Close Brothers Group plc · LSE:CBG
Close Brothers — H1 2024 Earnings Presentation
37 slides from Close Brothers's earnings presentation, Mar 19, 2024
Slide 1: Close Brothers Group plc Half Year Results 2024
Close Brothers Group plc Half Year Results 2024 19 March 2024
Slide 2: Disclaimer
Disclaimer Certain statements included or incorporated by reference within this report may constitute “forward-looking statements” in respect of the group’s operations, performance, prospects and/or financial condition. All statements other than statements of historical fact are, or may be deemed to
Slide 3: Agenda
Agenda 01 H1 2024 Highlights Adrian Sainsbury, Chief Executive Officer 02 Financial Update Mike Morgan, Group Finance Director 03 Business and Strategy Update Adrian Sainsbury, Chief Executive Officer 04 Appendix Close Brothers Group plc Half Year Results 2024 3
Slide 4: H1 2024 Highlights
01 H1 2024 Highlights Adrian Sainsbury, Chief Executive Officer Strictly confidential Close Brothers Group plc Half Year Results 2024 4
Slide 5: Highlights
Highlights Resilient income performance 4% loan book growth, strong net Strong net inflows of 9% in with growth in Banking and Asset interest margin of 7.5% and an Asset Management Management partly offset by a improved credit performance in reduction in Winterflood Banking Market conditions remaine
Slide 6: The distinctive strengths of our through-the-cycle model endure
The distinctive strengths of our through-the-cycle model endure The distinctive strengths Disciplined and long-term of our model approach, with a strong track record Disciplined underwriting and pricing through the cycle Deep expertise Quality loan book, predominantly secured, prudently underwritten
Slide 7: Financial Update
02 Financial Update Mike Morgan, Group Finance Director Strictly confidential Close Brothers Group plc Half Year Results 2024 7
Slide 8: Underlying H1 2024 performance highlights
Underlying H1 2024 performance highlights Resilient income performance – H1 24 H1 23 6% income growth in Banking when excluding Novitas and Banking income growth excl. Novitas and 6.3% 5.1% swaps1 swaps1 Banking cost growth 13% 5% Growth in Banking costs, in line with guidance YoY loan book growth 9
Slide 9: Income statement
Income statement • Our businesses delivered resilient income Change performance, with growth in Asset £ million H1 2024 H1 2023 % Management and Banking partly offset by a Operating income1 470.8 474.3 (1) reduction in Winterflood Adjusted operating expenses (334.7) (299.5) 12 • Expenses rose 12% du
Slide 10: Banking – Financial performance
Banking – Financial performance • Prior year income benefitted from Novitas Change (+£14m) and mark-to-market swaps1 (+£7m) £ million H1 2024 H1 2023 % • Excluding these items, income increased 6% Operating income 365.3 363.9 0 reflecting loan book growth and a strong net Adjusted operating expenses
Slide 11: Our Banking businesses
Our Banking businesses Banking Commercial Retail Property excl. Novitas excl. Novitas Income growth 3% (3)% 7% 11% Loan book (year-on-year growth) £9.8bn (+9%) £5.0bn (+11%) £3.0bn (+2%) £1.8bn (+21%) Net interest margin 7.5% (H1 23: 7.8%) 6.7% (H1 23: 7.6%) 8.7% (H1 23: 8.2%) 7.3% (H1 23: 7.8%) Cos
Slide 12: Continued demand across our Banking businesses
Continued demand across our Banking businesses Loan book movement by business1,2,3,4 Underlying loan book growth (£ million) Businesses in of 5% Retail excl. run-off • Loan book increased 4% as we focused on Commercial excl. legacy Irish Motor Novitas Property delivering disciplined growth Finance b
Slide 13: Strong net interest margin as we remain focused on pricing discipline
Strong net interest margin as we remain focused on pricing discipline Net interest margin Strong net interest margin • Decrease in reported NIM from H1 23 primarily reflecting mark-to-market swaps1 and Novitas benefitting prior year period • Focused on pricing discipline on new lending 7.6% 7.6% 7.6
Slide 14: Remain on track to deliver FY24 cost guidance in Banking
Remain on track to deliver FY24 cost guidance in Banking H1 2024 Banking costs +4% growth Rate of cost growth in H1 2024 driven mainly in first half +9% growth of 2024 by timing of investment spend in second half of 2023 212 203 Impact of motor commissions complaints 187 • Further increase in custom
Slide 15: Redoubling our efforts to enhance cost efficiency in Banking
Redoubling our efforts to enhance cost efficiency in Banking 1 Technology 2 Suppliers & Property 3 People Areas of focus Areas of focus Areas of focus • Simplification of application estate • Rationalisation of supply chain • Adjusting our workforce to support efficiency and effectiveness • Consolid
Slide 16: Strong asset quality
Strong asset quality Long-term average bad debt ratio excluding Novitas2 Bad debt ratio of 0.9% • £42 million of impairment charges driven by: – Improved macroeconomic outlook1 – Loan book growth 2.6% – Ongoing review of provisions and coverage 2.4% 2.2% across loan portfolios 2.3% • No significant
Slide 17: Strong net inflows in Asset Management
Strong net inflows in Asset Management • Growth in managed assets driven by strong Six months to 12 months to net inflows and positive market 31 January 31 July Change performance £ billion 2024 2023 % • Income rose 7% due to positive net inflows Total managed assets 17,675 16,419 8 and market movem
Slide 18: Winterflood's trading performance impacted by uncertain macroeconomic outlook
Winterflood’s trading performance impacted by uncertain macroeconomic outlook • Challenging market environment has Change continued to impact investor confidence £ million H1 2024 H1 2023 % • Operating income down, with decline in Operating income 34.2 39.0 (12) trading income more than offsetting g
Slide 19: Strong balance sheet
Strong balance sheet Prudent approach Total funding Loan book2 Treasury assets • Diverse funding sources and prudent maturity profile £12.7 billion £9.9 billion £2.2 billion • Conservative approach based on the principle of Average maturity of funding Average maturity of the loan book Includes £1.7b
