David Duffy, Chief Executive Officer:
“More people are choosing to bank with Virgin Money. While the past six months have seen turbulence in the economy and in the financial system, we have continued to focus on our target areas, growing customer numbers and deposits thanks to our new and existing digital products. Further customer-centric product launches are coming in the second half of the year.”
“We have a strong capital position and we’ve significantly grown pre-provision profit, while continuing our prudent approach. As the UK economy stabilises in the months ahead, we have a high degree of confidence in our long-term plans.”
Summary financials
£m | £m | % | £m | % | |
|---|---|---|---|---|---|
| Underlying net interest income (NII) | |||||
| Underlying non-interest income | |||||
| Total underlying operating income | |||||
| Underlying operating and administrative expenses | |||||
| Underlying operating profit before impairment losses | |||||
| Impairment losses on credit exposures | |||||
| Underlying profit on ordinary activities before tax | |||||
| Adjusting items(1) | |||||
| Statutory profit on ordinary activities before tax |
Performance Metrics(2)
| Net interest margin (NIM) | |||||
| Underlying cost: income ratio (1) | |||||
| Cost of risk(CoR) | |||||
| Statutory return on tangible equity (RoTE) | |||||
| Common Equity Tier 1 (CET1) ratio (IFRS 9 transitional) |
(1) Hedge ineffectiveness is now presented as an adjustment to underlying earnings as detailed on page 90. The comparative periods have been adjusted accordingly.
(2) For definitions of the performance metrics, refer to ‘Measuring the Group’s performance’ on pages 344 to 352 of the Group's 2022 Annual Report and Accounts.
Benefitting from higher rates and growth in customers; continuing to invest in our digital future
- NIM expanded further to 1.91% in H1 (Q223: 1.94%), supported by higher rates, structural hedge reinvestment and improved mix
- Total income up 10%, reflecting 9% growth in NII and positive fair value movements benefitting non-interest income
- Underlying costs 5% higher, driven by investment in service and mortgage digitisation; underlying C:I ratio down 3%pts to 51%
- Underlying operating profit before impairment losses of £456m, up 16% on H122, reflecting stronger income
- Impairment charge of £144m (CoR: 40bps), driven primarily by provision build from higher modelled ECL, including updated macroeconomics and credit bureau data in anticipation of an increase in arrears as the credit cycle continues to normalise
- Underlying PBT 16% lower compared to a year ago reflecting the prior period’s low impairment charge (£21m)
- Restructuring charges of £53m broadly stable YoY. The Group slowed some restructuring activity in H1 to further underpin service
- Statutory profit reduced compared to a year ago to £236m (H122: £315m), primarily reflecting the higher impairment charge
Robust balance sheet with continued strong deposit inflows and broadly stable customer lending
- Continued relationship deposit growth, +2.9% to £35.6bn; overall deposits increased 2.6% to £67.0bn (with 72% FSCS insured)
- CET1 remains strong at 14.7% (FY22: 15.0%) including the impact of the £50m buyback completed in H1; 3.3p interim dividend
- Underlying credit quality remained resilient; coverage increased to 72bps (FY22: 62bps), primarily from higher modelled ECL
- LCR increased 15%pts to 153% (FY22: 138%); NSFR stable in the period at 136% (FY22: 136%)
- Overall lending stable (0.2)%; Mortgages (0.8)% to £57.7bn given lower market activity; Unsecured (0.2)%, including moderated growth in credit cards +1.9%; Business lending +4.2% as growth in BAU balances offset a reduction in Government lending
Continued strategic momentum with digital propositions driving growth in relationship accounts
- c.69k growth in active relationship accounts during H1 (now 3.7m active relationship accounts)
- Continued strong reception to new digital products including 52% increase in BCA sales YoY and 16% growth in PCA sales
- c.10k new Slyce customers since launch as we test and learn; c.300k travel insurance sales since launch in March 2022
- Launched Virgin Money Investments through abrdn JV, comprising a new digital platform and straightforward investment products
Enhancing customer and colleague support through Purpose-led delivery
- Call waiting times down by c.75% compared to the position at FY22, following investment in resource to support service
- Cost of Living hub, supporting customers with money saving suggestions, budgeting tools and links to external resources
- Turn2us Benefits calculator supporting those who may be eligible for additional or top up benefits (29k people to date)
- A Life More Virgin flexible working model supporting continued higher colleague engagement (+4%pts in H1)
FY23 outlook updated; NIM guidance for FY23 upgraded
- Expect FY23 NIM to be c.190bps, with stable performance in H2 compared to H1
- Underlying cost: income ratio expected to be in the range 51-52%
- Expect cost of risk for FY23 to be in the range of c.35-40bps
- Anticipate the majority of the remaining c.£140m restructuring charges to be incurred in H2
- Maintain CET1 > 14% through FY23 during period of heightened macroeconomic uncertainty
- 30% dividend payout; buybacks subject to the outcome of ACS results and regulatory approval
Read the full announcement here.
FORWARD-LOOKING STATEMENTS
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