Close Brothers Group Plc · LSE:CBG
Close Brothers — FY2024 Earnings Presentation
37 slides from Close Brothers's earnings presentation, Sep 19, 2024
Slide 1: Close Brothers Group plc Preliminary Results 2024
Close Brothers Group plc Preliminary Results 2024 19 September 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 Introduction 02 Financial Update 03 Business and Strategy Update 04 Appendices Close Brothers Group plc Preliminary Results 2024 3
Slide 4: Introduction
01 Introduction Mike Morgan, Group Finance Director Strictly Confidential Close Brothers Group plc Preliminary Results 2024 4
Slide 5: Overview of the year
Overview of the year Delivered a resilient Achieved loan book growth and Focused on cost performance, with key metrics strong margins in Banking and discipline and in line with guidance market-leading net inflows in progressing cost actions CBAM; Winterflood remained to improve future impacted by un
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 approach, Strong customer sentiment of our model with a strong track record scores across the group Disciplined underwriting and pricing 92% Asset Finance CSAT1 through the cycle Deep
Slide 7: Financial Update
02 Financial Update Strictly Confidential Close Brothers Group plc Preliminary Results 2024 7
Slide 8: Overview of financial performance
Overview of financial performance Adjusted operating profit Robust profit performance in 6% loan book growth, (“AOP”) increased 50% to Banking, reflecting income strong net interest margin of £171 million; RoTE of 8.3% growth and focus on costs and 7.4% and stable underlying pricing discipline credi
Slide 9: Income statement
Income statement • Robust income performance, up 1%, with Change growth in Asset Management and Banking partly offset by a reduction in Winterflood £ million 2024 2023 % Operating income 944.2 932.6 1 • Adjusted operating expenses rose 10% due to increased staff costs and continued Adjusted operatin
Slide 10: Adjusted to statutory profit reconciliation
Adjusted to statutory profit reconciliation Group (£ million) £6.9 million for complaints handling and other operational costs associated with the FCA’s review of (6.9) motor commissions (17.2) • Included increased resourcing in our complaints and legal teams, along with associated investments in da
Slide 11: Banking – Financial performance
Banking – Financial performance • Income in the prior year benefited from Novitas Change (+£8m) and movements through profit and loss £ million 2024 2023 % from derivatives1 (+£7m) Operating income 724.9 713.8 2 • Excluding the impact of these items, income Adjusted operating expenses (420.6) (389.7
Slide 12: Our Banking businesses
Our Banking businesses Banking Commercial Retail Property excl. Novitas excl. Novitas Income growth 3% (3)% 6% 13% Loan book £10.0bn (+6%) £5.0bn (+6%) £3.0bn (+1%) £2.0bn (+15%) Net interest margin 7.3% (2023: 7.6%) 6.5% (2023: 7.2%) 8.7% (2023: 8.2%) 7.3% (2023: 7.4%) Growth in adjusted operating
Slide 13: Good loan book growth from continued customer demand
Good loan book growth from continued customer demand Loan book movement by business1,2,3,4 Underlying loan book growth (£ million) Retail excl. Commercial excl. legacy Irish motor of 7% Novitas finance business Property +15% 10,099 • Loan book increased 6%, or 7% when +6% +6% excluding the businesse
Slide 14: Strong net interest margin as we remain focused on pricing discipline
Strong net interest margin as we remain focused on pricing discipline Strong net interest margin Net interest margin at 7.4% • c.12bps of decline driven by movements through profit and loss from derivatives1 and Novitas income benefiting prior year • c.16bps of decrease reflecting margin 7.5% 7.5% p
Slide 15: Banking cost growth at lower end of 8-10% guidance range
Banking cost growth at lower end of 8-10% guidance range Banking adjusted operating expenses 2024 cost growth driven by: (£ million) +8% growth 420.6 389.7 Inflationary-related increases in staff costs Higher regulatory compliance and assurance expenses Investment spend Acquisition, integration and
Slide 16: Progressing cost actions to improve future cost efficiency in Banking
Progressing cost actions to improve future cost efficiency in Banking 1 Technology Initiated in 2023, ongoing 2 Suppliers & Property Initiated in 2024, ongoing 3 People Initiated in 2024, ongoing Areas of focus • Simplification and modernisation of application Areas of focus Areas of focus estate •
Slide 17: Stable underlying credit performance
Stable underlying credit performance Bad debt ratio of 1.0% Long-term average bad debt ratio excluding Novitas2 • £99 million of impairment charges driven by: – Loan book growth – Ongoing review of provisions and coverage across loan portfolios – Improved macroeconomic outlook1 2.6% • No significant
Slide 18: Strong net inflows in Asset Management
Strong net inflows in Asset Management • Growth in managed assets driven by strong 31 July 31 July Change net inflows and positive market £ billion 2024 2023 % performance Total managed assets 19,331 16,419 18 • Income up 9%, as higher investment Total client assets1 20,422 17,326 18 management inco
Slide 19: Winterflood's performance impacted by unfavourable market conditions
Winterflood’s performance impacted by unfavourable market conditions • Operating income down 3%, with decline in Change trading income more than offsetting growth in £ million 2024 2023 % Winterflood Business Services (“WBS”) Operating income 73.0 75.3 (3) • Operating expenses up 4%, driven by one-
Slide 20: Strong balance sheet and diversified funding approach
