Half-year Report for six months to 31 January 2025

About this update from Close Brothers Group Plc

[{"type":"text","content":"\n \n   \n Half Year Results for the Six Months to 31 January 2025 \n 18 March 2025                                                                                             \n FOCUSING ON RESILIENCE AND LONG-TERM GROWTH \n Mike Morgan, Chief Executive, said: \n \"The group's performance reflects the strength and resilience of our business model, with robust underlying profit in the Banking business. We have made significant progress on our capital actions, achieving a pro-forma CET1 capital ratio of 13.4% at 31 January 2025, following the sale of Close Brothers Asset Management (\"CBAM\") and despite the impact of a £165 million provision relating to motor finance commissions.\" \n \"At our core, we have been here to serve our customers, deliver excellent service, provide specialist expertise and build strong, lasting relationships over the years. Today we are a trusted partner to UK SMEs, millions of customers, and our dedicated colleagues. Our banking model is more relevant than ever, and aligned with the UK government's growth agenda. We will build on our strong foundations while making the right strategic choices for long-term success. My priorities include focusing on greater simplification, improving operational efficiency, and driving sustainable growth. Our goal is to ensure that, once the motor finance commissions uncertainty has been resolved, the group is well positioned to generate strong, sustainable returns. Alongside a stronger capital position, delivering on these priorities will create a more efficient and resilient business, one that delivers greater value for shareholders and continues to support customers, as we have through many cycles.\" \n Key Financials 1 \n \n \n \n \n   \n \n \n First half \n 2025 \n \n \n First half \n 2024 \n \n \n Change \n % \n \n \n \n \n Operating (loss)/profit before tax 2 \n \n \n £(103.0)m \n \n \n £88.1m \n \n \n (217) \n \n \n \n \n Adjusted operating profit 3 \n \n \n £74.9m \n \n \n £88.1m \n \n \n (15) \n \n \n \n \n Profit from discontinued operations, net of tax 4 \n \n \n £0.3m \n \n \n £3.9m \n \n \n (93) \n \n \n \n \n (Loss)/profit attributable to shareholders and other equity owners \n \n \n £(111.8)m \n \n \n £68.8m \n \n \n (263) \n \n \n \n \n Adjusted basic earnings per share (continuing operations only) 3,5 \n \n \n 30.9p \n \n \n 43.4p \n \n \n (29) \n \n \n \n \n Basic earnings per share (continuing operations only) 5 \n \n \n (82.8p) \n \n \n 42.6p \n \n \n (294) \n \n \n \n \n Basic earnings per share (continuing and discontinued operations) 4,5 \n \n \n (82.1p) \n \n \n 46.0p \n \n \n (278) \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 - \n \n \n \n \n \n \n \n Return on opening equity 6 \n \n \n 6.1% \n \n \n 8.5% \n \n \n \n \n \n \n \n Return on average tangible equity 6 \n \n \n 7.4% \n \n \n 9.9% \n \n \n \n \n \n \n \n Net interest margin 7 \n \n \n 7.3% \n \n \n 7.5% \n \n \n \n \n \n \n \n Bad debt ratio 7 \n \n \n 1.0% \n \n \n 0.9% \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 2025 \n \n \n 31 July \n 2024 \n \n \n Change \n % \n \n \n \n \n Loan book 8 \n \n \n £9.8bn \n \n \n £10.1bn \n \n \n (3) \n \n \n \n \n Net asset value (\"NAV\") per share 9 \n \n \n £10.1 \n \n \n £11.1 \n \n \n (8) \n \n \n \n \n Tangible net asset value (\"TNAV\") per share 9 \n \n \n £8.4 \n \n \n £9.3 \n \n \n (9) \n \n \n \n \n CET1 capital ratio (transitional) \n \n \n 12.2% \n \n \n 12.8% \n \n \n \n \n \n \n \n CET1 capital ratio (transitional) pro-forma after CBAM disposal 10 \n \n \n 13.4% \n \n \n n/a \n \n \n \n \n \n \n \n Tier 1 capital ratio (transitional) \n \n \n 14.1% \n \n \n 14.7% \n \n \n \n \n \n \n \n Total capital ratio (transitional) \n \n \n 16.0% \n \n \n 16.6% \n \n \n \n \n \n \n \n   \n Key Financials (Excluding Novitas) \n \n \n \n \n   \n \n \n First half \n 2025 \n \n \n First half \n 2024 \n \n \n Change \n % \n \n \n \n \n Operating (loss)/profit before tax \n \n \n £(105.6)m \n \n \n £87.9m \n \n \n (220) \n \n \n \n \n Adjusted operating profit \n \n \n £72.3m \n \n \n £87.9m \n \n \n (18) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin 7 \n \n \n 7.2% \n \n \n 7.5% \n \n \n \n \n \n \n \n Bad debt ratio 7 \n \n \n 1.0% \n \n \n 0.8% \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 2025 \n \n \n 31 July \n 2024 \n \n \n Change \n % \n \n \n \n \n Loan book 8 \n \n \n £9.8bn \n \n \n £10.0bn \n \n \n (3) \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Please refer to definitions on pages 75 to 77. \n \n \n \n \n 2. \n \n \n Statutory operating loss in the first half 2025 of £(103.8) million excludes £0.8 million of intercompany transactions relating to discontinued operations. \n \n \n \n \n 3. \n \n \n 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 \"Segmental Analysis\". Please refer to the basis of presentation on page 27 for further information. \n \n \n \n \n 4. \n \n \n Discontinued operations relate to Close Brothers Asset Management, which has been classified as 'discontinued operations' in the group's income statement for the 2024 and 2025 financial years in line with the requirements of IFRS 5. The related assets and liabilities are classified as held for sale on the group's balance sheet at 31 January 2025. Statutory profit from discontinued operations in the first half 2025 of £1.1 million excludes £(0.8) million of intercompany transactions. \n \n \n \n \n 5. \n \n \n Refer to Note 4 \"Earnings per Share\" for the calculation of basic and adjusted earnings per share. \n \n \n \n \n 6. \n \n \n Return on opening equity and return on tangible equity have been restated for first half 2024 to exclude discontinued operations. \n \n \n \n \n 7. \n \n \n Net interest margin and bad debt ratio calculated on an annualised basis. \n \n \n \n \n 8. \n \n \n Loan book includes operating lease assets. \n \n \n \n \n 9. \n \n \n NAV and TNAV per share for H1 24 and H1 25 include discontinued operations. \n \n \n \n \n 10. \n \n \n Pro-forma CET1 capital ratio as at 31 January 2025, reflecting the estimated benefit of c.120 basis points in relation to sale of CBAM. Please refer to page 26 for further information. \n \n \n \n \n \n \n \n \n \n \n \n \n Strategic Highlights: Delivering on our Capital Actions and Strengthening our Underlying Business \n \n \n \n \n • \n \n \n In March 2024, we announced a range of management actions aimed at strengthening the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year. As a result of these actions, approximately £360 million of CET1 capital has been generated or preserved as of 31 January 2025 (relative to the capital trajectory projected at the time) \n \n \n \n \n • \n \n \n The sale of CBAM completed on 28 February 2025 and is estimated to generate a profit on disposal of approximately £59 million and increase the group's CET1 ratio by c.120 bps on a pro-forma basis as at 31 January 2025 from 12.2% to 13.4%. The transaction has simplified the group and allows us to sharpen our focus on our ongoing lending business \n \n \n \n \n • \n \n \n Significant progress has been made on implementing cost management initiatives, as we continue to focus on optimising our cost base, with an additional c.£5 million of annualised savings now expected to be delivered. This increases the estimated total annualised savings to c.£25 million by the end of the current financial year, up from £20 million previously \n \n \n \n \n • \n \n \n We continue to evaluate a range of additional potential management actions to further optimise RWAs, including potential risk transfer of assets in Motor Finance and other portfolios, together with a continuous review of our businesses and portfolios and other tactical actions \n \n \n \n \n Financial Performance \n \n \n \n \n • \n \n \n Operating income reduced 1% to £390.0 million (H1 2024: £394.5 million), with a marginal decline in Banking and lower interest income in Group (central functions) more than offsetting higher income in Winterflood \n \n \n \n \n • \n \n \n Adjusted operating expenses rose marginally to £267.0 million (H1 2024: £264.7 million), as lower costs, reflecting recent cost initiatives in both Banking and Winterflood, were more than offset by higher Group (central functions) expenses \n \n \n \n \n • \n \n \n Adjusted operating profit decreased 15% to £74.9 million (H1 2024: £88.1 million), driven by an increase in impairment charges, as well as a marginal decline in income and slightly higher costs \n \n \n \n \n • \n \n \n The group reported a statutory operating loss before tax of £103.8 million (H1 2024: statutory operating profit before tax of £87.0 million), primarily driven by a £165 million provision in relation to motor finance commissions as well as the impact of complaints handling and other operational and legal costs incurred in relation to motor finance commissions \n \n \n \n \n • \n \n \n Group return on average tangible equity (\"RoTE\") 1 decreased to 7.4% (H1 2024: 9.9%) \n \n \n \n \n • \n \n \n In Banking , the loan book reduced 3% in the first half to £9.8 billion (31 July 2024: £10.1 billion), driven by seasonality and selective lending, as we sought to optimise risk weighted assets and further strengthened our capital position. The net interest margin remained strong at 7.3% (H1 2024: 7.5%). Adjusted operating profit reduced to £104.1 million (H1 2024: £111.7 million) primarily reflecting an increase in the bad debt ratio to 1.0% (H1 2024: 0.9%), which remains below our long-term average, mainly driven by the ongoing review of provisions and coverage across our loan portfolios and compares to a relatively low charge in the comparative period \n \n \n \n \n • \n \n \n Notwithstanding the reduction in the loan book, we continued to benefit from the diversity of our Banking businesses, with customer demand remaining robust and good growth in portfolios including Transport, Motor Finance Ireland and Materials Handling \n \n \n \n \n • \n \n \n In Winterflood , market conditions have remained unfavourable and the business delivered an operating loss of £0.8 million (H1 2024: £2.6 million operating loss); Winterflood Business Services (\"WBS\") income increased 22% to £9.5 million (H1 2024: £7.8 million), with assets under administration (\"AuA\") up 27% to £17.5 billion (H1 2024: £13.8 billion) \n \n \n \n \n • \n \n \n We maintained a strong balance sheet position with our Common Equity Tier 1 (\"CET1\") ratio at 12.2% (13.4% on a pro-forma basis) at 31 January 2025 (31 July 2024: 12.8%), significantly above our applicable requirement of 9.7%, despite the impact of the £165 million provision \n \n \n \n \n • \n \n \n We recognised £177.9 million of adjusting items (H1 2024: £nil), consisting of a £165.0 million provision relating to motor finance commissions, £8.4 million reflecting complaints handling and other operational and legal costs incurred in relation to motor finance commissions, £4.0 million of impairment of intangible assets, £0.4 million of restructuring costs and £0.1 million of amortisation of intangible assets on acquisition \n \n \n \n \n • \n \n \n Operating profit before tax from discontinued operations (CBAM) was £4.7 million (H1 2024: £6.3 million). Statutory profit from discontinued operations of £1.1 million (H1 2024: £5.0 million) \n \n \n \n \n • \n \n \n Given the continued significant uncertainty regarding the outcome of the FCA's review of motor finance commission arrangements and the Supreme Court appeals relating to motor finance commissions and any potential financial impact as a result, the group will not pay an interim dividend in respect of the first half of the 2025 financial year \n \n \n \n \n Guidance \n In Banking , we are encouraged by the robust underlying profit performance delivered in the first half \n \n \n \n \n • \n \n \n We will resume selective loan book growth, subject to demand, with modest growth expected in the second half of the 2025 financial year. The loan book at 31 July 2025 is expected to remain broadly flat year-on-year \n \n \n \n \n • \n \n \n We expect the full-year net interest margin to be around 7%, slightly below the first half exit rate of 7.1% \n \n \n \n \n • \n \n \n Banking adjusted operating expenses in the 2025 financial year expected to increase by c.1% on the prior year \n \n \n \n \n • \n \n \n Estimated total annualised cost savings of c.