Close Brothers Group plc

Thank you, Lorenzo, and good morning and welcome to the presentation of Close Brothers 2025 preliminary results. I'll begin with an overview of the year. After that, I will hand over to Fiona McCarthy, our group CFO, who will walk you through our financial performance, and then I'll return to update you on our strategic priorities and wrap up the presentation. We'll be happy to take your questions afterwards, both via the telephone conference line and over the webcast. You can submit your questions either during or after the presentation. This year has shown that change is possible and that we can move at pace. We've strengthened our capital position, reshaped the portfolio and addressed legacy issues. Our performance demonstrates the resilience of our business model and the impact of these actions. We're also encouraged by the growth opportunities across our chosen markets, which I'll touch on shortly. We significantly strengthened our capital position, with over 400 million of CET1 capital generated or preserved since March 2024. At 31 July 2025, we achieved a CET1 capital ratio of 13.8% or 14.3% following the sale of Winterflood. This is after taking account of the impact of the Motor Commission's provision and the actions taken to simplify the group and address legacy matters. We've already delivered 25 million of annualised savings by the end of FY25, ahead of initial guidance. Today, we're announcing that we will deliver at least another 20 million of additional annualised savings in each of the next three years, a total of 60 million. We have also simplified the group through the sale of Close Brothers Asset Management, Winterflood and Brewery Rentals. And we've repositioned our premium finance business towards commercial lines where returns are more attractive. As part of this agenda, I can announce today that we are exiting our vehicle hire business, a loss making business that is not aligned with our core specialist lending expertise. Together with the impact of declining asset values, this has resulted in an asset impairment charge of £30 million. We have concluded legacy matters regarding Novitas through securing settlements with insurers at a small premium, allowing us to draw a line under the issue and move forward with the exit of this business. Our wide-ranging review of the business has also required us to take other challenging but necessary actions. We are implementing a proactive customer address programme in motor finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans. This has resulted in a provision of £33 million separate to the broader sector-wide redress scheme being considered by the FCA. Since identification of the issue, we have acted quickly to amend the relevant processes and are fully committed to ensuring affected customers are appropriately compensated. In terms of the motor finance provision, Fiona will take you through this in more detail. But in summary, the provision has been reassessed in light of all available information, including recent developments, and remains unchanged. We welcome the positive outcome of the Supreme Court judgment, which provided much needed clarity to the industry, and now await the outcome of the FCA consultation on the design and scope of an industry-wide redress scheme. The actions we have taken in the year created a sharper, more focused portfolio of specialist banking businesses, well positioned to deliver growth and stronger returns. Let me take a step back and show you how the group has been evolving. This timeline illustrates our transition from a diversified merchant bank to today's more focused specialist bank. And where we are heading next. First, the fundamental strengths of our business model which haven't changed. They include our consistent lending criteria with disciplined underwriting and pricing applied through the cycle. A customer-centric approach, built on long-standing relationships, with straightforward products and services. And prudent management of our financial resources. The more recent phase, where we've essentially been resetting the business to drive stronger returns, even while navigating the uncertainty around motor commissions. Recent events meant we had to protect this valuable franchise. We built and preserved a significant amount of capital through the management actions announced in March 2024. We've also taken decisive actions to address legacy issues, reduce costs and reshape our portfolio. While these actions clearly have a near-term impact on our financial performance, they put us firmly on the right path for our next phase towards stronger returns. And finally, looking ahead to the next phase, with our simplification agenda largely complete, our attention now turns to driving efficiency, which we have termed as optimize, and capturing growth, which we have termed as grow. There is more we can do, and I will talk shortly about our plans to deliver a step change in profitability. In parallel, we are evaluating opportunities to optimize capital, funding, and liquidity. We see attractive growth opportunities across our businesses. We intend to use our market presence, brand reputation and specialist expertise to win in the segments where we can truly differentiate and become the specialist lender of choice for SMEs in the UK and Ireland. Having walked through our journey so far, let's look at what this means for the story of the group going forward. We operate in strong positions within attractive and large target markets. The SME lending markets in the UK and Ireland remain underserved and underpenetrated. And that gives us clear opportunities to grow. Second, we're now a focused specialist bank serving a valuable customer franchise. Our customers need specialist expertise and strong customer relationships. And our trusted brand and high-touch service model allow us to differentiate and win. And third, we recognize that returns are not yet where they should be. That is why we have clear, disciplined, strategic priorities. Simplify, optimize, and grow. I'll come back later to give you more detail on each of these priorities, but the point is that we have now a simpler, more focused portfolio and a leadership team focused on delivery. We are well positioned to reduce costs, drive growth in our chosen markets and improve returns. I'm confident together these actions set a clear path back to double-digit return on tangible equity by the 2028 financial year and rising thereafter. Thank you and I will now hand over to Fiona to cover our financial performance in the 2025 financial year.

