02 August
2024
Virgin Money UK PLC: Third Quarter 2024 Trading
Update
David Duffy, Chief Executive
Officer:
"Our strategy remains on track, with
financial performance in line with guidance. We delivered continued
growth in deposits and unsecured lending in Q3 and remain focused
on developing innovative new products for customers and maintaining
good momentum into Q4. The acquisition by Nationwide is progressing
as anticipated with the recent CMA clearance, and we expect it to
complete in the final quarter of the calendar year."
Summary financials
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Q3 2024
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H1 2024
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Change
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Q3 2023
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Change
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Key
growth metrics (£'m)
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Mortgages
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56,012
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56,627
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(1.1)%
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57,544
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(2.7)%
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Business
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9,219
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9,321
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(1.1)%
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8,730
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5.6%
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Unsecured
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6,817
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6,727
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1.3%
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6,300
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8.2%
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Customer lending
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72,048
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72,675
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(0.9)%
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72,574
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(0.7)%
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Customer deposits
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69,827
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68,184
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2.4%
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67,266
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3.8%
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Key
performance metrics
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Net interest margin (NIM)
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1.89%
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1.94%
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(0.05)%
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1.93%
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(0.04)%
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Adjusted cost:income ratio
(CIR)[1]
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54%
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52%
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(2)%
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51%
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(3)%
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Cost of risk (CoR)
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25bps
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26bps
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1bp
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30bps
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5bps
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Transitional Common Equity Tier 1
(CET1) ratio
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14.4%
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14.6%
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(0.2)%
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14.9%
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(0.5)%
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Overview
Following a strong H1, the Group has
delivered continued strategic progress during Q3 and financial
performance in-line with the updated guidance given alongside H1.
The Group continues to expect the proposed acquisition of the
Company by Nationwide Building Society ('Nationwide') to complete
in calendar Q4 2024. Subject to the proposed acquisition
completing, the Group will recognise further transaction-related
adjustments, but anticipates remaining well-capitalised as part of
the larger Nationwide group.
Strategic Update
·
UK CMA[2] has
unconditionally cleared the proposed acquisition of VMUK by
Nationwide following its Phase 1 investigation; proposed
acquisition remains subject to other regulatory
approvals
·
Launched new fully digitised personal loans
proposition in direct channels in July; expect to re-enter the open
market for personal loans later this year
·
Signed strategic partnership with Experian, which
will improve VMUK's digital customer experience for unsecured
lending, leveraging Experian's data, analytics and cloud-based
technology
·
Embedded second phase of Consumer Duty
requirements, which came into effect in July, including full review
of off-sale products and enhanced customer
communications
·
Financial crime prevention programme (FCPP)
progressing as expected; implemented upgraded financial crime
platform in July; deployed new machine learning models to improve
fraud detection
·
As noted at H1, the Group has deferred certain
restructuring activity as part of its ongoing cost savings
programme, in light of the proposed acquisition by
Nationwide
Financial update to 30 June 2024
Customer lending lower in Q3; continued deposit
inflows
·
Customer loans 0.9% lower in Q3 at £72.0bn
reflecting lower mortgage balances and broadly stable lending
balances across target segments of business and unsecured lending
combined
·
Mortgages 1.1% lower in Q3 at £56.0bn, reflecting
disciplined approach to trading to protect overall spreads, as well
as the impact of higher redemptions given the rate