£25 million by the end of the current financial year, up from £20 million previously \n \n \n \n \n • \n \n \n The bad debt ratio is expected to remain below our long-term average of 1.2% in the 2025 financial year \n \n \n \n \n While short-term trading conditions remain challenging, we are confident that Winterflood remains well positioned to benefit when market conditions return. \n \n \n \n \n • \n \n \n Remain focused on diversifying revenue streams \n \n \n \n \n • \n \n \n Expect to grow AuA in WBS to over £20 billion by 2026 \n \n \n \n \n We expect Group (central functions) net expenses to be between £55 million and £60 million in the 2025 financial year, reflecting elevated professional fees and expenses as well as a decline in interest income \n With respect to items recognised as adjusting \n \n \n \n \n • \n \n \n We estimate costs associated with complaints handling and other operational and legal costs to be c.£22 million in the 2025 financial year \n \n \n \n \n • \n \n \n We expect to incur £2-3 million of restructuring costs in the 2025 financial year \n \n \n \n \n   \n In the near-term, we expect to maintain our CET1 capital ratio around the top end of our medium-term target range of 12% to 13% , balancing growth and resilience. \n The reinstatement of dividends will be reviewed once there is further clarity on the financial impact of the FCA review of motor finance commission arrangements and the Supreme Court appeals . \n   \n \n \n \n \n 1. \n \n \n Group return on average tangible equity calculated as adjusted operating profit attributable to ordinary shareholders divided by average total shareholder's equity, excluding intangible assets and other equity instruments. Prior year numbers have been restated to exclude discontinued operations.  \n \n \n \n \n   \n Enquiries \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 Sam Cartwright \n \n \n H/Advisors Maitland \n \n \n 07827 254 561 \n \n \n \n \n   \n A virtual presentation to analysts and investors will be held today at 9.30 am followed by a Q&A session. A webcast and dial-in facility will be available by registering at https://webcasts.closebrothers.com/results/HalfYearResults2025. \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. \n \n \n \n \n Event \n \n \n Date \n \n \n \n \n Third quarter trading update \n \n \n 21 May 2025 \n \n \n \n \n Financial year end \n \n \n 31 July 2025 \n \n \n \n \n Preliminary results 2025 \n \n \n September 2025 \n \n \n \n \n About Close Brothers \n Close Brothers is a leading UK merchant banking group providing lending, deposit taking and securities trading. We employ approximately 3,000 people, principally in the United Kingdom and Ireland. Close Brothers Group plc is listed on the London Stock Exchange. \n Chief Executive's Statement \n I was honoured to assume the position of Group chief executive in January, and I step into this role with a clear focus and determination to address both the challenges and opportunities that lie ahead. We have taken decisive actions to navigate today's volatile environment, and I firmly believe in the strength of our core business and the attributes that have defined this group. \n We have made significant progress in strengthening our capital position, achieving a pro-forma CET1 capital ratio of 13.4% at 31 January 2025, following the sale of CBAM and despite the impact of a £165 million provision relating to motor finance commissions. This reflects our commitment to resilience and ensuring we can navigate the current environment with confidence. I want to thank our customers, colleagues, and shareholders for their continued support. \n Despite the short-term impact of the motor finance commissions uncertainty on our financial performance, our core banking model remains resilient. We continue to deliver a robust underlying profit in our Banking business. \n At our core, we have been here to serve our customers, deliver excellent service, provide specialist expertise and build strong, lasting relationships since 1878. Today we are a trusted partner to UK SMEs, millions of customers, and our dedicated colleagues. Our banking model is more relevant than ever, and aligned with the UK government's growth agenda, which places a strong emphasis on supporting SMEs. Through every economic cycle, we have stood by our customers, and that will not change. \n That said, I recognise that the returns we generate today are not where they need to be, and this must change. That is why I am committed to challenging ourselves and our businesses to drive meaningful improvements. We must build on our strong foundations while making the right strategic choices for long-term success. My priorities include focusing on greater simplification, improving operational efficiency, and driving sustainable growth to ensure we resume the delivery of higher levels of returns. \n The sale of CBAM has simplified the group and allows us to sharpen our focus on our ongoing business. We are actively evaluating our lending mix and portfolios to ensure they maximise returns. While we have made progress on cost savings, our efficiency metrics must improve and there is more to be done. I have initiated a review to drive a step-change in operational efficiency and cost reduction. These will focus on simplification and modernisation of technology platforms, leveraging of offshore capabilities and cost transformation of centrally provided services. A more efficient, focused group will allow us to reinvest in areas with the greatest growth potential. \n Looking ahead, we see many opportunities across our markets, and are actively evaluating ways to drive growth within our Banking businesses. We remain committed to markets that offer attractive and sustainable risk adjusted returns. \n Alongside a stronger capital position, these steps will create a more efficient and resilient business, one that delivers greater value for shareholders and continues to support customers, as we have through many cycles . \n Our goal is to ensure that, once the motor finance commissions uncertainty has been resolved, the group is well positioned to generate strong, sustainable returns. \n With an experienced leadership team and our relentless commitment to supporting our customers, I am confident in our ability to navigate the road ahead. I look forward to sharing further updates in the months to come. \n Financial Performance \n We reported a statutory operating loss before tax of £103.8 million (H1 2024: statutory operating profit of £87.0 million), primarily driven by the £165 million provision in relation to motor finance commissions. On an adjusted basis, excluding the impact from certain items which do not reflect the underlying performance of our business, the group's operating profit decreased 15% to £74.9 million (H1 2024: £88.1 million) driven by an increase in impairment charges, as well as a marginal decline in income and slightly higher costs. \n In Banking, adjusted operating profit reduced to £104.1 million (H1 2024: £111.7 million), as a reduction in costs was more than offset by an increase in impairment charges and a marginal decline in income, primarily driven by the impact of the temporary pause in UK motor lending. The net interest margin remained strong at 7.3% and credit performance was resilient, with the bad debt ratio 20 basis points below the long-term average at 1.0%. Winterflood delivered an operating loss of £0.8 million (H1 2024: operating loss of £2.6 million), with trading income down as the business continues to navigate a challenging market environment. WBS continued to see good momentum, with income rising 22% to £9.5 million and AuA up 27% to £17.5 billion. \n The group maintained a strong capital, funding and liquidity position. Our CET1 capital ratio was 12.2% at 31 January 2025 (31 July 2024: 12.8%). On a pro-forma basis, reflecting the sale of CBAM, our CET1 capital ratio was 13.4%. Our funding base reduced modestly to £12.7 billion (31 July 2024: £13.0 billion) at 31 January 2025, and we continued to have strong access to funding markets, with retail deposits increasing by 12% in the first six months of the financial year. We adhere to a conservative funding strategy, borrowing long and lending short. Additionally, we have consciously maintained a higher level of liquidity, with a 12-month average liquidity coverage ratio (\"LCR\") of 953%, substantially above regulatory requirements, as at 31 January 2025. \n Delivering on our Capital Actions \n In March 2024, we announced a number of management actions aimed at strengthening the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year. These actions have largely been implemented and, as a result, approximately £360 million of CET1 capital has been generated or preserved as of 31 January 2025 (relative to the capital trajectory projected at the time). \n In March 2024 we took the difficult decision to cancel payment of the 2024 dividend, allowing us to retain c.£100 million of CET1 capital in the 2024 financial year. We have since generated an additional c.£50 million of CET1 capital in the first half of the 2025 financial year, prior to the provision in relation to motor finance commissions. Given the continued significant uncertainty regarding the outcome of the FCA's review of motor finance commission arrangements and the Supreme Court appeals, the group will not pay an interim dividend in respect of the first half of the 2025 financial year. \n We have been lending more selectively to optimise RWAs. Since March 2024, we estimate that a significant volume of additional loans, meeting our credit and pricing requirements, could have been underwritten. This approach is reflected in the year-on-year decline of 1% in our loan book as at 31 January 2025. Relative to our projections at the time, we have mitigated RWA growth by c.£710 million, equivalent to c.£90 million of CET1 capital preservation. \n While we are disappointed not to have been able to pursue these opportunities, we remain confident in our ability to continue to support our customers and selectively grow the loan book in the second half of the financial year, subject to demand. \n We have implemented cost management initiatives to partially offset the financial pressure from capital actions. These initiatives, focusing on Technology, Suppliers and Property, and People, are now expected to deliver total annualised savings of c.