TIDMVMUK TIDM91XR
RNS Number : 5295U
Virgin Money UK PLC
02 August 2022
02 August 2022
Virgin Money UK PLC: Third Quarter 2022 Trading Update
David Duffy, Chief Executive Officer:
"Virgin Money has had another positive quarter, financially and
strategically. We've grown our balance sheet across all target
areas, grown our customer base with innovative and compelling
products, and recently announced Slyce, our responsible buy now pay
later product. I was also pleased to commence our buyback programme
in the quarter."
"Looking out into an uncertain economic environment, while our
asset quality remains resilient and customers aren't yet showing
signs of financial stress, we are helping our customers and
colleagues navigate what will be a more difficult period for
many."
Q3 Summary: Strong profitability and robust balance sheet; commenced
inaugural buyback
Delivering on our digitally led strategy with innovative new customer
propositions
* 45% YoY increase in digital personal and business
current accounts sales (c.45k total in Q3); voted
'Best Current Account Provider of the Year' by
customers at Moneyfacts Awards 2022
* 160k new credit cards opened in Q3, following record
Q2 (175k); retail spend remains strong
* 'Slyce' waitlist launched for our innovative Buy Now
Pay Later product
* Launched 'Marketplace' proposition for businesses,
alongside 'M-Track'; helping customers manage money
digitally and access fintech-enabled business and
lending solutions
* Continued progress in automation with 43% of customer
journeys digitised (FY21: 27%)
Growing in target segments, with continued optimisation of deposit
mix
* Unsecured lending grew 3.8% in Q3 to GBP6.0bn driven
by growth in high-quality credit card balances from
strong new account growth, higher retail spending &
new digital propositions
* Mortgages remained stable at GBP57.8bn, with the
Group targeting growth in mortgage balances in the
medium term
* Business lending was up 0.3% to GBP8.3bn, driven by
1.6% growth in BAU balances, despite a subdued market
and lower Government-backed lending which reduced
(7.5%)
* The Group continues to successfully improve its
deposit mix as relationship deposits grew further to
52% of total deposits (Q2: 50%), while overall
deposits reduced (0.5)% to GBP64.1bn
Robust asset quality, stable provisions and coverage maintained
* Continued resilient credit quality, with low arrears
across key segments and limited signs of stress.
Underwriting criteria tightened across the portfolios
to reflect higher cost of living
* Stable credit provisions at GBP476m (Q2: GBP479m);
prudent IFRS 9 economic scenarios from Q2 maintained,
supplemented by PMAs. Aggregate coverage stable at
66bps (Q2: 66bps)
* Impairment charge of GBP23m in Q3, 12bps cost of risk
in the quarter, 8bps YTD
* Now expect a single digit cost of risk for FY22
Resilient Net Interest Margin and lower impairment drives strong
Return on Tangible Equity
* NIM remained strong in Q3 at 187bps (H1: 183bps; YTD:
184bps) supported by higher rates, deposit spreads
and higher yielding lending mix, offset by ongoing
mortgage spread pressure
* The Group now expects NIM of around 185bps for FY22,
stabilising as we exit the year
* Continue to expect costs to remain broadly stable
compared to FY21
* Delivered 9.6% statutory Return on Tangible Equity Q3
YTD (H1: 9.1%)
CET1 ratio improved further, driven by ongoing profitability; maintained
robust funding
* Commenced inaugural share buyback programme with an
initial repurchase of GBP75m following resilient
performance in Solvency Stress Test (SST),
supplementing 2.5p interim dividend
* CET1 ratio increased c.10bps to 14.8% (including full
c.30bps impact of GBP75m buyback); benefitting from
ongoing profitability and lower RWAs; fully loaded
CET1 ratio now 14.5%
* Moody's upgraded VMUK's long term issuer rating to
Baa1 from Baa2; outlook remains stable
* Maintained robust funding and liquidity position with
LCR of 142% (Q2: 139%) and LDR of 112% (Q2: 112%);
successful AT1 bond issue in June further optimised
the capital stack
Pioneering Growth
(GBPm) 31 Mar-22 30 Jun-22 Q3 growth Q3 annualised
--------------------------- ---------- ---------- ---------- --------------
Mortgages 57,798 57,761 (0.1)% (0.3)%
Business 8,263 8,288 0.3% 1.2%
o/w Govt lending 1,148 1,061 (7.5)% (30.2)%
o/w BAU Business lending 7,115 7,226 1.6% 6.3%
Unsecured 5,793 6,014 3.8% 15.3%
Customer lending 71,854 72,062 0.3% 1.2%
Customer deposits 64,386 64,080 (0.5)% (1.9)%
o/w relationship deposits 31,887 33,274 4.3% 17.4%
--------------------------- ---------- ---------- ---------- --------------
We are pleased with our performance in the quarter as we
delivered growth in our target segments of Unsecured and BAU
Business lending, while growing relationship deposits further, and
as we continued to build good financial momentum with strong
margins and ongoing profitability.
