Close Brothers Group plc · LSE:CBG
Close Brothers — Investor Presentation (November 2015)
55 slides from Close Brothers's investor presentation, Nov 26, 2015
Slide 1: Banking Division
Banking Division Close Brothers Group 26 November 2015 1
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: Group overview
Group overview @ Close Brothers
Slide 4: Modern Merchant Banking
Modern Merchant Banking Creating and sustaining value for the group Leading Generate positions in strong and specialist sustainable markets returns Expertise of our people Long-term Service relationships excellence Reinvest to Strong financial enhance our position to customer support our proposition
Slide 5: Clear and consistent strategy
Clear and consistent strategy Delivering consistent growth and improving returns Consistent growth Adjusted operating profit £ million 300 25% • Focus on specialist markets 18% 20% 20% 250 16% 18 13% 12% 10 25 15% 200 4 27 26 10% 150 25 55 5% 100 182 209 0% • Deliver strong returns 50 106 135 158 -5
Slide 6: Banking overview
Banking overview @ Close Brothers
Slide 7: Banking Division Overview
Banking Division Overview Five specialist lending businesses Retail Property Commercial Motor Premium Property Asset Invoice finance finance finance finance finance 28% 11% 23% 31% 7% Point of sale Finance for Short-term Hire Invoice finance for personal & financing for purchase, discounting predomi
Slide 8: What do we do?
What do we do? Specialist lending in niche markets £ billion What we do not do • Mortgages • Buy to let • Current accounts Property 1.3 Motor • Overdrafts 1.6 £5.7 billion Why? Invoice total loan • Prefer niche markets with less direct 0.4 book competition from larger banking groups Premium – Specia
Slide 9: Specialist lender
Specialist lender Our scale and reach • Over 2 million customers including 270,000 Geographical split of loan book at 31 July 2015 SMEs • Around 10,000 intermediaries including 1,700 insurance brokers and 7,500 motor dealers • c.50,000 corporate and retail deposit customers – Total customer deposit
Slide 10: Consistent strategy
Consistent strategy Customer focused lending to SMEs and individuals Strong financial returns Relationship driven High quality loan book through the cycle Local presence Small ticket Lending in all market conditions since 1985 Distinctive model delivers Flexible, Short-term sustainable long-term tai
Slide 11: Proven track record
Proven track record Long history of profitable growth through the cycle £ billion £ million 2015 6.0 +8.5% 220 Banking key metrics 10 year average 200 RoE 21% 2013 – 2014 5.0 +13% p.a RoNLB 3.5% 180 Bad debt ratio 1.5% 160 4.0 Net interest margin 9.1% Credit crunch 2009 - 2012 140 Loan book growth 1
Slide 12: New growth initiatives
New growth initiatives Long history of developing new products and entering adjacent markets £ billion 2014 2015 2016 Renewable Consumer Technology 7.0 energy finance leasing 2008 2011 2007 Mid-ticket leasing Larger 6.0 Bridging / property Brewery rentals ticket 2012 refurbishment invoice Ireland 20
Slide 13: Strong customer proposition
Strong customer proposition Valued highly by our clients Net promoter score Repeat business +100 everyone is a promoter Property Finance 72% +50 excellent Management tool to Invoice Finance 83% gauge loyalty of customer relationships 0 considered Asset Finance 70% good Premium Finance 72% -100 every
Slide 14: Sustainable financial model
Sustainable financial model 14
Slide 15: Sustainable financial model: How do we achieve strong returns?
Sustainable financial model How do we achieve strong returns? Strong returns through the cycle 5% 4% Prudent underwriting 3% 10 yr ave. 3.5% Strong net interest and strong credit margins 2% quality 1% Buffer Tightly 0% controlled 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 costs Return on net
Slide 16: Continuous investment
Continuous investment Growing cost base to support future loan book growth • High-touch people-intensive model Adjusted operating expenses £ million E/I ratio – Staff costs c.55% of total costs 350 55% – Compensation ratio stable at 27% 10 yr ave. 50% 50% 300 52% 49% 50% 47% 47% 45% • Other costs pr
Slide 17: Investing for the long term
Investing for the long term To protect and extend our business model Successfully implemented Strategy going forward • Asset Finance training academy – c.30 new • Headcount +50% since 2007 sales staff People • 600+ staff relocated to Wimbledon offices • SME apprenticeship scheme and school leaver pr
Slide 18: Conservative funding model
Conservative funding model Focus on diversity and maturity Diverse funding sources Funding maturity profile £ billion £ billion 8.0 7.5 3.0 Retail deposits 2.5 14 months average 1.6 loan book maturity 6.0 Corporate deposits 2.0 1.7 2.9 Other 4.0 wholesale1 1.3 1.0 1.0 Bonds 1.0 1.5 2.0 0.5 Equity 1.
