TIDMVM.
RNS Number : 1867F
Virgin Money Holdings (UK) PLC
26 July 2016
2016 HALF-YEAR RESULTS
News release
BASIS OF PRESENTATION
This report covers the results of Virgin Money Holdings (UK) plc
together with its subsidiaries ('Virgin Money', 'Virgin Money
Group' or 'the Group') for the half-year ended 30 June 2016.
Statutory basis
Statutory information is set out in the Financial Statements
section of this announcement.
Underlying basis
In order to present a more meaningful view of business
performance, the results of the Group and business units are
presented on an underlying basis, which excludes IPO costs, certain
strategic items, fair value losses and compensation paid to senior
leavers. A full reconciliation to statutory profit is provided on
page 4 with background to the reconciling items provided on page
12.
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 potential
for one or more countries to exit the European Union (EU)
(including the UK following its referendum vote to leave the EU) or
the Eurozone, 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; 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.
CONTENTS
Interim Management Report Page
Key highlights 1
Underlying basis - consolidated income
statement 3
Consolidated balance sheet 3
Key ratios 4
Reconciliation to statutory profit 4
Chief Executive's statement 5
Financial review 9
Divisional highlights
* Mortgages and savings 14
* Credit cards 16
* Current accounts, insurance and investments 17
* Central functions 19
Risk Management Report 20
Emerging risks 21
Principal risks and uncertainties 22
Credit risk management 23
Funding and liquidity management 29
Capital management 33
Condensed Consolidated Half-Year Financial
Statements 37
Condensed consolidated income statement 38
Condensed consolidated statement of comprehensive
income 39
Condensed consolidated balance sheet 40
Condensed consolidated statement of changes
in equity 42
Condensed consolidated cash flow statement 45
Notes to the condensed consolidated half-year
financial statements 46
Directors' responsibility statement 64
Independent Auditor's review report to
Virgin Money Holdings (UK) plc 65
Contacts 67
VIRGIN MONEY GROUP: RESULTS FOR THE HALF-YEAR TO 30 JUNE
2016
-- Virgin Money maintains momentum with continued strong lending
growth
-- Underlying profit before tax increased by 53 per cent to
GBP101.8 million, from GBP66.4 million in H1 2015
-- Underlying return on tangible equity improved to 12.2 per
cent from 9.5 per cent in H1 2015
-- An interim dividend of 1.6 pence per ordinary share to be
paid in September 2016
-- Overall Net Promoter Score increased to +28 from +19 in H2
2015 as more customers than ever before would recommend Virgin
Money
Financial Highlights
* Underlying profit before tax increased by 53 per cent
to GBP101.8 million, from GBP66.4 million in H1 2015.
* Underlying net interest margin of 1.60 per cent, in
line with previous guidance.
* Underlying return on tangible equity improved to 12.2
per cent from 9.5 per cent in H1 2015.
* Underlying cost:income ratio improved to 58.8 per
cent, from 68.3 per cent in H1 2015.
* Statutory profit before tax was GBP93.7 million in H1
2016, compared to GBP55.0 million in H1 2015.
-------------------------------------------------------------
Continued growth across our core businesses
-- Mortgage balances increased to GBP27.7 billion, 9 per cent higher than FY 2015.
-- Gross mortgage lending of GBP4.3 billion, 19 per cent higher
than H1 2015. Net lending of GBP2.2 billion in H1 2016, 29 per cent
higher than H1 2015.
-- Gross lending market share of 3.6 per cent and net lending
market share of 12.7 per cent at the end of May 2016, the last
month for which data is available.
-- Mortgage book comprised 82 per cent residential and 18 per
cent buy-to-let mortgages at the end of June 2016.
-- Credit card balances increased to GBP2.1 billion at the end
of June 2016, 31 per cent higher than FY 2015.
-- Retail deposit balances increased to GBP27.1 billion at the
end of June 2016, 8 per cent higher than FY 2015.
Maintained focus on a high-quality balance sheet, underpinned by
strong capital ratios and a prudent risk appetite
-- Strong capital base, with a Common Equity Tier 1 ratio of 15.3 per cent at H1 2016.
-- Total capital ratio of 17.5 per cent and a leverage ratio of 3.8 per cent at H1 2016.
-- Whole book mortgage arrears held at low levels, with loans
over three months in arrears of 0.16 per cent compared with the
latest industry average of 1.04 per cent.
-- Low credit card arrears maintained, with credit card balances
two or more payments in arrears of 0.79 per cent, compared with the
latest industry average of 2.5 per cent.
Reconciliation to statutory profit is shown on page 4 of the
2016 Half-Year Results with background to the reconciling items
provided on page 12.
Impact of the EU Referendum
Virgin Money is in a strong position to deal with a period of
post-referendum uncertainty. Since the vote to leave the EU we have
experienced continued strong customer demand and no evidence of
changes in customer behaviour.
Following the EU Referendum outcome market commentators have
suggested that the mortgage market could slow and that unemployment
could rise.
It is also possible that Bank Base Rate (BBR) could be reduced
and stay low for a long period of time.
As a result we anticipate some adjustments to our financial
outlook as follows:
Guidance
* Net interest margin (NIM) of up to 160 basis points
for 2016, depending on the timing of any BBR
reduction. We expect continued progress in our return
on tangible equity (RoTE) and anticipate solid double
digit RoTE for 2017.
* All other guidance, including asset volumes and
cost:income ratio remains unchanged.
-------------------------------------------------------------
Jayne-Anne Gadhia, Chief Executive said:
"I am delighted to report that it has been an excellent first
half for Virgin Money. We continued to grow the business strongly
and have delivered a 53 per cent increase in underlying profit as a
result of our increased share of the mortgage market and the
continued success of our credit card business. I am particularly
pleased that more customers than ever before would recommend Virgin
Money to their friends and family with our overall Net Promoter
Score increasing to +28 in the first half of the year.
After taking into consideration our strong performance in the
first half of the year and the prospects for the company, we are
pleased to announce that the Board has declared an interim dividend
of 1.6 pence per share in respect of the half-year.
Since the vote to leave the EU we have experienced continued
strong customer demand and no evidence of changes in customer
behaviour. Virgin Money is in a strong position to deal with a
period of post-referendum uncertainty as a low risk retail bank
with a high-quality asset base and unburdened by legacy conduct
issues.
We remain on track to achieve our target of GBP3 billion of high
quality credit card balances by the end of 2017 and remain focused
on maintaining the high-quality of our mortgage business. We look
to the future with confidence and will continue to drive our
customer-focused strategy of growth, quality and returns."
UNDERLYING BASIS - CONSOLIDATED INCOME STATEMENT
Half-year
Half-year to 31
Half-year to 30 Dec
to 30 Jun 2015
Jun 2016 2015 GBP Change
GBP million GBP million(1) Change% million %
--------------------- ------------- ---------------- ---------- ---------- -------
Net interest income 252.2 220.3 14 235.8 7
Other income 37.4 34.2 9 33.2 13
--------------------- ------------- ---------------- ---------- ---------- -------
Total income 289.6 254.5 14 269.0 8
--------------------- ------------- ---------------- ---------- ---------- -------
Costs (170.4) (173.8) (2) (158.7) 7
Impairment (17.4) (14.3) 22 (16.0) 9
--------------------- ------------- ---------------- ---------- ---------- -------
Underlying profit
before tax 101.8 66.4 53 94.3 8
--------------------- ------------- ---------------- ---------- ---------- -------
(1) The FSCS levy was previously excluded from underlying
performance measures, but is now included as it is considered to be
a recurring cost to the Group.
CONSOLIDATED BALANCE SHEET
At
At At 31 Dec
30 Jun 30 Jun 2015
2016 2015 GBP
GBP million GBP million Change% million Change%
------------------------ ------------- ------------- -------- ------------ --------
Assets
Cash and balances
at central banks 784.3 687.1 14 888.6 (12)
Loans and receivables 30,865.1 25,362.2 22 27,724.6 11
Available-for-sale
financial assets 1,046.7 1,405.6 (26) 1,296.9 (19)
Other 451.9 326.9 38 318.9 42
----------------------- ------------- ------------- -------- ------------ --------
Total assets 33,148.0 27,781.8 19 30,229.0 10
----------------------- ------------- ------------- -------- ------------ --------
Liabilities and
equity
Deposits from banks 1,016.5 743.2 37 1,298.7 (22)
Customer deposits 27,128.4 22,971.8 18 25,144.9 8
Debt securities
in issue 2,948.2 2,338.9 26 2,039.4 45
Other 673.8 416.8 62 397.3 70
Provisions 15.8 24.8 (36) 8.4 88
----------------------- ------------- ------------- -------- ------------ --------
Total liabilities 31,782.7 26,495.5 20 28,888.7 10
----------------------- ------------- ------------- -------- ------------ --------
Total equity 1,365.3 1,286.3 6 1,340.3 2
----------------------- ------------- ------------- -------- ------------ --------
Total liabilities
and equity 33,148.0 27,781.8 19 30,229.0 10
----------------------- ------------- ------------- -------- ------------ --------
KEY RATIOS
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun 2015 Change Dec Change
2016 2015
---------------------- ----- ---------- ---------- --------- ---------- ---------
Net interest margin % 1.60 1.65 (5)bps 1.65 (5)bps
Cost:income ratio(1) % 58.8 68.3 (9.5)pp 59.0 (0.2)pp
Cost of risk(2) % 0.12 0.12 - 0.12 -
---------------------- ----- ---------- ---------- --------- ---------- ---------
Underlying earnings
per share p 15.5 11.4 36% 15.4 1%
Tangible net asset
value per share GBP 2.58 2.44 14p 2.54 4p
Loan-to-deposit
ratio % 109.6 107.3 2.3pp 107.5 2.1pp
---------------------- ----- ---------- ---------- --------- ---------- ---------
Common Equity Tier
1 ratio % 15.3 18.7 (3.4)pp 17.5 (2.2)pp
Leverage ratio % 3.8 4.1 (0.3)pp 4.0 (0.2)pp
Return on tangible
equity(3) % 12.2 9.5 2.7pp 12.3 (0.1)pp
---------------------- ----- ---------- ---------- --------- ---------- ---------
(1) Including FSCS levy.
(2) Defined as impairment charges net of debt recoveries divided
by average gross balances for the period.
(3) FSCS levy included in H1.
Key ratios are presented on an underlying basis except where
stated. Capital ratios include verified profit for H1 2016.
RECONCILIATION TO STATUTORY PROFIT
Half-year
Half-year Half-year to 31
to 30 to 30 Dec
Jun 2016 Jun 2015
GBP 2015 GBP Change
million GBP million Change% million %
--------------------------- ---------- ------------- ---------- ---------- -------
Underlying profit
before tax 101.8 66.4 53 94.3 8
--------------------------- ---------- ------------- ---------- ---------- -------
IPO share based awards (1.4) (6.5) (4.0)
Strategic items 1.7 (4.8) (3.3)
Compensation for senior
leavers (3.3) - (3.7)
Fair value losses
on financial instruments (5.1) (0.1) (0.3)
Statutory profit before
tax 93.7 55.0 70 83.0 13
--------------------------- ---------- ------------- ---------- ---------- -------
CHIEF EXECUTIVE'S STATEMENT
Results overview
I am delighted to report another excellent performance during
the first half of the year, which reflects the work we are doing to
ensure our customers remain at the heart of our strategy of driving
growth, quality and returns.
I am particularly pleased that more customers than ever before
would recommend Virgin Money to their friends and family with our
overall Net Promoter Score (NPS) improving to +28 in the first half
of the year. We are growing at a rate of 50,000 customers per month
and now have over 3.1 million customers.
During the period we delivered a strong financial performance.
Underlying profit before tax increased by 53 per cent compared to
the first half of 2015, to GBP101.8 million, and our return on
tangible equity grew to 12.2 per cent from 9.5 per cent in H1
2015.
Our gross mortgage lending increased by 19 per cent to GBP4.3
billion in the first half of the year. We delivered a 3.6 per cent
market share of gross lending and a 12.7 per cent share of net
lending to the end of May.
The performance of our credit card business continues to surpass
expectations over one year on since launching to the public and we
remain on track to achieve our target of GBP3 billion of
high-quality credit card balances by the end of 2017.
Our lending growth has been supported by an equally strong
performance in retail deposits where we have had an excellent start
to the year, delivering 8 per cent growth in balances to GBP27.1
billion.
Net interest income grew by 14 per cent compared to the first
half of 2015, to GBP252.2 million, as a result of strong growth in
mortgage balances, which increased by 17 per cent compared with
June 2015. Total income increased by 14 per cent compared to the
first half of 2015 to GBP289.6 million.
Our disciplined approach to cost management continues to yield
positive results. Total costs reduced by 2 per cent to GBP170.4
million compared to H1 2015 and our cost:income ratio, including
the FSCS levy, improved to 58.8 per cent from 68.3 per cent in the
first half of 2015.
We continue to manage our balance sheet within our prudent risk
appetite with a view to maintaining its quality and efficiency. Our
Common Equity Tier 1 ratio was 15.3 per cent at the end of the
first half of 2016, while our total capital ratio was 17.5 per cent
and our leverage ratio was 3.8 per cent.
As a result of the confidence we have in our strategy and
prospects for the company, the Board has declared an interim
dividend of 1.6 pence per share in respect of the half-year, which
is an increase on the 2015 interim dividend.
Mortgages
We delivered gross mortgage lending of GBP4.3 billion in the
first half of the year, 19 per cent higher than in the first half
of 2015 and represented a market share of 3.6 per cent to the end
of May, the last month for which data is available. Strong new
lending and retention performance led to a 29 per cent increase in
net lending to GBP2.2 billion, compared to GBP1.7 billion in H1
2015. Mortgage balances grew by 9 per cent from 31 December 2015,
to GBP27.7 billion.
Our mortgage business remains high quality and we continue to
focus primarily on providing residential mortgages. The mortgage
book comprised 82 per cent residential and 18 per cent buy-to-let
mortgages at the end of June 2016. The average loan-to-value of our
retail mortgage portfolio was 55.4 per cent at H1 2016.
Our intermediary business continues to flourish and we have made
excellent progress with our intermediary partners. Our intermediary
NPS improved from +40 at the end of Q4 2015 to +57. The quality of
our intermediary service was recognised by winning the prestigious
'Best Lender for Partnership', at the Legal & General Mortgage
Club Awards for the second year running.
Credit cards
During the first half of the year we continued to make
considerable progress with our credit card business. Our most
recent credit card customer satisfaction survey reported a NPS of
+41, reflecting our ongoing commitment to high standards of
customer service and our provision of easy to use, transparent
products.
Credit card balances increased to GBP2.1 billion at the end of
June and represented a 3.1 per cent share of the GBP64 billion
cards market. New business continues to be strong and we remain on
track to meet our target of GBP3 billion of high-quality credit
card balances by the end of 2017. Financial performance has also
been strong at both a new business and portfolio level. The credit
card business contribution increased to GBP35.3 million at 30 June
2016, 79 per cent higher than H1 2015.
We were delighted to win four awards at the uSwitch awards in
February, including Best Overall Customer Service, Best Application
Process and Best for Balance Transfers. We also won the Best Card
Provider (Balance Transfer Rate) at the 2016 Moneyfacts Awards and
the Judges Award at the 2016 Card and Payment Industry Awards. This
was in recognition of the development of our cards business and the
creation of a new payments business under the Virgin brand in such
a short period.
We continue to engage with the industry-wide FCA Credit Card
Market Study. The final report is expected to be published in Q3
2016. If changes are required by the FCA, our platform and
capability give us confidence that we will be able to comply with
limited economic impact.
Savings and Funding
Our savings business has delivered an excellent performance so
far this year and we have continued to manage both the cost and
volume of deposits successfully. The strength of our ISA
proposition continues to be recognised by customers, with total ISA
inflows of GBP1.7 billion in H1 2016, up 26 per cent from GBP1.4
billion in H1 2015. Overall retail deposits increased by 8 per cent
from GBP25.1 billion in December 2015 to GBP27.1 billion in June
2016.
We remain focused on prudent and efficient funding management
and the loan-to-deposit ratio increased slightly during H1 2016 to
109.6 per cent as we grew wholesale funding, which contributed to a
reduced weighted average cost of funds during H1 2016.
During the first half of the year, we successfully completed two
issues of Residential Mortgage Backed Securities (RMBS) totalling
GBP1.3 billion, extending our reach in the wholesale markets beyond
Sterling and Euro into US Dollars for the first time. Both
offerings saw strong demand and were multiple times
oversubscribed.
Current Accounts, Insurance and Investments
The Current Accounts, Insurance and Investments segment showed
continued progress during the first half of the year. Current
account balances increased by 18 per cent to GBP272 million
reflecting growth in sales of the Essential Current Account (ECA)
having completed the national rollout across our network of 75
Stores, in H1 2015.
The insurance business performed well during the first half of
the year, mainly driven by travel insurance. Our home insurance
line has become established in H1 2016 and we continue to work
closely with Ageas to develop our proposition for customers.
Customers continue to appreciate the transparency and choice our
investment funds provide. Stocks and Shares ISA sales in the first
half of 2016 were 9 per cent higher than H1 2015, which was a
strong result given the subdued ISA season. Funds under management
increased by GBP114 million during the first half of the year to
end at GBP3.1 billion at H1 2016.
Customers and Distribution
I am delighted to report that our overall NPS increased to +28
in the first half of the year meaning more customers than ever
before would recommend Virgin Money to their friends and
family.
We continue to provide award-winning customer service to over
3.1 million customers and operate a digitally-led distribution
model supported by Contact Centres, Stores and Lounges.
Our award-winning Lounges remain unique in UK banking. They
deliver excellent customer satisfaction ratings and are a strong
commercial success, attracting over 200,000 visitors so far this
year. The Lounges were awarded the Customer Satisfaction Innovation
of the Year award by the Institute of Customer Service in the first
half of 2016, and achieved a NPS of +86 at the end of H1 2016.
