AUCyber Limited (ASX:CYB)

Earnings Call: H2 2020

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Nov 25, 2020

Good morning, everybody, and welcome to our annual results presentation. Thank you for taking the time to join, and I hope you're all managing well in this complex operating environment. Our presentation today will be split into 4 sections and will take approximately an hour. It will be followed by a live Q and A session, which we expect to finish at around 10:30 a. M. I will walk you through some of the key themes of the past year before handing over to Emma Johnson, who will take you through the detailed financial results. I will then return to share my views on the outlook for the business in the years ahead before floor opening for questions on the conference call. Mark Fennercliff, our Chief Risk Officer, will also join us. Turning to Slide 4. 2020 has been an unprecedented year, And the macroeconomic backdrop has been and will continue to be challenging and uncertain. I think the business and our employees have responded well to the crisis. I am happy to observe that we are living our purpose in everything that we're doing. And this has been evidenced by customer feedback and by the fact that Our colleague engagement is at an all time high. The challenges are a reality, which all businesses and banks are facing across every sector. And whilst there has been some optimism expressed recently given the vaccine news around the world, we have not factored this into our near term outlook yet. And we remain cautious about the ultimate impact of COVID-nineteen. In reality, the economic benefits of vaccines are a long way off, whereas the impact of a second lockdown is our current reality. Endo will share a more detailed perspective on our conservative assumptions in his section. Our ambition to disrupt the status quo and our purpose of making you happier about money are shaping the way we differentiate Virgin Money in the marketplace. And our strategy and purpose are even more relevant today given the challenges created by the pandemic. In particular, we are more convinced than ever that the digital agenda in our strategy is core to our future and we intend to accelerate our efforts in this space. Our philosophy continues to be one of self help during these uncertain times and we will be relentless when pursuing our digital agenda, delivering on our cost efficiencies and optimizing our balance sheet. Our transformation ambitions have also been validated by COVID, and session was delayed as a result of the pandemic. We have now resumed our integration, rebranding and digital transformation programs. We have also allocated the investments required to take out additional costs and to launch new customer propositions. Ultimately, as you would expect, Our goal during this period has been to protect our balance sheet and to support our customers, colleagues and communities. And at the same time, we are actively pursuing our post COVID objective of being the most agile, innovative and disruptive bank in the UK. Turning to Slide 5. Environment. To deliver the support required, we had to completely change our delivery models and we believe that one of the benefits that will come from this period is that our new ways of working will be much more efficient and cost effective than those of the past. Our participation in the various government guaranteed lending schemes has seen us lend circa $1,200,000,000 to businesses and our rapid implementation of payment holidays provide relief to customers at a time of great uncertainty and need. And as a result of the remarkable commitment and resilience of our employees, we've been able to keep 95% of our branches and all of our call centers open. We have enabled most of our colleagues to work from home by providing cloud based technology and And whilst the majority of our staff are enjoying this new way of working, we recognize that for some, it is an unsettling time. So we are continuing to offer well-being support, a diverse range of virtual engagement opportunities and a much more frequent leadership communication model. That being said, I believe that our future operating model We'll seek to maintain the positives of a remote working structure, which offers greater flexibility and choice. Our goal is to allow our employees to live their best lives by identifying the benefits of remote working practices and combining them with the best of our historical practices. We will innovate constantly when designing this go forward operating model. We have also continued to play a positive role in the communities where we operate. Effort. We have provided critical financial support to communities, volunteer groups and charities through our fundraising platform, Virgil Money Giving, and also by providing grants directly from our Virgin Money Foundation. Turning to Slide 6. Whilst managing the bank through the pandemic, we have continued to deliver on our strategy and to lay the foundations for the future. The steps we had already taken to transform and simplify our business mean that we are really well positioned to take advantage of the change in customer behaviors being driven by the pandemic. Environment. Despite the restricted nature of the environment, we have continued to roll out products and propositions and campaigns. And for example, We launched Money on Your Mind, our customer support initiative, which has received over 10,000,000 views since April, and we have rebranded 37 of our largest stores in key locations across the country. In addition, we launched the Virgin Money Arena concert in Newcastle's Gosford at Park, which attracted 52,000 visitors and our coverage across TV and social media channels reached approximately 2,000,000,000 people, demonstrating the power of social media. We also launched the first ever digital Virgin Money personal account with a linked savings product, And this account has been rated as outstanding by MoneyFacts with a perfect 5 star score. And this innovation has been complemented by our better than basic bank account, the M account, which is a core part of our financial inclusion strategy. We have continued our digital journey in mortgages by launching our innovative home buying coach app and have invested in our broker channel by delivering API connectivity across the main mortgage broker sourcing systems. Effort. Finally, we were successful at our 3rd attempt and being awarded a grant of €35,000,000 by the BCR Capability and Innovation Fund. And I'll touch on our plans for the business bank in more detail later in the presentation. So let me turn to Slide 7 on our financial performance and the impact of COVID on our full year results. Whilst our first half financial performance was resilient, the second half has been impacted by the market wide effects of the COVID pandemic as follows. In our lending book, we saw a muted lending growth overall for the year, but with strong growth in business lending up nearly 14% due to the customer take up of $1,200,000,000 of government guaranteed lending, while personal lending growth was dampened by the lockdown impacts And the small contraction of our mortgage book reflects the combined impact of our pricing discipline as well as the market shutdown. Deposits have grown really strongly during the period with relationship deposits increasing 20% due to consumer and business savings behaviors under lockdown. Despite the challenges this year, we have delivered a net interest margin of 1.56%, which was within guidance and remain focused on our delivery of our self help efficiency opportunities with net cost reductions of €30,000,000 achieved during the year. Our asset quality remains resilient, And importantly, we have seen no material deterioration in arrears or asset quality measures across any of our portfolios. However, Given the uncertain economic outlook and the yet to materialize impacts of COVID, we have chosen to apply additional conservatism to our economic scenarios and weightings as we assessed our impairment provision. This has led us to increase our on balance sheet credit provisions of €735,000,000 with enhanced coverage across all portfolios. And this resulted in a significant impairment charge of €501,000,000 and a statutory loss after tax of 141,000,000 We do, however, retain a significant CET1 management buffer of €950,000,000 above our minimum regulatory requirements and continue to operate with strong liquidity and funding positions. I will now hand over to Ende, who will take us through a balance sheet update and the financial results in detail. I will then return at the end to outline my thoughts on 2021 and beyond before returning to our Q and A session. Over to you, Enda. Thanks, David. Good morning to those of you in Europe and good evening to those watching in Australia. I hope you're all keeping safe and well in what continues to be challenging times. There is a lot to cover here today, so please make yourselves very comfortable. There are 3 things I want to emphasize upfront in this section. Firstly, we have not seen any material deterioration in observed asset quality Nor have we been required to take any material specific COVID related provisions. Secondly, We've taken a deliberately conservative approach to the economic inputs for our ECL assessment. And finally, we remain robustly capitalized for the potential challenges ahead. This is a uniquely difficult point in the pandemic to be making predictions for the future. On the one hand, there is observed and evidential significant economic disruption coupled with unprecedented government support. On the other, there is the potential for highly positive developments on vaccines which have the potential to manifest quite quickly. The former is evident today, the latter is as yet unproven. So we are positioning our judgments and guidance cautiously for now, but recognize there may be potential for change in the future. As David has outlined already, our financial results were impacted by the significant impairment provision charges we have recognized this year as well as the base rate changes and customer demand impacts in the second half. Before we go through those results in detail though, I wanted to walk through what we are seeing across our balance sheet and explain the conservative economic assumptions that underpin our provision. Moving now to Slide 9. I'll start with a high level overview of where we stand today. Firstly, as a reminder, we have a defensively positioned lending book that is primarily made up of secured low average LTV mortgages accounting for 81% of the portfolio with prudently underwritten business and personal lending books making up the rest. We have to date seen no material deterioration and haven't taken any material specific provisions in relation to COVID. In fact, Our arrears have reduced across most of the portfolios as a function of the government support and the forbearance measures we put in place such as payment holidays. Additionally, our experience with payment holidays has been in line with or actually better than our expectations, but it is very early days on that front. Notwithstanding that picture on asset quality, we have adopted a deliberately cautious and conservative position on the forward looking economic environment. We have applied an updated set of economic scenarios and weightings in assessing our current ECL provision which reflects what we continue to believe is a highly uncertain economic outlook with an assessment that further restrictions to economic activity are likely over the coming period. It is important to note We have not yet been any near term mitigation from the recent vaccine news pending greater clarity on timelines and outcomes. These conservative economics and weightings have therefore increased provision coverage across all of our portfolios with a total coverage ratio of 102 basis points. Stage migration is still largely model driven as a result of the conservative economic weightings driving more into Stage 2 with Stage 3 loans remaining stable. Our capital position as David has said remains robust with a transitional CET1 ratio of 13.4 leaving us with a significant CET1 management buffer in excess of our minimum regulatory requirements. On the right hand side of this slide, You can see the key asset quality metrics across our portfolios, which reiterate the following. Our current and historically proven underwriting criteria sector focus, the low arrears levels across all of the portfolios and the good levels of collateral on the secured lending in mortgages and business. So in short, we have not experienced any actual deterioration in portfolio strength. Arrears levels remain low and stable and payment holiday experience has been in line or better than our expectations. However, what has changed is our assessment and view of the forward economic environment And our year end impairment charge, stage migrations and coverage levels reflect this position. Turning now to the portfolios in detail starting on Slide 10. As you know, we have a prime mortgage book that has been built up primarily over the last few years under the strict affordability requirements of the mortgage market review regime and therefore originated to very high standards with no subprime, self cert or other sectionless categories. Our portfolio arrears stand at 0.4%, which is half of the industry average, albeit modestly higher than the 0.3% at the end of last year. This is mainly due to payment holidays And the repossession moratorium extending how long customers are spending in arrears before lender actions are taken. And so therefore not really a change in underlying asset quality. Owner occupied as a reminder makes up 75% of our book and has strong credit metrics. It is a low LTV book with an average of 57%. Just 17% of the book sense. We also have good affordability with an average loan to income of 3 times. Importantly, The proportion of the book that is highly