Close Brothers Group Plc · LSE:CBG
Close Brothers — H1 2023 Earnings Presentation
40 slides from Close Brothers's earnings presentation, Mar 14, 2023
Slide 1: Close Brothers Group plc Half Year Results 2023
Close Brothers Group plc Half Year Results 2023 14 March 2023 Close Brothers SME Apprentice Programme in partnership with University of Sheffield AMRC Training Centre
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 Adrian Sainsbury, Chief Executive Officer 02 Financial update Mike Morgan, Finance Director 03 Business update Adrian Sainsbury, Chief Executive Officer 04 Q&A 3
Slide 4: Introduction
Introduction 01 Adrian Sainsbury Chief Executive Officer
Slide 5: Overview
Overview First half performance significantly impacted by Novitas; resilient underlying performance Reduction in adjusted operating profit driven by increased provisions in relation to Novitas Income growth with a strong net interest margin, driving 5% increase in pre-provision profit in Banking Hea
Slide 6: Novitas
Novitas Acceleration of efforts to resolve the issues surrounding Novitas and ensure good customer outcomes No read-across to other books in our portfolio Novitas impairment provisions (£ million) and coverage ratio (%) Provisions adequately reflects the remaining risk of credit losses 42% 75% Addit
Slide 7: Financial update
Financial update 02 Mike Morgan Group Finance Director
Slide 8: Income statement
Income statement Reduction in adjusted operating profit mainly driven by higher impairment charges in relation to Novitas % £ million H1 2023 H1 2022 change • Income up 1% with 5% growth in Banking offsetting a reduction in Asset Management and Winterflood Operating income 474.3 471.6 1 • Costs rose
Slide 9: Divisional performance
Divisional performance Reduction in adjusted operating profit reflecting an increase in impairment charges and a reduction in Winterflood’s income % £ million H1 2023 H1 2022 change Banking Banking 15.0 120.2 (88) • Commercial profit rose 5% excluding Novitas Commercial excluding Novitas 71.8 68.4 5
Slide 10: Banking highlights
Banking highlights Good demand, with growth in income and pre-provision profit Income and net interest margin (£ million) Movements in adjusted operating profit 345.7 +7% 363.9 (£ million) 327.8 349.9 10 (4) 2 (48) 7.6% 7.8% 160 168 120 (105) H1 22 H1 23 Excl. Novitas Novitas NIM (excl. Novitas) 15
Slide 11: Banking: loan book movement
Banking Steady demand across Banking businesses, with 1% growth excluding businesses in run-off Loan book movement by business1,2,3,4 (£ million) Continued demand across our ongoing businesses Commercial Retail excl. • Loan book decreased marginally in the first half, although excl. Novitas Motor RO
Slide 12: Banking: net interest margin
Banking Strong net interest margin as we continue to adopt a disciplined approach to pricing Net interest margin Strong net interest margin • Reflects pricing discipline on new lending 8.0% • Benefited from optimisation of the group’s liability mix 7.9% 7.7% 7.7% 7.7% and funding costs in a rising r
Slide 13: Banking: costs
Banking Continued investment and rigorous control of costs, notwithstanding inflationary pressures Movement in costs1,2 (£ million) Business as usual (BAU) costs3 • Intensified our focus on cost efficiency +5% • BAU costs increased to £147.6 million, primarily driven by inflation-related salary 186.
Slide 14: Banking: impairment charges
Banking Higher impairment charges reflecting Novitas and forward-looking provisions for weaker macroeconomic variables Resilient underlying credit performance Long-term bad debt ratio1 (1.2% from FY08 to H1 23, excluding Novitas) • £114.6 million of impairment charges related to Novitas, resulting i
Slide 15: Banking – Commercial (excluding Novitas)
Banking – Commercial (excluding Novitas) Good demand as we continue to support our SME customers % £ million H1 2023 H1 2022 change • Higher income reflecting good loan book growth and increased activity-driven income Operating income 168.3 149.9 12 • Cost growth driven by higher staff costs to refl
Slide 16: Banking – Retail
Banking – Retail Income growth offset by increased impairments % • 3% increase in income reflecting year-on-year growth in £ million H1 2023 H1 2022 change the UK Motor Finance loan book and a strong NIM Operating income 123.2 119.7 3 • Adhering to model of pricing discipline, passing through higher
Slide 17: Banking – Property
Banking – Property Strong drawdowns from our healthy pipeline % £ million H1 2023 H1 2022 change • Stable income driven by good fee income - Marginal decline in NIM although remained strong Operating income 58.4 58.2 - • 9% reduction in costs as we maintained rigorous focus Operating expenses (14.7)
Slide 18: Asset Management highlights
Asset Management highlights Healthy net inflows despite the impact of challenging market conditions on investor sentiment Assets under Management (“AuM”) Income • Increase in managed assets (since 31 July (£ million) (£ million) 2022) driven by positive net inflows, partly Annualised offset by negat
Slide 19: Winterflood highlights
Winterflood highlights Performance impacted by continued slowdown in trading activity; well placed for when investor appetite returns Bargains Operating income composition • Challenging market conditions impacted Total AIM Total Small Cap Average (£ million) investor appetite bargains Equities Fixed
Slide 20: Strong balance sheet
Strong balance sheet Well placed to continue funding and supporting loan book growth Total funding Average maturity of loan book Prudent approach £11.9 billion funding at 18 months • Conservative approach to funding, focused on diversity of sources and prudent maturity profile Loan book Average matu
Slide 21: Capital