Thank you, Mike, and good morning, everyone. I'll be taking you to financials this morning. Before I go into more detail, I would like to highlight that the financial information is being presented on a continuing operations basis. The headline numbers exclude Close Brothers Asset Management and Winter Flood, which have been classified as discontinued operations in the group's income statement for the 2024 and 2025 financial years. They also exclude Close Brewery Rentals Limited and Close Brothers Vehicle Hire, which have been treated as adjusting items. We reported adjusted operating profit of 144 million in the 2025 financial year, reflecting the impact of actions taken to strengthen our capital position and simplify the business, and a return on average tangible equity of 7.1%. This equated to an operating loss before tax of 122 million. This was mainly driven by the 267 million of adjusting items, which includes the 165 million provision in relation to motor finance commissions. It also includes operating losses before tax from the group's rentals businesses and a provision for a proactive customer remediation scheme in relation to early settlement of loans in motor finance and some additional cost items. I'll go into more detail on the adjusting items later. Notwithstanding the loss, we've maintained strong capital funding and liquidity positions, ending the period with a CET1 capital ratio of 13.8%, which is 14.3% on a pro forma basis, including the expected benefit from the sale of Winterflood. In banking, we delivered 198 million of adjusted operating profit, reflecting a resilient underlying business performance and our continued focus on cost. The operating loss in group central functions increased to 54 million, slightly below guidance. The loan book reduced 4%, primarily due to loan book moderation measures in the earlier part of the year. The net interest margin was strong at 7.2% and credit quality remained resilient with a bad debt ratio of 1%. As of 31st July, we have achieved annualised cost savings of 25 million against an initial target of 20 million. I will come on to talk about costs in more detail later. Turning now to the provision in relation to motor finance commissions. In early August, the Supreme Court delivered its judgment in respect of Hopcraft. We welcomed the outcome of the Supreme Court's judgment, but uncertainty remains until the FCA confirms the design and scope of an industry-wide redress scheme. An update from the FCA on its consultation is currently expected in early October. In the first half, we booked a provision charge of 165 million in respect of motor finance commissions. We have reassessed this provision in light of recent developments and it remains unchanged at 165 million. I would note that this is a best estimate based on all currently available information and the ultimate cost to the group could be materially higher or lower. The operating loss for the year has been significantly impacted by adjusting items. Firstly, we have the provision charge related to motor commissions of 165 million, which I've just covered and is unchanged from the first half. It covers estimated operational and legal costs and potential remediation for affected customers. There are a number of other adjusting items. Firstly, as Mike mentioned, we have decided to exit our vehicle hire business, which has been loss making in a challenging market environment. Together with the impact of declining asset values, this has resulted in an impairment charge of 30 million. The total operating loss of 43 million in the financial year also includes an 11 million underlying loss and a 2.5 million impairment on intangible assets. The business will be wound down over three to five years. Secondly, We are also implementing a proactive customer remediation program in motor finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans. This has resulted in a separate provision of 33 million in the 2025 financial year. We have also incurred 18.7 million of costs for complaints handling and other operational and legal costs in relation to motor commissions. This included increased resourcing to manage complaints and legal expenses, notably those related to the Supreme Court appeal, as well as the unwinding of the time value discount in relation to the Motor Finance Commission's provision. This was lower than the guidance provided at the half year 2025 results of 22 million, as we successfully deployed automation and artificial intelligence to enhance accuracy and speed in complaints handling. In the 2026 financial year, we expect these costs to be in the single digit millions. In addition, the brewery rentals business, which was sold in July, with completion occurring after the end of the financial year, reported an operating loss before tax of 4.1 million. We also incurred 2.3 million of restructuring costs, which mainly relate to redundancy and associated costs, in line with our guidance of 2 to 3 million. And finally, we recognised 0.2 million of amortisation of intangible assets on acquisition. Turning now to the income statement, covering the performance on an adjusted basis. Adjusted operating income reduced 2% driven by a marginal decline in banking income as the loan book reduced and lower group net interest income. Adjusted operating expenses rose 3% as cost savings were offset by higher group expenses, mostly driven by legal and professional fees related to motor finance commissions. These amounted to circa 10 million. Credit performance was resilient and impairment charges decreased 6% to 92 million, which reflected an impairment credit in relation to Novitas. Overall, adjusted operating