leveraged through the combination of a high LTV and high LTI is negligible at 0.1%. Our buy to let business is primarily focused on non professional landlords with small portfolios and higher levels of borrower income to ensure resilience under stress and the portfolio has an average LTV of 56%. We have always underwritten the book with conservative rental and borrower income requirements and have consistently maintained a maximum LTV of 80% for new business. To date, we have seen no material asset quality concerns. Our owner occupied interest only exposure Is 13% of the total portfolio where our focus is primarily on affluent customers with larger deposits And this is reflected in the low average LTV of 49% in this book. In terms of payment holidays, Our early experience is similar to our peers. We've granted payment holidays to about 20% of the portfolio by balances to date, but have only 4% that are on an active payment holiday currently with 98% of those who have matured from their payment holiday returning to payments. The average LTV of those who have taken payment holidays to date has been 61%, So not markedly different to the portfolio average of 57%. For the 2% of customers requiring further support, The average LTV is low at around 52%. And as part of our impairment provisions, we have assigned coverage of circa 300 basis points to this cohort primarily through post model adjustments. Finally, we have not seen any material spike in payment holiday requests following the FCA's recently announced industry wide payment holiday extension measures, but we will of course keep an eye on how this evolves over the coming months. While the portfolio has remained resilient thus far, we are cautious about the future outlook for key metrics such as unemployment and house prices which is reflected in the modest economic outcomes and the overlays. Turning now to business on Slide 11. At the interim results, we outlined how we thought about our business portfolio in 4 classification buckets. And I thought it would be helpful to update you on those. Obviously, almost every business has been impacted by COVID in some way whether that's revenues, costs or logistical difficulties, some for the better, more for the worse. What this slide shows is how those day to day impacts have flowed through to our view of the impact on our lending exposure. I am going to split our business portfolio into our BAU book, which is the CHF7.8 billion of lending we originated under our usual relationship manager led processes and where we retain all of the credit risk with a further CHF 1,200,000,000 of lending that has been originated through the government backed schemes where the credit risk is primarily insured under the government guarantee. We split the BAU portfolio into 4 classifications for exposure to COVID-nineteen. Least Exposed, Lower Impacted, More Immediately Exposed and Finally Higher Impacted Businesses. 47% of our BAU book remains in sectors that we believe are least exposed to damage from the COVID pandemic and this is reflected in our relationship manager discussions and asset quality experience today. As you know, agriculture is our largest single sector concentration at 16%, where we are very well diversified and collateralized across different subsets of agriculture and performance in this book remains resilient. In health and social housing Around 17% in total. Our principal exposure is care homes and specialist care. Revenues are resilient as beds continue to be needed in this crisis. And while there have been well documented industry wide operational issues early in the pandemic, performance is broadly stable to date. 31% of our VAU book is in lower impacted sectors. This has increased from 22% at the interim results. This is because we have moved both the wholesale and professional practice sectors down from least exposed, owing to lending requests under the government lending schemes. Although performance remains resilient here, We are being cautious in case this higher level of requests are an indicator of potential future stress. Specialist hotels remain stable with our boat primarily major city center and around 2 thirds in Central London. While clearly impacted, the strength of location and brands mean we are positive about their future relevance and ability to trade profits with us. And the exposures are underpinned by good levels of collateral and committed professional equity backing. Around 13% of our BAU lending is the sectors more immediately exposed in this stress. 8% of this is in business services and the degree of impact depends on the type of businesses supported. Supermarket service providers are less impacted while entertainment firms more so. Our legacy CRE portfolio is small, well collateralized and with low arrears and accounts for only 3% of the book. Finally, we have around 9% and what we have designated higher impacted sectors. Whilst we are not materially in high street retail, we have some exposure ongoing threat. Just to reiterate though, we don't have any meaningful exposures to the most impacted sectors such as airlines, oil and gas, travel, high street retail or speculative development CRE. In addition, with a very low number of customers on payment holidays in business, with only 1% of balances on an active payment holiday, with 98% of those who have matured from their payment holiday returning to payments. Asset quality remains stable here with arrears of 0.3% at year end compared to 0.5% in 2019. Linked to this low level of payment holidays and arrears, we've been supporting customers with lending facilities through the government guaranteed lending schemes with around £1,200,000,000 dispersed at the end of September. Around £800,000,000 of this is a 100% guaranteed bounce back loans With 2 thirds of these to existing deposit only customers who had not previously borrowed from us and reflective of the targeted loan size from much smaller businesses. While our smaller volume of CBILS of around 400,000,000 Was primarily to existing medium sized customers who make up 90% of borrowers here. However, it is worth flagging that we have to date taken lower than our natural market share of lending against the schemes, which is not through having turned valid applicants away, but more a function of the cash flow resilience amongst our targeted sectors and we believe an early vindication of our underwriting approach. Looking into the outlook for this portfolio, the speed of recovery in 2021 and the impact of the final Brexit outcome will be the key drivers in terms of portfolio resilience. We have previously done a lot of work to assess the risks of Brexit and have made changes to our risk appetite, but any potential trade and economic disruptions do remain a possible headwind for some at an individual customer level. Turning now to credit cards on Slide 12. You know the quality of our credit card portfolio, so I won't dwell too long on this year. Our cards exposure is conservatively underwritten and well positioned for a period of economic uncertainty owing to our focus Our more affluent customers who typically have more resources to call on in times of stress. With the customer profile table on the slide demonstrating the quality of the customers we lend to. Our arrears remain low at 9.8% which has reduced from 1.1% at the end of 2019. However, as with other portfolios, The arrears levels are being suppressed owing to government support and payment holidays, but it is nonetheless pleasing to see our portfolio arrears I've moved down in step with the industry and continue to be around half the industry average of 1.6%. We've also reduced our risk appetite through the year for new lending in particular with a further tightening of criteria for self employed and with more stringent affordability tests for a stressed income on a fully drawn line at over 30% APR. And the 3rd party benchmarking reaffirms both the better quality of the business we have written relative to the wider market and the historical performance of balance transfer credit card balances under stress, which we are of course more weighted to at around 68% of our cards portfolio. Turning now to our payment holiday experience in personal on Slide 13. Sticking with credit cards, our payment holiday experience is again typical of the broader industry with Payment holidays granted to around 5% of credit card balances to date, 1% of balances currently on an active payment holiday And 92% of those customers who have matured from a payment holiday returning to payments. For those payment holiday customers who have required further support, we have a coverage ratio of around 20% embedded within our provision through our post model adjustments. Our personal loan book of circa €1,000,000,000 is small and has been carefully originated. It is a mix of long standing banking customers and more recent digital customer acquisition in higher quality, keenly priced business with lower debt to income, higher affluence and lower self employed characteristics. The average life of the personal loan book is around 2 years And so turnover in the book is actually rapid. We significantly tightened our credit cutoffs for new lending in March by circa 40%. And therefore around half of the book will be on this tightened risk appetite by March 2021. Portfolio rates also remain very low at 0.4% and have reduced year on year owing to the various support measures. The early payment holiday story is similar to cards here with 11% of balances having had a payment holiday to date, 3% currently on an active payment holiday and only 5% of customers who have matured requiring further support. With 19% coverage allocated for this cohort through our PMAs. So overall, the personal portfolio remains resilient. However, we are cautious on unemployment rates and in particular different customer types who may be disproportionately impacted which is reflected in the coverage we are holding. So that's our lending portfolios. Now we'll spend some time talking about our impairment provisions starting on Slide 14. I'm going to focus now on how we've assessed our ECL provision and explain the rationale for the top up we have taken in Q4. Firstly, I cannot reiterate strongly enough that we have not yet seen any material deterioration in sardasa quality given the range of economic stimulus and support measures in place nor have we been required to take any material COVID related specific provisions to date. So the impairment provision we've taken It's driven by a conservative view of the future macroeconomic outlook and has been developed using a combination of economic scenarios and expert judgment following a comprehensive internal governance and challenge process. We have updated our models based on IFRS 9 economic scenarios sourced from OXXO Economics, which relative to the scenarios we used in Q3 We're more conservative across the key credit loss sensitive measures of GDP, unemployment and HPI. In addition to considering the economic scenarios and shape relative to our own assessments and external benchmarks, The key estimation we as a management team have to then make is the probability weightings where we have conservatively applied significantly more weightings to the base and downside scenarios which now account for 95% of the total weighting. As you can see, the output of this is a significant downward shift from the weightings we used in Q3 and reflects our preference to be cautiously positioned in the face of the uncertain economic outlook. These weighted average outcomes acknowledge the likelihood of further restrictions and further potential COVID and economic headwinds. The impact of which are as yet unclear despite the extension of government support. So the combination of more conservative scenarios and weightings means that our weighted average economic assumptions have deteriorated quite significantly since Q3. The black dotted line relative to the gray dotted line on the three graphs on the right. With a weighted average 15% year on year UK GDP declined now soon in 2020, average unemployment of 8.6% in 2021, A peak of 10% unemployment in calendar Q1 2021 and a prudent peak to trough house price index fall of 22%. We accept these assumptions are conservative when compared to current market forecasts and also when compared to some of our peers' last reported scenarios. But we would prefer to on the side of caution given the uncertain outlook. We also recognize that house prices at the moment are trending positively in the market rather than negatively, But we are positioning for a peak to Trump outcome over the coming years rather than responding to the latest month to month movements. And clearly the outturn over the medium term is much more important than the short term in driving expected losses. We've also reassessed our expert judgment credit risk overlays which I will talk through on Slide 15. The more conservative scenarios and ways being selective have resulted in a circa 70% year on year increase in the group's models and individual ECL to €549,000,000 at the end of September. In addition, The group has set aside a further $186,000,000 in provisions through post model adjustments, up from $49,000,000 a year ago. Post model adjustments or PMAs are used to incorporate new or emerging risks not captured in modeled outcomes such as payment holidays or the roll off of government support as well as to address potential limitations in model sensitivity where they may not be reflective of the unique economic stress scenarios we are currently experiencing or forecasting. Following our internal processes, PMAs were judged to be required in our mortgages and personal books with €75,000,000 €100,000,000 respectively. In mortgages, the PMAs primarily reflect potential longer term implications for customers who have taken a payment holiday. While in personal, the PMAs relate to payment holiday assumptions, credit bureau data adjustments reflecting temporary improvements