Capital Strong capital position Movement in CET1 capital ratio over the year1 Capital overview 31 January 2023 31 July 2022 0.20% (0.10)% CET1 capital ratio (transitional) 14.0% 14.6% 0.55% (1.25)% Total capital ratio (transitional) 16.1% 16.6% Leverage ratio2 12.0% 12.0% CET1 capital (£m) 1,311 1,3
Slide 22: Capital management framework
Capital management framework Prudent management of financial resources is a core part of our business model CET1 capital ratio target range Deploying capital to deliver Committed to optimising further our capital structure, including the issuance of debt capital market securities if appropriate. dis
Slide 23: Business update
Business update 03 Adrian Sainsbury Chief Executive Office
Slide 24: Well placed to move forward on the delivery of our strategy
Well placed to move forward on the delivery of our strategy Strengths of our model have been evidenced through many cycles and remain unchanged Continued confidence Remain focused on Resuming our track record of in our model our strategic priorities earnings growth and returns Disciplined underwriti
Slide 25: Protect: Keeping our model safe
Protect: Keeping our model safe PROTECT Investing to take the business model forward while intensifying our focus on cost discipline Continuous investment to maintain the key strengths of our high-touch business model Spotlight: Motor Spotlight: Customer Finance transformation Deposit Platform Asset
Slide 26: Grow: Committed to delivering disciplined growth
Grow: Committed to delivering disciplined growth GROW Maximising opportunities in existing and adjacent markets Focus on delivering disciplined growth, with a strong pipeline of identified target areas that are aligned with our Model Fit Assessment Framework Financing the UK’s Incremental Capitalisi
Slide 27: Sustain: Our responsibility
Sustain: Our responsibility S U S TAI N Our responsibility remains fundamental to our purpose, strategy and culture Environment Society Governance As a signatory to the Net Zero Banking Alliance, we have committed to transition • A total of £120,000 pledged to • 40% of the board are women and our op
Slide 28: Outlook
Outlook Well placed to move forward on the delivery of our strategy 1 Disciplined Focus on delivering disciplined growth, actively evaluating growth potential growth opportunities aligned with our Model Fit Assessment Framework Resuming our 2 Cost Intensified focus on cost discipline and efficiency
Slide 29: Q&A
04 Q&A €.) Close Brothers Modern Merchant Banking
Slide 30: Appendix
Appendix f.¥ Close Brothers Modern Merchant Banking
Slide 31: Appendix: Business update – Banking
Appendix: Business update – Banking GROW Delivering disciplined growth COMMERCIAL R E TA I L PROPERTY Asset Finance Motor Finance Property • Continue to build expertise in the financing of green • Using APIs to connect into strategic partners • Undrawn pipeline of commitments and transition assets (
Slide 32: Appendix: Business update - Asset Management
Appendix: Business update - Asset Management GROW Well placed to continue to build on a long track record of growth Net inflow rates and closing managed assets Target net inflows H1 23 (% and £ billion) of 6% - 10% milestones 12% 15.6 15.3 15.7 9% 12.6 11.7 Acquisitions 10.4 Five new 8.9 Inorganic 8
Slide 33: Appendix: Business update - Winterflood
Appendix: Business update - Winterflood GROW Continued WBS growth drives income diversification Winterflood Business Services WBS AuA WBS Income (£ billion) (£ million) • WBS continued its positive trajectory despite declining equity markets and 14 12.4 6.3 record low consumer confidence 12 5.1 • As
Slide 34: Appendix: Income Statement
Appendix: Income Statement Including and excluding Novitas % Including Novitas £ million H1 2023 H1 2022 change Operating income 474.3 471.6 1 Adjusted operating expenses (299.5) (293.5) 2 Impairment losses (162.2) (48.3) 236 Adjusted operating profit 12.6 129.8 (90) Adjusted operating profit, pre p
Slide 35: Appendix: Lending model
Appendix: Lending model Prudent and disciplined approach to lending Average Typical loan A proven and resilient lending model Core products and security1 loan size2,3 maturity2,3 • Commercial asset financing, hire Long track record of disciplined and Asset Finance purchase and leasing solutions c.£5
Slide 36: Appendix: Motor Finance Transformation programme
Appendix: Motor Finance Transformation programme PROTECT Multi-year programme significant enhanced capabilities and improved how we do business GROW A multi-year programme of Enhanced capabilities S U S TAI N technology, digital, cultural and delivered sales expertise change that delivered significa
Slide 37: Appendix: Motor Finance Transformation programme
Appendix: Motor Finance Transformation programme PROTECT Delivered significant financial and non-financial benefits GROW Financial benefits Non-Financial Benefits Loan book (£ million) and new business volumes Improved customer journey S U S TAI N trends 1,000 2,100 Stable and resilient systems 800
Slide 38: Appendix: Motor Finance Transformation programme
Appendix: Motor Finance Transformation programme 2022: Motor’s award winning year Modern Merchant Banking 38
Slide 39: Sustain: Our Responsibility
Sustain: Our Responsibility S U S TAI N Our responsibility is fundamental to our purpose, strategy and culture Sustainable Environment Society Governance Some of our objectives Reducing our impact Ensuring we are a diverse Setting high standards of partners and on the environment and and inclusive e
Slide 40: LENDING │ DEPOSITS │ WEALTH MANAGEMENT │ SECURITIES
Close Brothers Group plc 10 Crown Place London EC2A 4FT www.closebrothers.com LENDING │ DEPOSITS │ WEALTH MANAGEMENT │ SECURITIES