Virgin Money UK PLC Full Year Results 2023
David Duffy, Chief Executive Officer:
“We made good progress executing our strategy in 2023, growing both our relationship customer base and target lending segments. With the momentum we carry into 2024, we are confident in the outlook for our business and we expect to deliver around £800m in distributions to our investors by the end of the three-year period ending in 2024.”
“Under the Virgin brand, our ambition is to create the UK’s best digital bank. To help achieve this goal, we are stepping up investment in our technological capability to future proof our business and protect our customers from the growing risk of fraud strategies driven by advances in AI."
Summary financials
| Underlying net interest income (NII) Underlying non-interest income(1) | |||
| 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 |
|
(2) For definitions of the KPIs, refer to ‘Measuring the Group’s performance’ from page 372 of the Group's 2023 Annual Report & Accounts
Delivered strong financial performance and attractive shareholder distributions
- NIM expanded to 1.91% (2022: 1.85%), supported by early management of deposit migration, hedge re-investment & lending mix
- Total income up 8%, reflecting 8% growth in NII and positive fair value movements benefitting non-interest income
- CIR stable at 51.9% in line with guidance; underlying costs of £971m 6% higher as gross savings offset by inflation and investment
- Underlying operating profit before impairments of £902m up 9% on FY22, reflecting positive jaws
- Credit impairment charge of £309m (42bps cost of risk) reflecting prudent macroeconomics and provision build from higher modelled ECL; credit quality remains robust with low arrears; provision coverage of 84bps significantly above pre-pandemic levels
- Adjusting items £67m higher YoY, primarily reflecting higher restructuring charges as anticipated, including 30% reduction in the store network, and an intangible asset write-down, given deferred implementation and redesign of the new mortgage platform
- Statutory profit decreased 42% YoY, reflecting higher impairments and adjusting items; statutory RoTE of 3.9% (2022: 10.3%)
- CET1 ratio remains strong at 14.7% (2022: 15.0%); announced further £150m buyback, above prior guidance, taking FY23 buybacks to £200m; 5.3p full-year dividend means total shareholder distributions of £272m for FY23, c.2% higher than FY22
Driving continued growth in target lending segments and relationship deposits
- 5% growth in active relationship customer accounts during FY23 to 3.8m accounts
- Relationship deposits 2% higher in FY23 at £35.4bn, remaining 53% of total deposits; total deposits also increased 2% to £66.6bn
- Strong growth in target segments; Unsecured +5.8%, driven by growth in cards; Business lending +6.0% as growth in BAU balances offset a reduction in Government scheme lending; resilient performance in Mortgages (1.1)% leaving overall lending stable
Strong strategic delivery for customers
- Re-launched Virgin Money Investments, including pensions; launched Digital Wallet to Virgin Atlantic customers with good take-up
- 18% YoY growth in business current account (BCA) sales; net growth in BCA accounts for 22 consecutive months
- Call waiting times down c.65% from peak following additional resource costs to support customer service
- Embedded Consumer Duty requirements; supporting customers through Mortgage Charter and our Cost of Living hub
FY24 and medium-term outlook
- NIM of 190-195bps in FY24, supported by structural hedge re-investment, deposit mix & ongoing growth in target segments
- Continued loan growth in Unsecured & BAU Business, while maintaining mortgage market share in the medium term; volume growth and improving margin to drive income growth in medium term
- Underlying cost:income ratio(3) expected to remain broadly stable in FY24; continue to target less than 50% in medium term
- Expect cost of risk for FY24 to be in the range of 30-35bps, following strengthened provision coverage in FY23
- Now expect higher annualised gross cost savings of £200m (previously £175m); anticipate majority of remaining c.£60m restructuring charges in FY24
- Anticipate c.£40m investment in financial crime prevention in FY24 with c.£130m FY24-26 (excluded from underlying performance)
- CET1 to be in target 13-13.5% range in FY24 with total shareholder distributions in FY24 to be around FY23 nominal level(4); total shareholder distributions between FY22-24 now expected to be around £800m(4)
- Expect to deliver Underlying RoTE of c.10% in FY24(5) reflecting good business momentum with statutory RoTE of c.8%
- Committed to generating sustainable double-digit statutory returns in the medium term
Forward looking statements
This document and any other written or oral material discussed or distributed in connection with the results (the ‘Information’) may include forward-looking statements, which are based on assumptions, expectations, valuations, targets, estimates, forecasts and projections about future events. These can be identified by the use of words such as ‘expects’, ‘aims’, ‘targets’, ‘seeks’, ‘anticipates’, ‘plans’, ‘intends’, ‘prospects’, ‘outlooks’, ‘projects’, ‘forecasts’, ‘believes’, ‘estimates’, ‘potential’, ‘possible’, and similar words or phrases. These forward-looking statements 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 geo-political factors, the repercussions of the outbreak of coronaviruses (including, but not limited to, the COVID-19 outbreak), changes to its Board and/or employee composition, exposures to terrorist activity, IT system failures, cybercrime, 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 (BoE), the Financial Conduct Authority (FCA) 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 Russia’s invasion of Ukraine, the repercussions of the UK’s exit from the European Union (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, 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 and should be viewed as hypothetical. 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 (each a ‘VMUK Party’) gives any representation, warranty or 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 the Information. All forward-looking statements should be viewed as hypothetical. No representation or warranty is made that any forward-looking statement will come to pass. While every effort has been made to ensure the accuracy of the Information, no VMUK Party takes any responsibility for the Information or to update or revise it. They will not be liable for any loss or damages incurred through the reliance on or use of it. The Information is subject to change. No representation or warranty, express or implied, as to the truth, fullness, fairness, merchantability, accuracy, sufficiency or completeness of the Information is given.
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While 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 industry, market and competitive position data contained in the Information comes from the Group’s own internal research and estimates based on the knowledge and experience of the Group’s management in the markets in which the Group operates. While the Group reasonably believes that such research and estimates are reasonable and reliable, they, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness, and are subject to change. Accordingly, undue reliance should not be placed on any of the industry, market or competitive position data contained in the Information.
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Read the full announcement here.