we don't believe are sustainable. And for our personal loan book specifically A PMA for the unprecedented unemployment shock we are assuming, which is difficult for the models to fully capture. We did not assess that any PMAs were required in our business portfolio as we believe the policies and frameworks in place to identify business customers experiencing financial difficulty are operating effectively given the more granular customer specific assessments we are able to undertake, meaning our internal rating systems respond more dynamically as levels of customer difficulty potentially increase. It is also worth remembering that we have assessed that 78% of our business book is in the least exposed or lower impacted sectors. The overall level of model provision and coverage for business It was assessed as sufficient in the context of the portfolio shape and strength and has been supplemented by the extensive number of customer and segment reviews undertaken in recent months. So bringing it all together, We believe that the approach we have taken has led to an appropriate assessment of ECL for the conservative economic scenarios and weightings we have applied with $735,000,000 of on balance sheet credit provisions in total at the end of September. While we do recognize the recent positive news in relation to the various potential vaccines, they do remain subject to approval and the timing of when or even if they can be successfully rolled out at scale globally in a way that allows for a return in normal economic activity remains unclear. Most economic forecasts Including ours had always assumed a way out from the pandemic at some stage. And so this news therefore provides clarity on that exit at some point in the future. If rapid adoption of vaccines or other measures improve the economic outcomes Then as and when that becomes clear, it will be reflected in our modeling and provisions. However, it Still remains unclear what the ultimate economic impact of a likely 12 plus month period of disruption will be. The impacts of which are only likely to emerge next year. Our assessment has been through extensive board engagement and internal governance and is based on experience in a variety of different crises in different jurisdictions, which informs our decision to adopt a cautious approach. In addition, as you would expect, We've tightened our risk appetite on new lending to reflect the changed environment. This has included tools such as raising credit cutoff levels, reducing origination in potentially less resilient segments of the market and ensuring our BAU business lending is focused on cash generative businesses. Finally, we've also been beating up both our resourcing and processes so that we are operationally ready for an expected increase in credit losses with a more than doubling in the size of our collections and workout teams already secured but when required in 2021. The increased cost of this are of course then reflected in our 2021 cost guidance. Turning now to what this is all meant for stage migration on Slide 16. As you can see on the chart on the left, The impact of the modeling and PMAs we have applied has been to nearly triple the proportion of loans in Stage 2 to around 18% the consequent reduction in Stage 1 loans. And this again is because we've not yet seen any material specific credit losses and therefore the majority of the migration is driven by the assessment of the economic landscape with our proportion of Stage 3 loans remaining stable. As you would expect given our portfolio weightings the majority of the movement in Stage 2 loans It's from mortgages at 76% of the increase with business accounting for 19%, which reflect the conservative economic scenarios and the waiting supply. On the right hand side of the slide, you can see the split of Stage 2 loans by credit trigger point with 82% of loans classified as Stage 2 because of PD migration due to our modeling outputs. Importantly, the proportion of loans in Stage 2 that are more than 30 days past due is only 2% at present. I will now turn to what this means for our provision coverage levels on Slide 17. As you can see from the table, the application of our more conservative economic scenarios, Weighties, has increased our provision coverage across all portfolios with total group provision coverage of 102 basis points. In mortgages, We've increased our provision coverage to 23 basis points, a relatively sharp pickup relative to Q3, which reflects the more conservative weighted economics especially unemployment in HPI that resulted in migration of around $6,000,000,000 of mortgage lending into Stage 2 and the subsequent recognition of ECLs. In personal, we've broken down the portfolio gear into our credit cards and personal loans and overdraft books to reflect the different characteristics of the portfolios. In credit cards, we modestly increased the coverage to 5 37 basis points where the lower relative scale of that change is reflective of the high quality customer profile of our book, which is less sensitive to the more conservative economic scenarios we have used. In our much smaller personal loan and overdrafts books, we've nearly doubled the coverage ratio since Q3. The relative size of the movement partly reflects the law of small numbers, but also reflects a more prudent approach to our PMAs At 824 basis points, we believe our coverage here is appropriate for the uncertain environment and reflects our conservative economic assumptions and weightings. In particular, this includes an 8.6% average unemployment rate in 2020 one and a peak unemployment rate of 10%. Finally, in business, we've also increased our coverage since Q3 to 391 basis points, reflective of the increase in Stage 2 loans as previously discussed. So in summary, the comprehensive approach we have taken here at what must be remembered are our full year results incorporates more conservative economic inputs and expert judgment overlays and this has resulted in increased coverage across all of the portfolios and positions us with €735,000,000 of on balance sheet provisions as we enter what could be highly uncertain 2021. However, the recent news on vaccine development Clearly has the potential to improve the economic outlook and the operational transformation we have been delivering does Legos well positioned to capitalize in a more buoyant scenario. And David will talk about that more later. Turning now to capital on Slide 18. The group's transitional CET1 ratio remains robust at 13.4%, which means we retain a significant CET1 management buffer of circa €950,000,000 in excess of our minimum regulatory requirements or NDA of 9.5%. And this is in addition to the €735,000,000 of on balance sheet provisions I have just talked you through. Our fully loaded CET1 ratio is 12.2% after removing the IFRS 9 transitional relief. And while it is expected that the difference between transitional and fully loaded may narrow somewhat during 2021, If the migration of loans into Stage 3 increases, we do not expect it to completely narrow anytime soon, assuming of course no material deterioration in the outlook relative to assumptions. I will talk in detail later on about our expectations for capital and RWAs into 2021 as there are potentially some uneven movements on RWA as expected. But the key message for now is that we remain well capitalized going into this uncertain period. This is underpinned by a defensive lending portfolio with appropriate provision coverage across our portfolios that is reflective of conservative economic assumptions and weightings. Turning now to the financial results. I hope you find that detail on our balance sheet helpful. I'll now move on to discuss the key points in the full year results before handing back to David to talk through the outlook for 2021 and beyond. Turning now to Slide 20. In what was a very challenging second half environment, the group delivered a pre provisioned underlying operating performance down 10% year on year. Against that tough backdrop, the group saw income decline 6% year on year. NII was down 6% as NIM reduced to 156 bps in line with our previous guidance, while other income was down 7% given the reduced activity levels during the second half of the year. Underlying costs declined 3% even after absorbing incremental COVID related expenses mitigating some of the income pressure, but our cost income ratio did increase 2 percentage points year on year to 59%. As I've just outlined in detail, We have taken a more cautious view on the outlook given the risks that persist in the current environment and that prudence resulted in a significant impairment charge of $501,000,000 a year, equivalent to 68 basis points cost of risk, over 3 times higher than 2019. Underlying profit before tax The CAD124 1,000,000 was therefore substantially lower year on year, driven by the elevated impairment charges with our underlying return on tangible equity and earnings per share both similarly impacted. Turning to the statutory performance on Slide 21. We returned a statutory loss after tax of £141,000,000 for the year. Exceptional charges in 2020 totaled €292,000,000 and were primarily driven by integration and transformation costs of €139,000,000 €113,000,000 of continued acquisition accounting unwind charges. There are circa $150,000,000 of acquisition accounting online charges remaining over the next 5 years with more material weightings to 2021 2022. Pleasingly, there was no PPI charge required in 2020 and we remain on track to complete our program in line with our current provision assessment. However, we were required to take A CH26 million charge related to several much smaller legacy conduct matters, none of which were material in their own right. As a consequence of the above, TNAV per share declined 5p year on year primarily reflecting the statutory loss. We do expect to see a substantial reduction in exceptional costs over time to drive the underpin of future statutory profitability. Turning to our funding position on Slide 22. As with most across the market, we've seen exceptionally strong growth in deposits, which were up nearly 6% across the year owing to the impacts of the pandemic on savings behaviors amongst both businesses and consumers. With our personal customers saving more during lockdown and businesses holding prudent liquidity levels as they focus on cash flow, We saw balances grow strongly in financial Q3 and those balances were largely maintained through Q4. A large proportion of that growth was in current accounts and as a result relationship deposits increased 20% year on year. However, given the uncertain trajectory of the economic recovery, we are thoughtful about how sustainable these balances will be, Recognizing that businesses and consumers may either have a greater need for access to their savings in the future, economic downturn to come or quickly increase spending if economic conditions improve rapidly. Elsewhere, we've sought to reduce the rates on our savings book and have taken the opportunity to optimize our mix with a proactive reduction in more expensive term deposits. Given the sharp reductions in base rate, we reduced our deposit rates with much of the repricing activity taking place in Q4. As a result, we saw an 8 basis point improvement in the cost of deposits for the full year with the full impact of that continuing into 2021, all of the things being equal. Importantly for us, given the shape of our portfolio, this most materially benefits both front book TD business and the average €1,000,000,000 in monthly back book TD maturities across the year and will therefore be an important underpin to margin over the next several years. Finally, due to our much higher customer deposit balances, we have taken the opportunity to optimize our wholesale funding stack space. We continue to maintain our funding flexibility as needed. Our average wholesale funding costs reduced 6 basis points, but largely as a result of base rate changes. Looking now at our lending in more detail on Slide 23. So I have talked at length already about the asset quality of our books. So here I will focus solely on the balance movements in the year where we have clearly seen a game of 2 halves. At our interim results in May, we reported good growth in business and personal balances, while we continue to optimize for value in mortgages in line with our stated balance sheet strategy. However, the second half of the year has obviously been impacted by the market wide effects of the pandemic across the portfolios. In mortgages, we continue to maintain our pricing discipline and optimize for margin over the course of the year. But in the second half like all banks we were impacted by the property market shutdown during the first lockdown. The combination of these two factors meant our book contracted by around 3% in the year. There has of course been much market commentary about the rebranding in property market activity and pricing. I will touch on what this means to the outlook shortly. But just to note, given the timing of our financial year end, The majority of that market activity will only be seen in our financial H1 next year due to the completion time for mortgages. In contrast, our business lending grew nearly 14% in the period. We saw good paying volume in the first half before the pandemic really hits. But over the course of the second half that BAU Lending fell away and was replaced by the take off of CHF 1,200,000,000 of government guaranteed lending. You will see here We have separated this as a distinct sub segment and we will continue to do so as the dynamics here are likely to evolve differently to our BAU lending in 2021 and beyond. Lending growth in personal increased by about 4% in the year, primarily driven by strong growth from credit cards in the first half, while our relatively stable book also outperformed the market in the second half where a high proportion of balance transfer card balances mitigated the impact of the wider market lending decline. 