£25 million by the end of the current financial year. We remain committed to executing further cost savings as we recognise there is more we can achieve in enhancing our future operational efficiency. \n We successfully completed the sale of CBAM on 28 February 2025. This transaction is expected to increase the group's CET1 capital by c.£120 million or c.120 basis points on a pro-forma basis as at 31 January 2025. \n The estimated CET1 capital ratio benefit excludes any immediate reduction in operational risk RWAs associated with the CBAM business. The group expects a further capital benefit over the next three years of up to c.25 basis points to our CET1 capital ratio on a pro-forma basis as at 31 January 2025, due to a reduction in operational risk RWAs. \n Overall, the implemented management actions have significantly strengthened the group's capital, resulting in a pro-forma CET1 capital ratio of 13.4% at 31 January 2025, significantly above our applicable regulatory requirement of 9.7%. \n In the near-term , we expect to maintain our CET1 capital ratio around the top end of our medium-term target range of 12% to 13%. We will resume selective loan book growth, subject to demand. At the same time, we will continue to evaluate additional potential RWA optimisation opportunities to maintain resilience and flexibility, including a potential risk transfer of assets in Motor Finance and other portfolios, a continuous review of our businesses and portfolios and other tactical actions. \n As previously stated, the decision to reinstate dividends will be reviewed by the board once there is further clarity on the financial impact of the FCA review of motor finance commissions and the Supreme Court appeals. \n   \n Mike Morgan \n Chief Executive \n \n   \n Overview of Developments in relation to Motor Finance Commissions \n On 11 January 2024, the Financial Conduct Authority (\"FCA\") announced a review into historical motor finance discretionary commission arrangements (\"DCAs\"). This review was prompted by high numbers of complaints from customers across the market and followed the Financial Ombudsman Service's (\"FOS\") publication, also on 11 January 2024, of its first two decisions upholding customer complaints relating to DCAs against two other lenders in the market. \n On 25 October 2024, the Court of Appeal published its judgment in respect of Hopcraft v Close Brothers Limited (\"CBL\") (\"Hopcraft\") upholding the appeal brought against CBL. This case, initially determined in CBL's favour, was heard in early July 2024 alongside two other claims against another lender. The group disagrees with the Court of Appeal's findings and, on 11 December 2024, CBL obtained permission to appeal to the Supreme Court. The other lender has also obtained permission to appeal and all cases will be heard at a hearing scheduled for 1 to 3 April 2025 (\"the Supreme Court appeals\"). As has been reported, a number of interested parties applied to intervene in the Supreme Court appeals. The Supreme Court has granted permission to intervene in the appeals to the FCA and the National Franchised Dealers Association (\"NFDA\"). \n On 11 March 2025, the FCA announced that it is no longer planning a further announcement in May 2025 on next steps in its review of historical motor finance commissions, as previously announced, and instead the FCA will confirm within six weeks of the Supreme Court's decision if it will be proposing a redress scheme and, if so, how it will take this forward . The FCA also stated that, depending on the Supreme Court's decision, the FCA may also consult separately on changes to its rules. \n For an overview of commission models operated by Close Brothers Motor Finance over the years, please refer to page 10 of the group's Annual Report 2024 available on the Investor Relations website. \n Provisioning Assessment in relation to Motor Finance Commissions \n In light of recent developments in relation to motor finance commissions, the group has reviewed its accounting assessment of these matters. As a result, the group recognised a provision in relation to motor finance commissions of £165 million in the first half. This includes estimates for certain potential operational and legal costs, as well as estimates for potential remediation for affected customers. The provision is based on probability weighted scenarios using various assumptions. These include, for example, commission models, rates and time periods in scope of any regulatory redress scheme, as well as response and uphold rates. \n   \n The provision is the outcome of a thorough assessment, representing the group's current evaluation based on available information and recent developments. There remains significant uncertainty as to the range of outcomes from the Supreme Court appeals and the FCA's ongoing review of motor finance commissions and, therefore, the ultimate cost to the group could be materially higher or lower than the provision taken. \n   \n Additional details are set out in Note 15 on page 66. \n   \n As a result of the provision taken, the group's CET1 capital ratio reduced by c.150 bps from 13.7% to 12.2% at 31 January 2025.  \n Update on Temporary Pause in Motor Finance and Other Changes Implemented \n As previously announced, we temporarily paused UK motor finance lending on 25 October 2024. Since 2 November 2024, we have gradually resumed new business origination, with all of our lending channels live from January 2025. We expect underwriting volumes to return to levels seen prior to the October pause by Q4 of the 2025 financial year. All new business is written with updated documentation and processes to ensure disclosure of, and customer consent to, our relationship with brokers and commission amounts on finance agreements before customers enter into credit agreements. We have also implemented measures to verify credit brokers' compliance with these new requirements. Used car finance demand remains strong and in line with pre-Hopcraft levels. We estimate the impact from the pause in UK motor finance lending and other related changes to have been a c.£100 million reduction in new business volumes, which would translate to an adverse loan book impact of c.£80 million and c.£4 million reduction in adjusted operating profit (at 31 July 2025). \n   \n While the potential future applicability of the judgment to other intermediated lending businesses remains unclear, we have reviewed documentation and processes and continue to collaborate with brokers and other intermediaries to update disclosures and procedures where appropriate. \n   \n The group operates various distribution models across our business. In Retail, most of our Motor and Premium Finance business is through intermediaries. In Commercial and Property Finance, we operate predominantly through our own direct sales teams. \n Update on Claims and Complaints \n The group is subject to a number of claims through the courts regarding historical motor finance commission arrangements. As noted above, the Supreme Court granted CBL permission to appeal Hopcraft in December 2024, with the hearing scheduled for three days from 1 to 3 April 2025. \n   \n As of 31 January 2025, where individual cases were adjudicated in County Court, the courts found that there was no demonstrable customer harm and hence no compensation to pay in the majority of decided cases for Close Brothers. Nevertheless, there have been only a limited number of adjudicated cases at this time and the majority of cases have been stayed pending a determination of the Supreme Court appeals. \n   \n There are also a number of complaints that have been referred to the FOS for a determination. To date, no final FOS decisions have been made upholding complaints against Close Brothers relating to motor finance commission arrangements. On 9 May 2024, the FOS announced that it would be unlikely to be able to issue final decisions on motor finance commission cases for some time due to the potential impact of an appeal regarding a judicial review proceeding started by another lender in relation to one of its January 2024 decisions and also the hearing of the Hopcraft appeal. The FCA has also extended the time firms have to respond to complaints about motor finance involving both DCAs and non-DCAs until after 4 December 2025. \n   \n Since the announcement by the FCA of its review of historical motor finance commission arrangements in January 2024, we have seen a further increase in enquiries and complaints. We have also taken steps to enhance our operational capabilities to respond to increased complaints volumes and potential changes such as the implementation of a consumer redress scheme, if required. In the first half of 2025, we have incurred £8.4 million of costs associated with complaints handling and other operational and legal costs in relation to motor finance commissions. This included increased resourcing to manage complaints and legal expenses. In the 2025 financial year, we estimate these costs will be c.£22 million, ahead of the previously provided guidance of £10-15 million as a result of additional costs associated with the Supreme Court appeals. We continue to monitor the impact on our current handling of these complaints to ensure we have the appropriate resources to respond effectively. \n Temporary Impacts of Motor Finance Commissions on the Group's Financial Performance \n We estimate that the group's total operating expenses for this financial year will be impacted by approximately £200 million in direct and indirect costs associated with the motor finance commissions uncertainty. This includes elevated Group (central functions) expenses related to professional and advisory fees of c.£10 million, complaints handling and other operational and legal costs amounting to c.£22 million recognised as an adjusting item, as well as a £165 million provision taken in the first half, which has also been recognised as an adjusting item. Some of these costs are temporary and are expected to diminish once the uncertainties in relation to motor finance commissions are resolved. \n   \n Financial Overview \n Summary Group Income Statement 1 \n \n \n \n \n \n \n \n First half 2025 \n £ million \n \n \n First half \n 2024 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 390.0 \n \n \n 394.5 \n \n \n (1) \n \n \n \n \n Adjusted operating expenses \n \n \n (267.0) \n \n \n (264.7) \n \n \n 1 \n \n \n \n \n Impairment losses on financial assets \n \n \n (48.1) \n \n \n (41.7) \n \n \n 15 \n \n \n \n \n Adjusted operating profit \n \n \n 74.9 \n \n \n 88.1 \n \n \n (15) \n \n \n \n \n Banking \n \n \n 104.1 \n \n \n 111.7 \n \n \n (7) \n \n \n \n \n   Banking excluding Novitas \n \n \n 101.5 \n \n \n 111.5 \n \n \n (9) \n \n \n \n \n Commercial \n \n \n 45.2 \n \n \n 50.9 \n \n \n (11) \n \n \n \n \n   Of which: Novitas \n \n \n 2.6 \n \n \n 0.2 \n \n \n n/a \n \n \n \n \n Retail \n \n \n 16.8 \n \n \n 19.0 \n \n \n (12) \n \n \n \n \n Property \n \n \n 42.1 \n \n \n 41.8 \n \n \n 1 \n \n \n \n \n Winterflood \n \n \n (0.8) \n \n \n (2.6) \n \n \n (69) \n \n \n \n \n Group (central functions) \n \n \n (28.4) \n \n \n (21.0) \n \n \n 35 \n \n \n \n \n Adjusting items: \n \n \n \n \n \n \n \n \n \n \n \n \n \n Provision in relation to motor finance commissions \n \n \n (165.0) \n \n \n - \n \n \n n/a \n \n \n \n \n Complaints handling and other operational and legal costs incurred in relation to motor finance commissions \n \n \n (8.4) \n \n \n - \n \n \n n/a \n \n \n \n \n Impairment of intangible assets \n \n \n (4.0) \n \n \n - \n \n \n n/a \n \n \n \n \n