Close Brothers Group plc · LSE:CBG
Close Brothers — Investor Presentation (November 2010)
45 slides from Close Brothers's investor presentation, Nov 24, 2010
Slide 1: Banking Division Presentation to Investors and Analysts
Banking Division Presentation to Investors and Analysts 24 November 2010
Slide 2: Cautionary Statement
Cautionary Statement Regarding information in this presentation 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, forw
Slide 3: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Banking Division overview – Stephen Hodges, Banking Division Chief Executive 3. Commercial – Mary McNamara, Commercial Managing Director 4. Retail – Bob Golden, Retail Managing Director 5. Treasury – Malcolm Hook, Treasurer 6. Concl
Slide 4: Introduction
Introduction Banking - a leader in specialised finance in the UK Close Brothers Group - Adjusted operating profit (continuing operations) • Banking is a very significant contributor to the group % £ million 2010 2009 change • Specialised and disciplined approach to niche lending Adjusted operating 1
Slide 5: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Banking Division overview – Stephen Hodges, Banking Division Chief Executive 3. Commercial – Mary McNamara, Commercial Managing Director 4. Retail – Bob Golden, Retail Managing Director 5. Treasury – Malcolm Hook, Treasurer 6. Concl
Slide 6: Banking Division
Banking Division Leading independent provider of specialist, expertise based finance in the UK Key metrics Key Attributes • Loan book of over £2.9bn1 1. Distinctive business model • Over 1,400 employees1 2. Focus on growth – Sustainability and quality of earnings • Longstanding and loyal customer ba
Slide 7: 1. Distinctive business model
1. Distinctive business model Operating through four streamlined divisions Retail Commercial Property Premium Finance Asset Finance Property Finance Motor Finance Invoice Finance Commercial Acceptances • £1,202m loan book1 • £1,163m loan book1 • £548m loan book1 • Intermediated lending to over • Com
Slide 8: 2. Focus on growth
2. Focus on growth Consistently strong financial performance in existing markets • Strong result in 2010 - sustainable growth £m, 31 July 2008 2009 2010 across all businesses, with demonstrable growth Operating income 207 236 272 in market share Operating expenses (105) (122) (129) Impairment losses
Slide 9: 2. Focus on growth: proven, sustainable growth
2. Focus on growth Proven, sustainable growth Loan book at 31 July (£bn) 3.0 • Long track record of growth, 10 year CAGR of 13% 2.5 • Start-ups and in-fill acquisitions to increase diversity 2.0 1.5 1.0 0.5 0.0 1987 2006 1985 1986 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Slide 10: 2. Focus on growth: throughout the cycle
2. Focus on growth Throughout the cycle Loan book at 31 July (£bn) AOP (£m) 3.0 100.0 90.0 Credit 2.5 crunch 80.0 70.0 2.0 Easy credit 60.0 1.5 50.0 Dot com 40.0 boom 1.0 30.0 20.0 0.5 Recession 10.0 0.0 0.0 2005 2008 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 20
Slide 11: 2. Focus on growth: barriers to entry
2. Focus on growth Barriers to entry support sustainable growth • Niche, expertise based lending • Diverse loan book • Bespoke IT systems • Consistency of lending • Customer loyalty 11
Slide 12: 2. Focus on growth: positioning to grow market share
2. Focus on growth Actively positioning to grow market share • Growth outside core business of clearing banks Strategic opportunities • Market share increasing – Asset – 6% share of new business – Invoice – 13% of independent market – Motor – 9% share of used car independent dealership – Premium – a
Slide 13: 2. Focus on growth: our customer proposition
2. Focus on growth Our customer proposition – how we win business Depth of market knowledge End-to-end People relationships expertise and specialism Customer proposition Bespoke and Speed of innovative decision products and making services Commitment Consistent to customers pricing and through the u
Slide 14: 3. Operational efficiency
3. Operational efficiency Infrastructure with capacity and capability Infrastructure Governance • Customer proposition supported by enhanced • Conservative approach to funding and liquidity central services (e.g. HR, Finance, management Legal/Compliance, IT, Procurement) • Credit risk management res
Slide 15: 3. Operational efficiency: strengthened management team
3. Operational efficiency Strengthened management team New in role Banking Division Stephen Hodges Chief Executive Sharon Bishop Mike Morgan Chief Operating Officer Finance Director Nigel Mottershead Linda Fox Head of Credit Risk Head of HR Retail Commercial Property Treasury Bob Golden Mary McNamar
Slide 16: 4. Credit quality