2021 lending growth will be dependent on the backdrop and how the environment evolves. However, based on what we're seeing currently There are some themes I wanted to flag. In mortgages, the current stamp duty holiday, structural reassessment of housing requirements and the exit from lockdown also increased activity in our fiscal Q4 which will be completing in our fiscal Q1 and Q2. We expect elevated activity levels to persist in the short term as we approach the statutory holiday expiry. However, beyond March, the outlook becomes much tougher to call with the potential for a much slower second half market. We are therefore adopting a cautious approach to volume assumptions in H2 as a result. The strong business growth through government guaranteed lending in 2020 is anticipated to largely be a pull forward of future volumes, which means we expect BAU demand to remain quite muted in 2021. In addition, the dynamics of borrower behavior On government guarantee schemes as interest becomes stable next year could result in some well performing businesses simply repaying the loans. Some beginning to service them and others potentially falling into arrears. Therefore, taking these factors together, It is likely that our business book will contract next year, although as with everything at the moment, making predictions is a bit of a challenge. Finally, in personal, there is likely to be subdued spending in the early part of the year given the 2nd lockdown we are currently in, But we do see continued opportunities for growth in 2021 as the recovery begins to take shape. Balance transfer volumes are more stable driven by a stock of existing debt that needs refinancing and we expect to continue to be a leading player in that market. Our personal loan book also has opportunities given the recent launch of our rebranded Virgin Money personal loan. Clearly, we will remain very focused on underwriting criteria and asset quality environment. Turning now to NIM on Slide 24. Overall net interest margin declined 10 basis points to 156 bps, which was importantly delivered within our guidance range despite the additional challenges and many moving parts. The year on year decline reflects the final wave of margin compression from the repricing of our mortgage back book The second half dynamics largely played out as anticipated. In Q3 following the 65 basis point base rate reduction in March, we saw NIM decline 16 basis points as the impact of loan repricing and liquidity costs and an immediate impact with no benefit from the repricing of deposits given the typical 60 day plus notice periods. In Q4, NIM improved 5 basis points as the benefit of repricing activity on the deposit book took effect. Lending was adversely impacted by mix during the period as lower yielding government backed business lending to hold a reduction in overall business yields. Loan pricing also remain competitive in personal and our mortgages completions in our financial Q4. As we look into FY 2021, we currently expect a broadly stable NIM relative to the FY 2020 level of 156 bps. This is primarily underpinned by improved mortgage spreads in FY 2021 which we are already seeing. Those spreads have improved due to the significant reduction in swaps with customer pricing reducing at a much lower rate, meaning the spreads on new business and retained lending is accretive relative to ensuring balances. However, our guidance on margin Includes an assumption that the current improvements in spread are unlikely to be fully maintained particularly in the second half. Beyond that, our deposit spreads remain largely stable under the current markedly lower swap rate environment. However, as ever, our quarterly profile is likely to be a little uneven in 2021 with a broadly flattened NIM into Q1 from our Q4 exit rate and then a step up in Q2 that is broadly maintained through the year as we see the benefits come through from mortgage completions and deposit pricing actions. Our guidance assumes no changes in base rates and no repeat of 2020 performance in terms of the severity and length of lockdowns With the other usual caveats here that there are always potential opportunities and risks to any guidance. But based on the current outlook, we think it is more weighted to the potential opportunities just at present. One quick point on our structural hedge to avoid us going down any rabbit holes in Q and A. Given the action we took in Q3 to unwind our structural hedging position. We are now of course more rate sensitive both positively and negatively. Our decision to unwind the hedge was based on our view that the lower bound of interest rates had largely been reached which continues to be our base case, but we accept that there is some heightened risk embedded in the current rate outlook. Our action did however lock in the existing NII contribution from our previous hedges And so there is no incremental impact in FY 2021 from the decision with the impact of lower yields on the maturing hedges simply not being locked in for 5 years at current rates. Turning now to non interest income on Slide 25. Non interest income was down 7% year on year with that weakness skewed much more to the second half as lower activity levels impacted all of our divisions. Personal saw the biggest decline in the second half due to the continued impact The high cost of credit review and lower credit card transaction fees spending reducing significantly under lockdown. Business is a bit more resilient in the second half, but still lower owing to reduced activity levels and was flattered in Q4 by a one off CHF4 1,000,000 participation fee in relation to growth finance business sale. Mortgage income naturally was also reduced by the housing market shutdown and the investment business income remained low as the ASI JV continues to get up and running. In terms of the outlook, we remain cautious here And our current expectation is that the subdued non interest income environment persists with the impact of the second lockdown in Q1 and lower activity levels across our key segments likely to continue. Clearly, there is potential for upside here if economic activity rebounds more quickly and current trends would suggest aligned to vaccine rollouts for example. Turning now to costs on Slide 26. Despite the challenges presented by the pandemic, we continue to execute on our efficiency programs which delivered net cost savings of $30,000,000 in the year reducing our underlying cost base 3% year on year to $917,000,000 in line with our guidance. Majority of these savings came from lower headcount with personnel costs down 8% as the group continued with integration programs to reduce headcount and remove duplicative costs. However, it is important to note that this reduction includes the absorption of around CHF 14,000,000 of unplanned incremental COVID related costs including $7,000,000 of investment in systems to accommodate payment holidays and government scheme applications with the remainder being extra resource to support customers. You'll recall that having announced significant restructuring proposals in February, We postponed that activity in response to the pandemic. However, as the environment stabilized, we partially restated we started our efficiency programs in July with the benefit of those initiatives to come next year. For 2021, we expect to deliver a cost base of less than €875,000,000 representing a further 5% or more of net cost savings, which is inclusive of absorbing a currently expected CHF 10,000,000 to CHF 15,000,000 of expected COVID costs in 2021. The phasing of savings is also expected to be more weighted to the second half as our run rate synergies accumulate. We do expect to incur a further €75,000,000 transformation costs next year to run the programs and to deliver our ME brand activity, which is slightly above the CHF360 1,000,000 we originally planned for by the end of 2021. Expense of closing and restarting our programs as well as the impact of COVID costs in the short term. However, we remain fully committed to delivering our previous cost target over the medium term and are evaluating opportunities to deliver further incremental longer term cost reductions arising from the change in customer behaviors and evolving ways of working post COVID. But do expect that we would need to incur some modest additional transformation costs in 2022 beyond to deliver this. Finally, I do just want to flag that we will be incurring some incremental costs relative to our previous guidance in relation to our match funding of the BCR grant primarily in 2022. Turning now to capital generation on Slide 27. We delivered underlying capital generation of 116 basis points during the year, but after absorption of exceptional and non operating items during the period, our transitional CET1 ratio finished 10 bps higher at 13.4%. Our transitional CET1 ratio has not been materially impacted by the impairment charge As a combination of the excess expected loss deduction and IFRS 9 transitional relief meant the net impact was just two basis points. RWAs absorbed 19 bps of CET1 in the period with 81 coupons exceptional costs and other items making up the rest. Total capital of 20.2% and a U. K. Leverage ratio of 4.9% Remain robust and then 28.4 percent will remain comfortably ahead of our expected 1st Jan 2022 end state MREL requirement of 27.3%. And therefore, any future MREL issuance will only be for the purpose of building a proven book. Turning to next year's capital trajectory on Slide 28. We start the year in a robust position with CET1 of 13.4%. And it is worth flagging that as we look into 20 'twenty one. There are going to be several drivers to keep in mind when it comes to our capital trajectory. Firstly, on RWAs, We do expect to see credit risk RWA inflation begin to materialize in 2021 as government support starts to recede and the actual economic effects of COVID begin to materialize. However, the timing of this remains very uncertain and will depend on how the environment evolves with the impact likely to have been pushed further out into 'twenty one given the recent extension of government support measures and recent increases in house prices. It is important to note that our forecast guidance scale of credit risk RWA inflation is also based on conservative economic scenarios. And so to the extent the economic outlook differs from that, it will impact how our indicative guidance plays out here as well as the timing point I have already referenced. Offsetting the expected headwinds from RWA inflation, We continue to expect a reduction in RWAs from the initiatives we outlined at our interim results. Updates to our suite of business models and and the move to IRB for our credit cards portfolio are expected to deliver modest benefits in the first half of our financial year, While the larger expected benefit from the adoption of hybrid mortgage models is now being targeted for approval in the summer. However, as ever with these sorts of initiatives, they do remain strictly subject to regulatory approval. As you know, we have a strong track record here. If they are approved as planned though and taken together with our current expectations CET1. In terms of the trajectory for our transitional CET1 ratio, while we anticipate the key drivers during the year broadly netting out such that we are still around 13% at the end of the year. The in year trajectory could be a little uneven given the moving parts in our view as I have described as well as the implementation of the EBA software and tangible changes that we estimate will increase our CET1 ratio by around 40 basis points in fiscal Q1 and some unwind of the IFRS 9 transitional relief if stage migration increases. Finally, I want to finish on our 2021 guidance and the medium term outlook on Slide 29. So just to summarize, The FY 2021 targets that I have outlined throughout the presentation already. We're expecting a broadly stable NIM relative to the FY 2020 level of 156 basis points with more opportunities than risks at present. Underlying operating costs of less than €875,000,000 which includes circa €10,000,000 to €15,000,000 of COVID costs and a cost of risk that is lower than the FY 2020 level of 68 basis points. It would be wrong not to recognize that due to the unprecedented nature of COVID-nineteen, the exact economic outlook for the nuclear It's clearly still evolving and remains hard to predict with any high degree of confidence at this stage. And there are as a consequence opportunities and risks around our 2021 guidance as outlined including a potentially accelerated return to normalization if the possible vaccines that can be rolled out quickly enough, but which we do which we have not yet factored into our near term assumptions at present. Looking to the medium term, given the economic uncertainties that persist, we do not believe it is appropriate at this time to give firm medium term guidance. And so we have withdrawn the Group's 2022 targets pending more certainty and that forward economic trajectory. However, we do continue to believe that Virgin Money has a clear path to delivering double digit statutory returns on tangible equity over the medium term. Assuming no significant further deterioration in expectations to the economic outlook or changes in interest rates to negative. The improvement in returns will be built on the core pillars of the strategy as David has spoken to earlier, with the most material near term return drivers being, a, the normalization of impairments as the environment stabilizes and a reduction in exceptional costs as we complete our integration and transformation activity and b, ensuring we can continue to reduce our cost base through further digitization to reflect the future operating environment and as we evaluate the future opportunities arising from changing customer and calling behaviors post COVID. In addition, As part of that path to double digit