profit was down 14% to 144 million. Profit after tax from discontinued operations, which includes CBAM and winter flood, was 49 million. The group will not pay a final dividend for the 2025 financial year. As previously stated, the decision to reinstate dividends will be reviewed once there is further clarity on motor finance commissions. Now, highlighting the key metrics from across the banking division on a continuing basis and excluding the brewery rentals and vehicle hire businesses. We saw a small decrease in income, mainly driven by loan book moderation measures, as well as the runoff of the legacy Republic of Ireland motor finance business. The loan book declined 4% year on year to 9.5 billion, driven by the temporary pause in UK motor lending, loan book moderation measures, and lower activity in some of our markets in the second half. The net interest margin remained strong at 7.2%, although it was down 20 basis points, reflecting continued pressure on new business margins and changes in lending mix. Expenses increased 1% as cost savings were broadly offset by wage inflation and spend on technology and expansion of capabilities across the business. Overall, adjusted operating profit reduced 7% to 198 million, with a statutory operating loss of 68 million for the full year, largely reflecting the 267 million of adjusting items. Now looking at each of the businesses in turn. Firstly, commercial. Income was broadly flat on the prior year, notwithstanding a 2% loan book reduction to 4.7 million and NIM marginally lower at 6.6% as the FY25 average loan book was 2% higher. Expenses decreased by 1%, mainly driven by the benefits of cost-saving initiatives, including workforce rationalisation in asset finance, partially offset by higher IT spend and depreciation. and the bad debt ratio decreased to 0.4%, driven by an impairment credit from Novitas. Adjusted operating profit increased 16% to 112 million, largely driven by higher incoming Novitas. Excluding Novitas, adjusted operating profit was broadly flat at 96 million. Moving on to retail, income was down 6% due to lower loan books in both motor and premium finance. The net interest margin decreased to 8.3% driven by reduced fee income in motor finance and a competitive rate environment. Expenses increased 3%, primarily driven by motor due to growth in the Irish business and inflationary pressures, partially offset by a modest reduction in premium from lower property, technology and volume related costs. The bad debt ratio decreased marginally to 1.5%. An adjusted operating profit reduced 50% to 19 million, reflecting the lower income in both businesses as well as higher costs in motor finance. The strategic repositioning announced in July will focus the growth of our premium finance business towards commercial lines insurance premium finance, where we see the strongest risk-adjusted returns and long-term growth potential, reducing our emphasis on personal lines insurance premium finance. Finally, in property, income was down 2%, reflecting a year-on-year loan book reduction of 5% to 1.9 billion. The NIM also decreased to 6.9%. This primarily reflected lower interest yield driven by the lower Bank of England rate, lower fee yield due to increasing facility utilisation and changes in the lending mix with larger loans accounting for a greater share of new business. Expenses were down 3% driven by lower staff costs and the bad debt ratio increased to 1.5% reflecting increased individual provisions on a small number of developments driven by build cost inflation, slower unit sales and lower realised values. Adjusted operating profit was 67 million. Moving to the loan book. Overall, the loan book reduced 4% to 9.5 billion. This was driven by the temporary pause in UK motor lending and loan book moderation measures, as well as lower activity in some of our markets in the second half. Notwithstanding this decline, customer demand remained robust and business was turned away in the first half due to the loan book moderation. The commercial book reduced 2% to 4.7 billion. Asset finance was down 98 million due to lower volumes and large terminations in the industrial equipment division. Invoice and speciality finance decreased 1% over the year, including a 62 million reduction in net loans related to Novitas following the settlement of longstanding litigation in this business. Excluding Novitas, the invoice finance loan book was up 4%. The retail loan book declined 5%. Notwithstanding continued robust underlying demand, the motor finance loan book decreased 1%, reflecting loan book moderation measures and a temporary pause in UK motor lending. The premium book declined 14%, reflecting the competitive market environment and reduced demand for premium finance from some of our broker partners. And the property loan book decreased by 5% due to higher repayments and lower drawdowns, as well as lower balances in commercial acceptances, reflecting a more challenging economic environment, which was particularly impacting the SME developer market. While the last financial year has been impacted by loan book moderation measures, we see continuing demand in our markets. We have repositioned the business to focus on segments where we see mid to high single digit growth potential through the cycle, leaving us well positioned to benefit as the economy and demand recover. Turning to our net interest margin, which remained strong overall at 7.2% as we maintained our focus on pricing discipline. On an underlying basis, which excludes the year-on-year increase in Novitas income and favourable movements in derivatives, the NIM reduced approximately 30 basis points to 7.1%. This