TIDMVM.
RNS Number : 6479W
Virgin Money Holdings (UK) PLC
16 November 2017
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
16 November 2017
VIRGIN MONEY HOLDINGS (UK) PLC: CAPITAL MARKETS UPDATE
Virgin Money Holdings (UK) plc ("Virgin Money" or "the Group")
is today giving a Capital Markets Update. As part of this, the bank
will set out the Group's strategic priorities, focused on plans for
its digital bank, as well as guidance for 2018. Virgin Money
remains on track to meet financial targets for FY 2017, and there
are no changes to the FY 2017 guidance provided at the Q3 2017
trading update.
Key highlights
-- New digital banking platform will transform Virgin Money's
market presence; beta testing will commence in H2 2018, with full
roll-out commencing in 2019
-- A digital personal current account will sit at the heart of
the new proposition and the Group is targeting GBP5 billion of
customer deposits within 5 years of launch
-- Entry into UK SME banking market announced, starting with a
deposit account in January 2018 with
GBP5 billion of SME deposits targeted within 5 years of
launch
-- Execution of Group strategy will lead to material return on
tangible equity (RoTE) improvement over the longer term
Jayne-Anne Gadhia, Chief Executive, Virgin Money, said:
"I am pleased to report that we continue to build our low-risk
business model and execute our customer-focused strategy, set out
at IPO, with excellent results. The UK economy has remained
resilient and we have continued to grow responsibly in each of our
core businesses, deliver on our financial targets and continue to
be recognised as one of the best-rated UK retail banks for customer
satisfaction.
"Looking forward, in order to capture a number of the highly
attractive strategic opportunities in front of us, we have
refreshed our strategic plan, taking into account expectations for
the UK economy, the competitive landscape and exciting market
opportunities.
"We believe that the combination of technology and regulatory
change, including the consequences of Open Banking and PSD2, will
level the competitive playing field in UK retail banking
considerably. This creates a compelling opportunity for Virgin
Money to transform its market presence and long term returns. To
realise our vision for the future, we are building a
differentiated, market-leading, data-driven digital bank that will
be capable of meeting individual customers' tailored needs and
provide significantly more than the functionality of a current
account. We aim to increase our customer numbers by over 50 per
cent from the current 3.3 million and believe that is an achievable
target given the potential to access and attract up to 19 million
UK customers across the Virgin Group.
"Traditional banks are investing in digital transformation but
are burdened by legacy systems; whilst digital start-ups currently
lack the customer base to disrupt the sector on any significant
scale. Our end-to-end platform will enable us to capture market
share by taking full advantage of our unique position and
competitive advantages which are defined by a well-known and
trusted brand, no legacy issues and an established scalable
customer base.
"We are also delighted to announce the start of our journey into
SME banking and we will be launching a new SME savings account in
January 2018. This will enable us to start developing relationships
with business customers and lay the foundations for potential
broader future development in this attractive, but poorly served
market."
"We start the next phase of our evolution from a very strong
position. We are proud of what Virgin Money has achieved since
listing in 2014. We have scale positions in our core markets.
Broadening our customer reach through our new digital and SME
businesses will transform our market presence. We believe they will
double our access to UK retail banking revenues. We will improve
the depth of individual customer relationships and expect higher
product penetration. We expect to capture around GBP10 billion of
deposits from new sources through these new initiatives within 5
years from launch. Once operating at scale, the digital bank will
enjoy a fully loaded operating cost per customer around 40 per cent
lower than the equivalent for Virgin Money today.
"Along with our ambition to make 'everyone better off', our
long-term strategy outlines a roadmap which we believe will provide
a unique opportunity for value-accretive growth and sustainable
returns in the near-term, and a business capable of generating and
sustaining a materially improved return on tangible equity in the
longer term."
Strategic Priorities
We will continue to drive Growth, Quality and Returns by:
-- Continuing to deliver excellent customer service, satisfaction and trust in UK banking;
-- Maintaining our high-quality balance sheet and strong capital position;
-- Driving the benefits of our operational leverage and cost efficiency;
-- Sustaining solid double digit RoTE in 2018 through value-accretive growth;
-- Broadening our customer proposition and deepening customer
relationships by realising our digital future;
-- Diversifying funding sources to lower our average cost of funding;
-- Launching a savings proposition for SMEs and beginning to
develop relationships with business customers; and
-- Exploiting the full potential of our digital banking platform
to deliver material improvement to RoTE over the longer term.
Virgin Money Digital Bank
Virgin Money is building a differentiated digital banking
platform which we believe will have the power to disrupt UK retail
banking significantly. The new platform will leverage the power of
data and world class analytics to drive a market leading customer
proposition with the potential to drive significant shareholder
value.