returns, we are currently ascribing further but more modest benefits from delivering a more efficient capital base over time and optimizing our balance sheet mix in the medium term through a better balance of margin accretive lending and a reduction in our deposit costs. We fully understand the importance of capital returns to our shareholders and we believe that the delivery of our strategy will allow Virgin Money to consistently generate significant capital over time that can be redeployed into both returns accretive growth and dividends to shareholders. So thank you for listening. I realize it's been a long session, but there are three things I want to leave you with before I finish. Firstly, in 2021, we are expecting a stable NIM that is more weighted to opportunities than risks at present. Secondly, we believe we have a very clear path to both double digit statutory returns on tangible equity over the medium term and distributing dividends to shareholders over the time. And finally, when the environment does return to a new normal, We are very well positioned to deliver sustainable growth. I will now hand back to David who will take us through the outlook for 2021 and beyond. Thanks, Linda. That is a lot of detail to process, but I think given the unusual circumstances, we felt it was appropriate to provide this amount of disclosure. I will now spend the remainder of the presentation focusing on our post COVID strategy and how we will deliver on our ambitions for Virgin Money in the future. Turning to Slide 31. I would like to be very clear at the outset that in 2021, we will continue to remain very focused on protecting the balance sheet and supporting our customers, colleagues and communities with the same discipline as we have done this year. However, it is also important that we deliver on the products and propositions that will sure that we are competitive in a post COVID environment. Therefore, in 2021, you will see us deliver a fully integrated retail and business platform for our customers. This platform will offer all products under a single brand and will include a variety of innovative new products and propositions with an experience that matches the best in the market. Critically, this platform is also designed as a plug and play platform for fintechs and partnerships. We believe that this combination of the Virgin brand, a unique proposition model and a best in class service model will allow us to offer customers real value and convenience that will be hard for our competitors to replicate. We have already started to see some tangible evidence of just how powerful the brand is. For example, We saw a 30% increase in personal loan applications following the rebrand to Virgin Money. There was also a clear shift in the customer profile to a younger, more affluent customer and a more national geographic distribution than we had seen before. As you will see with some of the images on the slide, we have recently launched our brighter money bundle proposition. With this offer, we are incentivizing customers to switch for value by deeply discounting Virgin Wine and Virgin Media offers and combining these with a competitive savings interest rate. This value based proposition model partnering with Virgin Group Companies is the catalyst to unlocking our Virgin brand lifestyle ecosystem. Also we will enhance these propositions with our Virgin Red Group loyalty program, which offers integrated products and services for both retail and business customers that are relevant, reward loyalty and offer best in class experience. This is another unique element of our consumer proposition. Loyalty points are earned through the use of different group products and these can be deployed across many different companies. Also in the spring, we will launch the National Virgin Money Business and with a new business, current account and linked to savings account. Let me now turn to Slide 32 and some of the details that we are launching. We are going to deliver the 1st new national business bank brand in decades by combining our risk and sector expertise with our integrated IB platform and a new partner ecosystem. This technology and partner ecosystem combined with our successful BCR grant award of 35,000,000 presents us with an unparalleled opportunity to help business owners to realize their potential and to grow their business. We will match fund the BCR award. This combined investment will allow us to build this unique offering in a market that is poorly served by banks in general. Initially, we will launch a digital Virgin Money business card account with a range of new customer features. As the product evolves, it will be powered by advanced data analytics. This current account will be the most advanced digital offering in the market and will include automated credit decisioning capabilities as well as many others. We will introduce our unique capital health proposition, which will provide business owners with rich insights into the running of their business and it will allow them to optimize their financial performance and also provide access to a wide variety of working capital solutions through a fintech marketplace. And this will be accessed via the cloud and our customers will be supported by our highly valued relationship management team as we deliver this ecosystem. As you can see, we are delivering what we promised an integrated fintech and partnership friendly platform under a single brand with innovative new products, which will deliver unique value based series of propositions and many of these are available in our Virgin app today. In the year ahead, we will deliver constant innovation and value for customers in our personal and mortgages division as well as our nationally branded business bank. And although we are operating in a difficult environment, we will keep our discipline as I have said. But as we move into a new normal, my ambition is for Virgin Money to be viewed as the most agile and innovative bank in the UK and to deliver on our ambition to disrupt the status quo. Turning to Slide 33. As you can see on Slide 33, it is not just about products and propositions. We have always felt that the Virgin brand is a disruptive brand, but is also a force for good. The work of the Virgin Money Foundation and the founding of the not for profit Virgin Money Giving platform are just some of the examples of the positive DNA that exists in the brand. Our ambition is to drive positive social and environmental impacts to everything we do. And rather than speak in generalities, we've developed 4 specific big goals in the ESG space that are aligned to our group's strategic goals. Alongside each of our new goals, we're setting out bold aspirations, including the strengthening and extending of our net zero commitments across our financing activities. This includes setting the ambition to reduce the carbon emissions in our lending book by at least 50% by 2,030. We are also taking action to tackle the challenges of diversity, the poverty premium and are significantly enhancing RESG disclosure and KPIs. We are also committed to working with leading industry forums, which you may be familiar with, such as the Partnership corporate accounting financials and the United Nations Principal for Responsible Banking. These partnerships will help us to accelerate this agenda and to align with the 2015 Paris Agreement. This is a significant agenda, but we are starting from a strong place with lending to carbon related assets money 0.1 percent of our total customer lending. Let me now turn to Slide 34. I would like I conclude with a few comments on how the plans I have outlined will support us in creating shareholder value. Firstly, we will continue to deliver a stable and resilient bank in the next phase of this pandemic by applying precisely the same focus and discipline that we did in the first phase. However, as Enda has outlined, this unprecedented economic uncertainty means that the pace of our programs will be carefully balanced with the reality of the pandemic impact as it unfolds. Like many other companies, this uncertainty has led us to withdrawing our 2022 targets, pending more certainty on the economic outlook. However, as I have said, we remain focused on delivering the core self help pillars of our strategy. And just as a reminder, these are: delivering a lower and more efficient cost base, accelerating our digital transformation and delivering new digital products and propositions, carefully maintaining our disciplined risk profile and continuing to optimize our capital base and over time returning to growth as we seek to optimize the mix of our balance sheet. Effort. The Board and I believe that the implementation of this strategy will allow Virgin Money to return to statutory profitability and to deliver double digit statutory returns on tangible equity over time. Equally, I know how important capital returns for our investors. I am confident that the delivery of our strategy will allow us to generate significant capital over time that will support us in our ambition to implement a progressive and sustainable dividend. We now have a question for Rohit Sundar with Bank of America. Wahif, please ask your question. Hi, good morning. Thank you very much for a very comprehensive presentation today. I was wondering if I could ask on a couple of issues, please. Once a few on margin and then briefly on credit quality. The 10% RoTE medium term aspiration, could you sort of give us some detail as what margin is consistent with that 10% RoTE. And then just in terms of some of the nearer term drivers, mortgage pricing, you've talked about new business spreads being above what's maturing. I was wondering if you could give us the gap there. And then in terms of the outlook, you seem to be a little bit more cautious Some of your peers post the stamp duty holiday. So where do you what's your best case expectation of where mortgage new business spreads move to post March? And then on deposits, term deposit costs in second half were 153 basis points. Could you tell us where you're Currently writing new term deposits. And I guess that takes a couple of years to roll through to the balance sheet. And so that was capital margin. And then very briefly, credit quality. So lower impairments in 2021, Appreciate it. It's highly uncertain. But if there were no changes to your macro assumptions, can you give us a rough idea of where you'd expect the impairments to come in? And then briefly on the credit card book, coverage there of 5.37 basis points. I guess that primarily reflects The balance transfer business, but it is quite a bit lower than peers. So if you could give us a little bit of detail on why you're comfortable with that level of coverage on the cards book, That would be really helpful. Sorry, I appreciate there's quite a lot there. Great. Thanks for that. It's David here. I appreciate that. We'll go through all those points And Enda will pick up on the starting with your royalty point and take us from there. And then if you have any follow ups, let us know. Thanks. And over to you. Sure. Thanks. Thanks, Robert. A lot in that, so forgive me if If I miss any of it, just maybe starting on the medium term target. Obviously, you wouldn't expect me maybe to give longer term or medium term margin guidance. I would say that, as I said in the presentation, we are ascribing relatively modest value right now to capital efficiency and balance sheet mix evolution. So that includes margin as a component of that. So we see the much more fundamental blocks On that build, Dean, in the cost agenda, exceptional costs coming down and then impairment normalization. So that's probably how I would answer that one. In terms of mortgage spread more generally and kind of Taking it in terms of what we're seeing now, what we're seeing in second half and how we think about that. So I guess In the last kind of, let's call it, 6 to 8 weeks spreads have moved higher again. We're not assuming in our guidance here That is maintained for any particular period of time across the remainder of the year. So to the extent that those spreads currently have been written are sustained, then there's potential upside there in terms of our margin, but we're not calling that right now. We do think that the market dynamics in the second half Potentially, it could lead to kind of a reduction in volume, which then potentially leads to a reduction in price. So that's kind of how we're positioning ourselves there. I would say that recent spreads clearly are At a spread higher than our back book, and we do expect that to continue. So that's how we're thinking about spreads in general. From a TV perspective, you're right. Our back books Pricing is elevated and we are taking actions to bring that down. I'd say that kind of on a rough guide and TV spreads are coming in below 100 basis points or lower. And we continue to look at that in the context of opportunities showing forward again. Not all of those opportunities are baked into our margin guidance of broadly stable here. In terms of credit quality, it's very, Very early to be calling kind of next year. I think we're we've deliberately set out here that we're taking a very conservative view on the economics and the weightings that we've attached. In the absence of economic changes either positively or negatively in terms of that outlook. It really then does start to come down to specifics. And when those start to materialize in terms of then how we think about the evolution of cost of risk into next year. And I guess at the moment, what we're seeing is that with the furlough scheme being extended and kind of government support measures in place until end of March. We don't expect now that specific flow to start to materialize In any volume into next year. So that's how I was thinking about that at the moment. And then final one on your point around coverage On the credit cards at 5.37%. I think, Rohit, we would go back to kind