Close Brothers Group PLC - Half-year Report

Solid Performance in the First Half

·  The group reported a solid performance, maintaining strong returns and profitability with a return on opening equity of 16.1% 

·  Banking adjusted operating profit increased 1% year on year to £131.1 million, benefiting from our continued disciplined approach and the diversity of our business portfolio 

·  Group adjusted operating profit of £138.8 million reduced 4% year on year, reflecting difficult market conditions for Winterflood and Asset Management 

·  The net interest margin remained strong at 8.1%, and the bad debt ratio remained low at 0.6% 

·  The loan book grew by 2.0% to £7.4 billion, up 6.3%1 year on year, driven by good new business volumes across our Commercial and Premium Finance businesses, while our Motor Finance and Property loan books contracted slightly 

·  Asset Management achieved good net inflows at 7% (annualised) and adjusted operating profit of £10.8 million, down 5% year on year reflecting the impact of negative market movements 

·  Winterflood, the group's market-making business, delivered solid profitability in a difficult market, with operating profit of £9.3 million, down 37% year on year reflecting lower trading volumes 

·  The CET1 ratio increased to 13.0% and we have declared an interim dividend per share of 22.0p, up 5% year on year 

·  On a statutory basis, group operating profit before tax decreased 3% to £135.6 million

 

Financial Highlights2

 

 First half

2019

First half

2018

Change

%

Adjusted operating profit3

£138.8m

£143.9m

(4)

Operating profit before tax (continuing operations)

£135.6m

£140.2m

(3)

Adjusted basic earnings per share (continuing operations)

69.8p

72.0p

(3)

Basic earnings per share (continuing operations)

68.1p

70.0p

(3)

Basic earnings per share (continuing and discontinued operations)

68.9p

69.2p

-

Dividend per share

22.0p

21.0p

5

Return on opening equity

16.1%

17.5%

 

Net interest margin

8.1%

8.2%

 

Bad debt ratio

0.6%

0.6%

 

 

 

 

 

 

31 January

2019

1 August

2018

Change

%

Loan book

£7.4bn

£7.2bn

2.0

Total client assets

£12.0bn

£12.2bn

  (2.1)

Common equity tier 1 capital ratio

13.0%

12.7%

 

Total capital ratio

15.2%

15.0%

 

 

Preben Prebensen, Chief Executive, said:

"We delivered another solid performance in the first half, continuing to achieve strong returns while staying true to our service led business model, disciplined approach, and commitment to investing through the cycle.

The Banking division has continued its good performance year to date, and our market facing businesses have remained solidly profitable in difficult market conditions.

Longer term, we are confident that the disciplined application of our business model will continue to allow us to support our clients and customers and invest in our business, while maintaining strong returns and profitability in a wide range of market conditions."

BUSINESS OVERVIEW

Close Brothers has delivered a solid first half, maintaining strong returns and profitability. Return on opening equity has remained strong at 16.1% (2018: 17.5%) and we are pleased to declare an interim dividend of 22.0p (2018: 21.0p) per share, up 5% year on year.

Adjusted operating profit decreased 4% to £138.8 million (2018: £143.9 million), reflecting the difficult market environment for our market facing businesses, Asset Management and Winterflood, and statutory operating profit before tax from continuing operations decreased 3% to £135.6 million (2018: £140.2 million). Adjusted basic earnings per share reduced 3% to 69.8p (2018: 72.0p), and statutory basic earnings per share from continuing operations also reduced 3% to 68.1p (2018: 70.0p).

Our proven and resilient business model enables us to support our customers and clients, invest in our business and deliver strong returns to shareholders throughout the economic cycle. As always, our focus remains on maintaining the discipline of this model and continuously investing in its long-term potential through a number of strategic infrastructure and business initiatives.

Good Profitability in the Lending Businesses

The Banking division continued to deliver good profitability, benefiting from our disciplined approach and diverse portfolio of businesses, with adjusted operating profit increasing 1% to £131.1 million (2018: £130.1 million).

Solid Performance in Difficult Conditions for Asset Management and Winterflood

The Asset Management division continued to make good progress, although total client assets and profit were impacted by falling markets in the first half. We achieved good net inflows at 7% (annualised) of opening managed assets, reflecting the strength of our client proposition for both advice and investment management. The division delivered an adjusted operating profit of £10.8 million (2018: £11.4 million), down 5% year on year, and an operating margin of 18% (2018: 20%).

Winterflood continued to deliver solid profitability in a difficult market, although operating profit of £9.3 million (2018: £14.7 million) reduced on the prior year period due to lower investor trading activity, particularly in December. Trading remained consistently profitable, with only one loss day in the period (2018: none).

Outlook

We recognise the uncertainties in the external economic and political environment, but believe that our proven and resilient business model leaves us well placed to support our customers and deliver good returns in a wide range of market conditions.

Our Banking division remains well positioned, benefiting from the diversity of its business portfolio and strong customer focus. We remain committed to protecting margins, maintaining our prudent underwriting and continuing to invest in our businesses for the long-term.

The Asset Management division remains focused on the long-term strength of our client proposition and on growing its asset base through ongoing investment and maintaining good net inflows.

Winterflood continues to maintain its market-leading position and maximise its trading opportunities, but remains sensitive to external market conditions.

Overall, we remain well positioned for the remainder of the year. 

Income Statement

 

 

 

First half

2019

£ million

     

First half 2018

£ million

 

 

Change

%

Adjusted operating income

 

407.4

402.5

1

Adjusted operating expenses

 

(246.7)

(235.8)

5

Impairment losses on financial assets

 

(21.9)

(22.8)

(4)

Adjusted operating profit

 

138.8

143.9

(4)

Banking

 

131.1

130.1

1

   Commercial

 

47.3

39.7

19

   Retail

 

36.8

44.4

(17)

   Property

 

47.0

46.0

2

Asset Management

 

10.8

11.4

(5)

Securities

 

9.3

14.7

(37)

Group

 

(12.4)

(12.3)

1

Amortisation of intangible assets on acquisition

 

(3.2)

(3.7)

(14)

Operating profit before tax

135.6

140.2

(3)

Tax

(33.4)

(35.1)

(5)

Profit after tax from continuing operations

102.2

105.1

(3)

Profit/(loss) from discontinued operations, net of tax

1.2

(1.2)

 

Loss attributable to non-controlling interests from continuing operations

(0.1)

(0.1)

-

Profit attributable to shareholders

103.5

104.0

-

 

Adjusted basic earnings per share (continuing operations)

 

69.8p

72.0p

(3)

Basic earnings per share (continuing operations)

 

68.1p

70.0p

(3)

Basic earnings per share (continuing and discontinued operations)

 

68.9p

69.2p

-

Dividend per share

 

22.0p

21.0p

5

Return on opening equity

 

16.1%

17.5%