Close Brothers Group plc · LSE:CBG
Close Brothers — H1 2006 Earnings Presentation
46 slides from Close Brothers's earnings presentation, 2006
Slide 1: Close Brothers Group plc 2006 Interim Results
Close Brothers Group plc 2006 Interim Results
Slide 2: Agenda
AGENDA Overview Colin Keogh Board Changes Colin Keogh Financial Review Peter Winkworth Divisional Review Colin Keogh/ Peter Winkworth Outlook Colin Keogh 2
Slide 3: Colin Keogh, Chief Executive
Colin Keogh Chief Executive 3
Slide 4: Results Highlights: Group Overview of H1
RESULTS HIGHLIGHTS Group Overview of H1 Ø An excellent set of results • PBT £76.5m +19% • EPS 36.0p +17% • Dividend 10.5p +11% Ø Investment banking strongly ahead • +33% to £49.2m (57% of operating profit) Ø Banking better than expected • +7% to £36.9m (43% of operating profit) 4
Slide 5: Highlights and Overview: Investment Banking
HIGHLIGHTS AND OVERVIEW Favourable market conditions for Investment Banking: Ø Further progress from Asset Management • PBT £18.6m (+22%) FUM £7.7bn (+26% yoy) • £200m net new funds • £400m +ve markets Ø A very strong performance from Corporate Finance • Best ever 6 months in UK, France and Germany
Slide 6: Highlights and Overview: Banking
HIGHLIGHTS AND OVERVIEW Ø Market conditions for Banking were more testing • PBT £36.9m (+7%) • Loan book remained flat but well spread • We maintained margin over volume • Some pricing pressure in highly liquid market • Insurance market continued soft • Growth in some areas • Bad debts remain low 6
Slide 7: Diversity of Activity and Income
HIGHLIGHTS AND OVERVIEW Diversity of Activity and Income H1 05 H2 05 H1 06 % % % By activity Asset Management 21 22 22 Corporate Finance 7 7 10 Securities 23 24 25 Investment Banking 51 53 57 Banking 49 47 43 By type of net income Interest 32 30 29 Fees and commissions 41 46 46 Dealing 22 21 23 Othe
Slide 8: Board Changes at October '06 AGM
GROUP Board Changes at October ’06 AGM Ø Sir David Scholey (70) to retire at AGM Ø Rod Kent (58) to be chairman Ø Strone Macpherson (SID) to be deputy chairman Ø New independent NED to be appointed Ø Major shareholders consulted 8
Slide 9: Peter Winkworth, Joint MD - Finance
Peter Winkworth Joint MD - Finance 9
Slide 10: IFRS
IFRS Ø First reporting under IFRS Ø FY 2005 and H1 05 restated under IFRS Ø Detailed IFRS accounting policies set out Ø Adjustments and reconciliation to UK GAAP shown for Income Statement, Balance Sheet and Cash Flow Ø Differences not significant • £1.7m share based awards • Different treatment of
Slide 11: Results Highlights
RESULTS HIGHLIGHTS Year 05 H1 05 H1 06 (£m) IFRS IFRS IFRS Income Statement Operating income 447.5 214.8 252.6 Pre-tax profit 129.5* 64.2 76.5 EPS (p) 62.0* 30.8 36.0 Dividend (p) 28.5 9.5 10.5 Balance Sheet Total assets 4,754 4,653 4,896 Customer loans 1,939 1,962 1,862 Equity 579 555 614 *Pre good
Slide 12: Income Development
INCOME DEVELOPMENT 300 £11.2m £(5.4)m £252.6m £4.1m £27.9m 2% 250 £214.8m 23% 5% 200 22% £m 150 29% 32% 100 46% 50 41% 0 H1 05 Net fees Net interest Dealing income Other income H1 06 Net fees Net interest Dealing income Other income Strong growth in fees 12
Slide 13: Income Statement
INCOME STATEMENT £m H1 05 H1 06 Operating income (net); Interest 69.3 73.4 Fees 86.8 114.6 Dealing 48.1 59.3 Other 10.6 5.3 Total operating income 214.8 252.6 Administrative expenses (137.0) (160.8) Depreciation (5.1) (6.2) Bad debt provisions (8.5) (9.1) Total operating expenses (150.6 ) (176.1) Pr
Slide 14: Balance Sheet
BALANCE SHEET 31 January (£m) H1 05 H1 06 Equity 555 614 Subordinated loan capital 97 75 Deposits by customers 1,753 1,873 Funds from banks 670 518 Non recourse borrowings 250 200 Debt securities 350 358 Securities trading liabilities 704 941 Other liabilities 274 317 4,653 4,896 Cash and short term
Slide 15: Financial Highlights: Stats
FINANCIAL HIGHLIGHTS : STATS £m INCOME 253 +18% PBT 76.5 +19% Return on income 30% Expenses/income 64% n/c NET ASSETS - opening 555 - closing 614 +11% ROC – opening 26% LOAN BOOK 1,862 -5% Bad debt charge/av loans 1% n/c FUM 7,700 +26% DIVIDEND 10.5p +11% 15
Slide 16: Growth and Diversity
GROWTH AND DIVERSITY £m H1 05 H2 05 H1 06 H1 05 H2 05 H1 06 Operating Income Operating Profit Asset Management 57.3 61.7 62.0 15.3 16.3 18.6 Corporate Finance 21.5 20.8 30.5 4.8 5.3 8.8 Securities 44.6 53.0 62.5 17.0 18.8 21.8 Investment Banking 123.4 135.5 155.0 37.1 40.4 49.2 Banking 90.0 95.3 96.
