REG - Close Bros Grp PLC - Scheduled Trading Update

Close BrothersAnnouncement

21/07/2023 07:00

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RNS Number : 7211G  Close Brothers Group PLC  21 July 2023

 

 

Press Release
 

 Scheduled Trading Update
 21 July 2023

Embargoed for release until 7.00 am on 21 July 2023.

Close Brothers Group plc ("the group" or "Close Brothers") today issues its
scheduled pre-close trading update ahead of its 2023 financial year end. Close
Brothers will release its results for the full year ended 31 July 2023 on 26
September 2023.

All statements in this release relate to the 11 months to 30 June 2023 unless
otherwise indicated.

Adrian Sainsbury, Chief Executive Officer, said:

"We have performed well in the second half of the financial year, maintaining
the loan book growth momentum, strong net interest margin and stable credit
performance in Banking reported at Q3. Close Brothers Asset Management
continued to attract client assets and delivered a strong net inflow rate,
although Winterflood's performance remains impacted by subdued trading
activity.

We are seeing good demand in our Banking business and are making the most of
the opportunities, notwithstanding the uncertain external environment. We
continue to support our customers and clients, maintaining our consistent
approach to lending throughout the cycle. Our financial strength and proven
business model leave us well placed and I am pleased with our progress towards
resuming the group's track record of earnings growth and returns since the
first half."

Divisional performance

In Banking, the loan book increased 3.7% year-to-date to £9.4 billion(1)
(6.8% excluding Novitas and the Irish Motor Finance business). This reflected
continued demand in the Commercial businesses and strong growth in Property
Finance driven by increased drawdowns and a slowdown in repayments. Marginal
growth in the UK Motor Finance and Premium Finance loan books has been more
than offset by the run-off of the Irish Motor Finance business.

The annualised year-to-date net interest margin remained strong at 7.7% (7.5%
excluding Novitas) (FY 2022: 7.8%, 7.5% excluding Novitas), reflecting our
pricing discipline.

We remain focused on cost control, although we experienced increased pressure
from the inflationary environment, particularly in the second half of the
financial year and we continued to invest in strategic programmes.

The annualised year-to-date bad debt ratio was 2.3% (Q3 2023: 2.6%). This
incorporates the significant provisions taken against Novitas in the first
half of the 2023 financial year, which we believe adequately reflect the
remaining risk of credit losses for the Novitas loan book.

Our credit performance has remained stable since the first half, with an
annualised year-to-date bad debt ratio of 0.9% excluding Novitas (Q3 2023:
0.9%)(2). We continue to monitor closely the evolving impacts of higher
inflation and remain confident in the quality of our loan book, which is
predominantly secured, prudently underwritten, diverse, and supported by the
deep expertise of our people.

Close Brothers Asset Management delivered year-to-date annualised net inflows
of 9% (FY 2022: 5%, Q3 2023: 9%), notwithstanding market uncertainty
throughout the period. Our hiring strategy is proving successful, with the new
portfolio managers contributing significantly to the overall inflow rate, and
we continue to invest to support the long-term growth potential of the
business. Since the Q3 trading update, both managed assets and total client
assets have remained stable at £16.1 billion and £17.0 billion respectively,
as negative market movements largely offset net inflows.

Winterflood's performance continued to be impacted by the cyclical trends and
weak retail investor activity previously highlighted, generating operating
profit of c.£3 million in the financial year-to-date. Nevertheless, the
team's experience and focus on managing risk resulted in only one loss day
year-to-date. Winterflood has a long track record of trading profitably in a
range of market conditions and remains well positioned to benefit when
investor confidence recovers.

Strong capital, funding and liquidity positions

We maintained our strong balance sheet and the prudent management of our
financial resources. Our Common Equity Tier 1 ("CET1") ratio was 13.7% at 30
June 2023 (30 April 2023: 14.0%), significantly above the applicable minimum
regulatory requirement(3). Our funding base was strengthened by the successful
issuance of a £250 million senior unsecured bond in June 2023 and we
maintained our prudent liquidity position, with the liquidity coverage ratio
substantially above regulatory requirements.

