Preliminary Results Announcement 2018/19

Chief Executive's review

As a building society, Nationwide is owned by its members. We have a deep and true member focus: we are here to serve our members' needs today and tomorrow.

We are committed to delivering great service, long-term value and a financially secure Society, run in the best interests of our members.

We have led our peer group on service for seven years running⁷. We are now also comparing our service against the best in the UK, not just in financial services, tracking our place in the all-sector UK Customer Satisfaction Index. We have achieved our long-term goal of breaking into the top five, being ranked joint fifth in 2019, up from joint seventh in 2018⁸. A key part of our service proposition is our branch network which is why we are investing in our branches and have pledged to keep a branch in every town or city we are in today until at least 2021.

Being member-owned means we can balance giving value to members, investing in our Society and maintaining our financial strength.

This year members benefited from £705 million (2018: £560 million) through better rates, fees and incentives compared with the market average. We kept our commitment to offer competitive mortgages and rewarded our loyal savers with special rates. Our leading service⁷ and long-term value products have, I believe, helped us to another year of record membership as more people chose Nationwide for their mortgages, savings and current accounts.

Financially, we are strong. Our key measure of financial strength, our leverage ratio, is above our target at 4.9% (2018: 4.9%). We continue to manage our risks very carefully in an uncertain environment.

Our Society is in good health today. However, we must also look to the future and ensure we are best able to serve the needs of our members in a world where technology is changing how people manage their money. That's why we announced in September an investment of an extra £1.3 billion in technology, taking our total strategic investment, including investment in our branches, to £4.1 billion over five years. Our investment will make us more efficient, innovative and responsive, and help us address our members' needs today and in the future. In addition, we have committed to launch a business current account for small firms.

As a building society, we were able to increase our investment in technology to meet the long-term needs of our members, even though this reduces profit in the short term. Our underlying profit is in line with expectations, reducing to £788 million (2018: £977 million) after recognising a charge from technology asset write-offs and additional technology investment made during the year.

Our success is thanks to the hard work and commitment of our people, and I would like to thank them for their care and support for our members. I would also like to thank our loyal and growing membership, for their continued support for Nationwide.

Despite the economic uncertainties in the UK today, people still want to buy homes, save and manage their money, and we remain determined to support and serve our membership better every day.

Building thriving membership - helping more members make more of their money

We are owned by the 15.9 million members who we're helping into a home, to save for the future, or to manage their everyday finances.

Our membership grew to its highest level in 2018/19 and we are doing more with our members. Our committed membership⁹ - members who have two or more of our products - grew from 3.2 million to 3.4 million.

Members trusted Nationwide with more of their savings and this helped us grow deposits strongly by
£6.0 billion (2018: £3.5 billion). We kept average deposit rates more than 50% above the market average, and launched attractive new rates on loyalty accounts. However, in an environment where mortgage rates are low, there are limits to how much we can pay to our savings members.

Despite economic uncertainties, mortgage volumes remained strong and our competitive mortgage pricing meant we lent more to homebuyers and landlords on both a gross and net basis.

We relaunched our home insurance proposition which was well received by members who took out 97,000 policies, almost 30% more than in 2018, and helped us become the top-placed insurance provider in the Institute of Customer Service's UK Customer Satisfaction Index⁸.

More people are choosing Nationwide to manage their everyday finances; 794,000 new current accounts were opened this year (2018: 816,000) and our market share of main current accounts¹⁰ has reached 8% for the first time. We hope to replicate this success in the small business market, with the launch of a business current account.

Built to last - keeping our Society and our members' money safe

We are committed to running a financially secure Society, providing a safe home for our members' money. As a building society, we are able to make decisions in the long-term interest of our members. Our financial performance framework helps the Society achieve the right balance between giving value to members, investing in our business and maintaining our financial strength.

Our capital - the funds that are a cushion against unexpected economic events - is above our own targets and regulatory requirements. At 4.9% our UK leverage ratio, a key measure of our financial strength, is also above our target. Following the announcement in April 2019 of our intention to redeem our Additional Tier 1 capital instrument in full, our UK leverage ratio will reduce but will remain above regulatory requirements. We are managing our risks conservatively, although slowing house price growth resulted in a slightly higher loan to value ratio on total lending of 58% (2018: 56%).

We chose to provide extra value to members by competing in a crowded savings and mortgage market. Our competitive rates, fees and incentives meant members benefited from £705 million in member financial benefit, well above our aim of at least £400 million. We also decided to invest an extra £1.3 billion in technology over five years so that we can meet members' changing needs.

7 © Ipsos MORI 2019, Financial Research Survey (FRS), lead held over seven-year period covering 12 months ending 31 March 2013 to 12 months ending 31 March 2019, c.60,000 adults surveyed per annum, proportion of extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied customers summed across main current account, mortgage and savings. Peer group defined as providers with main current account market share >4% (Barclays, Halifax, HSBC, Lloyds Bank, NatWest and Santander and TSB). Prior to April 2017, peer group defined as providers with main current account market share >6% (Barclays, Halifax, HSBC, Lloyds Bank (Lloyds TSB prior to 2015), NatWest and Santander). 

8 Institute for Customer Service's UK Customer Satisfaction Index, January 2019 and January 2018.

9 Committed members have at least two of our products, at least one of which is their main personal current account, a mortgage with a balance greater than £5,000, or a savings account with a balance greater than £1,000.

¹⁰ Source: CACI (February 2019) and internal calculations.  'Main accounts' refers to main standard and packaged accounts.

Chief Executive's review (continued)

Underlying profit was down to £788 million (2018: £977 million), largely due to the impact of asset write-offs and our additional investment in technology, in line with expectations. Statutory profit was £833 million (2018: £977 million). As a building society, we were able to make these choices knowing it would impact profitability in the short term. We remain committed to our financial performance framework, and our current performance is consistent with this framework which enables us to make conscious decisions to increase our investment at a time when members' needs are changing rapidly and technology advancement is offering new opportunities.

