TIDMVMUK TIDM91XR
RNS Number : 2265A
Virgin Money UK PLC
01 February 2022
01 February 2022
Virgin Money UK PLC: First Quarter 2022 Trading Update
Virgin Money UK PLC ("VMUK" or the "Group") confirms that
trading in the three months to 31 December 2021 was in line with
the Board's expectations.
David Duffy, Chief Executive Officer:
"Virgin Money's performance in the first quarter has been
strong. Our balance sheet is performing well, asset quality remains
robust and we have increased guidance on net interest margin for
2022. We are optimistic about the pace of recovery of the UK
economy based on growing consumer and business confidence,
underpinned by lower unemployment."
"We've continued our strong delivery of new digital
propositions, including the launch of our fee-free digital business
current account and innovative new unsecured lending products, with
more to come later this year. We've also launched our new working
model, 'A Life More Virgin', offering full remote-working
flexibility, which is leading the industry in providing a
digital-led and future-proof work environment that delivers for our
customers."
Q1 Summary - Delivering the digital strategy with improving financial
performance
Continued deposit mix optimisation and broadly stable lending balances
* The Group continues to successfully improve its
deposit mix and funding costs as relationship
deposits grew 1.2% to GBP31.0bn, whilst overall
deposits reduced (2.0)% to GBP65.5bn
* Unsecured lending grew 3.0% to GBP5.6bn driven by
growth in credit cards from increased activity and
compelling new digital propositions
* Mortgages decreased (0.5)% to GBP57.8bn as the Group
broadly maintained market share while continuing to
prioritise margin in a competitive environment
* Business lending reduced (2.2)% to GBP8.3bn as
anticipated, driven by BAU activity remaining subdued
given weaker market demand, seasonality and lower
Government-backed lending
Further Net Interest Margin (NIM) improvement; FY22 outlook increased
* NIM improved in Q1 to 177bps (Q421: 170bps)
benefitting from higher hedge contributions, lower
cost of funds and a higher yielding lending mix
* Now expect NIM to be c.175bps for FY22, with growth
in higher-yielding lending offset by mortgage
competition and normalisation of the savings market
over the remainder of the year
Delivering our digital strategy; strong pipeline of proposition
launches
* Costs in line with expectations; expect underlying
costs to be broadly stable in FY22
* Flexible, instalment lending launched in app, and
will soon be available to all credit card customers;
the Group's new fee-based propositions will launch
later this year
* Improved Brighter Money Bundles PCA proposition, now
including PCA debit card cashback
* Fee-free digital M Account for Business launched with
digital on-boarding and cashback; innovative M Track
for Business also launched in Q1, Marketplace
launching later this year
* Reduction to store network announced in September in
progress, with 28 closures now completed since Q421,
reducing the store footprint from 162 to 134 as at
end-January
* Digitising key customer journeys including deployment
of self-service chatbot and automated ID and
verification for account opening; cloud migration
programme initiated
* Introduced A Life More Virgin flexible working model
including access to modern digital tools
Stable credit provisions; robust asset quality
* Robust credit quality maintained across key
portfolios, balance sheet credit provisions of
GBP501m (Q421: GBP504m); stable coverage of 70bps
(Q421: 70bps)
* Low impairment charge of GBP16m in Q1, equivalent to
9bps cost of risk; maintained economic scenarios from
Q421 given no significant change to the economic
outlook
Strong CET1 ratio improved further driven by strong profitability
* CET1 ratio increased c.30bps to 15.2% (including
c.40bps of software benefit); benefitting from strong
profitability and lower RWAs; fully loaded CET1 ratio
now 14.8%
* Performed resiliently in inaugural Solvency Stress
Test (SST); expect to provide a further update on
capital framework and distribution policy alongside
H1 in May, as previously guided
Pioneering Growth
(GBPmn) 30 Sep-21 31 Dec-21 Q1 growth YTD annualised
--------------------------- ---------- ---------- ---------- ---------------
Mortgages 58,104 57,785 (0.5)% (2.2)%
Business 8,477 8,287 (2.2)% (9.0)%
o/w Govt lending 1,318 1,255 (4.8)% (19.1)%
o/w BAU Business lending 7,159 7,032 (1.8)% (7.1)%
Unsecured 5,415 5,580 3.0% 12.2%
Customer lending 71,996 71,652 (0.5)% (1.9)%
Customer deposits 66,870 65,503 (2.0)% (8.2)%
o/w relationship deposits 30,596 30,956 1.2% 4.7%
--------------------------- ---------- ---------- ---------- ---------------
The Group further reduced the cost of deposits in Q1 with an
improvement in mix, as relationship deposit balances grew 1.2%.
