TIDMCBG
RNS Number : 4828H
Close Brothers Group PLC
13 March 2018
Preliminary Results for the Six Months to 31 January 2018
Good Profit Growth in the First Half(1)
-- The group reported a good performance for the first
half, with a 6% increase in adjusted operating
profit to GBP142.3 million and a return on opening
equity(2) of 17.3%
-- Banking delivered an adjusted operating profit
of GBP128.5 million, up 5% year on year, driven
by both Commercial and Retail
-- The net interest margin was stable and impairments
remained low with a bad debt ratio of 0.7%, stable
on last year excluding provision releases
-- The loan book grew by 1.7% to GBP7.0 billion, up
7% year on year, as we continue to apply our disciplined
approach to lending
-- Winterflood's strong performance continued with
operating profit of GBP14.7 million, 2% up year
on year, reflecting consistently high investor
trading activity
-- Asset Management delivered a significant increase
in adjusted operating profit to GBP11.4 million,
up 25% year on year, supported by strong net inflows
at 13% (annualised) of opening managed assets
-- The interim dividend per share of 21.0p is up 5%
on last year
-- On a statutory basis, group operating profit before
tax increased 5% to GBP138.6 million
Financial Highlights(2)
First half First half Change
2018 2017 %
--------------------------- ------------------------ ----------- -------
Adjusted operating profit GBP142.3m GBP134.2m 6
Operating profit before
tax GBP138.6m GBP131.4m 5
Adjusted basic earnings
per share 71.2p 66.6p 7
Basic earnings per share 69.2p 65.1p 6
Dividend per share 21.0p 20.0p 5
Return on opening equity 17.3% 18.0%
Net interest margin 8.2% 8.2%
Bad debt ratio 0.7% 0.5%(3)
31 January 31 July Change
2018 2017 %
--------------------------- ------------------------ ----------- -------
Loan book GBP7.0bn GBP6.9bn 1.7
Total client assets GBP11.8bn GBP11.2bn 5.8
Common equity tier 1
capital ratio 12.7% 12.6%
Total capital ratio 15.2% 15.2%
--------------------------- ------------------------ ----------- -------
1 Numbers are presented on an adjusted basis, unless
indicated otherwise. Adjusted operating profit excludes
GBP3.7 million (2017: GBP2.8 million) of amortisation
of intangible assets on acquisition.
2 Please refer to definitions on page 16.
3 Includes provision releases. Bad debt ratio of
0.7% excluding provision releases.
Preben Prebensen, Chief Executive, said:
"We are pleased with our performance and progress in the first
half, delivering higher profit while staying true to our client and
customer focused model, and maintaining our prudent and disciplined
approach.
All our businesses have achieved a good performance year to
date, and we remain well positioned for the full year.
Longer term, we are confident that the consistent application of
our business model, along with our strong customer relationships,
the expertise of our people and the quality of our service will
allow us to continue performing well in all market conditions."
Enquiries
Close Brothers Group
Sophie Gillingham plc 020 7655 3844
Close Brothers Group
Eva Hatfield plc 020 7655 3350
Close Brothers Group
Liya Dashkina plc 020 7655 3468
Andy Donald Maitland 020 7379 5151
A presentation to analysts and investors will be held today at
9.30 am GMT at our offices at 10 Crown Place, London EC2A 4FT. A
listen-only dial-in facility will be available by dialling +44 20
3936 2999, using participant access code 181169.
Basis of Presentation
Results are presented both on a statutory and an adjusted basis
to aid comparability between periods. The adjusted basis excludes
exceptional items and amortisation of intangible assets on
acquisition.
About Close Brothers
Close Brothers is a leading UK merchant banking group providing
lending, deposit taking, wealth management services and securities
trading. We employ over 3,200 people, principally in the UK. Close
Brothers Group plc is listed on the London Stock Exchange and is a
member of the FTSE 250.
BUSINESS OVERVIEW
Close Brothers has delivered a good first half, with a strong
contribution from all three divisions. Adjusted operating profit
increased 6% to GBP142.3 million (2017: GBP134.2 million) and
statutory operating profit before tax increased 5% to GBP138.6
million (2017: GBP131.4 million). Earnings per share were up 7% on
an adjusted basis at 71.2p (2017: 66.6p), and 6% on a statutory
basis at 69.2p (2017: 65.1p). Return on opening equity has remained
strong at 17.3% (2017: 18.0%) and we are pleased to declare an
interim dividend of 21.0p (2017: 20.0p) per share, up 5% year on
year.
We have seen no change to the benign credit environment in our
lending businesses in the period and market conditions for our
Securities and Asset Management businesses remained supportive. In
this environment, our focus remains on maintaining the long-term
discipline of our business model, bringing service and expertise to
our clients and customers, maintaining pricing and underwriting
discipline, and investing in a number of infrastructure and new
business initiatives.
Good Profitability in the Lending Businesses
The Banking division delivered a good performance across all
three lending segments. Adjusted operating profit increased 5% to
GBP128.5 million (2017: GBP122.7 million) with a stable net
interest margin at 8.2% (2017: 8.2%) and a low bad debt ratio of
0.7% (2017: 0.5%).
In Banking, our focus remains on maintaining our strong net
interest margin and underwriting discipline in all market
conditions. As a result, loan book growth is slower at the current
point in the cycle, reflecting continuing high credit supply in
several of our markets. Overall the loan book increased 1.7% in the
first half, in line with the first half last year.
Within the Retail segment, the Premium Finance business
delivered further growth, benefiting from new broker relationships
following significant investment in the business in recent years.
In Motor Finance, we continue to prioritise our credit quality and
margins in a highly competitive market, and as a result the loan
book contracted slightly in the period.
Commercial delivered growth in both the loan book and operating
profit in the first half. In Asset Finance, the loan book increased
2% despite continued competition, with growth driven by the more
specialist product lines. We also achieved good growth in Invoice
Finance.
Finally, in Property, the loan book continued to grow driven by
consistently strong demand for new build family homes in both
London and the regions. The business remains well positioned, with
high levels of repeat business and a solid pipeline.
Good Performance in Winterflood and Asset Management
Winterflood's strong trading has continued, with operating
profit of GBP14.7 million (2017: GBP14.4 million), benefiting from
continued investor trading activity and rising markets. Trading was
consistently profitable, with no loss days in the period.
Asset Management delivered a significant improvement in
performance, with adjusted operating profit of GBP11.4 million
(2017: GBP9.1 million), up 25% year on year, and an operating
margin of 20%. Net inflows increased to 13% of opening managed
assets (2017: 3%), reflecting the strength of our client
proposition for both advice and investment management.
Prudent Funding, Liquidity and Capital
The prudent management of our funding, liquidity and capital is
a core part of our business model allowing us to grow, invest and
pay a dividend, while meeting all regulatory requirements. We have
maintained good access to a diverse range of funding markets and
our capital ratios remained strong in the period, with a common
equity tier 1 capital ratio of 12.7% (31 July 2017: 12.6%) and
leverage ratio of 10.7% (31 July 2017: 10.7%).
Outlook
We remain committed to our proven business model, which supports
our track record of lending successfully in all stages of the
cycle.
Our Banking division remains well positioned, benefiting from
the diversity of its business portfolio and strong customer focus.
We remain committed to protecting the margins, maintaining our
prudent underwriting and investing to improve and extend our
business in new and existing markets.
Winterflood continues to maintain its market-leading position
and maximise its trading opportunities, but remains sensitive to
any change in market conditions.
The Asset Management division continues to build on the strength
of our client proposition and remains focused on growing its asset
base.
At this stage, we have seen no significant change in trading
conditions since the period end and remain well positioned to
deliver a good result for the full year.
OVERVIEW OF FINANCIAL PERFORMANCE
Key Financials
First half First half
2018 2017 Change
GBP million GBP million %
----------------------------- ---- -------------- ------------------ ---------
Operating income 405.5 378.3 7
Adjusted operating expenses (239.4) (226.8) 6
Impairment losses on loans
and advances (23.8) (17.3) 38
------------------------------ --- -------------- ------------------ ---------
Adjusted operating profit 142.3 134.2 6
------------------------------ --- -------------- ------------------ ---------
Banking 128.5 122.7 5
-------------- ------------------ ---------
Retail 42.8 39.9 7
Commercial 39.7 36.5 9
Property 46.0 46.3 (1)
-------------- ------------------ ---------
Securities 14.7 14.4 2
Asset Management 11.4 9.1 25
Group (12.3) (12.0) 3
------------------------------ --- -------------- ------------------ ---------
Amortisation of intangible
assets on acquisition (3.7) (2.8) 32
------------------------------ --- -------------- ------------------ ---------
Operating profit before
tax 138.6 131.4 5
----------------------------------- -------------- ------------------ ---------
Adjusted basic earnings
per share 71.2p 66.6p 7
Basic earnings per
share 69.2p 65.1p 6
Dividend per share 21.0p 20.0p 5
Return on opening equity 17.3% 18.0%
Good Performance in the First Half
Adjusted operating profit increased 6% to GBP142.3 million
(2017: GBP134.2 million) and statutory operating profit before tax
increased 5% to GBP138.6 million (2017: GBP131.4 million),
resulting in an operating margin of 35% (2017: 35%). Return on
opening equity ("RoE") remained strong at 17.3% (2017: 18.0%).
The Banking division continued to deliver strong returns and
profit growth, with adjusted operating profit up 5% to GBP128.5
million (2017: GBP122.7 million). Winterflood, supported by
continued investor trading activity, delivered an operating profit
of GBP14.7 million (2017: GBP14.4 million), ahead of the prior
year. Asset Management also performed well, with an adjusted
operating profit of GBP11.4 million (2017: GBP9.1 million), up 25%
year on year, driven by strong net inflows and positive market
movements. Group net expenses, which include the central functions
such as finance, legal and compliance, risk and human resources,
were marginally higher at GBP12.3 million (2017: GBP12.0
million).
Operating income increased 7% to GBP405.5 million (2017:
GBP378.3 million), with higher income in all three divisions.
Income in Banking increased 7% with a stable net interest margin of
8.2% (2017: 8.2%), while income in Securities and Asset Management
was up 3% and 12% respectively.
Adjusted operating expenses increased 6% to GBP239.4 million
(2017: GBP226.8 million), driven predominantly by continued growth
and investment in the Banking division. Costs in Securities and
Asset Management were also up, reflecting higher variable costs due
to strong trading performance. Overall, the expense/income ratio
improved slightly to 59% (2017: 60%) and the compensation ratio
remained stable at 38% (2017: 38%).
Impairments of GBP23.8 million (2017: GBP17.3 million) remained
low with a bad debt ratio of 0.7% (2017: 0.5%). The increase
reflects provision releases of GBP5.4 million in the comparative
period, which did not recur. Excluding these provision releases,
the ratio remained stable.
The tax charge in the period was GBP34.7 million (2017: GBP34.8
million), which corresponds to an effective tax rate of 25% (2017:
26%), reflecting the reduction in the corporation tax rate.
As a result, adjusted basic earnings per share ("EPS") increased
7% to 71.2p (2017: 66.6p). Basic EPS increased 6% to 69.2p (2017:
65.1p).
The interim dividend of 21.0p (2017: 20.0p) represents an
increase of 5% from the prior year, reflecting our progressive
dividend policy. This interim dividend is due to be paid on 25
April 2018 to shareholders on the register at 23 March 2018.
Results are presented on both a statutory and adjusted basis.
