Preliminary Results for the year ended 31 July 24

About this update from Close Brothers Group Plc

[{"type":"text","content":"\n \n \n \n \n \n \n \n \n Close Brothers Group plc \n 10 Crown Place \n London EC2A 4FT \n \n \n T +44 (0)20 7655 3100 \n E [email protected] \n W www.closebrothers.com \n Registered in England No. 520241 \n \n \n \n \n   \n This announcement contains inside information \n Preliminary Results for the year end to 31 July 2024 \n 19 September 2024 \n RESILIENT PERFORMANCE IN AN UNCERTAIN ENVIRONMENT \n Adrian Sainsbury, Chief Executive, said: \n \"This year's performance demonstrates the group's resilience. In Banking, we grew our loan book with strong margins and stable underlying credit quality, while progressing our cost actions to improve future efficiency. Close Brothers Asset Management delivered strong net inflows, although Winterflood's performance remained impacted by unfavourable market conditions. \n The FCA's review of historical motor finance commission arrangements announced in January introduced significant uncertainty for the group. Against this backdrop, our top priority has been to further strengthen our capital position and protect our valuable franchise, whilst continuing to support our nearly three million customers, including c.350,000 SME businesses. \n We are making significant progress against the capital actions previously outlined. The strengths of our model, being our long-term relationships, the deep expertise of our people and our customer-centric approach, leave us well placed to navigate the current uncertainty. We continue to be encouraged by the strength of demand in our Banking business and see good growth prospects for the group, as we focus on resuming our track record of earnings growth and attractive returns.\" \n Mike Biggs, Chairman, commented: \n \"Following a comprehensive strategic review, the board is pleased to announce the agreed sale of CBAM to Oaktree. The transaction is expected to increase the group's common equity tier 1 capital ratio by approximately 100 basis points, marking significant progress towards the plan we outlined in March 2024 to strengthen our capital base. The board has unanimously approved the transaction and believes that the agreed sale represents competitive value for our shareholders, allowing us to simplify the group and focus on our core lending business. CBAM has delivered impressive growth over the past years and has developed into a strong franchise. Under the new ownership, it will benefit from additional resources to accelerate its growth trajectory. I would like to thank our CBAM colleagues for their dedication, professionalism and exceptional service to our clients.\" \n Key Financials 1 \n \n \n \n \n   \n \n \n Full year \n 2024 \n \n \n Full year \n 2023 \n \n \n Change \n % \n \n \n \n \n Statutory operating profit before tax \n \n \n £142.0m \n \n \n £112.0m \n \n \n 27 \n \n \n \n \n Adjusted operating profit 2 \n \n \n £170.6m \n \n \n £113.5m \n \n \n 50 \n \n \n \n \n Adjusted basic earnings per share 3 \n \n \n 76.1p \n \n \n 55.1p \n \n \n 38 \n \n \n \n \n Basic earnings per share 3 \n \n \n 59.7p \n \n \n 54.3p \n \n \n 10 \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 67.5p \n \n \n (100) \n \n \n \n \n Return on opening equity \n \n \n 6.9% \n \n \n 5.0% \n \n \n \n \n \n \n \n Return on average tangible equity \n \n \n 8.3% \n \n \n 5.9% \n \n \n \n \n \n \n \n Net interest margin \n \n \n 7.4% \n \n \n 7.7% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 1.0% \n \n \n 2.2% \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 July \n 2024 \n \n \n 31 July \n 2023 \n \n \n Change \n % \n \n \n \n \n Loan book 4 \n \n \n £10.1bn \n \n \n £9.5bn \n \n \n 6 \n \n \n \n \n CBAM total client assets \n \n \n £20.4bn \n \n \n £17.3bn \n \n \n 18 \n \n \n \n \n NAV per share \n \n \n £11.1 \n \n \n £11.0 \n \n \n 1 \n \n \n \n \n TNAV per share \n \n \n £9.3 \n \n \n £9.3 \n \n \n 0 \n \n \n \n \n CET1 capital ratio (transitional) \n \n \n 12.8% \n \n \n 13.3% \n \n \n \n \n \n \n \n Tier 1 capital ratio (transitional) \n \n \n 14.7% \n \n \n 13.3% \n \n \n \n \n \n \n \n Total capital ratio (transitional) \n \n \n 16.6% \n \n \n 15.3% \n \n \n \n \n \n \n \n Key Financials (Excluding Novitas) \n \n \n \n \n   \n \n \n Full year \n 2024 \n \n \n Full year \n 2023 \n \n \n Change \n % \n \n \n \n \n Statutory operating profit before tax \n \n \n £142.2m \n \n \n £218.6m \n \n \n (35) \n \n \n \n \n Adjusted operating profit \n \n \n £170.8m \n \n \n £220.1m \n \n \n (22) \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 7.6% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.9% \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 July \n 2024 \n \n \n 31 July \n 2023 \n \n \n Change \n % \n \n \n \n \n Loan book 4 \n \n \n £10.0bn \n \n \n £9.5bn \n \n \n 6 \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Please refer to definitions on pages 31 to 34. \n \n \n \n \n 2. \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\". \n \n \n \n \n 3. \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 4. \n \n \n Loan book includes operating lease assets. \n \n \n \n \n   \n Financial performance \n \n \n \n \n • \n \n \n Operating income up 1% to £944.2 million (2023: £932.6 million), with growth in both Banking and Close Brothers Asset Management (\"CBAM\") more than offsetting a reduction in Winterflood and higher Group (central functions) interest expense \n \n \n \n \n • \n \n \n Adjusted operating expenses up 10% primarily reflecting increases in staff costs and continued investment in Banking \n \n \n \n \n • \n \n \n Statutory operating profit before tax (\"PBT\") increased 27% to £142.0 million (2023: £112.0 million), reflecting non-recurrence of prior year impairment charges of £116.8 million related to Novitas. Statutory PBT included £28.6 million of adjusting items (2023: £1.5 million), primarily driven by complaints handling expenses and other operational costs associated with the FCA's review of historical motor finance commission arrangements of £6.9 million; a provision in respect of the Borrowers in Financial Difficulty (\"BiFD\") review and expected customer compensation of £17.2 million and restructuring costs of £3.1 million \n \n \n \n \n • \n \n \n Adjusted operating profit increased 50% to £170.6 million (2023: £113.5 million), as the significant decrease in impairment charges and 1% growth in income more than offset a 10% growth in adjusted operating expenses \n \n \n \n \n • \n \n \n Group return on average tangible equity (\"RoTE\") increased to 8.3% (2023: 5.9%) \n \n \n \n \n • \n \n \n In Banking , we delivered good loan book growth of 6% to £10.1 billion (31 July 2023: £9.5 billion), reflecting healthy drawdowns in Property and strong new business in Invoice Finance, as well as continued good demand in Asset Finance and Motor Finance, partly offset by a decline in Premium Finance. We delivered a net interest margin of 7.4% (2023: 7.7%) and a stable underlying credit performance, with a bad debt ratio of 1.0% (2023: 2.2%), 0.9% excluding Novitas (2023: 0.9%). Adjusted operating expenses grew by 8%, at the lower end of the 8-10% cost growth guidance range outlined previously. Adjusted operating profit was £205.4 million (2023: £120.1 million) \n \n \n \n \n • \n \n \n CBAM delivered strong net inflows of 8%, with a significant contribution from our bespoke investment management business. Total managed assets (\"AuM\") increased 18% to £19.3 billion, driven by net inflows and positive market performance. Adjusted operating profit decreased 23% to £12.2 million (2023: £15.9 million) as income growth was more than offset by higher costs, reflecting investment in new hires \n \n \n \n \n • \n \n \n In Winterflood , market conditions have remained unfavourable and the business delivered an operating loss of £1.7 million (2023: £3.5 million operating profit); Winterflood Business Services (\"WBS\") income increased 17% to £17.3 million, with assets under administration (\"AuA\") up 21% to £15.6 billion (2023: £12.9 billion) \n \n \n \n \n • \n \n \n Strong balance sheet position with our Common Equity Tier 1 (\"CET1\") ratio of 12.8% at 31 July 2024 (31 July 2023: 13.3%), significantly above our applicable requirement of 9.7% \n \n \n \n \n • \n \n \n In line with our previous announcement, no dividend will be paid in respect of the 2024 financial year \n \n \n \n \n Decisive actions to further strengthen capital position \n \n \n \n \n • \n \n \n There remains significant uncertainty about the outcome of the FCA's review of historical motor finance commission arrangements at this stage, and the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present \n \n \n \n \n • \n \n \n In March 2024, we announced a range of management actions which have the potential to strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year \n \n \n \n \n • \n \n \n We have retained c.£100 million of CET1 capital  as a result of the group's previously announced decision not to pay a dividend for the 2024 financial year. We are making significant progress against the other identified management actions. To optimise risk weighted assets, we have been growing our loan book selectively, with the impact reflected in both the loan book growth rate delivered this year and the expected trajectory for the 2025 financial year. We have concluded the work in preparation for a significant risk transfer of assets in Motor Finance. Subject to market conditions, we are ready to launch a transaction at the optimal time to maximise the peak capital benefit, aligned to the revised timetable for the FCA's work in the motor finance market. We have continued to deliver against the cost management initiatives previously announced \n \n \n \n \n • \n \n \n Following a comprehensive strategic review, on 19 September 2024, the group announced that it entered into an agreement to sell CBAM to funds managed by Oaktree Capital Management, L.P. (\"Oaktree\"). The transaction is expected to increase the group's common equity tier 1 capital ratio by approximately 100 basis points on a pro forma basis, marking significant progress towards the plan we outlined in March 2024 to strengthen our capital base. The transaction is expected to complete in early 2025 calendar year and is conditional upon receipt of certain customary regulatory approvals \n \n \n \n \n • \n \n \n The board remains confident that these actions leave the group well positioned to navigate the current uncertainty \n \n \n \n \n Guidance 1 \n In Banking , we are encouraged by the robust performance we delivered \n \n \n \n \n • \n \n \n Currently plan for low single-digit percentage growth in the loan book for the 2025 financial year \n \n \n \n \n • \n \n \n Well positioned to sustain the net interest margin delivered in the second half of the 2024 financial year of 7.2% \n \n \n \n \n • \n \n \n As announced in March 2024, additional cost management initiatives have been mobilised, which are expected to generate annualised savings of c.