Annual Report and Accounts 2019 2019 and Accounts Report nnual A 2019 HIGHLIGHTS We know there are hundreds of things to worry about with money. Our bank won’t Our Purpose be one of them. We don’t want to be simply better than the rest, we want to make banking better. Making you happier about money That’s the heart and soul of what Virgin Money does. Statutory loss after tax Statutory RoTE Underlying profit before tax Underlying RoTE £(194)m (6.8)% £539m 10.8% 2018 – £(145)m 2018 – (6.9)% 2018 – £581m 2018 – 11.0% Net Interest Margin Underlying Cost:Income Ratio Cost of Risk CET1 ratio 1.66% 57% 21bps 13.3% 2018 – 1.78% 2018 – 59% 2018 – 15bps 2018 – 15.1% Asset growth Relationship deposit growth Group Net Promoter Score Colleague Engagement +2.9% +7.1% +37 76% Our strategic priorities: Pioneering Delighted customers Super straightforward Discipline and growth and colleagues efficiency sustainability Read more on page 16 Read more on page 17 Read more on page 18 Read more on page 19 BASIS OF PRESENTATION Virgin Money UK PLC (‘Virgin Money’ or ‘the Company’), formerly known as CYBG PLC ('CYBG') (the Company was renamed on 30 October 2019), together with its subsidiary undertakings (which together comprise ‘the Group’), operate under the Clydesdale Bank, Yorkshire Bank, B and Virgin Money brands. This Annual Report and Accounts covers the results of the Group for the year ended 30 September 2019. The term 'Virgin Money' is used throughout this report either in reference to the Group, or when referring to the acquired business of Virgin Money Holdings (UK) PLC or subsequent integration of the acquired business within the newly combined Group. Statutory basis: Statutory information is set out on pages 50 to 52 and within the financial statements. Pro forma results: On 15 October 2018, the Company acquired all the voting rights in Virgin Money Holdings (UK) PLC by means of a scheme of arrangement under Part 26 of the UK Companies Act 2006, with the transaction being accounted for as an acquisition of Virgin Money Holdings (UK) PLC. We believe that it is helpful to also provide additional information which is more readily comparable with the historic results of the combined businesses. Therefore we have also prepared pro forma results for the Group as if Virgin Money UK PLC and Virgin Money Holdings (UK) PLC had always been a combined group, in order to assist in explaining trends in financial performance by showing a full year performance for the combined group for both the current year and prior year. A reconciliation between the results on a pro forma basis and a statutory basis is included on page 51. The pro forma results are also presented on an underlying basis as there have been a number of factors which have had a significant effect on the comparability of the Group’s financial position and results. Underlying basis: The pro forma results are adjusted to remove certain items that do not promote an understanding of historical or future trends of earnings or cash flows, which therefore allows a more meaningful comparison of the Group’s underlying performance. A reconciliation from the underlying pro forma results to the pro forma basis is shown on page 52 and management’s rationale for the adjustments is shown on page 280. Alternative performance measures (APMs): The financial key performance indicators (KPIs) used by management in monitoring the Group’s performance and reflected throughout this report are determined on a combination of bases (including statutory, regulatory and alternative performance measures), as detailed at ‘Measuring financial performance – glossary’ on pages 278 to 279. APMs are closely scrutinised to ensure that they provide genuine insights into the Group’s progress; however statutory measures are the key determinant of dividend paying capability. Certain figures contained in this document, including financial information, may have been subject to rounding adjustments and foreign exchange conversions. Accordingly, in certain instances, the sum or percentage change of the numbers contained in this document may not conform exactly to the total figure given. INSIDE THIS 001 YEAR’S REPORT 002 Strategic report REPORT STRATEGIC How we performed in 2019 Chairman’s statement 2 and our plans for the future Chief Executive Officer’s review 4 Who we are 6 The external environment 8 How we create value 10 Brighter stores 12 Overview of our strategy 13 Key performance indicators 14 Pioneering growth 16 Delighted customers and colleagues 17 RESULTS FINANCIAL Super straightforward efficiency 18 Discipline and sustainability 19 Divisional reviews 20 Risk overview 26 Stakeholder engagement 30 People with purpose 32 Sustainability 34 040 Financial results An overview of our results for 2019 Chief Financial Officer's review 40 GOVERNANCE 053 Governance How we ensure we act responsibly Chairman’s letter 54 Board of Directors 56 Executive Leadership