Slide 19: Prudent capital position
Prudent capital position Maintain buffers to allow flexibility Group CET1 ratio Group leverage ratio1 At 31 July At 31 July 14% 13.7% 12% 13.1% 13.3% 13.1% 12.8% 9.8% 10.2% 10% 9.5% 9.7% 9.2% 12% 8% 10% 6% 8% 4% 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 • 13.7% conservative capital level • 1
Slide 20: Strong credit ratings
Strong credit ratings Recent credit rating upgrade Moody’s long-term deposit ratings • One of the top rated UK banks Aaa • Moody’s reaffirmed November 2015 – CBG: A3/P2 Aa1 – CBL: Aa3/P1 Aa2 • Fitch reaffirmed October 2015 – CBG and CBL: A/F1 Aa3 “good track record of performance over various cycles
Slide 21: Motor finance
Motor finance @ Close Brothers 21
Slide 22: Retail
Retail Includes Motor and Premium finance Retail Property Commercial Motor Premium Property Asset Invoice finance finance finance finance finance 28% 11% 23% 31% 7% Point of sale Finance for Short-term Hire Invoice finance for personal & financing for purchase, discounting predominantly commercial p
Slide 23: What our Motor Finance business does
What our Motor Finance business does £1.6 billion loan book 8% 9% 60% 23% Light Commercial Motorbike and Used cars New cars Vehicles other 23
Slide 24: Relationship driven model
Relationship driven model Focus on smaller independent dealerships Motor Finance Overview of the business 92% Hire purchase • Point of sale finance distributed via Product 8% Personal Contract dealerships across the UK and RoI Vehicle types 69% car, 23% LCV, 4% motorbike, 4% other Staff 406 Key diff
Slide 25: UK Motor Finance market
UK Motor Finance market Record levels of car sales Used car finance new business volumes Total UK car sales market size £89bn £ billion 14.0 12.0 11.3 Used car sales 10.6 £45bn 10.0 8.8 8.0 7.3 6.7 Sold via dealers £35bn 5.9 6.0 4.0 On finance £11bn 2.0 0.0 2010 2011 2012 2013 2014 2015 Independents
Slide 26: Competitive Landscape
Competitive Landscape We target the prime sector and independent dealers Market positioning of UK motor finance lenders Super prime Prime Near prime Sub prime Independents In-house lenders Specialist sub prime lenders Market positioning shown for illustrative purposes only, chart not to scale 26
Slide 27: Our customers
Our customers 85% retail customers Convenience driven Car is an Loyal to essential dealer asset Typical customer profile Low / Full time middle employment income Good credit history 27
Slide 28: Our dealers
Our dealers 7,500 independent and franchised dealerships Big Banks Large nationals Typically used car supermarkets and larger franchised dealer groups Market share shifts up Mid size and down depending nationals on credit supply 90% of our dealers Small independents 83% of UK loan book Close Brother
Slide 29: Well placed for growth opportunities
Well placed for growth opportunities Evolving market landscape Emerging trends in the industry • Continued strong demand driving car sales Dealer relationships • Increased compliance costs for dealers Branch network • Return of competition fosters strong dealer • Changing consumer preferences relati
Slide 30: Consumer point of sale finance
Consumer point of sale finance Early-stage initiative Key characteristics Continuous Flexible, • Unsecured point of sale finance for investment innovative retail customers Prioritise spend technology for safe growth Easy integration and with retailer; competitive simple to use • Predominantly SME re
Slide 31: Property finance
Property finance @ Close Brothers 31
Slide 32: Property
Property Includes property development and bridging finance Retail Property Commercial Motor Premium Property Asset Invoice finance finance finance finance finance 28% 11% 23% 31% 7% Point of sale Finance for Short-term Hire Invoice finance for personal & financing for purchase, discounting predomin
Slide 33: What do we finance?
What do we finance? Typical development projects Nine House development in Sevenoaks - £2.9m loan Brick Lane – 7 houses, 4 commercial units - £2.3m loan 10,000 sq ft house, Esher - £3m loan, sold for £6m Substantial extension in Fulham, sold for £3.5m 33
Slide 34: Relationship driven model
Relationship driven model Two distinct brands Property Finance Overview of the business Residential / commercial developments • 2 distinct brands Products Bridging loans, trading / refurbishment – Close Brothers Property Finance Headcount 77 – Commercial Acceptances Geography Predominantly London an
Slide 35: Our typical borrower
Our typical borrower Proven track record required Proven track record vital with all our developers Residential Developers Bridging Finance Commercial Family run We would be Site located in Short-term 95% within M25 Pre-let only business or sole exclusively the London and secured lending trader seni
Slide 36: Market overview
Market overview Strong growth over last 5 years Property loan book continues to grow strongly Market overview £ billion 1.4 • Well established market position in 1.3 the sub £10 million residential development finance market 1.2 1.1 • Largest non-clearing bank lender in the market 1.0 0.9 • c.20% ma
Slide 37: Well positioned
Well positioned Improving UK economy supporting robust demand • Strong market position in our core market - London and the South East • Long-term demand in our core market for our products • More competition seen in bridging finance – We rely on our strong relationships and expert service to set us
Slide 38: Asset finance
Asset finance @ Close Brothers 38
Slide 39: Commercial
Commercial Includes Asset and Invoice finance Retail Property Commercial Motor Premium Property Asset Invoice finance finance finance finance finance 28% 11% 23% 31% 7% Point of sale Finance for Short-term Hire Invoice finance for personal & financing for purchase, discounting predominantly commerci
Slide 40: What our Asset Finance business does
What our Asset Finance business does Diverse range of assets £1.8 billion loan book at 31 July 2015 General assets1 11% Aviation, marine 4% Renewable energy 5% Transport 37% Print 7% 36% Industrial equipment Note: 1 Includes shop fittings, healthcare, football transfers, office equipment 40
Slide 41: Overview
Overview Direct and indirect distribution Asset Finance Overview of the business Hire purchase • Tailor-made finance to the UK SME sector Core products Finance lease Operating lease Key differentiators Staff 535 • Diverse portfolio Locations 15 Distribution 55% direct / 45% broker • Strong brand awa
Slide 42: Who are our customers?
