Close Brothers Group Plc · LSE:CBG
Close Brothers — FY2007 Earnings Presentation
51 slides from Close Brothers's earnings presentation, 2007
Slide 1: Close Brothers Group plc 2007 Annual Results
Close Brothers Group plc 2007 Annual Results
Slide 2: Agenda
Agenda Overview Financial Review Divisional Review Asset Management Corporate Finance Securities Banking Outlook
Slide 3: Overview
) OVERVIEW
Slide 4: Highlights and Overview
Highlights and Overview 2007 Results A successful year – making good progress • PBT £190m* up 21% • EPS 90.4p up 22% • Ordinary Dividend 37.0p up 14% * after £4m goodwill £43m investment gains and performance fees PBT excluding gains and goodwill £151m (2006 : £148m) Special dividend 25p per share 1
Slide 5: Highlights and Overview (cont'd)
Highlights and Overview (cont’d) 2007 Results Asset Management – a strong year • PBT £78m (+105%) FuM £9.1bn (+11%) • Significant investment gains and related performance fees (£43m) • Underlying growth (from £29m to £35m) on target at 20% • A busy year Securities – competitive environment • PBT dow
Slide 6: Highlights and Overview (cont'd)
Highlights and Overview (cont’d) 2007 Results Corporate Finance – another record year • PBT £22m, up 29% • M&A very strong • Busy in all 3 main centres Banking – recent market crisis vindicates our prudent approach • PBT slightly down to £72m • Maintained margin and loan quality • Bad debts remain w
Slide 7: Highlights and Overview (cont'd)
Highlights and Overview (cont’d) 2007 Results Capital position • Group remains well capitalised and soundly financed • Expect no material impact from Basle II • We estimate £150m – £200m of excess capital • Intend to retain strong balance sheet and flexibility in changing climate 4
Slide 8: Highlights and Overview (cont'd)
Highlights and Overview (cont’d) July 2007 Solid growth record Earnings per share Profit before tax 100 200 75 150 pence £m 50 100 25 50 0 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Funds under management Loan book 10 2.0 8 1.5 6 £bn £bn 1.0 4 2 0.5 0 0.0 1998 1999 2000 2001 2002 2003 2004
Slide 9: Diversity of Activity and Income
Highlights and Overview (cont’d) Diversity of Activity and Income 2006 2007 Profit by Activity % % Asset Management 22 36 Corporate Finance 9 10 Securities 27 21 Banking 42 33 100 100 Income by Type Interest 27 24 Fees 47 51 Dealing 23 19 Other 3 6 100 100 6
Slide 10: Core Strategy
Core Strategy Enhanced profits Specialisation Reduced risk Focus More consistent, Reduced volatility less cyclical profits Diversity Blended return Growing dividend Blended exposure to financial services Robust business model Growth and diversity 7
Slide 11: Financial Review
) FINANCIAL REVIEW
Slide 12: Results Highlights
Results Highlights £m 2006 2007 Change Income Statement Operating income 536 607 +13% Pre-tax profit 157 190 +21% Adjusted pre-tax profit 148 151 +2% EPS (p) 74.1 90.4 +22% Ordinary dividend (p) 32.5 37.0 +14% Special dividend (p) – 25.0 – Balance Sheet Total assets 4,813 5,375 +12% Customer loans 1
Slide 13: Income Development
Income Development 700 £607m £53.0m £3.0m £6.0m £(6.0)m £21m 600 £37m £536m £16m £116m 500 £122m 400 £147m £m £144m 300 200 £307m £254m 100 0 2006 Netfees Net fees Net Netinterest Interest Dealing income Dealing Income Other Other income Income 2007 Strong growth in fees and other income 9
Slide 14: Income Statement
Income Statement £m 2006 2007 Operating income (net) Interest 144 147 Fees 254 307 Dealing 122 116 Other 16 37 Total operating income 536 607 Administrative expenses (346) (376) Depreciation, amortisation and goodwill (14) (19) Bad debts (19) (22) Total operating costs (379) (417) Pre-tax profit 157
Slide 15: Balance Sheet
Balance Sheet July (£m) 2006 2007 Liabilities Equity 662 753 Subordinated loan capital 75 75 Deposits by customers 1,843 2,303 Funds from banks 532 618 Non-recourse borrowings 150 150 Debt securities in issue 358 353 Securities trading liabilities 807 736 Other liabilities 386 387 4,813 5,375 Assets
Slide 16: Financial Highlights: KPIs
Financial Highlights: KPIs 2006 2007 Operating margin 29% 31% Expense/income ratio 67% 65% Compensation ratio 43% 42% Return on opening capital (pre tax) 27% 29% Bad debt charge/avg loans 1.0% 1.1% 12
Slide 17: Robust & Diverse
Robust & Diverse £m 2006 2007 2006 2007 Operating Income Operating Profit Asset Management 140 199 38 78 Corporate Finance 61 77 17 22 Securities 134 128 48 44 Banking 199 198 74 72 Group 2 5 (20) (26)* 536 607 157 190 * including £4m goodwill 13