Team 62 Corporate governance report 66 Governance and Nomination Committee report 80 Audit Committee report 86 Risk Committee report 93 REPORT RISK Directors’ remuneration report 100 Directors’ report 132 137 Risk report How we ensure we manage risks Risk report 137 Risk classes 143 Credit risk 144 Financial risk 163 Regulatory, compliance and conduct risk 183 STATEMENTS FINANCIAL Operational risk 185 Technology risk 187 Financial crime risk 189 Strategic and enterprise risk 190 People risk 191 193 Financial statements Independent auditor’s report Independent auditor’s report to the members 194 and results in detail Consolidated financial statements 204 Company financial statements 267 277 Additional information INFORMATION ADDITIONAL Useful information for shareholders Measuring financial performance – glossary 278 and forward-looking statements Glossary 281 Abbreviations 285 Country by country reporting 286 Shareholder information 287 Forward-looking statements 288 VIRGIN MONEY ANNUAL REPORT AND ACCOUNTS 2019 STRATEGIC REPORT CHAIRMAN’S 002 STATEMENT “2019 has been a year of significant progress. The launch of our new Purpose and values, allied to our refreshed strategy, sets us up for an exciting future where we will deliver for all of our stakeholders and disrupt the status quo.” Dear stakeholder The adoption of the Virgin brand and its customer-focused values is at the heart of our new strategy for the Group. The Board and It was a year of significant progress for the newly renamed I worked closely with the Executive Leadership Team to develop Virgin Money UK PLC as the integration of Virgin Money and what we believe is a differentiated strategy and ambitious set CYBG gives us the platform and capabilities to disrupt the status of targets, culminating in their successful launch at our Capital quo. This has been a year of putting some of the major building Markets Day (CMD) in June. As we deliver on our strategy in blocks in place to enable us to deliver on our strategic ambition. the years ahead, we are confident that it will deliver sustainable The Group’s integration programme has made good progress and returns for shareholders, and value to all of our wider stakeholders. this culminated in the completion of the FSMA Part VII banking business transfer process in October 2019, which enables the Delivering for our stakeholders Group to commence the integration of our customer propositions. We are of course already delivering for stakeholders. Pages 30 Following this, the renaming of the Group from CYBG PLC to Virgin and 31 say more about this, showing how we are working with Money UK PLC signifies the scale of change underway. and delivering for customers, colleagues, society, investors, Underpinning these headline achievements has been a significant partners and suppliers, and government and regulators. programme of work across multiple teams, and I thank the Board, For investors, we recognise it has been a difficult year from a share Executive Leadership Team and all of our colleagues for their hard price perspective, reflecting a challenging operating environment work and focus on delivery. Bringing two organisations together is and the unexpected surge in PPI complaint volumes. However, our always a major challenge, but the cultural alignment we identified new strategy was well received by the market, and we are at the outset has been reflected in our cohesive teamwork to date. confident that its delivery will support shareholder value creation. Our Purpose, values and strategy I particularly wanted to note our improving Group Net Promoter Score (NPS) of +37 (2018: +34) as a measure of how we are The launch of our new Purpose, ‘Making you happier about money’, already delivering for our customers, as well as the strategic focus engaged over 2,000 colleagues to give us a clear guiding principle we have developed on making a positive impact for society and the that will drive our activities in future. Purpose-led companies have environment, outlined in our new Sustainability report on page 34. been proven to deliver improved outcomes for stakeholders, and I am confident this sets the Group up well for the years ahead. I was also pleased to see our colleague engagement score holding up well, despite the significant amount of change that is underway, Our new Purpose has been underpinned by our adoption of the and I thank our colleagues for their enthusiasm and resilience at Virgin values, which were well aligned with CYBG’s existing values, what can be a time of uncertainty for some. and are being used to drive optimal behaviours across the Group. This will ensure we live up to the promise of the iconic Virgin brand I have also been heartened by the contribution our not-for-profit to deliver great outcomes for customers, embedding an ambitious, business Virgin Money Giving Limited continues to make. As the customer-focused culture in the new Virgin Money.