reflected continued pressure on new business margins from elevated SME funding costs in a higher rate environment, together with the impact of the resulting changes in lending mix, with larger, lower NIM loans accounting for a greater share of new business. As Mike has highlighted, one of our key priorities is improving returns. Whilst we will continue to manage for overall risk-adjusted returns, we remain committed to maintaining a strong NIM. Looking forward, we expect the net interest margin to be slightly lower than 7%, reflecting loan book mix impacts. Moving on to costs, where we've made good progress whilst recognising there is much more to be done. Since March 2024, we have delivered 25 million of annualised cost savings through streamlining of our technology, suppliers and property, and workforce, which generated a 15 million year-on-year P&L benefit in the 2025 financial year. Overall, adjusted operating expenses increased 3%. This was primarily driven by increased legal and professional fees reported in the group segment. In the 2026 financial year, these legal and professional fees are expected to reduce. In banking, adjusted operating expenses increased 1% as cost savings were broadly offset by wage inflation and spend on technology and expansion of capabilities across the business. In the 2026 financial year, banking adjusted operating expenses are expected to be slightly higher, reflecting wage inflation and investment spend, largely offset by cost savings. The group is committed to maintaining cost savings momentum to deliver a step change in operating profitability. We will deliver at least 20 million of additional annualized savings per annum at group level in each of the next three years. Mike will come back later on to talk about future costs in more detail. Turning now to our resilient credit performance, the bad debt ratio was stable at 1% and remained comfortably below our long-term average of 1.2% as we recognised 92 million of impairment charges. This included an impairment credit in relation to Novitas and a reduction in retail driven by more favourable macroeconomic impacts, partly offset by an increase in property due to an increase in individually assessed provisions. Looking forward, we continue to closely monitor the evolving impacts of inflation and the cost of living pressures on our customers. We remain confident in the quality of our loan book, which is predominantly secured or structurally protected, prudently underwritten and diverse, and supported by the deep expertise of our people. In FY26, we expect our bad debt ratio to remain below our long-term average of 1.2%. Moving on to our balance sheet, where we continue to follow our prudent approach to managing financial resources. We maintained a strong balance sheet with total funding of 12.7 billion. We consciously held a higher level of liquidity with 2.8 billion of treasury assets and a liquidity coverage ratio of 1,012%. We have maintained strong access to funding markets and have raised 300 million through a motor finance funding securitization. Our funding base is diverse across wholesale markets and a mix of retail and non-retail deposits. In line with our strategy, we continue to actively grow our customer deposit base in the year with retail deposits up 20% to 6.8 billion. We are continuing to benefit from diversification of our savings product offering. We launched easy access in 2023 and balances at 31st of July, 2025 stood at over 800 million. In line with our conservative approach, our deposits are predominantly term, with only 13% of deposits available on demand. Our average cost of funding reduced marginally to 5.4%. And our credit ratings remain robust. They continue to reflect our inherent financial strength and consistent risk appetite, notwithstanding the current uncertainty around the FCA review of motor finance commissions. Finally, turning to our strong capital position. In March 2024, we announced a series of management actions aimed at strengthening the group's available CET1 capital by the end of the 2025 financial year. The CET1 capital ratio increased from 12.8% to 13.8%, mainly driven by the sale of CBAM, profits attributable to shareholders, and a reduction in loan book RWAs. This was partly offset by the provision in relation to motor finance commissions, the early settlement provision in motor finance, the post-tax loss in the group's vehicle hire business and 81 coupon payments. In addition, the sale of winter flood is expected to increase the group's CET1 capital ratio by circa 55 basis points on a pro forma basis from 13.8% to 14.3%. The leverage ratio also increased to 12.9%. In January 2025, the PRA announced a one year delay to Basel 3.1 implementation, pushing the effective date to the 1st of January, 2027. We continue to estimate that the implementation will result in an increase of up to 10% in the group's RWAs. the group expects to receive a full offset in pillar 2A requirements at total capital level of the removal of the SME supporting factor. As such, we expect the UK implementation of Basel 3.1 to have a less significant impact on the group's overall capital headroom position than initially anticipated. In the near term, we expect to maintain our CET1 capital ratio above the top end of our medium term target range of 12% to 13%, based on our current assessment of the provision in respect of motor finance commissions. In conclusion, I want to reiterate that our underlying performance remains resilient, our financial position remains strong, and we have a clear focus and commitment on driving strong, sustainable risk-adjusted returns. Thank you, and I'll now hand back over to Mike.