Slide 18: Divisional Review
) DIVISIONAL REVIEW
Slide 19: Asset Management
) ASSET MANAGEMENT
Slide 20: Asset Management Highlights
Asset Management Highlights A strong year Asset Management Profit • profit £78m +105% 100 78 80 • exceptional investment gains and performance fees £43m 60 43 £m 38 40 • another year of progress 9 20 32 29 35 8 17 Underlying growth 20% (£29m – £35m) 0 2003 2004 2005 2006 2007 FUM £9.1bn up 11% with
Slide 21: Asset Management Key Numbers
Asset Management Key Numbers 2006 2007 Change Operating income (£m) 140 199 +42% Costs (£m) 102 121 +19% Pre-tax profit (£m) 38 78 +105% PBT excluding exceptional gains & fees (£m) 29 35 +20% Operating margin 27% 39% Expense/income ratio 73% 61% Compensation ratio 46% 43% 15
Slide 22: Asset Management Funds under Management
Asset Management Funds under Management 11% growth 12 £0.7bn £(1.7)bn £0.5bn £2.0bn 10 £(0.6)bn £9.1bn £8.2bn 7% 8 7% 8% 7% 9% 11% £bn 6 15% 16% 19% 4 17% 8% 2 42% 42% 0 31-Jul-06 New funds Market effect Acquired funds Withdrawals/ Discontinued 31-Jul-07 redemptions activities Equities Fixed Income
Slide 23: Asset Management Asset Gathering
Asset Management Asset Gathering Good performance – two thirds of funds above benchmark or median Strong private client inflows Specific fund outflows Net FY 2007 inflows / FuM at Market FuM at Opening £m 31/07/06 In Out Net Acquisitions Discontinued Movement 31/07/07 FuM Private Clients 2,684 1,073
Slide 24: Asset Management Outlook
Asset Management Outlook Continue to target 20% growth Should see integration benefits from 2008 Scalable platforms in funds & private clients Funds • property • multi manager • structured & specialist • funds of hedge funds Well positioned to exploit fragmented private client space 18
Slide 25: Corporate Finance
) CORPORATE FINANCE
Slide 26: Corporate Finance 2007 Trading Highlights
Corporate Finance 2007 Trading Highlights A record year: Corporate Finance Profit • revenue £77m +26% 25 • profit £22m +29% 20 M&A dominant in buoyant market > 70% of income 15 £m 22 10 Increasing international aspect with strong 17 5 10 10 performances in France and Germany 5 0 2003 2004 2005 2006
Slide 27: Corporate Finance Key Numbers
Corporate Finance Key Numbers 2006 2007 Change Operating income (£m) 61 77 +20% Costs (£m) 44 55 +25% Pre-tax profit (£m) 17 22 +29% Operating margin 28% 29% Expense/income ratio 72% 71% Compensation ratio 56% 57% 20
Slide 28: Corporate Finance Revenue Analysis
Corporate Finance Revenue Analysis 80 £14m £3m £(1)m £77m 9% 70 £61m 18% 60 13% 50 18% £m 40 73% 30 69% 20 10 0 2006 M&A M&A Restructuring Restructuring DebtAdvisory Debt Advisory 2007 Good growth in M&A 21
Slide 29: Corporate Finance Outlook
Corporate Finance Outlook Slowdown in M&A is inevitable from high point last year as market uncertainty affects deal flow Restructuring and debt advisory are well positioned to fill the gap but likely to be a market time lag Greater contribution from international operations Robust & scalable busine
Slide 30: Securities
Winterflood ; == Securities @ Close Brothers S Wins: | imited & SECURITIES
Slide 31: Securities Overview
Securities Overview Securities Profit Markets were generally strong in UK and 50 Germany 40 30 WINS’ overall performance very similar to ’06 £m 48 44 20 38 36 24 10 Seydler had a quieter year 0 2003 2004 2005 2006 2007 Significant competitive pressure continues 23
Slide 32: Securities Key Numbers
Securities Key Numbers 2006 2007 Change Operating income (£m) 134 128 -4% Costs (£m) 86 84 -3% Pre-tax profit (£m) 48 44* -8% Operating margin 36% 34%* Expense/income ratio 64% 66%* Compensation ratio 40% 35%* * includes £3m regulatory provision 24
Slide 33: Securities Key Numbers
Securities Key Numbers 140 £134m £128m WINS margin: 120 £29m WINS margin: 37% £25m 39% Seydler margin: 100 30% Seydler margin: 15%* Combined margin: 80 Combined margin: 36% 34%** £m 60 £105m £48m £103m £44m 40 £9m £4m 20 £39m £40m 0 Income Profit Income Profit 2006 2007 WINS operating income Seydler
Slide 34: WINS – Trading Highlights
Securities WINS – Trading Highlights Operating margin strong at 39% WINS remains leading RSP • ranked No. 1 by volume and value in retail market-making Bargain numbers 6.9m – slightly down on ’06 Profit per bargain and fee levels slightly up Plus Markets - RIE status obtained - good volume growth -
Slide 35: Close Brothers Seydler