Access to Lounges is available to all Virgin Money customers, and
membership is free. As part of Virgin Money's ambition to make
'everyone better off', Lounges are also available on request for
use by the local community for events, charity meetings and
fundraising activities. We opened a new customer Lounge in
Sheffield in July 2016.
Our Intermediary Partnerships remain a key part of the Virgin
Money mortgage strategy. In June 2016, we launched a major
advertising campaign promoting to consumers the option of seeking
advice from mortgage intermediaries. As part of the campaign, we
announced that we would introduce a new mortgage retention platform
for intermediaries, which went live in early July and was welcomed
by the market. During July, we also entered a new partnership with
Manchester United Football Club, becoming their official retail
financial services partner. The first co-branded Virgin Money and
Manchester United product, a savings bond, was launched and further
products will be added to the range.
Virgin Money was recognised with the Judges' Choice Award for
outstanding achievement in customer experience at the Confirmit ACE
Awards in May 2016. In addition, research from the Reputation
Institute revealed that Virgin Money was one of Britain's most
trusted banks in April 2016, second only to Nationwide, Britain's
biggest building society.
Colleagues
At Virgin Money we have highly engaged colleagues who are
focused on serving the needs of our customers and stakeholders. We
continue to invest in the development of all colleagues and we were
delighted to win the Employee Engagement - Improving Customer
Experience award at the UK Employee Experience Awards in May
2016.
We recognise the value of diversity across our colleagues, who
together bring a broad range of skills and experience to our
business. We are committed to ensuring that our culture is always
flexible, inclusive and balanced and strive to ensure that those
who work for our business reflect the customers we serve, enabling
us to provide a relevant, practical and personal banking service.
We signed up to the HMT Women in Finance Charter in March 2016, an
initiative designed to improve gender diversity in senior positions
in the financial sector.
Given the importance we place on purpose, values and culture -
manifest in our ambition to make 'everyone better off' - we are
participating in the Banking Standard Board's (BSB) 2016 annual
assessment exercise, designed to take the temperature on culture
and leadership in the banking sector. This includes a colleague
survey which was completed by more than 1,000 Virgin Money
colleagues in May. The BSB survey will be followed up by a series
of focus groups and one-to-one interviews with colleagues in H2
2016. The BSB are aiming to build an evidence-based picture of
developments across the industry to help raise standards, benchmark
performance and share good practice.
Community and Culture
We are proud of a culture that sustains our ambition to make
'everyone better off'. It provides the foundation for our
differentiated approach to banking and it cannot be readily and
credibly replicated in the UK banking sector. This, combined with
our prudent approach to financial and risk management, has resulted
in strong relationships with our customers, corporate partners,
shareholders, regulators and ratings agencies.
Virgin Money Giving continues to perform strongly. Our
partnership with the London Marathon continues to drive growth in
Virgin Money Giving donations which totalled GBP56.4 million,
including Gift Aid, in the first half of the year.
In its first grant programme, the Virgin Money Foundation
distributed almost GBP1 million in the North East of England to a
total of 26 organisations working in social enterprise, youth
employment and housing programmes. A second grant programme of a
further GBP1 million was opened for applications during the first
half of the year. We also extended our investment in education and
enterprise initiatives and our 'Make GBP5 Grow' initiative is now
available as an online tool to schools across the UK. In the second
half of the year we will be supporting the roll-out of a financial
education and savings club programme in primary schools, called
LifeSavers.
Regulation
We continue to work with the relevant authorities on the
evolving UK regulatory framework and the impact of EU directives.
Our capital ratios and liquidity measures are comfortably ahead of
current regulatory requirements.
Our business model and customer-focused strategy, underpinned by
our strong culture, enables us to meet the challenges of the
evolving regulatory and competitive environment and ensures the
business continues to deliver sustainable success for all
stakeholders. Given that we are a UK-focused retail bank, we
believe that our entire business will be within the ring fence when
it comes into effect at the beginning of 2019.
Outlook
We were delighted that Virgin Money continued to perform
strongly in the first half of the year with growth in mortgages,
credit cards and savings, as well as earnings performing in line
with expectations.
Virgin Money is a strong, customer-focused, low risk retail
bank, unburdened by legacy conduct issues. We have a strong capital
base and excellent asset quality. The focus on maintaining a
high-quality balance sheet is supported by our prudent risk
appetite and robust approach to risk management. As a result, the
Group is well placed to navigate an uncertain economic outlook and
a lower for longer interest rate environment.
Against this backdrop we will continue to protect our strong
capital position and fund growth in the most cost efficient way,
optimising volume and asset mix. We will continue to ensure we grow
assets at the right price and quality.
Our mortgage book remains high quality, with no exposure to
commercial property, and is comprised of 82 per cent residential
and 18 per cent buy-to-let mortgages. The average loan-to-value of
our retail mortgage portfolio was 55.4 per cent at H1 2016. We will
continue to focus on maintaining the high quality of our mortgage
business.
We entered the second half of the year with a strong mortgage
pipeline and we expect to achieve a market share of annual gross
mortgage lending at the higher end of our 3.0-3.5 per cent target
range.
Our credit card business continued to grow strongly in H1 2016.
We will continue to protect the prime quality of our credit card
book and expect to reach our target of GBP3 billion of credit card
balances by the end of 2017.
Our strategy is focused on creating a business that can continue
to grow, maintaining our excellent asset quality, and successfully
delivering sustainable shareholder returns through the economic
cycle. As part of this, we have decided that it is prudent to defer
our SME and unsecured lending plans and focus investment on
enhancing our digital capability.
We expect continued progress in our return on tangible equity
and anticipate solid double digit RoTE for 2017.
We are pleased to announce that, after taking into consideration
our strong performance in the first half of the year and the
prospects of the company, the Board has declared an interim
dividend of 1.6 pence per share.
To conclude, we are delighted that we have delivered strongly
against our objectives in H1 2016 and I would like to thank our
Virgin Money colleagues for their hard work and achievements so far
this year. We will continue to put customers at the heart of
everything we do and look to the future with confidence.
Jayne-Anne Gadhia, CBE
Chief Executive
FINANCIAL REVIEW
Overview: Strong growth in balance sheet and underlying
profit
In the first half of 2016 we have continued to build scale and
profitability in our high quality asset portfolios. We have grown
our market shares in mortgages and credit cards and successfully
grown customer deposit balances. The success in retail deposits was
supplemented by further participation in the wholesale funding
markets. Strong balance sheet growth more than offset the expected
reduction in net interest margin (NIM) to drive a further increase
in net interest income.
We continued to operate in a challenging environment with a low
and flat base rate and continued pressure on mortgage margins.
Against that backdrop we have delivered an increase in underlying
profit before tax of 53.3 per cent compared to the first half of
2015, rising to GBP101.8 million from GBP66.4 million. As a result,
return on tangible equity improved to 12.2 per cent from 9.5 per
cent in the same period last year.
Strong balance sheet growth
At At
30 Jun 31 Dec
2016 2015
GBP GBP
million million Change
------------------------------- --------- --------- --------
Loans and advances to
customers 30,031.0 27,109.0 10.8%
Funded assets(1) 31,029.2 27,885.1 11.3%
Customer deposits 27,128.4 25,144.9 7.9%
Wholesale funding 3,923.2 3,314.3 18.4%
Wholesale funding <1
year maturity 700.0 1,274.9 (45.1)%
Loan-to-deposit ratio 109.6% 107.5% +2.1pp
High Quality Liquid Assets(2) 4,355.8 4,238.6 2.8%
-------------------------------- --------- --------- --------
(1) Loans and advances to customers and banks, encumbered
available-for-sale assets and encumbered cash and balances with
central banks.
(2) These include Funding for Lending drawings which are held
off balance sheet and are available for repo and hence count
towards liquidity resources.
In the first half of 2016, total loans and advances to customers
increased by 10.8 per cent to GBP30.0 billion. We delivered record
gross mortgage lending of GBP4.3 billion, up 19.4 per cent from H1
2015. We have been particularly focused on growing our residential
mortgage portfolio, delivering an increase of GBP2.2 billion. Our
credit card book grew by 30.9 per cent from the year end to reach
GBP2.1 billion as we continue to expand and develop our credit card
offering.
Asset growth was funded by growth in retail deposits and
wholesale funding. Total customer deposits grew by 7.9 per cent to
GBP27.1 billion at 30 June 2016. We continued to diversify our
wholesale funding base with the successful issue of a further
GBP1.3 billion of Residential Mortgage Backed Securities through
our established Gosforth programme, made up of Sterling, Euro and
US Dollar tranches. As a result, the loan-to-deposit ratio
increased to 109.6 per cent during the first half of 2016, from
107.5 per cent at the end of 2015, well within our risk appetite of
115 per cent. In addition to diversifying our funding sources, this
successful RMBS issuance lowered our overall cost of funding.
The Group's liquidity position remained strong, with high
quality liquid assets of GBP4.4 billion. The liquid asset portfolio
represented more than 6 times our wholesale funding with a maturity
of less than one year. This provided us with a substantial buffer
in the event of market dislocation.
Income benefited from growth in balances
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP GBP GBP
million million Change million Change
-------------------------- ---------- ---------- ------- ---------- -------
Net interest income 252.2 220.3 14.5% 235.8 7.0%
Other income 37.4 34.2 9.4% 33.2 12.7%
Total income 289.6 254.5 13.8% 269.0 7.7%
--------------------------- ---------- ---------- ------- ---------- -------
Net interest margin 1.60% 1.65% (5)bps 1.65% (5)bps
Average interest earning
assets 31,411 26,446 18.8% 28,709 9.4%
--------------------------- ---------- ---------- ------- ---------- -------
Net interest income grew by 14.5 per cent to GBP252.2 million as
a 18.8 per cent increase in average interest earning assets more
than offset a lower net interest margin.
In H1 2016 the continued strong growth in our mortgage portfolio
with new business priced below back book spreads, continued to put
pressure on Group NIM. This asset spread pressure was partly offset
by a further reduction in the cost of retail funding and the higher
proportion of credit cards on the balance sheet. This led, as
expected, to a NIM of 160bps in the first half of 2016.
Other income was 9.4 per cent higher at GBP37.4 million. This
included a gain of GBP5.3 million arising on the investment held in
Visa Europe Limited following its acquisition by Visa Inc. in June
2016 which was partially offset by a reduction in asset sales from
the Treasury portfolio.
Total income increased by 13.8 per cent to GBP289.6 million from
GBP254.5 million in the first half of 2015.
Costs remain tightly controlled
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP GBP GBP
million million Change million Change
---------------------- ---------- ---------- -------- ---------- --------
Costs(1) 170.4 173.8 (2.0)% 158.7 7.4%
Cost:income ratio(1) 58.8% 68.3% (9.5)pp 59.0% (0.2)pp
----------------------- ---------- ---------- -------- ---------- --------
(1) Including FSCS levy.
Total costs (including the FSCS levy of GBP7.8 million)
decreased by 2 per cent to GBP170.4 million compared to the same
period last year. This reduction in costs combined with the
increase in income of 13.8 per cent resulted in positive JAWS at
15.8 per cent. This drove the cost:income ratio down by 9.5
percentage points to 58.8 per cent, including the FSCS levy. We
continued to improve operational efficiency and deliver strong cost
management, whilst maintaining levels of investment spend. The
Group incurred a lower FSCS levy of GBP7.8 million compared to
GBP15.5 million in the same period in 2015. This was driven by a
further reduction in the element of the FSCS levy that relates to
the recovery of amounts previously paid out in respect of failed
institutions. Excluding the FSCS levy, the cost:income ratio
reduced by 6.1 percentage points to 56.1 per cent.
Impairment reflects rigorous underwriting controls
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP GBP GBP
million million Change million Change
-------------------------- ---------- ---------- -------- ---------- --------
Mortgages
Impairment charge 1.3 1.6 (18.8)% 1.4 (7.1)%
Cost of risk 0.01% 0.01% - 0.01% -
-------------------------- ---------- ---------- -------- ---------- --------
Cards
Impairment charge 16.1 12.7 26.8% 14.6 10.3%
Cost of risk 1.73% 2.29% (56)bps 2.16% (43)bps
-------------------------- ---------- ---------- -------- ---------- --------
Group
Impairment charge 17.4 14.3 21.7% 16.0 8.8%
Cost of risk 0.12% 0.12% - 0.12% -
--------------------------- ---------- ---------- -------- ---------- --------
Impaired loans as a
% of loans and advances 0.4% 0.4% - 0.4% -
Provisions as a % of
impaired loans 39.9% 37.0% 2.9pp 35.6% 4.3pp
-------------------------- ---------- ---------- -------- ---------- --------
The cost of risk for mortgages remained broadly stable at 0.01
per cent, underlining our continued diligent adherence to strict
underwriting standards. Even though we continued to grow our
mortgage portfolio, the impairment charge for mortgages decreased
by 18.8 per cent to GBP1.3 million.
The increase in impairment charge for credit cards reflects the
growth in card balances. The cost of risk net of debt recoveries
reduced to 1.7 per cent in H1 2016 from 2.3 per cent in the same
period in 2015. This demonstrated the continued high quality of new
and existing cards and the expected low rate of default during the
first year of a balance transfer. Net of debt recoveries of GBP2.7
million, the impairment charge increased by 26.8 per cent to
GBP16.1 million. This compared favourably to the 30.9 per cent
growth in cards balances over the same period.
Impaired loans as a percentage of loans and advances was stable
at 0.4 per cent. Provisions as a percentage of impaired loans
increased to 39.9 per cent.
STATUTORY PROFIT
Our statutory profit before tax was GBP93.7 million. This was an
increase of 70.4 per cent compared to the statutory profit before
tax of GBP55.0 million in the first half of 2015. A full
reconciliation is provided in note 2 to the financial
statements.
Underlying profit to statutory profit reconciliation
Half-year Half-year Half-year
to 30 to 30 to 31
Jun 2016 Jun Dec
GBP 2015(1) 2015
million GBP million GBP million
-------------------------------------- ---------- ------------- -------------
Underlying profit before tax 101.8 66.4 94.3
IPO share based payments (1.4) (6.5) (4.0)
Strategic items 1.7 (4.8) (3.3)
Compensation for senior leavers (3.3) - (3.7)
Fair value losses on financial
instruments (5.1) (0.1) (0.3)
Statutory profit before tax 93.7 55.0 83.0
Taxation (26.2) (12.1) (14.7)
-------------------------------------- ---------- ------------- -------------
Profit for the half-year - statutory 67.5 42.9 68.3
-------------------------------------- ---------- ------------- -------------
Basic earnings per share - statutory
(pence) 14.1 8.6 14.4
-------------------------------------- ---------- ------------- -------------
(1) The FSCS levy was previously excluded from underlying
performance measures, and is now included as it is considered to be
a recurring cost to the Group.
IPO share based payments
These costs relate to share based payment charges triggered by
IPO which we recognised over their vesting period, and by their
nature are non recurring.
Strategic items
We incurred strategic investment costs totalling GBP2.7 million
in the first half of 2016, which largely related to digital
investment spend. These costs have been offset by a gain of GBP4.4
million resulting from the final recognition of fair value
adjustments arising from the Northern Rock acquisition which will
not occur in future periods.
Compensation for senior leavers
Compensation for senior leavers includes costs associated with
senior employees who left the business during the period. These
costs include accelerated share based payment charges. These are
non-recurring items that are not considered part of the underlying
results.
Fair value losses on financial instruments
Fair value gains and losses on financial instruments reflect the
results of hedge accounting and the fair value movements on
derivatives in economic hedges (but not accounting hedges). Where
derivatives are held to maturity, the accounting volatility
recorded in this heading represents timing differences and is
excluded from underlying profit.
Taxation
As a result of the introduction of the bank tax surcharge, the
Group's effective tax rate increased to 28.0 per cent. In the first
half of 2016, the Group recognised a corporation tax charge of
GBP26.2 million.
Continued progress in driving returns
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 Change 2015 Change
--------------------------- ---------- ---------- ------- ---------- --------
Return on tangible equity
% 12.2 9.5 2.7pp 12.3 (0.1)pp
---------------------------- ---------- ---------- ------- ---------- --------
Return on tangible equity increased to 12.2 per cent in the
first half of 2016 from 9.5 per cent in the same period of the
previous year. This reflected our continued operational leverage
and was primarily due to continued positive JAWS between income
growth and cost growth combined with stable impairment charges.
This measure includes the FSCS levy which is recognised in April
each year under the applicable accounting standard, and therefore
affects the first half of each year. This accounts for the slight
reduction against the second half of 2015.
STRONG CAPITAL STRUCTURE
Capital ratios and risk-weighted assets
At At
30 Jun 31 Dec
2016 2015 Change
------------------------------ ---------- -------- -------- --------
Common Equity Tier 1 capital GBP
(CET1) million 1,128.1 1,070.0 5.4%
GBP
Risk-weighted assets (RWAs) million 7,377.8 6,110.4 20.7%
Common Equity Tier 1 ratio % 15.3 17.5 (2.2)pp
------------------------------ ---------- -------- -------- --------
Tier 1 ratio % 17.4 20.1 (2.7)pp
------------------------------ ---------- -------- -------- --------
Total capital ratio % 17.5 20.2 (2.7)pp
------------------------------ ---------- -------- -------- --------
Leverage ratio % 3.8 4.0 (0.2)pp
------------------------------ ---------- -------- -------- --------
Note: inclusive of verified profits for H1 2016
The continued growth in our mortgage and credit card balances,
and the resulting increase in RWAs, was the main driver behind the
reduction in our CET1 capital ratio to 15.3 per cent at the end of
the first half from 17.5 per cent at the end of 2015. The 20.7 per
cent growth in RWAs was partly offset by a 5.4 per cent increase in
CET1 capital.
