Close Brothers Group Plc · LSE:CBG
Close Brothers — FY2023 Earnings Presentation
38 slides from Close Brothers's earnings presentation, Sep 26, 2023
Slide 1: Close Brothers Group plc Preliminary Results 2023
Close Brothers Group plc Preliminary Results 2023 26 September 2023
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, Group Finance Director 03 Strategy and business update Adrian Sainsbury, Chief Executive Officer 04 Q&A Close Brothers Group plc Preliminary Results 2023 3
Slide 4: Introduction
01 Introduction Adrian Sainsbury, Chief Executive Officer Strictly confidential Close Brothers Group plc Preliminary Results 2023 4
Slide 5: Highlights
Highlights Performed well in second half although FY23 profitability significantly impacted by Novitas provisions in H1 Reduction in AOP1 driven by 5% loan book growth and strong Net inflows of 9% in Asset Novitas, with positive net interest margin of 7.7% in Management, with a strong momentum gener
Slide 6: Well placed to support customers in the current environment
Well placed to support customers in the current environment Strengths of our model have been evidenced through many cycles and remain unchanged The distinctive strengths Disciplined and long-term Well positioned to build on of our model approach, with a strong momentum generated in historical track
Slide 7: Financial update
02 Financial update Mike Morgan, Group Finance Director Strictly confidential Close Brothers Group plc Preliminary Results 2023 7
Slide 8: Income statement
Income statement Reduction in AOP mainly driven by higher impairment charges in relation to Novitas • Income broadly stable with 3% growth in Change Banking offsetting a reduction in Asset £ million 2023 2022 % Management and Winterflood Operating income 932.6 936.1 - • Costs rose 3% as higher staff
Slide 9: Divisional performance
Divisional performance Reduction in AOP reflecting an increase in impairment charges and a reduction in Winterflood’s income Banking Change £ million 2023 2022 % • Banking AOP down 47%, mainly reflecting higher impairment charges Banking 120.1 227.2 (47) • Decline in profit across Commercial, Retail
Slide 10: Banking
Banking Good loan book growth and a strong margin, although profitability significantly impacted by Novitas provisions • Increase in income reflecting good loan Change book growth and a strong net interest £ million 2023 2022 % margin Operating income 713.8 693.1 3 • Net interest margin decreased ma
Slide 11: Our Banking businesses
Our Banking businesses Good demand and loan book growth, with pricing discipline maintained Banking Commercial Retail Property excl. Novitas excl. Novitas Income growth 6% 7% 5% 5% Loan book growth 6% 8% (2)% 16% Net interest margin 7.6% (2022: 7.5%) 7.2% (2022: 7.3%) 8.2% (2022: 7.8%) 7.4% (2022: 7
Slide 12: Banking: loan book growth
Banking Continued demand across our Banking businesses with loan book growth of 8% excluding businesses in run-off Loan book movement by business1,2,3,4 Continued demand across our (£ million) businesses Businesses in • Loan book increased 5%, with an acceleration run-off of growth in the second hal
Slide 13: Banking: net interest margin
Banking Well positioned to maintain a 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 • Benefited from optimisation of the group’s 7.8% liability mix and funding costs in
Slide 14: Banking: cost base and operating leverage
Banking Focused on delivering positive operating leverage over the medium term FY23 costs mainly driven by Key drivers4 of our cost base salary increases and continued investment FY23 FY24 FY25 Banking total costs FY231,2 (£ million) +7% Volume and activity-driven growth • Loan book growth in FY24 a
Slide 15: Our approach to investments in the business
Banking Our approach to investments in the business Investing to support income Investing to maintain operational Investing to generate operational generation resilience and regulatory efficiency and cost savings and growth compliance Creates further investment capacity and reduces Protects the diff
Slide 16: Banking: impairment charges and bad debt ratio
Banking Higher impairment charges reflecting Novitas and forward-looking provisions for weaker macroeconomic variables Long-term average bad debt ratio excluding Novitas2 Bad debt ratio of 2.2% • Included £116.8 million of impairment charges related to Novitas – £114.8 million taken in H1 Underlying
Slide 17: Asset Management
Asset Management Strong net inflows, with a significant contribution from new hires • Increase in managed assets driven by 31 July 31 July % strong net inflows, partly offset by negative £ billion 2023 2022 change market performance Total managed assets 16.4 15.3 7 • 2% decline in income reflecting
Slide 18: Winterflood
Winterflood Continued impact from slowdown in retail trading activity • Challenging market conditions continued to % impact investor appetite £ million 2023 2022 change • Reduced retail activity with average daily Operating income 75.3 95.2 (21) bargains at 60k, marginally above pre- Operating expen
Slide 19: Strong balance sheet
Strong balance sheet Well placed to continue funding and supporting loan book growth Prudent approach Total funding Loan book Treasury assets • Conservative approach to funding, focused on diversity of sources and prudent maturity profile £12.4 billion £9.5 billion £2.2 billion Average maturity of f
Slide 20: Capital
Capital Strong capital position • Reduction in CET1 capital ratio mainly Capital overview reflected the impact of Novitas, loan book growth and underlying profit 31 July 2023 31 July 2022 • Increase in RWAs mainly driven by loan book growth CET1 capital ratio (transitional) 1 13.3% 14.6% • Leverage