Securities Close Brothers Seydler Market-making activity remained good New issue market much quieter Leading designated sponsor with 160 corporate mandates Profit 20% down as expected (£7m) but further reduced by one-off £3m provision 27
Slide 36: Securities Outlook
Securities Outlook Volatile markets have led to busy, challenging but profitable start for WINS Seydler has started better than last year Solid platform with strong operating margins Growth opportunities in UK & Germany 28
Slide 37: Mako Benefits to Close
Mako Benefits to Close Mako brings • Strong management team • Niche market position • Good potential for growth • Diversification benefits Extends our market making activities into exchange traded derivatives • Key business lines are derivatives in equity indices, fixed income and interest rate prod
Slide 38: Mako Market Context
Mako Market Context Exchange traded derivatives are standardised Turnover in exchange traded derivatives* and highly liquid, with counterparty risk lying with 600 the clearing houses. Turnover in the market has grown c. 30% per annum since 2000* 500 Bulge bracket banks concentrate on the OTC 400 mar
Slide 39: Banking
) BANKING
Slide 40: Banking Highlights
Banking Highlights Long established, highly focused asset based Banking Profit lender 80 70 Loan book broadly flat as we declined to sacrifice 60 50 margin for volume £m 40 70 70 74 72 30 63 Consistent and strong operating margin — 36% 20 10 Good growth in some areas (e.g. property, 0 transport and
Slide 41: Banking Key Numbers
Banking Key Numbers 2006 2007 Operating income (£m) 199 198 Operating profit (£m) 74 72 Loan book (£m) – year end 1,862 1,962 Bad debt charge (£m) 18.6 21.5 Bad debt % of avg loan book 1.0% 1.1% Return on average gross loans 3.8% 3.7% ROC 30% 27% Operating margin 37% 36% Expense/income ratio 53% 53%
Slide 42: Banking Review
Banking Review Flat loan book doesn’t tell the whole story of a busy year • Insurance premium market remains difficult. Margins and case count held up, but loan book fell 10% • Well spread property loan book increased 55% • Transport and engineering up 14% as new teams contributed • Print loan book
Slide 43: Year End & Average Loan Books
Banking Year End & Average Loan Books £1,862m £1,962m 2,000 Printing machinery 7% (11%) £145m 1,800 £197m £173m 1,600 £158m Invoice receivables 9% (8%) £223m 1,400 £186m Other 11% (10%) £320m 1,200 £200m £m 1,000 Property 16% (11%) £361m £342m 800 Motor vehicles 18% (19%) 600 £385m £348m 400 Insuran
Slide 44: Banking Outlook
Banking Outlook Our priority remains getting back to long term profit trend Well positioned to benefit from end of easy credit With our strong margins and consistent return on assets, any loan book growth will translate into profits growth Long standing conservative approach to funding and liquidity
Slide 45: Banking Liquidity
Banking Liquidity Group loan book covered more than two times by We borrow long and lend short: equity, deposits and bank facilities: £4,500 £2,500 £4,000 £2,000 £3,500 £2,303 £3,000 £1,500 Contractual run off £2,500 £m £2,000 £1,000 £1,500 £1,704 £1,000 £1,962 £500 £500 £323 £0 £0 Funding Loan book
Slide 46: Outlook
) OUTLOOK
Slide 47: Group Outlook
Group Outlook Robust performance: progress in all divisions Short term outlook for global markets is uncertain • Likely to affect Corporate Finance and Securities • Could lead to an increase in acquisition opportunities Repricing of risk could benefit our banking business Asset Management broadly sp
Slide 48: Appendix – Securities Activities
Appendix – Securities Activities
Slide 49: WINS Services Provided
WINS Services Provided Full Service Market-Making UK Equities Investment Trusts Market making across: Fully Integrated Service • FTSE (SETS) • Market Making • MidCap (SETSmm) • Research & Sales • SmallCap (SETSqx and SETSmm) • Corporate Finance • AIM (SEAQ) • Corporate Broking • Plus (OFEX) • ETF’s
Slide 50: Seydler Overview of Activities
Seydler Overview of Activities Designated Sponsoring Institutional Sales Fixed Income Specialist at Frankfurt Floor • Market leader in designated Equities • Support of institutional • Specialist for more than 40 sponsoring investors equities in the open as well • High placing power in as the regulat
Slide 51: Mako Overview of Activities
Mako Overview of Activities An entrepreneurial trading house, Mako is a leading liquidity provider on a number of the world’s derivatives exchanges. Trading with the institutional bank and broker community, Mako provides liquidity in a range of fixed income, equity and commodity options contracts in