We have continued to manage costs and have delivered over £100 million in sustainable cost savings in each of the last two years.

Building legendary service - striving to serve our members better every day

We all know what good service feels like. When we're in a hurry, it's quick and efficient. When we're facing a dilemma, it's unhurried and personal. Good service is not 'one-size-fits-all' but combines the best of human and digital interaction to serve our members well however they choose to interact with us.

We start from a strong base. For seven years running, we've been no. 1 for service among our peer group¹¹. We've moved up to joint fifth¹² in the all-industry UK Customer Satisfaction Index, achieving our target of being in the top five. Our current account satisfaction is also ahead of our peer group, with a lead of over 10%¹³, and we were named Which? Banking Brand of the Year for the second year running.

Service expectations continue to grow, and we continue to work hard to improve our member experience. We are investing £350 million in transforming our branch network, while pledging that every town and city with a Nationwide branch will continue to have one until at least May 2021. Simultaneously, with mobile users up by 33% last year, we are investing in our digital services, bringing new levels of speed, convenience and security to our members.

Building PRIDE - creating the right culture to do the best for our members

PRIDE is a statement of the culture, values and principles we strive to live by. It's about how we treat our members and each other.

We've worked hard to create a working environment where people are valued, teamwork is celebrated, and everyone can grow and develop their careers.

We have a strong culture and committed colleagues. This is evident from this year's employee engagement score, which at 79% (March 2018: 78%)¹⁴, continues to be above the high-performing benchmark¹⁴ of 77%. However, our rapidly changing world demands new skills and behaviours from our people: we need to be more innovative and able to work at pace. To help us achieve this, we developed a new people strategy last year. Our goal is to develop leaders at every level of our business to inspire and empower our people, and to help them learn new skills and capabilities. In the coming year, we will also be actively recruiting up to 1,000 technology specialists to support our technology investment. We have an approach to reward and recognition that recognises every colleague's contribution based on the Society's overall performance.

Building a national treasure - supporting communities and making a difference

Building a national treasure is perhaps our most ambitious cornerstone. It's not about how we see ourselves, but about how others see us: how well we are trusted, recognised as a brand, and seen as a force for good in society.

We're pleased to be no 1 for trust in our peer group, and joint top for brand consideration¹⁵ - a measure of how many consumers would consider Nationwide for their financial needs. As a building society, we are guided by a social rather than a commercial purpose and aim to make our communities better places to live and work. Last year, we aligned our social investment with our goal of helping people into better homes and now direct most of our community investment into housing initiatives. In the second year of our social investment strategy, built on the idea that everyone should have a place fit to call home, we've awarded Community Grants totalling £3.9 million to more than 100 housing-related projects. We're also working with Swindon Borough Council to develop a multi-generational community of 239 homes.

Financial capability is also important to us. We are funding a £3 million Open Banking for Good challenge, to motivate technology firms to use Open Banking standards to develop apps and services that put people in control of their money.

Outlook

While the UK economy has slowed over the last few years, it has proved more resilient than many expected, with continued healthy gains in employment and a gradual rise in earnings contributing to solid rates of household spending.

We expect economic activity to continue to rise at a modest pace in the near term, which may mean a small rise in the unemployment rate from recent 43-year lows, with interest rates remaining close to current levels over the next few years. We anticipate that economic activity will then pick up once Brexit uncertainties fade and the UK's trading relationship with the EU becomes clearer. 

We expect demand in the housing market to remain fairly subdued, close to recent levels, before strengthening once the wider economy gains momentum. Deposit growth is likely to rise by around 4% per year, a little stronger than that recorded over the past two years.

In our own business, we will continue to make balanced decisions in the long-term interests of members and the Society as a whole. We expect our core mortgage and savings markets to remain competitive, with a continued narrowing of our net interest margin, and will continue our focus on delivering good long-term value for borrowers and savers. Our financial strength has enabled us to commit to ongoing investment in technology with the confidence that we can continue to support our members now and in the future as we have done for the last 135 years.

11 © Ipsos MORI 2019, Financial Research Survey (FRS), lead held over seven-year period covering 12 months ending 31 March 2013 to 12 months ending 31 March 2019, c.60,000 adults surveyed per annum, proportion of extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied customers summed across main current account, mortgage and savings. Peer group defined as providers with main current account market share >4% (Barclays, Halifax, HSBC, Lloyds Bank, NatWest and Santander and TSB). Prior to April 2017, peer group defined as providers with main current account market share >6% (Barclays, Halifax, HSBC, Lloyds Bank (Lloyds TSB prior to 2015), NatWest and Santander).

12 Institute for Customer Service UK Customer Satisfaction Index, January 2019 and January 2018.

13 © Ipsos MORI 2019, Financial Research Survey (FRS), 12 months ending 31 March 2019, c.60,000 adults surveyed per annum, proportion of extremely/very satisfied main current account customers minus proportion of extremely/very/fairly dissatisfied main current account customers. Peer group defined as providers with main current account market share >4% (Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander and TSB).

14 The comparative for Nationwide's employee engagement score in 2018 has been restated based on updated information. The high-performing benchmark is based on data from more than 35 companies around the world across a range of industries. It covers more than 450,000 employees.

15 Source: Nationwide Brand and Advertising tracker compiled by Independent Research Agency, based on all consumer responses, 12 months ended 31 March 2019. Financial brands included Nationwide, Barclays, Co-operative Bank, First Direct, Halifax, HSBC, Lloyds Bank, NatWest, Santander and TSB. Joint top with Halifax.