Strong balance sheet and diversified funding approach Prudent approach Loan book2 Treasury assets Total funding • Diverse funding sources and prudent maturity profile £13.0 billion £10.1 billion £2.3 billion • Conservative approach based on the principle of Average maturity of funding Average maturi
Slide 21: Strong capital position
Strong capital position • Reduction in CET1 capital ratio mainly driven by loan book growth, partly offset by profits • Increase in RWAs driven by growth in the Commercial and Capital overview 31 July 2024 31 July 2023 Property loan books and the acquisition of the Irish motor finance business CET1
Slide 22: Business and Strategy Update
03 Business and Strategy Update Strictly Confidential Close Brothers Group plc Preliminary Results 2024 22
Slide 23: FCA's review of historical motor finance commission arrangements
FCA’s review of historical motor finance commission arrangements • Impact of any Jan 2021 redress scheme, if FCA ban on required, is difficult discretionary Jul 2024 to estimate as commission FCA extension highly dependent Dec 2025 arrangements consultation Expected end of on a number of (“DCAs”) (C
Slide 24: Significant progress on management actions to further strengthen our capital position
Significant progress on management actions to further strengthen our capital position • Significant uncertainty arising Progress update on management actions as presented at H1 from the FCA’s review remains 2024, which have the potential to strengthen available CET1 capital by c.£400 million by July
Slide 25: Business update – Banking
Business update – Banking Commercial Lends to SMEs through our direct sales force and third-party distribution channels Asset Finance • Starting to benefit from investment in our Asset Finance transformation programme • Strong new business volumes in Leasing • New specialist lending teams proving su
Slide 26: Business update – Banking
Business update – Banking Retail Provides finance to individuals and businesses through a network of intermediaries Motor Finance • Growth supported by expanded routes to market and partnering with finance technology providers • Acquired business, Bluestone Motor Finance in Ireland, rebranded to Clo
Slide 27: Business update – Banking
Business update – Banking Property Provides short-term residential development finance for experienced professionals and offers refurbishment and bridging loans • Seen optimism returning to property market, supported by a stabilisation of interest rates • Strong performance supported by our relation
Slide 28: Business update – Asset Management
Business update – Asset Management Net inflow rates and closing managed assets (% and £ billion) 12% 9% 9% 9% 9% Strong track record of 8% Sale agreement 7% 5% growth 6% with Oaktree 19.3 • Consistent healthy net inflow rate 15.6 15.3 16.4 • Agreed sale of CBAM for an equity through new and existing
Slide 29: Business update – Winterflood
Business update – Winterflood WBS AuA (£ billion) 20+ Winterflood Business Further diversified Services 12.9 15.6 Winterflood’s revenue • Focus on developing client streams and growth relationships and investing in our award-winning proprietary 7.2 initiatives 6.2 technology to build scale and 4.1 •
Slide 30: Focused on protecting our valuable franchise
Focused on protecting our valuable franchise Resilient performance delivered in FY24 Continued strength of demand in our Banking business Against an uncertain backdrop, our top priority has been to strengthen our capital position and protect our valuable franchise, while continuing to support our cu
Slide 31: Appendices
04 Appendices Strictly Confidential Close Brothers Group plc Preliminary Results 2024 31
Slide 32: Appendix 1: Summary of guidance
Appendix 1: Summary of guidance FY24 performance Guidance1 Banking • Loan book growth of 6% • Currently plan for low single-digit percentage growth in the loan book for FY25 • Net interest margin of 7.4% • Well positioned to sustain the net interest margin delivered in H2 24 of 7.2% • Banking cost g
Slide 33: Appendix 2: CET1 capital ratio estimated trajectory
Appendix 2: CET1 capital ratio estimated trajectory Estimated CET1 capital ratio trajectory in FY251 c.14-15% + c.100bps 12.8% - c.45-55bps + c.55-65bps - 15bps CET1 capital ratio at RWA growth AT1 coupon 4 Significant Risk Sale of CBAM 6 Retained earnings7 Estimated CET1 31 July 2024 2 including be
Slide 34: Appendix 3: Lending model
Appendix 3: Lending model Prudent and disciplined approach to lending A proven and resilient lending model Core products and security1 Average loan size2,3 Typical loan maturity2,3 Long track record of disciplined and consistent Asset • Commercial asset financing, hire purchase and leasing solutions
Slide 35: Appendix 4: Model Fit Assessment Framework
Appendix 4: Model Fit Assessment Framework Protecting the key attributes of our model Close Brothers Group plc Preliminary Results 2024 35
Slide 36: Appendix 5: Sustain – Our responsibility
Appendix 5: Sustain – Our responsibility1 Our responsibility remains fundamental to our purpose, strategy and culture Our car fleet Our inclusivity Our emissions Our alliances Now 41.6% 90% As a signatory to the NZBA2, we 53.6% battery electric with average reduction in Scope 1 and 2 emissions since
Slide 37: Appendix 6: Sustain – Our Responsibility
Appendix 6: Sustain – Our Responsibility Our responsibility remains fundamental to our purpose, strategy and culture Sustainable objectives Our progress At 31 July 2024 Our ambitions Environmental • 42% reduction in Scope 1 and 2 emissions since • Operationally net zero by 2030 through our Scope Som