Our total capital ratio was 17.5 per cent at the end of June
2016, down from 20.2 per cent at the end of 2015, due to the same
drivers as the reduction in CET1 capital ratio.
As a consequence of the increase in leverage ratio eligible
assets our leverage ratio was 3.8 per cent at the end of the first
half, compared to 4.0 per cent at the end of 2015.
Dividend
The Board has recommended an interim dividend of 1.6 pence per
share, reflecting the performance of the business and our
confidence in our future plans.
Conclusion
In the first half of 2016 we delivered continued strong
performance, with a further increase in returns. We have delivered
significant growth in customer balances while retaining a high
quality balance sheet and further diversified our funding base. As
a result of the strength of the business, our excellent asset
quality and our prudent risk appetite, we are well placed to
deliver sustainable returns through the economic cycle.
Dave Dyer
Chief Financial Officer
DIVISIONAL HIGHLIGHTS
MORTGAGES AND SAVINGS
We provide residential and buy-to-let mortgages, primarily
through our intermediary partners. Our savings accounts are
primarily sold direct to customers through our digital channel.
Our Mortgage and Savings business remains the key profit driver
for the Group, contributing 66 per cent of total income in the
first half of 2016.
Half-year highlights
-- net interest income increased by 7.7 per cent to GBP190.0
million largely driven by the growth in mortgage balances. Our
total income rose by 7.4 per cent to GBP190.9 million;
-- our contribution increased by 8.9 per cent in the first half
reflecting strong asset growth and continued high asset quality,
allied with careful pricing and cost management;
-- new business spreads improved compared to H2 2015, although
average mortgage spreads for the whole book were lower year-on-year
as new business continued to price below back book spreads. We
delivered a NIM of 1.43 per cent in the mortgage and savings
business, compared to 1.55 per cent in H1 2015. The increase in
mortgage lending volume more than offsets the reduction in NIM;
-- the quality of the mortgage book remains strong with the cost
of risk stable at 1 basis point;
-- buy-to-let mortgages as a percentage of the overall mortgage
book remained low at 17.7 per cent; and
-- risk-weighted assets at the end of H1 2016 increased by 18.1
per cent primarily reflecting increased lending, which was at
higher LTVs than redeeming mature accounts.
Performance summary
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP GBP GBP
million million Change million Change
------------------------ ---------- ---------- -------- ---------- --------
Net interest income 190.0 176.4 7.7% 182.1 4.3%
Other income 0.9 1.3 (30.8)% 1.2 (25.0)%
----------------------- ---------- ---------- -------- ---------- --------
Total income 190.9 177.7 7.4% 183.3 4.1%
----------------------- ---------- ---------- -------- ---------- --------
Total costs (49.4) (47.4) 4.2% (45.3) 9.1%
Impairment (1.3) (1.6) (18.8)% (1.4) (7.1)%
----------------------- ---------- ---------- -------- ---------- --------
Contribution 140.2 128.7 8.9% 136.6 2.6%
----------------------- ---------- ---------- -------- ---------- --------
Mortgages and savings
NIM 1.43% 1.55% (12)bps 1.50% (7)bps
----------------------- ---------- ---------- -------- ---------- --------
Cost of risk 0.01% 0.01% - 0.01% -
----------------------- ---------- ---------- -------- ---------- --------
Key balance sheet items:
At At
30 Jun 31 Dec
2016 2015
GBP GBP
million million Change
----------------------------------- --------- --------- -------
Loans and advances to customers 27,674.2 25,453.5 8.7%
- of which prime residential 22,780.0 21,052.6 8.2%
- of which buy-to-let 4,894.2 4,400.9 11.2%
Customer deposits 26,856.5 24,914.6 7.8%
---------------------------------- --------- --------- -------
Total customer balances 54,530.7 50,368.1 8.3%
---------------------------------- --------- --------- -------
Risk-weighted assets 5,058.0 4,284.5 18.1%
---------------------------------- --------- --------- -------
Mortgages
We offer a wide range of mortgage products with a strong focus
on providing excellent customer service. Our intermediary partners
are the primary distribution channel for our mortgages,
supplemented by direct distribution. Additionally, we continue to
invest in the retention of our existing customers.
In the first half we have focused on strong growth in prime
residential balances which represented 82 per cent of mortgage
balances.
Key developments - Mortgages
-- we delivered strong growth in mortgage balances in H1 2016,
with an increase of 8.7 per cent to GBP27.7 billion at 30 June
2016;
-- the overall growth in balances was driven by strong gross
lending of GBP4.3 billion in the half-year, equivalent to a 3.6 per
cent market share of gross lending to the end of May;
-- prime residential balances grew by 8.2 per cent to GBP22.8
billion representing 82 per cent of the overall mortgage book and
82 per cent of new lending in H1 2016;
-- buy-to-let balances of GBP4.9 billion represented 18 per cent
of the overall mortgage book at end of June; and
-- we successfully retained 69.0 per cent of customers with
maturing fixed rate or tracker products.
Savings
We offer customers a range of competitively-priced instant
access and fixed term savings products. These are both available as
ISAs and are distributed through all our channels: store, online,
postal and telephone.
Our savings products are simple and transparent. We encourage
customer retention with enduring, good value offers. This means
that we avoid 'teaser' products with bonus rates which subsequently
fall to sub-market levels and provoke customer churn.
In the first half, we delivered strong growth in savings
balances to help fund the growth in mortgage balances. The
reduction in our cost of funding was driven by appropriate
repricing of deposits in the context of lower savings rates across
the market.
Key developments - Savings
-- we grew retail savings balances by 7.8 per cent to GBP26.9
billion at 30 June 2016, up from GBP24.9 billion at the end of
2015;
-- we opened close to 200,000 new savings accounts in the first six months of the year;
-- we had more than 1.3 million savings customers at 30 June
2016 and balances were higher than at any point in Virgin Money's
history;
-- balance growth of 7.8 per cent outpaced market growth of 0.3
per cent to the end of June. We took a 4.31 per cent market share
of net inflows, and grew our market share of savings stock from
1.52 per cent at the end of 2015 to 1.63 per cent at the end of
June; and
-- our Cash ISA performance was particularly strong, taking a
17.5 per cent market share of net inflows to the end of May 2016,
which reflected the strong appeal of our customer proposition. This
performance resulted in our Cash ISA market share increasing to
4.40 per cent at the end of May, from 4.02 per cent at the end of
2015.
CREDIT CARDS
We grew credit card balances to GBP2.1 billion at 30 June 2016,
an increase of 30.9 per cent since year end. As a result,
contribution from our card business in the first half of 2016
increased 79.2 per cent to GBP35.3 million compared to the same
period last year.
Half-year highlights
-- net interest income increased 41.7 per cent to GBP62.2
million, driven by growth in credit card balances of GBP1 billion
since 30 June 2015. Growth in the number of front book customers on
promotional terms contributed to NIM falling by 162 basis points to
6.84 per cent;
-- other income increased to GBP8.5 million, reflecting fees
from increased promotional cash volumes more than offsetting
reduced interchange income following the reduction in domestic
interchange rates towards the end of 2015; and
-- total costs remained stable half on half in spite of balance
and account growth. Migration of accounts resulted in lower
underlying unit costs, which reflects the sustaining operating
efficiency of the new platform; and impairments increased in line
with the growth in credit card balances. Underlying portfolio
arrears and charge offs remain low reflecting the strong credit
quality of the book, with cost of risk falling from 2.29 per cent
to 1.73 per cent. This reflects the expected low rate of arrears in
the first year of a balance transfer and the higher proportion of
recent originations in the book as a whole.
Performance summary
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP GBP GBP
million million Change million Change
---------------------- ---------- ---------- --------- ---------- ---------
Net interest income 62.2 43.9 41.7% 53.7 15.8%
Other income 8.5 8.0 6.3% 10.0 (15.0)%
--------------------- ---------- ---------- --------- ---------- ---------
Total income 70.7 51.9 36.2% 63.7 11.0%
--------------------- ---------- ---------- --------- ---------- ---------
Total costs (19.3) (19.5) (1.0)% (17.6) 9.7%
Impairment charge (16.1) (12.7) 26.8% (14.6) 10.3%
--------------------- ---------- ---------- --------- ---------- ---------
Contribution 35.3 19.7 79.2% 31.5 12.1%
--------------------- ---------- ---------- --------- ---------- ---------
Credit cards NIM 6.84% 8.46% (162)bps 8.05% (121)bps
Cost of risk 1.73% 2.29% (56)bps 2.16% (43)bps
--------------------- ---------- ---------- --------- ---------- ---------
Key balance sheet items:
At At
30 Jun 31 Dec
2016 2015
GBP GBP
million million Change
-------------------------- --------- --------- -------
Credit card balances 2,065.9 1,578.7 30.9%
Total customer balances 2,065.9 1,578.7 30.9%
------------------------- --------- --------- -------
Risk-weighted assets 1,724.7 1,334.7 29.2%
------------------------- --------- --------- -------
Credit Cards
The successful migration of customer accounts to our own
platform was completed in March 2015. This gave us full control of
the credit card business and enabled growth through simple,
transparent products supported by strong risk management and
analytical capability.
Through the first half of 2016 we have maintained our presence
in the balance transfer market and continued to offer a broad range
of products covering three key customer needs: debt consolidation,
borrowing and everyday spending.
Continued strong customer uptake of our card offers resulted in
credit card balances growing to GBP2.1 billion at the end of the
half-year, representing a 3.1 per cent share of the GBP64.5 billion
credit card market. The business remains on track to grow towards
its target of GBP3 billion of balances by the end of 2017.
CURRENT ACCOUNTS, INSURANCE AND INVESTMENTS
In addition to our Essential Current Account, we offer a range
of insurance and investment products delivered through strategic
partners. In the first half of 2016 Current Accounts, Insurance and
Investments (CII) contributed 7 per cent of total income of the
Group.
Half-year highlights
-- our funds under management stood at GBP3.1 billion at 30 June
2016 delivering investment income of GBP15.6 million;
-- our investments and pensions income hedge resulted in income
being broadly flat year-on-year, despite the average FTSE index
level being c.800 points lower than in the comparable period. The
hedging put in place mitigated the majority of the income impact of
this FTSE fall;
-- our insurance income in H1 2016 grew by 131.3 per cent year on year to GBP3.7 million; and
-- current account balances increased by GBP41.6 million since
the year end to GBP271.9 million.
Performance summary
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP GBP GBP
million million Change million Change
--------------------------- ---------- ---------- ------- ---------- -------
Investments and pensions 15.6 15.9 (1.9)% 15.7 (0.6)%
Insurance and other 4.7 2.1 123.8% 2.9 62.1%
-------------------------- ---------- ---------- ------- ---------- -------
Total income 20.3 18.0 12.8% 18.6 9.1%
-------------------------- ---------- ---------- ------- ---------- -------
Total costs (9.3) (8.4) 10.7% (8.3) 12.0%
-------------------------- ---------- ---------- ------- ---------- -------
Contribution 11.0 9.6 14.6% 10.3 6.8%
-------------------------- ---------- ---------- ------- ---------- -------
Key balance sheet items:
At At
30 Jun 31 Dec
2016 2015
GBP GBP
million million Change
---------------------------------- --------- --------- -------
Loans and advances to customers 0.1 0.1 -
Customer deposits 271.9 230.3 18.1%
--------------------------------- --------- --------- -------
Total customer balances 272.0 230.4 18.1%
--------------------------------- --------- --------- -------
Risk-weighted assets 52.3 51.6 1.4%
--------------------------------- --------- --------- -------
Current account
The Virgin Essential Current Account (ECA) is available across
our store network. Current account balances increased by 18.1 per
cent in H1 2016.
Insurance
In the first half of 2016, the insurance business performed
well, with year-on-year growth in income of 131.3 per cent compared
to the same period in 2015. This performance was mainly driven by
travel insurance.
Further income benefit was delivered by the establishment of our
home insurance proposition, which launched in partnership with
Ageas in Q4 2015.
Investment and pensions
In the first half of 2016, investment and pension income was
GBP15.6 million, a 1.9 per cent decrease on the same period in
2015. Total funds under management were relatively stable at GBP3.1
billion.
Stocks and Shares ISA sales in the first half of 2016 were 9 per
cent higher than H1 2015, which was a strong result given the
subdued ISA season. Sales have been boosted by our double air miles
campaign with Virgin Atlantic Airways with 31 per cent of total
sales in the first half being generated by this promotion.
Pension sales in the six months to 30 June 2016 have been in
line with sales in H1 2015.
CENTRAL FUNCTIONS
Our Central Functions division provides shared support services
to each of our business lines. These services include Information
Technology and Property together with functions such as Risk,
Finance, Treasury, Human Resources and the Group's Executive. It is
not our policy to allocate the cost of these shared functions to
each business line.
Our divisional view of the business allocates directly
attributable costs to the main income lines, with the remainder of
overheads in Central Functions.
Half-year highlights
-- other income includes gains from the sale of
available-for-sale assets and debt securities. In the first half of
2016 this included a gain of GBP5.3 million arising on the
investment held in Visa Europe Limited following its acquisition by
Visa Inc. in June 2016; and
-- excluding an increase in depreciation and investment of
GBP2.3 million, and a reduction in the FSCS levy, costs during the
first half of the year were 6.2 per cent down compared with the
first half of 2015, reflecting a focus on effective cost
management.
Performance summary
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP GBP GBP
million million Change million Change
-------------- ---------- ---------- ------- ---------- -------
Other income 7.7 6.9 11.6% 3.4 126.5%
-------------- ---------- ---------- ------- ---------- -------
Total income 7.7 6.9 11.6% 3.4 126.5%
-------------- ---------- ---------- ------- ---------- -------
Total costs (92.4) (98.5) (6.2)% (87.5) (5.6)%
-------------- ---------- ---------- ------- ---------- -------
Loss (84.7) (91.6) (7.5)% (84.1) 0.7%
-------------- ---------- ---------- ------- ---------- -------
Key balance sheet items:
At At
30 Jun 31 Dec
2016 2015
GBP GBP
million million Change
----------------------- --------- --------- -------
Risk-weighted assets 542.8 439.6 23.5%
---------------------- --------- --------- -------
RISK MANAGEMENT REPORT
The mortgage portfolio has grown by 8.7%, with the Group's
market share representing 3.6% of gross lending flows during the
first six months of the year. Credit quality has remained robust
with assets classified as neither past due nor impaired increasing
fractionally. Arrears levels have continued to reduce in the first
half of 2016 to 0.16% for 3+ arrears and are substantially lower
than the CML comparison of 1.04% (as at 31 March 2016). These
trends reflect the benign economic conditions in recent years and
book growth. The portfolio's average indexed LTV increased
marginally reflecting new business growth which has offset positive
house price movements. The proportion of new residential interest
only business remains low, further reducing our residential
mortgage exposure to interest only.
The buy-to-let (BTL) mortgage portfolio has grown by 11.2% in
the first half of 2016, now representing 17.7% of the total
mortgage portfolio. Over 50% of this lending has been provided to
existing landlords looking to remortgage from other lenders. This
increase is in line with growth in the private rental sector and
BTL mortgage lending in the market. In particular, the market
experienced an increase in BTL lending during Q1 2016 ahead of the
stamp duty changes which came into effect on 1 April 2016.
New lending above 75% LTV has increased during the first half of
2016. This includes new mortgages written under the Government's
Help to Buy Equity and Guarantee schemes. Only 1.5% of the mortgage
stock has a LTV of greater than 90%.
Unsecured portfolio balances have increased by GBP490.6 million
since December 2015 to GBP2.1 billion. This is supported by a
competitive credit card product offering which has been well
received by the market. The quality of new business is strong, as
observed through high application scores and strong delinquency
performance which is well within expectations. New lending is also
well within the approved policy, lending and concentration
limits.
Wholesale credit risk is well managed. Credit quality has
remained strong, with no credit risk exposures which are past due
or impaired.
The Group has continued to diversify its wholesale funding base
with issuance of Residential Mortgage Backed Securities in
Sterling, US Dollars and Euros as part of the Gosforth funding
programme. The Group raised GBP803 million during January 2016 and
a further issuance in May 2016 raised GBP474 million.
All of this has been achieved within risk appetite and whilst
maintaining a stable overall risk profile.
EMERGING RISKS
The Group considers the following to be risks that have the
potential to increase in significance and affect the performance of
the Group.
EU Referendum and the Macroeconomic Environment
Although the full implications of the UK leaving the EU are not
yet clear, the decision has introduced a significant degree of
uncertainty for the UK economy. Whilst the Group has not seen any
changes in customer behaviour so far, it faces the potential risk
of a slowing housing market and rise in unemployment. Although the
Bank of England did not cut the Bank rate in July 2016, interest
rates are now expected to stay lower for longer. A lower for longer
forecast interest rate may put pressure on banking sector net
interest margins and therefore business and financial
performance.
Prior to the referendum, the Group transacted additional basis
swaps and hedged future FTSE income to protect it from adverse
market volatility and disruption. The Group completed a second RMBS
issuance in May 2016 securing that tranche of funding and enhancing
the Group's strong balance sheet position in preparation for the
referendum. Executive focus is now on determining the appropriate
short and medium-term strategy to protect capital and deliver
appropriate returns in a weaker economic environment.
Buy-to-Let Lending
The BoE Financial Stability Reports published in December 2015
and July 2016 referred to concerns over the growth in BTL lending
and the impact that a structural shift to the private rental sector
may have on market stability. In addition, there have been several
tax and regulatory changes that may collectively weaken the
attractiveness of BTL to an investor.
These changes have added uncertainty to the outlook of BTL for
both landlords and lenders, particularly over the medium to
long-term.
