Close Brothers Group Plc · LSE:CBG
Close Brothers — Investor Presentation (May 2013)
38 slides from Close Brothers's investor presentation, May 30, 2013
Slide 1: Banking Division Investor presentation
Banking Division Investor presentation 30 May 2013
Slide 2: Disclaimer
Disclaimer Certain statements included or incorporated by reference within this presentation may constitute “forward-looking statements” in respect of the group’s operations, performance, prospects and/or financial condition. By their nature, forward-looking statements involve a number of risks, unc
Slide 3: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Overview – Stephen Hodges, Managing Director & Bank Chief Executive 3. Financial track record – Mike Morgan, Bank Finance Director 4. Consistent lending principles – Nigel Mottershead, Head of Bank Credit Risk 5. Conservative fundin
Slide 4: Banking division
Banking division Long track record of financial strength • Differentiated lending model Key financial drivers – Specialist, expertise based lending Bad Loan – Predominantly secured debt book NIM ratio RoE growth – Small ticket, short-term 10 year – Relationship driven ave 9.2% 1.6% 19% 11% • Conserv
Slide 5: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Overview – Stephen Hodges, Managing Director & Bank Chief Executive 3. Financial track record – Mike Morgan, Bank Finance Director 4. Consistent lending principles – Nigel Mottershead, Head of Bank Credit Risk 5. Conservative fundin
Slide 6: Contents of presentation
Contents of presentation Key objective to demonstrate….. .......through our 5 strategic pillars What are our key differentiators? 1. Customer focus 2. Operational excellence What underpins our strong financial performance through the cycle? 3. Consistent lending principles 4. Conservative funding an
Slide 7: Specialist lender to SMEs and individuals
Specialist lender to SMEs and individuals Award-winning specialist finance solutions • £4.5 billion1 loan book, of which £2.6 billion to SMEs • Differentiated distribution – both direct and intermediated relationships with SMEs and retail customers • 1,700 staff across 44 locations in the UK and Ire
Slide 8: UK lending on specialised asset types
UK lending on specialised asset types Well-established footprint across diverse range of assets Wide geographic reach Loan book by asset type at 31 Jan 2013 Other Construction, Plant, Office locations 5% Engineering Other E.U. Residential 12% < £0.1bn 14% Transport1 New cars 12% 2% Other LCVs, Bikes
Slide 9: 5 specialist lending areas
5 specialist lending areas Different market and asset specialism Commercial = 39% Retail = 42% Property = 19% Asset finance Invoice finance Premium finance Motor finance Property finance Hire purchase, Invoice Finance for Point of sale Short-term leasing and discounting and personal & finance for fi
Slide 10: Distinctive lending model
Distinctive lending model Core attributes that differentiate our secured lending model Local distribution & strong relationships Local, integrated teams responsible for end-to-end relationships Strong Service and margins speed Delivering High-service consistent levels and flexible profitability solu
Slide 11: Local distribution and strong relationships
Local distribution and strong relationships Core attributes of our differentiated distribution model and strong relationships Retail Commercial Property 700 staff of which >200 Staff 700 staff of which 250 sales 70 staff of which c.25 sales sales Locations 20 offices 21 offices 3 offices 8,800 motor
Slide 12: Distribution is key to access demand
Distribution is key to access demand 5 million SMEs all with different financing requirements Close Brothers 44 locations in UK & Ireland 500 sales people 1,100 Asset 8,800 2,100 finance Motor Insurance brokers dealers brokers 5 million SMEs and individual users of specialised, secured finance in th
Slide 13: Providing value through service quality
Providing value through service quality Core attributes of our differentiated customer proposition Commitment to customer through the cycle Speed of decision-making • 25 year history of continuous lending • Unique, high-touch model facilitates market- • Consistent provider of residential property le
Slide 14: Experienced people
Experienced people Average experience of management team > 20 years • Experienced senior management group • Depth of knowledge and expertise – Commercial and Retail leadership teams industry experience > 25 years – Senior Property management team industry experience > 20 years • Embedded culture of
Slide 15: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Overview – Stephen Hodges, Managing Director & Bank Chief Executive 3. Financial track record & operational excellence – Mike Morgan, Bank Finance Director 4. Consistent lending principles – Nigel Mottershead, Head of Bank Credit Ri
Slide 16: Strong financial attributes of model
Strong financial attributes of model Consistent, high quality, recurring earnings Core financial strengths (H1 2013) Strong returns through the cycle • Safe, controlled loan book growth 30% 25% Return on opening equity • Strong margins 20% – 8.9% NIM 15% 10 yr avg. 19% 10% • Strong credit quality 5%
Slide 17: Strong income generation…
Strong income generation… High touch high service model underpins NIM performance • Strong margin levels maintained through cycle Components of income – End-to-end, local relationships £million – Speed of decision making 200 195.7 Excluded from NIM – Commitment to customers through the cycle 176.5 6
Slide 18: ...and controlled cost management
...and controlled cost management Prioritise spend to best support customers and growth • High-touch, people-intensive model Adjusted operating expenses – Staff costs c.55 – 60% of total costs Costs, £ million E:I ratio – Compensation ratio stable at 27% compares favourably with peers – not high var
Slide 19: Differentiated by consistent financial strength
Differentiated by consistent financial strength Retain financial attributes through the cycle Strong credit quality and collateral Strong Low bad debt margins High returns Safe loan Tight cost book growth management Strictly confidential 19
Slide 20: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Overview – Stephen Hodges, Managing Director & Bank Chief Executive 3. Financial track record – Mike Morgan, Bank Finance Director 4. Consistent lending principles – Nigel Mottershead, Head of Bank Credit Risk 5. Conservative fundin
Slide 21: Disciplined approach to lending...
