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Close Brothers Group PLC (LSE:CBG) reported strong preliminary results for the year ended 31 July 2024, showing a slight increase in operating income and a substantial jump in statutory operating profit. The group's performance was buoyed by robust growth in its Banking and Asset Management divisions, though challenges remain in its Winterflood division and central functions.
Financial Performance
- Operating Income increased by 1% to £944.2 million (2023: £932.6 million), driven by growth in both Banking and Close Brothers Asset Management (CBAM), despite weaker performance in Winterflood and higher interest expenses within central functions.
- Statutory Operating Profit Before Tax (PBT) rose significantly by 27% to £142.0 million (2023: £112.0 million), primarily due to the non-recurrence of £116.8 million impairment charges related to Novitas in the prior year. Statutory PBT included £28.6 million of adjusting items, which were driven by costs related to complaints handling and restructuring.
- Adjusted Operating Profit saw a sharp 50% increase to £170.6 million (2023: £113.5 million), as the decrease in impairment charges and modest income growth offset the 10% rise in adjusted operating expenses.
Adjusted Operating Expenses and Strategic Investments
Adjusted operating expenses grew by 10%, largely due to higher staff costs and continued investments in the Banking division. These costs are expected to stabilize in the coming years as the group focuses on further cost management initiatives aimed at improving future efficiency.
Divisional Performance and Guidance
Banking
- Close Brothers' Banking division delivered a solid performance, and the group plans for low single-digit percentage growth in its loan book for the 2025 financial year.
- The net interest margin is expected to remain steady at 7.2%, supported by a focus on cost management and continued investment in Banking.
- The group has initiated cost-saving measures announced in March 2024, aiming to generate annualized savings of approximately £20 million by the end of FY2025, with the full benefit realized in FY2026.
- The bad debt ratio is expected to stay below the long-term average of 1.2% for FY2025, further solidifying the bank’s stability.
Close Brothers Asset Management (CBAM)
- CBAM remains well-positioned to accelerate profitability. The group continues to target net inflows of 6-10% as part of its growth strategy.
Winterflood
- Trading conditions remain difficult in the short term for Winterflood, but the company is confident it will retain its market position and recover as investor appetite returns.
- S4Capital is focused on diversifying revenue streams for Winterflood, and the group expects to grow Assets under Administration (AuA) at Winterflood Business Services (WBS) to over £20 billion by 2026.
Strategic Cost Management and Capital Position
The group has put significant emphasis on cost management and restructuring, with plans to incur between £5-10 million in restructuring costs in FY2025 as it continues to streamline operations and improve efficiency. Close Brothers expects central function net expenses to range between £55 million and £60 million in FY2025, reflecting professional fees and ongoing regulatory challenges.
Additionally, Close Brothers anticipates costs related to the FCA's review of historical motor finance commission arrangements to be between £10-15 million in FY2025. The group also remains committed to maintaining a CET1 capital ratio between 14-15% by the end of FY2025, subject to capital generation and management actions.
Dividend Outlook
Close Brothers has indicated that the reinstatement of dividends will be reviewed once the FCA’s review of historical motor finance commission arrangements concludes, and any financial impact is assessed. Over the medium term, the group aims to maintain a CET1 capital target range of 12-13%.
