presents an
exciting opportunity to build on our significant strategic progress
by combining two complementary businesses that together can offer
more great products and services to a larger customer base, while
delivering value for our shareholders.
Continued strategic execution
Virgin Money has continued to make
progress in executing its strategy, following on from the update
provided in the Q1 trading statement. Key highlights:
·
Completed purchase of abrdn's c.50% stake in
Virgin Money Investments in April for £20m following successful
roll-out of new investment and pension services
· Fully rolled-out premium broker service to 225 mortgage
intermediaries, covering c.40% of VMUK applications, contributing to a stronger pipeline of recommended cases from
those brokers
·
New virtual assistant Redi has now supported over
1 million conversations, attracting strong Smile scores and solving
more than 50% of queries without the need for further
escalation
·
Financial crime prevention programme on-track;
c.£15m invested during H1
·
Progressing second phase of Consumer Duty review
ahead of July implementation
Financial update to 31 March 2024
The Group delivered good financial
progress during H1 while maintaining a strong capital position.
This included ongoing growth in target lending segments, resilient
margins, ongoing cost efficiencies mitigating inflation and broadly
consistent credit quality trends. Key highlights:
Targeted growth in customer lending in line with strategy;
deposit mix remains broadly stable
·
Customer loans stable in H1 at £72.7bn as 5%
growth across target lending segments of business and unsecured
lending was offset by lower mortgages balances
·
Mortgages 2% lower in H1 at £56.6bn, reflecting
subdued market; customer demand has improved since the start of the
calendar year, with application volumes higher in Q2 versus
Q1
·
Business lending 7% higher in H1 at £9.3bn, driven
by strong demand in sector specialisms
·
Unsecured lending increased 3% in H1 to £6.7bn,
driven by 5% growth in credit card lending
·
Customer deposits 2% higher in H1 at £68.2bn;
overall deposit mix remains broadly stable
H1
Net interest margin (NIM) performing in-line with
expectations
·
NIM improved in Q2 relative to Q1, supported by
EIR adjustments in our credit cards portfolio, reflecting strong
customer activity and updated assumptions
·
The Group expects NIM for H1 to be at the upper
end of the FY24 190-195bps range
Cost savings programme mitigating ongoing
inflation
·
Continue to execute cost saving programme, partly
offsetting headwinds from inflation, including annual wage rises,
and the new BoE levy (annual charge, £10m in Q2)
·
The Group expects the adjusted cost:income
ratio[1] to remain broadly stable in H1
(FY23: 52%)
·
Incurred further restructuring costs
in H1 in line with expectations; some initial
transaction costs incurred in H1, expected to be significantly
higher in H2
Asset quality remains solid; cost of risk (CoR) tracking
in-line with expectations
·
Credit quality remains solid and arrears trends
are broadly consistent with those set out as part of the Q1 trading
statement
·
The Group expects a CoR in H1 of between 25-30bps,
incorporating a benefit from the ongoing SICR[2] review on the Group's credit card portfolio and a
modestly improving economic outlook
Capital, funding and liquidity remains
strong
·
CET1 ratio improved further in Q2 and is expected
to be >14.5% at H1, as capital generation and the cancellation
of the share buyback more than offset RWA growth in the
period
·
The cancellation of the c.£87m unutilised element
of the £150m share buyback programme, given the proposed
acquisition, drove c.35bps improvement in Q2
·
Liquidity remained robust throughout the period
with the 12-month average LCR >150%
·
Funding remains strong; the Group successfully
issued a new €750m Senior MREL note in March to maintain a prudent
management buffer above its regulatory requirement
Outlook
Following a strong H1, during the
second half the Group expects downward pressure on NIM relative to
H1, primarily reflecting a lower expected contribution from cards
EIR adjustments, and ongoing competition. The Group also
anticipates cost pressures from inflation and investment in H2,
which will only be partially mitigated by the ongoing cost savings
programme:
·
Continue to anticipate 5-10% growth across target
lending segments of business and unsecured lending in FY24, as
guided at FY23
·
Expect NIM in H2 to be impacted by lower
contribution from cards EIR adjustments, ongoing competition and lower interest rates, partially mitigated by
the reinvestment rate of the structural hedge
·
Continue to expect NIM to be in the range of
190-195bps for FY24, as guided at FY23, with NIM lower in H2 vs.
H1
·
In light of the proposed acquisition by
Nationwide, the Group has deferred certain restructuring
activity
·
Adjusted cost:income ratio anticipated to be
higher in H2 vs. H1, reflecting the latest outlook for income,
inflation, ongoing investment and cost savings
·
Continue to expect the cost of risk to be in the
range 30-35bps for FY24, as guided at FY23, incorporating SICR
review on credit card portfolio and a modestly improving economic
backdrop
·
As previously announced, the Board intends to
recommend a FY24 dividend of 2p per share[3]
·
Given the proposed acquisition by Nationwide, the
Group has cancelled its share buyback programme and does not intend
to announce any further share buybacks or dividends
·
As a result of these factors, statutory RoTE
expected to be lower in H2 vs. H1
Key
dates
·
Shareholder meetings to approve Scheme -
22nd May
2024
·
Virgin Money UK PLC Interim Results publication -
13th June
2024
Investors and
Analysts
|
|
Richard Smith
Head of Investor Relations &
Sustainability
|
+44 7483
399 303
richard.smith@virginmoney.com
|
|
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Amil Nathwani
|
+44 7702
100 398
|
Senior Manager, Investor
Relations
|
amil.nathwani@virginmoney.com
|
|
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Martin Pollard
Senior Manager, Investor
Relations
|
+44 7894
814 195
martin.pollard1@virginmoney.com
|
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Media
|
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Andrew Scott
Head of Media Relations
Simon Hall
|
+44 7483
911 591
andrew.s.scott@virginmoney.com
+44 7855
257 081
|
Senior Media Relations
Manager
|
simon.hall@virginmoney.com
|
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Press Office
|
+44 800
066 5998
|
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press.office@virginmoney.com
|
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Teneo
|
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Doug Campbell (UK)
Julia Henkel (Australia)
|
+44 7753
136628
+61 406
918080
|
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Announcement authorised for release
by Lorna McMillan, Group Company Secretary.