We are creating a best-in-class, data-driven digital bank,
designed to bring significant customer benefits and unique value
for the business through a low-cost, scalable model. A digital
universal account will sit at the heart of the new proposition
providing significantly more than the functionality of a current
account.
Based on the strength of the Virgin brand and our ability to
leverage our high-quality customer base of over 3 million existing
customers, we anticipate our new digital banking platform will
drive a lower cost of customer acquisition compared to traditional
banking models, generate additional capital light revenue streams
and acquire GBP5 billion of low cost funding within 5 years of
launch.
The development of our new digital bank will transform the
outlook for the business. In order to capitalise on the opportunity
to create long term value, the digital bank will require investment
in the early years to create momentum with customers and establish
itself in the market.
Our current expectation is that the financial impact in the
first full year of digital bank trading will be an increase of
approximately 10 per cent in our total group operating costs. We
would expect to gain momentum in the build of the digital bank
customer base with revenues growing over the next two years towards
the point where the digital bank breaks even.
Beyond that, we expect the digital bank to progress towards
making a material contribution to the business. We estimate that
within 5 years of launch the digital bank could provide an increase
in return on tangible equity of three percentage points. This makes
no allowance for improvements to operational efficiency that will
be derived as we deploy digital functionality in our current core
business.
We will start a beta phase of testing in H2 2018, with a full
roll-out of the digital bank planned to commence in 2019.
SME
The Virgin brand has strong appeal to SME owners. The SME
banking market is currently concentrated in the hands of four
incumbent banks and there is an opportunity for a customer-focused
disruptor to deliver better service and value for customers.
In January 2018, we will commence a phased SME development
programme by launching a savings proposition for SMEs. This will
allow us to start developing relationships with business customers
ahead of our plans to launch a Business Current Account (BCA) by
the end of 2018. Supplemented by our existing scale and underpinned
by our market-leading brand trust and awareness, this is a logical
next step in the evolution of our business. Given the scale of the
market and current dominance of four incumbent banks, we believe
that we could achieve GBP5 billion of funding within 5 years of
launch. The immediate opportunity is based on our current
platform.
We can confirm that we are looking at the opportunity to apply
for funding from the RBS state aid alternative remedies package,
announced by HM Treasury in September 2017.
Outlook and Guidance for FY 2018
The UK economy remains supportive with low unemployment and a
resilient housing market and we continue to experience robust
customer demand and stable customer behaviour. The strength of our
core business, combined with our strategy and plans for the future,
means that we anticipate sustaining a solid double digit return on
tangible equity in 2018.
In order to manage margin in the face of ongoing competitive
pressure in the UK mortgage market, and consistent with our long
term strategy to deliver high quality sustainable returns, we
expect our share of gross lending to be at the lower end of our
previously guided range of 3 to 3.5 per cent.
We expect the credit card product mix will start to evolve with
the launch of affinity products. While relatively modest in 2018,
we expect this shift in product mix to support a percentage growth
rate in balances in the mid-single digits.
As a result of lower front book spreads in the mortgage market,
we anticipate a reduction in Banking NIM to between 165 and 170
basis points in 2018.
We will continue to manage costs tightly and drive operating
leverage through the business. As a result we expect to keep
operating costs broadly stable on 2017.
Our lending discipline, combined with our strict and consistent
application of underwriting standards, supports our high-quality
balance sheet and resilience in our lending portfolios. We
anticipate our cost of risk to be no higher than 20 basis points in
2018, including the impact of IFRS 9.
Investment in our strategic priorities will increase the level
of overall investment spend. This will increase from GBP90 million
in 2017 to GBP100 million in 2018. Within that total, investment in
the core business, consistent with prior years, will be GBP50
million and will include the launch of SME deposits and the SME
current account proposition, investment in the Digital Bank will
amount to GBP40 million of capitalised spend and the increment of
GBP10 million will be a non-trading charge in relation to Virgin
Atlantic financial service products. The total amount will be
funded from existing resources and is included in our capital
guidance.
We expect our CET1 capital ratio will remain above 12 per cent
at all times. Allowing for guidance from the PRA in relation to
IFRS9, and expected transitional relief, we expect to finish 2018
with a CET1 ratio towards the upper end of a 12-13 per cent
range.
We intend to continue to pay a progressive dividend, meaning a
continued increase in the amount of the dividend in pence per
share.
The key UK macro-economic assumptions underpinning outlook and
guidance for 2018 are:
-- 0.5% base rate in 2018
-- GDP growth of 1.2% in 2018
-- Unemployment of 5.3% in 2018
-- House Price Inflation of 2.1% in 2018
ENDS
The Capital Markets Day presentation will be held at
Chartered Accountants Hall, 1 Moorgate Pl, London EC2R
6EA
A copy of the presentation and a live webcast will
be available at https://uk.virginmoney.com/virgin/investor-relations/results-and-presentations/
Conference call and Webcast information:
Date: Thursday 16 November 2017
Time: 09:30
Dial: +44 20 3059 8125
Participant Password: Virgin Money
Link: Register to view
An operator will assist you in joining the call.