Outlook

Following a challenging first half, we have performed well in the second part
of the financial year so far. Although the external environment remains
uncertain, we are making the most of opportunities and our business is
performing as we would expect at this stage in the cycle. Our proven model and
financial strength leave us well placed to resume our track record of earnings
growth and returns by focusing on disciplined growth, cost efficiency and
capital optimisation.

Footnotes

1 The loan book is presented including operating lease assets.

2 At 30 June 2023, there was a 32.5% weighting to the baseline scenario, 30.0%
to the upside and 37.5% to the downside scenarios (unchanged from 31 July
2022). Moody's June unemployment forecast for Q4 2023 under the baseline
scenario is 4.3%, 3.9% under the upside scenario and ranges between 4.7% and
5.4% in the downside scenarios. Moody's June inflation forecast for Q4 2023
under the baseline scenario is 5.2%, 4.8% for the upside scenario and ranges
between 3.8% and 1.5% in the downside scenarios. Moody's June forecast for the
Bank of England base rate for Q4 2023 is 5.0% in the baseline scenario, 5.2%
in the upside scenario and ranges from 4.7% to 3.8% in the downside scenarios.

3 The group's capital ratios are presented on a transitional basis after the
application of IFRS 9 transitional arrangements which allows banks to add back
to their capital base a proportion of the IFRS 9 impairment charges during the
transitional period. Without their application, the CET1 capital ratio would
be 13.4%. The applicable minimum regulatory requirement, excluding any
applicable PRA buffer, was 8.5% at 30 June 2023. The CET1 ratio at 30 June
2023 has been calculated in accordance with UK CRR Article 26 regarding the
deduction of foreseeable dividends from CET1 capital. The CET1 ratio for 31
July 2023 may be impacted by any dividend declared by the Board.

 

Enquiries

Camila
Sugimura                                 Close
Brothers Group plc
020 3857 6577

Kimberley Taylor
                                 Close
Brothers Group plc
020 3857 6233

Sam
Cartwright
Maitland
07827 254561

 

About Close Brothers

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
member of the FTSE 250.

Cautionary Statement

Certain statements included or incorporated by reference within this
announcement may constitute "forward-looking statements" in respect of the
group's operations, performance, prospects and/or financial condition. All
statements other than statements of historical fact are, or may be deemed to
be, forward-looking statements. Forward-looking statements are sometimes, but
not always, identified by their use of a date in the future or such words as
"anticipates", "aims", "due", "could", "may", "will", "should", "expects",
"believes", "intends", "plans", "potential", "targets", "goal" or "estimates".
By their nature, forward-looking statements involve a number of risks,
uncertainties and assumptions and actual results or events may differ
materially from those expressed or implied by those statements. There are also
a number of factors that could cause actual future operations, performance,
financial conditions, results or developments to differ materially from the
plans, goals and expectations expressed or implied by these forward-looking
statements and forecasts. These factors include, but are not limited to, those
contained in the Group's annual report (available at:
https://www.closebrothers.com/investor-relations
(https://www.closebrothers.com/investor-relations) ). Accordingly, no
assurance can be given that any particular expectation will be met and
reliance should not be placed on any forward-looking statement. Additionally,
forward-looking statements regarding past trends or activities should not be
taken as a representation that such trends or activities will continue in the
future.

Except as may be required by law or regulation, no responsibility or
obligation is accepted to update or revise any forward-looking statement
resulting from new information, future events or otherwise. Nothing in this
announcement should be construed as a profit forecast. Past performance cannot
be relied upon as a guide to future performance and persons needing advice
should consult an independent financial adviser.

This announcement does not constitute or form part of any offer or invitation
to sell, or any solicitation of any offer to subscribe for or purchase any
shares or other securities in the company or any of its group members, nor
shall it or any part of it or the fact of its distribution form the basis of,
or be relied on in connection with, any contract or commitment or investment
decisions relating thereto, nor does it constitute a recommendation regarding
the shares or other securities of the company or any of its group members.
Statements in this announcement reflect the knowledge and information
available at the time of its preparation. Liability arising from anything in
this announcement shall be governed by English law. Nothing in this
announcement shall exclude any liability under applicable laws that cannot be
excluded in accordance with such laws.

 

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