Cybercrime
Cyber attack is a serious and growing threat to the resilience
of the UK financial system, reflecting increased use of technology
in financial services. Resilience to cyber attack and the ability
to recover quickly from attacks that inevitably occur are
priorities in a cybercrime landscape and threat environment that
continues to evolve. This is in the context of digital technology
that is changing customer behaviour, leading to changes in banking
models.
Regulatory Capital Requirements
While there is now greater clarity on regulatory capital
requirements, there remains some uncertainty as the UK and European
regulatory frameworks continue to evolve. The Basel III global
regulatory standards on bank capital adequacy, stress testing and
market and liquidity risk management aim to strengthen regulation,
supervision and risk management in the banking sector. The Group is
compliant with current CRD IV / CRR requirements and will continue
to respond to new guidance and technical standards as they are
published.
Competition Regulation
Regulatory and competition authorities continue to review key
banking markets. Market inefficiencies and consolidation within the
sector could change the competitive landscape and possibly impact
market structures and margins.
Banking Reform
The Financial Services (Banking Reform) Act 2013 introduces a
ring-fence for UK retail banks, with the aim of separating core
banking services critical to individuals and small and medium-sized
enterprises from wholesale and investment banking services. The
Group anticipates being compliant with ring-fencing requirements by
2019 and has started work to ensure compliance is achieved. The
Group has responded to changes to the PRA's rules implementing the
EU Bank Recovery and Resolution Directive.
Supplier Partnerships
The Group manages outsourced relationships with parties who
support the credit card, investment and insurance business lines.
The Group has strategic suppliers for key components of its
infrastructure. Reliance on key corporate partners and strategic
suppliers involves the potential risk of disruption to service
arising from the failure of a third party.
Unit Trust Management
Virgin Money Unit Trust Managers Limited (VMUTM) is exposed to
movements in stock markets. The sole income stream of VMUTM is
reliant upon investment fund performance.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Group are summarised below.
Full details on the principal risks and mitigating actions are
disclosed in the Group's 2015 Annual Report and Accounts.
Credit Risk
We provide residential and BTL mortgages and credit cards to
customers across the UK. There is a risk that any adverse changes
in the economic and market environment and/or the credit quality or
behaviour of borrowers results in additional impairment losses
thereby reducing profitability.
Wholesale exposures arise through the use of derivative
instruments to manage interest rate risk and the liquid asset
portfolio.
Market Risk
Market risk is the risk that unfavourable market moves lead to a
reduction in earnings or value. We do not trade or make markets.
Interest rate risk is the only material category of market risk for
the Group.
Operational Risk
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, people and systems or from external
events, including legal risk. The management of third party
relationships, cybercrime and information security remain a key
focus for us.
Conduct Risk and Compliance
Conduct and compliance risk is defined as the risk that the
Group's operating model, culture or actions result in unfair
outcomes for customers, and the risk of regulatory sanction,
material financial loss or reputational damage if the Group fails
to design and implement operational processes, systems and controls
and maintain compliance with all applicable regulatory
requirements.
Strategic and Financial Risk
Strategic risk is the risk of significant loss or damage arising
from business decisions that impact the long-term interests of
stakeholders or from an inability to adapt to external
developments.
Financial risk is focused primarily on concentration risk.
Credit concentration risk is managed for retail and wholesale
credit exposures at portfolio, product and counterparty levels.
Funding and Liquidity Risk
Funding risk represents the inability to raise and maintain
sufficient funding in quality and quantity to support the delivery
of the business plan.
Liquidity risk represents the inability to accommodate liability
maturities and withdrawals, fund asset growth, and otherwise meet
contractual obligations to make payments as they fall due.
Capital Risk
Capital risk is defined as the risk that the Group has a
sub-optimal amount or quality of capital or that capital is
inefficiently deployed across the Group.
CREDIT RISK MANAGEMENT
Overview
The Group's impairment provisions increased by 10.5% to GBP44.1
million as at 30 June 2016 (31 December 2015: GBP39.9 million). The
proportion of impaired assets as a percentage of loans and advances
to customers has remained stable at 0.4% as at 30 June 2016 (31
December 2015: 0.4%). There were no wholesale impairment provisions
as at 30 June 2016.
The following categorisations are used for segmenting the
portfolio:
Credit risk
categorisation Description
--------------------- --------------------------------------------------
Neither Loans that are not in arrears and which
past due do not meet the impaired asset definition.
nor impaired This segment can include assets subject
to forbearance solutions.
Neither Loans that are categorised as neither past
past due due nor impaired, and are currently subject
nor impaired to one of the defined forbearance solutions.
and in forbearance
Past due Loans that are in arrears or where there
and not is objective evidence of impairment and
impaired the asset does not meet the definition
of impaired assets, as the expected recoverable
amount exceeds the carrying amount. This
category is not applicable for unsecured
lending.
Arrears For secured lending, where the customer's
payment shortfall exceeds 1% of the current
monthly contractual payment amount. For
unsecured lending, customers are classified
as in arrears at one day past due.
Impaired Loans that are in arrears or where there
assets is objective evidence of impairment, including
changes in customer behaviour or circumstances,
and where the carrying amount of the loan
exceeds the expected recoverable amount.
Unsecured lending assets are treated as
impaired at one day past due. All fraud
and operational risk loans are categorised
as impaired irrespective of the expected
recoverable amount.
Loans and advances to customers
At At
30 Jun 31 Dec
2016 2015
GBPm GBPm
------------------------------------------ --------- ------------
Advances secured on residential property
not subject to securitisation 16,814.9 17,389.9
Advances secured on residential property
subject to securitisation 5,973.3 3,670.4
------------------------------------------ --------- ------------
Total advances secured on residential
property 22,788.2 21,060.3
------------------------------------------ --------- ------------
Residential buy-to-let loans not subject
to securitisation 4,895.5 4,401.9
------------------------------------------ --------- ------------
Total loans and advances to customers
secured on residential property 27,683.7 25,462.2
------------------------------------------ --------- ------------
Impairment allowance - secured (9.5) (8.7)
------------------------------------------ --------- ------------
Loans and advances - secured 27,674.2 25,453.5
------------------------------------------ --------- ------------
Credit cards 2,100.4 1,609.8
Overdrafts 0.2 0.2
------------------------------------------ --------- ------------
Unsecured receivables not subject
to securitisation 2,100.6 1,610.0
------------------------------------------ --------- ------------
Impairment allowance - unsecured (34.6) (31.2)
------------------------------------------ --------- ------------
Loans and advances - unsecured 2,066.0 1,578.8
------------------------------------------ --------- ------------
Total loans and advances to customers
excluding portfolio hedging 29,740.2 27,032.3
------------------------------------------ --------- ------------
The mortgage portfolio has grown by 8.7% (GBP2.2 billion) during
the first half of 2016. BTL loans grew by 11.2% (GBP0.5 billion) to
GBP4.9 billion, accounting for 17.7% of total secured loans (31
December 2015: 17.3%). This increase is in line with growth in the
private rental sector and BTL mortgage lending in the market. In
particular, the market experienced an increase in BTL lending
during the first three months of 2016, ahead of the stamp duty
changes which came into effect on 1 April 2016. Growth in BTL
lending has been undertaken in a controlled manner, with the
intention of keeping the BTL mix broadly in line with the market
average.
Unsecured portfolio balances have increased by GBP490.6 million
since 31 December 2015 to GBP2.1 billion. This is supported by a
competitive credit card product offering which has been well
received by the market. The quality of new business is strong, as
observed through high application scores and strong delinquency
performance which is well within expectations. New lending is also
well within the approved policy, lending and concentration
limits.
Secured impairment allowances increased from GBP8.7 million to
GBP9.5 million during the first six months of 2016 in line with
book growth. Unsecured impairment provisions increased by GBP3.4
million in first half of 2016, to GBP34.6 million in line with the
increase in new lending.
Wholesale Credit Risk
At At
30 Jun 31 Dec
2016 2015
GBPm GBPm
-------------------------------------------------- --------- ---------
Loans and advances to banks excluding
Bank of England 833.2 614.5
Bank of England 784.3 888.6
Debt securities classified as loans
and receivables 0.9 1.1
Debt securities classified as available-for-sale
financial assets 1,039.0 1,292.3
Gross positive fair value of derivative
contracts 158.7 82.3
-------------------------------------------------- --------- ---------
Total 2,816.1 2,878.8
-------------------------------------------------- --------- ---------
Wholesale exposures have decreased by GBP62.7 million to
GBP2,816.1 million at 30 June 2016. The decrease was mainly driven
by a change in the mix of high quality liquid assets, with an
increase in Treasury bills raised through FLS. Wholesale credit
exposures are assessed by reference to credit rating. All of the
Group's wholesale exposures are investment grade and classified as
low risk. There were no wholesale credit exposures either past due
nor impaired as at 30 June 2016 or at 31 December 2015.
Loans and advances which are past due and not impaired
The balances of mortgages which are past due and not impaired
totalled GBP152.5 million at 30 June 2016. This represents a 4.8%
(GBP7.7 million) decrease from 31 December 2015, attributable to
improved arrears performance. These assets now represent 0.6% of
secured loans (31 December 2015: 0.6%). All unsecured assets which
are past due are treated as impaired.
Residential
Residential buy-to-let
mortgage mortgage
loans loans Total
At 30 Jun 2016 GBPm % GBPm % GBPm %
--------------------- ---------- --------- -------- --------- ------- ------
Up to one month 46.7 34.3 4.2 25.5 50.9 33.3
One to three months 58.8 43.2 9.8 59.4 68.6 45.0
Three to six months 20.2 14.9 2.2 13.3 22.4 14.7
Over six months 10.3 7.6 0.3 1.8 10.6 7.0
--------------------- ---------- --------- -------- --------- ------- ------
Total past due
and not impaired 136.0 100.0 16.5 100.0 152.5 100.0
--------------------- ---------- --------- -------- --------- ------- ------
Residential
Residential buy-to-let
mortgage mortgage
loans loans Total
At 31 Dec 2015 GBPm % GBPm % GBPm %
--------------------- ------ ------ -------- --------- ------- -------
Up to one month 44.4 30.6 4.3 28.7 48.7 30.4
One to three months 63.5 43.7 8.3 55.3 71.8 44.8
Three to six months 24.1 16.6 1.3 8.7 25.4 15.9
Over six months 13.2 9.1 1.1 7.3 14.3 8.9
--------------------- ------ ------ -------- --------- ------- -------
Total past due
and not impaired 145.2 100.0 15.0 100.0 160.2 100.0
--------------------- ------ ------ -------- --------- ------- -------
The stock of repossessions has fallen over the reporting period,
representing 8 cases at 30 June 2016, compared to 12 cases at 31
December 2015.
Impaired assets and impairment provisions
Impaired Impairment
balances provisions
as a % as a %
Gross Impaired of gross Impairment of impaired
balances balances balances provisions balances
At 30 Jun 2016 GBPm GBPm % GBPm %
------------------------ ---------- ---------- ---------- ------------ -------------
Residential mortgage
loans 22,788.2 75.1 0.3 8.2 10.9
Residential buy-to-let
mortgage loans 4,895.5 7.9 0.2 1.3 16.5
------------------------ ---------- ---------- ---------- ------------ -------------
Total secured 27,683.7 83.0 0.3 9.5 11.4
------------------------ ---------- ---------- ---------- ------------ -------------
Credit cards 2,100.4 27.6 1.3 34.5 125.0
Overdrafts 0.2 - - 0.1 -
------------------------ ---------- ---------- ---------- ------------ -------------
Total unsecured 2,100.6 27.6 1.3 34.6 125.4
------------------------ ---------- ---------- ---------- ------------ -------------
Wholesale treasury 2,665.1 - - - -
assets
Wholesale derivative 158.7 - - - -
exposures
------------------------ ---------- ---------- ---------- ------------ -------------
Total wholesale 2,823.8 - - - -
------------------------ ---------- ---------- ---------- ------------ -------------
Total 32,608.1 110.6 0.3 44.1 39.9
------------------------ ---------- ---------- ---------- ------------ -------------
Impaired Impairment
balances provisions
as a % as a %
Gross Impaired of gross Impairment of impaired
balances balances balances provisions balances
At 31 Dec 2015 GBPm GBPm % GBPm %
------------------------ ---------- ---------- ---------- ------------ -------------
Residential mortgage
loans 21,060.3 77.6 0.4 7.7 9.9
Residential buy-to-let
mortgage loans 4,401.9 7.0 0.2 1.0 14.3
------------------------ ---------- ---------- ---------- ------------ -------------
Total secured 25,462.2 84.6 0.3 8.7 10.3
------------------------ ---------- ---------- ---------- ------------ -------------
Credit cards 1,609.8 27.4 1.7 31.1 113.5
Overdrafts 0.2 - - 0.1 -
------------------------ ---------- ---------- ---------- ------------ -------------
Total unsecured 1,610.0 27.4 1.7 31.2 113.9
------------------------ ---------- ---------- ---------- ------------ -------------
Wholesale treasury 2,801.1 - - - -
assets
Wholesale derivative 82.3 - - - -
exposures
------------------------ ---------- ---------- ---------- ------------ -------------
Total wholesale 2,883.4 - - - -
------------------------ ---------- ---------- ---------- ------------ -------------
Total 29,955.6 112.0 0.4 39.9 35.6
------------------------ ---------- ---------- ---------- ------------ -------------
Impaired assets
Total impaired assets reduced by GBP1.4 million in the first
half of 2016. This reduction was due to improved arrears
performance, despite book growth. Impaired assets as a proportion
of total loans remained stable for the secured lending at 0.3% and
improved for unsecured loans from 1.7% at 31 December 2015 to 1.3%
at 30 June 2016.
Impairment provisions
Secured impairment allowances increased by GBP0.8 million in the
first half of the year due to book growth.
In line with the growth in new lending, unsecured impairment
allowances have increased by GBP3.4 million in the first half of
the year.
Period end and average LTVs across the retail mortgage
portfolios are shown in the table below:
Residential
Residential buy-to-let
mortgage mortgage
loans loans Total
At 30 Jun 2016 GBPm % GBPm % GBPm %
-------------------------- --------- ------ --------- ------ --------- ------
<50% 8,872.0 39.1 1,639.7 33.5 10,511.7 38.0
50%-<60% 4,784.8 21.0 1,260.0 25.7 6,044.8 21.8
60%-<70% 3,928.7 17.2 1,172.6 24.0 5,101.3 18.4
70%-<80% 2,719.7 11.9 811.2 16.6 3,530.9 12.8
80%-<90% 2,056.6 9.0 10.4 0.2 2,067.0 7.5
90%-<100% 417.9 1.8 1.2 - 419.1 1.5
>100% 8.5 - 0.4 - 8.9 -
-------------------------- --------- ------ --------- ------ --------- ------
Total 22,788.2 100.0 4,895.5 100.0 27,683.7 100.0
-------------------------- --------- ------ --------- ------ --------- ------
Average loan-to-value(1)
of stock - indexed 55.4% 55.5% 55.4%
Average loan-to-value
of new business 70.0% 62.4% 68.6%
-------------------------- ----------------- ----------------- --------- ------
(1) The average loan-to-value of stock and new business is
balance weighted.
Residential Residential
mortgage buy-to-let
loans mortgage loans Total
At 31 Dec 2015 GBPm % GBPm % GBPm %
-------------------------- ----------- ------ ---------- ------- --------- ------
<50% 8,125.8 38.6 1,443.5 32.8 9,569.3 37.6
50%-<60% 4,680.7 22.2 1,202.9 27.3 5,883.6 23.1
60%-<70% 4,026.2 19.1 1,069.7 24.3 5,095.9 20.0
70%-<80% 2,247.7 10.7 680.5 15.5 2,928.2 11.5
80%-<90% 1,720.1 8.2 3.4 0.1 1,723.5 6.8
90%-<100% 250.4 1.2 1.4 - 251.8 1.0
>100% 9.4 - 0.5 - 9.9 -
-------------------------- ----------- ------ ---------- ------- --------- ------
Total 21,060.3 100.0 4,401.9 100.0 25,462.2 100.0
-------------------------- ----------- ------ ---------- ------- --------- ------
Average loan-to-value(1)
of stock - indexed 54.9% 55.4% 55.0%
Average loan-to-value
of new business 69.8% 62.7% 68.0%
-------------------------- ------------------- ---------- ------- --------- ------
(1) The average loan-to-value of stock and new business is
balance weighted.
Average indexed LTVs on the book have increased marginally by
0.4% as at 30 June 2016, reflecting new business growth which has
offset positive house price movements observed during the reporting
period. The average LTV for new business has increased to 68.6% as
at 30 June 2016.
Forbearance
The value of forbearance stock totalled GBP269.7 million at 30
June 2016, representing a 0.2% (GBP0.5 million) reduction since 31
December 2015.
The performance of provision models is monitored and challenged
on an ongoing basis in line with the Retail Credit Provisioning
Policy. The models are regularly recalibrated to reflect up-to-date
customer behaviour and market conditions. Specifically, regular
detailed analysis of modelled provision outputs is undertaken to
demonstrate that the risk of forbearance or other similar
activities is recognised, that the outcome period adequately
captures the risk and that the underlying risk is appropriately
reflected. Where this is not the case, additional provisions are
applied to capture the risk.
Secured
At 30 June 2016, GBP258.2 million (31 December 2015: GBP259.5
million) of retail secured loans and advances were currently, or
recently, subject to forbearance.
Collective impairment
Loans which are forborne are grouped with other assets with
similar risk characteristics and assessed collectively for
impairment. The loans are not considered as impaired loans unless
they meet the Group's definition of an impaired asset.
The Group's approach is to ensure that provisioning models,
supported by management judgement, appropriately reflect the
incurred loss risk of exposures. The Group uses behavioural scoring
to assess customers' credit risk. The underlying behavioural
scorecards consider many different characteristics of customer
behaviour, both static and dynamic, from internal sources and from
credit bureau data. This includes characteristics that may identify
when a customer has been in arrears on products held with other
firms. Hence, these models take a range of potential indicators of
customer financial distress into account.