Overall deposits reduced (2.0)% with more expensive term deposit
balances declining (12)% in the period.
Unsecured balances increased 3.0% in Q1 driven by a pick-up in
demand and compelling new digital propositions. Aggregate credit
card spending has recovered to pre-COVID levels and the number of
new accounts opened exceeded 132k in the quarter, the highest level
since the start of the pandemic . Overall, this led to 4.7% growth
in the cards book. The Salary Finance portfolio performed well
during the period, whilst Personal Loans and Overdraft balances
reduced as expected. The Group continues to expect good momentum in
Unsecured balance growth through the remainder of FY22, supported
by new digital propositions and an ongoing recovery in the economic
backdrop.
Mortgage balances reduced in Q1 by (0.5)% reflecting lower
market demand post-SDLT changes and a continuing competitive
environment. New business spreads remained below back book levels
throughout the period and we remained selective, balancing volumes
and pricing carefully to maintain profitability. The Group
continues to invest in technology to expand its digital
straight-through processing capability to support its goal to
maintain market share in the medium term.
Business lending declined (2.2)% in Q1 as anticipated with a
reduction in BAU and Government-scheme volumes. The BAU book
declined (1.8)% given a seasonal contraction in working capital
demand from farming customers, and generally subdued market
activity which is expected to improve later in the year in line
with the broader economic recovery and improved business
confidence. Government backed balances declined (4.8)% to GBP1.3bn
as expected, as borrowers continue to repay balances following the
expiry of the 1-year interest free period.
NIM improved 7bps in Q1 to 177bps reflecting the benefit of
higher structural hedging contributions from the expanded hedge, a
further reduction in the overall cost of funds and growth in higher
yielding unsecured lending, partly offset by ongoing strong
competition in mortgages. The Group now expects NIM to be c.175bps
for FY22, including the benefit of the latest bank base rate rise,
as the trends seen in Q1 continue and as the savings market
normalises over the remainder of the year.
Non-interest income performance, excluding fair value movements,
improved in the period, supported by a recovery in card spending
and business activity levels. The Group continues to expect
non-interest income to recover, and to rise as a proportion of
total income over time.
The UK economic outlook remains positive, including expectations
for a continued recovery in GDP growth and lower unemployment,
despite the recent spike in COVID case numbers driven by the
Omicron variant. Following the MPC's decision to increase rates in
December, the Group also notes market expectations that further
rate rises could follow in 2022 given higher inflation. Overall,
despite the uncertainty posed by new variants and concerns over
inflation, the strengthening backdrop and easing of government
restrictions give some scope for greater optimism about the pace of
the recovery.
Delighted Customers and Colleagues
The Group remains focused on delivering new propositions to
target digital-driven growth in key segments.
Credit card cashback signs-ups continued at pace, as total
registrations reached c.295k during Q1 (Q421: c.230k). Towards the
end of the quarter, we launched instalment payments on credit
cards, allowing customers to pay off card purchases over a fixed
term. We have had a positive initial response from customers using
the Cards mobile app to take advantage of this new option, and the
Group is focused on extending the availability of instalment plans
in the coming months. We will also develop the unsecured
product-set further during Q2 with the launch of subscription-based
finance, which will expand our offering to a younger, underserved
demographic who favour this style of product.
Our Brighter Money Bundles (BMB) campaign continued to attract
new PCA customers, despite a more competitive market backdrop.
There have now been over 140k new accounts opened since the start
of the initial BMB campaign in Q121. Our most recent BMB campaign
features GBP100 of Virgin experience days vouchers and up to 5%
credit interest on balances up to GBP1,000. All PCA customers will
also be able to earn compelling cashback rewards at participating
merchants on their debit card spend, as we continue to offer a
differentiated proposition to support new sales and switching in
the coming months.