Slide 21: Capital management framework
Capital management framework Prudent management of financial resources is a core part of our business model CET1 capital ratio target Deploying capital to deliver disciplined growth range Targeting a CET1 capital ratio range of 12% to 13% over medium term, which will allow the group to maintain a bu
Slide 22: Strategy and business update
03 Strategy and business update Adrian Sainsbury, Chief Executive Office Strictly confidential Close Brothers Group plc Preliminary Results 2023 22
Slide 23: Supporting our customers when it matters most
Supporting our customers when it matters most Building on our long history of loan book growth Uncertainty remains but UK Well placed to support economy still growing customers amidst an uncertain • Economic activity has been more resilient than environment leveraging our expected relationships, exp
Slide 24: Moving forward on the delivery of our strategy
Moving forward on the delivery of our strategy Remain focused on Resuming our track record of our strategic priorities earnings growth and returns Disciplined growth Protect Delivering disciplined growth Cost efficiency Strategic cost management initiatives in place. Focused on delivering Grow posit
Slide 25: Grow: Committed to delivering disciplined growth
Grow: Committed to delivering disciplined growth Leveraging our relationships, expertise and relentless focus on customer service to deliver disciplined growth Financing the UK’s transition Incremental Capitalising on long-term trends Significant to a net zero economy growth opportunities in Wealth
Slide 26: Business update – Banking: Commercial
Business update – Banking Commercial Commercial Lends to SMEs through our direct sales force and third-party distribution channels Asset Finance • Good customer demand in spite of competitive market • Supported by new specialist lending teams • Strong new business volumes in Leasing, particularly Co
Slide 27: Business update – Banking: Retail
Business update – Banking Retail Retail Provides finance to individuals and businesses through a network of intermediaries Motor Finance • Prioritised margin and pricing discipline, passing through multiple rate rises • Growth in UK business, supported by our enhanced proposition and new routes to m
Slide 28: Business update – Banking: Property
Business update – Banking Property Property Provides short-term residential development finance for experienced professionals and offers refurbishment and bridging loans • Seen a slowdown in the UK property market with rising interest rates and a fall in housebuilding levels • Strong drawdowns and a
Slide 29: Business update – Asset Management
Business update – Asset Management Acceleration of our growth strategy Accelerated growth strategy Net inflow rates and closing managed assets (% and £ billion) • Increased rate of hiring, recruiting 15 new bespoke managers during the year 12% 16.4 15.6 15.3 • New hires contributed significantly to
Slide 30: Business update – Winterflood
Business update – Winterflood Continued diversification of revenue streams to balance the cyclicality seen in the trading business Balancing cyclicality in the trading business WBS AuA (£ billion) • Continued slowdown in trading activity from geopolitical and economic uncertainty • Domestically-focu
Slide 31: Sustain: Our responsibility
Sustain: Our responsibility Our responsibility remains fundamental to our purpose, strategy and culture Our car fleet Our emissions Our inclusivity Our alliances Now 50.4% 96% As a signatory to the NZBA, we commit to 50% battery electric with average Reduction in Scope 1 and 2 emissions since 2019 o
Slide 32: Outlook
Outlook Growth Well positioned to • Encouraged by the momentum generated in Banking and CBAM in H2, with a good start to FY24 maintain stable • Expect to sustain growth momentum in FY24 • Well positioned to maintain strong margins returns in FY24 Costs Banking CBAM • FY24 c.8-10% cost growth • Accel
Slide 33: Appendix
04 Appendix Strictly confidential Close Brothers Group plc Preliminary Results 2023 33
Slide 34: Appendix: Novitas
Appendix: Novitas Accelerated efforts to resolve the issues surrounding Novitas and ensure good customer outcomes No read-across to other Novitas impairment provisions Other financial impact books in our portfolio (£ million) and coverage ratio (%) Provisions adequately reflects the remaining risk o
Slide 35: Appendix: Income Statement
Appendix: Income Statement Including and excluding Novitas % Including Novitas £ million 2023 2022 change Operating income 932.6 936.1 - Adjusted operating expenses (615.0) (598.0) 3 Impairment losses (204.1) (103.3) 98 Adjusted operating profit 113.5 234.8 (52) Adjusted operating profit, pre provis
Slide 36: Appendix: Lending model
Appendix: Lending model Prudent and disciplined approach to lending A proven and resilient Core products Average Typical loan and security1 loan size2,3 maturity2,3 lending model Long track record of disciplined and consistent Asset Finance • Commercial asset financing, hire lending through the cycl
Slide 37: Appendix: Model Fit Assessment Framework
Appendix: Model Fit Assessment Framework Protecting the key attributes of our model Close Brothers Group plc Preliminary Results 2023 37
Slide 38: Appendix: Sustain – Our Responsibility
Appendix: Sustain – Our Responsibility Our responsibility is fundamental to our purpose, strategy and culture Sustainable objectives Our progress At 31 July 2023 Our targets Environment • 55% reduction in Scope 1 and 2 • Operationally net zero by 2030 through Some of Reducing our impact emissions si