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CYBG PLC

CYBG PLC Resilient underlying financial performance in H1

CYBG PLC (LON:CYBG) today announced Interim Results 2019

Our new, enlarged group delivered a resilient underlying financial performance in H1, with integration progressing well. We are now developing customer propositions that leverage our differentiated brand, digital capability and full product suite, and we will set out our ambitions at our Capital Markets Day on 19 June.

Note: this summary is on a pro forma basis as if Virgin Money was acquired on 1 October 2017 (actual completion 15 October 2018)

Resilient underlying financial performance; statutory profit impacted by acquisition and integration costs

– Pro forma underlying profit before tax of £286m is 5% lower year on year due to the anticipated increase in impairments, but up 2% on H2 18; underlying Return on Tangible Equity (RoTE) was 10.4%

– Pro forma profit before tax of £9m impacted by significant acquisition and integration costs; statutory profit after tax was £29m due to the tax charge and acquisition timing impact

– Total underlying income of £843m in the first six months was in line with both H1 18 and H2 18:

o Net interest income was down 1% on H1 18 with a lower Net Interest Margin (NIM) of 171bps due to the mortgage pricing pressures seen in 2018, although up 1% on H2 18 after pricing started to stabilise

o Non-interest income was up 11% year on year due to growth in Virgin Atlantic credit card fee income

– Underlying costs down 3% year on year to £480m; underlying cost to income ratio was 2%pts lower at 57%

– Impairments increased to £77m; cost of risk of 21bps. In line with expectations reflecting the adoption of IFRS 9, a return to more normal levels in SME, as well as the growth and seasoning of our credit card portfolio

Continued delivery of sustainable customer growth

– Customer lending growth of 2.4% to £72.7bn driven by:

o Disciplined mortgage balance growth of 2.5% to £60.5bn

o SME growth of 1.1% to £7.6bn; strong new business drawdowns of £1.1bn offset by higher redemptions

o Unsecured balances up 4.2% to £4.5bn with strong growth from the Virgin Atlantic credit cards

– Customer deposits up 1.2% to £61.7bn with an increase in relationship savings balances as we optimise mix

Integration progressing well; significant acquisition and integration costs incurred during the period

– Integration programme progressing well with the top two layers of management rationalisation complete

– Cost synergies being delivered in line with expectations; £33m of annual run-rate synergies realised to date

– Acquisition and integration costs of £214m includes integration costs of £45m, VM transaction costs of £55m, capital neutral intangible asset write-offs of £127m and other accounting adjustments

Strong capital position maintained; acquisition costs, conduct and distributions impacted capital in H1 19

– CET1 capital ratio of 14.5%; c.60bps reduction compared to the 30 Sep 2018 pro forma ratio of 15.1% reflects acquisition and integration costs, a small conduct provision top-up, as well as dividend and AT1 distributions

– Conduct provision top-up of £33m primarily due to increased processing costs from speculative PPI claims

David Duffy, Chief Executive Officer of CYBG PLC commented:

“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. As previously announced we have also increased our forecast of the total cost synergies available by £30m to a minimum of £150m by the end of FY 2021. We have already realised £33m of annual run-rate cost synergies in the first six months. 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.”