06 February
2024
Virgin Money UK PLC: First Quarter 2024 Trading
Update
David Duffy, Chief Executive
Officer:
"We have made a positive start to
the year, with strong Q1 results in line with our guidance. We've
delivered growth in new accounts, deposits and target lending
segments, at stable margins and with ongoing cost efficiencies. We
are encouraged by both our customers' resilience and improving
sentiment in the mortgage market as interest rates have peaked. We
carry good momentum into 2024 as we continue to successfully
execute our strategy."
Summary financials
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Q1 2024
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FY 2023
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Change
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Q1 2023
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Change
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Key
growth metrics (£'m)
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Mortgages
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57,112
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57,497
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(0.7)%
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58,402
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(2.2)%
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Business
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9,017
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8,738
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3.2%
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8,449
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6.7%
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Unsecured
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6,703
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6,519
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2.8%
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6,219
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7.8%
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Customer lending
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72,832
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72,754
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0.1%
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73,071
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(0.3)%
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Customer deposits
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67,308
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66,609
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1.0%
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66,153
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1.7%
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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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1.91%
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(0.02)%
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1.89%
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-
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Cost:income ratio excluding notable
items (CIR)
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52%
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52%
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-
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53%
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1%
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Cost of risk (CoR)
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35bps
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42bps
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7bps
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36bps
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1bp
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Transitional Common Equity Tier 1
(CET1) ratio
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14.0%
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14.7%
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(0.7)%
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15.0%
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(1.0)%
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Q1
Summary: Good business momentum, in-line with FY24
guidance
Targeted growth in customer lending; deposit mix remains
stable
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Mortgages 0.7% lower in Q1 at £57.1bn, reflecting
disciplined approach to trading in subdued market; early signs that
market activity has improved in January, increasing back to 2019
levels
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Business lending growth of 3.2%, driven by strong
demand at good margins in our sector specialisms
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Unsecured lending increased 2.8% in Q1 to £6.7bn,
driven by 4.1% growth in credit card lending, with growth in
retail spend year-on-year and stable repayment rates
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Deposits 1.0% higher in Q1 at £67.3bn, with
overall deposit mix stable relative to Q4 23
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Further growth in total active relationship
customer accounts (+27k net during Q1) to 3.8m
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Successfully migrated all existing Virgin Money
Investments (VMI) customers onto new digital platform; launched new
pension proposition with good initial customer reaction
Stable Net Interest Margin (NIM); FY24 NIM guidance of
190-195bps unchanged
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NIM stable in Q1 at 189bps (Q4 23: 189bps), with
benefits from structural hedge reinvestment rate and ongoing cards
EIR outperformance offset by mortgage spread pressure and deposit
competition
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Expect NIM to be resilient over remainder of year,
including reduced rate expectations
Cost:income ratio (CIR) stable as execution of our savings
programme absorbed ongoing inflation
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Q1 CIR of 52% (excluding notable items); continue
to expect broadly stable CIR in FY24
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Closed 39 stores and reduced office property
footprint by c.35% in Q1, supporting gross savings
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Good progress towards making increasing use of
cost-effective geographies for outsourced activities
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Further drive towards digital customer engagement,
including withdrawal of passbooks from savings
Credit quality remains solid; provision coverage modestly
higher
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Overall arrears trends remain broadly consistent
with FY23; credit card arrears continue to gradually increase in
line with expectations, reflecting ongoing maturation and
diversification
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Provisions up to £639m (Q4 23: £617m) given change
in loan mix; coverage 3bps higher to 87bps
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£64m impairment charge in Q1, equivalent to 35bps
CoR; continue to expect 30-35bps for FY24
Strong capital position supports ongoing shareholder
distributions and growth opportunities
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£150m share buyback announced in November 2023 was
34% complete at end of January
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CET1 ratio lower at 14.0%, reflecting ongoing
profitability offset by full c.60bps impact of £150m buyback and
£0.3bn higher RWAs; fully loaded CET1 ratio now 13.8%
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Continue to expect 13-13.5% CET1 in FY24, with
FY24 distributions around the FY23 nominal level, including further
buybacks to be announced during H2, subject to Board and regulatory
approval
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Issued new £350m AT1 and £500m RMBS; reduced TFSME
by £1.2bn in Q1
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Overview
The Group delivered good business
momentum in Q1, supported by accelerated strategic execution,
including growth in target lending segments, stable margins despite
rates peaking and robust credit quality. Ongoing delivery against
our restructuring programme is supporting our stable cost
performance, despite inflation, and we are proceeding with our new
FCPP[1], as announced at FY23 results. The £150m
share buyback programme announced in November is progressing well
and we anticipate announcing further distributions this year, given
our resilient capital position, as we normalise our CET1 to
13-13.5% by FY24.