of the underlying quality that we believe is in that portfolio. If I take you back to kind of Slide 12, Here, the vintages across all of the business that we've written over the last number of years, we think to be of very high quality. Our arrears data is consistently running better than the market and currently running at about half in terms of what we can see externally. Our payment holiday data is giving us confidence in terms of The returns payment profile of the customers and how that ultimately came through. And then in terms of the BT balance. Because as you said, with lots of historical data, it gives us confidence in terms of how that type of customer and balance behaved in a stress relative to kind of broader peak. So that's overall giving us and confident here in the context of where we think we're positioned from a provision perspective. Thank you. And could I just come back on the mortgage pricing? So it looks like current mortgage spreads in the market are around 180, 185 basis points. So I wondered if that's similar to what you're writing. And that's come from sort of 100 basis points at the end of last year. So in terms of your sort of planning assumptions, where do you think That 180 basis points goes to post from the second half of your fiscal year onwards? Yes, sure. We haven't historically talked about our spread and other peers have given those numbers out. I would just say that as things stands right now, spreads are front book spreads are comfortably ahead of back book, but we're not giving kind of specific spread figures and we haven't done that historically. Okay. Thank you very much. We now have a question from Ed Henning from CLSA. Please ask your question. Thanks for taking my questions. First one, just following on from the NIM question from before. Are you assuming the very sharp increase in mortgage prices that is currently happening in your NIM guidance up until Today or a recent point. And then going forward, you also talked about Before in the credit growth some roll off of the government guaranteed loans, are you assuming that in your NIM guidance as well? That's the first question. Hi, Ed. Yes, thanks for that. So, Ed, in terms of the most recent pricing that we've seen over the last, let's call it, 6 to 8 weeks. That is not factored into earnings guidance. And we don't see that being sustained over the remainder of the year, particularly in the second half. So that's how I'd answer that one. And in terms of the government roll off, yes. And in terms of how we think about the evolution of the portfolio over the course of the year. That is all part of how we think about the components driving them into the year. And can you shed any light on what percentage or how much of an impact that is on your NIM, whether Probably coming through in the second half. Is it substantial or just a small component? I would say, Ed, more a small component if you think about the overall portfolio size we're talking about here. In terms of overall contribution, I think from a 2021 perspective, I think The mortgage spread and the deposit actions we're taking are much more material in the context of MIM support and MIM evolution. That's great. And just a second question on non interest income. You've talked about Being subdued in 2021, but obviously, it's a very strong first half. Should we be more taking this the second half And are they flat lining it from there? How should we think about that? Yes. Thanks, Ed. So there's a couple of things in the second half that came through. So one was the high cost of credit review. So The full impact of that came through in the numbers in the second half. And then obviously, And an overall kind of activity level in the economy, then that Overall, it could be level that really came through in terms of the second half. So I think as a proxy in terms of How the shape of the OOI had evolved over the course of the year, I think the second half is a more reasonable reflection of subdued environment when you take and that also incorporates the fact that the high cost credit review numbers are out of the second half numbers. So the one point I would say is that clearly to the extent that economic activity picks up, We would expect those numbers to improve on a kind of a run rate basis once consumers are back in kind of broadly normal spending comments. No worries. That's great. Thank you very much. Thanks, sir. We now have a question for Chris Khan for Autonomous. Chris, please ask your question. Good morning. Thank you for taking my questions. 3 please, if I can. You mentioned restructuring charges in 2022 and beyond. Should I take that to imply that your 780 cost target, which you're Thing is still going for over the medium term. That's now a 2024 target or beyond if you're still taking charges in 2023. And related just in terms of understanding this cost glide, you flagged that you've got some recurring COVID costs in 2021, but you also mentioned you're going to have some BCR related costs in the P and L in 2022. Are we talking $15,000,000 to $20,000,000 going through The circa 13%. I mean, obviously, you've got these pretty conservative looking assumptions for your ECL. Are your RWA pro cyclicality assumptions based on the same macro assumptions? So are you news based on the same macro assumptions. So are you assuming to get to your full year 'twenty one circa 13, Get RWA pro cyclicality from a big HPI decline. And then finally, rate sensitivity. What's your current rate sensitivity, Please. You've talked in the past about having a €8,000,000 to €10,000,000 sensitivity to a 25 bps move. What is that now given you've unhedged the balance sheet? And as a more broad strategic point, I guess, do you think Playing the rates market is something that investors are looking for you to do. I understand you're logic on the 0 lower bound, but Obviously, you are taking a risk if we move to negative rates. Thank you. Sure. Thanks, Chris. So just on restructuring charges and cost targets. So on that one, what I'm flagging there is modest restructuring charges in 2022 and 2023. And also, we are absolutely committed to delivering our previous cost guidance. We just think it's going to take us A little bit longer than we had anticipated rather than it's going to take a long time to deliver is maybe how I would answer that one. In terms of The flagging the COVID costs and the BCR costs, I wanted to be helpful on the trajectory as we see things today. So the COVID costs They are very much aligned to resource costs that we have built into our business already today to gear up for the potential as increase in customer difficulty and customer support requirements that we see Maybe required depending on how ultimately the specific provisions play out over the coming period. So the those costs, we would we have deliberately called them out here And we've ring fence them internally in terms of how we think of them effectively falling out of the cost base over the medium term. Clearly, I can't sit here today and tell you when that's ultimately going to happen, but we see those as kind of temporary cost that are part of the underlying base and wanted to kind of flag the magnitude of that to help with the glide path. On the BCR funding. I think the numbers you raised you flagged there are probably a little high. I think in terms of our match funding, Clearly, there's an element of capitalization versus underlying OpEx that would come through. And we are looking to create sustainable business model and series of assets as a result of BCR rather than necessarily spending money on, let's call it, A lot of marketing, etcetera, etcetera. So I think in terms of the uplift I'm flagging there, I'd encourage you to think of it in capitalization terms rather than necessarily in terms of pure OpEx. In terms of CET1 and pro cyclicality, not quite a one for 1 match, Chris, but we are taking as a firm a broadly cautious approach to how we think about the economic environment next year. And therefore, your point around, are we being Conservative in our economics underpinning kind of the pro cyclicality point, I would say, yes. We are adopting a conservative approach across the board in terms of how we think about RWA inflation and therefore the guidance that underpins that for capital. And then look, Chris, On kind of playing the market and playing interest rates, Look, we took a view in the summer on the fact that we believe rates had reached or approach near to lower bound. The go forward environment does leave us and more rate sensitive, both positively and negatively. And we have triggers in place to consider the potentials for movements in either direction that we would then put into play. So our view In terms of the current environment is that the yield curves are very flat and therefore we didn't think it made a whole lot of sense To extend that out to 5 years when short term rates and long term rates are very closely linked. To the extent that that moves, We will obviously consider hedging options in that context. The final point then I would say, I think, in answer to your question, I think I think I got the more Chris is just in terms of rate sensitivity. We had provided that previously. When I guess we were in more straightforward interest rate environment. Given we are at very little and or zero rate environment at the moment, a kind of A straight P and L impact is not how we think about this, particularly if it were to go negative. Our deposit costs They are relatively elevated compared to some of our peers and we think that we have a lot of options there to the extent that rates were to go negative further. If I could just follow-up on that. I mean, I think The previous guidance you gave, which was obviously quite muted, the 8% to 10% range relative to large peers, Would have also presumably captured the fact that you had higher than average deposit costs and more room for maneuver to pass anything through. So If I'm thinking about bridging off that 8 to 10, previously in terms of your year one sensitivity, you had Roughly $24,000,000,000 $25,000,000,000 hedge on, just multiplying that through, let's say, a 25 bps move that would be protecting you from more than $60,000,000 of additional negative pressure When thinking about that old €8,000,000 to €10,000,000 So I mean should we be thinking about €60,000,000 to €70,000,000 of sensitivity either direction now 4.5 bps move, given that you don't have that hedge protection or resistance, I guess, in a positive scenario. Is that the right quantum or am I missing something to the math? So Chris, that's the straight math, Broadly speaking, if you take a €24,000,000,000 notional on that. But I would say that relative to kind of previous estimations. I think that, a, the deposit market is very different now in terms of competitive pressures and and optionality. And I think the way that we look at it internally is that there would be significant scope to offset kind of a mathematical calculation in the context would work. I think the other point that's very important here is There are multiple ways that the Bank of England could transmit negative rates into the market, and that would also be a key determinant in terms of how this ultimately would layout. For example, the quick compare tiering on TFS and E rather than moving straight on base rate. Okay. Thank you. We now have a question from John Cronin from Goodbody. John, you may ask your question. Quarter. Good morning, David. Good morning, Amda. Thanks for taking my questions. Good morning. Look, if I can just come back to the cost structure again. Look, I appreciate this target has been pushed out. But what kind of can I get your thoughts The end stage cost structure and product can support in terms of balance sheet size? And I guess interrelated with that, And look, there's a lot of moving parts from a capital perspective, but you've reemphasized on various occasions this morning Your belief that you've been conservative in your estimate, so some potential tailwinds then to your 13% transitional end 2021 guidance. And how that might influence your perspective on potential inorganic expansion opportunities, particularly maybe in the business lending domain. But look a lot in there, just The underpinnings of that are the cost structure and how you can leverage that in the future and whether M and A would present substantial scale benefits in that context. My second question, short on current accounts, Very strong growth in relationship deposits, 20% year on year this year. If you were if I could press you to give some numbers in terms of How that might evolve on a 1 to 2 year view in terms of further build there, what kind of opportunity opportunity you see to grow that significantly further. And then thirdly, on the balance transfers, Now 68% of the cards portfolio, and that's up a bit slightly on where it was earlier this year in my understanding. Just wondering why that's still so high. Are you refinancing cost your own customers or extending effectively interest free period for a portion of those balances. Thank you. Good morning, John and David. I'll just cover a couple of quick things and also So then Emde will follow on some of those latter points that you raised. So if I take a look at the cost, just to give you a bit of perspective, What we're looking at in terms of your definition of end state, it's kind of how we think about it. We are looking to go through the next 6 months or so of the new COVID operating model on the one level and determine what cost opportunities that gives us because we do think that In the various practices that we've implemented over the past 6 months, we think a lot of them will be sustainable long term and will give us an opportunity and we just can't size it yet. So we expect there'll be some further that would opportunity and we just can't size it yet. So we expect there will be some further opportunity to go after there. I think there's also a kind of