14 March 2023
Adrian Sainsbury, Chief Executive, said:
“It has been a challenging six months, with our half year results significantly impacted by the increased provisions in relation to Novitas, as announced previously in January 2023. While this is clearly disappointing, our underlying business remains resilient, enabling us to support almost three million customers, including over 360 thousand SMEs, as we continue to lend consistently through this period of uncertainty.
We are encouraged by the good demand and strong margins seen in Banking, as well as the underlying credit quality of our loan book. We continued to attract new client assets in CBAM, with healthy net inflows, and although trading activity remained subdued at Winterflood, WBS sustained its positive momentum. We are pleased to declare an increased interim dividend of 22.5p per share, reflecting our underlying performance and the Board’s confidence in the group’s outlook.
Our financial strength leaves us well placed to move forward and resume our track record of earnings growth and returns.”
Financial performance in the first six months
· As previously announced, we have taken steps to resolve the issues surrounding Novitas, resulting in an additional provision of £89.8 million, with the total provisions in relation to Novitas taken in H1 2023 at £114.6 million. As a result, statutory operating profit before tax decreased to £11.7 million (H1 2022: £128.9 million). Excluding Novitas, adjusted operating profit decreased to £117.5 million (H1 2022: £160.5 million)
· We achieved 5% income growth in Banking with a strong net interest margin of 8.0% (H1 2022: 7.9%) and good levels of customer demand, particularly in Commercial. As a result, pre-provisions, adjusted operating profit in Banking increased 5% to £177.2 million (H1 2022: £168.5 million)
· Although underlying credit performance remains resilient, the increased uncertainty in the economic outlook has been reflected in higher forward-looking impairment provisions and a rise in arrears in Motor Finance. As a result, the annualised bad debt ratio (excluding Novitas) was 1.1% (H1 2022: 0.2%)
· The loan book excluding Novitas was £9.0 billion (31 July 2022: £8.9 billion), as we remain committed to lending consistently to our customers under responsible terms in all market conditions
· We delivered healthy net inflows of 6%, with a strong contribution from new hires, as we continued to focus on growing Close Brothers Asset Management (“CBAM”)
· Winterflood’s performance continued to reflect challenging market conditions
· Total funding increased 3% to £11.9 billion (31 July 2022: £11.6 billion), as the diversity of our funding sources helped us optimise funding costs in an environment of rapid interest rate rises
· Our Common Equity Tier 1 (“CET1”) ratio was 14.0% at 31 January 2023 (31 July 2022: 14.6%), significantly above the applicable minimum regulatory requirement of 8.5% and the group’s medium-term CET1 capital ratio target range of 12-13%
· We are pleased to declare an interim dividend of 22.5p per share (H1 2022: 22.0p), reflecting our underlying performance and the Board’s confidence in the group’s outlook
Well placed to move forward on the delivery of our strategic priorities
· We are continuing to focus on our strategic growth agenda, with over£90 million lent in the first half towards our ambition to provide £1 billion of funding for battery electric vehicles over five years and the successful piloting of a specialist buy-to-let extension to our existing Property bridging finance clients. In CBAM, we continued to attract new hires and we were pleased to announce that Winterflood Business Services (“WBS”) exceeded the targeted £10 billion of total assets under administration (“AuA”)
· We have intensified our focus on cost discipline and efficiency, especially in light of recent inflationary pressures. We have a number of strategic cost management initiatives in progress and are evaluating additional opportunities for efficiency with a view to achieving positive operating leverage over the medium term
· We remain committed to optimising further our capital structure, including the issuance of debt capital market securities if appropriate, targeting a CET1 capital ratio range of 12% to 13% over the medium termin line with our capital management framework
Outlook
· Although we are alert to the impact of rising inflation and interest rates on our customers and wider financial market conditions, we are well placed to move forward on the delivery of our strategic priorities. We are confident we can resume our track record of earnings growth and returns by focusing on disciplined growth, cost efficiency and capital optimisation
| Key Financials 1 | First half2023 | First half2022 | Change% |
| Adjusted operating profit2 | £12.6m | £129.8m | (90) |
| Adjusted operating profit, pre provision | £174.8m | £178.1m | (2) |
| Operating profit before tax | £11.7m | £128.9m | (91) |
| Adjusted basic earnings per share3 | 6.1p | 64.0p | – |
| Basic earnings per share3 | 5.6p | 63.5p | – |
| Ordinary dividend per share | 22.5p | 22.0p | 2 |
| Return on opening equity | 1.1% | 12.2% | |
| Return on average tangible equity | 1.3% | 14.2% | |
| Net interest margin4 | 8.0% | 7.9% | |
| Bad debt ratio4 | 3.6% | 1.1% | |
| 31 January2023 | 31 July2022 | Change% | |
| Loan book | £9.0bn | £9.1bn | (1) |
| Total client assets | £16.9bn | £16.6bn | 2 |
| CET1 capital ratio (transitional) | 14.0% | 14.6% | |
| Total capital ratio (transitional) | 16.1% | 16.6% |
| Key Financials (Excluding Novitas) | First half2023 | First half2022 | Change% |
| Adjusted operating profit | £117.5m | £160.5m | (27) |
| Adjusted operating profit, pre provision | £165.1m | £169.6m | (3) |
| Net interest margin4 | 7.8% | 7.6% | |
| Bad debt ratio4 | 1.1% | 0.2% | |
| 31 January2023 | 31 July2022 | Change% | |
| Loan book | £9.0bn | £8.9bn | – |
1 Please refer to definitions below.
2 Adjusted operating profit is stated before amortisation of intangible assets on acquisition of £0.9 million (H1 2022: £0.9 million).
3 Refer to Note 4 for the calculation of basic and adjusted earnings per share.
4 Net interest margin and bad debt ratio calculated on an annualised basis.
Enquiries
| Sophie Gillingham | Close Brothers Group plc | 020 3857 6574 |
| Camila Sugimura | Close Brothers Group plc | 020 3857 6577 |
| Kimberley Taylor | Close Brothers Group plc | 020 3857 6233 |
| Irene Galvan | Close Brothers Group plc | 020 3857 6217 |
| Sam Cartwright | Maitland | 07827 254 561 |
A virtual presentation to analysts and investors will be held today at 9.30 am GMT followed by a Q&A session. A webcast and dial-in facility will be available by registering at https://webcasts.closebrothers.com/results/HalfYearResults2023 .