The Group remains confident in its
medium-term outlook and is focused on delivering double-digit
statutory returns to drive value for shareholders. This will be
supported through the execution of our strategy and leveraging the
power of the brand, including growth in return accretive segments,
greater cost-efficiency through digitisation, ongoing balance sheet
resilience and sustainable capital distributions to shareholders.
We look forward to communicating the next phase of our strategy
at a Capital Markets Day later this year.
Pioneering Growth
Mortgage balances reduced by 0.7% in
Q1 to £57.1bn, as we maintained discipline in a subdued market,
with our c.3.5% market share unchanged. Application spreads
improved during Q1, despite customer pricing trending lower, but
remained below the spread of maturing balances. The Group is
trading nimbly to optimise performance, including the launch of our
innovative new 'Fix and Switch' range, along with our new premium
broker service, delivering an enhanced experience and a larger
pipeline of recommended cases. There are early signs in January
that market activity has improved, including market applications
volumes more in line with 2019 levels within both residential
lending and more recently buy-to-let. Looking ahead, the Group
expects customer sentiment in mortgages to continue to improve,
given the emergence of more positive trends at lower customer
rates.
Business lending increased by 3.2%
in Q1 to £9.0bn, as the Group maintained good momentum in BAU
balances, which increased 4.2% to £8.5bn, more than offsetting a
10.5% reduction in Government-scheme balances to £0.6bn. This
performance was supported by strong demand at good margins in our
resilient national sector specialisms and market segments, and our
relationship manager-led approach. We maintain a robust lending
pipeline and expect to continue to grow balances and market share
during FY24.
Unsecured lending increased 2.8% in
Q1, driven mainly by measured credit card growth, reflecting strong
demand from existing customers, and further new account acquisition
in a resilient market. New credit card accounts opened in Q1
totalled 122k, lower than 147k in Q4 23, reflecting a disciplined
approach to credit and profitability. Our customers are
demonstrating resilience, with higher year-on-year spend and stable
repayment rates and we have continued to observe customer
behavioural activity outperforming our prudent assumptions across
spend, repayment and retention, resulting in card EIR performance
remaining persistently better than expected. Personal Loans and
Overdrafts reduced in line with expectations, ahead of the Group's
re-entry into the market for new Personal Loans in H2 with a fully
digitised end-to-end proposition. The Group continues to expect
moderate growth in Unsecured balances during the rest of the
financial year, in line with its strategy.
The Group traded well during Q1 to
maintain its customer deposit mix and manage ongoing deposit
migration. Overall deposits increased 1.0% to £67.3bn, including
1.7% growth in relationship deposits, which remained stable as a
percentage of total deposits at 53%. In the secondary savings
market, the Group prioritised variable savings for new funding
during Q1, given the beneficial pricing available relative to term
deposits. Non-linked savings therefore increased by 0.7% to £9.8bn
as growth from new variable savings offset ongoing attrition from
the back book. Term deposits remained stable during Q1 at £21.5bn.