Restructuring costs \n \n \n (0.4) \n \n \n - \n \n \n n/a \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n (0.1) \n \n \n - \n \n \n n/a \n \n \n \n \n Operating (loss)/profit before tax 2 \n \n \n (103.0) \n \n \n 88.1 \n \n \n (217) \n \n \n \n \n Tax \n \n \n (9.1) \n \n \n (23.2) \n \n \n (61) \n \n \n \n \n (Loss)/profit after tax from continuing operations \n \n \n (112.1) \n \n \n 64.9 \n \n \n (273) \n \n \n \n \n Profit from discontinued operations, net of tax 3 \n \n \n 0.3 \n \n \n 3.9 \n \n \n (93) \n \n \n \n \n (Loss)/profit after tax \n \n \n (111.8) \n \n \n 68.8 \n \n \n (262) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Group summary income statement to statutory income statement reconciliation \n \n \n \n \n Intercompany transactions relating to discontinued operations \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Operating income \n \n \n 0.6 \n \n \n 0.5 \n \n \n \n \n \n \n \n Adjusted operating expenses \n \n \n (1.4) \n \n \n (1.6) \n \n \n \n \n \n \n \n Adjusted operating loss \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 Group Income Statement reconciliation \n \n \n \n \n \n \n \n \n \n \n \n \n \n Operating (loss)/profit before tax \n \n \n (103.0) \n \n \n 88.1 \n \n \n \n \n \n \n \n Plus: intercompany transactions related to discontinued operations \n \n \n (0.8) \n \n \n (1.1) \n \n \n \n \n \n \n \n Statutory operating (loss)/profit before tax \n \n \n (103.8) \n \n \n 87.0 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Profit from discontinued operations, net of tax \n \n \n 0.3 \n \n \n 3.9 \n \n \n \n \n \n \n \n Less: intercompany transactions related to discontinued operations \n \n \n 0.8 \n \n \n 1.1 \n \n \n \n \n \n \n \n Statutory profit from discontinued operations \n \n \n 1.1 \n \n \n 5.0 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Adjusted basic earnings per share (continuing operations only) 4 \n \n \n 30.9p \n \n \n 43.4p \n \n \n \n \n \n \n \n Basic earnings per share (continuing operations only) 4 \n \n \n (82.8p) \n \n \n 42.6p \n \n \n \n \n \n \n \n Basic earnings per share (continuing and discontinued operations) 3,4 \n \n \n (82.1p) \n \n \n 46.0p \n \n \n \n \n \n \n \n Ordinary dividend per share \n \n \n - \n \n \n - \n \n \n \n \n \n \n \n Return on opening equity 5 \n \n \n 6.1% \n \n \n 8.5% \n \n \n \n \n \n \n \n Return on average tangible equity 5 \n \n \n 7.4% \n \n \n 9.9% \n \n \n \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Adjusted measures are presented on a basis consistent with prior periods and exclude discontinued operations and 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 \"Segmental Analysis\". Please refer to the basis of presentation on page 27 for further information. \n \n \n \n \n 2. \n \n \n Statutory operating loss in the first half 2025 of £(103.8) million excludes £0.8 million of intercompany transactions relating to discontinued operations. \n \n \n \n \n 3. \n \n \n Discontinued operations relate to Close Brothers Asset Management, which has been classified as 'discontinued operations' in the group's income statement for the 2024 and 2025 financial years in line with the requirements of IFRS 5. The related assets and liabilities are classified as held for sale on the group's balance sheet at 31 January 2025. Statutory profit from discontinued operations in the first half 2025 of £1.1 million excludes £(0.8) million of intercompany transactions. \n \n \n \n \n 4. \n \n \n Refer to Note 4 \"Earnings per Share\" for the calculation of basic and adjusted earnings per share. \n \n \n \n \n 5. \n \n \n Return on opening equity and return on tangible equity have been restated for first half 2024 to exclude discontinued operations \n \n \n \n \n   \n Financial Performance \n \nStatutory Operating Profit \n The group reported a statutory operating loss before tax of £103.8 million (H1 2024: statutory operating profit of £87.0 million), primarily driven by the £165 million provision in relation to motor finance commissions. The decrease also reflected the impact of complaints handling and other operational and legal costs incurred in relation to motor finance commissions, lower profitability in the Banking division and an increase in Group (central functions) net expenses. \n   \n Adjusted Operating Profit \n Adjusted operating profit decreased 15% to £74.9 million (H1 2024: £88.1 million), driven by higher impairment charges, as well as a marginal decline in income and a slight increase in costs. \n   \n Banking adjusted operating profit reduced to £104.1 million (H1 2024: £111.7 million), as an increase in impairment charges and a marginal decline in income more than offset lower costs. Excluding Novitas, Banking adjusted operating profit decreased to £101.5 million (H1 2024: £111.5 million). Winterflood delivered an operating loss of £0.8 million (H1 2024: operating loss of £2.6 million) as the business continues to navigate a challenging market environment. Group (central functions) net expenses, which include the central functions such as finance, legal and compliance, risk and human resources, increased to £28.4 million (H1 2024: £21.0 million). This was driven primarily by an increase in professional fees and expenses associated with the impact on the group of the FCA's ongoing review and the Supreme Court appeals and lower interest income received on cash balances. \n   \n As outlined at the Full Year 2024 results, we continue to expect Group (central functions) net expenses to be between £55 million and £60 million in the 2025 financial year, of which operating expenses associated with the impact on the group of motor finance commissions are estimated to be c.£10 million. \n   \n Return on opening equity reduced to 6.1% (H1 2024: 8.5%) and return on average tangible equity decreased to 7.4% (H1 2024: 9.9%) 5 . \n   \n Operating Income \n Operating income decreased marginally to £390.0 million (H1 2024: £394.5 million), with a marginal decline in Banking and a reduction in interest income in Group (central functions) more than offsetting higher income in Winterflood. \n   \n Income in the Banking division decreased 1%, primarily driven by impact of the temporary pause in UK motor lending on business volumes, as changes were implemented by the business to ensure compliance with the current legal requirements. Income in Winterflood increased 1% as the business delivered a resilient performance in challenging market conditions and saw strong growth in Winterflood Business Services. \n   \n Income decreased in the Group (central functions) to £(7.3) million (H1 2024: £(5.0) million). This was driven by lower interest income received on cash balances. \n   \n Operating Expenses \n Adjusted operating expenses rose marginally to £267.0 million (H1 2024: £264.7 million), as lower costs reflecting recent cost initiatives in both Banking and Winterflood were more than offset by higher Group (central functions) expenses. \n   \n In the Banking division, costs reduced 1% as we realised c.£6 million of savings on BAU staff costs, as well as reduced investment spend compared to the elevated level incurred in the prior year. This was partly offset by wage inflation and costs incurred on technology and expanding capabilities across the business, including in Motor Finance Ireland. Winterflood's costs decreased 4%, reflecting disciplined cost management, lower operational expenses following a cost review and the absence of dual-running property costs incurred in the prior year. Expenses in the Group (central functions) rose to £21.1 million (H1 2024: £16.0 million), primarily driven by an increase in professional fees and expenses associated with the impact on the group of the FCA's ongoing review and the Supreme Court appeals. \n   \n Overall, the group's expense/income ratio was broadly stable at 68% (H1 2024: 67%), whilst the compensation ratio remained at 36% (H1 2024: 36%). \n   \n Impairment Charges and IFRS 9 Provisioning \n Impairment charges increased to £48.1 million (H1 2024: £41.7 million), corresponding to a bad debt ratio of 1.0% (H1 2024: 0.9%). Excluding Novitas, impairment charges rose to £47.2 million (H1 2024: £39.6 million), equivalent to a bad debt ratio of 1.0% (H1 2024: 0.8%). The rise in impairment charges was mainly driven by the ongoing review of provisions and coverage across our loan portfolios, including single name provisions in Property, and impacts of macroeconomic forecast updates in our Motor Finance business. This compares to a relatively low charge in the comparative period (H1 2024) which included specific model refinements. Credit quality remains resilient and bad debt ratio remains comfortably below our long-term average of 1.2%. Overall, provision coverage increased to 4.7% (31 July 2024: 4.3%), with provision coverage increasing to 2.4% (31 July 2024: 2.3%) excluding Novitas. \n   \n Since the 2024 financial year end, we have updated the macroeconomic scenarios to reflect the latest available information regarding the macroeconomic environment and improved overall outlook, although the weightings assigned to them remain unchanged. At 31 January 2025, 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   \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. Looking forward, we expect the bad debt ratio for the 2025 financial year to remain below our long-term average of 1.2%. \n   \n Adjusting Items \n We recognised £177.9 million of adjusting items in the first half of 2025 (H1 2024: £nil), consisting of a £165.0 million provision relating to motor finance commissions, £8.4 million reflecting complaints handling and other operational and legal costs incurred in relation to motor finance commissions, £4.0 million of impairment of intangible assets, £0.4 million of restructuring costs and £0.1 million of amortisation of intangible assets on acquisition. \n   \n As outlined above, in light of recent developments in relation to motor finance commissions, the group has reviewed its accounting assessment of these matters. As a result, we have recognised a provision of £165.0 million in relation to motor finance commissions, which includes estimates for certain potential operational and legal costs, as well as estimates for potential remediation for affected customers. This provision is based on probability weighted scenarios using various assumptions, including, for example, commission models, rates and time periods in scope of any regulatory redress scheme, as well as response and uphold rates. \n   \n We incurred £8.4 million of complaints handling expenses and other operational and legal costs in relation to motor finance commissions, including increased resourcing to manage complaints and legal expenses. We estimate these costs will be c.