The adjusted basis excludes amortisation of intangible assets on
acquisition. Adjusted operating profit is reported on a basis
consistent with prior periods and is used by management for
internal management reporting purposes. Amortisation of intangible
assets on acquisition of GBP3.7 million (2017: GBP2.8 million) is
excluded from adjusted operating profit to present the performance
of the group's acquired businesses consistent with its other
businesses.
Group Balance Sheet
31 January 31 July
2018 2017
GBP million GBP million
------------------------------ ------------- -------------
Loans and advances
to customers 6,998.4 6,884.7
Treasury assets(1) 1,135.2 1,029.0
Market-making assets(2) 705.5 643.4
Other assets 802.3 728.1
------------------------------- ------------- -------------
Total assets 9,641.4 9,285.2
------------------------------- ------------- -------------
Deposits by customers 5,250.2 5,113.1
Borrowings 2,144.5 2,041.2
Market-making liabilities(2) 674.4 556.9
Other liabilities 295.1 338.0
------------------------------- ------------- -------------
Total liabilities 8,364.2 8,049.2
------------------------------- ------------- -------------
Equity 1,277.2 1,236.0
------------------------------- ------------- -------------
Total liabilities and
equity 9,641.4 9,285.2
------------------------------- ------------- -------------
1 Treasury assets comprise cash and balances at central banks,
and debt securities held to support lending in the Banking
division.
2 Market-making assets and liabilities comprise settlement
balances, long and short trading positions and loans to or from
money brokers.
We maintain a prudent approach to managing our financial
resources, which is reflected in our simple and transparent balance
sheet. Assets are made up predominantly of loans and advances to
customers as well as treasury assets held for liquidity purposes,
and settlement balances in our Securities division. Other assets
principally comprise intangibles, property, plant and equipment,
and prepayments. Liabilities are predominantly made up of customer
deposits, and both secured and unsecured borrowings to fund the
loan book.
Total assets increased to GBP9.6 billion (31 July 2017: GBP9.3
billion), driven predominantly by growth in the loan book and
treasury assets. Total liabilities increased GBP315.0 million to
GBP8.4 billion (31 July 2017: GBP8.0 billion), due to higher
customer deposits and borrowings. Total equity increased to GBP1.3
billion (31 July 2017: GBP1.2 billion), with profit in the period
partially offset by dividend payments of GBP59.7 million. The
group's return on assets remained broadly stable at 2.2% (31 July
2017: 2.1%).
Group Capital Position
31 January 31 July
2018 2017
GBP million GBP million
---------------------- ------------- -------------
Common equity tier
1 capital 1,032.3 990.6
Total capital 1,230.3 1,196.2
Risk weighted assets 8,119.6 7,859.0
Common equity tier
1 capital ratio 12.7% 12.6%
Total capital ratio 15.2% 15.2%
Leverage ratio 10.7% 10.7%
----------------------- ------------- -------------
The group aims to maintain a strong capital position, which
supports our ability to lend through the cycle, invest in our
business and pay a progressive dividend to shareholders while
continuing to meet all regulatory requirements.
In the first half, the common equity tier 1 ("CET1") capital
ratio increased to 12.7% (31 July 2017: 12.6%), reflecting
continued profitability and modest loan book growth at this stage
in the cycle. CET1 capital increased to GBP1,032.3 million (31 July
2017: GBP990.6 million), reflecting GBP104.0 million of profit for
the period, a regulatory deduction for foreseeable dividends of
GBP47.9 million and other movements in reserves and intangibles.
Risk weighted assets increased 3% to GBP8.1 billion (31 July 2017:
GBP7.9 billion), driven by a combination of growth in the period
and loan book mix at the period end.
The group's total capital ratio remained stable at 15.2% (31
July 2017: 15.2%), and the leverage ratio remained strong at 10.7%
(31 July 2017: 10.7%).
Accordingly, all the group's capital ratios remain comfortably
ahead of minimum regulatory requirements. At this stage, we expect
limited impact from the changes to the standardised approach issued
by the Basel Committee, but we continue to monitor regulatory
developments carefully.
We are continuing to progress our plans towards a transition to
the Internal Ratings Based approach, which remain at an early
stage.
Group Funding(1)
31 January 31 July
2018 2017
GBP million GBP million
---------------------------------- ------------- -------------
Customer deposits 5,250.2 5,113.1
Secured funding 1,268.9 1,297.3
Unsecured funding(2) 1,144.1 1,120.3
Equity 1,277.2 1,236.0
----------------------------------- ------------- -------------
Total available funding 8,940.4 8,766.7
----------------------------------- ------------- -------------
Of which term funding (over
one year) 4,703.6 4,766.2
Total funding as % of loan
book 128% 127%
Term funding as % of loan book 67% 69%
Average maturity of term funding 37 months 38 months
(excluding equity)
Average maturity of funding 21 months 21 months
allocated to loan book(3)
1 Numbers relate to core funding and exclude working capital
facilities at the business level.
2 Unsecured funding includes GBP295.0 million (31 July 2017:
GBP295.0 million) of undrawn facilities.
3 Average maturity of total funding excluding equity and funding
held for liquidity purposes.
The main purpose of our treasury function is to manage funding
and liquidity to support the lending businesses. We maintain a
conservative approach, with diverse funding sources and a prudent
maturity profile.
We continue to have access to a wide range of funding sources,
including retail and corporate deposits, both secured and unsecured
debt, and wholesale facilities. We have made limited use of the
Term Funding Scheme, which represents c.4% of our total funding at
the balance sheet date.
In the first half, total funding increased to GBP8.9 billion (31
July 2017: GBP8.8 billion), accounting for 128% of the loan book.
The increase was driven by higher deposits, up 3% to GBP5.3 billion
(31 July 2017: GBP5.1 billion), with growth principally in
corporate deposits.
We also maintain a prudent funding maturity. At 31 January 2018,
term funding with a residual maturity over one year covered 67% (31
July 2017: 69%) of the loan book, with the average maturity of
funding allocated to the loan book remaining at 21 months (31 July
2017: 21 months), significantly ahead of the loan book maturity of
14 months (31 July 2017: 14 months).
The overall funding environment remains favourable and our
average cost of funding reduced to 1.6% (2017: 1.9%), reflecting
new lower cost funding, including a second public Motor
securitisation placing of GBP200 million in November 2017.
In the period, we have also initiated an investment programme to
implement a new deposit platform, which will allow us to build an
online distribution channel and offer a wider range of savings
products.
Since the financial year end, both Moody's Investors Services
("Moody's") and Fitch Ratings ("Fitch") reaffirmed our credit
ratings. Moody's rates Close Brothers Group ("CBG") A3/P2 and Close
Brothers Limited ("CBL") Aa3/P1, with stable outlook. Fitch rates
both CBG and CBL A/F1 with stable outlook.
Group Liquidity
31 January 31 July
2018 2017
GBP million GBP million
-------------------------- ------------- -------------
Bank of England deposits 841.4 805.1
Sovereign and central
bank debt 42.8 43.6
High quality liquid
assets(1) 884.2 848.7
Certificates of deposit 251.0 180.3
Treasury assets 1,135.2 1,029.0
--------------------------- ------------- -------------
1 In addition to, and not included in the above, at 31 July 2017
the group held GBP97.5 million of Treasury Bills drawn under the
Funding for Lending Scheme but not in repurchase agreements, which
have since been repaid.
We maintain a strong liquidity position, with the majority of
our liquidity requirements and surplus funding held in the form of
high quality liquid assets. We regularly assess and stress test our
liquidity position, ensuring it is comfortably ahead of both
internal risk appetite and regulatory requirements. We continue to
comfortably meet the liquidity coverage ratio requirements under
CRD IV.
Treasury assets at 31 January 2018 increased to GBP1.1 billion
(31 July 2017: GBP1.0 billion), and were predominantly held on
deposit with the Bank of England.
IFRS 9
As previously communicated, the provisions of IFRS 9 Financial
Instruments will apply to the group for the year ending 31 July
2019. We are conducting a parallel run during the current financial
year to validate and refine the models and assumptions ahead of
implementation on 1 August 2018. We will provide further detail on
the expected financial impact of the transition once we have
sufficiently reliable estimates.
BUSINESS REVIEW
BANKING
Key Financials
First half First half
2018 2017 Change
GBP million GBP million %
----------------------------- ---------------- ---------------- ---------
Operating income 293.9 274.0 7
Adjusted operating expenses (141.6) (134.0) 6
Impairment losses on
loans and advances (23.8) (17.3) 38
------------------------------ ---------------- ---------------- ---------
Adjusted operating profit 128.5 122.7 5
------------------------------ ---------------- ---------------- ---------
Net interest margin 8.2% 8.2%
Expense/income ratio 48% 49%
Bad debt ratio 0.7% 0.5%
Return on net loan book 3.6% 3.7%
Return on opening equity 20% 23%
------------------------------ ---------------- ---------------- ---------
Average loan book and
operating lease assets 7,131.1 6,655.2 7
------------------------------ ---------------- ---------------- ---------
Good Financial Performance Continued in the First Half
Adjusted operating profit for the Banking division was up 5% to
GBP128.5 million (2017: GBP122.7 million), driven by 7% income
growth to GBP293.9 million (2017: GBP274.0 million) and continued
low impairments. Statutory operating profit increased 4% to
GBP127.5 million (2017: GBP122.4 million).
The loan book grew 1.7% (2017: 1.7%) in the period, in line with
the first half last year, with a broadly stable return on net loan
book of 3.6% (2017: 3.7%). Return on opening equity was slightly
lower at 20% (2017: 23%), driven by higher equity following the
increase in risk weighting of our property portfolio last year.
The net interest margin remained stable at 8.2% (2017: 8.2%),
reflecting our continued pricing discipline and benefiting from a
lower cost of funding. Although price competition remains strong in
some parts of our business, we continue to focus on holding our
margins across the overall portfolio.
Adjusted operating expenses at GBP141.6 million (2017: GBP134.0
million) increased 6% year on year, with the increase driven
predominantly by staff-related costs. Cost discipline remains a
priority, as we tightly manage our operational costs while
continuing to invest in the business. In Retail, investment
continues across both Premium and Motor Finance, and we are
continuing to progress a number of new business initiatives in
Commercial. In the period, we have also initiated an investment in
a new deposit platform, which, in time, will allow our treasury
function to expand its product offering and build an online
presence. The expense/income and compensation ratios both remained
broadly in line with last year, at 48% (2017: 49%) and 29% (2017:
30%) respectively.
The bad debt ratio remained low at 0.7% (2017: 0.5%), reflecting
continued strong underlying credit performance across the
portfolio. The ratio increase from 0.5% to 0.7% reflects one-off
provision releases in the first half of 2017, and the ratio was
unchanged on an underlying basis.
Loan Book Analysis
31 January 31 July
2018 2017 Change
GBP million GBP million %
------------------- ------------ ------------ -------------
Retail 2,700.6 2,702.8 (0.1)
------------ ------------ -------------
Motor Finance 1,715.5 1,761.9 (2.6)
Premium Finance 985.1 940.9 4.7
------------ ------------ -------------
Commercial 2,603.7 2,552.6 2.0
------------ ------------ -------------
Asset Finance 2,057.0 2,017.0 2.0
Invoice Finance 546.7 535.6 2.1
------------ ------------ -------------
Property 1,694.1 1,629.3 4.0
------------------- ------------ ------------ -------------
Closing loan book 6,998.4 6,884.7 1.7
------------------- ------------ ------------ -------------
The loan book growth reflects the diversity of our portfolio, as
we continue to prioritise margins and credit quality at the current
point in the cycle. The loan book grew 1.7% year to date, and 7.0%
year on year, to GBP7.0 billion (31 July 2017: GBP6.9 billion).