Slide 17: The Financial Record: Profit before goodwill and tax
THE FINANCIAL RECORD Profit before goodwill and tax 160 140 120 100 £m 80 60 40 20 0 2002 2003 2004 2005 2006 H1 H2 05, 06: IFRS 02-04: UK GAAP 17
Slide 18: The Financial Record: EPS and Dividends per share
THE FINANCIAL RECORD Earnings per share Dividends per share 80 30 70 25 60 20 50 Pen ce p er sh are Pence per share 40 15 30 10 20 5 10 0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 H1 H2 Interim dividend per share Final dividend pe
Slide 19: Divisional Review: Investment Banking
DIVISIONAL REVIEW Investment Banking Colin Keogh 19
Slide 20: Asset Management
ASSET MANAGEMENT 20
Slide 21: Asset Management: Half Year Review
ASSET MANAGEMENT Half Year Review Ø Good profit growth : progress continues Ø Growth in FUM good despite some realisations Ø Performance strong across division Ø Close TEAMS (MoM) exceeded expectations Ø Good period for product launches 21
Slide 22: Asset Management: Key Numbers
ASSET MANAGEMENT Key Numbers £m H1 05 H1 06 Change Operating income 57.3 62.0 +8% Costs 42.0 43.4 +3% Pre tax profit 15.3 18.6 +22% Expenses/income 73% 70% Income/average FUM (annualised) 1.98% 1.68% Profit/average FUM (annualised) 0.52% 0.51% Profit margin 27% 30% Return on opening net assets 22% 2
Slide 23: Asset Management: Funds Under Management
ASSET MANAGEMENT Funds Under Management 9 +26% growth £0.6m £7.7bn 8 £0.7bn 8% 7 £1.1bn 12% £6.1bn £(0.8)bn 6 8% 18% 5 15% £bn 4 21% 18% 3 17% 2 44% 39% 1 0 31-Jan-05 Withdrawals/ New funds Market effect Acquired funds 31-Jan-06 redemptions Equities Fixed Income Property Private Equity Other Diversi
Slide 24: Asset Management: Funds Under Management
ASSET MANAGEMENT Funds Under Management £7.7bn 8 £7.1bn 7 £6.1bn 6 £4.8bn 5 £4.4bn £3.5bn £bn 4 3 2 £2.7bn £2.9bn £2.6bn 1 0 Jan-05 Jul-05 Jan-06 Private Clients Funds Steady growth 24
Slide 25: Asset Management: Performance
ASSET MANAGEMENT Performance Ø Funds performed well against their benchmarks Ø Many funds top quartile performers Ø Net inflows £0.2bn FUM at H1 06 Annualised net 31/07/05 inflows/opening FUM £m IN OUT NET Private Clients 2,688 175 (123) 52 3.9% Funds 4,369 356 (202) 154 7.0% Total 7,057 531 (325) 2
Slide 26: Asset Management: Objectives and Outlook
ASSET MANAGEMENT Objectives and Outlook Ø Growth in private clients • Mass affluent via corporates and direct • HNW looking to add teams • Offshore good products and better distribution will drive growth Ø Funds • Internal reorganisation in progress • Growth in MoM • Growth in specialist areas • Fun
Slide 27: Corporate Finance
CORPORATE FINANCE 27
Slide 28: Corporate Finance: Half Year Review
CORPORATE FINANCE Half Year Review Ø Exceptional 6 months Ø M&A remains dominant Ø Best ever period in UK, France and Germany Ø 20% of revenue from France and Germany Ø Some notable transactions 28
Slide 29: Corporate Finance: Key Numbers
CORPORATE FINANCE Key Numbers £m H1 05 H1 06 Change Operating income 21.5 30.5 +42% Costs 16.7 21.7 +30% Pre tax profit 4.8 8.8 +83% Profit margin 22% 29% 29
Slide 30: Corporate Finance: Revenue Analysis
CORPORATE FINANCE Revenue analysis 35 £0.9m £30.1m £8.1m £0.4m 30 8% 25 20% £20.7m 20 8% £m 27% 15 72% 10 65% 5 0 H1 2005 M&A CRG DAG H1 2006 M&A CRG DAG Strong growth in M&A 30
Slide 31: Corporate Finance: Outlook
CORPORATE FINANCE Outlook Ø Business remains focussed on mid-cap Ø Short term pipeline good but lower than H1 Ø Long term prospects • mid market UK • growth prospects in Germany • debt advice and restructuring opportunities • private equity • Europe • recruitment in UK, France and Germany 31
Slide 32: Securities
we (0 % & * @ Close Brothers Seydler AG SECURITIES
Slide 33: Securities: Half Year Review