Unsecured balances increased 3.8% in Q3 driven by strong new
credit card sales and retail spend, supported by our new digital
propositions. New accounts opened in Q3 totalled c.160k, continuing
the strong trend from Q2 (c.175k), underpinned by prudent
underwriting standards. Aggregate credit card spending remains
above pre-COVID levels and improved relative to Q2 across all
retail spend categories, led by resurgent travel spending. Personal
Loans and Overdraft balances reduced modestly during the period in
line with expectations. The Group continues to expect Unsecured
balances to grow through the remainder of FY22, supported by new
digital propositions and strong activity levels, and will maintain
strong underwriting standards, particularly given the current high
level of inflation and increased cost of living.
Mortgage balances remained stable in Q3 at GBP57.8bn, reflecting
continuing competitive market conditions. New business spreads
remained significantly below back book levels meaning we remained
selective, balancing volumes and pricing carefully to maintain
profitability. Towards the end of the quarter, we saw front book
application spreads begin to improve as increases in front book
pricing outpaced swaps. The Group expects to maintain its mortgage
market share in the medium term, supported by the finalisation of
its investment in technology to expand and optimise its digital
straight-though processing capability. This investment will deliver
a unified digital platform for customers and intermediaries with
automated case tracking, improved turnaround times and extended
market reach.
Business lending was stable in Q3 at GBP8.3bn as a reduction in
Government-scheme balances was offset by growth in BAU balances.
BAU balances increased 1.6%, supported by the conversion of a
strong pipeline of new business and an improved overall
proposition, against a subdued market backdrop. Government-scheme
balances declined (7.5%) to GBP1.1bn as expected, as borrowers
repay balances in line with their repayment schedule, while fraud
cases remain minimal.
The Group continued to improve its mix of deposits, as
relationship deposit balances grew 4.3%, supported by strong
customer propositions, while overall deposits reduced (0.5%) in the
period, driven by a (9.7%) reduction in Non-linked savings
balances. Non-linked term deposits increased 2.8% during the period
as the Group participated selectively in acquiring new volumes at
attractive spreads, as front book pricing remained below the rate
of swaps throughout the period.
NIM of 187bps in Q3 reduced vs. Q2 (189 bps) (H1: 183bps),
reflecting ongoing competitive pressure in the mortgage market,
largely offset by growth in higher yielding unsecured lending and
the benefit of higher rates, which increased structural hedging
contributions and supported deposit spreads, with continuing lower
levels of aggregate pass through to depositors. As these trends
continue, the Group now expects NIM of around 185bps in FY22,
stabilising as we exit the year.
Non-interest income, excluding fair value movements, improved in
the period relative to Q2, supported by resilient card spending and
business activity levels. During the quarter, there was a c.GBP15m
adverse impact from fair value movements due to hedge
ineffectiveness.
Delighted Customers and Colleagues
During the quarter, the Group continued to roll-out new and
improved, digitally-led propositions. Total gross credit and debit
card cashback registrations reached c.590k during Q3 (Q2: 470k),
and the two programmes will soon be merged, enabling customers to
see total cashback earned in their Credit card and banking apps.
Early engagement from card customers using the new instalment
repayment capability have been positive, with the feature driving
retail transactions and higher balances. The Group has now launched
the waitlist for its innovative new proposition, Virgin Money
Slyce. Slyce will give a younger demographic a differentiated way
to access and better manage their credit, flexibly and simply.
Slyce will offer full Buy Now Pay Later functionality with
market-leading terms, in a regulated credit environment that will
support these customers in building and improving their credit
score.
