CYBG says demand holds up

Virgin acquisition dents profits at Clydesdale owner

David Duffy

David Duffy: ‘demand has remained robust’


CYBG’s acquisition and integration of Virgin Money dented its half year underlying profit before tax which came in 5% lower at £286 million (2018: £301m).

The holding company for Clydesdale and Yorkshire banks said statutory profit before tax was £42m compared with a statutory loss of £95m in the same period last year.

The Virgin deal, which completed in October, cost the group £228m and included £55m of one-off transaction related costs and £45m of integration costs as it embarked upon a three year programme to fully integrate both banks.

There was also a £127m charge following a review of the group’s software estate, which identified a number of core assets (including £70m in relation to the Virgin Money Digital Bank asset) that are no longer of value to the group’s strategy and were written down.

The company said cost synergies from the integration are being delivered in line with expectations – £33m of annual synergies realised to date. Total annual savings will be a minimum of £150m by the end of 2021, after an extra £30m of synergies identified since acquisition completed.

CYBG also set aside a further £30m for PPI claims, mainly due to the higher volume of speculative information requests driven by the increased activity by claims management companies ahead of the August 2019 industry deadline.

David Duffy, chief executive, said: “As expected, profit before tax has been impacted by the significant Virgin Money acquisition and integration costs.”

He said the UK economic outlook remains uncertain, as it has done for some time, and the delay to the resolution of the UK’s negotiations with the EU is likely to extend this.

“While this has caused some customers to pause investment and consumption, demand has remained robust. Strong competition continues in several of our key markets, although we have seen signs that pricing in the mortgage market has started to stabilise.

“Despite these uncertainties, our focus on customer proposition and service has enabled us to continue to grow our business and attract new customers. SME drawdowns in the half were our strongest so far at £1.1bn, and with a strong pipeline into the second half, we remain on track to deliver our commitment to provide at least £6bn of new lending to SMEs over three years by the end of 2019.

“Although we were surprised to have not received an award from the BCR’s Capability and Innovation Fund, we are excited about the prospects for our SME business and will update in June on our plans for delivering a differentiated SME proposition.”

Market reaction

Donald Brown, head of private clients at Brewin Dolphin Edinburgh, said: “Today’s results from CYBG continue to highlight the substantial impact from the 2017 acquisition of Virgin Money.

“UK domestic earners are clearly under pressure and the growth in customer lending, which is likely thanks to some leveraging of the Virgin brand, can be viewed as encouraging for the group. However, significant acquisition and integration costs still remain so CYBG shareholders may be waiting another year to start reaping the rewards of the merger. Perhaps as expected, underlying profits have been impacted by the acquisition, down 5% compared to this time last year. 

“The future for the group post-merger is still being mapped out and the new opportunities and synergies which the company promised as part of the original deal are still awaited.”

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