Close Brothers Group Plc · LSE:CBG
Close Brothers — H1 2020 Earnings Presentation
32 slides from Close Brothers's earnings presentation, Mar 10, 2020
Slide 1: Half Year Results 2020
Half Year Results 2020 10 March 2020
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. Financial review – Mike Morgan, Group Finance Director 3. Business update – Preben Prebensen, Group Chief Executive 4. Q&A Modern Merchant Banking 3
Slide 4: Introduction
Introduction Disciplined application of business model in a mixed market environment Strong returns in a period of lower activity in the UK economy • Group AOP of £125.7 million, down 9%, with reduced profit in Banking partially offset by higher profits in market- facing divisions • Strong ROE1 of 1
Slide 5: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Financial review – Mike Morgan, Group Finance Director 3. Business update – Preben Prebensen, Group Chief Executive 4. Q&A Modern Merchant Banking 5
Slide 6: Financial Highlights
Financial Highlights Adjusted EPS 63.8p • Adjusted EPS reduced 9% reflecting lower profit in the period Return on opening equity 13.6% • Generated strong return on opening equity and ROTE1 of 16.0% CET1 capital ratio 13.4% • Increasing CET1 capital ratio Leverage ratio 11.3% • Strong leverage ratio
Slide 7: Income statement
Income statement Income growth, continued investment and some normalisation of bad debts Continuing operations1 £ million H1 2020 H1 2019 change • Income growth across all divisions Adjusted operating income 420.0 407.4 3% • Continued investment in Banking and Asset Adjusted operating expenses (257.
Slide 8: Segmental performance
Segmental performance Mixed performance in current market conditions Banking £ million H1 2020 H1 2019 change • Commercial: income growth offset by an increase Banking 115.4 131.1 (12%) in individual provisions • Retail: Broadly stable loan book and some Commercial 38.5 47.3 (19%) normalisation in b
Slide 9: Strong and transparent balance sheet
Strong and transparent balance sheet Diverse funding with increased deposits potential and prudent liquidity Prudent approach to funding Diverse funding base • Prudent level of funding, covering loan book by 129% £ billion • Maintained the principle to “borrow long, lend short” Equity • Maintain pru
Slide 10: Capital
Capital Maintaining strong capital position Capital overview1 31 January 2020 31 July 2019 • Increased CET1 capital ratio reflects continued profitability CET1 capital ratio 13.4% 13.0% and stable loan book in the period Total capital ratio 15.5% 15.2% • Strong capital generation and RWAs broadly fl
Slide 11: Banking
Banking Disciplined approach to lending and pricing in a period of lower activity Continuing operations1 £ million H1 2020 H1 2019 change % Adjusted operating income 306.4 303.1 1% • Modest income growth, driven by lower loan book growth and reduced net interest margin Adjusted operating expenses (1
Slide 12: Banking
Banking Strict control of costs while investing in the business Banking total costs breakdown Total costs outlook • H1 20 costs up 3% on H1 19 • Total costs expected to increase by c.6% in 2020 154 150 150 145 Investment costs 138 • Investing through the cycle is a key strategic priority, with a num
Slide 13: Banking: loan book growth by segment
Banking Broadly stable loan book while prioritising margins and credit quality Loan book growth by segment (£ million)1 Portfolio effect of multiple business lines 31 January H120 7,619 provides strong overall resilience 2020 Energy Commercial Asset 7517.4 101 Contract Hire Core Leasing +2% Invoice
Slide 14: Banking: diverse business portfolio
Banking Diverse business portfolio Net interest Bad Expense / % of loan margin debt income book • Commercial NIM reduced to 8.0% due to lower Commercial 40% fee income from subdued activity levels and mix 8.0% 1.1% 56% • Increase in bad debt ratio from historical low, reflecting a small number of in
Slide 15: Asset Management
Asset Management Continued strong net inflows £ million H1 2020 H1 2019 change • Increased income driven by higher Operating income 65.7 58.5 12% investment management income from strong growth in managed assets Investment management 46.2 39.6 17% Advice and other services 18.7 18.7 - Other income1
Slide 16: Securities
Securities Improved performance in challenging trading conditions £ million H1 2020 H1 2019 change Operating income 47.9 45.8 5% • Higher income reflecting significant increase in trading volumes following the UK general Operating expenses (37.3) (36.5) 2% election Operating profit 10.6 9.3 14% • Op
Slide 17: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Financial review – Mike Morgan, Group Finance Director 3. Business update – Preben Prebensen, Group Chief Executive 4. Q&A Modern Merchant Banking 17