£22 million for the full 2025 financial year, ahead of the previously provided guidance of £10-15 million as a result of additional costs associated with the Supreme Court appeals. \n   \n We also recognised £4.0 million of impairment of intangible assets relating to the carrying value of goodwill and software in the Vehicle Hire and Brewery Rentals businesses. \n   \n In addition, we incurred £0.4 million of restructuring costs, primarily relating to redundancy and associated costs. We have continued to make good progress on streamlining the workforce through the consolidation of roles across our businesses and functions, as well as through the management of vacancies. We expect to incur £2-3 million of restructuring costs in the 2025 financial year, lower than the previously provided guidance of £5-10 million as we continue to implement cost management actions to improve future efficiency, whilst postponing some restructuring activities in the immediate term as we focus on protecting the organisation. \n   \n Tax Expense \n The tax expense was £9.1 million (H1 2024: £23.2 million). The effective tax rate for the period is (8.8%) (six months ended 31 January 2024: 26.3%), representing the best estimate of the annual effective tax rate expected for the full year and including the £165.0 million provision in relation to motor finance commissions recognised in the period (£159.6 million net of tax). Excluding the provision, the effective tax rate would have been approximately 24%. \n   \n The standard UK corporation tax rate for the financial year is 25.0% (six months ended 31 January 2024: 25.0%; year ended 31 July 2024: 25.0%). The effective tax rate, excluding the provision in relation to motor finance commissions, is below the UK corporation tax rate primarily due to tax relief on coupons on other equity instruments. \n   \n Profit from Discontinued Operations \n Following the announcement on 19 September 2024 and the receipt of the required regulatory approvals, the group completed the sale of CBAM to funds managed by Oaktree Capital Management, L.P., on 28 February 2025. Additional details are set out on page 26. The group anticipates an estimated gain on disposal of approximately £59 million in the 2025 financial year. \n   \n In the first half of the 2025 financial year, profit from discontinued operations net of tax was £0.3 million (H1 2024: £3.9 million). \n   \n Earnings Per Share \n Adjusted basic earnings per share (\"AEPS\") for continuing operations decreased to 30.9p (H1 2024: 43.4p) and basic earnings per share (\"EPS\") for continuing operations decreased to (82.8p) (H1 2024: 42.6p). \n Basic earnings per share (\"EPS\") for continuing and discontinued operations reduced to (82.1p) (H1 2024: 46.0p). \n   \n Both the adjusted and basic EPS calculation include the payment of the coupon related to the Fixed Rate Resetting Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities (\"AT1\"), at an annual rate of 11.125%, on 29 November 2024. The associated coupon is due on 29 May and 29 November of each year, with any AT1 coupons paid deducted from retained earnings, reducing the profit attributable to ordinary shareholders. \n   \n Dividend \n Given the continued significant uncertainty regarding the outcome of the FCA's review of motor finance commission arrangements and the Supreme Court appeals and any potential financial impact as a result, the group will not pay an interim dividend in respect of the first half of the 2025 financial year. \n As previously stated, the decision to reinstate dividends will be reviewed by the board once there is further clarity on the financial impact of the FCA review of motor finance commissions and the ongoing Supreme Court appeals. \n Summary Group Balance Sheet \n \n \n \n \n \n \n \n 31 January 2025 \n £ million \n \n \n 31 July 2024 \n £ million \n \n \n \n \n Loans and advances to customers and operating lease assets 1 \n \n \n 9,833.0 \n \n \n 10,098.7 \n \n \n \n \n Treasury assets 2 \n \n \n 2,427.9 \n \n \n 2,300.9 \n \n \n \n \n Market-making assets 3 \n \n \n 1,163.9 \n \n \n 691.8 \n \n \n \n \n Assets classified as held for sale \n \n \n 160.0 \n \n \n - \n \n \n \n \n Other assets \n \n \n 853.4 \n \n \n 989.4 \n \n \n \n \n Total assets \n \n \n 14,438.2 \n \n \n 14,080.8 \n \n \n \n \n Deposits by customers \n \n \n 8,727.2 \n \n \n 8,693.6 \n \n \n \n \n Borrowings 4 \n \n \n 2,258.1 \n \n \n 2,339.2 \n \n \n \n \n Market-making liabilities 3 \n \n \n 1,106.2 \n \n \n 631.6 \n \n \n \n \n Liabilities classified as held for sale \n \n \n 60.1 \n \n \n - \n \n \n \n \n Other liabilities \n \n \n 575.9 \n \n \n 573.9 \n \n \n \n \n Total liabilities \n \n \n 12,727.5 \n \n \n 12,238.3 \n \n \n \n \n Equity 5 \n \n \n 1,710.7 \n \n \n 1,842.5 \n \n \n \n \n Total liabilities and equity \n \n \n 14,438.2 \n \n \n 14,080.8 \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Includes operating lease assets of £263.6 million (31 July 2024: £267.9 million). \n \n \n \n \n 2. \n \n \n Treasury assets comprise cash and balances at central banks and debt securities held to support the Banking division. \n \n \n \n \n 3. \n \n \n Market-making assets and liabilities comprise settlement balances, long and short trading positions and loans to or from money brokers. \n \n \n \n \n 4. \n \n \n Borrowings comprise debt securities in issue, loans and overdrafts from banks and subordinated loan capital. \n \n \n \n \n 5. \n \n \n Equity includes the group's £200.0 million Fixed Rate Reset Perpetual Subordinated Contingent Convertible Securities (AT1 securities), net of £2.4 million transaction costs, which are classified as an equity instrument under IAS 32. \n \n \n \n \n   \n The group maintained a strong balance sheet and continues to take 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   \n Total assets increased 3% to £14.4 billion (31 July 2024: £14.1 billion), mainly reflecting higher market-making and Treasury assets, partly offset by the loan book reduction. Total liabilities were 4% higher at £12.7 billion (31 July 2024: £12.2 billion), driven primarily by higher market-making liabilities. Both market-making assets and liabilities, which related to trading activity at Winterflood, were higher due to higher counterparty positions at the end of the period. Assets and liabilities classified as held for sale have been recognised in respect of the discontinued operations, which relate to CBAM. \n   \n Total equity reduced 7% to £1.7 billion (31 July 2024: £1.8 billion), primarily reflecting the impact of the £165 million provision in relation to motor finance commissions on the retained earnings. The group's return on assets decreased to 0.6% (H1 2024: 0.9% excluding discontinued operations). \n   \n Group Capital \n \n \n \n \n \n \n \n 31 January 2025 \n £ million \n \n \n 31 July 2024 \n £ million \n \n \n \n \n Common Equity Tier 1 capital \n \n \n 1,257.3 \n \n \n 1,374.8 \n \n \n \n \n Tier 1 capital \n \n \n 1,457.3 \n \n \n 1,574.8 \n \n \n \n \n Total capital \n \n \n 1,657.3 \n \n \n 1,774.8 \n \n \n \n \n Risk weighted assets \n \n \n 10,340.8 \n \n \n 10,701.2 \n \n \n \n \n Common Equity Tier 1 capital ratio (transitional) \n \n \n 12.2% \n \n \n 12.8% \n \n \n \n \n CET1 capital ratio (transitional) pro-forma after CBAM disposal 1 \n \n \n 13.4% \n \n \n n/a \n \n \n \n \n Tier 1 capital ratio (transitional) \n \n \n 14.1% \n \n \n 14.7% \n \n \n \n \n Total capital ratio (transitional) \n \n \n 16.0% \n \n \n 16.6% \n \n \n \n \n Leverage ratio 2 \n \n \n 11.7% \n \n \n 12.7% \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Pro-forma CET1 capital ratio as at 31 January 2025, reflecting the estimated benefit of c.120 basis points in relation to sale of CBAM. Please refer to page 26 for further information. \n \n \n \n \n 2.      \n \n \n 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 \n \n \n \n   \n Movements in Capital and Other Regulatory Metrics \n The CET1 capital ratio reduced from 12.8% to 12.2%, driven primarily by the £159.6 million provision (net of tax) in relation to motor finance commissions (-c.155bps) offset by profits in the period excluding the provision (c.50bps). There was also an AT1 coupon payment (-c.10bps) and a decrease in IFRS 9 transitional arrangements (-c.5bps). This was partly offset by a reduction in RWAs (c.45bps) and a decrease in intangible assets deducted from capital (c.10bps). \n   \n CET1 capital decreased 9% to £1,257.3 million (31 July 2024: £1,374.8 million), driven by the statutory loss in the first half (£111.8 million), which was primarily driven by the £159.6 million provision (net of tax) in relation to motor finance commissions offset by profits in the period of £47.8 million. There was also an AT1 coupon payment of £11.1 million and a decrease in the transitional IFRS 9 add-back to capital of £5.8 million. This was partly offset by a reduction in intangible assets deducted from capital of £11.5 million. \n Tier 1 capital and Total capital both decreased 7% to £1,457.3 million and £1,657.3 million respectively (31 July 2024: £1,574.8 million and £1,774.8 million respectively), largely reflecting the provision taken in relation to motor finance commissions. \n   \n RWAs decreased 3% to £10.3 billion (31 July 2024: £10.7 billion), primarily driven by a reduction in loan book RWAs (£241.6 million), and a reduction in securitisation RWAs following a change to implement Securitisation Standardised Approach for Motor Finance Ireland (£55.1 million). \n As a result, CET1, tier 1 and total capital ratios were 12.2% (31 July 2024: 12.8%), 14.1% (31 July 2024: 14.7%) and 16.0% (31 July 2024: 16.6%), respectively. On a pro-forma basis, reflecting the estimated benefit from the CBAM disposal, at 31 January 2025, the CET1, tier 1 and total capital ratios would have been 13.4%, 15.3% and 17.2%, respectively. \n   \n The applicable CET1, tier 1 and total capital ratio requirements, including Capital Requirements Directive (\"CRD\") buffers but excluding any applicable Prudential Regulation Authority (\"PRA\") buffer, were 9.7%, 11.4% and 13.7%, respectively, at 31 January 2025. Accordingly, we continue to have headroom significantly above the applicable requirements of c.250bps in the CET1 capital ratio, c.270bps in the tier 1 capital ratio and c.230bps in the total capital ratio. \n   \n The leverage ratio, which is a transparent measure of capital strength not affected by risk weightings, decreased to 11.7% (31 July 2024: 12.7%) largely reflecting the provision taken in relation to motor finance commissions. \n   \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 12.1%, 14.0% and 16.0%, respectively and the leverage ratio would be 11.7%. \n   \n The PRA Policy Statement PS 9/24 Implementation of the Basel 3.1 standards near-final part 2 was published on 12 September 2024, with the majority of rules applicable to the group remaining unchanged, including the proposed removal of the small and medium-sized enterprises (\"SME\") supporting factor, new conversion factor for cancellable facilities and new market risk rules. Following a PRA announcement in January 2025, the implementation of the final regulations has been further postponed to 1 January 2027. We continue to expect implementation to result in an increase of up to c.10% in the group's RWAs calculated under the standardised approach. However, the PRA has proposed to apply an SME lending adjustment as part of Pillar 2a, to ensure that the removal of the SME support factor does not result in an increase in overall capital requirements for SME lending. Whilst this adjustment is subject to PRA confirmation and a resulting restatement of the group's total capital requirements, we would reasonably expect the UK implementation of Basel 3.1 to have a less significant impact on the group's capital headroom position than initially anticipated. \n   \n As outlined previously, following the submission of our initial application (in December 2020) to transition to the Internal Ratings Based (\"IRB\") approach, the application successfully moved to Phase 2 of the process in March 2022 and engagement with the regulator continues. Our Motor Finance, Property Finance and Energy portfolios, where the use