£20 million, reaching the full run rate by the end of the 2025 financial year, with the total benefit in the 2026 financial year \n \n \n \n \n • \n \n \n Expect income and adjusted operating expenses growth to be aligned in the 2025 financial year and to deliver positive operating leverage in the 2026 financial year \n \n \n \n \n • \n \n \n Expect the bad debt ratio to remain below our long-term average of 1.2% in the 2025 financial year \n \n \n \n \n Close Brothers Asset Management (\"CBAM\") is well placed to consolidate its position and maximise opportunities to accelerate profitability \n \n \n \n \n • \n \n \n Continue to target net inflows of 6-10% \n \n \n \n \n In Winterflood , while short-term trading conditions remain challenging, we are confident that Winterflood remains well positioned to retain its market position and benefit when investor appetite returns \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, primarily reflecting an elevated level of professional fees and expenses associated with the potential impact on the group of the FCA's review of historical motor finance commission arrangements and its revised timetable, as well as a decline in income with a reduction in interest rates. \n With respect to items recognised as adjusting in the 2024 financial year \n \n \n \n \n • \n \n \n Currently estimate costs associated with complaints handling and other operational costs associated with the FCA's review of historical motor finance commission arrangements to be between £10-15 million in the 2025 financial year \n \n \n \n \n • \n \n \n Expect to incur £5-10 million of restructuring costs in the 2025 financial year as we continue to implement cost management actions to improve future efficiency \n \n \n \n \n Subject to the execution of management actions and capital generation, we have the potential to increase the group's CET1 capital ratio to between 14% and 15% at the end of the 2025 financial year (excluding any potential redress or provision related to the FCA's review of historical motor finance commission arrangements). Over the medium term, we remain committed to our previous CET1 capital target range of 12% to 13% \n The reinstatement of dividends in 2025 and beyond will be reviewed once the FCA has concluded its process and any financial consequences for the group have been assessed \n \n \n \n \n 1. \n \n \n Guidance relating to income statement items excludes any financial impact of a significant risk transfer of assets in Motor Finance. The final impact will be dependent on the transactions' final terms and timing of execution. \n \n \n \n \n Inside information \n This announcement contains information which is deemed by the Company to constitute inside information within the meaning of the UK version of the European Union's Market Abuse Regulation ((EU) No. 596/2014). Upon the publication of this announcement via the Regulatory Information Service, the inside information is now considered to be in the public domain. The person responsible for arranging the release of this information on behalf of the Company is Sarah Peazer-Davies, Company Secretary. \n Enquiries \n \n \n \n \n Sophie Gillingham \n \n \n Close Brothers Group plc \n \n \n 020 3857 6574 \n \n \n \n \n Camila Sugimura \n \n \n Close Brothers Group plc \n \n \n 020 3857 6577 \n \n \n \n \n Kimberley Taylor \n \n \n Close Brothers Group plc \n \n \n 020 3857 6233 \n \n \n \n \n Ingrid Diaz \n \n \n Close Brothers Group plc \n \n \n 020 3857 6088 \n \n \n \n \n Sam Cartwright \n \n \n H/Advisors Maitland \n \n \n 07827 254 561 \n \n \n \n \n   \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/FullYearResults2024. \n Basis of Presentation \n Results are presented both on a statutory and an adjusted basis to aid comparability between periods. Adjusted measures are presented on a basis consistent with prior periods and exclude costs associated with complaints handling and other operational costs associated with the FCA's review of historical motor finance commission arrangements, provisions in relation to the Borrowers in Financial Difficulty review, restructuring costs 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. The adjusting items are presented within administrative expenses on a statutory basis. Please refer to Note 2 \"Segmental Analysis\" for further details on items excluded from the adjusted performance metrics. \n Financial Calendar (Provisional) \n The enclosed provisional financial calendar below is updated on a regular basis throughout the year. Please refer to our website www.closebrothers.com for up-to-date details. \n \n \n \n \n Event \n \n \n Date \n \n \n \n \n First quarter trading update \n \n \n November 2024 \n \n \n \n \n Annual General Meeting \n \n \n 21 November 2024 \n \n \n \n \n Half year end \n \n \n 31 January 2025 \n \n \n \n \n Interim results \n \n \n March 2025 \n \n \n \n \n Third quarter trading update \n \n \n May 2025 \n \n \n \n \n Financial year end \n \n \n 31 July 2025 \n \n \n \n \n Preliminary results \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, wealth management services and securities trading. We employ approximately 4,000 people, principally in the United Kingdom and Ireland. Close Brothers Group plc is listed on the London Stock Exchange and is a constituent of the FTSE 250. \n Chief Executive's Statement \n This year's performance demonstrates the group's resilience. In Banking, we grew our loan book with strong margins and stable underlying credit quality, while progressing our cost actions to improve future efficiency. Close Brothers Asset Management delivered strong net inflows, although Winterflood's performance remained impacted by unfavourable market conditions. \n The FCA's review of historical motor finance commission arrangements announced in January introduced significant uncertainty for the group. Against this backdrop, our top priority has been to further strengthen our capital position and protect our valuable franchise, whilst continuing to support our nearly three million customers, including c.350,000 SME businesses, by offering them borrowing capacity to acquire essential assets. \n Notwithstanding this uncertainty, we have made significant progress in enhancing our business and customer offering over the year. We have written healthy levels of new business as demand from customers has remained strong; we acquired Close Brothers Motor Finance in Ireland and are re-establishing our presence in this strategic market; and we have made key strategic hires across our business franchise, as we further develop our capabilities. We have also taken this opportunity to review many of our processes and implement ways we can operate more efficiently in the future. This continued focus on protecting and sustaining our franchise means we are well positioned to take advantage of future opportunities. \n Financial Performance \n Statutory operating profit before tax increased 27% to £142.0 million (2023: £112.0 million). This was primarily driven by the non-recurrence of the significant impairment charges related to Novitas in the prior year. 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 increased 50% to £170.6 million, as the significant decrease in impairment charges and 1% growth in income more than offset a 10% growth in adjusted operating expenses. \n In Banking, adjusted operating profit increased materially to £205.4 million, driven by loan book growth of 6%, a strong net interest margin of 7.4%, and a stable credit performance when excluding the non-recurrence of prior year impairment charges related to Novitas. Banking costs increased by 8%, at the lower end of the 8-10% cost growth guidance range outlined previously, driven mainly by inflationary-related increases in staff costs, higher regulatory compliance and assurance expenses and continued investment, partly offset by the progress we have made on our tactical and strategic cost management initiatives. We have made good progress on the delivery of the cost management initiatives previously announced, such as through our technology transformation programme, vacating our Wimbledon Bridge House office and through the review of our workforce. We recognise that there is more we can achieve in enhancing our future cost efficiency. Our focus remains on delivering annualised cost savings of c.£20 million, with the full benefit expected in the 2026 financial year. \n CBAM delivered strong net inflows of 8%, although profit reduced, as income growth was more than offset by costs primarily related to wage inflation and new hires to support future growth. \n Winterflood's performance remained impacted by lower trading income resulting from continued weakness in investor appetite and market uncertainty, with an operating loss of £1.7 million after incurring one-off dual-running property costs of c.£3 million. WBS continued to see good momentum, with income rising 17% to £17.3 million and a 21% increase in AuA to £15.6 billion. \n Our capital position was strong, with our CET1 capital ratio at 12.8% (31 July 2023: 13.3%), significantly above our applicable requirement of 9.7%. Total funding increased 5% to £13.0 billion (31 July 2023: £12.4 billion), with 36% growth in our retail deposit base, demonstrating the strength of our Savings proposition. We maintained our prudent liquidity position, with our Liquidity Coverage Ratio over 1,000%, substantially exceeding regulatory requirements. \n Continued Uncertainty Arising from the FCA's Review of the Motor Finance Industry \n With respect to the FCA's review of discretionary commission arrangements in the motor finance market prior to the 2021 ban on these models, on 30 July 2024, the FCA announced that it now aims to set out next steps by the end of May 2025, rather than by September 2024 as previously expected. There remains significant uncertainty for the industry and the group regarding any potential remedial action as a result of the review. Close Brothers Motor Finance (\"CBMF\") has operated in the motor finance market for over three decades, during which we have sought to comply with the relevant regulatory requirements. There are a range of possible outcomes and we remain focused on further strengthening the group's capital position, with the priority of protecting and sustaining our valuable franchise. \n We have a strong long-term dividend track record and the decision taken in February 2024 not to pay a dividend for the 2024 financial year was not made lightly. The reinstatement of dividends in 2025 and beyond will be reviewed once the FCA has concluded its process and any financial consequences for the group have been assessed. \n As previously announced, we are implementing management actions which, combined with the decision not to pay a dividend in the 2024 financial year, have the potential to strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year. \n We have made significant progress against these management actions. Whilst the demand from customers has remained strong, we have been selectively growing our loan book to optimise risk weighted assets, alongside working diligently to find alternatives for writing further business with a lower capital consumption. Whilst we have written c.£8 billion of new business in the 2024 financial year, we estimate that at least c.£570 million in additional loans meeting our credit and pricing requirements could have been underwritten in the current environment. Approximately £220 million of these loans would have been drawn in the year. While this is disappointing, we are confident that we will be well positioned to capture this demand and accelerate the growth of our loan book as soon as feasible. Additionally, we have concluded our work in preparation for a significant risk transfer of assets through motor finance securitisation and are ready to launch a transaction at the optimal time. \n We have continued to deliver against the additional cost management initiatives previously announced. These initiatives aim to generate annualised savings of c.