TIDMCBG
RNS Number : 6692T
Close Brothers Group PLC
22 July 2020
Scheduled Trading Update
-------------------------
22 July 2020
Close Brothers Group plc ("the group" or "Close Brothers") today
issues its scheduled pre-close trading update ahead of its 2020
financial year end. Close Brothers will release its results for the
full year ending 31 July 2020 on 22 September 2020.
All statements in this release relate to the 11 months to 30
June 2020 unless otherwise indicated.
Highlights
-- The group delivered a resilient performance overall,
reflecting our strong customer proposition and the diversity of our
business
-- In Banking, the loan book decreased 2.3% to GBP7.48 billion
in the period (31 July 2019: GBP7.65 billion), reflecting lower new
business volumes although we have seen increased client activity in
June following the easing of lockdown restrictions
-- While we remain focused on our pricing and underwriting
discipline, income in the period continued to be impacted by a
reduction in fee income driven by lower activity levels and
forbearance, particularly in recent months, with an annualised net
interest margin of 7.6% (2019: 7.9%)
-- Credit provisions continue to reflect the ongoing uncertainty
in the external environment and the forward-looking recognition of
impairment charges under IFRS 9. We have recognised a further
GBP43m of impairment since the third quarter, resulting in a
year-to-date charge of GBP167 million as at 30 June 2020, and an
annualised bad debt ratio of 2.3% (2019: 0.6%)
-- The Asset Management division generated strong net inflows of
10% year-to-date as we continue to attract client assets and new
hires despite the challenging market conditions
-- Winterflood delivered a very strong performance, benefiting
from significantly higher trading volumes since the Covid-19
outbreak. Performance in the second half of the financial
year-to-date was materially ahead of the first half, resulting in
average year-to-date daily bargains of 82k, 46% higher than last
year (2019: 56k)
-- The group maintains a strong capital, funding and liquidity
position. Our Common Equity Tier 1 capital ratio of 14.2% (31 July
2019: 13.0%) provides 620bps headroom above the minimum
requirement
-- As announced on 22 June 2020, with effect from 21 September
2020, Adrian Sainsbury will take over as Chief Executive Officer.
His appointment provides continuity in the group's leadership team
and business model
Preben Prebensen, Chief Executive Officer
" Despite these challenging and unprecedented times, the group
has again proven resilient and we are confident that we will end
the financial year in a strong financial and operational position.
Our colleagues have continued to respond admirably, enabling us to
help our customers and clients during this period.
While early indications of a return to activity following the
easing of lockdown restrictions are encouraging, it remains too
early to know the full impact of Covid-19 on the UK economy.
Nevertheless, our proven and prudent business model and long track
record of navigating a wide range of economic cycles position us
well to respond to the challenges and opportunities ahead and to
continue supporting our colleagues, customers and clients over the
long term."
Business update
Our strong operational resilience has enabled us to continue to
serve our customers and clients effectively throughout this
challenging period. A number of our staff have now returned to work
on-site or begun to meet customers in person where it is safe to do
so, but the majority remain successfully working from home.
We have granted a broad range of forbearance and other measures,
including payment holidays in our Commercial and Retail businesses
and fee-free term extensions in our Property business, to support
customers and clients who find themselves in difficulty. Our
Commercial and Property businesses continue to account for the vast
majority of our forborne loan balances.
While it is too early to tell the full impact of Covid-19 on
customers' ability to recommence payments once their forbearance
period comes to an end, we remain in close contact with them to
discuss their position and tailor the most appropriate financing
solutions.
Our accreditation to lend under the support schemes introduced
by the UK government(1) allows us to maximise our support for small
businesses. We have seen good demand for loans under the
Coronavirus Business Interruption Loan Scheme ("CBILS"), with over
600 of these loans approved within our Invoice Finance and Asset
Finance and Leasing businesses, and a strong pipeline of
applications.
Strong capital, funding and liquidity
The group maintains a strong capital and liquidity position and
is prudently funded.
The group's Common Equity Tier 1 capital ratio increased to
14.2% at 30 June 2020 (31 July 2019: 13.0%) and is 620bps above the
current minimum regulatory requirement of 8.0%. The impact of
higher impairment charges was largely offset by capital generation
in the first half of the financial year, the capital add-back under
transitional IFRS 9 arrangements(2) , and a reduction in risk
weighted assets from lower volumes of new loans.
As at 30 June 2020, the group's total funding was GBP10.1
billion (31 July 2019: GBP9.9 billion), with GBP5.8 billion (31
July 2019: GBP5.6 billion) of customer deposits. Our conservative
approach to funding is based on the principle of "borrow long, lend
short", with a spread of maturities over the medium and longer
term, comfortably ahead of a shorter average loan book maturity. It
is also diverse, drawing on a wide range of wholesale and deposit
markets.
Our strong liquidity position remained comfortably ahead of both
our internal risk appetite and regulatory requirements, with an
average liquidity coverage ratio in the 11 months of 807%.