of models is most mature, were submitted with our initial application, with work on the subsequent portfolios in progress. \n   \n Capital Outlook \n The sale of CBAM completed on 28 February 2025, and is estimated to generate a profit on disposal of approximately £59 million and increase the group's CET1 ratio by c.120 bps on a pro-forma basis as at 31 January 2025 from 12.2% to 13.4%. \n   \n In the near-term, we expect to maintain our CET1 capital ratio around the top end of our medium-term target range of 12% to 13%. We will resume selective loan book growth, subject to demand. At the same time, we will continue to evaluate additional potential RWA optimisation opportunities to maintain resilience and flexibility, including a potential risk transfer of assets in Motor Finance and other portfolios, should it be needed, a continuous review of our businesses and portfolios and other tactical actions. \n   \n As previously stated, the decision to reinstate dividends will be reviewed by the board once there is further clarity on the financial impact of the FCA review of motor finance commissions and the ongoing Supreme Court appeals. \n Group Funding 1 \n \n \n \n \n \n \n \n 31 January 2025 \n £ million \n \n \n 31 July 2024 \n £ million \n \n \n \n \n Customer deposits \n \n \n 8,727.2 \n \n \n 8,693.6 \n \n \n \n \n Secured funding \n \n \n 1,113.3 \n \n \n 1,205.1 \n \n \n \n \n Unsecured funding 2 \n \n \n 1,188.8 \n \n \n 1,219.1 \n \n \n \n \n Equity \n \n \n 1,710.7 \n \n \n 1,842.5 \n \n \n \n \n Total available funding 3 \n \n \n 12,740.0 \n \n \n 12,960.3 \n \n \n \n \n Total funding as a percentage of loan book 4 \n \n \n 130% \n \n \n 128% \n \n \n \n \n Average maturity of funding allocated to loan book 5 \n \n \n  18 months \n \n \n  20 months \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Numbers relate to core funding and exclude working capital facilities at the business level. \n \n \n \n \n 2. \n \n \n Unsecured funding excludes £51.9 million (31 July 2024: £55.1m - prior year comparative has been restated following a misstatement. The figure reported in the FY 2024 ARA was £55.7m) of non-facility overdrafts included in borrowings and includes £95.8 million (31 July 2024: £140.0 million) of undrawn facilities. \n \n \n \n \n 3. \n \n \n 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 \n \n \n \n 4. \n \n \n Total funding as a percentage of loan book includes £263.6 million (31 July 2024: £267.9 million) of operating lease assets in the loan book figure. \n \n \n \n \n 5. \n \n \n Average maturity of total available funding, excluding equity and funding held for liquidity purposes. \n \n \n \n \n   \n Our Treasury function is focused on managing funding and liquidity to support the Banking businesses, as well as interest rate risk. Our Savings business, which was integrated into the Retail business in the 2024 financial year, provides simple and straightforward savings products to both individuals and businesses, whilst being committed to providing the highest level of customer service. \n   \n 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, 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 18 months (31 July 2024: 20 months), ahead of the average loan book maturity at 15 months (31 July 2024: 16 months). \n   \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   \n Total funding reduced in the first half to £12.7 billion (31 July 2024: £13.0 billion), which accounted for 130% (31 July 2024: 128%) of the loan book at the balance sheet date, as scheduled repayments on secured funding and a reduction in unsecured funding was offset in part by higher customer deposits as we actively continue to grow our retail customer deposit base. The average cost of funding in Banking was maintained at 5.5% (2024: 5.5%), as interest rates remained broadly stable at a higher level. We are well positioned to continue benefiting from our diverse funding base and the strength of our Savings franchise. \n   \n While customer deposits were stable at £8.7 billion (31 July 2024: £8.7 billion), we saw a change in the mix as we have actively sought to grow our retail deposit base. Retail customer deposits increased 12% to £6.4 billion (31 July 2024: £5.7 billion), with non-retail deposits reducing 22% to £2.3 billion (31 July 2024: 3.0 billion). In line with our prudent and conservative approach to funding, our funding is predominantly term, with only 13% of total deposits available on demand and 60% having at least three months to maturity. At 31 January 2025, approximately 86% of retail deposits were protected by the Financial Services Compensation Scheme (including third party platform). \n   \n Secured funding decreased 8% to £1.1 billion (31 July 2024: £1.2 billion) as a result of scheduled repayments for our Motor Finance securitisations. Our remaining drawings under the Term Funding Scheme for Small and Medium-sized Enterprises (\"TFSME\") amount to £110 million, which will mature in October 2025 and which we expect to replace in line with our diverse funding profile, dependent on market conditions and demand. \n Unsecured funding, which includes senior unsecured and subordinated bonds and undrawn committed revolving facilities, remained broadly stable at £1.2 billion (31 July 2024: £1.2 billion). \n   \n We continue to leverage the benefits from the previous investment in our customer deposit platform, which has provided us with scalability and enabled us to diversify our product offering. Deposits held through this platform now stand at over £6.6 billion. The introduction of Easy Access has provided us access to a large potential deposit pool, with balances of over £800 million (at 31 January 2025) less than two years after launch. We remain focused on growing our retail funding base from a variety of segments, further optimising our cost of funding and maturity profile. \n   \n Our credit ratings continue to reflect the group's inherent financial strength, including its funding and liquidity profile, diversified business model and consistent risk appetite, notwithstanding the current uncertainty. Moody's Investors Services (\"Moody's\") ratings for CBG and CBL are A3/P2 and A1/P1 respectively (at 15 November 2024) with ratings placed on \"Review for downgrade\" in light of the potential risks in relation to motor finance commissions. Moody's ratings for Close Brothers Group's senior unsecured and subordinated debt are A3 (at 15 November 2024). Fitch Ratings (\"Fitch\") Issuer Default Ratings (\"IDRs\") for CBG and CBL are BBB+/F2 with a \"rating watch negative\" (at 19 February 2025). \n Group Liquidity \n \n \n \n \n \n \n \n 31 January 2025 \n £ million \n \n \n 31 July 2024 \n £ million \n \n \n \n \n Cash and balances at central banks \n \n \n 1,852.3 \n \n \n 1,584.0 \n \n \n \n \n Sovereign and central bank debt 1 \n \n \n 304.4 \n \n \n 383.7 \n \n \n \n \n Supranational, sub-sovereigns and agency (\"SSA\") bonds \n \n \n 143.0 \n \n \n 145.5 \n \n \n \n \n Covered bonds \n \n \n 128.2 \n \n \n 187.7 \n \n \n \n \n Treasury assets \n \n \n 2,427.9 \n \n \n 2,300.9 \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n There was £34.5 million encumbered sovereign and central bank debt and covered bonds at 31 January 2025 (31 July 2024: £nil). \n \n \n \n \n   \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   \n In light of the significant uncertainty regarding the outcome of the FCA's review of historical motor finance commission arrangements, we have consciously maintained a higher level of liquidity, with the majority of our large, high quality liquid asset portfolio held in cash and government bonds. During the first half, treasury assets increased 6% to £2.4 billion (31 July 2024: £2.3 billion) and were predominantly held on deposit with the Bank of England. \n   \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 LCR to 31 January 2025 of 953% (31 July 2024: 1,034%). 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 2025 was 140.1% (31 July 2024: 134.4%) driven by increased retail deposits. \n   \n Business Review \n Banking \n Key Financials \n \n \n \n \n \n \n \n First half \n 2025 \n £ million \n \n \n First half \n 2024 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 362.7 \n \n \n 365.3 \n \n \n (1) \n \n \n \n \n Adjusted operating expenses \n \n \n (210.5) \n \n \n (211.8) \n \n \n (1) \n \n \n \n \n Impairment losses on financial assets \n \n \n (48.1) \n \n \n (41.8) \n \n \n 15 \n \n \n \n \n Adjusted operating profit \n \n \n 104.1 \n \n \n 111.7 \n \n \n (7) \n \n \n \n \n Adjusted operating profit, pre provisions for impairment losses \n \n \n 152.2 \n \n \n 153.5 \n \n \n (1) \n \n \n \n \n Adjusting items: \n \n \n \n \n \n \n \n \n \n \n \n \n \n Provision in relation to motor finance commissions \n \n \n (165.0) \n \n \n - \n \n \n n/a \n \n \n \n \n Complaints handling and other operational and legal costs incurred in relation to motor finance commissions \n \n \n (8.4) \n \n \n - \n \n \n n/a \n \n \n \n \n Impairment of intangible assets \n \n \n (4.0) \n \n \n - \n \n \n n/a \n \n \n \n \n Restructuring costs \n \n \n (0.4) \n \n \n - \n \n \n n/a \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n (0.1) \n \n \n - \n \n \n n/a \n \n \n \n \n Statutory operating (loss)/profit \n \n \n (73.8) \n \n \n 111.7 \n \n \n (166) \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 7.5% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 58% \n \n \n 58% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 1.0% \n \n \n 0.9% \n \n \n \n \n \n \n \n Return on net loan book \n \n \n 2.1% \n \n \n 2.3% \n \n \n \n \n \n \n \n Return on opening equity \n \n \n 9.1% \n \n \n 12.3% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets \n \n \n 9,833.0 \n \n \n 9,893.0 \n \n \n (1) \n \n \n \n \n   \n Key Financials (Excluding Novitas) \n \n \n \n \n \n \n \n First half \n 2025 \n £ million \n \n \n First half \n 2024 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 356.1 \n \n \n 360.3 \n \n \n (1) \n \n \n \n \n Adjusted operating expenses \n \n \n (207.4) \n \n \n (209.2) \n \n \n (1) \n \n \n \n \n Impairment losses on financial assets \n \n \n (47.2) \n \n \n (39.6) \n \n \n 19 \n \n \n \n \n Adjusted operating profit \n \n \n 101.5 \n \n \n 111.5 \n \n \n (9) \n \n \n \n \n Adjusted operating profit, pre provisions for impairment losses \n \n \n 148.7 \n \n \n 151.1 \n \n \n (2) \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 7.2% \n \n \n 7.5% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 58% \n \n \n 58% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 1.0% \n \n \n 0.8% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets \n \n \n 9,764.1 \n \n \n 9,830.3 \n \n \n (1) \n \n \n \n \n Robust Profit Performance Reflecting our Focus on Costs and Resilient Credit Quality \n The Banking division has faced an uncertain market backdrop in the first half, with the resilience of SMEs further tested by upcoming changes from the UK Budget, and consumer affordability continuing to be challenged. Whilst the regulatory environment has also introduced significant uncertainty, the resilience of our businesses and our people have driven a robust performance overall and we are confident in the opportunities for our businesses going forward. \n   \n Banking adjusted operating profit reduced to £104.1 million (H1 2024: £111.7 million), as an increase in impairment charges and a marginal decline in income more than offset lower costs. \n On a statutory