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RNS Number : 8893F
Close Brothers Group PLC
21 July 2021
Scheduled Trading Update
-------------------------
Close Brothers Group plc ("the group" or "Close Brothers") today
issues its scheduled pre-close trading update ahead of its 2021
financial year end. Close Brothers will release its results for the
full year ended 31 July 2021 on 28 September 2021.
All statements in this release relate to the 11 months to 30
June 2021 unless otherwise indicated.
Adrian Sainsbury, Chief Executive Officer
"We have navigated the changing environment well and our model
has enabled us to perform strongly, making the most of
opportunities, throughout the year. We are encouraged by
improvements in the economic backdrop, although uncertainties
persist. Face-to-face interaction with our customers and clients
remains a key part of our model and we are looking forward to
increased direct contact as restrictions gradually ease. However,
the safety and wellbeing of our colleagues, customers and clients
remain our highest priority."
"I am confident that our proven and resilient model, together
with the expertise of our people, leave us well placed to continue
supporting our customers and clients and to protect, grow and
sustain our business over the long term."
Group and divisional performance
The group's performance has been strong, with high levels of
activity in Banking, good net inflows in Close Brothers Asset
Management ("CBAM") and strong trading income in Winterflood.
Our capital position remains strong, with a Common Equity Tier 1
("CET1") capital ratio of 15.9% (31 July 2020: 14.1%),
significantly above the applicable minimum regulatory
requirement(1) . In June 2021, we successfully raised GBP200m of
subordinated debt in the form of Tier 2 notes, replacing and
concurrently repurchasing most of the outstanding securities.
In Banking, the loan book increased 9.6% in the first 11 months
of the financial year to GBP8.3 billion (30 April 2021: GBP8.2
billion; 31 July 2020: GBP7.6 billion). Since the Q3 trading
update, we have continued to see significant business volumes,
supported by the Coronavirus Business Interruption Loan Scheme
("CBILS")(2) in Asset Finance in particular, as we worked through
our application pipeline following the closure of the scheme to new
applications. New business volumes remained high in Motor Finance
and utilisation levels continued to improve in Invoice Finance in
line with the reopening of the economy. Although drawdown levels
remained solid, the Property loan book has declined slightly
reflecting continued high repayments.
The annualised net interest margin remained broadly stable on
the 2020 financial year (FY 2020: 7.5%), as we maintained our
pricing discipline.
Our focus on strict management of costs remains unchanged, while
progressing our key strategic programmes.
The annualised bad debt ratio reduced slightly on the first half
of the financial year (HY 2021: 1.3%), reflecting a stable credit
performance of the loan book as a whole since the Q3 trading
update.
The performance of the forborne book remains encouraging and the
total balance of loans classified as forborne and subject to
Covid-19 concessions continues to reduce, as progressively more
customers resume repayments or are no longer considered
forborne.
We remain confident in the quality of our lending, which is
predominantly secured, prudently underwritten and diverse. Our
impairment provisions continue to reflect the uncertain external
environment, with the full impact of Covid-19 yet to be reflected
in experienced credit performance. We continue to closely monitor
the performance of the loan book as the macroeconomic outlook
evolves and government support schemes come to an end(3) .
CBAM has continued its strong growth generating annualised net
inflows of 7% (30 April 2021: 6%), despite the continued impact of
reduced face-to-face interaction with clients arising from
Covid-19. Including favourable market movements, managed assets
increased to GBP15.3 billion (30 April 2021: GBP14.8 billion) and
total client assets increased to GBP16.4 billion (30 April 2021:
GBP16.0 billion). We remain committed to maintaining our excellent
client service whilst investing in new hires and technology to
support the long-term growth potential of the business.
Winterflood has benefited from the elevated market activity for
most of the year and the expertise of our traders, although we have
seen a moderation in trading volumes since the Q3 trading update.
Average daily bargains stood at 103k in the first 11 months of the
financial year (Q3 2021: 120k; FY 2020: 82k). Winterflood remains
well positioned to continue trading profitably in a range of
conditions, but due to the nature of the business, it remains
sensitive to changes in the market environment.
Outlook
We have delivered a strong financial performance in the first 11
months of the financial year and remain well positioned to make the
most of the opportunities arising from the current environment.
Although the outlook has improved, the economic trajectory going
forward remains uncertain. Our proven and resilient model and
strong balance sheet, combined with our deep experience in
navigating a wide range of economic conditions, leave us well
placed to continue supporting our colleagues, customers and clients
over the long term.
Footnotes
1 The group applies IFRS 9 regulatory transitional arrangements
which allows banks to add back to their capital base a proportion
of the IFRS 9 impairment charges during the transitional period.
Our capital ratios are presented on a transitional basis after the
application of these arrangements and the UK onshored provisions of
the Capital Requirements Regulation ("CRR") qualifying own funds
arrangements. Without their application, the CET1 ratio would be
14.7%. In line with the amended CRR, effective on 23 December 2020,
the CET1 capital ratio at 30 June 2021 includes a c.50bps benefit
related to software assets which are exempt from the deduction
requirement for intangible assets from CET1. The Prudential
Regulation Authority ("PRA") published PS17/21 'Implementation of
Basel standards' on 9 July 2021, confirming the reversal to the
earlier position. This will result in the reversal of this benefit
and reduction of the CET1 capital ratio upon implementation on 1
January 2022. The applicable minimum regulatory requirement,
excluding any PRA buffer was 7.6% at 30 June 2021.
2 At 30 June 2021, lending under the Coronavirus Business
Interruption Loan Scheme (CBILS) and associated schemes totalled
GBP1,094 million across 5,570 loans, with the vast majority of
lending via CBILS. Additionally, at 30 June 2021, GBP195 million
across 886 CBILS loans in our Commercial and Property businesses
had been credit approved and can be drawn down three months post
approval date for term loans and six months for asset finance
agreements. The UK Government support schemes for SMEs ended on 31
March 2021.
3 Expected credit losses reflect the application of
macroeconomic scenarios, which have been updated to include more
recent externally sourced scenarios on a monthly basis since the
start of the pandemic. At 30 June 2021, weightings remained
unchanged with 10% weighted to the upside scenario, 40% to the
baseline scenario and 50% to downside scenarios. The modelled
impact of macroeconomic scenarios and their respective weightings
is overlaid with expert judgment in relation to stage allocation
and coverage ratios at the individual portfolio level,
incorporating our experience and knowledge of our customers, the
sectors in which they operate, and the assets that we finance.
Enquiries
Sophie Gillingham Close Brothers Group plc 020 3857 6574
Camila Sugimura Close Brothers Group plc 020 3857 6577
Kimberley Taylor Close Brothers Group plc 020 3857 6233
Irene Galvan Close Brothers Group plc 020 3857 6217
Sam Cartwright Maitland 07827 254561
About Close Brothers
Close Brothers is a leading UK merchant banking group providing
lending, deposit taking, wealth management services and securities
trading. We employ over 3,700 people, principally in the UK. Close
Brothers Group plc is listed on the London Stock Exchange and is a
member of the FTSE 250.
Cautionary Statement
Certain statements included 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.
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