Forward looking statements
The
information relates to Virgin Money UK PLC and its subsidiaries,
which together comprise the "Group".
The information in this document may
include forward looking statements, which are based on assumptions,
expectations, valuations, targets, estimates, forecasts and
projections about future events. These can be identified by the use
of words such as 'expects', 'aims', 'targets', 'seeks',
'anticipates', 'plans', 'intends', 'prospects' 'outlooks',
'projects', 'forecasts', 'believes', 'estimates', 'potential',
'possible', and similar words or phrases. These forward looking
statements, as well as those included in any other material
discussed at any presentation, are subject to risks, uncertainties
and assumptions about the Group and its securities, investments and
the environment in which it operates, including, among other
things, the development of its business and strategy, any
acquisitions, combinations, disposals or other corporate activity
undertaken by the Group, trends in its operating industry, changes
to customer behaviours and covenant, macroeconomic and/or
geopolitical factors, the repercussions of the outbreak of
coronaviruses (including but not limited to the COVID-19 pandemic),
changes to its board and/ or employee composition, exposures to
terrorist activity, IT system failures, cyber-crime, fraud and
pension scheme liabilities, risks relating to environmental matters
such as climate change including the Group's ability along with the
government and other stakeholders to measure, manage and mitigate
the impacts of climate change effectively, changes to law
and/or the policies and practices of the Bank of England, the
Financial Conduct Authority and/or other regulatory and
governmental bodies, inflation, deflation, interest rates, exchange
rates, tax and national insurance rates, changes in the liquidity,
capital, funding and/ or asset position and/or credit ratings of
the Group, future capital expenditures and acquisitions, the
repercussions of the UK's exit from the European Union (EU)
(including any change to the UK's currency and the terms of any
trade agreements (or lack thereof) between the UK and the EU),
Eurozone instability, Russia's invasion of Ukraine, the conflict in
the Middle East, any referendum on Scottish independence, and any
UK or global cost of living crisis or recession.
In light of these risks,
uncertainties and assumptions, the events in the forward looking
statements may not occur. Forward looking statements involve
inherent risks and uncertainties. Other events not taken into
account may occur and may significantly affect the analysis of the
forward looking statements. No member of the Group or their
respective directors, officers, employees, agents, advisers or
affiliates gives any representation, warranty or assurance that any
such projections or estimates will be realised or that actual
returns or other results will not be materially lower than those
set out in this document and/or discussed at any presentation. All
forward looking statements should be viewed as hypothetical. No
representation or warranty is made that any forward looking
statement will come to pass. Whilst every effort has been made to
ensure the accuracy of the information in this document or oral or
written material discussed or distributed at any presentation, the
Group and their directors, officers, employees, agents, advisers
and affiliates do not take any responsibility for such information
or to update or revise it. Such information is subject to change.
They will not be liable for any loss or damages incurred through
the reliance on or use of it. No representation or warranty,
express or implied, as to the truth, fullness, fairness,
merchantability, accuracy, sufficiency or completeness of the
information in this document or the materials used in and/ or
discussed at, any presentation is given.
Certain industry, market and
competitive position data contained in this document and the
materials used in and/ or discussed at, any presentation, comes
from official or third party sources. There is no guarantee of the
accuracy or completeness of such data. While the Group reasonably
believes that each of these publications, studies and surveys has
been prepared by a reputable source, no member of the Group or
their respective directors, officers, employees, agents, advisers
or affiliates have independently verified the data. In addition,
certain industry, market and competitive position data contained in
this document and the materials used in and/ or discussed at, any
presentation, comes from the Group's own internal research and
estimates based on the knowledge and experience of the Group's
management in the markets in which the Group operates. While the
Group reasonably believes that such research and estimates are
reasonable and reliable, they, and their underlying methodology and
assumptions, have not been verified by any independent source for
accuracy or completeness, and are subject to change. Accordingly,
undue reliance should not be placed on any of the industry, market
or competitive position data contained in this document and the
materials used in and/ or discussed at, any
presentation.
The information, statements and
opinions contained in this document do not constitute or form part
of, and should not be construed as, any public offer under any
applicable legislation or an offer to sell or solicitation of any
offer to buy any securities or financial instruments or any advice
or recommendation with respect to such securities or other
financial instruments. The distribution of this document in certain
jurisdictions may be restricted by law. Recipients are required by
the Group to inform themselves about and to observe any such
restrictions. No liability to any person is accepted in relation to
the distribution or possession of this document in any
jurisdiction. The information, statements and opinions contained in
this document and the materials used in and/ or discussed at, any
presentation are subject to change.
Certain figures contained in the
information, including financial information, may have been subject
to rounding adjustments and foreign exchange conversions.
Accordingly, in certain instances, the sum or percentage change of
the numbers contained in the information may not conform exactly to
the total figure given.
No statement in this announcement is
intended as a profit forecast, profit estimate or quantified
benefit statement for any period and no statement in this
announcement should be interpreted to mean that earnings per share
for Virgin Money for the current or future financial years would
necessarily match or exceed the historical published earnings or
earnings per share for Virgin Money or the Group.