basis, we delivered an operating loss of £(73.8) million (H1 2024: operating profit of £111.7 million), mainly reflecting the provision of £165.0 million in relation to motor finance commissions, which includes estimates for certain potential operational and legal costs, as well as estimates for potential remediation for affected customers. We also recognised £12.9 million of other adjusting items, which included £8.4 million of complaints handling expenses and other operational and legal costs incurred in relation to motor finance commissions, reflecting increased resourcing to manage complaints and legal expenses, £4.0 million of impairment of intangible assets and £0.1 million of amortisation of intangible assets on acquisition. In addition, we incurred £0.4 million of restructuring costs, primarily relating to redundancy and associated costs, as we continued to make progress on streamlining our workforce. \n   \n The loan book reduced 3% in the first half to £9.8 billion (31 July 2024: £10.1 billion), driven by seasonality and the selective lending previously highlighted, as we sought to optimise risk weighted assets and further strengthened our capital position. This led to a lower loan book across all Banking businesses. Excluding the businesses in run-off, Novitas and the legacy Republic of Ireland Motor Finance business, the loan book was stable year-on-year but declined 2% in the first half to £9.7 billion (31 January 2024: £9.7 billion, 31 July 2024: £9.9 billion). \n   \n Operating income decreased 1% to £362.7 million (H1 2024: £365.3 million), mainly driven by the impact of the temporary pause in UK motor lending, as well as the run-off of the legacy Republic of Ireland Motor Finance business. The temporary pause to lending in UK Motor Finance is expected to have a c.£5 million impact on income and a c.£4m impact on adjusted operating profit in the 2025 financial year. \n   \n The net interest margin remained strong at 7.3% (H1 2024: 7.5%), as we maintained our focus on pricing discipline. On an underlying basis, excluding a year-on-year increase in Novitas income, as well as favourable movements in derivatives, the net interest margin reduced to 7.2% (H1 2024: 7.6%), driven by margin pressures on new business as a result of increased funding costs for SMEs in the higher rate environment. \n We are well positioned to maintain a strong net interest margin but expect to see some pressure in the second half of the year from temporary factors and competitive new business margins. As a result, we expect the full-year net interest margin to be around 7%, slightly below the first half exit rate of 7.1%. \n   \n Adjusted operating expenses reduced 1% to £210.5 million (H1 2024: £211.8 million), as we realised c.£6 million of savings on BAU staff costs, as well as reduced investment spend compared to the elevated level incurred in the prior year. This was partly offset by wage inflation and costs incurred on technology and expanding capabilities across the business, including in Motor Finance Ireland. The expense/income ratio remained stable at 58% (H1 2024: 58%), while the compensation ratio marginally declined to 31% (H1 2024: 32%). \n   \n As outlined in March 2024, we have mobilised cost management initiatives and these are now expected to deliver an additional c.£5 million in annualised savings by the end of the current financial year. This increases the estimated total annualised savings to c.£25 million by the end of the current financial year (excluding costs to achieve), up from £20 million previously. Of the c.£25 million in annualised savings, we expect c.£17 million to be recognised in the 2025 Full Year income statement. \n   \n These cost management initiatives are well advanced, with significant progress made over the first half of this year. Our technology transformation programme, initiated in 2023, is focused on simplifying and modernising our technology estate, consolidating and increasing our use of strategic partners, whilst creating a more digitally enabled and agile IT environment that is secure, resilient and sustainable. The programme has now entered a second phase and to date, we have reduced our technology headcount by c.30% since the 2023 financial year, removed approximately 120 IT applications and decommissioned over a quarter of servers from our technology estate, and our migration to the Cloud is underway, reducing costs and increasing flexibility. \n From a Suppliers and Property perspective, we have exited two of our London premises, with the removal of c.800 desks, and consolidation is underway elsewhere across the UK. By the end of the 2025 financial year, we will have reduced the property footprint of the Banking division by approximately one third. We are achieving improved commercial outcomes with our strategic partners, rationalising our supplier base and continuing to prudently use offshore services. \n   \n On the People side, we have continued to adjust our workforce as we drive increased efficiency and effectiveness. We have made good progress on streamlining the workforce through the consolidation of roles across our businesses and functions, as well as through the management of vacancies. In the first half, we incurred £0.4 million of restructuring costs, which continues to be recognised as an adjusting item, primarily relating to redundancy and associated costs. We expect to incur £2-3 million of restructuring costs in the 2025 financial year, lower than the previously provided guidance of £5-10 million as we continue to implement cost management actions to improve future efficiency, whilst postponing some restructuring activities in the immediate term as we focus on protecting the organisation. \n   \n Banking adjusted operating expenses in the 2025 financial year are expected to increase by c.1% on the prior year. Higher staff costs, wage inflation, and spend on technology and expansion of capabilities across the business are expected to be largely offset by cost savings achieved by our initiatives and reduced investment spend. \n Looking forward, we are committed to executing further cost savings and have initiated a review to drive a step change in operational efficiency and cost reduction. Options under consideration include further consolidation and rationalisation of centrally provided services, additional technology simplification and rationalisation, further selected outsourcing and offshoring through strategic partners and targeted investment in new technologies to augment our business model, including automation and artificial intelligence. \n   \n Impairment charges increased to £48.1 million (H1 2024: £41.8 million), corresponding to a bad debt ratio of 1.0% (H1 2024: 0.9%). Excluding Novitas, impairment charges rose to £47.2 million (H1 2024: £39.6 million), equivalent to a bad debt ratio of 1.0% (H1 2024: 0.8%). The rise in impairment charges was mainly driven by the ongoing review of provisions and coverage across our loan portfolios, including single name provisions in Property, and impacts of macroeconomic forecast updates in our Motor Finance business. This compares to a relatively low charge in the comparative period (H1 2024) which included specific model refinements. Credit quality remains resilient and bad debt ratio remains comfortably below our long-term average of 1.2%. \n   \n Overall, provision coverage increased to 4.7% (31 July 2024: 4.3%), driven primarily by the impacts of interest accrual on Stage 3 loans in Novitas, as well as higher coverage in the Retail and Property businesses. Excluding Novitas, the coverage ratio increased slightly to 2.4% (31 July 2024: 2.3%). \n   \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. Looking forward, we expect the bad debt ratio for the 2025 financial year to remain below our long-term average of 1.2%. \n Update on Progress Relating to Novitas \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 2023, we have accelerated our efforts to resolve the issues surrounding this business. We continue to pursue formal legal action issued against one of the After the Event (\"ATE\") insurers and in September 2024 issued a claim against a second insurer. \n   \n In the first half, we recognised impairment charges of £0.9 million (H1 2024: £2.2 million) in relation to Novitas, primarily as a result of legal costs associated with the insurer disputes. 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 (£68.9 million net loan book at 31 January 2025), with the provisions representing 77.5% coverage of the gross loan book. \n   \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. \n Loan Book Analysis \n \n \n \n \n \n \n \n 31 January 2025 \n \n \n 31 July 2024 \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 5,027.1 \n \n \n 5,101.6 \n \n \n (1) \n \n \n \n \n Commercial - Excluding Novitas \n \n \n 4,958.2 \n \n \n 5,039.2 \n \n \n (2) \n \n \n \n \n Asset Finance \n \n \n 3,607.6 \n \n \n 3,655.4 \n \n \n (1) \n \n \n \n \n Invoice and Speciality Finance \n \n \n 1,419.5 \n \n \n 1,446.2 \n \n \n (2) \n \n \n \n \n Invoice and Speciality Finance - Excluding Novitas \n \n \n 1,350.6 \n \n \n 1,383.8 \n \n \n (2) \n \n \n \n \n Retail \n \n \n 2,871.7 \n \n \n 3,041.9 \n \n \n (6) \n \n \n \n \n Motor Finance 1 \n \n \n 1,914.1 \n \n \n 2,016.0 \n \n \n (5) \n \n \n \n \n Premium Finance \n \n \n 957.6 \n \n \n 1,025.9 \n \n \n (7) \n \n \n \n \n Property \n \n \n 1,934.2 \n \n \n 1,955.2 \n \n \n (1) \n \n \n \n \n Closing loan book and operating lease assets 2 \n \n \n 9,833.0 \n \n \n 10,098.7 \n \n \n (3) \n \n \n \n \n Closing loan book and operating lease assets - Excluding Novitas \n \n \n 9,764.1 \n \n \n 10,036.3 \n \n \n (3) \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n The Motor Finance loan book includes £58.0 million (31 July 2024: £92.8 million) 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 \n \n \n \n 2. \n \n \n Includes operating lease assets of £263.6 million (31 July 2024: £267.9 million). \n \n \n \n \n   \n Loan Book Decline as we Lend Selectively, although Optimistic about Opportunities  \n Customer demand has remained robust and we have underwritten c.£3.5 billion of new business in the first half. The loan book declined 3% in the first half to £9.8 billion (31 July 2024: £10.1 billion), driven by seasonality and selective lending. Excluding the businesses in run-off, Novitas and the legacy Republic of Ireland Motor Finance business, the loan book was stable year-on-year although declined 2% in the first half to £9.7 billion (31 January 2024: £9.7 billion, 31 July 2024: £9.9 billion). \n   \n The Commercial loan book reduced 1% to £5.0 billion (31 July 2024: £5.1 billion). In Asset Finance, we delivered strong growth in our Transport and Materials Handling portfolios, although overall the loan book declined 1% reflecting our focus on selective lending to optimise risk weighted assets, alongside lower new business in some of our other portfolios. Invoice and Speciality Finance reduced 2%, driven by the usual seasonal decline seen in the first half of the year, although utilisation levels are elevated on the prior year period, reflecting continued customer activity. Excluding Novitas, the Commercial book declined 2% to £5.0 billion (31 July 2024: £5.0 billion). \n   \n The Retail loan book declined 6% to £2.9 billion (31 July 2024: £3.0 billion). Motor Finance reduced 5%, largely reflecting the temporary pause in new lending following the Court of Appeal's judgment in Hopcraft and the measures taken to selectively lend. We also saw some impact from the run-off of the legacy Republic of Ireland motor loan book, which was offset in part by good growth in Motor Finance Ireland following the acquisition of Bluestone Motor Finance last year. The Motor Finance Ireland loan book stood at £56.0 million at 31 January 2025 (31 July 2024: £38.8 million). Premium Finance declined 7%, reflecting the usual seasonal decline seen in the first half and the competitive market environment. \n   \n The legacy Republic of Ireland Motor Finance business, which is in run-off, accounted for 3% of the Motor Finance loan book (31 July 2024: 5%) and less than 1% of the Banking loan book (31 July 2024: 1%). \n The Property loan book remained relatively flat in the first half of the year but increased 5% year-on-year. Our undrawn pipeline has reduced to c.