4. Credit quality Disciplined and consistent approach to lending • Consistent lending criteria unchanged through the Typical lending statistics cycle Typical LTV Average Typical loan – Local underwriting expertise 31 July 2010 % at issue1 loan size2 maturity3 – High proportion of secured lending Ass
Slide 17: 4. Credit quality: bad debt ratio trend
4. Credit quality Bad debt ratio trend • Disciplined underwriting protects credit quality Bad debt ratio – 25 year trend through the cycle 3.0% – 1.5% average bad debt ratio over 25 years 2.5% – 2.6% historical peaks 2.0% 1.5% • Currently towards high end of bad debt range 1.0% – Underlying trend is
Slide 18: Strategic direction
Strategic direction Sustainable growth with high quality of earnings • Distinctive business model – Composition of loan book will remain largely unchanged • Focus on organic growth in core markets – Grow and retain market share, principally in UK – Maintain strong margin – Explore adjacent areas • R
Slide 19: Property – What we do
Property – What we do Specialist team, lending consistently to the market • Part of Close Brothers for over 25 years • Core market financing short term residential refurbishment / development • Other products include – Commercial investment property portfolios – Commercial pre-let development – Resi
Slide 20: Property
Property High quality service and disciplined lending What makes us different? • Specialist, experienced team • Focus on our niche – Residential refurbishment / development – Loans typically ranging from £25k – £5m – Leading provider < £5m lending • Relationship driven – High levels of repeat busine
Slide 21: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Banking Division overview – Stephen Hodges, Banking Division Chief Executive 3. Commercial – Mary McNamara, Commercial Managing Director 4. Retail – Bob Golden, Retail Managing Director 5. Treasury – Malcolm Hook, Treasurer 6. Concl
Slide 22: Commercial – What we do
Commercial – What we do 40% of loan book and over 17,000 SME customers Asset Finance Commercial loan book at 31 July (£m) • Commercial vehicles, construction and 1,400 manufacturing equipment and light aircraft • Over 16,000 SME customers 1,200 1,163 • Strong loan book growth with improved credit pr
Slide 23: Commercial
Commercial Award-winning provider of asset and invoice finance • Majority secured finance Commercial loan book by asset type at 31 July 2010 • Flexible funding solutions Transport – Hire purchase, finance leases, operating leases and bespoke structured products Plant and engineering – Invoice discou
Slide 24: Commercial
Commercial Working together to be the finance partner of choice What makes us different? • Market specialists – Depth of knowledge – senior team has 27 years industry experience – Diversity of assets • Personalised, bespoke, responsive service – Cradle to grave lending • Strong credit discipline – A
Slide 25: Commercial
Commercial Platform for growth • Strong, sustainable loan book growth Strategic opportunities – Organic growth – Complementary areas Waste-to- – Selective acquisitions Agriculture energy ABL Germany • Capability for larger deal offering Clearing bank core • Investment in people business – Strengthen
Slide 26: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Banking Division overview – Stephen Hodges, Banking Division Chief Executive 3. Commercial – Mary McNamara, Commercial Managing Director 4. Retail – Bob Golden, Retail Managing Director 5. Treasury – Malcolm Hook, Treasurer 6. Concl
Slide 27: Retail – What we do
Retail – What we do Lending to over 1.4 million consumers and 200,000 SMEs Premium Finance Retail loan book at 31 July (£m) • Personal and commercial lines 1,400 • Intermediated lending – integration with 1,202 brokers through bespoke systems 1,200 • Predominantly UK based, with small businesses 995
Slide 28: Retail – Premium Finance
Retail – Premium Finance Multi award-winning provider of premium finance products for general insurance market • Personal and commercial borrowers all on „roll- over‟ loan agreements • Security over underlying insurance policy – 30% of book recourse to brokers • Over 3,000 brokers, including most of
Slide 29: Retail – Premium Finance
Retail – Premium Finance Multi award-winning provider of premium finance products for general insurance market • Strong market share What makes us different? – Share of UK gross written premiums market approaching 5% • Experienced management team with strong – Share of independent space very substan
Slide 30: Retail – Motor Finance
Retail – Motor Finance Leading, independent point of sale finance through 5,800 UK dealers • Hire purchase agreements principally for nearly new cars, bikes and light commercial vehicles • Good security over underlying vehicle – no residual risk as no guaranteed buy-back price • Core market is used
