Half-year Report for six months to 31 January 2024

About this update from Close Brothers Group Plc

[{"type":"text","content":"\n \n Half Year Results for the Six Months to 31 January 2024  \n 19 March 2024 \n \nAdrian Sainsbury, Chief Executive, said: \n \"Performance in the first half of 2024 reflected continued loan book growth across our businesses in Banking at strong margins, and an improved credit performance. CBAM delivered strong net inflows and whilst Winterflood's performance remains affected by weakness in retail trading activity, it remains well placed for a recovery in investor appetite. \n The FCA's review of the motor finance industry is ongoing and it would be premature to predict the outcome or estimate the potential impact on the group. The Board however recognises the paramount importance of preparing the group for a range of outcomes from this review. As part of this, the Board is taking a number of decisive actions to strengthen our capital position materially. These include the difficult decision taken last month not to pay dividends in respect of the current financial year. In addition, we are taking steps to optimise our risk weighted assets and reduce costs. \n These steps are being taken whilst continuing to provide excellent service to all our customers and protect our valuable franchise. The distinctive strength of our through-the-cycle business model, our long-term relationships, the deep expertise of our people and our consistent service endure. While we are working through a current period of uncertainty, the Board is taking decisive actions and is confident that the group will emerge well positioned to take advantage of future opportunities.\" \n Key Financials 1 \n \n \n \n \n   \n \n \n First half \n 2024 \n \n \n First half \n 2023 \n \n \n Change \n % \n \n \n \n \n Statutory operating profit before tax \n \n \n £93.8m \n \n \n £11.7m \n \n \n 702 \n \n \n \n \n Adjusted operating profit 2 \n \n \n £94.4m \n \n \n £12.6m \n \n \n 649 \n \n \n \n \n Adjusted basic earnings per share 3 \n \n \n 46.3p \n \n \n 6.1p \n \n \n \n \n \n \n \n Basic earnings per share 3 \n \n \n 46.0p \n \n \n 5.6p \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Ordinary dividend per share \n \n \n - \n \n \n 22.5p \n \n \n \n \n \n \n \n Return on opening equity \n \n \n 8.4% \n \n \n 1.1% \n \n \n \n \n \n \n \n Return on average tangible equity \n \n \n 10.1% \n \n \n 1.3% \n \n \n \n \n \n \n \n Net interest margin 4 \n \n \n 7.5% \n \n \n 8.0% \n \n \n \n \n \n \n \n Bad debt ratio 4 \n \n \n 0.9% \n \n \n 3.6% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 31 January \n 2024 \n \n \n 31 July \n 2023 \n \n \n Change \n % \n \n \n \n \n Loan book 5 \n \n \n £9.9bn \n \n \n £9.5bn \n \n \n 4 \n \n \n \n \n Total client assets \n \n \n £18.5bn \n \n \n £17.3bn \n \n \n 7 \n \n \n \n \n NAV per share \n \n \n £11.0 \n \n \n £11.0 \n \n \n \n \n \n \n \n TNAV per share \n \n \n £9.2 \n \n \n £9.3 \n \n \n \n \n \n \n \n CET1 capital ratio (transitional) \n \n \n  13.0% \n \n \n 13.3% \n \n \n \n \n \n \n \n Tier 1 capital ratio (transitional) \n \n \n 15.0% \n \n \n 13.3% \n \n \n \n \n \n \n \n Total capital ratio (transitional) \n \n \n    16.9% \n \n \n 15.3% \n \n \n \n \n \n \n \n Key Financials (Excluding Novitas) \n \n \n \n \n   \n \n \n First half \n 2024 \n \n \n First half \n 2023 \n \n \n Change \n % \n \n \n \n \n Statutory operating profit before tax \n \n \n £93.6m \n \n \n £116.6m \n \n \n (20) \n \n \n \n \n Adjusted operating profit \n \n \n £94.2m \n \n \n £117.5m \n \n \n (20) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin 4 \n \n \n 7.5% \n \n \n 7.8% \n \n \n \n \n \n \n \n Bad debt ratio 4 \n \n \n 0.8% \n \n \n 1.1% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 31 January \n 2024 \n \n \n 31 July \n 2023 \n \n \n Change \n % \n \n \n \n \n Loan book 5 \n \n \n £9.8bn \n \n \n £9.5bn \n \n \n 4 \n \n \n \n \n 1. Please refer to definitions on pages 25 to 27. \n 2. Adjusted operating profit is stated before amortisation of intangible assets on acquisition, goodwill impairment, exceptional items and tax. \n 3. Refer to note 4 for the calculation of basic and adjusted earnings per share. \n 4. Net interest margin and bad debt ratio calculated on an annualised basis. \n 5. Loan book includes operating lease assets. \n   \n Financial performance \n \n \n \n \n •  Resilient operating income of £470.8 million (H1 2023: £474.3 million), down 1%, reflecting growth in Banking and Close Brothers Asset Management, offset by a reduction in Winterflood and higher Group (central functions) net expenses \n \n \n \n \n •  Operating expenses up 12% reflecting increases in staff costs and continued investment in Banking \n \n \n \n \n •  Statutory operating profit before tax of £93.8 million (H1 2023: £11.7 million), reflecting non-recurrence of prior year impairment charges of £114.6 million related to Novitas. Excluding Novitas, adjusted operating profit reduced to £94.2 million (H1 2023: £117.5 million), reflecting cost growth, a reduction in Winterflood income and higher Group (central functions) net expenses \n \n \n \n \n •  Group return on average tangible equity (\"RoTE\") of 10.1% (H1 2023: 1.3%) \n \n \n \n \n •  In Banking , we delivered loan book growth of 4% to £9.9 billion (31 July 2023: £9.5 billion), driven by strong growth in Property and continued good demand in Asset Finance and the UK Motor Finance business, partly offset by the normal seasonal impact seen in the Premium and Invoice Finance businesses. We delivered a strong net interest margin of 7.5% (H1 2023: 8.0%; 2023: 7.7%). Our credit performance improved, with an annualised bad debt ratio of 0.9% (H1 2023: 3.6%) \n \n \n \n \n •  Close Brothers Asset Management delivered strong net inflows of 9% annualised, with a significant contribution from our bespoke investment management business. Total managed assets (\"AuM\") increased 8% to £17.7 billion, driven by net inflows and positive market performance \n \n \n \n \n •  In Winterflood , market conditions have remained unfavourable; Winterflood Business Services (\"WBS\") income was up 24% to £7.8 million and reflected an 11% year-on-year increase in assets under administration (\"AuA\") to £13.8 billion \n \n \n \n \n •  Strong balance sheet position with our Common Equity Tier 1 (\"CET1\") ratio of 13.0% at 31 January 2024 (31 July 2023: 13.3%), significantly above our applicable requirement of 9.5% \n \n \n \n \n •  Decision to suspend dividends in respect of current financial year announced on 15 February 2024 \n \n \n \n \n Decisive actions to further strengthen capital position \n   \n \n \n \n \n •  The Board has concluded that no legal or constructive obligation exists at the half year in relation to the FCA review and therefore, no provision has been recognised in the period in accordance with the relevant accounting standards \n \n \n \n \n •  There is significant uncertainty about the outcome of the FCA's review at this early stage, and the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present \n \n \n \n \n •  The Board considers it prudent for the group to further strengthen its capital position. The group has identified actions which, combined with the decision to not pay any dividend payments in the current financial year, could strengthen the group's available CET1 capital by approximately £200 million. These actions include a combination of significant risk transfer of assets and selective loan book growth to optimise risk weighted assets, supported by additional cost management initiatives. We continue to evaluate a range of other potential management actions which could enhance available CET1 capital by at least another c.£100 million.  Additionally, as our business continues to organically generate capital through 2025, the retention of earnings could potentially strengthen the group's capital position by a further £100 million, if required. In all, these measures could strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year when compared to the group's projected CET1 capital ratio for 31 July 2025, prior to any management actions. The Board is confident that these decisive actions will position the group well to withstand a range of scenarios and potential outcomes \n \n \n \n \n   \n Update on guidance \n In Banking ¸ we are encouraged by the performance in the first half, notwithstanding the significant uncertainty in relation to the FCA's review of historical motor finance commission arrangements \n •  Expect to broadly sustain underlying loan book growth in the second half of the 2024 financial year \n •  Well positioned to maintain a strong net interest margin, broadly aligned with the reported NIM in the first half \n •  Continue to expect c.8-10% increase in Banking costs in 2024, excluding costs related to the recently announced acquisition of Bluestone Motor Finance (Ireland) \n •  We have mobilised additional cost management initiatives which are expected to generate annualised savings of c.£20 million by the 2026 financial year, partly offsetting the adverse impact on the group's income as a result of the management actions \n •  We remain committed to more closely aligning income and cost growth for the 2025 financial year (excluding any restructuring costs) and delivering positive operating leverage over the medium term \n •  Expect the bad debt ratio to remain below our long-term average of 1.2% in H2 2024, based on current market conditions \n In Close Brothers Asset Management (\"CBAM\"), we are well placed to consolidate our position and maximise opportunities to accelerate profitability \n •  Targeting net inflows of 6-10% \n •  Expect operating margin to increase from 2025 onwards towards a longer-term target of above 20% \n In Winterflood , we are well placed to retain our leading market position and benefit when investor appetite returns \n •  Remain focused on diversifying revenue streams \n •  Expect to grow AuA in WBS to over £20 billion by 2026 \n As noted above, we have identified and continue to evaluate a number of management actions to continue to support our customers and protect our valuable franchise. Over the medium term, we remain committed to our previous CET1 capital target of 12% to 13% but expect to operate above this range in the near-term as a result of the identified management actions. \n These actions will leave us well positioned to withstand a range of scenarios and potential outcomes and are expected to adversely impact the group's operating profit in the next financial year. An update on our guidance for the 2025 financial year will be provided at our Full-Year results announcement. \n   \n Enquiries \n \n \n \n \n Sophie Gillingham \n \n \n Close Brothers Group plc \n \n \n 020 3857 6574 \n \n \n \n \n Camila Sugimura \n \n \n Close Brothers Group plc \n \n \n 020 3857 6577 \n \n \n \n \n Kimberley Taylor \n \n \n Close Brothers Group plc \n \n \n 020 3857 6233 \n \n \n \n \n Ingrid Diaz \n \n \n Close Brothers Group plc \n \n \n 020 3857 6088 \n \n \n \n \n Sam Cartwright \n \n \n H/Advisors Maitland \n \n \n 07827 254 561 \n \n \n \n \n A virtual presentation to analysts and investors will be held today at 9.30 am GMT followed by a Q&A session. A webcast and dial-in facility will be available by registering at https://webcasts.closebrothers.com/results/HalfYearResults2024. \n   \n Basis of Presentation \n 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 the group's acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect underlying trading performance. Please refer to note 2 for further details on items excluded from the adjusted performance metrics. \n Financial Calendar (Provisional) \n The enclosed provisional financial calendar below is updated on a regular basis throughout the year. Please refer to our website www.closebrothers.com for up-to-date details. As announced at the 2023 Preliminary Results, the group has decided to discontinue the issuance of pre-close trading updates in order to align more closely with prevailing market and industry practice. \n   \n \n \n \n \n Event \n \n \n Date \n \n \n \n \n Third