Our deposit book remains defensively positioned, reflecting our
existing, higher proportion of term deposits and the attractive
rates we offer to our customers, which as at FY23, remained above
larger UK peers.
NIM of 189bps in Q1 was stable
relative to Q4 23 (189bps), as benefits from the reinvestment rate
of the structural hedge and ongoing credit card EIR outperformance
offset spread pressure in mortgages and further deposit competition
and migration. The path for base rate expectations and swaps has
reduced further since our FY23 results, reflecting a headwind to
NIM from lower hedge reinvestment and potential delays in deposit
pass-through. Subject to macroeconomic uncertainties, we expect NIM
to be resilient over the remainder of the year, with FY24 NIM
guidance of 190-195bps unchanged, as benefits from reinvestment of
the structural hedge, albeit with a lower rate outlook, and growth
in higher-yielding lending segments mitigate headwinds from
mortgage spreads and ongoing deposit migration and
competition.
Non-interest income (excluding
notable items and one-off gains) was stable during Q1 vs. Q4 23,
supported by resilient credit card spending and robust business
activity levels. There were c.£(12)m of notable charges within
non-interest income due to hedge ineffectiveness and rate
volatility in the period.
Delighted Customers and Colleagues
The Group continued to attract new
customers in Q1, with 27k growth in net active relationship
customer accounts to 3.8m. We remain committed to consistently
improving the customer experience over time. In Q1, the Group
delivered an improvement in call waiting times and launched new
products and services, while remaining on track to implement the
second phase of the Consumer Duty regime in July 2024.
The Group has made significant
improvements to its investment proposition, Virgin Money
Investments (VMI). During Q1, VMI launched its new pension product,
giving customers a straightforward way to save for later life, with
positive early customer engagement. In January, we also
successfully migrated over 150k existing VMI customers onto a new
digital platform with FNZ, allowing all VMI customers to service
their pension and investment accounts digitally and manage their
products more effectively.
Our insurance proposition is
performing well, with c.50k new digital travel insurance sales in
Q1, supported by a cashback promotion to existing current account
and credit card holders. We are on track to launch our new digital
home insurance product this year, as we grow our fee earning
capabilities over time.
In our credit cards business, we
successfully upgraded our new conversational banking virtual
assistant, Redi during Q1. Redi is now connected to the credit card
core systems, enabling complete servicing activity and real-time
changes to a customer's account. The service continues to attract
favourable Smile scores and is driving lower call volumes. We are
delighted to have won 'Best Application of AI or ML in Financial
Services' with IBM, at the 2024 Cards and Payments Awards for the
introduction of Redi. We will be adding additional functionality to
PCAs shortly as we introduce a more personal approach to digital
banking.
We are making good progress on our
integrated app for key Virgin Money products, incorporating
features from our digital wallet, including rewards and insights,
alongside new components including open banking aggregation,
instant card issuance and conversational banking. We are well
placed to launch the first iteration of this integrated app during
the year.
Despite a competitive market for
PCAs, we opened c.27k new PCAs in Q1. This performance was
supported by our linked saver product and access to exclusive ISA
products, with our ISA proposition recently winning three
categories at the '2024 Savings Champion' Awards. Our BCA
proposition also continues to perform well, despite a challenging
market, as we grew our stock of BCAs to over 250k in Q1.
Recognising the challenging
environment and our Purpose of 'Making You Happier About Money', we
rewarded 97% of colleagues with a salary increase in January, while
also increasing our starting salary. We are on track to fully open
our new Glasgow head office in February, which will offer a modern,
employee-led, state of the art facility as part of our A Life More
Virgin colleague proposition. We were also pleased to announce the
appointment of Lucinda Charles-Jones as a non-executive Director in
January.
Super Straightforward Efficiency
The Group remains highly focussed on
managing its cost base and driving improved efficiency. During the
quarter, operating expenses (excluding notable items) remained
stable year-on-year, in line with expectations, as savings from our
cost savings programme absorbed ongoing inflation. The Group
continues to expect to deliver a broadly stable cost:income ratio
(excluding notable items) in FY24.
