Virgin Money UK confident after fall in full-year profits

The FTSE 250 company said underlying net interest income increased 8% for the year to £1.716bn, while underlying non-interest income grew 5% to £157m, meaning total underlying operating income reached £1.873bn, an 8% increase.

Underlying operating and administrative expenses grew 6% to £971m while underlying operating profit before impairment losses rose 9% to £902m.

Impairment losses on credit exposures were £309m, compared to £52m in the 2022 financial year.

Adjusting items, including restructuring charges and intangible asset write-downs, amounted to £248m, making for a 37% increase.

Virgin Money UK said its net interest margin expanded to 1.91% from 1.85% year-on-year, supported by effective deposit management, hedge re-investment, and lending mix adjustments.

The company’s cost-to-income ratio (CIR) remained stable at 51.9%, in line with guidance.

Its Common Equity Tier 1 (CET1) ratio remained strong at 14.7%, and the company announced a further £150m buyback, exceeding prior guidance, bringing the total shareholder distributions for 2023 to £272m - about 2% higher than in 2022.

In addition to its financial performance, Virgin Money UK achieved growth in target lending segments and relationship deposits during the year.

Active relationship customer accounts increased by 5% to 3.8 million, with relationship deposits reaching £35.4bn, comprising 53% of total deposits.

Virgin Money UK also highlighted its strategic achievements for customers, including the relaunch of Virgin Money Investments, the launch of a digital wallet for Virgin Atlantic customers, and strong growth in business current account (BCA) sales.

Looking ahead to the 2024 period and the medium term, Virgin Money UK said it expected to maintain a net interest margin of 190 to 195 basis points, continued loan growth in unsecured and business lending, and a stable cost-to-income ratio.

The company said it aimed to generate sustainable double-digit statutory returns in the medium term.

“We made good progress executing our strategy in 2023, growing both our relationship customer base and target lending segments,” said chief executive officer David Duffy.

“With the momentum we carry into 2024, we are confident in the outlook for our business and we expect to deliver around £800m in distributions to our investors by the end of the three-year period ending in 2024.”

Duffy said that under the Virgin brand, the firm’s ambition was to create the UK’s “best” digital bank.

“To help achieve this goal, we are stepping up investment in our technological capability to future proof our business and protect our customers from the growing risk of fraud strategies driven by advances in AI.”

At 0944 GMT, shares in Virgin Money UK were down 2.26% at 153.45p.

Reporting by Josh White for Sharecast.com.