We continued to attract new PCA customers through our Brighter
Money Bundles (BMB) campaigns, now including a compelling rate of
up to 1.71% on linked saver balances, with over 216k new accounts
opened since the start of the initial BMB in Q121 (H1 2022:
c.180k). We have continued to enhance the PCA onboarding and
servicing experience, improving sales conversions and were
delighted that customers voted us the 'Best Current Account
Provider of the Year' at the Moneyfacts Awards 2022.
In our Business Bank, the Group is creating a digital customer
experience that offers speed, simplicity and efficiency. Our new
digital fee-free BCA continues to perform well, contributing to a
c.10% increase in new BCA sales in Q3 vs. Q2. This performance was
supported by the expansion of digital on-boarding, which has
reduced the time to open an account and helped improve sales
conversions by c.20% during the last quarter. The Group is also
implementing significant improvements in the speed of loan
application processing, enhancing the customer experience and
enabling end-to-end digital borrowing, to support our future growth
ambitions. Having launched M-Track, we've now rolled out the first
phase of our Business Marketplace, providing innovative fintech
solutions for our business customers, including expense and tax
management, invoice financing and HR services.
We continue to make good progress developing our Digital Wallet,
in partnership with Global Payments, which will combine product
features, such as instalment credit, payment functionality and the
Virgin Red loyalty scheme. We remain on track to share the first
iteration of the wallet later in the year. Having trialled Virgin
Red points with our PCA proposition, we recently added a points
offer for customers purchasing our new digital travel insurance
product via the Red app. Looking ahead, we will extend our
customers' ability to earn points across a wider range of partner
offers as we further develop this valuable customer proposition,
enabling deeper relationships and rewarding customer loyalty.
The launch of our A Life More Virgin colleague proposition and
our approach to a truly flexible working model has been positively
received with colleague engagement scores improving to 78% at Q3
from 68% at FY21. Aligned to our digitally-led employment model,
the Group is targeting implementation of 'Agile' ways of working to
support the Bank's delivery of new digital propositions and improve
the pace of innovation and our ability to respond to changing
customer needs. To further support colleagues, the Group is pleased
to be providing a GBP1k cost of living allowance in August for the
majority of employees.
From a sustainability perspective, we have continued to focus on
developing our Net Zero targets and roadmaps for disclosure at
FY22, in line with our Net Zero Banking Alliance commitment. We
launched a GBP200m Agri E-fund to support farmers adapting to
environmental changes, the first green product specifically
designed for UK farmers. Given our enhanced ESG disclosures, we
were pleased to have received an upgraded rating from
Sustainalytics, who now place us ahead of peers at 'low-risk'.
Super Straightforward Efficiency
The Group remains focused on progressing its digital strategy in
order to deliver an enhanced digital customer experience while
driving improved efficiency and cost reduction over time. We are
working hard to take costs out of the business, despite increasing
inflation and the impact of our colleague cost of living allowance.
Consequently, we continue to expect underlying costs for FY22 to
remain broadly stable compared to FY21. This reflects additional
costs from higher inflation, our colleague cost of living
allowance, targeted growth and digital development largely offset
by gross savings from ongoing digital transformation and
restructuring. We remain on track to deliver around GBP175m of
gross cost savings by FY24, with around GBP275m of digital
development and restructuring costs across the same period.
We have continued to make progress in the end-to-end
digitisation of customer journeys, including an improved digital
on-boarding and servicing experience across Personal and Business,
as overall customer journeys digitised increased to 43% from 27% at
FY21. Following delivery of a suite of self-service chatbots
earlier in the year, the Group has now surpassed 1m chatbot
conversations with retail customers, with the year to date
resolution rate within the chatbot at 62%. As a result, the
percentage of customer interactions through calls has reduced from
c.70% at FY21 to c.50% as at the end of Q3.
Discipline and Sustainability
We remain cautious as the UK economic outlook has weakened,
reflecting intensified global inflationary pressures. The BoE
expects inflation to peak at 11% this year and GDP growth to slow
sharply across 2023 and 2024, though expectations for unemployment
remain low. Following the MPC's decision to increase rates in June,
the Group notes market expectations that further rate rises are
likely in 2022.
Across key portfolios, there are currently limited signs of
credit concerns; overall arrears remained low and stable during the
period and there were no significant changes in individually
assessed provisions. However, the Group recognises the potential
affordability issues that higher living costs will cause for
households and is ready to support customers, as was the case
throughout the pandemic. For prudence, VMUK has tightened its
affordability and underwriting criteria for new customers across
all lending categories to account for the higher levels of
inflation and has retained the c.GBP25m affordability Post Model
Adjustment (PMA) for any affordability impacts on existing
customers.