Growth continues to be driven by Property and Premium Finance, with
both Asset and Invoice Finance also growing in the period. In Motor
Finance, the loan book contracted modestly, reflecting our
commitment to pricing and underwriting discipline in the current
environment.
Banking: Retail
First half First half
2018 2017 Change
GBP million GBP million %
----------------------------- ------------- ------------- -------
Operating income 118.6 110.3 8
Adjusted operating expenses (61.4) (58.5) 5
Impairment losses on
loans and advances (14.4) (11.9) 21
----------------------------- ------------- ------------- -------
Adjusted operating profit 42.8 39.9 7
----------------------------- ------------- ------------- -------
Net interest margin 8.8% 8.7%
Expense/income ratio 52% 53%
Bad debt ratio 1.1% 0.9%
Average loan book 2,701.7 2,540.9 6
----------------------------- ------------- ------------- -------
The segment provides intermediated finance, principally to
individuals, through motor dealers, insurance brokers and
retailers, and incorporates our Premium and Motor Finance
businesses.
The Retail loan book remained broadly flat at GBP2.7 billion (31
July 2017: GBP2.7 billion). In Premium Finance, we saw good growth
of 4.7% to GBP1.0 billion (31 July 2017: GBP0.9 billion), driven by
recent broker wins and increased volumes through existing brokers,
supported by our ongoing investment in the business.
The Motor Finance loan book contracted 2.6% in the period, and
is currently at GBP1.7 billion (31 July 2017: GBP1.8 billion), as
we continue to consistently apply our model, holding margin and
prioritising credit quality in a highly competitive UK motor
finance market. As expected, the Irish portfolio continued to grow
modestly.
Overall, adjusted operating profit for the Retail segment of
GBP42.8 million (2017: GBP39.9 million) was up 7% on the prior
year. Statutory operating profit was also up 7% at GBP42.7 million
(2017: GBP39.9 million).
Operating income was up 8% year on year at GBP118.6 million
(2017: GBP110.3 million) with the net interest margin marginally
higher at 8.8% (2017: 8.7%).
Adjusted operating expenses increased 5% to GBP61.4 million
(2017: GBP58.5 million). We continue our multi-year investment in
the Premium Finance infrastructure, as well as an investment
programme in the Motor Finance business initiated at the end of
last year to improve the service proposition to dealers and end
customers. Despite this investment, the expense/income ratio was
broadly in line with the prior year at 52% (2017: 53%).
The bad debt ratio of 1.1% (2017: 0.9%) remains consistent with
the second half of the last financial year. We remain comfortable
with the credit quality of the Motor Finance loan book, supported
by our prudent underwriting, focus on used cars and low exposure to
Personal Contract Plan ("PCP").
Banking: Commercial
First half First half
2018 2017 Change
GBP million GBP million %
----------------------------- -------------- ------------- -------
Operating income 110.4 105.6 5
Adjusted operating expenses (65.1) (61.5) 6
Impairment losses on
loans and advances (5.6) (7.6) (26)
----------------------------- -------------- ------------- -------
Adjusted operating profit 39.7 36.5 9
----------------------------- -------------- ------------- -------
Net interest margin 8.0% 8.0%
Expense/income ratio 59% 58%
Bad debt ratio 0.4% 0.6%
Average loan book and
operating leases 2,767.7 2,633.3 5
----------------------------- -------------- ------------- -------
The segment focuses on specialist, secured lending principally
to the SME market and includes the Asset and Invoice Finance
businesses.
The Commercial loan book increased 2.0% to GBP2.6 billion (31
July 2017: GBP2.6 billion), supported by growth in both Asset and
Invoice Finance. Although competition in many areas remains strong,
the Asset Finance book grew 2.0%, driven by the more specialist
product lines, while the core portfolio remained broadly flat. In
Invoice Finance, we saw good growth supported by Novitas, which was
acquired at the end of the 2017 financial year and provides
financing for legal fees. We also continue to see good demand for
our asset based lending ("ABL") products, characterised by bigger
ticket deals.
Adjusted operating profit of GBP39.7 million (2017: GBP36.5
million) was up 9%, driven by good income and lower bad debt.
Statutory operating profit also increased 7% to GBP38.8 million
(2017: GBP36.2 million).
Operating income of GBP110.4 million (2017: GBP105.6 million)
was 5% higher than the prior year, reflecting loan book growth in
the period. Our net interest margin remained strong at 8.0% (2017:
8.0%), as we maintain pricing discipline in the face of ongoing
pricing competition in the asset finance market.
Costs were up 6% to GBP65.1 million (2017: GBP61.5 million),
reflecting a number of ongoing new business initiatives. These
include our technology services business and the recent expansion
of our asset finance offering into Germany. The expense/income
ratio remained broadly stable at 59% (2017: 58%).
The bad debt ratio reduced to 0.4% (2017: 0.6%), reflecting a
particularly strong credit performance, with low arrears and a
strong collections performance.
Banking: Property
First half First half
2018 2017 Change
GBP million GBP million %
---------------------- -------------------- ------------- ---------
Operating income 64.9 58.1 12
Operating expenses (15.1) (14.0) 8
Impairment losses on
loans and advances (3.8) 2.2
---------------------- -------------------- ------------- ---------
Operating profit 46.0 46.3 (1)
---------------------- -------------------- ------------- ---------
Net interest margin 7.8% 7.8%
Expense/income ratio 23% 24%
Bad debt ratio 0.5% (0.3%)
Average loan book 1,661.7 1,481.0 12
---------------------- -------------------- ------------- ---------
The segment is focused on specialist residential development
finance to established professional developers in the UK. We do not
lend to the buy-to-let sector, or provide residential or commercial
mortgages.
The Property segment performed well in the period, delivering
loan book growth of 4.0% to GBP1.7 billion (31 July 2017: GBP1.6
billion), or 12.6% year on year. We continue to see good demand for
residential property development finance and the pipeline remains
solid. Our focus is on new build family homes where we see
continued strong structural demand. In recent years we have also
extended our offering to high-quality regional locations, and we
continue to see good growth potential in these markets.
The business delivered an operating profit of GBP46.0 million
(2017: GBP46.3 million), broadly in line year on year. This
reflects the benefit of one-off provision releases which resulted
in a net bad debt recovery in the comparative period. Therefore,
the bad debt ratio in the current period was higher at 0.5% (2017:
-0.3%). The net interest margin was stable at 7.8% (2017:
7.8%).
Operating expenses of GBP15.1 million (2017: GBP14.0 million)
were up 8%, and the expense/income ratio remained low at 23% (2017:
24%), reflecting the lower operational requirements of the
business.
SECURITIES
Key Financials
First half First half
2018 2017 Change
GBP million GBP million %
-------------------- ------------- ------------- ---------
Operating income 55.6 53.9 3
Operating expenses (40.9) (39.5) 4
--------------------- ------------- ------------- ---------
Operating profit 14.7 14.4 2
--------------------- ------------- ------------- ---------
Bargains per day 70k 58k 22
Operating margin 26% 27%
Return on opening
equity 30% 30%
Strong Trading Continued
Winterflood remains focused on delivering high-quality execution
services to retail intermediaries, wealth managers and
institutional investors.
Winterflood continued to benefit from positive market sentiment
and investor risk appetite throughout the period, with particularly
favourable conditions in the second quarter. As a result, the
operating profit increased 2% to GBP14.7 million (2017: GBP14.4
million).
Operating income grew 3% to GBP55.6 million (2017: GBP53.9
million) reflecting higher trading income particularly in FTSE 350
and AIM stocks. Average daily bargains increased to 70,228 (2017:
57,782), up 22% year on year but broadly in line with the second
half, reflecting higher FTSE 350 volumes. There were no loss days
(2017: no loss days) in the period.
Operating expenses increased 4%, broadly in line with income,
reflecting Winterflood's variable cost model. Both the
expense/income ratio and the compensation ratio remained broadly
stable at 74% (2017: 73%) and 48% respectively (2017: 48%).
ASSET MANAGEMENT
Key Financials
First half First half
2018 2017(3) Change
GBP million GBP million %
------------------------------ ------------- ------------- ---------
Investment management 35.8 30.8 16
Advice and other services(1) 20.0 17.4 15
Other income(2) 0.2 1.9 (11)
------------------------------- ------------- ------------- ---------
Operating income 56.0 50.1 12
Adjusted operating
expenses (44.6) (41.0) 9
------------------------------- ------------- ------------- ---------
Adjusted operating
profit 11.4 9.1 25
------------------------------- ------------- ------------- ---------
Revenue margin (bps) 97 96
Operating margin 20% 18%
Return on opening
equity 33% 27%
1 Income from advice and self-directed services, excluding
investment management income.
2 Net interest income and expense, income on principal
investments and other income.
3 The first half of 2017 includes GBP1.6 million profit on
disposal of OLIM Investment Managers ("OLIM"), which completed in
November 2016. Overall, OLIM contributed GBP2.3 million of income
and GBP1.9 million of profit, including the profit on disposal.
Profit Growth Supported by Continued Strong Inflows
Asset Management delivered strong results in the first half,
with adjusted operating profit growth of 25% to GBP11.4 million
(2017: GBP9.1 million). Statutory operating profit increased 32% to
GBP8.7 million (2017: GBP6.6 million). All our channels performed
well, delivering positive net flows of GBP573 million representing
an annualised rate of 13% (2017: 3%) of opening managed assets.
Operating income increased 12% to GBP56.0 million (2017: GBP50.1
million) with strong growth in investment management fees and
advisory income. This reflects the consistent growth in our managed
assets over the last 12 months as well as continued demand for our
advisory services. The revenue margin improved marginally to
97bps.
Adjusted operating expenses increased 9% to GBP44.6 million
(2017: GBP41.0 million), below income growth, reflecting the
operating leverage of the business. The expense/income ratio
reduced to 80% (2017: 82%) while the compensation ratio increased
slightly to 57% (2017: 54%), reflecting new hires and an increase
in variable compensation in the period.
Movement in Client Assets
31 January 2018
GBP million
------------------------------------ --------------------
Opening managed assets 8,900
Inflows 947
Outflows (374)
------------------------------------ --------------------
Net inflows 573
Market movements 240
Total managed assets 9,713
Advised only assets 2,088
------------------------------------ --------------------
Total client assets(1) 11,801
------------------------------------ --------------------
Net flows as % of opening
managed assets 13%
------------------------------------ --------------------
1 Total client assets include GBP4.1 billion of assets
that are both advised and managed.
Total managed assets increased 9% to GBP9.7 billion (31 July
2017: GBP8.9 billion), benefiting from both strong net inflows and
favourable market movements. Net inflows, at GBP573 million,
improved significantly in the first half of the year (31 January
2017: GBP125 million), with strong flows across both our integrated
wealth and investment management services. Positive market
movements in the period contributed GBP240 million.
Total client assets, which include advised assets under
third-party management, closed 6% higher at GBP11.8 billion (31
July 2017: GBP11.2 billion).
Our funds and segregated bespoke portfolios are designed to
provide attractive risk adjusted returns for our clients, in line
with their long-term goals. Over the 12 month period to 31 January
2018, 11 out of our 13 unitised funds outperformed their relevant
benchmarks, with particularly good performance across our Direct
and Managed funds. Over the year to 31 December 2017, 75% of our
segregated bespoke strategies outperformed their relevant peer
groups. This compares to 100% over the 3 year period, in line with
our strong long term outperformance track record for our bespoke
strategies.