Disciplined approach to lending... 27 year range of 0.7%-2.6% covering a variety of market conditions • Long term sustainable growth underpinned by consistent lending principles • Business models minimise credit risk from external events • Loan losses have never exceeded 2.6% in a single year Loan b
Slide 22: ....upheld by solid lending principles
....upheld by solid lending principles Lending without compromising loan book profile or quality • Over 90% of book secured Predominantly secured lender • “Unsecured” loans with good quality covenants • > 50% book has residual maturity < 1 year Short average loan tenor • Behavioural maturity is shor
Slide 23: Business models minimise credit risk
Business models minimise credit risk Strong underwriting, recovery and repossession expertise unique for each business Lending statistics Typical LTV at point of sale1 Average loan size2 Typical loan maturity3 Motor finance 75-85% £5k 2-3 yrs Premium finance 90% £600 10 mths Asset finance 80-90% £34
Slide 24: Consistent lending principles
Consistent lending principles Disciplined approach creates sustainable growth through the economic cycle Maintain disciplined lending criteria Protect our distinctive business model Deliver high-quality, recurring earnings Strictly confidential 24
Slide 25: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Overview – Stephen Hodges, Managing Director & Bank Chief Executive 3. Financial track record – Mike Morgan, Bank Finance Director 4. Consistent lending principles – Nigel Mottershead, Head of Bank Credit Risk 5. Conservative fundin
Slide 26: Conservative funding and prudent liquidity
Conservative funding and prudent liquidity Diversification and term funding • Funding capacity increased £1.0 billion to Close Brothers Group funding profile support growing loan book £ billion 7 6.2 • New sources of funding accessed: 6 – Close Brothers Savings £1.9 billion2 5.2 2.0 Corporate1 – Sec
Slide 27: Well positioned to fund future growth
Well positioned to fund future growth Flexibility to access multiple sources of funding going forward Take advantage of changing funding markets • Fluctuations in cost and supply – availability ebbs and flows Further utilisation of existing sources of funding • Customer deposits – retail and corpora
Slide 28: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Overview – Stephen Hodges, Managing Director & Bank Chief Executive 3. Financial track record – Mike Morgan, Bank Finance Director 4. Consistent lending principles – Nigel Mottershead, Head of Bank Credit Risk 5. Conservative fundin
Slide 29: The current credit environment
The current credit environment Remains favourable with no significant change in trend in FY 2013 Super-cycle growth over last 3 years • Significant dislocation in credit supply created market opportunity Growth rate moderated in FY 2013 to date reflecting: 1) Modest changes in credit supply • Patchy
Slide 30: Growth potential in existing markets
Growth potential in existing markets Experience of winning and retaining business Significant room for growth in existing markets • Opportunities for penetration in existing core markets – Good demand for specialist, tailored, innovative finance solutions – Estimated c.5 million SMEs in UK1 • Opport
Slide 31: …and in adjacent areas
…and in adjacent areas Through exploring adjacent areas and extensions of product lines Exploring product extensions which share attributes with core businesses: • Supporting fast growing, small businesses with long-term growth potential • Business Development Committee • Controlled pilots and explo
Slide 32: Opportunity for growth in UK market
Opportunity for growth in UK market Small, specialised, secured lender with differentiated model UK lending Lloyds RBS Barclays Santander Nationwide >£50bn Clydesdale Handelsbanken Investec £5-50bn Close Brothers £2-5bn Aldermore Hitachi Leumi Motonovo Shawbrook Metro Bank <£2bn Note: Calculated on
Slide 33: We remain well positioned for growth
We remain well positioned for growth Confident for foreseeable future • Core attributes make our model difficult to replicate – Strong, local, well-established distribution network – Experienced, specialist people – Service and speed are pivotal • Confident in continued good growth opportunities – S
Slide 34: Q&A
O&A a] Close Brothers
Slide 35: Appendix
Appendix A Close Brothers
Slide 36: Retail
Retail Overview Motor finance Premium finance • Motor finance for new and used cars, motorbikes • Pioneered in the UK by Close Brothers in 1977 and light commercial vehicles • Personal and Commercial insurance premium – Predominantly hire purchase agreements for finance for individuals and SMEs seco
Slide 37: Commercial
Commercial Overview Asset finance Invoice finance • Founded in 1987 by a team of finance specialists • Invoice discounting and debt factoring for over 1,000 SMEs • Flexible funding options, and tailor-making finance solutions including hire purchase, • Part of Close Brothers Group since 1982 leasing
Slide 38: Property
Property Specialist team, lending consistently to the market Close Property finance Geographic bias to London and the South East • Been part of Close Brothers Group for nearly 40 years 2% • Short term, residential refurbishment and development • Other products include pre-let commercial development,
Close Brothers Group — Investor Presentation (May 2013) on 6ix