quarter trading update \n \n \n 22 May 2024 \n \n \n \n \n Financial year end \n \n \n 31 July 2024 \n \n \n \n \n Preliminary results \n \n \n 24 September 2024 \n \n \n \n \n \nAbout Close Brothers \n Close Brothers is a leading UK merchant banking group providing lending, deposit taking, wealth management services and securities trading. We employ approximately 4,000 people, principally in the United Kingdom and Ireland. Close Brothers Group plc is listed on the London Stock Exchange and is a constituent of the FTSE 250. \n   \n   \n Chief Executive's Statement \n Performance in the first half of 2024 reflected continued loan book growth across our businesses in Banking at strong margins, and an improved credit performance. CBAM delivered strong net inflows and whilst Winterflood's performance remains affected by weakness in retail trading activity, it remains well placed for a recovery in investor appetite. \n This first half has seen a mixed market backdrop. Whilst we have seen some improvement in macroeconomic indicators, economic headwinds remain as interest rates have stabilised at higher levels while inflation persists. Customer demand levels have remained robust in Banking. Our market-facing businesses continued to encounter a challenging market environment, although CBAM attracted new client assets and delivered a good fund performance across asset classes. \n Notwithstanding the continued uncertain macroeconomic environment for individuals and SMEs in the UK, we continue to support our nearly three million customers, including c.360,000 SME businesses, through the cycle. In our Banking division, we employ almost 3,000 colleagues across 40 locations throughout the country. Our primary focus is helping customers by offering additional borrowing capacity to acquire essential assets for their personal lives or small businesses. \n Financial Performance \n Statutory operating profit before tax was £93.8 million (H1 2023: £11.7 million). The increase was mainly driven by the non-recurrence of the prior year impairment charges related to Novitas. In Banking, excluding Novitas, the profit performance reflected good loan book growth of 9% year-on-year, a strong net interest margin of 7.5% and an improved credit performance, with a bad debt ratio of 0.8%. This was more than offset by increased costs due to inflation-related salary rises, new hires and investment in our strategic programmes and cost efficiency initiatives. Our Asset Management division delivered strong net inflows of 9% annualised, although profit reduced, as income growth was more than offset by costs primarily related to wage inflation and new hires. Winterflood's performance has been adversely impacted by continued weakness in investor appetite and market uncertainty, resulting in an operating loss of £2.6 million. We remain confident in the track record of our trading business and are well positioned to retain our market position and benefit when investor appetite returns. WBS continued to see good momentum, with income rising 24% to £7.8 million and an 11% year-on-year increase in AuA to £13.8 billion. \n We maintained our strong balance sheet and conservative approach to managing our financial resources in the first half. Our capital position was strong, with our CET1 capital ratio at 13.0% (31 July 2023: 13.3%), significantly above our applicable requirement of 9.5%. Total funding increased 3% to £12.7 billion (31 July 2023: £12.4 billion), with 16% growth in our retail deposit base, demonstrating the strength of our Savings proposition. We maintained our prudent liquidity position, with our Liquidity Coverage Ratio over 1,000%, substantially exceeding regulatory requirements. \n   \n Significant uncertainty arising from the FCA's review of the motor finance industry \n The FCA recently announced that it is undertaking a review of the motor finance market due to the high number of complaints coming to the Financial Ombudsman Service (\"FOS\") from customers regarding discretionary commission arrangements in effect prior to the 2021 ban on these models. The FCA aims to communicate a decision on next steps by the end of September 2024. This has caused significant uncertainty for the industry and the group regarding any potential remediation action as a result of the review. Close Brothers Motor Finance (\"CBMF\") has operated in the motor finance market for a number of years, during which we have sought to comply with the relevant regulatory requirements. There are a range of possible outcomes and therefore, as announced on 15 February, we are implementing actions to further strengthen the group's capital position, with the priority of protecting and sustaining our valuable franchise. \n We have a long-term progressive dividend track record and the decision to not pay any dividends for this financial year was not made lightly. It reflects our proactive and prudent approach to managing our financial resources. We have identified actions which, combined with the decision not to pay a dividend in the current financial year, are expected to strengthen the group's available CET1 capital by approximately £200 million. These actions include a combination of significant risk transfer of assets and selective loan book growth to optimise risk weighted assets, supported by additional cost management initiatives which could enhance available CET1 capital by at least another c.£100 million.  Additionally, as our business continues to organically generate capital through 2025, the retention of earnings could potentially strengthen the group's capital position by a further £100 million, if required. In all, these measures could strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year when compared to the group's projected CET1 capital ratio for 31 July 2025, prior to any management actions. The Board is confident that these decisive actions will position the group well to withstand a range of scenarios and potential outcomes. \n Continued focus on strengthening our valuable franchise \n Notwithstanding the prevailing uncertainty, we remain focused on delivering on our strategy and strengthening our valuable franchise. This means we will continue to review our portfolio of businesses to ensure they each deliver attractive returns. We have mobilised additional cost management initiatives in Banking, which are expected to generate annualised savings of c.£20 million by the 2026 financial year, to support the ongoing profitability of our business.   \n The distinctive strengths of our through-the-cycle model - our long-term relationships, the deep expertise of our people and our customer-centric approach - endure. We are taking decisive actions to navigate through this period of uncertainty and are confident that the group will emerge well positioned to take advantage of future opportunities. \n Adrian Sainsbury \nChief Executive \n19 March 2024 \n \nFCA's review of historical motor finance commission arrangements \n On 11 January 2024, the FCA announced it is using its powers under section 166 of the Financial Services and Markets Act 2000 to review historical motor finance commission arrangements and sales at several firms, following high numbers of complaints from customers. The review follows the FOS publication of its first two decisions upholding customer complaints relating to discretionary commission arrangements (\"DCAs\") against two other lenders in the market. The FCA aims to communicate a decision on next steps by the end of September 2024. \n Overview of commission models operated 1 \n CBMF has operated in the motor finance market for a number of years, during which we have sought to comply with the relevant regulatory requirements. \n Prior to 2016, CBMF operated an Upward Difference in Charges (\"DIC\") model. This allowed the dealer or broker full discretion over the customer rate and the commission earnt on point-of-sale finance, subject to a hard cap on the amount of commission. Under the DIC model, commission, if any, was paid as a percentage of the total interest paid by the customer. \n From 2016, CBMF introduced a Downward Scaled Commission (\"DSM\") model, which capped both the interest charged to the customer and commission paid to the dealer or broker. This meant that CBMF set the headline rate for the customer and the dealers could only reduce this by decreasing their level of commission. Under the DSM model, commission, if any, was paid as a percentage of the loan size. \n From 2021 onwards, CBMF introduced a Risk Adjusted Pricing Model which set the rate for the customer and adjusted the rate according to the customer risk profile. Dealer discretion was removed entirely. Under the Risk Adjusted Pricing Model, commission, if any, is paid as a fixed percentage of the loan size. \n All historical models included a \"hard cap\" on the commission amount paid to the broker or dealer. Commission disclosures were also reviewed and enhanced over time. \n 1 For simplicity, dates shown above assume transition when substantially complete. \n Impact on Close Brothers \n The FCA review is progressing to determine whether there has been industry-wide failure to comply with regulatory requirements which has caused customers harm and, if so, whether it needs to take any actions. Based on the status at the half year and in accordance with the relevant accounting standards, the Board has concluded that no legal or constructive obligation exists and it is currently not required or appropriate to recognise a provision in relation to this matter. The FCA has indicated there could be a range of outcomes, with one potential outcome being an industry-wide consumer redress scheme. The estimated impact of any redress scheme, if required, is highly dependent on a number of factors including, for example, the time period covered; the DCA models impacted (the group operated a number of different models during the period under review); appropriate reference commission rates set for any redress; and response rates to any redress scheme. As such, at this early stage, the timing, scope and quantum of the potential financial impact on the group, if any, cannot be reliably estimated at present. In addition, it is not practicable at this stage to estimate any potential financial impact arising from this issue. \n The group is subject to a number of claims through the courts regarding historical commission arrangements with intermediaries on its motor finance products. As of 29 February 2024, where individual cases were adjudicated in County Court, in the majority of the outcomes for Close Brothers where the courts found that there was no demonstrable customer harm and hence no compensation to pay, albeit there have been a limited number of adjudicated cases at this stage. There are also a number of complaints that have been referred to FOS for a determination. To date no final FOS decisions have been made upholding complaints against Close Brothers. \n Since the announcement by the FCA of its review of historical motor finance commission arrangements, we have seen a further increase in complaints. We continue to monitor the impact on our current handling of complaints and are following the playbooks in place to ensure we have the appropriate resources to respond effectively. \n Further strengthening our capital base to continue to support customers and protect our valuable franchise \n The group has a strong capital, funding and liquidity position. At 31 January 2024, our CET1 and Total capital ratios were 13.0% and 16.9% respectively (31 July 2023: 13.3% and 15.3%), providing significant headroom over the applicable requirements. Our leverage ratio, which is a measure of capital strength not affected by risk weightings, remained strong at 12.7%. Our conservative approach to funding is based on the principle of \"borrow long, lend short\" and we hold liquidity levels comfortably ahead of both internal risk appetite and regulatory requirements, with a Liquidity Coverage Ratio in excess of 1,000%. As of 29 February 2024, there have been no significant changes in our deposit base and liquidity metrics. \n While there is no certainty regarding any potential financial impact as a result of the FCA's review, the Board recognises the need to plan for a range of possible outcomes. It is a long-standing priority of the group to maintain a strong balance sheet and prudent approach to managing its financial resources. To that end, the Board considers it prudent for the group to further strengthen its capital position, while supporting our customers and business franchise. \n As previously announced, the group will not pay any dividends on its ordinary shares for the current financial year, and the reinstatement of dividends in 2025 and beyond will be reviewed once the FCA has concluded its process and any financial consequences for the group have been assessed. As a result, we expect to retain c.