Unsecured
At 30 June 2016, total retail unsecured loans and advances
benefiting from forbearance totalled GBP11.5 million (31 December
2015: GBP10.7 million).
Collective impairment
Credit risk provisioning for the retail unsecured portfolio is
undertaken on a collective basis, except for fraud cases which are
fully provided for. The approach used is based on roll rates for
various behavioural and arrears status segments, measuring the
likelihood of default and the probability of charge-off given
default.
A breakdown of secured and unsecured forbearance is shown
below:
Neither
past due Past due
nor impaired not impaired Impaired Total
At 30 Jun 2016 GBPm % GBPm % GBPm % GBPm %
----------------------------- ------- ------- --------- --------- ------ ------- ------ ------
Secured
Payment arrangement 2.1 0.8 0.8 8.0 0.3 12.5 3.2 1.2
Transfer to interest only 18.6 7.6 3.1 31.0 0.2 8.3 21.9 8.5
Term extension 166.3 67.7 4.9 49.0 1.3 54.2 172.5 66.8
Payment holiday 58.8 23.9 1.2 12.0 0.6 25.0 60.6 23.5
----------------------------- ------- ------- --------- --------- ------ ------- ------ ------
Total secured forbearance 245.8 100.0 10.0 100.0 2.4 100.0 258.2 100.0
----------------------------- ------- ------- --------- --------- ------ ------- ------ ------
Unsecured
Accounts where the customer
has been approved on a
payment plan 3.0 100.0 - - 8.5 100.0 11.5 100.0
----------------------------- ------- ------- --------- --------- ------ ------- ------ ------
Total forbearance 248.8 100.0 10.0 100.0 10.9 100.0 269.7 100.0
----------------------------- ------- ------- --------- --------- ------ ------- ------ ------
Neither
past due Past due
nor impaired not impaired Impaired Total
At 31 Dec 2015 GBPm % GBPm % GBPm % GBPm %
----------------------------- --------- --------- --------- --------- ------ ------- ------ ------
Secured
Payment arrangement 3.0 1.2 0.3 3.2 0.3 12.5 3.6 1.4
Transfer to interest only 17.5 7.1 3.3 34.0 0.8 33.3 21.6 8.3
Term extension 171.9 69.5 5.3 54.6 0.7 29.2 177.9 68.6
Payment holiday 55.0 22.2 0.8 8.2 0.6 25.0 56.4 21.7
----------------------------- --------- --------- --------- --------- ------ ------- ------ ------
Total secured forbearance 247.4 100.0 9.7 100.0 2.4 100.0 259.5 100.0
----------------------------- --------- --------- --------- --------- ------ ------- ------ ------
Unsecured
Accounts where the customer
has been approved on a
payment plan 2.9 100.0 - - 7.8 100.0 10.7 100.0
----------------------------- --------- --------- --------- --------- ------ ------- ------ ------
Total forbearance 250.3 100.0 9.7 100.0 10.2 100.0 270.2 100.0
----------------------------- --------- --------- --------- --------- ------ ------- ------ ------
FUNDING AND LIQUIDITY MANAGEMENT
Overview
The Group is predominantly funded through customer deposits.
During the first six months of 2016, the Group maintained a strong
presence in the retail savings market, increasing total customer
deposits by GBP1,983.5 million to represent 83.7% of the Group's
funding.
Wholesale funding has been used to support balance sheet growth,
lengthen the tenor of funding and diversify sources of funding.
During 2016, the Group has raised wholesale funding through the
well-established Gosforth Residential Mortgage Backed Securities
(RMBS) programme, third party re-purchase and BoE liquidity
facilities (Funding for Lending Scheme and Indexed-Long Term Repo).
The RMBS issuance further diversified the Group's investor base and
sources of wholesale funding, issuing in Euro and US Dollars. The
volume of encumbered assets has increased as a result of additional
FLS, Term Repo and RMBS issuance.
Group funding sources
The Group's loan-to-deposit ratio has increased to 109.6% during
2016 compared with 107.5% at 31 December 2015, as a result of
bringing forward the second 2016 RMBS issuance. The following table
shows the funding position:
At At
30 Jun 31 Dec
2016 2015
----------------------------------------
GBPm GBPm
---------------------------------------- --------- ---------
Loans and advances to customers 30,031.0 27,109.0
Loans and advances to banks 833.2 614.5
Debt securities held as loans and
receivables 0.9 1.1
Cash and balances at central banks
(encumbered) 164.1 160.5
---------------------------------------- --------- ---------
Funded assets 31,029.2 27,885.1
---------------------------------------- --------- ---------
Other assets 451.9 318.9
---------------------------------------- --------- ---------
Total assets (excluding liquid assets) 31,481.1 28,204.0
---------------------------------------- --------- ---------
On balance sheet primary liquid assets
Cash and balances at central banks
- primary 620.2 728.1
Available-for-sale financial assets
(unencumbered) 1,046.7 1,296.9
---------------------------------------- --------- ---------
Total assets 33,148.0 30,229.0
---------------------------------------- --------- ---------
Less: Other liabilities (731.1) (429.5)
---------------------------------------- --------- ---------
Funding requirement 32,416.9 29,799.5
---------------------------------------- --------- ---------
Funded by
Customer deposits 27,128.4 25,144.9
Wholesale funding 3,923.2 3,314.3
Total equity 1,365.3 1,340.3
---------------------------------------- --------- ---------
Total funding 32,416.9 29,799.5
---------------------------------------- --------- ---------
Analysis of total wholesale funding by residual maturity
Within
3 3-12 1-5 After
months months years 5 years Total
At 30 Jun 2016 GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- -------- -------- --------- --------
Debt securities in issue - - 309.1 2,639.1 2,948.2
Term repo 350.0 350.0 275.0 - 975.0
-------------------------- -------- -------- -------- --------- --------
Total on-balance sheet
sources of funds 350.0 350.0 584.1 2,639.1 3,923.2
-------------------------- -------- -------- -------- --------- --------
FLS drawings - 810.0 2,387.0 - 3,197.0
-------------------------- -------- -------- -------- --------- --------
Total 350.0 1,160.0 2,971.1 2,639.1 7,120.2
-------------------------- -------- -------- -------- --------- --------
Within 3-12 1-5 After
3 months months years 5 years Total
At 31 Dec 2015 GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------- -------- -------- --------- --------
Debt securities in issue - - 297.5 1,741.9 2,039.4
Term repo 749.9 525.0 - - 1,274.9
-------------------------- ---------- -------- -------- --------- --------
Total on-balance sheet
sources of funds 749.9 525.0 297.5 1,741.9 3,314.3
-------------------------- ---------- -------- -------- --------- --------
FLS drawings - 510.0 2,450.0 - 2,960.0
-------------------------- ---------- -------- -------- --------- --------
Total 749.9 1,035.0 2,747.5 1,741.9 6,274.3
-------------------------- ---------- -------- -------- --------- --------
The Group manages funding concentration risk arising from
wholesale maturities through a Board approved risk appetite and
limit structure.
Encumbered assets
The Group's assets can be used to support funding collateral
requirements for central bank operations or third party re-purchase
transactions. Assets that have been set aside for such purposes are
classified as 'encumbered and pledged assets' and cannot be used
for other purposes.
Encumbered Unencumbered
assets assets
-------------------------- -----------------------------
Pledged Available
as collateral Other(1) as collateral(2) Other(3) Total
At 30 Jun 2016 GBPm GBPm GBPm GBPm GBPm
----------------------- --------------- --------- ------------------ --------- ---------
Cash and balances
at central banks(4) 164.1 - - 620.2 784.3
Debt securities
held as loans and
receivables - - 0.9 - 0.9
Available-for-sale
financial assets - - 1,039.0 7.7 1,046.7
Derivative financial
assets - - - 158.7 158.7
Loans and advances
to banks - 733.5 - 99.7 833.2
Loans and advances
to customers(5) 8,719.6 - 4,226.2 17,085.2 30,031.0
Other assets 42.4 - - 250.8 293.2
----------------------- --------------- --------- ------------------ --------- ---------
Total assets 8,926.1 733.5 5,266.1 18,222.3 33,148.0
----------------------- --------------- --------- ------------------ --------- ---------
Treasury bills raised
through FLS held
off balance sheet(6) 602.0 - 2,595.0 - 3,197.0
----------------------- --------------- --------- ------------------ --------- ---------
Total assets plus
off balance sheet
FLS 9,528.1 733.5 7,861.1 18,222.3 36,345.0
----------------------- --------------- --------- ------------------ --------- ---------
(1) Other encumbered assets are assets that cannot be used for
secured funding due to legal or other reasons. These include cash
reserves supporting secured funding structures.
2 Unencumbered assets which are classified as 'available as
collateral' are readily available to secure funding or to meet
collateral requirements. Loans and advances to customers are
classified as 'available as collateral' only if they are already in
such a form that they can be used immediately to raise funding.
(3) Other unencumbered assets are assets which are not subject
to any restrictions and are not readily available for use.
(4) Encumbered cash and balances at central banks includes the
minimum reserve collateralisation requirement for the BACS payment
system, introduced in September 2015.
(5) Encumbered loans and advances to customers consist of
collateral pledged to the Bank of England and securitised mortgage
pools.
(6) These amounts represent Treasury Bills received by the Group
through FLS, which are not recognised on the balance sheet. The
Group is permitted to re-pledge these securities to generate
on-balance sheet financial assets, such as cash or to fund lending.
These items are classified as encumbered where the Group has used
them in re-purchase transactions or unencumbered when it has
not.
Encumbered Unencumbered
assets assets
-------------------------- -----------------------------
Pledged Available
as collateral Other(1) as collateral(2) Other(3) Total
At 31 Dec 2015 GBPm GBPm GBPm GBPm GBPm
--------------------------- --------------- --------- ------------------ --------- ---------
Cash and balances
at central banks(4) 160.5 - - 728.1 888.6
Debt securities held
as loans and receivables - - 1.1 - 1.1
Available-for-sale
financial assets - - 1,292.3 4.6 1,296.9
Derivative financial
assets - - - 82.3 82.3
Loans and advances
to banks - 478.6 - 135.9 614.5
Loans and advances
to customers(5) 7,524.1 - 3,153.5 16,431.4 27,109.0
Other assets - - - 236.6 236.6
--------------------------- --------------- --------- ------------------ --------- ---------
Total assets 7,684.6 478.6 4,446.9 17,618.9 30,229.0
--------------------------- --------------- --------- ------------------ --------- ---------
Treasury bills raised
through FLS held off
balance sheet(6) 786.0 - 2,174.0 - 2,960.0
--------------------------- --------------- --------- ------------------ --------- ---------
Total assets plus
off balance sheet
FLS 8,470.6 478.6 6,620.9 17,618.9 33,189.0
--------------------------- --------------- --------- ------------------ --------- ---------
(1) Other encumbered assets are assets that cannot be used for
secured funding due to legal or other reasons. These include cash
reserves supporting secured funding structures.
(2) Unencumbered assets which are classified as 'available as
collateral' are readily available to secure funding or to meet
collateral requirements. Loans and advances to customers are
classified as 'available as collateral' only if they are already in
such a form that they can be used immediately to raise funding.
(3) Other unencumbered assets are assets which are not subject
to any restrictions and are not readily available for use.
(4) Encumbered cash and balances at central banks includes the
minimum reserve collateralisation requirement for the BACS payment
system, introduced in September 2015.
(5) Encumbered loans and advances to customers consist of
collateral pledged to the Bank of England and securitised mortgage
pools.
(6) These amounts represent Treasury Bills received by the Group
through FLS, which are not recognised on the balance sheet. The
Group is permitted to re-pledge these securities to generate
on-balance sheet financial assets, such as cash or to fund lending.
These items are classified as encumbered where the Group has used
them in re-purchase transactions or unencumbered when it has
not.
The Group's total level of asset encumbrance increased by
GBP1,312.4 million to 28.2% compared with 27.0% at 31 December
2015, as a result of using wholesale funding to support increased
lending. Encumbrance of assets predominantly arises from the use of
the Gosforth RMBS programme and from the BoE FLS liquidity
facility. The Group manages the volume of available unencumbered
collateral to meet requirements arising from current and future
secured funding transactions.
Liquidity portfolio
The Group maintains a portfolio of liquid assets in accordance
with risk appetite. Liquid assets are held predominantly in
high-quality unencumbered securities issued by the UK Government or
Supranational institutions and deposits with the BoE. The portfolio
mix is aligned to the liquidity coverage requirement defined in
European liquidity regulatory standards. Other liquidity resources
represent additional unencumbered liquid assets held over and above
high-quality liquid assets. These are intended to cover more
extreme stress events and provide flexibility for liquidity
management. The table below shows composition of the liquidity
portfolio:
At At
30 Jun 2016 31 Dec 2015
2016 Average 2015 Average
Level 1 GBPm GBPm GBPm GBPm
----------------------------- -------- --------- -------- ----------
Cash and balances at
central banks 736.9 825.8 846.3 796.4
UK Government securities 192.0 420.1 409.5 392.6
Other HQLA level 1 eligible 56.4 51.5 25.4 15.8
Supranational securities 228.5 295.4 203.7 294.6
Treasury bills raised
through FLS 2,595.0 2,387.1 2,174.0 2,150.6
Covered bonds (Level
1 eligible) 470.4 488.2 498.2 248.2
----------------------------- -------- --------- -------- ----------
Total level 1 4,279.2 4,468.1 4,157.1 3,898.2
----------------------------- -------- --------- -------- ----------
Level 2a
Covered bonds (Level
2a eligible) 22.5 22.3 22.1 133.5
----------------------------- -------- --------- -------- ----------
Total level 2a 22.5 22.3 22.1 133.5
----------------------------- -------- --------- -------- ----------
Level 2b
Eligible RMBS 54.1 56.4 59.4 44.7
----------------------------- -------- --------- -------- ----------
Total level 2b 54.1 56.4 59.4 44.7
----------------------------- -------- --------- -------- ----------
High quality liquid assets
(Level 1 + 2a + 2b) 4,355.8 4,546.8 4,238.6 4,076.4
----------------------------- -------- --------- -------- ----------
Other liquidity resources
Covered bonds - 2.1 15.0 2.3
Non-eligible RMBS 15.1 9.0 - 3.0
Certificates of deposit - 82.6 59.0 4.5
Fixed rate bonds - - - 17.0
Money market loans 34.6 46.2 54.0 30.9
----------------------------- -------- --------- -------- ----------
Total other liquidity
resources 49.7 139.9 128.0 57.7
----------------------------- -------- --------- -------- ----------
Self-issued RMBS 568.6 653.7 326.7 197.6
----------------------------- -------- --------- -------- ----------
Total liquidity 4,974.1 5,340.4 4,693.3 4,331.7
----------------------------- -------- --------- -------- ----------
The Group monitors the level of liquidity daily against internal
liquidity stress testing and the regulatory Liquidity Coverage
Ratio (LCR). The Group's LCR as at 30 June 2016 was 152%
representing a material surplus above the UK regulatory minimum
requirement of 80%. The LCR has reduced from 202% at 31 December
2015 as a result of a change in the mix of retail deposits, along
with a growing mortgage pipeline.
CAPITAL MANAGEMENT
Overview
The Common Equity Tier 1 capital ratio for the Group was 15.3%
as at 30 June 2016, compared with a regulatory minimum of 7.0%.
The leverage ratio for the Group (based on the Basel III
definition of January 2014, and the revised CRD IV definition of
October 2014) is 3.8%. The Group is not required to comply with the
PRA leverage ratio framework until retail deposits exceed the GBP50
billion threshold. However, to avoid capital cliffs the Group
maintains a prudent risk appetite for leverage.
The Group reviews the capital structure on an on-going basis to
ensure it is well placed to react to prevailing economic and
regulatory conditions.
Regulation
CRD IV introduced new capital limits and buffers for banks, and
includes a requirement to hold Common Equity Tier 1 capital to
account for capital conservation, countercyclical and systemic risk
buffers. These new buffers will influence the type of capital
instruments that best meet the requirements likely to be expected
of the Group. A capital conservation buffer of 0.625% was
introduced on 1 January 2016. This will increase each year to 2019
in line with regulations.
CRD IV also introduced a new leverage ratio requirement. The
leverage ratio is a non-risk based measure that is designed to act
as a supplement to risk based capital requirements. It is intended
as a back stop measure. The leverage calculation determines a ratio
based on the relationship between Tier 1 capital and total
consolidated exposure (total exposure is the sum of on-balance
sheet exposures, derivative exposures, securities financing
transaction exposures and off-balance sheet items).
Ring-fencing is scheduled to be implemented fully into the UK
banking system by 1 January 2019. On the assumptions of organic
growth and based on current business undertaken, the Group expects
to comply with ring-fencing rules when they come into effect at the
beginning of 2019.
Minimum Requirements for Eligible Liabilities (MREL) are
applicable from 1 January 2016 and will be phased in fully by 1
January 2020. Prior to 31 December 2019, MREL will be equal to an
institution's minimum regulatory capital requirements. The Bank of
England will provide prospective MREL guidance during 2016 to the
Group, as well as guidance on the transitional arrangements until 1
January 2020. Once this is received the Group will work towards
implementation of these requirements.
The framework for a Systemic Risk Buffer for ring-fenced banks
will be applied to individual institutions by the PRA and will be
introduced, like ring-fencing rules, from 2019. The Systemic Risk
Buffer will only apply to firms with total assets that exceed
GBP175 billion.