In its IFRS9 modelling, the Group applied the same economic
scenarios as at Q2, given the quarterly reporting period, and our
prudent scenario weighting which includes a 35% weighting to the
downside scenario. This resulted in credit provisions of GBP476m
(Q2: GBP479m) and a Q3 impairment charge of GBP23m, equivalent to a
cost of risk of 12bps . Modelled and individually assessed ECL was
stable at GBP302m in the period (Q2: GBP300m), while PMAs reduced
slightly as the Group released some Covid-linked PMAs, taking
overall PMAs to GBP174m (Q2: GBP179m). Overall coverage remains
strong at 66bps [1] (Q2: 66bps), as the Group remains well
positioned for any deterioration in credit quality. The Group will
continue to monitor and fully refresh the economic scenarios used
in IFRS9 modelling and will update PMAs alongside the annual
results. Based on these factors, the Group expects a single digit
cost of risk for FY22.
Following the announcement of the Group's capital framework, we
were pleased to commence our inaugural share buyback programme
during the quarter, with an initial repurchase of up to GBP75m,
given ongoing profitability and capital strength. Capital
generation was strong during Q3 as CET1 improved c.10bps to 14.8%
on an IFRS9 transitional basis (Q2: 14.7%), despite c.(30)bps CET1
impact from the announcement of the share buyback and c.(10)bps
impact from the dividend accrual in line with the Company's
dividend policy. Capital generation was underpinned by ongoing
profitability and lower RWAs, which reduced by GBP0.2bn to
GBP24.0bn, primarily reflecting strong HPI. Fully loaded CET1 also
remained robust in the period, improving to 14.5% (Q2: 14.4%), well
in excess of the Group's CRD IV regulatory requirement of 8.7% as
at 30 June 2022 and the Group's long term target range of 13-13.5%.
VMUK's total capital ratio improved to 21.9% (Q2: 21.8%); the UK
Leverage Ratio was 5.0% (Q2: 5.1%).
The BoE recently announced that the delayed 2022 Annual Cyclical
Scenario (ACS) will commence in September 2022 with the results
published in Summer 2023. Given the change in timetable and the
Group's strong capital position, the Board will consider further
capital distributions this year as part of its regular ongoing
assessment of surplus capital, subject to market conditions and
regulatory approval.
Funding and liquidity remain strong, with LCR increasing to 142%
(Q2: 139%) while LDR remained stable at 112% (Q2: 112%). In June,
the Group successfully issued a new GBP350m AT1 bond, achieving
significantly tighter pricing on a spread basis than prior
issuances. Concurrently, the Group repurchased GBP377m of its
existing AT1 bond that is callable later this year. After these
transactions, the IFRS9 transitional MREL ratio improved to 31.9%
(Q2: 31.7%), representing a prudent buffer over the Group's 2022
MREL (plus buffers) requirement of 24.7% of RWAs (based on June-22
Pillar 2A), with no further AT1, Tier 2 or Senior Unsecured
issuance anticipated over the remainder of 2022 . Of the GBP2bn to
GBP3bn of secured issuance planned during 2022, the Group has made
good progress despite challenging market conditions, having issued
c.GBP1.7bn year to date. Any additional issuance this year will be
subject to deposit flows and relative cost. During the period, we
were pleased that Moody's upgraded the Group's long term issuer
rating to Baa1 from Baa2, with the outlook on the rating remaining
stable.
The Board has approved the appointment of PricewaterhouseCoopers
LLP (PwC) as its external auditor, subject to shareholder approval,
with effect from the year ending 30 September 2024. The change in
auditor has been driven by mandatory rotation rules, with EY
nearing the end of their allowable tenure following their
appointment in 2005.
The Company further announces that a copy of the Q3 Pillar 3
Disclosures 2022 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
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.
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In light of these risks, uncertainties and assumptions, the
events in the forward looking statements may not occur. Forward
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events not taken into account may occur and may significantly
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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
statement will come to pass. Whilst every effort has been made to
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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truth, fullness, fairness, merchantability, accuracy, sufficiency
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materials used in and/ or discussed at, any presentation, is
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Certain industry, market and competitive position data contained
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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 of the 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
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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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