£100 million of CET1 capital in the 2024 financial year, of which c.£50 million has been reflected in the CET1 capital position at 31 January 2024. \n The Board is taking steps to further strengthen the group's capital position by optimising risk weighted assets (\"RWAs\"). We plan to reduce RWA growth by approximately £1 billion through a combination of selective loan book growth, partnerships and significant risk transfer of assets related to our Motor Finance business through securitisations. \n We have also mobilised additional cost management initiatives which are expected to generate annualised savings of c.£20 million by the 2026 financial year, partly offsetting the adverse impact on the group's income as a result of the management actions. \n We continue to evaluate a range of other potential management actions which could strengthen the group's capital position over and above our ongoing organic capital generation through 2025. These include potential risk transfer of other portfolios through securitisation, a continued review of our business portfolios and other tactical actions. We estimate this could enhance available CET1 capital by at least another c.£100 million. Additionally, as our business continues to organically generate capital through 2025, the retention of earnings could potentially strengthen the group's capital position by a further £100 million, if required. \n Combined with the decision to not pay any dividends in the current financial year, these measures could strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year (when compared to the group's projected CET1 capital ratio for 31 July 2025, prior to any management actions). The Board is confident that these decisive actions position the group well to withstand a range of scenarios and potential outcomes. Nevertheless, there remains considerable uncertainty regarding the specifics of any potential redress scheme, if required, as well as its timing. \n Overview of Financial Performance \n Summary Group Income Statement 1 \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 470.8 \n \n \n 474.3 \n \n \n (1) \n \n \n \n \n Adjusted operating expenses \n \n \n (334.7) \n \n \n (299.5) \n \n \n 12 \n \n \n \n \n Impairment losses on financial assets \n \n \n (41.7) \n \n \n (162.2) \n \n \n (74) \n \n \n \n \n Adjusted operating profit \n \n \n 94.4 \n \n \n 12.6 \n \n \n 649 \n \n \n \n \n Banking \n \n \n 111.7 \n \n \n 15.0 \n \n \n 645 \n \n \n \n \n Commercial \n \n \n 50.9 \n \n \n (33.1) \n \n \n 254 \n \n \n \n \n       Of which: Novitas \n \n \n 0.2 \n \n \n (104.9) \n \n \n n/a \n \n \n \n \n Retail \n \n \n 19.0 \n \n \n 14.7 \n \n \n 29 \n \n \n \n \n Property \n \n \n 41.8 \n \n \n 33.4 \n \n \n 25 \n \n \n \n \n Asset Management \n \n \n 6.3 \n \n \n 8.6 \n \n \n (27) \n \n \n \n \n Winterflood \n \n \n (2.6) \n \n \n 2.4 \n \n \n (208) \n \n \n \n \n Group \n \n \n (21.0) \n \n \n (13.4) \n \n \n 57 \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n (0.6) \n \n \n (0.9) \n \n \n (33) \n \n \n \n \n Statutory operating profit before tax \n \n \n 93.8 \n \n \n 11.7 \n \n \n 702 \n \n \n \n \n Tax \n \n \n (25.0) \n \n \n (3.3) \n \n \n 658 \n \n \n \n \n Profit after tax \n \n \n 68.8 \n \n \n 8.4 \n \n \n 719 \n \n \n \n \n Profit attributable to shareholders \n \n \n 68.8 \n \n \n 8.4 \n \n \n 719 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Adjusted basic earnings per share 2 \n \n \n 46.3p \n \n \n 6.1p \n \n \n \n \n \n \n \n Basic earnings per share 2 \n \n \n 46.0p \n \n \n 5.6p \n \n \n \n \n \n \n \n Ordinary dividend per share \n \n \n - \n \n \n 22.5p \n \n \n \n \n \n \n \n Return on opening equity \n \n \n 8.4% \n \n \n 1.1% \n \n \n \n \n \n \n \n Return on average tangible equity \n \n \n 10.1% \n \n \n 1.3% \n \n \n \n \n \n \n \n 1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the performance of the group's acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect underlying trading performance. Further detail on the reconciliation between operating and adjusted measures can be found in note 2. \n 2. Refer to note 4 for the calculation of basic and adjusted earnings per share. \n Financial Performance \n Adjusted operating profit and returns \n Adjusted operating profit increased to £94.4 million (H1 2023: £12.6 million), driven by the non-recurrence of the significant impairment charges incurred in relation to Novitas in the prior year. Excluding Novitas, adjusted operating profit reduced 20% to £94.2 million (H1 2023: £117.5 million), primarily reflecting cost growth, a reduction in income in Winterflood and an increase in group (central functions) net expenses to reflect the interest rate on the Group bond issued in June 2023, partly offset by lower impairment charges. \n Statutory operating profit before tax increased to £93.8 million (H1 2023: £11.7 million). Return on opening equity increased to 8.4% (H1 2023: 1.1%) and return on average tangible equity increased to 10.1% (H1 2023: 1.3%). \n Banking adjusted operating profit increased to £111.7 million (H1 2023: £15.0 million), with the prior year including an impairment charge of £114.6 million in relation to Novitas. Excluding Novitas, Banking adjusted operating profit decreased 7% to £111.5 million (H1 2023: £119.9 million), as income growth and lower impairment charges were more than offset by higher costs. In the Asset Management division, adjusted operating profit declined by 27% to £6.3 million (H1 2023: £8.6 million) as growth in income was more than offset by higher costs. Winterflood delivered an operating loss of £2.6 million (H1 2023: operating profit of £2.4 million), primarily reflecting lower trading income. Group net expenses, which include the central functions such as finance, legal and compliance, risk and human resources, increased to £21.0 million (H1 2023: £13.4 million), driven primarily by the interest charges incurred on the Group's £250 million senior unsecured bond issued in June 2023 at an interest rate of 7.75%. \n   \n Operating income \n Operating income decreased marginally to £470.8 million (H1 2023: £474.3 million), with growth in Asset Management and Banking offset by a decline in Winterflood and net interest expenses from debt issued by the holding company in June 2023. Income in the Banking division increased marginally, reflecting loan book growth and strong margins, with the prior year period benefitting from one-off items related to derivatives outside of a hedge accounting relationship (mark-to-market swaps) and Novitas income. Excluding the impact of these swaps and Novitas, Banking income increased 6%. Income in the Asset Management division increased 7%, reflecting positive net inflows and market movements. Income in Winterflood declined 12%, with the decline in trading income more than offsetting growth in WBS. \n Adjusted operating expenses \n Adjusted operating expenses rose 12% to £334.7 million (H1 2023: £299.5 million) as we saw increased staff costs across the group, as well as continued investment in Banking. In Banking, costs increased 13% as we incurred higher staff costs and continued to invest in our strategic programmes and cost saving initiatives. Costs rose 12% in Asset Management mainly reflecting new hires and higher staff costs due to inflation-related salary increases. Winterflood's costs increased marginally, primarily driven by inflation-related salary increases and one-off costs incurred by relocating premises, partly offset by lower variable compensation and a reduction in settlement costs. \n Overall, the group's expense/income ratio increased to 71% (H1 2023: 63%), whilst the compensation ratio increased to 41% (H1 2023: 36%), reflecting inflation-related wage increases, a normalisation of performance-driven bonuses and new hires. \n Impairment charges and IFRS 9 provisioning \n Impairment charges decreased significantly to £41.7 million (H1 2023: £162.2 million), corresponding to an annualised bad debt ratio of 0.9% (H1 2023: 3.6% annualised), with the prior year period including a charge of £114.6 million in relation to Novitas. Overall provision coverage increased marginally to 4.1% (31 July 2023: 3.9%). \n Excluding Novitas, impairment charges reduced 17% to £39.5 million (H1 2023: £47.6 million), reflecting the improved macroeconomic outlook compared to the prior year period, partly offset by loan book growth and the ongoing review of provisions and coverage across our loan portfolios. The bad debt ratio, excluding Novitas, reduced to 0.8% annualised (H1 2023: 1.1% annualised) and remains below our long-term bad debt ratio of 1.2% 1 . The coverage ratio remained stable at 2.1% (31 July 2023: 2.1%), excluding Novitas. \n Since the previous financial year end, we have updated the macroeconomic scenarios to reflect the latest available information regarding the macroeconomic environment and outlook, although the weightings assigned to them remain unchanged. At 31 January 2024, there was a 30% weighting to the strong upside, 32.5% weighting to the baseline, 20% weighting to the mild downside, 10.5% weighting to the moderate downside and 7% weighting to the protracted downside. \n Whilst we have not seen a significant impact on credit performance, we continue to monitor closely the evolving impacts of inflation and cost of living on our customers. We remain confident in the quality of our loan book, which is predominantly secured or structurally protected, prudently underwritten, diverse, and supported by the deep expertise of our people. We continue to expect the bad debt ratio for H2 2024 to remain below our long-term average, based on current market conditions. \n Tax expense \n The tax expense in the first half of the year was £25.0 million (H1 2023: £3.3 million), which corresponds to an effective tax rate of 26.7% (H1 2023: 28.2%) for the period, representing the best estimate of the annual effective tax rate expected for the full year. \n The standard UK corporation tax rate for the financial year is 25.0% (six months ended 31 January 2023: 21.0%; year ended 31 July 2023: 21.0%). The effective tax rate is above the UK corporation tax rate primarily due to disallowable expenditure. \n Earnings per share \n Adjusted basic earnings per share (\"EPS\") was 46.3p (H1 2023: 6.1p) and basic EPS was 46.0p (H1 2023: 5.6p). \n We anticipate EPS, return on opening equity and return on average tangible equity to be impacted from the second half of 2024 onwards by the payment of the coupon relating to the Fixed Rate Resetting Additional Tier 1 Perpetual Subordinated Contingent Convertible (\"AT1\") Securities, at a rate of 11.125%, which will be due on 29 May and 29 November each year, commencing on 29 May 2024. Any AT1 coupons paid will be deducted from retained earnings, reducing the profit attributable to ordinary shareholders. \n Dividend \n As announced on 15 February 2024, given the significant uncertainty regarding the outcome of the FCA's review of historical motor finance commissions arrangements and any potential financial impact as a result, the Board recognises the need to plan for a range of possible outcomes from the review. It is a long-standing priority of the group to maintain a strong balance sheet and prudent approach to managing its financial resources. To that end, the Board considers it prudent for the group to further strengthen its capital