The table below shows capital resources:
At At
30 Jun 31 Dec
2016 2015
GBPm GBPm
----------------------------------------- -------- --------
Share capital and share premium
account 654.6 654.6
Other equity instruments 156.5 156.5
Other reserves (43.4) (15.6)
Retained earnings 597.6 544.8
----------------------------------------- -------- --------
Total equity per balance sheet 1,365.3 1,340.3
----------------------------------------- -------- --------
Regulatory capital adjustments
Deconsolidation of non regulated
companies 4.8 4.5
Foreseeable distributions on Additional
Tier 1 securities (2.1) (2.1)
Foreseeable distribution on ordinary
shares (9.1) (13.7)
Other equity instruments (156.5) (156.5)
Cash flow hedge reserve 41.9 15.3
Prudential valuation adjustment (1.6) -
Intangible assets (66.5) (64.4)
Excess of expected loss over impairment (40.5) (35.4)
Deferred tax on brought forward
tax losses (7.6) (18.0)
----------------------------------------- -------- --------
Common Equity Tier 1 capital 1,128.1 1,070.0
----------------------------------------- -------- --------
Additional Tier 1 securities 156.5 156.5
----------------------------------------- -------- --------
Total Tier 1 capital 1,284.6 1,226.5
----------------------------------------- -------- --------
Tier 2 capital
General credit risk adjustments 9.9 7.6
----------------------------------------- -------- --------
Total Tier 2 capital 9.9 7.6
----------------------------------------- -------- --------
Total own funds 1,294.5 1,234.1
----------------------------------------- -------- --------
Common Equity Tier 1 ratio 15.3% 17.5%
----------------------------------------- -------- --------
Tier 1 ratio 17.4% 20.1%
----------------------------------------- -------- --------
Total capital ratio 17.5% 20.2%
----------------------------------------- -------- --------
As required by Article 26(2) of the Capital Requirements
Regulation, a deduction has been made for foreseeable dividends on
2016 profits.
Movements in Common Equity Tier 1
2016
GBPm
---------------------------------------------- --------
At 1 Jan 2016 1,070.0
Movement in retained earnings 52.8
Add back 2015 distributions already deducted
from capital 13.7
Movement in available-for-sale reserve (1.2)
Foreseeable distribution on ordinary shares (9.1)
Exclude losses from non-regulated companies 0.3
Prudential valuation adjustment (1.6)
Movement in intangible assets (2.1)
Movement in excess of expected loss over
impairment (5.1)
Movement in deferred tax on tax losses
carried forward 10.4
---------------------------------------------- --------
At 30 Jun 2016 1,128.1
---------------------------------------------- --------
The main driver for the increase in capital resources is the
increase in retained earnings and the reduction in deferred tax
asset on tax losses, offset by expected distributions, and other
items as set out in the table above.
Risk-weighted assets
At At
30 Jun 31 Dec
2016 2015
GBPm GBPm
------------------------------ -------- --------
Retail mortgages 4,619.9 3,952.9
Retail unsecured lending 1,559.8 1,192.7
Treasury 235.2 229.0
Other assets 270.0 196.3
Credit valuation adjustments 37.6 14.3
Operational risk 655.3 525.2
------------------------------ -------- --------
Total risk-weighted assets 7,377.8 6,110.4
------------------------------ -------- --------
Movement in risk-weighted assets
Other Credit
IRB Standardised standardised valuation Operational
mortgage lending assets adjustment risks Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ---------- ------------- -------------- ------------ ------------ --------
RWAs at 1
Jan 2016 3,952.9 1,192.7 425.3 14.3 525.2 6,110.4
Book size 344.1 368.0 - - - 712.1
Model calibration 136.6 - - - - 136.6
Other movements 186.3 (0.9) 79.9 23.3 130.1 418.7
------------------- ---------- ------------- -------------- ------------ ------------ --------
RWAs at 30
Jun 2016 4,619.9 1,559.8 505.2 37.6 655.3 7,377.8
------------------- ---------- ------------- -------------- ------------ ------------ --------
The Group uses a variable scalar methodology to calculate the
probability of default (PD) used within the AIRB capital models.
This approach aids capital management by ensuring the regulatory
capital requirements fluctuate primarily as a result of changes in
the credit quality mix of the portfolio, rather than changes in the
economy.
This methodology reduces, but does not eliminate, procyclicality
within PD estimates. During the first half of 2016 the improvement
in arrears volume and subsequent arrears rates, combined with the
increase in the proportion of accounts in the lowest risk bands
resulted in a reduction in the point-in-time PDs. These lower
point-in-time PDs have resulted in the requirement to increase the
scaling factor used to transform these to the long-run average
estimates. It is these higher scaling factors, shown in the
following table as 'model calibration', which resulted in increased
RWAs of GBP136.6 million in the period.
There have been no AIRB model updates implemented during the
first half of 2016.
Further changes in the portfolio during the first half of the
year are captured in the 'other movements' element of the table.
These are attributed to changes in the portfolio distribution with
new business driving higher long run PDs and LGDs. However, this is
partly offset by positive house price growth reducing LGD and RWAs
on the back book.
Operational risk is calculated using the Standardised Approach,
based on the average Group income over the past three years. The
year-on-year increase reflects the increasing Group income from
2012 to 2015.
Leverage ratio
The leverage ratio is risk insensitive, requiring capital to be
held against total and off-balance sheet exposures such as undrawn
credit facilities.
The Group's leverage ratio as at 30 June 2016 was 3.8% (31
December 2015: 4.0%) as disclosed below:
At At
30 Jun 31 Dec
2016 2015
GBPm GBPm
-------------------------------- --------- ---------
Tier 1 capital 1,284.6 1,226.5
-------------------------------- --------- ---------
Exposures measure
Total regulatory balance sheet
assets 33,152.5 30,233.2
Removal of accounting values
for derivatives (158.7) (82.3)
Exposure value for derivatives 150.3 61.8
Exposure value for securities
financing transactions 126.3 261.7
Off-balance sheet items 711.9 659.5
Other regulatory adjustments (74.3) (102.5)
-------------------------------- --------- ---------
Total exposures 33,908.0 31,031.4
-------------------------------- --------- ---------
Leverage ratio 3.8% 4.0%
-------------------------------- --------- ---------
Exposure values associated with derivatives and securities
financing transactions have been reported in compliance with CRD IV
rules. For the purposes of the leverage ratio, the derivative
measure is calculated as the replacement cost for the current
exposure plus an add-on for potential future exposure. The exposure
amount is not reduced for any collateral received from the
counterparty and has been grossed up for any collateral
provided.
Off-balance sheet items are made up of undrawn credit
facilities. Credit conversion factors have been applied to these
items to convert them to an on-balance sheet equivalent in
compliance with the CRD IV rules.
Other regulatory adjustments consist of adjustments that have
been applied to Tier 1 capital which are also applied to the
leverage ratio exposure measure. This ensures consistency between
Tier 1 capital and the total exposures components of the ratio.
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidated Income Statement
Condensed Consolidated Statement of Comprehensive Income
Condensed Consolidated Balance Sheet
Condensed Consolidated Statement of Changes in Equity
Condensed Consolidated Cash Flow Statement
Notes Page
1 Basis of preparation 46
2 Operating segments 47
3 Net interest income 50
4 Total operating expenses 51
5 Share-based payments 52
6 Allowance for impairment losses on loans and
receivables 52
7 Taxation 53
8 Earnings per share 54
9 Dividends on Ordinary Shares 54
10 Analysis of financial assets and financial
liabilities by measurement basis 55
11 Loans and advances to customers 57
12 Customer deposits 57
13 Debt securities in issue 58
14 Provisions 58
15 Contingent liabilities and commitments 59
16 Fair value of financial assets and liabilities 60
17 Related party transactions 63
18 Events after the balance sheet date 63
Directors' Responsibility Statement 64
Independent Auditor's Review Report to Virgin
Money Holdings (UK) plc 65
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATED INCOME STATEMENT
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
Note GBP million GBP million GBP million
-------------------------------- ----- ------------ ------------- -------------
Interest and similar income 473.9 406.7 432.6
Interest and similar expense (218.3) (185.9) (198.6)
-------------------------------- ----- ------------ ------------- -------------
Net interest income 3 255.6 220.8 234.0
------------ ------------- -------------
Fee and commission income 15.2 12.6 14.8
Fee and commission expense (0.7) (0.7) (0.5)
------------ ------------- -------------
Net fee and commission
income 14.5 11.9 14.3
Other operating income 23.0 22.3 19.0
Fair value losses on financial
instruments (5.1) (0.1) (0.3)
-------------------------------- ----- ------------ ------------- -------------
Other income 32.4 34.1 33.0
-------------------------------- ----- ------------ ------------- -------------
Total income 288.0 254.9 267.0
Total operating expenses 4 (176.9) (185.6) (168.0)
-------------------------------- ----- ------------ ------------- -------------
Profit before tax from
operating activities 111.1 69.3 99.0
Impairment 6 (17.4) (14.3) (16.0)
-------------------------------- ----- ------------ ------------- -------------
Profit before tax 93.7 55.0 83.0
Taxation 7 (26.2) (12.1) (14.7)
-------------------------------- ----- ------------ ------------- -------------
Profit for the period 67.5 42.9 68.3
-------------------------------- ----- ------------ ------------- -------------
Profit attributable to
equity owners 67.5 42.9 68.3
-------------------------------- ----- ------------ ------------- -------------
Profit for the period 67.5 42.9 68.3
-------------------------------- ----- ------------ ------------- -------------
Basic earnings per share
(pence) 8 14.1 8.6 14.4
Diluted earnings per share
(pence) 8 14.0 8.5 14.2
-------------------------------- ----- ------------ ------------- -------------
The accompanying notes are an integral part of these condensed
consolidated half-year financial statements.
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED) (continued)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Half-year Half-year Half-year
to 30 to 30 to 31
Jun Jun Dec
2016 2015 2015
GBP million GBP GBP
million million
----------------------------------------------------------------- ------------ ---------- ----------
Profit for the period 67.5 42.9 68.3
Other comprehensive (expense)/income
Items that may subsequently
be reclassified to profit
or loss:
Movements in revaluation reserve
in respect of available-for-sale
financial assets:
------------ ---------- ----------
* Change in fair value 30.5 10.8 14.3
* Income statement transfers in respect of disposals (32.2) (16.2) (17.4)
* Taxation 0.5 0.9 0.3
------------ ---------- ----------
(1.2) (4.5) (2.8)
Movements in cash flow hedging
reserve:
------------ ---------- ----------
* Effective portion of changes in fair value taken to
other comprehensive income (41.3) (4.3) (8.9)
* Net income statement transfers 4.4 2.2 2.9
* Taxation 10.3 0.4 1.2
------------ ---------- ----------
(26.6) (1.7) (4.8)
----------------------------------------------------------------- ------------ ---------- ----------
Other comprehensive expense
for the period, net of tax (27.8) (6.2) (7.6)
----------------------------------------------------------------- ------------ ---------- ----------
Total comprehensive income
for the period 39.7 36.7 60.7
----------------------------------------------------------------- ------------ ---------- ----------
Total comprehensive income
attributable to equity shareholders 39.7 36.7 60.7
----------------------------------------------------------------- ------------ ---------- ----------
The accompanying notes are an integral part of these condensed
consolidated half-year financial statements.
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED) (continued)
CONDENSED CONSOLIDATED BALANCE SHEET
At At
30 Jun 31 Dec
2016 2015
GBP GBP
Note million million
--------------------------------------------- ----- --------- ---------
Assets
Cash and balances at central
banks 784.3 888.6
Derivative financial instruments 158.7 82.3
Loans and receivables:
---------
* Loans and advances to banks 833.2 614.5
* Loans and advances to customers 11 30,031.0 27,109.0
* Debt securities 0.9 1.1
30,865.1 27,724.6
Available-for-sale financial
assets 1,046.7 1,296.9
Intangible assets 66.5 64.4
Tangible fixed assets 76.8 74.6
Deferred tax assets 33.4 38.0
Other assets 116.5 59.6
---------
Total assets 33,148.0 30,229.0
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED) (continued)
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
At
At 31 Dec
30 Jun 2016 2015
Equity and liabilities Note GBP million GBP million
Liabilities
Deposits from banks 1,016.5 1,298.7
Customer deposits 12 27,128.4 25,144.9
Derivative financial instruments 398.8 156.0
Debt securities in issue 13 2,948.2 2,039.4
Provisions 14 15.8 8.4
Other liabilities 275.0 241.3
Total liabilities 31,782.7 28,888.7
Equity
Share capital and share premium 654.6 654.6
Other equity instruments 156.5 156.5
Other reserves (43.4) (15.6)
Retained earnings 597.6 544.8
Total equity 1,365.3 1,340.3
Total liabilities and equity 33,148.0 30,229.0
The accompanying notes are an integral part of these condensed
consolidated half-year financial statements.
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED) (continued)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders
Share capital and share Other
premium equity instruments Other reserves Retained earnings Total equity
GBP million GBP million GBP million GBP million GBP million
Balance at 1 January
2016 654.6 156.5 (15.6) 544.8 1,340.3
Comprehensive income
Profit for the period - - - 67.5 67.5
Other comprehensive
(expense)/income
Net movement in
available-for-sale
reserve - - (1.2) - (1.2)
Net movement in cash
flow hedge reserve - - (26.6) - (26.6)
Total other
comprehensive expense - - (27.8) - (27.8)
Total comprehensive
(expense)/income for
the period - - (27.8) 67.5 39.7
Transactions with
equity holders
Share based payments -
charge for the period - - - 6.4 6.4
Purchase of own shares - - - (2.4) (2.4)
Distribution to
Additional Tier 1
security holders - - - (6.3) (6.3)
Group tax relief
attributable to Tier 1
securities - - - 1.3 1.3
Dividends paid to
Ordinary Shareholders - - - (13.7) (13.7)
Total transactions with
equity holders - - - (14.7) (14.7)
Balance at 30 June 2016 654.6 156.5 (43.4) 597.6 1,365.3
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED) (continued)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(continued)
Attributable to equity holders
Share capital and Other equity
share premium instruments Other reserves Retained earnings Total equity
GBP million GBP million GBP million GBP million GBP million
Balance at 1 January
2015 654.6 156.5 (1.8) 434.5 1,243.8
Comprehensive income
Profit for the period - - - 42.9 42.9
Other comprehensive
(expense)/income
Net movement in
available-for-sale
reserve - - (4.5) - (4.5)
Net movement in cash
flow hedge reserve - - (1.7) - (1.7)
---------------------- -----------------
Total other
comprehensive expense - - (6.2) - (6.2)
---------------------- -----------------
Total comprehensive
(expense)/income for
the period - - (6.2) 42.9 36.7
---------------------- -----------------
Transactions with
equity holders
Share based payments -
charge for the period - - - 10.8 10.8
Distribution to
Additional Tier 1
security holders - - - (6.3) (6.3)
Group tax relief
attributable to Tier
1 securities - - - 1.3 1.3
Total transactions
with equity holders - - - 5.8 5.8
---------------------- -----------------
Balance at 30 June
2015 654.6 156.5 (8.0) 483.2 1,286.3
--------------------- ---------------------- -----------------
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED) (continued)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(continued)
Attributable to equity holders
Share capital and share Other
premium equity instruments Other reserves Retained earnings Total equity
GBP million GBP million GBP million GBP million GBP million
Balance at 1 July 2015 654.6 156.5 (8.0) 483.2 1,286.3
Comprehensive income
Profit for the period - - - 68.3 68.3
Other comprehensive
(expense)/income
Net movement in
available-for-sale
reserve - - (2.8) - (2.8)
Net movement in cash
flow hedge reserve - - (4.8) - (4.8)
Total other
comprehensive expense - - (7.6) - (7.6)
Total comprehensive
(expense)/income for
the period - - (7.6) 68.3 60.7
Transactions with
equity holders
Share based payments -
charge for the period - - - 9.2 9.2
Deferred tax on share
based payments - - - 0.3 0.3
Purchase of own shares - - - (5.0) (5.0)
Distribution to
Additional Tier 1
security holders - - - (6.3) (6.3)
Group tax relief
attributable to Tier 1
securities - - - 1.3 1.3
Dividends paid to
Ordinary Shareholders - - - (6.2) (6.2)
Total transactions with
equity holders - - - (6.7) (6.7)
Balance at 31 December
2015 654.6 156.5 (15.6) 544.8 1,340.3
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED) (continued)
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Half-year Half-year Half-year
to 30 Jun 2016 to 30 Jun 2015 to 31 Dec 2015
GBP million GBP million GBP million
Profit before taxation 93.7 55.0 83.0
Adjustments for:
Changes in operating assets (3,076.1) (1,631.7) (2,405.6)
Changes in operating liabilities 1,991.3 457.7 2,688.7
Non-cash and other items (101.7) 46.0 16.4
Tax paid (6.1) - (5.0)
Net cash (used in)/provided by operating activities (1,098.9) (1,073.0) 377.5
Cash flows from investing activities
Net investment in intangible assets (9.7) (11.4) (18.1)
Purchase of fixed assets (3.7) (2.9) (7.3)
Disposal of fixed assets 0.3 - -
Net investment in securities (762.6) (322.0) (337.2)
Proceeds from sale and redemption of securities 1,099.1 439.4 461.1
Net cash provided by investing activities 323.4 103.1 98.5
Cash flows from financing activities
Distribution to Tier 1 noteholders (6.3) (6.3) (6.3)
Net increase/(decrease) in debt securities in issue 908.8 744.8 (299.5)
Purchase of own shares (2.3) - (5.0)
Dividends paid to Ordinary Shareholders (13.7) - (6.2)
Net cash provided by/(used in) financing activities 886.5 738.5 (317.0)
Change in cash and cash equivalents 111.0 (231.4) 159.0
Cash and cash equivalents at beginning of period 1,461.4 1,533.8 1,302.4
Cash and cash equivalents at end of period(1) 1,572.4 1,302.4 1,461.4
(1) Cash and cash equivalents comprise cash and balances at
central banks (excluding mandatory reserve deposits) and loans and
advances to banks
Notes to the condensed consolidated half-year financial
statements
Note 1: Basis of preparation
1.1 Basis of preparation and going concern
The condensed consolidated half-year financial statements of
Virgin Money Holdings (UK) plc and its subsidiaries (the Group) for
the six months ended 30 June 2016 were authorised for issue in
accordance with a resolution of the Directors on 25 July 2016.