--------------------------------------------------------------------------------------------------
The person responsible for arranging for the release of this
announcement on behalf of Virgin Money is Katie Marshall, Company
Secretary.
Enquiries:
Virgin Money Press Office
Scott Mowbray / Simon Hall
0191 279 4676 or press.office@virginmoney.com
FTI Consulting
John Waples / Mitch Barltrop
07717 814520 / 07807 296032
john.waples@fticonsulting.com /
mitch.barltrop@fticonsulting.com
Virgin Money Investor Relations
Adam Key
020 7111 1311 or adam.key@virginmoney.com
About Virgin Money
-- Virgin Money offers savings, mortgages, credit cards, current
accounts, currency services, pensions, investments and protection
products to customers across the UK.
-- Virgin Money's business ambition is to make "everyone better
off" - this philosophy underpins our approach to business by
offering good value to customers, treating employees well, making a
positive contribution to society and delivering a profit to
shareholders.
-- More than 13,500 charities have registered with Virgin Money
Giving and, by the end of Q3 2017, over GBP590 million had been
donated to charities through the service since its launch in 2009,
resulting in an estimated GBP18 million more donated to charities
because of its not-for-profit model.
The information contained within this announcement is deemed by
Virgin Money to constitute inside information as stipulated under
the Market Abuse Regulation No 596/2014. Upon the publication of
this announcement via a Regulatory Information Service, this inside
information is now considered to be in the public domain.
Forward looking statements
This document contains certain forward looking statements with
respect to the business, strategy and plans of Virgin Money Group
and its current goals and expectations relating to its future
financial condition and performance. Statements that are not
historical facts, including statements about Virgin Money Group's
or its directors' and/or management's beliefs and expectations, are
forward looking statements. By their nature, forward looking
statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will or may occur in the
future. Factors that could cause actual business, strategy, plans
and/or results to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward
looking statements made by the Group or on its behalf include, but
are not limited to: general economic and business conditions in the
UK and internationally; inflation, deflation, interest rates and
policies of the Bank of England, the European Central Bank and
other G8 central banks; fluctuations in exchange rates, stock
markets and currencies; the ability to access sufficient sources of
capital, liquidity and funding when required; changes to Virgin
Money's credit ratings; the ability to derive cost savings;
changing demographic developments, including mortality, and
changing customer behaviour, including consumer spending, saving
and borrowing habits; changes in customer preferences; changes to
borrower or counterparty credit quality; instability in the global
financial markets, including Eurozone instability, the exit by the
UK from the European Union (EU) and the potential for one or more
other countries to exit the Eurozone or EU, and the impact of any
sovereign credit rating downgrade or other sovereign financial
issues; technological changes and risks to cyber security; natural
and other disasters, adverse weather and similar contingencies
outside Virgin Money's control; inadequate or failed internal or
external processes, people and systems; terrorist acts and other
acts of war or hostility and responses to those acts; geopolitical,
pandemic or other such events; changes in laws, regulations,
taxation, accounting standards or practices, including as a result
of the exit by the UK from the EU, regulatory capital or liquidity
requirements and similar contingencies outside Virgin Money's
control; the policies and actions of governmental or regulatory
authorities in the UK, the EU, the US or elsewhere including the
implementation and interpretation of key legislation and
regulation; the ability to attract and retain senior management and
other employees; the extent of any future impairment charges or
write-downs caused by, but not limited to, depressed asset
valuations, market disruptions and illiquid markets; market
relating trends and developments; exposure to regulatory scrutiny,
legal proceedings, regulatory investigations or complaints; changes
in competition and pricing environments; the inability to hedge
certain risks economically; the adequacy of loss reserves; the
actions of competitors, including non-bank financial services and
lending companies; and the success of Virgin Money in managing the
risks of the foregoing.
Any forward-looking statements made in this document speak only
as of the date they are made and it should not be assumed that they
have been revised or updated in the light of new information of
future events. Except as required by the Prudential Regulation
Authority, the Financial Conduct Authority, the London Stock
Exchange plc or applicable law, Virgin Money expressly disclaims
any obligation or undertaking to release publicly any updates of
revisions to any forward-looking statements contained in this
document to reflect any change in Virgin Money's expectations with
regard thereto or any change in events, conditions or circumstances
on which any such statement is based.
Virgin Money Holdings (UK) plc - Registered in England and Wales
(Company No. 03087587). Registered Office: Jubilee House, Gosforth,
Newcastle upon Tyne NE3 4PL.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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