£20 million, reaching the full run rate by the end of the 2025 financial year. We are progressing a range of other potential management actions, as previously outlined, which include potential significant risk transfer of other portfolios through securitisation and a continued review of our business portfolios and other tactical actions. \n Following a comprehensive strategic review, we are pleased to announce the agreed sale of CBAM to Oaktree. The transaction is expected to increase the group's common equity tier 1 capital ratio by approximately 100 basis points on a pro forma basis, marking significant progress towards the capital plan we outlined in March 2024. Additionally, the agreed sale represents competitive value for our shareholders and allows us to simplify the group, focusing on our core lending business. CBAM has delivered impressive growth over the past years and has developed into a strong franchise. Under the new ownership, it will benefit from additional resources to accelerate its growth trajectory. I would like to thank our CBAM colleagues for their dedication, professionalism and exceptional service to our clients. \n Outlook \n We remain committed to executing our strategy and protecting our valuable franchise. We are making significant progress against the initiatives previously outlined to further strengthen our capital position. \n The strengths of our model, being our long-term relationships, the deep expertise of our people and our customer-centric approach, leave us well placed to navigate the current uncertainty. We continue to be encouraged by the strength of demand in our Banking business and see good growth prospects for our core business. \n Adrian Sainsbury \nChief Executive \n FCA's Review of Historical Motor Finance Commission Arrangements \n On 11 January 2024, the FCA announced it would use its powers under section 166 of the Financial Services and Markets Act 2000 to review historical motor finance commission arrangements and sales at several firms, following high numbers of complaints from customers. The review followed the Financial Ombudsman Service (\"FOS\") publication of its first two decisions upholding customer complaints relating to discretionary commission arrangements (\"DCAs\") against two other lenders in the market. \n The FCA issued an update to the market on 30 July 2024. In the announcement, it stated that due to delays in collecting and reviewing historical data, as well as relevant ongoing litigation, it would not be able to set out the next steps of its review by 24 September 2024 as it originally planned. The FCA now aims to set out next steps by the end of May 2025. \n Overview of Commission Models Operated 1 \n CBMF has operated in the motor finance market for over three decades, during which we have sought to comply with the relevant regulatory requirements. \n Prior to 2016, CBMF operated an Upward Difference in Charges (\"DIC\") model. This allowed the dealer or broker full discretion over the customer rate and the commission earned on point-of-sale finance, subject to a hard cap on the amount of commission. Under the DIC model, commission, if any, was paid as a percentage of the total interest paid by the customer. \n From 2016, CBMF introduced a Downward Scaled Commission (\"DSM\") model, which capped both the interest charged to the customer and commission paid to the dealer or broker. This meant that CBMF set the headline rate for the customer and the dealers could only reduce this by decreasing their level of commission. Under the DSM model, commission, if any, was paid as a percentage of the loan size. \n From 2021 onwards, CBMF introduced a Risk Adjusted Pricing Model which set the rate for the customer and adjusted the rate according to the customer risk profile. Dealer discretion was removed entirely. Under the Risk Adjusted Pricing Model, commission, if any, is paid as a fixed percentage of the loan size. \n All historical models included a \"hard cap\" on the commission amount paid to the broker or dealer. Commission disclosures were also reviewed and enhanced, as required, over time. \n \n \n \n \n 1. \n \n \n For simplicity, dates shown above assume transition when substantially complete. \n \n \n \n \n Impact on Close Brothers \n The FCA review is progressing to determine whether there has been industry-wide failure to comply with regulatory requirements which has caused customers harm and, if so, whether it needs to take any actions. Based on the status at the end of the financial year and in accordance with the relevant accounting standards, the board has concluded that no legal or constructive obligation exists and it is currently not required or appropriate to recognise a provision at 31 July 2024 in relation to this matter. The FCA has indicated there could be a range of outcomes, with one potential outcome being an industry-wide consumer redress scheme. On 30 July 2024, the FCA indicated that, while no final decisions have been made, it is more likely than when it started its review that some kind of redress mechanism may be necessary. The estimated impact of any redress scheme, if required, is highly dependent on a number of factors including, for example, the time period covered; the DCA models impacted (the group operated a number of different models during the period under review); appropriate reference commission rates set for any redress; and response rates to any redress scheme. As such, the timing, scope and quantum of the potential financial impact on the group, if any, remain uncertain and cannot be reliably estimated at present. In addition, it is not currently practicable to estimate or disclose any potential financial impact arising from this issue. \n The group is subject to a number of claims through the courts regarding historical motor finance commission arrangements. One of these, initially determined in the group's favour, was appealed by the claimant and the case was heard in early July 2024 by the Court of Appeal together with two separate claims made against another lender. The Court's decision is now awaited. \n As of 31 August 2024, 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. \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. On 9 May 2024, the FOS announced that it would be unlikely to be able to issue final decisions on motor commission cases for some time due to the potential impact of a judicial review proceeding started by another lender in relation to one of its January 2024 decisions and also the outstanding Court of Appeal decisions. \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. This financial year, we have incurred £6.9 million of costs associated with complaints handling and other operational costs associated with the FCA's review. This included increased resourcing in our complaints and legal teams, along with associated investments in data, systems and business processes. These costs are lower than our previous estimate of c.£10 million as we remain focused on mitigating the impact on resource expenses through outsourcing and deployment of automated solutions to assist in triaging new complaints, improving our processing speed. In the 2025 financial year, we currently estimate these costs will be between £10-15 million. We continue to monitor the impact on our current handling of these complaints and are following the playbooks in place to ensure we have the appropriate resources to respond effectively. \n Further Strengthening our Capital Base to Continue to Support Customers and Protect our Valuable Franchise \n While there is no certainty regarding any potential financial impact as a result of the FCA's review, the board recognises the need to plan for a range of possible outcomes. It is a long-standing priority of the group to maintain a strong balance sheet and prudent approach to managing its financial resources. To that end, the board considers it prudent for the group to further strengthen its capital position, balancing this with the need to continue supporting our customers and protecting our business franchise. \n In March 2024, we announced a range of management actions which have the potential to strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year (when compared to the group's projected CET1 capital ratio for 31 July 2025 at the time of our Half Year results announcement, prior to any management actions). We are now providing an update on the progress made since then. \n We have retained c.£100 million of CET1 capital in the 2024 financial year as a result of the group's previously announced decision not to pay a dividend for the 2024 financial year. \n We announced steps to further strengthen the group's capital position by optimising risk weighted assets (\"RWAs\"). We plan to reduce RWA growth by approximately £1 billion through a combination of selective loan book growth, partnerships and significant risk transfer of assets related to our Motor Finance business through securitisations. The combination of these actions could release c.£100 million of CET1 capital by the end of the 2025 financial year. In the second half, we grew the loan book selectively while maintaining support for our existing customers, with the impact reflected in the lower loan book growth of 2% in the six months since 31 January 2024. We currently plan for low single-digit percentage growth in the loan book in the 2025 financial year, with the associated impact to be reflected in the group's CET1 capital ratio over the course of the 2025 financial year. We have concluded the work in preparation for a significant risk transfer of assets in Motor Finance. Subject to market conditions, we are ready to launch a transaction at the optimal time to maximise the peak capital benefit, aligned to the revised timetable for the FCA's work in the motor finance market. \n We have progressed on the delivery of the additional cost management initiatives previously announced to generate annualised savings of c.