ours ours Banking Division Investor seminar 22 November 2017
ours Disclaimer Certain statements included or incorporated by reference within this presentation may constitute “forward -looking statements” in respect of the group’s operations, performance, prospects and/or financial condition. ours 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. 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 presentation should be construed as a profit forecast. This presentation does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the company, 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 and other securities of the company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this presentation reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this presentation shall be governed by English Law. Nothing in this presentation shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws. 2
ours ours Introduction Preben Prebensen Chief Executive Officer
ours Agenda 1. Introduction Preben Prebensen ours 2. Banking model in action Adrian Sainsbury 3. Financial delivery and investment Mike Morgan 5. Prudent funding and liquidity Malcolm Hook Asset Finance – Neil Davies 6. Business presentations Invoice Finance – David Thomson Premium Finance – Sharon Bishop Motor Finance – James Broadhead Property Finance – Frank Pennal 7. Q&A 4
ours Close Brothers model Established business model through the cycle ours 1 2 Build leading Generate strong positions in and sustainable specialist markets returns Expertise Our people are experts in their fields Relationships Service Building long-term Allowing us to provide relationships with clients excellent service and intermediaries Reinvest in the Maintain a sound business to enhance financial position our customer and support our proposition clients through the cycle 4 3 5
ours Active management of the model Maximising the potential of our business model ours EXTEND • New initiatives • Growth in existing markets IMPROVE • Operating efficiency • People • Technology • Customer experience PROTECT • • Prudent underwriting Conservative funding, and strong margins capital and liquidity 6
ours Diversity of our businesses Three specialist lending segments Property Commercial Retail What we do ours NOT do Mortgages Asset Invoice Premium Motor Property Buy to Let Finance Finance Finance Finance Finance 29% 8% 13% 26% 24% Hire Invoice Finance for Point of sale Short-term Current purchase, discounting, personal & finance for financing for accounts leasing and debt commercial predominantly property refinancing factoring, insurance used cars, development solutions for Novitas premiums motorcycles and bridging a diverse loans, via 1,700 and LCVs via loans Overdrafts range rentals brokers 7,000 dealers of assets 27k 1.7k 2.0m 240k c.800 Credit cards SMEs and SMEs individuals individuals customers individuals 240k SMEs 30k SMEs Note: Percentage indicates loan book split at 31 July 2017 7
ours Diversity of our businesses Three specialist lending segments Property Commercial Retail What we do ours NOT do Mortgages Buy to Let Asset Motor Invoice Premium Property Finance Finance Finance Finance Finance 29% 8% 13% 26% 24% Current accounts Property Transport Invoice UK Commercial Motor UK finance Industrial Commercial Invoice Ireland Personal Motor Ireland equipment acceptances Overdrafts Invoice Retail PoS Asset Ireland Germany Technology Brewery services rentals Credit cards Specialist Novitas asset finance Note: Percentage indicates loan book split at 31 July 2017 8
ours Banking track record Long history of profitable growth through the cycle £ billion £ million ours 7.0 10 year Benign credit 240 average FY 2017 Banking key metrics 2013 - 2017 +7% - 14% 220 RoE 22% 23% 6.0 RoNLB 3.4% 3.6% 200 Bad debt ratio 1.4% 0.6% 180 5.0 8.9% 8.1% Net interest margin Credit crunch 160 Loan book growth 13% 7% 2009 - 2012 4.0 +20% p.a 140 120 Easy credit 3.0 2004 - 2007 100 +4% p.a Bear market 2000 - 2003 80 2.0 +22% p.a 60 40 1.0 20 0.0 0 Loan book Adjusted operating profit 9
ours Consistent underwriting Consistent lending criteria through the cycle Credit risk appetite unchanged ours Typical Average Typical loan Business • Strong risk culture – “cradle to grave” LTV loan size 1 maturity • Predominantly secured lending 75 – 85% 2 – 4 years Motor Finance £6.5k • Funding assets we know and understand Underwriting criteria unchanged Premium Finance 91% £600 10 months • Local underwriting with central oversight 80 – 90% Asset Finance £41.5k 32 months • Majority of loans underwritten manually against defined lending policy 2 – 3 months Invoice Finance 80% £360k • Maintain quality of new business in the face of increased competition 6 – 18 Property Finance 50 - 60% £1.2m months Note: 1 Average outstanding loan 10
ours Extending the model Actively seeking new niches 2017 2017 2016 Asset Financing Loan book 2015 Technology ours Germany legal fees £bn Consumer leasing 7.0 finance 2014 2008 2011 Renewable Mid-ticket leasing 6.0 Larger ticket energy Bridging / property invoice refurbishment 2009 2012 5.0 Motor key 2007 Ireland accounts Brewery rentals Commercial 1999 vehicles Premium personal lines 4.0 2005 Small ticket property Asset finance development broker business 2001 3.0 Machine tools 1996 Professionals Used print finance equipment 2.0 1.0 0.0 11
ours ours Financial delivery and investment Mike Morgan Banking Division CFO
ours Pricing and underwriting discipline Model supports strong and consistent returns through the cycle Consistent returns • Strong returns through the cycle 4.0% ours – FY17 RoNLB 3.6% 3.5% – 10 year average 3.4% Return on net loan book 10 year avg 3.4% 3.0% • NIM remains high at over 8% – Prioritise margins over growth 2.5% – NIM consistent across segments 2.0% FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17 • Bad debt low at 0.6% RoNLB – 10 year average 1.4% RoNLB % Breakdown – Maintain underwriting discipline Key metrics FY17 • Investing through the cycle NIM % 8.1% – Active management of BAU costs Bad debt % (0.6%) Expense % (3.9%) – E/I ratio below 50% RoNLB % 3.6% 13
ours Cost discipline Control costs while investing to protect, improve and extend the model Adjusted operating expenses • E/I ratio stable and remains below 50% ours 300 272 – Operating leverage neutral for FY17 250 231 250 111 – c.50% of cost increase investment driven 200 101 97 150 • High-touch people-intensive model 100 161 150 134 50 – Staff costs c.60% of cost base 0 – c.50% of FY17 cost growth staff driven FY15 FY16 FY17 Other costs £m Staff costs £m Expense/ income ratio trend • Continue to invest through the cycle – Protecting and improving proposition of 53% existing businesses 51% – Extending model by investing in new 49% initiatives and product offerings 47% 45% FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 E/I Ratio 14
ours Investing in the model Maximising the potential of our business model ours EXTEND • Novitas • Germany • Technology Services IMPROVE • Premium investment • • AIRB Treasury deposit platform • Motor customer proposition PROTECT • • IT infrastructure Prudent capital position • • Control functions Use of data e.g. IFRS9 15
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