environment
·
Business lending 1.1% lower in Q3 at £9.2bn;
delivered 5.5% growth YTD and pipeline remains
strong; muted Q3 reflects seasonal effects of lower drawdowns and
higher repayments versus Q2
·
Unsecured lending 1.3% higher in Q3 at £6.8bn,
driven by ongoing growth in credit card lending; delivered
year-to-date unsecured growth of 4.6%
·
Deposits 2.4% higher in Q3 at £69.8bn, reflecting
strong ISA demand at the start of the new tax year; deposit mix
remains broadly stable relative to FY23
Q3
NIM performing in-line with expectations
·
Q3 NIM of 1.89% was lower versus H1 of 1.94% as
expected, primarily reflecting a lower contribution from cards EIR adjustments, partially offset by
the reinvestment rate of the structural hedge
Adjusted cost:income ratio higher in Q3, as guided at
H1
·
Adjusted expenses in Q3 modestly higher YoY,
contributing to an adjusted CIR of 54% (Q3 23: 51%), reflecting
cost headwinds from inflation and deferral of cost
savings
·
Notable expenditure of £32m, included £10m of
restructuring costs, £10m related to the FCPP, £5m of transaction
related costs and £7m of VMI[3]
expenses[4]
Asset quality remains solid, with stabilising arrears trends
·
Overall credit quality remains solid; arrears
trends stabilised during Q3, including a reduction in the credit
cards arrears rate. The Group's macroeconomic scenarios were
unchanged during Q3
·
Credit provisions reduced to £611m (H1 24: £616m),
primarily reflecting lower lending balances; provision coverage of
84bps remained stable (H1 24: 84bps)
·
Q3 impairment charge was £45m, equivalent to an
annualised CoR of 25bps; YTD CoR of 26bps
Capital, funding and liquidity remains
strong
·
CET1 remains robust at 14.4% on an IFRS 9
transitional basis, with no further capital distributions
announced, as previously guided
·
For further detail on capital movements, please
see the Group's Q3 Pillar 3 document
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Funding and liquidity remains strong, including
12-month average LCR of 155% and 12-month average NSFR of
137%
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The strong funding position and deposit
performance in Q3 enabled the Group to further reduce its TFSME
outstandings by £1.1bn in Q3 to £3.95bn, with the LDR reducing to
103% (FY23: 109%)
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The Group redeemed the remaining £144m stub of its
£250m 9.25% AT1 instrument in June; the Group is not planning any
MREL or capital issuance this year, subject to the acquisition
process
Outlook
Following VMUK's Q3 performance,
which was in-line with expectations, the Group re-iterates its FY24
guidance, which was last updated at H1 24. The Group also expects
to recognise further transaction-related adjustments, subject to
the completion of the proposed acquisition of the Company by
Nationwide:
·
Anticipate 5-10% growth across target lending
segments of business and unsecured lending in FY24
·
Expect NIM to be in the range of 190-195bps for
FY24, with NIM lower in H2 vs. H1 primarily reflecting a lower
contribution from cards EIR adjustments
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Adjusted cost:income ratio anticipated to be
higher in H2 vs. H1, reflecting the latest outlook for income,
inflation and deferred cost savings
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Incurred £10m of transaction costs to date,
expected to be significantly higher during rest of year
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Continue to expect the cost of risk to be in the
range 30-35bps for FY24
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As previously announced, the Board does not intend
to announce any further share buybacks or dividends given the
proposed acquisition of the Company by Nationwide
·
Continue to expect statutory RoTE to be lower in
H2 vs. H1
Nationwide acquisition
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The proposed acquisition remains subject to
certain outstanding conditions, including the receipt of PRA and
FCA approval and sanction by the Court
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We continue to expect the transaction to conclude
in the final quarter of the calendar year
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Expect to recognise further transaction-related
adjustments, including TMLA[5] exit fee and
day-1 accounting harmonisation changes; expect to remain well
capitalised as part of Nationwide Group
The Company further announces that a copy of the Q3 Pillar 3
Disclosures 2024 will shortly be available to view on the Company's
website at:
https://www.virginmoneyukplc.com/investor-relations/results-and-reporting/financial-results/.
A copy of the document has been submitted to the National Storage
Mechanism and will shortly be available for inspection
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information, please contact:
Investors and
Analysts
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Richard Smith
Head of Investor Relations &
Sustainability
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+44 7483
399 303
richard.smith@virginmoney.com
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Amil Nathwani
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+44 7702
100 398
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Senior Manager, Investor
Relations
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amil.nathwani@virginmoney.com
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Martin Pollard
Senior Manager, Investor
Relations
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+44 7894
814 195
martin.pollard1@virginmoney.com
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Media
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Simon Hall
Senior Media Relations
Manager
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+44 7855
257 081
simon.hall@virginmoney.com
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Press Office
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+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)
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+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
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of words such as 'expects', 'aims', 'targets', 'seeks',
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'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.