position, while supporting our customers and business franchise. \n Therefore, the group will not pay any dividends on its ordinary shares for the current financial year, and the reinstatement of dividends in the 2025 financial year and beyond will be reviewed once the FCA has concluded its process and any financial consequences for the group have been assessed. \n Summary Group Balance Sheet \n \n \n \n \n \n \n \n 31 January 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Loans and advances to customers and operating lease assets 1 \n \n \n 9,893.0 \n \n \n 9,526.2 \n \n \n \n \n Treasury assets 2 \n \n \n 2,185.2 \n \n \n 2,229.4 \n \n \n \n \n Market-making assets 3 \n \n \n 974.3 \n \n \n 787.6 \n \n \n \n \n Other assets \n \n \n 985.3 \n \n \n 1,007.1 \n \n \n \n \n Total assets \n \n \n 14,037.8 \n \n \n 13,550.3 \n \n \n \n \n Deposits by customers \n \n \n 8,264.0 \n \n \n 7,724.5 \n \n \n \n \n Borrowings 4 \n \n \n 2,492.3 \n \n \n 2,839.4 \n \n \n \n \n Market-making liabilities 3 \n \n \n 902.3 \n \n \n 700.7 \n \n \n \n \n Other liabilities \n \n \n 547.4 \n \n \n 640.8 \n \n \n \n \n Total liabilities \n \n \n 12,206.0 \n \n \n 11,905.4 \n \n \n \n \n Equity 5 \n \n \n 1,831.8 \n \n \n 1,644.9 \n \n \n \n \n Total liabilities and equity \n \n \n 14,037.8 \n \n \n 13,550.3 \n \n \n \n \n 1. Includes operating lease assets of £282.0 million (31 July 2023: £271.2 million). \n 2. Treasury assets comprise cash and balances at central banks and debt securities held to support the Banking division. \n 3. Market-making assets and liabilities comprise settlement balances, long and short trading positions and loans to or from money brokers. \n 4. Borrowings comprise debt securities in issue, loans and overdrafts from banks and subordinated loan capital. \n 5. Equity includes the group's £200.0 million Fixed Rate Reset Perpetual Subordinated Contingent Convertible Securities (AT1 securities), net of transaction costs, which are classified as an equity instrument under IAS 32. \n The group maintained a strong balance sheet and a prudent approach to managing its financial resources. The fundamental structure of the balance sheet remains unchanged, with most of the assets and liabilities relating to our Banking activities. Loans and advances make up the majority of assets. Other items on the balance sheet include treasury assets held for liquidity purposes, and settlement balances in Winterflood. Intangibles, property, plant and equipment, and prepayments are included as other assets. Liabilities are predominantly made up of customer deposits and both secured and unsecured borrowings to fund the loan book. \n Total assets increased 4% to £14.0 billion (31 July 2023: £13.6 billion), mainly reflecting growth in the loan book and higher market-making assets. Total liabilities were 3% higher at £12.2 billion (31 July 2023: £11.9 billion), driven primarily by higher customer deposits and market-making liabilities, partly offset by a reduction in borrowings. Both market-making assets and liabilities, which related to trading activity at Winterflood, were higher due to an increase in value traded at the end of the period. \n Total equity increased 11% to £1.8 billion (31 July 2023: £1.6 billion), primarily reflecting the issuance of AT1 securities net of transaction costs and profit in the first half, which was partially offset by payments related to the final dividend for the 2023 financial year of £67.1 million (31 January 2023: £65.6 million). The group's return on assets increased to 1.0% (H1 2023: 0.1%). \n   \n Group Capital \n \n \n \n \n \n \n \n 31 January 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Common equity tier 1 capital \n \n \n 1,353.0 \n \n \n 1,310.8 \n \n \n \n \n Tier 1 capital \n \n \n 1,553.0 \n \n \n 1,310.8 \n \n \n \n \n Total capital \n \n \n 1,753.0 \n \n \n 1,510.8 \n \n \n \n \n Risk weighted assets \n \n \n 10,380.2 \n \n \n 9,847.6 \n \n \n \n \n Common equity tier 1 capital ratio (transitional) \n \n \n 13.0% \n \n \n 13.3% \n \n \n \n \n Tier 1 capital ratio (transitional) \n \n \n 15.0% \n \n \n 13.3% \n \n \n \n \n Total capital ratio (transitional) \n \n \n 16.9% \n \n \n 15.3% \n \n \n \n \n Leverage ratio 1 \n \n \n 12.7% \n \n \n 11.4% \n \n \n \n \n 1. The leverage ratio is calculated as tier 1 capital as a percentage of total balance sheet assets excluding central bank claims, adjusting for certain capital deductions, including intangible assets, and off-balance sheet exposures, in line with the UK leverage framework under the UK Capital Requirements Regulation. \n Movements in Capital and Other Regulatory Metrics \n The CET1 capital ratio reduced from 13.3% to 13.0%, mainly driven by loan book growth (-c.60bps), a decrease in IFRS 9 transitional arrangements (-c.20bps) and the Bluestone Motor Finance acquisition (-c.20bps). This was partly offset by capital generation through profit (c.70bps). Following the announcement that the group will not pay any dividends on its ordinary shares for the current financial year, no foreseeable dividend on ordinary shares has been deducted from CET1 capital. \n CET1 capital increased 3% to £1,353.0 million (31 July 2023: £1,310.8 million), reflecting capital generation through profit of £68.8 million, partly offset by a decrease in the transitional IFRS 9 add-back to capital of £16.6 million and an increase in intangible assets deducted from capital of £4.9 million. \n Tier 1 capital increased 18% to £1,553.0 million (31 July 2023: £1,310.8 million), primarily driven by the issuance of the group's inaugural AT1 in a £200 million transaction to optimise the capital structure and provide further flexibility to grow the business. The transaction strengthened the regulatory capital position by filling the Pillar 1 and Pillar 2A AT1 capacity with the proceeds and was in line with the group's strategy and capital management framework. \n Total capital increased 16% to £1,753.0 million (31 July 2023: £1,510.8 million), reflecting the AT1 issuance. \n RWAs increased by 5% to £10.4 billion (31 July 2023: £9.8 billion), driven by loan book growth (c.£445 million) primarily in Commercial and Property, and the acquisition of Bluestone Motor Finance (c.£105 million). \n At 31 January 2024, CET1, tier 1 and total capital ratios were 13.0% (31 July 2023: 13.3%), 15.0% (31 July 2023: 13.3%) and 16.9% (31 July 2023: 15.3%), respectively. \n The CET1, tier 1 and total capital ratio requirements, excluding any applicable Prudential Regulation Authority (\"PRA\") buffer, were 9.5%, 11.2% and 13.4%, respectively, at 31 January 2024. Accordingly, we continue to have headroom significantly above the requirements of c.350bps in the CET1 capital ratio, c.380bps in the tier 1 capital ratio and c.350bps in the total capital ratio. \n The group applies IFRS 9 regulatory transitional arrangements which allow banks to add back to their capital base a proportion of the IFRS 9 impairment charges during the transitional period. Our capital ratios are presented on a transitional basis after the application of these arrangements. On a fully loaded basis, without their application, the CET1, tier 1 and total capital ratios would be 12.9%, 14.8% and 16.8%, respectively. \n The leverage ratio, which is a transparent measure of capital strength not affected by risk weightings, increased to 12.7% (31 July 2023: 11.4%). \n The PRA published PS 17/23, part one of the near-final rules on the implementation of Basel 3.1 standards, in December 2023. The second part is expected by 30 June 2024, which should provide further clarity regarding the SME supporting factor. The implementation date is set for 1 July 2025. As previously announced, we estimate that if implemented in its current form, it would represent an increase of up to c.10% in the group's RWAs calculated under the standardised approach. This is primarily as a result of the proposed removal of the SME supporting factor, new conversion factor for cancellable facilities and new market risk rules. \n As outlined at the Full Year 2023 results, our application to transition to the Internal Ratings Based (\"IRB\") approach has successfully moved to Phase 2 of the process and engagement with the regulator continues, following our initial application to the PRA in December 2020. Our Motor Finance, Property Finance and Energy portfolios, where the use of models is most mature, were submitted with our initial application. \n Further strengthening our capital position \n As outlined above, the Board is implementing a range of actions to further strengthen the group's capital position. Additionally, we continue to evaluate other potential management actions which could strengthen the group's available CET1 capital over and above our ongoing organic capital generation through 2025. In all, these measures could strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year (when compared to the group's projected CET1 capital ratio for 31 July 2025, prior to any management actions). The Board is confident that these decisive actions will position the group well to withstand a range of scenarios and potential outcomes. Nevertheless, there remains considerable uncertainty regarding the specifics of any potential redress scheme, if required, as well as its timing. \n Over the medium term, we remain committed to our previous CET1 capital target range of 12% to 13% but expect to operate above this range in the near-term as a result of the identified management actions. \n Group Funding 1 \n \n \n \n \n \n \n \n 31 January 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Customer deposits \n \n \n 8,264.0 \n \n \n 7,724.5 \n \n \n \n \n Secured funding \n \n \n 1,351.3 \n \n \n 1,676.6 \n \n \n \n \n Unsecured funding 2 \n \n \n 1,227.0 \n \n \n 1,308.6 \n \n \n \n \n Equity \n \n \n 1,831.8 \n \n \n 1,644.9 \n \n \n \n \n Total available funding 3 \n \n \n 12,674.1 \n \n \n 12,354.6 \n \n \n \n \n Total funding as % of loan book 4 \n \n \n 128% \n \n \n 130% \n \n \n \n \n Average maturity of funding allocated to loan book 5 \n \n \n 21 months \n \n \n 21 months \n \n \n \n \n 1. Numbers relate to core funding and exclude working capital facilities at the business level. \n 2. Unsecured funding excludes £49.0 million (31 July 2023: £44.3 million) of non-facility overdrafts included in borrowings and includes £135.0 million (31 July 2023: £190.0 million) of undrawn facilities. \n 3. Includes £250 million of funds raised via a senior unsecured bond with a five-year tenor by Close Brothers Group plc, the group's holding company, in June 2023, with proceeds currently used for general corporate purposes. \n 4. Total funding as a % of loan book includes £282.0 million (31 July 2023: £271.2 million) of operating lease assets in the loan book figure. \n 5. Average maturity of total available funding, excluding equity and funding held for liquidity purposes. \n Our Treasury function is focused on managing funding and liquidity to support the Banking businesses, as well as interest rate risk. This incorporates our Savings business, which provides simple and straightforward savings products to both individuals and businesses, whilst being committed to providing the highest level of customer service. \n Our diverse funding sources enable us to adapt our position to changing market conditions and demand. Our conservative approach to funding is based on the principle of \"borrow long, lend short\", with a spread of maturities over the medium and longer term, comfortably ahead of a shorter average loan book maturity. We have maintained a prudent maturity profile, with the average maturity of funding allocated to the loan book at 21 months (31 July 2023: 21 months), ahead of the average loan book maturity at 16 months (31 July 2023: 16 months). \n Our funding draws on a wide range of wholesale and deposit markets including several public debt securities at both group and operating company level, as well as public and private secured funding programmes and a diverse mix of customer deposits. This broad funding base reduces concentration risk and ensures we can adapt our position through the cycle. \n We increased