Close Brothers : Half year results for the six months ended 31 January 2017

Close Brothers Group plc T [phone]

10 Crown Place E [e-mail] London EC2A 4FT W www.closebrothers.com

Registered in England No. 520241

Press Release

Half year results for the six months to 31 January 2017

14 March 2017

Strong Performance in the First Half

• The group reported a strong performance in the first half, with £134.2 million adjusted1 operating profit, 21% higher than the prior year period, and an RoE2 of 18.0%

• Banking adjusted operating profit increased 13% to £122.7 million driven by strong lending income, with broadly stable margin, as well as provision releases in the period

• All Banking segments reported adjusted operating profit growth, with Retail Finance up 3%, Commercial Finance up 9% and Property Finance up 29%

• The loan book grew by 1.7% in the period and 9.6% year on year, as we continue to apply our disciplined approach to lending in a more competitive environment

• Winterflood reported operating profit of £14.4 million, significantly higher than the prior year period, reflecting strong retail investor risk appetite

• Asset Management has made good progress delivering £9.1 million adjusted operating profit, reflecting favourable market conditions

• Continued dividend growth with a 5% increase to 20.0p while maintaining prudent dividend cover

First half 2017	First half 2016	Change %
Adjusted operating profit	£134.2m	£111.2m	21
Operating profit before tax	£131.4m	£108.7m	21
Adjusted basic earnings per share	66.6p	61.1p	9
Basic earnings per share	65.1p	59.7p	9
Dividend per share	20.0p	19.0p	5
Return on opening equity	18.0%	17.9%
Net interest margin	8.2%	8.3%
Bad debt ratio	0.5%	0.6%
31 January 2017	31 July 2016
Loan book	£6.5bn	£6.4bn	1.7
Total client assets	£10.2bn	£9.9bn	3.2
Common equity tier 1 ratio	12.6%3	13.5%
Total capital ratio	15.3%	13.8%

Financial Highlights2

1 Adjusted operating profit excludes £2.8 million (2016: £2.5 million) of amortisation of intangible assets on acquisition. 2 Please refer to definitions on page 16.

3 Includes one-off impact of increase in property risk weighted assets as previously announced on 5 January 2017.

Preben Prebensen, Chief Executive, said:

"We are pleased to report a strong performance for the first half of the 2017 financial year, with continued growth in our earnings and dividend.

All parts of our business performed well in the period. Our three banking segments, Retail Finance, Commercial Finance and Property Finance, all reported profit growth and strong returns, while both Winterflood and Asset Management benefited from favourable markets.

Trading conditions have clearly been favourable in the first half, but as always our priority remains to protect, sustain and invest in our business for the long term. Our service driven model, focused on specialist markets, has allowed us to support our clients, invest in our business and generate strong returns for shareholders over many years."

Enquiries

Sophie Gillingham	Close Brothers Group plc	020 7655 3844
Eva Hatfield Liya Dashkina	Close Brothers Group plc Close Brothers Group plc	020 7655 3350 020 7655 3468
Andy Donald	Maitland	020 7379 5151

A presentation to analysts and investors will be held today at 9.30 am GMT at our offices at 10 Crown Place, London EC2A 4FT. A listen-only dial-in facility will be available by dialling [phone]. A recording of this call will be available for replay for two weeks by dialling [phone], access code 5237641#.

Basis of Presentation

Results are presented both on a statutory and an adjusted basis. The adjusted basis is to aid comparability between periods and excludes amortisation of intangible assets on acquisition and any goodwill impairment or exceptional items.

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.

BUSINESS OVERVIEW

Close Brothers has had a strong first half, with profit increasing in all business segments. Overall, adjusted operating profit grew 21% to £134.2 million and adjusted earnings per share, which now reflects the full year impact of the banking tax surcharge, increased 9% to 66.6p. We are pleased to declare an interim dividend of 20.0p per share, up 5% on last year, reflecting our ongoing commitment to progressive and sustainable dividend growth.