thinking in our minds that the COVID environment has It's given us a real impetus behind our digitization drive, and we think that there will be a lot of opportunity there to further Accelerate those programs and that will give us some cost out opportunities also. I would take a view that we're considering the end stage and see opportunity, but not yet ready to give a quantum of opportunity and we'll do that as soon as we can. On a separate issue relating to What our thinking might be about anything inorganic to your question on that. I think we have a pretty laser like focus at the moment. We see the time has come for us to be able to complete transformation and rebranding and to invest in the customer solutions and prove the value of the brand. And that is our mission. And we have also the fact, as we said before, that we're implementing A nationwide first decades kind of business bank with all of the FinTech opportunity and the ecosystem that we're building on that. So I think our priority focus has to be get through in a stable way the next year of what we see coming And then at the same time, Bill for post COVID, a really fantastically efficient and digitally oriented bank with the full capability that you would expect. So I think the inorganic is there's always a situation where something happens in the market that affects you and you have to think about it, but it is not part of our thinking at the moment. We're very and delivering on the promises with regard to the Virgin brand and the growth of our business post COVID. So I'll pause there and hand over to Enda to pick up on the other couple of situation. Sure. Thanks, David. So John, just coming back to you on the relationship deposit side of things. So look, I think there's an element, John, in terms of the balance build in 2020 that We are thoughtful about how that might evolve into 2021 in the context of consumer spend and potentially businesses and spending may increase into 2021. So that is one element that we are Thoughtful about in terms of how that kind of portfolio, if you want to call it, may behave into 2021. But Medium, longer term, I think you've kind of hit the nail on the head. The cost of those deposits is 20 6 basis points on an average basis versus an overall cost of deposits at 90 basis points. So you can see Clearly, from a strategic perspective, that is why we are so focused on our PCA proposition build and Our BCA proposition goes out and we think that BCR in particular will be very helpful in the context of what we're trying to do there. The so in terms of go forward and in terms of how we think about value creation to the business. That is clearly a key element of how we think about the strategic build of our deposit space and therefore an element that we will be very focused on in terms of looking to grow over time, Notwithstanding the point I said on how we think 'twenty one might be hit from a volatility perspective. In terms of BTs, Dion, that's probably more straightforward one, just And the BT balances are much more stable in this environment in the context of pay down. I think you've probably seen with peers that They've seen a more significant reduction in overall cards balances rather than relative to ourselves and that's largely down to the BT balances that we have. So it's not a change in strategic focus. It's just a function of the nature of the balances We now have a question from Martin Leitgall from Goldman Sachs. Martin, please ask the question. Yes. Good morning from my side. Just one question on how should we think about The composition of the loan book going forward and at the beginning of the year, the indication was that The mortgages overall will shrink somewhat as a percentage of the total mix. And I was just wondering, in light of the current environment, on the one hand, Obviously, there's a marked improvement in mortgage pricing year to date. But on the other hand, probably also maybe a better opportunity set in terms of cards going forward, just given While competition seems to have evolved, how do you see the overall loan book mix shift over the next couple of years. And the second question just related to that. I was just wondering in other segments of your loan book outside of mortgage debt. Have you also seen signs of bad up pricing discipline? Thank you. Sure. Martin, thanks for that. I'll take both of those. So in terms of the composition, I think you probably I probably break your question into short term and medium long term. The medium long term, we're very much are aligned to our previous strategic intent around a kind of gradual diversification of the portfolio with higher ultimate balances on the personal and business side relative to mortgages in terms of where things fit today. Having gone through the strategic review and analysis over the last few months that our position on that hasn't changed, but that is probably a medium longer term view. I would kind of point The dynamics of the portfolios at the moment in 2021, it is quite difficult to call in terms of how customer behavior will evolve. Clearly, we're seeing very strong activity in the mortgage market, and we expect that to come through in our first half. There's a lot of volume on the business side that we think is a pull forward from 'twenty one in terms of how 2020 ultimately played out. And then we do see that there are continued pockets for growth in the personal side, notwithstanding our pretty material underwriting tightening that we did in the second half. So I think we'll need to kind of keep talking about the portfolio shape in any kind of large sense over the course of 2021. But your question or medium term shape, absolutely aligned to what we talked about in terms of Capital Markets Day delivery. And Martin, sorry, excuse me, your second question again, I'll just mislead that one. I was just wondering What you have seen in terms of pricing within the other loan categories, so outside of mortgage assets, whether mortgages had a sharp improvement, Do you have a similar impact in the not alone segment or is it more stable there? Thank you. I think more stable, Martin, and also aligned just to our risk tight as well in terms of particularly on personal and credit cards where we've very, very much tightened Our risk appetite by kind of 30% 40%, respectively. So the pricing there Continues to be attractive for us from a returns perspective, but we haven't seen kind of any movements like we have in the mortgage space. Thank you very much. We now have a question from Grace Sargan from Barclays. Grace, please ask your question. Good morning. Thank you for taking my questions. And just a couple from me. So firstly, would you be able to quantify the benefit from the deposit repricing that you think has yet And then secondly on impairments, it's good to see the increase in the coverage ratios. And I was wondering, would you be able to give us some detail on your loan write off policies? So for example, how quickly do you write off your non performing loans? So for example, one has indicated they tend to write off their loans more quickly, which then obviously is impacting the total coverage ratio that we see. Thank you. Sure. Thank you, Grace. In terms of the deposit question And the contribution, I'm not going to give kind of relative contribution components to this. I think that And the way I would maybe talk about it to be helpful is we did see Q4 NIM is 52. As I said in the presentation, I'd expect Kind of Q1 to be broadly flat on that. And then you do get the contribution from both the deposit pricing and the mortgage spread increase coming through from Q2 onwards. So that's maybe how I would think about the relative contributions there, Both important as an underpin to the 2021 NIM guidance that we've given. Mark, do you want to come in on that kind of write off policy piece? Yes. We Early adopted the EBA rules in 2014, 2015 when we enhanced the prudentially tightened our forbearance and pre forbearance policies for business. We felt it important to preempt the EBA rules and avoid implementing enhanced policies To only change again in the future, we write off on our retail portfolios, our 180 day, which is different to some others. And hence, we are seeing then a forward just a stability around Stage 3 at the minute. Thank you. We now have a question from Guy Stebbings from Exane BNP Paribas. Guy, please ask your question. Good morning, everyone. Thanks for taking my questions. First, can I come back to the macro assumptions? I think A lot of us would have looked at the various developments on lockdowns, government support, vaccine developments and perhaps thought they might broadly balance out versus prior expectations maybe with slightly more slightly worse base case scenario, but a lower probability to a prolonged pandemic. But given you're Not reflecting latest vaccine news in your assumptions, clearly what we're seeing in your book is slightly different. So can I firstly just check that your ECR provisions, which Don't give any benefit on the recent vaccine use does capture the latest lockdowns, whereas most peers, their Q3 results haven't attempted to capture So you're perhaps being more conservative there? And secondly, associated with that, are these assumptions and sort of broader conservatism Actually impacting how you manage the business. I ask because it seems surprising the mortgage book went backwards last quarter given where volumes and spreads were even with the lag on completions. And just a quick follow-up question. On the post model adjustments, thanks For the disclosure on where they sit by book, are you able to say kind of from a staging point of view, do they predominantly sit within Stage 2, etcetera? Any color there would be very helpful. Thank you. Yes. Sure. I'll take those, guys. So on the economics, The way that we had thought about setting these are was In the context of the on the forward look, we had viewed that additional disruption Was likely whether that came from additional restrictions in the economy or potential disruption as a consequence of Brexit deal or no deal. So I think until we obviously go through The full extent of the lockdowns and consider the economic impacts of that, it's difficult for me to be Definitively saying that these economics assume the 2nd lockdown. What I would say though is that based on everything we've seen to date in terms of economic impact that assumes for those for the November lockdown relative to kind of what was talked about in terms of March, April. I think it would be fair to say that, that level of disruption is incorporated into our economics and our weightings here. So that's probably how I would answer that one. On the P and As, Yes. As you can see from our the breakdown of our staging, the PMAs are Very much weighted towards Stage 2 in terms of how we've allocated then Stage 3 loans that continue to be very low percentage of the overall portfolio. And Guy, sorry, what was your third question again? Well, it was kind of in reference to some of the ECL assumptions and how that impacts how you manage the business. I guess if If we look at pricing behavior and volumes in Q3 for how other banks report, some banks were prepared to be Do a lot more volumes given where pricing wasn't and even with elevated risk, presumably pricing gives you an extra buffer. I just wonder whether Your slightly more conservative stance is impacting how you actually manage the business. I'll bring Mark in on this as well. And Guy, I would say, Bill, know that you will see in our Q1 and hopefully Q2 results that I think there's an element of timing around our mortgage volumes. When I think about what we've assumed for next year relative to 2021. There's a reasonably significant uptick in terms of the volumes that we're looking to do. I think the We have tightened criteria on the personal lending side and on the business side and on the mortgage side indeed across the board. But I don't think that is Kind of putting a handbrake on our front book volume and front book activity. I think there's just an element on the mortgage side where there's a little bit of timing That we'll you'll start to see coming through in our first half results. Mark, I don't know if you wanted to add anything to that. No. I'd well agree with all of that. I think I think as you'd expect, RAS was tightened rapidly in relation to COVID and it remains under constant review. I'm not worried. I'm more watchful. The asset quality across the bank at the minute is in really good shape. But just as an example, we immediately moved about 20 6 credit RAS measures and they replaced with 35 new measures to tighten and refocus appetite in response. Interestingly, the market itself has allowed us to Get some flight for quality. So there's been activity around quality still needed. A number of retained measures were also adjusted to recalibrate to the new environment. So it's not impairing our ability to be able to compete Even around price, so there's no adverse selection. We've been able to lean into the opportunity As we've tightened, as we found some of our competitors are actually exiting with little or no appetite to certain sectors. So we've been quite selective, but very prudent as you'd expect. Okay. Thanks very much. We now have a question from Ed Fuhr from KBW. Yes, good morning everybody. I'll be super quick. I'm conscious of the time. Just two things. I just wanted to check my understanding of what you mean by locking in the hedge. Because as I understand it, what that means is that you're not replacing it And then over the next 5 years, the contribution from the hedge will or broadly 5 years will effectively amortize. So I guess my first question is, is that understanding correct? And then my second question, I guess related to that, is if that is correct, what assumptions have you made about that in your double digit, rotating medium term target because I don't see a block there for that hedge income