DEFINITIONS
Adjusted: Adjusted measures are used to increase comparability
between periods and exclude amortisation of intangible assets on
acquisition and any exceptional items
Bad debt ratio: Impairment losses as a percentage of average net
loans and advances to customers and operating lease assets
Compensation ratio: Total staff costs as a percentage of
operating income
Dividend per share ("DPS"): Comprises the final dividend
proposed for the respective year together with the interim dividend
declared and paid in the year
Earnings per share ("EPS"): Profit attributable to shareholders
divided by number of basic shares
Effective tax rate: Tax on operating profit/(loss) as a
percentage of operating profit/(loss) on ordinary activities before
tax
Expense/income ratio: Total adjusted operating expenses divided
by operating income
Funding allocated to loan book: Total funding excluding equity
and funding held for liquidity purposes
Funding % loan book: Total funding divided by net loans and
advances to customers
High-quality liquid assets ("HQLAs"): Assets which qualify for
regulatory liquidity purposes, including Bank of England deposits,
and sovereign and central bank debt, including funds drawn under
the Funding for Lending Scheme
Leverage ratio: Tier 1 capital as a percentage of total balance
sheet assets, adjusted for certain capital deductions, including
intangible assets, and off balance sheet exposures
Liquidity coverage ratio: Measure of the group's HQLAs as a
percentage of expected net cash outflows over the next 30 days in a
stressed scenario
Loan to value ratio ("LTV"): For a secured loan, the loan
balance as a percentage of the total value of the asset
Net interest margin ("NIM"): Income generated by lending
activities, including interest income net of interest expense, fees
and commissions income net of fees and commissions expense, and
operating lease income net of operating lease expense, less
depreciation on operating lease assets, divided by average loans
and advances to customers (net of impaired loans) and operating
lease assets
Operating margin: Adjusted operating profit divided by operating
income
Return on assets: Profit attributable to shareholders divided by
total assets at balance sheet date
Return on net loan book ("RoNLB"): Adjusted operating profit
from lending activities divided by average net loans and advances
to customers, and operating lease assets
Return on opening equity ("RoE"): Adjusted operating profit
after tax and non-controlling interests divided by opening equity,
excluding non-controlling interests
Revenue margin: Income from advice, investment management and
related services divided by average total client assets
Term funding: Funding with a remaining maturity greater than 12
months
Principal Risks and Uncertainties
The group faces a number of risks in the normal course of
business. The framework we use to manage these risks is as
follows:
-- adhering to our established and proven business model;
-- implementing an integrated "three lines of defence" risk management approach; and
-- operating within a clearly defined risk appetite which is
monitored with defined metrics and set limits.
A detailed description of the principal risks and our approach
to managing and mitigating these risks is disclosed on pages 16 to
19 of the Annual Report 2017 which can be accessed via the Investor
Relations home page on the group's website at
www.closebrothers.com.
There have been no significant changes to our risk management
approach in the period. The principal risks faced by the group
remain unchanged and are summarised below.
Credit losses - the group provides loans to a range of small
businesses and individuals. There is a risk that customers are
unable to repay their loans and any outstanding interest and fees
resulting in credit losses. The group also has exposure to
counterparties with which it places deposits or trades and also has
a small number of derivative contracts to hedge interest rate and
foreign exchange exposures.
Economic environment - any downturn in economic conditions may
impact the group's performance through lower demand for the group's
products and services, lower investor risk appetite, higher credit
losses and increased volatility in funding markets.
Legal and regulatory - changes to existing legal, regulatory and
tax environments, or failure to comply with existing requirements
could adversely impact the group's performance, as well as capital,
liquidity and the markets in which we operate. Failing to treat
customers fairly also has the potential to damage the group's
reputation and may lead to legal or regulatory sanctions including
litigation and customer redress.
Competition - the group operates in competitive markets.
Elevated levels of competition may impact demand for the group's
products and services.
Technology and operational resilience - providing robust,
contemporary and secure IT services is fundamental to enabling the
group to provide a high quality customer experience, respond to new
technology, protect client and company data and counter the
evolving cyber threat. Failure to evolve with our customers'
technological expectations or provide reliable, secure IT services
has the potential to impact group performance.
Employees - the quality and expertise of our employees is
critical to our success. The loss of key individuals or teams may
have an adverse impact on the group's operations and ability to
deliver its strategy.
Funding and liquidity - access to funding remains key to support
our lending activities and the group's liquidity requirements. Any
material change to funding or liquidity capacity has the potential
to impact the group's ongoing performance.
Market risk - market volatility impacting equity and fixed
income exposures, and/or changes in interest and exchange rates
have the potential to impact the group's performance.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
-- the condensed set of consolidated financial statements
has been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting";
-- the Half Yearly Report 2018 includes a fair review
of the information required by Disclosure Guidance
and Transparency Rule 4.2.7R (indication of important
events during the first six months and description
of principal risks and uncertainties for the remaining
six months of the year); and
-- the Half Yearly Report 2018 includes a fair review
of the information required by Disclosure Guidance
and Transparency Rule 4.2.8R (disclosure of related
parties' transactions and changes therein).
On behalf of the board
Michael N. Biggs P. Prebensen
Chairman Chief Executive
13 March 2018
Independent Review Report
Our conclusion
We have reviewed Close Brothers Group plc's interim financial
information (the "condensed half yearly financial statements") in
the half yearly report of Close Brothers Group plc for the six
month period ended 31 January 2018. Based on our review, nothing
has come to our attention that causes us to believe that the
condensed half yearly financial statements are not prepared, in all
material respects, in accordance with International Accounting
Standard 34, "Interim Financial Reporting", as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The condensed half yearly financial statements comprise:
-- the consolidated balance sheet at 31 January 2018;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated cash flow statement for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the condensed half yearly financial statements.
The condensed half yearly financial statements included in the
half yearly report have been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1 to the condensed half yearly financial
statements, the financial reporting framework that has been applied
in the preparation of the full annual financial statements of the
Group is applicable law and International Financial Reporting
Standards ("IFRSs") as adopted by the European Union.
Responsibilities for the condensed half yearly financial
statements and the review
Our responsibilities and those of the directors
The half yearly report, including the condensed half yearly
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half yearly report in accordance with the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on the condensed
half yearly financial statements in the half yearly report based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of condensed half yearly financial statements
involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half yearly
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed half yearly financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
13 March 2018
Consolidated Income Statement
for the six months ended 31 January 2018
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
Unaudited Unaudited Audited
Note GBP million GBP million GBP million
---------------------------------------------- ----------- ----------- -----------
Interest income 301.7 289.6 578.9
Interest expense (56.0) (62.5) (117.3)
--------------------------------------------- ----------- ----------- -----------
Net interest income 245.7 227.1 461.6
--------------------------------------------- ----------- ----------- -----------
Fee and commission income 106.4 100.2 206.5
Fee and commission expense (14.3) (15.0) (29.0)
Gains less losses arising from dealing
in securities 51.8 48.7 94.2
Other income 31.4 29.2 57.3
Depreciation of operating lease assets (15.5) (11.9) (25.0)
Non-interest income 159.8 151.2 304.0
--------------------------------------------- ----------- ----------- -----------
Operating income 2 405.5 378.3 765.6
--------------------------------------------- ----------- ----------- -----------
Administrative expenses (239.4) (226.8) (460.6)
Impairment losses on loans and advances 6 (23.8) (17.3) (40.2)
--------------------------------------------- ----------- ----------- -----------
Total operating expenses before amortisation
of intangible assets
on acquisition (263.2) (244.1) (500.8)
--------------------------------------------- ----------- ----------- -----------
Operating profit before amortisation
of intangible assets on
acquisition 142.3 134.2 264.8
Amortisation of intangible assets
on acquisition (3.7) (2.8) (6.2)
--------------------------------------------- ----------- ----------- -----------
Operating profit before tax 138.6 131.4 258.6
Tax 3 (34.7) (34.8) (67.7)
--------------------------------------------- ----------- ----------- -----------
Profit after tax for the period 103.9 96.6 190.9
Loss attributable to non-controlling
interests (0.1) (0.2) (0.3)
Profit attributable to shareholders 104.0 96.8 191.2
Basic earnings per share 4 69.2p 65.1p 128.3p
--------------------------------------------- ----------- ----------- -----------
Diluted earnings per share 4 68.7p 64.9p 127.5p
--------------------------------------------- ----------- ----------- -----------
Ordinary dividend per share 5 21.0p 20.0p 60.0p
--------------------------------------------- ----------- ----------- -----------
Consolidated Statement of COMPREHENSIVE INCOME
for the six months ended 31 January 2018
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
Unaudited Unaudited Audited
GBP million GBP million GBP million
---------------------------------------- ----------- ----------- -----------
Profit after tax for the period 103.9 96.6 190.9
---------------------------------------- ----------- ----------- -----------
Other comprehensive income/(expense)
that may be reclassified
to income statement
Currency translation gains 0.1 0.2 0.4
Gains on cash flow hedging 3.7 3.9 4.7
(Losses)/gains on financial instruments
classified as available for sale:
Sovereign and central bank debt - (0.7) 0.7
Equity shares - 0.1 -
Contingent consideration (0.3) - 0.3
Tax relating to items that may be
reclassified (0.9) (0.9) (2.3)
---------------------------------------- ----------- ----------- -----------
2.6 2.6 3.8
---------------------------------------- ----------- ----------- -----------
Other comprehensive income/(expense)
that will not be
reclassified to income statement
Defined benefit pension scheme gains 1.1 2.8 2.7
Tax relating to items that will not
be reclassified (0.2) (0.6) (0.5)
---------------------------------------- ----------- ----------- -----------
0.9 2.2 2.2
---------------------------------------- ----------- ----------- -----------
Other comprehensive income for the
period, net of tax 3.5 4.8 6.0
Total comprehensive income for the
period 107.4 101.4 196.9
---------------------------------------- ----------- ----------- -----------
Attributable to
Non-controlling interests (0.1) (0.2) (0.3)
Shareholders 107.5 101.6 197.2
---------------------------------------- ----------- ----------- -----------
107.4 101.4 196.9
---------------------------------------- ----------- ----------- -----------
Consolidated Balance Sheet
at 31 January 2018
31 January 31 July
------------------------
2018 2017 2017
Unaudited Unaudited Audited
Note GBP million GBP million GBP million
-------------------------------------------- ----------- ----------- -----------
Assets
Cash and balances at central banks 841.4 1,120.8 805.1
Settlement balances 575.4 460.7 546.7
