Third Quarter 2024 Trading Update

Virgin Money UK

02/08/2024 07:00

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RNS Number : 8914Y  Virgin Money UK PLC  02 August 2024

 

 

 

 

 

 

 

 

 

 

 

 

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                                              Q3 2024       H1 2024                         Change   Q3 2023  Change

 Key growth metrics (£'m)
 Mortgages                                                             56,012        56,627                    (1.1)%   57,544   (2.7)%
 Business                                                              9,219                   9,321           (1.1)%   8,730    5.6%
 Unsecured                                                             6,817         6,727                     1.3%     6,300    8.2%
 Customer lending                                                      72,048        72,675                    (0.9)%   72,574   (0.7)%
 Customer deposits                                                     69,827        68,184                    2.4%     67,266   3.8%
 Key performance metrics
 Net interest margin (NIM)                                             1.89%         1.94%                     (0.05)%  1.93%    (0.04)%
 Adjusted cost:income ratio (CIR) 1  (#_ftn1)                          54%           52%                       (2)%     51%      (3)%
 Cost of risk (CoR)                                                    25bps         26bps                     1bp      30bps    5bps
 Transitional Common Equity Tier 1 (CET1) ratio                        14.4%         14.6%                     (0.2)%   14.9%    (0.5)%

 

 

 

 

 

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  (#_ftn2) 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  (#_ftn3) expenses 4  (#_ftn4)

 

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

·    Funding and liquidity remains strong, including 12-month average LCR
of 155% and 12-month average NSFR of 137%

·    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%)

·    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

·    Adjusted cost:income ratio anticipated to be higher in H2 vs. H1,
reflecting the latest outlook for income, inflation and deferred cost savings

·    Incurred £10m of transaction costs to date, expected to be
significantly higher during rest of year

·    Continue to expect the cost of risk to be in the range 30-35bps for
FY24

·    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

·    The proposed acquisition remains subject to certain outstanding
conditions, including the receipt of PRA and FCA approval and sanction by the
Court

·    We continue to expect the transaction to conclude in the final
quarter of the calendar year

·    Expect to recognise further transaction-related adjustments,
including TMLA 5  (#_ftn5) 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/
(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
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)

For further information, please contact:

 Investors and Analysts
 Richard Smith                                     +44 7483 399 303

 Head of Investor Relations & Sustainability       richard.smith@virginmoney.com

 Amil Nathwani                                     +44 7702 100 398
 Senior Manager, Investor Relations                amil.nathwani@virginmoney.com

 Martin Pollard                                    +44 7894 814 195

 Senior Manager, Investor Relations                martin.pollard1@virginmoney.com

 Media
 Simon Hall                                        +44 7855 257 081

 Senior Media Relations Manager                    simon.hall@virginmoney.com

 Press Office                                      +44 800 066 5998
                                                   press.office@virginmoney.com

 Teneo
 Doug Campbell (UK)                                +44 7753 136628

 Julia Henkel (Australia)                          +61 406 918080

 

 

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.

 1  (#_ftnref1) Adjusted to exclude notable items, including transaction costs
and the new Bank of England Levy in FY24

 2  (#_ftnref2) Competition and Markets Authority

 3  (#_ftnref3) Virgin Money Investments

 4  (#_ftnref4) Given fully consolidated accounting following the buy-out in
April; there was also £6m of notable income recognised during Q3 relating to
VMI income

 5  (#_ftnref5) Virgin Money licences certain rights to use the "Virgin Money"
brand from Virgin Enterprises pursuant to a brand licence agreement between
Virgin Money and Virgin Enterprises, to which Virgin Money became a party on
18 June 2018 (the "TMLA")

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