REG - Close Bros Grp PLC - Trading Statement

Close BrothersAnnouncement

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RNS Number : 4899J  Close Brothers Group PLC  21 May 2025

 

 
 
 
 

 Scheduled Trading Update
 21 May 2025

Embargoed for release until 7.00 am on 21 May 2025.

Close Brothers Group plc ("the group" or "Close Brothers") today issues its
scheduled trading update relating to the third quarter of its 2025 financial
year. All statements in this release relate to the period from 1 February 2025
to 30 April 2025 ("the quarter") unless otherwise stated.

Mike Morgan, Chief Executive, said:

"The group's performance in the quarter highlights the strength of our
business model, as we generated a CET1 capital ratio of 14.0%. The Banking
division delivered a resilient performance, Winterflood saw some benefit from
heightened market activity, and we maintained our strong funding and liquidity
positions."

"We are taking proactive steps to ensure that the group is well positioned to
generate strong, sustainable returns once the motor finance commissions
uncertainty has been resolved. As outlined in March, my priorities include
focusing on simplification of the group, improving operational efficiency, and
driving sustainable growth. Alongside a stronger capital position, delivering
on these priorities will create a more efficient and resilient business, one
that delivers greater value for shareholders and continues to support
customers, as we have through many cycles."

Performance in the third quarter

In Banking, the loan book decreased 0.9% in the quarter and 3.5% year-to-date
to £9.7 billion (31 January 2025: £9.8 billion, 31 July 2024: £10.1
billion), with lower activity in some of our businesses. We saw increased
levels of repayments in Property, reduced activity in some of our Asset
Finance businesses and a competitive market environment in Premium Finance.
This was offset in part by growth in Invoice Finance and a recovery in new
business volumes in Motor Finance to levels seen prior to the temporary pause
in lending in October 2024. As a result, we now expect the loan book at the
end of the 2025 financial year to be broadly flat on the position at 31
January 2025.

The annualised year-to-date net interest margin was 7.1% (H1 2025: 7.3%). In
line with the guidance provided at the Half Year 2025 results, we expect the
full-year net interest margin to be around 7%.

We continue to advance our cost management initiatives and are on track to
deliver annualised savings of c.£25 million by the end of the 2025 financial
year. Looking forward, we remain committed to executing further cost savings
to drive a step change in operational efficiency and will provide further
updates in the months to come.

The annualised year-to-date bad debt ratio remained below our long-term
average at 0.9% (H1 2025: 1.0%), reflecting continued resilient underlying
credit performance(1). Notwithstanding the uncertain external environment, we
remain confident in the quality of our loan book, which is predominantly
secured, prudently underwritten, diverse, and supported by the deep expertise
of our people.

Winterflood reported an operating profit in the third quarter of £0.4 million
(H1 2025: operating loss of £0.8 million, Q3 2024: operating profit of £1.7
million) as the business benefited from higher levels of market activity in
April.

The Group (central functions)(2) reported net expenses of £13.9 million in
the quarter (H1 2025: £28.4 million, Q3 2024: £11.6 million), as we continue
to incur an elevated level of professional fees and expenses associated with
the impact on the group of the Financial Conduct Authority's ("FCA's") review
of motor finance commission arrangements and the Supreme Court appeals.

Update on developments in relation to motor finance commissions

The Supreme Court appeal in respect of Hopcraft v Close Brothers Limited was
heard in early April, alongside two other cases, and we await the outcome(3).
On 11 March 2025, the FCA announced it will confirm within six weeks of the
Supreme Court's decision if it will be proposing a redress scheme and, if so,
how it will take this forward.

Strong balance sheet

We maintained our prudent approach to managing our financial resources and
continued to adopt the conservative "borrow long, lend short" funding
strategy, with a spread of maturities over the medium and longer term, ahead
of a shorter average loan book maturity. Our diverse funding base increased to
£12.9 billion (31 January 2025: £12.7 billion), driven by further growth in
our retail customer deposits and our liquidity position remained substantially
above regulatory requirements.

Our capital position continued to strengthen, with a Common Equity Tier 1
("CET1") capital ratio of 14.0% at 30 April 2025 (31 January 2025: 13.4% on a
pro-forma basis after the disposal of Close Brothers Asset Management
("CBAM"))(4). In addition to profit generation, the increase in the quarter
was primarily driven by lower loan book risk weighted assets ("RWAs") and a
full reduction in operational risk RWAs associated with the CBAM business
following approval from the Prudential Regulation Authority ("PRA"), which
amounted to a further benefit to CET1 capital ratio of c.25bps. This takes the
total capital benefit from the sale of CBAM to £150 million or c.145bps
included in the 30 April 2025 ratio, reflecting the significant progress made
in implementing the capital actions previously outlined.

Outlook

We are encouraged by the resilient performance we have delivered so far this
year, whilst significantly strengthening our capital position. We have updated
our loan book growth expectations to reflect the performance year-to-date and
now expect our CET1 capital ratio to be above our medium-term target range of
12% to 13% by the end of the financial year. We remain confident in all other
guidance outlined at our Half Year 2025 results.

Footnotes

1 At 30 April 2025, there was a 30% weighting to the strong upside, 32.5%
weighting to the baseline, 20% weighting to the mild downside, 10.5% weighting
to the moderate downside and 7% weighting to the protracted downside
(unchanged from 31 January 2025). Moody's April unemployment forecast for Q4
2025 under the baseline scenario is 4.5%, 4.0% under the upside scenario and
ranges between 5.0% and 6.9% in the downside scenarios. Moody's April
inflation forecast for Q4 2025 under the baseline scenario is 2.9%, 3.0% for
the upside scenario and ranges between -0.1% and 1.1% in the downside
scenarios. Moody's April forecast for the Bank of England base rate for Q4
2025 is 3.9% in the baseline scenario, 4.0% in the upside scenario and ranges
from 2.2% to 3.9% in the downside scenarios.

2 Group consists of central functions (such as finance, legal and compliance,
risk and human resources) as well as the non-trading head office company and
consolidation adjustments and is set out in order that the information
presented reconciles to the consolidated income statement.

3 Supreme Court case number UKSC/2024/0157.

4 Total Capital ratio of 18.0% at 30 April 2025 (31 January 2025: 17.2% on a
pro-forma basis after the disposal of CBAM). The group's capital ratios are
presented on a transitional basis after the application of IFRS 9 transitional
arrangements which allows banks to add back to their capital base a proportion
of the IFRS 9 impairment charges during the transitional period. Without their
application, the CET1 and Total capital ratios would be 14.0% and 18.0%,
respectively. The applicable minimum CET1 and Total capital ratio regulatory
requirements, excluding any applicable PRA buffer, were 9.7% and 13.7% at 30
April 2025. The group's capital ratios are unaudited and include Q3 2025
unverified profits net of foreseeable charges.

Enquiries

Camila
Sugimura                                 Close
Brothers Group plc
020 3857 6577

Sam
Cartwright
H/Advisors
Maitland
07827 254561

 

About Close Brothers

Close Brothers is a leading UK merchant banking group providing lending,
deposit taking and securities trading.  We employ approximately 3,000 people,
principally in the United Kingdom and Ireland. Close Brothers Group plc is
listed on the London Stock Exchange and is a constituent of the FTSE 250.

Cautionary Statement

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

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

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

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