SECURITIES Half Year Review Ø Profit up 28% Ø Seydler strong maiden contribution Ø WINS good start, good finish, quieter October Ø WINS remains dominant RSP Ø PLUS platform launched 33
Slide 34: Securities: Key Numbers
SECURITIES Key Numbers 70 £62.5m 60 £14.0m 50 WINS 40 margin: 37% WINS Seydler £m margin: 38% margin: 29% 30 £48.5m £21.8m £44.6m 20 £4.0m 10 £17.8m £17.0m 0 1 H1 05 2 3 4 H1 06 5 WINS operating income Seydler operating income WINS operating profit Seydler operating profit PBT up 28% 34
Slide 35: Securities: SETSmm
SECURITIES SETSmm Ø Chronology- Nov ’03 200 Mar ‘05 197 Dec ’05(AIM +7 Smallcap) 161 Interim additions 94 652 Ø More bargains at lower margins Ø Some margin pressure for us Ø SETSmm • Difficulties for larger dealings at quoted ‘touch’ prices • transaction costs Ø Medium term opportunity for PLUS • b
Slide 36: Securities: UK Trading Platforms
SECURITIES UK Trading Platforms Ø Stocks traded on LSE by WINS SETS 174 SETSmm 565 Other 448 AIM (inc 79 SETSmm) 1,468 Total 2,655 Ø Stocks traded on PLUS by WINS Ofex 158 LSE listed under top 350 633 791 Ø Gilts, bonds, overseas 36
Slide 37: Securities: Close Brothers Seydler - Germany
SECURITIES Close Brothers Seydler - Germany Ø Excellent H1 contribution • Revenues £14.0m • Profit £4.0m Ø Acquisition was well timed Ø No 1 designated sponsor in Frankfurt - c100 corporates Ø Increasing activity from private clients and institutions 37
Slide 38: Securities: Outlook
SECURITIES Outlook Ø H2 has started well in UK and Germany Ø WINS remains dominant RSP Ø Both WINS and Seydler are dependent on stock market volumes Ø Potential for PLUS Ø Increasing propensity to deal – demographics & internet Ø Interesting strategic platform for longer term development of retail s
Slide 39: Divisional Review: Banking
DIVISIONAL REVIEW Banking Peter Winkworth 39
Slide 40: Banking: Half Year Review
BANKING Half Year Review Ø Profits up 7%, better than anticipated Ø Margins held in face of liquid banking markets Ø Growth in some areas Ø Insurance premium rates soft but increased case count Ø Bad debts constant and well controlled 40
Slide 41: Banking: Key Numbers
BANKING Key numbers £m H1 05 H1 06 Change Operating income 90.0 96.7 +7% Operating profit 34.6 36.9 +7% Profit margin 38% 38% - Loan book (£bn) – period end 1,962 1,862 -5% Loan book (£bn) – average 1,830 1,901 +4% Bad debt charge 8.5 9.1 Bad debt % of av loan book (annualised) 0.9% 1.0% - 41
Slide 42: Banking: Analysis of Income
BANKING Analysis of Income 120 £3.1m £96.7m 100 £3.6m £90.0m 29% 80 28% £m 60 40 71% 72% 20 0 H1 05 Net interest Net fees and other income H1 06 Net interest Net fees and other income 42
Slide 43: Banking: Period End & Average Loan Books
BANKING Period End & Average Loan Books £1,962m 2,000 £1,901m £1,862m £116m £1,830m £142m 1,800 £145m £185m £112m £170m £174m £181m 1,600 £179m £183m £186m £168m 1,400 Invoice receivables £259m Healthcare and other ass ets £229m £215m £269m 1,200 Property £314m Printing m achinery £m 1,000 £361m £36
Slide 44: Banking: Objectives and Outlook
BANKING Objectives and Outlook Ø H2 has started well • expect insurance market to remain soft • no sign of increase in bad debt Ø Maintain high return on capital Ø Remain diversified, focussed and efficient Ø Further opportunities for in-fill acquisitions + in Europe Ø Overall expect continued progr
Slide 45: Outlook: Colin Keogh
OUTLOOK Colin Keogh 45
Slide 46: Group Outlook
GROUP Outlook Ø Banking has started well; we expect continued modest progress Ø Investment banking off to a strong start as markets remain confident Ø Priorities continue to be: • build up of asset management division • seek bolt on acquisitions • push for further volume growth 46