Nationwide Building Society

Good morning and thank you for joining us for Nationwide Full Year Results presentation. My name is Debbie Crosby, I'm the Group Chief Executive Officer and I'm joined on the call this morning by Muir Matheson, our Group Chief Financial Officer. so it's been an outstanding 12 months for nationwide we've achieved record growth remain number one for customer satisfaction with an extended lead over our peers and we've chosen to deliver record value back to our members we've also successfully acquired virgin money allowing us to bring the benefits of the mutual model to more customers and we have achieved this against a very strong financial performance that includes performance this year, I'm delighted to confirm that we will be making another fairer share payment to eligible members in June. Alongside these brilliant achievements within the nationwide brand, I'm pleased to say that Virgin Money Business has been performing strongly in the first six months since our acquisition. We've returned to positive net mortgage lending in Virgin Money and continued strong growth in business lending, supported by resilient demand across our core sectors. Our stock of business current accounts has also grown by 5% since acquisition, And I'm delighted to say that we plan to pilot referrals for nationwide customers to our digital business current account, which ranks strongly against our high street peers. Our previously announced investment in Virgin Money customer experience is already leading to improvements in service metrics, including a material uplift in our call answer rate, which are now comparable to the existing nationwide service levels. This will ensure the Virgin Money business is well positioned as we progress our long-term integration ambitions. The strategic review which commenced following the acquisition last year is well underway and we'll be able to share more details and next steps with you later in the year. Having said that, it's no secret one of the key attractions of Virgin Money is the business banking capability, and that's why we're progressing plans to introduce processes that allow us to bring the existing Virgin Money offering to nationwide customers in the future. I'm pleased to say that in the meantime, integration plans are progressing well. The expenditure directly on integration activities has been lower than we expected. In September, we will move to streamline governance structures and we're actively working towards a part seven legal transfer process next calendar year. You'll be very familiar that our branch network remains fundamental to our support for customers and that's underpinned by our branch promise, which we have now also extended to Virgin Money. We continue to see tangible benefits and value from maintaining face-to-face service, evidenced by over 40% of new ISA openings and over 30% of new current account openings are taking place in person in the branch network. We've also seen more than a 20% increase in current account openings, where Nationwide is the last branch in town That really underlines the significant value that customers place on a physical face-to-face touch point. We're continuing to invest and enhance our digital services at pace to ensure that we can really deliver, giving our customers the true choice of how they bank with us. Our digital self-service mortgage manager platform is enabling over half of customers at deal maturity to switch to our best rates in a matter of minutes, and that supports our market-leading levels of retention. Since the launch of our new nationwide mobile banking app last year, we've delivered many new features which has now resulted in an 11% year-on-year increase in customer mobile app usage. We'll continue to innovate, rolling out capabilities that we know our customers value. Muir will provide more details on the financial shortly, but I wanted to highlight that record volume growth has been delivered against a very strong cost outturn with underlying costs growth well below the rate of headline inflation. This has been supported by our strategic investment in technology with solutions and processes that are simultaneously improving experience and productivity. So this includes generative AI, where we're enabling quality control 100% of our contact centre calls. That helps us meet our customer needs quickly, improve efficiency and deliver great service. And much of our recent mortgage success can be attributed to our focus on enabling faster offers with new automated income verification and valuation tools helping borrowers move from application to offer within just 20 minutes. Our achievements are reflected across many customer service metrics, including nationwide being named number one for customer satisfaction for the 13th consecutive year. And we're delighted that which just named us banking brand of the year. And now I'm going to ask Muir to run through the group financials in detail.