Slide 18: Achieving our purpose
Achieving our purpose Our ongoing commitment to making a lasting positive impact Investing for the future Delivering strong returns Investing to enhance our propositions A strong return on equity allows us to for the long term maintain our long-term resilience Planning for the future with new Mainta
Slide 19: Sustainability and responsibility
Sustainability and responsibility Fundamental to our purpose, strategy and culture Our Public Targets Status KPIs Employees Over 30% female Achieved senior managers 30% female senior managers by 2020 since 31 July 2019 Customers Motor Finance NPS* of +77 Maintain or improve strong customer Achieved
Slide 20: Specialism and diversity support resilience and opportunity
Specialism and diversity support resilience and opportunity Three divisions, three specialist lending segments, multiple business lines Industrial Specialist Asset Asset Finance Transport Commercial Equipment Finance ASSET Manufacturing Core Leasing Wheeled MANAGEMENT Loan book: £2.0bn Commercial As
Slide 21: Long-term growth and resilience
Long-term growth and resilience Long history of lending through the cycle Moderation 2017 – 20202 3% - 7% 8.0 Banking key metrics H1 2020 RoE1 14.7% 7.0 2.9% Benign credit RoNLB 2013 – 2016 Bad debt ratio 0.9% 8% - 14% 6.0 Net interest margin 7.8% Loan book (£ billion) 5.0 Expense / income ratio 50%
Slide 22: A proven and resilient model
A proven and resilient model Well placed to navigate changing trading conditions Long track record of disciplined and consistent lending through the cycle Predominantly secured loan book, with short tenors and low average loan sizes Experience in underwriting, collections and credit risk management
Slide 23: Investing for the future
Investing for the future Our approach to investing in the business Investment programmes: 1 Continuously identifying new opportunities Motor Transformation Protect IRB Protect • New products and locations Multi-year investment Transition to IRB approach programme to enhance to better reflect the ris
Slide 24: Asset Management: strong momentum
Asset Management Strong momentum • Continued high demand for advice and investment management Annualised net inflow rates (%) services 12% 12% ‒ Wealth market continues to shift towards vertically integrated models, where we are already a well established player 9% 9% • Vertically integrated model u
Slide 25: Winterflood
Winterflood Solid trading performance and future optionality Operating profit (£m) 30 H1 H2 Bargains per day 80 • AOP at £10.6 million reflects low investor activity prior to the 68 65 70 UK general election, but subsequently benefited from an 25 uplift in trading volumes following the election 57 6
Slide 26: Outlook
Outlook Resilient model leaves us well positioned to navigate changes in market conditions • The near-term outlook for the UK economy remains uncertain, heightened by escalating concern about the Coronavirus and its potential impact on business and financial markets • Against this backdrop, our focu
Slide 27: Agenda
Agenda 1. Introduction – Preben Prebensen, Group Chief Executive 2. Financial review – Mike Morgan, Group Finance Director 3. Business update – Preben Prebensen, Group Chief Executive 4. Q&A Modern Merchant Banking 27
Slide 28: Appendix: Basis of presentation
Appendix Basis of presentation Results are presented both on a statutory and an adjusted basis to aid comparability between periods. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the performance of th
Slide 29: Banking: strong and stable NIM
Banking: strong and stable NIM Diversity and relative stability over the long term Novitas Brewery Rentals Commercial 8.0% Transport NIM Core Invoice Finance Loan book (£ billion) and NIM (%) Green Energy Vehicle Hire Personal Premium Retail 8.1% Motor UK NIM Commercial Premium Motor Ireland Propert
Slide 30: Banking: prudent and disciplined approach to lending
Banking Prudent and disciplined approach to lending Average Typical Core products and security1 loan loan A proven and resilient lending model size2 maturity3 Long track record of • Hire purchase, finance and disciplined and consistent operating leases 3–5 Asset Finance c.£35k lending through the cy
Slide 31: Banking: investing for the future
Banking: investing for the future Strategic investment initiatives Strategic initiative Progress Benefits / outcomes • Launched additional retail savings products via • Increased funding flexibility online portal Customer Deposit • Suite of new savings products to come during • Lower cost of funding
Slide 32: LENDING │ DEPOSITS │ WEALTH MANAGEMENT │ SECURITIES
Close Brothers Group plc 10 Crown Place London EC2A 4FT LENDING │ DEPOSITS │ WEALTH MANAGEMENT │ SECURITIES www.closebrothers.com