£20 million, reaching the full run rate by the end of the 2025 financial year. These initiatives include the continued rationalisation of third-party suppliers and simplification of our property footprint, as well as adjustments to our workforce to drive increased efficiency. We have partnered with a leading technology services and consulting company to help us drive our technology transformation programme, which has led to a headcount reduction of c.100 as we made increased use of outsourcing and the removal of over 115 IT applications to date. We have served notice to vacate our Wimbledon Bridge House office and establish a more suitable London footprint to meet the needs of the business, resulting in the removal of approximately 800 desks. As a result of the review of our workforce, we have incurred £3.1 million of restructuring costs, primarily relating to redundancy and associated costs. \n We continue to progress a range of other potential management actions which include potential risk transfer of other portfolios through securitisation and a continued review of our business portfolios and other tactical actions. On 19 September 2024, the group announced that it entered into an agreement to sell CBAM to Oaktree. The transaction is expected to increase the group's common equity tier 1 capital by approximately £100 million, further strengthening our capital position. \n Additionally, as our business continues to organically generate capital through 2025, the retention of earnings could potentially strengthen the group's capital position by a further £100 million, if required. \n Subject to the execution of these management actions and capital generation, we have the potential to increase the group's CET1 capital ratio to between 14% and 15% at the end of the 2025 financial year (excluding any potential redress or provision related to the FCA's review of historical motor finance commission arrangements). \n While there remains considerable uncertainty regarding the specifics of any potential redress scheme, if required, as well as its timing, the board is confident that these actions leave the group well positioned to navigate the current uncertain environment. \n Financial Overview \n Summary Group Income Statement 1 \n \n \n \n \n \n \n \n 2024 \n £ million \n \n \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 944.2 \n \n \n 932.6 \n \n \n 1 \n \n \n \n \n Adjusted operating expenses \n \n \n (674.8) \n \n \n (615.0) \n \n \n 10 \n \n \n \n \n Impairment losses on financial assets \n \n \n (98.8) \n \n \n (204.1) \n \n \n (52) \n \n \n \n \n Adjusted operating profit \n \n \n 170.6 \n \n \n 113.5 \n \n \n 50 \n \n \n \n \n Banking \n \n \n 205.4 \n \n \n 120.1 \n \n \n 71 \n \n \n \n \n   Banking excluding Novitas \n \n \n 205.6 \n \n \n 226.7 \n \n \n (9) \n \n \n \n \n Commercial \n \n \n 89.5 \n \n \n 15.9 \n \n \n 463 \n \n \n \n \n   Of which: Novitas \n \n \n (0.2) \n \n \n (106.6) \n \n \n (100) \n \n \n \n \n Retail \n \n \n 37.9 \n \n \n 34.7 \n \n \n 9 \n \n \n \n \n Property \n \n \n 78.0 \n \n \n 69.5 \n \n \n 12 \n \n \n \n \n Asset Management \n \n \n 12.2 \n \n \n 15.9 \n \n \n (23) \n \n \n \n \n Winterflood \n \n \n (1.7) \n \n \n 3.5 \n \n \n (148) \n \n \n \n \n Group (central functions) \n \n \n (45.3) \n \n \n (26.0) \n \n \n 74 \n \n \n \n \n Adjusting items: \n \n \n \n \n \n \n \n \n \n \n \n \n \n Complaints handling and other operational costs associated with the FCA's review of historical motor finance commission arrangements \n \n \n (6.9) \n \n \n - \n \n \n - \n \n \n \n \n Provision in relation to the BiFD review \n \n \n (17.2) \n \n \n - \n \n \n - \n \n \n \n \n Restructuring costs \n \n \n (3.1) \n \n \n - \n \n \n - \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n (1.4) \n \n \n (1.5) \n \n \n (7) \n \n \n \n \n Statutory operating profit before tax \n \n \n 142.0 \n \n \n 112.0 \n \n \n 27 \n \n \n \n \n Tax \n \n \n (41.6) \n \n \n (30.9) \n \n \n 35 \n \n \n \n \n Profit after tax \n \n \n 100.4 \n \n \n 81.1 \n \n \n 24 \n \n \n \n \n Profit attributable to shareholders \n \n \n 100.4 \n \n \n 81.1 \n \n \n 24 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Adjusted basic earnings per share 2 \n \n \n 76.1p \n \n \n 55.1p \n \n \n \n \n \n \n \n Basic earnings per share 2 \n \n \n 59.7p \n \n \n 54.3p \n \n \n \n \n \n \n \n Ordinary dividend per share \n \n \n - \n \n \n 67.5p \n \n \n \n \n \n \n \n Return on opening equity \n \n \n 6.9% \n \n \n 5.0% \n \n \n \n \n \n \n \n Return on average tangible equity \n \n \n 8.3% \n \n \n 5.9% \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 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\". \n \n \n \n \n 2. \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 Financial Performance \n Statutory Operating Profit \n Statutory operating profit before tax increased 27% to £142.0 million (2023: £112.0 million), reflecting higher profitability in the Banking division, driven primarily by the non-recurrence of the significant impairment charges incurred in relation to Novitas in the prior year. This was partly offset by costs associated with the handling of complaints and other operational costs associated with the FCA's review of historical motor finance commission arrangements , a provision recognised in relation to the Past Business Review and expected customer compensation in respect of forbearance related to motor finance lending following discussions with the FCA in relation to its market-wide review of Borrowers in Financial Difficulty (\"BiFD\"), and an increase in Group (central functions) net expenses. \n Adjusted Operating Profit \n Adjusted operating profit increased 50% to £170.6 million (2023: £113.5 million), as the significant decrease in impairment charges and 1% growth in income offset a 10% growth in adjusted operating expenses. Excluding Novitas, adjusted operating profit decreased to £170.8 million (2023: £220.1 million). \n Banking adjusted operating profit increased to £205.4 million (2023: £120.1 million), with the prior year including an impairment charge of £116.8 million taken in relation to Novitas. Excluding Novitas, Banking adjusted operating profit decreased to £205.6 million (2023: £226.7 million) as higher income from loan book growth was more than offset by cost growth in line with guidance. In the Asset Management division, adjusted operating profit declined by 23% to £12.2 million (2023: £15.9 million) as higher income was offset by an increase in costs as we invested in new hires in our bespoke investment management business. Winterflood delivered an operating loss of £1.7 million (2023: operating profit of £3.5 million), primarily reflecting lower trading income in a challenging market environment and one-off dual-running property costs. Group (central functions) net expenses, which include the central functions such as finance, legal and compliance, risk and human resources, increased to £45.3 million (H1 2024: £21.0 million, H2 2024: £24.3 million, 2023: £26.0 million), driven primarily by interest charges of £19.4 million (2023: £2.5 million) incurred on the group's £250 million senior unsecured bond issued in June 2023 at an interest rate of 7.75% and an increase in professional fees and expenses associated with the potential impact on the group of the FCA's review of historical motor finance commission arrangements. \n We expect Group (central functions) net expenses to increase to between £55 million and £60 million in the 2025 financial year, primarily reflecting an elevated level of professional fees and expenses associated with the potential impact on the group of the FCA's review of historical motor finance commission arrangements and its revised timetable, as well as a decline in interest income received from the proceeds of the group bond being placed on deposit with the reduction in interest rates. \n Return on opening equity increased to 6.9% (2023: 5.0%) and return on average tangible equity increased to 8.3% (2023: 5.9%). \n Operating Income \n Operating income increased 1% to £944.2 million (2023: £932.6 million), with growth in both Asset Management and Banking offsetting a decline in Winterflood and higher interest expenses from the group senior unsecured bond. \n Income in the Banking division increased 2%. This reflected good loan book growth and strong, albeit reduced, margins as we maintained our focus on pricing discipline and optimising funding costs in the higher rate environment, although experienced margin pressures and lower activity-driven fee income in the Commercial businesses. As previously highlighted, Banking income in the prior year benefited from one-off items related to movements through profit and loss from derivatives outside of a hedge accounting relationship and Novitas income. Excluding the impact of these items, Banking income grew 4%. Income in Asset Management increased 9%, driven by higher investment management income, reflecting growth in AuM delivered by our bespoke investment management business. Income in Winterflood reduced 3% as the decline in trading income more than offset growth in WBS. Income decreased in the Group (central functions) to £(11.5) million (2023: £(1.3) million), driven by interest charges incurred on the group's £250 million senior unsecured bond issued in June 2023 at an interest rate of 7.75%, partly offset by interest income received from the proceeds being placed on deposit. \n Operating Expenses \n Adjusted operating expenses rose 10% to £674.8 million (2023: £615.0 million), primarily driven by increased staff costs across the group, as well as continued investment in Banking. In the Banking division, costs grew 8%, at the lower end of the guidance provided, as we incurred inflationary-related increases in staff costs, higher regulatory compliance and assurance expenses and continued to invest in our strategic programmes. We also made good progress on our strategic and tactical cost management initiatives as we implement measures to deliver annualised cost savings of c.£20 million, reaching the full run rate by the end of the 2025 financial year, with the total benefit in the 2026 financial year. Costs rose 13% in Asset Management, mainly reflecting wage inflation and new hires to support future growth. Winterflood's costs increased 4%, primarily reflecting one-off costs incurred by relocating premises. Expenses in the Group (central functions) rose to £33.8 million (2023: £24.7 million), reflecting an increase in professional fees and expenses associated with the potential impact on the group of the FCA's review of historical motor finance commission arrangements, as well as performance-driven compensation and share-based awards. \n Overall, the group's expense/income ratio increased to 71% (2023: 66%), whilst the compensation ratio increased to 41% (2023: 37%), reflecting inflation-related wage increases and new hires in CBAM. \n   \n Impairment Charges and IFRS 9 Provisioning \n Impairment charges decreased significantly to £98.8 million (2023: £204.1 million), corresponding to a bad debt ratio of 1.0% (2023: 2.2%) with the prior year including a charge of £116.8 million in relation to Novitas. Overall, provision coverage increased to 4.3% (31 July 2023: 3.9%). \n Excluding Novitas, impairment charges rose 6% to £92.4 million (2023: £87.3 million), mainly driven by loan book growth and the ongoing review of provisions and coverage across our loan portfolios, partly offset by improvements to the macroeconomic outlook. The bad debt ratio, excluding Novitas, remained stable at 0.9% (2023: 0.9%) and remains below our long-term bad debt ratio of 1.2%. The coverage ratio increased slightly to 2.3% (31 July 2023: 2.1%), excluding Novitas. \n Since the 2023 financial year end, we have updated the macroeconomic scenarios to reflect the latest available information regarding the macroeconomic environment and improved outlook, although the weightings assigned to them remain unchanged. At 31 July 2024, there was a 30% weighting to the strong upside, 32.5% weighting to the baseline, 20% weighting to the mild downside, 10.5% weighting to the moderate downside and 7% weighting to the protracted downside. \n Whilst we have not seen a significant impact on credit performance, we continue to monitor closely the evolving impacts of inflation and cost of living on our customers. We remain confident in the quality of our loan book, which is predominantly secured or structurally protected, prudently underwritten, diverse, and supported by the deep expertise of our people. Looking forward, we expect the bad debt ratio for the 2025 financial year to remain below our long-term average of 1.2%. \n Adjusting Items \n We recognised £28.6 million of adjusting items in the 2024 financial year, of which £2.9 million were incurred in the first half (consisting of £0.6 million of amortisation of