Loans and advances to banks 133.5 103.6 99.8
Loans and advances to customers 6 6,998.4 6,543.8 6,884.7
Debt securities 7 318.7 200.5 240.1
Equity shares 8 37.9 35.6 32.7
Loans to money brokers against stock
advanced 67.9 55.4 48.6
Derivative financial instruments 18.9 29.8 27.0
Intangible assets 199.0 161.4 191.7
Property, plant and equipment 230.8 201.0 202.7
Deferred tax assets 45.5 51.5 47.4
Prepayments, accrued income and
other assets 174.0 161.3 158.7
Total assets 9,641.4 9,125.4 9,285.2
Liabilities
Settlement balances and short positions 9 644.9 466.3 552.6
Deposits by banks 10 58.6 70.0 72.0
Deposits by customers 10 5,250.2 4,864.9 5,113.1
Loans and overdrafts from banks 10 376.6 418.9 330.9
Debt securities in issue 10 1,550.0 1,703.1 1,489.6
Loans from money brokers against
stock advanced 29.5 10.1 4.3
Derivative financial instruments 16.8 17.9 11.5
Current tax liabilities 22.1 25.1 21.4
Accruals, deferred income and other
liabilities 197.6 188.7 233.1
Subordinated loan capital 10 217.9 219.4 220.7
Total liabilities 8,364.2 7,984.4 8,049.2
---------------------------------------- ----------- ----------- -----------
Equity
Called up share capital 38.0 37.7 38.0
Share premium account 11 - 284.0 307.8
Retained earnings 1,260.1 840.7 906.6
Other reserves (20.3) (21.1) (15.9)
Total shareholders' equity 1,277.8 1,141.3 1,236.5
---------------------------------------- ----------- ----------- -----------
Non-controlling interests (0.6) (0.3) (0.5)
---------------------------------------- ----------- ----------- -----------
Total equity 1,277.2 1,141.0 1,236.0
---------------------------------------- ----------- ----------- -----------
Total liabilities and equity 9,641.4 9,125.4 9,285.2
---------------------------------------- ----------- ----------- -----------
Consolidated Statement of CHANGES IN EQUITY
for the six months ended 31 January 2018
Other reserves
--------------------------------------------
Available Share-based Cash Total
Called up Share for sale payments Exchange flow attributable Non-controlling
share premium Retained movements reserve movements hedging to equity interests Total
capital account earnings reserve reserve reserve holders equity
GBP million GBP GBP GBP GBP GBP GBP GBP million GBP GBP
million million million million million million million million
------------------------ -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
At 1 August
2016
(audited) 37.7 284.0 797.5 - (14.3) (1.1) (6.7) 1,097.1 (0.2) 1,096.9
----------------- ----- -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Profit/(loss)
for the
period - - 96.8 - - - - 96.8 (0.2) 96.6
Other
comprehensive
income/(expense)
for the
period - - 2.2 (0.4) - 0.2 2.8 4.8 - 4.8
----------------- ----- -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Total
comprehensive
income/(expense)
for the
period - - 99.0 (0.4) - 0.2 2.8 101.6 (0.2) 101.4
Exercise - - - - - - - - - -
of options
Dividends
paid - - (56.0) - - - - (56.0) - (56.0)
Shares purchased - - - - (12.7) - - (12.7) - (12.7)
Shares issued - - - - - - - - - -
Shares released - - - - 13.3 - - 13.3 - 13.3
Other movements - - (0.7) - (2.2) - - (2.9) 0.1 (2.8)
Share premium
cancellation - - - - - - - - - -
Income tax - - 0.9 - - - - 0.9 - 0.9
----------------- ----- -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
At 31 January
2017
(unaudited) 37.7 284.0 840.7 (0.4) (15.9) (0.9) (3.9) 1,141.3 (0.3) 1,141.0
----------------- ----- -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Profit/(loss)
for the
period - - 94.4 - - - - 94.4 (0.1) 94.3
Other
comprehensive
income/(expense)
for the
period - - - 1.1 - (0.6) 0.7 1.2 - 1.2
----------------- ----- -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Total
comprehensive
income/(expense)
for the
period - - 94.4 1.1 - (0.6) 0.7 95.6 (0.1) 95.5
Exercise
of options - 0.1 - - - - - 0.1 - 0.1
Dividends
paid - - (29.6) - - - - (29.6) - (29.6)
Shares purchased - - - - - - - - - -
Shares issued 0.3 23.7 - - - - - 24.0 - 24.0
Shares released - - - - 2.5 - - 2.5 - 2.5
Other movements - - 0.9 - 1.5 - - 2.4 (0.1) 2.3
Share premium
cancellation - - - - - - - - - -
Income tax - - 0.2 - - - - 0.2 - 0.2
----------------- ----- -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
At 31 July
2017
(audited) 38.0 307.8 906.6 0.7 (11.9) (1.5) (3.2) 1,236.5 (0.5) 1,236.0
----------------- ----- -------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Other reserves
--------------------------------------------
Available Share-based Cash Total
Called up Share for sale payments Exchange flow attributable Non-controlling
share premium Retained movements reserve movements hedging to equity interests Total
capital account earnings reserve reserve reserve holders equity
GBP million GBP GBP GBP GBP GBP GBP GBP million GBP GBP
million million million million million million million million
------------------------ --------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
At 31 July
2017
(audited) 38.0 307.8 906.6 0.7 (11.9) (1.5) (3.2) 1,236.5 (0.5) 1,236.0
----------------- ----- --------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Profit/(loss)
for the
period - - 104.0 - - - - 104.0 (0.1) 103.9
Other
comprehensive
income/(expense)
for the period - - 0.9 (0.2) - 0.1 2.7 3.5 - 3.5
----------------- ----- --------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Total
comprehensive
income/(expense)
for the period - - 104.9 (0.2) - 0.1 2.7 107.5 (0.1) 107.4
Exercise - - - - - - - - - -
of options
Dividends
paid - - (59.7) - - - - (59.7) - (59.7)
Shares purchased - - - - (15.9) - - (15.9) - (15.9)
Shares issued - - - - - - - - - -
Shares released - - - - 11.2 - - 11.2 - 11.2
Other movements - - 0.3 - (2.3) - - (2.0) - (2.0)
Share premium
cancellation - (307.8) 307.8 - - - - - - -
Income tax - - 0.2 - - - - 0.2 - 0.2
----------------- ----- --------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
At 31 January
2018
(unaudited) 38.0 - 1,260.1 0.5 (18.9) (1.4) (0.5) 1,277.8 (0.6) 1,277.2
----------------- ----- --------- --------- --------- ----------- ---------- -------- ------------ ---------------- --------
Consolidated Cash Flow Statement
for the six months ended 31 January 2018
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
Unaudited Unaudited Audited
Note GBP million GBP million GBP million
---------------------------------------------- ----------- ----------- ------------
Net cash inflow from operating
activities 15(a) 149.8 359.2 120.0
--------------------------------------- ----- ----------- ----------- ------------
Net cash (outflow)/inflow from
investing activities
Purchase of:
Property, plant and equipment (8.5) (5.4) (7.1)
Intangible assets - software (19.0) (11.5) (33.1)
Subsidiaries and non-controlling
interest 15(b) (0.9) (6.3) (6.3)
Sale of:
Property, plant and equipment - 0.1 -
Equity shares held for investment - - 1.3
Subsidiary 15(c) 0.7 (0.3) (0.3)
(27.7) (23.4) (45.5)
--------------------------------------- ----- ----------- ----------- ------------
Net cash inflow before financing
activities 122.1 335.8 74.5
--------------------------------------- ----- ----------- ----------- ------------
Financing activities
Purchase of own shares for employee
share award schemes (15.9) (12.7) (12.7)
Equity dividends paid (59.7) (56.0) (85.6)
Interest paid on subordinated loan
capital and debt financing (5.4) (8.2) (13.6)
Redemption of group bond - - (200.0)
Issuance of subordinated loan capital,
net of transaction costs - - 173.7
Net increase/(decrease) in cash 41.1 258.9 (63.7)
Cash and cash equivalents at beginning
of period 859.6 923.3 923.3
--------------------------------------- ----- ----------- ----------- ------------
Cash and cash equivalents at end
of period 15(d) 900.7 1,182.2 859.6
--------------------------------------- ----- ----------- ----------- ------------
THE NOTES
1. Basis of preparation and accounting policies
The half yearly financial information has been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority and in accordance with the
International Financial Reporting Standards ("IFRS") endorsed by
the European Union. These include International Accounting Standard
("IAS") 34, Interim Financial Reporting, which specifically
addresses the contents of condensed half yearly financial
statements. The consolidated financial statements incorporate the
individual financial statements of Close Brothers Group plc and the
entities it controls, using the acquisition method of accounting.
The accounting policies applied are consistent with those set out
on pages 109 to 114 of the Annual Report 2017.
After making enquiries, the directors have a reasonable
expectation that the company and the group as a whole have adequate
resources to continue in operational existence for the foreseeable
future, a period of not less than 12 months from the date of this
report. For this reason, they continue to adopt the going concern
basis in preparing the condensed consolidated half yearly financial
statements.
The preparation of the half yearly report requires management to
make estimates and assumptions that affect the reported income and
expense, assets and liabilities and disclosure of contingencies at
the date of the half yearly report. Although these estimates and
assumptions are based on the management's best judgement at that
date, actual results may differ from these estimates. There have
been no significant changes in the basis upon which estimates have
been determined compared to that applied at 31 July 2017.
Following a competitive tender process for the audit of the
group and its subsidiaries in 2017, PricewaterhouseCoopers LLP was
formally appointed as the group's auditors at the 2017 Annual
General Meeting.
The half yearly report is unaudited and does not constitute
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. However, the information has been reviewed by
the company's auditor, PricewaterhouseCoopers LLP, and their report
appears on pages 19 and 20.
The financial information for the year ended 31 July 2017
contained within this half yearly report does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006. A copy of those statutory accounts has been delivered to the
Registrar of Companies. The group's previous auditor, Deloitte LLP
has reported on those accounts. The report of the auditor on those
statutory accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain a statement under Section
498(2) or (3) of the Companies Act 2006.
2. Segmental analysis
The directors manage the group by class of business and we
present the segmental analysis on that basis. The group's
activities are presented in five (2017: five) operating segments:
Retail, Commercial, Property, Securities and Asset Management.
In the segmental reporting information that follows, Group
consists of central functions as well as various non-trading head
office companies and consolidation adjustments and is presented in
order that the information presented reconciles to the consolidated
income statement. The Group balance sheet primarily includes
treasury assets and liabilities comprising cash and balances at
central banks, debt securities, customer deposits and other
borrowings.
Divisions continue to charge market prices for the limited
services rendered to other parts of the group. Funding charges
between segments take into account commercial demands. More than
90% of the group's activities, revenue and assets are located in
the UK.
Summary Income Statement for the six months ended 31 January
2018
Banking
Asset Group
Retail Commercial Property Securities Management Total
GBP GBP million GBP GBP million GBP GBP GBP
million million million million million
-------------------------------- ------------ ---------- ------------ ----------- --------- ---------
Net interest
income/(expense) 104.0 77.1 64.9 (0.4) - 0.1 245.7
Non-interest
income 14.6 33.3 - 56.0 56.0 (0.1) 159.8
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
Operating
income 118.6 110.4 64.9 55.6 56.0 - 405.5
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
Administrative
expenses (56.7) (61.8) (13.3) (40.0) (43.7) (12.3) (227.8)
Depreciation
and
amortisation (4.7) (3.3) (1.8) (0.9) (0.9) - (11.6)
Impairment
losses on
loans and
advances (14.4) (5.6) (3.8) - - - (23.8)
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
Total operating
expenses (75.8) (70.7) (18.9) (40.9) (44.6) (12.3) (263.2)
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
Adjusted operating
profit/(loss)(1) 42.8 39.7 46.0 14.7 11.4 (12.3) 142.3
Amortisation
of
intangible
assets on
acquisition (0.1) (0.9) - - (2.7) - (3.7)
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
Operating
profit/(loss)
before tax 42.7 38.8 46.0 14.7 8.7 (12.3) 138.6
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
External operating
income/(expense) 138.4 132.2 76.3 55.6 56.1 (53.1) 405.5
Inter segment
operating
income/(expense) (19.8) (21.8) (11.4) - (0.1) 53.1 -
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
Segment operating
income 118.6 110.4 64.9 55.6 56.0 - 405.5
------------------- ------------ ------------ ---------- ------------ ----------- --------- ---------
1 Adjusted operating profit/(loss) is stated before amortisation
of intangible assets on acquisition and tax.
