CYBG Plc Continue to deliver ahead of market growth


CYBG Plc (LON:CYBG) today announced finald results for the year ended 30 September 2018.

Strong underlying financial performance; statutory loss driven by legacy conduct charges

-Underlying profit before tax up 13% year-on-year to £331m; statutory loss after tax of £145m due to legacy PPI costs

-Net interest income up 1% driven by strong volume growth and NIM of 217bps, partly offset by a £16m reduction in non-interest income. Excluding the impact of year on year fair value movements of £9m, of which £7m is non-recurring, non-interest income is down 4% primarily due to the impact of the one-off £6m marketing incentive campaign cost taken in Q1

-Underlying costs down 6% to £635m, ahead of guidance; 4%pts improvement in underlying cost-to-income ratio of 63% with positive ‘jaws’ of 5% achieved

-Double-digit underlying RoTE of 10.6%

-Recommending payment of an increased ordinary dividend of 3.1p per share, payable to all shareholders

Continued delivery of sustainable customer growth

-Customer deposit growth of 4.2% to £28.9bn; loan growth of 4.1% to £33.3bn

-Above system lending growth; mortgages up 4.5% to £24.5bn and core SME up 5.6% to £7.2bn

-Robust asset quality with net cost of risk of 12bps (FY17: 14bps); Brexit remains key future uncertainty

Significant action taken on legacy conduct issues

-Total PPI provision during 2018 of £352m (net of conduct indemnity) and £44m for other legacy conduct

-While weekly complaint volumes have been falling since the end of July, the Group considers it prudent to take a further £150m increase in provisions for legacy PPI costs to cover the costs associated with a revised estimate of 83,000 future walk-in complaints out to the August 2019 time bar

-The conduct provisions reduced the Group’s CET1 ratio by c.182bps; CET1 ratio of 10.5% (pre-IRB)

Significant milestone of IRB accreditation achieved for mortgage and SME portfolios

-Pro forma CET1 ratio of 14.0% at 30-Sep-2018 including c.350bps CET1 impact of IRB accreditation

Unique combination of growth opportunities in place

-Successfully migrated c.2m retail customers to iB platform; 30% growth in mobile app users; and new technology partnerships in retail and SME demonstrate full potential of Open Banking focussed technology strategy

-Significant investment preparing for RBS switching scheme combined with strong competition rationale supporting CYBG’s Capability & Innovation Fund application to secure increased investment in SME franchise

-Virgin Money acquisition creates the first true competitor to the status quo in UK banking, with 6 million customers, an iconic brand, national distribution and genuine full-service retail and SME offering

-The Group will update on its strategic and medium-term targets at a Capital Markets Day planned for June 2019

Pro forma capital position and Combined Group guidance for FY2019

-Robust pro forma combined capital position of 15.2% with IFRS3 fair value accounting adjustments still being assessed

-Guidance for FY19 NIM of 160-170bps and underlying costs of <£950m

David Duffy, CYBG Chief Executive Officer commented:

“It has been a landmark year for CYBG, continuing to deliver ahead of market growth and meeting our underlying financial targets in a highly competitive market, while also completing the transformational Virgin Money acquisition in October 2018 following overwhelming shareholder support.”

“In a competitive market, we have delivered an increase in underlying profits, returns and capital generation – all of which means we are delighted to recommend an increase to last year’s inaugural CYBG dividend, payable to all shareholders.

“Clearly Brexit negotiations mean the external political and macro economic environment remains inherently uncertain. We have planned for a period of uncertainty, but it is impossible to ignore the lower levels of business confidence, especially for SMEs, while the final specific outcome of negotiations remains unclear.

“CYBG has a bright future with a unique combination of growth opportunities. We will participate strongly in the RBS alternative remedies schemes, have a stronger competitive edge as the first IRB accredited bank since the financial crisis, can fully leverage our iB platform in the new Open Banking landscape, and, of course, our combination with Virgin Money creates a genuine national competitor to the banking status quo.”

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