We extended our BCA proposition during Q1 with the launch of our
digital fee-free M-Account, including digital on-boarding and debit
card cashback. We also launched the M Track proposition which
provides businesses with a mix of market-leading tools and
data-driven insight to help manage their financial health. Over the
coming months, further developments will include expansion of
digital on-boarding journeys, the ongoing development of the M
Track proposition, and the addition of the Marketplace, enabling us
to provide further solutions for customers' needs as they develop
their businesses.
Towards the end of the quarter, the Group signed an agreement
with Virgin Red, as our market defining loyalty proposition gathers
momentum. Over the coming months, the Group will continue exploring
the potential to reward new and existing customers with Virgin Red
points across different products, giving customers over 200 ways to
earn and spend Virgin Red points across Virgin Group companies and
other retailers.
VMUK is transforming its colleague operating model, building on
the capabilities introduced over the last year, to fully embed the
new A Life More Virgin (ALMV) flexible working model and
digital-first colleague experience. In order to drive productivity,
we continue to implement a new agile IT infrastructure and have
begun accessing the full power of Microsoft's cloud computing
product-suite, enhancing the way we work and supporting
collaboration. Early colleague and industry feedback on the A Life
More Virgin working model has been very positive.
Over the course of Q1 the Group has continued to make progress
on its ESG agenda, including the ongoing rollout of our Sustainable
Business coach as we build momentum in Sustainability linked Loans
to support businesses that are leading environmental and social
change. After signing up to the Net Zero Banking Alliance, the
Group is focussed on developing its targets and roadmaps to deliver
net zero as well as further green propositions across Mortgages and
Business to support customers in reducing their carbon footprint.
We also remain focused on tackling the Poverty Premium; the Group
has introduced a benefits calculator to help individuals identify
where they could be eligible for further support.
Super Straightforward Efficiency
As outlined at the full year trading update in November, the
Group is accelerating its digital growth strategy in order to
deliver an enhanced digital customer experience while driving
improved efficiency and cost reduction over time.
In line with the Group's digital strategy and property changes
announced in September 2021, the Group has completed the closure of
a further 28 stores since FY21, taking the total number of stores
to 134 as at the end of January 2022 while also reducing its back
office footprint as planned. During Q1, the Group also reduced FTE
numbers further as it transitions towards its target digital-first
operating model. This was supported by ongoing progress in the
end-to-end digitisation of customer journeys, including the
delivery of a suite of self-service chatbots, in-app account
opening journeys and automated identification and verification
across Personal and Business products. We are also making good
progress in mobilising the delivery of IT architecture in the cloud
as we look to drive productivity improvements.
The Group continues to expect to incur GBP275m of restructuring
charges across FY22 - FY24, with around half in FY22. Underlying
operating expenses are expected to be broadly stable in FY22, in
line with the outlook at FY21 results. This reflects higher costs
from inflation, including agreed pay rises for staff and the costs
of harmonised working terms as part of ALMV, targeted growth and
digital development. This is expected to be broadly offset by gross
savings from ongoing digital transformation and restructuring.
Discipline & Sustainability
Credit quality remained strong with no material deterioration in
arrears performance and no significant specific provisions. Given
the absence of a significant change to the economic outlook, in Q1,
the Group applied the same economic scenarios to drive the ECL
provision as those set out in the 2021 Full Year Results, resulting
in stable credit provisions of GBP501m (Q421: GBP504m). Modelled
and individually assessed ECL increased to GBP306m in the period
(Q421: GBP297m), driven mainly by growth in unsecured lending. The
Group decided to modestly reduce its Post Model Adjustments (PMAs),
taking the overall PMAs held to GBP195m (Q421: GBP207m), with the
reduction in the quarter associated with PMAs linked to payment
holidays. Overall coverage remains robust at 70bps (Q421:
70bps)[1].
The Q1 impairment charge of GBP16m equates to a net Q1 cost of
risk of 9bps. The Group continues to expect the cost of risk to
rise towards the through the cycle range through FY22 and will
fully refresh the economic scenarios used in IFRS9 modelling
alongside the interim results in May.