£720 million (31 July 2024: c.£850 million), reflecting a reduction in customer demand and a more challenging economic environment. \n   \n We will resume selective loan book growth, subject to demand, with modest growth expected in the second half of the 2025 financial year. The loan book at 31 July 2025 is expected to remain broadly flat year-on-year. \n Banking: Commercial \n \n \n \n \n \n \n \n First half 2025 \n £ million \n \n \n First half 2024 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 165.2 \n \n \n 168.5 \n \n \n (2) \n \n \n \n \n Adjusted operating expenses \n \n \n (103.9) \n \n \n (103.0) \n \n \n 1 \n \n \n \n \n Impairment losses on financial assets \n \n \n (16.1) \n \n \n (14.6) \n \n \n 10 \n \n \n \n \n Adjusted operating profit \n \n \n 45.2 \n \n \n 50.9 \n \n \n (11) \n \n \n \n \n Adjusted operating profit, pre provisions for impairment losses \n \n \n 61.3 \n \n \n 65.5 \n \n \n (6) \n \n \n \n \n Adjusting items: \n \n \n \n \n \n \n \n \n \n \n \n \n \n Restructuring costs \n \n \n (0.1) \n \n \n - \n \n \n n/a \n \n \n \n \n Impairment of intangible assets \n \n \n (4.0) \n \n \n - \n \n \n n/a \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n   - \n \n \n - \n \n \n \n \n \n \n \n Statutory operating profit \n \n \n 41.1 \n \n \n 50.9 \n \n \n (19) \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 6.5% \n \n \n 6.8% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 63% \n \n \n 61% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.6% \n \n \n 0.6% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets 1 \n \n \n 5,027.1 \n \n \n 5,028.5 \n \n \n (0) \n \n \n \n \n Commercial Key Metrics Excluding Novitas \n \n \n \n \n \n \n \n First half 2025 \n £ million \n \n \n First half 2024 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 158.6 \n \n \n 163.5 \n \n \n (3) \n \n \n \n \n Adjusted operating expenses \n \n \n (100.8) \n \n \n (100.4) \n \n \n 0 \n \n \n \n \n Impairment losses on financial assets \n \n \n (15.2) \n \n \n (12.4) \n \n \n 23 \n \n \n \n \n Adjusted operating profit \n \n \n 42.6 \n \n \n 50.7 \n \n \n (16) \n \n \n \n \n Adjusted operating profit, pre provisions for impairment losses \n \n \n 57.8 \n \n \n 63.1 \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 6.3% \n \n \n 6.7% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 64% \n \n \n 61% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.6% \n \n \n 0.5% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets 1 \n \n \n 4,958.2 \n \n \n 4,965.8 \n \n \n (0) \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Operating lease assets of £263.6 million (31 January 2024: £282.0 million). \n \n \n \n \n   \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. Asset Finance also includes 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   \n Whilst we saw some positive sentiment in the early part of the first half, this has been a challenging period overall for SME businesses, with their resilience tested by ongoing market uncertainty and tax changes to be introduced following the UK Budget. In Asset Finance, the marketplace has remained competitive, with borrower appetite varied across sectors and overall sentiment impacted by an uncertain outlook and higher borrowing costs, driving some softening in demand and pressure on new business margins. In the Invoice Finance market, we have seen some changes in the competitive environment and our strong offering and service has enabled us to win new clients. Overall, our Commercial businesses continued to benefit from the diversity of our offering. Our growth initiatives continued to prove successful, as the Materials Handling team delivered healthy new business volumes and our lending limit was increased under the UK government's Growth Guarantee Scheme. Our restructured Broker and Professional Solutions business is receiving positive feedback from brokers in response to its newly launched proposition and recently won an industry award. \n Adjusted operating profit for Commercial decreased to £45.2 million (H1 2024: £50.9 million), mainly driven by a marginal reduction in income and higher impairment charges. Before provisions for impairment losses, adjusted operating profit reduced 6% to £61.3 million (H1 2024: £65.5 million), reflecting a decline in income and higher costs. \n   \n We saw an increase in adjusted operating profit in Novitas (H1 2025: £2.6 million, H1 2024: £0.2 million), which is currently in run-off. This was primarily driven by higher income, reflecting lower funding costs and higher interest accruals driven by the partial unwind of the expected credit loss, coupled with lower impairment charges. \n   \n Excluding Novitas, adjusted operating profit decreased 16% to £42.6 million (H1 2024: £50.7 million). \n On a statutory basis, operating profit decreased to £41.1 million (H1 2024: £50.9 million). This reflects the recognition of £4.0 million of impairment of intangible assets relating to the carrying value of goodwill and software in the Vehicle Hire and Brewery Rentals businesses, as well as £0.1 million of restructuring costs. \n Operating income reduced 2% to £165.2 million (H1 2024: £168.5 million) driven by lower utilisation levels in the Vehicle Hire and Brewery Rentals businesses, losses on de-fleeting activities in Vehicle Hire and reduced service fee income, partially offset by an increase in Novitas income. The net interest margin declined to 6.5% (H1 2024: 6.8%), reflecting the impact of lower utilisation in Vehicle Hire and Brewery Rentals, reduced service fee income and continued pressure on new business margins. Excluding Novitas, the net interest margin decreased to 6.3% (H1 2024: 6.7%). \n   \n Adjusted operating expenses increased marginally to £103.9 million (H1 2024: £103.0 million), mainly driven by higher costs in relation to Novitas, as the prior period benefitted from a one-off credit of £1.5 million, partially offset by lower investment spend. As a result, the Commercial expense/income ratio increased to 63% (H1 2024: 61%). \n   \n We continue to benefit from the investment made in our Asset Finance transformation programme, which was completed last financial year. This has introduced a single technology platform across the business and has standardised processes, leading to a better customer and colleague experience, whilst providing a platform for scalable growth. \n   \n Impairment charges increased to £16.1 million (H1 2024: £14.6 million) driven by provisions against certain individual exposures, partly offset by a reduction in Stage 3 loans in Invoice Finance. Provision coverage increased to 6.1% (31 July 2024: 5.7%), driven primarily by the impacts of interest accrual on Stage 3 loans in Novitas. \n   \n Excluding Novitas, there was an increase in impairment charges to £15.2 million (H1 2024: £12.4 million). This corresponded to a bad debt ratio of 0.6% (H1 2024: 0.5%) and a broadly stable coverage ratio (excluding Novitas) of 1.5% (31 July 2024: 1.4%). \n Banking: Retail \n \n \n \n \n \n \n \n First half 2025 \n £ million \n \n \n First half 2024 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 128.8 \n \n \n 131.8 \n \n \n (2) \n \n \n \n \n Adjusted operating expenses \n \n \n (88.8) \n \n \n (90.8) \n \n \n (2) \n \n \n \n \n Impairment losses on financial assets \n \n \n (23.2) \n \n \n (22.0) \n \n \n 5 \n \n \n \n \n Adjusted operating profit \n \n \n 16.8 \n \n \n 19.0 \n \n \n (12) \n \n \n \n \n Adjusted operating profit, pre provisions for impairment losses \n \n \n 40.0 \n \n \n 41.0 \n \n \n (2) \n \n \n \n \n Adjusting items: \n \n \n \n \n \n \n \n \n \n \n \n \n \n Provision in relation to motor finance commissions \n \n \n (165.0) \n \n \n - \n \n \n n/a \n \n \n \n \n Complaints handling and other operational and legal costs incurred in relation to motor finance commissions \n \n \n (8.4) \n \n \n - \n \n \n n/a \n \n \n \n \n Restructuring costs \n \n \n (0.2) \n \n \n - \n \n \n n/a \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n (0.1) \n \n \n - \n \n \n n/a \n \n \n \n \n Statutory operating profit/(loss) \n \n \n (156.9) \n \n \n 19.0 \n \n \n n/a \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 8.7% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 69% \n \n \n 69% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 1.6% \n \n \n 1.5% \n \n \n \n \n \n \n \n Closing loan book 1 \n \n \n 2,871.7 \n \n \n 3,025.9 \n \n \n (5) \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n The Motor Finance loan book includes £58.0 million (31 January 2024: £144.5 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 \n \n \n \n Remain Focused on Prioritising our Margins and Underwriting Discipline in a Challenging Environment \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 The market backdrop continued to present challenges in the first half, with significant uncertainty in relation to the FCA's motor finance work and the Court of Appeal's judgment in Hopcraft. Although the Motor Finance business was impacted by the pause in lending in October 2024, we have remained focused on providing excellent service to our customers and partners, with all of our business lending channels live from January 2025. We are seeing good growth in Motor Finance Ireland following the acquisition of Bluestone Motor Finance (Ireland) DAC in October 2023. Furthermore, as part of our ongoing investments, we continue to strengthen our existing relationships with Motor Finance partners through the integration of our Decision in Principle (\"DiP\") technology. The tool supports customers to establish their borrowing capacity before applying for a loan. This technology has opened up additional routes to market and will play a key role in ensuring that we continue to have a strong proposition wherever the consumer chooses finance. \n   \n The Premium Finance business operates in a mature market where we have seen some softening in demand.  We have started the rollout of a Digital Commission Disclosure Consent (\"CDC\") solution across our partner base. We continue to monitor our delivery of good outcomes in respect of Consumer Duty and are engaging with the FCA as required as part of the premium finance Market Study. \n   \n Adjusted operating profit for Retail reduced to £16.8 million (H1 2024: £19.0 million). Before provisions for impairment losses, adjusted operating profit decreased 2% to £40.0 million (H1 2024: £41.0 million). \n   \n In light of recent developments in relation to motor finance commissions, the group has reviewed its accounting assessment...

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