These condensed consolidated half-year financial statements for
the six months ended 30 June 2016 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority (FCA) and IAS 34 Interim Financial Reporting as adopted
by the European Union (EU). They do not include all the information
required by International Financial Reporting Standards (IFRS) in
full annual financial statements and should be read in conjunction
with the Annual Report and Accounts for the year ended 31 December
2015. Copies of the 2015 Annual Report and Accounts are available
on the Group's website.
The comparative financial information for the year ended 31
December 2015 does not constitute statutory accounts as defined in
section 434 of the Companies Act 2006. A copy of the statutory
accounts for that year has been delivered to the Registrar of
Companies. The auditor's report on those accounts was not
qualified, did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying the
report and did not contain statements under section 498(2) or (3)
of the Companies Act 2006.
The Directors consider that it is appropriate to continue to
adopt the going concern basis of accounting in preparing the
condensed consolidated half-year financial statements. In reaching
this assessment, the Directors have considered projections for the
Group's capital and funding position and have had regard to the
principal risks and uncertainties of the liquidity and capital
requirements of the business over the next 12 months.
1.2 Accounting policies
The accounting policies and methods of computation are
consistent with those applied in the 2015 Annual Report and
Accounts (pages 222 to 231) except as described below.
Amendment to IAS 1 'Presentation of financial statements'
The amendment clarifies that disclosure of large amounts of
immaterial detail should not obscure material information and also
clarifies when Balance Sheet and Income Statement line items should
be disaggregated.
Amendment to IAS 16 'Property, plant and equipment'
The amendment clarifies the requirements for applying the
revaluation method and provides clarifications in relation to
proportionate restatement of accumulated depreciation.
Amendment to IAS 19 'Employee Benefits'
The amendment clarifies requirements for estimating the discount
rate for post-employment benefits.
Amendment to IAS 24 'Related party disclosures'
The amendment clarifies the definition of a related party of a
reporting entity to include an entity providing key management
personnel services to the reporting entity or to the parent.
Amendment to IAS 27 'Separate financial statements'
The amendment clarifies when entities are preparing their
separate financial statements, joint ventures, investments in
subsidiaries and associates may be accounted for at cost, in
accordance with IFRS 9 or using the equity method as described in
IAS 28.
Amendment to IAS 34 'Interim financial information'
The amendment clarifies that required interim disclosures must
be included in the interim financial statements or cross-referenced
to elsewhere in the interim report. This amendment also clarifies
the definition of 'elsewhere in the interim report'.
Amendment to IAS 38 'Intangible assets'
The amendment clarifies the requirements for applying the
revaluation method and provides clarifications in relation to
proportionate restatement of accumulated amortisation.
Amendment to IFRS 2 'Share based payments'
The amendment has added the definitions for 'performance
condition' and 'service condition' and amended the definitions of
'vesting condition' and 'market condition'.
Note 1: Basis of preparation (continued)
Amendment to IFRS 7 'Financial instruments: disclosures'
The amendment clarifies whether a servicing contract constitutes
continuing involvement in an asset that has been transferred and
derecognised in its entirety for disclosure purposes. In addition,
it was clarified that offsetting disclosures introduced in the
previous amendment to the standard are not required for interim
periods.
Amendment to IFRS 8 'Operating Segments'
The amendment requires the disclosure of management judgements
made applying the aggregation criteria to operating segments.
The amendment clarifies that if segment assets are reported
regularly, reconciliations of the total reportable segments' assets
to the entity's assets must be provided.
Amendment to IFRS13 'Fair value measurement'
The amendment clarifies that when the effect of discounting is
immaterial short-term receivables and payables with no stated
interest rate can be held at their invoice amounts.
These changes have not had a significant impact on the
Group.
1.3 Future accounting developments
A number of IFRS pronouncements of new accounting standards and
amendments to accounting standards have been issued by the IASB
that are not yet effective and therefore have not been applied in
preparing these condensed half-year financial statements. Those
which may have a significant impact on the Group in future periods
are consistent with those disclosed in the 2015 Annual Report and
Accounts (page 271).
1.4 Presentation of information
Presentation of risk disclosures
IAS 34 'Interim Financial Statements' requires certain
disclosures outlined in IFRS 7 'Financial Instruments: Disclosure'.
These include disclosures concerning the nature and extent of risks
relating to financial instruments and have been included within the
Risk Management Report.
1.5 Critical estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during
the reporting period. Although these estimates are based on
management's best knowledge of the amount, due to inherent
uncertainty in making estimates, actual results in future periods
may include amounts which differ from those estimates.
There have been no significant changes in the basis upon which
critical estimates and judgements have been determined, compared to
those applied at 31 December 2015.
Note 2: Operating segments
Segmental reporting
For Management reporting purposes, the Group is organised into
the following business groupings:
-- Mortgages and savings
-- Credit cards
-- Current accounts, insurance and investments (CII)
-- Central functions
These business groupings reflect how the Executive assesses
performance and makes decisions regarding the allocation of
resources to the business on the basis of product and customers.
Internal and external sources of revenue are allocated to the
appropriate business segment. There has been no change to the
segments descriptions included in the 2015 Annual Report and
Accounts (page 234).
As the Group's operating activities are exclusively in the UK,
geographical analysis is not provided.
Note 2: Operating segments (continued)
Mortgages and savings Credit cards CII Central functions Underlying basis total
Half-year to 30 June 2016 GBPm GBPm GBPm GBPm GBPm
Net interest income 190.0 62.2 - - 252.2
Other income 0.9 8.5 20.3 7.7 37.4
Total underlying income 190.9 70.7 20.3 7.7 289.6
Total costs (49.4) (19.3) (9.3) (92.4) (170.4)
Impairment (1.3) (16.1) - - (17.4)
Underlying profit/(loss)
before tax 140.2 35.3 11.0 (84.7) 101.8
Segment assets 27,676.9 2,072.0 2.5 3,396.6 33,148.0
Segment liabilities 27,026.9 4.1 275.7 4,476.0 31,782.7
Mortgages and savings Credit cards CII Central functions(1) Underlying basis total
Half-year to 30 June 2015 GBPm GBPm GBPm GBPm GBPm
Net interest
income/(expense) 176.4 43.9 - - 220.3
Other income 1.3 8.0 18.0 6.9 34.2
Total underlying income 177.7 51.9 18.0 6.9 254.5
Total costs (47.4) (19.5) (8.4) (98.5) (173.8)
Impairment (1.6) (12.7) - - (14.3)
Underlying profit/(loss)
before tax 128.7 19.7 9.6 (91.6) 66.4
Segment assets 23,590.1 1,069.2 2.9 3,119.6 27,781.8
Segment liabilities 22,938.1 4.6 215.7 3,337.1 26,495.5
Half-year to 31 December Mortgages and savings Credit cards CII Central functions(1) Underlying basis total
2015 GBPm GBPm GBPm GBPm GBPm
Net interest income 182.1 53.7 - - 235.8
Other income 1.2 10.0 18.6 3.4 33.2
Total underlying income 183.3 63.7 18.6 3.4 269.0
Total costs (45.3) (17.6) (8.3) (87.5) (158.7)
Impairment (1.4) (14.6) - - (16.0)
Underlying profit/(loss)
before tax 136.6 31.5 10.3 (84.1) 94.3
Segment assets 25,457.9 1,585.2 2.3 3,183.6 30,229.0
Segment liabilities 25,063.3 4.0 235.5 3,585.9 28,888.7
(1) The FSCS Levy was previously excluded from underlying
performance measures, but is now included in central functions as
it is considered to be a recurring cost to the Group.
Note 2: Operating segments (continued)
Reconciliation of statutory results to underlying basis
The underlying basis is the basis on which financial information
is presented to the chief operating decision maker which excludes
certain items included in the statutory results. The tables below
reconcile the statutory results to the underlying basis.
Adjusted for
Statutory IPO Share based Strategic items Compensation Fair value Underlying
results awards for senior losses on basis
leavers financial
instruments
Half-year to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2016
Net interest
income 255.6 - (3.4) - - 252.2
Other income 32.4 - (0.1) - 5.1 37.4
Total income 288.0 - (3.5) - 5.1 289.6
Total operating
expenses (176.9) 1.4 1.8 3.3 - (170.4)
Profit before
tax from
operating
activities 111.1 1.4 (1.7) 3.3 5.1 119.2
Impairment (17.4) - - - - (17.4)
Profit before
tax 93.7 1.4 (1.7) 3.3 5.1 101.8
Adjusted for
Statutory IPO Share based Strategic items Compensation Fair value Underlying
results awards for senior losses on basis(1)
leavers financial
instruments
Half-year to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2015
Net interest
income 220.8 - (0.5) - - 220.3
Other income 34.1 - - - 0.1 34.2
Total income 254.9 - (0.5) - 0.1 254.5
Total operating
expenses (185.6) 6.5 5.3 - - (173.8)
Profit before
tax from
operating
activities 69.3 6.5 4.8 - 0.1 80.7
Impairment (14.3) - - - - (14.3)
Profit before
tax 55.0 6.5 4.8 - 0.1 66.4
(1) The FSCS Levy was previously excluded from underlying
performance measures, but is now included in central functions as
it is considered to be a recurring cost to the Group.
Note 2: Operating segments (continued)
Adjusted for
Statutory IPO Strategic items Compensation Fair value Underlying
results Share based for senior losses on basis(1)
awards leavers financial
instruments
Half-year to GBPm GBPm GBPm GBPm GBPm GBPm
31 December 2015
Net interest
income 234.0 - 1.8 - - 235.8
Other income 33.0 - (0.1) - 0.3 33.2
Total income 267.0 - 1.7 - 0.3 269.0
Total operating
expenses (168.0) 4.0 1.6 3.7 - (158.7)
Profit before
tax from
operating
activities 99.0 4.0 3.3 3.7 0.3 110.3
Impairment (16.0) - - - - (16.0)
Profit before
tax 83.0 4.0 3.3 3.7 0.3 94.3
(1) The FSCS Levy was previously excluded from underlying
performance measures, but is now included in central functions as
it is considered to be a recurring cost to the Group.
Note 3: Net interest income
Net interest income comprises:
Half-year Half-year
Half-year to 30 Jun to 31 Dec
to 30 Jun 2016 2015(1) 2015
GBPm GBPm GBPm
Interest and similar income:
Loans and advances to customers 464.0 398.5 423.9
Loans and advances to banks 1.3 1.2 1.2
Interest receivable on loans and receivables 465.3 399.7 425.1
Available-for-sale financial assets 6.3 5.0 5.5
Cash and balances at central banks 2.3 2.0 2.0
Total interest and similar income 473.9 406.7 432.6
Interest and similar expense:
Deposits from banks including liabilities under sale and repurchase
agreements (3.7) (3.2) (3.6)
Customer deposits (190.4) (167.0) (175.7)
Debt securities in issue (20.7) (12.7) (16.3)
Other (3.5) (3.0) (3.0)
Total interest and similar expense (218.3) (185.9) (198.6)
Net interest income 255.6 220.8 234.0
(1) Items within interest income and expense have been
reclassified to better reflect the interest bearing assets and
liabilities to which they relate.
Note 3: Net interest income (continued)
Interest accrued on individually impaired assets for the
half-year was GBP3.1 million (30 June 2015: GBP4.3 million, 31
December 2015: GBP2.5 million).
Note 4: Total operating expenses
Total operating expenses comprise:
Half-year Half-year to 31 Dec
Half-year to 30 Jun 2016 to 30 Jun 2015 2015
GBPm GBPm GBPm
Salaries 73.0 68.7 70.2
Social security costs 7.1 7.3 8.9
Other pension costs 5.4 5.2 5.4
Employee share schemes 6.4 10.8 9.2
91.9 92.0 93.7
Premises and equipment:
Hire of equipment 2.3 2.3 2.3
Rent and rates 6.9 6.6 7.4
9.2 8.9 9.7
Other expenses:
Marketing costs 10.7 12.3 10.0
FSCS levy 7.8 15.5 (3.0)
Professional fees 4.9 4.1 6.6
Other 43.3 43.3 40.9
66.7 75.2 54.5
Depreciation and amortisation:
Depreciation of tangible fixed assets 1.5 4.1 4.3
Amortisation of intangible assets 7.6 5.4 5.8
9.1 9.5 10.1
Total operating expenses 176.9 185.6 168.0
Note 5: Share-based payments
Share-based payments charge comprises:
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2016 2015 2015
GBPm GBPm GBPm
Equity settled 6.4 10.8 9.2
Total share based payment charge 6.4 10.8 9.2
Details of the existing share plans can be found in note 7 of
the 2015 Annual Report and Accounts. Of the GBP6.4 million
share-based payments charge in the six months ended 30 June 2016,
GBP1.9 million relates to costs associated with listing, inclusive
of their respective employer's national insurance
contributions.
There have been no changes to the share plans in the six months
ended 30 June 2016 except for new awards granted in 2016 under the
Deferred Bonus Share Plan and the Long Term Incentive Plan.
Note 6: Allowance for impairment losses on loans and
receivables
Half-year Half-year Half-year to 31 Dec
to 30 Jun to 30 Jun 2015 2015
2016 GBPm GBPm
GBPm
Opening provision 39.9 30.6 35.3
Advances written off (15.9) (13.1) (14.8)
Gross charge to the income statement 20.1 17.8 19.4
Closing provision 44.1 35.3 39.9
In respect of:
Secured loans 9.5 8.0 8.7
Unsecured loans 34.6 27.3 31.2
Total closing provision 44.1 35.3 39.9
Of the total allowance in respect of loans and advances to
customers, GBP43.3 million was assessed on a collective basis
(half-year to 30 June 2015: GBP33.8 million, half-year to 31
December 2015: GBP38.8 million).
In the half-year to 30 June 2016, sales of credit card
receivables which had been previously written-off resulted in a net
recovery which totalled GBP2.7 million (half-year to 30 June 2015:
GBP3.5 million, half-year to 31 December 2015: GBP3.4 million). The
full amount of the proceeds have been recognised as a gain and the
net charge to the income statement is summarised below.
Half-year Half-year Half-year
to 30 Jun to 30 Jun 2015 to 31 Dec
2016 GBPm 2015
GBPm GBPm
Gross charge to the income statement 20.1 17.8 19.4
Debt sale recoveries (2.7) (3.5) (3.4)
Net charge to the income statement 17.4 14.3 16.0
Note 7: Taxation
Analysis of the tax charge for the period:
Half-year to 30 Jun 2016 Half-year Half-year to 31 Dec
GBPm to 30 Jun 2015 2015
GBPm GBPm
Profit before tax 93.7 55.0 83.0
Tax charge at standard tax rate of 20% (30 June 2015:
20.25%, 31 December 2015: 20.25%) (18.7) (11.1) (16.8)
Factors affecting tax charge:
Disallowed items (1.2) (1.0) (0.5)
Bank corporation tax surcharge (5.8) - -
Non taxable income - - 0.8
UK corporation tax rate changes (0.1) - 2.5
Deferred tax charge in respect of share schemes (0.8) - -
Adjustments in respect of prior periods 0.2 - (0.7)
Other 0.2 - -
Total tax charge (26.2) (12.1) (14.7)
At 31 December 2015 there was a GBP2.3 million provision held in
Virgin Money plc in respect of an open HMRC enquiry regarding the
tax treatment of certain commercial funding transactions that were
entered into during 2009 involving Virgin Money Cards Limited
(since renamed Sapphire cards Limited), which is no longer part of
the Group. This was resolved in April 2016 and a payment of GBP2.1
million was made to HMRC in final settlement. This has resulted in
a prior year credit of GBP0.2 million in the period to 30 June
2016.
The Finance (No. 2) Act 2015 was substantively enacted on 26
October 2015. This reduced the main rate of corporation tax to 19%
with effect from 1 April 2017 and to 18% with effect from 1 April
2020.
A reduction in the main corporation tax rate to 17% from 1 April
2020 was announced in the 2016 Budget. It is likely to be
substantively enacted as part of the Finance Bill 2016 in July
2016. Tax balances have been prepared on the assumption that the
main corporation tax rate from 1 April 2020 is 18%.
The Bank corporation tax surcharge of 8% was effective from 1
January 2016. This has resulted in a current year tax charge of
GBP5.8 million in the period to 30 June 2016.
In accordance with IAS 34 'Interim Financial Reporting', the
Group's tax charge for the half-year to 30 June 2016 is based on
the best estimate of the weighted-average annual corporation tax
rate expected for the full financial year. The tax effects of
one-off items are not included in the weighted-average annual
corporation tax rate, but are recognised in the relevant
period.
Note 8: Earnings per share
The Group presents basic and diluted earnings per share (EPS)
data in relation to the Ordinary Shares of Virgin Money Holdings
(UK) plc.
Half-year to 30 Jun 2016 Half-year Half-year to 31 Dec
GBPm to 30 Jun 2015 2015
GBPm GBPm
Profit attributable to equity shareholders - basic and
diluted 67.5 42.9 68.3
Distributions to Additional Tier 1 security holders
(net of group relief) (5.0) (5.0) (5.0)
Profit attributable to equity holders for the purposes
of basic and diluted EPS 62.5 37.9 63.3
30 Jun 30 Jun 31 Dec
2016 2015 2015
Number Number Number
of shares of of
(million) shares shares
(million) (million)
----------- -----------
Weighted-average number of Ordinary Shares in issue - basic 442.6 440.9 441.0
Adjustment for share options and awards 3.4 3.6 4.9
----------- -----------
Weighted-average number of Ordinary Shares in issue - diluted 446.0 444.5 445.9
----------- -----------
Basic earnings per share (pence) 14.1 8.6 14.4
Diluted earnings per share (pence) 14.0 8.5 14.2
----------- -----------
Note 9: Dividends on Ordinary Shares
An interim dividend for 2016 of 1.6 pence per Ordinary Share was
declared on 25 July 2016 and will be paid on 23 September 2016 to
shareholders on the share register at close of business on 12
August 2016.
