CYBG returns to profitability in first results since ‘landmark’ Virgin Money acquisition

Yorkshire Bank’s parent, the Clydesdale and Yorkshire Banking Group (CYBG), has reported a return to statutory pre-tax profits in the half-year period in which it acquired Virgin Money in a £1.7bn deal.

Reporting the first set of financial results for Virgin Money and CYBG as a combined business, covering the six month period to 31 March 2019, the listed group said statutory pre-tax profits stood at £42m; a rise from the statutory pre-tax losses of £95m in the same period last year.

The bank said underlying pre-tax profits were £286m – up 2% from the £280m achieved in the second half of 2018. However, it experienced a drop from the £301m underlying pre-tax profit for the H1 period of 2018.

The news comes days after the Clydesdale and Yorkshire Banking Group announced it is set to close six branches in the North and Midlands as it “evolves the shape of its network to meet changing consumer demand”. Yorkshire Bank’s branches in Bramley, Redcar and Skipton will be closed, along with sites in Tamworth in Staffordshire, Widnes in Cheshire and Sutton-in-Ashfield in the East Midlands.

This morning, CYBG said that cost synergies from the Virgin Money integration were being delivered in line with expectations, with £33m of annual synergies realised to date. It said that the total annual savings will be a minimum of £150m by the end of FY2021. CYBG said it had made additional provisions below the line of £33m for PPI as a result of increased processing costs from speculative PPI claims as well as some anticipated large one-off acquisition-related charges, including integration costs, Virgin Money’s transaction costs and software write offs.

CYBG chief executive David Duffy

David Duffy, Chief Executive Officer of CYBG, said: “The Virgin Money acquisition was a landmark moment for the Group and the combination will create the first true national competitor to the status quo in UK banking. Everything we have seen since completing the transaction, including our exciting engagement with the Virgin Group, has given us further confidence that we can achieve our ambitions. We have an opportunity to create a more efficient, fully digitally-enabled bank and believe the Virgin brand and potential Virgin Group partnerships will provide a strong competitive advantage.”

CYBG said total underlying income was £843m but that net interest income was down 1.1% and non-interest income up 11% year-on-year.

The bank saw a customer deposit growth of 1.2% to £61.7bn during the six-month period and mortgage balances rose 2.5% to £60.5bn.

SME lending balances were up 1.1% to £7.6bn and CYBG said it was “on track” to deliver its £6bn three-year lending commitment by the end of this year. The bank, headquarteted in Leeds, said unsecured balances are up 4.2% to £4.5bn, with strong growth from the Virgin Atlantic Credit Card.

This set of results show a much improved performance from the bank’s annual results in November, when CYBG reported  a statutory pre-tax loss of £145m after paying out legacy PPI costs totalling £352m during the year. This time last year, CYBG reported pre-tax losses of £95m which it said was due to £220m in conduct charges as an exceptional item in the six months to March 2018.

This morning,  the listed group said it was continuing to “take costs out” and that underlying costs were down 3% year on year to £480m.

Duffy added:  “I am pleased to report that the Group has delivered a resilient underlying financial performance during the first half of the year and our three-year integration programme is making good progress. We have already realised £33m of annual run-rate cost synergies and have also increased our forecast of the total cost synergies available by £30m to a minimum of £150m by the end of FY 2021. As expected, profit before tax has been impacted by the significant Virgin Money acquisition and integration costs.

“Our number one priority remains offering our customers attractive products and quality service, and we are pleased to have maintained strong Net Promoter Scores for both our B and Virgin Money brands, while our Clydesdale and Yorkshire Bank NPS continue to improve.

“Despite sustained competition in the mortgage market and a continued uncertain economic backdrop, we have delivered solid growth in our mortgage book and we have seen signs that mortgage pricing has started to stabilise. In our SME business, we have maintained momentum in the origination of new customer facilities and we are also seeing good growth from our Virgin Atlantic credit card proposition.

“We remain on track to deliver 2019 performance in line with guidance and look forward to updating the market in June on our refreshed strategy and the significant opportunities for our combined business.”

Duffy added: “Six months into our three year integration process we have already increased our expected cost synergies to £150m, from the £120m announced at the time of the acquisition. The two businesses are coming together well and we have rolled out our new purpose for the Group. I have been delighted to see colleagues getting behind this and using it to drive better outcomes for our customers and stakeholders.”

Close