total funding in the first half by 3% to £12.7 billion (31 July 2023: £12.4 billion) which accounted for 128% (31 July 2023: 130%) of the loan book at the balance sheet date. The average cost of funding in Banking increased to 5.4% (2023: 3.2%) due to a higher base rate and customer deposit pricing pressure. We took actions to mitigate this pressure by optimising the group's liability mix based on funding needs, customer demand and market pricing, significantly growing our retail deposit base to utilise this lower cost of funding for the group. We are well positioned to continue benefiting from our diverse funding base, and expect cost of funds to be nearing the peak of the current interest rate cycle. \n Customer deposits increased 7% to £8.3 billion (31 July 2023: £7.7 billion) overall. Of this, non-retail deposits decreased 3% to £3.4 billion (31 July 2023: £3.5 billion) and retail deposits increased by 16% to £4.9 billion (31 July 2023: £4.2 billion), as we actively sought to grow our retail deposit base. In line with our prudent and conservative approach to funding, our deposits are predominantly term, with only 5% of total deposits available on demand and over 70% having at least three months to maturity. At 31 January 2024, approximately 85% of retail deposits were protected by the Financial Services Compensation Scheme. As of 29 February 2024, there have been no significant changes in our deposit base. \n The investment in our customer deposit platform continues to deliver benefits. Deposits held through this platform have grown by c.50% over five years to over £5.6 billion. We continue to drive scalability through an array of funding sources, with both Easy Access and an additional deposit aggregator being introduced over the last year and complementing our existing offering of Notice Accounts and Fixed Rate Cash ISAs. The introduction of Easy Access provides us access to a large potential deposit pool, with Easy Access balances now sitting at c.£250 million. We remain focused on continuing to grow and diversify our retail deposit base and further optimise our cost of funding and maturity profile. \n Secured funding decreased 19% to £1.4 billion (31 July 2023: £1.7 billion), with our fifth public Motor Finance securitisation completed in November 2023 more than offset by a £250 million repayment related to our Motor Finance warehouse securitisation and the repayment of £228 million of the Term Funding Scheme for Small and Medium-sized Enterprises (\"TFSME\") ahead of the scheduled maturity date. This takes our drawings under the scheme to £372 million (31 July 2023: £600 million). Over the next 12 months, £262 million of TFSME will mature, which we expect to replace in line with our diverse funding profile, dependent on market conditions and demand. A further £110 million will mature in October 2025. \n Unsecured funding, which includes senior unsecured and subordinated bonds and undrawn committed revolving facilities, reduced 6% to £1.2 billion (31 July 2023: £1.3 billion). \n Our credit ratings continue to reflect the group's inherent financial strength, diversified business model and consistent risk appetite. Moody's Investors Services (\"Moody's\") reaffirmed their rating for Close Brothers Group as \"A2/P1\" and Close Brothers Limited as \"Aa3/P1\", in January 2024, whilst downgrading the outlook from \"stable\" to \"negative\". Close Brothers Group's subordinated debt rating was also upgraded to A2 from A3 by Moody's. In February 2024, following the end of the first half, Fitch Ratings (\"Fitch\") downgraded both CBG and CBL long-term Issuer Default Ratings (\"IDRs\") to BBB+ from  A-, and affirmed CBG and CBL short-term IDRs of F2 and \"negative\" outlook to reflect anticipated lower profitability and risks to earnings from the FCA's motor review. \n Group Liquidity \n \n \n \n \n \n \n \n 31 January 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Cash and balances at central banks \n \n \n 1,658.5 \n \n \n 1,937.0 \n \n \n \n \n Sovereign and central bank debt 1 \n \n \n   193.3 \n \n \n   186.1 \n \n \n \n \n Supranational, sub-sovereigns and agency (\"SSA\") bonds \n \n \n 145.6 \n \n \n - \n \n \n \n \n Covered bonds \n \n \n 187.8 \n \n \n 106.3 \n \n \n \n \n Treasury assets \n \n \n 2,185.2 \n \n \n 2,229.4 \n \n \n \n \n 1. There was £12 million encumbered sovereign debt and central bank debt and covered bonds at 31 January 2024 (31 July 2023: £nil). \n The group continues to adopt a conservative stance on liquidity, ensuring it is comfortably ahead of both internal risk appetite and regulatory requirements. \n Maintaining a strong level of liquidity, particularly in light of the significant uncertainty regarding the outcome of the FCA's review, remains a key priority for the group. We have a large, high quality liquid asset portfolio held mainly in cash and government bonds. In the first half, treasury assets were broadly stable at £2.2 billion (31 July 2023: £2.2 billion) and were predominantly held on deposit with the Bank of England.   \n We regularly assess and stress test the group's liquidity requirements and continue to exceed the liquidity coverage ratio (\"LCR\") regulatory requirements, with a 12-month average to 31 January 2024 LCR of 1,091% (31 July 2023: 1,143%). In addition to internal measures, we monitor funding risk based on the CRR rules for the net stable funding ratio (\"NSFR\"). The four-quarter average NSFR to 31 January 2024 was 130.8% (31 July 2023: 126.0%). As of 29 February 2024, there have been no significant changes to these ratios. \n   \n Business Review \n Banking \n Key Financials \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 365.3 \n \n \n 363.9 \n \n \n 0 \n \n \n \n \n Adjusted operating expenses \n \n \n (211.8) \n \n \n (186.7) \n \n \n 13 \n \n \n \n \n Impairment losses on financial assets \n \n \n (41.8) \n \n \n (162.2) \n \n \n (74) \n \n \n \n \n Adjusted operating profit \n \n \n 111.7 \n \n \n 15.0 \n \n \n 645 \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 153.5 \n \n \n 177.2 \n \n \n (13) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 7.5% \n \n \n 8.0% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 58% \n \n \n 51% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.9% \n \n \n 3.6% \n \n \n \n \n \n \n \n Return on net loan book \n \n \n 2.3% \n \n \n 0.3% \n \n \n \n \n \n \n \n Return on opening equity \n \n \n 12.3% \n \n \n 1.1% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets \n \n \n 9,893.0 \n \n \n 9,041.0 \n \n \n 9 \n \n \n \n \n Key Financials (Excluding Novitas) \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 360.3 \n \n \n 349.9 \n \n \n 3 \n \n \n \n \n Adjusted operating expenses \n \n \n (209.2) \n \n \n (182.4) \n \n \n 15 \n \n \n \n \n Impairment losses on financial assets \n \n \n (39.6) \n \n \n (47.6) \n \n \n (17) \n \n \n \n \n Adjusted operating profit \n \n \n 111.5 \n \n \n 119.9 \n \n \n (7) \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 151.1 \n \n \n 167.5 \n \n \n (10) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 7.5% \n \n \n 7.8% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 58% \n \n \n 51% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.8% \n \n \n 1.1% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets \n \n \n 9,830.3 \n \n \n 8,979.1 \n \n \n 9 \n \n \n \n \n Continued demand and loan book growth across our businesses, as we maintained our pricing discipline and improved underlying credit performance \n The market backdrop has been mixed in the first half. Whilst we have seen some improvement in macroeconomic indicators, economic headwinds remain as interest rates have stabilised at higher levels and inflation persists. Notwithstanding the uncertainty this creates for individuals and SMEs, we continued to support our customers and lend through the cycle as we consistently applied our prudent underwriting and pricing discipline. \n Banking adjusted operating profit increased to £111.7 million (H1 2023: £15.0 million), with the prior year period including an impairment charge of £114.6 million in relation to Novitas. On a pre-provision basis, adjusted operating profit decreased 13% to £153.5 million (H1 2023: £177.2 million). \n Excluding Novitas, Banking adjusted operating profit decreased 7% to £111.5 million (H1 2023: £119.9 million), as income growth and lower impairment charges were more than offset by higher costs. \n The loan book grew 4% in the first half to £9.9 billion (31 July 2023: £9.5 billion), driven by strong growth in Property and continued good demand in Asset Finance and the UK Motor Finance business, partly offset by the normal seasonal impact seen in the Premium and Invoice Finance businesses. \n Excluding the businesses in run-off, Novitas and the legacy Republic of Ireland Motor Finance, the loan book grew 5% to £9.7 billion (31 July 2023: £9.3 billion). \n Operating income increased marginally to £365.3 million (H1 2023: £363.9 million), reflecting loan book growth and strong margins, whilst the prior year period benefitted from movements in derivatives outside of a hedge accounting relationship (mark-to-market swaps) (£7 million benefit in H1 2023 versus £4 million adverse impact in H1 2024) and Novitas income (£14 million in H1 2023 versus £5 million income in H1 2024). Excluding the impact of these movements in derivatives and Novitas, operating income grew 6%, driven by loan book growth. \n Whilst we remained focused on pricing discipline and optimising the group's liability mix and funding costs in the higher rate environment, the net interest margin decreased to 7.5% (H1 2023: 8.0%, 2023: 7.7%) on a reported basis, primarily reflecting the impact of the derivatives not designed as hedging instruments and Novitas benefitting the prior year period. Excluding the impact of these items, the net interest margin was broadly stable at 7.6% (H1 2023: 7.7%, H2 2023: 7.6%). We are well positioned to maintain a strong net interest margin and pass on higher cost of funds as we remain focused on asset pricing. \n Across the Banking division, we have invested to support our relationship-based model and make our experts even more valuable. We have recently completed the Asset Finance transformation programme, which has introduced a single platform across the business, standardising processes, increasing efficiencies and improving customer insights. Through the investment made in the Motor Finance business, we have created the ability to partner with more finance technology providers, such as iVendi and AutoConvert, as well as increasing capability from existing providers, resulting in an uplift in finance proposal volumes and giving us access to a wider pool of motor retailers. We continue to build on the investment made in our Savings business to grow our deposit base and customer numbers. Furthermore, following a programme to implement the requirements of the FCA's Consumer Duty, our focus remains on embedding compliance and implementing Consumer Duty changes for books of business not open to new customers. We continue to see investment through the cycle as vital in protecting our model, enhancing efficiency and future-proofing our income generation capabilities. \n Although operating expenses increased 13% to £211.8 million (H1 2023: £186.7 million), when looking at consecutive halves, we incurred a higher rate of cost growth in the second half of the 2023 financial year (9% / £16.3 million increase) compared to the first half of 2024 (4% / £8.8 million increase). This was mainly due to the timing of investment spend over the period. \n The overall increase in operating expenses was driven by higher staff costs to reflect inflation-related salary rises and new hires, investment in our strategic programmes and cost saving initiatives, volume and activity-driven growth, and the acquisition of Bluestone Motor Finance. This was partially offset by efficiency savings. We also incurred additional costs related to the handling of heightened complaint volumes in Motor Finance. The expense/income ratio increased to 58% (H1 2023: 51%) and the compensation ratio rose to 32% (H1 2023: 29%), reflecting the normalisation of performance-driven bonuses. \n We remain on track to deliver c.8-10% growth in Banking costs in the 2024 financial year, excluding costs related to the recently announced acquisition of Bluestone Motor Finance (Ireland). We expect growth in the Banking cost base over the 2024 financial year to be driven primarily by volume and activity-driven growth, inflationary-related increases and higher resulting compensation, investment spend and c.