The Group is on track to deliver
c.£200m of annualised savings from its existing restructuring
programme after accelerating restructuring and digitisation
activity. The Group finalised the closure of 39 stores in Q1,
thereby reducing its store network by 30% to 91 stores, while also
reducing its office property footprint by a further c.35%, with
further opportunities for office property rationalisation
identified following the success of the Glasgow head office
consolidation. As a result of our restructuring programme, we
reduced the number of FTEs in Q1 on a gross basis by c.150, with
total FTEs now at a similar level as they were at CYBG around the
time of its initial public offering, and expect further reductions
in FTEs during the year. We are also looking to make increasing use
of other more cost-effective geographies for outsourced activities.
We continue to drive digital customer engagement, including the
withdrawal of passbook savings accounts for customers and
have made further progress in modernising our
technology infrastructure, with the ongoing adoption of Microsoft
Azure, scaling the use of cloud services across the
Bank.
The Group continues to expect the
majority of the remaining c.£60m of restructuring costs of the
c.£275m total to be incurred during FY24, reflecting the costs of
delivering IT improvement, severance and further changes to the
property footprint. We are also making good early progress
delivering against the new c.£130m financial crime prevention
programme, as we improve our financial crime prevention
capabilities and protect our customers. We have signed a contract
with our new fraud detection partner as we upgrade to a market
leading fraud system and have signed an agreement with a leading
behavioural detection solutions partner, which will allow the Bank
to add additional capabilities into its strategic solutions for
disrupting fraud and money mule activity. We continue to expect to
incur c.£40m of investment in FY24.
Discipline and Sustainability
The UK economic outlook is improving
with inflation, while still elevated, starting to normalise,
leading to increased market expectations for rate cuts in 2024.
Unemployment expectations remain low, though the BoE expects GDP
growth to remain challenged in the coming quarters. We are well
positioned against this backdrop with strong capital, robust
provision coverage and consistent underwriting criteria.
Credit quality remained solid during
the quarter with the portfolio continuing to perform well. Overall
arrears trends were consistent with FY23. We have continued to see a gradual increase in credit card
arrears, as expected, mainly reflecting the ongoing portfolio
maturation and diversification of our cards book.
The Group has now moved to a
quarterly cycle of updating the economic assumptions used within
its IFRS 9 models, as provided by our third-party provider Oxford
Economics. Relative to Q4 23, the weighted average macroeconomic
scenario at Q1 includes GDP and unemployment assumptions that are
largely unchanged, an improved, although still reducing outlook for
HPI in the near and mid-term, and a modestly lower Bank of England
base rate. During Q1, overall credit provisions increased to £639m
(Q4 23: £617m), mainly reflecting growth in Unsecured and Business
lending, contributing to modestly higher provision coverage of
87bps (Q4 23: 84bps). Within this, modelled and individually
assessed ECL increased to £578m in Q1 (Q4 23: £540m), while
management adjustments (MAs) reduced to £61m (Q4 23: £76m). These
factors resulted in an impairment charge of £64m during Q1,
equivalent to an annualised cost of risk of 35bps for the
quarter. The Group continues to expect cost
of risk to be in the range of 30-35bps for FY24, assuming no
further material changes in the macroeconomic outlook and
incorporating refinements to the application of SICR[2] on the Group's credit card portfolio, expected to
be finalised later in the year.