Who are our customers? Typically industrial SMEs and medium sized limited companies • SMEs in our specialist sectors: – Transport, Aviation & Marine – Industrial equipment – manufacturing, construction and recycling, print – Professional services – doctors, vets, accountants, lawyers, funeral direct
Slide 43: The asset finance market
The asset finance market Improving demand Asset Finance loan book Market overview £ billion • Our sectors now worth £18 billion of 2.0 volume 1.8 1.7 • We grew strongly during crisis when credit dried up 1.5 1.5 – Growing in line with market since then 1.3 1.1 • Credit supply returning to market 1.0
Slide 44: Well managed growth across the cycle
Well managed growth across the cycle Proactive approach Asset Finance loan book 2015 2016 Training academy Technology £ billion leasing 2014 2.0 2013 Renewable Regional Growth Energy Fund 2012 1.6 Ireland 2010 2007 Leasing 1.2 Brewery rentals 2008 2005 Vehicle rentals Broker division 1.8 0.8 1.7 1.5
Slide 45: Republic of Ireland
Republic of Ireland Opportunities as the economy picks up Republic of Ireland loan book • Strong growth over the last few At 31 July 2015 years • Loan book now stands at c.£300 Premium million 10% • Similar composition to UK loan book Invoice – Excludes property 14% • Significant opportunities in li
Slide 46: Renewable energy finance
Renewable energy finance Specialist team target opportunities • Expert team recruited, launched FY 2014 • Current loan book £100 million with appetite to grow • Project financing for Wind, Solar, Hydro • Niche and diverse market with limited competitors • Some larger ticket deals • Good pipeline of
Slide 47: Technology Services
Technology Services Exploring adjacent markets Initial areas of focus PCs , Servers,Tablets, inc Telecoms, Datacoms Switches software Test & Measurement Broadcast Equipment Equipment Tiled LED Display Screens Future potential areas Digital Cinema Projection Equipment Digital Print Ticketing Systems
Slide 48: Model continues to deliver
Model continues to deliver Core business and a range of new initiatives • Core businesses remain well positioned for future growth – Improving demand helping to offset increasing competition • Explore new opportunities that fit with our model ‒ Niche, relationship based, high margin • Continue to de
Slide 49: Banking Division Key messages
Banking Division Key messages • Maintaining our disciplined approach which supports our long track record of growth and profitability • Opportunities for long-term, structural growth ‒ Seeking out and investing in new initiatives • Deliver strong returns and grow our loan book ‒ Whilst maintaining o
Slide 50: Appendix
Appendix @ Close Brothers 50
Slide 51: Premium Finance
Premium Finance Well established market position Service differentiator UK insurance market Close Brothers Premium Finance Close Brothers Premium Finance £2bn Specialist lenders with strong expertise and speed of service Non Financed financed £32 by others £20bn billion £10bn Insurance brokers 1,700
Slide 52: Invoice Finance
Invoice Finance Low risk high return business Market • Prudent advance limits • £19 billion invoice finance market Our model • Additional securities ‒ Grown 5% p.a. since 2009 ‒ E.g. guarantees / insurance Competition • Market remains competitive ‒ Close Brothers being a premium provider • Smaller b
Slide 53: Total loan book
Total loan book By asset type at 31 July 2015 Commercial Land 2% <1% Investment Term 2% Transport Construction, Plant & 11% Engineering 10% Residential 20% Other Commercial Assets 6% Insurance - Personal 6% Print 2% Aviation/Marine Insurance - Commercial Invoice 1% 6% 8% Bikes 1% Used Cars 17% New C
Slide 54: Banking overview
Banking overview Loan book and lending statistics by business Lending Closing loan Loan book Average loan Typical loan Number of Typical LTV1 statistics book (£m) growth (%) size2 maturity3 customers Motor finance 1,600.3 9.7% 75 – 85% £6k 2 – 3 years 300k Premium finance 665.7 5.0% 90% £500 10 mont
Slide 55: LENDING | DEPOSITS | WEALTH MANAGEMENT | SECURITIES
LENDING │ DEPOSITS │ WEALTH MANAGEMENT │ SECURITIES
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