David Duffy, Chief Executive Officer:
“In the first year of our newly combined business, we have delivered a good operating performance in challenging conditions and made great progress on the integration and rebrand to Virgin Money.
Our statutory result was significantly affected by additional PPI provisions, driven by the unprecedented surge in PPI information requests in August, along with anticipated Virgin Money acquisition-related costs.
Our customer divisions have performed well – we have delivered a further c.£2bn in net lending to support UK SMEs and consumers, attracted c.£3bn in customer deposits, and made marked improvements to our customer experience.
We achieved all the required approvals in 2019 to enable us to operate as one bank, with one brand, and are ready to deliver our strategy to disrupt the status quo with brilliant customer service and unique Virgin Money products. In December we are launching Virgin Money’s first digital personal current account and three new Virgin Money concept stores. A unique loyalty and rewards programme for customers featuring a number of Virgin Group companies will follow in 2020, along with the launch of our brand new Virgin Money business account.”
VIRGIN MONEY UK (LON: VMUK) Key financial highlights
· Resilient operating performance in a challenging environment – NIM of 1.66% in line with guidance and 6% reduction in underlying costs to £942m; pre-provision operating profit improved +1% in 2019
· Underlying profit of £539m down 7% due to higher impairments from IFRS 9 adoption and normalisation
· Transformation on track – £53m of run rate net cost savings achieved; on track for c.£200m FY22 target
· Statutory loss after tax of £194m due to legacy conduct costs and restructuring & acquisition costs; Q4 PPI provision of £385m is within the Group’s previous guidance range
· Robust capital position with CET1 ratio of 13.3%; provides capacity to execute our strategy and deliver all of the targets announced at our Capital Markets Day (CMD) in June
· Dividend suspended for FY19 in light of additional PPI provisions; the Board will reconsider dividends for FY20 in line with normal practice
Delivering our strategic priorities
· Pioneering Growth – strong growth in lending and deposits in line with our strategy – above market asset growth in Business (+4.5%) and Personal (+16%), and disciplined growth in Mortgages (+1.7%); good growth in lower-cost relationship deposits (+7%) across both Business and Personal
· Delighted Customers & Colleagues – improved Group NPS of +37 (2018: +34), with B digital banking service NPS of +52, and customer experience enhancements such as the new Virgin Money credit card app, our JV with Salary Finance offering workplace personal lending and an energy switching partnership with GoCompare; colleague engagement score of 76% despite major change agenda
· Super Straightforward Efficiency – significant progress made in the first year of the Virgin Money integration; all 6.6m customers can now be served under the Virgin Money brand after successful completion of the FSMA Part VII process
· Discipline & Sustainability – robust capital position supports delivery of CMD strategy and targets; cost of risk of 21bps was stable through the year and we maintained our prudent underwriting approach
Significant new developments for customers as our full rebrand is launched
· First ever Virgin Money digital current account ready to launch in December, built on our innovative FinTech-friendly digital platform
· First three new concept Virgin Money stores will also open in December
· New Digital Disruption Hub in Newcastle will accelerate customer experience and digital functionality improvements from January 2020 in support of our target for Top 3 CMA service quality rankings
· Plans to launch a unique personal rewards and loyalty programme leveraging the wider Virgin Group and a business banking proposition in 2020 are progressing well
· FY20 guidance in line with medium-term strategic and financial targets
Full Year 2019 financial results summary
Above market growth in Business and Personal; good growth in relationship deposits
· Customer lending growth of 2.9% to £73.0bn, all within our existing risk appetite:
– Business lending growth of 4.5% to £7.9bn; supported by originations of £2.2bn during 2019
– Personal lending growth of 16.1% to £5.0bn driven by high-quality Virgin Money credit card growth, new balances from our Salary Finance partnership and an improved online personal loan proposition
– Mortgage lending growth of 1.7% to £60.1bn, maintaining market share at c.4% in line with strategy
· Deposit growth of 4.6% to £63.8bn, with 7.1% growth in lower-cost relationship deposits to £21.3bn
· Robust asset quality with a cost of risk of 21bps stable through 2019 but increased on FY18 (15bps) largely due to the adoption of IFRS9 and normalisation
Resilient operating performance; statutory loss due to conduct, restructuring & acquisition costs
· Statutory loss after tax of £194m reflects legacy conduct costs and restructuring & acquisition costs
· Additional PPI provisions of £385m taken in Q4 (FY18: £415m); c.9% information request complaint conversion rate
· Underlying profit of £539m is 7% lower YoY due to higher impairments; pre-provision operating profit increased 1%:
– FY19 NIM of 1.66% in line with guidance (Q4: 1.60%) reflecting competitive market conditions
– Non-interest income reduced 10% primarily due to a £12m lower contribution from our Investments business and £9m of hedging-related adverse fair value movements
– Costs down 6% to £942m in line with guidance; cost:income ratio of 57% and positive jaws of 3%
· Underlying Return on Tangible Equity (RoTE) of 10.8% (FY18: 11.0%)
Integration on track with great progress made during the year
· Integration is progressing well with FSMA Part VII banking business transfer completed in October 2019; can now begin the integration of our customer propositions and platforms, and commence our rebrand
· Run rate net cost savings of £53m delivered; on track for c.£200m net cost savings target by FY22
· £156m of restructuring costs includes accelerated office closures and redundancies; c.£360m estimate for FY19-21 remains
· Acquisition costs of £189m comprises £102m of one-off costs and £87m of acquisition accounting unwind
Robust capital position supports execution of strategy and delivery targets; ordinary dividend suspended
· CET1 ratio of 13.3% reflects legacy conduct and restructuring & acquisition costs (FY18: 15.1%)
· Ordinary dividend suspended for FY19; progressive and sustainable dividend ambition remains and the Board will reconsider dividends for FY20 in line with normal practice
· CET1 ratio above medium-term operating level of c.13%; retains a significant buffer to CRD IV regulatory requirement of 11.0%, supports delivery of CMD strategy and targets
· TNAV per share of 249.2p; down 10.8p vs FY18 due to PPI
Capital Markets Day strategy on track and all targets re-affirmed
· Guidance for FY20:
– NIM of c.160-165bps
– Underlying operating costs of <£900m
– CET1 ratio operating level of c.13%
· CMD strategy remains on track with all targets re-affirmed, including: modest improvement in NIM by FY22, <£780m FY22 operating costs and statutory RoTE of >12% by FY22