Dividend
As previously announced on 2 April 2020, the Board decided to
cancel the payment of the 2020 interim dividend, recognising the
significant challenges currently faced by businesses and
individuals and consistent with our purpose of helping the people
and businesses of Britain. The Board will consider the payment of a
dividend in respect of the financial year to 31 July 2020 in
September, taking into account the group's performance and
prevailing conditions at the time.
Group and divisional performance
The group delivered a resilient performance overall, reflecting
our strong customer proposition and the diversity of our business.
While higher impairment charges have impacted the Banking division,
Winterflood has benefited from higher trading volumes since the
Covid-19 outbreak and the Asset Management division achieved strong
net inflows.
In Banking, the loan book decreased 2.3% to GBP7.48 billion (31
July 2019: GBP7.65 billion), reflecting lower new business volumes,
although we have seen early signs of an increase in client activity
in June following the easing of lockdown restrictions, including
the re-opening of motor dealerships and construction sites, as well
as good demand for our CBILS offering particularly in the Asset
Finance businesses.
While we remain focused on our pricing and underwriting
discipline, income in the period continued to be impacted by a
reduction in fee income driven by lower activity levels and
forbearance, particularly in recent months, with an annualised net
interest margin of 7.6% (2019: 7.9%).
We remain committed to investing in our key strategic programmes
to protect, improve and extend our business model. Given the
current environment, we will continue to review and prioritise
investment spend while maintaining our focus on cost
discipline.
Credit provisions continue to reflect the ongoing uncertainty in
the external environment and the forward-looking recognition of
impairment charges under IFRS 9. We have recognised a further
GBP43m of impairment since the third quarter, reflecting the
evolution of the allocation of the loan book between stages as well
as the incorporation of updated macroeconomic scenarios(3) . This
resulted in a year-to-date charge of GBP167 million as at 30 June
2020, and an annualised bad debt ratio of 2.3% (2019: 0.6%).
Our approach to provisioning continues to reflect the
application of our expert judgement to determine the appropriate
allocation of loan balances between stages, to incorporating
macroeconomic weightings, and to provision coverage at the
individual portfolio level.
We will continue to refine our assumptions as revised economic
forecasts become available and visibility on the performance of the
loan book evolves.
While the impact of Covid-19 has led to higher credit provisions
year-to-date, we remain confident in the quality of our loan book,
which is predominantly secured, prudently underwritten and diverse,
and supported by the deep expertise of our people.
The Asset Management division continued to focus on maintaining
excellent service for their clients in the current operational
environment and remains committed to investing in new hires and
technology to support the long-term growth potential of the
business. The division generated strong net inflows of 10%
year-to-date with managed assets of GBP12.5 billion (31 July 2019:
GBP11.7 billion) at the end of the period benefiting from positive
market movements since the third quarter. Total client assets
increased to GBP13.7 billion at 30 June 2020 (31 July 2019: GBP13.3
billion).
Winterflood delivered a very strong performance, benefiting from
significantly higher trading volumes since the Covid-19 outbreak.
Performance in the second half of the financial year to date was
materially ahead of the first half, resulting in average
year-to-date daily bargains of 82k, 46% higher than last year
(2019: 56k). The division is 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
Despite these challenging and unprecedented times, the group has
again proven resilient and we are confident that we will end the
financial year in a solid financial and operational position.
While early indications of a return to activity following the
easing of lockdown restrictions are encouraging, the effects of
Covid-19 on the UK economy remain highly uncertain. Nevertheless,
our proven business model and long track record of navigating a
wide range of economic cycles leave us well placed to respond to
the challenges and opportunities ahead and to continue supporting
our colleagues, customers and clients over the long term.
Footnotes
1 Close Brothers' participation in the UK Government support
schemes: our Invoice Finance, Asset Finance, Brewery Rentals and
Property businesses are accredited to lend under CBILS. Our Invoice
Finance business is accredited to lend under the Coronavirus Large
Business Interruption Loan Scheme ("CLBILS") for larger companies.
Our Asset Finance business is accredited to lend under the Bounce
Back Loan scheme for small business loans. We have not made use of
the Coronavirus Job Retention Scheme as none of our employees have
been furloughed.
2 The group applies IFRS9 regulatory transitional arrangements
which allows banks to add back to their capital base a proportion
of the impact of IFRS 9 adoption on their impairment provisions
during the transitional period. Our capital ratio is presented
under these arrangements and without their application, the CET1
capital ratio would be 13.2%. Further relief measures recently
announced by the regulators in light of Covid-19 will be applied to
the group's capital ratios on 1 August 2020.
3 Expected credit losses reflect the application of
macroeconomic scenarios and weightings, updated in June 2020, to
include more recent and conservative externally sourced scenarios.
Weightings remain unchanged with 40% weighted to baseline scenario
and 60% to downside scenarios as at 30 June 2020. GDP forecast for
full year 2020 under the baseline scenario is -8.3% and ranges
between -9.2% and -11.1% in the 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 which we finance.
Enquiries
Close Brothers Group
Sophie Gillingham plc 020 3857 6574
Close Brothers Group
Camila Sugimura plc 020 3857 6577
Close Brothers Group
Matt Bullivant plc 020 3857 6576
Andy Donald Maitland 07738 346 460
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 3,000 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.
This information is provided by RNS, the news service of the
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END
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