David Duffy, Chief Executive Officer:
“It has been an extraordinary year of disruption for all of us. Our priority has been to support our customers and colleagues through this period, and we will continue to do so during the challenging economic environment ahead. I’m proud of the way we’ve adapted how we work this year to continue serving our customers, while looking after our colleagues and protecting the bank for the future.
“While we are yet to see any material impacts of the pandemic on the credit quality of our loan book, our results reflect a cautious and conservative approach to the coming period as we refine our assessment of the uncertain economic outlook and the impact of the second lockdown. Although the vaccine news is a strong cause of hope for the future, the economic benefits are still some way off when considering the immediate reality of current restrictions and so haven’t yet been factored into our near-term forecasts.
“Looking into 2021, we are well underway in rolling out our full suite of Virgin Money products and services across personal and business, underpinned by our unique brand proposition and leading digital capabilities. This progress, as well as the steps we have already taken to transform and simplify our business mean we are well positioned to emerge from the pandemic as an agile, innovative and disruptive force in UK banking.”
Supporting customers, colleagues & communities
- Virgin Money has continued to provide customers with valuable support at this difficult time:
- – c.67k Mortgage payment holidays granted to date (c.20% of balances); c.4% of balances currently on an active payment holiday with 98% of customers who have matured from their holiday period having returned to payment
- – c.58k Personal payment holidays granted to date (c.6% of balances); c.1% of balances currently on an active payment holiday with 93% of customers who have matured from their holiday period having returned to payment
- – Supported c.30k businesses with lending support including c.£1.2bn of BBLS/CBILS/CLBILS loans disbursed
- c.6k of our c.9k colleagues enabled to work from home; enhanced safety and wellbeing support for those in offices/branches
- c.£900k distributed to local charities supporting the COVID-19 effort by the Virgin Money Foundation; our not-for-profit Virgin Money Giving platform continues to support fundraising efforts across the UK and helped over 20k charities raise >£100m
FY20 financial highlights
- Balance sheet reflects COVID-19 impacts; lending contraction of 0.7% to £72.5bn and deposit growth of 5.8% to £67.5bn:
- – Business lending growth of 13.6% to £8.9bn due to £1.2bn of Government-backed lending (BBLS/CBILS/CLBILS)
- – Personal lending growth of 3.9% to £5.2bn with the strong H1 growth tempered by lower demand in H2
- – Mortgage lending declined 3.0% to £58.3bn with disciplined pricing in H1 and UK lockdown market impacts in H2
- – Relationship deposits grew 20.3% to £25.7bn as consumer savings increased significantly under lockdown and businesses generally deposited the proceeds from Government-guaranteed lending into short-term cash accounts
- Underlying pre-provision operating profit of £625m is 10% lower YoY primarily due to NIM compression and base rate cuts:
- – FY NIM of 1.56% within guidance; Q4 NIM of 1.52% up vs. Q3 of 1.47% reflecting deposit repricing actions
- – Non-interest income of £191m primarily reflects lower H2 activity based fees partially offset by a £16m H1 gilts gain
- – Operating costs of £917m down 3% YoY with net cost reductions of £30m despite incurring c.£14m of COVID costs
- Credit impairment charge of £501m (68bps cost of risk) reflecting a cautious approach to an uncertain economic environment
- – The Group has deliberately adopted an updated and more conservative set of economic scenarios and weightings reflecting the uncertain economic outlook and heightened risks ahead; a 5% weighting was applied to the Upside scenario, 50% to Base and 45% to Downside; this resulted in a weighted-average GDP decline assumption of 15% in 2020, average unemployment of 8.6% in 2021 with a peak of 10% and a peak-to-trough HPI decline of 22%
- – The IFRS9 models have also been supplemented with post-model adjustments in relation to the Group’s expected payment holiday outcomes and economic dynamics that may not be fully captured in inputs or models
- – The Group now has considerable on-balance sheet provisions of £735m; total coverage ratio of 102bps includes 23bps for Mortgages, 537bps for Credit Cards, 824bps for Personal Loans & Overdrafts, and 391bps for Business
- – No deterioration in asset quality to date with lower arrears across most portfolios reflecting Government support and forbearance; Mortgage arrears of 0.4%, Credit Cards of 0.8%, Personal Loans of 0.4% and Business of 0.3%
- Underlying profit before tax of £124m is down 77% YoY primarily due to the significant impairment charge recognised
- Statutory loss after tax of £141m is inclusive £292m of exceptional items, including £139m of integration & transformation costs, £113m of acquisition accounting unwind and £26m of conduct charges (non-PPI related)
Well positioned for an uncertain outlook
- Resilient capital base: transitional CET1 ratio of 13.4% with c.£950m of management buffer in excess of the MDA of 9.5%;
- Strong liquidity & funding position: LCR of 140% and 107% loan-to-deposit ratio
- Strengthened our sustainability strategy: unveiled clear principles and 2030 aspirations as we seek to ‘be a force for good’
Outlook and guidance
- Given the unprecedented nature of COVID-19, the exact economic outlook for the UK is clearly evolving and remains hard to predict with any high degree of certainty at present; it is therefore not appropriate at this stage to give firm medium-term guidance and so the Group’s previous FY22 targets are withdrawn pending more certainty in the economic environment.
- FY21 guidance: NIM broadly flat on FY20 levels and non-interest income to remain subdued; underlying operating costs of <£875m inclusive of c.£10-15m of COVID costs; cost of risk lower than FY20 assuming no further deterioration in outlook
- Medium-term outlook: The Board continues to believe that Virgin Money has a clear path to delivering a double digit statutory RoTE over time and this will support future capital returns to shareholders; the improvement in returns are expect to be built on: normalisation of impairments and exceptional costs; ensuring we continue to reduce our cost base to reflect the future operating environment; optimising our balance sheet mix; and delivering a more efficient capital base over time.
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FORWARD LOOKING STATEMENTS
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