Strong Profitability Across Lending Businesses

The Banking division continued to perform strongly, with adjusted operating profit up 13% on the first half of last year. Conditions remain favourable, with a stable economic environment and low interest rates supporting low bad debts, but also attracting an increased supply of credit into some of our markets. In this environment, our focus remains on maintaining our margins and strict underwriting which support our business model through the cycle.

The loan book growth in the first half was somewhat slower than in recent years, up 1.7% since the year end, but the new business pipeline remains strong. We continue to focus on the discipline of our lending at this more competitive stage in the cycle. The net interest margin was broadly stable year on year at 8.2%, bad debts remain below historical levels and overall return on net loan book remains well ahead of its long-term average at 3.7%.

In these results we have for the first time reported on the financial performance of our three lending segments: Retail Finance, Commercial Finance and Property Finance, and are pleased to report increasing profits in all three of these. Market conditions and the competitive environment affect our businesses in different ways, but they all share the same focus on specialist markets, prudent underwriting and strong returns.

As we look at each of these segments in turn, in Retail Finance we are continuing to see good growth in the premium finance business and expansion of the motor finance business in Ireland. The core UK motor business continues to focus on maintaining margins and the quality of underwriting in a competitive environment.

Although competition in the Commercial Finance segment has increased in recent years, particularly in the broker distributed part of the market, we have continued to see strong demand for our specialist lending products, with continued good new business volumes. We are progressing a number of new growth initiatives in this area, including in technology leasing where we started writing business in 2016.

The Property Finance business, which focuses on residential development finance, had a particularly strong half year. Profit increased significantly over the prior year, reflecting the continued growth in loan book and income, as well as provision releases relating to our historical loan portfolio.

Improved Market Conditions Benefit Winterflood and Asset Management

The first half saw a significant improvement in financial markets and investor sentiment, with rising equity markets and high levels of retail trading activity. As the leading market-maker to retail brokers, Winterflood achieved a strong performance, with no loss days in the period. As a result, profits more than doubled to £14.4 million.

In Asset Management, profit increased 8% to £9.1 million, benefiting from continued net inflows and rising markets. We have made good progress in the business, increasing the number of advisers to over 100 following the successful completion of two IFA acquisitions. We continue to see significant long-term growth potential in the private client market and remain focused on driving growth both organically and, where appropriate, through small acquisitions.

Prudent Funding, Liquidity and Capital

The prudent management of our funding, liquidity and capital is a core part of our business model allowing us to grow, invest and pay a dividend, while meeting all regulatory requirements. We have maintained good access to a diverse range of funding markets, and during the period we strengthened our funding and capital position through the issuance of a £250 million senior bond, as well as £175 million of tier 2 capital, which further increases the flexibility of our total capital position.

During the period, the European Banking Authority issued new guidance which mandates the risk weighting of property development loans at 150%. This higher risk weighting will apply to the majority of our property lending, notwithstanding our long track record of prudent and profitable growth in this area. This will have no impact on our strategy or pricing for the Property business or the Banking division as a whole.

Our common equity tier 1 ("CET1") capital ratio at 12.6% and total capital ratio at 15.3% both remain comfortably ahead of regulatory requirements and our leverage ratio, which is unaffected by risk weightings, remains very strong at over 10%.

Board changes

As separately announced this morning, we are pleased to confirm that Mike Biggs has been appointed to succeed Strone Macpherson as Chairman. Mike, who is also Chairman of Direct Line, has joined the Board effective today and will become Chairman effective 1 May, following Strone's retirement on 30 April.

The Board would like to thank Strone for his unwavering commitment and very substantial contribution to the group over many years and wish him every success for the future.

Outlook

We have achieved a strong performance in the first half of the year and are confident in delivering a good result for the full year.

Macroeconomic and financial market conditions in the UK remain benign, but we continue to monitor developments carefully.