Slide 20: Strong capital position
Strong capital position • Reduction in CET1 capital ratio mainly Capital overview driven by loan book growth, partly offset by 31 January 2024 31 July 2023 capital generation CET1 capital ratio (transitional)1 13.0% 13.3% • No foreseeable dividend on ordinary shares deducted from CET1 capital Tier 1
Slide 21: Business and Strategy update
03 Business and Strategy update Adrian Sainsbury, Chief Executive Office Strictly confidential Close Brothers Group plc Half Year Results 2024 21
Slide 22: FCA's review of historical motor finance commission arrangements
FCA’s review of historical motor finance commission arrangements Recent developments Overview of commission models operated1 • FCA announced a review of historical motor finance commission arrangements on 11 January • FCA aims to communicate a decision on next steps by end of September 2024 Signific
Slide 23: Taking decisive actions to continue to support customers and protect our valuable franchise
Taking decisive actions to continue to support customers and protect our valuable franchise Management actions could strengthen available CET1 capital by c.£400 million1 Significant uncertainty + c.£100m arising from the FCA’s CET1 capital + c.£100m review CET1 capital + up to c.£100m CET1 capital P
Slide 24: The distinctive strengths of our through-the-cycle model endure
The distinctive strengths of our through-the-cycle model endure The distinctive strengths Disciplined and long-term of our model approach, with a strong track record Disciplined underwriting and pricing through the cycle Deep expertise Quality loan book, predominantly secured, prudently underwritten
Slide 25: Our valuable business franchise
Our valuable business franchise Banking Offering additional borrowing Market-facing businesses The distinctive strengths of capacity for customers to our model acquire essential assets for their Asset Management personal lives or small Top 20 UK wealth manager businesses providing financial advice a
Slide 26: Focused on protecting and strengthening our valuable franchise
Focused on protecting and strengthening our valuable franchise Key messages 1 We are taking decisive actions to navigate through this current period of uncertainty, and are confident that the group will emerge well positioned to take advantage of future opportunities The distinctive strengths of our
Slide 27: Appendix
04 Appendix Strictly confidential Close Brothers Group plc Half Year Results 2024 27
Slide 28: Appendix: Updated guidance
Appendix: Updated guidance Banking • Expect to broadly sustain underlying loan book growth in the second half of the 2024 financial year • Well positioned to maintain a strong net interest margin, broadly aligned with the reported NIM in the first half • Continue to expect c.8-10% increase in costs
Slide 29: Appendix: Business update – Banking (Commercial)
Appendix: Business update – Banking Commercial Commercial Lends to SMEs through our direct sales force and third-party distribution channels Asset Finance • Strong customer demand supported by diversity of offering • New specialist lending teams proving successful • Strong new business volumes in Le
Slide 30: Appendix: Business update – Banking (Retail)
Appendix: Business update – Banking Retail Retail Provides finance to individuals and businesses through a network of intermediaries Motor Finance • Growth in UK business, supported by our enhanced proposition and new routes to market • Acquisition of Bluestone Motor Finance providing a platform for
Slide 31: Appendix: Business update – Banking (Property)
Appendix: Business update – Banking Property Property Provides short-term residential development finance for experienced professionals and offers refurbishment and bridging loans • Seen cautious optimism returning to property market, supported by a stabilisation of interest rates • Maintaining focu
Slide 32: Appendix: Business update – Asset Management
Appendix: Business update – Asset Management Well placed to consolidate our position and maximise opportunities to accelerate profitability Annualised net inflow rates and closing managed assets (% and £ billion) 12% 9% 9% 9% 9% 9% Strong track record of Attractive long-term 7% 5% growth 6% 17.7 gro
Slide 33: Appendix: Business update – Winterflood
Appendix: Business update – Winterflood Continued diversification of revenue streams and exploration of growth opportunities WBS AuA (£ billion) 20+ Diversified revenue Winterflood Business streams and growth 12.9 13.8 Services initiatives • WBS continued to see good momentum, with AuA increasing •
Slide 34: Appendix: Lending model
Appendix: Lending model Prudent and disciplined approach to lending A proven and resilient Core products Average Typical loan and security1 loan size2,3 maturity2,3 lending model Long track record of disciplined and consistent Asset Finance • Commercial asset financing, hire lending through the cycl
Slide 35: Appendix: Model Fit Assessment Framework
Appendix: Model Fit Assessment Framework Protecting the key attributes of our model Close Brothers Group plc Half Year Results 2024 35
Slide 36: Appendix: Sustain – Our responsibility
Appendix: Sustain – Our responsibility1 Our responsibility remains fundamental to our purpose, strategy and culture Our car fleet Our inclusivity Our emissions Our alliances Now 54.7% 96% As a signatory to the Net 46.1% Reduction in Scope 1 and 2 emissions since 2019 (market based) of our colleagues
Slide 37: Appendix: Sustain – Our Responsibility
Appendix: Sustain – Our Responsibility Our responsibility is fundamental to our purpose, strategy and culture Sustainable objectives Our progress At 31 July 2023 Our targets Environment • 55% reduction in Scope 1 and 2 • Operationally net zero by 2030 through Some of Reducing our impact emissions si