disappearing. So And it is a reasonably chunky number in the context of group return. So could I just clarify those two points? Thanks. Yes, sure. So on your first point, it is that is broadly correct, Ed will amortize over time just in terms of how we ultimately did this at the time. The hedge was unwound by transacting offsetting swaps rather than terminating the individual trades. So your characterization of that in terms of how that is then embedded It is correct. The in terms of our contribution and the overall contribution, The unwind of that over time is embedded in our assignment of value in terms of the balance sheet mix and margin point and in terms of the bill to 10% or more over the medium term. But that slide, what has happened was at what, 400, 500 basis points of return headwind? No, Ed, I think it might be I don't I'm not sure on that number. I don't recognize That number, in the context of how it's 1% on EUR 24,000,000,000 1% year around EUR 24,000,000,000 of salt. Yes. So And I think look, I think it might make more sense to if we maybe took this one specifically offline. And there's a bit order balance sheet mix in aggregate point here that I think we should probably just work through in the context of how we see the hedge on mine coming through, the embedded NII that is still there. And then also, I guess, it depends on how you think about the interest rate environment going forward And just to be clear on that, we have assumed flat rates in that royalty target. So that's an element, I guess, in terms of how I might be thinking differently in terms of how you are relative to the how that plays through. So let's pick that one up offline. We now have a question from Rob Noble from Deutsche Bank. Rob, please ask the question. Good morning, all. Thanks for taking my question. I just wanted to ask about the COVID cost in 2021. So the $10,000,000 to $15,000,000 is that purely collection costs? And I think I heard you say that you've or nearly collection cost. I think I heard you say that you doubled the number of staff there. How many staff do you have for collections? And is there a difference in how much it costs between collecting on a mortgage versus a personal loan versus a business loan. Thanks. Sure. So it is largely people costs associated with collections. Yes, we have already kind of doubled Our requirements in that space, I'm not going to kind of get into specific numbers as they flow through. But we've already built those people in. And there's an element, I guess, conservatism in terms of what we've done there, given the fact that these specifics are not coming through. But as I said, that population It's clear and identifiable in terms of how we think about that going forward. I guess, the where we have different approaches to different customer cohorts, some of which are all done in house and then some where we use some external support as well in that context. And probably the largest concentration in terms of complexity fits within our business bank and the work out that we do there. We have a long established team that kind of it's fluid between our business normal BOU and then customers that need support and we've definitely beat that one up as a material component in terms of how we think about that path going forward. Great. Thank you. Also can I ask, on this year, you've said that there's an incremental $40,000,000 of COVID costs? Is that I mean, you must have saved you must have made some savings from that low marketing or travel and entertainment like the other banks have as well. So is that in that $14,000,000 or is it Within the underlying net cost savings and how much have you saved from the others and the benefits? Savings Yes. Savings have been relatively limited, but it's in underlying, but it's not they weren't particularly material. We don't have Kind of we didn't have significant travel costs, that type of thing as a key core component of our cost base. So The actual cost savings in the year were relatively limited. As David said, we do think there are more medium term opportunities as we go forward in terms of how we think about property and other footprint elements there. But in terms of 2020, relatively limited cost saving. And did you maintain your marketing spend as well? I don't think you split that one out. We don't split it out. We continue to be active from a marketing perspective last year, but we don't split those numbers yet. Thanks a lot. We now have a question from Victor German from Macquarie. Victor, please ask your question. Thank you. A couple of questions for me, if possible as well. The first one, I might just actually follow-up on Ed's question on The structural hedges, I appreciate you trying to give us a bit of clarity, but it seems like there's still a little bit of confusion. Are you in the past, you used to provide us a chart or a slide which showed contribution from structural hedge to net interest income. So last time we reported it was about $111,000,000 Are you able to tell us how that income is progressing to this half and what the expectation is for next year? My first question? And your second question? Sorry, Victor. Okay. All right, sure. I'll ask all of them. So the Second question is on non interest income. So if I look at your Slide 25, It's a useful chart where you actually show us by quarter how non interest income progressed. I note in the Q4 it was £36,000,000 with the £4,000,000 £4,000,000 £4,000,000 gain, which you call this one off, Which sort of looks like a run rate in the 4th quarter is close to $32,000,000 If we annualize sorry, pounds. If you annualize that, comes with a very low number. I sort of feel like I'm missing something there. If you can maybe Give us kind of a bridge as to how we should think about drivers for that particular line item. And lastly, on costs, Appreciate, obviously, there's a lot of uncertainty in this environment and it's difficult for you to Commit to your previous guidance, but it sounds, David, like you still are committing to that 7.80,000,000 cost guidance, perhaps not in 2022, but in later years. Just be interested in just making sure that that number is still Still the right number to think about. And why you're not sort of just kind of shifting it 1 year? Why are you sort of walking away? Is it just a matter of your concern around uncertainty for next year? Or is it something more fundamental that you found within the business that doesn't give you as much confidence About the cost trajectory that you had in the past. Thank you. Okay. Thanks, Victor, for all those. It's David. I'll just pick up on that cost point and then Enda can Coming back on your other two points on NII and structured hedge, but specifically, are we confident about where we're going on costs in the long long term trajectory on that. Absolutely, we are. So there isn't something we've seen that gives us cause for concern. I think our issue is one of We see that there is a trajectory to deliver on our cost ambitions, but there is also a completely different operating model that we can deploy. And I mentioned that earlier, but to give you some sense of it, what large scale buildings do you need? The model would suggest perhaps considerably less than you might have had before. What branch architecture will ultimately be required? Perhaps there is more to consider there. And then in our internal operating model and all the processes and procedures, we see huge digital opportunity as we've been aggressively pursuing that path. So what we'd like to do is come back with a considered view, which gives a clear trajectory to an end state that incorporates the all the elements of COVID that we are exploring right now. So I would just take away from the call that we are very confident on delivering our cost ambitions. And we are just trying to get a handle on the quantum of additional benefit that we might be able to deliver following settling of the COVID model. So that's where I would take the cost discussion. And do you want to cover all the Sorry, Just to make sure we're clear, so I mean it sounds to me like you kind of read everything you just said, but you feel like potential cost opportunity is actually bigger than you originally guidance for and the reason you don't want to commit to a number because you think that the cost opportunities might be bigger. Is that the way I should read it? Yes. Ultimately, we see additional opportunity. That's the way I'd pull it. I want to look at the cost to deliver it as well as the cost saving and get a proper understanding of the totality, what we have today and what we foresee we might be able to do and give a clear picture on that. But I would see some additional benefit potentially being available to us. Sure. Thanks, David. So Victor, just on OI and back to the hedge. So on OI, I outlined earlier in the call that I thought that the second half performance in OI was a reasonable proxy In the context of the forward view, notwithstanding what I would say there is obviously that, that was in a pretty subdued customer behavior environment. So on a go forward basis, Potentially not in the very short term, but on a go forward basis, obviously, we would expect that to improve as economic conditions stabilized. I just thought we might take some of the hedge questions off line, just given we don't actually have one anymore. But just to go through a little bit more. So our last disclosed Notional volume at H1 was €24,000,000,000 That was yielding circa 90 bps. It cost us about 10 bps to execute beyond wind. And now we have a net yield of circa 80 bps, Notionally coming down at approximately kind of $160 per month over the next 5 years. So in terms of a basis point impact moving into 2021. The drag is kind of low single digit basis points from Q4 into 2021. Okay. Thank you. And generally a straight line? Sorry? And generally, so there's no humps or anything. You're suggesting it's sort of straight line because amortizing over 5 years? Absolutely, 160 is per month. Thank you. We now have the last question from Robin Down from HSBC. Robin, please ask your question. Hi, good morning. Just a couple of quickies for me and an observation. The first one on the mortgage side, I don't know if you could give us Some indication of what your retention rates are, how sort of kind of internal transfer businesses has been doing. The second set of questions or questions and observations really around the sort of interest rate side. My observation is just that Your credit department and your treasury don't appear to be talking to each other because the credit department seems to have the most amazingly conservative economic outlooks that would presumably produce negative rates and yet the Treasury Department saying We're not worried about that. So any thoughts on that? But really the question that comes with that is I know you're saying that One of the reasons why you think negative rates might be unlikely is because of the operational challenge of implementing them. I assume you're referring there to VejaMoney systems not being able to cope with negative rates just yet. Just wondering if you could give us a timeline And when you thought systems might be able to cope with negative rates? Because obviously, that's a key factor in the Bank of England's thinking as well. Thank you. Sure. So sorry, David, you going in there? Yes. I was going to and thanks. I was going to make a comment on the negative rates. And it's not so much an issue of our systems, it's a matter of the entire industries and executives in place. And so what the Bank of England is doing is saying to us that, it's something that they could consider, but they have not asked us, Specifically not asked to go and build out these systems. So the general conversation around a U. K. Finance body representing all the industry would be It would take the industry a year to get systems ready to operate across the industry with stability. Secondly, it's not clear that that is the expectation model that the Central Bank would go for. They have a number of other ways to approach this, which might not involve that system kind of change. And the regulators are asking The industry questions about the science of all this to understand and work with the Bank of England on any pathway to negative rates and what they might do as a model of implementation. And it's not a certainty that, A, the rates will happen or B, that they would ask us to implement the very significant systems change across the whole industry to make it work. So sorry, Hendrik, back to you. Yes, sure. Thanks, David. I think your points on implementation are well made. And I think We participated in the most recent discussions with the Bank of England around that and we'll leave those discussions with privately with them. In terms of mortgage retention, We've typically operated kind of in a, let's call it, 70%, 75% range and we don't necessarily see that changing materially over the coming periods. And then I guess finally, In terms of our internal dialogue, look, maybe I'll just say we are very joined up internally in consideration of how we think About all the dynamics across our balance sheet and management have seen, that's how we run our business. Brilliant. Thank you. Okay. Thanks, everyone. I think we I'm very conscious of people's time and we did have a very long introductory session and I felt that It was good in this particular year for us to provide as much disclosure of that, but it obviously generated questions and more time on the phone. So happy to have Andrew, coordinate the IR team getting back on any range of follow-up questions or further details, and we will make sure that we get that to you promptly. So for now, I would just say thank you very much for your time and focus and questions, and we look forward to talking to you more as we develop the points raised today. Thank you all very much and we will end there.

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