Thank you, Debbie. And good morning, everyone. We have delivered record organic growth on both sides of the balance sheet, increasing market share in our core products of mortgages and retail deposits in a highly competitive market, whilst increasing our lead in customer satisfaction over our peer group. We've delivered record member value by continuing to price competitively versus the market. And we have returned £1 billion through member reward payments. As Debbie has highlighted, the acquisition of Virgin Money provides us with opportunities to grow and meet the needs for more of our members, whilst also diversifying our balance sheet. I'm pleased to say that we have delivered all of this against another very strong financial performance. Before I go into the detail, please note that the financials that follow are presented on a group basis for the year ending 31st March. This consists of 12 months of nationwide subgroup performance from 5th April to 31st March and six months of Virgin Money performance following our acquisition on 1st October. Statutory profit for the group increased to a record 2.3 billion pounds compared to 1.8 billion last year. Excluding member reward payments relating to the fairer share and the one-off big nationwide thank you, statutory profit was 3.3 billion pounds. Post completion, we have reported higher income, higher costs and higher impairments reflecting six months of Virgin money. I will provide further detail on each of these lines later. As anticipated, underlying profit of 1.85 billion was slightly lower than last year as we chose to return value through better customer rates. Balance sheet growth in the year reflects both the acquisition and record organic growth in our core portfolios. Mortgage net lending of £15.5 billion was a record nationwide performance and the strongest performance across the whole sector over the last 12 months. Record organic retail deposit growth of £14 billion reflects strong inflows into our competitively priced savings accounts, including strong ISA inflows. Capital ratios remain strong, having reduced year on year due to the acquisition. The group CET1 ratio remains peer leading at 19.1%. In H2-24-25, NIM increased by 10 basis points on the prior six months, primarily due to the contribution of Virgin Money and its higher margin business banking and consumer portfolios, with the nationwide subgroup NIM broadly flat. Year on year, underlying group name was broadly unchanged at 155 basis points. Nationwide record mortgage performance was supported by strong and consistent pricing across LTV bands, including market leading levels of retention. Mortgage book margins continued to decline, but at a decreasing pace. New business completions in the second half of the financial year were written at 73 basis points over swap rates across the group. The retail deposit market continues to grow broadly in line with expectations. The nationwide brand has outperformed the wide market over the past 12 months, supported by competitively priced fixed-term products and strong inflows into ISAs. Additional Virgin Money balances, including over $17 billion of business banking deposits, have diversified our mix of customer deposits, with a greater volume of balances held within non-interest-bearing products. The average member pay rate for retail deposits was 291 basis points, 72 basis points higher than the market average deposit rate. And despite recent bank base rate cuts, our member financial benefit measure of value delivered to members through better pricing totaled £1.8 billion. With respect to NIM looking forward, there remain both headwinds and tailwinds. Mortgage competition has heightened with the blended margin on the pipeline today at circa 60 basis points. We expect deposit margins to continue to compress as bank base rate reduces, with the broad expectation that the margin widening which occurred as rates increased will be reversed as rates fall. These headwinds, however, will be broadly mitigated by the continued repricing of our structural hedges. We continue to maintain strong cost discipline. After adjusting for one off items, underlying nationwide subgroup costs grew by just 0.8% on a like for like basis, well below the rate of inflation. Inflationary increases and record growths in volumes were more than mitigated by retail and strategic efficiencies. total underlying group costs increased by 25%, reflecting the inclusion of Virgin Money business as usual run costs. Virgin Money costs are inclusive of a planned and short-term uplift to improve Virgin Money customer experience, which as Debbie described, is already delivering results through improved customer metrics. Below the line costs of £367 million relate to the acquisition, most materially of which is the one-off cost related to the amendment of the Trademark Licensing Agreement agreed with Virgin Enterprises Ltd. Moving forward, our continued ambition for Group BAU costs is to contain growth within the bounds of inflation. We plan to increase investment spend on integration and we'll provide more detail at the interim results disclosure as our strategic review progresses. Asset quality across all portfolios remains robust with low and stable levels of arrears. The multiple economic scenarios remain broadly consistent with last year. The weightings applied to each scenario remain unchanged, with a 15% weighting applied to the severe downside scenario reflecting global uncertainties. The statutory impairment charge of £632 million includes £456 million for one-off impacts relating to the acquisition. In line with recognised acquisition accounting practices, this reflects the reinstatement of Stage 1 and a proportion of Stage 2 IFRS 9 provisions for the Virgin Money portfolio following the acquisition date. It also reflects harmonisation of accounting approaches, including multiple economic scenarios. The net underlying group impairment charge of £176 million predominantly comprises a £164 million underlying charge relating to Virgin Money. The remaining £12 million charge relates to the nationwide subgroup and is materially lower than the £112 million recognised last year, following a reduction in judgmental provisions as previously anticipated increases in arrears have not materialised. As a result, and in line with our expectations, given the change in lending mix following the acquisition, the group cost of risk in H2 2425 has increased to 11 basis points on an annualized basis. This is broadly in line with our expectations for group cost of risk moving forward. Group mortgage three-month plus arrears are almost unchanged at 43 basis points, which remains significantly below the industry average. The average LTV of new mortgage business increased to 73% from 70% last year, primarily driven by our support of first-time buyers. The average stock LTV is broadly stable at 56%, supported by our market-leading levels of retention. Mortgage forbearance balances increased to 1.4 billion pounds, including 517 million pounds of Virgin money balances. Nationwide subgroup forbearance balances reduced by 92 million pounds, largely due to reduction in interest only concessions. Consumer lending three month plus arrears have decreased from 136 basis points to 111 basis points, driven by changes in product mix. In light of the acquisition, we have included more detail on our business, commercial and consumer lending segments. The business and commercial portfolio is well diversified and defensively positioned with lending focused on lower risk UK centric businesses. We assess the impact from geopolitical risks and higher tariffs to be low. The nationwide subgroup portfolio predominantly comprises lending to housing associations. The consumer lending portfolio is focused on prime borrowers across a range of segments. The 12-month average group LCR was 174%, compared to 191% at the end of the prior period. 11.3 billion pounds of TF SME drawings were repaid during the period, with now less than one billion pounds left outstanding across the group. On balance sheet group liquidity totals 51 billion pounds, which comprises cash and high quality liquid assets. In addition, we have a significant level of drawdown capacity at the central bank, much of which can be drawn intraday. We issued approximately 11 billion sterling equivalent of wholesale funding in the last financial year and a further 1 billion sterling equivalent since the 31st March year end. We will continue to be a regular issuer in benchmark size across the liability structure in our core currencies of sterling, euro and dollar. Our expectation is that the nationwide group issuance will total between eight and 10 billion sterling equivalent this financial year across our secured and unsecured programs. All new unsecured and capital instruments are issued from nationwide and downstream to Virgin Money as required. Our issuance plans continue to take account of credit rating agency requirements for loss absorbing capacity. Group capital resources remain comfortably above regulatory requirements with substantial buffers across risk-based, leverage and MREL frameworks. The Group CET1 and leverage ratios were 19.1% and 5.2% respectively. We do not expect there will be a material day one impact on the Group CET1 ratio from Basel 3.1. based on our interpretation of the PRA's near final rules. Leverage requirements are expected to remain the binding Tier 1 constraint. Thank you, and I will now pass back to Debbie.

So just very briefly to summarise, it's been an outstanding 12 months for the society. We've returned our highest ever member value, delivered record growth, and we're super proud to be bringing the benefits of mutuality to more customers following the Virgin Money acquisition. And it's all been underpinned by a very strong financial performance. So with that, we're delighted to move to questions. I'm going to hand to Vikas, who's going to host the Q&A.