Balance Sheet Information at 31 January 2018
Banking
Asset Group(2)
Retail Commercial Property Securities Management Total
GBP million GBP million GBP GBP million GBP million GBP GBP
million million million
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
Total assets(1) 2,700.6 2,805.0 1,694.1 807.0 107.6 1,527.1 9,641.4
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
Total liabilities - - - 736.2 51.9 7,576.1 8,364.2
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
1 Total assets for the Banking operating segments comprise the
loan book and operating lease assets only.
2 Includes GBP1,518.9 million assets and GBP7,677.2 million
liabilities attributable to the Banking division primarily
comprising the treasury
balances described in the second paragraph of this note.
Equity is allocated across the Group as shown below. Banking
division equity, which is managed as a whole rather than on a
segmental basis, reflects loan book and operating lease assets of
GBP7,199.7 million, in addition to assets and liabilities of
GBP1,518.9 million and GBP7,677.2 million respectively primarily
relating to treasury balances.
Banking Asset
total Securities Management Group Total
GBP GBP million GBP million GBP GBP
million million million
-------- --------- ------------- ------------ --------- ---------
Equity 1,041.4 70.8 55.7 109.3 1,277.2
-------- --------- ------------- ------------ --------- ---------
Summary Income Statement for the six months ended 31 January
2017
Banking
Asset Group
Retail Commercial Property Securities Management Total
GBP million GBP million GBP GBP million GBP million GBP GBP
million million million
---------------------------- ------------- ----------- ------------- ---------------- --------- ---------
Net interest
income/(expense) 98.2 72.2 57.0 (0.5) (0.1) 0.3 227.1
Non-interest
income 12.1 33.4 1.1 54.4 50.2 - 151.2
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
Operating income 110.3 105.6 58.1 53.9 50.1 0.3 378.3
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
Administrative
expenses (52.7) (57.7) (12.9) (38.6) (39.9) (12.1) (213.9)
Depreciation
and
amortisation (5.8) (3.8) (1.1) (0.9) (1.1) (0.2) (12.9)
Impairment
losses on
loans and
advances (11.9) (7.6) 2.2 - - - (17.3)
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
Total operating
expenses (70.4) (69.1) (11.8) (39.5) (41.0) (12.3) (244.1)
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
Adjusted operating
profit/(loss)(1) 39.9 36.5 46.3 14.4 9.1 (12.0) 134.2
Amortisation
of intangible
assets on
acquisition - (0.3) - - (2.5) - (2.8)
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
Operating
profit/(loss)
before tax 39.9 36.2 46.3 14.4 6.6 (12.0) 131.4
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
External operating
income/(expense) 134.2 130.7 69.8 53.9 50.3 (60.6) 378.3
Inter segment
operating
income/(expense) (23.9) (25.1) (11.7) - (0.2) 60.9 -
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
Segment operating
income 110.3 105.6 58.1 53.9 50.1 0.3 378.3
------------------- -------- ------------- ----------- ------------- ---------------- --------- ---------
1 Adjusted operating profit/(loss) is stated before amortisation
of intangible assets on acquisition and tax.
Balance Sheet Information at 31 January 2017
Banking
Asset Group(2)
Retail Commercial Property Securities Management Total
GBP million GBP million GBP GBP million GBP million GBP GBP
million million million
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
Total assets(1) 2,570.8 2,643.2 1,504.8 626.7 105.3 1,674.6 9,125.4
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
Total liabilities - - - 556.8 49.7 7,377.9 7,984.4
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
1 Total assets for the Banking operating segments comprise the
loan book and operating lease assets only.
2 Includes GBP1,665.5 million assets and GBP7,485.3 million
liabilities attributable to the Banking division primarily
comprising the treasury
balances described in the second paragraph of this note.
Banking Asset
total Securities Management Group Total
GBP GBP million GBP million GBP GBP
million million million
----------- --------- ------------- ------------ --------- ---------
Equity(1) 899.0 69.9 55.6 116.5 1,141.0
----------- --------- ------------- ------------ --------- ---------
1 Equity of the Banking division reflects loan book and
operating lease assets of GBP6,718.8 million, in addition to assets
and
liabilities of GBP1,665.5 million and GBP7,485.3 million
respectively primarily relating to treasury balances.
Summary Income Statement for the year ended 31 July 2017
Banking
Asset Group
Retail Commercial Property Securities Management Total
GBP million GBP million GBP GBP million GBP GBP GBP
million million million million
------------------------------ ------------ ----------- ------------ ----------- --------- ---------
Net interest
income/(expense) 195.9 146.4 119.8 (0.9) (0.1) 0.5 461.6
Non-interest
income 26.5 66.9 (0.2) 107.6 103.0 0.2 304.0
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
Operating income 222.4 213.3 119.6 106.7 102.9 0.7 765.6
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
Administrative
expenses (106.7) (117.4) (24.9) (76.7) (83.7) (24.9) (434.3)
Depreciation
and
amortisation (11.0) (7.8) (3.8) (1.9) (1.8) - (26.3)
Impairment
losses on
loans and
advances (25.8) (15.5) 1.1 - - - (40.2)
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
Total operating
expenses (143.5) (140.7) (27.6) (78.6) (85.5) (24.9) (500.8)
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
Adjusted operating
profit/(loss)(1) 78.9 72.6 92.0 28.1 17.4 (24.2) 264.8
Amortisation
of intangible
assets on
acquisition (0.4) (0.5) - - (5.3) - (6.2)
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
Operating
profit/(loss)
before tax 78.5 72.1 92.0 28.1 12.1 (24.2) 258.6
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
External operating
income/(expense) 266.2 260.9 141.8 106.7 103.2 (113.2) 765.6
Inter segment
operating
income/(expense) (43.8) (47.6) (22.2) - (0.3) 113.9 -
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
Segment operating
income 222.4 213.3 119.6 106.7 102.9 0.7 765.6
------------------- ---------- ------------ ----------- ------------ ----------- --------- -----------
1 Adjusted operating profit/(loss) is stated before amortisation
of intangible assets on acquisition and tax.
Balance Sheet Information at 31 July 2017
Banking
Asset Group(2)
Retail Commercial Property Securities Management Total
GBP million GBP million GBP GBP million GBP million GBP GBP
million million million
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
Total assets(1) 2,702.8 2,730.4 1,629.3 699.5 113.2 1,410.0 9,285.2
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
Total liabilities - - - 628.8 57.7 7,362.7 8,049.2
------------------- ------------ ------------- ----------- ------------- ------------ ---------- ---------
1 Total assets for the Banking operating segments comprise the
loan book and operating lease assets only.
2 Includes GBP1,402.7 million assets and GBP7,490.9 million
liabilities attributable to the Banking division primarily
comprising the treasury
balances described in the second paragraph of this note.
Banking Asset
total Securities Management Group Total
GBP GBP million GBP million GBP GBP
million million million
----------- --------- ------------- ------------ --------- ---------
Equity(1) 974.3 70.7 55.5 135.5 1,236.0
----------- --------- ------------- ------------ --------- ---------
1 Equity of the Banking division reflects loan book and
operating lease assets of GBP7,062.5 million, in addition to assets
and
liabilities of GBP1,402.7 million and GBP7,490.9 million
respectively primarily relating to treasury balances.
3. Taxation
Six months Year
ended ended
31 January 31 July
-----------------------
2018 2017 2017
GBP million GBP GBP million
million
---------------------------------------- ------------ --------- ------------
Tax charged/(credited) to the income
statement
Current tax:
UK corporation tax 32.8 32.8 64.8
Foreign tax 1.0 1.2 2.1
Adjustments in respect of previous
periods - - (0.6)
---------------------------------------- ------------ --------- ------------
33.8 34.0 66.3
Deferred tax:
Deferred tax charge for the current
period 0.9 0.7 0.5
Adjustments in respect of previous
periods - 0.1 0.9
---------------------------------------- ------------ --------- ------------
34.7 34.8 67.7
---------------------------------------- ------------ --------- ------------
Tax on items not (credited)/charged
to the income statement
Current tax relating to:
Financial instruments classified
as available for sale - (0.2) 0.2
Share-based payments (0.1) (0.9) (1.0)
Deferred tax relating to:
Cash flow hedging 1.0 1.1 1.2
Defined benefit pension scheme 0.2 0.6 0.5
Financial instruments classified
as available for sale (0.1) - 0.1
Share-based payments (0.1) - (0.1)
Currency translation gains - - 0.8
---------------------------------------- ------------ --------- ------------
0.9 0.6 1.7
---------------------------------------- ------------ --------- ------------
Reconciliation to tax expense
UK corporation tax for the period
at 19.0% (2017: 19.7%) on
operating profit 26.3 25.9 50.9
Gain on sale of subsidiaries and
available for sale investment - (0.3) (0.3)
Effect of different tax rates in
other jurisdictions (0.1) (0.1) (0.4)
Disallowable items and other permanent
differences 0.6 0.6 0.9
Banking surcharge 7.8 7.6 14.2
Deferred tax impact of decreased
tax rates 0.1 1.1 2.1
Prior period tax provision - - 0.3
---------------------------------------- ------------ --------- ------------
34.7 34.8 67.7
---------------------------------------- ------------ --------- ------------
The effective tax rate for the period is 25.0% (six months ended
31 January 2017: 26.5%; year ended 31 July 2017: 26.2%),
representing the best estimate of the annual effective tax rate
expected for the full year.
The standard UK corporation tax rate for the financial year is
19.0% (six months ended 31 January 2017: 19.7%; year ended 31 July
2017: 19.7%). However, an additional 8% surcharge applies to
banking company profits as defined in legislation. The effective
tax rate is above the UK corporation tax rate primarily due to the
surcharge applying to most of the group's profits.
4. Earnings per share
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the number of basic
weighted average shares. When calculating the diluted earnings per
share, the weighted average number of shares in issue is adjusted
for the effects of all dilutive share options and awards.
Six months Year ended
ended
31 January 31 July
------------
2018 2017 2017
-------------------- ----- ----- ----------
Earnings per share
Basic 69.2p 65.1p 128.3p
-------------------- ----- ----- ----------
Diluted 68.7p 64.9p 127.5p
-------------------- ----- ----- ----------
Adjusted basic(1) 71.2p 66.6p 131.7p
-------------------- ----- ----- ----------
Adjusted diluted(1) 70.7p 66.4p 130.8p
-------------------- ----- ----- ----------
1 Excludes amortisation of intangible assets on acquisition and
their tax effects.
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
GBP million GBP million GBP million
--------------------------------------------- ----------- ----------- -----------
Profit attributable to shareholders 104.0 96.8 191.2
Adjustment:
Amortisation of intangible assets
on acquisition 3.7 2.8 6.2
Tax effect of adjustment (0.7) (0.6) (1.2)
--------------------------------------------- ----------- ----------- -----------
Adjusted profit attributable to shareholders 107.0 99.0 196.2
--------------------------------------------- ----------- ----------- -----------
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
million million million
--------------------------------------------- ----------- ----------- -----------
Average number of shares
Basic weighted 150.3 148.6 149.0
Effect of dilutive share options and
awards 1.0 0.6 1.0
--------------------------------------------- ----------- ----------- -----------
Diluted weighted 151.3 149.2 150.0
--------------------------------------------- ----------- ----------- -----------
5. Dividends
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
GBP million GBP million GBP million
---------------------------------------- ----------- ----------- -----------
For each ordinary share
Interim dividend for previous financial
year paid in April 2017: 20.0p - - 29.6
Final dividend for previous financial
year paid in November 2017: 40.0p
(November 2016: 38.0p) 59.7 56.0 56.0
59.7 56.0 85.6
---------------------------------------- ----------- ----------- -----------
An interim dividend relating to the six months ended 31 January
2018 of 21.0p, amounting to an estimated GBP31.3 million, is
declared. This interim dividend, which is due to be paid on 25
April 2018 to shareholders on the register at 23 March 2018, is not
reflected in these condensed half yearly financial statements.