The Group remains strongly
capitalised with a CET1 ratio of 14.0%[3] on
an IFRS9 transitional basis (Q4 23: 14.7%) or 13.8%3 on
a fully loaded basis (Q4 23: 14.3%), well above its MDA threshold
of 10.9%. VMUK's total capital ratio was 20.4%3 (Q4 23:
21.2%) and the UK Leverage Ratio was 5.1%3 (Q4 23:
5.0%). We were pleased to commence our £150m share buyback
programme in November, which was 34% complete at the end of
January. The £150m buyback was fully recognised from a regulatory
capital perspective in Q1 and consumed c.60bps of CET1. Alongside
this, the Group generated capital through ongoing profitability,
while RWAs increased to £25.5bn (Q4 23: £25.2bn), mainly reflecting
loan growth and mix. The Group continues to expect to be operating
in its target CET1 range of 13-13.5% in FY24, supported by nominal
shareholder distributions in FY24 around the same level as FY23.
The BoE has confirmed it will not conduct the Annual Cyclical
Scenario stress test for 2024 and the Group currently expects
further buybacks to be announced during H2, subject to Board and
regulatory approval. We now expect some modest upside to our
capital position from Basel 3.1 implementation on day 1 (1 July
2025), subject to regulatory approval. The Group has negligible
exposure to the FCAs review of historical motor finance commission
arrangements. The Group's closed Consumer Asset Finance proposition
was direct to consumer only from 2012, with less than £2m of gross
commissions paid on broker-originated agreements between 2007 and
2012. TNAV per share of 337p was 23p lower
in Q1 as a reduction in the cash flow hedge reserve to £137m (Q4
23: £495m), primarily due to rate changes, offset the impact of
ongoing profitability and a lower share count from buybacks
executed in Q1.
Funding and liquidity remain strong,
including 12-month average LCR of 150% and LDR broadly stable at
108%. The 12-month average NSFR remains strong at 135% while 72% of
the deposit book is insured via the Financial Services Compensation
Scheme. The strong funding position and deposit franchise enabled
the Group to further reduce its TFSME outstanding by £1.2bn in Q1
to £5.1bn, resulting in the Group having now repaid all of its
TFSME maturities due in 2024. In January, we publicly issued £500m
of RMBS and the Group still expects £1.5bn - £2.0bn of secured
issuance this year in total, subject to ongoing deposit flows and
relative cost. The Group's IFRS9 transitional MREL ratio was
31.0%3 of RWAs at Q1 (Q4 23: 31.9%), comfortably exceeding its
loss-absorbing capacity requirement of 27.3% of RWAs. During Q1,
the Group redeemed its £250m Tier 2 note as planned, pre-funded by
the £300m senior MREL note issued in August 2023. The Group also
issued a new £350m AT1 instrument and simultaneously tendered 42%
of its £250m AT1 instrument, first callable in June 2024. Following
these transactions, the Group is not currently expecting any
further capital issuance during FY24, with any further MREL
issuance in FY24 to be broadly limited to maintaining a prudent
management buffer above regulatory requirements.
From a sustainability perspective
during Q1, we have continued to focus on developing enhanced
customer propositions to support a low-carbon transition while
further refining our climate related credit appetite. Through our
partnership with Good Things Foundation, all our stores are now
Databanks offering free data to customers and we have launched the
first phase of the Vulnerable Customer disclosure tool.
The Company further announces that a copy of the Q1 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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Andrew Scott
Head of Media Relations
Simon Hall
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+44 7483
911 591
andrew.s.scott@virginmoney.com
+44 7855
257 081
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Senior Media Relations
Manager
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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,
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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 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 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
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officers, employees, agents, advisers and affiliates do not take
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fullness, fairness, merchantability, accuracy, sufficiency or
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used in and/ or discussed at, any presentation, is
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Certain industry, market and
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materials used in and/ or discussed at, any presentation, comes
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.
The information, statements and
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of, and should not be construed as, any public offer under any
applicable legislation or an offer to sell or solicitation of any
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or recommendation with respect to such securities or other
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Certain figures contained in this
document, 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 this document may not conform exactly to the total
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Virgin Money UK PLC is registered in
England and Wales (company number: 09595911) and as a foreign
company in Australia (ARBN 609 948 281) and has its registered
office at Jubilee House, Gosforth, Newcastle upon Tyne, NE3
4PL