The Group remains strongly capitalised and CET1 improved c.30bps
to 15.2% on an IFRS9 transitional basis in the quarter, including
c.40bps of benefit from the treatment of software intangible
assets. Fully loaded CET1 also remained robust in the period,
improving to 14.8% (Q421: 14.4%). The Group therefore retained a
significant CET1 buffer of c.GBP1.5bn (6.5%) in excess of its CRD
IV regulatory requirement of 8.7% as at 31st December 2021. The
Group's total capital ratio improved to 22.3% (Q421: 22.0%) and UK
Leverage Ratio was 5.3% (Q421: 5.2%).
Underlying capital generation was driven by ongoing
profitability and lower RWAs, which reduced by GBP0.1bn to
GBP24.1bn. The removal of the c.40bps CET1 benefit from software
intangible treatment will take place in Q2 with hybrid mortgage
model implementation currently anticipated in FY23.
The Group is engaging with the PRA on capital requirements and
continues to expect to update its capital framework and
distribution policy alongside Interim Results in May. VMUK
performed resiliently in the 2021 Solvency Stress Test (SST)
published in December, remaining above its reference rates on both
a transitional and non-transitional basis. The Group is capital
generative and is focused on growth of the balance sheet in key
segments, maintaining capital strength and delivering sustainable
shareholder distributions over the medium term, either in the form
of dividends or buybacks, subject to regulatory considerations. As
previously indicated, the Group would currently only consider
bolt-on acquisitions that complement its existing organic
strategy.
Funding and liquidity remain strong, with the LCR ratio
increasing to 152% as a further reduction in more expensive term
deposits and the repayment of the last of the Group's TFS
borrowings were offset by final TFSME drawings ahead of the scheme
closure in October 2021. This delivered a reduced overall cost of
funds, supporting NIM, while striking a prudent balance between
supporting additional lending to the real economy and not
increasing refinancing risk. LDR in the period was broadly stable
at 109%. There are no changes to any of the issuance plans
communicated in the Group's FY21 results with capital issuance
expected to be broadly limited to refinancing and GBP2-3bn of
secured issuance (subject to deposit flows and relative cost)
during 2022.
During Q1, the Bank of England confirmed that it expects the
Group to meet an end-state MREL requirement (plus buffers)
equivalent to 24.7% of RWAs in 2022 (based on end December P2A
Total Capital requirement of 3.1%). The Group's IFRS 9 transitional
MREL ratio of 32.2% (FY21: 31.9%) represents a prudent buffer of
7.5% or c.GBP1.8bn over this end-state requirement.
For further information, please contact:
Investors and Analysts
Richard Smith +44 7483 399 303
Head of Investor Relations richard.smith@virginmoneyukplc.com
Amil Nathwani +44 7702 100 398
Senior Manager, Investor Relations amil.nathwani@virginmoneyukplc.com
Martin Pollard +44 7894 814 195
Senior Manager, Investor Relations martin.pollard@virginmoneyukplc.com
Media (UK)
Matt Magee +44 7411 299477
Head of Media Relations matthew.magee@virginmoneyukplc.com
Simon Hall +44 7855 257 081
Senior Media Relations Manager simon.hall@virginmoney.com
Press Office +44 800 066 5998
press.office@virginmoneyukplc.com
Citigate Dewe Rogerson
Caroline Merrell +44 7852 210 329
Media (Australia)
P&L Communications
Ian Pemberton +61 402 245 576
Sue Frost +61 409 718 572
-------------------------------------
Announcement authorised for release by Lorna McMillan, Group
Company Secretary.
Forward looking statements
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(UK) plc and its subsidiaries into the Group), trends in its
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from the EU (including any change to the UK's currency and the
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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
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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
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representation or warranty is made that any forward looking
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ensure the accuracy of the information in this document, the Group
and their directors, officers, employees, agents, advisers and
affiliates do not take any responsibility for the information in
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Certain industry, market and competitive position data contained
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employees, agents, advisers or affiliates have independently
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materials used in and/ or discussed at, any presentation, comes
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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
[1] Government guaranteed lending balances excluded for purpose of coverage ratio calculation
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