intangible assets on acquisition and £2.3 million relating to complaints handling expenses and other operational costs associated with the FCA's review of historical motor finance commission arrangements, which have been recategorised as an adjusting item). \n We incurred £6.9 million of complaints handling expenses and other operational costs associated with the FCA's review of historical motor finance commission arrangements. \n As highlighted in the Q3 trading update, following discussions with the FCA in relation to its market-wide review of Borrowers in Financial Difficulty, which assessed forbearance and related practices, the group has conducted a Past Business Review of customer forbearance related to its motor finance lending. This has now concluded and a provision of £17.2 million has been recognised in respect of the review and expected customer compensation. We have commenced making compensation payments to customers, with the resulting remediation programme expected to be materially complete this calendar year. This provision, which should sufficiently address the outcomes of the review, is higher than previously estimated, reflecting our decision to both widen the population of in-scope customers and increase the assumptions for average distress and inconvenience payments, in line with our commitment to achieving fair customer outcomes. \n In addition, we incurred £3.1 million of restructuring costs in the 2024 financial year primarily relating to redundancy and associated costs. We have made good progress on streamlining the workforce, which has been achieved through the consolidation of roles across our businesses and functions, as well as through the management of vacancies. \n Tax Expense \n The tax expense was £41.6 million (2023: £30.9 million), which corresponds to an effective tax rate of 29.3% (2023: 27.6%). \n The standard UK corporation tax rate for the financial year is 25.0% (2023: 21.0%). The effective tax rate is above the UK corporation tax rate primarily due to disallowable expenditure, including expected customer compensation following the BiFD review, partly offset by tax relief from the Additional Tier 1 (\"AT1\") securities coupon payments. An additional banking surcharge of 3% (2023: 6.3%) applies to banking company profits as defined in legislation, but only above a certain amount, resulting in a nil (2023: 5.5%) surcharge impact. \n Earnings Per Share \n Adjusted basic earnings per share (\"EPS\") increased to 76.1p (2023: 55.1p) and basic EPS increased to 59.7p (2023: 54.3p). Both the adjusted and basic EPS calculation include the payment of the coupon related to the Fixed Rate Resetting AT1 Perpetual Subordinated Contingent Convertible Securities, at an annual rate of 11.125%, on 29 May 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 Dividend \n Given the significant uncertainty regarding the outcome of the FCA's review of historical motor finance commission arrangements and any potential financial impact as a result, the board has considered it prudent for the group to further strengthen its capital position, while supporting our customers and business franchise. Therefore, as announced on 15 February 2024, the group will not pay a dividend on its ordinary shares for the 2024 financial year. \n The reinstatement of dividends in the 2025 financial year and beyond will be reviewed once the FCA has concluded its process and any financial consequences for the group have been assessed. \n Summary Group Balance Sheet \n \n \n \n \n \n \n \n 31 July 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Loans and advances to customers and operating lease assets 1 \n \n \n 10,098.7 \n \n \n 9,526.2 \n \n \n \n \n Treasury assets 2 \n \n \n 2,300.9 \n \n \n 2,229.4 \n \n \n \n \n Market-making assets 3 \n \n \n 691.8 \n \n \n 787.6 \n \n \n \n \n Other assets \n \n \n 989.4 \n \n \n 1,007.1 \n \n \n \n \n Total assets \n \n \n 14,080.8 \n \n \n 13,550.3 \n \n \n \n \n Deposits by customers \n \n \n 8,693.6 \n \n \n 7,724.5 \n \n \n \n \n Borrowings 4 \n \n \n 2,339.2 \n \n \n 2,839.4 \n \n \n \n \n Market-making liabilities 3 \n \n \n 631.6 \n \n \n 700.7 \n \n \n \n \n Other liabilities \n \n \n 573.9 \n \n \n 640.8 \n \n \n \n \n Total liabilities \n \n \n 12,238.3 \n \n \n 11,905.4 \n \n \n \n \n Equity 5 \n \n \n 1,842.5 \n \n \n 1,644.9 \n \n \n \n \n Total liabilities and equity \n \n \n 14,080.8 \n \n \n 13,550.3 \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Includes operating lease assets of £267.9 million (31 July 2023: £271.2 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 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 a prudent approach to managing its financial resources. The fundamental structure of the balance sheet remains unchanged, with most of the assets and liabilities relating to our Banking activities. Loans and advances make up the majority of assets. Other items on the balance sheet include treasury assets held for liquidity purposes, and settlement balances in Winterflood. Intangibles, property, plant and equipment, and prepayments are included as other assets. Liabilities are predominantly made up of customer deposits and both secured and unsecured borrowings to fund the loan book. \n Total assets increased 4% to £14.1 billion (31 July 2023: £13.6 billion), mainly reflecting growth in the loan book and higher Treasury assets. Total liabilities were 3% higher at £12.2 billion (31 July 2023: £11.9 billion), driven primarily by higher customer deposits, partly offset by a reduction in borrowings. Both market-making assets and liabilities, which related to trading activity at Winterflood, were lower due to a decrease in value traded at the end of the year. \n Total equity increased 12% to £1.8 billion (31 July 2023: £1.6 billion), primarily reflecting the issuance of AT1 securities net of transaction costs and profit in the year, which was partially offset by dividend payments for the 2023 financial year of £67.1 million (2023: £99.1 million) and the AT1 coupon payment of £11.1 million (2023: £nil). The group's return on assets increased to 0.8% (2023: 0.6%). \n Group Capital \n \n \n \n \n \n \n \n 31 July 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Common Equity Tier 1 capital \n \n \n 1,374.8 \n \n \n 1,310.8 \n \n \n \n \n Tier 1 capital \n \n \n 1,574.8 \n \n \n 1,310.8 \n \n \n \n \n Total capital \n \n \n 1,774.8 \n \n \n 1,510.8 \n \n \n \n \n Risk weighted assets \n \n \n 10,701.2 \n \n \n 9,847.6 \n \n \n \n \n Common Equity Tier 1 capital ratio (transitional) \n \n \n 12.8% \n \n \n 13.3% \n \n \n \n \n Tier 1 capital ratio (transitional) \n \n \n 14.7% \n \n \n 13.3% \n \n \n \n \n Total capital ratio (transitional) \n \n \n 16.6% \n \n \n 15.3% \n \n \n \n \n Leverage ratio 1 \n \n \n 12.7% \n \n \n 11.4% \n \n \n \n \n   \n \n \n \n \n 1. \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 13.3% to 12.8%, mainly driven by loan book growth (-c.100bps), a decrease in IFRS 9 transitional arrangements (-c.20bps), Bluestone Motor Finance (Ireland) DAC acquisition (-c.20bps) and AT1 coupon (-c.10bps). This was partly offset by profits for the current financial year (c.90bps). \n CET1 capital increased 5% to £1,374.8 million (31 July 2023: £1,310.8 million), mainly driven by £100.4 million of profits, partly offset by the dividends paid and foreseen related to the AT1 coupon of £15.0 million and a decrease in the transitional IFRS 9 add-back to capital of £19.7 million. \n Tier 1 capital increased 20% to £1,574.8 million (31 July 2023: £1,310.8 million), driven by the issuance of the group's inaugural AT1 in a £200 million transaction to optimise the capital structure and provide further flexibility to grow the business. The transaction strengthened the regulatory capital position and was in line with the group's strategy and capital management framework. \n Total capital increased 17% to £1,774.8 million (31 July 2023: £1,510.8 million), primarily reflecting the AT1 issuance. \n RWAs increased 9% to £10.7 billion (31 July 2023: £9.8 billion), driven by loan book growth (c.£790 million) primarily in Commercial and Property, the acquisition of Bluestone Motor Finance (Ireland) DAC (c.£120 million), and a decrease in operational risk RWAs (c.£40 million), reflecting a reduction in average income in Winterflood partly offset by loan book growth. \n As a result, CET1, tier 1 and total capital ratios were 12.8% (31 July 2023: 13.3%), 14.7% (31 July 2023: 13.3%) and 16.6% (31 July 2023: 15.3%), respectively. \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 July 2024. Accordingly, we continue to have headroom significantly above the applicable requirements of c.310bps in the CET1 capital ratio, c.330bps in the tier 1 capital ratio and c.290bps in the total capital ratio. \n The group applies IFRS 9 regulatory transitional arrangements which allow banks to add back to their capital base a proportion of the IFRS 9 impairment charges during the transitional period. Our capital ratios are presented on a transitional basis after the application of these arrangements. On a fully loaded basis, without their application, the CET1, tier 1 and total capital ratios would be 12.7%, 14.6% and 16.5%, respectively. \n The leverage ratio, which is a transparent measure of capital strength not affected by risk weightings, increased to 12.7% (31 July 2023: 11.4%) primarily due to the increase in tier 1 capital. \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 an implementation date of 1 January 2026, six months later than previously anticipated. The majority of rules applicable to the group remain 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. As a result, 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 As outlined at the Half Year 2024 results, following our application (in December 2020) to transition to the Internal Ratings Based (\"IRB\") approach, the application has successfully moved to Phase 2 of the process 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. \n Further Strengthening our Capital Position \n In March 2024, we announced a range of management actions which have the potential to strengthen the group's available CET1 capital by approximately £400 million by the end of the 2025 financial year (when compared to the group's projected CET1 capital ratio for 31 July 2025 at the time of our Half Year results announcement, prior to any management actions). While there remains considerable uncertainty regarding the specifics of any potential redress scheme, if required, as well as its timing, the board is confident that these actions leave the group well positioned to navigate the current uncertainty. \n Subject to the execution of these management actions and capital generation, we have the potential to increase the group's CET1 capital ratio to between 14% and 15% at the end of the 2025 financial year (excluding any potential redress or provision related to the FCA's review of historical motor finance commission arrangements). Over the medium term, we remain committed to our previous CET1 capital target range of 12% to 13%. \n Group Funding 1 \n \n \n \n \n \n \n \n 31 July 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Customer deposits \n \n \n 8,693.6 \n \n \n 7,724.5 \n \n \n \n \n Secured funding \n \n \n 1,205.1 \n \n \n 1,676.6 \n \n \n \n \n Unsecured funding 2 \n \n \n 1,219.1 \n \n \n 1,308.6 \n \n \n \n \n Equity \n \n \n 1,842.5 \n \n \n 1,644.9 \n \n \n \n \n Total available funding 3 \n \n \n 12,960.3 \n \n \n 12,354.6 \n \n \n \n \n Total funding as a percentage of loan book 4 \n \n \n 128% \n \n \n 130% \n \n \n \n \n Average maturity of funding allocated to loan book 5 \n \n \n  20 months \n \n \n 21 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 £55.7 million (31 July 2023: £44.3 million) of non-facility overdrafts included in borrowings and includes £140.0 million (31 July 2023: £190.0 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 £267.9 million (31 July 2023: £271.2 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. \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, comfortably ahead of a shorter average loan book maturity. We have maintained a prudent maturity profile, with the average maturity of funding allocated to the loan book at 20 months (31 July 2023: 21 months), ahead of the average loan book maturity at 16 months (31 July 2023: 16 months). \n Our funding draws on a wide range of wholesale and deposit markets including several public debt securities at both group and operating company level, as well as public and private secured funding programmes and a diverse mix of customer deposits. This broad funding base reduces concentration risk and ensures we can adapt our position through the cycle. \n Total funding increased by 5% over the year to £13.0 billion (31 July 2023: £12.4 billion), which accounted for 128% (31 July 2023: 130%) of the loan book at the balance sheet date, as we actively sought to grow our customer deposit base over the year. The average cost of funding in Banking increased to 5.5% (2023: 3.2%) reflecting the stabilisation of interest rates at a higher level and the corresponding impact on deposit pricing pressure. With macroeconomic indicators showing improvement in the second half of the financial year, the Bank of England base rate cut in August 2024 and further expectations of interest rate reductions, the pressure on cost of funding has begun to ease in recent months. We are well positioned to continue benefiting from our diverse funding base. \n Customer deposits increased 13% to £8.7 billion (31 July 2023: £7.7 billion). Of this, non-retail deposits decreased 15% to £3.0 billion (31 July 2023: £3.5 billion) and retail deposits increased by 36% to £5.7 billion (31 July 2023: £4.2 billion), as we actively sought to grow our retail deposit base and product offering. In line with our prudent and conservative approach to funding, our deposits are predominantly term, with only 8% of total deposits available on demand and over 65% having at least three months to maturity. At 31 July 2024, approximately 86% of retail deposits were protected by the Financial Services Compensation Scheme. \n Secured funding decreased 28% to £1.2 billion (31 July 2023: £1.7 billion), with our fifth public Motor Finance securitisation completed in November 2023 more than offset by a £250 million repayment related to our Motor Finance warehouse securitisation and the repayment of £490 million of the Term Funding Scheme for Small and Medium-sized Enterprises (\"TFSME\") ahead of the scheduled maturity date. This takes our remaining drawings under the scheme to £110 million (31 July 2023: £600 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, reduced 7% to £1.2 billion (31 July 2023: £1.3 billion). \n The investment in our customer deposit platform continues to deliver tangible benefits and provide us with scalability. Deposits held through this platform have now grown to over £6.3 billion and we have continued to expand and diversify our products, with Easy Access complementing our existing offering of Notice Accounts and Fixed Rate Cash ISAs. The introduction of Easy Access provides us access to a large potential deposit pool, with balances of c.£540 million (at 31 July 2024). We have also recently onboarded an additional depositor aggregator partner, which has provided another avenue for us to secure fixed retail funding. We remain focused on growing our retail funding base from a variety of segments, further optimising our cost of funding and maturity profile. \n Our Savings business provides simple and straightforward savings products to both individuals and businesses, whilst being committed to providing the highest level of customer service. In the second half of the financial year, we conducted a review aimed at enhancing operational efficiency and supporting our retail deposit growth ambitions. As a result, our Savings business has been integrated into the Retail business. This strategic move will leverage established shared operations, supporting the continued expansion of the business. \n   \n Our credit ratings continue to reflect the group's inherent financial strength, diversified business model and consistent risk appetite. Moody's Investors Services (\"Moody's\") ratings for CBG and CBL are A3/P2 and A1/P1 respectively (at 14 August 2024) with a negative outlook. Moody's ratings for Close Brothers Group's senior unsecured and subordinated debt is A3 (at 14 August 2024). Fitch Ratings (\"Fitch\") Issuer Default Ratings (\"IDRs\") for CBG and CBL are BBB+/F2 with a \"negative outlook\" (at 20 February 2024). \n Group Liquidity \n \n \n \n \n \n \n \n 31 July 2024 \n £ million \n \n \n 31 July 2023 \n £ million \n \n \n \n \n Cash and balances at central banks \n \n \n 1,584.0 \n \n \n 1,937.0 \n \n \n \n \n Sovereign and central bank debt \n \n \n 383.7 \n \n \n  186.1 \n \n \n \n \n Supranational, sub-sovereigns and agency (\"SSA\") bonds \n \n \n 145.5 \n \n \n - \n \n \n \n \n Covered bonds \n \n \n 187.7 \n \n \n 106.3 \n \n \n \n \n Treasury assets \n \n \n 2,300.9 \n \n \n 2,229.4 \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 In light of the significant uncertainty regarding the outcome of the FCA's review of historical motor finance commission arrangements, we have deliberately maintained a higher level of liquidity. We have continued to diversify our large, high quality liquid asset portfolio held mainly in cash and government bonds. Over the year, treasury assets increased 3% to £2.3 billion (31 July 2023: £2.2 billion) and were predominantly held on deposit with the Bank of England. \n We regularly assess and stress test the group's liquidity requirements and continue to exceed the liquidity coverage ratio (\"LCR\") regulatory requirements, with a 12-month average LCR to 31 July 2024 of 1,034% (31 July 2023: 1,143%). In addition to internal measures, we monitor funding risk based on the CRR rules for the net stable funding ratio (\"NSFR\"). The four-quarter average NSFR to 31 July 2024 was 134.4% (31 July 2023: 126.0%). \n Post Balance Sheet Event \n Following a comprehensive strategic review, on 19 September 2024 the group announced that it entered into an agreement to sell CBAM to Oaktree for an equity value of up to £200 million. \n The upfront proceeds would increase the group's common equity tier 1 (\"CET1\") capital ratio by approximately 100 basis points on a pro forma basis. This calculation is based on a net asset value of £121.8 million at 31 July 2024, a tangible net asset value of £66.1 million, and assumes an immediate reduction in credit risk weighted assets (\"RWAs\") associated with the CBAM business. It does not include any immediate reduction in operational risk RWAs and excludes any capital impact in respect of the contingent deferred consideration. This estimate is subject to change before completion. \n The transaction is expected to complete in early 2025 calendar year and is conditional upon receipt of certain customary regulatory approvals. \n Further details of the financial impacts of the sale agreement on the group can be found in Note 23 \"Post Balance Sheet Event\". \n Business Review \n Banking \n Key Financials \n \n \n \n \n \n \n \n 2024 \n £ million \n \n \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 724.9 \n \n \n 713.8 \n \n \n 2 \n \n \n \n \n Adjusted operating expenses \n \n \n (420.6) \n \n \n (389.7) \n \n \n 8 \n \n \n \n \n Impairment losses on financial assets \n \n \n (98.9) \n \n \n (204.0) \n \n \n (52) \n \n \n \n \n Adjusted operating profit \n \n \n 205.4 \n \n \n 120.1 \n \n \n 71 \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 304.3 \n \n \n 324.1 \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 Complaints handling and other operational costs associated with the FCA's review of historical motor finance commission arrangements \n \n \n (6.9) \n \n \n - \n \n \n - \n \n \n \n \n Provision in relation to the BiFD review \n \n \n (17.2) \n \n \n - \n \n \n - \n \n \n \n \n Restructuring costs \n \n \n (3.1) \n \n \n - \n \n \n - \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n (0.2) \n \n \n (0.1) \n \n \n 100 \n \n \n \n \n Statutory operating profit \n \n \n 178.0 \n \n \n 120.0 \n \n \n 48 \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 7.4% \n \n \n 7.7% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 58.0% \n \n \n 54.6% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 1.0% \n \n \n 2.2% \n \n \n \n \n \n \n \n Return on net loan book \n \n \n 2.1% \n \n \n 1.3% \n \n \n \n \n \n \n \n Return on opening equity \n \n \n 10.6% \n \n \n 6.6% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets \n \n \n 10,098.7 \n \n \n 9,526.2 \n \n \n 6 \n \n \n \n \n Key Financials (Excluding Novitas) \n \n \n \n \n \n \n \n 2024 \n £ million \n \n \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 713.9 \n \n \n 694.9 \n \n \n 3 \n \n \n \n \n Adjusted operating expenses \n \n \n (415.8) \n \n \n (381.0) \n \n \n 9 \n \n \n \n \n Impairment losses on financial assets \n \n \n (92.5) \n \n \n (87.2) \n \n \n 6 \n \n \n \n \n Adjusted operating profit \n \n \n 205.6 \n \n \n 226.7 \n \n \n (9) \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 298.1 \n \n \n 313.9 \n \n \n (5) \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 7.6% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 58.2% \n \n \n 54.8% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.9% \n \n \n 0.9% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets \n \n \n 10,036.3 \n \n \n 9,466.3 \n \n \n 6 \n \n \n \n \n Robust Profit Performance Reflecting our Focus on Costs and Pricing Discipline \n Whilst the market backdrop was mixed in the first half of the year, with the continued uncertainty testing the resilience of SMEs and consumers, we saw an overall improvement in sentiment in the second part of the year as inflation fell and interest rates peaked, with the Bank of England base rate reduced in August 2024. \n In Commercial, we have delivered good loan book growth of 6% and are starting to benefit from the investment in our Asset Finance transformation programme. Net interest margin has declined to 6.6%, driven by a combination of pressure on new business margins in the higher interest rate environment, a reduction in activity-driven fee income and a higher proportion of growth in some of our portfolios with larger loan sizes and lower margin. Whilst the Retail business has faced a challenging regulatory backdrop, we have remained focused on providing excellent service for our customers and delivered a 9% increase in adjusted operating profit. Motor Finance has continued to see good customer demand in the UK and is rebuilding its presence in the Irish market, with the loan book up 3%. Premium Finance has delivered a strong performance overall, notwithstanding a 3% decline in the loan book. The Property business has had a strong year, with profitability up 12% and the loan book at c.