An interim dividend for 2015 of 1.4 pence per Ordinary Share
amounting to GBP6.2 million, was paid in October 2015. A final
dividend in respect of the year ended 31 December 2015 of 3.1 pence
per Ordinary Share amounting to GBP13.7 million, was paid in May
2016.
Note 10: Analysis of financial assets and financial liabilities
by measurement basis
Derivatives designated as
hedging instruments
Derivatives
not
Held at Available designated
amortised Loans and -for-sale as hedging Cash flow
cost receivables securities instruments Fair value hedges Total
GBPm GBPm GBPm GBPm hedges GBPm GBPm GBPm
At 30 June 2016
Financial assets
Cash and balances
at central banks - 784.3 - - - - 784.3
Derivative
financial
instruments - - - 38.1 74.3 46.3 158.7
Loans and
receivables:
- Loans and
advances to banks - 833.2 - - - - 833.2
- Loans and
advances to
customers - 30,031.0 - - - - 30,031.0
- Debt securities - 0.9 - - - - 0.9
Available-for-sale
financial assets - - 1,046.7 - - - 1,046.7
Other assets -
trade debtors and
accrued income - 21.2 - - - - 21.2
Total financial
assets - 31,670.6 1,046.7 38.1 74.3 46.3 32,876.0
Non financial
assets 272.0
Total assets 33,148.0
Financial
liabilities
Deposits from banks 1,016.5 - - - - - 1,016.5
Customer deposits 27,128.4 - - - - - 27,128.4
Derivative
financial
instruments - - - 32.8 347.9 18.1 398.8
Debt securities in
issue 2,948.2 - - - - - 2,948.2
Other liabilities -
trade creditors
and accrued
interest 187.5 - - - - - 187.5
Total financial
liabilities 31,280.6 - - 32.8 347.9 18.1 31,679.4
Non financial
liabilities 103.3
Total liabilities 31,782.7
Equity 1,365.3
Total liabilities
and equity 33,148.0
Note 10: Analysis of financial assets and financial liabilities
by measurement basis (continued)
Derivatives designated as
hedging instruments
Derivatives
not
Held at Available designated
amortised Loans and -for-sale as hedging Fair value Cash flow
cost receivables securities instruments hedges hedges Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31 December 2015
Financial assets
Cash and balances
at central banks - 888.6 - - - - 888.6
Derivative
financial
instruments - - - 18.3 63.5 0.5 82.3
Loans and
receivables:
- Loans and
advances to banks - 614.5 - - - - 614.5
- Loans and
advances to
customers - 27,109.0 - - - - 27,109.0
- Debt securities - 1.1 - - - - 1.1
Available-for-sale
financial assets - - 1,296.9 - - - 1,296.9
Other assets -
trade debtors
accrued income - 14.6 - - - - 14.6
------------
Total financial
assets - 28,627.8 1,296.9 18.3 63.5 0.5 30,007.0
Non financial
assets 222.0
------------
Total assets 30,229.0
------------
Financial
liabilities
Deposits from banks 1,298.7 - - - - - 1,298.7
Customer deposits 25,144.9 - - - - - 25,144.9
Derivative
financial
instruments - - - 15.4 139.6 1.0 156.0
Debt securities in
issue 2,039.4 - - - - - 2,039.4
Other liabilities -
trade creditors
and accrued
interest 155.1 - - - - - 155.1
------------
Total financial
liabilities 28,638.1 - - 15.4 139.6 1.0 28,794.1
Non financial
liabilities 94.6
------------
Total liabilities 28,888.7
------------
Equity 1,340.3
------------
Total liabilities
and equity 30,229.0
------------
Note 11: Loans and advances to customers
Loans and advances to customers comprise:
At
At 31 Dec
30 Jun 2016 2015
GBPm GBPm
--------
Advances secured on residential property not subject to securitisation 16,814.9 17,389.9
Advances secured on residential property subject to securitisation 5,973.3 3,670.4
22,788.2 21,060.3
Residential buy-to-let loans not subject to securitisation 4,895.5 4,401.9
Total loans and advances to customers secured on residential property 27,683.7 25,462.2
Unsecured receivables not subject to securitisation 2,100.6 1,610.0
Total loans and advances to customers before allowance for impairment losses 29,784.3 27,072.2
Impairment allowance (refer note 6) (44.1) (39.9)
Total loans and advances to customers excluding portfolio hedging 29,740.2 27,032.3
Fair value of portfolio hedging 290.8 76.7
Total loans and advances to customers 30,031.0 27,109.0
Note 12: Customer deposits
Customer deposits comprise:
At
At 31 Dec
30 Jun 2016 2015
GBPm GBPm
Savings and investment accounts 26,856.5 24,914.6
Personal current accounts 271.9 230.3
Total customer deposits 27,128.4 25,144.9
Note 13: Debt securities in issue
Secured Unsecured Total
GBPm GBPm GBPm
At 1 January 2015 1,594.1 - 1,594.1
Repayments (601.9) - (601.9)
Issues 750.0 298.9 1,048.9
Other movements (0.3) (1.4) (1.7)
At 31 December 2015 1,741.9 297.5 2,039.4
Repayments (425.8) - (425.8)
Issues 1,278.9 - 1,278.9
Revaluation 47.8 - 47.8
Other movements (3.7) 11.6 7.9
At 30 June 2016 2,639.1 309.1 2,948.2
Other movements comprise accrued interest, unamortised issue
costs or hedge accounting adjustments.
On 16 April 2015, the Group issued 5 year Medium Term Notes with
a nominal value of GBP300 million at a coupon of 2.25% per annum.
The notes were issued as part of the Group's launched GBP3 billion
Global Medium Term Note programme, which was established to
diversify the Group's wholesale funding base further.
On 8 June 2015, the Group raised GBP750 million from
institutional investors through the issuance of Residential
Mortgage Backed Securities in the Gosforth Funding 2015-1
transaction in Sterling.
On 25 January 2016, the Group raised GBP803 million from
institutional investors through the issuance of Residential
Mortgage Backed Securities in the Gosforth Funding 2016-1
transaction in Euro, US Dollars and Sterling. On 9 May 2016, the
Group raised GBP474.5 million from institutional investors through
the issuance of Residential Mortgage Backed Securities (RMBS) in
the Gosforth Funding 2016-2 transaction in Euro and Sterling. For
all RMBS funding raised in currencies other than Sterling, the
Group enter into cross-currency derivatives which swap the foreign
currency liabilities back into Sterling.
Note 14: Provisions
The movement in provision balances was as follows:
FSCS Other Total
GBPm GBPm GBPm
At 1 January 2015 8.7 0.6 9.3
Provisions applied (14.6) (0.2) (14.8)
Charge for the year 12.5 1.4 13.9
At 31 December 2015 6.6 1.8 8.4
Provisions applied - (0.4) (0.4)
Charge for the year 7.8 - 7.8
At 30 June 2016 14.4 1.4 15.8
Note 14: Provisions (continued)
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS) is the UK's
statutory fund of last resort for customers of authorised financial
services firms and pays compensation if a firm is unable to pay
claims against it. The FSCS has borrowed from HM Treasury to fund
the compensation costs associated with institutions that failed in
2008 and will receive the receipts from asset sales, surplus cash
flows and other recoveries from these institutions in the future.
The FSCS meets its obligations by raising management expense and
compensation levies. These include amounts to cover the interest on
its borrowings and on--going management expenses. Each deposit
taking institution contributes in proportion to its share of total
protected deposits.
The FSCS can only raise a levy within its scheme year (which
commences 1 April) and under IFRIC 21 'Levies' the Group recognises
its FSCS provision in the scheme year itself.
Note 15: Contingent liabilities and commitments
Contingent liabilities
The Board was not aware of any significant contingent
liabilities as at 30 June 2016 (31 December 2015: none).
The Group is, from time to time and in the normal course of
business, subject to a variety of legal or regulatory claims,
actions or proceedings. When such circumstances arise, the Board
considers the likelihood of a material outflow of economic
resources and provides for its best estimate of costs where an
outflow of economic resources is considered probable. While there
can be no assurances, the Directors believe, based on information
currently available to them, that the likelihood of material
outflows from such matters is remote.
The Group does not expect the ultimate resolution of any other
threatened or actual legal proceedings to have a significant
adverse effect on the financial position of the Group.
Commitments
Loan commitments
Contractual amounts to which the Group is committed for
extension of credit to customers.
At
At 31 Dec
30 Jun 2016 2015
GBPm GBPm
Not later than 1 year 4,614.1 3,958.7
Later than 1 year and not later than 5 years - -
Later than 5 years 495.1 521.1
Total loan commitments 5,109.2 4,479.8
Note 16: Fair value of financial assets and liabilities
Fair value of financial assets and liabilities recognised at
cost
The following table summarises the fair values of those
financial assets and liabilities not presented on the Group's
balance sheet at their fair value, by the level in the fair value
hierarchy into which each fair value measurement is categorised.
The accounting policy in the 31 December 2015 Annual Report and
Accounts sets out the key principles for estimating the fair values
of financial instruments.
Total Total
fair carrying
Level 1 Level 2 Level 3 value value
GBPm GBPm GBPm GBPm GBPm
At 30 June 2016
Cash and balances at central banks - 784.3 - 784.3 784.3
Loans and advances to banks - 833.2 - 833.2 833.2
Loans and advances to customers(1) - - 29,877.8 29,877.8 30,031.0
Debt securities classified as loans and receivables 0.9 - - 0.9 0.9
Available-for-sale financial assets - - 0.3 0.3 0.3
Other assets - trade debtors and accrued income - 21.2 - 21.2 21.2
Total financial assets at fair value 0.9 1,638.7 29,878.1 31,517.7 31,670.9
Deposits from banks - 1,016.5 - 1,016.5 1,016.5
Customer deposits - 27,205.6 - 27,205.6 27,128.4
Debt securities in issue 2,940.2 - - 2,940.2 2,948.2
Other liabilities - trade payables and accrued interest - 187.5 - 187.5 187.5
Total financial liabilities at fair value 2,940.2 28,409.6 - 31,349.8 31,280.6
(1) Amounts shown in respect of loans and advances to customers
include fair value adjustments of portfolio hedging.
Note 16: Fair value of financial assets and liabilities
(continued)
Total Total
fair carrying
Level 1 Level 2 Level 3 value value
GBPm GBPm GBPm GBPm GBPm
At 31 December 2015
Cash and balances at central banks - 888.6 - 888.6 888.6
Loans and advances to banks - 614.5 - 614.5 614.5
Loans and advances to customers(1) - - 27,243.2 27,243.2 27,109.0
Debt securities classified as loans and receivables 1.2 - - 1.2 1.1
Available-for-sale financial assets 1.3 1.3 1.3
Other assets - trade debtors and accrued income - 14.6 - 14.6 14.6
Total financial assets at fair value 1.2 1,517.7 27,244.5 28,763.4 28,629.1
Deposits from banks - 1,298.7 - 1,298.7 1,298.7
Customer deposits - 25,162.5 - 25,162.5 25,144.9
Debt securities in issue 2,032.1 - - 2,032.1 2,039.4
Other liabilities - trade payables and accrued interest - 155.1 - 155.1 155.1
Total financial liabilities at fair value 2,032.1 26,616.3 - 28,648.4 28,638.1
(1) Amounts shown in respect of loans and advances to customers
include fair value adjustments of portfolio hedging.
Fair value hierarchy
The tables above summarise the carrying value and fair value of
assets and liabilities held on the balance sheet. There are three
levels to the hierarchy as follows:
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets and liabilities.
Level 2 - Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, whether directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
There is no significant change to what was disclosed in the 31
December 2015 Annual Report and Accounts in respect of the
valuation methodology (techniques and inputs) applied for
calculations of fair values in the tables above.
Note 16: Fair value of financial assets and liabilities
(continued)
Fair value of financial assets and liabilities recognised at
fair value
The following table summarises the fair values of those
financial assets and liabilities recognised at fair value, by the
level in the fair value hierarchy into which each fair value
measurement is categorised. The accounting policy in the 31
December 2015 Annual Report and Accounts sets out the key
principles for estimating the fair values of financial instruments.
In the six months to 30 June 2016, movements in interest rate swap
curves resulted in negative fair value movements on the Group's
derivative financial instruments, resulting in an increase in
financial liability fair values. There have been no transfers
between levels during the half-year ending 30 June 2016.
Level 1 Level 2 Level 3 Total
30 June 2016 GBPm GBPm GBPm GBPm
Financial assets
Derivative financial instruments - 158.7 - 158.7
Available-for-sale financial assets 1,039.0 - 7.4 1,046.4
Financial liabilities
Derivative financial instruments - 398.8 - 398.8
Level 1 Level 2 Level 3 Total
31 December 2015 GBPm GBPm GBPm GBPm
Financial assets
Derivative financial instruments - 82.3 - 82.3
Available-for-sale financial assets 1,233.3 59.0 3.3 1,295.6
Financial liabilities
Derivative financial instruments - 156.0 - 156.0
Level 1 Valuations
The fair value of debt securities categorised as
available-for-sale financial assets is derived from unadjusted
quoted prices in an active market.
Level 2 Valuations
The fair values of derivative instruments are calculated by
discounted cash flow models using yield curves that are based on
observable market data or are based on valuations obtained from
counterparties.
The fair value of level 2 available-for-sale securities are
calculated using valuation techniques, including discounted cash
flow models.
Level 3 valuations
Level 3 available-for-sale financial assets represent the
Group's best estimates of the value of certain equity investments
in unlisted companies and of Visa Inc. preferred stock.
The level 3 valuation of GBP3.3 million at 31 December 2015
represented the Group's best estimate at that time of the value of
its equity investment in Visa Europe Limited, with reference to the
consideration expected to be received from the proposed acquisition
of that company by Visa Inc.
The acquisition by Visa Inc. completed on 21 June 2016,
resulting in disposal of the investment and receipt of Visa Inc.
preferred stock and cash consideration and recognition of a gain on
disposal of GBP5.3 million, included within Other Operating
Income.
Note 16: Fair value of financial assets and liabilities
(continued)
The Visa Inc. preferred stock value of GBP1.3 million was
determined by reference to the Visa Inc. common stock price at 30
June 2016, less a discount to reflect restrictions on
transferability and the risk of future reduction in conversion to
Visa Inc. common stock. The discount applied is the most
significant unobservable input to the valuation.
The Group has determined of the fair value of the investments in
the relevant unlisted entities by reference to third party
valuations, taking into account pertinent information received on
the individual investments to adjust those valuations, where
considered appropriate
Note 17: Related party transactions
Full details of the Group's related party transactions for the
year to 31 December 2015 can be found in note 37 of the 2015 Annual
Report and Accounts.
Related party transactions for the half-year to 30 June 2016 are
similar in nature to those for the year to 31 December 2015.
Note 18: Events after the balance sheet date
There have been no significant events between 30 June 2016 and
the date of approval of the condensed consolidated half-year
financial statements which would require a change to or additional
disclosure in the financial statements apart from the
following:
As disclosed in note 9, on 25 July 2016, the Group declared an
interim dividend of 1.6 pence per Ordinary Share. The dividend will
be paid on 23 September 2016.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that these condensed half-year financial
statements have been prepared in accordance with International
Accounting Standard 34, Interim Financial Reporting, as adopted by
the European Union and that the interim management report includes
a fair review of the information required by DTR 4.2.7 and DTR
4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
By order of the Board,
Jayne-Anne Gadhia, CBE
Chief Executive
25 July 2016
INDEPENT AUDITOR'S REVIEW REPORT TO VIRGIN MONEY HOLDINGS (UK)
PLC
Report on the Virgin Money Holdings (UK) plc condensed
consolidated interim financial statements
Our conclusion
We have reviewed the condensed consolidated interim financial
statements (the "interim financial statements") in the half-year
results of Virgin Money Holdings (UK) plc for the 6 month period
ended 30 June 2016. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 30 June 2016;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated cash flow statement for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the half-year
results have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Rules and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors (1 , 2)
The half-year results, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the
half-year results in accordance with the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-year results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
INDEPENDENT AUDITOR'S REVIEW REPORT TO VIRGIN MONEY HOLDINGS
(UK) PLC (continued)
We have read the other information contained in the half-year
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Edinburgh
25 July 2016
(1) The maintenance and integrity of the Virgin Money Holdings
(UK) plc website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the interim financial
statements since they were initially presented on the website.
(2) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdiction.
Analyst and investor call
An analyst and investor call will be held as follows:
Date: Tuesday 26 July 2016
Time: 9.30am
Dial: +44 20 3059 8125
Webcast:
http://uk.virginmoney.com/virgin/investor-relations/results-and-presentations
An operator will assist you in joining the call.
Enquiries:
Virgin Money Press Office
Brian Giles / Simon Hall
0191 279 4676 or press.office@virginmoney.com
FTI Consulting
John Waples
07717 814520
john.waples@fticonsulting.com
Virgin Money Investor Relations
Adam Key
020 7111 1311 or adam.key@virginmoney.com
NOTES TO EDITORS
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
-- Virgin Money is the official sponsor of the London Marathon,
the biggest annual one-day fundraising event in the world. Virgin
Money has helped London Marathon runners raise over GBP315 million,
including funds raised through Virgin Money Giving the
not-for-profit online fundraising service, since 2010.
Note: all figures in this News Release are unaudited.
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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