6. Loans and advances to customers
The contractual maturity of loans and advances to customers is
set out below:
Between
three
Within months Between Between After
On three and one two more Impairment
demand months one and and than provisions Total
year two five five
years years years
GBP million GBP GBP GBP GBP GBP GBP million GBP
million million million million million million
---------------------- --------- --------- ---------- ---------- --------- ------------- ---------
At 31 January
2018 78.8 2,171.4 2,031.4 1,341.5 1,349.7 76.5 (50.9) 6,998.4
--------------- ----- --------- --------- ---------- ---------- --------- ------------- ---------
At 31 January
2017 58.3 1,900.7 1,872.4 1,324.6 1,355.9 81.9 (50.0) 6,543.8
--------------- ----- --------- --------- ---------- ---------- --------- ------------- ---------
At 31 July
2017 59.3 1,914.3 2,115.2 1,340.7 1,431.6 76.0 (52.4) 6,884.7
--------------- ----- --------- --------- ---------- ---------- --------- ------------- ---------
31 January 31 July
--------------------------
2018 2017 2017
GBP million GBP million GBP
million
--------------------------------------- ------------ ------------ ---------
Impairment provisions on loans and
advances to customers
Opening balance 52.4 59.7 59.7
Charge for the period 23.8 17.3 40.2
Amounts written off net of recoveries (25.3) (27.0) (47.5)
--------------------------------------- ------------ ------------ ---------
Impairment provisions 50.9 50.0 52.4
--------------------------------------- ------------ ------------ ---------
At 31 January 2018, gross impaired loans were GBP129.4 million
(31 January 2017: GBP126.2 million; 31 July 2017: GBP135.8 million)
and equate to 2% (31 January 2017: 2%; 31 July 2017: 2%) of the
gross loan book before impairment provisions. The majority of the
group's lending is secured and therefore the gross impaired loans
quoted do not reflect the expected loss.
7. Debt securities
Held for Available Loans
trading for sale and receivables Total
GBP million GBP million GBP million GBP million
---------------------------- ------------ ------------ ----------------- ------------
Long trading positions in
debt securities 24.9 - - 24.9
Certificates of deposit - - 251.0 251.0
Sovereign and central bank
debt - 42.8 - 42.8
At 31 January 2018 24.9 42.8 251.0 318.7
---------------------------- ------------ ------------ ----------------- ------------
Held for Available Loans
trading for sale and receivables Total
GBP million GBP million GBP million GBP million
---------------------------- ------------ ------------ ----------------- ------------
Long trading positions in
debt securities 14.5 - - 14.5
Certificates of deposit - - 145.3 145.3
Sovereign and central bank
debt - 40.7 - 40.7
At 31 January 2017 14.5 40.7 145.3 200.5
---------------------------- ------------ ------------ ----------------- ------------
Held for Available Loans
trading for sale and receivables Total
GBP million GBP million GBP million GBP million
---------------------------- ------------ ------------ ----------------- ------------
Long trading positions in
debt securities 16.2 - - 16.2
Certificates of deposit - - 180.3 180.3
Sovereign and central bank
debt - 43.6 - 43.6
---------------------------- ------------ ------------ ----------------- ------------
At 31 July 2017 16.2 43.6 180.3 240.1
---------------------------- ------------ ------------ ----------------- ------------
Movements in the book value of sovereign and central bank debt
comprise:
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
GBP million GBP million GBP million
------------------------------------- ----------- ----------- -----------
Sovereign and central bank debt at
beginning of period 43.6 - -
Additions - 41.6 41.6
Currency translation difference (0.8) - 1.7
Changes in fair value - (0.9) 0.3
------------------------------------- ----------- ----------- -----------
Sovereign and central bank debt at
end of period 42.8 40.7 43.6
------------------------------------- ----------- ----------- -----------
8. Equity shares
31 January 31 July
--------------------------
2018 2017 2017
GBP million GBP million GBP million
------------------------ ------------ ------------ ------------
Long trading positions 37.3 33.5 31.9
Other equity shares 0.6 2.1 0.8
37.9 35.6 32.7
------------------------ ------------ ------------ ------------
Movements in the book value of other equity shares comprise:
Six months Year ended
ended
31 January 31 July
------------------------
2018 2017 2017
GBP million GBP million GBP million
--------------------------------------- ----------- ----------- -----------
Other equity shares held at beginning
of period 0.8 2.1 2.1
Disposals (0.2) (0.1) (1.4)
Currency translation difference - - 0.1
Changes in fair value of:
Equity shares classified as available
for sale - 0.1 -
--------------------------------------- ----------- ----------- -----------
Other equity shares held at end of
period 0.6 2.1 0.8
--------------------------------------- ----------- ----------- -----------
9. Settlement balances and short positions
31 January 31 July
------------------------
2018 2017 2017
GBP million GBP million GBP million
-----------------------------------
Settlement balances 619.4 442.3 524.9
Short positions held for trading:
Debt securities 10.5 11.2 11.5
Equity shares 15.0 12.8 16.2
-----------
25.5 24.0 27.7
-----------
644.9 466.3 552.6
-----------
10. Financial liabilities
The contractual maturity of financial liabilities relating
predominantly to funding is set out below:
On Within Between Between Between After
demand three three months one two more than Total
months and one year and and five years
two five
years years
GBP million GBP GBP million GBP GBP GBP million GBP
million million million million
--------- --------- --------- ---------
Deposits by banks 10.5 10.3 35.9 1.9 - - 58.6
Deposits by customers 96.9 1,027.6 2,729.3 936.7 459.7 - 5,250.2
Loans and overdrafts
from banks 21.5 5.1 - - 350.0 - 376.6
Debt securities in issue 0.8 21.5 114.1 586.4 539.8 287.4 1,550.0
Subordinated loan
capital(1) - 1.4 0.2 - - 216.3 217.9
--------- --------- --------- ---------
At 31 January 2018 129.7 1,065.9 2,879.5 1,525.0 1,349.5 503.7 7,453.3
--------- ---------
1 Comprises issuances of GBP175 million and GBP45 million with
contractual maturity dates of 2027 and 2026 and optional prepayment
dates of 2022 and 2021 respectively.
Within Between Between Between After
On three three months one two more than
demand months and one year and and five years Total
two five
years years
GBP million GBP GBP million GBP GBP GBP million GBP million
million million million
--------- --------- ---------
Deposits by banks 17.1 17.2 34.2 1.5 - - 70.0
Deposits by customers 112.8 770.7 2,284.3 1,111.8 585.3 - 4,864.9
Loans and overdrafts
from banks 13.1 54.7 50.8 90.2 210.1 - 418.9
Debt securities in issue 10.4 208.8 111.1 189.0 897.4 286.4 1,703.1
Subordinated loan
capital(1) (0.9) 1.4 0.2 - - 218.7 219.4
--------- --------- ---------
At 31 January 2017 152.5 1,052.8 2,480.6 1,392.5 1,692.8 505.1 7,276.3
---------
1 Comprises issuances of GBP175 million and GBP45 million with
contractual maturity dates of 2027 and 2026 and optional prepayment
dates of 2022 and 2021 respectively.
Within Between Between Between After
On three three months one two more than Total
demand months and one year and and five years
two five
years years
GBP million GBP GBP million GBP GBP GBP million GBP million
million million million
--------- --------- ---------
Deposits by banks 18.4 15.4 37.5 0.7 - - 72.0
Deposits by customers 123.4 956.6 2,528.2 991.3 513.6 - 5,113.1
Loans and overdrafts
from banks 12.3 74.9 - 20.5 223.2 - 330.9
Debt securities in issue 13.6 22.8 108.4 516.0 540.9 287.9 1,489.6
Subordinated loan
capital(1) - 1.4 0.2 - - 219.1 220.7
--------- --------- ---------
At 31 July 2017 167.7 1,071.1 2,674.3 1,528.5 1,277.7 507.0 7,226.3
1 Comprises issuances of GBP175 million and GBP45 million with
contractual maturity dates of 2027 and 2026 and optional prepayment
dates of 2022 and 2021 respectively.
At 31 January 2018, the group was a participant of the Bank of
England's Term Funding Scheme. Under this scheme, asset finance
loan receivables of GBP714.4 million (31 January 2017: GBP745.7
million; 31 July 2017: GBP525.1 million) were positioned as
collateral with the Bank of England, against which GBP350.0 million
of cash (31 January 2017: GBP210.0 million; 31 July 2017: GBP224.4
million) was drawn. The term of these transactions is four years
from the date of each drawdown but the group may choose to repay
earlier at its discretion. The risks and rewards of the loan
receivables remain with the group and continue to be recognised in
loans and advances to customers on the consolidated balance
sheet.
The Bank of England's Funding for Lending Scheme was closed for
new drawings on 31 January 2018 and the group no longer had any
drawings from the scheme at this date. UK Treasury Bills drawn
under the scheme of GBP197.5 million at 31 July 2017 (31 January
2017: GBP275.0 million) were fully repaid during the six months
ended 31 January 2018.
The group has securitised without recourse GBP1,577.3 million
(31 January 2017: GBP1,458.2 million; 31 July 2017: GBP1,486.3
million) of its insurance premium and motor loan receivables in
return for cash and asset-backed securities in issue of GBP1,081.8
million (31 January 2017: GBP1,065.5 million; 31 July 2017:
GBP1,046.9 million). This includes GBP162.9 million (31 January
2017: GBP168.1 million; 31 July 2017: GBP157.3 million)
asset-backed securities in issue retained for liquidity purposes.
As the group has retained exposure to substantially all the credit
risks and rewards of the residual benefit of the underlying assets,
it continues to recognise these assets in loans and advances to
customers on the consolidated balance sheet.
11. Share premium
Following approval by shareholders at the Close Brothers Annual
General Meeting on 16 November 2017 and an order made by the High
Court of Justice of England and Wales on 13 December 2017, the
group's share premium account of GBP307.8 million was cancelled and
the amount credited to distributable profits.
12. Capital
The group's individual regulated entities and the group as a
whole complied with all of the externally imposed capital
requirements to which they were subject for the periods to 31
January 2018 and 31 January 2017, and the year ended 31 July 2017.
The table below summarises the composition of regulatory capital
and Pillar 1 risk weighted assets at those financial period
ends.
31 January 31 July
------------------------
2018 2017 2017
GBP million GBP million GBP million
Common equity tier 1 ("CET1") capital
Called up share capital 38.0 37.7 38.0
Share premium account - 284.0 307.8
Retained earnings(1) 1,260.1 840.7 906.6
Other reserves recognised for CET1 capital 19.0 19.3 21.4
Deductions from CET1 capital
Intangible assets, net of associated deferred tax liabilities (194.3) (158.2) (186.3)
Foreseeable dividend(2) (47.9) (44.8) (59.8)
Investment in own shares (38.8) (36.6) (34.1)
Pension asset, net of associated deferred tax liabilities (3.6) (3.1) (2.8)
Prudent valuation adjustment (0.2) (0.2) (0.2)
CET1 capital 1,032.3 938.8 990.6
Tier 2 capital - subordinated debt(3) 198.0 203.9 205.6
Total regulatory capital 1,230.3 1,142.7 1,196.2
Risk weighted assets (notional)
Credit and counterparty risk 7,204.5 6,585.2 6,967.6
Operational risk(4) 806.8 784.9 806.8
Market risk(4) 108.3 85.9 84.6
8,119.6 7,456.0 7,859.0
CET1 capital ratio 12.7% 12.6% 12.6%
Total capital ratio 15.2% 15.3% 15.2%
1 Retained earnings for periods ended 31 January 2018 and 31
January 2017 include all profits (both verified and unverified) for
the respective six month period.