£2 billion, as optimism returns to the UK property market and we continue to build customer advocacy through our relationship-led model. This resilient performance has been delivered notwithstanding the challenging regulatory backdrop, as we have sought to balance supporting our customers whilst protecting our franchise. \n Banking adjusted operating profit increased to £205.4 million (2023: £120.1 million), with the prior year including an impairment charge of £116.8 million in relation to Novitas. Excluding Novitas, Banking adjusted operating profit decreased 9% to £205.6 million (2023: £226.7 million), as growth in income, driven by good loan book growth and a strong, albeit reduced, net interest margin, was more than offset by higher costs and an increase in impairment charges. \n On a statutory basis, operating profit increased to £178.0 million (2023: £120.0 million), notwithstanding £27.4 million of adjusting items which included £6.9 million of costs associated with the handling of complaints and other operational costs associated with the FCA's review of historical motor finance commission arrangements, including increased resourcing in our complaints and legal teams and £3.1 million of restructuring costs. In addition, in respect of the FCA's market-wide review of BiFD, which is focused on providing a stronger framework for firms to protect customers facing payment difficulties and covers matters such as affordability, forbearance and vulnerable customers, we have conducted a Past Business Review of customer forbearance related to motor finance lending. This was a voluntary review undertaken with oversight from the FCA. A provision of £17.2 million has been recognised in respect of the review and expected customer compensation. We have commenced making compensation payments to customers, with the resulting remediation programme expected to be materially complete this calendar year. \n The loan book grew 6% over the year to £10.1 billion (31 July 2023: £9.5 billion), reflecting healthy drawdowns in Property and strong new business in Invoice Finance, as well as good demand in Motor Finance and in Asset Finance, driven by the Leasing business. This was partly offset by a decline in Premium Finance and the run-off of the legacy Republic of Ireland Motor Finance loan book. Overall, the loan book grew 4% in the first half of the year and slowed to 2% in the second half, reflecting the selective loan book actions identified at the Half Year 2024 results. \n Excluding the businesses in run-off, Novitas and the legacy Republic of Ireland Motor Finance business, the loan book grew 7% to £9.9 billion (31 July 2023: £9.3 billion). \n Operating income increased 2% to £724.9 million (2023: £713.8 million), reflecting good loan book growth and strong, albeit reduced, margins. As previously highlighted, the prior year benefited from Novitas income (£19 million in 2023 versus £11 million in 2024) and movements through profit and loss from derivatives outside of a hedge accounting relationship (£2 million benefit in 2023 versus £5 million adverse impact in 2024). Excluding the impact of Novitas and these movements in derivatives, operating income rose 4%, driven by loan book growth. \n Whilst the net interest margin remained strong as we maintained our focus on pricing discipline and optimising funding costs in the higher rate environment, it decreased to 7.4% (2023: 7.7%), with c.12bps of margin reduction reflecting the movements through profit and loss from derivatives outside of a hedge accounting relationship and Novitas income benefiting the prior year. Excluding the impact of these items, the net interest margin decreased by c.16bps, primarily reflecting margin pressures and lower activity-driven fee income in the Commercial businesses, partly offset by the pass through of higher rates in Retail. We are well positioned to sustain the net interest margin delivered in the second half of the 2024 financial year of 7.2%. \n Adjusted operating expenses increased 8% to £420.6 million (2023: £389.7 million), driven mainly by inflationary-related increases in staff costs, higher regulatory compliance and assurance expenses and continued investment, partly offset by the progress we have made on our tactical and strategic cost management initiatives. This also included £6.5 million (2023: £0.8 million) of costs related to the acquisition, integration and running of Close Brothers Motor Finance in Ireland, which completed in October 2023, and spend of £4.8 million (2023: £8.7 million) related to Novitas as we continue to wind down the business. The expense/income ratio increased to 58.0% (2023: 54.6%) and the compensation ratio rose to 32% (2023: 30%), reflecting inflation-related wage increases. \n Overall Banking cost growth was at the lower end of the 8-10% guidance range provided at the Full Year 2023 results on a like-for-like basis, with an 8% increase to £421.0 million (2023: £388.9 million), when including £6.9 million (2023: £nil) of costs associated with the handling of complaints and other operational costs associated with the FCA's review of historical motor finance commission arrangements and excluding £6.5 million (2023: £0.8 million) related to Close Brothers Motor Finance in Ireland. \n Over the year, we have continued to make good progress on our strategic cost management initiatives. Our technology transformation programme, initiated in 2023, is focused on simplifying and modernising our technology estate, removing unnecessary cost and increasing our use of strategic partners, whilst creating a more digitally enabled and agile IT environment that is secure, resilient and sustainable. We have partnered with Wipro, a leading technology services and consulting company, to help us drive our transformation. To date, we have reduced our headcount by c.100, as we made increased use of outsourcing, and removed over 115 IT applications. \n As outlined at the Half Year 2024 results, we have also mobilised additional cost management initiatives to support the ongoing profitability of the business, particularly in light of the capital actions and their expected impact on future income. These initiatives are expected to generate annualised savings of c.£20 million, reaching the full run rate by the end of the 2025 financial year, with the total benefit in the 2026 financial year. These include rationalising our third-party suppliers and property footprint and adjusting our workforce to drive increased efficiency and effectiveness. In recent months, we have served notice to vacate our Wimbledon Bridge House office and establish a more suitable London footprint to meet the needs of the business, resulting in the removal of approximately 800 desks. \n We have incurred £3.1 million of restructuring costs, which have been recognised as an adjusting item in the 2024 financial year, primarily relating to redundancy and associated costs. We expect to incur £5-10 million of restructuring costs in the 2025 financial year as we continue to implement cost management actions to improve future efficiency. \n We expect income and adjusted operating expenses growth, excluding the impact of adjusting items which do not reflect the underlying performance of our business, to be aligned in the 2025 financial year and to deliver positive operating leverage in the 2026 financial year. \n Impairment charges decreased significantly to £98.9 million (2023: £204.0 million), corresponding to a bad debt ratio of 1.0% (2023: 2.2%) with the prior year including a charge of £116.8 million in relation to Novitas. Overall, provision coverage increased to 4.3% (31 July 2023: 3.9%). \n Excluding Novitas, impairment charges rose 6% to £92.5 million (2023: £87.2 million), mainly driven by loan book growth and the ongoing review of provisions and coverage across our loan portfolios, partly offset by improvements to the macroeconomic outlook. The bad debt ratio, excluding Novitas, remained stable at 0.9% (2023: 0.9%) and remains below our long-term bad debt ratio of 1.2%. The coverage ratio increased slightly to 2.3% (31 July 2023: 2.1%), excluding Novitas. \n Whilst we have not seen a significant impact on credit performance, we continue to monitor closely the evolving impacts of inflation and cost of living on our customers. We remain confident in the quality of our loan book, which is predominantly secured or structurally protected, prudently underwritten, diverse, and supported by the deep expertise of our people. Looking forward, we expect the bad debt ratio for the 2025 financial year to remain below our long-term average. \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 H1 2023, we have accelerated our efforts to resolve the issues surrounding this business and continue to pursue formal legal action issued against one of the After the Event (\"ATE\") insurers in November 2022. We are actively seeking recovery from a second insurer and entered into a settlement with another smaller ATE insurer in July 2023. \n During the year, we recognised impairment charges of £6.4 million (2023: £116.8 million) in relation to Novitas, primarily as a result of increased time to recovery assumptions and 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 (c.£62 million net loan book at 31 July 2024). \n In addition, in line with IFRS 9 requirements, a proportion of the expected credit loss is expected to unwind, over the estimated time to recovery period, to interest income. The group remains focused on maximising the recovery of remaining loan balances, either through successful outcome of cases or recourse to the customers' ATE insurers, whilst complying with its regulatory obligations and always focusing on ensuring good customer outcomes. \n Loan Book Analysis \n \n \n \n \n \n \n \n 31 July 2024 \n \n \n 31 July 2023 \n \n \n Change \n \n \n \n \n \n \n \n £ million \n \n \n £ million \n \n \n % \n \n \n \n \n Commercial \n \n \n 5,101.6 \n \n \n 4,821.3 \n \n \n 6 \n \n \n \n \n Commercial - Excluding Novitas \n \n \n 5,039.2 \n \n \n 4,761.4 \n \n \n 6 \n \n \n \n \n Asset Finance 1 \n \n \n 3,655.4 \n \n \n 3,481.3 \n \n \n 5 \n \n \n \n \n Invoice and Speciality Finance 1 \n \n \n 1,446.2 \n \n \n 1,340.0 \n \n \n 8 \n \n \n \n \n Invoice and Speciality Finance - Excluding Novitas 1 \n \n \n 1,383.8 \n \n \n 1,280.1 \n \n \n 8 \n \n \n \n \n Retail \n \n \n 3,041.9 \n \n \n 3,001.8 \n \n \n 1 \n \n \n \n \n Motor Finance 2 \n \n \n 2,016.0 \n \n \n 1,948.4 \n \n \n 3 \n \n \n \n \n Premium Finance \n \n \n 1,025.9 \n \n \n 1,053.4 \n \n \n (3) \n \n \n \n \n Property \n \n \n 1,955.2 \n \n \n 1,703.1 \n \n \n 15 \n \n \n \n \n Closing loan book and operating lease assets 3 \n \n \n 10,098.7 \n \n \n 9,526.2 \n \n \n 6 \n \n \n \n \n Closing loan book and operating lease assets - Excluding Novitas \n \n \n 10,036.3 \n \n \n 9,466.3 \n \n \n 6 \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n The Asset Finance and Invoice and Speciality Finance loan books have been re-presented for 31 July 2023 to reflect the recategorisation of Close Brothers Brewery Rentals (\"CBBR\") from Invoice and Speciality Finance to Asset Finance. \n \n \n \n \n 2. \n \n \n The Motor Finance loan book includes £92.8 million (31 July 2023: £206.7 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 3. \n \n \n Includes operating lease assets of £267.9 million (31 July 2023: £271.2 million). \n \n \n \n \n   \n Good Loan Book Growth from Continued Customer Demand \n The loan book grew 6% over the year