£10 million of costs related to the heightened volume of complaints in the Motor Finance business regarding historical discretionary commission arrangements. This increase is being partly offset by the progress we have made on our tactical and strategic cost management initiatives. We expect to incur c.£8 million (2023: £8.7 million) of costs related to Novitas as we continue to wind down the business. \n In addition to this growth, we expect to incur c.£7 million of costs over the 2024 financial year in relation to the acquisition, integration and running of Bluestone Motor Finance (Ireland), which completed in October 2023. \n We have made good progress on our strategic cost management initiatives. Our technology transformation programme, initiated in 2023, aims to simplify our technology estate as well as consolidating and increasing our use of outsourcing. As part of this, we have already removed 83 IT applications, with more in the pipeline, and reduced our headcount by c.100. \n In the period we have mobilised further cost management initiatives to support the ongoing profitability of the business, particularly in light of the capital actions and their expected impact on future income. These include rationalising our third party suppliers and property footprint, and adjusting our workforce to drive increased efficiency and effectiveness. We expect these measures to deliver annualised savings of £20 million by the 2026 financial year. \n With the benefit of these additional measures, we remain committed to more closely aligning income and cost growth (excluding any restructuring costs) in the 2025 financial year, and delivering positive operating leverage over the medium term. \n Impairment charges decreased significantly to £41.8 million (H1 2023: £162.2 million), corresponding to an annualised bad debt ratio of 0.9% (H1 2023: 3.6%), with the prior year period including a charge of £114.6 million in relation to Novitas. Overall provision coverage increased marginally to 4.1% (31 July 2023: 3.9%). \n Excluding Novitas, impairment charges reduced 17% to £39.6 million (H1 2023: £47.6 million), mainly driven by the improved macroeconomic outlook compared to the prior year period, partly offset by loan book growth and the ongoing review of provisions and coverage across our loan portfolios. The bad debt ratio, excluding Novitas, reduced to 0.8% annualised (H1 2023: 1.1%) and remains below our long-term bad debt ratio of 1.2%. The coverage ratio remained stable at 2.1% (31 July 2023: 2.1%), excluding Novitas. \n Whilst we have not seen a significant impact on credit performance, we continue to monitor closely the evolving impacts of inflation and cost of living on our customers. We remain confident in the quality of our loan book, which is predominantly secured or structurally protected, prudently underwritten, diverse, and supported by the deep expertise of our people. We continue to expect the bad debt ratio for H2 2024 to remain below our long-term average, based on current market conditions. \n Progress on resolving issues relating to Novitas \n   \n The decision was made to wind down Novitas and withdraw from the legal services financing market following a strategic review in July 2021, which concluded that the overall risk profile of the business was no longer compatible with our long-term strategy and risk appetite. As announced in H1 2023, we have accelerated our efforts to resolve the issues surrounding this business. We continue to pursue formal legal action against one of the After the Event (\"ATE\") insurers and have entered into a settlement with another smaller ATE insurer. \n We recognised impairment charges of £2.2 million in relation to Novitas in the first half, mainly comprising legal costs. While we will continue to review provisioning levels in light of future developments, including the experienced credit performance of the book and the outcome of the group's initiated legal action, we believe the provisions adequately reflect the remaining risk of credit losses for the Novitas loan book (c.£63 million net loan book at 31 January 2024). \n In addition, in line with IFRS 9 requirements, a proportion of the expected credit loss is expected to unwind, over the estimated time to recovery period, to interest income. The group remains focused on maximising the recovery of remaining loan balances, either through successful outcome of cases or recourse to the customers' ATE insurers, whilst complying with its regulatory obligations and always focusing on ensuring good customer outcomes. We expect net income related to Novitas to reduce from £18.9 million in 2023 to c.£10 million in 2024. \n Loan Book Analysis \n \n \n \n \n \n \n \n 31 January 2024 \n \n \n 31 July 2023 \n \n \n Change \n \n \n \n \n \n \n \n £ million \n \n \n £ million \n \n \n % \n \n \n \n \n Commercial \n \n \n 5,028.5 \n \n \n 4,821.3 \n \n \n 4 \n \n \n \n \n Commercial - Excluding Novitas \n \n \n 4,965.8 \n \n \n 4,761.4 \n \n \n 4 \n \n \n \n \n Asset Finance 1 \n \n \n 3,687.8 \n \n \n 3,481.3 \n \n \n 6 \n \n \n \n \n Invoice and Speciality Finance 1 \n \n \n 1,340.7 \n \n \n 1,340.0 \n \n \n - \n \n \n \n \n Invoice and Speciality Finance - Excluding Novitas 1 \n \n \n 1,278.0 \n \n \n 1,280.1 \n \n \n - \n \n \n \n \n Retail \n \n \n 3,025.9 \n \n \n 3,001.8 \n \n \n 1 \n \n \n \n \n Motor Finance 2 \n \n \n 1,984.0 \n \n \n 1,948.4 \n \n \n 2 \n \n \n \n \n Premium Finance \n \n \n 1,041.9 \n \n \n 1,053.4 \n \n \n (1) \n \n \n \n \n Property \n \n \n 1,838.6 \n \n \n 1,703.1 \n \n \n 8 \n \n \n \n \n Closing loan book and operating lease assets 3 \n \n \n 9,893.0 \n \n \n 9,526.2 \n \n \n 4 \n \n \n \n \n Closing loan book and operating lease assets - Excluding Novitas \n \n \n 9,830.3 \n \n \n 9,466.3 \n \n \n 4 \n \n \n \n \n 1. The Asset Finance and Invoice and Speciality Finance loan books have been re-presented for 31 July 2023 to reflect the recategorization of Close Brothers Brewery Rentals (\"CBBR\") from Invoice and Speciality Finance to Asset Finance. \n 2. The Motor Finance loan book includes £144.5 million (31 July 2023: £206.7million) relating to the Republic of Ireland Motor Finance business, which is in run-off following the cessation of our previous partnership in the Republic of Ireland from 30 June 2022. \n 3. Includes operating lease assets of £282.0 million (31 July 2023: £271.2 million). \n Focus on disciplined growth \n During the first half, we remained focused on delivering disciplined growth whilst prioritising our margins and credit quality, with our growth initiatives delivering a significant contribution of loan book growth. \n The loan book grew 4% in the six months since 31 July 2023 to £9.9 billion (31 July 2023: £9.5 billion). This reflected strong growth in Property and continued good demand in Asset Finance and the UK Motor Finance business. This was partly offset by the normal seasonal impact seen in the Premium and Invoice Finance businesses, and the run-off of the legacy Republic of Ireland Motor Finance loan book. \n Excluding the businesses in run-off, Novitas and the legacy Republic of Ireland Motor Finance business, the loan book grew 5% to £9.7 billion (31 July 2023: £9.3 billion). \n The Commercial loan book grew 4% to £5.0 billion (31 July 2023: £4.8 billion), despite the roll-off of government supported lending under schemes such as the Coronavirus Business Interruption Loan Scheme (\"CBILS\"). Asset Finance delivered loan book growth of 6%, with strong new business volumes in the Leasing business particularly from the Contract Hire, Energy and Materials Handling portfolios. Invoice and Speciality Finance was broadly stable reflecting the normal seasonal impact in the first half, notwithstanding a slight uptick in Invoice Finance utilisation. Excluding Novitas, the Commercial book increased 4% to £5.0 billion (31 July 2023: £4.8 billion). \n The Retail loan book grew 1% to £3.0 billion (31 July 2023: £3.0 billion). Motor Finance increased 2%, with growth in the UK Motor Finance business more than offsetting the decline in the legacy Republic of Ireland loan book following the cessation of our previous partnership in June 2022. Following the acquisition of Bluestone Motor Finance (Ireland), which completed in October 2023, the Motor Finance business is re-building its presence in the Republic of Ireland with a loan book of £16 million at 31 January 2024. The Premium Finance loan book has achieved record levels in the first half, with strong demand from customers alongside continued premium inflation. However, the book contracted 1% since 31 July 2023 due to normal seasonality. \n The legacy Republic of Ireland Motor Finance business accounted for 7% of the Motor Finance loan book (31 July 2023: 11%) and 1% of the Banking loan book (31 July 2023: 2%). \n The Property loan book grew 8% as we saw strong drawdowns from our healthy new business pipeline in the first half, with the stabilisation of interest rates and improving market sentiment. \n We expect to broadly sustain underlying loan book growth in the second half of the 2024 financial year. \n   \n   \n   \n Banking: Commercial \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 168.5 \n \n \n 182.3 \n \n \n (8) \n \n \n \n \n Adjusted operating expenses \n \n \n (103.0) \n \n \n (92.9) \n \n \n 11 \n \n \n \n \n Impairment losses on financial assets \n \n \n (14.6) \n \n \n (122.5) \n \n \n (88) \n \n \n \n \n Adjusted operating profit \n \n \n 50.9 \n \n \n (33.1) \n \n \n (254) \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 65.5 \n \n \n 89.4 \n \n \n (27) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 6.8% \n \n \n 8.0% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 61% \n \n \n 51% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.6% \n \n \n 5.4% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets 1 \n \n \n 5,028.5 \n \n \n 4,550.3 \n \n \n 11 \n \n \n \n \n Commercial key metrics excluding Novitas \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 163.5 \n \n \n 168.3 \n \n \n (3) \n \n \n \n \n Adjusted operating expenses \n \n \n (100.4) \n \n \n (88.6) \n \n \n 13 \n \n \n \n \n Impairment losses on financial assets \n \n \n (12.4) \n \n \n (7.9) \n \n \n 57 \n \n \n \n \n Adjusted operating profit \n \n \n 50.7 \n \n \n 71.8 \n \n \n (29) \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 63.1 \n \n \n 79.7 \n \n \n (21) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 6.7% \n \n \n 7.6% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 61% \n \n \n 53% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.5% \n \n \n 0.4% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets 1 \n \n \n 4,965.8 \n \n \n 4,488.4 \n \n \n 11 \n \n \n \n \n 1. Operating lease assets of £282.0 million (31 July 2023: £271.2 million). \n Good demand in Commercial as we continued to support our SME customers \n The Commercial businesses provide specialist, predominantly secured lending principally to the SME market and include Asset Finance and Invoice and Speciality Finance. We finance a diverse range of sectors, with Asset Finance offering commercial asset financing, hire purchase and leasing solutions across a broad range of assets including commercial vehicles, machine tools, contractors' plant, printing equipment, company car fleets, energy project finance, and aircraft and marine vessels, as well as our Vehicle Hire and Brewery Rentals businesses. The Invoice and Speciality Finance business provides debt factoring, invoice discounting and asset-based lending, and also includes Novitas. As previously announced, Novitas ceased lending to new customers in July 2021. \n