Slide 31: Retail – Motor Finance
Retail – Motor Finance Leading, independent point of sale finance company through 5,800 UK dealers • Share of overall market growing – 9% used car POS market (2009: 5%) – 36% used LCV POS market (2009: 25%) – 27% used motorcycle POS market (2009: 18%) • Strong organic growth – Expansion of branch ne
Slide 32: Retail
Retail Platform for growth • Strong, sustainable loan book growth Strategic opportunities – Organic growth as target additional market share Premium Motor key personal lines accounts • Continual investment in technology – Broker systems and borrower Portal – New dealer facing PoS systems Clearing ba
Slide 33: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Banking Division overview – Stephen Hodges, Banking Division Chief Executive 3. Commercial – Mary McNamara, Commercial Managing Director 4. Retail – Bob Golden, Retail Managing Director 5. Treasury – Malcolm Hook, Treasurer 6. Concl
Slide 34: Strong funding position
Strong funding position Robust model with enhanced flexibility • Maintained conservative funding model through Close Brothers Group funding at 31 July 2010 (£m) – Increased diversity of funding 6,000 5,554 – Higher quality of liquidity 5,000 • Purpose of Treasury is to fund both existing loan book a
Slide 35: Diversity of funding
Diversity of funding Increased depth and number of funding sources • More proactive approach Trend in Close Brothers Group funding (£m) – Funding mix managed according to source, term and price 6,000 5,554 – Improved access to funding delivers greater 5,419 flexibility 5,177 5,000 • Pre 2008 – 2 mai
Slide 36: High quality of liquidity
High quality of liquidity Enhanced through strategic positioning of balance sheet • Strategic focus on loan book Treasury assets trend (£m) – Reinforced by managing down of FRN portfolio 2,500 – Decline in treasury assets as % of Balance 2,261 Sheet 2,099 285 2,035 2,000 • Increase in high quality l
Slide 37: Guiding principles
Guiding principles Funding, liquidity and capital • Focus on funding loan book from a diverse range of sources – Maintaining access to multiple sources to give flexibility • Sensible level of term funding versus term of assets • High quality stock of liquid assets • Well capitalised with high qualit
Slide 38: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Banking Division overview – Stephen Hodges, Banking Division Chief Executive 3. Commercial – Mary McNamara, Commercial Managing Director 4. Retail – Bob Golden, Retail Managing Director 5. Treasury – Malcolm Hook, Treasurer 6. Concl
Slide 39: Conclusion
Conclusion Consistently high quality of earnings • 10 year CAGR of 13% Return on Equity trend (%) 30% • Margin exceeding 8.5% per annum over past 19.5% average ROE over 10 year period 25% ten years 20% 15% 10% Example1: 5% For every £100,000 we lend 0% 2008 2000 2001 2002 2003 2004 2005 2006 2007 20
Slide 40: Conclusion
Conclusion Strong and successful track record – well positioned for future Loan book at 31 July (£bn) AOP (£m) 3.0 100.0 90.0 2.5 80.0 70.0 2.0 60.0 1.5 50.0 40.0 1.0 30.0 20.0 0.5 10.0 0.0 0.0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2
Slide 41: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Banking Division overview – Stephen Hodges, Banking Division Chief Executive 3. Commercial – Mary McNamara, Commercial Managing Director 4. Retail – Bob Golden, Retail Managing Director 5. Treasury – Malcolm Hook, Treasurer 6. Concl
Slide 42: Appendices
Appendices 1. Biographies 2. Funding maturity profile 42
Slide 43: Biographies
Biographies Banking Division Stephen Hodges, Chief Executive Born 1954. Qualified as a Barrister in 1976. Worked at Hambros for 8 years, latterly, in the Project Finance and Shipping Division. Joined Banking Division of Close Brothers in 1985. Appointed a director of Close Brothers Group in August 1
Slide 44: Biographies
Biographies Banking Division Sharon Bishop, Chief Operating Officer Born 1964. Member of Police Force for 5 years. Joined Abbey National in 1991, working in their Retail Division. Joined Close Brothers in 2000 and subsequently appointed Managing Director of Close Brothers Private Banking. Moved to C
Slide 45: Appendix: Funding maturity profile
Appendix Funding maturity profile 3-12 £ million Total <3 months months 1-2 years 2-5 years >5 years Loans and overdrafts from banks1 762 397 215 150 - - Promissory notes 219 - - - 21 198 Subordinated loan capital 75 - - - 30 45 Loans against FRN portfolio 402 - 402 - - - Drawn facilities 1,458 397
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