to £10.1 billion (31 July 2023: £9.5 billion), reflecting healthy drawdowns in Property and strong new business in Invoice Finance, as well as good demand in Motor Finance and in Asset Finance, driven by the Leasing business. This was partly offset by a decline in Premium Finance and the run-off of the legacy Republic of Ireland Motor Finance loan book. Overall, the loan book grew 4% in the first half of the year and slowed to 2% in the second half, reflecting the selective loan book actions identified at the Half Year 2024 results. \n Excluding the businesses in run-off, Novitas and the legacy Republic of Ireland Motor Finance business, the loan book grew 7% to £9.9 billion (31 July 2023: £9.3 billion). \n The Commercial loan book grew 6% to £5.1 billion (31 July 2023: £4.8 billion). Asset Finance delivered loan book growth of 5%, reflecting good demand in the Leasing business particularly from the Contract Hire, Energy and Materials Handling portfolios, notwithstanding a stabilisation in the second half of the year. Invoice and Speciality Finance grew 8% over the year, despite the typical seasonal decline seen in the first half, driven by strong new business volumes and higher level of utilisations. Excluding Novitas, the Commercial book increased 6% to £5.0 billion (31 July 2023: £4.8 billion). \n The Retail loan book grew 1% to £3.0 billion (31 July 2023: £3.0 billion). Motor Finance grew 3% as strong new business volumes in the UK Motor Finance business more than offset the run-off of the legacy Republic of Ireland loan book. Following the acquisition of Bluestone Motor Finance (Ireland) DAC, which completed in October 2023, this business has been rebranded as Close Brothers Motor Finance and had a loan book of £38.8 million at 31 July 2024. The Premium Finance loan book contracted 3%, reflecting the competitive market environment and marginally reduced demand from business customers in the higher interest rate environment. \n The legacy Republic of Ireland Motor Finance business accounted for 5% of the Motor Finance loan book (31 July 2023: 11%) and 1% of the Banking loan book (31 July 2023: 2%). \n The Property loan book grew 15% as we saw healthy drawdowns from our new business pipeline, as the market benefited from the stabilisation of interest rates and improving market sentiment. \n Whilst we remain focused on delivering disciplined growth over the medium term, our priority in the short term is to further strengthen our capital position through identified management actions, including selective loan book growth. Within Commercial and Property, we are exploring the use of partnerships and capital efficient government lending schemes. Across our businesses, we are continuing to prioritise pricing discipline and credit quality and are centred on optimising the allocation of capital across our portfolio of businesses. As a result, we currently plan for low single-digit percentage growth in the loan book for the 2025 financial year. \n Banking: Commercial \n \n \n \n \n \n \n \n 2024 \n £ million \n \n \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 329.6 \n \n \n 347.8 \n \n \n (5) \n \n \n \n \n Adjusted operating expenses \n \n \n (208.4) \n \n \n (194.4) \n \n \n 7 \n \n \n \n \n Impairment losses on financial assets \n \n \n (31.7) \n \n \n (137.5) \n \n \n (77) \n \n \n \n \n Adjusted operating profit \n \n \n 89.5 \n \n \n 15.9 \n \n \n 463 \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 121.2 \n \n \n 153.4 \n \n \n (21) \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 the BiFD review \n \n \n (0.6) \n \n \n - \n \n \n - \n \n \n \n \n Restructuring costs \n \n \n (2.2) \n \n \n - \n \n \n - \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n - \n \n \n (0.1) \n \n \n (100) \n \n \n \n \n Statutory operating profit \n \n \n 86.7 \n \n \n 15.8 \n \n \n 449 \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 6.6% \n \n \n 7.4% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 63.2% \n \n \n 55.9% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.6% \n \n \n 2.9% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets 1 \n \n \n 5,101.6 \n \n \n 4,821.3 \n \n \n 6 \n \n \n \n \n Commercial Key Metrics Excluding Novitas \n \n \n \n \n \n \n \n 2024 \n £ million \n \n \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 318.6 \n \n \n 328.9 \n \n \n (3) \n \n \n \n \n Adjusted operating expenses \n \n \n (203.6) \n \n \n (185.7) \n \n \n 10 \n \n \n \n \n Impairment losses on financial assets \n \n \n (25.3) \n \n \n (20.7) \n \n \n 22 \n \n \n \n \n Adjusted operating profit \n \n \n 89.7 \n \n \n 122.5 \n \n \n (27) \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 115.0 \n \n \n 143.2 \n \n \n (20) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 6.5% \n \n \n 7.2% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 63.9% \n \n \n 56.5% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 0.5% \n \n \n 0.5% \n \n \n \n \n \n \n \n Closing loan book and operating lease assets 1 \n \n \n 5,039.2 \n \n \n 4,761.4 \n \n \n 6 \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n Operating lease assets of £267.9 million (31 July 2023: £271.2 million). \n \n \n \n \n   \n Continued Demand in Commercial, Reflecting the Diversity of our Offering \n The Commercial businesses provide specialist, predominantly secured lending principally to the SME market and include Asset Finance and Invoice and Speciality Finance. We finance a diverse range of sectors, with Asset Finance offering commercial asset financing, hire purchase and leasing solutions across a broad range of assets including commercial vehicles, machine tools, contractors' plant, printing equipment, company car fleets, energy project finance, and aircraft and marine vessels, as well as our Vehicle Hire and Brewery Rentals businesses. The Invoice and Speciality Finance business provides debt factoring, invoice discounting and asset-based lending, and also includes Novitas. As previously announced, Novitas ceased lending to new customers in July 2021. \n Whilst market uncertainty has continued over the year, we have seen the resilience of SME businesses. Customer demand has remained relatively robust, notwithstanding the competitive marketplace, reflecting the diversity of our offering and the strength of our customer relationships. Our growth initiatives continue to prove successful, with healthy new business volumes written by both our Materials Handling and Agricultural Equipment teams and our second syndication deal completed in Invoice Finance. We have also been approved to lend under the UK government's Growth Guarantee Scheme, launched in July 2024, and the Irish Growth and Sustainability Loan Scheme, which launched in August 2024. \n During the year, we completed an internal restructure and created a Broker and Professional Solutions business to simplify and improve our offering to the broker market. \n Adjusted operating profit for Commercial increased to £89.5 million (2023: £15.9 million), reflecting a significant decrease in impairment charges. On a pre-provision basis, adjusted operating profit reduced 21% to £121.2 million (2023: £153.4 million), reflecting both a decline in income and cost growth. Excluding Novitas, adjusted operating profit decreased 27% to £89.7 million (2023: £122.5 million). \n On a statutory basis, operating profit increased to £86.7 million (2023: £15.8 million) and includes £2.8 million of adjusting items. These primarily relate to £2.2 million of restructuring costs and a £0.6 million provision in relation to the Past Business Review and expected customer compensation in respect of customer forbearance related to motor finance lending. \n Operating income reduced 5% to £329.6 million (2023: £347.8 million) as loan book growth was more than offset by pressure on new business margins and activity-driven fee income, as well as reduction in Novitas income. The net interest margin declined to 6.6% (2023: 7.4%), reflecting both lower fee income and the need to balance the repricing of new business written in Asset Finance with our focus on maintaining support to our customers impacted by the higher interest rate environment, as highlighted in the first half. Furthermore, we saw a higher proportion of loan book growth in some of our portfolios with larger loan sizes and lower margin. Excluding Novitas, the net interest margin decreased to 6.5% (2023: 7.2%). \n Adjusted operating expenses grew 7% to £208.4 million (2023: £194.4 million), mainly driven by increased staff costs and investment spend, which has been partly offset by lower costs in relation to Novitas. As a result, the Commercial expense/income ratio increased to 63.2% (2023: 55.9%). \n During the year, we completed the Asset Finance transformation programme, which has introduced a single technology platform across the business that has standardised processes, increased efficiencies and improved customer and colleague experience. \n Impairment charges decreased materially to £31.7 million (2023: £137.5 million), with £116.8 million incurred in relation to Novitas in the prior year. Provision coverage increased marginally to 5.7% (31 July 2023: 5.2%). \n Excluding Novitas, there was an increase in impairment charges to £25.3 million (2023: £20.7 million), reflecting loan book growth and the ongoing review of provisions and coverage, including a slight uptick in arrears in Asset Finance as we enter a more normalised credit environment. This corresponded to a bad debt ratio of 0.5% (2023: 0.5%) and a stable coverage ratio (excluding Novitas) of 1.4% (31 July 2023: 1.4%). \n Banking: Retail \n \n \n \n \n \n \n \n 2024 \n £ million \n \n \n 2023 \n £ million \n \n \n Change \n % \n \n \n \n \n Operating income \n \n \n 262.4 \n \n \n 248.1 \n \n \n 6 \n \n \n \n \n Adjusted operating expenses \n \n \n (177.3) \n \n \n (164.4) \n \n \n 8 \n \n \n \n \n Impairment losses on financial assets \n \n \n (47.2) \n \n \n (49.0) \n \n \n (4) \n \n \n \n \n Adjusted operating profit \n \n \n 37.9 \n \n \n 34.7 \n \n \n 9 \n \n \n \n \n Adjusted operating profit, pre provisions \n \n \n 85.1 \n \n \n 83.7 \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 Complaints handling and other operational costs associated with the FCA's review of historical motor finance commission arrangements \n \n \n (6.9) \n \n \n - \n \n \n - \n \n \n \n \n Provision in relation to the BiFD review \n \n \n (16.6) \n \n \n - \n \n \n - \n \n \n \n \n Restructuring costs \n \n \n (0.6) \n \n \n - \n \n \n - \n \n \n \n \n Amortisation of intangible assets on acquisition \n \n \n (0.2) \n \n \n - \n \n \n - \n \n \n \n \n Statutory operating profit \n \n \n 13.6 \n \n \n 34.7 \n \n \n (61) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net interest margin \n \n \n 8.7% \n \n \n 8.2% \n \n \n \n \n \n \n \n Expense/income ratio \n \n \n 67.6% \n \n \n 66.3% \n \n \n \n \n \n \n \n Bad debt ratio \n \n \n 1.6% \n \n \n 1.6% \n \n \n \n \n \n \n \n Closing loan book 1 \n \n \n 3,041.9 \n \n \n 3,001.8 \n \n \n 1 \n \n \n \n \n   \n \n \n \n \n 1. \n \n \n The Motor Finance loan book includes £92.8 million (31 July 2023: £206.7 million) relating to the legacy Republic of Ireland Motor Finance business, which is in run-off following the cessation of our previous partnership in the Republic of Ireland from 30 June 2022. \n \n \n \n \n   \n Focus on Maintaining our Margins and Underwriting Discipline in a Challengin...

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