2 Under the Regulatory Technical Standard on own funds, a
deduction has been recognised for a foreseeable dividend. In
accordance with this standard, for 31 January 2018 and 31 January
2017 a foreseeable dividend has been determined based on the
average payout ratio over the previous three years applied to the
retained earnings for the period. For 31 July 2017 a foreseeable
dividend was determined as the proposed final dividend.
3 Shown after applying the Capital Requirement Regulations
transitional and qualifying own funds arrangements.
4 Operational and market risk include a notional adjustment at
8% in order to determine notional risk weighted assets.
The following table shows a reconciliation between equity and
CET1 capital after deductions:
31 January 31 July
------------------------
2018 2017 2017
GBP million GBP million GBP million
Equity 1,277.2 1,141.0 1,236.0
Regulatory deductions from equity:
Intangible assets, net of associated deferred tax liabilities (194.3) (158.2) (186.3)
Foreseeable dividend(1) (47.9) (44.8) (59.8)
Pension asset, net of associated deferred tax liabilities (3.6) (3.1) (2.8)
Prudent valuation adjustment (0.2) (0.2) (0.2)
Other reserves not recognised for CET1 capital:
Available for sale movements reserve - (0.1) -
Cash flow hedging reserve 0.5 3.9 3.2
Non-controlling interests 0.6 0.3 0.5
CET1 capital 1,032.3 938.8 990.6
1 Under the Regulatory Technical Standard on own funds, a
deduction has been recognised for a foreseeable dividend. In
accordance with this standard, for 31 January 2018 and 31 January
2017 a foreseeable dividend has been determined based on the
average payout ratio over the previous three years applied to the
retained earnings for the period. For 31 July 2017 a foreseeable
dividend was determined as the proposed final dividend.
The following table shows the movement in CET1 capital during
the period:
GBP million
CET1 capital at 31 July 2017 990.6
Profit in the period attributable to shareholders 104.0
Dividends paid and foreseen (47.8)
Other movements in reserves recognised for CET1 capital 302.1
Share premium (307.8)
Increase in intangible assets, net of associated deferred tax liabilities (8.0)
Other movements in deductions from CET1 capital (0.8)
CET1 capital at 31 January 2018 1,032.3
13. Contingent liabilities
Financial Services Compensation Scheme ("FSCS")
As disclosed in note 22 of the Annual Report 2017, the group is
exposed to the FSCS which provides compensation to customers of
financial institutions in the event that an institution is unable,
or is likely to be unable, to pay claims against it.
Compensation has previously been paid out by the FSCS funded by
loan facilities provided by HM Treasury to FSCS in support of the
FSCS's obligations to the depositors of banks declared in default.
The facilities are expected to be repaid wholly from recoveries
from the failed deposit-takers. In the event of a shortfall, the
FSCS will recover the shortfall by raising levies on the industry.
The amount of future levies payable by the group depends on a
number of factors including the potential recoveries of assets by
the FSCS, the group's participation in the deposit-taking market at
31 December, the level of protected deposits and the population of
FSCS members.
14. Related party transactions
Related party transactions, including salary and benefits
provided to directors and key management, did not have a material
effect on the financial position or performance of the group during
the period. There were no changes to the type and nature of the
related party transactions disclosed in the Annual Report 2017 that
could have a material effect on the financial position and
performance of the group in the six months to 31 January 2018.
15. Consolidated cash flow statement reconciliation
31 January 31 July
2018 2017 2017
GBP million GBP million GBP million
(a) Reconciliation of operating profit before tax to net cash
inflow from operating activities
Operating profit before tax 138.6 131.4 258.6
Tax paid (33.1) (27.5) (63.6)
Depreciation and amortisation 30.8 27.6 57.5
(Increase)/decrease in:
Interest receivable and prepaid expenses (11.4) (15.5) (18.1)
Net settlement balances and trading positions 49.5 6.5 6.7
Net loans to/from money broker against stock advanced 5.9 (22.9) (21.9)
(Decrease)/increase in interest payable and accrued expenses (31.9) (17.7) 19.1
Net cash inflow from trading activities 148.4 81.9 238.3
(Increase)/decrease in:
Loans and advances to banks not repayable on demand (28.9) 3.4 0.3
Loans and advances to customers (113.7) (112.2) (453.1)
Assets held under operating leases (38.7) (27.1) (43.2)
Certificates of deposit (70.7) 55.7 20.7
Sovereign and central bank debt 0.8 (41.6) (44.5)
Other assets less other liabilities 9.5 9.2 22.5
Increase/(decrease) in:
Deposits by banks (13.4) (1.1) 0.9
Deposits by customers 137.1 (29.7) 218.5
Loans and overdrafts from banks 45.7 (50.2) (138.2)
Debt securities in issue, net of transaction costs 73.7 470.9 297.8
Net cash inflow from operating activities 149.8 359.2 120.0
(b) Analysis of net cash outflow in respect of the purchase of
subsidiaries and non-controlling
interests
Cash consideration paid (0.9) (6.3) (6.3)
(c) Analysis of net cash inflow/(outflow) in respect of the sale of a
subsidiary
Cash consideration received 0.7 0.3 0.3
Cash and cash equivalents disposed of - (0.6) (0.6)
0.7 (0.3) (0.3)
31 January 31 July
2018 2017 2017
GBP million GBP million GBP million
(d) Analysis of cash and cash equivalents(1)
Cash and balances at central banks 834.3 1,113.8 798.2
Loans and advances to banks repayable on demand 66.4 68.4 61.4
900.7 1,182.2 859.6
1 Excludes Bank of England cash reserve account, amounts held as
collateral and settlement money held in accordance with Financial
Conduct Authority Client Asset rules.
During the period ended 31 January 2018, the non-cash changes on
debt financing amounted to GBP2.6 million (31 January 2017: GBP8.4
million; 31 July 2017: GBP8.3 million) arising largely from
interest accretion.
16. Fair value of financial assets and liabilities
The main differences between the fair values and the carrying
values of the group's financial assets and financial liabilities
are as follows:
31 January 2018 31 January 2017 31 July 2017
Fair Carrying value Fair value Carrying value Fair value Carrying value
value
GBP GBP GBP GBP GBP million GBP
million million million million million
--------- -------------- ---------- -------------- --------------
Subordinated loan capital 237.8 217.9 230.9 219.4 242.0 220.7
--------- -------------- ---------- -------------- --------------
Debt securities in issue 1,581.4 1,550.0 1,722.3 1,703.1 1,522.8 1,489.6
--------- -------------- ---------- -------------- --------------
The group holds financial instruments that are measured at fair
value subsequent to initial recognition. Each instrument has been
categorised within one of three levels using a fair value hierarchy
that reflects the significance of the inputs used in making the
measurements. These levels are based on the degree to which the
fair value is observable and are defined in note 27 "Financial risk
management" of the Annual Report 2017. The table below shows the
classification of financial instruments held at fair value into the
valuation hierarchy:
Level 1 Level 2 Level 3 Total
GBP million GBP million GBP million GBP million
At 31 January 2018
Assets
Debt securities:
Long trading positions in debt securities held for trading 20.7 4.2 - 24.9
Sovereign and central bank debt classified as
available for sale 42.8 - - 42.8
Equity shares:
Held for trading 7.0 30.3 - 37.3
Available for sale - - 0.6 0.6
Derivative financial instruments - 18.9 - 18.9
Contingent consideration - - 1.8 1.8
70.5 53.4 2.4 126.3
----------- -----------
Liabilities
Short positions:
Debt securities 8.0 2.5 - 10.5
Equity shares 6.8 8.2 - 15.0
Derivative financial instruments - 16.8 - 16.8
Contingent consideration - - 6.1 6.1
14.8 27.5 6.1 48.4
----------- -----------
Level 1 Level 2 Level 3 Total
GBP million GBP million GBP million GBP million
At 31 January 2017
Assets
Debt securities:
Long trading positions in debt securities held for trading 12.7 1.8 - 14.5
Sovereign and central bank debt classified as
available for sale 40.7 - - 40.7
Equity shares:
Held for trading 5.8 27.7 - 33.5
Available for sale - - 2.1 2.1
Derivative financial instruments - 29.8 - 29.8
Contingent consideration - - 2.4 2.4
59.2 59.3 4.5 123.0
----------- ----------- -----------
Liabilities
Short positions:
Debt securities 8.6 2.6 - 11.2
Equity shares 3.7 9.1 - 12.8
Derivative financial instruments - 17.9 - 17.9
Contingent consideration - - 4.6 4.6
12.3 29.6 4.6 46.5
----------- ----------- -----------
Level 1 Level 2 Level 3 Total
GBP million GBP million GBP million GBP million
At 31 July 2017
Assets
Debt securities:
Long trading positions in debt securities held for trading 13.7 2.5 - 16.2
Sovereign and central bank debt classified as
available for sale 43.6 - - 43.6
Equity shares:
Held for trading 5.4 26.5 - 31.9
Available for sale - - 0.8 0.8
Derivative financial instruments - 27.0 - 27.0
Contingent consideration - - 2.7 2.7
62.7 56.0 3.5 122.2
----------- ----------- -----------
Liabilities
Short positions:
Debt securities 8.0 3.5 - 11.5
Equity shares 4.7 11.5 - 16.2
Derivative financial instruments - 11.5 - 11.5
Contingent consideration - - 6.6 6.6
12.7 26.5 6.6 45.8
----------- ----------- -----------
At 31 January 2018, financial instruments classified as Level 3
predominantly comprise a legacy investment property fund and
contingent consideration payable and receivable in relation to two
acquisitions and the disposal of a subsidiary (as described in note
27 "Financial risk management" of the Annual Report 2017).
The valuation of contingent consideration is determined on a
discounted expected cash flow basis. The group believes that there
is no reasonably possible change to the inputs used in the
valuation of this position which would have a material effect on
the group's consolidated income statement.
There were no significant transfers between Level 1, 2 and 3
during the six months ended 31 January 2018 (six months ended 31
January 2017: none; year ended 31 July 2017: none).
Movements in financial instruments categorised as Level 3 during
the periods were:
Equity shares available
for sale Contingent consideration
GBP million GBP million
At 1 August 2016 2.0 -
Total losses recognised in the consolidated income statement - -
Total gains recognised in other comprehensive income 0.1 -
Purchases and issues - (4.6)
Sales and settlements - 2.4
At 31 January 2017 2.1 (2.2)
Total losses recognised in the consolidated income statement - -
Total gains recognised in other comprehensive income - -
Purchases and issues - (2.0)
Sales and settlements (1.3) 0.3
At 31 July 2017 0.8 (3.9)
Total losses recognised in the consolidated income statement - (0.3)
Total losses recognised in other comprehensive income - (0.3)
Purchases and issues - -
Sales and settlements (0.2) 0.2
At 31 January 2018 0.6 (4.3)
The losses recognised in the consolidated income statement
relating to instruments held at 31 January 2018 amounted to GBP0.3
million (31 January 2017: GBPnil; 31 July 2017: GBPnil).
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. 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. 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.
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 does it constitute a
recommendation regarding the shares or other securities of the
company or any of its group members. Past performance cannot be
relied upon as a guide to future performance and persons needing
advice should consult an independent financial adviser or other
professional. 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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