Despite market uncertainty persisting in the period, the diversity of our offering has resulted in customer demand remaining strong. We reached a significant milestone in the first half, with the Commercial loan book exceeding £5 billion following good new business volumes. Our new initiatives continue to prove successful, with the agricultural equipment and materials handling teams both having written healthy levels of new business, and our second syndication deal completed by Invoice Finance. \n Adjusted operating profit for Commercial increased to £50.9 million (H1 2023: loss of £33.1 million), reflecting a significant decrease in impairment charges. On a pre-provision basis, adjusted operating profit reduced 27% to £65.5 million (H1 2023: £89.4 million). \n Excluding Novitas, adjusted operating profit decreased 29% to £50.7 million (H1 2023: £71.8 million), mainly driven by cost growth. \n Operating income reduced 8% to £168.5 million (H1 2023: £182.3 million) as the benefit from loan book growth was offset by pressure on margin on new business in Asset Finance and a reduction in Novitas income. The net interest margin decreased to 6.8% (H1 2023: 8.0%) as we sought to balance the repricing of new business written in Asset Finance with our focus on maintaining support to our customers impacted by the higher inflationary environment. In addition, loan book growth mix in the first half reflected increased new business levels in some of our portfolios with larger loan sizes and lower margin, such as Energy. Excluding Novitas, the net interest margin decreased to 6.7% (H1 2023: 7.6%). \n Operating expenses grew 11% to £103.0 million (H1 2023: £92.9 million), driven by higher staff costs and investment spend as we completed the Asset Finance transformation programme. This was partly offset by lower costs in relation to Novitas. As a result, the expense/income ratio increased to 61% (H1 2023: 51%). \n Impairment charges decreased significantly to £14.6 million (H1 2023: £122.5 million), with £114.6 million incurred in relation to Novitas in the prior year period. Provision coverage increased slightly to 5.4% (31 July 2023: 5.2%). \n Excluding Novitas, impairment charges rose to £12.4 million (H1 2023: £7.9 million), reflecting loan book growth and the ongoing review of provisions and coverage. This resulted in a bad debt ratio of 0.5% annualised (H1 2023: 0.4%). The coverage ratio remained broadly stable at 1.5% (31 July 2023: 1.4%), excluding Novitas. \n Banking: Retail \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 131.8 \n \n \n 123.2 \n \n \n 7 \n \n \n \n \n Operating expenses \n \n \n (90.8) \n \n \n (79.1) \n \n \n 15 \n \n \n \n \n Impairment losses on financial assets \n \n \n (22.0) \n \n \n (29.4) \n \n \n (25) \n \n \n \n \n Operating profit \n \n \n 19.0 \n \n \n 14.7 \n \n \n 29 \n \n \n \n \n Operating profit, pre provisions \n \n \n 41.0 \n \n \n 44.1 \n \n \n (7) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 8.7% \n \n \n 8.2% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 69% \n \n \n 64% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 1.5% \n \n \n 1.9% \n \n \n \n \n \n \n \n Closing loan book 1 \n \n \n 3,025.9 \n \n \n 2,970.3 \n \n \n 2 \n \n \n \n \n 1. The Motor Finance loan book includes £144.5 million (31 July 2023: £206.7 million) relating to the legacy Republic of Ireland Motor Finance business, which is in run-off following the cessation of our previous partnership in the Republic of Ireland from 30 June 2022. \n Continued focus on prioritising our margins and underwriting discipline \n The Retail businesses provide intermediated finance, through motor dealers, motor finance brokers and insurance brokers. Finance is provided to both individuals and to a broad spectrum of UK businesses. \n Although the backdrop remained mixed in the first half, we delivered a good performance overall. In Motor Finance, we saw a significant year-on-year increase in new business volumes as we increased our routes to market through new intermediaries, emerging channels and consumer brands, in line with our ethos of being where the consumer chooses finance. The acquisition of Bluestone Motor Finance is providing a platform for us to re-build our Motor Finance business in the Republic of Ireland. In Premium Finance, we remain focused on providing excellent service levels to both our customers and partners in the purchase of insurance. We continue to enhance our proposition to support our broker partners and their customers, be they individuals or businesses. We have continued to focus on providing insight and capabilities to our partners to aid them in delivering improved outcomes. \n Operating profit for Retail increased to £19.0 million (H1 2023: £14.7 million), as income growth and lower impairment charges more than offset higher costs. On a pre-provision basis, operating profit reduced 7% to £41.0 million (H1 2023: £44.1 million). \n Operating income increased 7% to £131.8 million (H1 2023: £123.2 million), reflecting growth in the Premium Finance loan book compared to the prior year period and a recovery in the net interest margin to 8.7% (H1 2023: 8.2%) following the absorption of funding increases last year.  \n Operating expenses rose 15% to £90.8 million (H1 2023: £79.1 million), driven mainly by additional costs related to the handling of heightened complaint volumes in Motor Finance, as well as higher staff costs and the acquisition of Bluestone Motor Finance. As a result, the expense/income ratio increased to 69% (H1 2023: 64%). \n As previously outlined, the FCA is conducting a review of historical motor finance commission arrangements and sales at several firms, following high numbers of complaints from customers. The estimated impact of any redress scheme, if required, is highly dependent on a number of factors and as such, at this early stage, the timing, scope and quantum of a potential financial impact on the group, if any, cannot be reliably estimated at present. We continue to monitor the impact on our current handling of complaints and are following the playbooks in place to ensure we have the appropriate resources to respond effectively. We expect to incur costs of c.£10 million in the 2024 financial year in relation to the heightened volume of complaints. \n Impairment charges reduced to £22.0 million (H1 2023: £29.4 million), resulting in an annualised bad debt ratio of 1.5% (H1 2023: 1.9%). This was driven primarily by an improvement in the macroeconomic outlook compared to the prior year period, partly offset by model refinements. As reported previously, following an increase in arrears in Motor Finance in the first half of the 2023 financial year, they have since remained stable, albeit at a higher level than pre-pandemic, reflecting cost of living pressures on our customers. The provision coverage ratio remained stable at 2.9% (31 July 2023: 2.9%). \n We remain confident in the credit quality of the Retail loan book. The Motor Finance loan book is predominantly secured on second hand vehicles which are less exposed to depreciation or significant declines in value than new cars. Our core Motor Finance product remains hire-purchase contracts, with less exposure to residual value risk associated with Personal Contract Plans (\"PCP\"), which accounted for c.9% of the Motor Finance loan book at 31 January 2024 (c.9% at 31 July 2023). The Premium Finance loan book benefits from various forms of structural protection including premium refundability and, in most cases, broker recourse for the personal lines product. \n Banking: Property \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 65.0 \n \n \n 58.4 \n \n \n 11 \n \n \n \n \n Operating expenses \n \n \n (18.0) \n \n \n (14.7) \n \n \n 22 \n \n \n \n \n Impairment losses on financial assets \n \n \n (5.2) \n \n \n (10.3) \n \n \n (50) \n \n \n \n \n Operating profit \n \n \n 41.8 \n \n \n 33.4 \n \n \n 25 \n \n \n \n \n Operating profit, pre provisions \n \n \n 47.0 \n \n \n 43.7 \n \n \n 8 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 7.3% \n \n \n 7.8% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 28% \n \n \n 25% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.6% \n \n \n 1.4% \n \n \n \n \n \n \n \n Closing loan book \n \n \n 1,838.6 \n \n \n 1,520.4 \n \n \n 21 \n \n \n \n \n Strong drawdowns from our healthy pipeline driving loan book growth \n Property comprises Property Finance and Commercial Acceptances. The Property Finance business is focused on specialist residential development finance to established professional developers in the UK. Commercial Acceptances provides bridging loans and loans for refurbishment projects. \n This half year has seen some cautious optimism returning to the UK property market, following a slowdown in the prior year. Whilst some economic headwinds remain, a stabilisation of interest rates has led to improved buyer sentiment and is supporting residential developers in making investment decisions. Although we have seen some pressure on our lending margins, we remain focused on retaining our pricing discipline and relationship-led proposition, supporting our clients through-the-cycle. We have continued to see good demand for initiatives including our regional expansion, our enhanced loan-to-value product and our partnership with Travis Perkins, which enables SME housebuilders to access discounted building supplies and materials directly via a credit facility. Our pipeline remains strong at c.£1.1 billion. \n Operating profit increased 25% to £41.8 million (H1 2023: £33.4 million), as income growth and a reduction in impairment charges more than offset an increase in operating expenses. On a pre-provision basis, operating profit increased 8% to £47.0 million (H1 2023: £43.7 million). \n Operating income rose 11% to £65.0 million (H1 2023: £58.4 million), driven by strong loan book growth, although the net interest margin decreased to 7.3% (H1 2023: 7.8%), mainly reflecting lower fee yields than the prior period. \n Operating expenses increased to £18.0 million (H1 2023: £14.7 million), reflecting higher staff costs. As a result, the expense/income ratio increased to 28% (H1 2023: 25%). \n Impairment charges decreased to £5.2 million (H1 2023: £10.3 million), resulting in an annualised bad debt ratio of 0.6% (H1 2023: 1.4%). This was driven by lower impairment charges to reflect an improvement in macroeconomic variables and outlook, partly offset by loan book growth and an ongoing review of provisions and coverage, which included increased specific provisions for existing single names. The provision coverage ratio remained broadly stable at 2.5% (31 July 2023: 2.4%). \n The Property loan book is conservatively underwritten. We work with experienced, professional developers, predominantly SMEs with a focus on delivering mid-priced family housing, and have minimal exposure to the prime central London market, with our regional loan book making up over 50% of the Property Finance portfolio. Our long track record, expertise and quality of service ensure the business remains resilient to competition and continues to generate high levels of repeat business. \n Asset Management \n Key Financials 1 \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Investment management \n \n \n 61.3 \n \n \n 54.2 \n \n \n 13 \n \n \n \n \n Advice and other services \n \n \n 14.0 \n \n \n 15.7 \n \n \n (11) \n \n \n \n \n Other income 2 \n \n \n 1.0 \n \n \n 1.1 \n \n \n (9) \n \n \n \n \n Operating income \n \n \n 76.3 \n \n \n 71.0 \n \n \n 7 \n \n \n \n \n Adjusted operating expenses 1 \n \n \n (70.0) \n \n \n (62.4) \n \n \n 12 \n \n \n \n \n Impairment losses on financial assets \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Adjusted operating profit \n \n \n 6.3 \n \n \n 8.6 \n \n \n (27) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Revenue margin (bps) \n \n \n 84 \n \n \n 83 \n \n \n \n \n \n \n \n Operating margin \n \n \n 8% \n \n \n 12% \n \n \n \n \n \n \n \n Return on opening equity \n \n \n 7.6% \n \n \n 13.1% \n \n \n \n \n \n \n \n 1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the performance of the group's acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect underlying trading performance. Further detail on the reconciliation between operating and adjusted measures can be found in note 2. \n 2. Other income includes net interest income and expense, income on principal investments and other income. \n Well placed to build on successful growth \n Close Brothers Asset Management provides personal financial advice and investment management services to private clients in the UK, including full bespoke management, managed portfolios and funds, distributed both directly via our advisers and investment managers, and through third party financial advisers. \n Total operating income rose 7% to £76.3 million (H1 2023: £71.0 million), reflecting positive net inflows and market movements, with growth in AuM delivered by our bespoke investment management business resulting in higher investment management income. As a result, the revenue margin increased marginally to 84bps (H1 2023: 83bps). \n Adjusted operating expenses increased 12% to £70.0 million (H1 2023: £62.4 million), reflecting higher staff costs mainly due to investment in new hires and inflation-related salary increases. Of this, £5.0 million (H1 2023: £3.3 million) of costs related to the hiring of investment managers and the associated AuM in the bespoke investment management business. The expense/income ratio grew to 92% (H1 2023: 88%), with the compensation ratio also increasing to 63% (H1 2023: 58%). Our previous investments in technology have driven increased efficiency and operational resilience, whilst also improving client experience.  \n Adjusted operating profit in CBAM decreased 27% to £6.3 million (H1 2023: £8.6 million), as growth in income was more than offset by higher costs. The operating margin reduced to 8% (H1 2023: 12%), corresponding to 15% (H1 2023: 17%) when excluding the costs related to the hiring of investment managers and the associated AuM in the bespoke investment management business. Statutory operating profit before tax was £5.7 million (H1 2023: £7.8 million). \n CBAM has a strong track record of growth, with healthy net inflows delivered by successfully serving existing clients and attracting new clients, combined with building new investment teams and acquiring selective IFA businesses. The business remains closely aligned with long-term structural growth opportunity presented by the wealth management industry and continues to be an attractive franchise for both portfolio managers and clients. \n We continued to deliver growth in the first half through the hiring of nine bespoke investment managers (H1 2023: five).  Following a period of strong growth in our Bespoke business, our priority in this channel is now to consolidate our position and maximise opportunities to accelerate our profitability, shifting our focus to selective bespoke investment management hiring only. In our Wealth Planning business, we announced the acquisition of Bottriell Adams in December 2023. \n We have recently completed a refresh of our brand, reflecting CBAM's four values of Clients, People, Integrity, and Excellence. We offer an attractive proposition built around these values, with almost 90 financial planners and over 75 bespoke investment managers across 15 locations around the UK focused on providing excellent service. \n   \n Strong net inflows notwithstanding economic uncertainty \n Notwithstanding the uncertainty around the economic outlook in the first quarter, we saw an uptick in equity markets and in turn, investor sentiment in the second quarter. Over the period, we saw strong net inflows of £732 million (H1 2023: £474 million) and delivered an annualised net inflow rate of 9% (H1 2023: 6%), with the bespoke investment management business contributing significantly to the overall inflow rate. This momentum has continued since the first half, with the annualised net inflow rate unchanged at 9% at the end of February 2024. \n Total managed assets increased 8% to £17.7 billion (31 July 2023: £16.4 billion), driven by strong net inflows and positive market performance. Total client assets, which includes advised and managed assets, also increased by 7% to £18.5 billion (31 July 2023: £17.3 billion). \n In December 2023, we announced the acquisition of Bottriell Adams, an IFA business based in Dorset with approximately £220 million of assets. Bottriell Adams' partners, financial planners and support team joined us as part of the acquisition, as CBAM extends its regional presence in the South West. The acquisition completed in March and the associated client assets will be reflected in AuA in the second half of the year. \n Whilst substantive compliance with the FCA's Consumer Duty requirements has been achieved, our focus remains on embedding compliance and ensuring the appropriate frameworks and governance are in place to monitor good customer outcomes. We continue to assess the value for money that CBAM's funds provide annually and are comfortable with the current fees payable. \n Movement in Client Assets \n \n \n \n \n \n \n \n Six months to \n 31 January   \n 2024 \n £ million \n \n \n 12 months to \n 31 July  \n 2023 \n £ million \n \n \n Six months to \n 31 January  \n 2023 \n £ million \n \n \n \n \n Opening managed assets \n \n \n 16,419 \n \n \n 15,302 \n \n \n 15,302 \n \n \n \n \n Inflows \n \n \n 1,621 \n \n \n 2,729 \n \n \n 1,155 \n \n \n \n \n Outflows \n \n \n (889) \n \n \n (1,411) \n \n \n (681) \n \n \n \n \n Net inflows \n \n \n 732 \n \n \n 1,318 \n \n \n 474 \n \n \n \n \n Market movements \n \n \n 524 \n \n \n (201) \n \n \n (61) \n \n \n \n \n Total managed assets \n \n \n 17,675 \n \n \n 16,419 \n \n \n 15,715 \n \n \n \n \n Advised only assets \n \n \n 872 \n \n \n 907 \n \n \n 1,196 \n \n \n \n \n Total client assets 1 \n \n \n 18,547 \n \n \n 17,326 \n \n \n 16,911 \n \n \n \n \n Annualised net flows as % of opening managed assets \n \n \n 9% \n \n \n 9% \n \n \n 6% \n \n \n \n \n 1. Total client assets include £5.0 billion of assets (31 July 2023: £4.9 billion) that are both advised and managed. \n Fund performance \n Our funds and segregated bespoke portfolios are designed to provide attractive risk-adjusted returns for our clients, consistent with their long-term goals and investment objectives. Fund performance in the first half has been good across asset classes, with all our funds delivering positive absolute returns during the period, and most of our funds outperforming their peer group. Given the uncertain market conditions seen, particularly in the first quarter, these results demonstrate the strength of our investment team. \n Our sustainable funds and Net Zero commitment \n At CBAM, we believe that sustainability is an important part of achieving excellence and building wealth for our clients. Our approach to responsible investment is to continue to integrate the evaluation of material ESG factors within our investment research process over time, with the goal of widening our information set to evaluate investments risk and financial return. \n We continue to explore options for enhancing our sustainable offering, which includes ethical screening, sustainable funds and our Socially Responsible Investment Service. Our Sustainable Select Fixed Income fund, which utilises a sustainable investment methodology to target a reduction in CO 2 emissions intensity versus its benchmark, has seen good traction since its creation in March 2023 and we continue to see strong inflows into this product. \n We became signatories to the Net Zero Asset Managers initiative in September 2022 and as part of our initial target disclosure, committed to 18% of our AuM being in line with net zero by 2050.  \n Well positioned to consolidate our position \n Following a period of strong growth, our priority is to consolidate our position and maximise opportunities to accelerate our profitability through providing excellent service, building on the strength of our client relationships, and in our Bespoke business by shifting our focus to only selective hiring of bespoke investment managers. We continue to target net inflows in the range of 6-10% and following a period of significant investment, expect our operating margin to increase from 2025 onwards towards a longer-term target of above 20%. We remain confident that our vertically integrated, multi-channel business model positions us well for ongoing demand for our services and the structural growth opportunity presented by the wealth management industry. \n Winterflood \n Key Financials \n \n \n \n \n \n \n \n First half \n 2024 \n £ million \n \n \n First half \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 34.2 \n \n \n 39.0 \n \n \n (12) \n \n \n \n \n Operating expenses \n \n \n (36.9) \n \n \n (36.6) \n \n \n 1 \n \n \n \n \n Impairment gains on financial assets \n \n \n 0.1 \n \n \n - \n \n \n n/a \n \n \n \n \n Operating (loss) / profit \n \n \n (2.6) \n \n \n 2.4 \n \n \n (208) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Average bargains per day ('000) \n \n \n 52 \n \n \n 61 \n \n \n \n \n \n \n \n Operating margin \n \n \n (8%) \n \n \n 6% \n \n \n \n \n \n \n \n Return on opening equity \n \n \n (4.1%) \n \n \n 3.9% \n \n \n \n \n \n \n \n Loss days \n \n \n 3 \n \n \n 1 \n \n \n \n \n \n \n \n Winterflood Business Services Assets under Administration (billion) \n \n \n 13.8 \n \n \n 12.4 \n \n \n \n \n \n \n \n Uncertain macroeconomic outlook continued to negatively affect trading performance \n Winterflood is a leading UK market maker, delivering high quality execution services to platforms, stockbrokers, wealth managers and institutional investors, as well as providing corporate advisory services to investment trusts and outsourced dealing and custody services via Winterflood Business Services (\"WBS\"). \n In the first half, the market environment, both domestically and globally, remained challenging as UK macroeconomic factors and geopolitical concerns continued to impact investor confidence. With investors able to achieve equity-like returns from money markets and debt instruments, which have a lower risk profile, we have seen relatively subdued trading and Investment Trusts corporate activity. As a result, Winterflood delivered an operating loss of £2.6 million (H1 2023: operating profit of £2.4 million), with broadly stable costs more than offsetting a decline in income.   \n Operating income reduced 12% to £34.2 million (H1 2023: £39.0 million), with the decline in trading income more than offsetting growth in WBS. \n Trading income decreased 19% to £25.6 million (H1 2023: £31.7 million) reflecting the unfavourable market conditions, particularly in the first quarter, as equity and bond prices declined. Whilst performance improved in the second quarter, as central bank monetary policy began to positively impact inflation, the recent dampening of rate cut expectations in the short-term has weighed on market sentiment. Average daily bargains declined 15% to 52k (H1 2023: 61k) in the first half, although we have maintained our market leading position.  \n Notwithstanding low issuance and transaction volumes in the period, income from the Investments Trusts corporate business has increased 31% to £1.7 million (H1 2023: £1.3 million). We are exploring growth opportunities which are additive to the business and remain well placed for when market activity returns. \n WBS continued to see good momentum, with income rising 24% to £7.8 million (H1 2023: £6.3 million). AuA increased 11% year-on-year to £13.8 billion (H1 2023: £12.4bn, 2023: £12.9 billion), supported by positive market movements and net inflows, as equity markets recovered in the second quarter. WBS remains focused on developing its client relationships and investing in its award-winning proprietary technology to provide highly scalable and bespoke solutions for clients. WBS is well positioned for further growth, both organically and supported by a solid pipeline of clients, having exceeded its original target AuA of £10 billion in the 2023 financial year. We remain confident in the o...

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