Thank you, Fiona. I'd now like to turn to our strategic priorities again. and give you an update on the progress we've made since we first set them out when I took over the role of CEO. Let me start with simplification. This was about creating a sharper, more focused portfolio of specialist lending businesses. And to do this, we applied three simple tests to each of our portfolios. First, is the business aligned with our business model and does it therefore fit with the fundamental strengths which differentiate us? Second, does it offer the right returns and support the group's overall ambitions on returns? And third, does it operate in markets that are attractive for future growth, where we either have or can build a strong position and the ability to scale? With those tests in mind, we carefully evaluated our portfolio to maximise future returns and the outcome was clear. We sold CBAM, Winterflood and our brewery rentals business and repositioned our premium finance business towards commercial lines. These portfolio actions reduced our cost base by around £230 million, enabling us to further streamline our operating model and central costs going forward. Today we're also announcing the decision to wind down our vehicle hire business. It has been loss-making in a challenging market environment and has limited strategic fit with the rest of the group. This decision and the decline in asset values led to an impairment charge of £30 million. Our simplification agenda is largely complete and we can now focus on optimising the business and delivering growth. Turning now to our optimisation agenda, a key focus as we drive efficiency and improve returns. I will personally oversee the planning and execution of these cost initiatives. And we have mobilised senior leaders across the group to ensure execution at pace and alignment at every level. We have already delivered 25 million of annualised cost savings by the end of FY25 through streamlining of headcount, property and suppliers and are committed to maintaining this momentum to deliver a step change in operating profitability. We will deliver at least 20 million of additional annualised savings per annum in each of the next three years, totalling 60 million overall. These savings will come from further consolidation and rationalization of centrally provided functions, outsourcing and offshoring, and simplifying our technology. This includes automation and the use of AI. As a result, we expect group adjusted expenses to be within the 410 to 430 million range by the 2028 financial year. We have already identified 20 million of annualised savings expected by the end of FY26. These will come from lower legal and professional fees linked to motor commissions and optimising the cost base of our premium finance business after its recent strategic repositioning. We are also continuing to optimise headcount and property. And as a result, we expect group adjusted expenses to be within the 440 to 460 million range. Turning to our growth agenda. We're sharpening our focus as a specialist bank to reinvest where we see the greatest potential. We are confident in the growth opportunity across our chosen markets. In the earlier part of the year, to preserve capital, we had to turn away attractive new business that met our credit and pricing requirements. And this demonstrates the continuing demand in our core markets. Accordingly, we are taking steps to capture this. In commercial, we're building on our strong market positions as the UK's largest independent provider of both asset and invoice finance and deep sector expertise. We see clear opportunities to grow mature businesses like invoice finance and energy, while scaling newer areas such as commercial mortgages and agriculture. In retail, we're expanding motor finance through growth in Ireland and deeper partnerships with brokers and dealers. In premium finance, we're targeting new broker relationships and insurer partnerships with a renewed focus on commercial lines and strategic accounts. And in savings, we're enhancing our digital offering and broadening our retail reach while continuing to support a diverse funding base. In property, despite a tougher build-to-sell environment, structural demand for housing remains strong. and we're well placed to respond. We're broadening our offering into build to rent and purpose-built student accommodation and moving into larger build to sell loans where we see long-term opportunity and attractive returns. Taken together across commercial, retail and property, we have repositioned the business to focus on markets where we see mid to high single digit growth potential through the cycle. This leaves us well placed to benefit as the economy and demand recover. With our strong market positions, reputation and specialist expertise, we're confident in our ability to win in the segments where we can truly differentiate and become the specialist lender of choice for SMEs in the UK and Ireland. Bringing all three strategic priorities together, we now have a clear pathway to double digit ROTE rising thereafter. The bridge here shows how we move from today's ROTE to our medium term ambition. First, simplification. The actions we've already taken are partially reflected in today's reported returns. Further improvement, however, will come from our reshaped, more focused and higher returning portfolio. Second, optimisation. The cost reduction programme we've launched will deliver material savings, improving profitability. And third, growth. We have repositioned the business to focus on segments where we see mid to high single digit growth potential through the cycle. This leaves us well positioned to benefit as the economy and demand recover. In parallel, there is additional value to unlock through optimisation of capital, funding and liquidity. We'll provide a full update on our pathway to rising return on tangible equity once there's clarity on the outcome of the FCA's consultation and its impact on the group, likely early next year or sooner if clarity comes earlier. This brings me to the end of today's presentation. We've taken decisive actions to protect our core business and have a strong capital position. We're moving at pace, even while navigating the Motor Commission's uncertainty. We've resolved legacy issues, reshaped the portfolio and simplified the group. We have a clear strategy and pathway to rebuild returns over the next three years. Our focus is on execution, supported by a leadership team with the right experience to deliver. Thank you and I'll now be happy to take any questions that you may have.